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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year ended October 31, 1997
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________ to __________
Commission file number 0-22263
DUNN COMPUTER CORPORATION
(Name of small business issuer as specified in its charter)
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Delaware 54-1424654
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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1306 Squire Court
Sterling, Virginia 20166
(Address of principal executive offices)
(703) 450-0400
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. { }
Issuer's revenues for its most recent fiscal year: $21,766,465.
Aggregate market value of the voting and non-voting common equity held by
non-affiliates computed at $9 1/2 per share, the closing price of the Common
Stock on January 27, 1998: $48,925,000.
The number of shares of the issuer's Common Stock, $.01 par value,
outstanding as of January 28, 1998 was 5,150,000.
Documents Incorporated by Reference: None
Transitional Small Business Format. Yes____ No X
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TABLE OF CONTENTS
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PART I ................................................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS ........................................................ 1
ITEM 2. DESCRIPTION OF PROPERTY ........................................................ 5
ITEM 3. LEGAL PROCEEDINGS .............................................................. 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................. 6
PART II .................................................................................. 7
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................................. 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS ........................................... 8
ITEM 7. FINANCIAL STATEMENTS ........................................................... 10
ITEM 8. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL ISSUES ............................................................... 10
PART III ................................................................................. 11
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT ............................................. 11
ITEM 10. EXECUTIVE COMPENSATION ........................................................ 12
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT .............................................. 14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................ 15
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K .............................................. 15
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PART I
FORWARD-LOOKING STATEMENTS
Statements in this report that are not historical in nature, including
references to beliefs, anticipations or expectations, are forward-looking.
Such statements are subject to a wide variety of risks and uncertainties that
could cause actual results to differ materially from those projected. The
Company undertakes no obligation and does not intend to update, revise or
otherwise publicly release the results of any revisions to these
forward-looking statements, which revisions may be made to reflect any future
events or circumstances, other than through its regular quarterly and annual
financial statements, and through the accompanying discussion and analysis
contained in the Company's Quarterly Reports on Form 10-QSB and Annual Report
on Form 10-KSB.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Dunn Computer Corporation (together with its subsidiaries, "Dunn" or the
"Company") manufactures custom computer systems and provides information
technology ("IT") services to the Government and selected businesses. The
Company provides its customers with a single-source solution for their IT
needs by offering a broad range of products and services. The products the
Company manufactures include desktop computers, high performance network
client servers and portable computers. The technical services the Company
offers include network consulting, project implementation, support services,
and staff augmentation. Dunn's customers include the Department of the Army,
the Department of the Navy, Administrative Office of the U.S. Courts,
Lockheed Martin Corporation , Social Security Administration, General
Services Administration, and Blue Cross and Blue Shield Association, among
others. The Company was formed as a Delaware corporation in January 1997 as a
holding company for Dunn Computer Corporation, a Virginia corporation in
operation since 1987.
PRODUCTS
DESKTOP COMPUTERS. The Company manufactures a high performance line of
Pentium and Pentium II desktop computers that may be used on a standalone
basis or as part of a network. The desktops incorporate the newest Intel
technology and can accommodate all the Intel Pentium processors, including
the new high performance 300 Mhz Pentium II processor. The Company strives to
keep ahead of the competition by regularly testing and incorporating the
latest technology into its products.
NETWORK CLIENT SERVERS. The Company markets a single, dual and quad
version of the Intel Pentium server. All Dunn servers are Microsoft Windows
NT, Novell, Banyan, and Token Ring compatible. The Company believes that its
servers offer the latest or "best of the breed" technology that provide it
with a price-performance advantage over major competition such as Hewlett
Packard Company ("HP") and Compaq Computer Corporation. The Company believes
that the server market provides opportunities for higher profit margins
compared to other segments in the computer hardware industry. In addition,
because of the complexity of server installation and maintenance, server
sales complement the Company's support services business.
PORTABLE COMPUTERS. The Company manufactures, on a brand name basis, a
state-of-the-art portable computer line based on 166 MMX, 200 MMX, and 233
MMX processors with a 12.1 inch, 13.3 inch or 14.1 inch display and many
other advanced features. The system is assembled and configured in the United
States by Dunn and meets the Federal Government's stringent Buy American and
Trade Agreement Act requirements. The Company markets the portables in both
the commercial and Government markets. At this time, the Company's portable
computer product line is a small portion of its business.
NETWORKING HARDWARE & SOFTWARE. The Company integrates, installs, and
maintains major-brand networking hardware and software, which enables the
Company to be a full solutions provider for its customers. A partial list of the
manufacturers whose products the Company is authorized to resell include 3COM,
Banyan , Cisco, Lotus, Microsoft, Novell and Santa Cruz Operation.
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NETWORK CONSULTING. Dunn provides its clients with network consulting
services with respect to requirements analysis, network audits, security
audits, security policy planning, network capacity planning, server capacity
planning, and technology and feasibility studies. These services are
generally provided on a fixed hourly fee basis with specific deliverables.
PROJECT IMPLEMENTATION. Dunn performs full life cycle project work for
which it assumes responsibility for all deliverables and project completion.
Providing project management is a key component of Dunn's strategy of being a
full solutions provider.
SUPPORT SERVICES. Dunn also offers clients that do not need full-time,
on-site support a family of support products under the "SafetyNet" program.
These products provide a wide range of support options and can be customized
to each client's specific needs. For example, through "Block Services,"
clients may purchase blocks of Dunn's technical personnel hours for up to a
period of three years from the purchase date, allowing clients to plan ahead
and take advantage of volume discounts. Under its "Term Maintenance" program,
Dunn provides full service, term maintenance contracts on specific server and
networking equipment. These contracts are based on a fixed price and term and
include all parts and labor. Alternatively, under the "Extended Value
Support" program, clients may opt for a labor-only product. Finally, the
"ClockWork" program provides clients with standard technical resources on a
recurring regular basis. One or two days per week or per month, clients can
augment their existing staff with additional expertise.
The Company believes that its dedication to prompt, efficient customer
service and technical support are important factors in customer retention and
overall satisfaction. The Company provides toll-free technical support to its
customers 24 hours a day, 365 days a year. Product support technicians assist
customers with questions concerning compatibility, installation,
determination of defects and general questions of product use. Company
employees provide on-site service to its customers in the Washington, D.C.
area and maintains arrangements with national service organizations to
provide repair service on a world-wide basis.
STAFF AUGMENTATION. Dunn provides clients with service professionals
whose full time personnel do not meet all of their IT service needs. The
client generally assumes all responsibility for the management of Dunn's
service personnel, who may work full time with a particular client for
varying lengths of time, generally between one week and one year. The
Company's technical staff can get support twenty four hours a day, seven days
a week from Novell, Microsoft, 3COM, Cisco, and others, allowing them to tap
resources beyond their own individual knowledge and capabilities. The Company
believes the availability of this third-party support sets it apart from its
competition.
MARKET
The worldwide market for computer hardware totaled $130 billion in 1996
and is projected to grow to $141 billion in 1997 and $149 billion in 1998.
The U.S. computer hardware market was $55 billion in 1996 and is projected to
grow to $60 billion in 1997 and $63 billion in 1998.
Mobile computing, which covers portables, pen computers, palmtops and
their peripherals, is amongst the fastest growing segment of the computer
hardware industry. According to International Data Corporation ("IDC"), this
segment of the market is estimated to grow at an annual compound rate of
19.3% between 1996 and 2000. Additionally, IDC predicts global portable
computer systems shipments of approximately 24.0 million units in 2000,
double the shipments reported in 1996. Furthermore, Frost & Sullivan, a
market research firm, estimates that the notebook computer systems market
will reach $99.9 billion by year 2003, a 16.0% compounded annual growth rate.
According to industry sources, the worldwide systems integration market
increased 9.4% in 1996 to $35.3 billion and is estimated to grow at a
compound annual growth rate of 11.3% over the next five years. The U.S.
systems integration market, which accounts for 49.7% of the worldwide market,
increased 13.0% in 1996 to $17.6 billion and is estimated to grow at a
compound annual growth rate of 12.2% over the next five years.
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GOVERNMENT MARKET
The Office of Management and Budget ("OMB") submitted to Congress in
January 1998 a Government IT budget of $29.5 billion. According to market
researcher Input, Inc., the IT budget is expected to grow at an increasing
rate over the next four years by an additional percentage point each year,
from 3 percent in 1999 to 6 percent in 2002, to $35 billion. Civilian
agencies will control 61 percent of the total IT budget in 1998; by 2002, the
figure is projected to be 66 percent. In addition, the Electronic Industries
Association, a major industry trade association, estimated that Government
agencies that are not required to report their information technology
expenditures, including the intelligence community, spent an additional $20
billion in the Government's fiscal year 1997 on such technology. The Company
believes that while Government down sizing has decreased the number of
federal employees, there has been a corresponding increase in the demand for
productivity tools, such as computers. In addition, the requirements to
outsource both products and services is expected to continue to escalate in
coming years.
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. The Office of
Management and Budget ("OMB") has notified all Government agencies that the
funds required to correct the Year 2000 programming problem must come from
existing funding. OMB has stated that one third of the systems affected does
not need to be corrected. One third of the systems, however, will require
software corrections. The balance will be corrected by replacing the systems
with client/server networks. The Company believes it will be able to sell
both client/server equipment and program services to help solve this problem
in the Government. Most agencies prefer to solve the problem by migrating the
application to upgraded client/server networks similar to the equipment
manufactured by the Company.
The Information Technology Reform Act (the "ITRA"), which took effect on
August 8, 1996, has had a profound effect on the way Government procures
computers and related products and services. The changes were made in an
effort to reduce costs and expedite the information technology procurement
process. The most sweeping changes were the repeal of the Brooks Act that had
granted sole authority for purchasing IT to the General Services
Administration ("GSA") and the change in the GSA Schedule from a single year
small purchase contracting program to a multi-year, Indefinite Delivery,
Indefinite Quantity ("IDIQ") contract with no limit on the value of
purchases. Prior to the new legislation, the GSA was responsible for
overseeing all IT purchases as well as assuring fair and open competition.
The new legislation has expanded Dunn's ability to market and sell its
products to Government users directly through a GSA Schedule. The Company has
invested significantly to expand its marketing and sales efforts to take
advantage of these changes in the federal market.
PRIVATE SECTOR
Heightened competition, deregulation, globalization and rapid
technological advances are forcing organizations to make fundamental changes
in their business processes. These pressures have compelled organizations to
improve the quality of products and services, shorten time to market, reduce
costs and strengthen client relationships. Increasingly, organizations are
addressing these issues by utilizing IT solutions that facilitate the rapid
and flexible collection, analysis and dissemination of information.
Accordingly, an organization's ability to integrate and deploy new
information technologies in a cost-effective manner has become critical to
competing successfully in today's rapidly changing business environment.
During this time of increasing reliance on IT, rapid technological change
is challenging the capabilities of Management Information System departments
within these organizations. The pace of this change quickly renders existing
IT infrastructure obsolete and makes it more difficult for organizations to
maintain the requisite internal expertise needed to evaluate, develop and
integrate new technologies. As a result, organizations are increasingly
turning to third-party IT service providers to help them develop and support
complex IT systems and applications.
The advent of open architecture networks has also impacted the market for
information technology services. Wider use of complex networks involving a
variety of manufacturers' equipment, operating systems and applications
software has made it increasingly difficult to diagnose problems and maintain
the technical knowledge and repair parts necessary to provide support
services. The Company believes that increased outsourcing of more
sophisticated support services by business has resulted from the technical
complexities created by multi-manufacturer and supplier network systems and
rapid
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technological change. Increasingly, organizations seeking computer products
often require prospective vendors not only to offer products from many
manufacturers and suppliers, but to have available and proficient service
expertise to assist them in product selection, system design, installation
and post-installation assistance and service. The Company believes that the
ability to offer customers a comprehensive solution to their information
technology needs, including the ability to work within customers' corporate
environments as integral members of their management information system
staff, are increasingly important in the marketplace.
CONTRACTS
Dunn's largest federal contract is with the General Services
Administration (the "GSA Contract"). The Company's GSA Contract was awarded
in April 1996 and is valid through March 31, 1999. The GSA Schedule enables
all Government IT purchasers to acquire their requirements from selected
vendors holding GSA contracts. For fiscal year ended 1997, the Company's GSA
Contract generated sales of $4.6 million, or 21.3% of the Company's annual
revenues. Since being awarded the contract in April 1996, the Company has
received GSA Contract orders totaling over $6.9 million. Prior to being
awarded the GSA Contract, the Company had consecutive one-year contracts with
the GSA, but for the three years preceding March 31, 1996, the Company had
received less than an aggregate of $5,000 in GSA Schedule orders.
Under its contract with Lockheed Martin Corporation ("Lockheed"), the
Company provides computer network servers to Lockheed for the Worldwide
Defense Messaging System ("DMS"). DMS is intended to be the largest private
messaging network in the world, supporting approximately 2,000,000 users.
Lockheed is the prime contractor on the DMS contract, which is a five year
contract with an initial value of approximately $1.5 billion. In fiscal 1997,
the Company generated net revenues of $2.4 million from the Lockheed
contract, which accounted for approximately 11.2% of the Company's net
revenues. The contract is a year to year contract which has been renewed
twice and can be renewed for up to three additional years. The Company
anticipates, although there can be no assurance, that net revenues from this
contract for fiscal 1998 and beyond will be significant.
Dunn has a contract with the Administrative Office of the U.S. Courts
("U.S. Courts") to provide desktop computer systems and components, operating
system software and peripheral devices and interfaces. The initial estimated
value on the contract was in excess of $15 million but there can be no
assurance that the actual revenue generated will amount to that. For fiscal
year 1997, revenues were $4.6 million, or 21% of Dunn's net revenues.
Although the contract terminates in September 1998, the Company expects to
generate significant revenues from the U.S. Courts' contract in fiscal 1998.
In May 1997, the Company was awarded a contract with an agency of the
Government responsible for certain intelligence activities. The estimated
value of the contract is $24 million. The Company has obtained a facility
security clearance in order to perform the contract. At 1997 fiscal year end,
the Company had received orders in excess of $4 million.
In March 1997, the Company entered into a contract with the Social
Security Administration (the "SSA") to provide multimedia workstations. Net
revenues in fiscal 1997 from this contract amounted to $1.6 million. The
Company's contract with the SSA terminates in March 1999. The Company expects
to generate significant net revenues from the SSA contract in fiscal 1998 and
1999.
COMPETITION
GOVERNMENT MARKET
Since the passage of the ITRA, the Government has increased the amount of
information products acquired through the GSA Schedule. Although Dunn
believes it has benefited from this reform, the emergence of the GSA Schedule
as a significant procurement vehicle has also enabled traditional mass market
commercial computer companies such as Dell Computer Corporation, Gateway 2000
and Micron Electronics, Inc. to enter the Government market.
The Government continues to rely on agency-specific contracts for its
more complex computer requirements. The Company believes that national brand
companies often are dissuaded from bidding for these agency-specific
contracts due to their complex terms and conditions and technical
specifications. The Company principally competes against large regional
manufactures and system integrators such as International Data Products,
Corp., BTG, Inc., Winn Laboratories, Inc. and Vanstar (formerly Sysorex
Information Systems, Inc.) for these agency-specific
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contracts. The Company believes that the Government's selection criteria for
vendor selection consists of price, quality, familiarity with the vendor, and
size and financial capability of the vendor.
PRIVATE SECTOR
The private sector for IT products and services is a highly fragmented
market served by thousands of IT service companies. These companies typically
service a small geographic area and resell national brand computer hardware.
The Company believes it competes effectively in its market because it
provides IT services for Dunn manufactured products. The Company believes
that its ability to manufacture hardware products provides a competitive
advantage.
The Company competes in the Mid-Atlantic region with hundreds of IT
service companies. The principal elements of competition are price, technical
expertise and support, reputation and product reliability and quality. There
can be no assurance that the Company will in the future be able to compete
effectively against existing competitors, especially companies that have
historically focused their energies on the commercial market or have greater
financial resources.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company acquires products for resale both directly from manufacturers
and indirectly through distributors. During the fiscal year ended October 31,
1997, the Company purchased approximately 13% of its components from Decision
Support Systems, Inc. In the event that the Company is unable to continue to
purchase certain components from Decision Support Systems, Inc. in the
future, the Company believes that alternative suppliers are readily available
without material impact to the Company's ability to fulfill its customers'
orders. The Company did not purchase more than 10% of its components from any
other supplier.
RECENT ACQUISITION
In September 1997, Dunn acquired all of the outstanding stock of STMS,
Inc., a Virginia-based IT services company. This acquisition expanded the
Company's capabilities to provide a wide variety of IT services including
network consulting, project implementation, support services and staff
augmentation.
EMPLOYEES
As of October 31, 1997, the Company employed 85 persons on a full-time
basis. Of such persons, 3 were employed in executive capacities, 20 in sales
and marketing, 13 in administrative capacities, 23 in technical services and
26 in operations.
ITEM 2. DESCRIPTION OF PROPERTY
FACILITIES
The Company operates in a 35,100 square foot facility in Loudoun County,
VA. The facility is owned and operated by C&T Partnership, an entity
comprised of Thomas Dunne, the Company's President, and his wife Claudia
Dunne, the Company's Vice President. In addition, the mortgage on the
facility is guaranteed by the Company. See "Item 12--Certain Relationships
and Related Transactions." The Company presently utilizes approximately
20,000 square feet of the facility. The remaining 15,000 square feet are
occupied by two non-affiliated tenants with concurrent leases terminating in
May of 1998. The Company plans to occupy the additional space. The existing
space in the facility can produce approximately 35,000 systems per year on a
single shift basis. The Company's non-cancelable operating lease rate is
$8.74 per square foot, including facility maintenance. The Company's lease
expires in 1999, but it has an option to renew for an additional five years.
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The Company also leases approximately 20,000 square feet of office space
in Reston, VA under a five-year non-cancelable operating lease that expires
in 2002. The lease rate is approximately $13 per square foot, including
facility maintenance.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding other than
routine litigation that is incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) MARKET INFORMATION
Since April 1997, the Company's common stock has been traded in the
over-the-counter market and prices are quoted on The Nasdaq Stock Market
under the symbol DNCC. The following table sets forth the high and low
selling prices for the Company's common stock as reported by The Nasdaq Stock
Market for the fiscal year ended October 31, 1997. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not represent actual transactions.
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1997
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HIGH LOW
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First Quarter.............................................. not public
Second Quarter............................................. $ 7 1/8 $ 5
Third Quarter.............................................. $ 7 1/4 $ 5 5/8
Fourth Quarter............................................. $ 7 5/16 $ 5 1/2
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On January 21, 1998, the closing price of the Company's common stock as
reported by The Nasdaq Stock Market was $9.95 per share. There were
approximately 1,000 shareholders of the common stock of the Company as of
such date. The Company has not paid cash dividends on its common stock and
does not intend to do so in the foreseeable future.
(B) CHANGES IN SECURITIES AND USE OF PROCEEDS
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Effective date of the registration statement for which April 21, 1997
the use of proceeds information is being disclosed:
SEC file number assigned to the registration statement: 333-19635
Offering Date April 21, 1997
Name of managing underwriter: Network 1 Financial
Securities, Inc.
Title of security: Common Stock, par value $.001
per share
FOR THE ACCOUNTS OF SELLING SECURITYHOLDERS
Amount registered 150,000 shares
Amount sold 150,000 shares
Aggregate offering price of amount sold $750,000
FOR THE ACCOUNT OF THE ISSUER
Amount registered 1,000,000 shares
Aggregate price of offering amount registered $5,000,000
Amount sold 1,000,000 shares
Aggregate offering price of amount sold $5,000,000
Direct or indirect payments to others for:
Underwriting discounts and commissions $500,000
Other expenses $583,336
Total expenses $1,083,336
NET OFFERING PROCEEDS TO THE COMPANY $3,916,664
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DIRECT OR INDIRECT PAYMENTS TO OTHERS FOR:
Acquisition of STMS, Inc. $1,000,000
Repayment of indebtedness $1,500,000
Working capital $1,416,664
TOTAL $3,916,684
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Dunn Computer Corporation, (together with its subsidiaries, "Dunn" or the
"Company") manufactures and sells custom computer systems and provides
information technology ("IT") services to the Government and selected
businesses. The Company provides its customers with a single-source solution
for their IT needs by offering a broad range of products and services. The
Company generates revenues in the Government market through sales under its
GSA Schedule and agency-specific contracts with various Government entities.
The Company also generates revenues from sales to selected businesses by
means of task and open purchase orders.
The Company derives over two-thirds of its revenues from the Government.
The Company has experienced gross margin improvements over the life of its
Government contracts due to cost savings from technological improvements and
shorter component life cycles. Management believes the Government contracts
permit it to reduce its inventory risks because Dunn procures inventory to
satisfy firm fixed price contracts. In addition, the Government is a reliable
payer, enabling the Company to predict cash flows and avoid bad debts.
However, the Company has also experienced fluctuating quarterly results due
to uneven purchasing patterns under its Government contracts, as well as
changes in policy on budgetary measures that adversely affect government
contracts in general.
RECENT ACQUISITION
In September 1997, Dunn acquired all of the outstanding stock of STMS,
Inc., a Virginia-based IT services company. This acquisition expanded the
Company's capabilities to provide a wide variety of IT services including
network consulting, project implementation, support services and staff
augmentation.
RESULTS OF OPERATIONS
Set forth below is a common-size income statement for the Company for the
years ended October 31, 1996 and 1997.
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1996 1997
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Net revenues............................................... 100.00% 100.00%
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Costs of revenues.......................................... 77.9% 80.6%
Gross profit............................................... 22.1% 19.4%
Selling, general and administrative........................ 10.9% 10.1%
Income from operations..................................... 11.2% 9.3%
Other income (expense)..................................... (0.1%) 0.4%
Net income (loss) before income taxes...................... 11.1% 9.7%
Provision for income taxes................................. 4.3% 3.6%
Net income................................................. 6.8% 6.1%
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FISCAL YEAR ENDED OCTOBER 31, 1997 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1996
Revenues for the fiscal year ended October 31, 1997 ("fiscal 1997")
increased 20.3% to $21.8 million from $18.1 million for fiscal year ended
October 31, 1996 ("fiscal 1996"). This increase was primarily due to the
fourth quarter acquisition of STMS, Inc. and increased revenues from
Government contracts.
Gross profit for fiscal 1997 increased 5.5% to $4.2 million from $4.0
million for fiscal 1996. However, the gross profit as a percentage of
revenues during the same periods decreased to 19.4% from 22.1%. The decrease
in gross profit margins is a result of an increase in the percentage of lower
margin third party hardware sales, initial lower margins realized on two new
contracts and increased production costs.
Selling and marketing expense increased for fiscal 1997 by 77.2% to
$842,000 from $475,000 for fiscal 1996. During the same periods, as a
percentage of revenue, selling and marketing expenses increased to 3.9% from
2.6% The increase was primarily attributable to increased advertising in
selected publications, increased attendance at trade shows and the
development of a marketing campaign aimed at the commercial market.
General and administrative expenses declined 9.5% for fiscal 1997 to $1.4
million from $1.5 million for fiscal 1996. As a percentage of revenue,
general and administrative expense declined to 6.2% for fiscal 1997 from 8.3%
for fiscal 1996. Although the Company increased its costs in almost all
aspects of general and administrative expenses, the increased costs were
offset by a decline in executive incentive compensation.
Other income (expense) increased to $98,000 for fiscal 1997 from an
expense of $9,000 for fiscal 1996. See "Item 5--Market for Common Equity and
Related Stockholder Matters--Use of Proceeds From Registered Securities." The
increase is a result of use of the IPO proceeds to reduce debt obligations
and to invest in tax-exempt securities. The effective tax rate declined to
37.5% for fiscal 1997 from 38.5% for fiscal 1996 of taxable income as a
result of the non-taxable interest income. As a result, the Company's net
income grew by 6.7% for fiscal 1997 to $1.3 million from $1.2 million for
fiscal 1996. Net income as a percentage of revenue during the same periods,
declined to 6.1% from 6.8%.
LIQUIDITY AND CAPITAL RESOURCES
In 1997 the Company used $3.5 million in its operations. Although the
Company generated cash from its net income of $1.3 million, the increase in
accounts receivable and inventories of $8.2 million was the principal use of
funds. The increase in revenue for fiscal 1997 from fiscal 1996 results in
the increase in accounts receivable in the fourth quarter. The $2.9 million
increase in inventory reflects the increased requirement for components to
fill orders in the first quarter of the fiscal year ended October 31, 1998
("fiscal 1998"). The use of funds was partially offset by the increase in
accounts payable of $3.9 million. The Company used $1.0 million in its
investing activities, of which $900,000 was used in the acquisition of STMS,
Inc. and the balance used for property and equipment.
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The Company received $3.9 million in net proceeds from its public
offering in April 1997. Other significant financing activities were provided
by the Company's bank line of credit. In May 1997, the Company negotiated its
line of credit with First Union Bank (formerly Signet Bank). The interest
rate was reduced to prime and the personal guarantees of the principal
stockholders were removed. The Company has met its net worth requirement of
$1.2 million as of October 31, 1997. In December 1997 the Bank agreed to
increase the line from $2.0 to $4.0 million. The line of credit expires on
February 28, 1998. The Company is currently negotiating a new credit facility.
On October 31, 1997, the Company had working capital of $4.3 million. The
Company believes the increase in the bank facility, together with cash on
hand and the cash generated from operations will provide sufficient financial
resources to finance the current operations of the Company through fiscal
1998. From time to time, the Company may pursue strategic acquisitions or
mergers which will require significant additional capital and, in such event,
the Company may seek additional financing of debt and/or equity.
The Company is guarantor on $1.0 million of mortgage debt for a
partnership owned and controlled by the President and Vice President of the
Company. The mortgage debt is for the facilities currently occupied by the
Company. See "Item 2--Description of Property--Facilities." In addition, the
Company has obligations under its operating lease commitments of
approximately $500,000 and obligations under its employment contracts of
approximately $1.0 million for fiscal 1998.
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. While the
Company believes that its software applications are year 2000 compliant,
there can be no assurance until the year 2000 that all systems then will
function adequately. Further, if the software applications of others on whose
services the Company depends are not year 2000 compliant, such noncompliance
could have a material adverse effect on the Company.
RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share", which is required to be adopted in the October 31, 1998
consolidated financial statements. At that time, the Company will be required
to change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded.
See "Item 7--Financial Statements."
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive
Income", which is required to be adopted in the year ended October 31, 1998
consolidated financial statements. SFAS 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in the financial
statements and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in
the Statement of Stockholders' Equity. The Company does not expect the
adoption of SFAS 130 to be material to its financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted in the year ended October 31, 1998 consolidated financial statements.
SFAS 131 changes the way public companies report segment information in
annual financial statements and also requires those companies to report
selected segment information in interim financial reports to stockholders.
The disclosure for segment information in the consolidated financial
statements is not expected to be material to the current financial statement
presentation.
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Consolidated Balance Sheets........................................................ F-3
Consolidated Statements of Income.................................................. F-4
Consolidated Statements of Stockholders' Equity.................................... F-5
Consolidated Statements of Cash Flows.............................................. F-6
Notes to Consolidated Financial Statements......................................... F-7
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL ISSUES
None.
10
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
Directors and Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Thomas P. Dunne Chief Executive Officer, President and Chairman of
55 the Board
John D. Vazzana Executive Vice President, Chief Financial Officer,
54 Director
Claudia N. Dunne 38 Vice President, Director
VADM E. A. Burkhalter, Jr., USN 69 Director
Daniel Sinnott 63 Director
</TABLE>
The term of office of each Director is until the next annual meeting of
shareholders and until a successor is elected and qualified or until the
Director's earlier death, resignation or removal from office. Executive
officers hold office until their successors are chosen and qualify, subject
to earlier removal by the Board of Directors. Set forth below is a
biographical description of each director, executive officer and significant
employee of the Company based on information supplied by each of them.
THOMAS P. DUNNE has been Chairman, Chief Executive Officer and President
of the Company since he founded the Company in 1987. From 1982 to 1987, Mr.
Dunne was the Director of Sales of Syntrex Inc., a corporation that supplies
computer hardware and software to the legal profession. Prior thereto, Mr.
Dunne spent 12 years with the computer division of Perkin Elmer Corporation,
where he held several positions, including Director of North American Sales.
Mr. Dunne also served in the United States Army for two years where he was a
Senior Instructor with the Army Electronics Command. Mr. Dunne is married to
Ms. Claudia Dunne, the Vice President of the Company.
JOHN D. VAZZANA has been the Executive Vice President and Chief
Financial Officer of the Company and a Director since 1994. From 1992 to
1994, Mr. Vazzana was the CEO of Hitchler Industry, a manufacturer of plastic
lumber made from recycled plastic. From 1986 to 1992, Mr. Vazzana was founder
and CEO of NRM Steelastic, a company engaged in the manufacture of capital
equipment for the tire industry. Prior thereto, Mr. Vazzana was Executive
Vice President for C3, Inc., a federal computer systems integrating company,
which he joined in 1974.
CLAUDIA N. DUNNE, a co-founder of the Company, has been Vice President
and a Director of the Company since its inception. From 1985-1987, Ms. Dunne
was Federal Proposal Manager for Syntrex, Inc. From 1983-1985, Ms. Dunne was
Proposal Manager for Harris & Paulson, which also sold minicomputers and
proprietary time and accounting software for law firms. Ms. Dunne is married
to Mr. Thomas Dunne, the President of the Company.
VICE ADMIRAL E. A. BURKHALTER, JR., has been a director of the Company
since January 1997. Mr. Burkhalter is currently the President of Burkhalter
Associates, Inc. a consulting firm providing services in the areas of
international and domestic strategy, management policy and technology
applications, for both government and industry. Mr. Burkhalter spent 40 years
as a member of the United States Navy, during which time he held several
positions, including Director of Strategic Operations for the Chairman of the
Joint Chiefs of Staff. He is currently the Chairman of the Attorney General's
Policy Advisory Panel for Law Enforcement Technology, a member of the
Director of Central Intelligence (DCI) Military Advisory Panel and an
11
<PAGE>
advisor to the Defense Intelligence Agency. He is also an Officer and
Director of the Navy Submarine League.
DANIEL SINNOTT has been a member of the Board since January 1997. Mr.
Sinnott is currently President and Chief Executive Officer of Worldwide
Internet Solutions Network, Inc. ("WIZnet"). WIZnet is a worldwide leader in
electronic commerce and the creator of "The Purchasing ExtraNet" with a multi
national customer base. WIZnet provides electronic catalogs and adaptive
recognition search technology and links buyers and sellers via secure mail.
Mr. Sinnott has been serving as CEO of WIZnet since 1995. In 1992 Mr. Sinnott
was a founder of SINNOTT BRUNO & Company ("SB&C"). SB&C is a management
consulting firm providing advisory services to executive and management
organizations that are in the emerging transition stages of development. Mr.
Sinnott was full time with SB&C from 1992 until joining WIZnet. In 1995, the
Company purchased shares of Common Stock of WIZnet for an aggregate of
$150,000. See "Item 12--Certain Relationships and Related Transactions." From
1979 to 1992, Mr. Sinnott was the founder, President and CEO of Syntrex Inc.
Due to the rapid development of the computer, Syntrex Inc. was sold to
Phoenix Technologies in 1992 in a chapter 11 restructuring. Prior to founding
Syntrex, Inc., Mr. Sinnott founded Interdata Incorporated, a company that
developed, designed and manufactured the first 32-bit mini-computer.
Interdata Incorporated was subsequently acquired by Perkin Elmar.
COMPENSATION OF DIRECTORS
The Company has not paid and does not presently propose to pay
compensation to any director for acting in such capacity, except for nominal
sums for attending Board of Directors meetings and reimbursement for
reasonable expenses in attending those meetings. As an incentive, outside
Directors will be granted a stock option for 20,000 shares of Common Stock at
an exercise price which management believes approximates their fair market
value at the time of grant. On January 6, 1997, Mr. Burkhalter, an outside
director, was granted a stock option to purchase 10,000 shares of Common
Stock at $4.15 per share. The grant was increased to 20,000 on January 14,
1997. Also on January 14, 1997, the Company granted Daniel Sinnott, an
outside director of the Company, a stock option to purchase 20,000 shares of
Common Stock at $4.15 per share.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934 requires Dunn's
officers and directors, and persons who own more than 10% of a registered
class of Dunn's equity securities ("insiders"), to file reports of ownership
and changes in ownership with the Securities and Exchange Commission (the
"SEC"). Insiders are required by SEC regulation to furnish Dunn with copies
of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms furnished to Dunn, John D. Vazzana, Thomas P. Dunne,
Claudia N. Dunne, VADM. E. A. Burkhalter, Jr. USN. and Daniel Sinnott failed
to timely file a Form 3, Initial Statement of Beneficial Ownership of
Securities. In addition, John D. Vazzana and Thomas P. Dunn failed to file a
Form 4, Statement of Changes in Beneficial Ownership.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during each of the last two fiscal years to the Company's
Chief Executive Officer and to each of the Company's executive officers who
earned in excess of $100,000.
12
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION> LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- --------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) NUMBER OF OPTIONS GRANTED
- ---------------------------------------------------------- --------- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
Thomas P. Dunne........................................... 1995 $240,000 -0- -0-
Chairman, Chief Executive Officer and President 1996 $240,000 $275,000 -0-
1997 $240,000 -0- -0-
John D. Vazzana........................................... 1995 $240,000 -0- -0-
Executive Vice President, Chief Financial Officer, 1996 $240,000 $275,000 -0-
Director 1997 $240,000 -0- -0-
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Tom Dunne and John Vazzana
(each an "Employee" and collectively the "Employees"). The agreements for Mr.
Vazzana and Mr. Dunne run for a term of three years effective April 1997 and
automatically renew for additional one year terms unless terminated by either
the Company or the Employee. Both agreements provide for a $240,000 annual
salary and a bonus at the discretion of the Company's Board of Directors. The
bonus may not exceed 5% of the Company's pre-tax income for the preceding
fiscal year or $250,000. The employment contracts contain confidentiality
provisions and covenants not to compete with the Company for a period of one
year following the termination of the agreements.
INCENTIVE STOCK OPTION PLAN
Under the Company's Incentive Stock Option Plan (the "Plan"), options to
purchase a maximum of 2,200,000 shares of Common Stock of the Company
(subject to adjustments in the event of stock splits, stock dividends,
recapitalizations and other capital adjustments) may be granted to employees,
officers and directors of the Company and other persons who provide services
to the Company. As of the date hereof, 1,857,000 of such options have been
granted at a weighted average exercise price of $6.18. As of the date hereof,
none of these options have been exercised. The options to be granted under
the Plan are designated as incentive stock options or non-incentive stock
options by the Board of Directors which also has discretion as to the persons
to be granted options, the number of shares subject to the options and the
terms of the option agreements. Only employees, including officers and part
time employees of the Company, may be granted incentive stock options.
Officers and directors who currently own more than 5% of the outstanding
stock are not eligible to participate in the Plan.
RETIREMENT PLANS
The Company established a discretionary contribution plan effective April
1, 1995 (the "401(k) Plan") for its employees who have completed three months
of service with the Company. The 401(k) Plan is administered by the Company
and permits pre-tax contributions by participants pursuant to Section 401(k)
of the Internal Revenue Code of 1986, as amended ("the Code") up to the
maximum allowable contributions as determined by the Code. The Company may
match participants's contributions on a discretionary basis. In fiscal 1995
and 1996, the Company contributed $.25 for each $1.00 contributed by the
employees.
