<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ADVANCED COMMUNICATION SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7373 54-1421222
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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10089 LEE HIGHWAY
FAIRFAX, VA 22030
(703) 934-8130
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GEORGE A. ROBINSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ADVANCED COMMUNICATION SYSTEMS, INC.
10089 LEE HIGHWAY
FAIRFAX, VA 22030
(703) 934-8130
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
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Copies to:
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PETER J. WALLISON, ESQ. PETER B. TARR, ESQ.
GIBSON, DUNN & CRUTCHER LLP BRENT B. SILER, ESQ.
1050 CONNECTICUT AVENUE, N.W. HALE AND DORR LLP
WASHINGTON, D.C. 20036-5306 1455 PENNSYLVANIA AVENUE, N.W.
TELEPHONE: (202) 955-8500 WASHINGTON, D.C. 20004-1008
FACSIMILE: (202) 467-0539 TELEPHONE: (202) 942-8400
FACSIMILE: (202) 942-8484
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering.
[ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
-----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
AGGREGATE
TITLE OF SECURITIES OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock, par value $0.01 per share............................ $31,625,000 $9,583.33
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 26, 1997
2,500,000 SHARES
ADVANCED COMMUNICATION SYSTEMS, INC.
COMMON STOCK
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Of the 2,500,000 shares of Common Stock (the "Common Stock") offered
hereby, 1,850,000 shares are being sold by Advanced Communication Systems, Inc.
(the "Company") and 650,000 shares are being sold by the Selling Stockholders.
See "Principal and Selling Stockholders." The Company will receive no proceeds
from the sale of shares by the Selling Stockholders.
Prior to the offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $ and $ per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock approved for quotation on the
Nasdaq National Market under the trading symbol "ACSC."
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SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
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Total (3)......................... $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated offering expenses of $ , all of which
will be paid by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
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The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them and subject to certain
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer or to reject any orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about ,
1997.
A.G. EDWARDS & SONS, INC. FERRIS, BAKER WATTS
Incorporated
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
DESCRIPTION OF GRAPHIC
The chart is comprised of three rows of two boxes each. The top left box
has a photograph of a row of satellite dishes under the words "Communication
Systems". The top right box contains three bullet points: "Engineering";
"Program Planning & Management"; and "Communication Networks". The middle left
box contains six bullet points: "Information Management Systems"; "Local/Wide
Area Networks"; "Database Services"; "Internet/Intranet Services"; "Web Page
Development"; and "Multimedia Training". The middle right box contains the words
"Information Technology" over a photograph of overlapping compact discs. The
bottom left box contains a photograph of a large computer under the words
"Systems Integration". The bottom right box contains four bullet points: "VMS
Applications"; "BGIXS"; "ISALTS"; and "Value Added Resales".
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF A PENALTY BID.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and the Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. Investors should
consider carefully the risk factors related to the purchase of the Common Stock
of the Company. See "Risk Factors." Unless otherwise indicated, the information
in this Prospectus assumes that the Underwriters' over-allotment option will not
be exercised and gives effect to a 675-for-1 stock split of the Common Stock, to
be paid in the form of a stock dividend. References herein to fiscal years are
to the Company's fiscal year which ends on September 30 of each year. For
example, the twelve months ended September 30, 1996 are referred to herein as
fiscal 1996. A glossary of acronyms used in this Prospectus appears on page 47.
THE COMPANY
Advanced Communication Systems, Inc. provides communications and
information technology services and solutions, predominantly to U.S. government
agencies and to a lesser extent commercial and international customers. The
Company operates primarily in three interrelated areas: communication systems
design and support, information technology services ("IT Services") and systems
integration. From its inception in 1987, the Company has been a leader in
military satellite communications ("SATCOM"), particularly for the U.S. Navy.
Recently, using its information management capabilities in such areas as network
and database design and support, the Company has begun to expand its services to
the U.S. military and to develop business with other federal agencies, state and
local governments and commercial and international customers. Revenues have
increased each year since fiscal 1987 and grew at a compound annual rate of
36.3% during the last five fiscal years, reaching $31.7 million for fiscal 1996.
Additionally, for the three-month period ended December 31, 1996, the Company's
revenues grew 57.0% over the comparable three-month period of the prior year,
reaching $9.1 million. The Company's total backlog, including unfunded backlog,
was $139.2 million as of September 30, 1996.
The three main areas of the Company's business are as follows:
- COMMUNICATION SYSTEMS. The Company designs, engineers, develops,
integrates, installs and operates satellite and computer-based
communication systems. It provides SATCOM engineering and technical
services and program and system support primarily to program
directorates and field activities of the U.S. Navy. Recently, the
Company has expanded its communication systems business capabilities
to provide a full range of systems engineering procurement and
technical support for the Command, Control, Communication, Computer
and Intelligence ("C4I") initiatives of the Department of Defense (the
"DOD"). In addition, the Company has expanded its staff to include
experts in program and financial management, and now provides support
in these areas to its communication systems customers. The Company
believes this combination of skills and capabilities is one of the
factors that distinguishes it from its competitors in the
communication systems business. For fiscal 1996, the Company's
communication systems business represented 64.5% of revenues.
- IT SERVICES. The Company provides a full range of services and
support in the areas of information management technology, information
processing, network design and operations, database design and
management, Internet and intranet services and multimedia training
services. It provides these services to a wide range of customers,
including the DOD, other federal agencies and commercial enterprises.
The advanced technical capabilities gained by the Company while
performing services for government customers has provided expertise in
the information technology area, which the Company is leveraging to
develop its commercial business. The Company is currently focusing on
expanding its IT Services to commercial and international customers.
For fiscal 1996, the Company's IT Services business represented 25.3%
of revenues.
- SYSTEMS INTEGRATION. The Company provides systems integration
services for communication systems and, to a lesser extent, acts as a
value-added reseller of computer hardware and software to both
government and commercial customers. The Company's strategy in this
business area is to concentrate on providing total communication
systems integration solutions. Most of this communication systems
integration business is performed under its contract (the "GSA
Schedule
3
<PAGE> 5
Contract") with the General Services Administration ("GSA"), which
permits the Company to sell approved products to U.S. government
agencies and contractors without competitive bidding. The Company's
systems integration business represented 10.2% of revenues for fiscal
1996 and 21.6% of revenues for the three-month period ended December
31, 1996.
Growth in the Company's business is being driven in part by the increasing
trend in government and commercial organizations to focus on their core
competencies and to outsource non-core functions such as information technology.
In addition, the U.S. military is placing greater emphasis on increasing
productivity while using fewer resources by employing systems that act as "force
multipliers." Solutions and technologies such as those offered by the Company
permit the use of fewer personnel and assets and result in more effective
performance at lower levels of spending. Federal Sources, Inc., an independent
market research firm specializing in the U.S. federal market, estimates that the
U.S. government has budgeted $26.5 billion in its fiscal year 1997 for
information technology services and products. In addition, the fiscal year 1997
DOD budget for information technology in the classified command, control and
communication market is estimated to be approximately $9.8 billion. The Company
believes that the commercial information technology market is significantly
larger than the government market.
The Company believes it has established a reputation in the industry for
delivering creative solutions to complex problems through the use of highly
skilled personnel and the most current technology. The Company has managed large
and complex federal contracts and believes this capability positions it to
capitalize on the future growth in outsourcing, both in the United States and
internationally. To do so, the Company plans to employ the following strategies:
(i) maintain leadership in the military SATCOM industry; (ii) expand existing
services and customer base; (iii) develop additional commercial business; and
(iv) expand through strategic acquisitions and the use of teaming relationships.
Advanced Communication Systems, Inc. is a Delaware corporation incorporated
in 1987. Its principal executive offices are located at 10089 Lee Highway,
Fairfax, Virginia 22030, and its telephone number is (703) 934-8130.
THE OFFERING
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Common Stock offered by the Company..................... 1,850,000 shares
Common Stock offered by the Selling Stockholders........ 650,000 shares
Common Stock to be outstanding after the offering (1)... 5,636,750 shares
Use of Proceeds......................................... Repayment of debt, including debt
incurred to finance S corporation
distributions, and general corporate
purposes, including possible
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.................. "ACSC"
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(1) Does not include an aggregate of 740,500 shares of Common Stock reserved for
issuance by the Company upon the exercise of stock options. As of the date
of this Prospectus, there were options to purchase 290,500 shares of Common
Stock outstanding. See "Management -- Stock Plans and Agreements."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
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THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------- ----------------
1992 1993 1994 1995 1996 1995 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Revenues.................................. $8,679 $12,223 $19,106 $23,724 $31,665 $5,775 $9,066
Direct costs.............................. 4,881 7,050 11,418 14,815 19,307 3,331 6,038
Indirect, general and administrative
expenses................................ 3,194 4,612 7,177 8,202 10,253 2,027 2,442
------ ------- ------- ------- ------- ------ ------
Income from operations.................... 604 561 511 707 2,105 417 586
Other income (expense), net............... (49) (78) (73) (133) (200) (37) (48)
------ ------- ------- ------- ------- ------ ------
Net income................................ $ 555 $ 483 $ 438 $ 574 $ 1,905 $ 380 $ 538
====== ======= ======= ======= ======= ====== ======
PRO FORMA STATEMENT OF OPERATIONS DATA (1):
Net income before taxes................... $ 555 $ 483 $ 438 $ 574 $ 1,905 $ 380 $ 538
Income taxes.............................. 222 193 175 229 743 152 210
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Net income................................ $ 333 $ 290 $ 263 $ 345 $ 1,162 $ 228 $ 328
====== ======= ======= ======= ======= ====== ======
Net income per share (2).................. $ 0.27 $ 0.08
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Weighted average shares outstanding (2)... 4,240 4,221
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DECEMBER 31, 1996
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PRO FORMA
ACTUAL AS ADJUSTED (3)
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Working capital................................................................ $ 5,898
Total assets................................................................... 13,686
Total debt..................................................................... 2,917
Stockholders' equity........................................................... 4,932
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(1) For all periods presented, the Company elected to be treated as an S
corporation and was not subject to federal and certain state income taxes.
The Pro Forma Statement of Operations Data reflects federal and state income
taxes based on applicable tax rates, as if the Company had not elected S
corporation status for the periods indicated. See "S Corporation
Distribution and Termination of S Corporation Status."
(2) The pro forma weighted average shares outstanding is based on: (i) the
weighted average shares outstanding during the period, assuming the dilutive
effect of all options outstanding; (ii) stock options issued during the
twelve months immediately preceding the offering (using the treasury stock
method and an assumed initial public offering price of $ per share) for
all periods presented; and (iii) the assumed sale of a sufficient number of
shares of Common Stock necessary to provide funds to make a distribution of
all undistributed S corporation earnings as of December 31, 1996 in excess
of fiscal 1996 earnings.
(3) Gives effect to: (i) a distribution to the Company's current stockholders of
undistributed S corporation earnings, which totaled approximately $5.0
million as of December 31, 1996; (ii) the recording of a $2.2 million
deferred tax liability, which would have been required had the Company
terminated its S corporation status as of December 31, 1996; and (iii) the
sale of the 1,850,000 shares of Common Stock offered by the Company hereby,
at an assumed initial public offering price of $ per share and after
deducting the estimated underwriting discount and offering expenses, and the
application of a portion of the net proceeds therefrom to repay indebtedness
as described under "Use of Proceeds." The actual amount of the S corporation
distribution to be funded using a portion of the proceeds of this offering
will reflect additional earnings of the Company from January 1, 1997 through
the closing of this offering, and the actual amount of the deferred tax
liability to be recorded will depend upon a number of factors. See "S
Corporation Distribution and Termination of S Corporation Status."
5
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RISK FACTORS
Prospective investors should carefully consider the following risk factors
relating to the Company and the Common Stock, in addition to the other
information contained in this Prospectus. Certain statements contained in this
Prospectus that are not related to historical results are forward-looking
statements. Actual results may differ materially from those projected or implied
in the forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, the following risk factors.
CONCENTRATION OF REVENUES
For fiscal 1994, 1995 and 1996 and the three months ended December 31,
1996, approximately 100%, 99%, 90% and 91%, respectively, of the Company's
revenues were derived from contracts or subcontracts funded by the U.S.
government, virtually all of which were funded by the DOD. The Company expects
that U.S. government contracts are likely to continue to account for a
significant portion of its revenues in the future. Accordingly, the Company's
financial performance may be directly affected by changing U.S. government
procurement practices and policies and declines in U.S. defense spending. Among
the factors that could have a material adverse effect upon the Company's ability
to win new contracts with the U.S. government, or retain existing contracts, are
budgetary constraints, changes in government funding levels, programs, policies
or requirements, technological developments, the adoption of new laws or
regulations and general economic conditions. In addition, certain of the
Company's contracts individually contribute a significant percentage of its
revenues. For fiscal 1996, one contract with the U.S. Navy generated
approximately 28% of the Company's revenues. For the three-month period ended
December 31, 1996, a different contract with the U.S. Navy generated
approximately 22% of the Company's revenues. The Company's five largest
contracts generated approximately 69% and 77% of its revenues, respectively, for
the same periods. Although the Company intends to expand its non-military and
non-government sales, a relatively small number of large U.S. government
contracts are likely to continue to account for a significant percentage of the
Company's revenues in the future. Termination of these contracts or the
Company's inability to renew or replace them when they expire could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Contracts."
GOVERNMENT CONTRACTING RISKS
Government contracts, by their terms, generally can be terminated at any
time by the government without cause. If a government contract is so terminated,
the Company generally would be entitled to receive compensation for the services
provided or costs incurred up to the time of termination and a negotiated amount
of the profit on the contract to the date of termination. Termination of any of
its large government contracts could have a material adverse effect on the
Company's business, financial condition and results of operations.
Government contracts require compliance with various contract provisions
and procurement regulations. The adoption of new or modified procurement
regulations could have a material adverse effect on the Company's business,
financial condition and results of operations or increase its costs of competing
for or performing government contracts. Any violation of these regulations could
result in the termination of the contracts, imposition of fines and/or debarment
from award of additional government contracts. Most government contracts are
subject to modification or termination in the event of changes in funding, and
the Company's contract costs and revenues are subject to adjustment as a result
of audits by the Defense Contract Audit Agency (the "DCAA") and other government
auditors. The award of government contracts also is subject to protest by
competitors which can result in the re-opening of the bidding process,
unanticipated legal costs or the award of a contract to a competitor.
Government contracts generally are awarded to the Company through a formal
competitive bidding process in which the Company has many competitors. Upon
expiration, government contracts may be subject to a competitive rebidding
process. There can be no assurance that the Company will be successful in
winning contract awards or renewals in the future. The Company's failure to
renew or replace such contracts when they expire could have a material adverse
effect on its business, financial condition and results of operations.
6
<PAGE> 8
A significant portion of the Company's revenues in fiscal 1996
(approximately 45%) and in the three months ended December 31, 1996
(approximately 24%) was generated by U.S. government contracts awarded to the
Company through small business set-aside programs. The Company no longer is
eligible to participate in some of these programs and, as its revenues and size
expand, it will lose its eligibility to participate in more of these programs.
There can be no assurance that the Company will be able to replace revenues from
these contracts.
The Company also derives significant revenues from sales under the GSA
Schedule Contract. The government has no obligation to purchase any significant
amount of goods or services under the contract and there can be no assurance as
to the actual level of sales that will be derived from this contract. The GSA
Schedule Contract is a fixed price contract, which imposes greater financial
risk on the Company than a cost reimbursement or time and materials contract.
Failure to anticipate technical problems, estimate costs accurately or control
costs during performance of a fixed price contract may reduce the Company's
profit or cause a loss. In addition, the GSA Schedule Contract is a one year
contract, renewable annually by the government. There can be no assurance that
the GSA Schedule Contract will be renewed, and the Company's inability to renew
or replace the GSA Schedule Contract could have a material adverse effect on its
business, financial condition and results of operations. See
"Business -- Government Contracts."
BACKLOG NOT INDICATIVE OF REVENUES
The estimated backlog under a government contract is not necessarily
indicative of revenues that will actually be realized under that contract.
Congress normally appropriates funds for a given program on a fiscal year basis,
even though actual contract performance may take many years. As a result,
contracts ordinarily are only partially funded at the time of award, and
additional monies are normally committed to the contract by the procuring agency
as appropriations are made by Congress in subsequent fiscal years. There can be
no assurance that Congress will appropriate funds or that procuring agencies
will commit funds to the Company's contracts for their anticipated terms. In
addition, most of the Company's government contracts have a base term of one
year and a number of option years. There can be no assurance that the government
will extend a contract through its option years. Many of the Company's large
contracts require that the Company supply services upon request, and the Company
receives no payments under these contracts until such services are requested and
performed. There can be no assurance that the Company's services under these
contracts will be requested at the anticipated levels in the future. See
"Business -- Government Contracts" and "Business -- Backlog."
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's revenues and earnings may fluctuate from quarter to quarter
based on such factors as the number, size and scope of projects, expenditures
required by the Company, delays, employee utilization rates, adequacy of
provisions for losses, accuracy of estimates of resources required to complete
ongoing projects and general economic conditions. Demand for the Company's
products and services in each of the markets it serves can vary significantly
from quarter to quarter due to revisions in customer budgets or schedules and
other factors beyond the Company's control. Due to all of the foregoing factors,
it is possible that in some future period the Company's results of operations
will fall below the expectations of securities analysts and investors. In this
event, the market price of the Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Results of Operations."
NEED TO ATTRACT AND RETAIN PROFESSIONAL STAFF
The Company's success will depend in part upon its ability to attract,
retain, train and motivate highly skilled employees, particularly in the area of
information technology. There is significant competition for employees with the
communication and information technology skills required to perform the services
the Company offers. In addition, the Company must often comply with provisions
in government contracts which require employment of persons with specified
levels of education, work experience and security clearances. There can be no
assurance that the Company will be successful in attracting a sufficient number
of highly
7
<PAGE> 9
skilled employees in the future. None of the Company's key personnel are subject
to noncompetition agreements. The loss of its key technical personnel or its
inability in the future to attract key employees or to relocate them as required
by customers could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Employees."
RISKS ASSOCIATED WITH ENTRY INTO COMMERCIAL BUSINESS
The Company is pursuing a strategy to increase the sales of its services in
the commercial market, although the Company and its management have limited
experience in this market. To date, the Company's sales to customers other than
the U.S. government have been made largely to military agencies of other
countries and to a lesser extent civilian buyers. There can be no assurance that
the Company will be able to compete successfully in the civilian markets or
continue to make sales to defense agencies outside the United States.
Most of the Company's existing commercial contracts are fixed price
contracts, and the Company expects this will continue to be true with respect to
new commercial contracts. The Company may fail to anticipate technical problems,
estimate costs accurately or control costs during performance of a fixed price
contract, any of which may reduce the Company's profit or cause a loss under
such contracts. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview," "Business -- Business Strategy" and
"Business -- Government Contracts."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
A part of the Company's business strategy calls for growth through
acquisitions, although to date it has not completed any. Identifying and
pursuing future acquisition opportunities will require a significant amount of
management time and skill. There can be no assurance that the Company will be
able to identify suitable acquisition candidates, consummate any acquisition on
acceptable terms or successfully integrate acquired business operations. Future
acquisitions may entail the payment of consideration in excess of book value,
may result in the issuance of additional shares of the Company's Common Stock or
the incurrence of additional indebtedness and could have a dilutive effect on
the Company's net income per share. See "Business -- Business Strategy."
MANAGEMENT OF GROWTH
The Company's revenues have increased over the past five fiscal years at a
compound annual rate of 36.3%. Continued growth could place a significant strain
on the Company's limited personnel, management, financial controls and other
resources. The Company's ability to manage any future expansion effectively will
require it to attract, retain, train, motivate and manage new employees
successfully, to integrate new management and employees into its overall
operations and to continue to improve its operational, financial and management
systems and controls and facilities. The Company's failure to manage any
expansion effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree on its key management
personnel, the loss of any one of whom could have a material adverse effect on
its business, financial condition and results of operations.
COMPETITION
The Company experiences significant competition in all of the areas in
which it does business. In general, the markets in which it competes are not
dominated by a single company or a small number of companies; instead, a large
number of companies offer services that overlap and are competitive with those
offered by the Company. Many of its competitors are significantly larger and
have greater financial resources than the Company, and some of these competitors
are divisions or subsidiaries of large, diversified companies that have access
to the financial resources of their parent companies. There can be no assurance
that the Company will be able to compete successfully. See
"Business -- Competition."
8
<PAGE> 10
PROPRIETARY INFORMATION
Much of the Company's business is derived from work product, software
programs, methodologies and other information in which it has a proprietary
interest. Although the Company seeks to protect this data with trademarks,
copyrights and confidentiality agreements, there can be no assurance that these
measures will prevent the unauthorized disclosure or use of the Company's
technical knowledge, practices or procedures, or that others may not
independently develop similar knowledge, practices or procedures. In addition,
the government may acquire certain proprietary rights to software programs and
other products that result from the Company's services under government
contracts or subcontracts and may disclose such information to third parties,
including competitors of the Company. Disclosure or loss of control over its
proprietary information could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may also be
subject to litigation to defend against claimed infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. Any such litigation would be costly and divert management's
attention, either of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Adverse determinations
in such litigation could result in the loss of the Company's proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties or prevent the Company from selling its services,
any one of which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Intellectual
Property."
INTERNATIONAL EXPANSION
As part of its growth strategy, the Company is seeking opportunities to
expand into international markets. To date, the Company has limited experience
in marketing and distributing its products internationally. In marketing its
products and services internationally, the Company will face new competitors,
some of which may have established a strong presence in those markets. In
addition, the ability of the Company to market its products in foreign countries
will be dependent on the Company's ability to adapt its products to operate in
foreign languages and to provide the functionality desired by customers in those
countries. There can be no assurance that the Company will be successful in so
adapting its products. In addition to the uncertainty as to the Company's
ability to establish an international presence, there are certain difficulties
and risks inherent in doing business on an international level, such as
compliance with regulatory requirements and changes in these requirements,
export restrictions, tariffs and other trade barriers, limited protection of
intellectual property rights, difficulties in staffing and managing
international operations, longer payment cycles, problems in collecting accounts
receivable, political instability, fluctuations in currency exchange rates and
potentially adverse tax consequences. There can be no assurance that one or more
of these factors will not have a material adverse effect on any international
operations established by the Company, and consequently, on the Company's
business, financial condition and results of operations. See
"Business -- Business Strategy."
CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS; ANTI-TAKEOVER PROVISIONS
Upon the consummation of this offering, the founders and principal officers
of the Company, Messrs. George Robinson, Charles Martinache and Thomas Costello,
will beneficially own 50.4% of the outstanding shares of Common Stock. Messrs.
Robinson, Martinache and Costello also will have entered into a Stockholder
Agreement pursuant to which each will agree to vote his shares to elect each of
the others as a director of the Company and to vote on other matters as a block
as determined by a majority vote of their shares. This will permit Messrs.
Robinson, Martinache and Costello to control votes on matters that require
approval of the Company's stockholders. Purchasers of the Common Stock will be
minority stockholders of the Company and, although entitled to vote on any
matters that require stockholder approval, will not control the outcome of these
votes. See "Management -- Stockholder Agreement" and "Principal and Selling
Stockholders."
Upon the closing of the offering, the directors of the Company will be
authorized to issue, without stockholder approval, up to 1,000,000 shares of
Preferred Stock. Such Preferred Stock may have rights senior to the Common
Stock. This Preferred Stock may have the effect of delaying or preventing a
change in control, may decrease the amount of earnings and assets available for
distribution to the holders of the Common Stock
9
<PAGE> 11
or may adversely affect the rights and powers, including voting rights, of the
holders of the Common Stock. In certain circumstances, such issuance could have
the effect of decreasing the market price of the Common Stock. Further, certain
provisions of Delaware law could delay or make more difficult a merger, tender
offer or proxy contest involving the Company. See "Description of Capital
Stock -- Preferred Stock" and "Description of Capital Stock -- Certain
Provisions of Delaware Law."
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, the Company will have 5,636,750 shares
of Common Stock outstanding. The 2,500,000 shares of Common Stock sold in this
offering will be freely tradable without restriction or limitation under the
Securities Act of 1933, except for shares purchased by "affiliates" (as defined
under the Securities Act of 1933). All of the remaining 3,136,750 shares of
Common Stock will become eligible for sale 90 days following the date of this
Prospectus, subject in some cases to the volume and other limitations of Rule
144 under the Securities Act. All of these shares are subject to lock-up
agreements under which their holders have agreed not to sell or otherwise
dispose of any of their shares for a period of 180 days after the date of this
Prospectus, without the prior written consent of A.G. Edwards & Sons, Inc. Upon
completion of this offering, the Company will have 740,500 shares of Common
Stock reserved for issuance upon the exercise of stock options, of which 290,500
shares are subject to currently outstanding options. Following the completion of
this offering, the Company intends to file one or more registration statements
on Form S-8 to register these shares. Sales of substantial amounts of Common
Stock in the public markets, pursuant to Rule 144 or otherwise, or the
availability of such shares for sale could adversely affect the prevailing
market prices for the Common Stock and impair the Company's ability to raise
additional capital through the sale of equity securities in the future. See
"Management -- Stock Plans and Agreements" and "Shares Eligible for Future
Sale."
TERMINATION OF SUBCHAPTER S CORPORATION STATUS; PAYMENT OF SUBSTANTIAL OFFERING
PROCEEDS TO CURRENT STOCKHOLDERS
Since October 1989, the Company has been treated for federal and certain
state income tax purposes as a Subchapter S corporation under the Internal
Revenue Code of 1986, as amended (the "Code"). Prior to the closing of this
offering (the "Termination Date"), the Company will terminate its status as an S
corporation and will declare a dividend to stockholders of record in an amount
equal to the Company's undistributed S corporation earnings through the
Termination Date. As of December 31, 1996, the amount of such undistributed
earnings totaled $5.0 million. The actual amount of the distribution will
include additional earnings of the Company between January 1, 1997 and the
Termination Date. These amounts will be paid using cash on hand, borrowings
under the existing line of credit and, if necessary, additional short-term
borrowings. Any amounts so borrowed will be repaid using a portion of the net
proceeds of this offering. Purchasers of Common Stock in this offering will not
receive any portion of this dividend. The termination of the Company's S
corporation status may result in a deferred tax liability which will be recorded
as a non-recurring charge. Had the Company terminated its S corporation status
at December 31, 1996, the amount of such deferred tax liability would have been
$2.2 million. However, the amount of the actual deferred tax liability and the
related charge will depend upon a number of factors, including timing of
collection of accounts receivable and payments of accounts payable and other
expenses. As of the Termination Date, the Company will no longer be an S
corporation and, accordingly, will become subject to federal and state income
taxes. See "S Corporation Distribution and Termination of S Corporation Status"
and "Use of Proceeds."
DILUTION
Purchasers of Common Stock in this offering will experience an immediate
and substantial dilution of $ per share in the pro forma net tangible book
value of their Common Stock. See "Dilution."
ABSENCE OF A PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiations between the Company and representatives of the
10
<PAGE> 12
Underwriters. See "Underwriting" for a discussion of factors to be considered in
determining the initial public offering price. There can be no assurance that a
regular trading market for the Common Stock will develop after this offering or,
if developed, that a public trading market can be sustained. The initial public
offering price will not necessarily reflect, and may be higher than, the market
price of the Common Stock after the offering. There has historically been
significant volatility in the market price of securities of technology
companies. In addition, the stock market in recent years has experienced
significant price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of particular companies. Many
factors that have influenced trading prices, such as actual or anticipated
operating results, growth rates, changes in estimates by analysts, market
conditions in the industry, announcements by competitors, regulatory actions and
general economic conditions, will vary from period to period. As a result of the
foregoing, the Company's operating results from time to time may be below the
expectations of securities analysts and investors. Any such event would likely
result in a material adverse effect on the market price of the Common Stock. See
"Underwriting."
11
<PAGE> 13
S CORPORATION DISTRIBUTION
AND TERMINATION OF S CORPORATION STATUS
Prior to this offering, the Company has been treated as a Subchapter S
corporation under the Code for federal and certain state income tax purposes. As
a result, the Company's earnings were taxed for federal and certain state tax
purposes directly to its stockholders. Effective as of the Termination Date, the
Company's status as an S corporation will be terminated and the Company will
become subject to federal and state income taxes.
Prior to the offering, the Board of Directors intends to declare a dividend
(the "S Corporation Distribution") in an amount equal to all of the Company's
undistributed earnings through the Termination Date. As of December 31, 1996,
the amount of the S Corporation Distribution would have totaled approximately
$5.0 million. The actual amount of the S Corporation Distribution will include
the additional earnings of the Company for the period from January 1, 1997
through the Termination Date. The Company will pay approximately 90% of the
estimated amount of the S Corporation Distribution immediately prior to the
offering using cash on hand, borrowings under the existing line of credit and,
if necessary, additional short-term borrowings. Any amounts so borrowed will be
repaid using a portion of the net proceeds of this offering. The balance of the
S Corporation Distribution will be paid when the actual amount is calculated.
The purchasers of Common Stock in the offering will not receive any portion of
the S Corporation Distribution. See "Use of Proceeds."
In connection with the S Corporation Distribution, the Company and each of
the stockholders receiving a portion of the S Corporation Distribution will
enter into cross-indemnification agreements pursuant to which the Company will
indemnify each stockholder and each stockholder will indemnify the Company from
and against adverse tax effects resulting from the incorrect calculation of
taxable income to the Company and each stockholder in connection with the S
Corporation Distribution.
The termination of the Company's S corporation status may result in a
deferred tax liability which will be recorded as a non-recurring charge. Had the
Company terminated its S corporation status at December 31, 1996, the amount of
such deferred tax liability would have been $2.2 million. However, the actual
amount of the deferred tax liability and the related charge will depend upon a
number of factors, including timing of collection of accounts receivable and
payments of accounts payable and other expenses.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,850,000 shares of Common Stock offered by it hereby are estimated to be
$ million ($ million if the over-allotment option granted to the
Underwriters is exercised in full) after deducting the estimated underwriting
discount and estimated expenses to be paid by the Company and assuming an
initial public offering price of $ per share. The Company will not receive
any of the proceeds from the sale of the 650,000 shares of Common Stock offered
by the Selling Stockholders.
The Company intends to use the net proceeds of the offering to repay the
outstanding balance on its line of credit, including any amounts used to fund
the S Corporation Distribution, and any additional borrowings incurred by the
Company to fund the S Corporation Distribution. The Company's outstanding
principal line of credit bears interest at the bank's prime rate plus a
percentage, not more than 0.25%, which depends on the Company's historical
financial performance, and matures on February 28, 1998. The outstanding
principal balance as of December 31, 1996 was $2.9 million. Borrowings under the
bank line of credit to date have been used for working capital.
The remainder of the proceeds will be used for working capital and general
corporate purposes, including possible acquisitions of businesses complementary
to the Company's businesses. The Company does not currently have any agreements
or commitments with respect to any potential acquisitions, nor are any
negotiations regarding any acquisitions ongoing. Pending such uses, the Company
intends to invest the net proceeds from the offering in investment grade,
interest-bearing instruments.
12
<PAGE> 14
DIVIDEND POLICY
The Company historically has made distributions to its stockholders related
to its S corporation status and the resulting tax payment obligations imposed on
its stockholders, including a total of $27,650 since October 1, 1994. Other than
the S Corporation Distribution, the Company does not anticipate declaring or
paying cash dividends in the foreseeable future. In addition, the Company's
existing credit facility contains provisions which could have the effect of
limiting its ability to pay cash dividends.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 on an actual and pro forma as adjusted basis. This table
should be read in conjunction with the Consolidated Financial Statements and
related Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED (1)
-------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Total long-term debt................................................. $ 2,917 $
-------- ------------
Stockholders' equity (2):
Preferred stock, $.01 par value, 1,000,000 shares authorized, no
shares issued and outstanding, actual and pro forma as
adjusted.......................................................
Common Stock, $.01 par value, 40,000,000 shares authorized,
6,750,000 shares issued and outstanding, actual, 5,636,750
shares issued and outstanding, pro forma as adjusted (3)....... 67
Paid-in capital and accretion................................... 16,506
Retained earnings............................................... 5,058
Adjustment for redemption value greater than amounts paid in by
stockholders................................................... (16,438)
Less cost of 2,990,250 shares of treasury stock................. (261)
-------- ------------
Total stockholders' equity.................................... 4,932
-------- ------------
Total capitalization....................................... $ 7,849 $
======== ============
</TABLE>
- ---------------
(1) Gives effect to: (i) a distribution to the Company's current stockholders of
undistributed S corporation earnings, which totaled approximately $5.0
million as of December 31, 1996; (ii) the recording of a $2.2 million
deferred tax liability, which would have been required had the Company
terminated its S corporation status as of December 31, 1996; (iii) the sale
of the 1,850,000 shares of Common Stock offered by the Company hereby, at an
assumed initial public offering price of $ per share and after deducting
the estimated underwriting discount and offering expenses, and the
application of a portion of the net proceeds therefrom to repay indebtedness
as described under "Use of Proceeds"; and (iv) the cancellation of Stock
Redemption Agreements, resulting in elimination of the adjustment for
redemption value greater than amounts paid in by stockholders. The actual
amount of the S Corporation Distribution to be funded using a portion of the
proceeds of this offering will reflect additional earnings of the Company
from January 1, 1997 through the closing of this offering, and the actual
amount of the deferred tax liability to be recorded will depend upon a
number of factors. See "S Corporation Distribution and Termination of S
Corporation Status" and Note 9 of Notes to Financial Statements.
(2) Gives effect to an amendment to the Company's Certificate of Incorporation
to be filed subsequent to December 31, 1996, which will authorize Preferred
Stock and increase the number of authorized shares of Common Stock.
(3) Does not include an aggregate of 740,500 shares of Common Stock reserved for
issuance by the Company upon the exercise of stock options. As of the date
of this Prospectus, there were options outstanding to purchase 290,500
shares of Common Stock at a weighted average price of $4.91 per share, of
which 27,000 are presently exercisable.
13
<PAGE> 15
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the pro forma net tangible book value of their
Common Stock from the assumed initial public offering price. The net tangible
book value of the Company as of December 31, 1996 was $4.9 million, or $1.31 per
share. Net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding. The pro forma net tangible book deficit of the Company as of
December 31, 1996, after giving effect to the distribution of undistributed S
corporation earnings, which were $5.0 million at December 31, 1996, and the
related provision for deferred income taxes would have been $(2.3 million), or
$(0.60) per share. After giving effect to the sale by the Company of the
1,850,000 shares of Common Stock offered by it hereby at an assumed initial
public offering price of $ per share (after deducting the estimated
underwriting discount and estimated offering expenses), the pro forma net
tangible book value would have been approximately $ million, or $ per
share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $ per share to purchasers of Common
Stock in this offering. The following table illustrates this per share dilution
in pro forma net tangible book value per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Net tangible book value per share at December 31, 1996......... $ 1.31
Decrease attributable to pro forma adjustments................. (1.91)
------
Pro forma net tangible book value per share at December 31,
1996.......................................................... (0.60)
Increase per share attributable to new investors...............
------
Pro forma net tangible book value per share after the offering......
------
Dilution per share to new investors................................. $
======
</TABLE>
The following table sets forth, as of March 25, 1997, certain information
with respect to the number of shares acquired, total consideration paid and the
average price paid per share by existing stockholders and by purchasers of the
shares offered hereby (assuming an initial public offering price of $ per
share and before deducting the estimated underwriting discount):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......................... 3,786,750 67.2% $131,810 % $0.03
New investors................................. 1,850,000 32.8 $
--------- ------- -------- -------
Total.................................... 5,636,750 100.0% $ 100.0%
========= ======= ======== =======
</TABLE>
The foregoing table assumes no exercise of stock options subsequent to
December 31, 1996 or of the Underwriters' over-allotment option. As of the date
of this Prospectus, there were options outstanding to purchase 290,500 shares of
Common Stock at a weighted average price of $4.91 per share, of which 27,000 are
presently exercisable. To the extent such options are exercised, there will be
further dilution to new shareholders.
The sale of shares by the Selling Stockholders in this offering will reduce
the number of shares held by existing stockholders to 3,136,750 shares, or
approximately 55.6% of the total number of shares of Common Stock outstanding
immediately after this offering (52.2% if the Underwriters' over-allotment
option is exercised in full), and will increase the number of shares held by new
investors to 2,500,000 shares, or 44.4% of the total number of shares of Common
Stock outstanding immediately after this offering (47.8% if the Underwriters'
over-allotment option is exercised in full). See "Principal and Selling
Stockholders."
14
<PAGE> 16
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Financial Statements and the Notes thereto included elsewhere herein. The
Statement of Operations Data set forth below with respect to fiscal 1994, 1995
and 1996 and the Balance Sheet Data as of September 30, 1995 and 1996 are
derived from, and are qualified by reference to, the financial statements of the
Company audited by Arthur Andersen LLP included elsewhere in this Prospectus.
The Statement of Operations Data set forth below with respect to fiscal 1992 and
1993 and the Balance Sheet Data as of September 30, 1992, 1993 and 1994 are
derived from reviewed financial statements of the Company not included in the
Prospectus. The unaudited Statement of Operations Data for the three months
ended December 31, 1995 and 1996 and the Balance Sheet Data as of December 31,
1996 are derived from the unaudited financial statements of the Company included
elsewhere in this Prospectus, which, in the opinion of management, have been
prepared on the same basis as the audited financial statements and contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations for such periods.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------- ----------------
1992 1993 1994 1995 1996 1995 1996
------ ------- ------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $8,679 $12,223 $19,106 $23,724 $31,665 $5,775 $9,066
Direct costs................................... 4,881 7,050 11,418 14,815 19,307 3,331 6,038
Indirect, general and administrative
expenses..................................... 3,194 4,612 7,177 8,202 10,253 2,027 2,442
------ ------- ------- ------- ------- ------ ------
Income from operations......................... 604 561 511 707 2,105 417 586
Other income (expense), net.................... (49) (78) (73) (133) (200) (37) (48)
------ ------- ------- ------- ------- ------ ------
Net income..................................... $ 555 $ 483 $ 438 $ 574 $ 1,905 $ 380 $ 538
====== ======= ======= ======= ======= ====== ======
PRO FORMA STATEMENT OF OPERATIONS DATA (1):
Net income before taxes........................ $ 555 $ 483 $ 438 $ 574 $ 1,905 $ 380 $ 538
Income taxes................................... 222 193 175 229 743 152 210
------ ------- ------- ------- ------- ------ ------
Net income..................................... $ 333 $ 290 $ 263 $ 345 $ 1,162 $ 228 $ 328
====== ======= ======= ======= ======= ====== ======
Net income per share (2)....................... $ 0.27 $ 0.08
======= ======
Weighted average shares outstanding (2)........ 4,240 4,221
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
------ ------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $2,234 $ 2,231 $ 2,616 $ 2,716 $ 5,387 $ 5,898
Total assets.................................... 3,710 4,454 6,798 6,987 13,118 13,686
Total debt...................................... 1,135 1,359 2,031 1,821 2,688 2,917
Stockholders' equity............................ 1,313 1,626 2,006 2,497 4,375 4,932
</TABLE>
- ---------------
(1) For all periods presented, the Company elected to be treated as an S
corporation and was not subject to federal and certain state income taxes.
The Pro Forma Statement of Operations Data reflects federal and state income
taxes based on applicable tax rates, as if the Company had not elected S
corporation status for the periods indicated. See "S Corporation
Distribution and Termination of S Corporation Status."
(2) The pro forma weighted average shares outstanding is based on: (i) the
weighted average shares outstanding during the period, assuming the dilutive
effect of all options outstanding; (ii) stock options issued during the
twelve months immediately preceding the offering (using the treasury stock
method and an assumed initial public offering price of $ per share) for
all periods presented; and (iii) the assumed sale of a sufficient number of
shares of Common Stock necessary to provide funds to make a distribution of
all undistributed S corporation earnings as of December 31, 1996 in excess
of fiscal 1996 earnings.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides communications and information technology services and
solutions, predominantly to U.S. government agencies and to a lesser extent
commercial and international customers. The Company operates primarily in three
interrelated areas: communication systems design and support, IT Services and
systems integration. The Company has been profitable since its inception in
1987, and has achieved a compound annual growth rate in revenues of 36.3% over
the past five fiscal years. With revenues of $31.7 million, fiscal 1996 was the
ninth consecutive year of revenue growth.
The Company's expansion has been achieved entirely through internal growth.
Prior to fiscal 1994, virtually all of the Company's revenues were derived from
contracts with the U.S. Navy for systems engineering, design, integration,
services and support for satellite communications. Beginning in fiscal 1994, the
Company began to develop applications for its technical capabilities outside its
traditional U.S. Navy business. The Company's GSA Schedule Contract has fueled
significant growth in the systems integration area as the U.S. government's
trend toward using readily available software and hardware expands the need for
systems integration services, such as those offered by the Company.
The Company's backlog, including both funded and unfunded backlog, was
$139.2 million at September 30, 1996. Two five-year U.S. Navy contracts awarded
in fiscal 1996 involve services estimated at approximately $120 million and were
the main contributors to the recent increase in backlog. Many of the Company's
contracts are funded from year to year, based primarily on the procuring
company's or agency's fiscal requirements. The Company believes that
approximately 26% of its backlog as of September 30, 1996 will result in
revenues in fiscal 1997. See "Risk Factors -- Backlog Not Indicative of
Revenues" and "Business -- Backlog."
Revenues, by dollar and percentage, from the Company's three interrelated
areas and three major types of customer are given below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER
YEAR ENDED SEPTEMBER 30, 31,
-------------------------------------------------- ------------------------------
1994 1995 1996 1995 1996
-------------- -------------- -------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICES PROVIDED
Communication Systems............... $16,046 84% $17,785 75% $20,422 64% $3,918 67% $4,964 55%
IT Services......................... 3,059 16 4,634 19 8,008 26 1,415 25 2,142 24
Systems Integration................. 1 0 1,305 6 3,235 10 442 8 1,960 21
------- --- ------- --- ------- --- ------ --- ------ ---
Total....................... $19,106 100% $23,724 100% $31,665 100% $5,775 100% $9,066 100%
======= === ======= === ======= === ====== === ====== ===
CUSTOMER TYPE
U.S. Government..................... $19,011 100% $23,483 99% $28,606 90% $5,431 94% $8,267 91%
Commercial.......................... 95 0 219 1 849 3 100 2 241 3
International....................... -- -- 22 0 2,210 7 244 4 558 6
------- --- ------- --- ------- --- ------ --- ------ ---
Total....................... $19,106 100% $23,724 100% $31,665 100% $5,775 100% $9,066 100%
======= === ======= === ======= === ====== === ====== ===
</TABLE>
The Company's operating margin is affected by, among other things, the mix
of contract types (cost reimbursement, fixed price or time and materials) as
well as the proportion of revenues from higher margin commercial and
international sales. A significant portion of the Company's contracts are cost
reimbursement contracts, under which the Company is reimbursed for all actual
costs, plus a fee or profit. The financial risks under these contracts generally
are lower than those associated with other types of contracts, and margins also
are typically lower. An increasing portion of the Company's services are
provided under fixed price contracts. Such contracts carry higher financial
risks because the Company must deliver the contracted services below the fixed
price in order to earn a profit. For those companies with low cost structures,
these contracts offer the
16
<PAGE> 18
opportunity for higher profit margins. The following table summarizes the
percentage of revenues attributable to each contract type for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER ENDED
30, DECEMBER 31,
---------------------- -------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cost reimbursement................. 92% 77% 68% 69% 63%
Fixed price........................ 3 16 25 23 32
Time and materials................. 5 7 7 8 5
---- ---- ---- ---- ----
Total.................... 100% 100% 100% 100% 100%
===== ===== ===== ===== =====
</TABLE>
Revenues on cost plus fixed fee contracts are recognized to the extent of
costs incurred plus a proportionate amount of fees earned. Revenues on time and
materials contracts are recognized at the contractual rates as labor hours and
direct expenses are incurred. Revenues on fixed price contracts are recognized
on the percentage-of-completion method based on costs incurred in relation to
total estimated costs.
Since October 1989, the Company has elected to be treated, for federal and
certain state income tax purposes, as an S corporation under the Code. As a
result, the Company's earnings have been taxed, for federal and certain state
income tax purposes, directly to the Company's stockholders rather than to the
Company. The Company will terminate its S corporation status on the Termination
Date and will make a distribution of undistributed S corporation earnings
immediately prior to the offering. The termination of the Company's S
corporation status may result in a deferred tax liability which will be recorded
as a non-recurring charge. The actual amount of the deferred tax liability and
the related charge will depend upon a number of factors, including timing of
collection of accounts receivable and payments of accounts payable and other
expenses. See "S Corporation Distribution and Termination of S Corporation
Status."
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------- ------------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs......................................... 59.8 62.4 61.0 57.7 66.6
Indirect, general and administrative expenses........ 37.6 34.6 32.4 35.1 26.9
------- ------- ------- ------- -------
Income from operations............................... 2.6 3.0 6.6 7.2 6.5
Other income (expense), net.......................... (0.4) (0.6) (0.6) (0.6) (0.5)
Net income........................................... 2.2 2.4 6.0 6.6 6.0
======= ======= ======= ======= =======
Pro forma income taxes............................... 0.9 1.0 2.3 2.6 2.4
Pro forma net income................................. 1.3% 1.4% 3.7% 4.0% 3.6%
======= ======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1995
Revenues increased 57.0%, or $3.3 million, to $9.1 million for the three
months ended December 31, 1996, from $5.8 million for the same period in 1995.
The increase was due to a $1.8 million increase in revenues from communications
systems and IT Services, primarily under contracts with the U.S. Navy, and a
$1.5 million increase in revenues from systems integration services.
Direct costs include labor costs, related fringe benefits, subcontract
costs, material costs and other non-overhead costs directly related to a
contract. Direct costs increased to $6.0 million for the three months ended
December 31, 1996 from $3.3 million for the same period in 1995. Direct costs,
expressed as a percentage of
17
<PAGE> 19
revenues, increased to 66.6% for the three months ended December 31, 1996 from
57.7% for the same period in 1995, primarily due to an increased proportion of
revenues coming from systems integration services. These services have higher
direct costs because the contracts generally require the Company to purchase
hardware components as part of the services.
Indirect, general and administrative expenses include fringe benefits,
overhead, selling and administrative costs, depreciation and amortization, bid
and proposal costs and research and development expenses. Indirect expenses
increased to $2.4 million for the three months ended December 31, 1996 from $2.0
million for the same period in 1995. The increase was due primarily to the
higher level of revenues discussed above. Indirect expenses, expressed as a
percentage of revenues, decreased to 26.9% for the three months ended December
31, 1996 from 35.1% for the three months ended December 31, 1995, due to the
higher proportion of systems integration revenues, which typically have lower
associated indirect expenses.
Income from operations increased 40.5%, to $586,000 for the three months
ended December 31, 1996, from $417,000 for the same period in 1995, primarily
due to increased revenues from U.S. Navy contracts and systems integration. As a
percentage of revenues, income from operations decreased to 6.5% for the three
months ended December 31, 1996, from 7.2% for the comparable period in the prior
year, primarily attributable to international revenues from the sale of ISALTS
products at a significantly higher margin in the same period in 1995.
Other income (expense), net, consists of interest expense, offset in part
by interest income from short-term deposits of cash. Interest expense was
$64,000 and $49,000 for the three month periods ended December 31, 1996 and
1995, respectively. Interest income was $16,000 and $12,000 during the three
month periods ended December 31, 1996 and 1995, respectively.
The Company's pro forma effective tax rate was 39.0% and 40.0% for the
three month periods ended December 31, 1996 and 1995, respectively.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues increased 33.3%, or $7.9 million, to $31.7 million for fiscal
1996, from $23.7 million for fiscal 1995. The increase was due to a $6.0 million
increase in revenues from communication systems and IT Services, primarily under
contracts with the U.S. Navy, and a $1.9 million increase in revenues from
systems integration services.
Direct costs increased to $19.3 million for fiscal 1996 from $14.8 million
for fiscal 1995. Direct costs, expressed as a percentage of revenues, decreased
to 61.0% for fiscal 1996 from 62.4% for fiscal 1995, primarily due to increased
revenues from international fixed price contracts which generally have lower
direct costs as a percentage of revenues. This decrease was partially offset by
the higher direct costs attributable to systems integration services.
Indirect expenses increased to $10.3 million for fiscal 1996 from $8.2
million for fiscal 1995. The increase was due primarily to the higher level of
revenues discussed above. Indirect expenses, expressed as a percentage of
revenues, decreased to 32.4% for fiscal 1996 from 34.6% for fiscal 1995, because
a higher proportion of revenues came from systems integration services.
Income from operations increased 197.7%, to $2.1 million for fiscal 1996,
from $707,000 for fiscal 1995. As a percentage of revenues, income from
operations increased to 6.6% in fiscal 1996 from 3.0% in fiscal 1995. This
increase was due primarily to a shift in the Company's revenue mix, with an
increased proportion of revenues coming from higher margin international,
systems integration and commercial sales.
Interest expense was $257,000 and $185,000 for fiscal 1996 and 1995,
respectively. Interest income was $57,000 and $52,000 for fiscal 1996 and 1995,
respectively.
The Company's pro forma effective tax rate was 39.0% and 40.0% for fiscal
1996 and 1995, respectively.
18
<PAGE> 20
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues increased 24.1%, or $4.6 million, to $23.7 million for fiscal
1995, from $19.1 million for fiscal 1994. This increase was due to a $3.3
million increase in revenues from communication systems and IT Services,
primarily under contracts with the U.S. Navy, and a $1.3 million increase in
revenues from the newly developed systems integration business.
Direct costs increased to $14.8 million for fiscal 1995 from $11.4 million
for fiscal 1994. Direct costs, expressed as a percentage of revenues, increased
to 62.4% for fiscal 1995, from 59.8% for fiscal 1994, primarily due to a higher
proportion of revenues coming from systems integration services.
Indirect expenses increased to $8.2 million for fiscal 1995 from $7.2
million for fiscal 1994. The increase was due primarily to the higher level of
revenues discussed above. Indirect expenses, expressed as a percentage of
revenues, decreased to 34.6% for fiscal 1995, from 37.6% for fiscal 1994, due to
the higher proportion of systems integration revenues.
Income from operations increased 38.4%, to $707,000 for fiscal 1995, from
$511,000 in fiscal 1994. As a percentage of revenues, income from operations
increased to 3.0% in fiscal 1995, from to 2.6% in fiscal 1994 due primarily to
increased revenues from systems integration and commercial business.
Interest expense was $185,000 and $125,000 during fiscal 1995 and 1994,
respectively. Interest income was $52,000 for both fiscal 1995 and 1994.
The Company's pro forma effective tax rate was 40.0% for both fiscal 1995
and 1994.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations
data for the last nine quarters, and such data expressed as a percentage of
revenues for each quarter. This data has been derived from the Company's
unaudited quarterly financial statements. In management's opinion, these
quarterly financial statements have been prepared on a basis consistent with the
audited financial statement contained elsewhere herein, and include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the information presented, when
read in conjunction with the Company's audited Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. The results of operations for
any quarter and any quarter-to-quarter trends are not necessarily indicative of
the results to be expected for any future periods. See "Risk
Factors -- Variability of Quarterly Operating Results."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------
FISCAL 1995 FISCAL 1996
------------------------------------------ ------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $4,512 $5,371 $6,495 $ 7,346 $5,775 $7,261 $7,215 $11,415 $9,066
Direct costs................ 2,688 3,283 4,285 4,559 3,331 3,864 4,475 7,638 6,038
Indirect, general and
administrative expenses... 1,664 1,980 2,047 2,511 2,027 2,748 2,358 3,121 2,442
-------- -------- -------- --------- -------- -------- -------- --------- --------
Income from operations...... 160 108 163 276 417 649 382 656 586
======= ======== ======= ======== ======= ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
(AS A PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs................ 59.6 61.1 66.0 62.1 57.7 53.2 62.0 66.9 66.6
Indirect, general and
administrative expenses... 36.9 36.9 31.5 34.1 35.1 37.9 32.7 27.4 26.9
-------- -------- -------- --------- -------- -------- -------- --------- --------
Income from operations...... 3.5% 2.0% 2.5% 3.8% 7.2% 8.9% 5.3% 5.7% 6.5%
======= ======== ======= ======== ======= ======== ======= ======== =======
</TABLE>
The Company's revenues and earnings may fluctuate from quarter to quarter
based on such factors as the number, size and scope of projects, expenditures
required by the Company, delays, employee utilization rates, adequacy of
provisions for losses, accuracy of estimates of resources required to complete
ongoing projects and general economic conditions. Demand for the Company's
products and services in each of the markets it serves can vary significantly
from quarter to quarter due to revisions in customer budgets or schedules and
other factors beyond the Company's control. Additionally, a change in revenue
mix from quarter to quarter
19
<PAGE> 21
may result in fluctuating earnings, as experienced by the Company on the sale of
higher margin products to international customers in the quarters ending
December 31, 1995 and March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's inception in 1987, it has generally financed its
working capital needs through internally generated funds, periodically
supplemented by borrowings under the Company's revolving credit facility with a
commercial bank.
The Company generated cash flow from operating activities of $165,000,
$545,000 and $469,000 for fiscal 1996, 1995 and 1994, respectively, and used
cash of $336,000 and $842,000 for the three months ended December 31, 1996 and
1995, respectively. Net cash used in operating activities for the three months
ended December 31, 1996 and 1995 resulted primarily from decreases in accounts
payable and increases in contract receivables. Net cash provided by operating
activities for fiscal 1996 resulted primarily from net income and increases in
accounts payable and accrued expenses, partially offset by an increase in
contract receivables. The increase in contract receivables was due to increased
revenues from the two large U.S. Navy contracts awarded to the Company during
fiscal 1996 and from systems integration and resale business under the GSA
Schedule Contract.
The principal use of cash for investing activities has been for the
purchase of computers and equipment. These purchases totaled $370,000, $270,000
and $382,000 for fiscal 1996, 1995 and 1994, respectively, and $187,000 for the
three months ended December 31, 1996. Further, the Company invested $240,000 and
$446,000 in software development costs for its SALTS products in fiscal 1995 and
1994, respectively.
During 1996, the Company had a line of credit arrangement with a commercial
bank under which it could borrow up to a maximum of $4.0 million. In March 1997,
the Company extended the arrangement under more favorable terms. The new line
permits borrowing up to $5.0 million and bears interest, payable monthly, at the
bank's prime rate plus a percentage, not more than 0.25%, that depends on the
Company's historical financial performance. The line of credit expires on
February 28, 1998. Borrowings are limited by specified percentages of specific
contract receivables and are secured by accounts receivable. The credit
arrangement contains various covenants requiring the Company to maintain certain
financial ratios, including tangible net worth, liabilities to tangible net
worth, funded debt to operating cash flow and debt service. The agreement also
restricts the payment of dividends. As of December 31, 1996, total debt
outstanding under the Company's revolving credit facility was $2.9 million.
The Company leases office space from 10089 Management, L.L.C., a Virginia
limited liability company ("10089 Management"), which has as its majority
members Messrs. Robinson, Martinache and Costello, the principal stockholders
and directors and officers of the Company. The Company had guaranteed 10089
Management's bank borrowings, but this guaranty will be terminated upon the
closing of this offering. See "Certain Transactions -- Transactions with
Directors and Executive Officers."
Inflation did not have a material impact on the Company's revenues or
income from operations in fiscal 1994, 1995 and 1996 and the three months ended
December 31, 1996.
The Company currently anticipates that the net proceeds from this offering,
together with its current cash balances, amounts available under its credit
facility and net cash provided by operating activities, will be sufficient to
meet its working capital and capital expenditure requirements for at least the
next twelve months.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" was issued in October 1995. The Company adopted the new
standard for fiscal 1996. This standard establishes the fair value based method
(the "SFAS 123 Method") rather than the intrinsic value based method as the
preferred accounting methodology for stock based compensation arrangements.
Entities are allowed to: (i) continue to use the intrinsic value based
methodology in their basic financial statements and provide in the footnotes pro
forma net income and earnings per share information as if the SFAS 123 Method
had been adopted; or (ii) adopt the SFAS 123 Method. The Company adopted this
statement by providing the required pro forma disclosures in the footnotes. See
Note 9 of Notes to Financial Statements.
20
<PAGE> 22
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
changes the reporting requirements for earnings per share ("EPS") for publicly
traded companies by replacing primary EPS with basic EPS and changing the
disclosures associated with this change. The Company is required to adopt this
standard in fiscal 1998 and is currently evaluating the impact of this standard.
21
<PAGE> 23
BUSINESS
OVERVIEW
Advanced Communication Systems, Inc. provides communications and
information technology services and solutions, predominantly to U.S. government
agencies and to a lesser extent commercial and international customers. The
Company operates primarily in three interrelated areas: communication systems
design and support, IT Services and systems integration. From its inception in
1987, the Company has been a leader in SATCOM, particularly for the U.S. Navy.
Recently, using its information management capabilities in such areas as network
and database design and support, the Company has begun to expand its services to
the U.S. military and to develop business with other federal agencies, state and
local governments, and commercial and international customers.
The Company believes that the following key attributes, in addition to
enabling it to maintain its strong position in the military SATCOM market, will
enhance its ability to expand its business.
SATCOM EXPERTISE. The Company is a recognized leader in systems
engineering for U.S. Navy SATCOM and related systems technology. The senior
management of the Company has extensive experience in the technical and
managerial aspects of the Navy SATCOM business. While the Company initially
developed a staff of highly qualified communications engineers and systems
analysts to provide state-of-the-art engineering and technical support services,
it has expanded its staff to include experts in program and financial management
as well as professional support personnel with backgrounds in communication
systems. The Company believes this combination of skills and capabilities is one
of the key factors that distinguishes it from its competitors in the
communication systems market and has enabled it to retain customers such as the
U.S. Navy.
ABILITY TO APPLY TECHNOLOGY. The Company believes it has a reputation in
the industry for delivering creative solutions to complex problems through the
application of the most current technology available. Its technical specialties
cover a broad range of emerging technologies, such as computer-aided logistics
support, data security, rapid system development techniques, rapid massive data
transfer techniques and client/server applications. The Company intends to
continue its policy of ongoing development of new products and services.
ABILITY TO PROVIDE COST EFFECTIVE, TOTAL SOLUTIONS. The Company offers its
customers a full spectrum of information technology services, permitting the
tailoring of its offerings to customers' changing needs. It has developed a
number of readily available commercial software solutions that permit it to
provide quick, cost-effective solutions to its customers. Because the Company
has access to different products from many vendors, it is able to objectively
select the best products for the unique needs of its customers.
EXTENSIVE PROJECT MANAGEMENT EXPERIENCE. The Company believes that its
extensive experience with large and complex federal contracts has contributed to
its reputation for excellence in project management. The Company believes this
capability will position it to capitalize on the future growth in outsourcing,
both in the United States and internationally.
INDUSTRY OVERVIEW
For the past several years, a significant trend in both government and
business has been to seek greater productivity with fewer resources. Government
and business organizations increasingly have focused on their core competencies
and functions, and have begun to outsource non-core functions, such as
information technology and program management, in order to reduce staff and
overhead, use resources more efficiently and acquire expertise on an as-needed
basis. The outsourcing of information technology functions has given rise to a
significant opportunity for private contractors to offer services and support to
governments and businesses.
Federal Sources, Inc., an independent market research firm specializing in
the U.S. federal market, estimates that the U.S. government has budgeted $26.5
billion in its fiscal year 1997 for information
22
<PAGE> 24
technology services and products. Estimates for domestic commercial information
technology products and services are reported to be significantly larger than
those for the U.S. government's requirements.
The U.S. military is also seeking greater productivity through systems that
act as "force multipliers." These are solutions and technologies that enable
fewer personnel and assets and lower levels of military spending to produce more
effective performance. To further this strategy, military agencies are relying
on communications products and systems, such as those that provide secure and
reliable transmission of voice and data in demanding environments. In its fiscal
year 1997, the DOD budget for information technology in the classified command,
control and communications market is estimated to be $9.8 billion.
The federal government also is refocusing how it selects
contractors -- using a "best value" approach rather than price as the
determining factor, an approach the commercial sector has used for some time.
Under the best value approach, the government selects service providers based on
technical merit, reputation and past performance, not merely on price. Since the
late 1980s, the U.S. government also has made use of fewer, but larger-scale,
procurements to meet its information technology requirements, requiring
companies to have greater financial and technical resources in order to
participate in competitive bids. Companies have responded to this trend either
by increased use of teaming agreements among several firms in order to fulfill
the requirements of the larger procurements or through strategic mergers and
acquisitions of complementary businesses to consolidate operations and efforts
and permit competition against larger companies.
Government and business organizations also are increasingly demanding that
information technology systems be designed for interoperability with commercial
off-the-shelf computer hardware and software products and that such products be
usable with existing legacy systems. In addition, concerns over excessive
development costs and the rapid pace of technological change have led both
government and business organizations to demand flexible systems created by
adapting commercial off-the-shelf software and hardware, rather than systems
that have been built to customized specifications. This emphasis on system
flexibility using readily available commercial products creates extensive
systems integration opportunities.
BUSINESS STRATEGY
To capitalize on opportunities created by these industry developments, the
Company has adopted the following business strategies.
MAINTAIN LEADERSHIP IN MILITARY SATCOM INDUSTRY. Since its inception, the
Company has focused on being a leader in the military SATCOM industry. It now
seeks to expand its services in this market by continuing its early
identification of program needs, its support of government program offices in
formulating requirements and its incremental investments in development of lower
cost military products with shorter delivery times. The Company also believes it
can leverage its expertise with the U.S. Navy SATCOM to expand its presence as a
military SATCOM provider both within the Navy and other branches of the DOD.
EXPAND EXISTING SERVICES AND CUSTOMER BASE. The Company plans to continue
to expand its capabilities into new but related areas of technology which the
Company believes will allow it to both further penetrate its existing customer
base and develop new customers. For example, the Company has developed and is
marketing high speed data transfer technology and is currently enhancing that
technology to include high frequency communication capability with Internet and
intranet access. The Company's strategy also involves expanding its customer
base beyond the DOD. In particular, the Company seeks to capitalize on the U.S.
government's trend toward using readily available commercial products and
systems integration services by offering such products and services through its
GSA Schedule Contract. Finally, the Company plans to expand its services and
customer base by marketing internationally the technologies and capabilities it
has developed while performing U.S. military contracts. For example, the Company
has been successful in selling its Streamlined Automated Logistics Transmission
System ("SALTS") technology, which was originally developed for U.S. Navy
communication uses, to the British Royal Navy and the Royal Australian Navy.
DEVELOP ADDITIONAL COMMERCIAL BUSINESS. While servicing its government
customers, the Company has developed many advanced technical capabilities in
areas such as networking, local area network ("LAN") and wide area network
("WAN") services and database design and support. The Company's strategy is to
23
<PAGE> 25
apply these skills and capabilities in selected commercial markets, especially
small and medium-sized businesses that are outsourcing their increasingly
complex information technology needs. For example, the Company has used its
information technology capabilities to transfer the information technology
operations of a large electric power company from an old operating system with
limited applications to a new operating system with a wide range of office
automation tools and flexible remote access, using the World Wide Web. The
Company has added experienced marketing staff to assist its expansion into this
market.