During the fiscal year ended October 31, 1995, the Company established a
defined benefit plan covering substantially all salaried employees (the
"Pension Plan"). The Pension Plan benefits are based on the years of service
13
<PAGE>
and the employee's compensation. The Company contributes, on an annual basis,
amounts sufficient to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974 ("ERISA"). Contributions are
intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future. The assets of the Pension
Plan are invested in money markets and corporate debt and equity instruments.
The Company contributed an aggregate of approximately $135,000 for the
Pension Plan years ending October 31, 1995 and 1996, which amount met the
minimum funding requirements under ERISA. The Company has accrued but not yet
paid $51,450 representing its minimum funding requirements under ERISA for
1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of the date
hereof, with respect to the beneficial ownership of the Company's Common
Stock by each beneficial owner of more than 5.0% of the outstanding shares
thereof, by each director, each nominee to become a director, each executive
named in the Summary Compensation Table and by all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
AMOUNT AND NATURE COMMON STOCK
NAME AND ADDRESS OF OF BENEFICIAL BENEFICIALLY
BENEFICIAL OWNER OWNERSHIP OWNED
- --------------------------------- -------------------- -------------------
<S> <C> <C>
Thomas P. Dunne(1)................... 2,695,000(2) 52.3%
John D. Vazzana(1)................... 1,155,000 22.4%
Claudia N. Dunne(1).................. 2,695,000(3) 52.3%
VADM E.A. Burkhalter(1)............... 10,000(4) *
Daniel Sinnott(1)..................... 10,000(4) *
All Executive Officers and
Directors as a Group (5 persons)..... 3,870,000(5) 74.8%
</TABLE>
- ------------------------
* less than 1%
(1) The address of each such individual is c/o Dunn Computer Corporation, 1306
Squire Court, Sterling Virginia 21066.
(2) Includes 560,000 shares of Common Stock held by Claudia Dunne, the
Company's Vice President, and Mr. Dunne's wife, of which Mr. Dunne
disclaims beneficial ownership.
(3) Includes 2,135,000 shares of Common Stock held by Thomas Dunne, the
Company's President and CEO, and Ms. Dunne's husband, of which Ms. Dunne
disclaims beneficial ownership.
(4) Represents shares of the Company's Common Stock that may be acquired
pursuant to stock options exercisable within 60 days from the date hereof.
(5) Includes 20,000 shares of the Company's Common Stock that may be acquired
pursuant to stock options exercisable within 60 days from the date hereof.
14
<PAGE>
COMPENSATION LONG-TERM
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases one of its facilities from C&T Partnerships, an entity
owned and controlled by Thomas and Claudia Dunne, both affiliates of the
Company. The lease agreement terminates in October 1999, but provides for a
five year renewal at the Company's option. Rent expense under this lease was
$154,000 for each of the years ended October 31, 1996 and 1997. In addition,
mortgage on the facility of approximately $1.0 million, which has a 25 year
term and bears interest at 2.0% over prime, is guaranteed by the Company. The
Company has been advised that all payments with respect to the mortgage are
current. For additional terms of the lease and a description of the facility,
see "Item 2--Description of Property-Facilities."
On January 6, 1997, the Company entered into a share exchange agreement
(the "Share Exchange Agreement") with Dunn Computer Corporation, a Virginia
corporation, whereby such Virginia corporation became a wholly-owned
subsidiary of the Company. Pursuant to the Share Exchange Agreement, the
Company exchanged its stock on a 2,799.160251 for 1 basis with the holders of
stock of the Virginia corporation.
In April 1996, the Company entered into a line of credit agreement with a
bank whereby the Company could borrow up to $2,000,000. Outstanding
borrowings bore interest at prime plus three-fourths of one percent. The line
of credit was secured by the assets of the Company. In addition, the
principal stockholders of the Company personally guaranteed the line of
credit. In May 1997 the loan agreement was modified to reduce the interest
rate to prime and cancel the personal guarantee of the principal stockholders
of the Company.
In November 1995, the Company loaned Thomas Dunne, the President of the
Company, approximately $30,000. Such loan bore no interest. The loan was
repaid by Mr. Dunne in October 1996.
In July, 1994, John Vazzana, an officer of the Company, acquired an
aggregate of 428.7 shares of the Virginia corporation's Common Stock for an
aggregate consideration of $100,000. The Company believes that the price paid
represented the fair market value of the shares at the time of the purchase,
based on the Company's net worth. In 1997, pursuant to the Share Exchange
Agreement, these shares were exchanged for 1,200,000 shares of the Company's
Common Stock.
In 1995, the Company made a stock investment of $150,000 in WIZnet, an
Internet related company. Daniel Sinnott, a director of the Company is the
President and Chief Executive Officer of WIZnet. Mr. Sinnott was not a
director of the Company at the time of the investment. The Company believes
that the transaction was fair and reasonable.
Future transactions with affiliates will be approved by a majority of the
independent and/or disinterested members of the Board of Directors.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION:
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement, dated September 12, 1997, by and among STMS Acquisition Corp., the Company, STMS, Inc.,
John Signorello, Timothy McNamee, Steve Salmon and certain other stockholders of the Company (Filed as Exhibit 2.1
to the Company's Current Report on Form 8-K, dated September 12, 1997, filed September 27, 1997 and hereby
incorporated by reference)
3.1 Certificate of Incorporation and amendments thereto of Dunn Computer Corporation (Filed as Exhibit
3.1 to the Company's Registration Statement on Form SB-2, dated January 13, 1997 (File No. 333-19635
and hereby incorporated by reference)
3.2 By-Laws and amendments thereto of Dunn Computer Corporation (Filed as Exhibit 3.3 to the Company's
Registration Statement, on Form SB-2, dated January 13, 1997 (File No. 333-19635) and hereby
incorporated by reference)
15
<PAGE>
4.1 Form of Underwriters Warrants (Filed as Exhibit 4.2 to the Company's Registration Statement on Form
SB-2, dated January 13, 1997 (File No. 333-19635) and hereby incorporated by reference)
4.2 Loan and Security Agreement, dated as of May 28, 1996 by and
between the Company and SIGNET BANK and Amendment Nos. 1, 2 and
3 thereto
10.1 GSA Schedule (Filed as Exhibit 10.2 to the Company's Registration Statement on Form SB-2, Amendment
1, dated March 14, 1997 (File No. 333-19635) and hereby incorporated by reference)
10.2 Agreement dated November 21, 1995 by and between GCH Systems, Inc. and the Company regarding Lockheed
(Filed as Exhibit 10.4 to the Company's Registration Statement on Form SB-2, Amendment 1, dated March
14, 1997 (File No. 333-19635) and hereby incorporated by reference)
10.3 Agreement dated March 25, 1997 by and between the Company and the Social Security Administration
(Filed as Exhibit 10.5 to the Company's Registration Statement on Form SB-2, Amendment 2, dated April
4, 1997 (File No. 333-19635) and hereby incorporated by reference)
10.4 Agreement dated June 12, 1995 by and between the Company and the Office of the U.S. Courts (Filed as
Exhibit 10.6 to the Company's Registration Statement on Form SB-2, Amendment 2, dated April 4, 1997
(File No. 333-19635) and hereby incorporated by reference)
10.5 Agreement dated September 29, 1994 by and between the Company and the Health Care Finance
Administration (Filed as Exhibit 10.7 to the Company's Registration Statement on Form SB-2,,
Amendment 2, dated April 4, 1997 (File No. 333-19635) and hereby incorporated by reference)
10.6 Agreement effective September 8, 1997 by and between Virginia Contracting Authority and The Company
10.7 Employment Agreement by and between the Company and John D. Vazzana (Filed as Exhibit 99.1 to the
Company's Registration Statement on Form SB-2, Amendment 2, dated April 4, 1997 (File No. 333-19635)
and hereby incorporated by reference)
10.8 Employment Agreement by and between the Company and Thomas P. Dunne (Filed as Exhibit 99.2 to the
Company's Registration Statement on Form SB-2, Amendment 2, dated April 4, 1997 (File No. 333-19635
16
<PAGE>
and hereby incorporated by reference)
10.9 Deed of Lease dated October 31, 1994 between C&T Partnership and the Company and addendums thereto.
10.10 Deed of Lease dated February 7, 1997 between APA Properties No. 6 L.P. and STMS, Inc. and First
Amendment thereto dated July 23, 1997
10.11 1997 Stock Option Plan
11.1 Computation of Per Share Earnings
21.1 List of Subsidiaries
27.1 Financial Data Schedules
</TABLE>
(B) REPORTS ON FORM 8-K
Form 8-K, dated September 12, 1997 filed on September 27, 1997, containing
the following items: Item 2. Acquisition of STMS, Inc..
Form 8-K/A, Amendment No. 1, dated September 12, 1997, filed on
November 26, 1997 containing the following items: Item 2. Acquisition of
STMS, Inc.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DUNN COMPUTER CORPORATION
By: /s/ Thomas P. Dunne
--------------------------------------
Thomas P. Dunne
President and Chief Executive Officer
Date: January 29, 1998
Pursuant to and in accordance with the requirements of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------------------------- -------------------
<S> <C> <C>
/s/ Thomas P. Dunne Chief Executive Officer, President (Principal January 29, 1998
------------------------------------- Executive Officer) and Chairman of the Board
Thomas P. Dunne
/s/ John D. Vazzana Executive Vice President, Chief Financial January 29, 1998
------------------------------------- Officer (Principal Financial and Accounting
John D. Vazzana Officer) and Director
/s/ Claudia N. Dunne Vice President and Director January 29, 1998
-------------------------------------
Claudia N. Dunne
</TABLE>
18
<PAGE>
DUNN COMPUTER CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors............................................................. F-2
Consolidated Balance Sheets................................................................................... F-3
Consolidated Statements of Income............................................................................. F-4
Consolidated Statements of Stockholders' Equity............................................................... F-5
Consolidated Statements of Cash Flows......................................................................... F-6
Notes to Consolidated Financial Statements.................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
We have audited the accompanying consolidated balance sheets of Dunn
Computer Corporation as of October 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
two years in the period ended October 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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
Dunn Computer Corporation at October 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for the two years in the period
ended October 31, 1997 in conformity with generally accepted accounting
principles.
Vienna, Virginia
January 7, 1998 /s/ Ernst & Young LLP
F-2
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------
<S> <C> <C>
1997 1996
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 341,966 $ 897,664
Accounts receivable, net........................................................... 9,712,010 3,174,060
Inventory, net..................................................................... 4,487,301 985,603
Prepaid expenses and other assets.................................................. 87,457 --
------------- ------------
Total current assets................................................................. 14,628,734 5,057,327
Property and equipment, net.......................................................... 633,428 63,763
Goodwill and other intangible assets, net............................................ 2,974,840 --
Investments.......................................................................... 275,000 150,000
Other assets......................................................................... 191,075 3,540
------------- ------------
Total assets......................................................................... $ 18,703,077 $ 5,274,630
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 9,296,497 $ 2,452,161
Accrued expenses................................................................... 490,970 285,244
Income taxes payable............................................................... -- 519,308
Deferred tax credit................................................................ -- 11,086
Notes payable--current portion..................................................... 12,840 --
Obligations under capital leases-current portion................................... 66,294 --
Unearned revenue................................................................... 422,907 67,640
------------- ------------
Total current liabilities............................................................ 10,289,508 3,335,439
Notes payable-long-term portion...................................................... 49,952 --
Obligations under capital leases-long-term portion................................... 25,462 --
Deferred tax credit.................................................................. 100,000 --
Stockholders' equity:
Preferred Stock, $.001 par value; 2,000,000 shares authorized, no shares
issued and outstanding......................................................... -- --
Common Stock, $.001 par value; 20,000,000 shares authorized,
5,150,000 and 4,000,000 shares issued and outstanding at October 31, 1997
and 1996, respectively.......................................................... 5,150 4,000
Additional paid-in capital......................................................... 5,087,371 111,857
Retained earnings.................................................................. 3,145,634 1,823,334
------------- ------------
Total stockholders' equity........................................................... 8,238,155 1,939,191
------------- ------------
Total liabilities and stockholders' equity........................................... $ 18,703,077 $ 5,274,630
------------- ------------
------------- ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Net revenues....................................................................... $ 21,766,465 $ 18,098,638
Costs of revenues.................................................................. 17,549,655 14,102,442
------------- -------------
Gross profit....................................................................... 4,216,810 3,996,196
Selling and marketing.............................................................. 842,281 475,471
General and administrative......................................................... 1,355,423 1,496,979
------------- -------------
Income from operations............................................................. 2,019,106 2,023,746
Other income (expense):
Other income................................................................... -- 49,343
Interest income................................................................ 109,877 --
Interest expense............................................................... (11,813) (57,925)
------------- -------------
Net income before income taxes..................................................... 2,117,170 2,015,164
Provision for income taxes......................................................... 794,870 776,000
Net income......................................................................... $ 1,322,300 $ 1,239,164
------------- -------------
------------- -------------
Earnings per share................................................................. $ 0.25 $ 0.31
------------- -------------
------------- -------------
Number of common and common equivalent shares outstanding pursuant to APB 15....... 5,977,000 4,050,150
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- PAID-IN FROM RETAINED
SHARES AMOUNT CAPITAL STOCKHOLDER EARNINGS TOTAL
---------- --------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31,1995......... 4,000,000 $ 4,000 $ 111,857 $(100,000) $ 584,170 $ 600,027
Cash receipts from stockholder..... -- -- -- 100,000 -- 100,000
Net income......................... -- -- -- -- 1,239,164 1,239,164
---------- --------- ------------ ----------- ------------ ------------
Balance at October 31, 1996........ 4,000,000 4,000 111,857 -- 1,823,334 1,939,191
Issuance of common stock, net of
offering expenses of $1,083,336.. 1,000,000 1,000 3,916,664 -- -- 3,917,664
Issuance of stock related to
acquisition of STMS.............. 150,000 150 974,850 -- -- 975,000
Issuance of options related to STMS
acquisition recorded at fair
value............................ -- -- 84,000 -- -- 84,000
Net income......................... -- -- -- -- 1,322,300 1,322,300
---------- --------- ------------ ----------- ------------ ------------
Balance at October 31, 1997........ 5,150,000 $ 5,150 $ 5,087,371 -- $ 3,145,634 $ 8,238,155
---------- --------- ------------ ----------- ------------ ------------
---------- --------- ------------ ----------- ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
DUNN COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------
<S> <C> <C>
1997 1996
OPERATING ACTIVITIES ------------ ------------
Net income............................................................................ $ 1,322,300 $ 1,239,164
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization of property and equipment........................... 46,029 32,300
Amortization of goodwill and other intangible assets.............................. 22,448 --
Changes in operating assets and liabilities:
Accounts receivable............................................................. (5,354,279) (951,553)
Inventory....................................................................... (2,865,750) 211,763
Prepaid expenses and other assets............................................... (85,966) 9,460
Accounts payable................................................................ 3,920,267 471,636
Accrued expenses................................................................ 51,930 (193,084)
Income taxes payable............................................................ (519,308) 260,947
Deferred tax credit............................................................. 88,914 (66,276)
Unearned revenue................................................................ (110,734) 67,640
------------ ------------
Net cash (used in) provided by operating activities................................... (3,484,149) 1,081,997
INVESTING ACTIVITIES
Purchases of property and equipment................................................... (93,389) (21,040)
Acquisition of STMS, net of cash acquired............................................. (927,550) --
Purchase of investments............................................................... -- (150,000)
------------- ------------
Net cash used in investing activities................................................. (1,020,939) (171,040)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock............................................ 3,916,664 --
Proceeds of loans for purchase of vehicle............................................. 64,226 --
Payments on notes payable............................................................. (10,551) --
Proceeds from bank line of credit..................................................... -- 2,122,245
Payments on bank line of credit....................................................... -- (2,374,476)
Repayment from stockholder............................................................ -- 100,000
Payments on capital leases............................................................ (20,949) --
------------ ------------
Net cash provided by (used in) financing activities................................... 3,949,390 (152,231)
Net (decrease) increase in cash and cash equivalents.................................. (555,698) 758,726
Cash and cash equivalents at beginning of the year.................................... 897,664 138,938
------------ ------------
Cash and cash equivalents at end of the year.......................................... $ 341,966 $ 897,664
------------ ------------
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid......................................................................... $ 11,813 $ 57,925
------------ ------------
------------ ------------
Income taxes paid..................................................................... $ 1,323,308 $ 581,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION
Dunn Computer Corporation (the "Corporation") was incorporated on July 27,
1987 under the laws of the Commonwealth of Virginia.
On January 3, 1997, Dunn Computer Corporation (the "Company"), a Delaware
corporation, was formed as a holding company for the stock of Dunn Computer
Corporation, the Virginia corporation. On January 6, 1997, the Board of
Directors and stockholders of the Corporation approved and effected a
2,799.160251 for 1 stock exchange with the Company whereby the holders of the
Corporation's Common Stock would receive 2,799.160251 shares of Common Stock in
the Company for each share of Common Stock in the Corporation. All references in
the accompanying consolidated financial statements as to the number of shares of
Common Stock and per-share amounts have been restated to reflect the stock
exchange. Also, the Company authorized 2,000,000 shares of Preferred Stock with
rights and preferences to be determined by the Board of Directors at a later
date.
The Company is engaged in the business of providing custom computer systems
and related equipment to businesses and government agencies.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions eliminate upon consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
INVESTMENTS
At October 31, 1997 and 1996, investments consisted of shares of common
stock of a privately-held internet company, Worldwide Internet Solutions
Network, Inc. ("WIZnet"), with a cost basis of approximately $150,000. The
Company believes that this carrying amount represents the lower of cost or
market. The Company is accounting for this investment using the cost method
since the Company's
F-7
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
investment represents less than 20% of the
privately-held internet company's outstanding stock. The President and Chief
Executive Officer of WIZnet is a member of the Company's Board of Directors.
In connection with the acquisition of STMS, the Company also purchased a 47%
interest in Glacier Corporation. This investment was recorded at its fair value
of $125,000 on the purchase date. The Company is accounting for this investment
using the equity method. The Company believes that the carrying amount
represents the lower of cost or market at October 31, 1997. During the period
from the acquisition date (September 12, 1997) to October 31, 1997, the
Company's portion of net income (loss) related to the Glacier investment was
immaterial to the financial statements.
INVENTORY
Inventory is stated at the lower of cost or market as determined by the
first-in first-out (FIFO) method. The Company periodically evaluates its
inventory obsolescence reserve to ensure inventory is recorded at net realizable
amounts.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets (contracts), which resulted from the
Company's acquisition of STMS, Inc. ("STMS") in September 1997, are being
amortized on a straight-line basis over twenty and five years, respectively. At
October 31, 1997, intangible assets were comprised of:
<TABLE>
<S> <C>
Goodwill........................................................................ $2,397,287
Contracts....................................................................... 600,000
Less accumulated amortization................................................... (22,447)
----------
$2,974,840
----------
----------
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
Each year, management determines whether any property and equipment or any
other assets have been impaired based on the criteria established in Statement
of Financial Accounting Standards No. 121, ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of." The
Company made no adjustments to the carrying values of the assets during the
years ended October 31, 1997 and 1996.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation" which is effective for the Company's fiscal 1997
consolidated financial statements. SFAS 123 allows companies to account for
stock-based compensation under either the new provisions of SFAS 123 or the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting
for Stock Issued to Employees," but requires pro forma disclosure in the
footnotes to the consolidated financial statements as if the measurement
F-8
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK COMPENSATION (CONTINUED)
provisions of SFAS 123 had been adopted. The Company intends to continue
accounting for its stock-based compensation in accordance with the
provisions of APB 25.
REVENUE RECOGNITION
The Company generally recognizes revenues based on shipment of products.
Revenues are earned principally pursuant to various contracts with agencies of
the Federal government and commercial customers. The Company generally does not
require collateral on such contracts. The length of the Company's contracts
generally range from one to three years.
The products sold are generally covered by a warranty for periods ranging
from two to three years. The Company accrues a warranty reserve for revenues
recognized during the year to record estimated costs to provide warranty
services.
Unearned revenue relates to cash received from credit card sales as of year
end for which the related inventory was shipped subsequent to year end.
During the year ended October 31, 1997, the Company had revenues from one
agency of the Federal government and one Federal government contractor which
represented 21% and 11% of total revenues, respectively. As of October 31, 1997,
accounts receivable from agencies of the Federal government represented 64% of
total accounts receivable. During the year ended October 31, 1996, the Company
had revenues from two agencies of the Federal government which represented 22%
and 14% of total revenues. In addition, during 1996, the Company had revenues
from one Federal government contractor and one commercial customer which
represented 17% and 16% of total revenues, respectively. As of October 31, 1996,
accounts receivable from agencies of the Federal government represented 92% of
total accounts receivable.
INCOME TAXES
The Company provides for income taxes in accordance with the liability
method.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash, investments and accounts receivable.
The cash is held by high credit quality financial institutions. For accounts
receivable, the Company performs ongoing credit evaluations of its customers'
financial
F-9
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (CONTINUED)
condition and generally does not require collateral. The Company maintains
reserves for credit losses, and such losses have been within management's
expectations. The concentration of credit risk is mitigated by the diverse
customer base and the amount of receivables due by the Federal government.
The carrying amount of the receivables approximates their fair value.
EARNINGS PER SHARE
The Company's earnings per share calculations are based upon the number
of shares of Common Stock and Common Equivalent outstanding according to
Accounting Principles Board opinion No.15 ("APB 15"). Pursuant to the
requirements of Securities and Exchange Commission Staff Accounting Bulletin
No. 83, options to purchase Common Stock issued at prices below the initial
public offering (the "IPO") price during the twelve months immediately
preceding the contemplated initial filing of the registration statement
relating to the IPO, have been included in the computation of the earnings
per share as if they were outstanding for all periods presented (using the
treasury stock method assuming repurchase of Common Stock at the estimated
IPO price). In subsequent periods, stock options and warrants under the
treasury stock method will be included to the extent that they are dilutive
pursuant to APB 15.
RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share", which is required to be adopted in the October 31, 1998
consolidated financial statements. At that time, the Company will be required
to change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded.
For the years ended October 31, 1997 and 1996, the basic earnings per share
(calculated on the basis prescribed in SFAS 128) would have been $
0.28 and $ 0.31, respectively. The impact of SFAS 128 on the
calculation of diluted earnings per share for the periods presented herein is
not expected to be materially different from the basic earnings per share.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive
Income", which is required to be adopted in the year ended October 31, 1998
consolidated financial statements. SFAS 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in the financial
statements and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in
the Statement of Stockholders' Equity. The Company will be required to
restate earlier periods provided for comparative purposes, but doesn't
believe that the adoption of SFAS 130 will be material to the Company's
financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information", which is required to be adopted in
the year ended October 31, 1998 consolidated financial statements. SFAS 131
changes the way public companies report segment information in annual financial
F-10
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT PRONOUNCEMENTS (CONTINUED)
statements and also requires those companies to report selected segment
information in interim financial reports to stockholders. The disclosure for
segment information on the consolidated financial statements is not expected
to be material.
3. PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at
cost. Property and equipment are depreciated and amortized using the
straight-line method over the estimated useful lives of five years. Leasehold
improvements are amortized over the lesser of the related lease term or the
useful life.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Computer and office equipment............................................................. $ 505,920 $ 69,626
Furniture and fixtures.................................................................... 57,076 20,663
Leasehold improvements.................................................................... 96,326 27,424
Other..................................................................................... 143,060 78,742
---------- ----------
802,382 196,455
Less accumulated depreciation and amortization............................................ (168,954) (132,692)
---------- ----------
$ 633,428 $ 63,763
---------- ----------
---------- ----------
</TABLE>
4. ACQUISITION OF STMS, INC.
On September 12, 1997, the Company acquired all of the outstanding stock
of STMS, Inc., a Virginia corporation ("STMS"), for 150,000 shares of the
Company's Common Stock, 25,000 options to purchase the Company's Common
Stock, and $1,044,500 in cash used specifically to repay certain of STMS'
debt. The transaction was accounted for using the purchase method. The
150,000 shares of Common Stock were valued at the market price of the
Company's common stock ($975,000) on the date of transaction. The 25,000
options issued to a stockholder/creditor of STMS were valued at fair value
($84,000) using the Black-Scholes option-pricing fair value model. The
purchase price was allocated to the assets and liabilities acquired based on
their estimated fair values. In conjunction with the acquisition, the Company
recorded goodwill in the amount of $2,397,287 and other intangible assets
(contracts) in the amount of $600,000. The operations of STMS are included in
the consolidated financial statements of the Company for the year ended
October 31, 1997 since the date of acquisition.
The Company granted options to purchase 1,330,000 shares of the Company's
Common Stock, at an exercise price equivalent to its fair market value at the
date of grant, to the former stockholders of STMS in
F-11
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITION OF STMS, INC. (CONTINUED)
conjunction with their three-year employment agreements (see Note 7). The
options vest over a three-year period.
The selected pro forma information for the years ended October 31, 1996 and
1997 includes the operating results of STMS as if the Company acquired STMS on
November 1, 1995.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
(UNAUDITED)
Pro Forma net revenues......................................... $ 34,409,000 $ 38,348,000
------------- -------------
------------- -------------
Pro Forma net income........................................... $ (518,000) $ 1,548,000
------------- -------------
------------- -------------
Pro Forma earnings per share................................... $ (0.11) $ 0.37
------------- -------------
------------- -------------
Pro Forma weighted average shares outstanding.................. 4,769,833 4,200,150
------------- -------------
------------- -------------
</TABLE>
5. BANK LINES OF CREDIT AND NOTES PAYABLE
In April 1996, the Company entered into a line of credit agreement with a
bank whereby the Company could borrow up to $2,000,000. Outstanding
borrowings bear interest at the prime rate. As of October 31, 1997, there
were no outstanding borrowings under this line of credit facility. The
Company pays a commitment fee equivalent to a certain percentage
(approximately .3/8%) of the unused borrowings under the line of credit
facility. The line of credit is secured by all assets of the Company. Under
the line of credit agreement, the Company is required to maintain a net worth
of $1,250,000 as well as submit periodic financial statements. For the years
ended October 31, 1997 and 1996, the Company is in compliance with these
covenants. The line of credit agreement expires February 28, 1998.
During July 1997, the Company obtained a certain asset in the amount of
$64,227 through loan proceeds bearing interest annually at 7.9%. The Company
is required to make monthly payments of $1,303 until July, 2004.
6. RELATED PARTY TRANSACTION
Thomas Dunne, the Company's President, and his wife, Claudia Dunne, the
Company's Vice President, acquired a building for the purpose of leasing
office space to the Company. In connection with the acquisition of the
building, the Company guaranteed the building's $1 million mortgage. The term
of the mortgage is 25 years. The Company subsequently executed a
noncancelable operating lease with Mr. and Mrs. Dunne. The Company believes
that the lease agreement is on terms no less favorable to the Company than
could be obtained from unaffiliated third parties (see Note 7).
F-12
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS
OPERATING LEASES
The Company leases office space under a noncancelable operating lease
agreement with two stockholders (see Note 6). The lease agreement terminates
in October 1999, but provides for a five year renewal at the Company's
option. Additionally, the Company leases various office equipment under
non-cancelable operating leases. Rent expense under these leases was $175,000
and $154,000 for the years ended October 31, 1997 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases,
including the lease assumed in the STMS purchase, at October 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998............................................................ $ 468,995
1999............................................................ 454,982
2000............................................................ 286,170
2001............................................................ 285,709
2002............................................................ 293,843
Thereafter...................................................... 225,304
---------
Total........................................................... $2,015,003
---------
---------
</TABLE>
CAPITAL LEASES
In connection with the acquisition of STMS, the Company assumed certain
capital lease obligations. The capital leases are related to the use of
certain computer equipment, and are included in fixed assets and depreciated
accordingly. The total obligation under capital lease agreements at October
31, 1997 was $91,756, at an imputed interest rate of 8%. Future minimum lease
payments are $66,294 and $25,462 for the years ending October 31, 1998 and
1999, respectively.
EMPLOYMENT AGREEMENTS
During the year ended October 31, 1997, the Company executed employment
agreements with certain key executives under which the Company is required to
pay the following base salaries annually over the next three years:
<TABLE>
<S> <C>
1998.................................................................... $1,005,000
1999.................................................................... 1,005,000
2000.................................................................... 637,501
---------
Total................................................................... $2,647,501
----------
----------
</TABLE>
F-13
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY
EQUITY TRANSACTIONS
On April 21, 1997, the Company sold 1,000,000 shares of Common Stock in
an initial public offering for net proceeds of $3,916,664. In connection with
the offering, warrants were issued to the underwriter for 100,000 shares of
Common Stock at an exercise price of $6.00 per share. Beginning April 21,
1998, the warrants are exercisable for a period of four years.
STOCK OPTION PLAN
On January 6, 1997, the Company adopted the 1997 Stock Option Plan (the
"Option Plan") which permits the Company to grant up to 600,000 options to
officers, directors and employees who contribute materially to the success of
the Company. In September 1997, the Company increased the number of options
available for grant under the plan to 2,200,000. Stock options are generally
granted at prices which the Company's Board of Directors believes
approximates the fair market value of its Common Stock at the date of grant.
The options vest over a stated period of time not to exceed four years. The
contractual term of the options is ten years.
Common stock option activity was as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
---------- -----------
<S> <C> <C>
Outstanding at October 31, 1996........................................................... -- $
Options granted........................................................................... 1,927,000 6.11
Options exercised......................................................................... -- --
Options canceled or expired............................................................... 70,000 4.15
---------- -----
Outstanding at October 31, 1997........................................................... 1,857,000 $ 6.18
---------- -----
Exercisable at October 31, 1997........................................................... -- $ --
---------- -----
---------- -----
</TABLE>
As of October 31, 1997, there were 343,000 options available for future
grants under the Option Plan.
The following table summarizes information about fixed-price stock options
outstanding at October 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------
<S> <C> <C> <C>
NUMBER AVERAGE WEIGHTED-
RANGE OF OUTSTANDING AT REMAINING AVERAGE
EXERCISE OCTOBER 31, CONTRACTUAL EXERCISE
PRICES 1997 LIFE PRICE
-------------- -------------- --------------- -----------
$ 4.01 - $6.00 275,000 4.20 $ 4.44
$ 6.01 - $8.00 1,582,000 4.96 6.48
-------------- --- -----
$ 4.01 - $8.00 1,857,000 4.67 $ 6.18
-------------- --- -----
-------------- --- -----
</TABLE>
F-14
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
Had compensation expense related to the stock option plan been determined
based on the fair value at the grant date for options granted during the
years ended October 31, 1997 and 1996 consistent with the provisions of SFAS
123, the Company's net income and earnings per share would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Net income--pro forma....................................... $ 1,098,900 $ 1,239,164
------------ ------------
------------ ------------
Earnings per share--pro forma............................... $ 0.24 $ 0.31
------------ ------------
------------ ------------
</TABLE>
The effect of applying SFAS 123 on 1997 and 1996 pro forma net income as
stated above is not necessarily representative of the effects on reported net
income for future years due to, among other things, the vesting period of the
stock options and the fair value of additional stock options in future years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing fair value model with the following
weighted-average assumptions used for grants in 1997: dividend yield of 0%,
expected volatility of 46%; risk-free interest rate of 5.75%; and expected
life of the option term of 5 years. The weighted average fair values of the
options granted in 1997 with a stock price equal to the exercise price is
$6.18.
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Components of the Company's net deferred tax asset (credit) balance are
as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Deferred tax assets:
Accrued expenses...................................................................... $ 24,800 $ 50,037
Net operating loss carryforwards...................................................... 454,000 --
Asset reserves........................................................................ 14,000 14,000
---------- ----------
Total deferred assets..................................................................... 492,800 64,037
Deferred tax credit:
Change from cash to accrual method for tax purposes................................... (38,800) (75,123)
Valuation allowance....................................................................... (454,000) --
---------- ----------
Net deferred tax asset (credit)....................................................... $ -- $ (11,086)
---------- ----------
---------- ----------
</TABLE>
F-15
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
As of October 31, 1997, the Company had approximately $1,100,000 in net
operating loss carryforwards primarily related to STMS, which expire at
varying dates through 2012. These carryforwards may be significantly limited
under Section 382 of the Internal Revenue Service Code and the SRLY rules.
The Company has fully reserved the net deferred tax assets because
realizability of such assets is uncertain.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER
31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Current tax expense:
Federal............................................................................... $ 671,070 $ 709,195
State................................................................................. 125,900 133,081
---------- ----------
796,970 842,276
Deferred tax expense:
Federal............................................................................... (1,800) (55,800)
State................................................................................. (300) (10,476)
---------- ----------
(2,100) (66,276)
---------- ----------
Total provision for income taxes.......................................................... $ 794,870 $ 776,000
---------- ----------
---------- ----------
</TABLE>
The reconciliation of income tax from the statutory rate of 34% is:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER
31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Tax at statutory rates.................................................................... $ 719,838 $ 685,156
Non-deductible expenses................................................................... 8,291 9,610
State income tax net of federal benefit................................................... 66,741 81,234
---------- ----------
$ 794,870 $ 776,000
---------- ----------
---------- ----------
</TABLE>
10. RETIREMENT PLANS
401(K) PLAN
Effective April 1, 1995, the Company adopted a 401(k) Plan (the "Plan").
Employees are eligible to participate after completing six months of service
and attaining age 18. Employees can defer up to 15 percent of compensation.
Employee contributions are subject to Internal Revenue Service limitations.
All employees who contribute to the Plan are eligible to share in
discretionary Company matching contribution. During the years ended October
31, 1997 and 1996, the Company contributed $11,855 and $3,300, respectively,
to the Plan.
F-16
<PAGE>
DUNN COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RETIREMENT PLANS (CONTINUED)
DEFINED BENEFIT PLAN
During the fiscal year ended October 31, 1995, the Company implemented a
defined benefit plan (the "Pension Plan") covering substantially all salaried
employees. The Pension Plan benefits are based on years of service and the
employee's compensation. The Company's funding policy is to annually
contribute amounts sufficient to meet minimum funding requirements set forth
in the Employee Retirement Income Security Act of 1974 ("ERISA").
Contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future. The
assets of the Pension Plan are invested in money markets and corporate debt
and equity instruments. The Company contributed approximately $135,000 and $0
for the Pension Plan during the years ending October 31, 1997 and 1996,
respectively, which met the minimum funding requirements under ERISA.
On January 6, 1997, the Company amended the Pension Plan to change the
benefits to be paid out after retirement from 100% to 40% of its initial
liability. This will result in a reduction of the projected benefit
obligation by $150,000.
The following table sets forth the Pension Plan's funded status as reported
on activity, and amounts recognized in the Company's consolidated financial
statements:
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of ($171,593) and ($238,619)
at October 31, 1997 and 1996, respectively............................................ $ (321,599) $ (320,973)
----------- -----------
----------- -----------
Projected benefit obligation............................................................ (321,559) (320,973)
Pension Plan assets at fair value....................................................... 147,041 168,336
----------- -----------
Funded status--projected benefit obligation in excess of fair value of Pension Plan
assets................................................................................ $ (174,518) $ (152,637)
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER
31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Net periodic pension cost:
Service cost.............................................................................. $ 44,140 $ 59,066
Interest cost............................................................................. 19,355 17,892
Actual return on assets................................................................... 21,295 (33,982)
Net amortization and deferral............................................................. (33,340) 38,127
---------- ----------
Total net periodic pension cost........................................................... $ 51,450 $ 81,103
---------- ----------
---------- ----------
</TABLE>
F-17
<PAGE>
10. RETIREMENT PLANS (CONTINUED)
DEFINED BENEFIT PLAN
Key assumptions used in the actuarial valuation were:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------
<S> <C> <C>
1997 1996
----- -----
Weighted average discount note........................................................... 7.5% 7.5%
Rate of return on assets:
Pre-retirement....................................................................... 8.0% 8.0%
Post-retirement...................................................................... 8.0% 8.0%
</TABLE>
11. SUBSEQUENT EVENT
On December 10, 1997, the Company increased the amount available under the
current line-of-credit arrangement with a bank from $2,000,000 to $4,000,000.