EXPAND THROUGH STRATEGIC ACQUISITIONS AND THE USE OF TEAMING
RELATIONSHIPS. Strategic acquisitions are an integral component of the
Company's growth strategy. Although it has not made any acquisitions to date,
the Company periodically evaluates potential acquisitions of businesses,
technologies and products which are complementary to its core communication
business. The Company believes that acquisitions will allow it to develop
technical services it does not currently provide, to target markets it does not
currently serve, to gain industry knowledge in such markets and to develop
relationships with additional customers. Additionally, the Company is pursuing
teaming relationships with significant industry participants in order to enhance
its ability to participate in additional large and complex procurement programs.
The Company currently participates in such programs, as both prime contractor
and subcontractor, with such major contractors as Computer Sciences Corporation
and Booz-Allen and Hamilton, Inc.
COMPANY OPERATIONS
The Company operates primarily in three interrelated areas: communications
systems, information technology services and systems integration.
COMMUNICATION SYSTEMS
The Company is a recognized leader in the SATCOM industry, providing
technical and program management services and support for satellite
communications systems to the U.S. military. It provides SATCOM engineering and
technical services and program and system support primarily to various program
directorates and field activities of the U.S. Navy. While the Company initially
developed a staff of highly qualified communications engineers and systems
analysts to provide state-of-the-art engineering and technical support services,
it has expanded its staff to include experts in program and financial management
as well as professional support personnel with backgrounds in communication
systems. The Company believes this combination of skills and capabilities is one
of the key factors that distinguishes it from its competitors in the
communication systems market. For fiscal 1996, the Company's communication
systems business represented 64.5% of revenues.
ENGINEERING. The Company provides comprehensive communications engineering
support to assist in the development of military communications systems. Many of
its contracts are not project specific, but require that it provide technical
services and support to a variety of projects and programs being run by a
particular Navy office. In particular instances, the Company may perform some or
all of the technical engineering and other support for a specific U.S. Navy
program or system, or may provide technical review and support services to
assist the Navy in evaluating or assessing engineering tasks. These services
cover a full range of engineering and technical support, including requirements
analyses, design, hardware and software engineering, studies and development.
The Company's skills and experience permit it to apply innovative solutions
to communications engineering problems. For example, the Company has developed
receiver, modulator and coder design alternatives for a major U.S. Navy
communication system and has defined satellite payload modifications for a major
military satellite program. The Company's expertise in both military and
commercial satellite programs has enabled it to develop innovative military uses
of commercial satellite systems. For instance, the Company developed the concept
which permitted the U.S. Navy to conduct its first worldwide video
teleconference, simultaneously linking all European, Atlantic and Pacific
commanders by satellite with the Pentagon and a major command ship at sea. In
addition, the Company's engineers have operational experience to translate a
user's requirements into practical technical specifications for a communication
system. This experience has enabled the Company's engineers to analyze major
Navy communication systems, such as High Speed Fleet
24
<PAGE> 26
Broadcast and the Communication Support System, and project future needs and
technology requirements. The Company's capability to conduct high level
theoretical engineering tasks, coupled with an intimate knowledge of the system
under investigation, permits the Company to assist its customers in avoiding
costly troubleshooting efforts on communication problems related to natural
phenomena. Many of these concepts and techniques which were developed for the
U.S. Navy have natural extensions to other military and commercial applications.
As an extension of the Company's capability to provide total engineering
solutions, the Company supports communication systems after development with a
complete set of in-service engineering skills, which include planning for and
conducting installation, testing operational performance and providing training
and maintenance assistance. It provides this engineering support for a wide
variety of communications equipment, such as antennas, receivers, processors and
complete systems. For example, the Company provides installation check-out for
the U.S. Navy's extra high frequency terminals installed on-board ships and also
provides training for ship and submarine crews in their operation, both in port
and, when appropriate, at sea.
PROGRAM PLANNING AND MANAGEMENT. The Company assists DOD program managers
in planning and managing all facets of defense and military programs and
hardware procurement, from determining needs and objectives through development,
acquisition, integration, testing and fielding. These services include
procurement planning and management, financial management, cost estimating and
control and production support.
The Company has a staff specializing in financial management who have
worked with government managers in the Executive Office of the President,
national budget offices, Congressional committees, the Office of the Secretary
of Defense and the Office of the Secretary of the Navy. This staff has supported
several domestic and international government and commercial customers in
communication systems and other areas. The Company has tailored a variety of
project management techniques and tools to customer needs, such as developing
networks which enable simultaneous progressive tracking of over 100 acquisition
documents and developing dependency schedules to track the progress of
industrial manufacturing processes for a major U.S. Navy weapons system. The
dependency schedules were used to identify a production schedule problem for a
shipboard weapons control system, to conduct analyses of the system and to
develop a work-around alternative to maintain the schedule.
Additionally, the Company provides program support to U.S. and foreign
governments in the sale of U.S. military equipment to foreign governments. The
Company believes that this area of expertise presents significant potential for
growth as foreign governments upgrade their communication system capabilities.
The Company has established a presence in this niche market with its experience
in foreign military sales, including advising on compliance with licensing and
security requirements, preparing technical documentation, forecasting and
tracking equipment deliveries and funding obligations, providing program and
financial reviews and reconciling and closing foreign military sales cases. It
prepares schedules of available equipment and provides data for existing and new
technologies, recommendations for release of hardware and software, and guidance
on approval or disapproval of commercial export license requests. This
experience is also being applied to provide direct sales to foreign governments.
See "Business -- Products."
The Company's network management and satellite communications expertise
also permit it to develop systems for business users in geographically dispersed
locations. The Company believes that office locations of companies will continue
to become more geographically dispersed and that the commercial market for
systems to link these offices can be a significant opportunity for future
growth. The Company has created a product called Virtual Program Office ("VPO")
to capitalize on this emerging market of geographically dispersed companies. VPO
is a suite of user-friendly management tools designed to enable real-time voice,
video and data communications among geographically dispersed organizations and
users. Implemented as a business process reengineering strategy, VPO includes
Lotus Notes groupware, desktop video teleconferencing and a series of customized
integrated data management solutions.
25
<PAGE> 27
The following are significant communication systems contracts and programs,
which also include IT Services, emphasizing the nature of the Company's
interrelated business areas:
- The Company is the prime contractor under a five-year cost plus fixed
fee contract awarded by the U.S. Navy in March 1996 to provide
technical engineering and other support services to a U.S. Navy
command. Although there can be no assurance that the contract will
develop as it expects, the Company believes the contract has a
potential value of approximately $84 million over the five-year period
of the contract, which expires in fiscal 2001. The contract team
includes, as subcontractors, Computer Sciences Corporation, Booz-Allen
and Hamilton, Inc., Integrated Systems Control, Inc.,
Tele-Consultants, Inc. and others.
- The Company is the prime contractor under a five-year cost plus fixed
fee contract awarded by the U.S. Navy in August 1996 to provide
program management support, financial management support, cost and
schedule analysis, information management support, foreign military
sales support, installation and inventory management and configuration
management for the PD 70 Integrated Command, Control, Communication,
Computers and Intelligence ("IC4I") project and staff offices.
Although there can be no assurance that the contract will develop as
it expects, the Company believes that the contract could have a
potential value of approximately $36 million over the five-year
period, which expires in fiscal 2001.
- The Company is the prime contractor under a five-year cost plus fixed
fee contract awarded by the U.S. Navy that commenced in October 1993,
to provide program management support, financial management support,
cost and schedule analysis, configuration management for communication
systems, equipment integration support, specification and
standardization support, integrated logistics management support and
information management support to the Information Transfer Systems
Directorate of a U.S. Navy command. Although there can be no assurance
that the contract will develop as it expects, the Company believes
that the contract could have a potential value in excess of
approximately $8 million over the remaining two years of the contract,
which expires in fiscal 1998.
INFORMATION TECHNOLOGY SERVICES
Through its IT Services business, the Company offers a broad array of
professional information technology services and information systems to
commercial and government markets. The IT Services offered by the Company
include information management systems design and integration; LAN/WAN design,
installation and support; database design and real-time database management;
Internet and intranet services; and multi-media training development. The
advanced technical capabilities gained by the Company while performing services
for government customers has provided expertise in the information technology
area, which the Company is leveraging to develop its commercial business. The
Company is currently focusing on expanding its customer base to include
commercial and international customers. For fiscal 1996, the Company's IT
Services business represented 25.3% of revenues.
The Company designs and implements information management systems that
enable its customers to create integrated productivity software and
communication tools which allow uninterrupted transmission of information
throughout a customer's infrastructure. The Company has been designated as a
Microsoft Solution Provider, a Lotus Business Partner and a Novell Authorized
Reseller, designations which permit the Company to pursue some business
opportunities not available to all competitors because these certifications
frequently are cited as eligibility requirements for commercial bids.
The Company plans and creates conceptual designs, system designs and system
updates, including identifying functional requirements and creating database,
system and subsystem specifications. It performs feasibility and cost-benefit
studies on system alternatives and presents recommendations. It recently won a
competitively awarded contract to conduct a system design and requirements study
for the City of Imperial Beach, California. The Company believes that there is a
substantial demand for these kinds of services and is actively seeking to market
them to small and midsize companies and to municipalities.
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The Company also provides office automation system services. It analyzes
current office functions and matches them with appropriate office software and
provides integrated office tools to permit data sharing and improve office
efficiency. The Company established the first office automation system for a
major program directorate of the U.S. Navy ten years ago, using a central
computer with multiple processors and work station terminals, applying
then-available technology to an office environment. As it continued to provide
network services for that office, improving the system through advances in
technology, the Company implemented and now supports a 250 station LAN with five
servers. The Company has applied that same technology to several commercial
customers.
Additionally, the Company provides technical assistance to end users on
system configuration issues, software upgrades and functionality. In 1993, the
Company was awarded a contract to operate the network used by the International
Joint Commission, a quasi-government organization of the U.S. and Canada charged
with protecting the environmental conditions along the border between the two
countries. After successful completion of that three year contract, the Company
was awarded a multi-year contract to continue the network support with expanded
work scope, including software application training.
The Company provides a full range of database support using innovative
solutions to manage databases and present the information back to a variety of
end users at the level and detail specific to their needs. The Company has
extensive expertise in developing and implementing plans to migrate data from
legacy systems to modern technology products, as well as the design and
implementation of new applications. The Company recently completed a major
database task for the U.S. Army to provide access to Army databases using a data
warehousing approach. The Company believes that this successful implementation
will result in additional contracts from the U.S. Army to extend the data
warehousing to additional databases.
The Company has extensive hands-on experience designing complex management,
program and financial databases and graphical user interfaces ("GUI"). The
Defense Technical Information Center ("DTIC") awarded a contract to the Company
to provide a user-friendly interface to be used world-wide to access and search
the DTIC database, which contains data on virtually every technical study
completed for the Department of Defense. The Company has continued to receive
assignments to implement additional GUIs for the DTIC.
To permit its customers to communicate more efficiently, the Company
develops and implements both external (Internet) and internal (intranet)
connectivity solutions. It conducts needs analyses to define specific objectives
for web sites; designs marketing objectives and strategies; provides design
services for the appearance of web sites; provides technical and project
management services and support; hosts customer web sites on its server; and
provides web site promotional services to create the desired site traffic. An
example of a web page developed and hosted by the Company is the Children's
Hospice International home page, which can be viewed at
http://www.chionline.org.
The Company offers a wide range of training services utilizing innovative
techniques and tools, such as computer based training ("CBT") aids, training
videos and on-line performance tools, to promote increased productivity and
efficient use of installed systems. It prepares and conducts CBT seminars for
government and commercial customers and has developed CBT programs covering a
wide variety of subjects as required by customers, including, for example,
identifying persons driving while under the influence of alcohol (for the
National Highway Traffic Safety Administration) and training seamen on the
operation of on-board submarine communication systems. Activities the Company
undertakes as part of its multi-media training services include developing
customized training concepts and plans, including undertaking front-end analyses
of a customer's business and business processes to identify training
requirements and the appropriate training media; developing user and
administrator guides as well as self study work books, wall charts, training
videos and other materials; and surveying and updating curricula for training
courses.
SYSTEMS INTEGRATION
The Company provides systems integration for communication systems and to a
lesser extent acts as a value-added reseller of computer hardware, software and
integrated systems to both government and commercial customers. Sales to
government customers are through the Company's GSA Schedule Contract.
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Sales to commercial customers are through the GSA Schedule Contract (to
government contractors) or through direct contracts with other commercial
customers. The Company supports the systems and products it sells by providing
its customers a wide range of services, including employee training,
maintenance, repair and user assistance. The Company offers individual
components of its systems and other products from various vendors for resale
through the GSA Schedule Contract. The resale business often provides the
opportunity for additional systems integration business. The Company's systems
integration business represented 10.2% of revenues for fiscal 1996 and 21.6% of
revenues for the three month period ended December 31, 1996. See "-- Government
Contracts."
The Company believes that a market opportunity has developed as government
and commercial customers have begun to migrate to systems composed of commercial
off-the-shelf hardware and software components. Its strategy has been to
anticipate the systems needs of customers and to develop systems using readily
available commercial hardware and software. This strategy differs from that of
many of the Company's reseller competitors, which traditionally provide
individual hardware and software items for resale without integration, and many
of its integration competitors, which traditionally have developed entire
systems. The Company concentrates on relatively low quantity procurements which
are not cost-competitive for large systems integration companies, applying
system knowledge gained through following technology trends and providing ease
of procurement through a GSA Schedule Contract for government customers and
direct purchase for commercial customers. A recent example of this strategy
resulted in the sale to the U.S. Navy of over $4.0 million of integration work
for extra high frequency communications controllers.
The Company believes it has been successful as a system integrator because
it has targeted certain technologies and systems to offer through the GSA
Schedule Contract. Expecting that many government agencies were planning to use
VersaModule European ("VME") technology, the Company focused on offering VME
products and systems, which provide users with a versatile modular computer
system that allows users to combine products and functions. However, recognizing
that technology changes constantly, the Company is now targeting replacement
technology for some of the VME applications and will offer further technology
advances as appropriate. Because of the nature of this systems integration work,
the Company does not have a large investment in VME plant or equipment and can
continue to provide VME technology while pursuing additional technologies.
PRODUCTS
The Company has developed a set of communication systems and software
products which have both military and commercial applications. The Company has
identified potential applications for existing technology, developed systems to
implement the identified applications and then expanded the systems, using the
original technology, into multiple-use products. This process permits the
Company to sell products and systems off-the-shelf or to adapt them to specific
applications, depending on the needs of customers.
SALTS
The Company believes that its International Streamlined Automated Logistics
Transmission Systems ("ISALTS") and its Commercial Streamlined Automated
Logistics Transmission System ("CSALTS") programs, both of which are based on
the SALTS technology, are examples of its ability to adapt its military
expertise to commercial uses. The Company's SALTS technology is designed to
provide military and commercial organizations with the ability to store and
forward large amounts of administrative and logistics data in a compressed,
secure format using many forms of communication media. SALTS provides a near
real-time means of communicating mass data at minimum cost.
The SALTS technology originally was developed by the U.S. Navy as an
alternative data transmission system so that the transmission of logistics and
administrative data would not interfere with the transmission of tactical data
during the Persian Gulf war. Following the Persian Gulf war, the Navy contracted
with the Company to operate and enhance the SALTS system. Subsequently, the
Company has customized versions of SALTS for other specialized applications. For
example, the Army's 18th Airborne Corps and the troops occupying Haiti used it
to exchange accounting data. In addition, SALTS successfully conveyed mission
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<PAGE> 30
support data during other major military operations and disaster relief efforts.
The Company's first commercial application of the SALTS technology was the
Company's USO-GRAM program, introduced in 1994, under which sailors at sea and
persons on shore can exchange e-mail messages.
The ISALTS and CSALTS programs are the Company's major commercial
applications of its SALTS technology. The Company has developed proprietary
ISALTS software which it is marketing to friendly foreign governments for their
military data transmission needs. The Company also provides readily available
commercial hardware, installation and ongoing maintenance, software upgrades and
other support services for its ISALTS customers. To date, the Company has
installed an ISALTS system for the British Royal Navy and is in the process of
installing an ISALTS system for the Royal Australian Navy.
BGIXS
BGIXS ("Battle Group Information Exchange System") was developed by the
Company as a way to permit reliable and efficient data communication (as
compared to text communication only) between land, sea and air units in
half-duplex mode using a hub/spoke architecture. First marketed in 1993, BGIXS
uses commercial off-the-shelf technology to permit PC-to-PC transfer of tactical
data between a headquarters host and supporting forces using satellite links.
Additionally, BGIXS permits rapid file transfer with guaranteed delivery and
provides multimedia capability. The U.S. Navy and the British Royal Navy have
purchased BGIXS systems, and the Company is actively marketing the product to
other foreign military organizations in friendly countries.
PELICAN
Pelican, which is currently under development, will couple the data
transfer capabilities of BGIXS with high frequency radio communications to
provide an integrated, self-contained communication system to those
organizations using high frequency radio rather than satellite communications.
Pelican is based on a commercial open systems architecture using readily
available commercial hardware and software that provides data compression and
packetization for efficient transmission. The Pelican communication protocol
provides maximum operational flexibility through the use of multiple modes of
transmission, on-demand push/pull of files to a distant host, store and forward
file transfer and silent broadcast by the distant host. Pelican is expected to
be available for sale in the second half of fiscal 1997.
SALTS, BGIXS and Pelican illustrate the Company's ability to build systems
to satisfy a particular customer's needs and then use the same technology in a
refined and augmented form to create salable products for a different, and
potentially wider, customer base. The Company believes that these technologies
have significant commercial applications.
FINANCIAL MANAGEMENT SOFTWARE
The Company develops and offers a variety of software products used to
support customers' financial functions. These include: PRECEPT 5000, a cost
estimating tool; FMIS, an Oracle-based financial management system; FTS, an
application for financial tracking which can be coupled with FMIS for a broader
financial management and tracking system; and EMT, an engineering management
tool that has functionality similar to FTS and can be tied to FMIS. These
software products can be customized or adapted to meet a particular customer's
needs.
MARKETING
The Company's operations group is primarily responsible for marketing its
services and products, including the development and execution of marketing
plans, proposal presentations and the performance of related tasks. The
Company's marketing activities are conducted by its professional managers who
have technical expertise and whose efforts are supplemented by the Company's
staff of engineers, scientists and analysts. Company personnel use customer
contacts, attend new business briefings sponsored by government agencies and
review publications such as Commerce Business Daily for contracting
opportunities and to learn
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of new business opportunities. The Company also participates in several major
trade shows, both domestic and international, that showcase applicable
technologies.
One of the Company's primary marketing strategies is to anticipate and
understand the changing needs of its customers and then to be prepared to meet
those needs as they arise in new programs or in new program functions. The
Company believes that its experience in providing services to the U.S. Navy
enhances its ability to understand and anticipate the U.S. Navy's needs. The
Company emphasizes customer satisfaction, as evidenced by its ability to retain
customers such as the U.S. Navy since the Company's inception. It recently won a
major contract recompetition as the prime contractor on an engineering services
and support contract for which it originally served as a subcontractor. Under
this recompete contract, the Navy awarded the extension to the Company as the
prime contractor, although the Company is substantially smaller than the prime
contractors on the original contracts.
GOVERNMENT CONTRACTS
In general, the Company's business with the government (as both a prime
contractor and a subcontractor) is performed under cost reimbursement contracts,
time and materials contracts or fixed price contracts. Cost reimbursement
contracts, including cost plus fixed fee contracts, provide for the
reimbursement of costs (to the extent allowed under federal regulations) plus
the payment of a fixed fee. Under time and materials contracts, the Company is
reimbursed for labor hours at negotiated hourly billing rates and is reimbursed
(without fee) for travel and other direct expenses at actual cost plus applied
indirect, general and administrative expense. Under fixed price contracts, it
agrees to perform certain work for a fixed price and, accordingly, realizes the
benefit or detriment to the extent that the actual cost of performing the work
differs from the contract price. The majority of the Company's revenues from
government contracts are derived from cost plus fixed fee contracts.
The Company has several multi-year contracts with U.S. government agencies
to provide communication systems services and support, information technology
services and systems integration services and support. Typically, these
contracts require the Company to provide a broad range of services and support,
as requested by the customer, which may include systems engineering, production
support, management information systems services and support and program
operational support. Each contract generally provides an estimate of the number
of staff years that the government agency believes will be utilized each year
under the contract. The Company receives specific work assignments under the
contract on an as-identified basis through the issuance by the government of
task orders setting out the specific work to be performed, the staff years
allocated to the task and the estimated cost, fee and travel allocated to such
task. Payments are made to the Company incrementally during the performance of
each task. In order to plan for orderly performance under a contract, it is not
unusual, prior to or at the commencement of each government fiscal year during
the term of the contract, for the government and the Company to define proposed
tasks to be completed under the contract during the coming fiscal year.
Under the Company's GSA Schedule Contract, government agencies may
purchase, at prices approved by the GSA, hardware and software integration,
systems engineering, automated data processing services, hardware and software,
repair (service and parts) and training, without further competitive bidding.
Products that the Company can provide under the GSA Schedule Contract must be
approved by the GSA prior to being offered to end-users. Also, at the time the
contract was initially awarded and at each contract renewal, prices to end-users
under the contract are set for the duration of the contract at a specified level
or specified levels varying over time. The contract does not have any pre-set
delivery schedules or minimum purchase schedules. The GSA Schedule Contract is
renewable annually. The Company believes that the GSA Schedule Contract will be
renewed, although there can be no assurance to this effect.
The Company's contracts and subcontracts with federal government agencies
are competitively bid and awarded on the basis of technical merit, personnel
qualifications, experience and price. The Company's business, financial
condition and results of operations could be materially affected by changes in
procurement policies, a reduction in funds available for the services provided
by it and other risks generally associated with federal government contracts.
New government contract awards also are subject to protest by competitors at
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the time of award which can result in the re-opening of the bidding process or
the award of a contract to a competitor. None of the Company's current
government contracts is the subject of a bid protest; however, there can be no
assurance that government contracts awarded to it in the future will not be
challenged by competitors.
The Company's contractual costs and revenues also are subject to audits and
adjustments by negotiation between it and the DCAA and other government
auditors. As part of the audit process, the DCAA verifies that all charges made
by a contractor against a contract are legitimate and appropriate. Audits may
result in recalculation of contract revenues and non-reimbursement of some
contract costs and fees. The Company was audited by DCAA for contract
performance through fiscal 1994 under all of its government contracts, which
resulted in immaterial adjustments to its revenues under the contracts audited.
However, there can be no assurance that future audits will not result in
material adjustments to the Company's revenues.
The Company's contracts with the government and its subcontracts with
government prime contractors are subject to termination for the convenience of
the government; termination, reduction or modification in the event of change in
the government's requirements or budgetary constraints; and, when it
participates as a subcontractor, termination for the failure or inability of the
prime contractor to perform its prime contract. If a termination for the
convenience of the government occurs, the government generally is obligated to
pay the costs incurred by the Company under the contract plus a pro rata fee
based upon the work completed.
In addition to the right to terminate, government contracts are conditioned
upon the continuing availability of Congressional appropriations. Congress
usually appropriates funds on a fiscal year basis even though contract
performance may take several years. Consequently, at the outset of a major
program, the contract is usually incrementally funded, and additional funds are
normally committed to the contract by the procuring agency as appropriations are
made by Congress for future fiscal years. In addition, contractors often
experience revenues uncertainties during the first quarter of the government's
fiscal year (beginning October 1) until differences between budget requests and
appropriations are resolved. To date, Congress has funded all years of the
multi-year major program contracts for which the Company has served as prime
contractor or a subcontractor, although there can be no assurance that this will
be the case in the future.
BACKLOG
Many of the Company's contracts are multi-year contracts and contracts with
option years, and portions of these contracts are carried forward from one year
to the next as part of the Company's contract backlog. The Company's total
contract backlog represents management's estimate of the aggregate unearned
revenues expected to be earned by the Company over the life of all of its
contracts, including option periods. Because many factors affect the scheduling
of projects, there can be no assurance as to when revenues will be realized on
projects included in the Company's backlog. In addition, although contract
backlog represents only business which is considered to be firm, there can be no
assurance that cancellations or scope adjustments will not occur. The majority
of backlog represents contracts under the terms of which cancellation by the
customer would entitle the Company to all or a portion of its costs incurred and
potential fees to the date of cancellation.
Many of the Company's contracts are funded from year to year, based
primarily on the procuring company's or agency's fiscal requirements. This
results in two different categories of contract backlog: funded and unfunded
backlog. "Funded backlog" represents the sum of contract amounts for which funds
have been specifically obligated to contracts by customers, which in the case of
a U.S. government contract requires appropriation by the U.S. Congress to the
applicable agency and allocation to the contract by the agency. "Unfunded
backlog" represents future contract or option amounts that have not been
specifically obligated by customers. "Backlog" is the total of funded and
unfunded backlog.
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The following table summarizes the Company's funded and unfunded backlog at
the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BACKLOG COMPONENT
Funded....................................... $ 5,303 $ 3,255 $ 6,437
Unfunded..................................... 35,556 29,920 132,804
------- ------- --------
Total.............................. $40,859 $33,175 $139,241
======= ======= ========
</TABLE>
The Company believes that approximately 26% of its backlog as of September
30, 1996 will result in revenues in fiscal 1997. However, the Company also
believes that backlog is not necessarily indicative of future revenues. The
Company's backlog typically is subject to large variations from quarter to
quarter as existing contracts are renewed or new contracts are awarded.
Additionally, all U.S. government contracts included in backlog, whether funded
or unfunded, may be terminated at the convenience of the government.
COMPETITION
The Company experiences significant competition in all of the areas in
which it does business. In general, the markets in which it competes are not
dominated by a single company or a small number of companies; instead, a large
number of companies offer services that overlap and are competitive with those
offered by the Company. Many of its competitors are significantly larger and
have greater financial resources than the Company, and some of these competitors
are divisions or subsidiaries of large, diversified companies that have access
to the financial resources of their parent companies. There can be no assurance
that the Company will be able to compete successfully.
Because its communication systems business is specialized and the Company
is a leader in the portion of the communication business it pursues, the market
for this business is somewhat less competitive than the markets for its systems
integration and IT Services businesses. In SATCOM systems and services, the
Company competes against technical services companies in the defense industry,
including Computer Sciences Corporation, Science Applications International
Corporation, Booz-Allen and Hamilton, Inc. and SEMCOR. In its other business
areas, the Company competes against a vast array of computer manufacturers,
systems integrators and product resellers and distributors. In the IT Services
area, the Company frequently teams as a subcontractor on large procurement
programs with one of its larger competitors since it can be very expensive to
bid as a prime contractor on such large procurement programs.
The Company believes that the principal competitive factors in the
businesses in which it operates are technical understanding, management
capability, past contract performance, personnel qualifications and price. In
the federal government market, procurement reforms over the past years have
increased the importance of a contractor's past performance in deciding new bid
awards.
INTELLECTUAL PROPERTY
The Company relies on a combination of contractual rights, copyrights,
trademarks and technical measures to establish and protect the ideas, concepts
and documentation of its proprietary technology and know-how. All of its current
employees have executed confidentiality agreements, and the Company includes
confidentiality and non-competition covenants in its software licensing
agreements and consulting agreements.
The Company believes that product recognition is an important competitive
factor in the information technology industry. Accordingly, it promotes the
ISALTS(TM), CSALTS(R), PRECEPT(TM) and FMIS(TM) names in connection with its
marketing activities and holds a U.S. trademark registration for the CSALTS name
and copyrights for several software products, including ISALTS, CSALTS, PRECEPT,
FMIS, BGIXS(TM) and others. The intellectual property protections employed by
the Company, however, may not afford complete protection, particularly in
foreign markets, and there can be no assurance that third parties will not
independently develop such know-how or obtain access to its know-how, ideas,
concepts and documentation.
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Although the Company believes that its technology has been developed
independently and does not infringe on the proprietary rights of others, there
can be no assurance that the technology does not and will not infringe or that
third parties will not assert infringement claims against the Company in the
future. In the case of infringement, the Company would, under certain
circumstances, be required to modify its products or obtain a license. There can
be no assurance that it would be able to do either in a timely manner, upon
acceptable terms and conditions, or at all, or that it will have the financial
or other resources necessary to defend successfully a proprietary rights
infringement action. Failure to do any of the foregoing could have a material
adverse effect on the Company. Furthermore, if its products or technologies are
deemed to infringe upon the rights of others, it could become liable for
damages, which could have a material adverse effect on the Company.
The Company may also be subject to litigation to defend against claimed
infringement of the rights of others or to determine the scope and validity of
the intellectual property rights of others. Any such litigation would be costly
and would divert management's attention, either of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Adverse determinations in such litigation could result in the loss
of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties or prevent
the Company from selling its services, any one of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
EMPLOYEES
The Company believes that is its employees and their knowledge and
capabilities are a major asset. The Company has been successful in attracting
and retaining employees skilled in its core business competencies. As of January
31, 1997, approximately 20% of the Company's technical employees had advanced
degrees. The Company intends to continue to employ highly skilled personnel, as
well as personnel knowledgeable concerning the needs and operations of its major
customers.
As of January 31, 1997, the Company employed 306 people, 267 of whom were
directly involved in computer and information systems programming, design and
engineering, and 39 of whom were in executive and administrative functions. The
Company believes that its relations with its employees are good. None of the
Company's employees are covered by collective bargaining agreements.
FACILITIES
The Company's headquarters occupies approximately 22,200 square feet at
10089 Lee Highway, Fairfax, Virginia. This space is provided under the terms of
a lease from 10089 Management, a related party to the Company, that expires
August 31, 2003. See "Certain Transactions -- Transactions with Directors and
Executive Officers." In the United States, the Company occupies approximately
79,000 square feet in offices in Fairfax, Virginia; Arlington, Virginia;
Virginia Beach, Virginia; Charleston, South Carolina; and San Diego, California.
The Company also maintains an office near Plymouth, England. The Company
believes that its current facilities are adequate for its existing needs and
that additional suitable space will be available as required.
LEGAL PROCEEDINGS
The Company currently is not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information regarding the directors,
executive officers and other key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
George A. Robinson............ 59 President, Chief Executive Officer and Chairman of the Board of
Directors
Charles G. Martinache......... 56 Executive Vice President, Chief Operating Officer and Director
Thomas A. Costello............ 49 Executive Vice President, Chief Technology Officer, Secretary,
Treasurer and Director
Dev Ganesan................... 38 Chief Financial Officer
KEY EMPLOYEES:
Warren C. Willis.............. 57 Senior Vice President and Director of Washington Operations
Sharon K. Angelone............ 38 Vice President and Director of Charleston Operations
Raymond E. Shutters........... 67 Director of West Coast Operations
Douglas A. Benzel............. 51 Vice President and General Manager of San Diego Operations
William S. Hoffman............ 56 Vice President and Chief Engineer
Kevin R. Adams................ 40 Director of ACS Technologies
J. Herbert Dahm............... 59 Director of International Operations
</TABLE>
GEORGE A. ROBINSON. Mr. Robinson was a founder of the Company and has
served as President, Chief Executive Officer and Chairman of the Board of
Directors of the Company since its inception in 1987. From 1986 to 1987, Mr.
Robinson held the position of Vice President for East Coast Operations of
Advanced Digital Systems, Inc., a military communication software development
company. Prior to working at Advanced Digital Systems, Inc., Mr. Robinson spent
over 20 years as a civilian employee in the U.S. Navy Satellite communication
program, most recently as Deputy Director.
CHARLES G. MARTINACHE. Mr. Martinache was a founder of the Company and has
served as Chief Operating Officer and a Director of the Company since 1987. From
1987 to July 1992, Mr. Martinache also held the office of Vice President, and in
July 1992 was made Executive Vice President. From 1986 to 1987, Mr. Martinache
was a program manager for Advanced Digital Systems, Inc. Prior to that, Mr.
Martinache served 23 years in the U.S. Navy as a cryptologic officer.
THOMAS A. COSTELLO. Mr. Costello was a founder of the Company and has
served as Secretary, Treasurer and a Director of the Company since 1987. From
1987 to 1994, Mr. Costello held the positions of Senior Vice President and
Technical Director, and in 1995 was made Executive Vice President and Chief
Technology Officer of the Company. From 1983 to 1987, Mr. Costello was a Senior
Systems Engineer for Advanced Digital Systems, Inc. where, among other things,
he led the Integrated Navy SATCOM Architecture study to upgrade existing
information exchange subsystems.
DEV GANESAN. Mr. Ganesan joined the Company in February 1997 as Chief
Financial Officer. From June 1994 to January 1997, Mr. Ganesan was employed by
GSE Systems, Inc., a publicly held international software systems and technology
solutions developer, as Vice President of Finance and Accounting. From 1990 to
June 1994, Mr. Ganesan served as the Treasurer and Corporate Controller of U.S.
Lime & Minerals, Inc., a publicly held mineral resources company. From 1987 to
1990, Mr. Ganesan was with Deloitte & Touche, most recently as an audit manager.
WARREN C. WILLIS. Mr. Willis joined the Company in August 1993 as Senior
Vice President and Director of Washington Operations. Prior to joining the
Company, Mr. Willis spent over 24 years managing SATCOM acquisition programs for
the U.S. Navy. From October 1992 to July 1993, he served as the Chief
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Engineer for a U.S. Navy communications directorate, and from October 1990 to
September 1992 he was the Deputy Program Manager for the U.S. Navy SATCOM
program office.
SHARON K. ANGELONE. Ms. Angelone has been employed by the Company since
its inception in 1987 and has served in a variety of positions. Since July 1992,
Ms. Angelone has served as a Vice President and the Director of Charleston
Operations. From September 1986 to July 1987, Ms. Angelone was a Senior
Financial Analyst at Advanced Digital Systems, Inc.
RAYMOND E. SHUTTERS. Mr. Shutters joined the Company in June 1996 as the
Director of West Coast Operations. From August 1995 to May 1996, Mr. Shutters
was a member of the C4I technical staff of Sciences Application International
Corporation. From 1959 to August 1995, Mr. Shutters was employed at the Navy
Research and Development Laboratory Center ("NRaD"). From 1987 to March 1993,
Mr. Shutters was Head of the Surveillance Department at NRaD where he was
responsible for managing the undersea, surface and aerospace surveillance and
research and development programs. In March 1993, Mr. Shutters was promoted to
Deputy Executive Director and Business Manager of NRaD, a position which he held
until August 1995.
DOUGLAS A. BENZEL. Mr. Benzel joined the Company in July 1990. In October
1992, Mr. Benzel was made Department Manager of Super High Frequency Operations
and, in September 1995, was named General Manager of San Diego Operations. In
addition, Mr. Benzel has served as Vice President since December 1993. From 1986
to 1990, Mr. Benzel was the Satellite Division Manager for the Defense
Communications Agency, where he was a principal engineer in the development of
military satellite communications architecture.
WILLIAM S. HOFFMAN. Mr. Hoffman has been employed by the Company since its
founding in 1987 and has served as Vice President and Chief Engineer since 1990.
From 1983 to 1987, Mr. Hoffman was Senior Systems Engineer at Advanced Digital
Systems, Inc. where he headed a team of software engineering professionals who
provided direct systems engineering and program management support to a U.S.
Navy satellite communications program office.
KEVIN R. ADAMS. Mr. Adams joined the Company in September 1993 as a
Systems Engineer, and in September 1994 he was made Manager of VME Technologies.
In April 1996, Mr. Adams was promoted to Director of ACS Technologies, a
business unit of the Company focusing on systems integration work. From December
1991 to August 1993, Mr. Adams was employed as Lead Engineer by VisiCom
Laboratories, Inc., a software development company.
J. HERBERT DAHM. Mr. Dahm joined the Company in July 1993 as the Director
of International Operations. From October 1990 to July 1993, Mr. Dahm served in
the U.S. Navy where he helped to deploy SALTS systems throughout the Navy.
------------------------
The Bylaws of the Company provide that the number of members of the Board
of Directors shall be
determined by the resolution of the Board. Each director is elected for a
one-year term at each annual meeting of the stockholders. Officers are elected
by the Board of Directors. Each officer serves at the discretion of the Board of
Directors. There are no family relationships among any of the directors or
executive officers.
The Company intends to add two independent members to its Board of
Directors within 90 days after the date of this Prospectus. It will be necessary
for the Company to appoint these directors within the 90 day time period in
order to maintain its Nasdaq National Market listing. Failure to appoint two
independent directors could result in a delisting of the Common Stock from the
Nasdaq National Market.
STOCKHOLDER AGREEMENT
Prior to the completion of the offering, Messrs. Robinson, Martinache and
Costello will enter into a Stockholder Agreement pursuant to which they will
agree to vote their shares to elect each other as directors of the Company and
on other matters as a block as determined by the affirmative vote of the
majority of their
35
<PAGE> 37
shares. This Stockholder Agreement will allow Messrs. Robinson, Martinache and
Costello to control votes on matters that require approval of the Company's
stockholders.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon consummation of this offering and the appointment of the two new
independent directors, the Board of Directors will establish a Compensation
Committee and an Audit Committee. The Compensation Committee will be comprised
of the two independent directors and will have the authority to determine the
compensation of the Company's executive officers and to administer the 1996
Stock Incentive Plan. The Audit Committee will be composed of the two
independent directors and one additional director. The Audit Committee will have
the authority to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plan and
results of the audit engagement, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive any compensation
for their service as directors. Following this offering, the Company will pay
each director who is not an employee of the Company a stipend of $ for
attending each meeting of the Board of Directors and will reimburse each such
director for his out-of-pocket expenses for attending these meetings. At the
discretion of the Board of Directors, independent directors will be granted
options to purchase Common Stock at the then-prevailing fair market value during
each calendar year in which such director serves on the Board of Directors.
EXECUTIVE COMPENSATION
The following table presents certain information concerning compensation
earned for services rendered in all capacities to the Company for the year ended
September 30, 1996 by the Chief Executive Officer and each of the other
executive officers (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND -------------------- ALL OTHER
PRINCIPAL POSITIONS SALARY BONUS COMPENSATION
- ---------------------------------------------------------- -------- ------- ------------
<S> <C> <C> <C>
George A. Robinson........................................ $250,000 $79,440 $ 4,333(1)
President, Chief Executive Officer and Chairman of the
Board of Directors
Charles G. Martinache..................................... 225,000 79,440 23,233(2)
Executive Vice President, Chief Operating Officer and
Director
Thomas A. Costello........................................ 225,000 79,440 4,967(1)
Executive Vice President, Chief Technology Officer,
Secretary, Treasurer and Director
</TABLE>
- ---------------
(1) Represents matching 401(k) plan contributions by the Company.
(2) Includes matching 401(k) plan contribution by the Company of $4,967 and
$18,266 in moving expenses paid by the Company.
None of the Named Officers were granted options to purchase shares of the
Company's Common Stock in fiscal 1996, exercised options in fiscal 1996 or held
options to purchase shares of Common Stock as of September 30, 1996.
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<PAGE> 38
EMPLOYMENT AGREEMENTS
Mr. Ganesan serves as the Chief Financial Officer of the Company pursuant
to the terms of an employment agreement which continues in effect until Mr.
Ganesan's termination or separation from the Company. Under the terms of the
employment agreement, Mr. Ganesan receives an annual salary of $120,000 and was
given a one-time signing bonus of $25,000 upon commencing work with the Company
on February 1, 1997. Mr. Ganesan is eligible to receive a first-year bonus of
$25,000 upon the accomplishment of certain mutually agreed upon objectives. In
addition, under the terms of the employment agreement, Mr. Ganesan received
options to purchase 115,000 shares of the Company's Common Stock. Such options
have an exercise price of $6.50 per share, a term of eight years and become
exercisable in four equal annual installments beginning on January 1, 1998.
Mr. Willis serves as Senior Vice President and the Director of Washington
Operations pursuant to the terms of an employment agreement which continues in
effect until Mr. Willis' termination or separation from the Company. Under the
terms of the employment agreement, Mr. Willis currently receives an annual
salary of approximately $129,000 and an annual bonus in the amount of 0.25% of
Washington Operations Area revenues. In addition, Mr. Willis is eligible to
receive bonus amounts based on the accomplishment of specific objectives.
STOCK PLANS AND AGREEMENTS
1996 STOCK INCENTIVE PLAN
The 1996 Stock Incentive Plan of the Company (the "1996 Plan") was adopted
by the Company's Board of Directors in July 1996. Options for a total of 263,500
shares were granted under the 1996 Plan, all of which remain outstanding. The
Board of Directors has determined not to award any additional options under the
1996 Plan.
1997 STOCK INCENTIVE PLAN
The 1997 Stock Incentive Plan of the Company (the "1997 Plan") was adopted
by the Company's Board of Directors effective March 1997. The Company has
reserved 450,000 shares of Common Stock for issuance pursuant to grants under
the 1997 Plan. To date, no grants have been made under the 1997 Plan. The 1997
Plan has a term of 10 years. The 1997 Plan provides for the grant of stock
options, stock appreciation rights, restricted stock or "performance shares" to
directors, employees (including officers) and consultants of the Company and its
subsidiaries. Pursuant to the 1997 Plan, options may be incentive stock options
within the meaning of Section 422 of the Code or nonstatutory stock options,
although incentive stock options may be granted only to employees. Generally,
options granted under the 1997 Plan are immediately exercisable but remain
subject to repurchase by the Company for all exercised unvested shares under a
vesting schedule established by the Board or committee. All incentive stock
options are nontransferable other than by will or the laws of descent and
distribution.
STOCK OPTION AGREEMENTS
The Company has entered into nonqualified option agreements with three
employees, providing for the purchase of an aggregate of 101,250 shares of
Common Stock, of which 27,000 remain unexercised as of the date of this
Prospectus. These options were not granted under any stock option plan. The per
share exercise price of such options was at least 100% of the fair market value
of a share of Common Stock as of the respective dates of grant.
TERMINATION AGREEMENTS
Immediately prior to the consummation of the offering, the Company, Messrs.
Robinson, Martinache and Costello, as the majority stockholders, and Sharon K.
Angelone, Douglas A. Benzel, Thomas and Margaret M. Costello, Alvin L. Franson,
Terrence E. and Diane M. Hileman, Jr., William and Diane Hoffman, Charles and
Helen Martinache, George and Barbara Robinson and Warren C. Willis will enter
into
37
<PAGE> 39
Termination Agreements pursuant to which certain Stock Redemption Agreements
previously entered into by and between the Company and each other party to the
Termination Agreement will be terminated.
INDEMNIFICATION ARRANGEMENTS
Prior to the completion of this offering, the Company will enter into
indemnification agreements pursuant to which it will agree to indemnify certain
of its directors and officers against judgments, claims, damages, losses and
expenses incurred as a result of the fact that any director or officer, in his
capacity as such, is made or threatened to be made a party to any suit or
proceeding. Such persons will be indemnified to the fullest extent now or
hereafter permitted by the Delaware General Corporation Law, as amended (the
"DGCL"). The indemnification agreements will provide for the advancement of
certain expenses to such directors and officers in connection with any such suit
or proceeding. The Company will amend and restate its Certificate of
Incorporation and Bylaws to provide for the indemnification of the Company's
directors and officers to the fullest extent permitted by the DGCL.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has not had a Compensation Committee prior to this
offering, and the functions of the Compensation Committee have been performed by
the Board of Directors as a whole. The Compensation Committee will become
effective following the closing of the offering and the appointment of the two
new independent directors. For information concerning certain transactions and
relationships among the Company and the current members of the Board of
Directors, see "Certain Transactions."
38
<PAGE> 40
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
In 1993, the Company entered into a ten year lease with 10089 Management,
the members of which include, among others, Messrs. Robinson, Martinache and
Costello, who collectively own 91% of 10089 Management. Under the terms of the
lease, the Company leases approximately 22,200 square feet at 10089 Lee Highway,
Fairfax, Virginia from 10089 Management for use as the Company's headquarters at
a current rental rate of approximately $26,000 per month. The monthly rental
rate increases annually based upon the annual increase in the Consumer Price
Index. The tenant also pays for insurance for the premises and for increases in
real estate taxes over 1993 real estate taxes for the building. The lease
expires on August 31, 2003. This arrangement, in contrast to outright ownership
of the building by the Company, enables the Company to allocate the cost of its
facilities to its government contracts. The Company believes that the terms of
the lease, including the rental rate, are at least as favorable to the Company
as those which could have been negotiated with an unaffiliated third party.
10089 Management purchased the Company's headquarters building in 1993
using, in part, a loan in the amount of $1,125,000 from a third party
institutional lender, which loan was guaranteed by the Company. The guaranty
will be terminated effective as of the closing of the offering. Also in
connection with 10089 Management's acquisition of the Company's headquarters
building, the Company lent to each of Messrs. Robinson, Martinache and Costello
approximately $119,000 for use as part of the purchase price for the building.
Other employees of the Company borrowed smaller amounts. All loans are evidenced
by promissory notes accruing interest at a rate of 7.0% per annum. The
promissory notes all become due and payable in August 1998, and each maker has
agreed to repay his loan in full from the proceeds received by him from the S
Corporation Distribution. See "S Corporation Distribution and Termination of S
Corporation Status."
Mr. Martinache also received a loan from the Company in 1996 in the amount
of $50,000, bearing interest at a rate equal to 8.75% per annum. The term of the
loan is five years and the loan is secured by a recorded lien against Mr.
Martinache's home in Charleston, South Carolina. Mr. Martinache has agreed to
repay this loan in full with proceeds received by him from the S Corporation
Distribution. See "S Corporation Distribution and Termination of S Corporation
Status."
FAIRFAX COMMUNICATIONS LTD.
Prior to the completion of this offering, Fairfax Communications Ltd., a
private limited company organized under the laws of England ("Fairfax
Communications Ltd."), will become a subsidiary of the Company, effective as of
January 1, 1997, pursuant to a transaction in which the Company will purchase
all of its outstanding shares of stock. Each of Messrs. Robinson, Martinache and
Costello own 26.8% of the outstanding share capital of Fairfax Communications
Ltd. The Company will purchase all of the ordinary shares of Fairfax
Communications Ltd. for $46,500 in a transaction intended to qualify as a tax
free reorganization under the Code. The proceeds of the sale will be distributed
to the stockholders of Fairfax Communications Ltd., which stockholders include,
among others, Messrs. Robinson, Martinache and Costello, who each will receive
$12,500.
S CORPORATION DISTRIBUTION
A portion of the proceeds of this offering will be used to fund the S
Corporation Distribution. See "S Corporation Distribution and Termination of S
Corporation Status."
39
<PAGE> 41
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 25, 1997 by (i) each person
known by the Company to beneficially own five percent or more of the outstanding
shares of Common Stock, (ii) each director and Named Officer of the Company,
(iii) all executive officers and directors as a group and (iv) all Selling
Stockholders. The address of the stockholders listed below as beneficially
owning more than five percent of the Common Stock is that of the Company's
principal executive offices. Except as indicated in the footnotes to the table,
the persons named in the table have sole voting and investment power with
respect to all shares beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO BENEFICIALLY OWNED
OFFERING NUMBER OF AFTER OFFERING (1)
-------------------- SHARES --------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS:
George A. and Barbara Robinson.............. 1,147,500 30.3% 200,000 947,500 16.8%
Charles G. and Helen Martinache............. 1,147,500 30.3 200,000 947,500 16.8
Thomas A. and Margaret M. Costello.......... 1,147,500 30.3 200,000 947,500 16.8
All executive officers and directors as a
group (4 persons)........................ 3,442,500 90.9 600,000 2,842,500 50.4
OTHER SELLING STOCKHOLDERS:
Sharon K. Angelone.......................... 33,750 * 5,000 28,750 *
Alvin L. Franson............................ 67,500 1.8 11,000 56,500 1.0
Terrence E. and Diane M. Hileman, Jr........ 67,500 1.8 11,000 56,500 1.0
William and Diane Hoffman................... 135,000 3.6 23,000 112,000 2.0
</TABLE>
- ---------------
* Represents less than 1%.
(1) Assumes no exercise of the Underwriters' over-allotment options.
40
<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the Company's authorized capital stock
will consist of 40,000,000 shares of Common Stock, par value $.01 per share, and
1,000,000 shares of Preferred Stock, par value $.01 per share. The following
brief description of the Company's capital stock does not purport to be complete
and is subject in all respects to applicable law and the provisions of the
Company's Certificate of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part. Immediately prior to the closing of this offering, the Company will have
3,786,750 shares of Common Stock outstanding, held of record by nine
stockholders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that holders
of more than 50% of the shares voted for the election of directors can elect all
of the directors. The holders of Common Stock are entitled to receive dividends
ratably when, as and if declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having
preference over the Common Stock. The outstanding shares of Common Stock are,
and the shares offered by the Company in this offering will be, when issued and
paid for, fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future.
Upon completion of this offering, the Company's existing stockholders will
beneficially own 55.6% of the outstanding shares of Common Stock (52.2% if the
Underwriters' over-allotment option is exercised in full) and will therefore be
able to elect the entire Board of Directors and control all matters submitted to
stockholders for a vote. In addition, prior to completion of the offering, the
three major stockholders, Messrs. Robinson, Martinache and Costello, will have
entered into a Stockholder Agreement pursuant to which they will agree to vote
their shares to elect each other as directors and to vote their shares on other
matters as a block as determined by majority vote of their shares. This
Stockholder Agreement will allow Messrs. Robinson, Martinache and Costello to
control votes on matters that require stockholder approval. See
"Management -- Stockholder Agreement."
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more classes or
series with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as may be fixed by the Company's Board of Directors
without stockholder approval. The Board of Directors could issue the Preferred
Stock with voting and/or conversion rights and thereby dilute the voting power
and equity of the holders of the Common Stock and adversely effect the market
price of such stock. The issuance of Preferred Stock could also be used as an
antitakeover measure by the Company without any further action by the
stockholders. The Company has no present plans to issue shares of Preferred
Stock.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"). In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of the Company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with the Company for three years
following the date that person became an interested stockholder unless: (i)
before that person became an interested stockholder, the Board approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (ii) upon completion of the transaction
that resulted in the interested stockholders becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting
41
<PAGE> 43
stock of the Company outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of the Company and by
employee stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) on or following the date on which that
person became an interested stockholder, the business combination is approved by
the Company's Board and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least 66.7% of the outstanding voting
stock of the Company not owned by the interested stockholder.
Under Section 203, these restrictions do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the directors who were directors before any person became an interested
stockholder in the previous three years or who were recommended for election or
elected to succeed such directors by a majority of such directors then in
office.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be Continental
Stock Transfer & Trust Company.
42
<PAGE> 44
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
5,636,750 shares of Common Stock (assuming no exercise of the underwriters'
over-allotment option or options outstanding under the Company's stock option
plans). Of these shares, the 2,500,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, unless they are purchased by "affiliates" of the Company as that
term is defined in Rule 144 under the Securities Act of 1933 (which sales would
be subject to certain limitations and restrictions described below). All of the
remaining 3,136,750 shares of Common Stock may be sold in the public market
commencing 90 days following the date of this Prospectus, subject in some cases
to the volume and other limitations of Rule 144 promulgated under the Securities
Act of 1933. The holders of all of these remaining shares have executed 180-day
lock-up agreements with A.G. Edwards & Sons, Inc. See "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least one year (including the holding
period of any prior owner except an affiliate) is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period a number of
shares that does not exceed the greater of (i) one percent of the number of
shares of Common Stock then outstanding (approximately 56,367 shares immediately
after this offering) or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the required filing of a Form 144
with respect to such sale. Sales under Rule 144 are subject to the availability
of current public information about the Company. Under Rule 144(k), a person who
is not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years, is entitled to sell such shares without having to
comply with the manner of sale, public information, volume limitation or notice
filing provisions of Rule 144. Under Rule 701 under the Securities Act, persons
who purchase shares upon exercise of options granted prior to this offering are
entitled to sell such shares 90 days after this offering in reliance on Rule
144, without having to comply with the holding period requirements of Rule 144
and, in the case of nonaffiliates, without having to comply with the volume
limitation or notice filing provisions of Rule 144.
After the completion of this offering, the Company intends to file one or
more registration statements on Form S-8 under the Securities Act to register an
aggregate of 740,500 shares of Common Stock subject to outstanding stock options
and Common Stock issuable pursuant to the Company's stock option plans. After
the date of such filing, if not otherwise subject to a lock-up agreement, shares
purchased pursuant to these plans generally would be available for resale in the
public market. The Company has outstanding options to purchase an aggregate of
290,500 shares of Common Stock, of which options to purchase an aggregate of
27,000 shares are currently exercisable. See "Management -- Stock Plans and
Agreements."
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<PAGE> 45
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Stockholders have agreed to sell to each
of the underwriters named below (the "Underwriters"), for whom A.G. Edwards &
Sons, Inc. and Ferris, Baker Watts, Incorporated are acting as representatives
(the "Representatives"), and each of the Underwriters has severally agreed to
purchase from the Company and the Selling Stockholders, the respective number of
shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
----------------------------------------------------------------- ---------
<S> <C>
A.G. Edwards & Sons, Inc. .......................................
Ferris, Baker Watts, Incorporated................................
---------
Total.................................................. 2,500,000
========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all 2,500,000 shares of
Common Stock offered hereby if any such shares of Common Stock are purchased. In
the event of a default by any Underwriter, the Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Company and the Selling Stockholders have been advised by the
Representatives that the several Underwriters propose initially to offer such
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow and such
dealers may re-allow a concession not in excess of $ per share to other
dealers. After the initial public offering, the public offering price and such
concessions may be changed.
The Company has granted to the Underwriters an option, expiring 30 days
from the date of this Prospectus, to purchase up to an aggregate of 375,000
additional shares of Common Stock at the public offering price less underwriting
discount set forth on the cover page of this Prospectus. The Underwriters may
exercise such option solely to cover overallotments, if any, made in connection
with the sale of shares of Common Stock that the Underwriters have agreed to
purchase. To the extent the Underwriters exercise such option, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment.
The Company has agreed that it will not sell, without the consent of A.G.
Edwards & Sons, Inc., any Common Stock or any securities convertible into Common
Stock, during the 180 days following the date of this Prospectus except for the
Common Stock offered in this offering. In addition, each current stockholder of
the Company, including each officer and director and the Selling Stockholders,
has agreed not to sell, without the consent of A.G. Edwards & Sons, Inc., any
Common Stock for the 180 day period. A.G. Edwards & Sons, Inc. will not consent
to any shortening of such periods unless, in its judgment, the timing of the
sales and the number of shares of Common Stock sold as a result of any such
consent would not have a material adverse
44
<PAGE> 46
effect on the market for the Common Stock. In such event, such sales would not
necessarily be preceded by a public announcement by the Company or A.G. Edwards
& Sons, Inc. that such consent has been given.
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price for the shares of Common Stock included
in this offering will be determined by negotiation among the Company and the
Representatives. Among the factors to be considered in determining such price
will be the history of and prospects for the Company's business and the industry
in which it operates, an assessment of the Company's management, past and
present revenues and earnings of the Company, the prospects for growth of the
Company's revenues and earnings and currently prevailing conditions in the
securities markets, including current market valuations of publicly traded
companies which are comparable to the Company.
The Representatives have advised the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the offering than
they are committed to purchase from the Company and the Selling Shareholders,
and in such case may purchase Common Stock in the open market following
completion of the offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
375,000, shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, A.G. Edwards & Sons, Inc., on behalf of
the Underwriters, may impose "penalty bids" under contractual arrangements with
the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the offering) for the account of the other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Gibson, Dunn & Crutcher LLP, Washington, D.C. Certain legal matters
relating to the offering will be passed upon for the Underwriters by Hale and
Dorr LLP, Washington, D.C.
EXPERTS
The audited financial statements of the Company for the three years ended
September 30, 1996 included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report, and
are included herein in reliance upon the authority of said firm as experts in
giving such reports.
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<PAGE> 47
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) under the Securities Act of 1933 with respect to the shares
of Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement. Certain items are omitted
in accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to such Registration Statement, including exhibits,
schedules and reports filed as part thereof. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1204, Washington,
D.C. 20549, and at the Commission's Regional Offices located at Seven World
Trade Center, 13th Floor, New York, New York, 10048 and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material may be obtained at prescribed rates by mail from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company. The address is http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
46
<PAGE> 48
GLOSSARY OF ACRONYMS
<TABLE>
<CAPTION>
ACRONYM DEFINITION PAGE
- ------------- ----------------------------------------------------------------------- -----
<S> <C> <C>
BGIXS Battle Group Information Exchange System............................... 29
C4I command, control, communications, computer and intelligence............ 3
CBT computer based training................................................ 27
CSALTS Commercial Streamlined Automated Logistics Transmission System......... 28
DCAA Defense Contract Audit Agency.......................................... 6
DGCL Delaware General Corporate Law......................................... 38
DOD Department of Defense.................................................. 3
DTIC Defense Technical Information Center................................... 27
GSA General Services Administration........................................ 4
GUI graphical user interface............................................... 27
integrated command, control, communications, computers and
IC4I intelligence........................................................... 26
ISALTS International Streamlined Automated Logistics Transmission System...... 28
IT Services information technology services........................................ 3
LAN local area network..................................................... 23
NRaD Navy Research and Development Laboratory Center........................ 35
SALTS Streamlined Automated Logistics Transmission System.................... 23
SATCOM satellite communications............................................... 3
VME Versa-Module European.................................................. 28
VPO Virtual Program Office................................................. 25
WAN wide area network...................................................... 23
</TABLE>
47
<PAGE> 49
ADVANCED COMMUNICATION SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of September 30, 1995 and 1996 and December 31, 1996 (unaudited).... F-3
Statements of Operations for the Years Ended September 30, 1994, 1995 and 1996 and the
Three Month Periods Ended December 31, 1995 and 1996 (unaudited).................... F-4
Statements of Changes in Stockholders' Equity for the Years Ended September 30, 1994,
1995 and 1996 and the Three Month Periods Ended December 31, 1995 and 1996
(unaudited)......................................................................... F-5
Statements of Cash Flows for the Years Ended September 30, 1994, 1995 and 1996 and the
Three Month Periods Ended December 31, 1995 and 1996 (unaudited).................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 50
AFTER THE RECAPITALIZATION AND STOCK DIVIDEND DISCUSSED IN NOTE 9 IN THE
ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS OF ADVANCED COMMUNICATION
SYSTEMS, INC. ARE EFFECTED, WE EXPECT TO BE IN A POSITION TO RENDER THE
FOLLOWING AUDIT REPORT.
/S/ ARTHUR ANDERSEN LLP
Washington, D.C.
February 28, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Advanced Communication Systems, Inc.:
We have audited the accompanying balance sheets of Advanced Communication
Systems, Inc. (a Delaware corporation), as of September 30, 1995 and 1996, and
the related statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Communication Systems,
Inc. as of September 30, 1995 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended September 30,
1996, in conformity with generally accepted accounting principles.
F-2
<PAGE> 51
ADVANCED COMMUNICATION SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, DECEMBER 31,
----------------- DECEMBER 31, 1996
1995 1996 1996 (NOTE 2)
------ ------- ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 592 $ 1,177 $ 902 $ 902
Contract receivables............................... 4,659 9,987 10,519 10,519
Other receivables.................................. 51 69 137 137
Prepaid expenses................................... 83 208 177 177
------ ------- ---------- ----------
Total current assets.......................... 5,385 11,441 11,735 11,735
------ ------- ---------- ----------
Property and equipment, net........................ 463 571 693 693
Other assets:
Notes receivable, stockholders..................... 393 443 443 443
Other related party receivables.................... 101 138 132 132
Software development costs, net.................... 598 461 427 427
Other assets....................................... 47 63 256 256
------ ------- ---------- ----------
Total other assets............................ 1,139 1,105 1,258 1,258
------ ------- ---------- ----------
Total assets............................. $6,987 $13,117 $ 13,686 $ 13,686
====== ======= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 686 $ 2,125 $ 545 $ 545
Accrued expenses................................... 1,602 3,476 4,804 4,804
Billings in excess of revenue...................... 283 362 397 397
Income taxes payable............................... 7 -- -- --
Deferred income tax liability...................... 91 91 91 640
Payable to stockholders............................ -- -- -- 5,000
------ ------- ---------- ----------
Total current liabilities..................... 2,669 6,054 5,837 11,386
Line of credit..................................... 1,821 2,688 2,917 2,917
Deferred income tax liability...................... -- -- -- 1,647
------ ------- ---------- ----------
Total liabilities............................. 4,490 8,742 8,754 15,950
------ ------- ---------- ----------
Commitments and contingencies (Notes 7, 9, 10 and 11)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding..... -- -- -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 6,750,000 shares issued and
outstanding at September 30, 1995 and 1996, and
December 31, 1996................................ 67 67 67 67
Paid-in capital and accretion...................... 5,457 16,506 16,506 68
Retained earnings (deficit)........................ 2,642 4,520 5,058 (2,138)
Adjustment for redemption value greater than
amounts paid in by stockholders.................. (5,389) (16,438) (16,438) --
Less -- Treasury stock, 3,017,250 shares at
September 30, 1995 and 1996, and 2,990,250 shares
at December 31, 1996, at cost.................... (280) (280) (261) (261)
------ ------- ---------- ----------
Total stockholders' equity (deficit).......... 2,497 4,375 4,932 (2,264)
------ ------- ---------- ----------
Total liabilities and stockholders'
equity................................. $6,987 $13,117 $ 13,686 $ 13,686
====== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 52
ADVANCED COMMUNICATION SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------- ----------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $19,106 $23,724 $31,665 $5,775 $9,066
Direct costs..................................... 11,418 14,815 19,307 3,331 6,038
Indirect, general and administrative expenses.... 7,177 8,202 10,253 2,027 2,442
------- ------- ------- ------ ------
Income from operations........................... 511 707 2,105 417 586
Interest expense................................. (125) (185) (257) (49) (64)
Other income, net................................ 52 52 57 12 16
------- ------- ------- ------ ------
Net income....................................... $ 438 $ 574 $ 1,905 $ 380 $ 538
======= ======= ======= ====== ======
Pro forma statements of operations data
(unaudited): (Note 2)
Net income, as reported..................... $ 1,905 $ 538
Pro forma income tax provision.............. 743 210
------- ------
Pro forma net income........................ $ 1,162 $ 328
======= ======
Pro forma net income per share.............. $ 0.27 $ 0.08
======= ======
Pro forma weighted average shares
outstanding............................... 4,240 4,221
======= ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 53
ADVANCED COMMUNICATION SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADJUSTMENT FOR
REDEMPTION
VALUE GREATER
COMMON STOCK THAN AMOUNTS
------------------ PAID-IN RETAINED PAID IN BY TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS STOCK TOTAL
--------- ------ ------- -------- --------------- -------- ------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1993..... 6,750,000 $ 67 $ 3,780 $1,630 $ (3,712) $(139) $1,626
Net income........................ -- -- -- 438 -- -- 438
Sale of treasury stock............ -- -- -- -- -- 10 10
Purchase of treasury stock........ -- -- -- -- -- (68) (68)
Adjustment for redemption value
greater than amounts paid in by
stockholders.................... -- -- 1,084 -- (1,084) -- --
--------- --- ------- ------ -------- ----- ------
BALANCE AT SEPTEMBER 30, 1994..... 6,750,000 67 4,864 2,068 (4,796) (197) 2,006
Net income........................ -- -- -- 574 -- -- 574
Sale of treasury stock............ -- -- -- -- -- 5 5
Purchase of treasury stock........ -- -- -- -- -- (88) (88)
Adjustment for redemption value
greater than amounts paid in by
stockholders.................... -- -- 593 -- (593) -- --
--------- --- ------- ------ -------- ----- ------
BALANCE AT SEPTEMBER 30, 1995..... 6,750,000 67 5,457 2,642 (5,389) (280) 2,497
Net income........................ -- -- -- 1,905 -- -- 1,905
Stockholder distributions......... -- -- -- (27) -- -- (27)
Adjustment for redemption value
greater than amounts paid in by
stockholders.................... -- -- 11,049 -- (11,049) -- --
--------- --- ------- ------ -------- ----- ------
BALANCE AT SEPTEMBER 30, 1996..... 6,750,000 67 16,506 4,520 (16,438) (280) 4,375
Net income (unaudited)............ -- -- -- 538 -- -- 538
Sale of treasury stock
(unaudited)..................... -- -- -- -- -- 19 19
--------- --- ------- ------ -------- ----- ------
BALANCE AT DECEMBER 31, 1996
(unaudited)..................... 6,750,000 $67 $16,506 $5,058 $(16,438) $(261) $4,932
========= === ======= ====== ======== ===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 54
ADVANCED COMMUNICATION SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31,
--------------------------- ------------------
1994 1995 1996 1995 1996
------- ----- ------- ----- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 438 $ 574 $ 1,905 $ 380 $ 538
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................... 181 330 402 89 99
Loss on property and equipment.................. -- 4 2 -- --
Changes in assets and liabilities:
Contract receivables......................... (1,307) (282) (5,328) (403) (532)
Other receivables............................ (12) (3) (18) (10) (68)
Prepaid expenses............................. (103) 50 (125) 27 31
Other related party receivables.............. (48) (53) (37) (7) 6
Other assets................................. 28 17 (21) 3 (193)
Accounts payable............................. 644 (476) 1,439 (428) (1,580)
Accrued expenses............................. 635 306 1,874 (507) 1,328
Billings in excess of revenue................ 13 78 79 14 35
Income taxes payable......................... -- 7 (7) (7) --
Deferred income taxes payable................ -- (7) -- 7 --
------- ----- ------- ----- -------
Net cash provided by (used in) operating
activities............................ 469 545 165 (842) (336)
------- ----- ------- ----- -------
Cash flows from investing activities:
Collection (advances) of loans to stockholders.... -- 7 (50) -- --
Purchases of property and equipment............... (382) (270) (370) (119) (187)
Capitalized software development costs............ (446) (240) -- -- --
Insurance proceeds from loss of property and
equipment....................................... -- 23 -- -- --
------- ----- ------- ----- -------
Net cash used in investing activities... (828) (480) (420) (119) (187)
------- ----- ------- ----- -------
Cash flows from financing activities:
Net borrowings (repayments) under line of
credit.......................................... 672 (209) 867 796 229
Purchase of treasury stock........................ (68) (88) -- -- --
Sale of treasury stock............................ 10 5 -- -- 19
Stockholders' distributions....................... -- -- (27) -- --
------- ----- ------- ----- -------
Net cash provided by (used in) financing
activities............................ 614 (292) 840 796 248
------- ----- ------- ----- -------
Net increase (decrease) in cash................... 255 (227) 585 (165) (275)
Cash and cash equivalents, beginning of year...... 564 819 592 592 1,177
------- ----- ------- ----- -------
Cash and cash equivalents, end of year............ $ 819 $ 592 $ 1,177 $ 427 $ 902
======= ===== ======= ===== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for --
Interest........................................ $ 125 $ 175 $ 251 $ 42 $ 62
======= ===== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 55
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Advanced Communication Systems, Inc. (the "Company") was incorporated in 1987 in
the state of Delaware. The Company provides communications and information
technology services and solutions, predominantly to U.S. government agencies and
to a lesser extent commercial and international customers. The Company focuses
its operations in three interrelated areas: communication systems design and
support, information technology services and systems integration. The Risk
Factors on Pages 6 to 11 of this Registration Statement are incorporated by
reference.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRO FORMA NET INCOME PER SHARE (UNAUDITED)
Pro forma net income is based on the assumption that the Company's S corporation
status was terminated at the beginning of each year. Pro forma net income per
share has been computed by dividing pro forma net income by the pro forma
weighted average number of common shares outstanding during each period.