F-18
<PAGE>
Exhibit 10.6
- -------------------------------------------------------------------------------
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT OF CONTRACT
- -------------------------------------------------------------------------------
- ------------------------
CONTRACT ID CODE
- ------------------------
- --------------
PAGE OF PAGES
1 6
- --------------
- ------------------------------
2. AMENDMENT, MODIFICATION NO.
F00001
- ------------------------------
- ------------------
3. EFFECTIVE DATE
09/08/97
- ------------------
- ------------------------------------
4. REQUISITION/PURCHASE REG. NO.
DP2/00007/97
- ------------------------------------
- -------------------------------------------------------------------
5. ISSUED BY CODE HHQ-402
--------------------
Virginia Contracting Activity
P.O. Box 46563
Washington, DC 20050-6563
IDA LOGSDOM S14 (202)2318290
- -------------------------------------------------------------------
- -------------------------------
6. PROJECT NO. If applicable;
- -------------------------------
- --------------------------------------------------------------------
7. ADMINISTERED BY (If other than Item B) CODE
S2404A
---------
DCMC Baltimore
ATTN: Chesapeake
200 Towsontown Blvd., West
Towson, MD 21204-5299
- --------------------------------------------------------------------
- ---------------------------------------------------------------------------
8. NAME AND ADDRESS OR CONTRACTOR (No., street, county, State and ZIP Code)
Vendor ID: 00012508
DUNN COMPUTER CORPORATION
1306 SQUIRE COURT
STERLING VA 20166
- ---------------------------------------------------------------------------
- --
00
- --
- ---------------------------------
9A. AMENDMENT OF SOLICITATION NO.
- ---------------------------------
- ---------------------------------
9B. DATED (SEE ITEM 11)
- ---------------------------------
- ---
X
- ---
- -----------------------------------------
10A. MODIFICATION OF CONTRACT/ORDER NO.
MDA908-97-D-0016
- -----------------------------------------
- -----------------------------------------
10B. DATED (SEE ITEM 13)
04/23/97
- -----------------------------------------
- ------------------------
CODE OJLPO
- ------------------------
- ------------------------
FACILITY CODE
- ------------------------
- -------------------------------------------------------------------------------
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
- -------------------------------------------------------------------------------
/ / The above numbered solicitation is amended as set forth in Item 14. The
hour and data specified for receipt of Offers / / is extended, / / is not
extended.
Offers must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning ____ copies of the amendment:
(b) By acknowledging receipt of this amendment on each copy of the offer
submitted; or (c) By separate letter or telegram which includes a reference
to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO
BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE
HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue
of this amendment you desire to change an offer already submitted, such
change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior
to the opening hour and date specified.
- -------------------------------------------------------------------------------
12. ACCOUNTING AND APPROPRIATION DATA (if required)
NONE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE
(X) CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN
ITEM 10A.
- -------------------------------------------------------------------------------
(X) B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office,
appropriation date, etc;
- -------------------------------------------------------------------------------
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
- -------------------------------------------------------------------------------
D. OTHER (Specify type of modification and authority)
- -------------------------------------------------------------------------------
E. IMPORTANT: Contractor /x/ is not, / / is required to sign this document
and return ___ copies to the
issuing office.
- -------------------------------------------------------------------------------
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible.)
THE PURPOSE OF MODIFICATION IS AS FOLLOWS. (SEE PAGE 2)
Except as provided herein, all terms and conditions of the document
referenced in Item 9A or 10A, as heretofore changed, remains unchanged and
in full force and effect.
- -------------------------------------------------------------------------------
15A. NAME AND TITLE OF SIGNER (Type or print)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
JAMES K. DASHIELL 003 (202) 231-2931
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
16B. CONTRACTOR/OFFEROR
/s/ Claudia Dunne
----------------------------------------
(Signature of person authorized to sign)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
16C. DATE SIGNED
9-17-97
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
16B UNITED STATES OF AMERICA
BY /s/ James K. Dashiell
----------------------------------
(Signature of Contracting Officer)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
16C DATE SIGNED
9-17-97
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NSN 7540-01-152-8070 STANDARD FORM 30 (REV. 10-83)
PREVIOUS EDITION UNUSABLE Prescribed by
00-105 FAR (48 CPR)53.243
<PAGE>
1. Addendum A. Page 4, clause 52.999-1030, PURCHASING OFFICE REPRESENTATIVES
is hereby changed to read as follows:
a. Contracting Officer: James K. Dashiell
Office Symbol: DIA/DAP-2
Telephone
(1) Commercial 202-231-2947
(2) DSN: 428-2947
(3) FAX 202-231-2831
b. Purchasing Agent: Pamela Gardner
(Communications Components)
Office Symbol: DIA/DAP-2
Telephone
(1) Commercial 202-231-8961
(2) DSN: 428-8691
(3) FAX 202-231-2831
c. Contract Specialist Rachel McIntyre
(TEMPEST Equipment)
Office Symbol: DIA/DAP-2
Telephone
(1) Commercial 202-231-2826
(2) DSN: 428-2826
(3) FAX 202-231-2831
d. Contract Specialist Beverly Soper
(UNIX Based Systems)
Office Symbol: DIA/DAP-2
Telephone
(1) Commercial 202-231-2827
(2) DSN: 428-2827
(3) FAX 202-231-2831
e. Contract Specialist Ida Logsdon
(PC-Base Systems)
Office Symbol: DIA/DAP-2
Telephone
(1) Commercial 202-231-8290
(2) DSN: 428-8290
(3) FAX 202-231-2831
Page 2
<PAGE>
f. Contract Specialist Janet Ragin
(Peripherals)
Office Symbol: DIA/DAP-2
Telephone
(1) Commercial 202-231-2849
(2) DSN: 428-2849
(3) FAX 202-231-2831
g. Contract Specialist Doris Hall
(Specialized Systems)
Office Symbol: DIA/DAP-2
Telephone
(1) Commercial 202-231-8421
(2) DSN: 428-8421
h. Contracting Officer's Representative: Paul G. Watson
(Communication Components)
Office Symbol: DIA/DSAQC
Telephone
(1) Commercial 202-231-4458
(2) DSN: 428-4458
(3) E-Mail [email protected]
(4) FAX 202-231-8923
i. Contracting Officer's Representative: Louvenia Kelly
(TEMPEST IT Equipment)
(PC-Based Systems)
Office Symbol: DIA/DSAQC
Telephone
(1) Commercial 202-231-4863
(2) DSN: 428-4863
(3) E-MAIL [email protected]
(4) FAX 202-231-8923
j. Contracting Officer's Representative: R. Frederick Scheiter
(UNIX Based Systems)
Office Symbol: DIA\DSAQC
Telephone
(1) Commercial 202-231-8873
(2) DSN: 428-8873
(3) E-MAIL [email protected]
(4) FAX 202-231-8924
Page 3
<PAGE>
k. Contracting Officer's Representative: David S. Campbell
(Peripherals)
(Specialized Systems)
Officer Symbol: DIA\DSAQC
Telephone
(1) Commercial 202-231-8871
(2) DSN: 428-8871
(3) E-MAIL [email protected]
(4) FAX 202-231-8924
2. Addendum A, Page 10, the following clause is hereby added:
52.247-48--F.O.B. Destination-Evidence of Shipment (Jul 1995)
(a) If this contract is awarded on an f.o.b. destination basis and if
transportation is accomplished by--
(1) Common carrier, the Contractor agrees to furnish in support of the
Contractor's invoice, a copy of the signed commercial bill of lading
indicating the carrier's receipt of the supplies covered by the invoice for
transportation to the destination specified in the contract;
(2) Parcel post, the Contractor agrees to furnish a certificate of
mailing with the Contractor's invoice; and
(3) Other than common carrier or parcel post, the Contractor agrees to
attach to the Contractor invoice a receipted copy of the appropriate delivery
document showing receipt at the destination specified in the contract.
(b) Electronic transmission of the information required by paragraph (a) of
this clause is acceptable.
(End of Clause)
3. Addendum B, page 15, paragraph 20, ESTIMATED ANNUAL SHIPPING VALUES.
The second sentence is hereby added to read:
Table 2 below depicts the estimated annual value for all contracts in each
Requirements Area (RA). The combined estimated annual value of all contracts
issued for a specific Requirements Area (RA) will not exceed the estimated
value shown in block 26 of each contract (Standard Form 1449). As
requirements are competed among the contractors within each RA, the
Contracting Officer shall monitor and report actual Delivery Order
expenditures cumulatively to ensure that the estimated RA value is not
exceeded.
Table 2. Estimated Annual Values
Requirements Area Number of Contracts Estimated Annual Value
- -------------------------- ------------------------- -------------------------
UNIX-Based Systems 4 $44,000,000
Specialized Systems 4 $ 7,000,000
Page 4
<PAGE>
PC-Based Systems 6 $12,000,000
Peripherals 3 $ 5,000,000
Communications Components 5 $12,500,000
Tempest and Zoned Equipment 3 $21,000,000
4. Addendum B, page 15, paragraph 19, COMPETITION OF REQUIREMENTS AT THE
DELIVERY ORDER LEVEL. FAR 15.505(b)(2) is changed to read FAR 16.505(b)(2).
5. Addendum B, page 15 and 16, paragraph 21, PRODUCT TABLE MAINTENANCE.
Change second and last sentence to read as follows:
For all Requirements Areas (RA) except "bundled systems" and "Assistive
Devices", only those products listed in the Contractor's Product Table can be
offered in response to a Government issued Request For Quote.
The Contractor shall provide the Contracting Officer softcopy of the revised
Product Table changes made within 5 working days after it is posted to the
company's Internet Homepage.
6. The following changes are made to the Statement of Work (SOW):
Attachment A, page 21, add paragraph 6c, Specialized Bundled Systems to
the Statement of Work.
6.c. Specialized Bundled Systems
A requirement exist to ensure that specialized IT capabilities can be
rapidly acquired, configured fielded and connected to supporting and
supported databases worldwide. This is accomplished by integration and
fielding of specialized systems in response to specific requirements. The
hardware components/peripherals of these specialized systems (a combination
of Government supplied and commercial hardware/software) will typically be a
combination of UNIX, PC, communications, and peripheral components. Such a
bundle is defined where there is not a preponderance of one component such that
the requirement could be satisfied by a bundled UNIX or PC system. When the
Government orders a bundled specialized system, the Contractor shall acquire,
assemble, integrate, deliver, install and provide on-site support for the
system in as specified in an appropriate Order for Commercial Items
(SF 1449). During the contract period, integrated specialized systems
requirements will be identified by the Government: in this event, the
Contractor will propose appropriate technology updates to satisfy the
requirement. The Government anticipates using product number (2050 and 2200,
Specialized Bundled Systems) to order fully integrated systems consisting of
a combination of components (UNIX, PC, communications & peripherals) not
otherwise wholly supported by any other Requirements Area. The Government
will provide full details of the required configurations as part of the Order
For Commercial Items (SF
Page 5
<PAGE>
1449). Contractors will be then given the opportunity to discuss the details
of these configurations with Government representatives prior to responding
to the request for quote. The systems may be any combination of Government
Furnished Equipment (GFE) hardware or software and commercial equipment which
must be provided by the Contractor. The contractor will be expected to
acquire (if necessary) and integrate the components and provide a fully
operational system.
7. ATTACHMENT D, THE CONTACT MANAGEMENT PLAN incorporated in the basic
contract is hereby deleted in its entirety and substituted with a new
Contract Management Plan (CMP) and Contractor Performance Evaluation Plan
(CPEP) dated 3 Sep 97.
8. ATTACHMENT E, SASS Hardware II CONTRACTOR PERFORMANCE EVALUATION PLAN,
(CPEP) incorporated in the basic contract is hereby deleted in its entirety.
9. "The Government shall maintain a list of activities to which ordering
authority has been delegated on the Virginia Contracting Activity (VaCa)
Internet Homepage. The Contractor shall not accept a Delivery Order from
ordering activities other than those DOAs listed on the VaCA Internet
Homepage.
10. ALL INVOICES FOR PAYMENT SHALL BE MAILED TO THE ADDRESS SHOWN IN BLOCK
18a OF BASIC CONTRACT.
11. DD-254, page 2 dated 17 Jan 97 is hereby replaced with a new DD-254 dated
18 Jun 97.
12. Discount Terms for all Delivery Orders will be NET 30 unless otherwise
specified in block 12 of the Standard Form 1449.
13. INSPECTION AND ACCEPTANCE: Inspection and acceptance will be at source
for all Delivery Orders. (See block 20 of each Delivery Order).
14. All shipments will be F.O.B. Destination. (See block 20 of each Delivery
Order).
15. CONTRACTOR RESPONSES TO REQUESTS FOR QUOTATION (RFQ) ARE DUE WITHIN 5
DAYS AFTER RECEIPT UNLESS OTHERWISE SPECIFIED IN THE RFQ.
16. All other terms and conditions remain the same.
Page 6
<PAGE>
Systems Acquisition and Support Services
(SASS)
Hardware II
Contract Management Plan (CMP)
And
Contractor Performance Evaluation Plan
(CPEP)
3 September 1997
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
FOREWORD
This Contract Management Plan (CMP) is provided to assist the Contracting
Officer (CO), Contracting Officer Representatives (COR) and those Contracting
Officers (COs) to whom ordering authority for the SASS Hardware II contracts
are delegated. Individuals utilizing the contracts are cautioned not to use
this CMP as a substitute for the actual contracts. Particular emphasis should
be placed on becoming intimately familiar with the SASS Contract Addenda and
the Statement of Work, which are identical for all contracts with exception
of minor Contractor specific information.
This version of the CMP contains the Contractor Performance Evaluation Plan
(CPEP) as Section VI as a convenience to the reader. The CMP with the
exception of Section VI constitutes Attachment D to the SASS Hardware
contracts. The CPEP, Section VI in this plan, constitutes Attachment E to the
SASS Hardware II contracts.
Page ii
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Index
Foreword
Section I -- General
1. Purpose
2. Reference
3. Introduction
4. Applicability
5. Precedence
6. Responsibilities
7. Contract Monitoring
8. Quarterly Contract Status Review (CSR)
9. Business process Improvement
Enclosure I--1, Shipping/Receiving
Quality Assurance Questionnaire
Enclosure I--2, Customer Satisfaction
Survey
Section II -- Contract Overview
1. Description
2. Contract Use
Section III -- Product Tables
1. General
2. Policy
3. Product Table Structure
4. Product table Maintenance
5. Product Table Availability
Section IV -- Delegated Ordering Authority (DOA)
1. DOA Policy
2. Submission of Requests for DOA
3. Purchase Control Number (PCN) procedures
4. Distribution of orders
Enclosure IV--1, Request for DOA
Enclosure IV--2, Sample SF 1449 Reflecting
Position of PCN
Attachment D Page III
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Index
Section V -- Competition
1. Objective.
2. Identification of Requirements
3. Competition
4. Individual order Level Source Selection
Section VI -- Contractor Performance evaluation Plan (CPEP)
1. Purpose.
2. References
3. Introduction
4. Responsibilities
5. Procedures
6. Maintenance of Completed Evaluations
7. Release of Information
Enclosure VI--1, Contractor Performance
Evaluation Report
Attachment D Page 1
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section I - General
1. PURPOSE. To establish policy, responsibilities and procedures for
management, administration and use of the Systems Acquisition Support
Services (SASS) Hardware II Information Technology (IT) contracts.
2. REFERENCE.
a. Federal Acquisition Regulation (FAR) and Department of Defense
Federal Acquisition Regulation Supplement (DFARS).
b. SASS Hardware II contracts.
c. SASS Hardware II Ordering Guide.
3. INTRODUCTION.
a. General. The SASS Hardware II contracts provide readily available
sources for competitive acquisition of a wide range of current and emerging
Information Technology (IT) for the DoDIIS and other members of the
Intelligence Community to support the following objectives:
(1) Multiple contract sources for products which meet the DoD
Joint Technical Architecture (JTA) and DII COE standards.
(2) Achieve the economic advantage of competition by offering
the SASS Contractors the opportunity to be considered for award of Delivery
Orders by review of Product Table prices for requirements under the Small
Acquisition Threshold (SAT) and competition, by RFO, of requirements above
the SAT.
(3) Sources for COTS products, which support the objectives and
implementation of the Joint Intelligence Virtual Architecture (JIVA).
(4) Sources for products and technological advances to enhance
existing baseline capabilities.
b. Use of Web Technology. Resource limitations dictate that, to the
maximum extent possible, contract operations and support activities
be conducted utilizing web technology. Accordingly, contracts and
related support documents are available at the following web locations:
INTELINK: http://delphi.di.ic.gov/proj/dodiis/sass/sass.html
INTERNET: http://www.dia.mil/vaca/sass/sassii_hw.html
Attachment D Page 2
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section I - General
4. APPLICABILITY. This Contract Management Plan (CMP) applies to all
contracting organizations granted Delegated Ordering Authority for the SASS
Hardware II contracts.
5. PRECEDENCE. Guidance established in the FAR/DFARS shall not be abridged by
this CMP. Procurement regulations take precedence over the CMP in any
apparent conflict of guidance.
6. RESPONSIBILITIES.
a. Virginia Contracting Activity. The VaCA has overall responsibility
for the SASS Hardware II contracts and will review and approve requests for
DOA.
b. DIA Contracting Officer (CO). The DIA CO is responsible for overall
contract oversight, ensuring that ordering authority is delegated in
accordance with DIA Chief Information Officer (CIO) and DODIIS policy, issuing
Requests for Quotation (RFQ) and Orders for Commercial Items (SF 1449).
c. Delegated Ordering Authorities (DOA). Contracting organizations to
which ordering authority is delegated are responsible for:
(1) Ensuring compliance with the terms and conditions of the
SASS Hardware II contracts, the CMP and the Contractor Performance Evaluation
Plan (CPEP).
(2) Ensuring that supported activities are authorized DoDIIS or
Intelligence Community activities.
(3) Complying with the COA Agreement entered into with the VaCA.
(4) Fostering competition of requirements directed to the SASS
II Hardware contracts among all Contractors within the appropriate RA. This
affords contractors an opportunity to be considered for award by review of
Product Tables prices (or requirements under the Small Acquisition Threshold
(SAT) and competition of requirements, by RFQ that fall above the SAT.
d. DIA Contracting Officer Representatives (CORs). CORs are responsible
for assisting the CO in the technical review and documentation of
requirements, participating as members on the SASS Hardware II Contract
Administration Support Team (CAST), and performing other duties set forth in
their appointment letters.
Attachment D Page 3
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section I - General
e. SASS Hardware II Contract Administrative Support Team (SASS CAST).
SASS CAST membership is made up of Contracting Specialists from the Virginia
Contracting Activity (VaCA), CORs from the Directorate for Information
Systems and Services Technical Acquisition Staff (DS-AQ) and technicians from
the DS Office for Systems (SY). The SASS CAST serves as a central point for
day-to-day operations in support of the contracts under the direction of the
CO and the DS-AQ Management Team. SASS CAST responsibility includes
monitoring and tracking orders issued, maintaining an accurate record of
dollars expended against the contracts and assisting in resolution of
problems.
f. Defense Contract Management Command (DCMC). The DCMC is responsible
for providing contract administration and close-out or termination services
through its contract administrative offices to include:
(1) Support to fact finding and negotiations.
(2) Safety and environmental assurance.
(3) Evaluation of Contractor processes and controls.
(4) Evaluation of Contractor corrective actions.
(5) Independent evaluation of Contractor progress.
g. Defense Finance and Accounting Service (DFAS). The DFAS is
designated as the payment office for the contracts.
h. Joint Contractor/Government Business Process Improvement Team. This
team is made up of Contractor and government representatives to (1) address
issues common to all of the SASS Contractors; and (2) support and implement
web technology to improve the contract business process with a view toward
lessening the resources associated with day-to-day operational support
activities.
i. DoDIIS System Integration Management Office (SIMD). The DoDIIS SIMO
is responsible for maintaining currency of the DoDIIS Master Site List
(Attachment B to the contracts) and for approving additions to the List.
j. Service, Command and National Center SIMOs. Service, Command and
National Center SIMOs are responsible for assisting the DoDIIS SIMO in
determining eligibility of DoDIIS Community activities requesting use of the
SASS Hardware II contracts.
Attachment D Page 4
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section I - General
k. DoDIIS and Intelligence Community Activities. DoDIIS Community
activities that have a requirement to use the SASS Hardware II contracts are
responsible for:
(1) Verifying their eligibility to use the contracts against
the DoDIIS Master Site List (Attachment B to the contracts) and their SIMO.
(2) Ensuring compliance with the terms, conditions and
requirements of the SASS Hardware II contracts, the CMP and the CPEP.
7. CONTRACT MONITORING. As a minimum, the COs and the SASS CAST will, in
concert with the Contractor, utilize the following mechanisms to monitor
contract activities:
a. Day-to-Day operations. The SASS CAST will serve as the focal point
for day-to-day operational contract activities. The resultant communications
between the SASS CAST, the Contractors, DOAs and customers will provide the
opportunity to jointly resolve issues as they occur.
b. Contractor's Monthly Reports. Monthly Reports provide extensive data
on all aspects of contract activities. This information is paramount to
addressing any outstanding issues related to Orders, delivery schedules,
billing/invoicing issues and other problems identified by the Contractor.
Both Contractor representatives and SASS CAST members will be encouraged to
ensure these issues are resolved in the course of daily business activity.
c. Customer Feedback. Customer feedback is essential to monitoring
contract status. The SASS CAST, in coordination with the Contractors, will
implement action to obtain specific feedback on shipping/receiving of
materials and customer satisfaction. This may be accomplished by the
Contractor including a copy of the "Shipping/Receiving Quality Assurance
Questionnaire" (Enclosure 1-1) with each shipment or eventually having it
accomplished electronically utilizing web technology. Overall customer
satisfaction will be assessed by the conduct, on a routine basis, of surveys
utilizing the "Customer Satisfaction Survey" form (Enclosure 1-2).
Information obtained via this process will be addressed during the quarterly
Contract Status Reviews (CSR).
c. Discrepancy Report System. DS and VaCA management, in
concert with the CO, Contractors and the SASS CAST, will implement a
Discrepancy Report System utilizing web technology. The system will provide
an electronic means for DOAs and customers to submit instantaneous
discrepancy information to both the contractor and the SASS CAST. These
discrepancies should be resolved through daily activities among the
Contractors, customers and
Attachment D Page 5
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section I - General
the SASS CAST. Discrepancy reports and corrective action taken will be on the
quarterly CSR agenda.
8. QUARTERLY CONTRACT STATUS REVIEW (CSR).
a. Purpose. The CO will host a quarterly meeting with each Contractor
to afford the Contractor's management and the CO the opportunity to jointly
review contract status and address/resolve any outstanding issues; and to
informally assess the Contractors' performance. The CSR will not supplant
day-to-day operational activities but rather foster open communications and a
mutual understanding of contract status at the management level. The
Contractor will present the CSR with input by the SASS CAST, if appropriate.
Contractors will have the opportunity to provide an informal self-assessment
of their performance on the contract to date. During this meeting, the CO and
the SASS CAST and the Contractor will reach concordance on the Contractor's
self-assessment.
b. Participation. At a minimum, Government and Contractor COs and the
SASS CAST will attend each CSR. Issues and priorities may dictate other
attendance (e.g., the DIA Chief Information Officer (CIO), other Agency
management, DOA representation).
c. CSR Format/Information to Be Presented.
(1) A standard briefing/presentation format will be established
by the SASS CAST in concert with the Contractors, which will be used for all
quarterly CSR. The presentation will, as a minimum, address the following:
(a) Ordering Summary (number of orders/value received to
date, numbers of orders (and value) shipped, number of orders (and value) on
hold with rationale, summary of compliance with delivery dates to include
number of orders on which shipping date met/number of orders on which
shipping date not met, with rationale).
(b) Billing Summary (invoices issued and value, invoices
paid and value, outstanding invoices (amount and how long).
(c) Review of Customer Survey/Random Surveys.
(d) Status of Action on Customer Discrepancy Reports.
(e) Issues and Concerns.
(f) Self-Assessment.
Attachment D Page 6
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section I - General
9. BUSINESS PROCESS IMPROVEMENT.
a. DS-AQ and VaCA management intends to employ maximum use of
electronic and web technology in support of day-to-day operations and
communication with Contractors, DoDIIS activities and COs to whom ordering
authority is delegated. DS-AQ is charged with the leadership for this effort,
in coordination with the Joint Business Process Improvement Team.
b. Intelink and Internet web technology will be used to:
(1) Post updates and changes to the Product Tables.
(2) Request and delegate ordering authority.
(3) Issue and response to Requests for Quotation (RFQ).
(4) Monitor Contractor performance information.
(5) Conduct customer satisfaction surveys.
(6) Support discrepancy reporting.
(7) Support Shipping/receiving quality assurance reporting.
(8) Request and receive Purchase Control Number (PCN).
(9) Communicate and share general information among the
Government activities and the SASS Hardware II Contractors.
2 Enclosures:
1-1, Shipping/Receiving Quality Assurance Questionnaire
1-2, Customer Satisfaction Survey
Attachment D Page 7
<PAGE>
<TABLE>
SHIPPING/RECEIVING QUALITY ASSURANCE QUESTIONNAIRE
The Management Plan for this contract requires that the Contractor include
this Quality Assurance Questionnaire with each Delivery Order shipment. The
completed questionnaire will be used by the Contracting Officer's
Representative to evaluate the Contractor's performance on a regular basis
during the contract period. In addition to providing the Government with
information on the Contractor's performance, it will provide useful feedback
to the Contractor on performance and provide the opportunity to correct
problems.
<S> <C> <C>
1. Contract Number: 3. Delivery Order (DO) Number: 5. Delivery Order Date:
2. Date: 4. Purchase Control Number (PCN): 6. Required Delivery Date: (Block 10 of DO):
Instructions:
a. Respond to the Questions listed below.
b. Explain "No" responses in Block 10.
c. Provide any comments desired in Block 10.
c. Sign and date the Questionnaire in Blocks 12 and 13 respectively.
d. Fold the questionnaire, tape shut, and mail to the address listed
on the reverse side. If you have access to Internet, this form is
available online at
(www.dia.osis.gov/vace/sess/contract_admin.html) and can be
completed (it will automatically be E-mailed to the Contract COR).
7. Were all items listed on the / / Yes / / No
Delivery Order received?
8. Was the shipment received within / / Yes / / No
the Required Delivery Date (refer to block 5 above)?
9. Was there any apparent damage / / Yes / / No
upon receipt?
10. Comments:
11. Name/Title of Receiving Official 12. Signature: 13. Date:
</TABLE>
<PAGE>
Customer Satisfaction Survey
The Management Plan for this contract requires that the Government
evaluate the contractor's performance on a regular basis during the contract
period. One performance rating area on which the contractor is evaluated is
Customer (End User) Satisfaction. This performance rating area reflects the
satisfaction of and users with the products provided by the contractor with
emphasis on completeness of shipments; whether products were operable when
unpacked; how well discrepancies were resolved; and quality of warranty
maintenance. Data on which to perform this evaluation is being obtained
through the use of this Customer Satisfaction Survey. In addition to
providing the Government with information on the contractor's performance, it
will provide useful feedback to the contractor on performance and provide the
opportunity to correct problems.
- ----------------------------------------------------------------------------
1. Contract Number: 2. Date: 3. Contract Title:
SASS Hardware II
- ----------------------------------------------------------------------------
4. Instructions: a. Respond to the Questions listed below; b. Provide any
comments desired in block 6: c. Sign and date the Questionnaire in Blocks 8
and 9 respectively; and d. Fold the questionnaire and forward to the
contract COR in the envelope provided. If you have access to internet, this
form is available on line at (www.die.osis.gov/vaca/sass/contract_admin.html)
and can be completed (it will automatically be E-mailed to the contract COR).
- ----------------------------------------------------------------------------
5a. How many orders have you placed against the contract in the past year?
- ----------------------------------------------------------------------------
5b. Did the contractor ship the items listed on the delivery order?
/ / Yes / / No
- ----------------------------------------------------------------------------
5c. What is your level of satisfaction with the contractor's resolution of
order discrepancies?
There were no discrepancies reported to the contractor...../ /
<TABLE>
<S> <C>
Never resolved in a timely manner.../ / (1) Usually resolved in a timely manner........./ / (3)
Rarely resolved in a timely manner../ / (2) Always resolved in a timely manner........../ / (4)
</TABLE>
- ----------------------------------------------------------------------------
5d. To what extent were the items ordered operable when unpacked?
<TABLE>
<S> <C>
Less than 80 percent of the time.../ / (0) 90-94 percent of the time.................../ / (3)
60-84 percent of the time........../ / (1) 95 + percent of the time..................../ / (4)
85-89 percent of the time........../ / (2)
</TABLE>
- ----------------------------------------------------------------------------
5e. Were warranty repairs, if any, resolved in a timely manner?
There were no warranty repair calls placed...../ /
<TABLE>
<S> <C>
Never resolved in a timely manner.../ / (1) Usually resolved in a timely manner........./ / (3)
Rarely resolved in a timely manner../ / (2) Always resolved in a timely manner........../ / (4)
</TABLE>
- ----------------------------------------------------------------------------
5f. If warranty repairs ere required, to what extent were you satisfied with the
quality of repair?
Never............/ / (1) Usually........./ / (3)
Rarely.........../ / (2) Always........../ / (4)
- ----------------------------------------------------------------------------
5g. What is your level of satisfaction with the contractor's overall service?
Very Dissatisfied......./ / (1) Satisfied................/ / (3)
Dissatisfied............/ / (2) Extremely Satisfied....../ / (4)
- ----------------------------------------------------------------------------
6. Comments:
- ----------------------------------------------------------------------------
7. Name/Title/Organization 8. Signature Date:
- ----------------------------------------------------------------------------
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section II -- Contract Overview
1. DESCRIPTION. The SASS Hardware II contracts are Indefinite Delivery
Requirements Contracts which provide multiple sources for Commercial
Off-the-Shelf (COTS) IT products in the Requirement Areas described shown in
Table II-1 below.
Table II-1, Contract Overview
- ------------------------------------------------------------------------------
Requirements Area Description
(RA)
- ------------------------------------------------------------------------------
UNIX-based Systems Servers, Workstations, Portable Workstations,
X-Terminals, Monitors, Operating Systems and
Enhancement/Expansion Components
- ------------------------------------------------------------------------------
Specialized Systems Low-End/Mid-Range Systems, High-End Servers,
Database Servers and Scientific/ Processing
Servers.
- ------------------------------------------------------------------------------
PC-based Systems Servers, Workstations, Portable Computers,
Monitors, Operations Systems, and
Enhancement/Expansion Components
- ------------------------------------------------------------------------------
Peripherals Scanner Hardware and Software, Jukeboxes and
Carousels, RAID Systems; Image, Laser, Ink-Jet,
Thermal Transfer and Special Purpose Printers;
Multifunction Devices; Facsimile Devices;
Multimedia Collaborative Environment;
Projection systems; Power Protection Units;
Transport Cases; Digital Cameras; Network
Enhancement Devices; and Assistive Devices
- ------------------------------------------------------------------------------
Communications ATM/SONET Devices, Routers, Bridges And Brouters,
Components Hubs, Modems, Tranceivers, Repeaters, Multiplexors,
Concentrators, Network Interface Devices and
Interconnect Controllers
- ------------------------------------------------------------------------------
TEMPEST IT TEMPEST and Zoned Systems And Peripherals
- ------------------------------------------------------------------------------
3. CONTRACT USE
a. Use of the contracts is mandatory for DIA users, but optional for all
others. "Mandatory use" involves FAR/DFARS provisions, legally binding
agreements and conditions entered into by DIA as party to the contract.
b. Multiple contracts have been awarded in each of the RA, Requirements
will be competed among Contractors within each RA to achieve the economic
benefits. Table II-2 below identifies each RA, the contract numbers,
Contractors' name and addresses that will be afforded the opportunity to
compete within the RA.
Attachment D Page 8
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section II - Contract Overview
- -------------------------------------------------------------------------------
Table II-2, SASS Requirements Area Hardware Contractors
- -------------------------------------------------------------------------------
Requirements Contract
Area (RA) Contract Number Contractor Length
- -------------------------------------------------------------------------------
MDA908-97-D-0012 Sun Microsystems Federal, Inc. 5 Years (1
UNIX-Based MDA908-97-D-0013 BTG, Inc. base year and
Systems MDA908-97-D-0014 Sysorex Information Systems, 4 1-year
Inc. options)
MDA908-97-D-0015 Digital Equipment Corporation
- -------------------------------------------------------------------------------
MDA908-97-D-0025 Cordant, Inc. 5 Years (1
Specialized MDA908-97-D-0026 Sun Microsystems Federal, Inc. base year and
Systems MDA908-97-D-0027 BTG, Inc. 4 1-year
MDA908-97-D-0028 Digital Equipment Corporation options)
- -------------------------------------------------------------------------------
MDA908-97-D-0016 Dunn Computer Corporation
MDA908-97-D-0017 Dynamic Decision, Inc. 2 Years (1
PC-Based MDA908-97-D-0018 Cordant, Inc. base year and
Systems MDA908-97-D-0019 BTG, Inc. 1 1-year
MDA908-97-D-0020 Sysorex Information Systems, option)
Inc.
MDA908-97-D-0021 Digital Equipment Corporation
- -------------------------------------------------------------------------------
MDA908-97-D-0022 Cordant, Inc. 2 Years (1
Peripherals MDA908-97-D-0023 BTG, Inc. base year and
MDA908-97-D-0024 Sysorex Information Systems, 1 1-year
Inc. option)
- -------------------------------------------------------------------------------
MDA908-97-D-0004 Sylvest Management Systems
Communi- Components 5 Years (1
Cations MDA908-97-D-0005 Sysorex Information Systems, base year and
Components Inc. 4 1-year
MDA908-97-D-0006 BTG, Inc. options)
MDA908-97-D-0007 Cordant, Inc.
MDA908-97-D-0008 Sytel, Inc.
- -------------------------------------------------------------------------------
MDA908-97-D-0009 NAI Technologies, Systems 5 Years (1
TEMPEST Division base year and
Information MDA908-97-D-0010 Candes Systems, Inc. 4 1-year
Technology MDA908-97-D-0011 Wang Federal, Inc. options)
- -------------------------------------------------------------------------------
Attachment D Page 9
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section III - Product Tables
1. GENERAL. Among the major objectives of the SASS Hardware II contract was
the capability for the Government to readily acquire emerging COTS IT
products as they become available in the marketplace. The contracts require
Contractors to update their Product Tables to add new and emerging COTS
technology and to ensure that those products are within the contract scope.
2. POLICY.
a. Advance Government approval of Product Table changes is not required.