The pro forma weighted average shares outstanding is based on: (i) the weighted
average shares outstanding during the period assuming the dilutive effect of all
options outstanding; (ii) stock options issued during the twelve months
immediately preceding the offering date (using the treasury stock method and an
assumed initial public offering price of $ per share) for all periods
presented; and (iii) the assumed sale of a sufficient number of shares
of the Company's common stock necessary to fund the distribution of
all undistributed S corporation earnings as of December 31, 1996 in excess of
fiscal 1996 earnings. (Note 11)
Pro forma fully diluted net income per share approximates primary net income per
share for all periods presented.
PRO FORMA BALANCE SHEET (UNAUDITED)
The pro forma balance sheet gives effect to: (i) a distribution of $5,000,000 to
the Company's shareholders, representing estimated S corporation accumulated
earnings as of December 31, 1996, assuming the Company had terminated its S
corporation status as of that date, to be paid from the Company's pre-offering
working capital; (ii) the creation of a deferred tax liability of $2,196,000
assuming the Company had terminated its S corporation status as of December 31,
1996, and (iii) the cancellation of the Stock Redemption Agreements, resulting
in elimination of the adjustment for redemption value greater than amounts paid
in by stockholders. (Note 11)
INTERIM REPORTING
The financial information as of December 31, 1996 and for the three months ended
December 31, 1995 and 1996 has been prepared by the Company, without audit, and
includes, in the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the interim period
results. Operating results for any interim period are not necessarily indicative
of the results for any other period or for an entire year.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-7
<PAGE> 56
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION
The Company provides services, primarily to the U.S. government, on a
contractual basis. Revenue on cost plus fixed fee contracts is recognized to the
extent of costs incurred plus a proportionate amount of fees earned. Revenue on
time and materials contracts is recognized at the contractual rates as labor
hours and direct expenses are incurred. Revenue on fixed price contracts is
recognized on the percentage-of-completion method based on costs incurred in
relation to total estimated costs. Anticipated contract losses are recognized as
soon as they become known and estimable.
The Company also provides off-the-shelf hardware and software products to the
U.S. government under the General Services Administration schedule contact and
to commercial companies. Related revenue is recognized when products are shipped
or when customers have accepted the products, depending on contractual terms.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents and accounts
receivable. The Company maintains cash and cash equivalents in a high credit
quality financial institution. The credit risk with respect to accounts
receivable is mitigated because the majority of the Company's contract
receivables are due from agencies of the U.S. government.
For the years ending September 30, 1994, 1995, 1996 and for the three months
ended December 31, 1995 and 1996, approximately 100%, 99%, 90%, 94%, and 91% of
the Company's revenues were derived from contracts or subcontracts funded by the
U.S. government, virtually all of which were funded by the Department of
Defense.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives, five to seven years, using an accelerated method.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the useful life of the asset or the lease terms.
SOFTWARE DEVELOPMENT COSTS
In compliance with Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, certain software development costs are capitalized in the accompanying
consolidated balance sheets. Capitalization of software development costs begins
upon the establishment of technological feasibility. Capitalization ceases and
amortization of capitalized costs begins when the software product is
commercially available for general release to customers. Amortization of
capitalized software development costs is computed using the straight-line
method over the remaining estimated economic life of the product, not to exceed
five years.
RESEARCH AND DEVELOPMENT EXPENSES
The Company expenses research and development costs as they are incurred.
Research and development expenses for all periods presented were not material.
F-8
<PAGE> 57
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including software development costs
and property and equipment, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows, without
interest charges, will be less than the carrying amount of the assets. The
Company has determined that as of September 30, 1995 and 1996 and December 31,
1996, there has been no impairment in the carrying value of long-lived assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are defined as cash, evidence of an ownership interest in
an entity, or a contract that imposes an obligation to deliver cash or other
financial instruments to a second party. The carrying amounts of current assets
and current liabilities in the accompanying financial statements approximate
fair value due to the short maturity of these instruments. As of September 30,
1996, the fair value of the stockholders' notes receivable approximated $416,000
based on the Company's borrowing rate of 8.75%. The line of credit has a
floating interest rate that varies with current indices, and, as such, the
recorded value approximates fair value.
INCOME TAXES
From inception through September 30, 1989, the Company was subject to corporate
income taxes. On October 1, 1989, the Company elected to be treated as an S
corporation under Subchapter S of the Internal Revenue Code. The Company
recorded a deferred tax liability for the built-in gain on the cumulative
accrual to cash difference as of September 30, 1989. As of September 30, 1996,
the deferred tax liability remaining is $91,000.
As an S corporation, the Company's earnings have been taxed, for federal and
certain state income tax purposes, directly to the Company's stockholders rather
than to the Company. Therefore, no provision for income taxes has been provided
in the accompanying statements of operations.
In connection with the proposed initial public offering (Note 11), the Company
will terminate its S corporation status and will become subject to corporate
income taxes. Accordingly, the accompanying consolidated statements of
operations include unaudited pro forma adjustments for income tax expense, which
would have been recorded had the Company been subject to federal and state
corporate income taxes.
A pro forma deferred tax liability, resulting primarily from accrual to cash
differences, has been recorded as if the Company terminated its S corporation
status on December 31, 1996. The actual deferred tax liability may differ from
the pro forma liability based on the differences in financial reporting and tax
basis assets and liabilities at the date of termination of the Company's S
corporation status. Upon termination, the actual deferred tax liability will be
recorded as a nonrecurring charge and will be payable in equal installments over
the next four years.
F-9
<PAGE> 58
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. CONTRACT RECEIVABLES:
Contract receivables consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. government:
Amounts billed................................ $2,422 $4,103 $ 3,102
Recoverable costs and accrued profit on
progress completed; not billed.............. 2,146 5,187 6,329
------ ------ --------
Subtotal................................. 4,568 9,290 9,431
Commercial customers:
Amounts billed................................ 65 123 97
Recoverable costs and accrued profit on
progress completed; not billed.............. 26 574 991
------ ------ --------
Subtotal................................. 91 697 1,088
------ ------ --------
Total.................................... $4,659 $9,987 $ 10,519
====== ====== ========
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and equipment............................ $1,185 $1,561 $ 1,744
Leasehold improvements............................. 27 13 17
------ ------ --------
1,212 1,574 1,761
Less -- Accumulated depreciation and
amortization..................................... 749 1,003 1,068
------ ------ --------
Total property and equipment, net.................. $ 463 $ 571 $ 693
====== ====== ========
</TABLE>
5. SOFTWARE DEVELOPMENT COSTS:
Software development costs consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cost............................................... $ 685 $ 685 $ 685
Accumulated amortization........................... 87 224 258
------ ------ --------
Total software development costs, net.............. $ 598 $ 461 $ 427
====== ====== ========
</TABLE>
Software development costs capitalized were $446,000 and $240,000 in the years
ended September 30, 1994 and 1995, respectively. Amortization expense for the
years ended September 30, 1994, 1995, 1996 and the three months ended December
31, 1995 and 1996 were $0, $88,000, $137,000, $34,000 and $34,000, respectively.
F-10
<PAGE> 59
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued salaries, benefits and related taxes.... $ 636 $ 833 $ 727
Accrued vacation................................ 357 411 309
Accrued bonuses................................. 415 387 218
Accrued subcontractor costs..................... 126 1,726 3,431
Other........................................... 68 119 119
------ ------ ------
Total accrued expenses.......................... $1,602 $3,476 $4,804
====== ====== ======
</TABLE>
7. RELATED-PARTY TRANSACTIONS:
In 1993, the Company entered into a ten-year lease with a real estate management
company ("10089 Management") to lease its headquarters facility. The owners of
10089 Management include the principal stockholders of the Company. The lease
requires current rental payments of approximately $26,000 per month, increased
annually based on the Consumer Price Index, and expires on August 31, 2003.
10089 Management purchased the headquarters facility, using in part a loan of
$1,125,000 from a third-party lender, which is guaranteed by the Company. In
March 1997, the loan agreement was amended to cancel the guarantee upon an
initial public offering resulting in net proceeds to the Company of at least
$10,000,000. The mortgage requires monthly principal payments of $6,000 plus
interest and a balloon payment for the balance of $750,000 in 1998. The
outstanding balance as of September 30, 1995 and 1996, and December 31, 1996,
was $969,000, $894,000 and $875,000, respectively. The remaining purchase price
was financed through promissory notes from various stockholders due to the
Company.
Stockholders' notes receivable at September 30, 1995 and 1996 and December 31,
1996 were $393,000, $443,000 and $443,000, respectively. The loans bear interest
at rates ranging from 7.0% to 8.75% per annum and have maturity dates ranging
from 1998 to 2001. Interest is due annually on the anniversary date of the
loans, with principal due at maturity. One loan for $50,000 is secured by a lien
on real estate. Accrued interest receivable at September 30, 1995 and 1996 and
December 31, 1996 of $56,000, $83,000 and $90,000, respectively, is included in
other related-party receivables in the accompanying balance sheets.
The Company also provides management services for 10089 Management at no cost.
Included in other related-party receivables are amounts due from the 10089
Management for reimbursable operating expenses paid for by the Company. The
reimbursable operating expenses included in other related-party receivables at
September 30, 1995 and 1996 and December 31, 1996 were $46,000, $0 and $0,
respectively.
A common group of stockholders hold a substantial interest in both Fairfax
Communications Ltd., and the Company. As of September 30, 1996 and December 31,
1996, the Company had a receivable of $54,000 and $42,000, respectively, due
from Fairfax Communications Ltd. for payroll services which the Company performs
on its behalf. (Note 11)
8. LINE OF CREDIT:
The Company has a line of credit arrangement with a commercial bank under which,
at December 31, 1996, it could borrow up to a maximum of $4,000,000. The
borrowings are limited by 80% of the eligible receivables, as defined, and 90%
of eligible government receivables, as defined, bearing interest at the bank's
prime rate
F-11
<PAGE> 60
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LINE OF CREDIT: -- (CONTINUED)
plus 1/2%, payable monthly. The borrowings are collateralized by accounts
receivable, and the credit arrangement contains affirmative and negative
covenants, including, among other things, financial covenants regarding
maintenance of stated amount of debt to net worth, specific liquidity and
solvency ratios. The line was to expire on February 28, 1997. In March 1997, the
Company extended the arrangement through February 28, 1998, and, accordingly,
the line has been classified as long-term debt. The new line is for $5,000,000,
bears interest at the bank's prime rate plus a percentage, not more than 0.25%
and currently zero, that is based on the Company's historical financial
performance and expires on February 28, 1998. The agreement contains various
covenants requiring the Company to maintain certain financial ratios, each as
defined, including tangible net worth, liabilities to tangible net worth, funded
debt to operating cash flow, and debt service. The agreement also restricts the
payment of dividends.
At September 30, 1995 and 1996 and December 31, 1996, the Corporation had
$1,821,000, $2,688,000 and $2,917,000, respectively, outstanding under this
arrangement. For the years ended September 30, 1994, 1995 and 1996 and the three
months ended December 31, 1995 and 1996, interest expense under this line of
credit was $125,000, $185,000, $249,000, $49,000 and $64,000, respectively, at
weighted average interest rates of 7.21%, 9.20%, 8.87%, 9.25% and 8.75%,
respectively.
9. STOCKHOLDERS' EQUITY:
RECAPITALIZATION AND STOCK SPLIT
In connection with the proposed initial public offering (Note 11), the Company
will amend and restate its Certificate of Incorporation to increase the number
of authorized shares to 40,000,000 shares of Common Stock, par value $.01 per
share, and 1,000,000 shares of Preferred Stock, par value $.01 per share. The
Board of Directors approved a 675-for-1 stock split of the Common Stock to be
paid in the form of a stock dividend to the stockholders. The change in the
Company's Common Stock for the stock dividend has been given retroactive effect
for all periods presented.
STOCK REDEMPTION AGREEMENTS
All of the outstanding shares of common stock and options, upon exercise, are
subject to Stock Redemption Agreements. Under certain circumstances, the Company
is required to buy back the stock at a price equal to fair value, as determined
by the Board of Directors. Adjustment for redemption value greater than amounts
paid in by stockholders represents the change in the redemption value per share
of outstanding Common Stock in each period. The redemption value per share,
based on the fair market value, was $1.48, $4.44 and $4.44 as of September 30,
1995 and 1996 and December 31, 1996, respectively. The Stock Redemption
Agreements will be terminated in connection with the initial public offering.
All treasury stock purchases were a result of the provisions of these Stock
Redemption Agreements.
STOCK PLANS AND AGREEMENTS
The 1996 Stock Incentive Plan of the Company (the "1996 Plan") was adopted
by the Company's Board of Directors and approved by the Company's stockholders
effective July 1996. The Company may grant options, stock appreciation rights,
"performance" awards and restricted and unrestricted stock (collectively, the
"Awards") to purchase up to 337,500 shares of Common Stock to participants in
the 1996 Plan. The 1996 Plan has a term of 10 years. Options granted under the
1996 Plan can have an exercise period of up to 10 years. The 1996 Plan provides
for the grant of stock options to directors, employees (including officers) and
consultants of the Company and its subsidiaries. Pursuant to the 1996 Plan,
options may be incentive stock options within the meaning of Section 422 of the
Code or nonstatutory stock options, although incentive stock options may be
granted only to employees. All incentive stock options are nontransferable other
than by will or the laws of descent and distribution.
F-12
<PAGE> 61
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCKHOLDERS' EQUITY: -- (CONTINUED)
In 1996, the Board of Directors granted options under the 1996 Plan to purchase
148,500 shares of Common Stock. These options have an exercise price of $4.44
per share and become exercisable in three equal annual increments beginning on
October 1, 1997, and the options expire on the earlier of January 1, 2000 or
termination of employment.
On January 2, 1997, the Company granted a stock option under the 1996 Plan to
purchase 115,000 shares of Common Stock. The option has an exercise price of
$6.50 per share, a term of eight years and becomes exercisable in four equal
annual installments beginning on January 1, 1998. This option has been included
in the weighted average shares outstanding computation for all periods
presented.
Options under the 1996 Plan were granted with exercise prices at or above fair
value on the date of grant as determined by an independent appraisal and,
therefore, no compensation expense has been recognized.
The Board of Directors has determined not to grant any additional awards under
the 1996 Plan.
The Company has entered into nonqualified option agreements with various
employees. The per share exercise price of such options was at least 100% of the
fair market value, as determined by the Board of Directors, of a share of Common
Stock as of the respective dates of grant. Shares purchased through the exercise
of these options are subject to Stock Repurchase Agreements.
In 1993, the Board of Directors granted options to purchase 101,250 shares of
Common Stock to various employees. The employees were fully vested in the
options upon granting, and the options expire on the earlier of January 1, 1998
or termination of employment. As of September 30, 1994, 1995 and 1996, these
options were exercisable as to 87,750, 81,000 and 54,000 shares, respectively.
All sales of treasury stock were a result of the exercise of options.
The following table summarizes the activity of all the Company's stock
options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
EXERCISE PRICE
NUMBER PRICE PER PER
OF SHARES SHARE SHARE
--------- -------------- --------
<S> <C> <C> <C>
Shares under option, September 30, 1993..... 101,250 $0.70 $ 0.70
Options exercised...................... (13,500) 0.70 0.70
--------- -------------- --------
Shares under option, September 30, 1994..... 87,750 0.70 0.70
Options exercised...................... (6,750) 0.70 0.70
--------- -------------- --------
Shares under option, September 30, 1995..... 81,000 0.70 0.70
Options granted........................ 148,500 4.44 4.44
Options exercised...................... -- 0.70 0.70
--------- -------------- --------
Shares under option, September 30, 1996..... 229,500 0.70 - 4.44 3.12
Options exercised (unaudited).......... (27,000) 0.70 0.70
--------- -------------- --------
Shares under option, December 31, 1996
(unaudited)............................ 202,500 $0.70 - $4.44 $ 3.44
========= ============= =========
</TABLE>
Options outstanding at September 30, 1996 had a weighted average remaining
contractual life of 2.73 years. The fair value per share of all options issued
in 1996, estimated on the date of grant using the Black-Scholes option pricing
model, is $1.76.
The Company adopted the disclosure requirements of SFAS No. 123, Accounting for
Stock-Based Compensation, effective for the Company's September 30, 1996
financial statements. The Company applies Accounting
F-13
<PAGE> 62
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCKHOLDERS' EQUITY: -- (CONTINUED)
Principles Board Opinion No. 25 and related interpretations in accounting for
its stock plans. No compensation cost has been recognized for its stock plans
based on the intrinsic value of the stock options at date of grant (i.e., the
difference between the exercise price and the fair value of the Common Stock).
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates under those plans
consistent with the method of FASB Statement 123, the Company's pro forma net
income and pro forma net income per share would have been reduced to the amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1996
-------------
<S> <C>
Pro forma net income (in thousands) --
As reported................................................ $ 1,162
SFAS No. 123 pro forma..................................... $ 881
Pro forma net income per share --
As reported................................................ $ 0.27
SFAS No. 123 pro forma..................................... $ 0.21
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1996: no dividend yield; expected volatility of 49.5%; risk-free
interest rates of approximately 6.3%; and expected lives of three years. The
volatility factor was based on the volatility percentage of comparable publicly
traded companies because the Company, as a private company, does not have a
sufficient history of stock transactions.
10. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases office space and equipment under various operating lease
agreements expiring through August 2003. Most leases include a provision for
annual rent adjustments based on changes in various economic indices. Future
minimum lease payments under noncancelable operating leases as of September 30,
1996 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, (IN THOUSANDS)
-------------------------------------------------------------- ---------------
<S> <C>
1997.......................................................... $ 1,432
1998.......................................................... 1,060
1999.......................................................... 772
2000.......................................................... 463
2001.......................................................... 361
Thereafter.................................................... 714
-------
Total.................................................... $ 4,802
=======
</TABLE>
During 1993, the Company entered into a lease agreement for office space with a
related party which includes the principal stockholders of the Company (Note 7).
For the years ended September 30, 1994, 1995 and 1996 and the three months ended
December 31, 1995 and 1996, rent expense related to this lease totaled $278,000,
$299,000, $309,000, $75,000 and $79,000, respectively. Amounts representing
aggregate rent expense on all operating leases, excluding the related party
lease, totaled $940,000, $1,014,000 and $1,813,000 for the years ended September
30, 1994, 1995 and 1996, and $264,000 and $244,000 for the three months ended
December 31, 1995 and 1996, respectively.
F-14
<PAGE> 63
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
PROFIT-SHARING PLAN
The Company provides a profit-sharing plan (401(k) plan) which covers
substantially all employees. Under the terms of the plan, the Company may make
discretionary profit-sharing contributions and discretionary matching
contributions, each determined annually by the Board of Directors. Contributions
charged to expense for the years ended September 30, 1994, 1995 and 1996, and
for the three months ended December 31, 1995 and 1996 were $247,000, $320,000,
$368,000, $78,000 and $39,000, respectively.
11. SUBSEQUENT EVENTS:
1997 STOCK INCENTIVE PLAN
The 1997 Stock Incentive Plan of the Company (the "1997 Plan") was adopted
by the Company's Board of Directors effective March 1997. The Company may grant
options, stock appreciation rights, "performance" awards and restricted and
unrestricted stock (collectively, the "Awards") to purchase up to 450,000 shares
of Common Stock to participants in the 1997 Plan. To date, no Awards have been
granted under the 1997 Plan. The 1997 Plan has a term of 10 years. Options
granted under the 1997 Plan can have an exercise period of up to 10 years. The
1997 Plan provides for the grant of stock options to directors, employees
(including officers) and consultants of the Company and its subsidiaries.
Pursuant to the 1997 Plan, options may be incentive stock options within the
meaning of Section 422 of the Code or nonstatutory stock options, although
incentive stock options may be granted only to employees. All incentive stock
options are nontransferable other than by will or the laws of descent and
distribution.
ACQUISITION
The Company intends to acquire all the outstanding stock of Fairfax
Communication Ltd. for a cash price of $46,500. Revenues and net income of
Fairfax Communications Ltd. for the year ended September 30, 1996 were $97,000
(unaudited) and $4,000 (unaudited), respectively.
EVENTS RELATED TO AN INITIAL PUBLIC OFFERING
The Company contemplates an initial public offering of approximately 1,850,000
shares of Common Stock. In connection with the initial public offering,
subsequent to September 30, 1996, the following transactions are anticipated to
occur:
(i) termination of S corporation status and creation of a deferred tax
liability to the extent that financial reporting net assets exceed tax
basis net assets (Note 2);
(ii) distribution to the current stockholders of undistributed S corporation
earnings (Note 2);
(iii) a 675-for-1 stock split in the form of a stock dividend (Note 9);
(iv) elimination of the guarantee on the debt of a related party (Note 7);
(v) cancellation of all Stock Redemption Agreements (Note 9); and
(vi) repayment of all related party notes (Note 7).
F-15
<PAGE> 64
================================================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
S Corporation Distribution and
Termination of S Corporation Status.... 12
Use of Proceeds.......................... 12
Dividend Policy.......................... 13
Capitalization........................... 13
Dilution................................. 14
Selected Financial Data.................. 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 16
Business................................. 22
Management............................... 34
Certain Transactions..................... 39
Principal and Selling Stockholders....... 40
Description of Capital Stock............. 41
Shares Eligible for Future Sale.......... 43
Underwriting............................. 44
Legal Matters............................ 45
Experts.................................. 45
Available Information.................... 46
Glossary of Acronyms..................... 47
Index to Financial Statements............ F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,500,000 SHARES
ADVANCED COMMUNICATION SYSTEMS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
A.G. EDWARDS AND SONS, INC.
FERRIS, BAKER WATTS
Incorporated
, 1997
================================================================================
<PAGE> 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate of the expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered, other than underwriting compensation, all of which will be
paid by the Company:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission.............. $9,583
Filing Fee -- National Association of Securities Dealers, Inc....... 3,663
Listing Fee -- Nasdaq National Market............................... *
Transfer Agent and Registrar Fees and Expenses...................... *
Blue Sky Fees and Expenses (including legal fees)................... *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Printing and Engraving Expenses..................................... *
Miscellaneous....................................................... *
------
Total.......................................................... *
======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is organized under the laws of the State of Delaware. The DGCL
provides that a Delaware corporation has the power generally to indemnify its
directors, officers, employees and other agents (each, a "Corporate Agent")
against expenses and liabilities (including amounts paid in settlement) in
connection with any proceeding involving such person by reason of his being a
Corporate Agent, other than a proceeding by or in the right of the corporation,
if such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect to
any criminal proceeding, such person had no reasonable cause to believe his
conduct was unlawful. In the case of an action brought by or in the right of the
corporation, indemnification of a Corporate Agent against expenses is permitted
if such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation; however, no
indemnification is permitted in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to such indemnification. To the
extent that a Corporate Agent has been successful on the merits of such
proceeding, whether or not by or in the right of the corporation, or in the
defense of any claim, issue or matter therein, the corporation is required to
indemnify the Corporate Agent for expenses in connection therewith. Expenses
incurred by a Corporate Agent in connection with a proceeding may, under certain
circumstances, be paid by the corporation in advance of the final disposition of
the proceeding as authorized by the board of directors. The power to indemnify
and advance the expenses under the DGCL does not exclude other rights to which a
Corporate Agent may be entitled to under the certificate of incorporation,
bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws, which the Company intends to adopt prior to the completion
of the offering, will provide for the indemnification of Corporate Agents for
certain expenses, judgments, fines and payments incurred by them in connection
with the defense or settlement of claims asserted against them in their
capacities as Corporate Agents to the fullest extent authorized by the DGCL. The
Company will also enter into indemnification agreements to the same effect with
each of its officers and directors.
II-1
<PAGE> 66
The Company's Amended and Restated Certificate of Incorporation will also
contain provisions which limit the personal liability of directors for monetary
damages for breach of their fiduciary duties as directors except to the extent
such limitation of liability is prohibited by the DGCL. In accordance with the
DGCL, these provisions will not limit the liability of any director for any
breach of the director's duty of loyalty to the Company or its stockholders; for
acts of omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; for certain unlawful payments of dividends or stock
repurchases under Section 174 of the DGCL; or for any transaction from which the
director derives an improper personal benefit. These provisions will not limit
the rights of the Company or any stockholder to seek an injunction or any other
non-monetary relief in the event of a breach of a director's fiduciary duty. In
addition, these provisions will apply only to claims against a director arising
out of his role as a director and do not relieve a director from liability for
violations of statutory law, such as certain liabilities imposed on a director
under the federal securities laws.
Under the DGCL, a Delaware corporation has the power to purchase and
maintain insurance on behalf of any Corporate Agent against any liabilities
asserted against and incurred by him in such capacity, whether or not the
corporation has the power to indemnify him against such liabilities under the
DGCL. The Company intends to purchase directors' and officers' insurance.
Reference is made to Sections 102(b)(7) and 145 of the DGCL, in connection
with the above summary of indemnification, insurance and limitation of
liability.
The purpose of these provisions is to assist the Company in retaining
qualified individuals to serve as officers, directors or other Corporate Agents
of the Company by limiting their exposure to personal liability for serving as
such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since October 1, 1993, the Company has issued and sold the following
unregistered securities (adjusted to give effect to the anticipated 675-for-1
stock split).
1. On October 26, 1993, the Company granted options to purchase, in
the aggregate, a total of 101,250 shares of Common Stock to Sharon
Angelone, Douglas Benzel and Warren Willis, employees of the Company, at an
exercise price of $0.70 per share.
2. On September 1, 1994, Douglas Benzel and Warren Willis, employees
of the Company, exercised options to purchase, in the aggregate, 13,500
shares of Common Stock, at an exercise price of $0.70 per share.
3. On September 29, 1995, Sharon Angelone, an employee of the Company,
exercised an option to purchase 6,750 shares of Common Stock, at an
exercise price of $0.70 per share.
4. On July 15, 1996, the Company granted options to purchase, in the
aggregate, a total of 148,500 shares of Common Stock to 17 employees of the
Company, at an exercise price of $4.44 per share.
5. On December 13, 1996, Douglas Benzel, an employee of the Company,
exercised an option to purchase 27,000 shares of Common Stock, at an
exercise price of $0.70 per share.
6. On January 2, 1997, the Company granted options to purchase 115,000
shares of Common Stock to Dev Ganesan, Chief Financial Officer, at an
exercise price of $6.50 per share.
7. On February 13, 1997, Sharon Angelone, an employee of the Company,
exercised an option to purchase 27,000 shares of Common Stock, at an
exercise price of $0.70 per share.
No underwriters were engaged in connection with the foregoing sales and/or
issuances of securities. Such sales were made in reliance upon the exemption
from the registration provisions of the Securities Act of 1933 set forth in Rule
701 and/or in Section 4(2) thereof as transactions not involving a public
offering. The respective purchasers thereof have acquired such shares for their
respective accounts without a view to the distribution thereof.
II-2
<PAGE> 67
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1 -- Underwriting Agreement.*
3.1 -- Certificate of Incorporation of the Company.
3.2 -- Bylaws of the Company.
4.1 -- Specimen Common Stock Certificate.*
5.1 -- Opinion of Gibson, Dunn & Crutcher LLP.*
10.1 -- Employment Agreement, dated June 18, 1993, between the Company and Warren C. Willis.
10.2 -- Employment Agreement, dated as of January 2, 1997, between the Company and Dev
Ganesan.
10.3 -- 1996 Stock Incentive Plan.*
10.4 -- 1997 Stock Incentive Plan.*
10.5 -- Form of Indemnification Agreement between the Company and each of its directors and
executive officers.*
10.6 -- Revolving Credit and Security Agreement and Revolving Promissory Note, dated as of
March 1, 1997, between First Union Commercial Corporation and the Company.
10.7 -- Lease Agreement, dated July 16, 1993, including Amendment 1, dated December 1, 1993,
Amendment 2, dated January 15, 1994, and Amendment 3, dated March 15, 1994.
10.8 -- Contract No. N00039-96-C-0066, effective March 14, 1996, by and between the Company
and Space and Naval Warfare Systems Command.**
10.9 -- Contract No. N00039-96-C-0097, effective August 29, 1996, by and between the Company
and Space and Naval Warfare Systems Command.**
10.10 -- Form of Tax Indemnification Agreement to be entered into by the Company and each of
its existing Stockholders.*
10.11 -- Stockholder Agreement.*
11.1 -- Computation of Per Share Earnings.
21.1 -- List of Subsidiaries of the Registrant.*
23.1 -- Consent of Gibson, Dunn & Crutcher LLP (included in its opinion filed as Exhibit
5.1).*
23.2 -- Consent of Arthur Andersen LLP.
24.1 -- Power of Attorney (included in the signature page in Part II of the Registration
Statement).
</TABLE>
- ---------------
* To be filed by amendment.
** Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
(b) Financial Statement Schedules
The financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are either not required
under the related instructions or are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion
II-3
<PAGE> 68
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes (1) that for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of a Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
of 1933 shall be deemed to be part of this Registration Statement as of the time
it was declared effective and (2) that for the purpose of determining any
liability under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Fairfax, Virginia, on the 25th day of
March, 1997.
ADVANCED COMMUNICATION SYSTEMS, INC.
By: /s/ GEORGE A. ROBINSON
-------------------------------------
GEORGE A. ROBINSON
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
George A. Robinson and Thomas A. Costello, either of whom may act, as their true
and lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, to sign
any related registration statement filed pursuant to Rule 462(b) of the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------------------------
<S> <C> <C>
/s/ GEORGE A. ROBINSON President, Chief Executive March 25, 1997
- --------------------------------------------- Officer and Chairman
GEORGE A. ROBINSON (Principal Executive Officer)
/s/ DEV GANESAN Chief Financial Officer March 25, 1997
- --------------------------------------------- (Principal Financial and
DEV GANESAN Accounting Officer)
/s/ CHARLES G. MARTINACHE Director March 25, 1997
- ---------------------------------------------
CHARLES G. MARTINACHE
/s/ THOMAS A. COSTELLO Director March 25, 1997
- ---------------------------------------------
THOMAS A. COSTELLO
</TABLE>
II-5
<PAGE> 70
ADVANCED COMMUNICATION SYSTEMS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE IN
SEQUENTIAL
EXHIBIT NUMBERING
NO. SYSTEM
------- -----------
<C> <S> <C>
1.1 Underwriting Agreement*..........................................
3.1 Certificate of Incorporation of the Company......................
3.2 Bylaws of the Company............................................
4.1 Specimen Common Stock Certificate*...............................
5.1 Opinion of Gibson, Dunn & Crutcher LLP*..........................
10.1 Employment Agreement, dated June 18, 1993, between the Company
and Warren C. Willis.............................................
10.2 Employment Agreement, dated as of January 2, 1997, between the
Company and Dev Ganesan..........................................
10.3 1996 Stock Incentive Plan*.......................................
10.4 1997 Stock Incentive Plan*.......................................
10.5 Form of Indemnification Agreement between the Company and each of
its directors and executive officers*............................
10.6 Revolving Credit and Security Agreement and Revolving Promissory
Note, dated as of March 1, 1997, between First Union Commercial
Corporation and the Company......................................
10.7 Lease Agreement, dated July 16, 1993, including Amendment 1,
dated December 1, 1993, Amendment 2, dated January 15, 1994, and
Amendment 3, dated March 15, 1994................................
10.8 Contract No. N00039-96-C-0066, effective March 14, 1996, by and
between the Company and Space and Naval Warfare Systems
Command**........................................................
10.9 Contract No. N00039-96-C-0097, effective August 29, 1996, by and
between the Company and Space and Naval Warfare Systems
Command**........................................................
10.10 Form of Tax Indemnification Agreement to be entered into by the
Company and each of its existing Stockholders*...................
10.11 Stockholder Agreement*...........................................
11.1 Computation of Per Share Earnings................................
21.1 List of Subsidiaries of the Registrant*..........................
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in its opinion
filed as Exhibit 5.1)*...........................................
23.2 Consent of Arthur Andersen LLP...................................
24.1 Power of Attorney (included in the signature page in Part II of
the Registration Statement)......................................
</TABLE>
- ---------------
* To be filed by amendment.
** Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
<PAGE> 1
EXHIBIT 3.1
[LOGO]
STATE
OF
DELAWARE
[GRAPHIC]
OFFICE OF SECRETARY OF STATE
I, Michael Harkins, Secretary of State of the State of
Delaware, do hereby certify that the attached is a true and
correct copy of Certificate of Incorporation
-----------------------------
filed in this office on March 20, 1987
----------------------------------
/s/ MICHAEL HARKINS
------------------------------------
Michael Harkins, Secretary of State
BY: [sig]
---------------------------------
DATE: July 10, 1987
---------------------------------
[DEPARTMENT OF STATE LOGO]
Form 130
<PAGE> 2
ADVANCED COMMUNICATIONS SYSTEMS INC.
CERTIFICATE OF INCORPORATION
FIRST: Name. The name of the Corporation is:
Advanced Communications Systems, Inc.
SECOND: Registered Office and Registered Agent. The address of the
Corporation's registered office in the State of Delaware is 229 South State
Street, Dover, Delaware 19901, located in Kent County. The name of the
registered agent of the Corporation at such address is The Prentice Hall
Corporation System, Inc.
THIRD: Purpose. The nature of the business or purposes to be
conducted or promoted is to engage in any lawful act or activity for which
Corporations may be organized under the General Corporation Law of Delaware.
FOURTH: Capitalization. The Corporation shall have a single class of
common stock. The total number of shares of common stock which the Corporation
is authorized to issue is One Thousand (1000.00), and the par value of each
share is .01 for an aggregate par value of One Thousand Dollars ($1000.00).
FIFTH: Incorporator. The name and mailing address of the incorporator
is:
John S. Stoppelman
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
SIXTH: Directors. The number of directors of the Corporation shall be
four (4), which number may be increased or decreased pursuant to the by-laws of
the Corporation, provided that the number of directors may not be less than
four (4) unless the Corporation has less than four (4) stockholders, in which
case the number of directors may not be less than the number of stockholders.
The board of directors is authorized to make, alter or repeal the by-laws of
the Corporation. Election of the directors need not be by written ballot. The
names of the directors who shall act until the first meeting or until their
successors are duly elected and qualified are:
Daniel J. Price
Gregory Eden
Michael Hannon
Jon Armstrong
<PAGE> 3
SEVENTH: Liability of Directors. No director of the Corporation shall
be personally liable to the Corporation or the stockholders for monetary
damages for breach of fiduciary duty as a director, provided that
this provision shall not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the General Corporation Law of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
EIGHT: Duration. The duration of the Corporation shall be perpetual.
I. THE UNDERSIGNED, being the incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this certificate, hereby declaring and certifying that this
is my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 6th day of February, 1987.
/s/ JOHN S. STOPPELMAN
-----------------------------
John S. Stoppelman
JSS/mlm
3720H/3554J
<PAGE> 4
[LOGO]
STATE
OF
DELAWARE
[GRAPHIC]
OFFICE OF SECRETARY OF STATE
I, Michael Harkins, Secretary of State of the State of Delaware, do
hereby certify that the attached is a true and correct copy of
Certificate of Amendment
----------------------
filed in this office on September 16, 1987
----------------------
/s/ MICHAEL HARKINS
-----------------------------------
Michael Harkins, Secretary of State
BY: [sig]
--------------------------------
DATE: December 21, 1987
------------------------------
[DEPARTMENT OF STATE LOGO]
Form 130
<PAGE> 5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ADVANCED COMMUNICATIONS SYSTEMS, INC.
Advanced Communications Systems, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the board of directors of the Corporation
duly convened and held, resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of the Corporation declaring said
amendment advisable and directing that said amendment be submitted to the
stockholders of said corporation entitled to vote in respect thereof for their
adoption by written consent. The resolution setting forth the proposed
amendment was as follows:
RESOLVED, that Article FOURTH of the Certificate of
Incorporation of the Corporation be amended by striking said
Article FOURTH in its entirety and substituting in lieu thereof
as follows:
FOURTH: Capitalization. The total number of shares which the
Corporation shall have authority to issue is fifteen hundred
(1,500) shares, of which one thousand (1,000) shares shall be
common stock, par value $.0l per share, and of which five
hundred (500) shares shall be preferred stock, par value $.0l
per share.
The express terms and provisions of the shares of preferred
stock are as follows:
(1) The holders of shares of preferred stock shall not be
entitled to receive any dividends, except in the case of dissolution
or liquidation of the
-1-
<PAGE> 6
Corporation, in which case the holders of said shares shall be
entitled to receive payment of the par value thereof before any
payment shall be made to the holders of any shares of the common
stock. Except as provided in the previous sentence, holders of
preferred stock shall not be entitled to participate in the
distribution of the assets of the Corporation upon such liquidation or
distribution.
(2) The holders of shares of preferred stock shall be
entitled to one vote per share at all meetings of the stockholders of
the Corporation, and except as otherwise provided by law, shall vote
together with the holders of shares of common stock on all matters.
SECOND: That thereafter, the foregoing resolution was adopted by
the holders of shares representing a majority of the outstanding shares of the
Corporation entitled to vote thereon by written consent pursuant to 8 Del.C
Section 228.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Sections 242 and 228 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, Advanced Communications Systems, Inc. has caused
this Certificate to be executed by George A. Robinson, its President, and
attested by Thomas A. Costello, its Secretary, this 16th day of September, 1987.
ADVANCED COMMUNICATIONS SYSTEMS, INC.
BY: /s/ GEORGE A. ROBINSON
------------------------------------
President
Attested:
BY: [sig]
------------------------
Secretary
-2-
<PAGE> 7
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ADVANCED COMMUNICATIONS SYSTEMS, INC.
Advanced Communications Systems, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the board of directors of the Corporation
duly convened and held, resolutions were duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of the Corporation declaring said
amendment advisable and directing that said amendment be submitted to the
stockholders of said corporation entitled to vote in respect thereof for their
adoption by written consent. The resolution setting forth the proposed
amendment was as follows:
RESOLVED, that Article FOURTH of the Certificate of
Incorporation of the Corporation be amended by striking said Article
FOURTH in its entirety and substituting in lieu thereof as follows:
FOURTH: Capitalization. The total number of shares which the
Corporation shall have authority to issue is ten thousand five hundred
(10,500) shares, of which ten thousand (10,000) shares shall be common
stock, par value $.01 per share, and of which five hundred (500) shares
shall be preferred stock, par value $.01 per share.
The express terms and provisions of the shares of preferred
stock are as follows:
(1) The holders of shares of preferred stock shall not be
entitled to receive any dividends, except in the case of dissolution or
liquidation of the Corporation, in which
<PAGE> 8
case the holders of said shares shall be entitled to receive payment
of the par value thereof before any payment shall be made to the
holders of any shares of the common stock. Except as provided in the
previous sentence, holders of preferred stock shall not be entitled to
participate in the distribution of the assets of the Corporation
upon such liquidation or distribution.
(2) The holders of shares of preferred stock shall be
entitled to one vote per share at all meetings of the stockholders of
the Corporation, and except as otherwise provided by law, shall vote
together with the holders of shares of common stock on all matters.
SECOND: That thereafter, the foregoing resolution was adopted by the
holders of shares representing a majority of the outstanding shares of the
Corporation entitled to vote thereon by written consent pursuant to Del.C
Section 228.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Sections 242 and 228 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, Advanced Communications Systems, Inc. has caused
this Certificate to be executed by George A. Robinson, its President, and
attested by Thomas A. Costello, its Secretary, this 2nd day of January, 1991.
ADVANCED COMMUNICATIONS SYSTEMS, INC.
BY: /s/ GEORGE A. ROBINSON
----------------------------------
President
Attested:
BY: [sig]
------------------------
Secretary
<PAGE> 9
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 09/27/1994
944182769 - 211100
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ADVANCED COMMUNICATIONS SYSTEMS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is Advanced Communications Systems, Inc.
2. The certificate of incorporation of the corporation
is hereby amended by striking out Article SIXTH thereof and by substituting in
lieu of said Article the following new Article:
SIXTH: DIRECTORS. The number of directors of the corporation
shall be three (3), unless the corporation has less than three (3)
stockholders, in which case the number of directors may not be less
than the number of stockholders. The board of directors is authorized
to make, alter or repeal the by-laws of the corporation. Election of
the directors need not be in writing.
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions of Section
228 and 242 of the General Corporation Law of the State of Delaware.
Signed and attested to on 13 September, 1994.
/s/ GEORGE A. ROBINSON
-------------------------
President
Attest:
[sig]
- --------------------------
Secretary
<PAGE> 10
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ADVANCED COMMUNICATIONS SYSTEMS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is Advanced Communications Systems, Inc.
2. The certificate of incorporation of the corporation
is hereby amended by striking out Article FOURTH thereof and by substituting in
lieu of said Article the following new Article:
FOURTH: CAPITALIZATION. The corporation shall have a single class of
common stock. The total number of shares which the Corporation shall
have authority to issue is ten thousand (10,000) shares, par value $.0l
per share.
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions of Section
228 and 242 of the General Corporation Law of the State of Delaware.
Signed and attested to on 13 September, 1994.
/s/ GEORGE A. ROBINSON
----------------------
President
Attest:
[sig]
- --------------------
Secretary
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
ADVANCED COMMUNICATIONS SYSTEMS, INC.
ARTICLE I
Stockholders
Section 1.1. Annual Meetings. An annual meeting of
stockholders shall be held for the election of directors at such date, time and
place, either within or without the State of Delaware, as may be designated by
resolution of the Board of Directors from time to time. Any other proper
business may be transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of
stockholders for any purpose or purposes may be called at any time by the Board
of Directors, or by a committee of the Board of Directors which has been duly
designated by the Board of Directors, and whose powers and authority, as
expressly provided in a resolution of the Board of Directors, include the power
to call such meetings, but such special meetings may not be called by any other
person or persons.
Section 1.3. Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, the written
notice of any meeting shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the corporation.
Section 1.4. Adjournments. Any meeting of stockholders,
annual or special, may adjourn from time to time to reconvene at the same or
some other place, and notice need not be given of any such adjourned meeting if
the time and
-1-
<PAGE> 2
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except
where otherwise provided by law or the certificate of incorporation or these
by-laws, the holders of a majority of the outstanding shares of stock entitled
to vote at the meeting, present in person or by proxy, shall constitute a
quorum. In the absence of a quorum, the stockholders so present may, by
majority vote, adjourn the meeting from time to time in the manner provided in
Section 1.4 of these by-laws until a quorum shall attend. Shares of its own
stock belonging to the corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
his absence by a Vice President, or in the absence of the foregoing persons by
a chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Except as otherwise provided by
the certificate of incorporation, each stockholder entitled to vote at any
meeting of stockholders shall be entitled to one vote for each share of stock
held by him which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders may authorize another
person or persons to act for him by proxy, but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke
any proxy which is not irrevocable by attending the meeting and voting in
-2-
<PAGE> 3
person or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary of the corporation.
Voting at meetings of stockholders need not be by written ballot and need not
be conducted by inspectors unless the holders of a majority of the outstanding
shares of all classes of stock entitled to vote thereon present in person or by
proxy at such meeting shall so determine. At all meetings of stockholders for
the election of directors a plurality of the votes cast shall be sufficient to
elect. All other elections and questions shall, unless otherwise provided by
law or by the certificate of incorporation or these by-laws, be decided by the
vote of the holders of a majority of the shares of stock entitled to vote
thereon present in person or represented by proxy at meeting.
Section 1.8. Fixing Date for Determination of Stockholders of
Record. In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors and which record date: (1) in the case of
determination of stockholders entitled to vote at any meeting of stockholders
or adjournment thereof, shall not be more than sixty nor less than ten days
before the date of such meeting; (2) in the case of determination of
stockholders entitled to express consent to corporate action in writing without
a meeting, shall not be more than ten days from the date upon which the
resolution fixing the record date is adopted by the Board of Directors; and (3)
in the case of any other action, shall not be more than sixty days prior to
such other action. If no record date is fixed: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held; (2) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting when no prior action of the Board of
Directors is required by law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation in accordance with applicable law, or, if prior action by the
Board of Directors is required by law, shall be at the close of business on the
day
-3-
<PAGE> 4
on which the Board of Directors adopts the resolution taking such prior action;
and (3) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 1.9. List of Stockholders Entitled to Vote. The
Secretary shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof and may be inspected by any
stockholder who is present. Upon the willful neglect or refusal of the
directors to produce such a list at any meeting for the election of directors,
they shall be ineligible for election to any office at such meeting. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 1.10. Action By Consent of Stockholders. Unless
otherwise restricted by the Certificate of Incorporation, any action required
or permitted to be taken at any annual or special meeting of the stockholders
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
-4-
<PAGE> 5
ARTICLE II
Board of Directors
Section 2.1. Number; Qualifications. The Board of Directors
shall consist of one or more members, the number thereof to be determined from
time to time by resolution of the Board of Directors. Directors need not be
stockholders.
Section 2.2. Election; Resignation; Removal; Vacancies. The
Board of Directors shall initially consist of the persons named as Directors in
the certificate of incorporation, and each Director so elected shall hold
office until the first annual meeting of stockholders or until his successor is
elected and qualified. At the first annual meeting of stockholders and at
each annual meeting thereafter, the stockholders shall elect Directors each of
whom shall hold office for a term of one year or until his successor is elected
and qualified. Any Director may resign at any time upon written notice to the
corporation. Any newly created directorship or any vacancy occurring in the
Board of Directors for any cause may be filled by a majority of the remaining
members of the Board of Directors, although such majority is less than a
quorum, or by a plurality of the votes cast at a meeting of stockholders, and
each Director so elected shall hold office until the expiration of the term of
office of the Director whom he has replaced or until his successor is elected
and qualified.
Section 2.3. Regular Meetings. Regular meetings of the Board
of Directors may be held at such places within or without the State of Delaware
and at such times as the Board of Directors may from time to time determine,
and if so determined notices thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board
of Directors may be held at any time or place within or without the State of
Delaware whenever called by the President, any Vice President, the Secretary,
or by any member of the Board of Directors. Reasonable notice thereof shall be
given by the person or persons calling the meeting, not later than the second
day before the date of the special meeting.
Section 2.5. Telephonic Meetings Permitted. Members of the
Board of Directors, or any committee designated by the Board, may participate
in a meeting of such Board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to
this by-law shall constitute presence in person at such meeting.
-5-
<PAGE> 6
Section 2.6. Quorum; Vote Required for Action. At all
meetings of the Board of Directors a majority of the whole Board shall
constitute a quorum for the transaction of business. Except in cases in which
the certificate of incorporation or these by-laws otherwise provide, the vote
of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7. Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in his absence
by the Vice Chairman of the Board, if any, or in his absence by the President,
or in their absence by a chairman chosen at the meeting. The Secretary shall
act as secretary of the meeting, but in his absence the chairman of the meeting
may appoint any person to act as secretary of the meeting.
Section 2.8. Informal Action by Directors. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
-6-
<PAGE> 7
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of the committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation, adopting an agreement
of merger or consolidation under Sections 251 or 252 of the General Corporation
Law of the State of Delaware, recommending to the stockholders the sale, lease
or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending these By-Laws; and unless the
resolution or the Certificate of Incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of the State of
Delaware.
Section 3.2. Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board may make, alter and
repeal rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these by-laws.
-7-
<PAGE> 8
ARTICLE IV
Officers
Section 4.1. Executive Officers; Election; Qualifications;
Term of Office; Resignation; Removal; Vacancies. The Board of Directors shall
elect a President and Secretary, and it may, if it so determines, choose a
Chairman of the Board and a Vice Chairman of the Board from among its members.
The Board of Directors may also choose one or more Vice Presidents, one or more
Assistant Secretaries, a Treasurer and one or more Assistant Treasurers. Each
such officer shall hold office until the first meeting of the Board of
Directors after the annual meeting of stockholders next succeeding his
election, and until his successor is elected and qualified or until his earlier
resignation or removal. Any officer may resign at any time upon written notice
to the corporation. The Board of Directors may remove any officer with or
without cause at any time, but such removal shall be without prejudice to the
contractual rights of such officer, if any, with the corporation. Any number
of offices may be held by the same person. Any vacancy occurring in any office
of the corporation by death, resignation, removal or otherwise may be filled
for the unexpired portion of the term by the Board of Directors at any regular
or special meeting.
4.2. Powers and Duties of Executive Officers. The
officers of the corporation shall have such powers and duties in the management
of the corporation as may be prescribed by the Board of Directors and, to the
extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
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<PAGE> 9
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock shall be
entitled to have a certificate signed by or in the name of the corporation by
the Chairman or Vice Chairman of the Board of Directors, if any, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, of the corporation, certifying the
number of shares owned by him in the corporation. Any of or all the signatures
on the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent, or registrar at the
date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the corporation may require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
the corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
-9-
<PAGE> 10
ARTICLE VI
Indemnification
Section 6.1. Right to Indemnification. The corporation shall
indemnify and hold harmless, to the fullest extent permitted by applicable law
as it presently exists or may hereafter be amended, any person who was or is
made or is threatened to be made a party or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding") by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, fiduciary or agent of another corporation or
of a partnership, joint venture, trust, enterprise or non-profit entity,
including service with respect to employee benefit plans, against all liability
and loss suffered and expenses reasonably incurred by such person. The
corporation shall be required to indemnify a person in connection with a
proceeding initiated by such person only if the proceeding was authorized by
the Board of Directors of the corporation.
Section 6.2. Prepayment of Expenses. The corporation shall
pay the expenses incurred in defending any proceeding in advance of its final
disposition, provided, however, that the payment of expenses incurred by a
director or officer in his capacity as a director or officer in advance of the
final disposition of the proceeding shall be made only upon receipt of an
undertaking by the director or officer to repay all amounts advanced if it
should be ultimately determined that the director or officer is not entitled to
be indemnified under this Article or otherwise.
Section 6.3. Claims. If a claim for indemnification or
payment of expenses under this Article is not paid in full within ninety days
after a written claim therefor has been received by the corporation the
claimant may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the
burden of proving that the claimant was not entitled to the requested
indemnification or payment of expenses under applicable law.
Section 6.4. Non-Exclusivity of Rights. The rights conferred
on any person by this Article VI shall not be exclusive of any other rights
which such person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these by-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
-10-
<PAGE> 11
Section 6.5. Other Indemnification. The corporation's
obligation, if any, to indemnify any person who was or is serving at its
request as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust, enterprise or non-profit entity
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust, enterprise or
non-profit enterprise.
Section 6.6. Amendment or Repeal. Any repeal or modification
of the foregoing provisions of this Article VI shall not adversely affect any
right or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
-11-
<PAGE> 12
ARTICLE VII
Miscellaneous
Section 7.1. Fiscal Year. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
Section 7.2. Seal. The corporate seal shall have the name of
the corporation inscribed thereon and shall be in such form as may be approved
from time to time by the Board of Directors.
Section 7.3. Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Any written waiver of notice, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 7.4. Interested Directors; Quorum. No contract or
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer
is present at or participates in the meeting of the Board or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if: (1) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (2) the material facts as to
his relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (3) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or
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<PAGE> 13
the stockholders. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
Section 7.5. Form of Records. Any records maintained by the
corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 7.6. Amendment of By-Laws. These by-laws may be
altered or repealed, and new by-laws made, by the Board of Directors, but the
stockholders may make additional by-laws and may alter and repeal any by-laws
whether adopted by them or otherwise.
-13-
<PAGE> 1
ADVANCED COMMUNICATION SYSTEMS, INC.
June 14, 1993
Warren C. Willis
Route 3 Box 1080
Gainesville, VA 22065
EMPLOYMENT AGREEMENT:
Dear Mr. Willis:
Advanced Communication Systems, Inc. (ACS) is pleased to extend this offer of
employment as Vice-President for East Coast and Washington, DC Operations.
Your annual salary will be $115,440.00, commencing on or about July 19, 1993,
with a $25,000 bonus to be paid upon commencing employment with ACS.
ACS will provide you with annual leave of three weeks. You will receive nine
paid holidays. ACS also provides an employer-contributed retirement plan
(401K), as well as a comprehensive-health/life insurance plan (life insurance
in the amount of $50,000).
Annual bonuses will be paid in the amount of .25% of Operations Area revenues.
Additional bonus amounts will be paid for the accomplishment of specific
objectives.
Within thirty days of employment date, separate agreements will be reached
regarding a three year contract and potential stock ownership and Board of
Directors membership.
We look forward to having you join our staff. If you accept this offer please
sign and return this agreement by June 28, 1993.
Sincerely, /s/ WARREN C. WILLIS
----------------------------
Warren C. Willis
/s/ GEORGE A. ROBINSON
- ----------------------
George A. Robinson 18 June 1993
President ----------------------------
Date
Advanced Communication Services
1900 North Beauregard St., Suite 300 - Alexandria, VA 22311 - (703) 553-4389
- Fax (703) 820-8435
<PAGE> 1
EXHIBIT 10.2
ADVANCED COMMUNICATION SYSTEMS, INC.
January 2, 1997
Dev Ganesan
7425 Quail Ridge Lane
Bowie, MD 20720
EMPLOYMENT AGREEMENT:
Dear Mr. Ganesan:
Advanced Communication Systems, Inc. (ACS) is pleased to extend this offer of
employment as Chief Financial Officer. Your semi-monthly salary will be
$5,000.00, commencing on or about February 1, 1997, with a $25,000 bonus to be
paid upon commencing employment with ACS.
ACS will provide you with annual leave of four weeks. You will receive nine
paid holidays. ACS also provides an employer-contributed retirement plan
(401K), as well as a comprehensive-health/life insurance plan (life insurance in
the amount of $50,000).
The first year annual bonus will be paid in the amount of $25,000.00 for the
accomplishment of specific mutually agreed upon objectives.
170 shares of stock will be granted at $4,400/share and will be exercisable in 4
equal annual increments:
42.50 shares exercisable on or after 1 January, 1998.
42.50 shares exercisable on or after 1 January, 1999.
42.50 shares exercisable on or after 1 January, 2000.
42.50 shares exercisable on or after 1 January, 2001.
All unexercised options will expire on January 1, 2005.
Arrangements will be made to define benefits as due to any possible change in
control over 2 year period from date of hire.
10089 Lee Highway - Fairfax, VA 22030 - (703)934-8130 - Fax (703)934-8807
<PAGE> 2
Severance package will be determined within 10 days of date of employment in the
event that Mr. Ganesan's employment should be severed without cause within the
2 year period from date of employment.
We look forward to having you join our staff. If you accept this offer please
sign and return this agreement by January 10, 1997.
Sincerely, /s/ DEV GANESAN
------------------------------
Dev Ganesan
/s/ GEORGE A. ROBINSON 1/2/97
------------------------------
George A. Robinson Date
President
<PAGE> 1
EXHIBIT 10.6
REVOLVING CREDIT AND SECURITY AGREEMENT
BETWEEN
ADVANCED COMMUNICATIONS SYSTEMS, INC.
"BORROWER"
AND
FIRST UNION COMMERCIAL CORPORATION
"BANK"
Dated: March 1, 1997
<PAGE> 2
REVOLVING CREDIT AND SECURITY AGREEMENT
THIS REVOLVING CREDIT AND SECURITY AGREEMENT (the "Agreement"),
dated as of March 1, 1997 between ADVANCED COMMUNICATIONS SYSTEMS, INC., a
Delaware corporation (the"Borrower"), and FIRST UNION COMMERCIAL CORPORATION, a
North Carolina banking corporation, its successors and assigns (the "Bank");
W I T N E S S E T H :
In consideration of the premises and of the mutual covenants herein
contained and to induce the Bank to extend credit to the Borrower, the parties
agree as follows:
1. DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
1.1 Defined Terms.
"Account" shall mean any account receivable, including any
rights of payment for goods sold or leased or for services rendered, which is
not evidenced by an instrument or chattel paper, whether or not it has been
earned by performance, and in addition includes all property included in the
definition of "accounts" as used in the Code, together with any guaranties,
letters of credit and other security therefor.
"Account Debtor" shall mean a Person who is obligated under
any Account, Chattel Paper, General Intangible or instrument (as instrument is
defined in the Code).
"Advance" shall mean an advance of proceeds of the Revolving
Loan to the Borrower pursuant to this Agreement, on any given Advance Date.
"Advance Date" shall mean the date as of which an Advance is
made.
"Advance Request" shall mean the written request for an
Advance under the Revolving Loan as identified in Section 3.3 ("Notice and
Manner of Borrowing") hereof.
"Affiliate" of a named Person shall mean (a) any Person owning
5% more of the voting stock or rights of such named Person or of which the
named Person owns 5% or more of such voting stock or rights; (b) any Person
controlling, controlled by or under common control with such named Person; (c)
any officer or director of such named Person or any Affiliates of the named
Person; and (d) any family member of the named Person or any Affiliate of such
named Person.
<PAGE> 3
"Borrowing Base" shall have the meaning set forth in Section
3.2 hereof ("Limitations on Advances").
"Business Day" shall mean a weekday on which commercial banks
are open for business in Fairfax, Virginia.
"Cash Flow" means as to the Borrower for any period of
determination thereof, the sum of (a) EBIT, plus (b) non-cash expenses and cash
rent, less (c) the sum of unfinanced capital expenditures, dividends (other
than distributions made in connection with the initial public offering and
permitted under Section 5.9 hereof) and cash taxes; all calculated in
accordance with generally accepted accounting principles consistently applied.
"Chattel Paper" shall mean all writing or writings which
evidence both a monetary obligation and a security interest in or the lease of
specific goods and in addition includes all property included in the definition
of "chattel paper" as used in the Code, together with any guaranties, letters
of credit and other security therefor.
"Code" shall mean the Uniform Commercial Code, as in effect in
the Commonwealth of Virginia from time to time.
"Collateral" means the following property of the Borrower,
wherever located and whether now owned by Borrower or hereafter acquired: (a)
all Inventory; (b) all General Intangibles; (c) all Accounts and Chattel Paper
and any other instrument or intangible representing payment for goods or
services; (d) all Equipment; (e) all funds in the Special Loan Account or
otherwise on deposit with or under the control of the Bank or its agents or
correspondents; and (f) all parts, replacements, substitutions, profits,
products and cash and non-cash proceeds of any of the foregoing (including
insurance proceeds payable by reason of loss or damage thereto) in any form and
wherever located. Collateral shall include all written or electronically
recorded records relating to any such Collateral and other rights relating
thereto.
"Debt" shall mean all liabilities of a Person as determined
under generally accepted accounting principles and all obligations which such
Person has guaranteed or endorsed or is otherwise secondarily or jointly
liable, and shall include, without limitation (a) all obligations for borrowed
money or purchased assets, (b) obligations secured by assets whether or not any
personal liability exists, (c) the capitalized amount of any capital or finance
lease obligations, (d) the unfunded portion of pension or benefit plans or
other similar liabilities, (e) obligations as a general partner, (f) contingent
obligations pursuant to guaranties, endorsements, letters of credit and other
secondary liabilities, and (g) obligations for deposits.
"Debt Service" means for any period of determination thereof,
an amount equal to the total of (a) the aggregate amount of all payments of
interest in respect of Indebtedness of the Borrower scheduled to be due and
payable during such period, plus (b) current maturities of long
2
<PAGE> 4
term debt and capitalized leases to be due and payable during such period, plus
(c) rent paid for such period.
"Debt Service Coverage Ratio" means for any period of
determination the ratio of (a) Cash Flow to (b) Debt Service for the prior
twelve month period.
"Default Rate" shall mean the highest lawful rate of interest
per annum specified in any Note to apply after a default under such Note or, if
no such rate is specified, a rate equal to the lesser of (a) five (5)
percentage points above the rate on the Loan otherwise in effect from time to
time, or (b) the highest rate of interest allowed by law.
"EBIT" shall mean as to the Borrower for any period of
determination thereof, the sum of (a) the net profit (or loss) determined in
accordance with generally accepted accounting principles consistently applied,
plus (b) interest expense and federal and state taxes for such period.
"EBITDA" shall mean as to the Borrower for any period of
determination thereof, the sum of (a) the net profit (or loss) determined in
accordance with generally accepted accounting principles consistently applied,
plus (b) interest expense and federal and state taxes for such period, plus (c)
depreciation and amortization of assets for such period, all as determined on a
consolidated basis for the twelve (12) month period then ending.
"Eligible Accounts" shall mean all Accounts (valued net of any
sales tax included in the invoiced amount, the maximum amount of any discounts
or other reductions) of the Borrower as to which the Bank has a first priority
perfected security interest subject only to Permitted Liens, excluding (a)
Accounts outstanding for ninety (90) days or more from the date of invoice; (b)
all Accounts owed by an Account Debtor if more than fifty percent (50%) of the
Accounts owed by such Account Debtor (or any Affiliate) to the Borrower are
ineligible because they are aged beyond ninety (90) days (provided, however,
with respect to Eligible Government Accounts, such exclusion shall apply on a
contract by contract basis - not to the agency or department as a whole); (c)
Accounts owing from any Affiliate of the Borrower; (d) Accounts owed by a
creditor of the Borrower or which are in dispute or subject to any
counterclaim, contra-account or offset; (e) Accounts owing by any Account
debtor which is insolvent or generally unable to pay its debts as they become
due; (f) Accounts arising from a sale on a bill-and-hold, guaranteed sale,
sale-or-return, sale-on-approval, consignment or similar basis or which is
subject to repurchase, return, rejection, repossession, loss or damage; (g)
accounts owed by an Account Debtor outside the United States; (i) Accounts as
to which the goods giving rise to the Account have not been delivered to and
accepted by the Account Debtor or the service giving rise to the Account has
not been completely performed or which do not represent a final sale; (j) the
total Accounts owed by an Account Debtor and its Affiliates exceeds a credit
limit established by the Bank in its discretion (to the extent of such excess);
(k) the Account is evidenced by a note or other instrument, or Chattel Paper or
reduced to judgment; (l) Accounts which, by contract, subrogation, mechanics'
lien laws or otherwise, are subject to claims by the Borrower's creditors or
other third parties or which are owed by Account Debtors as to whom any
creditor of the borrower (including any bonding
3
<PAGE> 5
company) has lien rights; and (m) Accounts of the type described in Exhibit
1.1B (if any) and other Accounts the validity, collectibility or amount of
which is determined in good faith by the Borrower or the Bank to be doubtful.
No Accounts shall be Eligible Accounts if any representation, warranties or
covenants herein relating thereto shall be in default.
"Eligible Commercial Accounts" shall mean all Eligible
Accounts, other than Eligible Government Accounts, but will include all
Eligible Accounts which are from subcontractors on contracts with the United
States of America or any department or agency thereof or any state government
or any department or agency thereof.
"Eligible Government Accounts" shall mean all Eligible
Accounts due from the United States of America, or any department or agency
thereof, plus all Eligible Accounts owed by the government of any State (other
than the District of Columbia).
"Equipment" shall mean all furniture, fixtures, equipment,
motor vehicles, rolling stock and other tangible property of a Person of every
description, except Inventory and in addition includes all property included
in the definition of "equipment" as used in the Code.
"Event of Default" shall mean any event specified as such in
Section 6.1 hereof ("Events of Default"), provided that there shall have been
satisfied any requirement in connection with such event for the giving of
notice or the lapse of time, or both; "Default" or "default" shall mean any of
such events, whether or not any such requirement for the giving of notice or
the lapse of time or the happening of any further condition, event or act shall
have been satisfied.
"General Intangibles" shall mean all intangible personal
property (including things in action) except Accounts, Chattel Paper and
instruments (as defined in the Code), including all contract rights,
copyrights, trademarks, trade names, service marks, patents, patent drawings,
designs, formulas, rights to a Person's name itself, customer lists, rights to
all prepaid expenses, marketing expenses, rights to receive future contracts,
fees, commissions and orders relating in any respect to any business of a
Person, all licenses and permits, all computer programs and other software
owned by a Person, or which a Person has the right to use, and all rights
for breach of warranty or other claims for funds to which a Person may be
entitled, and in addition includes all property included in the definition of
"general intangibles" as used in the Code.
"Indebtedness" shall mean all obligations now or hereafter
owed to the Bank by the Borrower, whether related or unrelated to the Loan,
including, without limitation, amounts owed or to be owed under the terms of
the Loan Documents, or arising out of the transactions described therein,
including, without limitation, the Loans, sums advanced to pay overdrafts on
any account maintained by the Borrower with the Bank, reimbursement obligations
for outstanding letters of credit or banker's acceptances issued to the account
of the Borrower, or its Subsidiaries, amounts paid by the Bank under letters of
credit or drafts accepted by the Bank for the account of the Borrower or its
Subsidiaries, together with all interest accruing thereon, all fees, all costs
of collection, attorneys' fees and expenses of or advances by the Bank which
the Bank pays or incurs
4
<PAGE> 6
in discharge of obligations of the Borrower or to repossess, protect, preserve,
store or dispose of any Collateral, whether such amounts are now due or
hereafter become due, direct or indirect and whether such amounts due are from
time to time reduced or entirely extinguished and thereafter re-incurred.
"Inventory" means all goods, merchandise and other personal
property of a Person which is held for sale or lease or furnished or to be
furnished under a contract for services or raw materials, and all work in
process and materials used or consumed or to be used or consumed in a Person's
business, and in addition, includes all property included in the definition of
"inventory" as used in the Code.
"Lien" (collectively "Liens") shall mean any mortgage, pledge,
statutory lien or other lien arising by operation of law, security interest,
trust arrangement, financing lease, collateral assignment or other encumbrance,
or any segregation of assets or revenues (whether or not constituting a
security interest) with respect to any present or future assets, revenues or
rights to the receipt of income of the Person referred to in the context in
which the term is used.
"Loan" shall mean the Revolving Loan identified in Section 3.1
hereof ("Revolving Loan").
"Loan Documents" shall mean this Agreement, any other Security
Agreement, any Note, any Guaranty Agreement, the Advance Requests, UCC-l
financing statements and all other documents and instruments now or hereafter
evidencing, describing, guaranteeing or securing the Indebtedness contemplated
hereby or delivered in connection herewith, as they may be modified.
"Maximum Loan Amount" shall mean Five Million Dollars
($5,000,000) such other amount as the Bank may consent to in writing from time
to time.
"Note" shall mean the Revolving Note, as defined in Section
3.1 ("Revolving Loan"), and any other promissory note now or hereafter
evidencing any Indebtedness, and all modifications, extensions and renewals
thereof.
"Permitted Debt" shall mean (a) the Indebtedness; and (b) any
other Debt listed on Exhibit 1.1C hereto (if any) and any extensions, renewals,
replacements, modifications and refundings of any such Debt if, and to the
extent, permitted by Exhibit 1.1C; provided, however, that the principal amount
of such Debt may not be increased from the amount shown as outstanding on such
exhibit; and (c) such other Debt as the Bank may consent to in writing from
time to time.
"Permitted Liens" shall mean (a) Liens securing the
Indebtedness; (b) Liens for taxes and other statutory Liens, landlord's Liens
and similar Liens arising out of operation of law (provided they are
subordinate to the Bank's Liens on Collateral) so long as the obligations
secured thereby are not past due or are being contested as permitted herein;
(c) Liens described on Exhibit 1.1D hereto (if any), provided, however, that no
debt not now secured by such Liens shall become secured by
5
<PAGE> 7
such Liens hereafter and such Liens shall not encumber any other assets; and
(d) such other Liens as the Bank may consent to in writing from time to time.
"Person" shall mean any natural person, corporation,
unincorporated organization, trust, joint-stock company, joint venture,
association, company, limited or general partnership, any government, or any
agency or political subdivision of any government.
"Prime Rate" shall mean that index rate of interest per annum
announced from time to time by the Bank (or its successor) as its "prime rate"
or "prime lending rate" (which rate shall not necessarily be the best or lowest
rate for any particular type of loan or for loans to any particular class or
category of customer). A change in the Prime Rate shall become effective from
the beginning of the day on which such change is announced by the Bank.
"Security Agreement" shall mean this Agreement as it relates
to a security interest in the Collateral, and any other mortgage, security
agreement or similar instrument now or hereafter executed by the Borrower or
other Person granting the Bank a security interest in any Collateral to secure
the Indebtedness.
"Special Loan Account" shall mean the demand deposit account
established pursuant to Section 3.5 hereof ("Special Loan Account").
"Subsidiary" shall mean any corporation, partnership or other
Person in which the Borrower, directly or indirectly, owns more than fifty
percent (50%) of the stock, capital or income interests, or other beneficial
interests, or which is effectively controlled by the Borrower.
"Tangible Net Worth" shall mean the net worth of the Borrower
according to generally accepted accounting principles, less leasehold
improvements; debt service to shareholders; deferred assets other than prepaid
insurance and prepaid taxes; patents, copyrights, trademarks, trade names,
noncompete agreements, franchises and other intangibles; goodwill or other
amounts representing the excess of the purchase price of assets or stock over
the value assigned thereto on the books of such Person; unamortized debt
discount and expense; Accounts other than the Eligible Accounts and any
Accounts, notes or other amounts due from Affiliates; and any other amounts
categorized as intangibles under generally accepted accounting principles.
"Total Funded Debt" shall mean for any period of determination
thereof, an amount equal to the aggregate amount of all payments in principal
in respect of Indebtedness of the Borrower scheduled to be due and payable
during such period together with all other interest bearing liabilities of the
Borrower.
1.2 Financial Terms. All financial terms used herein shall have
the meanings assigned to them under generally accepted accounting principles
unless another meanings shall be specified.
6
<PAGE> 8
2. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this Agreement and to make the Loans provided for herein, the Borrower
makes the following representations and warranties, all of which shall survive
the execution and delivery of the Loan Documents. Unless otherwise specified,
such representations and warranties shall be deemed made as of the date hereof
and as of the Advance Date of any Advance by the Bank to the Borrower:
2.1 Valid Existence and Power. The Borrower and each Subsidiary
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization is duly qualified or licensed
to transact business in all places where the failure to be so qualified would
have a material adverse effect on it. The Borrower and each other Person which
is a party to any Loan Document (other than the Bank) has the power to make and
perform the Loan Documents executed by it and all such instruments will
constitute the legal, valid and binding obligations of such Person, enforceable
in accordance with their respective terms, subject only to bankruptcy and
similar laws affecting creditors' rights generally.
2.2 Authority. The execution, delivery and performance thereof by
the Borrower and each other Person (other than the Bank) executing any Loan
Document have been duly authorized by all necessary action of such Person, and
do not and will not violate any provision of law or regulation, or any writ,
order or decree of any court or governmental or regulatory authority or agency
or any provision of the governing instruments of such Person, and do not and
will not, with the passage of time or the giving of notice, result in a breach
of, or constitute a default or require any consent under, or result in the
creation of any Lien upon any property or assets of such Person pursuant to,
any law, regulation, instrument or agreement to which any such Person is a
party or by which any such Person or its respective properties may be subject,
bound or affected.
2.3 Financial Condition. Other than as disclosed in financial
statements delivered on or prior to the date hereof to the Bank, neither the
Borrower nor any Subsidiary has any direct or contingent obligations or
liabilities (including any guarantees or leases) or any material unrealized or
anticipated losses from any commitments of such Person, except as described on
Exhibit 2.3 (if any). The Borrower is not aware of any material adverse fact
(other than facts which are generally available to the public and not
particular to the Borrower, such as general economic or industry trends)
concerning the conditions or future prospects of the Borrower or any Subsidiary
which has not been fully disclosed to the Bank, including any adverse change in
the operations or financial condition of such Person since the date of the most
recent financial statements delivered to the Bank.
2.4 Litigation. Except as disclosed on Exhibit 2.4 (if any),
there are no suits or proceedings pending, or to the knowledge of the Borrower
threatened, before any court or by or before any governmental or regulatory
authority, commission, bureau of agency or public regulatory body against or
affecting the Borrower, any Subsidiary or their assets, which if adversely
determined would have a material adverse effect on the financial condition or
business of the Borrower or such Subsidiary.
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2.5 Agreements, Etc. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any court order,
governmental decree or any charter or other corporate restriction, adversely
affecting its business, properties or assets, operations or condition
(financial or otherwise) nor is any such Person in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, or any law,
regulation, decree, order or the like.
2.6 Authorizations. All authorizations, consents, approvals and
licenses required under applicable law or regulation for the ownership or
operation of the property owned or operated by the Borrower or any Subsidiary
or for the conduct of any business in which it is engaged have been duly issued
and are in full force and effect, and it is not in default, nor has any event
occurred which with the passage of time or the giving of notice, or both, would
constitute a default, under any of the terms or provisions of any part thereof,
or under any order, decree, ruling, regulation, closing agreement or other
decision or instrument of any governmental commission, bureau or other
administrative agency or public regulatory body having jurisdiction over such
Person, which default would have a material adverse effect on such Person.
Except as noted herein, no approval, consent or authorization of, or filing or
registration with, any governmental commission, bureau or other regulatory
authority or agency is required with respect to the execution, delivery or
performance of any Loan Document.
2.7 Title. The Borrower and each Subsidiary has good title to all
of the assets shown in its financial statements free and clear of all Liens,
except Permitted Liens. The Borrower alone has full ownership rights in all
Collateral.
2.8 Collateral. The security interests granted to the Bank herein
and pursuant to any other Security Agreement (a) constitute and, as to
subsequently acquired property included in the Collateral covered by the
Security Agreement, will constitute, security interests under the Code entitled
to all of the rights, benefits and priorities provided by the Code and (b) are,
and as to such subsequently acquired Collateral will be fully perfected,
superior and prior to the rights of all third persons, now existing or
hereafter arising, subject only to Permitted Liens. All of the Collateral is
intended for use solely in the Borrower's business.
2.9 Location. The chief executive office of the Borrower where
the Borrower's business records are located is the address designated for
notices in Section 8.4 ("Notices") and the Borrower has no other places of
business except as shown on Exhibit 2.9 (if any).
2.10 Taxes. The Borrower and each Subsidiary has filed all federal
and state income and other tax returns which, to the best knowledge of the
Borrower, are required to be filed, and have paid all taxes as shown on said
returns and all taxes, including ad valorem taxes, shown on all assessments
received by it to the extent that such taxes have become due. Neither the
Borrower nor any Subsidiary is subject to any federal, state or local tax Liens
nor has such Person received any notice of deficiency or other official notice
to pay any taxes. The Borrower and each Subsidiary has paid all sales and
excise taxes payable by it.
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2.11 Withholding Taxes. The Borrower and each Subsidiary has paid
all withholding, FICA and other payments required by federal, state or local
governments with respect to any wages paid to employees.
2.12 Labor Law Matters. No goods or services have been or will be
produced by the Borrower or any Subsidiary in violation of any applicable labor
laws or regulations or any collective bargaining agreement or other labor
agreements or in violation of any minimum wage, wage-and-hour or other similar
laws or regulations.
2.13 Accounts. Each Account, instrument, Chattel Paper and other
writing constituting any portion of the Collateral is (a) genuine and
enforceable in accordance with its terms except for such limits thereon arising
from bankruptcy and similar laws relating to creditors' rights;(b) not subject
to any defense, setoff, claim or counterclaim of a material nature against the
Borrower except as to which the Borrower has notified the Bank in writing; and
(c) not subject to any other circumstances that would impair the validity,
enforceability or amount of such Collateral except as to which the Borrower has
notified the Bank in writing. Each Account included in any Advance Request,
report or other document as an Eligible Account meets all the requirements of
an Eligible Account set forth herein.
2.14 Use and Location of Collateral. The Collateral is located
only, and shall at all times be kept and maintained only, at the Borrower's
location or locations as described herein. No such Collateral is attached or
affixed to any real property so as to be classified as a fixture unless the
Bank has otherwise agreed in writing.
2.15 Judgment Liens. Neither the Borrower nor any Subsidiary, nor
any of their assets, are subject to any unpaid judgments (whether or not
stayed) or any judgment liens in any jurisdiction.
2.16 Intent and Effect of Transactions. This Agreement and the
transactions contemplated herein (a) are not made or incurred with intent to
hinder, delay or defraud any person to whom the Borrower has been, is now, or
may hereafter become indebted; (b) do not render the Borrower insolvent nor is
the Borrower insolvent on the date of this Agreement; (c) do not leave the
Borrower with an unreasonably small capital with which to engage in its
business or in any business or transaction in which it intends to engage; and
(d) are not entered into with the intent to incur, or with the belief that the
Borrower would incur, debts that would be beyond its ability to pay as such
debts mature.
2.17 Subsidiaries. If the Borrower has any Subsidiaries, they are
listed on Exhibit 2.17. As of January 1, 1997, the Borrower will acquire
Fairfax Communications Ltd.
2.18 Hazardous Materials. Except as set forth herein, the
Borrower's property and improvements thereon have not in the past been used,
are not presently being used, and will not in the future be used for, nor does
the Borrower or any Subsidiary engage in, the handling, storage,
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manufacture, disposition, processing, transportation, use or disposal of
hazardous or toxic materials. The Bank acknowledges that the Borrower leases a
portion of its property to a print shop. Borrower shall cause said print shop
to use all hazardous materials in accordance with all applicable laws.
2.19 ERISA. The Borrower has furnished to the Bank true and
complete copies of the latest annual report required to be filed pursuant to
Section 104 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), with respect to each employee benefit plan or other plan maintained
for employees of the Borrower or any Subsidiary and covered by Title IV of
ERISA (a "Plan"), and no Termination Event (as hereinafter defined) with
respect to any Plan has occurred and is continuing. For the purposes of this
Agreement, a "Termination Event" shall mean a "reportable event" as defined in
Section 4043(b) of ERISA ("Reportable Event"), or the filing of a notice of
intent to terminate under Section 4041 of ERISA. Neither the Borrower nor any
Subsidiary has any unfunded liability with respect to any such plan.
2.20 Investment Company Act. Neither the Borrower nor any
Subsidiary is an "investment company" as defined in the Investment Company Act
of 1940, as amended.
3. THE LOAN
3.1 Revolving Loan. The Bank will lend to the Borrower a total
principal amount not to exceed the Maximum Loan Amount (the "Revolving Loan")
for working capital to be used in the operation of the Borrower's business.
The Revolving Loan shall be evidenced by and payable in accordance with the
terms of a promissory note in the face amount of the Maximum Loan Amount (the
"Revolving Note"). The Revolving Note shall evidence the outstanding principal
balance of the Loan, as it may change from time to time. Advances under the
Revolving Loan shall be subject to the following terms:
(a) Advances of proceeds of the Revolving Loan shall be limited to
the Maximum Loan Amount at any time outstanding;
(b) Should there occur any overdraft of any deposit account
maintained by the Borrower with the Bank, the Bank may, at its option, disburse
funds (whether or not in excess of the Maximum Loan Amount) to eliminate such
overdraft and such disbursement shall be deemed an Advance of Loan proceeds
hereunder entitled to all of the benefits of the Loan Documents. Nothing herein
shall be deemed an authorization of or consent to the creation of an overdraft
in any account or create any obligations on the part of the Bank;
(c) All Advances by the Bank to or for the account of the
Borrower, whether or not in excess of the Maximum Loan Amount, shall be
considered part of the Indebtedness under the Note, shall bear interest as
provided in the Note, and shall be entitled to all rights and benefits
hereunder and under all other Loan Documents; and
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(d) The Borrower shall not request and the Bank will not be
required to consider requests for Advances after January 31, 1998; provided
that the Bank may in its discretion extend such date in writing and further
provided that the repayment obligations of the Borrower for Advances made by
the Bank after such date (as it may be extended) shall be binding on the
Borrower or other persons liable for any Indebtedness to the same extent as
obligations with respect to Advances made prior to such date.
3.2 Limitations on Advances. The outstanding balance of the
Revolving Loan may increase and decrease from time to time, and Advances
thereunder may be repaid and reborrowed, but the total of Advances outstanding
at any one time under the Revolving Loan shall never exceed the lesser of:
(a) The Maximum Loan Amount; or
(b) the "Borrowing Base," which shall be calculated by: (i)
adding (A) a sum equal to ninety percent (90%)of the total amount of Eligible
Government Accounts to (B) a sum equal to eighty percent (80%) of Eligible
Commercial Accounts.
The Borrower shall immediately pay to the Bank any amount by which the Loan
exceeds the Borrowing Base or the Maximum Loan Amount, whichever is less. The
Bank may, in its discretion, make, or permit to remain outstanding, Advances to
the Borrower in excess of the Borrowing Base and/or the Maximum Loan Amount and
all such amounts shall be part of the Loan and Indebtedness, shall bear
interest as provided in the Note, shall be payable on demand and shall be
entitled to all rights and security provided for herein, the Security Agreement
and all other Loan Documents.
3.3 Notice and Manner of Borrowing. All requests for advances
shall be made not later than 12:00 noon, Charlotte, N.C. time, on the Business
Day of the proposed Advance Date.
3.4 Calculation of Interest. All interest under the Note or
hereunder shall be calculated on the basis of a 360-day year for the actual
number of days elapsed in an interest period (actual/360 method), unless the
Bank shall otherwise elect.
3.5 Special Loan Account. The Borrower shall establish and
maintain with the Bank, during the term of the Loan, a demand deposit account
(the "Special Loan Account") into which the Borrower shall deposit, as
received, all proceeds from the sale of Inventory and collection of Accounts
and other Collateral in the form of checks, drafts, cash or the like, and all
such proceeds shall constitute Collateral. The Bank shall debit collected
funds from the Special Loan Account and apply the balance thereof against the
outstanding balance of the Revolving Note on or after the Business Day
following the Business Day of deposit. The Bank may, but shall not be required
to, apply to the Loan any amounts represented by uncleared checks, subject to
collection. Unless the Bank shall agree to other arrangements, the Borrower
shall direct (by instruction on invoices and otherwise) all Account Debtors to
make payments to a designated post office box under the control of the Bank,
which payments shall be deposited directly into the Special Loan Account. The
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Borrower shall pay the Bank's reasonable fees and charges in connection with
such lock-box arrangement.
3.6 Revolving Credit Unused Line Fee. The Borrower shall pay to
the Bank a quarterly revolving credit facility fee (collectively, the
"Revolving Credit Unused Line Fees" and individually, a "Revolving Credit
Unused Line Fee") in an amount equal to one quarter of one percent (.25%) per
annum on the average daily unused and undisbursed portion of the Loan in effect
from time to time accruing during each calendar quarter. The accrued and
unpaid portion of the Revolving Credit Unused Line Fee shall be paid by the
Borrower to the Bank on the first day of the next calendar quarter, commencing
on the first such date following the date hereof, and at the maturity of the
Loan.
3.7 Administration Fee. The Borrower agrees to pay to the Bank an
administration fee (the "Administration Fee") for administrative services
performed in conjunction with the Loan. The Administration Fee will be in the
amount of $1,667.00 per month and shall be payable on a monthly basis, in
advance, on the first day of each month until all Indebtedness have been paid
in full.
3.8 Debit for Interest and Expenses. The Bank may debit the
Special Loan Account and/or make Advances to the Borrower (whether or not in
excess of the Maximum Loan Amount and/or the Borrowing Base) and apply such
amounts to the payment of interest, fees, expenses and other amounts to which
the Bank may be entitled from time to time and the Bank is hereby irrevocably
authorized to do so without consent of the Borrower.
3.9 Overdue Amounts. Any payments not made as and when due shall
bear interest from the date due until paid at the Default Rate.
3.10 Sales Tax. The Borrower shall notify the Bank if any Account
includes any sales or other similar tax and the Bank may, but shall not be
obligated to, remit any such taxes directly to the taxing authority and make
Advances or charge the Special Loan Account therefor. In no event shall the
Bank be liable for any such taxes.
4. CONDITIONS PRECEDENT TO BORROWING. Prior to any Advance of the
proceeds of any Loan, the following conditions shall have been satisfied, in
the sole opinion of the Bank and its counsel:
4.1 Conditions Precedent to Initial Advance. In addition to any
other requirement set forth in this Agreement, the Bank will not make the
initial Advance under the Revolving Loan unless and until the following
conditions shall have been satisfied:
(a) Loan Documents. The Borrower and each other party to
any Loan Documents, as applicable, shall have executed and delivered this
Agreement, the Note, and other required Loan Documents, all in form and
substance satisfactory to the Bank.
(b) Supporting Documents. The Borrower shall cause to be
delivered to the Bank the following documents:
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(i) A copy of the governing instruments of the
Borrower and each Subsidiary, and a good standing certificate of the Borrower
and each Subsidiary, certified by the appropriate official of its state of
incorporation and the State of Virginia, if different;
(ii) Incumbency certificate and certified
resolutions of the board of directors (or other appropriate Persons) of the
Borrower and each other Person executing any Loan Documents authorizing the
execution, delivery and performance of the Loan Documents; and
(iii) UCC-11 searches and other Lien searches
showing no existing security interests in or Liens on the Collateral other than
the security interests of the Bank.
(c) Insurance. The Borrower shall have delivered to the
Bank satisfactory evidence of insurance meeting the requirements of Section 5.3
("Insurance").
(d) Perfection of Liens. UCC-l financing statements and,
if applicable, certificates of title covering the Collateral executed by the
Borrower shall duly have been recorded or filed in the manner and places
required by law to establish, preserve, protect and perfect the interests and
rights created or intended to be created by this Agreement and any other
Security Agreement; and all taxes, fees and other charges in connection with
the execution, delivery and filing of this Agreement, the Security Agreement
and the financing statements shall duly have been paid.
(e) Additional Documents. The Borrower shall have
delivered to the Bank all additional opinions, documents, certificates and
other assurances that the Bank or its counsel may require.
4.2 Conditions Precedent to Each Advance. The following
conditions, in addition to any other requirements set forth in this Agreement,
shall have been met or performed by the Advance Date with respect to any
Advance Request:
(a) Advance Request. The Borrower shall have delivered
to the bank an Advance Request and other information, as required under in
Section 3.3 ("Notice and Manner of Borrowing").
(b) No Default. No default shall have occurred and be
continuing or will occur upon the making of the Advance in question and the
Borrower shall have delivered to the Bank an officer's certificate to such
effect, which may be incorporated in the Advance Request.
(c) Correctness of Representations. All representations
and warranties made by the Borrower herein or otherwise in writing in
connection herewith shall be true and correct with the same effect as though
the representations and warranties had been made on and as of the proposed
Advance Date, and the Borrower shall have delivered to the Bank an officer's
certificate to such effect, which may be incorporated in the Advance Request.
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(d) No Adverse Change. There shall have been no material
adverse change in the condition, financial or otherwise, of the Borrower or any
Subsidiary from such condition as it existed on the date of the most recent
financial statements of such Person delivered prior to date hereof.
(e) Periodic Report. The Bank shall have received a
current Accounts Receivable Report and a current Inventory Report (as required
by Section 5.6 ("Financial Information") sufficient in form and substance to
calculate and verify the Borrowing Base.
(f) Further Assurances. The Borrower shall have
delivered such further documentation or assurances as the Bank may reasonably
require.
5. COVENANTS OF THE BORROWER. The Borrower covenants and agrees that
from the date hereof and until payment in full of the Indebtedness and the
formal termination of this Agreement, unless the Bank shall otherwise consent
in writing, the Borrower and each Subsidiary:
5.1 Use of Loan Proceeds. Shall use the proceeds of the Loan only
for the commercial purposes permitted herein or otherwise permitted by the Bank
and furnish the Bank all evidence that it may reasonably require with respect
to such use.
5.2 Maintenance of Business and Properties. Shall at all times
maintain, preserve and protect all Collateral and all the remainder of its
material property used or useful in the conduct of its business, and keep the
same in good repair, working order and condition, and from time to time make,
or cause to be made, all material needful and proper repairs, renewals,
replacements, betterments and improvements thereto so that the business carried
on in connection therewith may be conducted properly and in accordance with
standards generally accepted in businesses of a similar type and size at all
times, and maintain and keep in full force and effect all licenses and permits
necessary to the proper conduct of its business.
5.3 Insurance. Shall maintain such liability insurance, workers'
compensation insurance, business interruption insurance and casualty insurance
as may be required by law, customary and usual for prudent businesses in its
industry or as may be reasonably required by the Bank and shall insure and keep
insured all Collateral and other properties in good and responsible insurance
companies satisfactory to the Bank. All hazard insurance covering Collateral
shall be in amounts and shall contain co-insurance and deductible provisions
approved by the Bank, shall name and directly insure the Bank as secured party
and loss payee under a long-form New York standard loss payee clause, or its
equivalent, and shall not be terminable except upon 30 days' written notice to
the Bank.
5.4 Notice of Default. Shall provide to the Bank immediate notice
of (a) the occurrence of a Default, (b) any material litigation or material
changes in existing litigation or any judgment against it or its assets, (c)
any material damage or loss to property, (d) any notice from taxing authorities
as to claimed deficiencies or any tax lien or any notice relating to alleged
ERISA violations, (e) any Reportable Event, as defined in ERISA, (f) any
rejection, return, offset, dispute,
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loss or other circumstance having a material adverse effect on any Collateral,
and (g) any loss or threatened loss of material licenses or permits.
5.5 Inspections. Shall permit inspections of the Collateral and
the records of such Person pertaining thereto, at such times and in such manner
as may be reasonably required by the Bank and shall further permit such
inspection, review and audits of its other records and its properties (with
such reasonable frequency and at such reasonable times as the Bank may desire)
by the Bank as the Bank may deem necessary or desirable from time to time.
Each such audits, reviews and inspections shall be borne by the Borrower, at
the cost of $1,500 per audit, provided, that prior to the occurrence of a
Default, no more than two (2) audits will be performed in any calendar year.
5.6 Financial Information. Shall maintain books and records in
accordance with generally accepted accounting principles and shall furnish to
the Bank the following periodic financial information:
(a) Periodic Borrowing Base Reports. Within twenty (20)
days of the end of each calendar month (or more frequently if required by the
Bank), a report listing Accounts and all Eligible Accounts of the Borrower as
of the last Business Day of such month (the "Accounts Receivable Report") which
shall include the amount and age of each Account, the name and mailing address
of each Account Debtor and such other information as the Bank may require in
order to verify the Eligible Accounts, all in reasonable detail and in form
acceptable to the Bank;
(b) Monthly Reports. Within twenty (20) days after the
end of each calendar month, an income statement and a balance sheet prepared in
accordance with generally accepted accounting principles, as at the end of any
for such month and year-to-date, each certified by the chief financial officer
of the Borrower as being true and accurate;
(c) Quarterly Reports. Within forty five (45) days after
the end of each calendar quarter, a contract backlog report in form and
substance satisfactory to the Bank, certified by the chief financial officer or
president of the Borrower as being true and accurate;
(d) Annual Reports. Within ninety (90) days after the
end of each fiscal year, an income statement, balance sheet and cash flow
statement of the Borrower for such year, and a balance sheet as of the end of
such year, prepared in accordance with generally accepted accounting
principles, certified by independent certified public accountants of recognized
standing selected by the Borrower and satisfactory to the Bank; and
(e) No Default Certificates. Together with each report
required by Subsection (b) and (c), shall submit a certificate of its president
or chief financial officer that no Default or Event of Default then exists or
if a Default or Event of Default exists, the nature and duration thereof and
the Borrower's intention with respect thereto, and in addition, shall cause the
Borrower's independent auditors (if applicable) to submit to the Bank, together
with its audit report, a statement that, in the course of such audit, it
discovered no circumstances which it believes would result in a
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Default or Event of Default or if it discovered any such circumstances, the
nature and duration thereof. If the Borrower has Subsidiaries, the financial
statements required above shall be in consolidated and, if required by the
Bank, consolidating form for the Borrower and all Subsidiaries required by
generally accepted accounting principles to be consolidated for financial
reporting purposes. In addition to the financial statements required herein,
the Bank reserves the right to require other or additional financial or other
information concerning the Borrower, its Subsidiaries, and/or the Collateral.
5.7 Debt. Shall not create or permit to exist any Debt, including
any guaranties or other contingent obligations, except Permitted Debt.
5.8 Liens. Shall not create or permit to exist any Liens on any
of its property except Permitted Liens.
5.9 Dividends. Shall not pay or declare any dividends (other than
stock dividends and S Corporation distributions in connection with any initial
public offering of the Borrower) or other distribution or purchase, redeem or
otherwise acquire any stock or other equity interests or pay or acquire any
debt subordinate to the Indebtedness unless, after giving effect thereto, there
shall be no Default hereunder.
5.10 Merger, Sale, Etc. Shall maintain its corporate existence,
good standing and necessary qualifications to do business and shall not merge
or consolidate with any Person or sell, lease, assign or otherwise dispose of
any Collateral or substantial portion of its other assets (other than sales of
obsolete or worn-out equipment and sales of Inventory in the ordinary course of
business), or sell or otherwise dispose of stock of any Subsidiary. The
Borrower can acquire all or substantially all of the assets of, or fifty
percent (50%) or more of any class of equity interest of, any Person, with the
prior written approval of the Bank.
5.11 Loans and Other Investments. Shall not make or permit to
exist any advances or loans to, or guarantee or become contingently liable,
directly or indirectly, in connection with the obligations, leases, stock or
dividends of, or own, purchase or make any commitment to purchase any stock,
bonds, notes, debentures or other securities of, or any interest in, or make
any capital contributions to (all of which are sometimes collectively referred
to herein as "Investments") any Person except for (a) purchases of direct
obligations of the federal government, (b) deposits in commercial banks, (c)
commercial paper of any U.S. corporation having the highest ratings then given
by Moody's Investors Service, Inc. or Standard & Poor's Corporation, (d)
existing investments in Subsidiaries, and (e) endorsement of negotiable
instruments for collection in the ordinary course of business.
5.12 Change in Business. Shall not enter into any business which
is substantially different from the business or businesses in which it is
presently engaged.
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5.13 Accounts. (a) shall not sell, assign or discount any of its
Accounts, Chattel Paper or any promissory notes held by it other than the
discount of such notes in the ordinary course of business for collection; and
(b) shall notify the Bank promptly in writing with any discount, offset or
other deductions not shown on the face of an Account invoice and any dispute
over an Account, and any information relating to an adverse change in any
Account Debtor's financial condition or ability to pay its obligations.
5.14 Transactions with Affiliates. Shall not directly or
indirectly purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with, in the ordinary course of
business or otherwise, any Affiliate (other than a Subsidiary); provided,
however, that any acts or transactions prohibited by this Section may be
performed or engaged in, after written notice to the Bank, if upon terms not
less favorable to the Borrower or such Subsidiary than if no such relationship
existed. Any such Affiliate may be a director, officer, employee of the
Borrower or any Subsidiary, subject to the limitations on compensation
contained in this section and elsewhere in this Agreement.
5.15 No Change in Name, Offices; Removal of Collateral. Shall
not, unless it shall have given sixty (60) days' advance written notice thereof
to the Bank, (a) change its name or the location of its chief executive office
or other office where books or records are kept or (b) permit any Inventory or
other tangible Collateral to be located at any location other than as specified
in Section 2.9. ("Location").
5.16 No Sale, Leaseback. Shall not enter into any
sale-and-leaseback or similar transaction.
5.17 Margin Stock. Shall not use any proceeds of the Loan to
purchase or carry any margin stock (within the meaning of Regulation U of the
Board of Governors of Federal Reserve System) or extend credit to others for
the purpose of purchasing or carrying any margin stock.
5.18 Payment of Taxes, Etc. Shall pay before delinquent all of
its debts and taxes except that the Bank shall not unreasonably withhold its
consent to nonpayment of taxes being actively contested in accordance with law
(provided that the Bank may require bonding or other assurances).
5.19 Subordination. Shall cause all debt and other obligations
now or hereafter owed to any Guarantor or Affiliate to be subordinated in right
of payment and security to the Indebtedness in accordance with subordination
agreements satisfactory to the Bank.
5.20 Compliance; Hazardous Materials. Shall strictly comply with
all laws, regulations, ordinances and other legal requirements, specifically
including, without limitation, ERISA, all securities laws and all laws relating
to hazardous materials and the environment. Unless approved in writing by the
Bank, neither the Borrower nor any Subsidiary shall engage in the storage,
manufacture, disposition, processing, handling, use or transportation of any
hazardous or toxic materials, whether or not in compliance with applicable laws
and regulations.
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5.21 Subsidiaries. Shall not acquire, form or dispose of any
Subsidiaries or permit any Subsidiary to issue capital stock except to its
parent, other than the acquiring of Fairfax Communications Ltd.
5.22 Compliance with Assignment Laws. Shall if required by the
Bank comply with the Federal Assignment of Claims Act and any other applicable
law relating to assignment of government contracts.
5.23 Further Assurances. Shall take such further action and
provide to the Bank such further assurances as may be reasonably requested to
ensure compliance with the intent of this Agreement and the other Loan
Documents.
5.24 Withholding Taxes. Pay as and when due all employee
withholding, FICA and other payments required by federal, state and local
governments with respect to wages paid to employees.
5.25 Financial Covenants. At all times, the Borrower shall be in
compliance with the following financial covenants tested quarterly on a
consolidated basis:
(a) The Tangible Net Worth of the Borrower shall
not be less than $3,750,000 at any time, except for any temporary decrease in
equity due to the S Corporation distributions at the time of any initial public
offering as permitted under Section 5.9 hereof, provided, however that any
such deficiency shall be eliminated immediately after the completion of such
initial public offering;
(b) The ratio of Total Liabilities of the
Borrower to Tangible Net Worth of the Borrower shall not be more than 3.50 to
1.0 at all times;
(c) The ratio of Total Funded Debt of the
Borrower to EBITDA shall not be exceed 3.00 to 1.00 at all times; and
(d) The Borrower shall maintain a Debt Service
Coverage of not less than the following amounts at the following times:
<TABLE>
<CAPTION>
Debt Service Coverage: Quarter Ending:
--------------------- --------------
<S> <C>
1.4 to 1.0 March 31, 1997;
1.4 to 1.0 June 30, 1997;
1.4 to 1.0 September 30, 1997; and
1.5 to 1.0 December 31 and at all times thereafter.
</TABLE>
5.26 Government Accounts. Immediately notify the Bank if any of
the Accounts arise out of contracts with the United States or with any state or
political subdivision thereof or any department, agency or instrumentality of
the United States, or any state or political subdivision thereof, and execute
any instruments and take any steps required by the Bank in order that all
18
<PAGE> 20
moneys due and to become due under such contracts having a value in excess of
$500,000 and a term in excess of six months shall be assigned to the Bank and
notice thereof given to the government under the Federal Assignment of Claims
Act or any other applicable law.
6. DEFAULT.
6.1 Events of Default. Each of the following shall constitute an
Event of Default:
(a) Any representation or warranty made by the Borrower
or any other party to any Loan Document (other than the Bank) herein or therein
or in any certificate or report furnished in connection herewith or therewith
shall prove to have been untrue or incorrect in any material respect when made;
or
(b) There shall occur any default by the Borrower in the
payment, when due, of any principal of or interest on the Note, any amounts due
hereunder or any other Loan Document or any other Indebtedness (not cured
within any grace period provided in such Note or in the document or instrument
evidencing such Indebtedness); or
(c) There shall occur any default by the Borrower or any
other party to any Loan Document (other than the Bank) in the performance of
any agreement, covenant or obligation contained in this Agreement or such Loan
Document not provided for elsewhere in this Section 6 and such default is not
cured within any grace period provided in this Agreement or such other Loan
Document; or
(d) Any other obligation now or hereafter owed by the
Borrower or any Subsidiary or Guarantor to the Bank shall be in default and not
cured within any period of grace provided therein or any such Person shall be
in default under any obligation in excess of $25,000 owed to any other obligee,
which default entitles the obligee to accelerate any such obligations or
exercise other remedies with respect thereto; or
(e) The Borrower or any Subsidiary shall (i) voluntarily
liquidate or terminate operations or apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or
liquidator of such Person or of all or of a substantial part of its assets,
(ii) admit in writing its inability, or be generally unable, to pay its debts
as the debts become due, (iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the federal Bankruptcy Code (as
now or hereafter in effect), (v) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization, winding-up,
or composition or adjustment of debts, (vi) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it
in an involuntary case under the Bankruptcy Code, or (vii) take any corporate
action for the purpose of effecting any of the foregoing; or
(f) Without its application, approval or consent, a
proceeding shall be commenced, in any court of competent jurisdiction, seeking
in respect of such Person any remedy under the
19
<PAGE> 21
federal Bankruptcy Code, the liquidation, reorganization, dissolution,
winding-up, or composition or readjustment of debt, the appointment of a
trustee, receiver, liquidator or the like of such Person, or of all or any
substantial part of the assets of such Person, or other like relief under any
law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts; or
(g) Any security interest or Lien of the Bank hereunder
or under any other Security Agreement shall not constitute a perfected security
interest of first priority in the Collateral thereby encumbered, subject only
to Permitted Liens; or
(h) There shall occur any material loss, theft, damage or
destruction of any of the Collateral, which loss is not fully insured; or
(i) A judgment in excess of $25,000 shall be rendered
against the Borrower or any Subsidiary or Guarantor and shall remain
undischarged, undismissed and unstayed for more than ten days (except judgments
validly covered by insurance with a deductible of not more than $25,000) or
there shall occur any levy upon, or attachment, garnishment or other seizure
of, any material portion of the Collateral or other assets of the Borrower or
any Subsidiary by reason of the issuance of any tax levy, judicial attachment
or garnishment or levy of execution; or
(j) The Borrower or any Subsidiary shall fail to pay, on
demand, any returned or dishonored draft, check, or other item which has been
deposited to the Special Loan Account or otherwise presented to the Bank and
for which the Borrower has received provisional credit; or
(k) The Bank, in good faith, shall deem itself insecure.
6.2 Remedies. If any Default shall occur, the Bank may, without
notice to the Borrower, at its option, withhold further Advances to the
Borrower of proceeds of the Loans. Should (a) any Event of Default under
Sections 6.1(g), (h), (k) or (l) occur and not be cured within thirty (30) days
following delivery of written notice thereof by the Bank to the Borrower (which
notice shall be complete upon hand or overnight delivery or upon facsimile
delivery or mailing by certified mail, return receipt requested) or (b) any
other Event of Default occur, the Bank may declare any or all Indebtedness to
be immediately due and payable (if not earlier demanded), bring suit against
the Borrower to collect the Indebtedness, exercise any remedy available to the
Bank hereunder and take any action or exercise any remedy provided herein or in
any other Loan Document or under applicable law. No remedy shall be exclusive
of other remedies or impair the right of the Bank to exercise any other
remedies.
6.3 Receiver. In addition to any other remedy available to it,
the Bank shall have the absolute right, upon the occurrence of an Event of
Default, to seek and obtain the appointment of a receiver to take possession of
and operate and/or dispose of the business and assets of the Borrower and any
costs and expenses incurred by the Bank in connection with such receivership
shall bear interest at the Default Rate and shall be secured by all Collateral.
20
<PAGE> 22
7. SECURITY AGREEMENT.
7.1 Security Interest.
(a) As security for the payment and performance of any
and all of the Indebtedness and the performance of all other obligations and
covenants of the Borrower hereunder and under the other Loan Documents, certain
or contingent, now existing or hereafter arising, which are now, or may at any
time or times hereafter be owing by the Borrower to the Bank, the Borrower
hereby pledges to the Bank and gives the Bank a continuing security interest in
and general Lien upon and right of set-off against, all right, title and
interest of the Borrower in and to the Collateral, whether now owned or
hereafter acquired by the Borrower.
(b) Except as herein or by applicable law otherwise
expressly provided, the Bank shall not be obligated to exercise any degree of
care in connection with any Collateral in its possession, to take any steps
necessary to preserve any rights in any of the Collateral or to preserve any
rights therein against prior parties, and the Borrower agrees to take such
steps. In any case the Bank shall be deemed to have exercised reasonable care
if it shall have taken such steps for the care and preservation of the
Collateral or rights therein as the Borrower may have reasonably requested the
Bank to take and the Bank's omission to take any action not requested by the
Borrower shall not be deemed a failure to exercise reasonable care. No
segregation or specific allocation by the Bank of specified items of Collateral
against any liability of the Borrower shall waive or affect any security
interest in or Lien against other items of Collateral or any of the Bank's
options, powers or rights under this Agreement or otherwise arising.
(c) The Bank may at any time and from time to time, with or
without notice to the Borrower, (i) transfer into the name of the Bank or the
name of the Bank's nominee any of the Collateral, (ii) notify any Account
Debtor or other obligor of any Collateral to make payment thereon direct to the
Bank of any amounts due or to become due thereon and (iii) receive and after a
default direct the disposition of any proceeds of any Collateral.
7.2 Remedies.
(a) If an Event of Default shall have occurred and be
continuing, without waiving any of its other rights hereunder or under any
other Loan Documents, the Bank shall have all rights and remedies of a secured
party under the Code (and the Uniform Commercial Code of any other applicable
jurisdiction) and such other rights and remedies as may be available hereunder,
under other applicable law or pursuant to contract. If requested by the Bank,
the Borrower will promptly assemble the Collateral and make it available to the
Bank at a place to be designated by the Bank. The Borrower agrees that any
notice by the Bank of the sale or disposition of the Collateral or any other
intended action hereunder, whether required by the Code or otherwise, shall
constitute reasonable notice to the Borrower if the notice is mailed to the
Borrower by regular or certified mail, postage prepaid, at least five days
before the action to be taken. The Borrower shall be liable for any
21
<PAGE> 23
deficiencies in the event the proceeds of the disposition of the Collateral do
not satisfy the Indebtedness in full.
(b) If an Event of Default shall have occurred and be
continuing, the Bank may demand, collect and sue for all amounts owed pursuant
to Accounts, General Intangibles, Chattel paper or for proceeds of any
Collateral (either in the Borrower's name or the Bank's name at the latter's
option), with the right to enforce, compromise, settle or discharge any such
amounts. The Borrower appoints the Bank as the Borrower's attorney-in-fact to
endorse the Borrower's name on all checks, commercial paper and other
instruments pertaining to Collateral or proceeds.
7.3 Power of Attorney. The Borrower authorizes the Bank at the
Borrower's expense to file any financing statements relating to the Collateral
(without the Borrower's signature thereon) which the Bank deems appropriate and
the Borrower irrevocably appoints the Bank as its attorney-in-fact to execute
any such financing statements in the Borrower's name and to perform all other
acts which the Bank deems appropriate to perfect and to continue perfection of
the security interest of the Bank. The Borrower hereby appoints the Bank as
the Borrower's attorney-in-fact to endorse, present and collect on behalf of
the Borrower and in the Borrower's name any draft, checks or other documents
necessary or desirable to collect any amounts which the Borrower may be owed.
7.4 Entry. The Borrower hereby irrevocably consents to any act by
the Bank or its agents in entering upon any premises for the purposes of either
(i) inspecting the Collateral or (ii) taking possession of the Collateral and
the Borrower hereby waives its right to assert against the Bank or its agents
any claim based upon trespass or any similar cause of action for entering upon
any premises where the Collateral may be located.
7.5 Deposits; Insurance. Upon the occurrence and continuance of
an Event of Default, the Borrower authorizes the Bank to collect and apply
against the Indebtedness when due any cash or deposit accounts in its
possession, and any refund of insurance premiums or any insurance proceeds
payable on account of the loss or damage to any of the Collateral and
irrevocably appoints the Bank as its attorney-in-fact to endorse any check or
draft or take other action necessary to obtain such funds.
7.6 Other Rights. The Borrower authorizes the Bank without
affecting the Borrower's obligations hereunder or under any other Loan Document
from time to time (i) to take from any party and hold additional Collateral or
guaranties for the payment of the Indebtedness or any part thereof, and to
exchange, enforce or release such collateral or guaranty of payment of the
Indebtedness or any part thereof and to release or substitute any endorser or
guarantor or any party who has given any security interest in any collateral as
security for the payment of the Indebtedness or any part thereof or any party
in any way obligated to pay the Indebtedness or any part thereof; and (ii) upon
the occurrence of any Event of Default to direct the manner of the disposition
of the Collateral and the enforcement of any endorsements, guaranties, letters
of credit or other security relating to the Indebtedness or any part thereof as
the Bank in its sole discretion may determine.
22
<PAGE> 24
7.7 Accounts. Before or after any Event of Default, the Bank may
notify any Account Debtor of the Bank's security interest and may direct such
Account Debtor to make payment directly to the Bank for application against the
Indebtedness. Any such payments received by or on behalf of the Borrower at
any time, whether before or after default, shall be the property of the Bank,
shall be held in trust for the Bank and not commingled with any other assets of
any Person (except to the extent they may be commingled with other assets of
the Borrower in an account with the Bank) and shall be immediately delivered to
the Bank in the form received. The Bank shall have the right to apply any
proceeds of Collateral to such of the Indebtedness as it may determine.
7.8 Tangible Collateral. Except as otherwise provided herein or
agreed to in writing by the Bank, no Inventory or other tangible collateral
shall be commingled with, or become an accession to or part of, any property of
any other Person so long as such property is Collateral. Upon the occurrence
of any Event of Default, the Borrower shall, upon the request of the Bank,
promptly assemble all tangible Collateral for delivery to the Bank or its
agents. No tangible Collateral shall be allowed to become a fixture unless the
Bank shall have given its prior written authorization.
7.9 Waiver of Marshalling. The Borrower hereby waives any right
it may have to require marshalling of its assets.
7.10 Waiver of Automatic Stay. The Borrower hereby waives the
application of the automatic stay of enforcement provided in Section 362 of the
United States Bankruptcy Code and agrees that the Bank may proceed with
enforcement and collection notwithstanding the filing of a petition in
bankruptcy.
8. MISCELLANEOUS.
8.1 No Waiver, Remedies Cumulative. No failure on the part of the
Bank to exercise, and no delay in exercising, any right hereunder or under any
other Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and are in addition to any other remedies provided by law, any Loan
Document or otherwise.
8.2 Survival of Representations. All representations and
warranties made herein shall survive the making of the Loans hereunder and the
delivery of the Notes, and shall continue in full force and effect so long as
any Indebtedness is outstanding, there exists any commitment by the Bank to the
Borrower, and until this Agreement is formally terminated in writing.
8.3 Expenses. Whether or not the Loans herein provided for shall
be made, the Borrower shall pay all reasonable costs and expenses in connection
with the preparation, execution, delivery, amendment and enforcement of this
Agreement and any Loan Document, including the reasonable fees and
disbursements of counsel for the Bank in connection therewith, whether suit be
brought or not and whether incurred at trial or on appeal, and all costs of
repossession, storage, disposition,
23
<PAGE> 25
protection and collection of Collateral. If the Borrower should fail to pay
any tax or other amount required by this Agreement to be paid or which may be
reasonably necessary to protect or preserve any Collateral or the Borrower's or
Bank's interests therein, the Bank may make such payment and the amount thereof
shall be payable on demand, shall bear interest at the Default Rate from the
date of demand until paid and shall be deemed to be Indebtedness entitled to
the benefit and security of the Loan Documents. In addition, the Borrower
agrees to pay and save the Bank harmless against any liability for payment of
any state documentary stamp taxes, intangible taxes or similar taxes (including
interest or penalties, if any) which may now or hereafter be determined to be
payable in respect to the execution, delivery or recording of any Loan Document
or the making of any Advance, whether originally thought to be due or not, and
regardless of any mistake of fact or law on the part of the Bank or the
Borrower with respect to the applicability of such tax. The provisions of this
section shall survive payment in full of the Loans and termination of this
Agreement.
8.4 Notices. Any notice or other communication hereunder to any
party hereto shall be by hand delivery, overnight delivery, facsimile,
telegram, telex or registered or certified mail and unless otherwise provided
herein shall be deemed to have been given or made when delivered, telegraphed,
telexed, faxed or deposited in the mails, postage prepaid, addressed to the
party at its address specified below (or at any other address that the party
may hereafter specify to the other parties in writing):
The Bank: FIRST UNION COMMERCIAL CORPORATION
Government Contracting and Technology Group
1970 Chain Bridge Road, VA 1942
McLean, Virginia 22102
Attn: Molly Gorman
The Borrower: ADVANCED COMMUNICATION SYSTEMS, INC.
10089 Lee Highway
Fairfax, Virginia 22030
Attn: Dev Ganesan, Chief Financial Officer
8.5 Governing Law. This Agreement and the Loan Documents shall be
deemed contracts made under the laws of the Commonwealth of Virginia and shall
be governed by and construed in accordance with the laws of said state except
insofar as the laws of another jurisdiction may govern the perfection, priority
and enforcement of security interests in Collateral located in another
jurisdiction.
8.6 Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the Borrower and the Bank, and their
respective successors and assigns; provided, that the Borrower may not assign
any of its rights hereunder without the prior written consent of the Bank, and
any such assignment made without such consent will be void.
24
<PAGE> 26
8.7 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which when taken together shall constitute but one and the same instrument.
8.8 No Usury. Notwithstanding anything contained in this
Agreement, the Note, or in any other Loan Document to the contrary, in no event
will interest or other charges deemed to be interest be chargeable against the
Borrower if such amount (combined with any other amounts considered to be in
the nature of interest) would exceed the maximum amount permitted by law from
time to time while any of the Indebtedness is outstanding, and in the event any
amount in excess of the lawful maximum is charged or collected by the Bank or
paid by the Borrower, the Borrower shall be entitled to the reimbursement of
such excess together with interest thereon at the highest lawful rate at the
time of such overcharge.
8.9 Powers. All powers of attorney granted to the Bank are
coupled with an interest and are irrevocable.
8.10 Approvals. If this Agreement calls for the approval or
consent of the Bank, such approval or consent may be given or withheld in the
discretion of the Bank unless otherwise specified herein.
8.11 Jurisdiction, Service of Process.
(a) Any suit, action or proceeding against the Borrower
with respect to this Agreement, the Collateral or any Loan Document or any
judgment entered by any court in respect thereof may be brought in the courts
of Fairfax County, Virginia or in the U.S. District court for the Eastern
District of Virginia as the Bank (in its sole discretion) may elect, and the
Borrower hereby accepts the nonexclusive jurisdiction of those courts for the
purpose of any suit, action or proceeding. Service of process in any such case
may be had against the Borrower by delivery in accordance with the notice
provisions herein or as otherwise permitted by law, and the Borrower agrees
that such service shall be valid in all respects for establishing personal
jurisdiction over it.
(b) In addition, the Borrower hereby irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement, the Loan Documents, the Collateral or any
judgment entered by any court in respect thereof brought in Fairfax County,
Virginia or the U.S. District Court for the Eastern District of Virginia, as
selected by the Bank, and hereby further irrevocably waives any claim that any
suit, action or proceedings brought in Fairfax County, Virginia or in such
District Court has been brought in an inconvenient forum.
8.12 Waiver of Jury Trial. THE BORROWER AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
25
<PAGE> 27
BASED UPON THIS AGREEMENT OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY OTHER LOAN DOCUMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO
BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS
AGREEMENT.
8.13 ARBITRATION. Upon demand of any party hereto, whether made
before or after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to this Agreement and
other Loan Documents ("Disputes") between or among parties to this Agreement
shall be resolved by binding arbitration as provided herein. Institution of a
judicial proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration,
claims brought as class actions, claims arising from Loan Documents executed in
the future, or claims arising out of or connected with the transaction
reflected by this Agreement.
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of
Lender first stated above is located. The expedited procedures set forth in
Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less
than $1,000,000. All applicable statutes of limitation shall apply to any
Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or Federal, of the state where the hearing will be
conducted or if such person is not available to serve, the single arbitrator
may be a licensed attorney. Notwithstanding the foregoing, this arbitration
provision does not apply to Disputes under or related to swap agreements.
8.14 Preservation and Limitation of Remedies. Notwithstanding the
preceding binding arbitration provisions, the Bank and the Borrower agree to
preserve, without diminution, certain remedies that any party hereto may employ
or exercise freely, independently or in connection with an arbitration
proceeding or after an arbitration action is brought. The Bank and the Borrower
shall have the right to proceed in any court of proper jurisdiction or by
self-help to exercise or prosecute the following remedies, as applicable: (i)
all rights to foreclose against any real or personal property or other security
by exercising a power of sale granted under Loan Documents or under applicable
law or by judicial foreclosure and sale, including a proceeding to confirm the
sale; (ii) all rights of self-help including peaceful occupation of real
property and collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including
injunctive relief, sequestration, garnishment, attachment, appointment of
receiver and filing an involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment.
26
<PAGE> 28
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
The Borrower and the Bank agree that they shall not have a remedy of punitive
or exemplary damages against the other in any Dispute and hereby waive any
right or claim to punitive or exemplary damages they have now or which may
arise in the future in connection with any Dispute whether the Dispute is
resolved by arbitration or judicially.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
FIRST UNION COMMERCIAL CORPORATION
By: /s/ SHAUN V. KELLEY
----------------------------------
Shaun V. Kelley
Title:
ADVANCED COMMUNICATIONS SYSTEMS, INC.
By: /s/ DEV GANESAN
----------------------------------
Name: Dev Ganesan
Title: Chief Financial Officer
27
<PAGE> 29
SCHEDULE OF EXHIBITS
(IF ANY EXHIBIT IS OMITTED, THE INFORMATION CALLED FOR THEREIN
SHALL BE CONSIDERED "NONE" OR "NOT APPLICABLE")
<TABLE>
<CAPTION>
Exhibit Section Reference Title
- ------- ----------------- -----
<S> <C> <C>
1.1B 1.1 ("Eligible Accounts") Ineligible Accounts
1.1C 1.1 ("Permitted Debt") Permitted Debt
1.1D 1.1 ("Permitted Liens") Permitted Liens
2.3 2.3 ("Financial Condition") Contingent Liabilities
2.4 2.4 ("Litigation") Litigation
2.9 2.9 ("Location") Offices of Borrower
2.17 2.17 ("Subsidiaries") List of Subsidiaries
</TABLE>
<PAGE> 30
EXHIBIT 1.1B
ADDITIONAL INELIGIBLE ACCOUNTS
The following shall be additional ineligible accounts:
1. Those amounts invoiced whose payment is retained by
account debtor pending final inspection and acceptance, sometimes referred to
as "retainage".
2. Those portions of any account that are milestone billings
(other than authorized billed milestones) final billings, or rate variances.
<PAGE> 31
EXHIBIT 1.1C
PERMITTED DEBT
The following shall be additional Permitted Debt:
1. Debt payable to suppliers and other trade creditors
in the ordinary course of business on ordinary and customary trade terms and
which is not past due.
2. Debt of any Subsidiary to the Borrower or another
Subsidiary.
<PAGE> 32
EXHIBIT 1.1D
PERMITTED LIENS
The following shall be additional Permitted Liens:
1. Deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance, social security and similar
laws.
2. Attachment, judgment and other similar non-tax Liens arising
in connection with court proceedings but only if and for so long as (a) the
execution or enforcement of such Liens is and continues to be effectively
stayed and bonded on appeal, (b) the validity and/or amount of the claims
secured thereby are being actively contested in good faith by appropriate legal
proceedings and (c) such Liens do not, in the aggregate, materially detract
from the value of the assets of the Person whose assets are subject to such
Lien or materially impair the use thereof in the operation of such Person's
business.
3. Liens securing Permitted Debt incurred solely for the purpose
of financing the acquisition of equipment, provided that such Lien does not
secure more than the purchase price of such equipment and does not encumber
property other than the purchased property.
<PAGE> 33
EXHIBIT 2.3
CONTINGENT LIABILITIES
The following are contingent liabilities of the Borrower,
Subsidiaries and/or Guarantors:
[DESCRIBE LISTING LIABLE PARTY, MAXIMUM POTENTIAL LIABILITY, NATURE OF
LIABILITY AND ITS CURRENT STATUS]
<PAGE> 34
EXHIBIT 2.4
LITIGATION
Describe any suit or proceeding pending or threatened :
[DESCRIBE ANY SUIT OR PROCEEDING PENDING OR THREATENED BEFORE ANY COURT,
GOVERNMENTAL OR REGULATORY AUTHORITY, COMMISSION, BUREAU OR AGENCY OR PUBLIC
REGULATORY BODY.]
<PAGE> 35
EXHIBIT 2.9
OFFICES OF BORROWER
List any offices of Borrower or Subsidiary not listed in Section 8.4.
Advanced Communication Systems, Inc.
10089 Lee Highway
Fairfax, Virginia 22030
<PAGE> 36
EXHIBIT 2.17
LIST OF SUBSIDIARIES
Fairfax Communications Ltd.
<PAGE> 37
IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH
CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS
THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
REVOLVING PROMISSORY NOTE
$5,000,000.00
McLean, Virginia
March 1, 1997
FOR VALUE RECEIVED, ADVANCED COMMUNICATIONS SYSTEMS, INC., a
corporation organized under the laws of the State of Delaware (the "Borrower"),
promises to pay to the order of FIRST UNION COMMERCIAL CORPORATION, a North
Carolina banking corporation, its successors and assigns (the "Lender"), the
principal sum of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) (the
"Principal Sum"), or so much thereof as has been or may be advanced or
readvanced to or for the account of the Borrower pursuant to the terms and
conditions of the Financing Agreement (as hereinafter defined), together with
interest thereon at the rate or rates hereinafter provided, in accordance with
the following:
1. INTEREST. Commencing as of the date hereof and continuing
until repayment in full of all sums due hereunder, the unpaid Principal Sum
shall bear interest at the fluctuating prime rate of interest established and
declared by the Lender from time to time (the "Prime Rate") plus the Additional
Percentage (as hereinafter defined). The Prime Rate does not necessarily
represent the lowest rate of interest charged by the Lender to borrowers. The
rate of interest charged under this Note shall change immediately and
contemporaneously with any change in the Prime Rate. All interest payable
under the terms of this Note shall be calculated on the basis of a 360-day year
and the actual number of days elapsed.
<PAGE> 38
For purposes hereof, the "Additional Percentage" shall mean
the percentage applicable to this Note in accordance with the following:
(x) If the Borrower's Total Funded Debt divided
by EBITDA is greater than or equal to 2.0 to 1.0, the Additional Percentage
shall be one quarter of one percent (.25%); and
(y) If the Borrower's Total Funded Debt divided
by EBITDA is less than 2.0 to 1.0, the Additional Percentage shall be zero
percent (0.00%).
For purposes of this Note, the terms Total Funded Debt and EBITDA
shall have the meanings attributed to such terms in the Financing Agreement
(hereinafter defined).
The initial Additional Percentage shall be calculated based on the
Borrower's financial statements for the quarter ending December 31, 1996.
Thereafter, the applicable Additional Percentage shall be calculated and
adjusted quarterly, based on the quarterly financial statements required to be
submitted to the Lender pursuant to Section 5.6 (c) of the Financing Agreement.
Such quarterly changes shall be effective commencing five (5) Business Days
after submission by the Borrower of the required financial statements; it being
understood, however, that in the event the quarterly financial statements are
not submitted when due, the Applicable Percentage shall be one quarter of one
percent (.25%) until such financial statements are submitted as required, at
which time the Applicable Percentage (for the balance of the calendar quarter)
shall be determined as set forth above.
(c) All interest payable under the terms of this Note
shall be calculated on the basis of a 360-day year and the actual number of
days elapsed.