All products contained on the Product Tables must be within the scope of the
Contract Statement of Work. Certification that products meet the mandatory
specifications set forth in the contracts is required.
b. Products offered in response to an RFQ must appear on the Contractors
Product Table with published price. In the event a Contractor must add a
product to the Product Table or desires to reduce a price on an existing
product on his/her Product Table in order to respond to an RFQ, the Product
Table must reflect the change before a response to an RFQ will be accepted by
the government.
c. COs may not issue an Order for Commercial Items (SF1449) against the
SASS Hardware II contracts unless the products are listed on the Contractor's
published Product Tables.
3. PRODUCT TABLE STRUCTURE. The Product Table for each contract is arranged
by category based on the major Contract Line Item Numbers (CLINs) defined in
the Statement of Work (SOW). In order to simplify ordering, a mapping between
contract CLINs set forth in the SF 1449 (Solicitation/Contract/Order for
Commercial Items) and the Product Table have been established. For example,
to order a Low-End Server from the UNIX-Based System RA, the contract CLIN
would be 0001. The Contractors' Product Table CLINs range from 0100-0199.
4. PRODUCT TABLE MAINTENANCE. Contractors must post product changes to their
Internet web site and that they provide the VaCa CO the updates within five
(5) days of making them available on their Internet Product Table. The VaCA
web site provides "hotlinks" to each Contractor's Home Page for the Product
Tables. The Government will post changes to Product Tables on the classified
INTELINK web site. There is the possibility of a time lag of 5-8 days between
the time that Contractors post Product Table changes on their Internet web
site and the time the changes are posted on the INTELINK web site. Initially,
Contractors are required to provide hard copy Product Tables changes where
products added to facilitate responding to an RFQ. The SASS CAST will work
with the Contractors to improve the electronic posting, distribution and
filing of Product Table changes with the objective of "near real time"
posting and dissemination.
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section III - Product Tables
5. PRODUCT TABLE AVAILABILITY. The size of the individual Product Tables
coupled with the frequency of updates and number of contracts dictate that
the Product Tables be managed, distributed and used electronically. Product
Tables can be accessed through on the Internet and INTELINK web sites.
Individual SASS Contractors may provide their Products Tables to their
customers in hard copy.
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section IV - Delegated Ordering Authority (DOA)
1. DOA POLICY.
a. DOA for the SASS Hardware II contracts will be delegated to fulfill
IT requirements that are in accordance with the stated contract purpose and
objectives (refer to paragraphs 1 and 2 of the Statement of Work, Attachment
A to the contracts and the DoDIIS Master Site List, Attachment B to the
contracts).
b. DOA will be granted only for the entire suite of SASS Hardware II
contracts and not by individual RA.
c. Activities/sites to which ordering authority for the SASS Hardware I
contracts (MDA908-92-D-1511, 1512 and 1513) was delegated will be initially
granted SASS Hardware II ordering authority.
d. New requests for DOA will be granted subject to agreement to comply
with the terms and conditions set forth in this CMP (Attachment D to the
contracts) and those stipulated in the DOA Agreement.
e. Ordering authority will be revoked by the Virginia Contracting
Activity (VaCA) if it is determined that any of the terms and conditions set
forth in this CMP and/or those stipulated in the DOA Agreement are violated.
f. All Orders for Commercial Items (SF 1449) issued by a DOA must
contain a Purchase Control Number (PCN) issued by the SASS CAST. Contractors
may not accept an Order issued by a DOA if that Order is not annotated with a
PCN issued by the SASS CAST.
g. PCNs will not be issued for the purpose of issuing an RFQ to the
Contractors within a RA. PCNs will be issued only when the CO has made an
award determination.
h. Upon receipt of an Order, Contractors must validate the PCN with the
SASS CAST prior to fulfilling the Order.
i. Only contracting organizations with DOA may issue Orders against the
contracts.
2. SUBMISSION OF REQUESTS FOR DOA.
a. DOA will be requested from the VaCA by completing, signing and
submitting the Request for Delegated Ordering Authority enclosure
IV-1. The chief of the contracting organization must sign the
request or an official designated to sign for him/her.
Attachment D Page 12
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section IV - Delegated Ordering Authority (DOA)
b. The VaCA will review and approve requests for DOA in writing.
c. Contracting organizations granted DOA for support of DoDIIS and
designed Intelligence Community activities will be posted on the VaCA SASS
web site on Internet and the DoDIIS Intelink web site. Individual contracts
will not be amended to reflect DOA.
3. PURCHASE CONTROL NUMBER (PCN) PROCEDURES.
a. General. All orders for Commercial Items (SF 1449) issued by a DOA
must be annotated with a VaCA issued unique identifier. The PCN provides an
administrative mechanism through which the SASS CAST can be assured of
maintaining the current status of all Orders is issued against each contract.
The SASS CAST will also use PCNs to monitor and track contract use, assist in
resolution of problems and maintain an accurate record of dollars expended.
b. PCN Structure. PCNs will be composed of an alphanumeric identifier
made up of a RA identifier, a Contractor identifier and a one-up sequence
number, the combination of which provides a unique identifier. Table IV-1
below depicts RA and Contractor Identifiers.
Table IV-1, RA and Contractor Identifiers
<TABLE>
<CAPTION>
RA Identifiers Contractor Identifiers
- ----------------------------------- --------------------------------------
RA ID Contractor ID
- ----------------------------- ---- --------------------------------- ----
<S> <C> <C> <C>
UNIX-Based Systems UX BTG, Inc. BTG
Specialized Systems SS Candes Systems, Inc. CAN
OC-Based Systems PC Cordant, Inc. COR
Peripherals PS Digital Equipment Corporation DEC
Communications Components CC Dunn Computer Corporation DUN
TEMPEST IT TS Dynamic Decisions, Inc. DDI
NAI Technologies NAI
Sun Microsystems Federal, Inc. SUN
Sysorex Information Systems, Inc. SYS
Sylvest, Inc. SYL
Sytel, Inc. SYT
Wang Federal, Inc. WAN
</TABLE>
An example of an alphanumeric PCN is shown in Table IV-2 below:
Table IV-2, Example PCN
<TABLE>
<CAPTION>
Explanation PCN
- ----------------------------------------------------- ------------------------
<S> <C>
First Order Issued by a DOA to Dunn Computer PC-DUN-0001
Corporation within the PC-Based Systems Requirement
Area
</TABLE>
Attachment D Page 13
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section IV - Delegated Ordering Authority (DOA)
c. Procedure for Obtaining and Using PCNs.
(1) PCNs will be requested from the SASS CAST at the point that
an Order for Commercial Items (SF 1449) is ready for the CO's signature. A
PCN will not be used in conjunction with an RFQ nor issued in advance.
(2) A request for PCN will include the following:
(a) Identification of the contracting organization and CO
signing the Order (organizational element, CO's name, address, voice and
facsimile telephone numbers).
(b) Identification of the technical point of contact for
the requirement (organizational element, point of contact's name, address,
voice and facsimile telephone numbers).
(c) The SASS Hardware II Contractor and contract number
to which the Order is being issued.
(d) Order number.
(e) Dollar amount of the Order.
(e) Until the PCN "request and issue process" is automated,
requests for PCN may be made by telephone, facsimile machine, message, or
e-mail to the SASS CAST at the addresses shown in table IV-3. The SASS CAST,
on a priority basis utilizing web technology, will automate this process.
Table IV-3, Addresses For Obtaining PCN
<TABLE>
<CAPTION>
Telephonically
- ------------------------------------------------------------------------------
<S> <C>
Facsimile Commercial: (202 231-8923/24
DSN Prefix: 428
- ---------------------------------- ---------------------------------------
Message DIA WASH DC//DS-AQ//
- ---------------------------------- ---------------------------------------
E-Mail (INTELINK) See list of contract [email protected]
- ---------------------------------- ---------------------------------------
E-Mail (Internet) See list of contract [email protected]
- ------------------------------------------------------------------------------
</TABLE>
(c) Placement of PCNs on Orders (SF 1449). PCNs must be clearly
annotated in Block 9, Order for Commercial Items (SF 1449) as
shown in the example at enclosure IV-2.
Attachment D Page 14
<PAGE>
SASS Hardware II Contract Management Plan (CMP)
Section IV - Delegated Ordering Authority (DOA)
4. DISTRIBUTION OF ORDERS. Each Order issued against the SASS Hardware II
contracts by DOAs will be forwarded via facsimile to:
Defense Intelligence Agency
Attn: DS-AQ/SASS CAST
Washington, DC 20301
Facsimile: Commercial (202) 231-8924/8923
DSN 428-8924 or 8923
2 Enclosures
IV-1, Request for Delegated Ordering Authority
IV-2, Sample SF 1449 (Order for Commercial Items) reflecting position of PCN
Attachment D Page 15
<PAGE>
REQUEST FOR DELEGATED ORDERING AUTHORITY DATE:
SASS Hardware II Contracts
<TABLE>
<S> <S> <S>
1. FROM: (Contracting Organization) 2. TO: 3. CONTRACT NUMBER(S):
Defense Intelligence Agency All SASS Hardware II Contracts
Attn: Technical Acquisition Staff (DS-AQ) (See block 6a)
SASS HARDWARE II Administration Team
Bldg 6000
Washington, DC 20340
FAX: (202) 231-8923 or 8924 (DSN = 428)
4a. END USER: 4b. END USER / / IS / / IS NOT AN AUTHORIZED DoDIIS ACTIVITY
(Organization and Mailing Address)
4c. END USER POC (Name, Grade & Office Symbol):
4d. COMMERCIAL TEL: 4e. DSN TEL:
4f. COMMERCIAL FAX: 4g. DSN FAX:
5a. TECHNICAL POC: (Name & Grade) 5b. ORGANIZATION and Mailing 5c. TEL:
Address
5d. FAX:
</TABLE>
6a. This Contracting Organization requests Delegated Ordering Authority (DOA)
for the complete set of SASS Hardware II contracts:
CONTRACT REQUIREMENTS AREA
-------- -----------------
MDA908-97-D-0012, 0013, 0014, and 0015 UNIX-based Systems
MDA908-97-D-0025, 0026, 0027, and 0028 Specialized Systems
MDA908-97-D-0016, 0017, 0018, 0019, 0020, and 0021 PC-based Systems
MDA908-97-D-0022, 0023, and 0024 Peripherals
MDA908-97-D-0004, 0005, 0006, 0007, and 0008 Communications Components
MDA908-97-D-009, 0010, and 0011 Tempest Equipment
6b. I certify that terms and requirements of the contracts, the associated
Contract Management Plan (CMP), and Contractor Performance Evaluation Plan
(CPEP) will be complied with fully. This includes, but is not limited to,
the following:
(1) Ensure that each contractor will be provided the opportunity to
compete.
(2) Use of Purchase Control Numbers (PCNs).
(3) Evaluate contractor performance.
(4) Ensure that Orders are within the scope of the contract.
(5) Ensure that the acquisitions will not be made for non-authorized end
users.
7a. CHIEF, CONTRACTING ORGANIZATION: 7b. SIGNATURE: 7c. DATE:
(Name & Grade)
7d. COMM TEL:
dsn:
<PAGE>
SOLICITATION/CONTRACT/ORDER FOR COMMERCIAL ITEMS
OFFEROR TO COMPLETE BLOCKS 12, 17, 23, 24 & 30
1. REQUISITION NUMBER
- -----------------------------------------------------------------------------
PAGE 1 OF
- -----------------------------------------------------------------------------
2. CONTRACT NO.
MDA908-87-D-00xx
- -----------------------------------------------------------------------------
3. AWARD EFFECTIVE DATE
- -----------------------------------------------------------------------------
4. ORDER NUMBER
- -----------------------------------------------------------------------------
5. SOLICITATION NUMBER
- -----------------------------------------------------------------------------
6. SOLICITATION ISSUE DATE
- -----------------------------------------------------------------------------
7. FOR SOLICITATION INFORMATION CALL:
- -----------------------------------------------------------------------------
a. NAME
- -----------------------------------------------------------------------------
b. TELEPHONE NUMBER (No collect calls)
- -----------------------------------------------------------------------------
8. OFFER DUE DATE/LOCAL TIME
- -----------------------------------------------------------------------------
9. ISSUED BY CODE (HHO402)
----------------
__________________________
PCN: _____________________
- -----------------------------------------------------------------------------
10. THIS ACQUISITION IS
/ / UNRESTRICTED
/ / SET ASIDE % FOR
/ / SMALL BUSINESS
/ / SMALL DISADV BUS.
/ / 6(a)
SIC: 3571
SIZE STANDARD 500 EMP
- ----------------------------------------------------------------------------
11. DELIVERY FOR FOB DESTINATION UNLESS BLOCK IS MARKED. SEE ADDENDUM A.
- ----------------------------------------------------------------------------
12. DISCOUNT TERMS
- ----------------------------------------------------------------------------
13a. / / THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 700)
- ----------------------------------------------------------------------------
13B. RATING
- ----------------------------------------------------------------------------
14. METHOD OF SOLICITATION
/ / RFO / / IFB / / RFP
- ----------------------------------------------------------------------------
15. DELIVER TO CODE / /
---------------
To be specified on each Delivery Order
- ----------------------------------------------------------------------------
16. ADMINISTERED BY CODE / (CODE) /
---------------
(See contract award SF 1449 for correct info)
- ----------------------------------------------------------------------------
17a. CONTRACTOR/OFFEROR CODE / 0012514 / FACILITY CODE / /
---------- -----------
(fill in contractor info)
TELEPHONE NO (Phone)
- ----------------------------------------------------------------------------
/ / 17b. CHECK IF REMITTANCE IS DIFFERENT AND PUT SUCH ADDRESS IN OFFER
- ----------------------------------------------------------------------------
18a. PAYMENT WILL BE MADE BY CODE / (CODE) /
---------------
(See contract award SF 1449 for correct info)
- ----------------------------------------------------------------------------
18b. SUBMIT INVOICES TO ADDRESS SHOWN IN BLOCK 16a UNLESS BLOCK BELOW IS
CHECKED
/ / SEE ADDENDUM
- ----------------------------------------------------------------------------
19. 20. 21. 22. 23. 24.
ITEM NO. SCHEDULE OF SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
(see attached)
(Attach Additional Sheets as Necessary)
- ----------------------------------------------------------------------------
25. ACCOUNTING AND APPROPRIATING DATA
- ----------------------------------------------------------------------------
26. TOTAL AWARD AMOUNT (For Govt. use only)
- ----------------------------------------------------------------------------
27a. SOLICITATION INCORPORATES BY REFERENCE FAR 52.212-1, 52.212-4.
FAR 52.212-3 AND 52.212-5 ARE ATTACHED.
ADDENDA / / ARE / / ARE NOT ATTACHED
- ----------------------------------------------------------------------------
27b. CONTRACT/PURCHASE ORDER INCORPORATES BY REFERENCE FAR 52.212-4.
FAR 52.212-5 IS ATTACHED.
ADDENDA / / ARE /X/ ARE NOT ATTACHED
- ----------------------------------------------------------------------------
28. CONTRACTOR IS REQUIRED TO SIGN THIS DOCUMENT AND RETURN 2
--
COPIES TO ISSUING OFFICE. CONTRACTOR AGREES TO FURNISH AND DELIVER
/X/ ALL ITEMS SET FORTH OR OTHERWISE IDENTIFIED ABOVE AND ON ANY
ADDITIONAL SHEETS SUBJECT TO THE TERMS AND CONDITIONS SPECIFIED
HEREIN.
- ----------------------------------------------------------------------------
29. AWARD OF CONTRACT REFERENCE _________ OFFER DATED ___________________
YOUR OFFER ON SOLICITATION (BLOCK 5),
/ / INCLUDING ANY ADDITIONS OR CHANGES WHICH ARE SET FORTH HEREIN, IS
ACCEPTED AS TO ITEMS
- ----------------------------------------------------------------------------
30a. SIGNATURE OF OFFEROR/CONTRACTOR
- ----------------------------------------------------------------------------
30b. NAME AND TITLE OF SIGNER (TYPE OR PRINT)
- ----------------------------------------------------------------------------
30c. DATE SIGNED
- ----------------------------------------------------------------------------
31a. UNITED STATES OF AMERICA (SIGNATURE OF CONTRACTING OFFICER)
- ----------------------------------------------------------------------------
31b. NAME OF CONTRACTING OFFICER (TYPE OR PRINT)
- ----------------------------------------------------------------------------
31c. DATE SIGNED
- ----------------------------------------------------------------------------
32a. QUANTITY IN COLUMN 21 HAS BEEN
/ / RECEIVED / / INSPECTED / / ACCEPTED, AND CONFORMS TO THE
CONTRACT, EXCEPT AS NOTED
- ----------------------------------------------------------------------------
32b. SIGNATURE OF AUTHORIZED GOVT. REPRESENTATIVE
- ----------------------------------------------------------------------------
32c. DATE
- ----------------------------------------------------------------------------
33. SHOP NUMBER
- ----------------------------------------------------------------------------
/ / PARTIAL / / FINAL
- ----------------------------------------------------------------------------
34. VOUCHER NUMBER
- ----------------------------------------------------------------------------
35. ACCOUNT VERIFIED CORRECT FOR
- ----------------------------------------------------------------------------
36. PAYMENT
/ / COMPLETE / / PARTIAL / / FINAL
- ----------------------------------------------------------------------------
37. CHECK NUMBER
- ----------------------------------------------------------------------------
38. S/R ACCOUNT NUMBER
- ----------------------------------------------------------------------------
39. S/R VOUCHER NUMBER
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
41a. CERTIFY THIS ACCOUNT IS CORRECT AND PROPER FOR PAYMENT
- ----------------------------------------------------------------------------
41b. SIGNATURE AND TITLE OF CERTIFYING OFFICER
- ----------------------------------------------------------------------------
41c. DATE
- ----------------------------------------------------------------------------
42a. RECEIVED BY
- ----------------------------------------------------------------------------
42b. RECEIVED AT (LOCATION)
- ----------------------------------------------------------------------------
42c. DATE REC'D (YYMMDD)
- ----------------------------------------------------------------------------
42d. TOTAL CONTAINERS
- ----------------------------------------------------------------------------
AUTHORIZED FOR LOCAL REPRODUCTION STANDARD FORM 1449 (10-95)
Complex Generated Presented by GSA -FAR (48CFR) 5321
- ----------------------------------------------------------------------------
<PAGE>
SASS HARDWARE II CONTRACT MANAGEMENT PLAN (CMP)
SECTION V - COMPETITION
1. OBJECTIVE. A major objective of the SASS Hardware II contracts is to
achieve the economic benefits of continuing competition. All SASS Hardware II
Contractors will be afforded THE OPPORTUNITY TO BE CONSIDERED FOR AWARD OF
DELIVERY ORDERS BY REVIEW OF PUBLISHED PRODUCT TABLES FOR REQUIREMENTS UNDER
THE SMALL ACQUISITION THRESHOLD (SAT) AND COMPETITION, BY RFQ, OF
REQUIREMENTS FALLING ABOVE THE SAT.
2. IDENTIFICATION OF REQUIREMENTS
a. GENERAL. Competition of requirements at the Order level among the
Contractors within each RA dictate that IT requirements be identified in
terms of:
(1) REQUIREMENTS AREA (RA).
UNIX-Based System.
PC-Based System
Specialized System
PERIPHERALS
TEMPEST IT
Communications Components
(2) FUNCTIONALITY. The Contract for each RA identifies Requirements by
Functionality and Contract Line Item Number(s) (CLIN). For example, within
the PC-Based Systems RA, CLIN 0001 is identified by "3000 PC Servers
(PC-Based Systems)". CLIN 0001 further identifies Servers as "Low End,
Mid-Range" and "High End" and provides the minimum requirement which must be
met by specific products offered under each CLIN by the SASS Hardware II
Contractors in their Product Tables.
(3) WARRANTY AND MAINTENANCE REQUIREMENTS. The SASS Hardware II
contracts were awarded as "commercial Item" contracts as defined by the
Federal Acquisition Regulation (FAR), Part 12. Accordingly, warranty and
maintenance terms and conditions may differ vastly among the contracts within
an RA. Best value determinations in evaluating responses to RFQs should
consider warranty and maintenance terms and conditions as well as warranty
periods. RFQs should include the Government's Warranty and Maintenance
Requirements.
(4) YEAR 2000 (Y2K) COMPLIANCE REQUIREMENTS. There are products in the
marketplace, which are not yet Y2K compliant. Because Y2K compliance is a
Government mandate, the SASS Contractors are required to depict in their
Product Tables whether Y2K compliance is applicable to each listed product and
whether or not that product is certified as Y2K compliant. It should not just
be assumed that ALL products listed in the Product Tables are Y2K compliant.
There may be those
<PAGE>
SASS HARDWARE II CONTRACT MANAGEMENT PLAN (CMP)
SECTION V - COMPETITION
rare occasions when an operational intelligence support requirement can only be
satisfied by a product is which not Y2K compliant. Because Contractors can
offer products that may not be Y2K compliant in response to a RFQ. RFQs must
include the Government's Y2K compliance requirements.
b. SPECIFIC PRODUCT REQUIREMENTS. There will be cases when requirements
are for specific products:
(1) COMMON OPERATING ENVIRONMENT (COE). Previously awarded
contracts and dedicated efforts to achieve a level of standardization in the
products supporting military intelligence Community overall, and intrinsic to
achievement of system migration goals have resulted in formation of product
specific COE support lists. Many of these products are identified in the
Baseline Inventory Document, which is Attachment C to the contracts. There
may be cases where infusion of products other than what is already operational
within a COE is not in the best interests of the Government (e.g., negatively
impacts interoperability, compatibility and systems integration). IN THESE
CASES, ACQUISITION AUTHORITIES SHOULD GIVE EVERY CONSIDERATION TO COMPETING
THE REQUIREMENT IF IT IS FELT THAT THE CONTRACTORS WITHIN A RA MAY BE ABLE TO
OFFER THE SPECIFIC PRODUCT OR INCLUDE IT IN THEIR PRODUCT TABLES.
(2) GOVERNMENT MANDATE. There are cases where use of specific
products is mandated. For example, use of specific computer operating systems
has been mandated for selected DoD programs. However, this mandate should not
be construed to mean the requirement must be solicited sole source because:
(a) There may be more than one hardware platform that meets the
minimum mandatory requirements of the Contract Statement of Work and supports
the mandated operating system.
(b) There may be more than one Contractor within an RA that can
offer a hardware platform that meets the minimum mandatory requirements of
the RFQ and supports the mandated operating system.
Consideration will be given to COI/COE concerns, principles of
standardization and interoperability, compatibility and integration, while,
at the same time, striving for cost efficiencies achieved from competition.
To the maximum extent possible, COs should AFFORD EACH CONTRACTOR WITHIN A
GIVEN RA EQUAL OPPORTUNITY TO BE CONSIDERED FOR AWARD.
(c) USE OF ORDERING GUIDE (OG). The SASS Hardware II OG provides
expanded guidance on identifying and processing requirements for competitive
acquisition. Anyone anticipating use of the SASS Hardware II contracts should
consult OG prior to processing a requirement for competitive acquisition.
<PAGE>
SASS HARDWARE II CONTRACT MANAGEMENT PLAN (CMP)
SECTION V - COMPETITION
3. COMPETITION
a. GENERAL. In the initial phases of contract implementation, all
requirements regardless of dollar value will be completed among Contractors
within the appropriate RA. This will provide the Contractors the opportunity
to gain a better understanding of the Government's overall requirements and
adjust their Product Tables accordingly. As contract use evolves and
automation technologies make Product Table comparison more efficient, it is
anticipated that COs will make use of automated technology to make
comparative analysis of the Product Tables of Contractors within a RA as
opposed to issuing and RFQ. This will reduce the administrative burden and
expense to both the Government and Contractors in issuance and response to
RFQs.
b. REQUIREMENTS BELOW THE SIMPLIFIED ACQUISITION THRESHOLD (SAT). COS ARE
STRONGLY ENCOURAGED TO exercise their management and decision prerogatives on
DO requirements falling below the SAT by comparing each Contractor's Product
Tables for source selection rather than issuing an RFQ to each of the
Contractors within a RA. Comparative use of the Product Tables constitutes
affording each Contractor the opportunity to be considered for award as
required by the FAR.
c. REQUIREMENTS ABOVE THE SAT. ALL REQUIREMENTS ABOVE THE SAT SHALL BE
COMPETED. THIS GUIDANCE IS NOT APPLICABLE TO "DIRECTED" ORDERS AS DEFINED BY
LOCAL CONTRACTING ACTIVITY PROCEDURES.
d. REQUIREMENTS FOR PRODUCTS NOT ON PRODUCT TABLES. Rapidly emerging
and evolving technology may occasionally result in products and or
functionality being available in the market place but not yet on the
Contractor's Product Tables. In instances where required products do not
appear on a Contractor's Product Table, the requirement should be competed
among all of the Contractors within the RA. This is because the Contractors
have the opportunity to update their Product Tables prior to responding to an
RFQ affording the Government the benefit of competition.
e. REQUIREMENTS FOR BUNDLED SYSTEMS. STRONG CONSIDERATION SHOULD BE
GIVEN TO COMPETING REQUIREMENTS FOR BUNDLED SYSTEMS AMONG ALL CONTRACTORS
WITHIN THE APPLICABLE RA IF THE CO FEELS THAT BETTER PRICING CAN BE ACHIEVED
OR THAT THE GOVERNMENT'S REQUIREMENT CAN BEST BE FILLED AFFORDING ALL
CONTRACTORS THE OPPORTUNITY TO OFFER A SOLUTION TO A PARTICULAR IT
REQUIREMENT.
4. INDIVIDUAL ORDER LEVEL SOURCE SELECTION. Award of Orders should be
based on a "best value" determination that addresses, as a minimum, the
following:
a. CAPABILITY TO COMPLY WITH ORDER SPECIFIC REQUIREMENTS.
Consideration should be given to whether or not the Contractor's response to
an RFQ meets the
<PAGE>
SASS HARDWARE II CONTRACT MANAGEMENT PLAN (CMP)
SECTION V - COMPETITION
specific requirements CONTAINED IN THE RFQ such as Y2K compliance, stated
system configuration, warranty, capability to meet expedited requirement, etc.
b. PAST PERFORMANCE. The SASS Hardware II Contractors have a history
of favorable past performance, which was a factor for contract award.
However, as the contracts are used, information on each Contractor's
performance under the SASS II contracts will be collected and made available
in accordance with the CPEP. COs, when making a best value determination, may
use a Contractor's performance on the SASS contracts themselves as an
evaluative factor in source selection at the Order level.
c. WARRANTY. Warranty terms and conditions vary among the contracts.
Items of consideration include when warranty commences (upon delivery,
installation, etc.), length of the warranty period, whether it is on-site or
depot, etc.
d. PRICE.
<PAGE>
SASS HARDWARE II CONTRACT MANAGEMENT PLAN (CMP)
SECTION VI - CONTRACTOR PERFORMANCE EVALUATION PLAN (CPEP)
1. PURPOSE. The purpose of this Contractor Performance Evaluation Plan (CPEP)
is to establish responsibility and procedures for evaluating the performance of
the Systems Acquisition and Support Services (SASS) Hardware II Contractors.
2. REFERENCE.
a. Federal Acquisition Regulation (FAR) 42, Subpart 42.15, Contractor
Performance Information.
b. Systems Acquisition and Support Services (SASS) Hardware II Contracts.
INTRODUCTION.
a. General. Past performance was the major criteria used by the Government
in making the SASS Hardware II contract awards with the belief that past
performance is a major indicator of future performance. Contractor performance
will continue to be a factor in award of Orders against the contracts.
b. Importance of Communications. Quality service and products are the goals
of both the Government and the Contractors. Open and frank communication between
the two parties is paramount to attainment of this goal and will provide
opportunities to proactively address problem areas, identify successful areas to
sustain, and identify business process improvements. Continuous, well documented
discussion and resolution of any problem areas will lessen the burden on
Government personnel preparing performance evaluation reports, as well as lessen
the chances that the results of the evaluation are unexpected by the
Contractors.
c. Use of Performance Information. All aspects of each SASS Contractor's
performance will be evaluated with a view toward using the results as (1) a
source of past performance information in making a best value determination for
issuance of Orders against the contracts; (2) an evaluative factor in the
Government's consideration of contract option renewal; and (3) a source of
information from which to respond to requests from other Government agencies for
past performance information.
d. Collection of Performance Information. Performance evaluation will be a
continuing process based on open communication between the Contractor, COs, SASS
CAST and customers. Information will be derived from day-to-day operational
activities; Monthly Reports; Customer Satisfaction and/or Random Surveys; the
Discrepancy Reporting System; Quarterly Contract Status Review (CSR) and the
Contractor's self-assessment; and feedback provided by contracting organizations
holding a DOA. Every effort will be made to ensure that all information is
shares between the Government and the Contractor.
Attachment D Page 20
<PAGE>
SASS HARDWARE II CONTRACT MANAGEMENT PLAN (CMP)
SECTION VI - CONTRACTOR PERFORMANCE EVALUATION PLAN (CPEP)
d. Frequency of Evaluation. Continuous communications and performance
measurement during execution of the contract will provide information necessary
for completing formal annual performance evaluations. Results of the quarterly
status update meeting which centers on the Contractor's activities during the
previous quarter are critical not only to effective contract management and
administration, but, just as importantly, it reflects the Contractor's
performance. During the CRS, Contractors will provide an informal performance
self-assessment at which time the Contractor and Government will reach
concordance in the assessment. It is reasonable to expect that if the Contractor
performs consistently, and the Government and the Contractor are in concordance
with the quarterly informal performance assessment, then this will be reflected
in the formal annual Contractor Performance Evaluation Report (CPER), a copy of
which is at enclosure VI-1. Because the annual interim reports reflect
performance over the life of the contract to date, the last interim report will
serve as the final CPER.
4. RESPONSIBILITIES.
a. Contracting Officer (CO). The CO is responsible for:
(1) Oversight of the Contractor performance evaluation process.
(2) Completion of the CPERs and providing it to the Contractor for
comments.
(3) Obtaining higher level review of the Contractor's performance
evaluation in the event the Contractor and the CO are unable to agree upon a
rating.
b. Delegated Ordering Authorities (DOA). Contracting organizations to which
ordering authority has been delegated is responsible for:
(1) Providing feedback on Contractor performance.
(2) Completion and submission of an informal CPER.
(3) Conducting/completing random Customer Satisfaction Surveys and
reporting the results to the VaCA.
(4) Ensuring Shipping/Receiving Quality Assurance Questionnaires are
completed for each Delivery Order.
(5) Maintaining continuous performance measurement files on each
contract, to include correspondence with the Contractors, minutes of
meetings, discrepancy reports and closure, Customer Satisfaction Surveys,
and Shipping/Receiving Quality Assurance Questionnaires.
Attachment D Page 21
<PAGE>
SASS HARDWARE II CONTRACT MANAGEMENT PLAN (CMP)
SECTION VI - CONTRACTOR PERFORMANCE EVALUATION PLAN (CPEP)
c. SASS Contract Administration Support Team (SASS CAST). The SASS CAST is
responsible for:
(1) Maintaining continuous performance measurement files on each
contract, to include correspondence with the Contractors, minutes of
meetings, discrepancy reports and closure, Customer Satisfaction Surveys,
and Shipping/Receiving Quality Assurance Questionnaires.
(2) Interfacing with DOAs to obtain required Contractor performance
evaluation information.
(3) Monitoring the evaluation process keeping the CO and Contractors
apprised of any information, which adversely affects the evaluation process.
(4) Assisting the CO in preparation of the annual CPER.
(5) Scheduling and coordinating attendance/agenda for Quarterly Contract
Status Update meeting and providing copies of the briefing to DOAs.
(6) Making available to DOA COs electronic forms required for Contractor
evaluation.
d. Contractor. The Contractor is responsible for:
(1) Providing continuous feedback to the COs and the CORs through the
conduct of normal business with the Government.
(2) Reporting and assisting in resolution of problems surfaced during
execution of the contract.
(3) Presenting a quarterly Contract Status Review (CSR).
(4) Participating in regular meetings with the CO/CORs and Customers to
proactively address problem areas, identify successful areas to sustain, and
identify business process improvements.
(5) Following up delivery orders with periodic Customer Satisfaction
Surveys and reporting results at the quarterly CSRs.
Attachment D Page 22
<PAGE>
SASS HARDWARE II CONTRACT MANAGEMENT PLAN (CMP)
SECTION VI - CONTRACTOR PERFORMANCE EVALUATION PLAN (CPEP)
(6) Reviewing the CPER.
(1) Sign and return the CPER within ten (10) days of receipt from the
CO acknowledging receipt and review. If the Contractor fails to sign the
CPER, the CO may annotate the report and finalize the evaluation.
(b) Submit comments, rebuttal or additional information, if any, with
the signed CPER.
5. PROCEDURES.
a. Quarterly Contractor Self-Assessment. The last item of the Contractor's
standard presentation for the CSR will be a self-assessment that affords the
opportunity for the Contractors to informally rate themselves against the
performance rating areas identified in the contract. The rating definitions and
guidelines contained in the CPER (Enclosure VI-1) will be used for this
self-assessment utilizing the following presentation format:
Quarterly Self Assessment - (Contractor Name), (date)
- --------------------------------------------------------------------------------
Rating Area Rating Comment/Rationale
- --------------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------------
Timeliness
- --------------------------------------------------------------------------------
Business Relations
- --------------------------------------------------------------------------------
Customer
Satisfaction
- --------------------------------------------------------------------------------
Once the rating is presented, Contractors will have an opportunity to
substantiate his rating. Subsequent discussion will be directed towards
attainment of Government and Contractor concordance in this informal assessment.
Given the fact that all information regarding the Contractor's performance is
known by the Government and all information available is shares by both parties,
reaching concordance should not be difficult. There should be no surprises
during this process.
b. DOA Assessment of Contractor Performance.
(1) In additional to providing information on a routine basis via the
methods described above, COs to whom ordering authority has been delegated
will be request to provide a periodic informal assessment of each
Contractors performance utilizing the CPER.
Attachment D Page 23
<PAGE>
SASS HARDWARE II CONTRACT MANAGEMENT PLAN (CMP)
SECTION VI - CONTRACTOR PERFORMANCE EVALUATION PLAN (CPEP)
(2) DOAs will be (a) provided copies of slides used in the quarterly CSR
(which will include the Contractor's self-assessment); and (b) afforded the
opportunity to comment.
c. Annual Contractor Performance Evaluation Report.
(1) Utilizing the information acquired via the mechanisms and processes
described above, the CO will, in coordination with the SASS CAST and the
Contractor, prepare the annual CPER in accordance with this CPEP and the
contract. The CPER will be provided to the Contractor for review and
signature not later than 30 April of each year.
(2) The Contractor will be given five (5) work days to review, sign and
return the completed CPER.
(3) In the event the Contractor submits a CPER rebuttal and an agreement
cannot be reached between the Contractor and the CO, the CO will raise the
issue to the next highest management level within the VaCA. The VaCA will
provide the Contractor with a written decision within fifteen (15) workdays
from receipt of the Contractor's CPER rebuttal.
6. MAINTENANCE OF COMPLETED EVALUATIONS. Completed CPERs will be maintained in
the contract file. The VaCA will establish a central repository for all CPERs.
DIA's objective is to make as much of this information as possible available via
Internet, with restrictions on access as appropriate. Interim evaluations will
be retained for the duration of the contract and will be included with the final
evaluation in the file.
7. RELEASE OF INFORMATION. The completed evaluation will not be released to
other than Government personnel and the contractor whose performance is being
evaluated during the period the information is being used to provide source
selection information.
Enclosure:
VI-1, Contractor Performance Evaluation Report
Attachment D Page 24
<PAGE>
Exhibit 10.9
DEED OF LEASE
This Deed of lease hereinafter referred to as the Lease made in
triplicate as of the day of October 1994 between C & T PARTNERSHIP as
"Landlord," and DUNN COMPUTER CORPORATION, a Virginia corporation,
hereinafter referred to as "Tenant."
WITNESSETH: That Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord, the following described premises:
An area of 19,230 square feet, more or less, as shown on the drawing
attached as Exhibit "A" (the "Premises") and which is an office/warehouse
building (the "Building") located at 1306 Squire Court, County of Loudoun,
Sterling, Virginia the Building having approximately 35,000 gross square
feet of space, together with the right to use in common with other tenants
all driveways, all non-exclusive parking areas and other common facilities
located on the property.
1. Term of Lease. The term of this Lease shall be for a period of four
years commencing November 1, 1994 and terminating on October 31, 1999.
2. Use of Premises. Tenant shall use the Premises for the following
purposes: office and any other uses permitted by zoning. Tenant agrees that
in its use of the Premises that it will not place a load upon any floor of
the Premises exceeding the floor load limit of 250 pounds per square foot.
Landlord warrants and represents that the zoning on the date of this Lease is
PDIP.
It is understood and agreed that the operation of Tenant's business in
the Premises shall be in conformity with all applicable federal, state and
county laws, ordinances and regulations. The obtaining of any permits or
business licenses required in connection with the operation of Tenant's
business in the Premises by Tenant shall be the sole responsibility and at
the expense of Tenant. Landlord, at its own cost and expense, shall be
responsible for all necessary building permits and certificates of occupancy
required in connection with the Building and Premises.
3. Parking. Tenant shall have the right to use, on a first come first
served basis, all non-exclusive parking spaces located on common areas of the
property.
4. Signs. Tenant may, at its sole expense, affix to the exterior of the
Building and/or exterior or interior of the glass located on the Premises a
sign advertising its business, with prior written approval of design and
placement by Landlord, which shall not be unreasonably withheld. Landlord
hereby approves the design and placement of Tenant's existing signage.
5. Rent. Tenant agrees to pay Landlord, during the term of this Lease, an
annual fixed rent for the lease of the Premises in accordance with the
schedule listed below. Rent shall be paid in consecutive equal monthly
installments of 1/12 of the applicable yearly rent in advance on the first
day of each and every month of the term. If this Lease commences or
terminates on a day other than the first of the month, the amount of rent to
be paid for said month shall be apportioned. The rent schedule during this
Lease is:
<PAGE>
First lease year
month; $12,000......................................... per year; $144,000
Second lease year
month; $12,000......................................... per year; $144,000
Third lease year
month; $13,000......................................... per year; $156,000
Balance of lease
month; $14,000......................................... per year; $168,000
OPTION TERM. Tenant shall have the option to extend and renew the term
of this Lease for an additional term of one (1) five (5) year period to
commence at the expiration of the original term of this Lease. Tenant shall
notify Landlord in writing of its intent to exercise this option one hundred
eighty (180) days prior to the termination date of this Lease. The rent
schedule during the option term are market rates to be negotiated.
A lease year shall be that twelve (12) month period commencing on the
commencement date and ending on the twelfth month anniversary of the
commencement date. It is agreed that if the fixed rent for any month or any
additional rent due in any month is not paid within ten (10) days following
its due date, Tenant shall pay to Landlord for any such month as a late
fee/administrative charge an additional sum of three percent (3%) of such
unpaid rent.
In addition to the foregoing rent, all other payments to be made by
Tenant pursuant to this Lease Shall be deemed to be and shall become
additional rent hereunder, whether or not the same be designated as such, and
shall be subject to the same terms and provisions as the rent above, and
Landlord shall have the same remedies for failure to pay the same as for
nonpayment of fixed rent. Landlord, at its sole election and after giving
Tenant ten (10) days written notice and the right to cure, shall have the
right to pay or do any act which requires the expenditure of any sums of
money by reason of the failure of Tenant to perform any of the provisions of
this Lease, and in such event said monies shall be due from tenant as
additional rent and Tenant hereby agrees to pay all additional rent forthwith
on demand from Landlord. Failure to pay fixed rent or additional rent within
ten (10) days of receiving written notice thereof from Landlord shall
constitute a default by the Tenant of this Lease and shall entitle the
Landlord to avail itself of any and all of the remedies for herein.
6. Utilities. Landlord agrees to pay for all utility services to the
common areas on the property. Tenant agrees to pay directly to the company or
utility furnishing such services all charges for electricity, gas, fuel,
power, water, sewer use, telephone, and all other utilities serving the
Premises as the same become due. Tenant agrees to indemnify and hold Landlord
harmless from any claims that may be made by such companies or utilities
which may arise from Tenant's use of utilities and/or Tenant's failure to pay
all charges for such use.
7. Insurance. Tenant agrees to pay the cost of the fire and extended
coverage insurance, rent insurance, liability insurance and any other
insurance as may be maintained by Landlord and required by the holders of any
mortgages, deeds of trust or ground leases on the Building. Tenant agrees to
do nothing and to permit nothing to be done on the Premises which
<PAGE>
will violate the terms of any fire insurance policy or other insurance
policies on the Building. Tenant covenants and agrees that Tenant will not do
or permit anything to be done in or upon the Premises, or bring in anything
or keep anything therein, which shall increase the rate of fire and extended
coverage or liability insurance on the Premises or the Building above the
standard rate applicable to Premises being occupied for the uses permitted
herein; and Tenant further agrees that, in the event that Tenant shall do any
of the foregoing, Tenant will promptly pay to Landlord, on demand, any such
increase resulting therefrom, which shall be due and payable as additional
rent hereunder. Landlord agrees that Tenant's current use of the Premises
does not violate Landlord's insurance policies or cause an increase in the
cost thereof. Tenant, at its sole expense, shall maintain fire and extended
coverage insurance covering all Tenant's personal property located on the
Premises.
8. Waiver of Subrogation. For the purpose of waiver of subrogation, the
parties mutually release and waive unto the other, all right to claim
damages, costs or expenses for any injury to person (including death) or
property caused by a casualty of any type whatsoever in, on or about the
Premises, the Building or the land if the amount of such damage, cost or
expense has been paid to such damaged party under the terms of any policy of
insurance. All insurance policies carried with respect to this Lease, if
permitted under applicable law and insurance policy, shall contain a
provision whereby the insurer waives prior to loss all rights of subrogation
against either Landlord or Tenant, as applicable. The parties agree to
request their respective insurance carriers to issue waiver of subrogation
endorsements to all insurance policies.
9. Indemnification. Tenant agrees to save Landlord free and harmless from
any and all losses, claims, or damages by reason of any accident, injury or
damage to any person or property caused by Tenant's negligence, except such
injury as may be caused by or result from the negligence of Landlord, its
agents, or its employees.
10. Exculpation. Tenant specifically agrees to look solely to the right
of set-off allowed by this Lease and Landlord's equity interest in the
Building at the time owned for recovery of any judgment from Landlord; it
being specifically agreed that neither Landlord (original or successor), nor
any partner, nor any beneficiary of any trust of which any person holding
Landlord's interest is trustee, shall ever be personally liable for any
judgment, or for the payment of any monetary obligation to Tenant. The
provision contained in the foregoing sentence is not intended to, and shall
not, limit any right that Tenant might otherwise have to obtain injunctive
relief against Landlord or Landlord's successors in interest, or any action
not involving the personal liability of Landlord (original or successor), any
successor trustee to the persons named herein as Landlord, nor any partner,
nor any beneficiary of any trust of which any person holding Landlord's
interest is trustee, to respond to monetary damages from Landlord's assets
other than Landlord's equity interest aforesaid in the Building. In no event
shall Landlord ever be liable to Tenant for any indirect or consequential
damages suffered by Tenant from whatever cause. The word "Landlord," as used
herein, means only the owner for the time being of Landlord's interest in
this Lease, that is, in the event of any transfer of Landlord's interest in
this Lease the transferor shall cease to be liable, and shall be released
from all liability for the performance or observance of any agreements or
conditions on the part of Landlord to be performed or observed subsequent to
the time of said transfer, it being understood and agreed
<PAGE>
that from and after said transfer the transferee shall be liable for the
performance and observance of said agreements and conditions.
11. Public Liability Insurance. Tenant agrees to maintain and pay for,
during the full term of this Lease, public liability insurance with
reasonable bodily limits and property damage limits naming as insureds
Tenant, Landlord, and holders of any mortgages or deeds of trust on the
Premises and any other party so named by Landlord in writing to Tenant, as
their interests appear, against Tenant's liability for any accident, injury,
or damage on the Premises or caused by the same, and to furnish Landlord with
a copy of such insurance policy. Such policy shall set forth an undertaking
by the insurer to give Landlord and any other party named by Landlord thirty
(30) days' prior written notice of any cancellation, nonrenewal, or change in
scope or amount of coverage of such policy. Tenant agrees to increase such
policy limits if requested by Landlord, except that such increases shall not
be unreasonable. Tenant shall not take out any additional public liability
insurance for the Premises without naming as insureds Tenant, Landlord, and
any other party so designated by Landlord in writing to Tenant, as their
interests appear.
12. Alterations. Tenant agrees not to make any structural alterations or
additions without the prior written consent of Landlord which consent may be
granted only in the sole discretion of Landlord. Tenant shall not be
permitted to make any change in the Building facade. Tenant agrees to pay for
all such alterations or additions consented to by Landlord. Tenant also
agrees not to make any non-structural alterations without the prior written
consent of Landlord, which consent shall not be unreasonably withheld. All
such work performed by or on behalf of Tenant shall be done in a good
workmanlike manner, and Tenant shall ensure that all of Tenant's contractors
engaged in such work shall at all times maintain workmen's compensation,
adequate public liability and property damage insurance, all in amounts and
with companies and on forms satisfactory to Landlord in Landlord's reasonable
judgment, naming as additional insureds Landlord and any other person
requested by Landlord in writing to Tenant, and before proceeding with such
work Tenant shall furnish certificates of such insurance to Landlord. If
Landlord does not advise Tenant in writing within thirty (30) days of
Landlord's receipt of the insurance certificates that such insurance
certificates are unacceptable for the specified reasons, the insurance
certificates delivered by Tenant shall be deemed acceptable. Tenant shall not
permit any mechanic's lien to be filed on the Premises for any work or
material performed or furnished on Tenant's behalf as a result of such
alterations and Tenant agrees to indemnify Landlord for any damages resulting
from any such mechanic's lien being filed on the Premises.
14. Tenant's Use and Occupancy Upon Subordination. Subordination of this
Lease to any mortgage, deed of trust, ground lease or other financing
arrangement shall not change any of Tenant's duties or obligations as
contained herein.
15. Surrender. Upon expiration or termination of this Lease, Tenant
agrees to surrender the Premises and all equipment of Landlord in good and
clean condition, ordinary wear and tear and damage caused by casualty
exempted. All equipment, detachable office partitions and all personal
property of Tenant shall be removed by Tenant upon termination of this Lease.
<PAGE>
Except for Tenant's right to remove Tenant's equipment, detachable office
partitions and all personal property, all other improvements to the Premises
shall be the sole property of Landlord.
16. Casualty Damage. Subject to the provisions of this paragraph, if the
Premises shall be damaged by a casualty covered by an insurance policy such
as fire, the elements, unavoidable accident or any other insured casualty but
are not thereby rendered untenantable in whole or in part, Landlord at its
own expense, up to the limit of the insurance proceeds received, subject to
the rights of any mortgagee or the holders of any ground lease or the
trustees in any deeds of trust and subject to receipt of proceeds, shall
cause such damage to be repaired, and the rent shall not be abated. If by
reason of such occurrence, the Premises shall be rendered untenantable only
in part and such damage renders less than 40% of the Premises and less than
50% of the Building untenantable, then Landlord shall, at its own expense, up
to the limit of the insurance proceeds received and made available to
Landlord by the holders of any mortgage, deed of trust or ground lease, cause
the damage to be repaired, and the fixed rent meanwhile shall be abated
proportionately as to the portion of the Premises that have been rendered
untenantable, provided, however, that notwithstanding that less than 40% of
the Premises and less than 50% of the Building are rendered untenantable, if
it is determined by Landlord or Landlord's agent in his reasonable judgment
that such damaged portion of the Premises or Building cannot be repaired
within sixty (60) days of such casualty, then either Landlord or Tenant may
terminate this Lease as of the date of such casualty by giving written notice
to the other within thirty (30) days of said casualty. If more than 40% of
the Premises or more than 50% of the Building is rendered untenantable by
reason of such casualty, either Landlord or Tenant may terminate this Lease
as of the date of such casualty by giving written notice to the other within
thirty (30) days of said casualty. Notwithstanding the above, if the Premises
are damaged in whole or in part by a casualty not covered fully by insurance
as described above, or if the holder of any mortgage or deed of trust does
not release the insurance proceeds to Landlord, Landlord may, at Landlord's
sole option, either (i) repair such damage with ninety (90) days at
Landlord's expense, in which case this Lease shall continue in full force and
effect except that rent shall be abated as described above, or (ii) terminate
this Lease upon written notice to Tenant within thirty (30) days of such
occurrence of such damage of Landlord's intention to cancel and terminate
this Lease. Notwithstanding any of the above, Landlord shall in no case be
liable for repairs to any structures, fixtures, alterations or improvements
to the Premises or Building added or made to the Premises by Tenant or any
person other than Landlord or to any equipment, inventory or other personal
property of Tenant. Landlord's obligation to repair the Premises as referred
to above shall be strictly limited to only such repairs that can be
accomplished and fully funded by such insurance proceeds that may be received
by Landlord and made available to Landlord by the holders of any mortgages,
deeds of trust, ground leases or other financing arrangements pertaining to
the Building in which the Premises are located.
17. Repairs.
(a) Landlord shall keep the foundation, roof, exterior Building
walls, interior load bearing walls of the Premises in good repair, except
that Landlord shall not be called on to make any such repairs occasioned by
the willful act of Tenant, its agents, invitees, customers or employees.
Landlord, at its expense, shall also at all times manage, operate and
maintain the
<PAGE>
Premises (including all mechanical, plumbing, heating, air conditioning,
sprinkler, electrical equipment and utility systems and service lines serving
the Premises) and the land areas, access roads and ways, parking, loading
docks, and loading areas around the Premises in good, clean, sanitary and
safe condition and repair, in accordance with all directions, rules and
regulations of the health officer, fire marshal, building inspector or other
proper officers of the governmental agencies having jurisdiction. Tenant
shall permit no waste, damage or injury to the Premises beyond ordinary wear
and tear. Tenant shall at its own cost and expense replace any broken or
cracked glass, windows, doors, locks, door jambs and partition walls in the
Premises caused by Tenant's negligence.
(b) In the event of damage to the Premises which must be repaired
immediately in order to prevent further damage to the Premises or the
Building, the Landlord shall have the right to proceed at once to repair such
damage, regardless of whether Landlord or Tenant is obligated by the terms of
this Lease to make the repairs, and the cost thereof shall be borne by the
party who, by the terms hereof, is obligated to make said repairs. Provided
Landlord enters the Premises with all due care, Landlord shall not be liable
for any damage to the Premises, Tenant's property or Tenant's use of the
Premises during such entry unless caused by Landlord's negligence.
(c) Tenant shall give Landlord notice of all repairs needed to the
Premises of which Tenant has notice. Tenant shall not make any repairs on
behalf of Landlord until Tenant has provided written notice of the need for
such repairs to Landlord and allowed Landlord a reasonable amount of time to
make such repairs.
18. Entry. The Landlord shall have the right to enter the Premises at all
reasonable hours with prior notice and in the company of an employee or
representative of Tenant to examine the same as well as for maintenance
purposes or to make any improvements, alterations and repairs to the Premises
or to the Building. Landlord may, during the progress of any work on the
Premises, keep and store upon the Premises all necessary materials, tools and
equipment without the same constituting eviction of Tenant in whole or in
part, and the rents reserved shall in no way abate while said work is in
progress by reason of loss of interruption of Tenant's business or otherwise.
Landlord shall not in any event be liable for inconvenience, annoyance,
disturbance, loss of business or other damage of Tenant by reason of the
performance of any work on the Premises. Landlord shall, however, in
connection with the doing of any such work use reasonable efforts to minimize
the inconvenience, annoyance, or disturbance, caused to Tenant during such
work. During the last nine (9) months preceding the termination of this
Lease, Landlord shall have the right to enter the Premises at reasonable
hours to exhibit the same for renta
19. Condemnation. If the whole or part of the Premises are taken for a
public or semi-public use, by condemnation or conveyance in lieu of
condemnation and neither Landlord nor Tenant terminates this Lease, then the
rents shall be decreased in proportion to the portion of the Premises so
taken. If such taking renders the Premises unfit for Tenant's use as
specified in Section 2, then in such event, either Landlord or Tenant shall
have the right to terminate this
<PAGE>
Lease as of the date the Landlord is divested of title to the Building in
which the Premises are located or as of the date the condemning authority
requires the Tenant or Landlord to quit the Building or Premises, whichever
date occurs first, and as of such date any or all obligations hereunder shall
be declared null and void providing Tenant has paid Landlord all rent or
additional rent then due and payable. In the event such condemnation or
conveyance in lieu thereof does not render the Premise unfit for Tenant's use
but results in a taking of a portion of the Building or the lot on which the
Building is located and Landlord determines in its reasonable judgment that
it cannot continue to lease the Premises then the Landlord shall have the
right to terminate the Lease after thirty (30) days written notice to Tenant.
All proceeds paid for any such taking shall belong solely to Landlord, and
Tenant shall have no claim for the value of any expired or unexpired term of
this Lease. Landlord shall have and hereby reserves and excepts, and Tenant
hereby grants and assigns to Landlord, all rights to recover for damages to
the Building and the property on which the Building is situated and the
leasehold interest hereby created, and to compensation accrued or hereafter
to accrue by reason of such taking, damage or destruction, and by way of
confirming the foregoing, Tenant hereby grants and assigns, and covenants
with Landlord to grant and assign to Landlord, all rights to such damages or
compensation, and covenants to deliver such further assignments and
assurances thereof as Landlord may from time to time request, and Tenant
hereby irrevocably appoints Landlord its attorney-in-fact to execute and
deliver in Tenants name all such assignments and assurances. Nothing
contained herein shall be construed to prevent Tenant from prosecuting in
condemnation proceedings a claim for the value of any of Tenant's removable
property installed in the Premises by Tenant at Tenant's expense and for
relocation expenses, provided that such action shall not affect the amount of
compensation otherwise recoverable by Landlord from the taking authority.
20. Real Estate Taxes. Landlord shall pay all real property taxes
(including extraordinary and/or special assessments) which may be levied or
assessed by any lawful authority against the land and the Building of which
the Premises are a part during any and each lease year. Tenant shall pay
prior to delinquency all taxes assessed against the value of any machinery,
equipment, fixtures, inventory or other personal property or assets of Tenant
contained in the Premises.
21. Waiver. Any waiver of a default hereunder shall not be deemed a
waiver of any subsequent defaults. Any invalid, illegal, or unenforceable
clause herein shall not be construed as invalidating any other clause herein
or this agreement in its totality.
22. Assignment and Subletting. Tenant covenants and agrees not to assign
this Lease or to sublet without the written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. Any such assignment or
subletting shall not relieve Tenant from liability for payment of rent or
terms, conditions and covenants of this Lease. The acceptance of rent by
Landlord from other person shall not be deemed to be a waiver of any of the
provisions of this Lease or to be a consent to the assignment of this Lease
or subletting of the Premises. It shall be a condition of the validity of any
such assignment or subletting, that the assignee or subtenant agrees directly
with Landlord, in form satisfactory to Landlord, to be bound by all the
obligations of the Tenant hereunder, including, without limitation, the
obligation to pay rent and other amounts provided for under this Lease and
the covenant against further assignment and
<PAGE>
subletting. No assignment, subletting or use of the Premises by any other
party shall affect the purpose for which the Premises may be used as stated
in Section 2 herein without Landlord's consent. Should Tenant sublease the
Premises at a rate greater than the rental due Landlord, Tenant shall assign
the net profit derived after payment of associated costs and commissions, to
Landlord.
23. Tenant's Default--Landlord's Remedies.
a. If at any time subsequent to the date of this Lease any one or
more of the following events (herein referred to as a "Default of Tenant")
shall happen:
(i) Tenant shall fail to pay the fixed rent, additional rent or
other charges hereunder when due and such failure shall continue for
ten (10) days after receiving written notice from Landlord; or
(ii) Tenant shall fail to perform or observe any other covenant
herein contained on Tenant's part to be performed or observed and
Tenant shall tail to remedy the same within thirty (30) days after
receiving written notice thereof from Landlord; or
(iii) Tenant's leasehold interest in the Premises shall be taken
by execution or by other process of law directed against Tenant; or
(iv) Tenant shall make a general assignment for the benefit of
creditors or shall file a voluntary petition in bankruptcy or shall
be adjudicated bankrupt or insolvent, or shall file any petition or
answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself
under any present or future Federal, State or other statute, law or
regulation for the relief of debtors, or shall seek or consent to or
acquiesce to the appointment of any trustee, receiver or liquidator
of Tenant or of all or any substantial part of its properties, or
shall admit in writing its inability to pay its debts generally as
they become due; or
(v) A petition shall be filed against Tenant in bankruptcy or
under any other law seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar
relief under any present or future Federal, State or other statute,
law or regulation and shall remain undismissed or unstayed for an
aggregate of sixty (60) days (whether or not consecutive), or if any
debtor in possession of all or any substantial part of its
properties or of the Premises shall be appointed without the consent
or acquiescence of Tenant and such appointment shall remain
unvacated or unstayed for an aggregate of sixty (60) days (whether
or not consecutive); or
(vi) If a Default of Tenant of the kind set forth in clauses
(i) or (ii) above shall occur and if either (x) Tenant shall cure
such Default within the applicable grace period or (y) Landlord
shall, in its sole discretion, permit Tenant to cure such Default
after the applicable grace period has expired, and an event
<PAGE>
which would constitute a similar Default if not cured within the
applicable grace period shall occur more than twice within the next
365 days, whether or not such event is cured within the applicable
grace period;
then in such case (1) if such Default of Tenant shall occur
prior to the Commencement Date, this Lease shall ipso facto, and without
further act on the part of Landlord, terminate, and (2) if such Default of
Tenant shall occur after the Commencement Date, Landlord may terminate this
Lease by notice to Tenant, specifying a date not less than ten (10) days
after the giving of such notice on which this Lease shall terminate and this
Lease shall come to an end on the date specified therein as fully and
completely as if such date were the date herein originally fixed for the
expiration of the term of this Lease and Tenant will then quit and surrender
the Premises to Landlord, but Tenant shall remain liable as hereinafter
provided.
b. If this Lease shall have been terminated as provided in this
Section, or if any execution or attachment shall be issued against Tenant or
any of Tenant's property whereupon the Premises shall be taken or occupied by
someone other than Tenant, then Landlord may, without notice, re-enter the
Premises, either by force, summary proceedings, ejectment or otherwise, and
remove and dispossess Tenant and all other persons and any and all property
from the same, as if this Lease had not been made.
c. In the event of any termination, Tenant shall pay the fixed rent,
additional rent and other sums payable hereunder up to the time of such
termination, and thereafter Tenant, until the end of what would have been the
term of this Lease in the absence of such termination, and whether or not the
Premises shall have been relet, shall be liable to Landlord for, and shall
pay to Landlord, as liquidated current damages, the fixed rent late fee/
administrative charges, interest and other sums which would be payable
hereunder if such termination had not occurred, less the net proceeds, if
any, of any reletting of the Premises, after deducting all reasonable
expenses incurred in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, legal expenses,
attorneys' fees, advertising, expenses of employees, alteration costs and
expenses of preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days which the fixed rent would have been
payable hereunder if this Lease had not been terminated.
d. In case of any Default by Tenant, re-entry, expiration and
dispossession of summary proceedings or otherwise, Landlord may (i) re-let
the Premises or any part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms which may at Landlord's option be equal to or
less than or exceed the period which would otherwise have constituted the
balance of the term of this Lease and may grant concessions or free rent to
the extent that Landlord considers reasonably necessary to re-let the same
and (ii) may make such reasonable alterations, repairs and decorations in the
Premises as Landlord in its sole judgment considers advisable and necessary
for the purpose of re-letting the Premises; and the making of such
alterations, repairs and decorations shall not operate or be construed to
release Tenant from liability hereunder as aforesaid. Landlord shall in no
event be liable in any way whatsoever for failure to re-let the Premises, or,
in the event that the Premises are re-let, for failure to collect the rent
under such re-letting. Tenant hereby expressly waives any and all rights of
redemption
<PAGE>
granted by or under any present or future laws in the event of Tenant being
evicted or dispossessed, or in the event of Landlord obtaining possession of
the Premises, by reason of the violation by Tenant of any of the covenants of
this Lease.
e. The specified remedies to which Landlord may resort hereunder are
not intended to be exclusive of any remedies or means of redress to which
Landlord may at any time be entitled lawfully, and Landlord may invoke any
remedy (including the remedy of specific performance) allowed at law or in
equity as if specific remedies were not herein provided for. All remedies
granted in this Section or otherwise provided by law shall be cumulative and,
unless inconsistent, may be exercised separately or concurrently or
successively.
f. All costs and expenses incurred by or on behalf of Landlord
(including, without limitation, reasonable attorneys' fees and expenses) in
enforcing its rights hereunder or occasioned by any Default of Tenant shall
be paid by Tenant.
24. Jurisdiction. This Lease shall be governed by the laws of the
Commonwealth of Virginia.
25. Notice to Mortgagee, Trustees, or Ground Lessor. After receiving
written notice from any person, firm or other entity that it holds a
mortgage, deed of trust or a ground lease which includes the Premises, no
notice from Tenant to Landlord alleging any default by Landlord shall be
effective unless and until a copy of the same is given to such holder,
trustee, or ground lessor (provided Tenant shall have been furnished with the
name and address of such holder, trustee or ground lessor in writing), and
the curing of any of Landlord's defaults by such holder, trustee or ground
lessor within thirty (30) days of the date of such notice (or such longer
period as may be reasonably required, provided such holder, trustee or ground
lessor is diligently pursuing such cure) shall be treated as performance by
Landlord.
26. Care of Premises. Tenant shall not perform any acts or carry on any
practices which may damage the Premises or Building or be a nuisance or
menace to other tenants. Tenant shall not store and'or place any material,
crates, boxes, equipment, abandoned trailers or automobiles, in the parking
areas, driveways, lawns, sidewalks and areas adjacent to the Premises under
its control, including the sidewalks and areas adjacent to the Premises or
outside the Premises in trash containers provided by Landlord. Landlord, at
its sole expense, shall maintain the landscaped areas, remove snow and ice
from the parking areas and roads and maintain the parking areas and roads
adjacent to the Premises, and schedule regular trash removal. If, however,
Tenant creates an extraordinary volume of trash or hazardous waste which
requires special handling, Tenant agrees to reimburse Landlord for any
additional cost occasioned thereby.
27. Short Form Deed of Lease--Notice of Termination. At the option of
either Landlord or Tenant, a short form memorandum of this Lease suitable for
recording purposes, but in no way varying the provisions of this Lease, shall
be entered into by Landlord and Tenant. The cost of preparing and recording
such a memorandum shall be at the expense of the party requesting the
recordation. In the event a short form deed of Lease is recorded, the parties
agree
<PAGE>
that at the expiration of this Lease that they will execute a Notice of
Termination of this Lease and the cost of preparing and recording said Notice
shall be at the expense of the party requesting the recording of the short
form deed of Lease.
28. Leasing Clause. Landlord warrants that it is the owner of the
Premises and has the full right and authority to make this Lease. Landlord
hereby releases the Premises to Tenant in accordance with the provisions of
this Lease. Tenant hereby accepts this Lease.
29. Tenant's Corporate Authority. If Tenant is a corporation, it shall,
concurrently with the signing of this Lease, at Landlord's option, furnish to
Landlord a certificate of good standing issued by the Commonwealth of
Virginia. Each individual executing this Lease on behalf of Tenant hereby
represents and warrants that he is duly authorized to execute and deliver
this Lease and that Tenant is a duly organized corporation under the laws of
the State of its incorporation, is qualified to do business in Virginia, is
in good standing under the laws of the State of its incorporation and the
laws of Virginia, and has the power and authority to enter into this Lease,
and that all corporate action requisite to authorize Tenant to enter into
this Lease has been duly taken.
30. Notices. Any notice by either party to the other shall be in writing
and shall be deemed to be duly given only if delivered personally or mailed
by registered or certified mail in a post-paid envelope addressed (a) if to
Tenant, Dunn Computer Corporation, 1306 Squire Court, Sterling, VA 20166, or
to either at such other addresses as Tenant or Landlord, respectively, may
designate in writing. Notice shall be deemed to have been duly given if
facsimiled, delivered personally, on delivery thereof, and if mailed, by
certified or registered mail, on the third day after the mailing thereof.
Rent shall be paid to Landlord at the address as provided above.
31. Heirs and Assigns. This Lease shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, executors,
administrators, successors and assigns, provided that nothing herein shall be
deemed to modify the assignment and subletting provisions above.
32. Covenants of Quiet Enjoyment. Landlord covenants that subject to the
terms of this Lease, if Tenant shall pay the rent and perform all of the
covenants, terms, conditions and agreements of this Lease to be performed by
Tenant, Tenant shall, during the term hereby created, freely, peaceably and
quietly occupy and enjoy the full possession of the Premises without
molestation or hindrance by Landlord or any party claiming through or under
Landlord.
33. Paragraph Headings. The paragraph headings throughout this Lease are
for convenience and reference only, and the words contained therein shall in
no way be held to explain, modify or amplify or aid in the interpretation,
construction or meaning of the provisions of this Lease.
34. Complete Agreement. This Lease contains the entire agreement between
the parties hereto and all previous negotiations leading thereto, and it may
be modified only by an agreement in writing signed by Landlord and Tenant.
The parties agree that the execution hereof
<PAGE>
has not been induced by either party by any representations, promises, or
undertakings not expressed herein.
35. Costs and Expenses. All costs and expenses incurred by or on behalf
of either party (including, without limitation, reasonable attorneys' fees
and expenses) in enforcing its rights hereunder or occasioned by any default
under this Lease shall be paid by the defaulting party.
36. Time is of the Essence. Time is of the essence with respect to the
performance of each of the obligations, covenants and agreements contained in
this Lease.
LANDLORD: C & T PARTNERSHIP
By:_________________________________
Title:______________________________
By:_________________________________
Title:______________________________
TENANT: DUNN COMPUTER CORPORATION
By:_________________________________
Title:______________________________
By:_________________________________
Title:______________________________
11
EXHIBIT "A"
(Legal Description)
<PAGE>
C & T PARTNERSHIP
(Landlord)
and
DUNN COMPUTER CORPORATION
(Tenant)
_______________________________________________________________________________
INDEX
Term of Lease....................................................... 1
Use of Premises..................................................... 1
Parking............................................................. 1
Signs............................................................... 1
Rent................................................................ 1
Utilities........................................................... 2
Insurance........................................................... 3
Waiver of Subrogation............................................... 3
Indemnification..................................................... 3
Exculpation......................................................... 3
Public Liability Insurance.......................................... 4
Alterations......................................................... 4
Tenant's Use and Occupancy Upon Subordination....................... 5
Surrender........................................................... 5
Casualty Damage..................................................... 5
Repairs............................................................. 6
Entry............................................................... 7
Condemnation........................................................ 7
Real Estate Taxes................................................... 8
Waiver.............................................................. 8
Assignment and Subletting........................................... 8
Tenant's Default Landlord's Remedies................................ 8
Jurisdiction........................................................ 10
Notice to Mortgagee, Trustees, or Ground Lessor..................... 10
Care of Premises.................................................... 10
Short Form Deed of Lease Notice of Termination...................... 11
Leasing Clause...................................................... 11
Tenant's Corporate Authority........................................ 11
Commission.......................................................... 11
Notices............................................................. 11
Heirs and Assigns................................................... 11
Covenants of Quiet Enjoyment........................................ 12
Relationship of Parties............................................. 12
Paragraph Headings.................................................. 12
Complete Agreement.................................................. 12
Costs and Expenses.................................................. 12
Time is of the Essence.............................................. 12
<PAGE>
FIRST ADDENDUM TO LEASE
THIS FIRST ADDENDUM TO LEASE ("First Addendum"), is made as of the 1st
day of December 1995 by and between C&T Partnership, a Virginia General
Partnership ("Landlord"), and Dunn Computer Corporation ("Tenant") a Virginia
corporation ("Tenant"):
RECITALS
Pursuant to the Deed of Lease dated October 31, 1994, by and between C&T
Partnership ("Landlord"), and Dunn Computer Corporation ("Tenant"), Landlord
leased to Tenant an area of 14,230 square feet, more or less (the
"Premises"), in a 35,100 square foot building (the "Building"), located at
1306 Squire Court, Sterling, Loudoun County, Virginia 20166. Tenant desires
to expand into the two adjacent room as indicated on attached floor plan
increasing the square footage of the Premises from 14,230 square feet to
19,230 square feet, more or less. The Lease is hereby amended in accordance
with the following terms and conditions.
AGREEMENT
For and in consideration of the rent and the mutual benefits flowing to
the parties from the Lease as amended hereby, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged,
Landlord and Tenant agree as follows:
1. TERM
The term of this First Addendum shall commence December 1, 1995 and
terminate October 31, 1999.
2. PREMISES
Landlord and Tenant hereby agree that Tenant shall expand its premises by
5,000 square feet, more or less, into space shown on attached floor plan.
The total area of the Premises for all purposes shall hereafter be 19,230
square feet.
3. UTILITIES
Tenant agrees to pay all utilities within the Premises as expanded.
4. IMPROVEMENTS
Tenant agrees to accept the expansion space in "as is" condition.
Landlord will promptly and reasonably approve Tenant's plans for said
improvements. Tenant
<PAGE>
Landlord:
C&T Partnership
A Virginia General Partnership
WITNESS AND ATTEST
_________________________________ By:___________________________
Thomas Dunn
WITNESS AND ATTEST
_________________________________ By:___________________________
Claudia Dunn
_____________________
Tenant:
WITNESS & ATTEST Dunn Computer Corporation
_________________________________ By:___________________________
Name:_________________________
Title:________________________
<PAGE>
SECOND ADDENDUM TO LEASE
THIS SECOND ADDENDUM TO LEASE ("Second Addendum") is made as of the 31st
day of October 1996 by and between C&T Partnership, a Virginia General
Partnership ("Landlord") and Dunn Computer Corporation, a Virginia
corporation ('Tenant").
RECITALS
Pursuant to the Deed of Lease dated October 31, 1994, by and between C&T
Partnership ("Landlord"), and Dunn Computer Corporation ('Tenant"), a
Landlord leased to Tenant an area of 19,230 square feet, more or less (the
"Premises"), in a 35,100 square foot building (the "Building"), located at
1306 Squire Court, Sterling, Loudoun County, VA 20166. Tenant desires to have
a fixed price lease and Landlord hereby agrees to amend lease in accordance
with the following terms and conditions.
AGREEMENT
1. TERM
The term of this Second Addendum shall commence October 31, 1996 and
terminate October 31, 1999.
2. PREMISES
Landlord and Tenant hereby agree that this Second Addendum covers
specifically the 19,230 square feet, more or less, currently being leased
by Tenant.
3. RENT
Rent is currently $168,000 annually. This rent shall be fixed through the
term of the Lease. The rent schedule in paragraph 5 of the lease is now
modified and reads as follows:
Third year of lease $168,000; $14,000 per month
Fourth year of lease $168,000; $14,000 per month
Fifth year of lease $168,000; $14,000 per month.