(d) In respect to any interest rate election hereunder
and any transactions contemplated hereby, the Borrower authorizes the Lender to
accept, rely upon, act upon and comply
2
<PAGE> 39
with, any verbal or written instructions, requests, confirmations and orders of
Terry Hileman on behalf of the Borrower. The Borrower acknowledges that the
transmission between the Borrower and the Lender of any such instructions,
requests, confirmations and orders involves the possibility of errors,
omissions, mistakes and discrepancies and agrees to adopt such internal
measures and operational procedures to protect its interests. By reason
thereof, the Borrower hereby assumes all risk of loss and responsibility for,
release and discharge the Lender from any and all responsibility or liability
for, and agree to indemnify, reimburse on demand and hold the Lender harmless
from, any and all claims, actions, damages, losses, liability and expenses by
reason of, arising out of or in any way connected with or related to, (i) the
Lender's acceptance, reliance and actions upon, compliance with or observation
of any such instructions, requests, confirmations or orders, and (ii) any such
errors, omissions, mistakes and discrepancies, except those caused by the
Lender's gross negligence or willful misconduct.
2. PAYMENTS AND MATURITY. The unpaid Principal Sum, together
with interest thereon at the rate or rates provided above, shall be payable as
follows:
(a) Interest only on the unpaid Principal Sum shall be
due and payable monthly, commencing March 31, 1997, and on the last day of each
month thereafter to maturity; and
(b) Unless sooner paid, the unpaid Principal Sum,
together with interest accrued and unpaid thereon, shall be due and payable in
full on February 28, 1998.
The fact that the balance hereunder may be reduced to zero from time
to time pursuant to the Financing Agreement will not affect the continuing
validity of this Note or the Financing Agreement, and the balance may be
increased to the Principal Sum after any such reduction to zero.
3
<PAGE> 40
3. DEFAULT INTEREST. Upon the occurrence of an Event of Default
(as hereinafter defined), the unpaid Principal Sum shall bear interest
thereafter at a rate (the "Default Rate") two percent (2%) per annum in excess
of the then current rate or rates of interest hereunder until such Event of
Default is cured.
4. LATE CHARGES. If the Borrower shall fail to make any payment
under the terms of this Note within ten (10) days after the date such payment
is due, the Borrower shall pay to the Lender on demand a late charge equal to
five percent (5%) of such payment.
5. APPLICATION AND PLACE OF PAYMENTS. All payments, made on
account of this Note shall be applied first to the payment of any late charge
then due hereunder, second to the payment of any prepayment fee then due
hereunder, third to the payment of accrued and unpaid interest then due
hereunder, and the remainder, if any, shall be applied to the unpaid Principal
Sum. All payments on account of this Note shall be paid in lawful money of the
United States of America in immediately available funds during regular business
hours of the Lender at its principal office in McLean, Virginia or at such
other times and places as the Lender may at any time and from time to time
designate in writing to the Borrower.
6. FINANCING AGREEMENT AND OTHER FINANCING DOCUMENTS. This Note
is the "Note" described in a Financing and Security Agreement of even date
herewith by and between the Borrower and the Lender (as amended, modified,
restated, substituted, extended and renewed at any time and from time to time,
the "Financing Agreement"). The indebtedness evidenced by this Note is
included within the meaning of the term "Obligations" as defined in the
Financing Agreement. The term "Financing Documents" as used in this Note shall
mean collectively this Note, the Financing Agreement and any other instrument,
agreement, or document previously, simultaneously,
4
<PAGE> 41
or hereafter executed and delivered by the Borrower and/or any other person,
singularly or jointly with any other person, evidencing, securing,
guaranteeing, or in connection with the Principal Sum, this Note and/or the
Financing Agreement.
7. SECURITY. This Note is secured as provided in the Financing
Agreement.
8. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an event of default (individually, an "Event
of Default" and collectively, the "Events of Default") under the terms of this
Note:
(a) The failure of the Borrower to pay to the Lender when
due any and all amounts payable by the Borrower to the Lender under the terms
of this Note; or
(b) The occurrence of an event of default (as defined
therein) under the terms and conditions of any of the other Financing
Documents.
9. REMEDIES. Upon the occurrence of an Event of Default, at the
option of the Lender, all amounts payable by the Borrower to the Lender under
the terms of this Note shall immediately become due and payable by the Borrower
to the Lender without notice to the Borrower or any other person, and the
Lender shall have all of the rights, powers, and remedies available under the
terms of this Note, any of the other Financing Documents and all applicable
laws. The Borrower and all endorsers, guarantors, and other parties who may
now or in the future be primarily or secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment, protest
and demand, notice of protest, notice of demand and of dishonor and non-payment
of this Note and expressly agree that this Note or any payment hereunder may be
extended from time to time without in any way affecting the liability of the
Borrower, guarantors and endorsers.
5
<PAGE> 42
10. CONFESSED JUDGMENT. (a) The Borrower hereby appoints and
designates Charles M. English, Jr. Esquire, as its duly constituted
attorney-in-fact to confess judgment against the Borrower pursuant to the
provisions hereof and of Section 8.01-432 of the Code of Virginia of 1950, as
amended, which judgment shall be confessed in the Clerk's Office of the Circuit
Court of Fairfax County, Virginia. The Borrower shall, upon the Lender's
request, name such additional or alternative persons designated by the Lender
as the Borrower's duly constituted attorney or attorneys-in-fact to confess
judgment against the Borrower in accordance with the terms hereof.
Furthermore, upon the Lender's request, the Borrower shall agree to the
designation of any additional circuit courts in the Commonwealth of Virginia in
which judgment may be confessed against the Borrower.
(b) Upon the occurrence of an Event of Default, the Borrower
hereby authorizes the above designated attorney-in-fact or any successor named
therefor to confess judgment against the Borrower for the amount of the unpaid
Principal Sum, all interest accrued and unpaid thereon, and all other amounts
payable by the Borrower to the Lender under the terms of this Note or any of
the other Financing Documents, together with court costs and attorneys' fees of
fifteen percent (15%) of the unpaid Principal Sum and interest then due
hereunder. The Borrower hereby releases, to the extent permitted by applicable
law, all errors and all rights of exemption, appeal, stay of execution,
inquisition, and other rights to which the Borrowers may otherwise be entitled
under the laws of the United States of America or of any state or possession of
the United States of America now in force or which may hereafter be enacted.
The authority and power to appear for and enter judgment against the Borrower
shall not be exhausted by one or more exercises thereof or by any imperfect
exercise thereof and shall not be extinguished by any judgment entered pursuant
thereto. Such
6
<PAGE> 43
authority may be exercised on one or more occasions or from time to time as
often as the Lender shall deem necessary or desirable, for all of which this
Note shall be a sufficient warrant.
(c) The Borrower represents and warrants that it is not a
natural person and that the obligations evidenced by this Note were not
incurred for personal, family or household purposes
11. MISCELLANEOUS. Each right, power, and remedy of the Lender as
provided for in this Note or any of the other Financing Documents, or now or
hereafter existing under any applicable law or otherwise shall be cumulative
and concurrent and shall be in addition to every other right, power, or remedy
provided for in this Note or any of the other Financing Documents or now or
hereafter existing under any applicable law, and the exercise or beginning of
the exercise by the Lender of any one or more of such rights, powers, or
remedies shall not preclude the simultaneous or later exercise by the Lender of
any or all such other rights, powers, or remedies. No failure or delay by the
Lender to insist upon the strict performance of any term, condition, covenant,
or agreement of this Note or any of the other Financing Documents, or to
exercise any right, power, or remedy consequent upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant, or agreement or of
any such breach, or preclude the Lender from exercising any such right, power,
or remedy at a later time or times. By accepting payment after the due date of
any amount payable under the terms of this Note, the Lender shall not be deemed
to waive the right either to require prompt payment when due of all other
amounts payable under the terms of this Note or to declare an Event of Default
for the failure to effect such prompt payment of any such other amount. No
course of dealing or conduct shall be effective to amend, modify, waive,
release, or change any provisions of this Note.
12. PARTIAL INVALIDITY. In the event any provision of this Note
(or any part of any provision) is held by a court of competent jurisdiction to
be invalid, illegal, or unenforceable in any
7
<PAGE> 44
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision (or remaining part of the affected provision) of this Note; but
this Note shall be construed as if such invalid, illegal, or unenforceable
provision (or part thereof) had not been contained in this Note, but only to
the extent it is invalid, illegal, or unenforceable.
13. CAPTIONS. The captions herein set forth are for convenience
only and shall not be deemed to define, limit, or describe the scope or intent
of this Note.
14. APPLICABLE LAW. The Borrower acknowledges and agrees that
this Note shall be governed by the laws of the Commonwealth of Virginia even
though for the convenience and at the request of the Borrower, this Note may be
executed elsewhere.
15. CONSENT TO JURISDICTION. The Borrower irrevocably submits to
the jurisdiction of any state or federal court sitting in the Commonwealth of
Virginia over any suit, action, or proceeding arising out of or relating to
this Note or any of the other Financing Documents. The Borrower irrevocably
waives, to the fullest extent permitted by law, any objection that the Borrower
may now or hereafter have to the laying of venue of any such suit, action, or
proceeding brought in any such court and any claim that any such suit, action,
or proceeding brought in any such court has been brought in an inconvenient
forum. Final judgment in any such suit, action, or proceeding brought in any
such court shall be conclusive and binding upon the Borrower and may be
enforced in any court in which the Borrower is subject to jurisdiction by a
suit upon such judgment, provided that service of process is effected upon the
Borrower as provided in this Note or as otherwise permitted by applicable law.
16. SERVICE OF PROCESS. The Borrower hereby consents to
process being served in any suit, action, or proceeding instituted in
connection with this Note by (i) the mailing of a copy thereof
8
<PAGE> 45
by certified mail, postage prepaid, return receipt requested, to the Borrower
and (ii) serving a copy thereof upon Dev Ganesan, the agent hereby designated
and appointed by the Borrower as the Borrower's agent for service of process.
The Borrower irrevocably agrees that such service shall be deemed in every
respect effective service of process upon the Borrower in any such suit, action
or proceeding, and shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon the Borrower. Nothing in this Section
shall affect the right of the Lender to serve process in any manner otherwise
permitted by law or limit the right of the Lender otherwise to bring
proceedings against the Borrower in the courts of any jurisdiction or
jurisdictions.
17. WAIVER OF TRIAL BY JURY. THE BORROWER HEREBY WAIVES TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE
PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS NOTE OR (B) THE
FINANCING DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES
A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE
BORROWER, AND THE BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR
OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY
OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER FURTHER REPRESENTS
THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE
9
<PAGE> 46
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
18. ARBITRATION. Upon demand of any party hereto, whether made
before or after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to this Note and other
Financing Documents ("Disputes") between or among parties to this Note shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration,
claims brought as class actions, claims arising from Financing Documents
executed in the future, or claims arising out of or connected with the
transaction reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of
Lender first stated above is located. The expedited procedures set forth in
Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less
than $1,000,000.00. All applicable statutes of limitation shall apply to any
Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted or if such person is not available to serve, the single arbitrator
may be a licensed attorney.
10
<PAGE> 47
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
19. PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the
preceding binding arbitration provisions, the Lender and the Borrower agree to
preserve, without diminution, certain remedies that any party hereto may employ
or exercise freely, independently or in connection with an arbitration
proceeding or after an arbitration action is brought. The Lender and the
Borrower shall have the right to proceed in any court of proper jurisdiction or
by self-help to exercise or prosecute the following remedies, as applicable:
(i) all rights to foreclose against any real or personal property or other
security by exercising a power of sale granted under Financing Documents or
under applicable law or by judicial foreclosure and sale, including a
proceeding to confirm the sale; (ii) all rights of self-help including peaceful
occupation of real property and collection of rents, set-off, and peaceful
possession of personal property; (iii) obtaining provisional or ancillary
remedies including injunctive relief, sequestration, garnishment, attachment,
appointment of receiver and filing an involuntary bankruptcy proceeding; and
(iv) when applicable, a judgment by confession of judgment. Preservation of
these remedies does not limit the power of an arbitrator to grant similar
remedies that may be requested by a party in a Dispute.
The Borrower and the Lender agree that they shall not have a remedy of
punitive or exemplary damages against the other in any Dispute and hereby waive
any right or claim to punitive or exemplary damages they have now or which may
arise in the future in connection with any Dispute whether the Dispute is
resolved by arbitration or judicially.
11
<PAGE> 48
20. Transferability. Nothing in this or any other documents
regarding the transaction herein shall prohibit the Lender from pledging or
assigning this Note including any of the collateral therefor, to any Federal
Reserve Bank in accordance with applicable law.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by its duly authorized officers as of the date first written above.
WITNESS OR ATTEST: ADVANCED COMMUNICATIONS SYSTEMS, INC.
By: /s/ DEV GANESAN (SEAL)
- ------------------------------ --------------------------
Name: Dev Ganesan
Title: Chief Financial Officer
12
<PAGE> 1
EXHIBIT 10.7
Dated as set forth below
AMENDMENT 3 TO LEASE AGREEMENT DATED July 16, 1993
between
10089 Management, L.L.C., Landlord
and
Advanced Communication Systems, Inc., Tenant
1. Paragraph 1.(b) will be changed to read as follows:
The Tenant shall pay annual rent, which annual rent during the first year
of this Lease shall equal $13.00 per square foot of rentable space in the
premises and which shall increase annually by an amount equal to the Consumer
Price Index (CPI) of the annual rent then in effect, and shall be payable in
monthly installments in advance, on the first day of each calendar month. The
CPI will be known as the United States Bureau of Labor Statistics, Consumer
Price Index for Urban Earners and Clerical Workers, (CPI-W) for Washington,
DC-MD-VA, all items Index (1982-84=100).
Rent for any period of less than one month shall equal 1/30 of the monthly
rent payment for each day of the applicable period.
2. The revision to Paragraph 1.(b) will be effective retroactive to September
1, 1993.
3. All other terms and conditions of the Lease Agreement dated July 16, 1993
remain unchanged.
IN WITNESS WHEREOF, the parties hereto have executed this Lease Amendment 3 to
Lease Agreement dated July 16, 1993 and affixed their seals as of the date
set forth below.
Landlord: Tenant:
10089 Management, L.L.C. Advanced Communication Systems, Inc.
by: /s/ GEORGE A. ROBINSON by: /s/ THOMAS A. COSTELLO
--------------------------- ---------------------------
Date: March 15, 1994
-------------------------
<PAGE> 2
January 15, 1994
AMENDMENT 2 TO LEASE AGREEMENT DATED July 16, 1993
between
10089 Management, L.L.C., Landlord
and
Advanced Communication Systems, Inc., Tenant
1. The Premises described in the lease dated July 16, 1993 is changed to an
increased area of the Floor Plan attached hereto as Exhibit A, Revision 1,
effective January 15, 1994.
2. The Area of Premises is changed to approximately 22,264 rentable square feet
of office space on the 1st, 2nd, 3rd and 4th Floor of the Building, effective
January 15, 1994.
3. The Basic Rental in Paragraph 1.(b) of the lease is changed to equal monthly
installments of $24,119.33 effective January 15, 1994, subject to adjustment as
provided in the basic Lease Agreement. Prorated rent for January 1994 is
calculated as follows:
<TABLE>
<S> <C>
01/01/94 through 01/14/94 ($22,194.25 x 14/31) $10,023.21
01/15/94 through 01/31/94 ($24,119.33 x 17/31) $13,226.73
----------
Total $23,249.94
</TABLE>
4. The Annual Basic Rental in Paragraph 1.(b) of the lease is changed to
$289,432.00, effective January 15, 1994.
5. The Basic Rental Escalation of 3% in Paragraph 1.(b) will remain the same
and the schedule is changed to read as follows:
<TABLE>
<CAPTION>
Period Annual Rent Monthly Rent Payment
<S> <C> <C>
09/01/93 - 11/30/93 $220,740.00 $18,395.00 (4 mos.)
12/01/93 - 01/14/94 $266,331.00 $22,194.25 (1.5 mos.)
01/15/94 - 08/31/94 $289,432.00 $24,119.33 (6.5 mos.)
09/01/94 - 08/31/95 $298,114.96 $24,842.91
09/01/95 - 08/31/96 $307,058.41 $25,588.20
09/01/96 - 08/31/97 $316,270.16 $26,355.85
09/01/97 - 08/31/98 $325,758.26 $27,146.52
09/01/98 - 08/31/99 $335,531.01 $27,960.92
09/01/99 - 08/31/00 $345,596.94 $28,799.75
09/01/00 - 08/31/01 $355,964.85 $29,663.74
09/01/01 - 08/31/02 $366,643.80 $30,553.65
09/01/02 - 08/31/03 $377,643.11 $31,470.26
</TABLE>
6. All other terms and conditions of the Lease Agreement dated July 16, 1993
remain unchanged.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Lease Amendment 2 to
Lease Agreement dated July 16, 1993 and affixed their seals as of the date
first above written.
Landlord: Tenant:
10089 Management, L.L.C. Advanced Communication Systems. Inc.
by: [SIG] by: [SIG]
-------------------------- ---------------------------
<PAGE> 4
EXHIBIT A
FLOOR PLANS
10089 LEE HIGHWAY
[FLOOR PLAN]
First Floor Plan
[FLOOR PLAN]
Second Floor Plan
<PAGE> 5
December 1, 1993
AMENDMENT 1 TO LEASE AGREEMENT DATED July 16, 1993
between
10089 Management, L.L.C., Landlord
and
Advanced Communication Systems, Inc., Tenant
1. The Premises described in the lease dated July 16, 1993 is changed to an
increased area of the Floor Plan attached hereto as Exhibit A, Revision 1,
effective December 1, 1993.
2. The Area of Premises is changed to approximately 20,487 rentable square feet
of office space on the 2nd, 3rd and 4th Floor of the Building, effective
December 1, 1993.
3. The Basic Rental in Paragraph 1.(b) of the lease is changed to equal monthly
installments of $22,194.25 effective December 1, 1993, subject to adjustment as
provided in the basic Lease Agreement.
4. The Annual Basic Rental in Paragraph 1.(b) of the lease is changed to
$266,331.00, effective December 1, 1993.
5. The Basic Rental Escalation of 3% in Paragraph 1.(b) will remain the same
and the schedule is changed to read as follows:
<TABLE>
<CAPTION>
Period Annual Rent Monthly Rent Payment
<S> <C> <C>
09/01/93 - 11/30/93 $220,740.00 $18,395.00 (4 mos.)
12/01/93 - 08/31/94 $266,331.00 $22,194.25 (8 mos.)
09/01/94 - 08/31/95 $274,320.93 $22,860.08
09/01/95 - 08/31/96 $282,550.56 $23,545.88
09/01/96 - 08/31/97 $291,027.08 $24,252.26
09/01/97 - 08/31/98 $299,757.89 $24,979.82
09/01/98 - 08/31/99 $308,750.63 $25,729.22
09/01/99 - 08/31/00 $318,013.15 $26,501.10
09/01/00 - 08/31/01 $327,553.54 $27,296.13
09/01/01 - 08/31/02 $337,380.15 $28,115.01
09/01/02 - 08/31/03 $347,501.55 $28,958.46
</TABLE>
6. All other terms and conditions of the Lease Agreement dated July 16, 1993
remain unchanged.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Lease Amendment 1 to
Lease Agreement dated July 16, 1993 and affixed their seals as of the date
first above written.
Landlord: Tenant:
10089 Management, L.L.C. Advanced Communication Systems. Inc.
by: [SIG] by: [SIG]
-------------------------- ---------------------------
<PAGE> 7
EXHIBIT A
FLOOR PLANS
10089 LEE HIGHWAY
[FLOOR PLAN]
First Floor Plan
[FLOOR PLAN]
Second Floor Plan
<PAGE> 8
================================================================================
10089 MANAGEMENT, L.L.C.
Landlord
and
ADVANCED COMMUNICATION SYSTEMS, INC.
Tenant
-----------------------
LEASE TO PREMISES
Dated: July 16, 1993
================================================================================
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Title Section Page
- ----- ------- ----
<S> <C> <C>
Alterations............................ 4 6
Assignment, Subletting and Recapture... 3 5
Care of Premises....................... 2 4
Casualty............................... 17 20
Certain Rights Reserved to Landlord.... 9 11
Condition of Premises.................. 21 25
Default................................ 14 14
Eminent Domain......................... 16 19
Estoppel Certificates.................. 28 30
Exculpation............................ 27 30
Governing Laws......................... 29 31
Holding Over........................... 11 13
Insurance.............................. 26 29
Landlord's Title....................... 8 11
Mechanics' Liens....................... 15 19
Miscellaneous.......................... 25 27
Notice................................. 7 10
Operating Expenses..................... 19 22
Parties................................ * 1
Possession............................. 23 27
Premises............................... * 1
Quiet Enjoyment........................ 24 27
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
Title Section Page
- ----- ------- ----
<S> <C> <C>
Real Estate Taxes...................... 20 23
Rent................................... 1 2
Rules.................................. 12 14
Save Harmless.......................... 22 26
Services and Utilities................. 6 9
Signs.................................. 5 8
Subordination.......................... 13 14
Term................................... * 2
Use.................................... * 1
Waiver of Claims....................... 10 12
Waiver of Subrogation.................. 18 22
Exhibit A - Floor Plan
</TABLE>
<PAGE> 11
LEASE
Parties This Lease, made the 16th day of July, 1993, between
10089 MANAGEMENT, L.L.C., a Virginia limited
liability company, hereinafter called the Landlord,
and ADVANCED COMMUNICATION SYSTEMS, INC., a Delaware
corporation, hereinafter called the Tenant.
W I T N E S S E T H
Premises That the Landlord hereby leases to the Tenant, and
the Tenant hereby hires and takes from the Landlord
the following described premises (hereinafter called
the "premises") outlined on Exhibit A hereto and made
a part hereof, in the office and retail tower
(hereinafter called the "building") known as 10089
Lee Highway, Fairfax, Virginia, containing an agreed
to total rentable area of 16,980 square feet on the
3rd and 4th floors. The building and the land on
which the improvements are located are sometimes
hereinafter called the "project." This Lease
includes the right of the Tenant to use the Common
building Facilities (as defined below) in common with
other tenants in the building. The term "Common
building Facilities" shall mean all of the common
facilities in or around the building designed and
intended for use by all tenants in the building in
common with the Landlord and each other, including
but not limited to, hallways, elevators, fire stairs,
common area telephone closets, if any, aisles,
walkways, truck docks, common area plazas, if any,
common area courts, if any, common area restrooms, if
any, service areas, lobbies, landscaped areas, and
all other common and service areas of the project and
the building intended for such use.
Use To be used and occupied by the Tenant as office space
and for no other purpose. Without limiting the
generality of the foregoing, the premises shall not
be used as an office for a medical or dental
ractitioner, a political party or political campaign
organization, or any foreign, federal, state or local
governmental entity or agency, or for any unlawful
purpose. Tenant shall not use the premises or any
part thereof for any purpose deemed by the Landlord's
insurer to be extra hazardous on account of fire risk
or
<PAGE> 12
that will increase the existing rate of insurance on
the building or cause a cancellation of any insurance
policy covering the building.
Term That this lease is effective as of the date Landlord
acquires the building (the "Commencement Date") and
to end on August 31, 2003; unless sooner terminated
as hereinafter provided.
The parties hereto do hereby agree and covenant as
follows:
Rent 1. (a) Commencing on the Commencement Date and
ending on August 31, 1993, the Tenant shall pay in
advance on the Commencement Date the amount which
equals the product determined by multiplying Six
Hundred Thirteen and 17/100 Dollars ($613.17) by the
number of days in such period;
(b) The Tenant shall pay annual rent, which
annual rent during the first year of this Lease shall
equal $13.00 per square foot of rentable space in the
premises and which shall increase annually by an
amount equal to three precent (3%) of the annual rent
then in effect, all as set forth in the following
schedule, and shall be payable in monthly
installments in advance, on the first day of each
calendar month during the applicable period:
<TABLE>
<CAPTION>
Monthly
Period Annual Rent Rent Payment
------ ----------- ------------
<S> <C> <C>
September 1, 1993 - $220,740.00 $18,395.00
August 31, 1994
September 1, 1994 - $227,362.20 $18,946.85
August 31, 1995
September 1, 1995 - $234,183.07 $19,515.26
August 31, 1996
September 1, 1996 - $241,208.56 $20,100.71
August 31, 1997
September 1, 1997 - $248,444.82 $20,703.73
August 31, 1998
September 1, 1998 - $255,898.16 $21,324.85
August 31, 1999
</TABLE>
-2-
<PAGE> 13
<TABLE>
<S> <C> <C>
September 1, 1999 - $263,575.10 $21,964.59
August 31, 2000
September 1, 2000 - $271,482.35 $22,623.53
August 31, 2001
September 1, 2001 - $279,626.82 $23,302.24
August 31, 2002
September 1, 2002 - $288,015.62 $24,001.30
August 31, 2003
</TABLE>
Rent for any period of less than one month shall
equal 1/30 of the monthly rent payment for each day
of the applicable period.
(c) The Tenant will pay said rent without deduction,
set off or demand to Landlord at 10089 Lee Highway,
Fairfax, Virginia, or to such other person or at such
other place as the Landlord may designate in writing.
(c) All payments or installments of any rent
hereunder, other than annual rent, and all sums
whatsoever due under this Lease (including attorneys'
fees) shall be deemed additional rent. Except as is
otherwise provided regarding time periods from which
payments are due, if any rent or additional rent is
not paid within five (5) days after written notice
from Landlord that such sum is due, in consideration
of Landlord's additional expense caused by such
failure to pay, such arrearage shall bear a late
charge equal to five percent (5.0%) of such
arrearage, and such rent or additional rent shall
bear interest at an annual rate of one and one-half
percent above the prime rate of such total amount.
Interest shall accrue on rent or additional rent plus
the late charge from the date such rent or additional
rent is due. Time is of the essence with respect to
Tenant's monetary obligations in this Lease. Any
additional rent, unless otherwise stated, shall be
due within thirty (30) days after Landlord has
submitted a written statement to Tenant showing the
amount due, and such obligation shall survive the
expiration or earlier termination of the term.
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<PAGE> 14
Care of 2. (a) The Tenant will take good care of
Premises the premises and the building fixtures and
appurtenances, and all alterations, additions and
improvements to them ordinary wear and tear and
damage by fire or other casualty excepted; will
repair all damage to the same resulting from the acts
of the Tenant, its employees, agents or invitees;
will suffer no waste or injury; will execute and
comply with all laws, rules, orders, ordinances and
regulations, at any time issued or enforced by any
lawful authority, applicable to the Tenant's use or
occupancy of the premises; and will repair, at or
before the end of the term, all injury done by the
installation or removal of furniture and property.
Tenant covenants and agrees that it will not use or
allow the premises to be used for the storage, use,
treatment or disposal of any "hazardous substance,"
as defined under either the Comprehensive
Environmental Response, Compensation and Liability
Act of 1980 (42 U.S.C. 9601 et. seq.) or as
hereinafter enacted by any applicable federal, state,
county or governmental authority.
(b) At any time or times, the Landlord, either
voluntarily or pursuant to governmental
requirement, may, at the Landlord's own expense, make
repairs, alterations or improvements in or to the
building or any part thereof, including the premises,
and, during operations, may close entrances, doors,
corridors, elevators or other facilities, all without
any liability to the Tenant by reason of
interference, inconvenience or annoyance. The
Landlord shall not be liable to the Tenant for any
expense, injury, loss or damage resulting from work
done in or upon, or the use of, any adjacent or
nearby building, land, street or alley, except as a
result of its gross negligence or willful misconduct.
Notwithstanding anything to the contrary contained in
this Paragraph 2(b) or elsewhere in this Lease, if
the Landlord, its employees, agents or contractors
shall enter the premises to make repairs or for any
purpose permitted herein, during the
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<PAGE> 15
Tenant's normal business hours, the Landlord, its
employees, agents or contractors, as the case may be,
shall, except in the event of an emergency, use
commercially reasonable efforts to minimize any
interference with the Tenant's business.
Assignment 3. (a) The Tenant will not sell, assign,
and Subletting mortgage or transfer this Lease, sublet the premises
or any part thereof, or allow any transfer thereof or
any lien upon the Tenant's interest by operation of
law, without the prior written consent of the
Landlord.
(b) Any levy or sale in execution, or any assignment
or sale in bankruptcy or insolvency, or the
appointment of a receiver or trustee of all or
substantially all of the property of the Tenant by a
state or federal court, shall be deemed an assignment
within the meaning of this Section.
(c) Any subletting or assignment hereunder shall not
release or discharge the Tenant of or from any
liability, whether past, present or future, under
this Lease, and the Tenant shall continue fully
liable hereunder and shall also be liable to the
Landlord for all costs incurred by the Landlord at
the request of and for a subtenant or assignee. The
subtenant or subtenants or assignee or assignees
shall agree to comply with and be bound by all the
terms, covenants, conditions, provisions and
agreements of this Lease to the extent of the space
sublet or assigned, and shall not assign the sublease
or sublet the premises or any part thereof, or allow
any transfer thereof, or any lien upon the
subtenant's interest, without the prior written
consent of the Landlord, and the Tenant shall deliver
to the Landlord promptly after execution, an executed
copy of each such sublease or assignment and an
agreement of compliance by each such subtenant or
subtenants or assignee or assignees.
(d) Unless consented to in writing by the Landlord,
any sale, assignment, mortgage,
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<PAGE> 16
transfer, or subletting of this Lease which is not in
compliance with the provisions of this Section shall
be of no effect and void.
(e) The Landlord may assign this Lease and shall not
be liable for obligations thereafter accruing
hereunder; provided that the Landlord's assignee
shall assume the Landlord's obligations hereunder
accruing on or after the date of assumption.
Alterations 4. (a) Tenant shall not make or permit anyone to make
any alterations in or additions or improvements to
the premises or install any equipment of any kind
that will require any alteration or addition to, or
the use of, the water, heating, air conditioning or
electrical or other building systems or equipment,
without the Landlord's advance written consent in
each instance to be withheld in Landlord's sole
discretion. All alterations or additions shall be
made only by Landlord's contractors or contractors of
which Tenant has received the prior written approval
from Landlord. The Landlord's decision to refuse
such consent to alterations, additions or contractors
shall be conclusive, and, in cases where if the
Landlord consents to such alterations, additions or
contractors before commencement of the work or
delivery of any materials onto the premises or into
the building, the Tenant shall furnish the Landlord
with plans and specifications, copies of contracts,
necessary permits, and indemnification in form and
amount satisfactory to the Landlord against claims,
costs, damages, liabilities and expenses. All
additions and alterations shall be installed in a
good, workmanlike manner, and only new, high grade
materials which are in accordance with the building
standards shall be used. Landlord shall be paid a
reasonable supervisory fee with respect to additions
and alterations. Tenant hereby agrees to indemnify
and hold the Landlord harmless, irrevocably and
forever, from and against any and all claims, costs,
damages, liabilities and expenses of every kind and
description which
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<PAGE> 17
may arise out of or be connected in any way with said
alterations or additions or the installation thereof,
or Tenant's request for consent to requested
alterations or additions, whether or not such consent
is granted. The indemnity obligations of the Tenant
set forth in this Section shall survive the
expiration or earlier termination of this Lease.
Before commencing any work in the premises, the
Tenant shall furnish the Landlord with certificates
of insurance from all contractors performing labor or
furnishing materials insuring the Landlord against
any and all claims, costs, damages, liabilities and
expenses, which may arise out of or be connected in
any way with said additions or alterations or the
installation thereof and a complete set of plans and
specifications with respect to the alteration or
installation. The Tenant shall pay the cost of all
such alterations and additions and also the cost of
decorating the premises occasioned by such
alterations and additions. Upon completing any
alterations or additions, the Tenant shall, within
thirty (30) days thereafter, furnish the Landlord
with contractors' affidavits and full and final
waivers of lien and receipted bills covering all
labor and materials expended and used and a complete
set of as-built plans and specifications. All
alterations and additions shall comply with all
insurance requirements and with all local ordinances
and regulations, and with the requirements of all
statutes and regulations of the State (or of any
department or agency thereof) in which the building
is located. The Tenant shall permit the Landlord to
supervise construction operations in connection
with these alterations or additions if the Landlord
requests to do so. The privilege herein granted to
the Tenant to make alterations or additions to the
premises is conditioned upon the Tenant's
contractors, workmen and employees working in harmony
and not interfering with the workmen, employees and
contractors of the Landlord or of any other tenant.
-7-
<PAGE> 18
(b) All alterations, additions, hardware, non-trade
fixtures and all improvements, temporary or
permanent, in or upon the premises, whether placed
there by the Landlord or the Tenant, shall, unless
the Landlord requests their removal, become the
Landlord's property and shall remain upon the
premises at the termination of this Lease by lapse of
time or otherwise without compensation or allowance
or credit to the Tenant. If the Landlord requests
removal of work whether installed by the Landlord or
the Tenant before or after the start of the term, or
if the Landlord requests removal of additions,
alterations, hardware, non-trade fixtures, or
improvements installed or made by the Tenant, the
Tenant shall remove the same prior to the conclusion
of the term and the Tenant shall repair all damage to
the premises caused by such removal. The Tenant
shall not be required to remove pipes and wires
concealed in the floors, walls, or ceilings, provided
that the Tenant properly cuts and caps the same and
seals them off in a safe, lawful, and workmanlike
manner. If, upon the Landlord's request, the Tenant
does not remove said things, the Landlord may remove
the same and repair all damage and the Tenant shall
pay to the Landlord upon demand the cost of such
removal and repair of all damage. The Tenant shall
remove the Tenant's furniture, machinery, safe or
safes, trade fixtures and other items of personal
property of every kind and description from the
premises prior to the end of the term, however ended.
If not so removed, the Landlord may do so and the
Tenant shall pay to the Landlord upon demand the cost
of such removal and repair of all damage. If not
removed by Tenant and the Landlord does not request
their removal, all such items shall be conclusively
presumed to have been conveyed by the Tenant to the
Landlord under this Lease as a bill of sale without
further payment or credit by the Landlord to the
Tenant.
Signs 5. The Tenant will not permit or suffer any signs,
logos, symbols, advertisements or notices to be
displayed, inscribed upon or
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<PAGE> 19
affixed on any part of the outside or inside (which
are visible from the outside of the premises) of the
premises, or in the building or on the street
adjacent to the building. The Tenant's name shall be
affixed on or near the entrance doors of the
premises, but only in such size, color and style as
the Landlord may approve.
Services 6. (a) The Landlord shall provide the
and Utilities following services and utilities:
(1) JANITOR SERVICE in and about the premises,
Saturdays, Sundays and holidays recognized by the
Landlord excepted. The Tenant shall not provide
any janitor service in the premises except
through a janitor contractor or employees
satisfactory to the Landlord.
(2) HEAT AND AIR CONDITIONING Monday through
Friday from 8:00 a.m. to 6:00 p.m., Saturday from
8:00 a.m. to 1:00 p.m., Sundays and holidays
recognized by the Landlord excepted.
(3) WATER (hot and cold) from municipal mains
for drinking, lavatory and toilet purposes, drawn
through fixtures installed by the Landlord.
(4) ADEQUATE PASSENGER ELEVATOR SERVICE
servicing the floor on which the premises is
located in common with other tenants at all
times. Landlord agrees that the level of
elevator service for the floor on which the
premises is located will be reasonably the same
as that provided to all other tenants in the
building. FREIGHT ELEVATOR SERVICE in common
with other tenants daily from 8:00 a.m. to 5:00
p.m., Saturdays, Sundays and holidays recognized
by the Landlord excepted ("Building Standard
Hours"), subject to scheduling by the Landlord.
Freight elevator service at other times and
elevators with attendants shall be optional with
the Landlord and, if
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<PAGE> 20
provided, shall be at the Tenant's expense and
never be deemed a continuing obligation of the
Landlord.
(5) TELEPHONE SERVICE to the building.
(6) MAINTENANCE of the roof, exterior and
common areas of the building.
(7) ELECTRICITY for Tenant's uses for normal
modern office use including personal computers,
word processors, desktop office equipment, and
operating the HVAC.
(b) Tenant shall have access to the building and the
premises 24 hours per day, 7 days per week, 52 weeks
per year. The Landlord does not warrant that any of
the services above mentioned will be free from
interruption caused by war, insurrection, civil
commotion, riots, acts of God or the enemy or
governmental action, repairs, renewals, improvements,
alterations, strikes, lockouts, picketing, whether
legal or illegal, accidents, inability of the
Landlord to obtain fuel or supplies, or any other
cause or causes beyond the reasonable control of the
Landlord. Except in the case of an emergency, the
Landlord will give the Tenant 24 hours prior notice
if Landlord intends to interrupt any services. Any
such interruption of service shall never be deemed an
eviction or disturbance of the Tenant's use and
possession of the premises or any part thereof, or
render the Landlord liable to the Tenant for damages,
or relieve the Tenant from performance of the
Tenant's obligations under this Lease.
Notice 7. Any notice, request, communication or demand under
the Lease shall be in writing and shall be considered
properly delivered when addressed as hereinafter
provided, (a) given or served personally, (b) by
nationally recognized overnight courier, or (c) by
registered or certified mail (return receipt
requested), 3 days after the date deposited in the
United States general or branch post office. Any
notice, request, communication
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<PAGE> 21
or demand by the Landlord to the Tenant shall be
addressed to the Tenant at the premises until
otherwise directed in writing by the Tenant. Any
notice, request, communication or demand by the
Tenant to the Landlord shall be addressed to the
Landlord at the building. Rejection or other refusal
to accept a notice, request, communication or demand
or the inability to deliver the same because of a
changed address of which no notice was given shall be
deemed to be receipt of the notice, request, communi-
cation or demand sent.
Landlord's 8. The Landlord's title is and always shall be
Title paramount to the title of the Tenant, and nothing
herein contained shall empower the Tenant to do any
act which shall encumber the title of the Landlord.
Certain 9. (a) The Landlord reserves the following
Rights rights:
Reserved
to Landlord (1) To change the name or street address of the
building after at least 60 days prior notice,
without liability of the Landlord to the Tenant.
(2) To install and maintain a sign or signs on
the exterior of the building in keeping with the
appearance of a first-class office building as
reasonably determined by Landlord.
(3) During the last ninety (90) days of the
term, if during or prior to that time the Tenant
vacates the premises, to decorate, remodel,
repair, alter or otherwise prepare the premises
for reoccupancy.
(4) To constantly have pass keys to the
premises.
(5) To exhibit the premises to prospective
lenders, investors and purchasers at all times,
and during the last 9 months of the term to
prospective tenants and others.
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<PAGE> 22
(6) To take any and all measures, including
inspections, repairs, alterations, additions and
improvements to the premises or to the building,
as may be necessary or desirable for the safety,
protection or preservation of the premises or the
building or the Landlord's interests, or as may
be necessary or desirable in the operation of the
building.
(b) Except as otherwise provided in this Lease, the
Landlord may enter upon the premises and may exercise
any or all of the foregoing rights hereby reserved
without being deemed guilty of an eviction or
disturbance of the Tenant's use or possession and
without being liable in any manner to the Tenant.
The Landlord agrees, however, that it shall endeavor
to perform all repairs, improvements and maintenance
and execute its right of access in a manner which is
not intended to materially, adversely, and
unreasonably and permanently interfere with the
Tenant's use of the premises.
Waiver 10. To the extent permitted by law and except as
of Claims a result of the negligence of the cleaning people
provided by Landlord or gross negligence or willful
misconduct of Landlord or the Landlord's agents,
servants or employees, or the Landlord's building
manager or its agents, servants or employees, except
as relating to cleaning people as aforesaid, the
Tenant releases the Landlord and the Landlord's
agents, servants and employees, and the Landlord's
building manager of the building, and its agents,
servants and employees from, and waives all claims
for, damage to person or property sustained by the
Tenant or any occupant of the building or premises
resulting from the building or premises or any part
of either or any equipment becoming out of repair, or
resulting from any accident in or about the building,
or resulting directly from any act or neglect of any
tenant or occupant of the building or of any other
person, including the Landlord and the Landlord's
agents, servants and employees, and the Landlord's
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<PAGE> 23
building manager of the building, and its agents,
servants and employees. This Section 10 shall apply
especially, but not exclusively, to the flooding of
basements or other subsurface areas, and to damage
caused by refrigerators, sprinkling devices, air
conditioning apparatus, water, snow, frost, steam,
excessive heat or cold, falling plaster, broken
glass, sewage, gas, odors or noise, or the bursting
or leaking of pipes or plumbing fixtures, and shall
apply equally whether any such damage results from
the act or neglect of the Landlord or of other
tenants, occupants or servants in the building or of
any other person, and whether such damage be caused
or results from any thing or circumstance above
mentioned or referred to, or any other thing or
circum- stance whether of a like nature or of a
wholly different nature. If any such damage, whether
to the premises or to the building or any part
thereof, or whether to the Landlord or to other
tenants in the building, results from any act or
neglect of the Tenant, the Landlord may, at the
Landlord's option, repair such damage and the Tenant
shall upon demand by the Landlord, reimburse the
Landlord forthwith for the total cost of such
repairs. The Tenant shall not be liable for any
damages caused by its act or neglect to the extent
the Landlord has recovered the amount of the damages
from insurance, and the insurance company has waived
in writing its rights of subrogation against the
Tenant. All property belonging to the Tenant or any
occupant of the premises that is in the building or
the premises shall be there at the risk of the Tenant
or other occupant only, and the Landlord shall not be
liable for damages thereto or theft or
misappropriation thereof.
Holding 11. If the Tenant retains possession of the
Over premises or any part thereof after the termination of
the term, by lapse of time or otherwise, the Tenant
shall pay the Landlord rent at double the rate of
rental specified in this Lease for the time the
Tenant thus remains in possession, and in addition
thereto and if Landlord has not expressly
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<PAGE> 24
consented thereto in writing, shall pay the Landlord
all damages sustained by reason of the Tenant's
retention of possession. The provisions of this
Section do not waive the Landlord's rights of reentry
or any other right hereunder.
Rules 12. The Tenant shall observe faithfully and comply
strictly with the rules and regulations promulgated
from time to time by the Landlord.
Subordination 13. This Lease shall be subordinate and subject at all
times to all ground or underlying leases and to any
mortgage or deed of trust covering the premises or
which at any time hereafter shall be made, and to all
renewals, modifications, consolidations, or
replacements thereof, and to all advances made, or
hereafter to be made, upon the security of any such
mortgage or deed of trust. Tenant shall execute such
further instruments subordinating this Lease to any
such mortgage or deed of trust as the Landlord shall
request, provided that the holder of such mortgage or
deed of trust executes an attornment and
nondisturbance agreement providing that Tenant's
rights under this Lease will not be disturbed by such
holder so long as Tenant performs its obligations
pursuant to this Lease.
Default 14. All rights and remedies of the Landlord herein
enumerated shall be cumulative, and none shall
exclude any other right or remedy allowed by law or
equity.
(a) The occurrence of any one or more of the
following events shall constitute a default by the
Tenant and a breach of this Lease: (i) the Tenant
fails to make a payment of rent or any other payment
of money as and when the same shall become due and
payable hereunder and such failure continues for five
(5) days after written notice from the Landlord, or
(ii) the Tenant fails to promptly and fully perform
or observe any of the other covenants, agreements,
rules and regulations, terms or conditions in this
Lease to be performed or observed by the Tenant and
such failure shall continue for
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<PAGE> 25
more than twenty (20) consecutive days after notice
by the Landlord specifying the nature of such
failure, or if the failure so specified shall be of
such a nature that the same cannot be reasonably
cured or remedied within said twenty (20) day period,
the Tenant shall not in good faith have commenced to
cure or remedy such failure within such twenty (20)
day period and thereafter diligently proceed
therewith to completion, (unless the act or omission
of the Tenant or occurrence involves a hazardous or
emergency condition which shall be cured by the
Tenant forthwith upon the Landlord's demand), or
(iii) the leasehold interest or property of the
Tenant be levied upon under execution or be attached
by process of law, or (iv) the Tenant makes an
assignment for the benefit of creditors, or a
receiver be appointed for any property of the Tenant,
or at any time prior to or during the term of this
Lease any voluntary or involuntary petition or
similar pleading under any section or sections of any
bankruptcy law shall be filed by or against the
Tenant, or any voluntary or involuntary proceeding in
any court or tribunal shall be instituted to declare
the Tenant insolvent or unable to pay the Tenant's
debts, and in the case of any involuntary petition or
proceeding, the petition or proceeding is not
dismissed within sixty (60) consecutive days from the
date it is filed.
(b) In the event of any default of the Tenant
hereunder, and at any time thereafter, (i) if the
term of this Lease shall not have commenced, the
Landlord may cancel and terminate this Lease by
notice to the Tenant, or (ii) if the term of this
Lease shall have commenced, the Landlord may serve
upon the Tenant a notice that this Lease and the term
hereof will terminate on a date to be specified
therein, and upon the date so specified by the
Landlord in such notice, this Lease and the then
unexpired term hereof shall terminate and come to an
end as fully and completely as if the date specified
in the Landlord's notice was the day herein
definitely fixed for the end and expiration of this
Lease and the term
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<PAGE> 26
hereof, and the Tenant shall then quit and surrender
the premises to the Landlord, but the Tenant shall
remain liable as hereinafter set forth; provided,
however, that if the Tenant shall fail to perform a
covenant of this Lease two (2) or more times in any
period of six (6) months then, notwithstanding that
each act or omission shall have been cured within the
period after the giving of notices as herein
provided, any further similar act or omission shall
be deemed to be deliberate and the Landlord
thereafter may serve the aforesaid notice of
termination without affording to the Tenant a further
opportunity to cure.
(c) Upon termination of this Lease by the Landlord
as hereinabove provided, or if the premises become
vacated or deserted for a period of more than ninety
(90) consecutive days, with or without terminating
the Lease, the Landlord may, without notice,
terminate all services and re-enter the premises
either by force or otherwise, and by summary
proceedings or otherwise, dispossess the Tenant and
the legal representatives of the Tenant or any other
occupant of the premises, and remove their effects
without being deemed in any manner guilty of
trespass, eviction, or forceable detainer, and hold
the premises as if this lease had not been made.
(d) In the event of default, re-entry, termination
and/or dispossess by summary proceedings or
otherwise, (i) the Landlord shall in addition to any
other rights granted herein or by law, be entitled to
recover all rent, additional rent and other sums due
and payable by the Tenant up to and including the
date of re-entry, dispossess and/or termination, and
(ii) with or without terminating the Lease, and
without releasing the Tenant, in whole or in part,
from the Tenant's obligations to pay the rent
hereunder for the full term or from any other of its
obligations under this Lease or for damages herein
described the Landlord may, at the Landlord's option,
occupy the premises and/or cause the premises to be
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<PAGE> 27
redecorated, altered, divided, consolidated with
other adjoining premises, or otherwise changed or
prepared for reletting, and shall use commercially
reasonable efforts to relet the premises or any part
thereof for the account of the Tenant for a term or
terms to expire prior to, at the same time as, or
subsequent to, the original expiration date of this
Lease, and receive the rent therefor, applying the
same first to the payment of such expenses as the
Landlord may have incurred in connection with the
recovery of possession, redecorating, altering,
dividing, consolidating with other adjoining
premises, or otherwise changing or preparing for
reletting, and the reletting, including brokerage and
reasonable attorneys' fees, and then to the payment
of damages in amounts equal to the rent hereunder and
to the cost and expense of performance of the other
covenants of the Tenant as herein provided. The
Tenant agrees, whether or not the Landlord has relet,
to pay to the Landlord damages equal to the rent and
other sums herein agreed to be paid by the Tenant,
less the net proceeds of the reletting, if any, as
ascertained from time to time, and the same shall be
payable by the Tenant on the several rent days above
specified. In reletting the premises as aforesaid,
the Landlord may grant rent concessions, and the
Tenant shall not be credited therewith. No such
reletting shall constitute a surrender and acceptance
of the premises or be deemed evidence thereof. If
the Landlord elects, pursuant hereto, actually to
occupy and use the premises (for a purpose other than
to achieve a reletting of the premises), or any part
thereof, during any part of the balance of the term,
as originally fixed or since extended, there shall be
allowed against the Tenant's obligation for rent, or
damages as herein defined, during the period of the
Landlord's occupancy, the reasonable value of such
occupancy, not to exceed in any event the rent herein
reserved and such occupancy shall not be construed as
a release of the Tenant's liability hereunder.
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<PAGE> 28
(e) Any and all property which may be removed from
the premises by the Landlord pursuant to the
authority of this Lease or of law, to which the
Tenant is or may be entitled, may be handled, removed
or stored by the Landlord at the risk, cost and
expense of the Tenant, and the Landlord shall in no
event be responsible for the value, preservation or
safekeeping thereof. The Tenant shall pay to the
Landlord upon demand any and all reasonable expenses
incurred in such removal and all storage charges
against such property so long as the same shall be in
the Landlord's possession or under the Landlord's
control. Any such property of the Tenant not removed
from the premises or taken from storage by the Tenant
within thirty (30) days after the end of the term,
however terminated, shall be presumed to have been
conveyed by the Tenant to the Landlord under this
Lease as a bill of sale without further payment or
credit by the Landlord to the Tenant.
(f) The Tenant shall pay upon demand all of the
Landlord's reasonable costs, charges and expenses,
including the reasonable fees of counsel, agents and
others retained by the Landlord, incurred in
enforcing or carrying out the Tenant's obligations
hereunder after default by the Tenant and any
applicable notice and cure periods having expired or
incurred by the Landlord in any litigation,
negotiations or transactions in which Tenant causes
the Landlord, without the Landlord's fault, to become
involved or concerned, plus interest from the date of
payment at the annual rate of one and one-half
percent above the prime rate, which amount shall be
deemed to be additional rent due and payable by the
Tenant at once without notice or demand.
(g) Tenant hereby waives all rights of redemption
granted by or under any present or future laws.
(h) Mention in the lease of any particular remedy
shall not preclude the Landlord from pursuing any
other remedy in law or in equity.
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<PAGE> 29
(i) The delivery of keys to any agent or employee of
the Landlord shall not be considered as a termination
of this Lease or a surrender of the premises.
(j) The Landlord and the Tenant hereby waive trial
by jury in any action, proceeding or counterclaim
brought by either of them against the other on any
matters arising out of or in any way connected with
this Lease, the relationship of the Landlord and the
Tenant, the Tenant's use or occupancy of the
premises, or any emergency statutory remedy. The
Tenant further agrees that it shall not interpose any
counterclaim or counterclaims in a summary proceeding
or in any action based on nonpayment of rent or any
other payment required of the Tenant hereunder,
unless the failure to assert such counterclaim would
foreclose the Tenant's right to commence a separate
action or proceeding.
Mechanics' 15. The Tenant shall not permit any mechanics'
Liens or materialmen's liens to be filed against the fee of
the real property on which the building is located
nor against the Tenant's leasehold interest in the
premises. The Landlord shall have the right at all
reasonable times to post and keep posted on the
premises, any notices which it deems necessary for
protection from such liens. If any such liens are so
filed, the Landlord, at its election, unless the
Tenant has theretofore bonded over such lien as
provided by applicable law or otherwise provides
security, as may be reasonably adequate, for the
protection of Landlord's interest, may pay and
satisfy the same and in such event the sums so paid
by the Landlord, with interest from the date of
payment at the annual rate of one and one-half
percent above the prime rate, shall be deemed to be
additional rent due and payable by the Tenant at once
without notice or demand.
Eminent 16. (a) In the event that the whole or any part
Domain of the premises shall be lawfully condemned or taken
in any manner for any public or quasi-public use, at
the Landlord's option,
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<PAGE> 30
this Lease and the term hereby granted shall
forthwith cease and terminate on the date of the
taking of possession by the condemning authority and
the Landlord shall be entitled to receive the entire
award without any payment to the Tenant, the Tenant
hereby assigning to the Landlord the Tenant's
interest in the award, if any, and the rent shall be
apportioned as of such date; provided, however, the
Tenant shall have the right to assert any claim that
it may have against the condemning authority for
compensation for any fixtures and property owned by
the Tenant and leasehold improvements installed by
the Tenant at Tenant's expense and for any relocation
expenses compensable by law and receive such award
therefor as may be allowed in the condemnation
proceedings if such award shall be stated separately
from the award made for the project or the part
thereof so taken.
(b) In the event that a part of the building shall
be so condemned or taken and, if, in the opinion of
the Landlord, the building should be restored in such
a way as to alter the premises materially, or the
building should be demolished, the Landlord may
terminate this Lease and the term and estate hereby
granted without compensation to the Tenant by
notifying the Tenant of such termination within sixty
(60) days following the date of the taking of
possession by the condemning authority, and this
Lease and the term and estate hereby granted shall
expire on the date specified in the notice of
termination not less than sixty (60) days after the
giving of such notice, as fully and completely as if
such date were the date hereinbefore set for the
expiration of the term of this Lease, and the rent
shall be apportioned as of such date.
Casualty 17. In the event of damage or destruction of the premises
during the term by fire, the elements, or casualty,
the Landlord shall forthwith repair the same,
provided such repairs can be made, in the Landlord's
opinion, within one hundred twenty (120)
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<PAGE> 31
days, but such damage or destruction shall not annul
or void this Lease, except that the Tenant shall be
entitled to a proportionate reduction of rent while
such repairs are being made, such proportionate
reduction to be based upon the extent that the
premises, or part thereof, may be untenantable
(including as a result of lack of access to the
premises). As used herein, the term "untenantable"
shall include a situation in which the premises are
not reasonably accessible for the conduct of the
Tenant's business. If, in the Landlord's reasonable
opinion, such repairs cannot be made within one
hundred twenty (120) days the Landlord may, at its
option to be exercised within thirty (30) days from
the date of such damage or destruction make the same
as soon as possible thereafter, and this Lease shall
continue in full force and effect and the rent shall
be proportionately reduced as aforesaid. In the
event that the Landlord does not so elect to make
such repairs which cannot be made within said one
hundred twenty (120) day period, this Lease may be
terminated at the option of either party. In the
event that the building be damaged, this Lease shall
continue in full force and effect, but the Landlord
shall forthwith repair such damage; except that if
the building is severely damaged or destroyed, as
determined by the Landlord, the Landlord, at its
option to be exercised within thirty (30) days from
the date of such damage or destruction, may terminate
this Lease. The Tenant shall be entitled to a
proportionate reduction of rent only if the premises
are untenantable as aforesaid and no such rent
reduction shall be allowed by reason of
inconvenience, annoyance or injury to the Tenant's
business because of such damage or destruction, or
the necessity of repairing any portion of the
building, or making of such repairs, and the Landlord
shall not be liable to the Tenant because of such
inconvenience, annoyance or injury; provided, that if
the Tenant is unable to conduct its business in the
premises, then the rent and additional rent shall be
abated until the earlier occur of (i) the premises
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<PAGE> 32
are repaired, or (ii) the Tenant is able to resume
conducting business in the premises. Notwithstanding
anything herein to the contrary, to the extent
insurance proceeds are not available, Landlord shall
not be obligated to repair the premises or any
portion of the building. Notwithstanding anything to
the contrary in this Lease, if damage or destruction
renders the premises untenantable, so as to prevent
Tenant from conducting his business therefrom and is
not repaired, or repairable, within 180 days from the
date of the casualty, then Tenant shall have the
right, exercisable by notice to Landlord within 210
days from the date of such casualty (but not after
the premises have been made tenantable) to terminate
this Lease.
Waiver of 18. Each party hereto hereby waives all claims
Subrogation for recovery from the other party for any loss or
damage to any of its property insured under valid and
collectible insurance policies. Such insurance
policies shall be endorsed to provide coverage for
said waivers of subrogation.
Operating 19. (a) Except as may otherwise be specifically
Expenses set forth herein and subject to the provisions of
Section 20, Tenant shall have no obligation to pay to
Landlord, any amounts with respect to Operating
Expenses.
(b) For the purposes of this Section 19:
(1) The term "Operating Expenses" means those
expenses incurred in respect of the operation and
maintenance of the building, including premiums
for insurance, personal property taxes in
connection with property used in the operation or
management of the building, utilities used in the
maintenance and operation of the building,
expenses of a management office in the building
for Landlord's building manager and the net cost
of operating the amenities of the building.
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<PAGE> 33
Real Estate 20. (a) In addition to the annual rent
Taxes described in Section 1, Tenant hereby agrees to pay
to Landlord, as additional rent, an amount for each
Comparison Year equal to the Tenant's "Pro Rata
Share" of any increase for such Comparison Year in
the amount of Real Estate Taxes over the Base Amount
thereof.
(b) For the purposes of this Section 20:
(1) The term "Base Amount" means the Real Estate
Taxes for the 1993 calendar year. The Base
Amount shall be adjusted proportionately for
Comparison Years which are not a full twelve (12)
months.
(2) The term "Real Estate Taxes" means all taxes
and assessments, special or otherwise, levied
upon or with respect to the building and the land
upon which it is located (with the land
assessment being allocated based upon the
relative value of the project improvements)
imposed by Federal, State or local governments,
(but shall not include income, franchise, capital
stock, estate or inheritance taxes, except as
provided below) and use or occupancy taxes, and
excise and other taxes (other than general income
taxes) on rent and other income from the
building, (computed, in case of a graduated tax,
as if the Landlord's income from the building
were the Landlord's sole taxable income), and any
substitutions for Real Estate Taxes. In the case
of special taxes and assessments payable in
installments only the amount of each installment
due and payable during a fiscal year shall be
included in Real Estate Taxes for that year.
Notwithstanding the foregoing, the term "Real
Estate Taxes" shall not include any income,
franchise, transfer, inheritance, capital stock
or other tax unless, due to a future change in
the method of taxation, such a tax shall be
levied against the Landlord in substitution for
or in lieu of any tax which would otherwise
constitute "Real Estate
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<PAGE> 34
Taxes", in which event such income, franchise,
transfer, inheritance, capital stock or other tax
shall be deemed to be included in the term "Real
Estate Taxes" to the extent and only to that
extent that such tax is ascertained to be in lieu
of or a substitute for what were previously "Real
Estate Taxes"; provided, that the amount of such
income, franchise, transfer, inheritance, capital
stock or other tax deemed to be included in the
term "Real Estate Taxes" shall be determined as
if the project was the only asset of the Landlord
and as if the rent paid hereunder were the only
income of the Landlord.
(3) The term "Pro Rata Share" in reference to
Real Estate Taxes means the ratio which the
rentable square footage of the premises bears to
the rentable square footage of the building.
(4) The term "Comparison Year" in reference to
Real Estate Taxes means each calendar year or
portion thereof during the term, commencing with
the 1994 calendar year.
(c) If by reason of complaint against valuation,
protest of tax rates, or otherwise, Real Estate Taxes
for any year are affected in such a way as would
result in a rent increase or decrease hereunder, the
Real Estate Taxes for the affected year shall be
recalculated accordingly and the resulting increase
or decrease in rent, less the reasonable expenses
incurred in effecting any such reduction, shall be
paid simultaneously with or applied as a credit
against the rent next becoming due.
(d) Statements of the amount of the Tenant's Pro
Rata Share of increase in Real Estate Taxes shall be
rendered by the Landlord to the Tenant as soon as
reasonably feasible for each Comparison Year. On the
first day for the payment of monthly rent under this
Lease following the furnishing of a statement for the
current Comparison Year
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<PAGE> 35
(1) the Tenant shall pay to the Landlord a sum equal
to one twelfth of the increase in Tenant's estimated
Pro Rata Share of Real Estate Taxes multiplied by the
number of months elapsed during the Comparison Year
and, in advance, one-twelfth of such increase in the
estimated share in respect to the then current month;
and (2) thereafter, until the next Comparison Year
statement shall be rendered, the monthly installments
of rent payable under this Lease shall include an
amount equal to one-twelfth of the Tenant's estimated
share of the increase in Real Estate Taxes based on
the most recent statement.
(e) After Landlord's receipt of tax bills for each
tax year, or such reasonable (in Landlord's
determination) time thereafter, Landlord will certify
to Tenant the amount of the increase in Real Estate
Taxes for the tax year in question and the amount of
Tenant's Pro Rata Share thereof. Tenant's Pro Rata
Share of such increase in Real Estate Taxes which are
paid or payable for each tax year shall be adjusted
between Landlord and Tenant, both Landlord and Tenant
hereby agreeing that Tenant shall pay Landlord or
Landlord shall credit to Tenant's account (or, if
such adjustment is at the end of the Lease term, pay
Tenant), as the case may be, within thirty (30) days
of the aforesaid certification to Tenant, such amount
necessary to effect such adjustment. The failure of
Landlord to provide such certification within the
time prescribed above shall not relieve Tenant of its
obligations generally or for the specific tax year in
which any such failure occurs.
Condition 21. The Tenant's taking possession shall be
of Premises conclusive evidence as against the Tenant that the
premises were in good order and satisfactory
condition when the Tenant took possession. At the
termination of this Lease, by lapse of time or
otherwise, the Tenant shall return the premises in as
good condition as when the Tenant took possession,
ordinary wear and loss by fire or other casualty
insured under valid and
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<PAGE> 36
collectible fire and standard extended coverage
insurance policies excepted, failing which the
Landlord may restore the premises to such condition
and the Tenant shall pay the cost thereof and this
obligation shall survive the expiration or earlier
termination of this Lease.
Save 22. The Tenant agrees to indemnify and save
Harmless harmless the Landlord, the Landlord's building
manager and Landlord's other employees and agents
against and from any and all claims by or on behalf
of any person or persons, firm or firms, corporation
or corporations, arising from the Tenant's use of the
premises or the conduct of its business or from any
activity, work, or thing done, permitted or suffered
by the Tenant, in or about the premises, (or any
parking lot or structure, if applicable) and will
further indemnify and save the Landlord, the
Landlord's building manager and Landlord's other
employees and agents harmless, irrevocably and
forever, against and from any and all claims arising
from any breach or default on the Tenant's part in
the performance or observance of any covenant or
agreement on the Tenant's part to be performed or
observed pursuant to the terms of this Lease, or
arising from any act or negligence of the Tenant, or
any of its agents, contractors, servants, employees
or licensees, and from and against all costs, counsel
fees, expenses and liabilities incurred in connection
with any such claim or action or proceeding brought
thereon; and in case any action or proceeding be
brought against the Landlord, the Landlord's building
manager or Landlord's other employees and agents by
reason of any such claim, the Tenant upon notice from
the Landlord covenants to resist or defend at the
Tenant's expense such action or proceeding by counsel
reasonably satisfactory to the Landlord. The
liability of the Tenant to indemnify the Landlord, as
hereinabove set forth, shall not extend to any matter
against which the Landlord shall be effectively
protected by insurance, provided, however, that if
any such liability shall exceed the amount of the
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<PAGE> 37
effective and collectible insurance in question, the
said liability of the Tenant shall apply to such
excess. The indemnity obligations of the Tenant set
forth in this Section shall survive the expiration or
earlier termination of this Lease.
Possession 23. In the event of the failure of the Landlord to
deliver possession of the premises at the time of the
commencement of the term of this Lease, neither the
Landlord nor its contractors, subcontractors,
employees, agents or building manager shall be liable
for any damage caused thereby, nor shall this Lease
thereby become void or voidable, nor shall the term
herein specified be in any way extended, but in such
event the term shall begin when the Landlord does
deliver possession of the premises and the Tenant
shall not be liable for any rent until the time that
the Landlord delivers such possession.
Quiet 24. The Landlord covenants and agrees that
Enjoyment the Tenant on paying the rent, including additional
rent, and performing and observing the covenants on
the Tenant's part to be performed and observed
hereunder, shall and may peaceably and quietly hold
and enjoy the premises for the term of this Lease
without disturbance from Landlord or anyone claiming
through or under Landlord, subject to the provisions
of this Lease.
Miscellaneous 25. (a) No receipt of money by the Landlord from the
Tenant after the termination of this Lease or after
the service of any notice or after the commencement
of any suit, or after final judgment for possession
of the premises shall renew, reinstate, continue or
extend the term of this Lease or affect any such
notice, demand or suit.