4. FULL FORCE AND EFFECT
Except as modified hereby, all other terms, convenience and conditions of
the Lease are hereby acknowledged to be in full force and effect, and the
parties ratify and confirm same. To the extent that the terms of this
Second Addendum conflict with or contradict the terms of the Lease it is
the intent of the parties hereto that the terms of this Second Addendum
shall control.
<PAGE>
Page 2
Landlord:
C&T Partnership
A Virginia General Partnership
WITNESS AND ATTEST
_________________________________ By:___________________________
Thomas Dunn, Partner
WITNESS AND ATTEST
_________________________________ By:___________________________
Claudia Dunn, Partner
______________________________
Tenant:
WITNESS AND ATTEST Dunn Computer Corporation
_________________________________ By:___________________________
Name: John D. Vazzana
Title: Exec. Vice Pres.
<PAGE>
Exhibit 10.10
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT ("First Amendment") is made and
entered into this 23 day of July 1997 by and between APA PROPERTIES NO. 6
L.P. ("Lessor"), having an address c/o its Agents, Peter Lawrence of
Virginia, Inc., 11440 Isaac Newton Square, Reston, Va 20190 ("Agent"), and
STMS, INC. ("Lessee").
WHEREAS, Lessor and Lessee have entered into a Lease Agreement dated
February 7, 1997 (the "Lease Agreement:") for nineteen thousand one hundred
ninety-five (19,195) square feet of space ("Demised Premises") in the
building located at 11411 Isaac Newton Square, Reston, Virginia 20190 (the
"Building"); and
WHEREAS, Lessor and Lessee have agreed to modify the Lease Agreement to
confirm the Lease Commencement Date and Lease Expiration Date for this Lease
Agreement;
NOW THEREFORE, Lessor and Lessee, intending legally to be bound, hereby
agree as follows:
1. Lease Commencement Date and Lease Expiration Date for the Demised
Premises:
Notwithstanding anything to the contrary in the Lease Agreement, the
terms of the Lease Agreement shall commence on July 31, 1997 (the "Lease
Commencement Date") and expire on July 31, 2003 (the "Lease Expiration
Date"). Accordingly, (a) the first lease year of the term shall commence
on July 21, 1997 and expire on July 31, 1998 (and each lease year
thereafter shall commence on August 1 of each subsequent calendar year)
and (b) base rent shall be payable under the Lease Agreement (in
accordance with section 3(a) of the Lease Agreement) on the first day of
the second lease year (August 1, 1998) and on the first day of each
lease year thereafter.
2. Ratification of Lease:
Except as expressly modified by this Amendment, all terms and conditions
of the Lease Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, Lessor has caused this Amendment to be executed by
its Agent, and Tenant has caused this Amendment to be executed by its fully
authorized officer as of the date first above written.
WITNESS: LANDLORD:
APA PROPERTIES NO. 6 L.P.
by its Agent,
Peter Lawrence of Virginia, Inc.
- --------------------------------- ---------------------------------
James J. Shapiro, President
Name:
----------------------------
WITNESS: TENANT:
STMS, INC.
- -------------------------------- By:
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Name: Name:
--------------------------- -----------------------------
Title:
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LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into this 7th day of February
1997, by and between APA PROPERTIES NO. 6, L.P., a Delaware limited
partnership, having an address c/o Peter Lawrence of Virginia, Inc., 13440
Isaac Newton Square, Suite 208, Reston Virginia 22090, hereinafter referred
to as "Lessor", and STMS, Inc., a Virginia corporation having a pre-occupancy
address of 44880 Falcon Place, Suite 100, Sterling VA 20166, and a
post-occupancy address of 11411 Isaac Newton Square, Reston VA 20190,
hereinafter referred to as "Lessee".
WITNESSETH:
1. PREMISES: Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, space on the First (1st) floor, known as Suite 100, as such
space is shown on Exhibit A, attached hereto and made a part hereof, in a
building (the "Building") having a mailing address of, 11411 Isaac Newton
Square, Reston, VA 20190 and which space contains an "agreed upon" Nineteen
Thousand, One Hundred Ninety-Five (19,195) square feet of gross rentable
space and is hereinafter referred to as the "demised premises". The Building
is located in an office park (the "Office Park") commonly known as Isaac
Newton Square. Lessee's interest in this Lease is subject to all covenants
and restrictions of record and all applicable zoning, municipal, county,
state and federal laws, statutes, codes, ordinances, rules and regulations
affecting the Office Park. The term "Land", as used in this Lease, shall
mean the tax lot on which the Building is located and all appurtenances
thereto. Lessor further grants a Lessee the non-exclusive right, with the
other Building tenant(s), to use the volleyball court, basketball court, and
park areas adjacent to and behind the Building. At Lessee's own risk.
2. TERM: The lease term of six (6) years shall commence on the date
Lessor, tenders vacant possession of the demised premises to Lessee. Lessee
hereby agrees to accept delivery of the demised premises in their then "as is"
condition at such time as Lessor tenders the same to Lessee. If this Lease
commences on other than the first day of calendar month or expires on other
than the last day of calendar month, the installment of base rent for the
applicable month will be prorated and paid on a per diem basis based on the
actual number of days in the applicable calendar month. The lease term shall
expire on April 30, 2003 (4/30/03), the fifth (5th) anniversary of the lease
commencement date plus, if the commencement date is other than the first day
of a calendar month, the number of days between the commencement date and the
last day of the month in which the commencement date occurred. The lease term
shall commence upon the substantial completion of Lessor's Work (as that
term is defined below), but in no event earlier than May 1, 1997.
3. RENT:
a. As base for the demised premises, Lessee shall pay to Lessor Two
Hundred Fifty-Nine Thousand One Hundred Thirty-Two and 50/100
Dollars ($259,132.50) per annum for the first lease year, and on
the first day of each lease year subsequent to the expiration of
the first lease year throughout the term of this Lease, the base
rent shall, as of the first day of each such lease year, be
increased by the amount equal to the product obtained by
multiplying (i) the base rent payable for the preceding lease
year times (ii) three (3%) percent. The base rent schedule for
this Lease is attached hereto as Exhibit E. If the commencement
date occurs on a day other than the first day of the month, base
rent for the first month of the term shall be apportioned. The
first month's base rent shall, unless provided otherwise be abated.
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b. Base rent stipulated for each of the applicable lease years
shall be paid in equal one-twelfth (1/12th) installments in
advance on the first day of each calendar month for the
applicable lease year. Base rent and all other items of rent or
payments due Lessor under this Lease shall be paid to Lessor at
the address of Lessor set forth above or at such other address
and/or to such other party as Lessor may, from time to time,
designate by written notice to Lessee in the manner hereafter
set forth.
c. Lessor hereby acknowledges receipt of Lessee's check, subject
to collection, in the amount of Twenty-One Thousand, Five
Hundred Ninety-Four and 38/100 Dollars ($21,594.38),
representing payment of the initial security deposit required
by paragraph 31 of this Lease.
d. Lessee shall, within fifteen (15) days of Lessee's execution of
this Lease, pay Lessor the amount of Twenty-One Thousand, Five
Hundred Ninety-Four and 38/100 ($21,594.38), representing
advance payment of one (1) month of base rent for the second
month of Lease.
e. Lessee covenants and agrees to pay all licenses, taxes, sales
taxes and assessments of every kind and character imposed by
any governmental body, on, against or in connection with the
operation of the business conducted on the demised premises, or
against Lessee's property in or on the demised premises or on
any installment of base rent or item of additional rent or
other charge payable by Lessee under this Lease.
4. REPAIR AND MAINTENANCE: Lessor shall (other than for any repairs or
replacements required as a result of the acts or omissions or negligence of
Lessee, its agents, officers and its and their employees or invitees)
maintain in good condition the roof and structural portions of the Building,
pipes, wires and other components of Lessor's equipment including
electricity, heat, light, and air conditioning equipment, windows and doors
that are within the demised premises or run through the demised premises, all
landscaping, curbing, sidewalks, roads, parking areas, driveways and all
interior and exterior common areas of the Building and systems used in common
by the tenants of the Building and generally keep the same clean. Lessee will
maintain in good order, condition and repair (including replacements) the
entire demised premises, including all doors and door frames, windows,
fixtures, machinery and equipment therein. Garbage and refuse shall be stored
at such locations and in such containers as shall be approved by Lessor, and
if required by Lessor or any municipal or governmental directive, Lessee
shall sort and separate its trash and refuse as it shall be directed by
Lessor or the applicable municipal or governmental authority, as the case may
be. Lessee agrees that extraordinary waste, such as crates, cartons, boxes,
etc. (the discarding of used furniture or equipment being deemed
extraordinary waste) shall be removed from the Building and disposed of by
Lessor, at Lessee's cost and expense, and that Lessee, upon Lessor's demand,
will promptly reimburse Lessor for such removal and disposal. Lessee shall be
responsible for repairs and restoration to the demised premises resulting
from, occasioned by, or arising from, any break-ins, burglaries or attempted
break-ins or burglaries in, on or to the demised premises.
5. COMPLIANCE WITH REQUIREMENTS OF LAW: Except as stated below, Lessee,
at its sole cost and expense, shall promptly comply with all laws, statutes,
ordinances, rules, orders, regulations and requirements of the Federal,
State, County and local government and of any and all their departments and
bureaus with jurisdiction over the demised premises, and with any directives
of any public officer or officers which shall impose any violation, order or
duty upon Lessor or Lessee with respect to the demised premises and/or relate
to the correction, prevention and/or
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abatement of nuisances or other grievances in, upon or connected with the
demised premises during the term hereof unless said nuisances or grievances
arise from the portion of the Building or Office park not within Lessee's
control, or arise from the acts or omissions of Lessor or third persons, in
which event Lessee shall not be responsible for correction, prevention, or
abatement of same. Lessee shall, at Lessee's own cost and expense, also
promptly comply with and obey all rules, orders and regulations of all
Lessor's insurance carriers and any fire underwriting or rating authority.
Any governmental or municipal permits, approvals or consents required in
order for Lessee to be able to use the demised premises for the purposes for
which Lessee intends, and is permitted hereunder, to use the demised
premises, if necessary, shall be obtained by Lessee, at Lessee's sole cost
and expense, and any failure of Lessee to obtain such permits, approvals or
consents shall not relieve Lessee of its obligations hereunder.
Lessor shall be responsible for any required alterations or
improvements to the Building or Common Areas to the extent required by the
County for the certificate of occupancy. Lessee shall be responsible for any
required alterations or improvements to the demised premises to the extent
required by any governmental body under American with Disabilities Act of
1990 ("ADA") arising after Lessee shall have taken possession of the demised
premises. Lessor shall be responsible for the correction, in any manner
deemed appropriate by Lessor, of any violations of any environmental laws,
ordinances and regulations as applicable to the Building and Common Areas,
provided that such responsible governmental body has given Lessor notice of
such violation and an opportunity to cure such violation in accordance with
the applicable environmental laws, ordinances and regulations therefor. A
phase I environmental report dated December 12, 1995, performed by SCS
Engineering is available for Lessee's review.
6. BUILDING SERVICES:
A. Provided Lessee is not in default under this Lease, Lessor shall
provide the following services:
a. Lessor shall, through the heating, ventilating and
air-conditioning systems of the Building, furnish to the
demised premises during the Regular Business Hours, as such
term is hereinafter defined, air-conditioning, ventilation and
heat as Lessor shall deem appropriate for the season (not to
exceed temperatures prescribed by any energy conservation or
similar regulations or orders of any governmental authority
having jurisdiction thereof).
b. Lessor will, through the existing water pipes presently
serving the Building, supply the Building with an adequate
quantity of water for lavatory and drinking purposes.
c. Lessor shall furnish Lessee with electricity for Lessee's
ordinary office lighting and office machinery purposes based
on Lessee's consumption of electricity on the basis of no more
than three (3) watts per square foot (connected load) for two
hundred fifteen (215) hours per month. Lessor shall at its
option, have the right, from time to time, to survey Lessee's
electric energy usage to determine whether Lessee's electric
usage exceeds the standards set forth in the preceding
sentence, and if Lessee's usage exceeds those standards, the
base rent shall be appropriately increased to reflect Lessee's
excess electrical usage. Such increase to be determined by a
reputable electrical surveyor selected by Lessor, which
increases shall be retroactive to the increase in Lessee's
electric use (as determined by the surveyor). The findings of
the surveyor shall be conclusive and binding
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upon Lessor and Lessee. Lessee shall not install or use
any machinery, equipment or lighting in the demised
premises that would require more than three (3) watts of
electricity per square foot (connected load) in the
aggregate or that would otherwise adversely affect the
Building's electrical or HVAC systems.
d. Lessor will furnish the demised premises with the cleaning
services listed on Exhibit D. Lessor shall not be liable
to provide extra cleaning services occasioned by Lessee's
use of the demised premises outside of Regular Business
Hours nor shall Lessor be required to provide cleaning
services on weekends or legal holidays. Lessor shall be
responsible to replace light bulbs, as needed in the
demised premises.
B. The performance by Lessor of its obligations under this paragraph
6 is subject to Lessee's compliance with the conditions of
occupancy including, without limitation, number of people and
arrangement of partitions and interior walls, and connected
electrical load established by Lessor. Lessor reserves the
right to stop services to the demised premises when necessary,
in the judgment of Lessor, for reasons of accident or emergency
or for repairs, alterations or improvements.
C. Lessor will not be responsible for the failure of the heating,
ventilating and air-conditioning systems to meet the
requirements hereinbefore specified, if such failure results
from the occupancy of the demised premises by more than an
average of one person for each one hundred fifty (150) square
feet of space, or if Lessee installs and operates machines and
appliances the total connected electrical load of which
exceeds three (3) watts per square foot of space, or if Lessee
arranges or rearranges partitioning so as to interfere with
the normal operation of the heating, ventilating and
air-conditioning systems; it being understood and agreed that
any changes required to rectify the situation, if the
situation is rectifiable, shall be done by Lessor, at Lessee's
cost and expense, and all increases in costs necessary to
operate said systems, if any, occasioned by, or resulting
from, Lessee's acts or omissions shall be chargeable to, and
paid by, Lessee. Lessee agrees to keep, and cause to be kept
closed, all the windows and the doors (except when ingress or
egress is required) into the demised premises at all times,
and Lessee agrees to cooperate fully with Lessor, and to abide
by all the regulations and requirements which Lessor may
reasonably prescribe for the proper functioning and protection
of said heating, ventilating and air-conditioning systems.
D. For the purposes of this Lease, the term (i) "Regular Business
Hours" shall mean the hours between 8:00 A.M. and 6:00 P.M. on
business days and (ii) "business days" shall exclude Saturdays,
Sundays and all days observed by the State or Federal
Government as holidays and such other days designated as legal
holidays by the applicable building service union employees'
service contract and/or by the applicable operating engineers'
contract. However, "Regular Business Hours" include Martin
Luther King Day, Columbus Day, Presidents' Day and Veteran's
Day.
E. In the event any one of the heat, ventilation, air conditioning
or electricity service are interrupted, Landlord will make
every effort to restore failing equipment as soon as possible,
subject to force majeure.
7. ALTERATIONS: Lessee shall make no additions, installations,
alterations or changes in or to the demised premises without obtaining the
prior written, permission of Lessor. In any event, all installations,
alterations or work done by Lessee shall at all times comply with:
a. Laws, rules, orders and regulations of all governmental or
municipal bodies, authorities, departments or agencies
having
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jurisdiction thereof and such rules and regulations as Lessor
shall promulgate.
b. Plans and specifications prepared by and at the expense of
Lessee theretofore submitted to Lessor for its prior written
approval; no installations, alterations or any other work shall
be undertaken, started or begun by Lessee, its agents, servants
or employees, until Lessor has approved such plans and
specifications; and no amendments or additions to such plans
and specifications shall be made without the prior written
consent of Lessor not to be unreasonably delayed or withheld.
c. Lessee agrees to pay Lessor's costs and expenses of reviewing
any plans and specifications submitted for Lessor's review plus
an inspection fee of One Hundred and no/100 ($100.00) Dollars
per inspection.
8. ACCESS: Lessee shall permit Lessor and others authorized by Lessor
to enter upon the demised premises at all reasonable times with reasonable
notice (except in the event of emergencies) to examine the condition thereof
and conditions of Lessee's occupancy, to make such repairs, additions or
alterations therein as Lessor may deem necessary, for such other purposes as
may be related to Lessor's ownership or to exhibit the same to prospective
tenants, purchasers and/or mortgagees. Lessee shall permit Lessor to erect,
use and maintain unexposed pipes, wires, ducts and conduits in and through
the demised premises. Lessor or Lessor's agents shall have the right to enter
the demised premises to facilitate the making of repairs and improvements to
other portions of the Building, including other tenant's space, and to make
such repairs or alterations as Lessor deems desirable for the proper
operation of the Building. Lessor shall have the right to enter the demised
premises at any time, to examine them, or when necessary for the protection
of the demised premises and/or the Building. In connection, with the
foregoing, Lessor shall be allowed to take all materials into and upon the
demised premises that may be required for such repairs, improvements or
alterations, without the same constituting an eviction of Lessee in whole or
in part, and without any abatement or diminution of the Basic Rent or
additional rent. In making of such repairs or alterations, Lessor, to the
extent practicable and consistent with efficiency and economy, will exercise
reasonable diligence so as to minimize the disturbance of or interference
with the business of Lessee. Nothing herein contained however, shall be
deemed or construed to impose on Lessor any obligation responsibility or
liability whatsoever for the care, supervision or repair of the Building or
any part thereof, other than as herein provided. Lessor shall also have the
right, at any time, without the same constituting an actual or constructive
eviction, and without incurring any liability to Lessee therefor, to change
the arrangement and/or location of entrances or passageways, doors and
doorways and corridors, elevators, stairs, toilets or other public parts of
the Building, provided Lessor, at its expense, shall make such alterations,
additions or changes which may be required to adapt the demised premises to
such new conditions.
9. SIGNAGE: Lessee may not erect any sign in or on any portion of the
demised premises visible form any point outside of the interior of the
demised premises or the Building without Lessor's prior written approval,
which will not be unreasonably withheld, or delayed. Lessee, at Lessee's
expense, will be permitted to install a sign in the front of the Building
during the lease term, which sign shall include Lessee's corporate logo, with
said sign conforming to zoning and community association requirements
including any required permits and approvals from any applicable governing
authorities.
10. USE: Lessee shall use the demised premises solely for general office
use purposes including computer sales and service in connection with the
operation of its business and for no other use or purpose. Lessee shall not
use, or permit the use of, the
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demised premises contrary to any applicable statute, ordinance, law, rule or
regulation or in violation of the certificate of occupancy.
11. LIABILITY: Lessee shall save and hold Lessor harmless from all
liabilities, charges, expenses (including counsel fees) and costs on account
of all claims for damages and otherwise and/or suits for or by reason of any
injury or injuries to any person or property of any kind whatsoever, whether
the person or property of Lessee, its agents or employees or third persons,
from any cause or causes whatsoever while on or upon or in proximity to said
premises or due to any breach of a covenant herein by Lessee or to Lessee's
use and occupancy of the demised premises. Lessor shall not in any manner be
liable to Lessee for damages, losses or any other claim resulting from
Lessor's delay or failure in delivery of the demised premises. Lessor shall
indemnify, defend, protect, and hold Lessee harmless from and against any and
all damage, claim, liability, cost or expense (including without limitation,
reasonable attorneys' fees) of every kind and nature arising from any injury
or damage to any person, property or business incurred by or claimed against
Lessee arising directly from (i) Lessor's or its agents' ownership,
management or control of the Building (excluding the demised premises) or the
Common Area, (ii) Lessor's breach of any provision of this Lease, or (iii)
any negligence or willful misconduct of Lessor or its agents.
12. SURRENDER AND TERMINATION: All fixtures, equipment, improvements
and appurtenances attached to or built into the demised premises prior to or
during the term, whether by Lessor, at its expense or at the expense of
Lessee, or by Lessee, shall be and remain part of the demised premises and
shall not be removed by Lessee at the end of the term, unless Lessor, at
least fifteen (15) days prior to the expiration of the term, notifies Lessee
to remove the same. All of Lessee's removable trade fixtures and removable
business equipment may be removed by Lessee upon condition that such removal
does not materially damage the Building and that the cost of repairing any
damage to the demised premises or the Building arising from such removal
shall be paid by Lessee. Any property of Lessee or of any subtenant or
occupant that Lessee has the right to remove or may hereunder be required to
remove which shall remain in the Building after the expiration or termination
of the term of this Lease shall be deemed to have been abandoned by Lessee,
and either may be retained by Lessor as its property or may be disposed of in
such manner as Lessor may see fit: provided, however, that, notwithstanding
the foregoing, in the event of any failure of Lessee to promptly remove the
items requested by Lessor to be removed and/or restore any damage to the
Building or demised premises occasioned by such removal, Lessor, at Lessee's
cost and expense, may remove the items Lessee failed to remove and/or effect
all repairs to the Building and demised premises. If such property or any
part thereof shall be sold, Lessor may receive and retain the proceeds of
such sale and apply the same, at its option, against the expenses of the
sale, the cost of moving and storage, any arrears of base rent, additional
rent or other charge payable hereunder and any damages to which Lessor may be
entitled hereunder or pursuant to law. Upon the expiration or other
termination of the term of this Lease, Lessee shall quit and surrender to
Lessor the demised premises, broom clean, in good order and condition,
ordinary wear excepted, and Lessee shall (i) remove all of its property and
other items that it is permitted or required hereunder to remove and (ii)
repair all damage to the Building and/or the demised premises occasioned by
such removal. Lessee's obligation to observe or perform this covenant shall
survive the expiration or other termination of the term of this lease.
13. INDEMNITY: (a) Lessor, its agents and its and their employees
shall not be liable for any damage to property or Lessee or of any other
party claiming by, through or under Lessee, nor for the loss or damage to any
property of Lessee by theft or otherwise; (b) Lessee shall, at its own cost
and expense, be responsible for the repairs or restoration due to, or
resulting from, any theft or otherwise; (c) Lessor or its agent shall not be
liable for any injury or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, electrical disturbance,
water, rain or snow or leaks from any part of the Building or from the pipes,
appliances or plumbing
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works or from the roof, street or sub-surface or from any other place or by
dampness or by any other cause of whatsoever nature; (d) nor shall Lessor or
its agents be liable for any such damage caused by other tenants or persons
in the Building or caused by operations in construction of any private,
public or quasi-public work. Lessee shall reimburse and compensate Lessor as
additional rent for all expenditures made by, or damages or fines sustained
or incurred by, Lessor due to non-performance or non-compliance with or breach
or failure to observe any term, covenants or condition of this Lease upon
Lessee's part to be kept, observed, performed or complied with.
14. NO WAIVER. The failure of Lessor to seek redress for violation of, or
to insist upon the strict performance of, any covenant or condition of this
Lease shall not prevent a subsequent act, which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Lessor of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. No
provision of this Lease shall be deemed to have been waived by Lessor unless
such waiver be in writing signed by Lessor. No surrender of this Lease shall
be effective without Lessor's written agreement to accept such surrender. No
payment by Lessee, or receipt by Lessor, of a lesser amount than the full rent,
additional rent or payment obligation hereunder shall be deemed to be other
than on account for the sum or sums stipulated hereunder, nor shall any
endorsement or statement on any check or any letter accompanying a payment by
Lessee be deemed an accord and satisfaction and Lessor may accept such check
or payment without prejudice to Lessor's right to recover the balance of such
rent, additional rent or other payment or pursue any other remedy available
to Lessor. No waiver, on the part of Lessor, its successors or assigns, of
any default or breach by Lessee of any covenant, agreement or condition of
this Lease shall be construed to be a waiver of the rights of Lessor as to
any prior or future default or breach by Lessee.
15. SUBORDINATION:
a. Provided that Lessee is granted a non-disturbance agreement on the
applicable lender's then standard form, this Lease is, or will be,
subject and subordinate to the lien of any and all mortgages, deeds
of trust or other security devices which may now or hereafter
affect or encumber all or any portion of the Building or the land
underlying the same and the land and other property appurtenant to
the use and enjoyment of the Building (collectively, the "Land").
Notwithstanding such subordination, Lessee's right to quiet
possession of the demised premises shall not be disturbed if Lessee
is not in default and so long as Lessee shall pay the rent and
observe and perform all of the provisions of this Lease, unless
this Lease is otherwise terminated pursuant to its terms. This
clause shall be self-operative and no further instrument of
subordination shall be required by any mortgagee, or holder of
another security device or holder of a ground leasehold interest. In
confirmation of such subordination, however, Lessee agrees to
execute and acknowledge any documents reasonably required to
effectuate an attornment, a subordination, or to make this Lease or
any option granted herein prior to the lien of any mortgage, deed
of trust or other security devices, as the case may be. Upon
Lessee's request, Lessor shall reasonably pursue a Non-Disturbance
Agreement from Lessor's Lender which shall be agreeable to Lender
and Lessor in its sole discretion.
b. Notwithstanding the foregoing, in the event any such mortgagee or
the holder of any deed to secure debt, other security device or
ground leasehold interest shall elect to make the lien of this
Lease prior to the lien of its mortgage, deed to secure debt, other
security device or ground leasehold interest, then, upon such party
giving
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Lessee written notice to such effect, this Lease shall be deemed
to be prior in lien to the lien of such mortgage deed to secure
debt, other security device or ground leasehold interest,
whether dated prior or subsequent thereto.
16. INSURANCE: Lessee shall, during the term hereof, keep in full force
and effect (i) public liability and property damage insurance with respect to
the demised premises and the use and/or business operated by Lessee in the
demised premises, in which the limits of public liability shall not be less
than Two Million and no/100 ($2,000,000.00) Dollars on account of personal
injury to or the death of any one or more persons, as a result of any
accident or disaster, and One Million and no/100 ($1,000,000.00) Dollars on
account of damage to property; (ii) fire and extended coverage insurance with
VMM and sprinkler leakage coverage in an amount sufficient to cover the cost
of replacing its property and fixtures, (iii) glass breakage and replacement
insurance, (iv) worker's compensation and employer's liability insurance in
accordance with the laws of the Commonwealth of Virginia and (v) when
required by Lessor, such other insurance against other insurable hazards and
in such amounts as may, from time to time, be commonly and customarily
insured against and are generally available.
a. The limits of said insurance shall not, however, in any way limit
the liability of Lessee under this Lease.
b. All insurance policies which Lessee is required to secure and
maintain shall be in such form and by companies acceptable to
Lessor.
c. Lessee shall include in its fire and glass insurance policies
for the demised premises appropriate clauses pursuant to which
the insurance carriers (i) waive all rights of subrogation
against Lessor, Lessor's mortgagees and holders of any ground
lease, with respect to losses payable under such policies and/or
(ii) agree that such policies shall not be invalidated should
the insured waive, in writing, prior to a loss any or all right
of recovery against any party for losses covered by such
policies. If Lessee, at any time is unable to obtain such
inclusion of either of the clauses described in the preceding
sentence, Lessee shall have Lessor, Lessor's mortgagees and
holders of any ground lease named in such policies as insured.
Lessee hereby waives any and all right of recovery which it
might otherwise have against Lessor, its contractors, agents and
its and their employees, for loss or damage to Lessee's
furniture, furnishings, fixtures and other property and all other
losses covered by the insurance required to be carried by
Lessee. Lessee shall, concurrently with its execution of this
Lease (and thereafter, at least thirty (30) days prior to the
expiration of any policy) furnish Lessor with a duplicate
original of all insurance carried by Lessee at the demised
premises with evidence that the premiums therefor have been paid
current.
d. All public liability policies required by this Lease to be
obtained by Lessee shall name Lessor and such other parties as
Lessor shall designate as an insured thereunder.
17. DEFAULT: Time is of the essence with regard to the performance of
Lessee's obligations under this Lease. Any of the following constitutes a
default of this Lease by Lessee:
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a. Failure to pay any installment of base rent, item of additional
rent or other charge payable under this Lease on the applicable
payment date plus the five (5) day grace period.
Lessee shall pay Lessor interest at the rate of eighteen (18%)
percent simple interest per annum (or if such rate be illegal,
at the maximum rate permitted by law, and any payment in excess
of that which is permitted by law shall, and be deemed to be, an
advance payment of base rent and shall be applied against the
installments of base rent next becoming due) on all payments due
under this Lease that are not made on the date when due, calculated
from the date when due until paid in full.
b. Failure to cure any other default of Lessee's obligations under
this Lease for a period of ten (10) days after notice specifying
the nature of the default.
c. Vacation or abandonment of the demised premises.
d. Lessee files a voluntary petition in bankruptcy or is adjudicated
insolvent or a bankrupt, or makes an assignment for the benefit
of creditors, or files a petition for relief under any applicable
bankruptcy law, or consents to the appointment of a trustee or
receiver of all or any substantial part of its property; or
e. An involuntary petition under any applicable bankruptcy law is
filed against Lessee and is not vacated within thirty (30) days.
16. LESSOR'S REMEDIES: Upon Lessee's default and the expiration of any
applicable grace period, Lessor may (at Lessor's option and in addition to
all other rights provided in this Lease, at law or in equity) take any one or
more of the following actions without further notice or demand.
a. Terminate this Lease and Lessee's right of possession
of the demised premises, and recover all damages to which Lessor is
entitled under law, specifically including, but without limitation,
all of Lessor's expenses of reletting (including, without
limitation, rental concessions to new tenants, repairs,
alterations, legal fees and brokerage commissions), unless Lessee
cures its default within ten (10) days after Lessor's written
notice of Lessor's intent to exercise this action as described in
this Paragraph 18(a). If Lessor elects to terminate this Lease,
every obligation of the parties shall cease as of the date of such
termination, except that Lessees shall remain liable for payment of
rent and performance of all other terms and conditions of this
Lease to the date of termination.
b. Terminate Lessee's right of possession of the demised
premises without terminating this Lease, in which event Lessor
may, but shall not be obligated to, relet the demised premises, or
any part thereof, for the account of Lessee, for such rent and term
and upon such other conditions as are acceptable to Lessor unless
Lessee cures its default within ten (10) days after Lessor's
written notice of Lessor's intent to exercise this action as
described in this Paragraph 18(b). For purposes of such reletting,
Lessor is authorized to redecorate, repair, alter and improve the
demised premises to the extent necessary to Lessor's sole
discretion. Until Lessor relets the demised premises. Lessee shall
remain obligated to pay rent to Lessor as provided in this Lease.
If and when the demised premises are relet and if a sufficient sum
is not realized from such
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reletting after payment of all Lessor's expenses of reletting
(including, without limitation, rental concessions to new
tenants, repairs, alterations, legal fees and brokerage
commissions) to satisfy the payment of rent due under this
Lease for any month, Lessee shall pay Lessor any such
deficiency upon demand. Lessee agrees that Lessor may file
suit to recover any sums due Lessor under this paragraph 18b
from time to time and that such suit or recovery of any amount
due Lessor shall not be any defense to any subsequent action
brought for any amount not previously reduced to judgment in
favor of Lessor.
c. Terminate this Lease and Lessee's right of possession of the
demised premises, and recover from Lessee the net present value
of the rent due from the date of termination until the stated
expiration date, discounted at the lesser of the prime rate of
Citibank, N.A. as of the date of termination of five (5%) percent
per annum, unless Lessee cures its default within ten (10) days
after Lessor's written notice of Lessor's intent to exercise this
action as described in this Paragraph 18(c).
d. Re-enter and repossess the demised premises and remove all
persons and effects therefrom, by summary proceeding, ejectment
or other legal action or by using such force as may be necessary.
Lessor shall have no liability by reason of any such re-entry,
repossession or removal.
e. Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the
demised premises are located. Unpaid installments of rent and
other unpaid monetary obligations of Lessee under the terms of
this Lease shall bear interest from the date due at the lesser
of thirteen (13%) percent per annum or the maximum rate then
allowable by law.
f. If Lessor takes possession pursuant to this paragraph 18, with
or without terminating this Lease, Lessor may, at its option,
enter unto the demised premises, remove Lessee's improvements,
signs, personal property, equipment and other evidences of
tenancy, and store or dispose of them, at Lessee's risk and
expense or as Lessor may see fit, and take and hold possession
of the demised premises, provided, however, that if Lessor
elects to take possession only without terminating this Lease,
such entry and possession shall not terminate this Lease or
release Lessee, in whole or in part, from the obligation to
pay the base rent and additional rent and other charges
payable under this Lease for the full term or from any other
obligation under this Lease.
This Lease shall not be deemed to be terminated by Lessor's entry on
the demised premises or by any other act unless Lessor specifically expresses
its intent to terminate this Lease.
Lessor's remedies in this paragraph 18 are cumulative and in addition
to any other remedies available at law or in equity.
19. DESTRUCTION - FIRE OR OTHER CAUSE: If the demised premises shall be
partially damaged by fire or other cause without the fault or neglect of
Lessee or Lessee's servants, employees, agents, invitees or licensees, Lessor
shall, upon Lessor's receipt of the insurance proceeds and to the extent such
proceeds are allocable or attributable to the demised premises, repair the
portions of the demised premises
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covered by Lessor's insurance, and the rent until such repairs shall have
been made shall be apportioned according to the part of the demised premises,
which is usable by Lessee. But if such partial damage is due to the fault or
neglect of Lessee or Lessee's servants, employees, agents, invitees or
licensees, without prejudice to any other rights and remedies of Lessor and
without prejudice to the rights of subrogation of Lessor's insurer, the
damages shall be repaired by Lessor but there shall be no apportionment or
abatement of rent. If the demised premises are totally damaged or are
rendered wholly untenantable by fire or other cause and Lessor shall decide
not to restore or not to rebuild the same, or if the Building shall be so
damaged that Lessor shall decide to demolish it or not to rebuild it, or if
the damage occurs in the last year of the then term of this Lease, or if the
Building (whether or not the demised premises have been damaged) should be
damaged to the extent of fifty (50%) percent or more of the then monetary
value thereof, or if the damage resulted from a risk not fully covered by
Lessor's insurance, then or in any of such events, Lessor may, within ninety
(90) days after such fire or other cause, given Lessee a notice of Lessor's
election to cancel this Lease, and thereupon the term of this Lease shall
expire by lapse of time upon the third day after such notice is given, and
Lessee shall vacate the demised premises and surrender the same to Lessor.
For purposes of this Lease, the term "Lessor's receipt of insurance proceeds"
shall mean the portion of the insurance proceeds paid over to Lessor free and
clear of any collection by mortgagees for the value of the damage, attorney
fees and other costs of compromise, adjustment, settlement and collection of
the insurance proceeds. Notwithstanding any provisions of this Paragraph 19
to the contrary, if, without fault or neglect of the Lessee, the demised
premises are usable but the Building is so damaged that use of the demised
premises is impractical, rent will be abated until the Building is restored,
and if restoration is not completed within 150 days of the damage occurrence,
either Lessor or Lessee upon written notice can terminate the lease without
further liability on Lessor or Lessee.
20. LEGAL FEES: In the event it shall become necessary for either party
at any time to institute any legal action or proceedings of any nature for
the enforcement of this Lease, or any of the provisions hereof, or to employ
an attorney-at-law therefor and said party prevails in such action or
proceedings, then the non-prevailing party shall pay to the prevailing party
such prevailing party's costs (including a reasonable attorney's fee)
incurred in such action or proceedings.
21. CONDEMNATION: If all of the Building is taken by or under the power
of eminent domain (or conveyance in lieu thereof), this Lease shall terminate
on the date the condemning authority takes possession. In all other cases of
any taking of the Building or the Land by the power of eminent domain (or
conveyance in lieu thereof), Lessor shall have the option of electing to
terminate this Lease. If Lessor does not elect to terminate, Lessor shall do
the work necessary so as to constitute the portion of the Building not so
taken a complete architectural unit and Lessee shall do all other work
necessary for it to use and occupy the demised premises for its permitted
purpose. During the period of Lessor's repairs, rent shall abate in an amount
bearing the same ratio as the portion of the demised premises usable by
Lessee bears to the entire demised premises. Rent shall be equitably
adjusted, as of the date the condemning authority permanently acquires
possession of any portion of the demised premises, to reflect any permanent
reduction in the tenantable portion of the demised premises. Lessee shall not
be entitled to, hereby expressly waives, and hereby assigns to Lessor all
Lessee's right, title and interest in and to any condemnation award for any
taking (or consideration paid for a conveyance in lieu thereof), whether
whole, partial, temporary or permanent, and whether for diminution of the
value of Lessee's interest in this Lease or term thereof or to the lease
improvements or for any other claim or damage, (including, without
limitation, severance damages and loss of, or damage to, Lessee's trade
fixtures, except Lessee shall not be precluded from seeking a separate claim
for leasehold improvements, business damages or moving expenses against the
condemning authority provided any awards or proceeds sought by, or paid to,
Lessee does not reduce or diminish in any way or amount the awards or
proceeds otherwise payable to Lessor. Notwithstanding any provisions of this
Paragraph 20 to the
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contrary, if a condemnation reduces the amount of usable square feet in the
demised premises below 19,195 square feet, Lessee shall have the option of
terminating the lease without further liability following said termination.
22. ASSIGNMENT AND SUBLETTING: Lessee shall not assign this Lease or
sublease all or any portion of the demised premises during the term of this
Lease without first obtaining the written consent of Lessor, which consent
will not be unreasonably delayed or withheld.
23. PARKING: Lessee shall not park any vehicle, in any area, where said
parking will constitute a problem to other tenants. Parking areas shall be
provided at no additional cost to Lessee. Lessor reserves the right at all
times during the term hereof to designate and redesignate such parking areas
and to proscribe the use thereof by reasonable rules and regulations. Lessee,
its officers, employees, guests, invitees and visitors shall not at any time
park trucks or vehicles in any of the areas designated for automobile
parking. Lessor shall have no responsibility to police or otherwise insure
Lessee's or other lessees' use thereof. Lessee shall not be entitled to any
designated parking spaces. Parking areas shall be provided by Lessor for use
by Lessee, its officers, employees, guests, invitees and visitors in common
with the other tenants of the Office Park, their officers, employees, guests,
invitees, visitors and such other parties as Lessor shall, from time to time,
permit, on a "first come-first served" basis. All parking spaces and parking
areas shall be non-attended and shall be utilized at the vehicle owner's own
risk. Lessor shall not be liable for any injury to persons or property or
loss by theft or otherwise to any vehicle or its contents. Vehicles parked on
lawn areas are subject to being towed away at vehicle owner's expense.
24. KEYS: Lessor shall, at the commencement of the term of this Lease,
furnish Lessee, at no cost to Lessee, with two (2) keys for the entrance to
the demised premises. Lessee acknowledges that such locks may be master
keyed. If Lessee needs additional keys, such keys must be obtained from
Lessor and Lessee will pay to Lessor the then standard Building charge for
additional keys. At the expiration or earlier termination of this Lease,
Lessee shall surrender all such keys to Lessor. Lessee shall not add
additional locks or change locks without Lessor's prior written consent and
then only if Lessee furnishes Lessor with two (2) copies of each key required
to gain access to all portions of the demised premises.
25. MECHANICS' LIENS: Neither Lessor nor the property shall be liable
for any labor, services or materials furnished or to be furnished to Lessee
upon credit, and no mechanic's or other lien for any such labor, services or
materials shall attach to, encumber or in any way affect the reversionary
interest or other estate or interest of Lessor in and to the Building or the
Land. Nothing in this Lease shall be construed as a consent by Lessor to
subject Lessor's reversionary interest in the demised premises to liability
under any lien or other law. If, as a result of any work or installation made
by, or on behalf of Lessee, or Lessee's maintenance and repair of the demised
premises, a claim of lien or lien is filed against the demised premises or
all or any portion of the Building or the Land, within ten (10) days after it
is filed, Lessee shall either satisfy the claim of lien or lien. If Lessee
fails to do so within the ten (10) day period, Lessor may satisfy the lien,
and Lessee shall reimburse Lessor for all Lessor's costs and expenses
(including reasonable attorneys' fees) incurred in connection therewith.
26. NOTICES: All notices by Lessee to Lessor or by Lessor to Lessee with
regard to this Lease must be in writing and shall be deemed conclusively
delivered when same are either hand delivered, or deposited in the U.S. mail,
postage prepaid, certified, return receipt requested, or picked up for
delivery by a nationally recognized courier for overnight delivery with such
delivery charge being prepaid, if to Lessor, addressed to Lessor at the
address set forth for Lessor on page 1 of this Lease or if to Lessee, at the
address set forth for Lessee on page 1 of this Lease prior to Lessee's
initial occupancy of the demised premises and thereafter with a duplicate to
Lessee at the
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demised premises, attention: Manager of Facilities. Either party hereto may,
by notice given as aforesaid, designate a different address or addresses for
notices.
27. LESSEE'S PROPORTIONATE SHARE:
a. Lessee agrees to pay its proportionate share of (i) any increase
in real property taxes and assessments, as hereinafter defined
(including any changes or additions to any existing method of
taxation) over and above those imposed, levied or assessed
against the Land and Building for the base year (namely, calendar
year 1997), (ii) any increase in premiums for fire, casualty and
extended coverage (including, without limitation, rent insurance
and VMM) and public liability insurance premiums over and above
those charged for the base year (namely, calendar year 1997) for
the Land and Building and (iii) any increase in Operating
Expenses, as such term is hereinafter defined, for the Land and
Building over and above those incurred or expended by Lessor for
the base year (namely, calendar year 1997). Lessee's proportionate
share for the purposes of this paragraph 27 shall be Forty-six
and Fifteen Hundredths percent (46.15%). The percentage was
computed on the basis that the demised premises consist of
Nineteen Thousand, One Hundred Ninety-Five (19,195) gross
rentable square feet and the Building consists of Forty-One
Thousand, Five Hundred Ninety-Six (41,596) gross rentable square
feet. Lessee's proportionate share shall be recomputed if, and
each time, the aggregate size of the Building is reduced.
b. As used herein, the term "Operating Year" shall mean each
calendar year subsequent to the base year and the term "Operating
Expenses" shall mean the total of the amount of expenses, costs
or charges expended, paid or incurred by Lessor in any calendar
year with respect to the repair, replacement, operation and
maintenance of the Building and Land, such as, by way of
illustration only not intended to be all inclusive, electricity,
water, fuel, water rates, sewer charges or rent, air
conditioning, labor costs, security costs, elevator charges,
service contracts, management charges, window and other cleaning,
refuse removal, landscaping, interior and exterior repairs and
replacements, and drainage and parking field operation,
maintenance, repairs and replacements (including, without
limitation, lighting, striping and resurfacing), the cost of
painting and decorating the common areas of the Building and all
other expenses, costs and charges relative to the repair,
replacement, operation and maintenance of the Building and Land,
including all legal and auditing fees necessarily incurred in
connection with the foregoing and including all improvements and
equipment required by any federal, state or local law or
government regulation.
c. As used herein, the term "real property taxes and assessments"
shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed on the Land
and/or Building by an authority having the direct or indirect
power to tax, including any local, city, state or federal
government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Land and/or
Building, as against Lessor's right to rent or other income
therefrom or as against Lessor's
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business of leasing the Land and/or Building. The term "real
property taxes and assessments" shall also include any tax,
fee, levy, assessment or charge (i) in substitution of, or in
addition to, partially or totally, any tax, fee, levy,
assessment or charge herein-above included within the
definition of "real property taxes and assessments", or
(ii) the nature of which was hereinbefore included within the
definition of "real property taxes and assessments" or
(iii) which is imposed by reason of this transaction or any
modification or changes hereto.
d. Lessee shall pay, prior to delinquency, all taxes assessed
against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Lessee contained in the
demised premises. When possible, Lessee shall cause said trade
fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately form the real
property of Lessor.
e. If any of Lessee's personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee's property within ten (10) days after
receipt of a written statement from Lessor setting forth the
taxes applicable to Lessee's property.
f. In determining Operating Expenses for an Operating Year, if
less than all of the Building's rentable area shall have been
occupied by tenants at any time during any such Operating
Year, Operating Expenses shall be determined for such Operating
Year to be an amount equal to the like expenses which would
normally be expected to be incurred had all such areas been
occupied throughout such Operating Year.
g. Real property taxes and assessments, premiums for insurance
carried by Lessor and Operating Expenses shall hereafter
collectively be referred to as the "Expenses".
h. Lessee shall, on the first day of the month following the date
Lessor furnishes Lessee with Lessor's estimate of Lessee's
proportionate share of the increase in Expenses over the base
year, commence paying to Lessor the amount so estimated by
Lessor, which estimated amount shall be payable in equal
monthly installments in the amount necessary to pay the
estimated increase in Expenses prior to the expiration of the
first calendar year subsequent to the base year, which
installments shall continue to be paid by Lessee on the first
day of each month in advance until Lessor furnishes Lessee with
a statement setting forth the actual increase in Expenses for
the applicable calendar year and showing Lessee's proportionate
share thereof, together with notice to Lessee stating whether
the installments of Lessee's proportionate share of the
increase in Expenses previously made for the period of time to
which such statement relates is greater or less than the amount
actually paid, or payable, by Lessor for such period and (i) if
there shall be a deficiency, Lessee shall pay the amount
thereof within (10) days after demand therefor or (ii) if there
shall be an overpayment, Lessor shall promptly either refund to
Lessee the amount thereof or permit Lessee to credit the amount
thereof against subsequent payments payable under this
paragraph 27, and on the first day of the month following the
month in which the applicable statement is furnished to Lessee
and monthly thereafter until a new statement shall be furnished
to Lessee by Lessor, Lessee shall pay to Lessor an
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amount equal to one-twelfth (1/12th) of Lessee's proportionate
share of the actual increase in Expenses shown on the statement
last submitted to Lessee. Lessor may, no more than twice in any
calendar year, furnish to Lessee a revised statement of Lessor's
estimate of Lessee's proportionate share of Expenses for such
calendar year, and in each such case, the monthly installments
of Lessee's proportionate share of Expenses shall be adjusted and
paid substantially in the same manner as provided in the
preceding sentence. Lessee's obligation to pay base rent and
additional rent for any period of time attributable or allocable
prior to the expiration of this Lease shall survive the
expiration or earlier termination of this Lease and any failure
of Lessor to provide Lessee with a statement shall not relieve or
release Lessee for its obligation to pay its proportionate share
of any increase in Expenses at such time as the applicable
statement is furnished to Lessee.
i. "Operating Expenses" shall exclude the following: (i) Legal fees,
space planners' fees, real estate brokers' leasing commissions
and advertising expenses incurred in connection with the original
or future leasing of space in the Building; (ii) Costs of
correcting defects in, or inadequacy of, the design or
construction of the Building or the materials used in the
construction of the Building or the equipment or appurtenances
thereto to the extent covered by warranties and recovered
by Lessor; (iii) Depreciation, interest and principal payments on
mortgages and other debt costs, if any, other than amortization of
and the interest factor attributable to permitted capital
improvements; (iv) the cost of any item or items for which Lessor
is reimbursed by insurance or reimbursed by Lessee or by other
Lessees of the building, (v) ground rent; (vi) costs incurred as
a result of the negligent or torrious acts or omissions of
Lessor, its agents, employees and contractors; (vii) any bad debt
loss or rent loss; (viii) salaries and other compensation paid to
executive employees above the grade of Building Manager; and (ix)
costs of any services provided to any Lessee in the Building and
not made available to Lessee on the same basis.
28. SECURITY SERVICES: Lessee acknowledges that Lessor is not providing,
and is not obligated to provide, any security protection services to the
demised premises, Building or Land.
29. "AS IS": Lessor at its sole cost and expense, shall do the work
identified as "Lessor's Work" on the annexed Exhibit B. All other work
necessary for Lessee's use occupancy and operation of the demised premises
for their intended purposes (other than for the repairs and other work
Lessor is, by the terms of paragraph 4 of this Lease, expressly obligated to
do) shall be done by Lessee, at Lessee's sole cost and expense, pursuant to
the terms and conditions of this Lease.
30. WAIVER OF JURY AND COUNTERCLAIM: It is mutually agreed by and between
Lessor and Lessee that the respective parties hereto shall and they hereby do
waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties hereto against the other on any matters whatsoever
arising out of or in any way connected with this Lease, the relationship of
Lessor and Lessee, Lessee's use or occupancy of said demised premises and/or
any claim of injury or damage and any emergency statutory or any other
statutory remedy. It is further mutually agreed that in the event Lessor
commences any summary proceeding or action for non-payment of rent,
additional rent or other charge payable hereunder, Lessee will not interpose
any counterclaim of whatsoever nature or description in such proceeding or
action or seek to consolidate any action or proceedings with Lessor's action
or proceeding. Lessor and
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Lessee agree that in the event of any litigation regarding this
Lease, its terms and the enforcement of the rights and obligations
of the parties hereto, the sole proper venue for any such
litigation shall be in Fairfax County, Virginia.
31. SECURITY: Lessee has deposited with Lessor the sum of Twenty-One
thousand, Five Hundred Ninety-Four and 38/100 Dollars ($21,594.38) as
security for the faithful performance and observance by Lessee of the terms,
provisions and conditions of this Lease; it is agreed that in the event
Lessee defaults in respect of any of the terms, provisions and conditions of
this Lease, Lessor may, without prejudice to any other remedy which Lessor
may have on account therefor, appropriate, use, apply or retain the whole or
any part of the security so deposited to the extent required for the payment
of any sum as to which Lessee is in default and Lessee shall forthwith, upon
demand of Lessor, restore said security to the original sum deposited. Lessor
may commingle the security deposit with its other funds and no interest shall
be payable to Lessee. In the event that Lessee shall fully and faithfully
comply with all of the terms, provisions, covenants and conditions of this
Lease, the security shall be returned to Lessee after the date fixed at the
end of this Lease and after delivery of entire possession of the demised
premises to Lessor. In the event of a sale of the Land and Building or
leasing of the Building, Lessor shall have the right to transfer the security
to the vendee or lessee and Lessor shall thereupon be released by Lessee from
all liability for the return of such security.
32. VIRGINIA LAW: This Lease shall be governed by and
construed in accordance with the laws of, or applicable to, the
Commonwealth of Virginia.
33. BROKER: Lessee represents that the sole broker
instrumental in consummating this Lease was The Mark Winkler
Company and that no dealings or prior negotiations were had with
any other broker concerning the renting of the demised premises.
Lessee agrees to hold Lessor harmless against any claims for
brokerage commissions, other than those made by The Mark Winkler
Company, arising out of any conversations had by Lessee with any
broker other than The Mark Winkler Company.
34. RECORDING: Lessee shall not record this Lease or a
memorandum thereof without the written consent of Lessor.
35. RULES AND REGULATIONS: Lessee shall observe faithfully and
comply strictly with the rules and regulations set forth in Exhibit
C attached hereto and made a part hereof and any amendments or
supplements thereto and such further rules and regulations as
Lessor may, from time to time, adopt or promulgate.
36. FAILURE TO DELIVER POSSESSION: If Lessor is unable to
deliver possession of all or any portion of the demised premises,
because of the holding-over or retention of possession of any
tenant, under tenant or occupant, or for any other reason, Lessor
shall not be subject to any liability for failure to give
possession and the validity of this Lease shall not be impaired
under such circumstances, nor shall the same be construed in any
way to extend the term of this Lease. If permission is given to
Lessee to enter into the possession of all or any portion of the
demised premises prior to the date specified as the commencement
of the term of this Lease, Lessee covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants,
conditions and provisions of this Lease, except as to the covenant
to pay rent. Lessor represents and warrants that the demised
premises are currently vacant and are not currently under lease.
37. WAIVER OF LIABILITY: The term "Lessor" as used in this
Lease shall mean only the owner or mortgagee in possession, for the
time being, of the Building, or the lessee or leasehold mortgagee
in possession, for the time being, of a lease of the Building
(which may include a lease of the Land), so that in the event of
any transfer of title to the Building or any assignment of said
lease, or in the event of a lease of the
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Building or of the Land and Building, the entity so transferring, assigning
or leasing shall be and hereby is entirely freed and relieved of all
covenants and obligations of Lessor hereunder, and it shall be deemed and
construed as a covenant running with the Land without further agreement
between the parties and their successors in interest, or between the parties
and any such transferee, assignee or lessee, that the said transferee,
assignee or lessee has assumed and agreed to carry out any and all covenants
and obligations of Lessor hereunder. Lessee agrees to look solely to (a) the
estate and interest of Lessor in the Land and Building, and subject to prior
right of any mortgage of the Land and/or Building, for the collection of any
judgment (or other judicial process) recovered against Lessor based upon the
breach by Lessor of any of the terms, conditions or covenants of this Lease
on the part of Lessor to be performed, (b) available insurance coverage, and
no other property or assets of Lessor shall be subject to levy, execution or
other enforcement procedures for the satisfaction of Lessee's remedies under
or with respect to either this Lease, the relationship of Lessor or Lessee
hereunder, or Lessee's use and occupancy of the demised premises.
38. RIGHT OF LESSOR TO DISCHARGE OBLIGATIONS OF LESSEE: If Lessee shall
fail to perform or observe any of the terms, obligations or conditions
contained herein on its part to be performed or observed hereunder, within
the time limits set forth herein, Lessor may, at its option, but shall be
under no obligation to do so, perform or observe the same and all costs and
expenses incurred or expended by Lessor in such performance or observance
shall, upon demand by Lessor, be immediately repaid to Lessor by Lessee
together with interest thereon at the higher of eighteen (18%) percent per
annum or one hundred twenty (120%) percent of the prime rate charged by
Citibank, N.A. (or if both rates be illegal, at the maximum rate permitted by
law) to the date of repayment. For the purposes of this Lease, the term
"prime rate" shall mean the rate then being charged by citibank, N.A. to its
largest corporate customers for unsecured loans of ninety (90) days or less.
39. INABILITY TO PERFORM: If, by reason of (1) strike, (2) labor
troubles, (3) governmental pre-emption in connection with a national
emergency, (4) any rules, order or regulation of any governmental agency, (5)
conditions of supply or demand which are affected by war or other national,
state or municipal emergency or (6) any cause beyond Lessor's control, Lessor
shall be unable to fulfill its obligations under this Lease or shall be
unable to supply any service which Lessor is obligated to supply under this
Lease, this Lease and Lessee's obligation to pay rent hereunder shall in no
wise be affected, impaired or excused, provided, however, that as soon as
Lessor shall learn of the happening of any of the foregoing conditions,
Lessor shall notify Lessee of such event and, if ascertainable, its estimated
duration and will proceed with the fulfillment of its obligations as soon as
reasonably possible. In no event will Lessor ever be liable for, and Lessee
hereby expressly waives, any consequential damages, compensation or claims
for inconvenience, annoyance or for loss of business rents or profits was a
result of Lessor's failure to perform under this Lease or failure to provide
any service which it has, under the terms of this Lease, agreed to provide.
40. BINDING ON SUCCESSORS, ETC.: Except as otherwise provided in this
Lease, the covenants, conditions and agreements contained in this Lease shall
bind and insure to the benefits of Lessor and Lessee and their respective
legal representatives, successors and assigns.
41. LATE CHARGE: Lessee shall pay to Lessor a late charge of ten (10
CENTS) cents per dollar for any installment of base annual rent, any item of
additional rent or other charge payable hereunder which Lessee has failed to
pay to Lessor within ten (10) days of Lessor's demand, not as a penalty, but
to help defray administrative and other expenses involved in handling
delinquent payments. In the event any check given to Lessor by, or on behalf
of, Lessee is returned to Lessor by its bank for insufficient funds or for
any other reason or is otherwise uncollectible, Lessee shall pay to Lessor a
service charge in the sum equal to the higher of (i) Ten and no/100 ($10.00)
Dollars for each check so returned or otherwise uncollected or (ii) five (5%)
percent of the amount of the
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check so returned or otherwise uncollected, which service charge, if
applicable and if not prohibited by law, shall be in addition to, and not in
substitution of, any "late charge".
42. ATTORNMENT: If Lessor's interest in the ground lease or demised
premises or the Building is encumbered by a mortgage and such mortgagte is
foreclosed, or Lessor's interest in the ground lease, the demised premises or
the Building is acquired by deed in lieu of foreclosure of if Lessor's
interest in the ground lease, the demised premises or Building are sold
pursuant to such foreclosure or by reason of a default under said mortgage,
then notwithstanding such foreclosure, such acquisition by deed in lieu of
foreclosure, such sale, or such default (i) Lessee shall not disaffirm this
Lease or any of its obligations hereunder and (ii) at the request of the
applicable mortgagee, transferee by deed in lieu of foreclosure or purchaser
at such foreclosure or sale, Lessee shall attorn to such mortgagee,
transferee or purchaser and execute a new lease for the demised premises for
the rentals reserved herein and otherwise setting forth all of the provisions
of this Lease except that the term of such new lease shall be for the balance
of the term of this Lease.
43. EXECUTION OF LEASE: The submission of this Lease for examination
does not constitute a reservation or option of any kind or nature whatsoever
on or for the demised premises or any other space within the Building and
shall vest no right in either party. This Lease shall become effective as a
lease only upon execution and legal delivery thereof by the parties hereto.
This Lease may be executed in more than one counterpart, and each such
counterpart shall be deemed to be an original document.
44. MORTGAGEE PROTECTION CLAUSE: Lessee agrees to give any mortgage
and/or trust deed holders, by certified mail, a copy of any notice of default
served upon Lessor. Lessee further agrees that if Lessor shall have failed
to cure such default within the time provided for in this Lease, then the
mortgagees and/or trust deed holders shall have such additional time as may
be necessary to cure such default (including, but not limited to,
commencement of foreclosure proceedings, if necessary to effect such cure),
in which event this Lease shall not be terminated while such remedies are
being so pursued.
45. MISCELLANEOUS:
A. Lessor reserves the right to: (a) change the street address and
name of the Building or the Office Park; (b) change the arrangement and
location of entrances passageways, doors, doorways, corridors, elevators,
stairs, toilets or other public parts of the Building and the Office Park
and, in connection with such work, to temporarily close door entry ways,
common or public spaces and corridors of the Building or the Office Park so
long as the demised premises remain reasonably accessible; (c) erect, use and
maintain pipes and conduits in and through the demised premises; (d) grant to
anyone the exclusive right to conduct any particular business in the Building
or the Office Park not inconsistent with the premitted use of the demised
premises; (e) use or lease exclusively the roof areas, the sidewalks and
other exterior areas; (f) resubdivide the Land or to combine the Land with
other lands; (g) construct improvements (including kiosks) on the Land and in
the public and common areas of the Building; (h) relocate or change roads,
driveways and parking areas and to alter the means of access to all or any
portion of the Building; (i) install and display signs, advertisements and
notices on any part of the exterior or interior of the Building; (j) install
such access control systems and devices as Lessor deems appropriate; (k)
create easements over the Land and Building and in the entrances, aisles and
stairways therein or in any parking areas for utilities, telephone lines,
sanitary sewer, storm sewer, water lines, pipes, conduits, drainage ditches,
sidewalks, pathways, emergency vehicles, and ungress and egress for the use
and benefit of others, without Lessee joining in the execution thereof and
this lease shall automatically be subject and subordinate thereto; and (l)
alter the site plan, landscaping, walkways and common areas outside the
Building within the context of general site improvements, repairs and
maintenance. Exercise of any such
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right shall not be considered a constructive eviction or a disturbance of
Lessee's business or occupancy. Lessor shall use reasonable efforts to
minimize the interference with Lessee's intended use of the demised premises
as a commercial office, including computer sales and service.
B. Unless specifically provided otherwise in this Lease, where
Lessor's consent or approval is required (whether under the terms of this
Lease or pursuant to any rule or regulation now existing or hereafter
promulgated by Lessor as hereinafter provided), Lessor may withhold or delay
such approval or consent in its sole discretion and without justification.
46. PARTIAL INVALIDITY: If any provision of this Lease or application
thereof to any person or circumstance shall to any extent be invalid, the
remainder of this Lease of the application of such provision to persons or
circumstances other than those as to which it is held invalid shall not be
affected thereby and each provision of this Lease shall be valid and enforced
to the fullest extent permitted by law.
47. HOLDING OVER: Any holding over after the expiration of the terms
or any validly exercised renewal term shall be constructed to be a tenancy
from month to month at the rent equal to twice the base and additional
rentals and other charges specified herein (prorated on a monthly basis) and
shall otherwise be on the terms herein specified so far as applicable.
48. ESTOPPEL CERTIFICATE: Lessee agrees, at any time, and from time to
time, upon not less than ten (10) days' prior notice by Lessor, to execute,
acknowledge and deliver to Lessor, a statement in writing addressed to Lessor
or such other party as Lessor shall designate certifying that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
that the same is in full force and effect as modified and stating the
modification), stating the dates to which base rent, additional rent and
other charges have been paid, the amount of security deposited, if any, and
stating whether or not there exists any default in the performance of any
covenant, agreement, term, provisions or condition contained in this Lease,
and, if so, specifying each such default and containing such other
information, items and certifications as Lessor shall request, it being
intended that any such statement delivered pursuant hereto may be relied upon
by Lessor and by any purchaser, mortgagee or prospective mortgagee of any
mortgage affecting all or any portion of the Office Park and by any lessor
under a ground or underlying lease affecting all or any portion of the Office
Park.
49. FINANCIAL STATEMENT: Lessee hereby agrees, from time to time and
at the request of Lessor, to furnish Lessor, within thirty (30) days of each
such request, with such audited financial statements of Lessee as Lessor shall
require in order to reasonably determine the financial condition of Lessee.
Such statements shall be prepared by an independent certified public
accountant and shall include, without limitation, Lessee's net worth
statements and statements of financial position and retained earnings
statement of Lessee and its subsidiaries, if any, for the preceding three (3)
years. Lessee agrees that Lessor statements may furnish any of its lenders or
potential lenders or purchasers copies of such financial statements and records.
Lessor agrees to hold, and to cause its lender and potential lenders and
purchasers to hold, such financial statements in confidence and not to disclose
such records to any party other than such party as shall have a financial
interest in the Office Park or who has a loan on all or any portion of the
Office Park or who has a loan on all or any portion of the Office Park or who is
interested in making a loan on all or any portion of the Office Park or who
is interested in purchasing all or a portion of the Office Park.
50. HAZARDOUS MATERIALS: Lessee covenants and agrees, at its sole cost
and expense, to (i) indemnify, protect and save Lessor harmless against and
from any and all fines, damages, losses, liabilities, obligations,
penalties, claims litigation, demands, defenses, judgments, suits,
proceedings, costs, disbursements or expenses (including without limitation,
attorneys' and experts' reasonable fees and disbursements) of any kind or of
any nature whatsoever (collectively, the "Indemnified
19
<PAGE>
Matters") which may at any time be imposed upon, incurred by or asserted or
awarded against Lessor and arising from, or out of, the presence, existence,
storage, handling or disposition of any Hazardous Materials (as hereinafter
defined) on, in, under, from, or affecting all or any portion of the demised
premises and (ii) promptly, upon Lessor's demand, (y) remove, or cause to be
removed, from the Office Park and properly disposed of, all Hazardous
Materials and (z) undertake and complete all remediation. As used herein,
"Hazardous Materials" means petroleum, petroleum products or distillates,
petroleum derived substances, asbestos, asbestos containing materials or any
other materials, wastes or substances which are (or would or could, upon
attainment of a certain level or concentration, be) regulated, defined,
determined or identified as hazardous, toxic or special waste in any Laws (as
hereinafter defined) or such other items or materials that, in Lessor's
reasonable determination, could constitute or pose a potential threat to the
environment or a potential health threat. As used herein, "Laws" means any
Federal, State or local laws, rules or regulations (whether now existing or
hereafter enacted or promulgated) and any judicial or administrative
interpretation thereof, including any judicial or administrative orders or
judgments.
Indemnified Matters shall include, without limitation, all of the
following: (i) the costs of removal, and proper disposal, of any and all
Hazardous Materials from all or any portion of the demised premises or any
surrounding areas, (ii) additional costs required to take necessary precautions
to protect against the release of Hazardous Materials on, in, under or
affecting the demised premises into the air, any body of water, any other
public domain or any surrounding areas and (iii) costs incurred to bring the
demised premises and any surrounding areas into compliance with all
applicable Laws with respect to Hazardous Materials. All removal work
referred to in clause (i) above, all work and other actions to take
precautions against release referred to in clause (ii) above and all work
and other actions performed in order to comply with Laws referred to in
clause (iii) above are herein collectively referred to as "Corrective Work".
Lessor's rights under this paragraph 50 shall be in addition to all
other rights of Lessor under this Lease. Notwithstanding anything to the
contrary contained herein, the indemnity provided for under this paragraph 50
with respect to surrounding areas shall not extend to the cost of Corrective
Work on, in, under or affecting any surrounding areas, if the applicable
Hazardous Materials did not originate from any portion of the demised
premises, unless the removal of any Hazardous Materials on, in, under or
affecting any surrounding areas is required by Law or by order or directive
of any Federal, State or local governmental authority in connection with the
Corrective Work on, in, under or affecting any portion of the demised
premises.
[Signature Page To Follow]
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IN WITNESS WHEREOF, we have hereunto set our hands and seals
the day and year first above written.
LESSOR:
Witnesses: APA PROPERTIES NO. 6, L.P.
by INS'95 CORP.,
General Partner
/s/ David Abrams By: /s/ James J. Shapiro
- ------------------------- ------------------------
Name: David Abrams Name: James J. Shapiro
------------- -------------------
Title: Vice President
-------------------
LESSEE:
Witnesses: STMS, Inc.
/s/ Sharon L. Cravotta By: /s/ John R. Signorello
- ------------------------- ------------------------
Name: Sharon L. Cravotta Name: John R. Signorello
------------------- --------------------
Title: CEO
--------------------
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EXHIBIT A
11411 Isaac Newton Square, Reston, VA 20191
19,195 Rentable Square Feet
22
<PAGE>
EXHIBIT B
1. Lessor and Lessee each hereby acknowledge that the plans and
specifications for the work to be done in the demised premises to ready the
same for Lessee's use and occupancy shall be drawn by Lessor's architect and
approved by Lessor and Lessee prior to the commencement of Lessor's work.
Said plans shall be attached hereto as Exhibit B-1 after such approval.
2. Lessor shall perform the work ("Lessor's Work") shown on the
Plans to be performed by Lessor. The costs of Lessor's Work shall be
determined by the inclusion of the actual cost of such work plus an industry
standard mark-up for supervision, overhead and profit, the costs of
architectural and engineering fees and expenses and permit fees, and the
costs to review the plans and specifications of Lessee's Work. The
construction management fee shall be limited to five percent (5%) of the
actual cost. All Lessor's Work shall be awarded following a competitive bid
format. All Lessor's Work shall be performed in a workmanlike manner and in
compliance with all applicable governmental regulations. Lessee shall have
the right to review, monitor and reasonably approve the plans for the tenant
improvements.
Lessor shall obtain all permits, certificates and other governmental
approvals from all governmental entities having jurisdiction there over which
are necessary for the completion of Lessor's Work.
3. If the aggregate cost of Lessor's Work is more than One Hundred
Fifteen Thousand, One Hundred Seventy and no/100 ($115,170.00) Dollars,
Lessee shall, within ten (10) days of Lessor's written demand therefor, pay
the excess cost to Lessor. If the aggregate cost of Lessor's work is less
than $115,170.00, Lessor shall credit the differential to the base rent
payable under the Lease as the monthly installments of the same become due
and payable until the rent credit is exhausted.
4. A "Substantial Completion" of the demised premises shall be
conclusively deemed to have occurred as soon as the improvements to be
installed by Lessor pursuant to this Lease have been constructed in
accordance with the approved Plans and Specifications and approved change
orders and the demised premises are ready to be utilized for their intended
purpose, as certified by Lessor's architect. The issuance of a temporary
certificate of occupancy by the proper governmental entity shall be deemed
conclusive evidence that Substantial Completion has occurred. Notwithstanding
the above, the demised premises shall be considered Substantially Complete
and ready to be utilized for their intended purpose even though (a) there
remain to be completed in the demised premises punch list items reasonably
acceptable to Lessor and Lessee, including but not limited to minor or
insubstantial details of construction, decoration or mechanical adjustment,
the lack of completion of which will not materially interfere with Lessee's
permitted use of the demised premises, and/or (b) there is a delay in the
Substantial Completion of the demised premises due to a delay by Lessee as
set forth above. It is understood that the lease term shall commence no
earlier than May 1, 1997.
B. In the event that: (1) Lessor or its contractors shall be
delayed in the Substantial Completion of Lessor's Work as a result of:
(a) Any change or requested change by Lessee in the Plans or
in any specification, detail or finish schedule;
(b) Lessee's delays in submitting or resubmitting approved
Plans or in submitting, resubmitting, or in approving any other plans,
specifications, finishes, details, estimates, shop drawings or in supplying
information requested by Lessor or its contractors;
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(c) disputes as to the quality of performance or completion of work
by any person, firm or corporation employed by Lessee and any delays caused
by any person, firm or corporation employed by Lessee;
(d) Lessee's request for materials, finishes or installations other
than Building Standard or those immediately available to Lessor;
(e) the fact that non-Building Standard work requires lead time to
obtain or construction time to perform, in excess of that required for
Building Standard work;
(f) any direction by Lessee that Lessor hold up proceeding with a
segment of Lessor's Work or any dispute as to whether any item of work shall
constitute Lessor's Work;
(g) Lessee's refusal, failure or delay in giving authorizations or
approvals or supplying information; or
(h) any other act, omission or negligence of Lessee, its agents,
employees or contractors, including any default by Lessee in the performance
of its obligations under this Work Letter or the Lease, then the date
provided for the commencement date of the Lease and the obligations of Lessee
to pay the base rent, additional rent and other charges payable under the
Lease shall commence as of the date that Lessor could, absence the delays
caused by acts attributable to Lessee, have completed Lessor's Work, whether
or not Lessor has completed such work, but Lessor's obligation to perform
such work shall nevertheless continue in full force and effect, except that
if by reason of such delay Lessor shall incur additional costs and expenses,
Lessee shall be obligated to pay such additional costs and expenses.
5. If, (1) Lessee requests materials or any installation other than
as listed on the Plans or as part of Lessor's Work that Lessor has agreed to
do, or (2) if Lessee hereafter subsequently requests changes in the work
shown on the Plans or in Lessor's Work, then, in any or all of such events,
if such change of materials, installations or changes in work shown on said
Plans or in Lessor's Work delay the work to be performed by Lessor, then the
happening of these delays shall in no case postpone the Commencement Date or
the payment of rent reserved under the Lease and the Commencement Date of
the Lease and Lessee's obligation to pay base rent, additional rent and the
other charges payable under the Lease shall commence as of the date that
Lessor could, absence the delays attributable to changes requested by Lessee,
have completed Lessor's Work.