(b) No waiver of any default of the Tenant hereunder
shall be implied from any omission by the Landlord to
take any action on account of such default if such
default persists or be repeated, and no express
waiver shall affect any default other than the
default specified in a written waiver and then only
for the time and to the
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extent therein stated. The invalidity or
unenforceability of any provision hereof shall not
affect or impair any other provision and the invalid
or unenforceable provision shall be deemed restated
to comply with local law.
(c) The word "Tenant" wherever used in this Lease
shall be construed to mean Tenants in all cases where
there is more than one tenant, and the necessary
grammatical changes required to make the provisions
hereof apply either to corporations or individuals,
men or women, shall in all cases be assumed as though
in each case fully expressed.
(d) Provisions inserted herein or affixed hereto
shall not be valid unless appearing in the duplicate
original hereof held by the Landlord.
(e) Each provision hereof shall extend to and shall,
as the case may require, bind and inure to the
benefit of the Landlord and the Tenant and their
respective heirs, legal representatives, successors,
and assigns in the event this Lease has been assigned
with the written consent of the Landlord.
(f) The headings of sections are for convenience
only and do not limit or construe the contents of the
sections.
(g) Submission of this instrument for examination
does not constitute a reservation of or option for
the premises. The instrument becomes effective as a
lease upon execution and delivery by both the
Landlord and the Tenant.
(h) All amounts (other than annual rent and
escalation payments) owed by the Tenant to the
Landlord hereunder shall be paid within fifteen (15)
days from the date the Landlord renders statements of
account therefor and all such amounts, as well as
rent and additional rent, as set forth in Section
1(c), shall bear interest from their respective due
date until paid at the annual rate of one and
one-half percent above the
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<PAGE> 39
prime rate. All such amounts other than annual rent
shall be deemed additional rent or rents.
(i) The Tenant may occupy the premises prior to the
commencement of the term of this Lease with the
Landlord's written consent, and in such case all the
provisions of this Lease shall be in full force and
effect as soon as the Tenant occupies the premises,
and the Tenant shall pay rent for the period prior to
the stated commencement of the term at the rate per
month set forth herein. Notwithstanding the
foregoing, Tenant shall have two (2) days free of
base rent and additional rent to move into the
premises.
(j) For purposes of this Lease, the "prime rate"
shall be the prime rate of interest established from
time to time by First Union Bank of Virginia,
provided that, if First Union Bank of Virginia is no
longer in existence or no longer establishes a prime
rate of interest, such rate shall be the highest rate
published by The Wall Street Journal in its Money
Rates section, or a comparable index selected by
Landlord and approved by Tenant, such approval not to
be unreasonably delayed, conditioned or withheld.
Insurance 26. (a) At all times during the term of this Lease, the
Tenant, at its sole cost and expense, shall provide
and keep in full force and effect a policy of public
liability and property damage insurance, naming the
Landlord (including its partners known to Tenant) and
the building manager as an additional insured, with
respect to the premises and the business of the
Tenant in, on, within, from or connected with the
premises, pursuant to which the limits of liability
shall be at least $1,000,000.00 in respect to
injuries to or death of any one person, $1,000,000.00
in respect to any one occurrence, and $500,000.00 in
respect to destruction or damage to property or in
such other reasonable amounts as the Landlord shall
require. Said insurance shall cover all of Tenant's
property to be located on
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<PAGE> 40
the premises. Said insurance policies shall contain
a clause that the insurer will not cancel or modify
the insurance to adversely affect the Landlord
without first giving the Landlord thirty (30) days
prior written notice. Said insurance policies shall
be carried with an insurance company licensed to do
business in Virginia and having a current Best's
Guide rating of A/VII or better, and a certificate of
insurance shall be delivered to the Landlord on the
Commencement Date of this Lease and upon renewal of
each of said policies.
(b) The Tenant shall not take out separate insurance
concurrent in form or contributing in the event of
loss with that required in this Section to be
furnished by the Tenant.
(c) If at any time the Tenant does not comply with
the covenants made in this Section, the Landlord may,
at its option, (without prejudice to any other remedy
it might have) cause insurance as aforesaid to be
issued, and in such event the Tenant shall pay the
premium for such insurance as additional rent
promptly upon the Landlord's demand therefor.
(d) Landlord agrees to maintain insurance on the
building in such amounts and types as Landlord's
mortgagee shall require, the cost of which shall be
an Operating Expense.
Exculpation 27. It is understood that the Landlord on the date of
execution hereof is a Virginia limited liability
company and that no owner of said company, as it may
now or hereafter be constituted, shall have any
personal liability to the Tenant or any person
claiming under, by or through the Tenant upon any
action, claim, suit or demand brought pursuant to the
terms and conditions of this Lease or arising out of
the occupancy by the Tenant of the premises.
Estoppel 28. The Tenant agrees at any time and from time
Certificates to time upon not less than ten (10) days prior
written notice by Landlord or the holder of any
mortgage or security interest in all or any part of
the building to
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<PAGE> 41
execute, acknowledge and deliver to Landlord or such
holder, as the case may be, a statement in writing in
such form as Landlord or the holder of any mortgage
or security interest in all or any part of the
building may require, certifying among other things
(i) whether the Tenant is in possession of the
premises and conducting business with the public
thereof from and specifying the date of the
commencement of such possession, (ii) whether all
required contributions by Landlord to Tenant, or
improvements to the premises, have been made, (iii)
the amount of any security deposit paid by Tenant,
(iv) the actual date of commencement and termination
of the term, (v) that this Lease is unmodified and in
full force (or if there have been modifications, that
the same in full force and effect as modified and
stating the modifications), (vi) the dates to which
the rent and other charges have been paid in advance,
if any, and (vii) whether or not to the best
knowledge of the signer of such a certificate
Landlord is in default in performance of any
covenant, agreement or condition contained in this
Lease and, if so, specifying each such default of
which the signer may have knowledge, it being
intended that any such statement delivered hereunder
may be relied upon by third parties not a party to
this Lease.
Governing 29. This Lease shall be governed by the laws of
Laws the Commonwealth of Virginia.
IN WITNESS WHEREOF, this instrument has been duly executed
by the parties hereto as of the day and year first above written.
WITNESS: 10089 MANAGEMENT, L.L.C.
By: [SIG]
---------------------------------
Manager
WITNESS: ADVANCED COMMUNICATION SYSTEMS, INC.
/s/ TERRENCE E. HILEMAN JR. By: [SIG] (SEAL)
- ---------------------------- ---------------------------------
Executive Vice President
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<PAGE> 1
EXHIBIT 10.8
<TABLE>
<CAPTION>
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AWARD/CONTRACT 1. THIS CONTRACT IS A RATED ORDER RATING PAGE OF PAGES
UNDER DPAS (15 CFR 350) DOS1 1 30
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<S> <C>
2. CONTRACT (Proc. Inst. Ident.) NO. 3. EFFECTIVE DATE 4. REQUISITION/PURCHASE/PROJECT NO.
N00039-96-C-0066 14 MAR 1996 N00039-94-P4-DV002 R
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5. ISSUED BY CODE N00039 6. ADMINISTERED BY (If other than item 5) CODE S2404A
-------------------------- ------------------
COMMANDER DCMAO Baltimore
Space and Naval Warfare Systems Command ATTN: Chesapeake
2451 Crystal Drive, Arlington, VA 22245-5200 200 Towsontown Blvd., West
POC: E. McGinnis, 02-33M (703)602-0599 Towson, MD 21204-5299
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7. NAME AND ADDRESS OF CONTRACTOR (No., street, city, country, State and ZIP Code) 8. DELIVERY
[x]FOB ORIGIN [ ] OTHER (See below)
Advanced Communication Systems, Inc. ----------------------------------------------
10089 Lee Highway 9. DISCOUNT FOR PROMPT PAYMENT
Fairfax, VA 22030
N/A
----------------------------------------------
10. SUBMIT INVOICES ITEM
(4 copies unless other-
- ------------------------------------------------------------------------------------ wise specified) TO THE
CODE 2X691 FACILITY CODE R414 ADDRESS SHOWN IN: See Block 12
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11. SHIP TO/MARK FOR CODE 12. PAYMENT WILL BE MADE BY CODE SC1010
------------------------ DFAS-Columbus Center -----------------
DFAS-CO/Capital Division
P.O. Box 182263, Columbus, OH 43218-2263
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13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETI- 14. ACCOUNTING AND APPROPRIATION DATA
TION: See attached Financial Accounting Data Sheet
[ ] 10 U.S.C. 2304(c) ( N/A ) [ ]41 U.S.C. 253 (C) ( N/A )
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15A. ITEM NO. 15B. SUPPLIES/SERVICES 15C. QUANTITY 15D. UNIT 15E. UNIT PRICE 15F. AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
See Section B
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15G. TOTAL AMOUNT OF CONTRACT $ 16,322,871.00
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</TABLE>
16. TABLE OF CONTENTS
<TABLE>
<CAPTION>
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(X) SEC. DESCRIPTION PAGE(S) (X) SEC. DESCRIPTION PAGE(S)
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PART I - THE SCHEDULE PART II - CONTRACT CLAUSES
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<S> <C>
X A SOLICITATION/CONTRACT FORM 1 X I CONTRACT CLAUSES 19-29
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X B SUPPLIES OR SERVICES AND PRICES/COSTS 2-10 PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.
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X C DESCRIPTION/SPECS./WORK STATEMENT 10 X J LIST OF ATTACHMENTS 30
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X D PACKAGING AND MARKING 10 PART IV - REPRESENTATIONS AND INSTRUCTIONS
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X E INSPECTION AND ACCEPTANCE 10 K REPRESENTATIONS, CERTIFICATIONS AND
- -------------------------------------------------------------- OTHER STATEMENTS OF OFFERORS
X F DELIVERIES OR PERFORMANCE 11
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X G CONTRACT ADMINISTRATION DATA 12-14 L INSTRS., CONDS., AND NOTICES TO OFFERORS
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X H SPECIAL CONTRACT REQUIREMENTS 14-18 M EVALUATION FACTORS FOR AWARD
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<CAPTION>
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
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<S> <C>
17. [ ] CONTRACTOR'S NEGOTIATED AGREEMENT (Contractor is re- 18. [X] AWARD (Contractor is not required to sign this document)
quired to sign this document and return ____________________ Your offer on Solicitation Number N00039-95-R-0063 (Q)
copies to issuing office.) Contractor agrees to furnish and --------------------------------
deliver all items or perform all the services set forth or including the additions or changes made by you which additions
otherwise identified above and on any continuation sheets or changes are set forth in full above, is hereby accepted as to
for the consideration stated herein. The rights and items listed above and on any continuation sheets. This award
obligations of the parties to this contract shall be subject consummates the contract which consists of the following
to and governed by the following documents: (a) this award/ documents: (a) the Government's solicitation and your offer, and
contract, (b) the solicitation, if any, and (c) such (b) this award/contract. No further contractual document is
provisions, representations, certifications, and necessary.
specifications, as are attached or incorporated by refer-
ence herein. (Attachments are listed herein.)
- ----------------------------------------------------------------------------------------------------------------------------------
19A. NAME AND TITLE OF SIGNER (Type or print) 20A. NAME OF CONTRACTING OFFICER
Contracting Officer
GEORGE A. ROBINSON President Space and Naval Warfare Systems Command
- ----------------------------------------------------------------------------------------------------------------------------------
19B. NAME OF CONTRACTOR 19C. DATE SIGNED 20B. UNITED STATES OF AMERICA 20C. DATE SIGNED
BY /s/ GEORGE A. ROBINSON 13 March 1996 BY /s/ N.H. CUNNINGHAM 14 MAR 1996
--------------------------------------- -----------------------------------
(Signature of person authorized to sign) (Signature of Contracting Officer)
- ----------------------------------------------------------------------------------------------------------------------------------
NSN 7540-01-152-8069 26-107 STANDARD FORM 26 (REV. 4-85)
PREVIOUS EDITION UNUSABLE Prescribed by GSA
FAR (48 CFR) 53.214 (a)
</TABLE>
<PAGE> 2
N00039-96-0066
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
ITEM DESCRIPTION QTY/UNIT AMOUNT
- ---- ----------- -------- ------
0001 Provide systems engineering, technical 250 SY
analyses and program management support
to Navy Satellite Communicatons (PMW 176)
Submarine Communications (PMW 173) and
Communications Systems Engineering (PD70E)
0001AA O&MN Funds NSP
0001AB R&D Funds NSP
0001AC OPN Funds NSP
0001AD SCN Funds NSP
Estimated Cost .................................................. $ *
Fixed Fee ....................................................... *
Total Estimated Cost Plus Fixed Fee ............................. $16,322,871
0002 Travel and Subsistence 1 Lot $ *
for Item 0001 (See Note 1)
0003 Material for Item 0001 (See Note 2) 1 Lot $ *
NSP - Not Separately Priced
One Staff-Year (SY) equals 2080 hours
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
2
<PAGE> 3
N00039-96-0066
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
OPTION ITEMS 0004 through 0006
ITEM DESCRIPTION QTY/UNIT AMOUNT
- ---- ----------- -------- ------
0004 Provide systems engineering, technical 250 SY
analyses and program management support
to Navy Satellite Communicatons (PMW 176),
Submarine Communications (PMW 173) and
Communications Systems Engineering (PD70E)
0004AA O&MN Funds NSP
0004AB R&D Funds NSP
0004AC OPN Funds NSP
0004AD SCN Funds NSP
Estimated Cost ................................................... $ *
Fixed Fee ........................................................ *
Total Estimated Cost Plus Fixed Fee .............................. $16,600,124
0005 Travel and Subsistence 1 Lot TBD
for Item 0004 (See Note 1)
0006 Material for Item 0004 (See Note 2) 1 Lot TBD
NSP - Not Separately Priced
TBD - To Be Determined
One Staff-Year (SY) equals 2080 hours
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
3
<PAGE> 4
N00039-96-0066
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
OPTION ITEMS 0007 through 0009
ITEM DESCRIPTION QTY/UNIT AMOUNT
- ---- ----------- -------- ------
0007 Provide systems engineering, technical 250SY
analyses and program management support
to Navy Satellite Communications (PMW 176),
Submarine Communications (PMW 173) and
Communications Systems Engineering (PD70E)
0007AA O&MN Funds NSP
0007AB R&D Funds NSP
0007AC OPN Funds NSP
0007AD SCN Funds NSP
Estimated Cost .................................................. $ *
Fixed Fee ....................................................... *
Total Estimated Cost Plus Fixed Fee ............................. $16,868,338
0008 Travel and Subsistence 1 Lot TBD
for Item 0007 (See Note 1)
0009 Material for Item 0007 (See Note 2) 1 Lot TBD
NSP - Not Separately Priced
TBD - To Be Determined
One Staff-Year (SY) equals 2080 hours
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
4
<PAGE> 5
N00039-96-0066
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
OPTION ITEMS 0010 through 0012
CLIN DESCRIPTION QTY/UNIT AMOUNT
- ---- ----------- -------- ------
0010 Provide systems engineering, technical 250 SY
analysis and program management support
to Navy Satellite Communications (PMW 176),
Submarine Communications (PMW 173) and
Communications Systems Engineering (PD70E)
0010AA O&MN Funds NSP
0010AB R&D Funds NSP
0010AC OPN Funds NSP
0010AD SCN Funds NSP
Estimated Cost ................................................... $ *
Fixed Fee ........................................................ *
Total Estimated Cost Plus Fixed Fee .............................. $17,174,632
0011 Travel and Subsistence 1 Lot TBD
for Item 0010 (See Note 1)
0012 Material for Item 0010 (See Note 2) 1 Lot TBD
NSP - Not Separately Priced
TBD - To Be Determined
One Staff-Year (SY) equals 2080 hours
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities
and Exchange Commission.
5
<PAGE> 6
N00039-96-0066
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
OPTION ITEMS 0013 through 0015
CLIN DESCRIPTION QTY/UNIT AMOUNT
- ---- ----------- -------- ------
0013 Provide systems engineering, technical 250 SY
analyses and program management support
to Navy Satellite Communications (PMW 176),
Submarine Communications (PMW 173) and
Communications Systems Engineering (PD70E)
0013AA O&MN Funds NSP
0013AB R&D Funds NSP
0013AC OPN Funds NSP
0013AD SCN Funds NSP
Estimated Cost ................................................... $ *
Fixed Fee ........................................................ *
Total Estimated Cost Plus Fixed Fee .............................. $17,475,533
0014 Travel and Subsistence 1 Lot TBD
for Item 0013 (See Note 1)
0015 Material for Item 0013 (See Note 2) 1 Lot TBD
NSP - Not Separately Priced
TBD - To Be Determined
One Staff-Year (SY) equals 2080 hours
Note 1: A Government estimate for travel and subsistence will be provided at
the time of award. The cost for travel and subsistence shall be reimbursed in
accordance with FAR 31.205-46, and may include G&A expense, but shall not be
subject to any other overhead rates or fixed fee.
Note 2: The cost for material is incidental to performance of the required
tasks and may include such items as office supplies and computer software. The
material cost shall be reimbursed and may include General & Administrative
(G&A), but shall not be subject to any other overhead rates or fixed fee.
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities
and Exchange Commission.
6
<PAGE> 7
N00039-96-0066
SECTION B
B-1 PAYMENT OF FIXED FEE BASED ON MAN-HOURS (TERM TYPE) (JAN 89) (SPAWAR
5252.216-9201)(Applicable to Item 0001, and option items 0004, 0007, 0010 and
0013 if and to the extent exercised)
The fixed fee for work performed under this contract is $ *, provided that not
less than ** staff-hours of direct labor are so employed on such work by the
Contractor. If substantially less than ** staff-hours of direct labor are so
employed for such work, the fixed fee shall be equitably reduced to reflect the
reduction of work. The Government shall make payments to the Contractor when
requested as work progresses, but not more frequently than bi-weekly, on
account of the fixed fee, equal to * * * percent of the amounts invoiced by the
Contractor under the "ALLOWABLE COST AND PAYMENT" clause hereof for the related
period, subject to the withholding provisions of paragraph (b) of the "FIXED
FEE" clause provided that the total of all such payments shall not exceed
eighty-five percent (85%) of the fixed fee. Any balance of fixed fee shall be
paid to the Contractor. Any overpayment of fixed fee shall be repaid by the
Contractor or otherwise credited to the Government, at the time of final
payment.
ITEM *FIXED FEE **STAFF HOURS
---- --------- -----------
0001 *** 520,000
0004 *** 520,000
0007 *** 520,000
0010 *** 520,000
0013 *** 520,000
LEVEL OF EFFORT - FEE ADJUSTMENT FORMULA I (MAR 94) (SPAWAR 5252.216-9204)
(Applicable to Item 0001, and option items 0004, 0007, 0010 and 0013 if
and to the extent exercised)
a. Subject to the provisions of the "Limitation of Cost" or "Limitation of
Funds" clause (whichever is applicable to this contract), the level of effort
for the performance of work under this contract shall be as follows:
Total Staff-hours
ITEM of Direct Labor
---- -----------------
0001 520,000
0004 520,000
0007 520,000
0010 520,000
0013 520,000
*** This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
7
<PAGE> 8
N00039-96-0066
SECTION B
The Contractor agrees to provide the total level of effort specified above in
performance of work described in Sections "B" and "C" of this contract. The
total staff-hours of direct labor shall include subcontractor direct labor
hours for those subcontractors identified in the Contractor's proposal as
having hours included in the proposed level of effort.
b. Of the total man-hours of direct labor set forth above, it is estimated
that* man-hours are competitive time (uncompensated overtime). Competitive time
(uncompensated overtime) is defined as hours provided by personnel in excess of
40 hours per week without additional compensation for such excess work. All
other effort is defined as compensated effort. If no amount is indicated in the
first sentence of this paragraph, competitive time (uncompensated overtime)
effort performed by the contractor shall not be counted in fulfillment of the
level of effort obligations under this contract.
c. Effort performed in fulfilling the total level of effort obligations
specified above shall only include effort performed in direct support of this
contract and shall not include time and effort expended on such things as local
travel to and from an employee's usual work location, uncompensated effort
while on travel status, truncated lunch periods, work (actual or inferred) at
an employee's residence or other non-work locations or other time and effort
which does not have a specific and direct contribution to the tasks described
in Section "B".
d. It is understood and agreed that the rate of staff-hours per month may
fluctuate in pursuit of the technical objective provided that such fluctuation
does not result in the utilization of the total staff-hours of effort prior to
the expiration of the term hereof, and it is further understood and agreed that
the number of hours of effort for any classification may be utilized by the
contractor in any other direct labor classification if necessary for the
performance of the work. Written notification shall be furnished to the
Contracting Officer whenever eighty-five percent (85%) of the established level
of effort is reached.
e. If the total level of effort specified in paragraph (a) above is not
provided by the contractor during the period of this contract, the Contracting
Officer shall either (1) reduce the fixed fee of the contract as follows:
Fee reduction = Fixed Fee x (required LOE - Expended LOE)
---------------------------
Required LOE
or (2) subject to the provisions of the "Limitation of Cost" or "Limitation of
Funds" (whichever is applicable) require the Contractor to continue to perform
work until the total number of man-hours of direct labor specified in paragraph
(a) shall have been expended, at no increase in fixed fee of this contract.
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
8
<PAGE> 9
N00039-96-0066
SECTION B
f. The Contractor shall provide and maintain an accounting system, acceptable
to the Administrative Contracting Officer (ACO) and the Defense Contract Audit
Agency (DCAA), which collects costs incurred and effort (compensated and
uncompensated, if any) provided in fulfillment of the level of effort
obligations of this contract. The Contractor shall indicate on each invoice the
total level of effort claimed during the period covered by the invoice,
separately identifying compensated effort and uncompensated effort, if any.
g. Within 45 days after completion of the work under each separately identified
period of performance hereunder, the Contractor shall submit the following
information in writing, to the Contracting Officer with copies to
the cognizant Contract Administration Office and DCAA office to which vouchers
are submitted:
1. The total number of staff-hours of direct labor expended during the
applicable period.
2. A breakdown of this total showing the number of staff-hours expended in
each direct labor classification and associated direct and indirect costs.
3. A breakdown of other costs incurred.
4. The Contractor's estimate of the total allowable cost incurred under
the contract for the period.
In the case of a cost underrun, the Contractor shall submit the following
information in addition to that required above:
5. The amount by which the estimated cost of this contract may be reduced
to recover excess funds and the total amount of staff-hours not expended, if
any.
6. A calculation of the appropriate fee reduction in accordance with this
clause.
All submissions required by this paragraph shall include subcontractor
information, if any.
h. Notwithstanding any of the provisions in the above paragraphs, in the event
that the Contractor has provided not more than 105% nor less than 95% of the
required level of effort specified for each separately identified period of
performance in paragraph (a) above, within the term and estimated cost set
forth in this contract, then the fee shall remain the same as set forth in
Section "B".
9
<PAGE> 10
N00039-96-0066
SECTION B
i. SPECIAL INSTRUCTION TO THE PAYING OFFICE REGARDING WITHHELD FEE
Fees withheld pursuant to the provisions of this contract, such as the
withholding provided by the "Allowable Cost and Payment" and "Fixed Fee"
clauses, shall not be paid until the contract has been modified to reduce the
fixed fee in accordance with paragraph (e) above, except that no such action is
required if the total level of effort provided falls within the limits
established in paragraph (h) above.
B-3 ALLOTMENT OF FUNDS (JAN 89) (SPAWAR 5252.232-9200) (Applicable to Item
0001, and option items 0004, 0007, 0010 and 0013 if and to the extent
exercised)
a. This contract is incrementally funded with respect to both cost and fee.
b. The amounts presently available and allotted to this contract for payment of
fee, as provided in the Section I clause of this contract entitled "FIXED FEE",
are as follows:
ITEM(S) ALLOTTED TO FIXED FEE
------- ---------------------
0001 *
c. The amounts presently available and allotted to this contract for payment of
cost and travel and subsistence, subject to the Section I "LIMITATION OF FUNDS"
clause, the items covered thereby and the period of performance which it is
estimated the allotted amount will cover are as follows:
ITEM(S) ALLOTTED TO COST PERIOD OF PERFORMANCE
------ ---------------- ---------------------
0001 * 3 April 1996
0002 * 3 April 1996
0003 * 3 April 1996
d. The parties contemplate that the Government will allot additional amounts to
this contract from time to time by unilateral contract modification, and any
such modification shall state separately the amounts allotted for cost and for
fee, the items covered thereby, and the period of performance the amounts are
expected to cover.
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
10
<PAGE> 11
N00039-96-0066
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
Item 0001, 0002 and 0003 and Option Items 0004 through 0015, if and to the
extent exercised, shall be in accordance with the attached Statement of Work
(SOW) entitled "Engineering and Technical Services Statement of Work for
Satellite Communications, PMW 176, Submarine Communications, PMW 173 and
Communications Systems Engineering, PD 70E" dated 04 May 1994 (Attachment 2
hereto), and the Section H-2 clause entitled "Technical Direction".
SECTION D - PACKAGING AND MARKING
All deliverables shall be packed and packaged in accordance with best
commercial practices to ensure safe delivery.
MARKING OF REPORTS (NOV91) (SPAWAR 5252.237-9203)
All reports shall prominently show on the cover of the report:
(1) name and business address of the contractor
(2) contract number
(3) contract dollar amount
(4) whether the contract is competive or non-competitvely awared
(5) sponser:
Department of the Navy
Space and Naval Warfare Systems Command
PMW 176E, CPK 5, Room 518
SECTION E - INSPECTION AND ACCEPTANCE
NOTICE: The following clause is hereby incorporated by reference.
FAR SOURCE TITLE DATE
- ---------- ----- ------
52.246-5 Inspection of Services - Cost-Reimbursement APR 84
Any deliverables under Items 0001, 0002 and 0003, and Option Items 0004
through 0015, if and to the extent exercised, shall be inspected and accepted
at destination by the Commander, Space and Naval Warfare Systems Command,
SPAWAR Code PMW 176-32 or his duly authorized representative.
11
<PAGE> 12
N00039-96-0066
SECTION F - DELIVERIES OR PERFORMANCE
NOTICE: The following clause is hereby incorporated by reference.
FAR SOURCE TITLE DATE
- ---------- ----- ------
52.242-15 Stop Work Order - ALT I (APR 84) AUG 89
The period of performance for Items 0001, 0002 and 0003 shall be from the
effective date of contract through 30 September 1996.
The period of performance for Option Items 0004, 0005 and 0006, if and to the
extent exercised, shall be from 01 October 1996 through 30 September 1997.
The period of performance for Option Items 0007, 0008 and 0009, if and to the
extent exercised, shall be from 01 October 1997 through 30 September 1998.
The period of performance for Option Items 0010, 0011 and 0012, if and to
the extent exercised, shall be from 01 October 1998 through 30 September 1999.
The period of performance for Option Items 0013, 0014 and 0015, if and to
the extent exercised, shall be from 01 October 1999 through 30 September 2000.
SECTION G - CONTRACT ADMINISTRATION DATA
G-1 SUBMISSION OF INVOICES (COST-REIMBURSEMENT, TIME-AND-MATERIALS,
LABOR-HOUR, OR FIXED PRICE INCENTIVE) (JUL 92) (NAPS 5252.232-9001)
a. "Invoice" as used in this clause includes contractor requests for interim
payments using public vouchers (SF-1034) but does not include contractor
requests for progress payments under fixed price incentive contracts.
b. The Contractor shall submit invoices and any necessary supporting
documentation, in an original and 3 copies, to the contract auditor at the
following address: Defense Logistics Agency, DCMAO Manassas, 10500 Battleview
Parkway, Suite 200, Manassas, VA 22110-2342 unless delivery orders are
applicable, in which case invoices will be segregated by individual order and
submitted to the address specified in the order. In addition, an information
copy shall be submitted to SPAWAR Code PMW 176-32. Following verification, the
contract auditor will forward the invoice to the designated payment office for
payment in the amount determined to be owing, in accordance with the applicable
payment (and fee) clause(s) of this contract.
12
<PAGE> 13
N00039-96-0066
SECTION G
c. Invoices requesting interim payments shall be submitted no more than once
every two weeks, unless another time period is specified in the Payments
clause of this contract. For indefinite delivery type contracts, interim
payment invoices shall be submitted no more than once every two weeks for each
delivery order. There shall be a lapse of no more than 30 calendar days between
performance and submission of an interim payment invoice.
d. In addition to the information identified in the Prompt Payment clause
herein, each invoice shall contain the following information, as applicable:
(1) Contract line item number (CLIN)
(2) Subline item number (SLIN)
(3) Accounting Classification Reference Number (ACRN)
(4) Payment terms
(5) Procuring activity
(6) Date supplies provided or services performed
(7) Costs incurred and allowable under the contract
(8) Vessel (e.g., ship, submarine or other craft) or system for which
supply/services is provided
e. A DD Form 250, "Material Inspection and Receiving Report",
is required with each invoice submittal.
----
is required only with the final invoice.
----
X is not required.
----
f. A Certificate of Performance
shall be provided with each invoice submittal.
----
X is not required.
----
g. The Contractor's final invoice shall be identified as such, and shall list
all other invoices (if any) previously tendered under this contract.
h. Costs of performance shall be segregated, accumulated and invoiced to the
appropriate ACRN categories to the extent possible. When such segregation of
costs by ACRN is not possible for invoices submitted with CLINS/SLINS with more
than one ACRN, an allocation ratio shall be established in the same ratio as
the obligations cited in the accounting data so that costs are allocated on a
proportional basis.
13
<PAGE> 14
N00039-96-0066
SECTION G
G-2 ADDRESS TO WHICH PAYMENT IS TO BE MAILED (JAN 89) (SPAWAR
5252.232-9204)
Payment hereunder shall be mailed to the following address:
Advanced Communication Systems
Department 0885
McLean, VA 22109-0885
G-3 PURCHASING OFFICE POINT OF CONTACT (APR 93) (SPAWAR 5252.242-9200)
The Purchasing Office Point of Contact for this procurement is:
Mr. Ed McGinnis
Commander
SPAWAR Code 02-33M
Space and Naval Warfare Systems Command
2451 Crystal Drive (Crystal Park 5)
Arlington, Virginia 22245-5200
Phone: (703) 602-0599
SECTION H - SPECIAL CONTRACT REQUIREMENT
H-1 SUBSTITUTION OF KEY PERSONNEL (JAN 89) (SPAWAR 5252.237-9204)
a. The Offeror agrees to assign to the contract those persons whose resumes
were submitted with his proposal and specifically listed herein who are
necessary to fill the requirements of the contract:
KEY PERSONNEL
* *
* *
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
14
<PAGE> 15
N00039-96-0066
SECTION H
b. The Offeror agrees that during the first ninety (90) days of the contract
performance period no personnel substitutions will be permitted unless such
substitutions are necessitated by an individual's sudden illness, death, or
termination of employment. In any of these events, the Contractor shall
promptly notify the Contracting Officer and provide the information required by
paragraph (c) below. After the initial ninety (90) day period, all proposed
substitutions must be submitted, in writing, at least fifteen (15) days,
(thirty (30) days if security clearance is to be obtained), in advance of the
proposed substitutions to the Contracting Officer, and provide the information
required by paragraph (c) below.
c. All requests for substitutions must provide a detailed explanation of the
circumstances necessitating the proposed substitutions, a complete resume for
the proposed substitute, and any other information requested by the Contracting
Officer, needed by him to approve or disapprove the proposed substitution. All
proposed substitutes must have qualifications that are equal to or higher than
the qualifications of the person to be replaced. The Contracting Officer or his
authorized representative will evaluate such requests and promptly notify the
Contractor of his approval or disapproval thereof
H-2 TECHNICAL DIRECTION (COST TYPE CONTRACTS) (APR 92) (SPAWAR
5252.242-9202)
a. Technical Direction may be provided to the Contractor from time to time by
the Contracting Officer or Contracting Officer's Representative, if authorized,
during the term (term is defined as the period of performance for the basic
contract and any options that may be exercised) of this contract. Technical
Direction will provide specific information relating to the tasks contained in
the Statement of Work and will be provided to the contractor in writing. Any
Technical Direction issued hereunder will be subject to the terms and
conditions of the contract. The contract shall control in the event of conflict
with any Technical Direction issued hereunder, and cannot be modified by any
Technical Direction.
b. As stated, Technical Direction shall be issued in writing and shall include,
but not be limited to, the following information.
(1) date of issuance of Technical Direction;
(2) applicable contract number;
(3) Technical Direction identification number;
(4) description of Technical Direction;
(5) estimated cost;
(6) estimated level of effort by labor category; and
(7) signature of the PCO/COR.
15
<PAGE> 16
N00039-96-0066
SECTION H
c. If the contractor does not agree with the estimated cost specified on the
technical direction, or considers the technical direction to be outside the
scope of the contract, he shall notify the PCO or COR immediately and, in the
case of the estimated cost, arrive at a general agreement to the cost of the
task. In the case of the direction requiring work that is out of the scope of
the contract, the contractor shall not proceed with the effort unless and until
the PCO executes a contract modification to include the change in scope.
H-3 ORGANIZATIONAL CONFLICT OF INTEREST CLAUSE (JAN 89) (SPAWAR
5252.209-9201)
a. The Contractor understands and agrees that the Department of Defense will
not consider it, its successors, or assignees (hereinafter referred to as "the
Contractor"), as a source of supply for any system or major component thereof,
or training related thereto, for which the Contractor provides technical
support and management assistance under the contract. The Contractor further
understands and agrees that it will not be allowed to be a subcontractor or
consultant to a supplier of a system or any major components thereof, or
training related thereto, for which the Contractor provides technical support
and management assistance under this contract.
b. If, under this contract, the Contractor assists the Department of Defense in
the preparation of a Statement of Work, or provides material leading directly,
predictably, and without delay to a Statement of Work, to be used in the
competitive procurement of a system or services, the Contractor understands and
agrees that for the period from effective date of contract through 5 years
after contract completion it shall not be allowed to supply the services or the
system or major components thereof, unless it is the sole source. The content
of a Statement of Work shall not be considered predictable if more than one
prime Contractor is involved in the preparation of material leading to it.
c. The Contractor hereby understands and agrees that if work to be performed
under this contract requires access to proprietary data of other companies, the
Contractor must agree with such other companies to protect such data from
unauthorized use or disclosure so long as it remains proprietary. Evidence of
such agreement must be made available to the PCO upon request. Further, the
Contractor agrees that it will not utilize the data obtained from such other
companies in performing for the Department of Defense additional studies in the
same field which are obtained competitively.
d. Upon receipt of a task order issued under the provisions of this contract,
the Contractor shall conduct a review of actual or potential Organizational
Conflict of Interest (OC of I) as defined in and within the meaning of FAR
Subpart 9.5. If in the opinion of the Contractor the performance of a task
directed under this contract will involve an actual or potential OC of 1, the
Contractor shall notify the Contracting Officer and provide justification in
support of its opinion. The
16
<PAGE> 17
N00039-96-0066
SECTION H
Contracting Officer will thereupon determine whether in fact the task does
involve an OC of I. If the Contracting Officer determines that an OC of I is
involved, the Contractor shall not perform said task unless the parties agree
to the restrictions imposed by FAR Subpart 9.5.
e. Any subcontractor which performs any work relative to this contract shall be
subject to paragraphs A through D above.
f. The Contractor agrees to notify any subcontractor which, pursuant to
paragraph E above, is subject to paragraphs A through D, above, that it is so
subject.
g. The prohibitions imposed by this clause may be waived by the Government.
H-4 SUBCONTRACTING PLAN (NOV 91) (SPAWAR 5252.219-9201)
Pursuant to Public Law 95-507, the Contractor's Subcontracting Plan for Small
Business and Small Disadvantaged Business Concerns is hereby approved and
attached hereto as Attachment " 4 " and is made a part of this contract.
H-5 INCORPORATION OF REPRESENTATIONS AND CERTIFICATIONS BY
REFERENCE (NOV 91) (SPAWAR 5252.215-9210)
All representations and certifications and other written statements made by the
contractor in response to SECTION K of the solicitation or at the request of
the contracting officer, incident to the award of the contract or modification
of this contract, are hereby incorporated by reference with the same force and
effect as if they were given in full text.
H-6 SEGREGATION OF COSTS (AUG 92) (SPAWAR 5252.232-9206)
The Contractor agrees to segregate costs incurred under this contract at the
lowest level of performance, either task or subtask, rather than on a total
contract basis, and to submit invoices reflecting costs incurred at that level.
Invoices shall contain summaries of work charged during the period covered, as
well as overall cumulative summaries by labor category for all work invoiced to
date, by line item, task or subtask.
Where multiple lines of accounting are present, the ACRN preceding the
accounting citation will be found in Section B and/or Section C of the contract
or in the task or delivery order which authorizes work. Payment of Contractor
invoices shall be accomplished only by charging the ACRN which corresponds to
the work invoiced. One (1) copy of each invoice will be provided to the COR,
designated herein, and the PCO at the time of submission to DCAA.
17
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N00039-96-0066
SECTION H
H-7 OPTION FOR SERVICES (APPLICABLE TO OPTION ITEMS 0004-0015)
The Government may at any time, but no later than the dates specified below,
require the Contractor to furnish all or any part of the following Item(s) for
delivery at the time(s) and place(s) and at the price(s) or estimated cost set
forth herein. These options shall be exercised if at all, by written
telegraphic notice signed by the Contracting Officer and sent within the option
exercise periods specified below:
ITEMS OPTION EXERCISE PERIOD
- --------- -----------------------
0004-0006 By 31 October 1996
0007-0009 By 31 October 1997
0010-0012 By 31 October 1998
0013-0015 By 31 October 1999
18
<PAGE> 19
N00039-96-0066
PART II - Contract Clauses
SECTION I - CONTRACT CLAUSES
CLAUSES INCORPORATED BY REFERENCE (JUN 1988) FAR 52.252-2
This solicitation and the resulting contract incorporates the following clauses
by reference with the same force and effect as if they were given in full text.
Upon request, the Contracting Officer will make their full text available.
NOTICE: The following solicitation and contract clauses are hereby incorporated
by reference.
I. FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSES
FAR SOURCE TITLE DATE
- ---------- ----- ----
52.202-1 Definitions OCT 95
52.203-3 Gratuities APR 84
52.203-5 Covenant Against Contingent Fees APR 84
52.203-6 Restrictions on Sub-Contractor Sales To The JUL 95
Government
52.203-7 Anti-Kickback Procedures OCT 88
52.203-10 Price or Fee Adjustment for Illegal or JUL 95
Improper Activity
52.203-12 Limitation on Payments to Influence Certain JAN 90
Federal Transactions
52.203-13 Procurement Integrity-Service Contracting SEP 90
52.204-2 Security Requirements APR 84
52.204-4 Printing/Copying Double-Sided on Recycled Paper MAY 95
52.209-6 Protecting the Govenment's Interest when JUL 95
Subcontracting with Contractors Debarred,
Suspended, or Proposed for Debarment
52.211-5 New Material MAY 95
52.211-7 Other Than New Material, Residual Inventory, MAY 95
and Former Government Surplus
52.212-8 Defense Priority and Allocation Requirements SEP 90
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N00039-96-0066
SECTION I
COST REIMBURSEMENT SERVICES
FAR SOURCE TITLE DATE
- ---------- ----- ----
52.215-2 Audit and Records-Negotiation OCT 95
52.215-23 Price Reduction for Defective Cost or Pricing OCT 95
Data-Modifications
52.215-25 Subcontractor Cost or Pricing Data-Modifications OCT 95
52.215-31 Waiver of Facilities Capital Cost of Money SEP 87
52.215-33 Order Of Precedence JAN 86
52.215-39 Reversion or Adjustment of Plans for
Postretirement Benefits Other FEB 95
Than Pensions (PRB)
52.215-40 Notification of Ownership Changes FEB 95
52.216-7 Allowable Cost and Payment JUL 91
52.216-8 Fixed Fee APR 84
52.219-8 Utilization of Small Business Concerns and OCT 95
Small Disadvantaged Business Concerns
52.219-9 Small Business and Small Disadvantaged Business OCT 95
Subcontracting Plan
52.219-16 Liquidated Damages-Small Business
Subcontracting Plan OCT 95
52.222-2 Payment for Overtime Premiums (para (a) zero) JUL 90
52.222-3 Convict Labor APR 84
52.222-26 Equal Opportunity APR 84
52.222-28 Equal Opportunity Preaward Clearance of APR 84
Subcontracts
52.222-35 Affirmative Action for Special Disabled and APR 84
Vietnam Era Veterans
52.222-36 Affirmative Action for Handicapped Workers APR 84
52.222-37 Employment Reports on Special Disabled Veterans JAN 88
and Veterans of the Vietnam Era
52.222-41 Service Contract Act of 1965, as Amended MAY 89
52.222-42 Statement of Equivalent Rates for Federal Hires MAY 89
52.223-2 Clean Air and Water APR 84
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N00039-96-0066
SECTION I
COST REIMBURSEMENT SERVICES
<TABLE>
<CAPTION>
FAR SOURCE TITLE DATE
- --------- ----- ----
<C> <S> <C>
52.223-6 Drug-Free Workplace JUL 90
52.225-11 Restrictions on Certain Foreign Purchases MAY 92
52.226-1 Utilization of Indian Organizations and AUG 91
Indian-Owned Economic Enterprises
52.227-1 Authorization and Consent (ALT I) JUL 95
52.227-2 Notice and Assistance Regarding Patent and APR 84
Copyright Infringement
52.227-10 Filing of Patent Applications - Classified APR 84
Subject Matter
52.227-11 Patent Rights-Retention by the Contractor JUN 89
(Short Form)
52.228-7 Insurance-Liability to Third Persons APR 84
52.230-2 Cost Accounting Standards AUG 92
52.230-3 Disclosure and Consistency of Cost Accounting NOV 93
Practices
52.230-5 Administration of Cost Accounting Standards FEB 95
52.232-9 Limitation on Withholding of Payments APR 84
52.232-17 Interest JAN 91
52.232-20 Limitation of Costs (automatically applies APR 84
to fully funded CLINs)
52.232-22 Limitation of Funds (applies to incrementally APR 84
funded CLINs)
52.232-23 Assignment of Claims JAN 86
52.232-25 Prompt Payment MAR 94
52.232-28 Electronic Funds Transfer Payment Methods APR 89
52.233-1 Disputes OCT 95
52.233-3 Protest After Award - ALT I (JUN 85) OCT 95
52.237-3 Continuity of Services JAN 91
52.242-1 Notice of Intent to Disallow Costs APR 84
52.242-13 Bankruptcy JUL 95
52.243-2 Changes-Cost Reimbursement - (ALT II) AUG 87
52.243-7* Notification of Changes APR 84
52.244-2 Subcontracts (Cost Reimbursement and Letter FEB 95
Contracts) (ALT I) (95 Jul)
52.244-5 Competition in Subcontracting JAN 96
52.245-5 Government Property (Cost Reimbursement, JAN 86
Time and Material or Labor Hour Contracts)
52.246-25 Limitation of Liability - Services APR 84
</TABLE>
*Paragraph (b)-30 days; paragraph (d)-60 days
21
<PAGE> 22
N00039-96-0066
SECTION I
COST REIMBURSEMENT SERVICES
<TABLE>
<CAPTION>
FAR SOURCE TITLE DATE
- ---------- ----- ----
<C> <S> <C>
52.247-63 Preference for U.S. Flag Air Carriers APR 84
52.249-6 Termination (Cost Reimbursement) MAY 86
52.249-14 Excusable Delays APR 84
52.251-1 Government Supply Sources APR 84
52.253-1 Computer Generated Forms JAN 91
<CAPTION>
II. DOD FEDERAL ACQUISITION REGULATION SUPPLEMENT (48 CFR CHAPTER 2) CLAUSES
FAR
SUPPLEMENT TITLE DATE
- ---------- ----- ----
<C> <S> <C>
252.201-7000 Contracting Officer's Representative DEC 91
252.203-7000 Statutory Prohibitions on Compensation DEC 91
to Former Department of Defense Employees
252.203-7001 Special Prohibition on Employment APR 93
252.203-7002 Display of DOD Hotline Poster DEC 91
252.203-7003 Prohibition Against Retaliatory Personnel APR 92
Actions
252.204-7000 Disclosure of Information DEC 91
252.204-7003 Control of Government Personnel Work Product APR 92
252.205-7000 Provision of Information to Cooperative DEC 91
Agreement Holders
252.209-7000 Acquisitions from Subcontractors Subject DEC 91
to On-Site Inspection Under the Intermediate-
Range Nuclear Forces (INF) Treaty
252.215-7004 Reporting of Commercial Transactions with SEP 94
the Government of a Terrorist Country
252.210-7003 Acquisition Streamlining DEC 91
252.215-7000 Pricing Adjustment DEC 91
252.215-7002 Cost Estimating System Requirements DEC 91
252.219-7003 Small Business and Small Disadvantaged NOV 95
Business Subcontracting Plan (DOD Contracts)
</TABLE>
22
<PAGE> 23
N00039-96-0066
SECTION I
COST REIMBURSEMENT SERVICES
<TABLE>
<CAPTION>
FAR
SUPPLEMENT TITLE DATE
- ---------- ----- ----
<C> <S> <C>
252.219-7005 Incentive for Subcontracting With Small
Businesses, Small Disadvantaged Businesses,
Historically Black Colleges and Universities,
and Minority Institutions * NOV 95
252.219-7009 Certificate of Competency APR 93
252.223-7004 Drug-Free Work Force SEP 88
252.225-7025 Foreign Source Restrictions APR 93
252.225-7026 Reporting of Contract Performance NOV 95
Outside the United States
252.225-7031 Secondary Arab Boycott of Israel JUN 92
252.231-7000 Supplemental Cost Principles DEC 91
252.232-7006 Reduction or Suspension of Contract Payments AUG 92
Upon Finding of Fraud
252.233-7000 Certification of Claims and Requests for MAY 94
Adjustment or Relief
252.242-7001 Certification of Indirect Cost DEC 91
252.242-7004 Material Management and Accounting System DEC 91
252.245-7001 Reports of Government Property MAY 94
252.246-7001 Warranty of Data DEC 91
252.249-7001 Notification of Substantial Impact on Employment DEC 91
252.251-7000 Ordering from Government Supply Sources MAY 95
</TABLE>
*1%
23
<PAGE> 24
N00039-96-0066
SECTION I
REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY-MODIFICATION (NOV 90)
(FAR 52.203-9)
(a) Definitions. The definitions set forth in FAR 3.104-4 are hereby
incorporated in this clause.
(b) The Contractor agrees that it will execute the certification set forth in
paragraph (c) of this clause when requested by the contracting officer in
connection with the execution of any modification of this contract.
(c) Certification. As required in paragraph (b) of this clause, the officer or
employee responsible for the modification proposal shall execute the following
certification:
CERTIFICATE OF PROCUREMENT INTEGRITY-MODIFICATION (NOV 90)
(1) I,______________________ am the officer or employee responsible for the
(Name of certifier)
preparation of this modification proposal and hereby certify that, to the best
of my knowledge and belief, with the exception of any information described in
this certification, I have no information concerning a violation or possible
violation of subsection 27(a), (b), (d), or (f) of the Office of Federal
Procurement Policy Act, as amended* (41 U.S.C. 423), (hereinafter referred to
as "the Act"), as implemented in the FAR occurring during the conduct of this
procurement ______________________ (contract and modification number).
*Subsections 27(a), (b), and (d) are effective on December 1, 1990. Subsection
27(f) is effective on June 1, 1991.
(2) As required by subsection 27(e)(1)(B) of the Act, I further certify that
to the best of my knowledge and belief, each officer, employee, agent,
representative, and consultant of (Name of offeror) who has participated
personally and substantially in the preparation or submission of this proposal
has certified that he or she is familiar with, and will comply with, the
requirements of subsection 27(a) of the Act, as implemented in the FAR, and
will report immediately to me any information concerning a violation or
possible violation of subsections 27(a), (b) (d), or (f) of the Act, as
implemented in the FAR, pertaining to this procurement.
24
<PAGE> 25
N00039-96-0066
SECTION I
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity-Modification
(Continuation Sheet), ENTER "NONE" IF NONE EXISTS)
-----------------------------
- -------------------------------------------------------------------------------
(Signature of the officer or employee responsible for the modification proposal
and date)
- -------------------------------------------------------------------------------
(Typed name of the officer or employee responsible for the modification
proposal)
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN AGENCY OF
THE UNITED STATES AND THE MAKING OF A FALSE, FICTITIOUS, OR FRAUDULENT
CERTIFICATION MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER TITLE 18,
UNITED STATES CODE, SECTION 1001.
(End of certification)
(d) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer or
bid, may rely upon a one-time certification from each individual required to
submit a certification to the competing Contractor, supplemented by periodic
training. These certifications shall be obtained at the earliest possible date
after an individual required to certify begins employment or association with
the contractor. If a contractor decides to rely on a certification executed
prior to the suspension of section 27 (i.e., prior to December 1, 1989), the
Contractor shall ensure that an individual who has so certified is notified
that section 27 has been reinstated. These certifications shall be maintained
by the Contractor for a period of 6 years from the date a certifying employee's
employment with the company ends or, for an agency, representative, or
consultant, 6 years from the date such individual ceases to act on behalf of
the contractor.
(e) The certification required by paragraph (c) of this clause is a material
representation of fact upon which reliance will be placed in executing this
modification.
PREFERENCE FOR LABOR SURPLUS AREA CONCERNS (APR 1984) (FAR 52.220-1)
(a) This acquisition is not a set aside for labor surplus area (LSA) concerns.
However, the offeror's status as such a concern may affect (1) entitlement to
award in case of tie offers or (2) offer evaluation in accordance with the Buy
American Act clause of this solicitation. In order to determine whether the
offeror is entitled to a preference under (1) or (2) above, the offeror must
identify, below, the LSA in which the costs to be incurred on account of
manufacturing or production (by the offeror or the first-tier subcontractors)
amount to more than 50 percent of the contract price.
.........................................................................
25
<PAGE> 26
N00039-96-0066
.........................................................................
SECTION I
(b) Failure to identify the locations as specified above will preclude
consideration of the offeror as an LSA concern. If the offeror is awarded a
contract as an LSA concern and would not have otherwise qualified for award,
the offeror shall perform the contract or cause the contract to be performed in
accordance with the obligations of an LSA concern.
TRANSPORTATION OF SUPPLIES BY SEA (DEC 91) (DFARS 252.247-7023)
(a) Definitions. As used in this clause--
(1) "Components" means articles, materials, and supplies incorporated
directly into end products at any level of manufacture, fabrication
or assembly by the Contractor or any subcontractor.
(2) "Department of Defense" (DoD) means the Army, Navy, Air Force, Marine
Corps, and defense agencies.
(3) "Foreign flag vessel" means any vessel that is not a U.S.-flag
vessel.
(4) "Ocean transportation" means any transportation aboard a ship,
vessel, boat, barge, or ferry through international waters.
(5) "Subcontractor" means a supplier, materialman, distributor or vendor
at any level below the prime contractor whose contractual obligation
to perform results from, or is conditioned upon, award of the prime
contract and who is performing any part of the work or other
requirement of the prime contract.
(6) "Supplies" means all property, except land and interests in land,
that is clearly identifiable for eventual use by or owned by the DoD
at the time of transportation by sea.
(i) An item is clearly identifiable for eventual use by the DoD if,
for example, the contract documentation contains a reference to
a DoD contract number or a military destination.
(ii) "Supplies" includes (but is not limited to) public works;
buildings and facilities; ships; floating equipment and vessels
of every character, type, and description, with parts,
subassemblies, accessories, and equipment; machine tools;
material; equipment; stores of all kinds; end items;
construction materials; and components
26
<PAGE> 27
N00039-96-0066
of the foregoing.
SECTION I
(7) "U.S.-flag vessel" means a vessel of the United States or belonging
to the United States, including any vessel registered or having
national status under the laws of the United States.
(b) The Contractor shall employ U.S.-flag vessels in the transportation by sea
of any supplies to be furnished in the performance of this contract. The
Contractor and its subcontractors may request that the Contracting Officer
authorize shipment in foreign-flag vessels, or designate available U.S.-flag
vessels, if the Contractor or a subcontractor believes that-
(1) U.S.-flag vessels are not available for timely shipment;
(2) The freight charges are inordinately excessive or unreasonable; or
(3) Freight charges are higher than charges to private persons for
transportation of like goods.
(c) The Contractor must submit any request for use of other than U.S.-flag
vessels in writing to the Contracting Officer at least 45 days prior to the
sailing date necessary to meet its delivery schedules. The Contracting Officer
will process requests submitted after such date(s) as expeditiously as
possible, but the Contracting Officer's failure to grant approvals to meet the
shipper's sailing date will not of itself constitute a compensable delay under
this or any other clause of this contract. Request shall contain at a minimum:
(1) Type, weight, and cube of cargo;
(2) Required shipping date;
(3) Special handling and discharge requirements;
(4) Loading and discharge points;
(5) Name of shipper and consignee;
(6) Prime contract number; and
(7) A documented description of efforts made to secure U.S.-flag
vessels, including points of contact (with names and telephone
numbers) with at least two U.S.-flag carriers
27
<PAGE> 28
N00039-96-0066
contacted. Copies of telephone notes, telegraphic and facsimile
messages or letters will be sufficient for this purpose.
SECTION I
(d) The contractor shall, within (30) days after each shipment covered by this
clause, provide the Contracting Officer and the Division of National Cargo,
Office of Market Development, Maritime Administration, U.S. Department of
Transportation, Washington, DC 20590, one copy of the rated on board vessel
operating carrier's ocean bill of landing, which shall contain the following
information--
(1) Prime contract number;
(2) Name of vessel;
(3) Vessel flag of registry;
(4) Date of loading;
(5) Port of loading;
(6) Port of final discharge;
(7) Description of commodity;
(8) Gross weight in pounds and cubic feet if available;
(9) Total ocean freight in U.S. dollars; and
(10) Name of the steamship company.
(e) The Contractor agrees to provide with it final invoice under this contract
a representation that to the best of its knowledge and belief--
(1) No ocean transportation was used in the performance of this contract;
(2) Ocean transportation was used and only U.S.-flag vessels were used
for all ocean shipments under the contract.
(3) Ocean transportation was used, and the Contractor had the written
consent of the Contracting Officer for all non-U.S.-flag ocean
transportation; or
28
<PAGE> 29
N00039-96-0066
SECTION I
(4) Ocean transportation was used and some or all of the shipments were
made on non-U.S.-flag vessels without the written consent of the
Contracting Officer. The Contractor shall describe these shipment in
the following format:
ITEM CONTRACT
DESCRIPTION LINE ITEMS QUANTITY
TOTAL
(f) If the final invoice does not include the required representation, the
Government will reject and return it to the Contractor as an improper invoice
for the purposes of the Prompt Payment clause of this contract. In the event
there has been unauthorized use of non-U.S.-flag vessels in the performance of
this contract, the Contracting Officer is entitled to equitably adjust the
contract, based on the unauthorized use.
(g) The Contractor shall include this clause, including this paragraph (g) in
all subcontracts under this contract, which exceed the small purchase
limitation of section 13.000 of the Federal Acquisition Regulation.
NOTIFICATION OF TRANSPORTATION OF SUPPLIES BY SEA (DEC 91) (DFARS
252.247-7024)
(a) The Contractor has indicated by the response to the solicitation
provision, Representation of Extent of Transportation by Sea, that it did not
anticipate transporting by sea any supplies. If however, after the award of
this contract, the Contractor learns that supplies, as defined in the
Transportation of Supplies by Sea clause of this contract, will be transported
by sea, the Contractor--
(1) Shall notify the Contracting Officer of the fact, and
(2) Hereby agrees to comply with all the terms and conditions of the
Transportation of Supplies by Sea clause of this contract.
(b) The Contractor shall include this clause, including this paragraph (b),
revised as necessary to reflect the relationship of the contracting parties, in
all subcontracts hereunder.
29
<PAGE> 30
N00039-96-0066
SECTION J - LIST OF ATTACHMENTS
Attachment 1 - Reserved for the Financial Accounting Data Sheet
Attachment 2 - Statement of Work (SOW) entitled "Engineering and Technical
Services Statement of Work for Satellite Communications, PMW
176, Submarine Communications, PMW 173 and Communications
Systems Engineering, PD 70E" dated 04 May 1994
Attachment 3 - Contract Security Classification Specification, DD Form 254
30
<PAGE> 31
FINANCIAL ACCOUNTING DATA SHEET
SPAWAR 7300/3 (07-88)
<TABLE>
<CAPTION>
N0003994PRDV002.1
- --------------------------------------------------------------------------------------------------------------------------
1. PIIN NUMBER 2. SUPPL 3. DATE 4. REFERENCE DOC NO 5. ICI 6. ACT 7. CONTRACTOR 8. CONTRACTOR
PIIN EFF CODE
YR MO DA
N0003996C0066 96 02 21
- --------------------------------------------------------------------------------------------------------------------------
16. 17. 18 19. 20. 21. 22. ACCOUNTING DATA
-------------------------------------------------------------------
A C REFERENCE REF CLIN SLIN TAC A. B. C. D. E. BCN F. G.
C 0 DOCUMENT ACRN CODE ACRN APPROPRI - SUB- OBJ -----------
T D NUMBER ATION HEAD CLASS PARM RM SA AAA
E
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A N0003996AFE57KP 0001 N732 AA 1761319 57KP 000 EA 176 0 068342
- --------------------------------------------------------------------------------------------------------------------------
A N0003996AFE57KP 0002 N732 AB 1761319 57KP 000 EA 176 0 068342
- --------------------------------------------------------------------------------------------------------------------------
A N0003996AFE57KP 0003 N732 AB 1761319 57KP 000 EA 176 0 068342
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
501
- ---------------------------------------------------------------------------
9. PAYING 10. DCASR 11. OBL PAGE 1 OF 1
ADMIN OFF IND ACT
- ---------------------------------------------------------------------------
ACCOUNTING DATA 23.
- --------------------------------------------------------
H. I. J. COST CODE
------------------------------------
TT PAA PROJ UNIT MCC PDLI&S AMOUNT
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2D 98051Q 00731 ETS 3120 36,900.00
- ---------------------------------------------------------------------------
2D 98051Q 00731 000 1000 8,800.00
- ---------------------------------------------------------------------------
2D 98051Q 00731 000 1000 1,800.00
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
No changes to this Document are Authorized without prior consent of Authorizing Official below. TOTAL 47,500.00
- ----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------COMPTROLLER CLEARANCE----------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
PREPARED BY DATE OBLIGATIONS OF FUNDS IS AUTHORIZED SIGNATURE DATE
IN AMOUNTS SHOWN IN COLUMN 23 ABOVE /s/ CHARLES R. HOLLISTER (703) 602-3275 2/22/96
/s/ JAMES CARROLL 21 FEB 96 RICHARD J. LUCEY, ACCOUNTING OFFICER
- ----------------------------------------------------------------------------------------------------------------------------------
CHARLES R. HOLLISTER
SUPERVISOR OPERATING ACCOUNTANT
</TABLE>
<PAGE> 32
FOR OFFICIAL USE ONLY
ENGINEERING AND TECHNICAL
SERVICES
STATEMENT OF WORK
FOR
PMW 176, PMW 173, AND PD 70E
04 MAY 1994
PREPARED BY: PMW 176-32E
SPACE AND NAVAL WARFARE
SYSTEMS COMMAND
2451 CRYSTAL DRIVE
ARLINGTON, VIRGINIA 22245-5200
FOR OFFICIAL USE ONLY
<PAGE> 33
FOR OFFICIAL USE ONLY
ENGINEERING AND TECHNICAL SERVICES
STATEMENT OF WORK
TABLE OF CONTENTS
1.0 SCOPE .................................................................. 1
1.2 Background ............................................................. 1
2.0 APPLICABLE DOCUMENTS ................................................... 2
3.0 REQUIREMENTS ........................................................... 2
3.1 Systems Engineering Support ............................................ 2
3.1.1 Deliverable Products ................................................. 5
3.1.2 Schedule ............................................................. 5
3.2 Systems Hardware Engineering ........................................... 5
3.2.1 Deliverable Products ................................................ 6
3.2.2 Schedule ............................................................ 7
3.3 Systems Software Engineering .......................................... 7
3.3.1 Deliverable Products ................................................ 8
3.3.2 Schedule ............................................................ 8
3.4 Production Support .................................................... 8
3.4.1 Deliverable Products ................................................ 11
FOR OFFICIAL USE ONLY
<PAGE> 34
FOR OFFICIAL USE ONLY
ENGINEERING AND TECHNICAL SERVICES
STATEMENT OF WORK
TABLE OF CONTENTS
3.4.2 Schedule ............................................................ 11
3.5 Operational Support ................................................... 12
3.5.1 Deliverable Products ................................................ 13
3.5.2 Schedule ............................................................ 13
4.0 PROGRESS REPORTS ...................................................... 14
FOR OFFICIAL USE ONLY
<PAGE> 35
FOR OFFICIAL USE ONLY
ENGINEERING AND TECHNICAL SERVICES
STATEMENT OF WORK
FOR
SATELLITE COMMUNICATIONS, PMW 176
SUBMARINE COMMUNICATIONS, PMW 173
COMMUNICATIONS SYSTEMS ENGINEERING, PD 70E
1.0 SCOPE
This Statement of Work (SOW) identifies the technical, engineering and
program management efforts required to support PMW 176, Navy Satellite
Communications (SATCOM); PMW 173, Submarine Communications and PD 70E,
Communications Systems Engineering.
1.2 BACKGROUND
PMW 176
The SATCOM Program Manager (PMW 176) exercises program management and
technical control over the conception, development, test and evaluation,
acquisition and life cycle support of all satellite communications programs.
PMW 176 is responsible for the planning, direction, control and integration of
all efforts in the Space and Naval Warfare Systems Command (SPAWAR) relating to
all satellite communications systems in various stages of acquisition planning
and for installation of these equipment aboard ships and ashore.
PMW 173
The Submarine Communications Program Manager (PMW 173) exercises program
management and technical control over the conception, development, test and
evaluation, acquisition and life cycle support of submarine strategic and
tactical communications systems. PMW 173 is responsible for the planning,
direction, control and integration of all efforts in SPAWAR relating to
submarine communications systems in various stages of acquisition planning and
for installation of these equipment aboard submarines and ashore.
PD 70E
PD 70E is responsible for providing the scientific and technical expertise
to ensure efficient systems engineering, interface and effectiveness between
and among development and operational systems and equipment throughout PD 70.
PD 70E will act to establish technical standards and policies, and to provide
software engineering assistance to subordinate codes. PD 70E also monitors and
evaluates execution of all research and development requirements in response to
PD 70 objectives.
FOR OFFICIAL USE ONLY
1
<PAGE> 36
FOR OFFICIAL USE ONLY
2.0 APPLICABLE DOCUMENTS
The following documents of the issue in effect on the date of request for
proposal, form a part of this SOW to the extent specified herein.
None.
3.0 REQUIREMENTS
The contractor shall perform systems engineering and technical analyses
required to support PMW 176 for Ultra High Frequency (UHF), Super high
Frequency (SHF) and Extremely High Frequency (EHF) SATCOM and associated
systems; PMW 173 for Submarine Communications and PD 70E for Communications
System Engineering. The contractor shall assist in transitioning various
programs from conception-to-development-to-production-to-installation and in
establishing Life Cycle Engineering programs and procedures. This effort will
include specific tasks in the following areas:
SYSTEMS ENGINEERING
SYSTEMS HARDWARE ENGINEERING
SYSTEMS SOFTWARE ENGINEERING
PRODUCTION SUPPORT
OPERATIONAL SUPPORT
The contractor will be directed to accomplish specific tasks as described
in paragraphs 3.1 through 4.0 in accordance with written Technical Direction
(TD) from the Contracting Officer's Representative (COR).