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EXHIBIT B-1
(Plans To Be Attached)
25
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EXHIBIT C
RULES AND REGULATIONS
The following rules and regulations have been adopted by Lessor for the care,
protection and benefit of the Building and for the general comfort and
welfare of all tenants:
1. The rights of Lessee in the sidewalks, entrances, corridors and
elevator of the Building are limited to ingress to and egress from the
demised premises for Lessee and its employees, licensees and invitees, and
Lessee shall not use, or permit the use of, such sidewalks, entrances,
corridors or elevator for any other purposes. Fire exits and stairways are
for emergency use only, and they shall not be used for invitees. Lessor shall
have the right to regulate the use of and operate the public portions of the
Building, as well as portions furnished for the common use of the tenants, in
such manner as it deems best for the benefit of the tenants generally.
2. Lessor may refuse admission to the Building outside of ordinary
business hours to any person not having a pass issued by Lessor or not
properly identified, and may require all persons admitted to or leaving the
Building outside of ordinary business hours to register. Lessor may require
any person leaving the Building with any package or other object to exhibit a
pass from the tenant from whose premises the package or object is being
removed, but the establishment or enforcement of such requirement shall not
impose any responsibility on Lessor for the protection of Lessee against the
removal of property from the demised premises.
3. No tenant shall purchase or contract for waxing, rug shampooing,
venetian blind washing, interior glass washing, furniture polishing, lamp
servicing, cleaning of electric fixtures, removal of waste paper, rubbish and
garbage, towel service or for alterations in the demised premises except from
contractors, companies or persons approved by Lessor. Such services shall
be furnished only at such hours, in such places within the demised premises
and under such regulations as may be fixed by Lessor.
4. Where any damage to the public portions of the Building or to any
portions used in common with other tenants is caused by Lessee or its
employees, licensees or invitees, the cost of repairing the same shall be
paid by Lessee upon demand.
5. Except as shall be approved in writing by Lessor, no lettering, sign,
advertisement, trademark, emblem, notice or object shall be displayed in or
on the windows or doors, or on the outside of the demised premises.
6. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags or other substances shall be thrown therein.
7. No awnings or other projections of any kind over or around the windows
or entrances of the demised premises shall be installed by Lessee, and only
such window blinds and shades as are approved or supplied by Lessor shall be
used in the demised premises.
8. Linoleum, tile or other floor covering shall be laid in the demised
premises only in a manner approved by Lessor.
9. Lessor shall have the right to prescribe the weight and position of
safes and other objects of excessive weight. If, in the reasonable judgment
of Lessor, it is necessary to distribute the concentrated weight of any safe
or heavy object, the work
26
<PAGE>
involved in such distribution shall be done in such manner as Lessor shall
reasonably determine and the expense thereof shall be paid by Lessee. The
moving of safes and other heavy objects shall take place only upon previous
notice to, and at times and in a manner approved by, Lessor, and the persons
employed to move the same in and out of the Building shall be acceptable to
Lessor.
10. No machines, machinery or electrical or electronic equipment or
appliances of any kind shall be placed or operated so as to disturb other
tenants.
11. Freight, furniture, business equipment, merchandise and packages of
any description shall be delivered to and removed from the demised premises
only during hours and in a manner approved by Lessor.
12. No dangerous, inflammable, combustible or explosive object or material
shall be brought into or kept in the Building by Lessee or with the
permission of Lessee, except as permitted by law and the insurance companies
insuring the Building or the property therein.
13. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows in the demised premises and no lock on any door shall be
changed or altered in any respect. Duplicate keys for the premises and toilet
rooms shall be procured only from Lessor, and Lessee shall pay to Lessor
Lessor's reasonable charge therefor. Upon the termination of the Lease, all
keys of the demised premises and toilet rooms shall be delivered to Lessor.
14. All entrance doors in the demised premises shall be left locked by
Lessee when the demised premises are not in use.
15. Canvassing, soliciting and peddling in the Building is prohibited and
each tenant shall cooperate to prevent the same.
16. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires and side guards. No hand trucks shall be used in passenger elevators.
17. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the demised premises, and no cooking shall be done or
permitted by Lessee on the demised premises except in the kitchen of the
dining facility, if any, as set forth in Lessee's layout, which is to be used
only as provided in the Lease. Lessee shall not cause or permit any unusual
or objectionable odors to be produced upon or emanate from the demised
premises.
18. Lessee reserves the right at all times to exclude the general public
from the Building during such hours as in Lessor's sole judgment will be in
the best interest of the Building and its tenants.
19. No wires of any kind or type (including, without limitation, television
and radio antennas) shall be attached to the outside of the Building, and no
wires shall be run or installed in any part of the Building without Lessor's
prior written consent.
20. Lessee shall provide a plexiglass or comparable carpet protection mat
for each desk chair customarily used by Lessee. Carelessness in this respect
may result in Lessee being requested by Lessor to pay the cost of repair
and/or replacement of said carpet, in whole or in part, as additional rent
when and if, in Lessor's sole judgment, such repair and/or replacement is
deemed necessary.
21. Suite doors are to remain closed except during ingress and egress.
This is mandatory to comply with the Fire Code.
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22. Smoking is prohibited in the Building.
23. Lessor reserves the right to rescind, alter or waive any rule or
regulation at any time prescribed by Lessor when it deems it necessary,
desirable or proper for its best interest or for the best interests of the
tenants, and no rescission, alteration or waiver of any rule or regulation in
favor of one tenant shall operate as a rescission, alteration or waiver in
favor of any other tenant. Lessor shall not be responsible to Lessee for the
nonobservance or violation by any other tenant of any of the rules or
regulations at any time prescribed by Lessor.
28
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EXHIBIT D
CLEANING SPECIFICATIONS
SPECIFICATIONS FOR NIGHT CLEANING
TENANT SPACES
(Includes any private bathrooms and kitchen areas)
DAILY
- - Empty and wipe all ashtrays.
- - Empty all wastebaskets and reline. Replace plastic liner as required.
Remove trash to designated area.
- - Recyclable materials removed to designated area.
- - Dust and wipe clean all telephones, tables, bookcases, file cabinets,
convertors and grills, chair and chair bases, with treated cloth, etc.
Desks and credenza's will be dusted and wiped with treated cloth so as
not to disturb papers and other articles therein.
- - Clean all glass furniture tops.
- - Vacuum all carpeting, detail all corners.
- - Spot clean all carpeting.
- - Sweep and mop all non-carpeted area, and maintain uniform finish.
- - Damp wipe with disinfectant cleaner all telephones.
- - Clean doors, door frames, walls and switchplates to remove fingerprints,
spills and other markings.
- - Clean all interior partitions, glass windows, glass entrance doors.
- - Clean all metal trimwork.
- - Clean all counters and counter tops in kitchen areas. Remove dust from
all spaces above finish floor.
- - Wash, clean, and polish all water coolers.
- - Lights will be turned off and doors will be locked (except where
specifically designated otherwise).
- - Windows are to remain closed/locked and venetian blinds adjusted, as
requested.
WEEKLY
- - Dust clean all window frames, window sills, chair rails, convector tops,
pictures or wall hanging above finish floor.
- - Vacuum upholstered furniture and wipe all chair legs with treated cloth.
- - Edge vacuum all carpeted areas and dust, wipe, and polish baseboards.
- - Buff all composition floors, maintaining uniform finish daily.
- - High dusting of all area above 60" from floor with a treated cloth.
MONTHLY
- - Clean all baseboards.
- - Dust all window blinds. Blinds to be dust free at all times.
- - Dust all lighting and ventilation fixtures.
- - Vacuum all lighting and ventilation fixtures.
- - Machine scrub, strip, seal, and wax all composition floors.* Skid
resistant finish to be used at all times.
*Note: Some special floor treatments may exist in certain tenant areas. When
an unfamiliar surface is encountered, check with building management.
AS NEEDED
- - Wash out waste receptacles as necessary.
- - Any work defined herein is at the direction of the Owner.
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SPECIFICATIONS FOR NIGHT CLEANING
DOCK/TRASH AREA
DAILY
- -----
- -- Remove all trash and debris, sweep concrete floor and mop.
STAIRWAYS AND LANDINGS
DAILY
- -----
- -- Police for debris.
- -- Remove graffiti as seen
- -- Sweep and/or damp mop all flooring and stairs
- -- Damp wipe with non-abrasive detergent and clean base of all doors,
walls, switches, glass, hand rails, etc.
MONTHLY
- -------
- -- Damp wipe clean from floor to ceiling all light fixtures ledges,
moldings, walls, grills, vents, piping, etc.
SPECIFICATIONS FOR NIGHT CLEANING
RESTROOMS
DAILY
- -----
- -- Damp wipe with mild, non-abrasive detergent all doors, kickplates,
door frames, walls, light switches, glass thresholds and partitions.
- -- Clean and polish towel and toilet tissue dispensers, flushometers,
shelves, piping, tampon machines, toilet hinges, and other metal
surfaces to remove all soil as necessary.
- -- Clean glass mirrors and vanity top removing all fingerpirnts,
streaks, smudges and splash marks.
- -- Empty and damp wipe all waste containers using proper odorless
disinfectant, deodorant and germicide combination cleaner. Reline
with proper liner for each container, liners should be minimally
visible from outside the container.
- -- Clean toilets, toilet seats, and urinals with proper combination
non-abrasive lavatory cleaner disinfectant and deodorizer removing
all streaks, stains, and deposits. Clean and polish all chrome
work.
- -- Wash and disinfect both sides of toilet seats.
- -- Floors: Remove all litter, wet mop with proper combination
lavatory cleaner of disinfectant, deodorizer and fungicide. Rinse
and mop with plain water. Remove all stains from underneath sinks,
toilets and urinals.
- -- Refill all toilet tissue, towel, sanitary napkin, air freshener,
and toilet seat cover dispensers.
WEEKLY
- ------
- -- Partitions: Wash to remove streaks, stains, smudges with proper
non-abrasive combination lavatory cleaner, disinfectant and
deodorizer. Remove graffiti, where possible.
- -- Damp, wipe all baseboards.
- -- Dust ventilating diffusers and light lenses.
- -- Pour clean, clear water down all traps.
MONTHLY
- -------
- -- Machine scrub all ceramic flooring, and refinish.
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AS NEEDED
- ---------
- -- Tile walls: Wash completely (floor to ceiling) with proper
combination cleaner, disinfectant, deodorant and fungicide.
- -- MAINTAIN BATHROOM IN A CLEAN AND ODOR FREE, FIRST-CLASS CONDITION
AT ALL TIMES. PARTICULAR ATTENTION SHOULD BE PAID TO MAINTAIN
DETAILED CLEAN CORNERS, GROUT, AND AREAS WHICH CAN ACCUMULATE
GRIME.
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Exhibit 10.11
DUNN COMPUTER CORPORATION
1997 STOCK OPTION AGREEMENT
as adopted on January 6, 1997
<PAGE>
1. PURPOSE OF PLAN: ADMINISTRATION
1.1 Purpose.
The Dunn Computer Corporation 1997 Stock Option Plan (hereinafter, the
"Plan") is hereby established to grant to officers and other employees of Dunn
Computer Corporation (the "Company") or of its parents or subsidiaries (as
defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code
of 1986, as amended (the "Code")), if any, and to non-employee directors,
consultants and advisors and other persons who may perform significant services
for or on behalf of the Company, a favorable opportunity to acquire common
stock, $.001 par value ("Common Stock"), of the Company and, thereby, to create
an incentive for such persons to remain in the employ of or provide services to
the Company and to contribute to its success.
The Company may grant under the Plan both incentive stock options within
the meaning of Section 422 of the Code ("Incentive Stock Options") and stock
options that do not qualify for treatment as Incentive Stock Options
("Nonstatutory Options"). Unless expressly provided to the contrary herein, all
references herein to "options," shall include both incentive Stock Options and
Nonstatutory Options.
1.2 Administration.
The Plan shall be administered by the Board of Directors of the Company
(the "Board") if each member is a "Non-Employee Director" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"),
or a committee (the "Committee") of two or more directors, each of whom is a
Non-Employee Director. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be
filled by the Board.
A majority of the members of the Committee shall constitute a quorum for
the purposes of the Plan. Provided a quorum is present, the Committee may take
action by affirmative vote or consent of a majority of its members present at a
meeting. Meetings may be held telephonically as long as all members are able to
hear one another, and a member of the Committee shall be deemed to be present
for this purpose if he or she is in simultaneous communication by telephone with
the other members who are able to hear one another. In lieu of action at a
meeting, the Committee may by written consent of a majority of its members.
Subject to the express provisions of the Plan, the Committee shall have the
authority to construe and interpret the Plan and all Stock Option Agreements (as
defined in Section 3.4) entered into pursuant hereto and to define the terms
used therein, to prescribe, adopt, amend and rescind rules and regulations
relating to the administration of the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; provided, however,
that the Committee may delegate nondiscretionary administrative duties to such
employees of the Company as it deems proper; and, provided, further, in its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under the
2
<PAGE>
Plan. Subject to the express limitations of the Plan, the Committee shall
designate the individuals from among the class of persons eligible to
participate as provided in Section 1.3 who shall receive options, whether an
optionee will receive Incentive Stock Options or Nonstatutory Options, or both,
and the amount, price, restrictions and all other terms and provisions of such
options (which need not be identical).
Members of the Committee shall receive such compensation or their services
as members as may be determined by the Board. All expenses and liabilities
which members of the Committee incur in connection with the administration of
this Plan shall be borne by the Company. The Committee may, with the approval
of the Board, employ attorneys, consultants, accountants, appraisers, brokers or
other persons. The Committee, the Company and the Company's officers and
directors shall be entitled to rely upon the advice, opinions or valuations of
any such persons. No members of the Committee or the Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan, and all members of the Committee shall be fully protected
by the Company in respect of any such action, determination or interpretation.
1.3 Participation.
Officers and other employees of the Company, non-employee directors,
consultants and advisors and other persons who may perform significant services
on behalf of the Company shall be eligible for selection to participate in the
Plan upon approval by the Committee; provided, however, that only "employees"
(within the meaning of Section 3401(c) of the Code) of the Company shall be
eligible for the grant of Incentive Stock Options. An individual who has been
granted an option may, if otherwise eligible, be granted additional options if
the committee shall so determine. No person is eligible to participate in the
Plan by matter of right; only those eligible persons who are selected by the
Committee in its discretion shall participate in the Plan.
1.4 Stock Subject to the Plan.
Subject to adjustment as provided in Section 3.5, the stock to be offered
under the Plan shall be shares of authorized but unissued Common Stock,
including any shares repurchased under the terms of the Plan or any Stock Option
Agreement entered into pursuant hereto. The cumulative aggregate number of
shares of Common Stock to be issued under the Plan shall not exceed 600,000,
subject to adjustment as set forth in Section 3.5.
If any option granted hereunder shall expire or terminate for any reason
without having been fully exercised, the unpurchased shares subject thereto
shall again be available for the purposes of the Plan. For purposes of this
Section 1.4, where the exercise price of options is paid by means of the
grantee's surrender of previously owned shares of Common Stock, only the net
number of additional shares issued and which remain outstanding in connection
with such exercise shall be deemed "issued" for purposes of the Plan.
3
<PAGE>
2. STOCK OPTIONS
2.1 Exercise Price; Payment.
(a) The exercise price of each Incentive Stock Option granted under
the Plan shall be determined by the Committee, but shall not be less than
100% of the "Fair Market Value" (as defined below) of Common Stock on the
date of grant. If an Incentive Stock Option is granted to an employee who at
the time such option is granted owns (within the meaning of section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
capital stock of the Company, the option exercise price shall be at least
110% of the Fair Market Value of Common Stock on the date of grant. The
exercise price of each Nonstatutory Option also shall be determined by the
Committee, but shall not be less than 85% of the Fair Market of Common Stock
on the date of grant. The status of each option granted under the Plan as
either an Incentive Stock Option or a Nonstatutory Option shall be determined
by the Committee at the time the Committee acts to grant the option, and
shall be clearly identified as such in the Stock Option Agreement relating
thereto.
"Fair Market Value" for purposes of the Plan shall mean: (i) the closing
price of a share of Common Stock on the principal exchange on which shares of
Common Stock are then trading, if any, on the day immediately preceding the date
of grant, or, if shares were not traded on the day preceding such date of grant,
then on the next preceding trading day during which a sale occurred; or (ii) if
Common Stock is not traded on an exchange but is quoted on an exchange but is
quoted on Nasdaq or a successor quotation system, (1) the last sales price (if
Common Stock is then listed on the Nasdaq Stock Market) or (2) the mean between
the closing representative bid and asked price (in all other cases) for Common
Stock on the day prior to the date of grant as reported by Nasdaq or such
successor quotation system; or (iii) if there is no listing or trading of Common
Stock either on a national exchange or over-the-counter, that price determined
in good faith by the Committee to be the fair value per share of Common Stock,
based upon such evidence as it deems necessary or advisable.
(b) In the discretion of the Committee at the time the option is
exercised, the exercise price of any option granted under the Plan shall be paid
in full in cash, b check or by the optionee's interest-bearing promissory note
(subject to any limitations of applicable state corporations law) delivered at
the time of exercise; provided, however, that subject to the timing requirements
of Section 2.7, in the discretion of the Committee and upon receipt of all
regulatory approvals, the person exercising the option may deliver as payment in
whole or in part of such exercise price certificates for Common Stock of the
Company (duly endorsed or with duly executed stock powers attached), which shall
be valued at its Fair Market Value on the day of exercise of the option, or
other property deemed appropriate by the Committee; and, provided further, that,
subject to Section 422 of the Code, so-called cashless exercises as permitted
under applicable rules and regulations of the Securities and Exchange Commission
and the Federal Reserve Board shall be permitted in the discretion of the
Committee. Without limiting the Committee's discretion in this regard,
consecutive book entry stock-for-stock exercises of options (or "pyramiding")
also are permitted in the Committee's discretion.
4
<PAGE>
Irrespective of the form of payment, the delivery of shares issuable upon
the exercise of an option shall be conditioned upon payment by the optionee to
the Company of amounts sufficient to enable the Company to pay all federal,
state, and local withholding taxes resulting, in the Company's judgment, from
the exercise. In the discretion of the Committee, such payment to the Company
may be effected through (i) the Company's withholding from the number of shares
of Common Stock that would otherwise be delivered to the optionee by the Company
on exercise of the option a number of shares of Common Stock equal in value (as
determined by the Fair Market Value of Common Stock on the date of the exercise)
to the aggregate withholding taxes, (ii) payment by the optionee to the Company
of the aggregate withholding taxes in cash, (iii) withholding by the Company
from other amounts contemporaneously owed by the Company to the optionee, or
(iv) any combination of these three methods, as determined by the Committee in
its discretion.
2.2 Option Period.
(a) The Committee shall provide, in the terms of each Stock Option
Agreement, when the option subject to such agreement expires and becomes
unexercisable, but in no event will an Incentive Stock Option granted under the
Plan be exercisable after the expiration of ten years from the date it is
granted. Without limiting the generality of the foregoing, the Committee may
provide in the Stock Option Agreement that the option subject thereto expires 30
days following a Termination of Employment (as defined in Section 3.2 hereof)
for any reason other than death or disability, or six months following a
Termination of Employment for disability or following an optionee's death.
(b) Outside Date for Exercise. Notwithstanding any provisions of this
Section 2.2. in no event shall any option granted under the Plan be exercised
after the expiration date of such option set forth in the applicable Stock
Option Agreement.
2.3 Exercise of Options.
Each option granted under the Plan shall become exercisable and the total
number of shares subject thereto shall be purchasable, in a lump sum or in such
installments, which need not be equal, as the Committee shall determine;
provided, however, that each option shall become exercisable as to at least 10%
of the shares of Common Stock covered thereby on each anniversary of the date
such option is granted; and provided, further, that if the holder of an option
shall not in any given installment period purchase all of the shares which such
holder is entitled to purchase in such installment period, such holder's right
to purchase any shares not purchased in such installment period shall continue
until the expiration or sooner termination of such holder's option. The
Committee may, at any time after grant of the option and from time to time,
increase the number of shares purchasable in any installment, subject to the
total number of shares subject to the option and the limitations set forth in
Section 2.5. At any time and from time to time prior to the time when any
exercisable option or exercisable portion thereof become unexercisable under the
Plan or the applicable Stock Option Agreement, such option, or portion thereof
may be exercised in whole or in part; provided, however, that the Committee may,
by the terms of the option, require any partial exercise to be with respect to a
specified minimum
5
<PAGE>
number of shares. No option or installment thereof shall be exercisable except
with respect to whole shares. Fractional share interests shall be disregarded,
except that they may be accumulated as provided above and except that if such a
fractional share interest constitutes the total shares of Common Stock remaining
available for purchase under an option at the time of exercise, the optionee
shall be entitled to receive on exercise a certified or bank cashier's check in
an amount equal to the Fair Market Value of such fractional share of stock.
2.4 Transferability of Options.
Except as the Committee may determine as aforesaid, an option granted under
the Plan shall, by its terms, be nontransferable by the optionee other than by
will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order (as defined by the Code), and shall be exercisable
during the optionee's lifetime only by the optionee or by his or her guardian or
legal representative. More particularly, but without limiting the generality of
the immediately preceding sentence, an option may not be assigned, transferred
(except as provided in the preceding sentence), pledged or hypothecated (whether
by operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of any option contrary to the provisions of
the Plan and the applicable Stock Option Agreement, and any levy of any
attachment or similar process upon an option, shall be null and void, and
otherwise without effect, and the Committee may, in its sole discretion, upon
the happening of any such event, terminate such option forthwith.
2.5 Limitation on Exercise of Incentive Stock Options.
To the extent that the aggregate Fair Market Value (determined on the date
of grant as provided in Section 2.1 above) of the Common Stock with respect to
which Incentive Stock Options granted hereunder (together with all other
Incentive Stock Option plans of the Company) are exercisable for the first time
by an optionee in any calendar year under the Plan exceeds $100,000, such
options granted hereunder shall be treated as Nonstatutory Options to the extent
required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking options into account in the order in which
they were granted.
2.6 Disqualifying Dispositions of Incentive Stock Options.
If Common Stock acquired upon exercise of any Incentive Stock Option is
disposed of in a disposition that, under Section 422 of the Code, disqualifies
the option holder from the application of Section 421(a) of the Code, the holder
of the Common Stock immediately before the disposition shall comply with any
requirements imposed by the Company in order to enable the Company to secure the
related income tax deduction to which it is entitled in such event.
2.7 Certain Timing Requirements.
At the discretion of the Committee, shares of Common Stock issuable to the
optionee upon exercise of an option may be used to satisfy the option exercise
price or the tax withholding
6
<PAGE>
consequences of such exercise, in the case of persons subject to Section 16 of
the Securities Exchange Act of 1934, as amended, only (i) during the period
beginning on the third business day following the date of release of the
quarterly or annual summary statement of sales and earnings of the Company and
ending on the twelfth business day following such date or (ii) pursuant to an
irrevocable written election by the optionee to use shares of Common Stock
issuable to the optionee upon exercise of the option to pay all or part of the
option price or the withholding taxes made at least six months prior to the
payment of such option price or withholding taxes.
2.8 No Effect on Employment.
Nothing in the Plan or in any Stock Option Agreement hereunder shall confer
upon any optionee any right to continue in the employ of the Company, any Parent
Corporation or any subsidiary or shall interfere with or restrict in any way the
rights of the company, its Parent Corporation and its Subsidiaries, which are
hereby expressly reserved, to discharge any optionee at any time for any reason
whatsoever, with or without cause.
For purposes of the Plan, "Parent Corporation" shall mean any corporation
in an unbroken chain of corporations ending with the Company if each of the
corporations other than the Company then 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. For purposes of the Plan, "Subsidiary" shall mean
any corporation in an unbroken chain of corporations beginning with the Company
if each of the corporations other than the last corporation in the unbroken
chain then 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.
2.9 Anti-Dilution Protection.
If, at any time during the first 36 months of the Option Period, the
Corporation issues any previously unissued common stock as a result of any
acquisition, joint venture or other business transaction, then, during such
period the number of shares subject to the Option shall be adjusted such that
the holder thereof shall have the right to exercise the Option for the same
percentage of the issued and outstanding commons stock of the Corporation after
giving effect to such transaction (including the future conversion or exercise
of any option or warrants issued in such transaction during the term of the
Option, but converted thereafter) as he held options for immediately prior to
such transaction.
3. OTHER PROVISIONS
3.1 Sick Leave and Leave of Absence.
Unless otherwise provided in the Stock Option Agreement, and to the extent
permitted by Section 422 of the Code, an optionee's employment shall not be
deemed to terminate by reason of sick leave, military leave or other leave of
absence approved by the Company if the period of any such leave does not exceed
a period approved by the Company, or, if longer, if the
7
<PAGE>
optionee's right to reemployment by the Company is guaranteed either
contractually or by statute. A Stock Option Agreement may contain such
additional or different provisions with respect to leave of absence as the
Committee may approve, either at the time of grant of an option or at a later
time.
3.2 Termination of Employment.
For purposes of the Plan "Termination of Employment," shall mean the time
when the employee-employer relationship between the optionee and the Company,
any Subsidiary or any Parent Corporation is terminated for any reason,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an optionee by
the Company, any Subsidiary or any Parent Corporation, (ii) at the discretion of
the Committee, terminations which result in a temporary severance of the
employee-employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company, a Subsidiary or any Parent Corporation
with the former employee. Subject to Section 3.1, the Committee, in its
absolute discretion, shall determine the affect of all maters and questions
relating to Termination of Employment; provided, however, that, with respect to
Incentive Stock Options, a leave of absence or other change in the
employee-employer relationship shall constitute a Termination of Employment if,
and to the extent that such leave of absence or other change interrupts
employment for the purposes of Section 422(a)(2) of the Code and the
then-applicable regulations and revenue rulings under said Section.
3.3 Issuance of Stock Certificates.
Upon exercise of an option, the Company shall deliver to the person
exercising such option a stock certificate evidencing the shares of Common Stock
acquired upon exercise. Notwithstanding the foregoing, the Committee in its
discretion may require the Company to retain possession of any certificate
evidencing stock acquired upon exercise of an option which remains subject to
repurchase under the provisions of the Stock Option Agreement or any other
agreement signed by the optionee in order to facilitate such repurchase
provisions.
3.4 Terms and Conditions of Options.
Each option granted under the Plan shall be evidenced by a written Stock
Option Agreement ("Stock Option Agreement") between the option holder and the
Company providing that the option is subject to the terms and conditions of the
Plan and to such other terms and conditions not inconsistent therewith as the
Committee may deem appropriate in each case.
3.5 Adjustments Upon Changes in Capitalization; Merger and Consolidation.
If the outstanding shares of Common Stock are changed into, or exchanged
for cash or a different number of kind of shares or securities of the Company or
of another corporation through reorganization, merger, recapitalization,
reclassification, stock split-up, reverse stock
8
<PAGE>
split, stock dividend, stock consolidation, stock combination, stock
reclassification or similar transaction, an appropriate adjustment shall be made
by the Committee in the number and kind of shares as to which options may be
granted. In the event of such a change or exchange, other than for shares or
securities of another corporation or by reason of reorganization, the Committee
shall also make a corresponding adjustment changing the number of kind of shares
and the exercise price per share allocated to unexercised options or portions
thereof, which shall have been granted prior to any such change, shall likewise
be made. Any such adjustment, however, shall be made without change in the
total price applicable to the unexercised portion of the option (except for any
change in the aggregate price resulting from rounding-off of share quantities or
prices).
In the event of a "spin-off" or other substantial distribution of assets of
the Company which has a material diminutive effect upon the Fair Market Value of
the Common Stock, the Committee in its discretion shall make an appropriate and
equitable adjustment to the exercise prices of options then outstanding under
the Plan.
Where an adjustment under this Section 3.5 of the type described above is
made to an Incentive Stock Option, the adjustment will be made in a manner which
will not be considered a "modification" under the provisions of subsection
424(b)(3) of the Code.
In connection with the dissolution or liquidation of the Company or a
partial liquidation involving 50% or more of the assets of the Company, a
reorganization of the Company in which another entity is the survivor, a merger
or reorganization of the Company under which more than 50% of the Common Stock
outstanding prior to the merger or reorganization is converted into cash or into
a security of another entity, a sale of more than 50% of the Company's assets,
or a similar event that the Committee determines, in its discretion, would
materially alter the structure of the Company or its ownership, the Committee,
upon 30 days prior written notice to the option holders, may, in its discretion,
do one or more of the following: (i) shorten the period during which options
are exercisable (provided they remain exercisable for at least 30 days after the
date the notice is given); (ii) accelerate any vesting schedule to which an
option is subject; (iii) arrange to have the surviving or successor entity grant
replacement options with appropriate adjustments in the number and kind of
securities and option prices, or (iv) cancel options upon payment to the option
holders in cash, with respect to each option to the extent then exercisable
(including any options as to which the exercise has been accelerated as
contemplated in clause (ii) above), of any amount that is the equivalent of the
Fair Market Value of the Common Stock (at the effective time of the dissolution,
liquidation, merger, reorganization, sale or other event) or the fair market
value of the option. In the case of a change in corporate control, the Committee
may, in considering the advisability or the terms and conditions of any
acceleration of the exercisability of any option pursuant to this Section 3.5,
take into account the penalties that may result directly or indirectly from such
acceleration to either the Company or the option holder, or both, under Section
280G of the Code, and may decide to limit such acceleration to the extent
necessary to avoid or mitigate such penalties or their effects.
No fractional share of Common Stock shall be issued under the Plan on
account of any adjustment under this Section 3.5.
9
<PAGE>
3.6 Rights of Participants and Beneficiaries.
The Company shall pay all amounts payable hereunder only to the option
holder or beneficiaries entitled thereto pursuant to the Plan. The Company shall
not be liable for the debts, contracts or engagements of any optionee or his or
her beneficiaries, and rights to cash payments under the Plan may not be taken
in execution by attachment or garnishment, or by any other legal or equitable
proceeding while in the hands of the Company.
3.7 Government Regulations.
The Plan, and the grant and exercise of options and the issuance and
delivery of shares of Common Stock under options granted hereunder, shall be
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law) and
federal margin requirements and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
3.8 Amendment and Termination.
The Board or the Committee may at any time suspend, amend or terminate the
Plan and may, with the consent of the option holder, make such modifications of
the terms and conditions of such option holder's option as it shall deem
advisable, provided, however, that, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, (A) materially
increase the benefits accruing to participants under the Plan; (B) materially
increase the number of securities which may be issued under the Plan; or (C)
materially modify the requirements as to eligibility for participation in the
Plan. No option may be granted during any suspension of the Plan or after such
termination. The amendment, suspension or termination of the Plan shall not,
without the consent of the option holder affected thereby, alter or impair any
rights or obligations under any option theretofore granted under the Plan. No
option may be granted during any period of suspension nor after termination of
the Plan, and in no event may any option be granted under the Plan after the
expiration of ten years from the date the Plan is adopted by the Board.
3.9 Time of Grant And Exercise of Option.
An option shall be deemed to be exercised when the Secretary of the Company
receives written notice from an option holder of such exercise, payment of the
exercise price determined pursuant to Section 2.1 of the Plan and set forth in
the Stock Option Agreement, and all representations, indemnifications and
documents reasonably requested by the Committee.
10
<PAGE>
3.10 Privileges of Stock Ownership; Non-Distributive Intent; Reports to
Option Holders.
A participant in the Plan shall not be entitled to the privilege of stock
ownership as to any shares of Common Stock not actually issued to the optionee.
Upon exercise of an option at a time when there is not in effect under the
Securities Act of 1933, as amended, a Registration Statement relating to the
Common Stock issuable upon exercise or payment therefor and available for
delivery a Prospectus meeting the requirements of Section 10(a)(3) of said Act,
the optionee shall represent and warrant in writing to the Company that the
shares purchased are being acquired for investment and not with a view to the
distribution thereof.
The Company shall furnish to each optionee under the Plan the Company's
annual report and such other periodic reports, if any, as are disseminated by
the Company in the ordinary course to its stockholders.
3.11 Legending Share Certificates.
In order to enforce any restrictions imposed upon Common Stock issued upon
exercise of an option granted under the Plan or to which such Common Stock may
be subject, the Committee may cause a legend or legends to be placed on any
share certificates representing such Common Stock, which legend or legends shall
make appropriate reference to such restrictions, including, but not limited to,
a restriction against sale of such Common Stock for any period of time as may be
required by applicable laws or regulations. If any restriction with respect to
which a legend was placed on any certificate ceases to apply to Common Stock
represented by such certificate, the owner of the Common Stock represented by
such certificate may require the Company to cause the issuance of a new
certificate not bearing the legend.
Additionally, and not by way of limitation, the Committee may impose such
restrictions on any Common Stock issued pursuant to the Plan as it may deem
advisable, including, without limitation, restrictions under the requirements of
any stock exchange upon which Common Stock is then traded.
3.12 Use of Proceeds.
Proceeds realized pursuant to the exercise of options under the Plan shall
constitute general funds of the Company.
3.13 Changes in Capital Structure; No Impediment to Corporate
Transactions.
The existence of outstanding options under the Plan shall not affect the
Company's right to effect adjustments, recapitalizations, reorganizations or
other changes in its or any other corporation's capital structure or business,
any merger or consolidation, any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock, the dissolution or
liquidation of the Company's or any other corporation's assets or business, or
any other corporate act, whether similar to the events described above or
otherwise.
11
<PAGE>
3.14 Effective Date of the Plan.
The Plan shall be effective as of the date of its approval by the
stockholders of the Company within twelve months after the date of the Board's
initial adoption of the Plan. Options may be granted but not exercised prior to
stockholder approval of the Plan. If any options are so granted and stockholder
approval shall not have been obtained within twelve months of the date of
adoption of this Plan by the Board of Directors, such options shall terminate
retroactively as of the date they were granted.
3.15 Termination.
The Plan shall terminate automatically as of the close of business on the
day preceding the tenth anniversary date of its adoption by the Board or earlier
as provided in Section 3.8. Unless otherwise provided herein, the termination of
the Plan shall not affect the validity of any option agreement outstanding at
the date of such termination.
3.16 No Effect on Other Plans.
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Subsidiary or any Parent
Corporation. Nothing in the Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
employees of the Company, any Subsidiary or any Parent Corporation or (ii) to
grant or assume options or other rights otherwise than under the Plan in
connection with any proper corporate purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, firm or association.
* * *
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EXHIBIT 11.1
DUNN COMPUTER CORPORATION
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Earnings per share:
Number of Common and Common equivalent shares outstanding............................. 5,150,000 4,000,000
Common equivalent shares from options issued during the twelve month period
prior to the filing of the SB-2 (using the treasury stock method)................... -- 50,150
Common Stock options (using the treasury stock method, assuming limitation of
20% of outstanding common stock).................................................... 827,000 --
------------ ------------
Total................................................................................. 5,977,000 4,050,150
------------ ------------
------------ ------------
Net income............................................................................ $ 1,322,300 $ 1,239,164
------------ ------------
Interest income from investing excess cash funds...................................... 145,876 --
------------ ------------
Adjusted net income................................................................... $ 1,468,176 $ 1,239,164
------------ ------------
------------ ------------
Earnings per share.................................................................... $ 0.25 $ 0.31
------------ ------------
------------ ------------
</TABLE>
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES OF DUNN COMPUTER CORPORATION,
A DELAWARE CORPORATION
1. Dunn Computer Corporation, a Virginia Corporation.
2. STMS, Inc., a Virginia Corporation.
3. STMS Acquisitions, Corporation, a Delaware Corporation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DUNN
COMPUTER CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED OCTOBER 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
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