3.1 SYSTEMS ENGINEERING SUPPORT
The contractor shall provide technical and engineering support to assist
in the development of various communications systems, to include performing
systems engineering analyses to refine existing, and to develop new systems
concepts required to allow the successful development, integration and test of
hardware and software items. The contractor shall address engineering and
operational issues such as nuclear survivability/vulnerability (S/V) and
Electromagnetic Environmental Effects (E(3)) to meet future threats,
supportability and sustainability issues, and operational issues to meet
Initial Operational Capability (IOC) and Full Operational Capability (FOC), as
well as interface and interoperability issues.
The Systems Engineering task shall include, but not be limited to, the
following:
FOR OFFICIAL USE ONLY
2
<PAGE> 37
FOR OFFICIAL USE ONLY
A. PLANNING
The contractor shall provide planning for development of concepts,
feasibility models, advanced development models, engineering and manufacturing
development models and life cycle upgrades of existing systems to allow for
product improvements. The contractor shall provide detailed plans to enable the
Government to measure progress toward program goals. The contractor shall
provide a project control system to effectively inform the Government of actual
versus planned schedule performance.
B. STUDIES
The contractor shall generate systems, network, and implementation
concepts and/or perform feasibility studies to assess new technical,
operational or support concepts, resolve problems, investigate system
deficiencies or establish proposed operational performance parameters. The
contractor shall perform the full range of these studies including preparation
and implementation of required test plans and procedures.
C. SERVICE TEST MODELS
The contractor shall monitor and evaluate engineering and manufacturing
development projects. The contractor shall provide engineering and
manufacturing development specifications, assess progress toward development
goals and participate in the resolution of technical or operational problems.
D. THREAT PERFORMANCE
The contractor shall conduct systems analyses of terminal performance in
the areas of jam resistance, low probability of intercept (LPI), nuclear
survivability, and other vulnerability issues where applicable.
E. BASEBAND SYSTEMS ANALYSES
The contractor shall perform systems analyses to define the
characteristics and impacts of interfaces between communications systems.
F. SYSTEM SECURITY
The contractor shall evaluate information systems security (INFOSEC) and
communication security (COMSEC) key issues as they apply in Navy communications
programs. The contractor shall analyze requirements and recommend approaches
which ensure compatibility and interoperability between Navy hardware, software
and crypto equipment. The contractor shall participate
FOR OFFICIAL USE ONLY
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FOR OFFICIAL USE ONLY
in COMSEC working groups, providing technical expertise in the operational
aspects of Navy cryptographic devices.
G. INTEROPERABILITY ISSUES
The contractor shall analyze communications operability issues and
generate/review interoperability specifications and Interface Control Drawings
(ICD). This shall include support in the maintenance and development of
inter-service test plans and test procedures where required.
H. TERMINAL DESIGN AND DOCUMENTATION
The contractor shall review and evaluate Navy communications terminal
design modifications. This shall include participation in and contribution of
technical support at formal and informal design reviews. The services
contractor shall perform independent reviews and analyses of the development
contractor's terminal and software design and test plans, procedures, reports,
technical studies, drawings, ICDS, and Navy internal documentation.
I. ENGINEERING CHANGES
The contractor shall perform independent evaluations of Engineering Change
Proposals (ECPs), Software Change Proposals (SCPs), Engineering Change Notices
(ECNs), Interface Revision Notices (IRNs), and deviation and waiver requests
prepared by terminal contractors to assess their necessity and technical
feasibility. The contractor shall then conduct an impact analysis of these
changes on the sustainability and supportability of the overall communications
terminal program.
J. TECHNOLOGY UPGRADES
The contractor shall monitor and evaluate technology advancements in
Navy communications terminals. The contractor shall address the degree of
improvement and the impact of insertion on the production baseline. Assessments
shall address improvements to AJ, LPI, acquisition and communication
capabilities. The contractor shall conduct cost/benefit analyses to determine
cost and technical risks and tradeoffs.
K. SYSTEM PROBLEM FEEDBACK
(1) PROBLEM TRACKING
The contractor shall develop and maintain a system to monitor and provide
feedback concerning problems or deficiencies discovered during any phase of
Government approved testing, and shall include problems or deficiencies
discovered by the fleet or
FOR OFFICIAL USE ONLY
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FOR OFFICIAL USE ONLY
during Installation and Checkout (INCO). This system shall address both Trouble
Failure Reports (TFRS) and Software Trouble Reports (STRs). Current feedback
systems shall be evaluated and tradeoff recommendations made. The contractor
shall analyze feedback alternatives from the life cycle maintenance point of
view. The system shall provide methodology to identify and resolve
problems/deficiencies, and provide a means to track developmental, operational,
supportability, sustainability, and production problems. The contractor shall
provide production line resolutions and verify problem correction(s).
(2) PROBLEM ANALYSIS
The contractor shall analyze TFRs and STRs to identify the source of such
problems and their full scope. The contractor shall propose alternate
corrective actions, evaluate such alternatives, and recommend a course of
action to the Government.
L. REVIEWS AND AUDITS
The contractor shall support and participate in all hardware and software
reviews and audits, including Preliminary Design Review (PDR) and Critical
Design Review (CDR). Such assistance and participation shall include
identifying agenda items, reviewing documentation and tracking performance
requirements and action items.
M. OPERATIONS PLAN/CONCEPTS
The contractor shall analyze and evaluate draft and/or validated
operational plans and concepts to determine their impact on Navy Communications
production and implementation.
3.1.1. DELIVERABLE PRODUCTS
The contractor shall prepare the following deliverables. Specific content
and format requirements will be described in a written COR Technical Direction.
Technical Reports
Point Papers
Technical Review Comments
Recommendations for Corrective Action
Recommended Approaches to Development Issues
Cost, Schedule, Technical Tradeoff Recommendations
3.1.2 SCHEDULE
The schedule for the deliverable product(s) will be defined
FOR OFFICIAL USE ONLY
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FOR OFFICIAL USE ONLY
in a written COR Technical Direction. It will include required quantities and
delivery locations.
3.2 SYSTEMS HARDWARE ENGINEERING
The contractor shall conduct engineering analyses of hardware designs and
assess compliance with terminal specifications, identifying changes which may
be required due to issues resulting from testing or production readiness
assessments.
Hardware design engineering tasks shall include, but, not be limited to
the following:
A. TERMINAL DESIGN AND DOCUMENTATION
The contractor shall review and evaluate terminal design modifications.
The contractor shall participate in and contribute technical support at formal
and informal design reviews. The contractor shall conduct analyses of the
terminal contractor's design and test plans, procedures, reports, technical
studies, drawings, ICDS, and Navy internal documentation.
B. DESIGN VERIFICATION
The contractor shall generate and/or verify the completeness and accuracy
of technical studies and design approaches. This shall include reliability and
maintainability (R&M), supportability and sustainability, human factors, and
Quality Assurance (QA) data and documentation to ensure terminal effectiveness.
The contractor shall assess terminal design ability to meet Navy performance
specifications and shall propose viable solutions to these requirements.
C. ELECTRICAL/MECHANICAL DESIGN
The contractor shall generate and/or review and validate terminal
electrical and mechanical design requirements, analyzing functional performance
characteristics, physical partitioning and packaging, built-in-test (BIT),
built-in-test-equipment (BITE), and functional allocations.
D. SPECIFICATION PREPARATION
The contractor shall generate or participate in the development of
functional and interface specifications. This shall include developing,
reviewing, or modifying specifications
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FOR OFFICIAL USE ONLY
for modified or new equipment. The contractor shall provide technical support
as required in the formalization of solutions to functional and interface
issues which may arise.
E. TROUBLE REPORTS
The contractor shall monitor and technically review field, laboratory and
vendor test failure reports. The contractor shall also participate in failure
review board meetings.
3.2.1 DELIVERABLE PRODUCTS
The contractor shall prepare the following deliverables. Specific content
for format requirements will be described in a written COR Technical Direction.
Technical Reports
Point Papers
Technical Review Comments
Tradeoff Analyses
3.2.2 SCHEDULE
The schedule for the deliverable product(s) will be defined in a written
COR Task Description. It will include required quantities and delivery
locations.
3.3 SYSTEMS SOFTWARE ENGINEERING
The contractor shall provide the following software engineering and
technical support to ensure successful development, test, supportability and
maintenance of communications software.
The software engineering task shall include, but not be limited to, the
following:
A. PROGRAM DESIGN
The contractor shall review the software design for consistency with the
system design. The contractor shall review and evaluate the design to ensure
compliance with military standards and conventions and to ensure accurate
implementation of system performance requirements. The contractor shall review
and evaluate proposed software changes, enhancements, and ECPs to maintain the
integrity of the man/machine interface and to determine technical adequacy,
accuracy, cost, and make tradeoff recommendations. The contractor shall
maintain software configuration baselines.
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B. SOFTWARE PERFORMANCE EVALUATION
The contractor shall generate or review the performance requirements
matrix for completeness and accuracy and shall generate or review test plans
and procedures to ensure that all performance requirements will be accurately
and adequately tested and demonstrated.
C. SOFTWARE DOCUMENT EVALUATION
The contractor shall review and evaluate program software documents for
compliance with DOD-STD-2167. Additionally, the contractor shall update the
Computer Resources Life Cycle Management Plan (CRLCMP), verifying existing data
and incorporating new data.
D. SYSTEM PROBLEM FEEDBACK
The contractor shall develop and maintain a system to monitor and provide
feedback concerning problems or deficiencies discovered during technical and
operational testing. Current feedback systems shall be evaluated and tradeoff
recommendations made. The contractor shall analyze the feedback alternatives
from the life cycle maintenance point of view. The system shall provide
methodology to identify and resolve problems and deficiencies with the
software. It shall provide a means to track a problem from identification,
through tradeoff analysis, resolution, and eventual implementation into the
U.S. Navy fleet.
E. REVIEWS AND AUDITS
The contractor shall support and participate in all software reviews and
audits, maintain the product software baseline, and participate in production
PDR and CDR. Such assistance and participation shall include identifying agenda
items, reviewing documentation and tracking performance requirements and action
items.
3.3.1 DELIVERABLE PRODUCTS
The contractor shall prepare the following deliverables. Specific content
and format requirements will be described in a written COR Task Description.
Recommendations for Approval/Disapproval of
Software Change Proposals
System Trouble Tracking Reports
Technical Review Comments
Recommendations to Improve Performance Matrix
3.3.2 SCHEDULE
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The schedule for the deliverable product(s) will be defined in a written
COR Task Description. It will include required quantities and delivery
location.
3.4 PRODUCTION SUPPORT
The contractor shall provide technical and engineering support in planning
and effecting the transition from development to production and shall provide
technical and engineering support during the Production and Deployment (P&D)
phase. The contractor shall review and evaluate productibility planning
documents to ensure that the transition-to-production phase is effected in an
optimal manner.
The contractor shall support the government in monitoring the terminal
prime contractor during the Production Phase. This shall include program
management, quality control, and manufacturing monitoring.
The contractor shall assist with producibility planning to ensure that all
aspects of the research and development to production transition are optimized.
This shall include review and evaluation of producibility planning
documentation, and operational plans and concepts to determine their impact on
production and implementation and equipment supportability and sustainability.
The contractor shall support Navy test facilities in test and evaluation
efforts during the Research, Development Test and Evaluation (RDT&E) phase.
This support shall include evaluation of test objectives, specifications,
plans, procedures, and test data to assure that performance compliance is
demonstrated. Testing shall encompass First Article Testing, Interoperability
testing, At Sea testing, Technical Evaluation (TECHEVAL), Operational
Evaluation (OPEVAL), Follow-on Technical, Operational, Test & Evaluation
(FOT&E).
The contractor shall provide scheduling support to assist the Government
in scheduling and monitoring the material acquisition, terminal production and
delivery of Navy Communications terminals and equipment. The contractor shall
provide support to the Government in monitoring terminal prime contrac-
tor/subcontractor relationships to verify that appropriate control is being
exercised.
The production engineering task shall include, but not be limited to, the
following:
a. QUALITY CONTROL
The contractor shall monitor terminal prime contractor
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FOR OFFICIAL USE ONLY
production efforts to ensure that appropriate QA procedures are being used and
that production items meet approved criteria. This shall include reviews and
analysis of QA reports and data and recommendations for resolving any QA
problems.
b. MANUFACTURING MONITORING
The contractor shall provide support to the Government in monitoring the
terminal prime contractor's manufacturing, packaging and shipping processes,
procedures, and effectiveness. This shall include screening, assessment of
production efficiency, and recommendations for improving efficiency.
Specifically the contractor shall analyze the use of computer-aided-design (CAD)
and computer-aided-manufacturing (CAM) procedures in the manufacture of Navy
communications Systems. The contractor shall verify that the process complies
with the approved manufacturing plan and that the procedures are effective.
Where deficiencies are identified, the contractor shall identify viable
corrective actions.
c. SYSTEM TEST AND EVALUATION (T&E)
The contractor shall conduct analysis of Navy communications requirements
along with operational concepts, to determine interoperability, compatibility,
susceptibility, sustainability, and testability requirements. The contractor
shall propose plans and procedures necessary to quantify and qualify terminal
performance based on requirements and concepts objectives.
d. SOFTWARE INDEPENDENT T&E
The contractor shall, independent of the software developer, analyze and
test the performance of the Navy software. Such analysis shall be of a known,
structured methodology and shall provide quantifiable test results. All
independent program test and verification activities shall follow an approved
plan.
e. HARDWARE T&E
The contractor shall analyze performance testing of the various Navy
communications terminal hardware. Such analysis shall be of a known, structured
methodology and shall provide quantifiable test results. All independent test
and verification activities shall follow an approved plan.
f. T&E DOCUMENTATION
The contractor shall support the development of T&E documentation
including test plans, test procedures, and test reports, in addition to
contingency plans if testing is unsuccessful.
FOR OFFICIAL USE ONLY
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g. TRANSITION PLANNING
The contractor shall generate or evaluate plans to transition from the
Engineering and Manufacturing Development (E&MD) baseline to the P&D baseline
at both the systems and equipment hardware levels. Results of this planning
shall be closely coordinated with systems engineering, configuration
management, and ILS disciplines.
h. PRODUCTION DESIGN AND READINESS REVIEW
The contractor shall participate in production design and production
readiness reviews at both government and prime contractor facilities. These
reviews will address issues relating to maintainability, reliability,
environmental relationships, human factors, value engineering, safety,
manufacturing methodologies and simplification, standardization, producibility,
sustainability and supportability, production programs, and quality assurance.
The contractor shall demonstrate the ability to be able to assess vendor
developmental and production hardware against Navy handbook, BEST PRACTICES for
Reliability, Maintainability, Quality Assurance, Risk Reduction, and Defect
Control NAVSOP-6071 of March 1986 requirements. The contractor shall be
familiar with all such issues and be prepared to address deficiencies
identified during these reviews. Problem areas shall be identified and options
for corrective actions shall be recommended.
i. PRODUCTION AUTOMATION
The contractor shall evaluate processes proposed for the automation of the
terminal production line. Individual techniques shall be assessed to ensure
optimization of unit cost and schedule delivery while maintaining quality of
delivered terminals.
j. FACILITIES OPTIMIZATION
The contractor shall evaluate the Facilities Requirements plan to assess
the feasibility of satisfying required production rates. The contractor shall
also review and evaluate the production testing philosophy, special test
equipment design and development, and screening requirements and methods.
k. PRODUCTION DATA PACKAGE VERIFICATION
The contractor shall assist in the review and update of the Manufacturing
Data Package and Technical Documentation including production plans and
procedures, manufacturing flow diagrams, test and inspection procedures and
associated drawing packages.
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FOR OFFICIAL USE ONLY
During the Production Start-Up Phase, the contractor shall support the
Government in assuring that the production contractor effectively implements
The approved Manufacturing Plan and implements the principles of the Navy "BEST
PRACTICES" handbook. This support shall include reviewing related technical
documentation. inspection and screening of Production Material, verification of
special tooling and test equipment, production schedule planning, monitoring
production contractor and subcontractor relationships, monitoring and tracking
Government furnished equipment (GFE), and evaluating First Article Testing.
3.4.1 DELIVERABLE PRODUCTS
The contractor shall prepare the following deliverables. Specific content
and format requirements will be described in a written COR Technical Direction.
Transition to Production Program Plan
Production Readiness Review Program Plan
Facilities Assessment Resort
Production Start-Up Schedules
GFE Status Reports
Production Contractor and Subcontractor Status Reports
Technical Review Comments
Corrective Action Recommendations
Test Reports
Recommendations Concerning Test Plans and Procedures
Analyses of Test Data
Contingency Schedules/Plans
3.4.2 SCHEDULE
The schedule for the deliverable product(s) will be defined in a written
COR Technical Direction. It will specify required quantities and delivery
location.
3.5 OPERATIONAL SUPPORT
The contractor shall assist in the planning and program management of
systems, terminals and equipment installations aboard Navy ships, Submarines
and at shore sites. This shall include review of installation documentation,
deveiopment and maintenance of installation schedules and support of the
installation and integration. The contractor shall interface with Navy
laboratories and facilities to ensure that installation plans accurately
address current and new construction Ship classes. The contractor shall review
and assess system supportability in the Fleet including life cycle support.
a. INSTALL AND TEST
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FOR OFFICIAL USE ONLY
The contractor shall conduct subsystem or equipment integration and
testing to incorporate feasibility of development models and performance
upgrades in existing communications systems. The contractor shall generate test
plans and procedures, conduct site surveys and site preparation, install,
maintain and remove test models, document and analyze test results.
b. OPERATIONAL PERFORMANCE
The contractor shall analyze operational systems performance to assess the
effects of environmental, technical or support factors on performance goals.
The contractor shall collect and correlate data, investigate performance
anomalies, conduct testing and recommend technical, operational or support
changes.
c. ENGINEERING ANALYSIS
The contractor shall perform engineering analysis to refine existing
systems concepts and develop new ones to allow the successful development,
integration, test and operation, and supportability and sustainability of Navy
Communications Systems. The contractor shall review system interfaces, analyze
terminal performance against potential threats, evaluate COMSEC and TRANSEC
issues and monitor NATO, inter-service and intra-service interoperability
issues.
d. TERMINAL ENGINEERING
The contractor shall conduct terminal engineering to refine existing
systems concepts and develop new concepts required to facilitate successful
integration, test and operation of Navy Communications terminals. The
contractor shall analyze configuration change documentation, develop and
maintain a system to monitor and provide feedback on problems in the fleet and
generate site specific installation plans.
e. DOCUMENTATION
The contractor shall review and evaluate installation planning documents
such as installation plans, site preparation plans, Ship Alteration (SHIPALT)
proposals, Installation Control Drawings (ICDs), and Ship Installation
Drawings. The contractor shall recommend changes or alternative approaches when
requested.
f. SCHEDULES
The contractor shall develop installation schedules for both ship and
shore installations. These schedules shall be maintained and updated to reflect
changes in the shipyard, and ship schedules, and changes to SHIPALTS.
FOR OFFICIAL USE ONLY
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FOR OFFICIAL USE ONLY
g. INSTALLATION SUPPORT
The contractor shall perform engineering and technical analyses to support
NAVY communications terminal installations in submarines, ships and shore
stations. The contractor shall attend and provide technical support at formal
and informal planning meetings, evaluate installation drawings, track assets
and schedules, and develop technical data packages. This support shall include
verifying completeness of SHIPALTs and Base Electronic Systems Engineering
Plans (BESEPs), conducting analyses of site support facilities, scheduling
implementation assets, monitoring assets deliverable documentation, and System
Operational Verification Test (SOVT), analyzing Installation problems and
recommending corrective actions.
The contractor shall support Navy communications terminal SOVT efforts as
required for shipboard and shore installations. SOVT efforts shall include
checkout of interoperability and software performance during land based and at
sea test. This support shall include review of installation planning documents,
assistance in software test, support of hardware test, development of
installation test plans and procedures, support to actual installation, and
reporting on the results.
3.5.1 DELIVERABLE PRODUCTS
The contractor shall prepare the following deliverables. Specific content
and format requirements will be described in a written COR Technical Direction.
Master Implementation Plan
Installation Schedules
Test Reports
Tradeoff Analyses
Technical Review Comments
3.5.2 SCHEDULE
The schedule for the deliverable product(s) will be defined in a written
COR Technical Direction. It will include required quantities and delivery
locations.
4.0 PROGRESS REPORTS
The contractor shall submit monthly progress reports outlining contract
deliverables, progress, problems encountered, planned versus actual labor
hours, funds expenditures, personnel assignments and tasking.
FOR OFFICIAL USE ONLY
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<TABLE>
<S> <C>
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DEPARTMENT OF DEFENSE 1. CLEARANCE AND SAFEGUARDING
CONTRACT SECURITY CLASSIFICATION SPECIFICATION --------------------------------------------------------------------------
(THE REQUIREMENTS OF THE DOD INDUSTRIAL SECURITY a. FACILITY CLEARANCE REQUIRED TOP SECRET
MANUAL APPLY TO ALL SECURITY ASPECTS OF THIS --------------------------------------------------------------------------
EFFORT.) b. LEVEL OF SAFEGUARDING REQUIRED SECRET
- ------------------------------------------------------------------------------------------------------------------------------------
2. THIS SPECIFICATION IS FOR: (x and complete as 3. THIS SPECIFICATION IS: (x and complete as applicable)
applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
X a. PRIME CONTRACT NUMBER X a. ORIGINAL (Complete date in all DATE(YYMMDD)
N00039-96-C-0066 cases) 960312
- ------------------------------------------------------------------------------------------------------------------------------------
b. SUBCONTRACT NUMBER b. REVISED (Supersedes REVISION NO. DATE(YYMMDD)
all previous specs)
- ------------------------------------------------------------------------------------------------------------------------------------
X c. SOLICITATION OR OTHER NUMBER DUE DATE(YYMMDD) c. FINAL (Complete item 5 in all DATE(YYMMDD)
N00039-94-PR-DV002 cases)
- ------------------------------------------------------------------------------------------------------------------------------------
4. IS THIS A FOLLOW-ON CONTRACT? [ ] YES [X] No. If YES, complete the following:
Classified material received or generated under (Preceding Contract Number)
---------------------------------
is transferred to this follow-on contract.
- ------------------------------------------------------------------------------------------------------------------------------------
5. IS THIS A FINAL DD FORM 254? [ ] Yes [X] NO. If Yes, complete the following:
In response to the contractor's request dated retention of the identified classified material is
-------------
authorized for the period of
-------------
- ------------------------------------------------------------------------------------------------------------------------------------
6. CONTRACTOR (Include Commercial and Government Entity (CAGE) Code)
- ------------------------------------------------------------------------------------------------------------------------------------
a. Name, Address, And Zip Code b. CAGE CODE c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
Advanced Communications Systems Defense Investigative Service
10089 Lee Highway 2461 Eisenhower Ave
Alexandria, Va 22331
Fairfax, Va 22030 2X691
- ------------------------------------------------------------------------------------------------------------------------------------
7. SUBCONTRACTOR
- ------------------------------------------------------------------------------------------------------------------------------------
a. Name, Address, And Zip Code b. CAGE CODE c. COGNIZANT SECURITY OFFICE (Name, Address and Zip Code)
- ------------------------------------------------------------------------------------------------------------------------------------
8. ACTUAL PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
a. Location b. CAGE CODE c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
- ------------------------------------------------------------------------------------------------------------------------------------
9. GENERAL IDENTIFICATION OF THIS PROCUREMENT
- ------------------------------------------------------------------------------------------------------------------------------------
PROVIDE ENGINEERING AND TECHNICAL SUPPORT FOR PMW 176, PMW 173 AND PD70E
- ------------------------------------------------------------------------------------------------------------------------------------
10. THIS CONTRACT WILL REQUIRE Yes No 11. IN PERFORMING THIS CONTRACT, THE CONTRACTOR WILL: YES NO
ACCESS TO:
- ------------------------------------------------------------------------------------------------------------------------------------
A. COMMUNICATIONS SECURITY A. HAVE ACCESS TO CLASSIFIED INFORMATION ONLY AT ANOTHER
(COMSEC) INFORMATION X CONTRACTOR'S FACILITY OR A GOVERNMENT ACTIVITY X
- ------------------------------------------------------------------------------------------------------------------------------------
B. RESTRICTED DATA X B. RECEIVED CLASSIFIED DOCUMENTS ONLY X
- ------------------------------------------------------------------------------------------------------------------------------------
C. CRITICAL NUCLEAR WEAPON C. RECEIVE AND GENERATE CLASSIFIED MATERIAL X
DESIGN INFORMATION X
- ------------------------------------------------------------------------------------------------------------------------------------
D. FORMERLY RESTRICTED DATA X D. FABRICATE, MODIFY, OR STORE CLASSIFIED HARDWARE X
- ------------------------------------------------------------------------------------------------------------------------------------
E. INTELLIGENCE INFORMATION: X E. PERFORM SERVICES ONLY X
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Sensitive Compartmented F. HAVE ACCESS TO U.S. CLASSIFIED INFORMATION OUTSIDE THE U.S.,
Information (SCI) X PUERTO RICO, U.S. POSSESSIONS AND TRUST TERRITORIES X
- ------------------------------------------------------------------------------------------------------------------------------------
(2) Non-SCI X G. BE AUTHORIZED TO USE THE SERVICES OF DEFENSE TECHNICAL
INFORMATION CENTER (DTIC) OR OTHER SECONDARY DISTRIBUTION CENTER X
- ------------------------------------------------------------------------------------------------------------------------------------
F. SPECIAL ACCESS INFORMATION X H. REQUIRE A COMSEC ACCOUNT X
- ------------------------------------------------------------------------------------------------------------------------------------
G. NATO INFORMATION X I. HAVE TEMPEST REQUIREMENTS X
- ------------------------------------------------------------------------------------------------------------------------------------
H. FOREIGN GOVERNMENT J. HAVE OPERATIONS SECURITY (OPSEC) REQUIREMENTS X
INFORMATION X
- ------------------------------------------------------------------------------------------------------------------------------------
I. LIMITED DISSEMINATION K. BE AUTHORIZED TO USE THE DEFENSE COURIER SERVICE X
INFORMATION X
- ------------------------------------------------------------------------------------------------------------------------------------
J. FOR OFFICIAL USE ONLY L. OTHER
INFORMATION X (Specify)
- ---------------------------------------------------
K. OTHER (Specify)
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</TABLE>
<PAGE> 50
<TABLE>
<S> <C>
DD Form 254, DEC 90 Previous editions are obsolete 805/340
- ------------------------------------------------------------------------------------------------------------------------------------
12. PUBLIC RELEASE. Any information (classified or unclassified) pertaining to this contract shall be released for public
dissemination except as provided by the Industrial Security Manual or unless it has been approved for public release by appropriate
U.S. Government authority. Proposed public releases shall be submitted for approval prior to release
[ ] Direct [X] Through (Specify)
COMMANDER SPACE AND NAVAL WARFARE SYSTEMS COMMAND
(SPAWAR OOL) 2451 CRYSTAL DRIVE, ARLINGTON, VA 22245-5200
to the Directorate for Freedom of Information and Security Review, Office of the Assistant Secretary of Defense (Public Affairs)
*for review. In the case of non-DOD User Agencies, requests for disclosure shall be submitted to that agency.
- ------------------------------------------------------------------------------------------------------------------------------------
13. SECURITY GUIDANCE. The security classification guidance needed for this classified effort is identified below. If any
difficulty is encountered in applying this guidance or if any other contributing factor indicates a need for changes in this
guidance, the contractor is authorized and encouraged to provide recommended changes; to challenge the guidance or the
classification assigned to any information or material furnished or generated under this contract; and to submit any questions for
interpretation of this guidance to the official identified below. Pending final decision, the information involved shall be handled
and protected at the highest level of classification assigned or recommended. (Fill in as appropriate for the classified effort.
Attach, or forward under separate correspondence, any documents/guides/extracts referenced herein. Add additional pages as needed
to provide complete guidance.)
MATERIAL GENERATED UNDER THIS CONTRACT SHALL PERPTUATE THE CLASSIFICATION/DOWNGRADING/DECLASSIFICATION OF SOURCE MATERIAL. THE
HIGHEST CLASSIFICATION FOR THIS CONTRACT IS TOP SECRET.
VISIT REQUEST TO ACTIVITIES OTHER THAN COMSPAWARSYSCOM (PMW 176, PMW 173 AND PD 70E SHALL HAVE "NEED-TO-KNOW" CERTIFIED BY
COMPAWARSYSCOM (PMW 176).
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ESTIMATED COMPLETION DATE COGNIZANT COTR//PROGRAM MANAGER, NAME, CODE, TEL. NO.
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30 SEPTEMBER 2000 DOUG WONG PMW 176-41B, (703)602-1459
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14. ADDITIONAL SECURITY REQUIREMENTS. Requirements, in addition to ISM requirements, are established for this contract.
[X] YES [ ] NO
(If Yes, identify the pertinent contractual clauses in the contract document itself, or provide an
appropriate statement which identifies the additional requirements.
Provide a copy of the requirements to the cognizant security office.
Use Item 13 if additional space is needed.)
SEE ATTACHED "TEMPEST SECURITY REQUIREMENTS" [SIG] DATE 3/12/96
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15. INSPECTIONS. Elements of this contract are outside the inspection responsibility of the cognizant security office.
[ ] YES [X] NO
(If Yes, explain and identify specific areas or elements carved out and the activity responsible for inspections. Use Item 13 if
additional space is needed.) See Item 13
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16. CERTIFICATION AND SIGNATURE. Security requirements stated herein are complete and adequate for safeguarding the classified
information to be released or generated under this classified effort. All questions shall be referred to the official named below.
- ------------------------------------------------------------------------------------------------------------------------------------
a. Typed name of certifying b. TITLE c. TELEPHONE (Include Area Code)
official (703)602-8667
Katherine H. weick CONTRACTING OFFICER FOR SECURITY MATTERS
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d. ADDRESS (Include Zip Code) 17. REQUIRED DISTRIBUTION
COMMANDER [X] a. CONTRACTOR
--------
SPACE AND NAVAL WARFARE SYSTEMS COMMAND, (SPAWAR 07-2) [ ] b. SUBCONTRACTOR
--------
2451 CRYSTAL DRIVE, ARLINGTON, VA 22245-5200 [X] c. COGNIZANT SECURITY OFFICE FOR PRIME AND SUBCONTRACTOR
- -----------------------------------------------------------------
e. SIGNATURE [ ] d. U.S. ACTIVITY RESPONSIBLE FOR OVERSEAS SECURITY
--------
ADMINISTRATION
[X] e. ADMINISTRATIVE CONTRACTING OFFICER
--------
/s/ D.R. JOHNSON 3/12/96 [X] f. OTHERS AS NECESSARY
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DD Form 254 Reverse, DEC 90
</TABLE>
<PAGE> 51
Contract Security Classification Specification (DD Form 254)
for Contract No. N00039-96-C-0066.
Page 3 of 3
Item 10.e.(2) continued
The following conditions apply to the release of intelligence.
1. The material does not become the property of the contractor and may be
withdrawn at any time. Upon expiration of the contract, all intelligence
released and any material using data from such intelligence shall be returned
to the contracting officer or authorized representative for final disposition.
Only with prior authorization from the Office of Naval Intelligence (ONI-32)
may the contractor retain such material.
2. Contractors will not release the intelligence material to any activity or
person of the contractor's organization not directly engaged in providing
services under the contract or to another contractor (including
subcontractors), government agency, private individual, or organization with
prior approval of the Office of Naval Intelligence (ONI-32).
3. Intelligence material will not be released to nationals or immigrant
aliens who may be employed by the contractor, regardless of the level of their
security clearance or access authority, except with the specific permission of
the Office of Naval Intelligence (ONI-32).
4. Intelligence material may not be reproduced without prior approval from
the Office of Naval Intelligence (ONI-32). All intelligence must bear a
prohibition against reproduction while in the custody of the contractor.
5. The contractor shall maintain such records as will enable furnishing on
demand the names of individuals who have had access to intelligence material in
the contractor's custody.
/s/ D.R. JOHNSON
for KATHERINE H WEICK, 3/12/96
Contracting Officer for Security Matters
Space & Naval Warfare Systems Command (SPAWAR 07-2)
2451 Crystal Drive
Arlington, VA 22243-5200
(703) 602-8667
<PAGE> 52
Contract No. N00039-96-C-0066
CONTRACTOR TEMPEST QUESTIONNAIRE
1. The following TEMPEST questionnaire must be completed and sent to the
contracting authority prior to contract award. This is an information
collection questionnaire only. This is not a directive, implied requirement or
an encouragement to procure TEMPEST equipment for use on this contract. DO NOT
procure TEMPEST equipment unless specifically directed by the contracting
authority.
a. Please answer the following questions promptly and return the
information to the contracting authority and the Certified TEMPEST
Technical Authority listed below:
Officer in Charge
NCCOSC In Service Engineering
NISE EAST
Charleston, SC
(1) What is the highest classification level of material to be
processed/handled by electronic or electromechanical automated information
processing equipment?
(2) What special categories of classified material (Sensitive
Compartmented Information, Nuclear Command and Control, Special Access Program,
Single Integrated Operational Plan, etc.) are processed?
(3) What is the approximate percentage of processing time for
TOP SECRET and special category information compared to the total processing
time?
(4) Provide the specific locations, address and zip code, where
the classified processing will be performed.
(5) Provide facility information, are there other tenants,
other tenants', names, type of business (govt, commercial, foreign commercial,
foreign govt, etc.)
(6) Provide the names, address, position title and phone number
at the facility where classified processing will occur of a point of contract
who is knowledgeable of the processing requirements, the types of equipment to
be used and the physical layout of the facility.
<PAGE> 53
Contract No. N00039-96-C-0066
b. Is this company foreign owned or controlled? If so what is the
country?
Additional Information:
Prime contractors cannot pass TEMPEST requirements to subcontractors.
Subcontractors must submit a TEMPEST Vulnerability Assessment Request
prior to processing.
Interim processing is allowed once COMNISCOM 0026T is in receipt of the
contractor's TEMPEST Vulnerability Assessment Request (TVAR) Tab B to
appendix (B). TVARs for awarded contracts should be mailed to return
receipt requested to:
Director, Naval Criminal Investigative Service
Washington Navy Yard, Washington, D.C. 20388
Attn: Code 0026T
Information copy to:
Officer In Charge
NCCOSC In Service Engineering
NISE EAST
Charleston, SC
<PAGE> 54
SENSITIVE COMPARTMENTED INFORMATION GUIDE
1. This contract requires access to Sensitive Compartment Information (SCI)
as validated by the following.
Name: BERNARD KOHN
Organization: COMSPAWARSYSCOM
Telephone: (703) 602-7664
2. The following are designated as responsible Special Security Officers
(SSO) for SCI requirements of this contract:
Overall Security Administration
Director
Office of Naval Intelligence (ONI-532)
4251 Suitland Road
Washington, D.C. 20395-5720
Sponsoring SSO
COMMANDER, SPACE AND NAVAL WARFARE SYSTEMS COMMAND
SPAWAR OOH
2451 CRYSTAL DRIVE
ARLINGTON, VA 22245-5200
Contractor SSO
Advanced Communications System
10089 Lee Highway
Fairfax, VA 22030
3. The accredited secure areas used for SCI research, development,
production, and storage in support of this contract are under the exclusive
responsibility of the designated SSO's and will be identified to the
appropriate Defense Investigative Service (DIS) Security Office by the
sponsoring Special Security Officer upon request.
4. SCI data furnished to the contractor will require special security
controls beyond those of the Industrial Security manual. These supplementary
requirements will be furnished and/or made available to the contractor by
ONI-532 via the sponsoring SSO.
5. SCI will not be released to any activity or person of the contractor
(including subcontractors), government agency, private individual, or
organization without specific release approval of the originator, and prior
approval and certification of "need-to-know" by the designated project
manager/contractor sponsor (VIDE PARAGRAPH 1 SUPRA). Attachment of DD Form 254
for Contract Task
Attachment to DD Form 254
Solicitation N00039-96-C-0066
<PAGE> 55
6. SCI will not be released to foreign nationals or immigrant aliens employed
by the contractor, regardless of the level of their security clearance.
7. Names of contractor personnel requiring access to SCI will be submitted to
the contract monitor (CM) for approval. Upon receipt of written approval from
the CM and the sponsoring SSO, the Contractor Special Security Officer (CSSO)
will submit request for Single Scope Background Investigations (SSBI) in
accordance with the Industrial Security Manual to Defense Industrial Security
Clearance Office (DISCO) with a copy to the sponsoring SSO.
8. SCI data and material will be stored and maintained only in properly
accredited facilities. Under no circumstances will SCI furnished to the
contractor's SCI facility be disseminated outside of the facility. SCI
provided in support of this contract remains in the property of the DOD
department, agency, or command that released it. Upon completion or
cancellation of the contract, all SCI furnished to or generated by the
contractor will be returned to the custody of the sponsoring SSO.
9. No SCI may be reproduced without prior approval of the supporting SSO, who
will obtain approval from the originator of the material.
10. The contractor shall provide a list of all SCI access by all personnel at
the end of the contract and by 30 December of each calendar year within which
the contract has been active. The list shall include: what SCI sites were
accessed; what automated SCI data bases were accessed (by system, e.g.OSGP);
and what SCI documents were read.
11. All requests for specific SCI by the contractor in support of this
contract will be submitted to ONI-532 via the sponsoring SSO, CM, and ONI-532
(in that order) for validation of need-to-know. No request will be processed
without the CM's authorization.
12. Inquiries pertaining to Classification Guidance regarding SCI will be
directed to ONI-532 or the sponsoring SSO.
This DD FORM 254 has been coordinated with ON-532.
Attachment to DD Form 254
Contract N00039-96-C-0066
<PAGE> 56
CLASSIFICATION
-----------------------
SCI CONTRACT SUPPORT INFORMATION SHEET
1. Contractor name: Advanced Communications Systems
Activity: Space and Naval Warfare Systems Command
Contract number: N00039-96-C-0066
Unclassified Title: PD 70 Technical Services Support
2. Navy contract monitor certifying SCI requirements:
Name: BERNARD KOHN
Activity: COMSPAWARSYSCOM code: PMW 176-42
Telephone: (commercial)(703)602-7664/(DSN)332-7664
3. Contract Project Manager: BERNARD KOHN
(telephone) (703)602-7664
4. Subcontract Project Manager: (name) TBD (telephone)
5. Brief resume of contract service or product:
THIS CONTRACT IS FOR ENGINEERING AND TECHNICAL SUPPORT SERVICES OF SATELLITE
COMMUNICATIONS SYSTEMS AND SUBMARINE COMMUNICATIONS SYSTEMS ASHORE AND AFLOAT
THAT ARE LOCATED IN GOVERNMENT SCIFS.
5. Justification of the contract requirement for SCI support:
THE CONTRACTOR MUST BE SCI CLEARED AND HAVE ACCESS TO GOVERNMENT SCIFS IN ORDER
PROVIDE ENGINEERING AND TECHNICAL SUPPORT SERVICES FOR SATELLITE COMMUNICATIONS
SYSTEMS AND SUBMARINE COMMUNICATIONS SYSTEMS ASHORE AND AFLOAT THAT ARE LOCATED
IN GOVERNMENT SCIFS.
6. Question a. through e. must be answered for ONI-532 validation of the
requirement for SCI contracting support.
<TABLE>
<S> <C>
a. Must the statement of work or the statement of requirements be SCI in order
to state them candidly, accurately, and completely? No
--
b. Is this contract product SCI? No
--
c. Does contract performance require use/storage
of SCI data at a contractor SCIF? No
--
</TABLE>
Attachment to DD Form 254
Contract N00039-96-C-0066
<PAGE> 57
CLASSIFICATION
--------------------------------
<TABLE>
<S> <C>
d. Does contract performance require substantial access to SCI and/or
data at U.S. government SCIF's? Yes
---
e. Is access to SCI data required for proper performance of responsibilities
by personnel in the contracting and contract support process? No
--
7. If the documents or the results of this contract are threat or
threat-related, questions a. through e. must be answered for ONI-532
validation.
a. Has the office of Naval Intelligence been contracted for threat support to the system
under this contract IAW OPNAVINST 3811.1 series? No
--
b. Does this contract require contractor preparation of intelligence analyses/reports? No
--
If so, will it be coordinated with N2 in accordance with SECNAVINST 3811.1 series?
c. Will the work requested by accomplished under
the direction of or in coordination with ONI? No
--
d. Will the contractor require access to ONI analysts and/or data? No
--
e. Will the resulting effort be validated by ONI? No
--
8. SCIF REQUIREMENTS:
a. Is an accredited contract SCIF required? No
(COMPLIANCE WITH DIAM 50-3 IS MANDATORY) --
b. Is an accredited contractor SCIF presently on-site? No
--
c. Is a Memorandum of Agreement (MOA) required? No
--
d. If yes, with what other command/agency?
e. Has an MOA already been executed? No
--
</TABLE>
Attachment to DD Form 254
Contract N00039-96-C-0066
<PAGE> 58
CLASSIFICATION
-------------------------------
<TABLE>
<S> <C>
9. What categories of SCI material will be vest/stored at the contractor's
SCIF?
SI TK OTHER NONE X
------------- ------------ ------------ ---------------
10. How will SCI material be forwarded to the contractor's SCIF?
NOT APPLICABLE
11. Estimated volume of SCI material to be stored at the contractor's SCIF.
NOT APPLICABLE
12. Other than at the contractor's SCIF, where will SCI access be provided
contractor personnel? GOVERNMENT SCIFS ONLY
13. ADP requirements.
a. Will ADP equipment be required at the contractor's SCIF to process SCI material?
(Compliance with DIAM-4, OPNAVINST's 5239.1 series and C5510.93 series is mandatory.)
If no, omit the next two questions. No
--
b. Is ADP equipment now located in the contractor's SCIF? No
--
c. If yes, is the ADP equipment located in a shielded enclosure? Not
Applicable
14. List specific SCI documents requiring release to the contractor and
identify specific subject areas of SCI material required to support this
contract: TACINTEL OPERATIONS, TADIXS B TRE TEMP, TADIXS B TRE TACTICAL
OPERATIONS AND TDDS OPERATIONS
15. Number of new contractor billets/access required, by compartment.
SI 5 TK 5 OTHER
----------- ----------
16. Contractor personnel requiring SCI access under this contract: (Identify
with an asterisk (*) those contractor employees already SCI-indoctrinated under
other SCI contracts.
</TABLE>
Contract Monitor's Signature: /s/ BERNARD A. KOHN
-----------------------
BERNARD A. KOHN
PMW 176-42
Attachment to DD Form 254
Contract N00039-96-C-0066
<PAGE> 1
EXHIBIT 10.9
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
AWARD/CONTRACT 1. THIS CONTRACT IS A RATED ORDER RATING PAGE OF PAGES
UNDER DPAS (15 CFR 350) DOS1 1 32
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
2. CONTRACT (Proc. Inst. Ident.) NO. 3. EFFECTIVE DATE 4. REQUISITION/PURCHASE/PROJECT NO.
N00039-96-C-0097 29 AUG 1996 N00039-95-PR-E8001/.1
- ----------------------------------------------------------------------------------------------------------------------------------
5. ISSUED BY CODE N00039 6. ADMINISTERED BY (If other than item 5) CODE S2404A
-------------------------- ------------------
COMMANDER DCMAO Baltimore
Space and Naval Warfare Systems Command ATTN: Chesapeake
2451 Crystal Drive, Arlington, VA 22245-5200 200 Towsontown Blvd., West
POC: E. McGinnis, 02-33M, (703)602-0599 Towson, MD 21204-5299
- ----------------------------------------------------------------------------------------------------------------------------------
7. NAME AND ADDRESS OF CONTRACTOR (No., street, city, country, State and ZIP Code) 8. DELIVERY
[x]FOB ORIGIN [ ] OTHER (See below)
Advanced Communication Systems, Inc. ----------------------------------------------
10089 Lee Highway 9. DISCOUNT FOR PROMPT PAYMENT
Fairfax, VA 22030
N/A
----------------------------------------------
10. SUBMIT INVOICES ITEM
(4 copies unless other-
- ------------------------------------------------------------------------------------ wise specified) TO THE
CODE 2X691 FACILITY CODE R414 ADDRESS SHOWN IN: See Block 12
- ----------------------------------------------------------------------------------------------------------------------------------
11. SHIP TO/MARK FOR CODE 12. PAYMENT WILL BE MADE BY CODE SC1010
------------------------ DFAS-Columbus Center -----------------
DFAS-CO/Capital Division
P.O. Box 182263, Columbus, OH 43218-2263
- ----------------------------------------------------------------------------------------------------------------------------------
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETI- 14. ACCOUNTING AND APPROPRIATION DATA
TION: See attached Financial Accounting Data Sheet
[ ] 10 U.S.C. 2304(c) ( N/A ) [ ]41 U.S.C. 253 (C) ( N/A )
- ----------------------------------------------------------------------------------------------------------------------------------
15A. ITEM NO. 15B. SUPPLIES/SERVICES 15C. QUANTITY 15D. UNIT 15E. UNIT PRICE 15F. AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
See Section B
- ----------------------------------------------------------------------------------------------------------------------------------
15G. TOTAL AMOUNT OF CONTRACT $ 7,289,034.00
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16. TABLE OF CONTENTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(X) SEC. DESCRIPTION PAGE(S) (X) SEC. DESCRIPTION PAGE(S)
- ----------------------------------------------------------------------------------------------------------------------------------
PART I - THE SCHEDULE PART II - CONTRACT CLAUSES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
X A SOLICITATION/CONTRACT FORM 1 X I CONTRACT CLAUSES 23-32
- ----------------------------------------------------------------------------------------------------------------------------------
X B SUPPLIES OR SERVICES AND PRICES/COSTS 2-13 PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.
- ----------------------------------------------------------------------------------------------------------------------------------
X C DESCRIPTION/SPECS./WORK STATEMENT 13 X J LIST OF ATTACHMENTS 32
- ----------------------------------------------------------------------------------------------------------------------------------
X D PACKAGING AND MARKING 14 PART IV - REPRESENTATIONS AND INSTRUCTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
X E INSPECTION AND ACCEPTANCE 14 K REPRESENTATIONS, CERTIFICATIONS AND
- -------------------------------------------------------------- OTHER STATEMENTS OF OFFERORS
X F DELIVERIES OR PERFORMANCE 15
- ----------------------------------------------------------------------------------------------------------------------------------
X G CONTRACT ADMINISTRATION DATA 15-17 L INSTRS., CONDS., AND NOTICES TO OFFEROR
- ----------------------------------------------------------------------------------------------------------------------------------
X H SPECIAL CONTRACT REQUIREMENTS 18-22 M EVALUATION FACTORS FOR AWARD
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
17. [X] CONTRACTOR'S NEGOTIATED AGREEMENT (Contractor is re- 18. [ ] AWARD (Contractor is not required to sign this document).
quired to sign this document and return 2 Your offer on Solicitation Number ______________________________
--------------------- including the additions or changes made by you which additions
copies to issuing office.) Contractor agrees to furnish and or changes are set forth in full above, is hereby accepted as to
deliver all items or perform all the services set forth or items listed above and on any continuation sheets. This award
otherwise identified above and on any continuation sheets consummates the contract which consists of the following
for the consideration stated herein. The rights and documents: (a) the Government's solicitation and your offer, and
obligations of the parties to this contract shall be subject (b) this award/contract. No further contractual document is
to and governed by the following documents: (a) this award/ necessary.
contract, (b) the solicitation, if any, and (c) such
provisions, representations, certifications, and
specifications, as are attached or incorporated by refer-
ence herein. (Attachments are listed herein.)
- ----------------------------------------------------------------------------------------------------------------------------------
19A. NAME AND TITLE OF SIGNER (Type or print) 20A. NAME OF CONTRACTING OFFICER
KAREN SUE ERICKSON, Contracting Officer
/S/ GEORGE A. ROBINSON, President Space and Naval Warfare Systems Command
- ----------------------------------------------------------------------------------------------------------------------------------
19B. NAME OF CONTRACTOR 19C. DATE SIGNED 20B. UNITED STATES OF AMERICA 20C. DATE SIGNED
BY /s/ GEORGE A. ROBINSON 8 -29-96 BY /s/ KAREN SUE ERICKSON 29 AUG 1996
--------------------------------------- -----------------------------------
(Signature of person authorized to sign) (Signature of Contracting Officer)
- ----------------------------------------------------------------------------------------------------------------------------------
NSN 7540-01-152-8069 26-107 STANDARD FORM 26 (REV. 4-85)
PREVIOUS EDITION UNUSABLE Prescribed by GSA
FAR (48 CFR) 53.214 (a)
</TABLE>
<PAGE> 2
N00039-96-C-0097
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
<TABLE>
<CAPTION>
CLIN DESCRIPTION QTY/UNIT AMOUNT
- ---- ----------- -------- ------
<S> <C> <C>
0001 Management and Program 291,200
Support for PD 17 man-hours
(See Note 1)
0001AA O&MN Funds NSP
0001AB OPN Funds NSP
0001AC RDT&E Funds NSP
0001AD SCN Funds NSP
0001AE FMS Funds NSP
(Applicable to Items 0001AA through 0001AE)
Estimated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Facilities Capital Cost Money . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Fixed Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Total Estimated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,289,034
0002 Material (at cost plus G&A only) Estimated $ TBD
(See Note 2)
0003 Travel and Subsistence Estimated $ TBD
(at cost plus G&A only in
accordance with the Joint
Travel Regulations and FAR 31.205-46)
(See Note 2)
</TABLE>
NSP - Not Separately Priced
TBD - To Be Determined
One Staff-Year (SY) equals 2080 hours
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities
and Exchange Commission.
2
<PAGE> 3
N00039-96-C-0097
SECTION B
<TABLE>
<CAPTION>
CLIN DESCRIPTION QTY/UNIT AMOUNT
- ---- ----------- -------- ------
<S> <C> <C>
OPTION
0004 Management and Program 291,200
Support for PD 17 man-hours
(See Note 1)
0004AA O&MN Funds NSP
0004AB OPN Funds NSP
0004AC RDT&E Funds NSP
0004AD SCN Funds NSP
0004AE FMS Funds NSP
(Applicable to Items 0004AA through 0004AE)
Estimated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Facilities Capital Cost Money . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Fixed Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Total Estimated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,292,223
OPTION
0005 Material (at cost plus G&A only) Estimated $ TBD
(See Note 2)
OPTION
0006 Travel and Subsistence Estimated $ TBD
(at cost plus G&A only in
accordance with the Joint
Travel Regulations and FAR 31.205-46)
(See Note 2)
</TABLE>
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
NSP - Not Separately Priced
TBD - To Be Determined
One Staff-Year (SY) equals 2080 hours
3
<PAGE> 4
N00039-96-C-0097
SECTION B
<TABLE>
<CAPTION>
CLIN DESCRIPTION QTY/UNIT AMOUNT
- ---- ----------- -------- ------
<S> <C> <C>
OPTION
0007 Management and Program 291,200
Support for PD 17 man-hours
(See Note 1)
0007AA O&MN Funds NSP
0007AB OPN Funds NSP
0007AC RDT&E Funds NSP
0007AD SCN Funds NSP
0007AE FMS Funds NSP
(Applicable to Items 0007AA through 0007AE)
Estimated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Facilities Capital Cost Money . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Fixed Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Total Estimated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,034,877
OPTION
0008 Material (at cost plus G&A only) Estimated $ TBD
(See Note 2)
OPTION
0009 Travel and Subsistence Estimated $ TBD
(at cost plus G&A only in
accordance with the Joint
Travel Regulations and FAR 31.205-46)
(See Note 2)
</TABLE>
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
NSP - Not Separately Priced
TBD - To Be Determined
One Staff-Year (SY) equals 2080 hours
4
<PAGE> 5
N00039-96-C-0097
SECTION B
<TABLE>
<CAPTION>
CLIN DESCRIPTION QTY/UNIT AMOUNT
- ---- ----------- -------- ------
<S> <C> <C>
OPTION
0010 Management and Program 291,200
Support for PD 17 man-hours
(See Note 1)
0010AA O&MN Funds NSP
0010AB OPN Funds NSP
0010AC RDT&E Funds NSP
0010AD SCN Funds NSP
0010AE FMS Funds NSP
(Applicable to Items 0010AA through 0010AE)
Estimated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Facilities Capital Cost Money . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Fixed Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Total Estimated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,021,933
OPTION
0011 Material (at cost plus G&A only) Estimated $ TBD
(See Note 2)
OPTION
0012 Travel and Subsistence Estimated $ TBD
(at cost plus G&A only in
accordance with the Joint
Travel Regulations and FAR 31.205-46)
(See Note 2)
</TABLE>
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
NSP - Not Separately Priced
TBD - To Be Determined
One Staff-Year (SY) equals 2080 hours
5
<PAGE> 6
N00039-96-C-0097
SECTION B
<TABLE>
<CAPTION>
CLIN DESCRIPTION QTY/UNIT AMOUNT
- ---- ----------- -------- ------
<S> <C> <C>
OPTION
0013 Management and Program 291,200
Support for PD 17 man-hours
(See Note 1)
0013AA O&MN Funds NSP
0013AB OPN Funds NSP
0013AC PDT&E Funds NSP
0013AD SCN Funds NSP
0013AE FMS Funds NSP
(Applicable to Items 0013AA through 0013AE)
Estimated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Facilities Capital Cost Money . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Fixed Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Total Estimated Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,044,904
OPTION
0014 Material (at cost plus G&A only) Estimated $ TBD
(See Note 2)
OPTION
0015 Travel and Subsistence Estimated $ TBD
(at cost plus G&A only in
accordance with the Joint
Travel Regulations and FAR 31.205-46)
(See Note 2)
</TABLE>
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
NSP - Not Separately Priced
TBD - To Be Determined
One Staff-Year (SY) equals 2080 hours
6
<PAGE> 7
SECTION B N00039-96-C-0097
Note 1: The Government anticipates that services provided during the base year
and subsequent years, if and to the extent the options are exercised, will be
funded by more than one appropriation type (e.g. R&D, O&MN, OPN, SCN, FMS). In
accordance with the Section H clause entitled "Segregation of Costs", the
contractor shall segregate costs at the lowest level of performance which, as a
minimum, shall be by appropriation type and year (e.g. Fiscal Year (FY) 1990
O&MN, FY 1990 R&D, FY 1991 O&MN, FY 91 R&D).
Note 2: This contract includes estimated amounts for the cost of contractor
personnel travel and contractor's materials. The contractor shall be
reimbursed up to such amount for the contractor personnel travel costs that are
otherwise allowable in accordance with the version of FAR 31.205-46 effective
on the date of execution of this contract or contract modification and the
contractor shall be reimbursed up to such amount for the contractor's allowable
material costs. The contractor represents that such amounts are both necessary
and sufficient for the performance of the work required by this contract;
accordingly the contractor agrees that the costs of contractor personnel travel
and materials, if any, in excess of the estimated amount shall be unallowable
under this or any other government contract or subcontract; and the government
shall not be obligated to reimburse the contractor for any costs of contractor
personnel travel and/or materials costs in excess of the estimated amount
unless the Procuring Contractor Officer, prior to additional contractor
personnel travel or material costs having been incurred, shall have notified
the contractor that the estimated amount has been increased, and has specified
in such notice the amount of any increase. No notice, communication or
representation in any form or from any person other than the Procuring
Contracting Officer shall affect the foregoing limitation on allowability to
cost of contractor personnel travel and materials.
Increases in the foregoing limitation shall not be considered an authorization
to the contractor to exceed the estimated costs set forth in the schedule.
Change orders issued pursuant to the changes clause of this contract shall not
be considered an authorization to the contractor to exceed the foregoing
limitation in the absence of a statement in the change order, or other contract
modification, increasing the limitation.
B-1 PAYMENT OF FIXED FEE BASED ON STAFF-HOURS (TERM TYPE) (MAR 94) (SPAWAR
5252.216-9201) (APPLICABLE TO ITEMS 0001AA, 0001AB, 0001AC, 0001AD, AND 0001AE)
The fixed fee for work performed under this contract is $ * , provided that
not less than 291,200 staff-hours of direct labor are so employed on such work
by the Contractor. If substantially less than 291,200 staff-hours of direct
labor are so employed for such work, the fixed fee shall be equitably reduced
to reflect the reduction of work. The Government shall make payments to the
Contractor when requested as work progresses, but not more frequently
than bi-weekly, on account of the fixed fee, equal to
* percent of the amounts invoiced.
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
7
<PAGE> 8
SECTION B N00039-96-C-0097
by the Contractor under the "ALLOWABLE COST AND PAYMENT" clause hereof for the
related period, subject to the withholding provisions of paragraph (b) of the
"FIXED FEE" clause provided that the total of all such payments shall not
exceed eighty-five percent (85%) of the fixed fee. Any balance of fixed fee
shall be paid to the Contractor. Any overpayment of fixed fee shall be repaid
by the Contractor or otherwise credited to the Government, at the time of final
payment.
B-2 PAYMENT OF FIXED FEE BASED ON STAFF-HOURS (TERM TYPE) (MAR 94) (SPAWAR
5252.216-9201) (APPLICABLE TO ITEMS 0004AA, 0004AB, 0004AC, 0004D, AND 0004AE
IF AND TO THE EXTENT THE OPTION IS EXERCISED)
The fixed fee for work performed under this contract is $ * , provided that
not less than 291,200 staff-hours of direct labor are so employed on such
work by the Contractor. If substantially less than 291,200 staff-hours of
direct labor are so employed for such work, the fixed fee shall be equitably
reduced to reflect the reduction of work. The Government shall make payments to
the Contractor when requested as work progresses, but not more frequently than
bi-weekly, on account of the fixed fee, equal to * percent of the amounts
invoiced by the Contractor under the "ALLOWABLE COST AND PAYMENT" clause hereof
for the related period, subject to the withholding provisions of paragraph (b)
of the "FIXED FEE" clause provided that the total of all such payments shall not
exceed eighty-five percent (85%) of the fixed fee. Any balance of fixed fee
shall be paid to the Contractor. Any overpayment of fixed fee shall be repaid
by the Contractor or otherwise credited to the Government, at the time of final
payment.
B-3 PAYMENT OF FIXED FEE BASED ON STAFF-HOURS (TERM TYPE) (MAR 94) (SPAWAR
5252.216-9201) (APPLICABLE TO ITEMS 0007AA, 0007AB, 0007AC, 0007AD, AND 0007AE,
IF AND TO THE EXTENT THE OPTION IS EXERCISED)
The fixed fee for work performed under this contract is $ * , provided that not
less than 291,200 staff-hours of direct labor are so employed on such work by
the Contractor. If substantially less than 291,200 staff-hours of direct
labor are so employed for such work, the fixed fee shall be equitably reduced
to reflect the reduction of work. The Government shall make payments to the
Contractor when requested as work progresses, but not more frequently than
bi-weekly, on account of the fixed fee, equal to * percent of the amounts
invoiced by the Contractor under the "ALLOWABLE COST AND PAYMENT" clause hereof
for the related period, subject to the withholding provisions of paragraph (b)
of the "FIXED FEE" clause provided that the total of all such payments shall
not exceed eighty-five percent (85%) of the fixed fee. Any balance of fixed
fee shall be paid to the Contractor. Any overpayment of fixed fee shall be
repaid by the Contractor or otherwise credited to the Government, at the time
of final payment.
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities and
Exchange Commission.
8
<PAGE> 9
SECTION B N00039-96-C-0097
B-4 PAYMENT OF FIXED FEE BASED ON STAFF-HOURS (TERM TYPE) (MAR 94) (SPAWAR
5252.216-9201) (APPLICABLE TO ITEMS 0010AA, 0010AB, 0010AC, 0010AD, AND 0010AE,
IF AND TO THE EXTENT THE OPTION IS EXERCISED)
The fixed fee for work performed under this contract is $ * , provided that not
less than 291,200 staff-hours of direct labor are so employed on such work by
the Contractor. If substantially less than 291,200 staff-hours of direct labor
are so employed for such work, the fixed fee shall be equitably reduced to
reflect the reduction of work. The Government shall make payments to the
Contractor when requested as work progresses, but not more frequently than
bi-weekly, on account of the fixed fee, equal to * percent of the amounts
invoiced by the Contractor under the "ALLOWABLE COST AND PAYMENT" clause
hereof for the related period, subject to the withholding provisions of
paragraph (b) of the "FIXED FEE" clause provided that the total of all such
payments shall not exceed eighty-five percent (85%) of the fixed fee. Any
balance of fixed fee shall be paid to the Contractor. Any overpayment of fixed
fee shall be repaid by the Contractor or otherwise credited to the Government,
at the time of final payment.
B-5 PAYMENT OF FIXED FEE BASED ON STAFF-HOURS (TERM TYPE) (MAR 94) (SPAWAR
5252.216-9201) (APPLICABLE TO ITEMS 0013AA, 0013AB, 0013AC, 6013AD, AND
0013AE, IF AN TO THE EXTENT THE OPTION IS EXERCISED)
The fixed fee for work performed under this contract is $ * ,
provided that not less than 291,200 staff-hours of direct labor are so
employed on such work by the Contractor. If substantially less than 291,200
staff-hours of direct labor are so employed for such work, the fixed fee shall
be equitably reduced to reflect the reduction of work. The Government shall
make payments to the Contractor when requested as work progresses, but not more
frequently than bi-weekly, on account of the fixed fee, equal to *
percent of the amounts invoiced by the Contractor under the "ALLOWABLE COST AND
PAYMENT" clause hereof for the related period, subject to the withholding
provisions of paragraph (b) of the "FIXED FEE" clause provided that the total
of all such payments shall not exceed eighty-five percent (85%) of the
fixed fee. Any balance of fixed fee shall be paid to the Contractor. Any
overpayment of fixed fee shall be repaid by the Contractor or otherwise
credited to the Government, at the time of final payment.
B-6 ALLOTMENT OF FUNDS (JAN 89) (SPAWAR 5252.232-9200)
a. This contract is incrementally funded with respect to both cost and fee.
b. The amounts presently available and allotted to this contract for payment
of fee, as provided in the Section I clause of this contract entitled
"FIXED FEE", are as follows:
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities
and Exchange Commission.
9
<PAGE> 10
SECTION B N00039-96-C-0097
<TABLE>
<CAPTION>
ITEM(S) ALLOTTED TO FIXED FEE
------- ---------------------
<S> <C>
0001AB **
</TABLE>
c. The amounts presently available and allotted to this contract for
payment of cost, subject to the Section I "LIMITATION OF FUNDS" clause, the
items covered thereby and the period of performance which it is estimated the
allotted amount will cover are as follows:
<TABLE>
<CAPTION>
ITEM(S) ALLOTTED TO COST PERIOD OF PERFORMANCE
------- ----------------- ---------------------
<S> <C> <C>
0001AB ** 15 October 1996
0002 ** 15 October 1996
0003 ** 15 October 1996
</TABLE>
d. The parties contemplate that the Government will allot additional
amounts to this contract from time to time by unilateral contract modification,
and any such modification shall state separately the amounts allotted for cost
and for fee, the items covered thereby, and the period of performance the
amounts are expected to cover.
B-7 LEVEL OF EFFORT - FEE ADJUSTMENT FORMULA I (MAR 94) (SPAWAR 5252.216-9204)
(a) Subject to the provisions of the "Limitation of Cost" or "Limitation of
Funds" clause (whichever is applicable to this contract), the level of effort
for the performance of work under this contract shall be as follows:
<TABLE>
<CAPTION>
CLIN Total Staff-hours
---- of Direct Labor
---------------
<S> <C>
0001 291,200
0004* 291,200
</TABLE>
** This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities
and Exchange Commission.
10
<PAGE> 11
SECTION B N00039-96-C-0097
<TABLE>
<CAPTION>
CLIN Total Staff-hours
---- of Direct Labor
---------------
<S> <C>
0007* 291,200
0010* 291,200
0013* 291,200
</TABLE>
*If and to the extent the option is exercised.
The Contractor agrees to provide the total level of effort specified above in
performance of work described in Sections "B" and "C" of this contract. The
total staff-hours of direct labor shall include subcontractor direct labor
hours for those subcontractors identified in the Contractor's proposal as
having hours included in the proposed level of effort.
(b) Of the total staff-hours of direct labor set forth above, it is estimated
that *** staff-hours are competitive time (uncompensated overtime).
Competitive time (uncompensated overtime) is defined as hours provided by
personnel in excess of 40 hours per week without additional compensation for
such excess work. All other effort is defined as compensated effort. If no
amount is indicated in the first sentence of this paragraph, competitive time
(uncompensated overtime) effort performed by the contractor shall not be counted
in fulfillment of the level of effort obligations under this contract.
(c) Effort performed in fulfilling the total level of effort obligations
specified above shall only include effort performed in direct support of this
contract and shall not include time and effort expended on such things as local
travel to and from an employee's usual work location, uncompensated effort
while on travel status, truncated lunch periods, work (actual or inferred) at
an employee's residence or other non-work locations or other time and effort
which does not have a specific and direct contribution to the tasks described
in Section "B".
(d) It is understood and agreed that the rate of staff-hours per month may
fluctuate in pursuit of the technical objective provided that such fluctuation
does not result in the utilization of the total staff-hours of effort prior to
the expiration of the term hereof, and it is further understood and agreed
<TABLE>
<CAPTION>
** CLIN Competitive Time Hours
---- ----------------------
<S> <C>
0001 ***
0004 ***
0007 ***
0010 ***
0013 ***
----
Total ***
</TABLE>
*** This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities
and Exchange Commission.
11
<PAGE> 12
SECTION B N00039-96-C-0097
that the number of hours of effort for any classification may be utilized by
the contractor in any other direct labor classification if necessary for the
performance of the work. Written notification shall be furnished to the
Contracting Officer whenever eighty-five percent (85%) of the established level
of effort is reached.
(e) If the total level of effort specified in paragraph (a) above is not
provided by the contractor during the period of this contract, the Contracting
Officer shall either (1) reduce the fixed fee of the contract as follows:
Fee reduction = Fixed Fee x (required LOE - Expended LOE)
-----------------------------------------
Required LOE
or (2) subject to the provisions of the "Limitation of Cost" or "Limitation of
Funds" (whichever is applicable) require the Contractor to continue to perform
work until the total number of man-hours of direct labor specified in paragraph
(a) shall have been expended, at no increase in fixed fee of this contract.
(f) The Contractor shall provide and maintain an accounting system, acceptable
to the Administrative Contracting Officer (ACO) and the Defense Contract Audit
Agency (DCAA), which collects costs incurred and effort (compensated and
uncompensated, if any) provided in fulfillment of the level of effort
obligations of this contract. The Contractor shall indicate on each invoice
the total level of effort claimed during the period covered by the invoice,
separately identifying compensated effort and uncompensated effort, if any.
(g) Within 45 days after completion of the work under each separately
identified period of performance hereunder, the Contractor shall submit the
following information in writing to the Contracting Officer with copies to the
cognizant Contract Administration Office and DCAA office to which vouchers are
submitted:
1. The total number of staff-hours of direct labor expended
during the applicable period.
2. A breakdown of this total showing the number of staff-hours
expended in each direct labor classification and associated direct and indirect
costs.
3. A breakdown of other costs incurred.
4. The Contractor's estimate of the total allowable cost incurred
under the contract for the period.
12
<PAGE> 13
SECTION B N00039-96-C-0097
In the case of a cost underrun, the Contractor shall submit the following
information in addition to that required above:
5. The amount by which the estimated cost of this contract may be
reduced to recover excess funds and the total amount of staff-hours not
expended, if any.
6. A calculation of the appropriate fee reduction in accordance with
this clause.
All submissions required by this paragraph shall include subcontractor
information, if any.
(h) Notwithstanding any of the provisions in the above paragraphs, in the
event that the Contractor has provided not more than 105% nor less than 95% of
the required level of effort specified for each separately identified period of
performance in paragraph (a) above, within the term and estimated cost set
forth in this contract, then the fee shall remain the same as set forth in
Section "B".
(i) SPECIAL INSTRUCTION TO THE PAYING OFFICE REGARDING WITHHELD FEE
Fees withheld pursuant to the provisions of this contract, such as the
withholding provided by the "Allowable Cost and Payment" and "Fixed Fee"
clauses, shall not be paid until the contract has been modified to reduce the
fixed fee in accordance with paragraph (e) above, except that no such action is
required if the total level of effort provided falls within the limits
established in paragraph (h) above.
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
Item 0001 and Option Items 0004, 0007, 0010, and 0013, if and to the extent
the options are exercised, shall be performed in accordance with the Statement
of Work entitled "Statement of Work for PD 70 Program and Management Support"
attached hereto.
The estimated amount to be included in the contract by the government at the
time of contract award for travel and material under Items 0002 and 0003 and
Option Items 0005, 0006, 0008, 0009, 0011, 0012, 0014, and 0015, if and to
the extent the options are exercised, shall be provided only for travel and
materials in performance of the Statement of Work requirements to be incurred
by those contractor personnel whose labor costs are charged directly by the
contractor to this contract.
13
<PAGE> 14
SECTION D - PACKAGING AND MARKING
Any deliverables required by individual technical directions (see Clause H-5
entitled "TECHNICAL DIRECTION (COST TYPE CONTRACTS)") will be packaged and
packed in accordance with standard commercial practice to ensure safe delivery.
All reports shall prominently show on the cover of the report:
(1) name and business address of the contractor
(2) contract number
(3) contract dollar amount
(4) whether the contract was competitively or non-competitively
awarded
(5) sponsor:
Department of the Navy
Space and Naval Warfare Systems Command
PD 72PA CPK 5 RM 501
SECTION E - INSPECTION AND ACCEPTANCE
NOTICE: The following solicitation provisions and/or contract clauses
pertinent to this section are hereby incorporated by reference.
<TABLE>
<CAPTION>
FAR SOURCE TITLE DATE
- ---------- ----- ----
<S> <C> <C>
52.246-3 Inspection of Supplies- APR 84
Cost Reimbursement
</TABLE>
<TABLE>
<CAPTION>
FAR SOURCE TITLE DATE
- ---------- ----- ----
<S> <C> <C>
52.246-5 Inspection of Services- APR 84
Cost Reimbursement
</TABLE>
E-1 Item 0001 and Option Items 0004, 0007, 0010, 0013, if and to the extent the
options are exercised, and any deliverables required by technical directions
thereunder, shall be inspected and accepted at destination by the Commander,
Space and Naval Warfare Systems Command, SPAWAR 2451 Cyrstal Drive, Code 72PA,
Arlington, VA, 22245-5200, or his duly authorized representative.
14
<PAGE> 15
SECTION F - DELIVERIES OR PERFORMANCE
NOTICE: The following solicitation provisions and/or contract clauses
pertinent to this section are hereby incorporated by reference.
<TABLE>
<CAPTION>
FAR SOURCE TITLE DATE
- ---------- ----- ----
<S> <C> <C>
52.242-15 Stop-Work Order - Alternate 1 (APR 84) AUG 89
</TABLE>
F-1 The period of performance of Items 0001AA, 0001AB, 0001AC, 0001AD, 0001AE,
0002, and 0003 shall be from the effective date of contract award through 30
September 1996.
F-2 The period of performance of Items 0004AA, 0004AB, 0004AC, 0004AD, 0004AE,
0005, and 0006, if and to the extent options are exercised, shall be from 01
October 1996 through 30 September 1997.
F-3 The period of performance of Items 0007AA, 0007AB, 0007AC, 0007AD, 0007AE,
0008, and 0009, if and to the extent options are exercised, shall be from 01
October 1997 through 30 September 1998.
F-4 The period of performance of Items 0010AA, 0010AB, 0010AC, 0010AD, 0010AE,
0011 and 0012, if and to the extent options are exercised, shall be from 01
October 1998 through 30 September 1999.
F-5 The period of performance of Items 0013AA, 0013AB, 0013AC, 0013AD, 0013AE,
0014, and 0015, if and to the extent options are exercised, shall be from 01
October 1999 through 30 September 2000.
SECTION G - CONTRACT ADMINISTRATION DATA
G-1 SUBMISSION OF INVOICES (COST-REIMBURSEMENT, TIME-AND-MATERIALS, LABOR-HOUR,
OR FIXED PRICE INCENTIVE) (JUL 92) (NAPS 5252.232-9001)
(a) "Invoice" as used in this clause includes contractor requests for interim
payments using public vouchers (SF-1034) but does not include contractor
requests for progress payments under fixed price incentive contracts.
(b) The Contractor shall submit invoices and any necessary supporting
documentation, in an original and 6 copies, to the contract auditor at the
following address:
15
<PAGE> 16
SECTION G
Defense Logistics Agency
DCMAO Manassas
10500 Battleview Parkway, Suite 200
Manassas, VA 22110-2342
unless delivery orders are applicable, in which case invoices will be
segregated by individual order and submitted to the address specified in the
order. In addition, an information copy shall be submitted to SPAWAR 02-33.
Following verification, the contract auditor will forward the invoice to the
designated payment office for payment in the amount determined to be owing, in
accordance with the applicable payment (and fee) clause(s) of this contract.
(c) Invoices requesting interim payments shall be submitted no more than once
every two weeks, unless another time period is specified in the Payments clause
of this contract. For indefinite delivery type contracts, interim payment
invoices shall be submitted no more than once every two weeks for each delivery
order. There shall be a lapse of no more than 30 calendar days between
performance and submission of an interim payment invoice.
(d) In addition to the information identified in the Prompt Payment clause
herein, each invoice shall contain the following information, as applicable:
(1) Contract line item number (CLIN)
(2) Subline item number (SLIN)
(3) Accounting Classification Reference Number (ACRN)
(4) Payment terms
(5) Procuring activity
(6) Date supplies provided or services performed
(7) Costs incurred and allowable under the contract
(8) Vessel (e.g., ship, submarine or other craft) or system for which
supply/services is provided
(e) A DD Form 250, "Material Inspection and Receiving Report",
xx is required with each invoice submittal.
--
is required only with the final invoice.
--
is not required.
--
16
<PAGE> 17
SECTION G
(f) A Certificate of Performance
shall be provided with each invoice submittal.
--
xx is not required.
--
(g) The Contractor's final invoice shall be identified as such, and shall list
all other invoices (if any) previously tendered under this contract.
(h) Costs of performance shall be segregated, accumulated and invoiced to the
appropriate ACRN categories to the extent possible. When such segregation of
costs by ACRN is not possible for invoices submitted with CLINS/SLINS with more
than one ACRN, an allocation ratio shall be established in the same ratio as
the obligations cited in the accounting data so that costs are allocated on a
proportional basis.
G-2 ADDRESS TO WHICH PAYMENT IS TO BE MAILED (JAN 89) (SPAWAR 5252.232-9204)
Payment hereunder shall be mailed to the following address:
Advanced Communication Systems, Inc.
Department 0885
McLean, VA 22109-0885
G-3 PURCHASING OFFICE POINT OF CONTACT (OCT 1994) (SPAWAR 5252.242-9200)
The Purchasing Office Point of Contact for this procurement is:
Mr. Ed McGinnis, SPAWAR Code 02-33M
Commander, Space and Naval Warfare Systems Command
2451 Crystal Drive (Crystal Park 5)
Arlington, Virginia 22245-5200
Telephone: (703) 602-0599 TeleFAX: (703) 602-2024
17
<PAGE> 18
SECTION H - SPECIAL CONTRACT REQUIREMENTS N00039-96-C-0097
H-1 ORGANIZATIONAL CONFLICT OF INTEREST CLAUSE (JAN 89) (SPAWAR 5252.209-9201)
A. The Contractor understands and agrees that the Department of Defense will
not consider it, its successors, or assignees (hereinafter referred to as "the
Contractor"), as a source of supply for any system or major component thereof,
or training related thereto, for which the Contractor provides technical
support and management assistance under the contract. The Contractor further
understands and agrees that it will not be allowed to be a subcontractor or
consultant to a supplier of a system or any major components thereof, or
training related thereto, for which the Contractor provides technical support
and management assistance under this contract.
B. If, under this contract, the Contractor assists the Department of Defense
in the preparation of a Statement of Work, or provides material leading
directly, predictably, and without delay to a Statement of Work, to be used in
the competitive procurement of a system or services, the Contractor understands
and agrees that for the period from effective date of contract through 5 (five)
years after contract completion it shall not be allowed to supply the services
or the system or major components thereof, unless it is the sole source. The
content of a Statement of Work shall not be considered predictable if more than
one prime Contractor is involved in the preparation of material leading to it.
C. The Contractor hereby understands and agrees that if work to be performed
under this contract requires access to proprietary data of other companies, the
Contractor must agree with such other companies to protect such data from
unauthorized use or disclosure so long as it remains proprietary. Evidence of
such agreement must be made available to the PCO upon request. Further, the
Contractor agrees that it will not utilize the data obtained from such other
companies in performing for the Department of Defense additional studies in the
same field which are obtained competitively.
D. Upon receipt of a technical direction issued under the provisions of this
contract, the Contractor shall conduct a review of actual or potential
Organizational Conflict of Interest (OC of I) as defined in and within the
meaning of FAR Subpart 9.5. If in the opinion of the Contractor the performance
of a task directed under this contract will involve an actual or potential OC
of I, the Contractor shall notify the Contracting Officer and provide
justification in support of its opinion. The Contracting Officer will
thereupon determine whether in fact the task does involve an OC of I. If the
Contracting Officer determines that an OC of I is involved, the Contractor
shall not perform said task unless the parties agree to the restrictions
imposed by FAR Subpart 9.5.
18
<PAGE> 19
SECTION H N00039-96-C-0097
E. Any subcontractor which performs any work relative to this contract shall
be subject to paragraphs A through D above.
F. The Contractor agrees to notify any subcontractor which, pursuant to
paragraph E above, is subject to paragraphs A through D, above, that it is so
subject.
G. The prohibitions imposed by this clause may be waived by the Government.
H-2 INCORPORATION OF REPRESENTATIONS AND CERTIFICATIONS BY REFERENCE (NOV 91)
(SPAWAR 5252.215-9210)
All representations and certifications and other written statements made by the
contractor in response to SECTION K of the solicitation or at the request of
the contracting officer, incident to the award of the contract or modification
of this contract, are hereby incorporated by reference with the same force and
effect as if they were given in full text.
H-3 SEGREGATION OF COSTS (AUG 92) (SPAWAR 5252.232-9206)
The Contractor agrees to segregate costs incurred under this contract at the
lowest level of performance, either task or subtask, rather than on a total
contract basis, and to submit invoices reflecting costs incurred at that level.
Invoices shall contain summaries of work charged during the period covered, as
well as overall cumulative summaries by labor category for all work invoiced to
date, by line item, task or subtask.
Where multiple lines of accounting are present, the ACRN preceding the
accounting citation will be found in Section B and/or Section C of the contract
or in the task or delivery order which authorizes work. Payment of Contractor
invoices shall be accomplished only by charging the ACRN which corresponds to
the work invoiced. One (1) copy of each invoice will be provided to the COR,
designated herein, and the PCO at the time of submission to DCAA.
H-4 SUBSTITUTION OF KEY PERSONNEL (JAN 89) (SPAWAR 5252.237-9204)
(a) The Offeror agrees to assign to the contract those persons whose resumes
were submitted with his proposal and specifically listed herein who are
necessary to fill the requirements of the contract:
19
<PAGE> 20
SECTION H N00039-96-C-0097
<TABLE>
<CAPTION>
Key Personnel
- -------------
<S> <C> <C>
* *
* *
* *
*
</TABLE>
(b) The Offeror agrees that during the first ninety (90) days of the contract
performance period no personnel substitutions will be permitted unless such
substitutions are necessitated by an individual's sudden illness, death, or
termination of employment. In any of these events, the Contractor shall
promptly notify the Contracting Officer and provide the information required by
paragraph (c) below. After the initial ninety (90) day period, all proposed
substitutions must be submitted, in writing, at least fifteen (15) days,
(thirty (30) days if security clearance is to be obtained), in advance of the
proposed substitutions to the Contracting Officer, and provide the information
required by paragraph (c) below.
(c) All requests for substitutions must provide a detailed explanation of the
circumstances necessitating the proposed substitutions, a complete resume for
the proposed substitute, and any other information requested by the Contracting
Officer, needed by him to approve or disapprove the proposed substitution.
All proposed substitutes must have qualifications that are equal to or higher
than the qualifications of the person to be replaced. The Contracting Officer
or his authorized representative will evaluate such requests and promptly notify
the Contractor of his approval or disapproval thereof.
H-5 TECHNICAL DIRECTION (COST TYPE CONTRACTS) (APR 92) (SPAWAR 5252.242-9202)
a. Technical Direction may be provided to the Contractor from time to time by
the Contracting Officer or Contracting Officer's Representative, if authorized,
during the term (term is defined as the period of performance for the basic
contract and any options that may be exercised) of this contract. Technical
Direction will provide specific information relating to the tasks contained in
the Statement of Work and will be provided to the contractor in writing. Any
Technical Direction issued hereunder will be subject to the terms and
conditions of the contract. The contract shall control in the event of
conflict with any Technical Direction issued hereunder, and cannot be modified
by any Technical Direction.
* This material has been omitted pursuant to a request for confidential
treatment. The material has been filed separately with the Securities
and Exchange Commission.
20
<PAGE> 21
SECTION H N00039-96-C-0097
b. As stated, Technical Direction shall be issued in writing and shall
include, but not be limited to, the following information.
(a) date of issuance of Technical Direction;
(b) applicable contract number;
(c) Technical Direction identification number;
(d) description of Technical Direction;
(e) estimated cost;
(f) estimated level of effort by labor category; and
(g) signature of the PCO/COR.
c. If the contractor does not agree with the estimated cost specified on the
technical direction, or considers the technical direction to be outside the
scope of the contract, he shall notify the PCO or COR immediately and, in the
case of the estimated cost, arrive at a general agreement to the cost of the
task. In the case of the direction requiring work that is out of the scope of
the contract, the contractor shall not proceed with the effort unless and until
the PCO executes a contract modification to include the change in scope.
H-6 OPTION FOR SERVICES (Applicable to Option Items 0004, 0005, and 0006)
The Government may, at any time on or before 30 November 1997 require the
successful offeror (Contractor) to furnish all or any part of Item(s) 0004,
0005, and 0006 for delivery at the time(s) and place(s) and at the price(s) or
estimated costs set forth herein. This option shall be exercised if at all, by
written or telegraphic notice signed by the Contracting Officer and sent within
the option period specified above.
H-7 OPTION FOR SERVICES (Applicable to Option Items 0007, 0008, and 0009)
The Government may, at any time on or before 30 November 1998 require the
successful offeror (Contractor) to furnish all or any part of Item(s) 0007,
0008, and 0009 for delivery at the time(s) and place(s) and at the price(s) or
estimated costs set forth herein. This option shall be exercised if at all, by
written or telegraphic notice signed by the Contracting Officer and sent within
the option period specified above.
21
<PAGE> 22
SECTION H N00039-96-C-0097
H-8 OPTION FOR SERVICES (Applicable to Option Items 0010, 0011, and 0012)
The Government may, at any time on or before 30 November 1999 require the
successful offeror (Contractor) to furnish all or any part of Item(s) 0010,
0011, and 0012 for delivery at the time(s) and place(s) and at the price(s) or
estimated costs set forth herein. This option shall be exercised if at all, by
written or telegraphic notice signed by the Contracting Officer and sent within
the option period specified above.
H-9 OPTION FOR SERVICES (Applicable to Option Items 0013, 0014, and 0015)
The Government may, at any time on or before 30 November 2000 require the
successful offeror (Contractor) to furnish all or any part of Item(s) 0013,
0014, and 0015 for delivery at the time(s) and place(s) and at the price(s) or
estimated costs set forth herein. This option shall be exercised if at all, by
written or telegraphic notice signed by the Contracting Officer and sent within
the option period specified above.
(rest of page intentionally left blank)
22
<PAGE> 23
N00039-96-C-0097
PART II - Contract Clauses
SECTION I - CONTRACT CLAUSES
CLAUSES INCORPORATED BY REFERENCE (JUN 1988) FAR 52.252-2
This solicitation and the resulting contract incorporates the following clauses
by reference with the same force and effect as if they were given in full text.
Upon request, the Contracting Officer will make their full text available.
NOTICE: The following solicitation and contract clauses are hereby
incorporated by reference.
1. FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSES
<TABLE>
<CAPTION>
FAR SOURCE
- ----------
TITLE DATE
- ----- ----
<S> <C> <C>
52.202-1 Definitions OCT 95
52.203-3 Gratuities APR 84
52.203-5 Covenant Against Contingent Fees APR 84
52.203-6 Restrictions on Sub-Contractor Sales To The JUL 95
Government
52.203-7 Anti-Kickback Procedures JUL 95
52.203-10 Price or Fee Adjustment for Illegal or SEP 90
Improper Activity
52.203-12 Limitation on Payments to Influence Certain JAN 90
Federal Transactions
52.203-13 Procurement Integrity-Service Contracting SEP 90
52.204-2 Security Requirements AUG 96
52.204-4 Printing/Copying Double-Sided on Recycled Paper JUL 96
52.209-6 Protecting the Government's Interest when JUL 95
Subcontracting with Contractors Debarred,
Suspended, or Proposed for Debarment
52.211-5 New Material MAY 95
52.211-7 Other Than New Material, Residual Inventory, MAY 95
and Former Government Surplus
52.211-15 Defense Priority and Allocation Requirements SEP 90
</TABLE>
COST REIMBURSEMENT SERVICES
23
<PAGE> 24
SECTION I N00039-96-C-0097
<TABLE>
<CAPTION>
FAR SOURCE TITLE DATE
- ---------- ----- ----
<S> <C> <C>
52.215-2 Audit and Records-Negotiation OCT 95
52.215-23 Price Reduction for Defective Cost or Pricing OCT 95
Data-Modifications
52.215-25 Subcontractor Cost or Pricing Data-Modifications OCT 95
52.215-31 Waiver of Facilities Capital Cost of Money SEP 87
52.215-33 Order Of Precedence JAN 86
52.215-39 Reversion or Adjustment of Plans for Postretirement Benefits Other MAR 96
Benefits Other Than Pensions (PRB)
52.215-40 Notification of Ownership Changes FEB 95
52.216-7 Allowable Cost and Payment AUG 96
52.216-8 Fixed Fee APR 84
52.219-6 Notice of Total Small Business Set-Aside APR 84
52.219-8 Utilization of Small Business Concerns and OCT 95
Small Disadvantaged Business Concerns
52.222-2 Payment for Overtime Premiums (para (a) zero) JUL 90
52.222-3 Convict Labor AUG 96
52.222-26 Equal Opportunity APR 84
52.222-28 Equal Opportunity Preaward Clearance of APR 84
Subcontracts
52.222-35 Affirmative Action for Special Disabled and APR 84
Vietnam Era Veterans
52.222-36 Affirmative Action for Handicapped Workers APR 84
52.222-37 Employment Reports on Special Disabled Veterans JAN 88
and Veterans of the Vietnam Era
52.222-41 Service Contract Act of 1965, as Amended MAY 89
52.222-42 Statement of Equivalent Rates for Federal Hires MAY 89
52.223-2 Clean Air and Water APR 84
52.223-6 Drug-Free Workplace JUL 90
52.225-11 Restrictions on Certain Foreign Purchases MAY 92
52.227-1 Authorization and Consent (ALT I) JUL 95
52.227-2 Notice and Assistance Regarding Patent and APR 84
Copyright Infringement
52.227-10 Filing of Patent Applications - Classified Subject Matter APR 84
</TABLE>
COST REIMBURSEMENT SERVICES
24
<PAGE> 25
SECTION I
N00039-96-C-0097
<TABLE>
<CAPTION>
FAR SOURCE TITLE DATE
- ---------- ----- ----
<S> <C> <C>
52.228-7 Insurance-Liability to Third Persons MAR 96
52.232-9 Limitation on Withholding of Payments APR 84
52.232-17 Interest JUN 96
52.232-20 Limitation of Costs (automatically applies to fully funded CLINs) APR 84
52.232-22 Limitation of Funds (applies to incrementally funded CLINs) APR 84
52.232-23 Assignment of Claims JAN 86
52.232-25 Prompt Payment MAR 94
52.232-28 Electronic Funds Transfer Payment Methods APR 89
52.233-1 Disputes OCT 95
52.233-3 Protest After Award - ALT I (JUN 85) OCT 95
52.237-3 Continuity of Services JAN 91
52.242-1 Notice of Intent to Disallow Costs APR 84
52.242-13 Bankruptcy JUL 95
52.243-2 Changes-Cost Reimbursement - (ALT II) AUG 87
52.243-7* Notification of Changes APR 84
52.244-2 Subcontracts (Cost Reimbursement and Letter MAR 96
Contracts) (ALT I) (95 JUL)
52.244-5 Competition in Subcontracting JAN 96
52.245-5 Government Property (Cost Reimbursement, JAN 86
Time and Material or Labor Hour Contracts)(DEV JUL 95)
52.246-25 Limitation of Liability - Services APR 84
52.247-63 Preference for U.S. Flag Air Carriers APR 84
52.249-6 Termination (Cost Reimbursement) MAY 86
52.249-14 Excusable Delays APR 84
52.251-1 Government Supply Sources APR 84
52.253-1 Computer Generated Forms JAN 91
</TABLE>
*Paragraph (b)-30 days, paragraph (d)-60 days
COST REIMBURSEMENT SERVICES
25
<PAGE> 26
SECTION I N00039-96-C-0097
II. DOD FEDERAL ACQUISITION REGULATION SUPPLEMENT (48 CFR CHAPTER 2) CLAUSES
<TABLE>
<CAPTION>
FAR
SUPPLEMENT TITLE DATE
- ---------- ----- ----
<S> <C> <C>
252.201-7000 Contracting Officer's Rep DEC 91
252.203-7000 Statutory Prohibitions on Compensation NOV 95
to Former Department of Defense Employees
252.203-7001 Special Prohibition on Employment NOV 95
252.203-7002 Display of DOD Hotline Poster DEC 91
252.204-7000 Disclosure of Information DEC 91
252.204-7003 Control of Government Personnel Work Produc APR 92
252.205-7000 Provision of Information to Cooperative DEC 91
Agreement Holders
252.209-7000 Acquisitions from Subcontractors Subject NOV 95
to On-Site Inspection Under the Intermediate-
Range Nuclear Forces (INF) Treaty
252.209-7004 Reporting of Commercial Transactions with SEP 94
the Government of a Terrorist Country
252.211-7000 Acquisition Streamlining DEC 91
252.215-7000 Pricing Adjustment DEC 91
252.219-7005* Incentive for Subcontracting With Small
Businesses, Small Disadvantaged Businesses,
Historically Black Colleges and Universities,
and Minority Institutions NOV 95
252.223-7004 Drug-Free Work Force SEP 88
252.225-7025 Foreign Source Restrictions APR 93
252.225-7026 Reporting of Contract Performance NOV 95
Outside the United States
252.225-7031 Secondary Arab Boycott of Israel JUL 92
252.231-7000 Supplemental Cost Principles DEC 91
</TABLE>
* 1%
COST REIMBURSEMENT SERVICES
26
<PAGE> 27
SECTION I N00039-96-C-0097
<TABLE>
<CAPTION>
FAR
SUPPLEMENT TITLE DATE
- ---------- ----- ----
<S> <C> <C>
252.232-7006 Reduction or Suspension of Contract Payments AUG 92
Upon Finding of Fraud
252.233-7000 Certification of Claims and Requests for MAY 94
Adjustment or Relief
252.245-7001 Reports of Government Property MAY 94
252.249-7001 Notification of Substantial Impact on Employment DEC 91
252.251-7000 Ordering from Government Supply Sources MAY 95
</TABLE>
REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY-MODIFICATION (SEP 95) (FAR
52.203-9)
(a) Definitions. The definitions set forth in FAR 3.104-4 are hereby
incorporated in this clause.
(b) The Contractor agrees that it will execute the certification set forth in
paragraph (c) of this clause when requested by the contracting officer in
connection with the execution of any modification of this contract.
(c) Certification. As required in paragraph (b) of this clause, the officer
or employee responsible for the modification proposal shall execute the
following certification:
CERTIFICATE OF PROCUREMENT INTEGRITY-MODIFICATION (NOV 90)
(1) I, _____________________ am the officer or employee responsible for the
{Name of certifier}
preparation of this modification proposal and hereby certify that, to the
best of my knowledge and belief, with the exception of any information described
in this certification, I have no information concerning a violation or possible
violation of subsection 27(a), (b), (d), or (f) of the Office of Federal
Procurement Policy Act, as amended* (41 U.S.C. 423), (hereinafter referred to
as "the Act"), as implemented in the FAR, occurring during the conduct of this
procurement _______________________________ (contract and modification number).
*Subsections 27(a), (b), and (d) are effective on December 1, 1990. Subsection
27(f) is effective on June 1, 1991.
(2) As required by subsection 27(e)(1)(B) of the Act, I further certify that
to the best of my knowledge and belief, each officer, employee, agent,
representative, and consultant of {Name of offeror}
27
<PAGE> 28
<NM,EDB>
SECTION I N00039-96-C-0097
who has participated personally and substantially in the preparation
or submission of this proposal has certified that he or she's familiar with,
and will comply with, the requirements of subsection 27(a) of the Act, as
implemented in the FAR, and will report immediately to me any information
concerning a violation or possible violation of subsections 27(a), (b) (d), or
(f) of the Act, as implemented in the FAR, pertaining to this procurement.
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity-Modification
(Continuation Sheet), ENTER "NONE" IF NONE EXISTS) __________________________
_______________________________________ {Signature of the officer or employee
responsible for the modification to proposal and date}
_____________________________________________________________________________
{Typed name of the officer or employee responsible for the modification
proposal}
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN AGENCY OF
THE UNITED STATES AND THE MAKING OF A FALSE, FICTITIOUS, OR FRAUDULENT
CERTIFICATION MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER TITLE 18,
UNITED STATES CODE, SECTION 1001.
(End of certification)
(d) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer or
bid, may rely upon a one-time certification from each individual required to
submit a certification to the competing Contractor, supplemented by periodic
training. These certifications shall be obtained at the earliest possible date
after an individual required to certify begins employment or association with
the contractor. If a contractor decides to rely on a certification executed
prior to the suspension of section 27 (i.e., prior to December 1, 1989), the
Contractor shall ensure that an individual who has so certified is notified
that section 27 has been reinstated. These certifications shall be maintained
by the Contractor for a period of 6 years from the date a certifying employee's
employment with the company ends or, for an agency, representative, or
consultant, 6 years from the date such individual ceases to act on behalf of
the contractor.
(e) The certification required by paragraph (c) of this clause is a material
representation of fact upon which reliance will be placed in executing this
modification.
TRANSPORTATION OF SUPPLIES BY SEA (NOV 95) (DFARS 252.247-7023)
(a) Definitions. As used in this clause--
(1) "Components" means articles, materials, and supplies
incorporated directly into end
28
<PAGE> 29
SECTION I N00039-96-C-0097
products at any level of manufacture, fabrication or assembly by the
Contractor or any subcontractor.
(2) "Department of Defense" (DoD) means the Army, Navy, Air Force, Marine
Corps, and defense agencies.
(3) "Foreign flag vessel" means any vessel that is not a U.S.-flag
vessel.
(4) "Ocean transportation" means any transportation aboard a ship, vessel,
boat, barge, or ferry through international waters.
(5) "Subcontractor" means a supplier, materialman, distributor or vendor
at any level below the prime contractor whose contractual obligation
to perform results from, or is conditioned upon, award of the prime
contract and who is performing any part of the work or other
requirement of the prime contract.
(6) "Supplies" means all property, except land and interests in land, that
is clearly identifiable for eventual use by or owned by the DoD at the
time of transportation by sea.
(i) An item is clearly identifiable for eventual use by the DoD
if, for example, the contract documentation contains a
reference to a DoD contract number or a military destination.
(ii) "Supplies" includes (but is not limited to) public works;
buildings and facilities; ships; floating equipment and
vessels of every character, type, and description, with parts,
subassemblies, accessories, and equipment; machine tools;
material; equipment; stores of all kinds; end items;
construction materials; and components of the foregoing.
(7) "U.S.-flag vessel" means a vessel of the United States or belonging
to the United States, including any vessel registered or having
national status under the laws of the United States.
(b) The Contractor shall employ U.S.-flag vessels in the transportation by
sea of any supplies to be furnished in the performance of this contract. The
Contractor and its subcontractors may request that the Contracting Officer
authorize shipment in foreign-flag vessels, or designate available U.S.-flag
vessels, if
the Contractor or a subcontractor believes that-
(1) U.S.-flag vessels are not available for timely shipment;
29
<PAGE> 30
SECTION I N00039-96-C-0097
(2) The freight charges are inordinately excessive or
unreasonable; or
(3) Freight charges are higher than charges to private persons for
transportation of like goods.
(c) The Contractor must submit any request for use of other than U.S.-flag
vessels in writing to the Contracting Officer at least 45 days prior to the
sailing date necessary to meet its delivery schedules. The Contracting Officer
will process requests submitted after such date(s) as expeditiously as
possible, but the Contracting Officer's failure to grant approvals to meet the
shipper's sailing date will not of itself constitute a compensable delay under
this or any other clause of this contract. Request shall contain at a minimum:
(1) Type, weight, and cube of cargo;
(2) Required shipping date;
(3) Special handling and discharge requirements;
(4) Loading and discharge points;
(5) Name of shipper and consignee;
(6) Prime contract number; and
(7) A documented description of efforts made to secure U.S.-flag
vessels, including points of contact (with names and telephone
numbers) with at least two U.S.-flag carriers contacted.
Copies of telephone notes, telegraphic and facsimile messages
or letters will be sufficient for this purpose.
(d) The contractor shall, within (30) days after each shipment covered by this
clause, provide the Contracting Officer and the Division of National Cargo,
Office of Market Development, Maritime Administration, U.S. Department of
Transportation, Washington, DC 20590, one copy of the rated on board vessel
operating carrier's ocean bill of lading, which shall contain the following
information--
(1) Prime contract number;
(2) Name of vessel;
(3) Vessel flag of registry;
(4) Date of loading;
30
<PAGE> 31
SECTION I N00039-96-C-0097
(5) Port of loading;
(6) Port of final discharge;
(7) Description of commodity;
(8) Gross weight in pounds and cubic feet if available;
(9) Total ocean freight in U.S. dollars; and
(10) Name of the steamship company.
(e) The Contractor agrees to provide with its final invoice under this contract
a representation that to the best of its knowledge and belief--
(1) No ocean transportation was used in the performance of this
contract;
(2) Ocean transportation was used and only U.S.-flag vessels were
used for all ocean shipments under the contract;
(3) Ocean transportation was used, and the Contractor had the
written consent of the Contracting Officer for all
non-U.S.-flag ocean transportation; or
(4) Ocean transportation was used and some or all of the shipments
were made on non-U.S.-flag vessels without the written consent
of the Contracting Officer. The Contractor shall describe
these shipments in the following format:
ITEM CONTRACT
DESCRIPTION LINE ITEMS QUANTITY
TOTAL
(f) If the final invoice does not include the required representation, the
Government will reject and return it to the Contractor as an improper invoice
for the purposes of the Prompt Payment clause of this contract. In the event
there has been unauthorized use of non-U.S.-flag vessels in the performance of
this contract, the Contracting Officer is entitled to equitably adjust the
contract, based on the unauthorized use.
(g) The Contractor shall include this clause, including this paragraph (g) in
all subcontracts under this
31
<PAGE> 32
SECTION I N00039-96-C-0097
contract, which exceed the small purchase limitation of section 13.000 of the
Federal Acquisition Regulation.
NOTIFICATION OF TRANSPORTATION OF SUPPLIES BY SEA (NOV 95 (DFARS 252.247-7024)
(a) The Contractor has indicated by the response to the solicitation
provision, Representation of Extent of Transportation by Sea, that it did not
anticipate transporting by sea any supplies. If, however, after the award of
this contract, the Contractor learns that supplies, as defined in the
Transportation of Supplies by Sea clause of this contract, will be transported
by sea, the Contractor--
(1) Shall notify the Contracting Officer of the fact; and
(2) Hereby agrees to comply with all the terms and conditions of the
Transportation of Supplies by Sea clause of this contract.
(b) The Contractor shall include this clause, including this paragraph (b),
revised as necessary to reflect the relationship of the contracting parties, in
all subcontracts hereunder.
SECTION J - LIST OF ATTACHMENTS
Attachment A - Financial Accounting Data Sheet
Attachment B - Statement of Work for Management and Program Support
Services for Program Directorate (PD) 70, dated 22 June 1995
Attachment C - Contract Security Classification Specification, DD Form 254
32
<PAGE> 33
FINANCIAL ACCOUNTING DATA SHEET - NAVY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1. CONTRACT NUMBER (Critical) 2. SPIIN (Critical) 3. MOD (Critical) 4. PR NUMBER
N0003996CO097 000 N0003995PRE8001 1
- -------------------------------------------------------------------------------------------------------------------------------
5. 6. LINE OF ACCOUNTING
----------------------------------------------------------------------------------------------------------------
A. B. C. D. E. F. G. H. I. J.
CLIN/SLIN ACRN APPROPRIATION SUBHEAD OBJ PARM RFM SA AAA TT PAA
(Crit) (Critical) (Crit) CLA (Crit)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0001 AB AA 1761810 52NN 000 EA 176 0 068342 2D 000000
0002 AB AA 1761810 52NN 000 EA 176 0 068342 2D 000000
0003 AB AA 1761810 52NN 000 EA 176 0 068342 2D 000000
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
501
- ----------------------------------------------------------------------
PAGE 1 OF 1
- ----------------------------------------------------------------------
7.
- -------------------------
K. NAVY INTERNAL
COST CODE AMOUNT USE ONLY TAC
- ------------------------- (Critical) REF DOC/ACRN CODE
PROJ
UNIT MCC &SUF
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NN103 ETS 0000 44,300.00 N0003996AFN52NN N880
NN103 ETS 0000 1,500.00 N0003996AFN52NN N880
NN103 ETS 0000 800.00 N0003996AFN52NN N880
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
No changes to this Document are Authorized without
prior consent of Authorizing Official below.
OBLIGATIONS OF FUNDS ARE AUTHORIZED IN AMOUNTS SHOWN IN COLUMN 7 ABOVE Page Total 46,600.00
Grand Total 46,600.00
- --------------------------------------------------------------------------------------------------------------------------------
PREPARED/AUTHORIZED BY: COMPTROLLER APPROVAL: /s/ CHARLES R. HOLLISTER
Donald T. Green, Accounting Officer
DATE: 8/27/96 JAMES G. CARROLL DATE 8/27/96 Phone: (703)602-1340 Fax: (703)602-8220
- --------------------------------------------------------------------------------------------------------------------------------
CHARLES R. HOLLISTER
SUPERVISOR OPERATING ACCOUNTANT
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
DEPARTMENT OF DEFENSE 1. CLEARANCE AND SAFEGUARDING
CONTRACT SECURITY CLASSIFICATION SPECIFICATION -----------------------------------------------------------------------
(THE REQUIREMENTS OF THE DOD INDUSTRIAL SECURITY a. FACILITY CLEARANCE REQUIRED SECRET
MANUAL APPLY TO ALL SECURITY ASPECTS OF THIS -----------------------------------------------------------------------
EFFORT.) b. LEVEL OF SAFEGUARDING REQUIRED SECRET
- ------------------------------------------------------------------------------------------------------------------------------------
2. THIS SPECIFICATION IS FOR: (x and complete as 3. THIS SPECIFICATION IS: (x and complete as applicable)
applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
X a. PRIME CONTRACT NUMBER X a. ORIGINAL (Complete date in all DATE(YYMMDD)
N00039-96-C-0097 cases) 940928
- ------------------------------------------------------------------------------------------------------------------------------------
b. SUBCONTRACT NUMBER b. REVISED (Supersedes REVISION NO. DATE(YYMMDD)
all previous specs)
- ------------------------------------------------------------------------------------------------------------------------------------
X c. SOLICITATION OR OTHER NUMBER DUE DATE(YYMMDD) c. FINAL (Complete item 5 in all cases) DATE(YYMMDD)
N00039-95-R-0049(Q) 19AUG96 960816
- ------------------------------------------------------------------------------------------------------------------------------------
4. IS THIS A FOLLOW-ON CONTRACT? [X] YES [ ] No. If YES, complete the following:
Classified material received or generated under N00039-93-C-0122 (Preceding Contract Number)
---------------------------------
is transferred to this follow-on contract
- ------------------------------------------------------------------------------------------------------------------------------------
5. IS THIS A FINAL DD FORM 254? [ ] Yes [X] NO. If Yes, complete the following:
In response to the contractor's request dated retention of the identified classified material is
------------------------
authorized for the period of
------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
6. CONTRACTOR (Include Commercial and Government Entity (CAGE) Code)
- ------------------------------------------------------------------------------------------------------------------------------------
a. Name, Address, And Zip Code b. CAGE CODE c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
Advanced Communications Systems Defense Investigative Service
10089 Lee Highway 2461 Eisenhower Ave
Alexandria, Va 22331
Fairfax, Va 22030 2X691
- ------------------------------------------------------------------------------------------------------------------------------------
7. SUBCONTRACTOR
- ------------------------------------------------------------------------------------------------------------------------------------
a. Name, Address, And Zip Code b. CAGE CODE c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
- ------------------------------------------------------------------------------------------------------------------------------------
8. ACTUAL PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
a. Location b. CAGE CODE c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
- ------------------------------------------------------------------------------------------------------------------------------------
9. GENERAL IDENTIFICATION OF THIS PROCUREMENT
- ------------------------------------------------------------------------------------------------------------------------------------
PROVIDE MANAGEMENT AND SUPPORT SERVICES FOR PD17
- ------------------------------------------------------------------------------------------------------------------------------------
10. THIS CONTRACT WILL REQUIRE Yes No 11. IN PERFORMING THIS CONTRACT, THE CONTRACTOR WILL: Yes No
ACCESS TO:
- ------------------------------------------------------------------------------------------------------------------------------------
A. COMMUNICATIONS SECURITY A. HAVE ACCESS TO CLASSIFIED INFORMATION ONLY AT ANOTHER
(COMSEC) INFORMATION X CONTRACTOR'S FACILITY OR A GOVERNMENT ACTIVITY X
- ------------------------------------------------------------------------------------------------------------------------------------
B. RESTRICTED DATA X B. RECEIVED CLASSIFIED DOCUMENTS ONLY X
- ------------------------------------------------------------------------------------------------------------------------------------
C. CRITICAL NUCLEAR WEAPON C. RECEIVE AND GENERATE CLASSIFIED MATERIAL X
DESIGN INFORMATION X
- ------------------------------------------------------------------------------------------------------------------------------------
D. FORMERLY RESTRICTED DATA X D. FABRICATE, MODIFY, OR STORE CLASSIFIED HARDWARE X
- ------------------------------------------------------------------------------------------------------------------------------------
E. INTELLIGENCE INFORMATION: X E. PERFORM SERVICES ONLY X
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Sensitive Compartmented F. HAVE ACCESS TO U.S. CLASSIFIED INFORMATION OUTSIDE THE U.S.,
Information (SCI) X PUERTO RICO, U.S. POSSESSIONS AND TRUST TERRITORIES X
- ------------------------------------------------------------------------------------------------------------------------------------
(2) Non-SCI X G. BE AUTHORIZED TO USE THE SERVICES OF DEFENSE TECHNICAL
INFORMATION CENTER (DTIC) OR OTHER SECONDARY DISTRIBUTION CENTER X
- ------------------------------------------------------------------------------------------------------------------------------------
F. SPECIAL ACCESS INFORMATION X H. REQUIRE A COMSEC ACCOUNT X
- ------------------------------------------------------------------------------------------------------------------------------------
G. NATO INFORMATION X I. HAVE TEMPEST REQUIREMENTS X
- ------------------------------------------------------------------------------------------------------------------------------------
H. FOREIGN GOVERNMENT J. HAVE OPERATIONS SECURITY (OPSEC) REQUIREMENTS X
INFORMATION X
- ------------------------------------------------------------------------------------------------------------------------------------
I. LIMITED DISSEMINATION K. BE AUTHORIZED TO USE THE DEFENSE COURIER SERVICE X
INFORMATION X
- ------------------------------------------------------------------------------------------------------------------------------------
J. FOR OFFICIAL USE ONLY L. OTHER
INFORMATION X (Specify)
- -----------------------------------------------------
K. OTHER (Specify)
- ------------------------------------------------------------------------------------------------------------------------------------
DD Form 254 DEC 90 Previous editions are obsolete
</TABLE>
<PAGE> 35
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
12. PUBLIC RELEASE. Any information (classified or unclassified) pertaining to this contract shall be released for public
dissemination except as provided by the Industrial Security Manual or unless it has been approved for public release by appropriate
U.S. Government authority. Proposed public releases shall be submitted for approval prior to release
[ ] Direct [X] Through (Specify)
COMMANDER SPACE AND NAVAL WARFARE SYSTEMS COMMAND
(SPAWAR OOL) 2451 CRYSTAL DRIVE, ARLINGTON, VA 22245-5200
to the Directorate for Freedom of Information and Security Review, Office of the Assistant Secretary of Defense
(Public Affairs) *for review.
In the case of non-DOD User Agencies, requests for disclosure shall be submitted to that agency.
- ------------------------------------------------------------------------------------------------------------------------------------
13. SECURITY GUIDANCE. The security classification guidance needed for this classified effort is identified below. If any
difficulty is encountered in applying this guidance or if any other contributing factor indicates a need for changes in this
guidance, the contractor is authorized and encouraged to provide recommended changes; to challenge the guidance or the
classification assigned to any information or material furnished or generated under this contract; and to submit any questions for
interpretation of this guidance to the official identified below. Pending final decision, the information involved shall be handled
and protected at the highest level of classification assigned or recommended. (Fill in as appropriate for the classified effort.
Attach, or forward under separate correspondence, any documents/guides/extracts referenced herein. Add additional pages as needed
to provide complete guidance.)
MATERIAL GENERATED UNDER THIS CONTRACT SHALL PERPTUATE THE CLASSIFICATION/DOWNGRADING/DECLASSIFICATION OF SOURCE MATERIAL. THE
HIGHEST CLASSIFICATION FOR THIS CONTRACT IS SECRET.
VISIT REQUEST TO ACTIVITIES OTHER THAN COMSPAWARSYSCOM (PD 17) SHALL HAVE "NEED-TO-KNOW" CERTIFIED BY
COMSPAWARSYSCOM (PMW 176).
- ------------------------------------------------------------------------------------------------------------------------------------
ESTIMATED COMPLETION DATE COGNIZANT COTR//PROGRAM MANAGER, NAME, CODE, TEL. NO.
- ------------------------------------------------------------------------------------------------------------------------------------
30 SEPTEMBER 2000 CAPT SLAGHT, PMW 176 602-3950
- ------------------------------------------------------------------------------------------------------------------------------------
14. ADDITIONAL SECURITY REQUIREMENTS. Requirements, in addition to ISM requirements, are established for this contract.
[ ] YES [X] NO
(If Yes, identify the pertinent contractual clauses in the contract document itself, or provide an
appropriate statement which identifies the additional requirements.
Provide a copy of the requirements to the cognizant security office.
Use Item 13 if additional space is needed.)
- ------------------------------------------------------------------------------------------------------------------------------------
15. INSPECTIONS. Elements of this contract are outside the inspection responsibility of the cognizant security office.
[ ] YES [X] NO
(If Yes, explain and identify specific areas or elements carved out and the activity responsible for inspections. Use Item 13 if
additional space is needed.)
See Item 13
- ------------------------------------------------------------------------------------------------------------------------------------
16. CERTIFICATION AND SIGNATURE. Security requirements stated herein are complete and adequate for safeguarding the classified
information to be released or generated under this classified effort. All questions shall be referred to the official named below.
- ------------------------------------------------------------------------------------------------------------------------------------
a. Typed name of certifying b. TITLE c. TELEPHONE (Include Area Code)
official 703-602-8740
Katherine H. weick CONTRACTING OFFICER FOR SECURITY MATTERS
- ------------------------------------------------------------------------------------------------------------------------------------
d. ADDRESS (Include Zip Code) 17. REQUIRED DISTRIBUTION
COMMANDER [X] a. CONTRACTOR
---------
SPACE AND NAVAL WARFARE SYSTEMS COMMAND, (07-2) [ ] b. SUBCONTRACTOR
---------
2451 CRYSTAL DRIVE, ARLINGTON, VA 22245-5200 [X] c. COGNIZANT SECURITY OFFICE FOR PRIME AND SUBCONTRACTOR
- --------------------------------------------------------------
e. SIGNATURE [ ] d. U.S. ACTIVITY RESPONSIBLE FOR OVERSEAS SECURITY ADMINISTRATION
---------
[X] e. ADMINISTRATIVE CONTRACTING OFFICER
---------
[X] f. OTHERS AS NECESSARY
[SIG] 8/16/96
- ------------------------------------------------------------------------------------------------------------------------------------
DD Form 254 Reverse, DEC 90
</TABLE>
<PAGE> 36
STATEMENT OF WORK
FOR
MANAGEMENT AND PROGRAM SUPPORT SERVICES FOR
PROGRAM DIRECTORATE (PD) 70
22 JUNE 1995
ATTACHMENT "A"
<PAGE> 37
STATEMENT OF WORK
1.0 SCOPE
This Statement of Work identifies program and financial management support
efforts required to support the Integrated Command, Control, Communications,
Computers, and Intelligence (C4I) Systems Program Directorate (PD 70) to include
staff codes and PMWs. To accomplish this SOW, the contractor shall have
extensive experience in program management (especially as applicable to
satellite communications and submarine communications), financial management,
cost analysis, information management, foreign military sales, installation and
inventory management, and configuration management.
1.1 BACKGROUND
The C4I Directorate manages efforts in the Department of the Navy relating
to Advanced Command, Control and Communications Systems and Applications,
Transmission, Display, Satellite Communications, Submarine Communications,
Strategic and Tactical Communications, Meteorological, Navigation,
Environmental, Electronic Combat Surveillance Systems, and Data Links; and is
responsible for directing and supervising the establishment of requirements;
assuring that delivery of material meets schedules; assuring the procurement of
plans for installation of SPAWAR equipment/systems are in agreement with command
commitments; and reporting the status of progress to participating activities.
The requirement for intensive management to coordinate, integrate, and
interface development, production, and deployment dictates that a diversity of
manpower resources be available to assist the individual project leaders in the
project offices as an aggregate.
1.2 PERFORMANCE REQUIREMENTS
This is an on-going level of effort contract requiring continuous support
from the contractor. The contractor shall be familiar with the organizational
functions and responsibilities of PD 70 and be capable of accepting explicit
technical directions from, responsibility and providing detailed management
support to, the PD 70 organizational elements.
1.2.1 PERFORMANCE STRUCTURE
Work performed by each organizational element within PD 70 is divided into
programs and projects to facilitate acquisition management. Accordingly, the
2
<PAGE> 38
contractor support function will be categorized into specific functions under
the sponsorship of a major organizational element. The contractor shall
establish an effective and efficient organization for this program and
management support effort and be capable of assuring a quick response capability
to PD 70. The contractor shall provide program management and financial
management support to the PD 70 elements as outlined in this SOW and as further
defined and amplified through the issuance of technical direction. The level of
effort associated with this contract will be relatively constant, subject to
minor fluctuations to accommodate short-term, quick-reaction projects or tasks.
This level of effort is designed to permit the contractor to employ a
professional/support work force, who will be dedicated to PD 70 and who will
become knowledgeable of, and proficient in, the various PD 70 projects, thereby
increasing the value of the service received under the contract.
2.0 APPLICABLE DOCUMENTS
SPAWARINST 5430.1C Organizational Manual for SPAWAR
SPAWARINST 4200.26A Procedures for Effective Acquisition of
SPAWAR Systems, Equipment and Support
Services
SPAWARINST 4400.9 Planning/Budgeting for Initial Supply
System
SPAWARINST 4720.3 FMP Responsibilities
SPAWARINST 5040.4B Data Requirements Review Board
SPAWARINST 5200.16A Data Management Plan
SPAWARINST 5200-22 Computer Resources Acquisition
Management
SPAWARINST 5200-23 Computer Software Life Cycle Management
Guide
SPAWARINST 7000.13 Cost and Schedule Reporting
SPAWARINST 7300.6B Accounting Guidance Manual
SPAWARINST 7720.4A Cost Estimating and Analysis Program
NAVCOMPT Manual Volume VII
MIL-M-9868 Microfilming of Engineering Documents,
35mm, Requirements for
DOD-STD-100 Engineering Drawing Practices
MIL-STD-961 Outline of Forms and Instructions for
the Preparation of Specifications and
Associated Documents
MIL-STD-962 Outline of Forms and Instructions for
the Preparation of Military Standards
and Military Handbooks
3
<PAGE> 39
MIL-STD-5231.1C Life Cycle Management and Approval
Requirements for Information Systems
Projects
SECNAVINST 5200.2A Implementation of Defense Acquisition
Management Policies, Procedures,
Documentation and Reports
DI-A-5001A Data Item Description
3.0 REQUIREMENTS
Upon contract award, the contractor will initiate work efforts as directed
in specific technical directions. The technical directions will provide specific
instructions to clarify work, deliverables, schedules, and reporting
requirements.
3.1 Program Management Support
The contractor shall provide program management support for the PD70 Integrated
Command, Control, Communications, Computers and Intelligence (C41) project and
staff offices to include: operational requirements interpretation and analyses;
project planning, control and reporting; work process analyses; business process
reengineering; life cycle management and support analyses; acquisition technical
package generation; technical library support; and program data management. This
support shall be required for all phases of acquisition: research and
development, production and operational maintenance and support phases. Specific
tasking shall include but not be limited to:
a. The contractor shall provide management support for systems, sub-systems and
equipment during feasibility assessment, development, production, testing,
fielding and life cycle support. These support services shall include
monitoring project status, providing management status, analyzing management
providing management systems for monitoring project analyzing management
alternatives, providing resource allocation options in response to changing
requirements or system performance.
b. The contractor shall provide data management support services for programs,
projects and prime development or production contracts. These services shall
include establishing and maintaining Contract Data Requirements List (CDRL)
tracking capabilities; reviewing program, project or contract data for program
impact, conformity to requirements, analyses of status; maintaining a technical
library for program, project and contract data.
c. The contractor shall generate prime contract technical package documentation
to conform to program requirements (statutory, regulatory and contractual) for
acquisition of development and production systems, sub-systems and equipments.
4
<PAGE> 40
d. The contractor shall provide and maintain the management capabilities to
review programs and projects against operational, technical and regulatory
performance criteria; and to support program/project audits.
e. The contractor shall analyze work processes, recommend alternatives, and
assess impacts of internal and external process changes that may impact the
execution of the project.
f. The contractor shall generate management applications for groupware
utilization. These applications will reflect work process changes that
transition manual work flow to computer-based processes. These applications may
be for use on any management process identified in paragraph 3.1.
g. The contractor shall attend meetings and prepare reports in support of the
program/project office in accomplishing the above tasks. The contractor will
interact with various SPAWAR offices, field activities, and other government
agencies in accomplishing the above tasks.
h. The contractor shall prepare visual and written briefing materials in support
of the program/project office in accomplishing the above tasks.
i. The contractor shall provide management support in the preparation of draft
position descriptions for civilian personnel. The contractor shall prepare these
documents in accordance with specific guidance provided within the technical
direction.
3.1.1 DELIVERABLE PRODUCT
The contractor shall provide assessments, special analyses, asset reports,
schedules, interdependency networks, block diagrams, hardware delivery
schedules, draft position descriptions, and briefing materials (view graphs and
hard copies) in the area of Program Management Support.
3.1.2 SCHEDULE
Documents are to be delivered as stated in the specific technical
directions.
3.2 FINANCIAL MANAGEMENT SUPPORT
The contractor shall furnish technical and management support for
investigations and reports (to include a quick reaction capability) relating to
the DoD planning, programming, budgeting system, budget execution, acquisition
planning and analysis, and automated data processing. The contractor shall:
5
<PAGE> 41
a. Prepare, coordinate, consolidate, and assemble backup documentation from
existing acquisition planning, technical data rationale, detailed system
descriptions, and cost analyses.
b. Assemble, from existing data budget hearing review books and backup
material, information for budget submissions.
c. Assemble and maintain current budget implementation planning data.
d. Assemble and maintain status of out-year resource funding requirements,
and provide assistance in POM preparation.
e. Maintain, update, and improve the data base for the PD 70 business/
financial management information system.
f. Operate the PD 70 Information Management Systems (IMS) in accordance
with the effort described in paragraph 3.2.e above.
g. Review and analyze financial documentation.
3.2.1 DELIVERABLE PRODUCTS
The contractor shall provide written assessments of the financial impact on
program development, budget hearing review books, status of resources
programmed, revisions to Budget Implementation Planning Data, reports of
variances in actual and planned encumbrances and obligations, reports of funds
expenditure and program impact when significant variations are detected in
program cost or schedule, procurement summaries, an automated financial data
base, operation of the PD 70 IMS, and reports detailing advanced planning,
programming, budgeting, execution and financial review data. Specific
deliverable products are as follows:
a. Based on inputs provided by PD 72P and the various PMW budget analysts,
update and publish a summary of all work efforts by task and a PD 72P
procurement status, which will serve as a base from which internal and external
financial reports are derived and will provide an audit trail of financial
transactions.
b. Prepare PD 70 level, and as directed, PMW level financial reports
including financial status, obligation status, documentation status and contract
action summaries. Prepare material for the PD 70 monthly High Interest Program
Review.
6
<PAGE> 42
3.2.2 SCHEDULE
Budget Implementation Planning Data shall be updated annually; procurement
summaries, financial review data, and variance reports bi-weekly. Other reports
are to be delivered as stated in specific technical directions.
3.3 COST ANALYSIS
Cost/Schedule analysis shall be undertaken to monitor progress and changes
in the contractor's cost and schedule performance. Analysis followed by reports
shall be prepared to establish information that can be used in the planning and
management of programs. The information shall permit both estimating of
realistic program costs and schedules, and control of costs and schedules of
ongoing work. Specific tasks include the following:
a. Provide independent assessments of contractor cost, schedule, and
technical performance. Develop documentation to assess accomplishment and
performance objectives, and provide recommendations for corrective action, when
applicable.
b. Provide independently developed estimates of contract cost at
completion.
c. Monitor and evaluate the adequacy of contract funding for development,
production, engineering, training, and software contracts.
d. Evaluate the process of Engineering Change Proposal development and
assess the cost and schedule impact of Engineering Changes to program and
manufacturing schedules.
e. Develop cost and time estimates for the development, production,
fielding and operation of systems in terms of time, labor, material data, and
other factors through the use of cost models, engineering and manufacturing
inputs, program data, and other inputs.
f. Conduct analyses to assess impacts and risks on programs resulting from
external decisions such as budget or delivery schedule changes, directed
acquisition strategy, or changes in the procurement policies and regulations.
3.3.1 DELIVERABLE PRODUCTS
The contractor shall provide assessments, estimates, evaluation and impact
studies in the area of cost/schedule assessment and cost estimating for the
various programs under PD 70's cognizance.
7
<PAGE> 43
3.3.2 SCHEDULE
Documents are to be delivered as stated in the specific technical
direction.
3.4 INFORMATION MANAGEMENT SUPPORT
The contractor shall provide information system design and application
developments as directed by, and as required by PD 70, and/or various individual
PD70 Program Directors, PMWs or matrix codes. These services shall consist of
application design, installation, maintenance, and local area network services
to ensure application(s) functionality. Data Entry services for the various
applications shall be provided, if required in the Program Directorate office
and in the contractor's office. Backup local area network services shall be
provided, if required by PD 70 or its various PMWs or functional organizations
to ensure total integration of software applications into PD 70 LAN system.
3.4.1 DELIVERABLE PRODUCTS
The contractor shall provide when required,
a. Software design applications
b. Software integration services
c. Software maintenance services
d. LAN integration and maintenance
3.4.2 SCHEDULE
The contractor shall deliver software design and other services as
specified in individual technical directions.
3.5 FOREIGN MILITARY SALES SUPPORT
The contractor shall provide foreign military sale support (FMS). In
accomplishing this task, the contractor shall provide one or more of the
following services as specified by individual technical directions.
3.5.1 PROJECT MONITORING AND REPORTING
The contractor shall monitor and track project status for FMS projects. The
monitoring shall address time phasing of critical events/milestones and
resources
8
<PAGE> 44
required to meet objectives. The monitoring shall provide the Government with
the capability to assess status of program goals, and validity of proposed
schedules and cost estimates. The contractor shall participate in FMS program
and country program reviews as required and assist the FMS case managers in
tracking and reporting on actions resulting from these reviews.
3.5.1.1 DELIVERABLE PRODUCTS
To satisfy the requirements of paragraph 3.5.1, the contractor shall:
a. Deliver reports identifying project status and the time phasing of
critical events/milestones.
b. Generate briefing and presentation materials to include bubble charts,
GANT charts, and financial summary charts for FMS program and country reviews.
3.5.1.2 SCHEDULE
As required in individual task statements.
3.5.2 FINANCIAL MANAGEMENT
The contractor shall perform financial accounting services for specified
FMS cases and shall establish a financial management control system to track
requisitions, funding documents, and contracts resulting from implemented FMS
cases. This system will provide information regarding initiations, obligations,
and available funding at the requisition, line item, and case level. The
contractor shall maintain and interpret various FMS accounting reports generated
from Management Information System for International Logistics (MISIL) and
Standard Accounting and Reporting System (STARS) and assist the FMS case
managers in reconciliation of financial records. The contractor shall develop
revised Price and Availability (P&A) data to support FMS case modifications and
amendments.
3.5.2.1 DELIVERABLE PRODUCTS
To satisfy the requirements of paragraph 3.5.2, the contractor shall
deliver the following:
a. Financial Management Reports for specified FMS cases.
b. Revised P&A data for specified FMS cases.
c. Correspondence regarding FMS funding levels and reconciliation efforts.
9
<PAGE> 45
3.5.2.2 SCHEDULE
As required in individual technical directions.
3.5.3 CONFIGURATION MANAGEMENT
The contractor shall establish, maintain, and update configuration
management data files for FMS systems and equipment. The contractor shall
provide information on Software Change Proposals (SCP), Engineering Change
Proposals (ECP), System Trouble Reports (STR), and documentation updates
affecting FMS cases.
3.5.3.1 DELIVERABLE PRODUCTS
To satisfy the requirements of paragraph 3.5.3, the contractor shall
deliver the following:
a. Equipment configuration management data base for specified countries.
The data base is to include, NSN, ECP, documentation, field change, and delivery
information for various equipment being procured by foreign countries through
the FMS program.
b. Correspondence relating to configuration management matters.
3.5.3.2 SCHEDULE
As required in individual technical directions.
3.6 INSTALLATION AND INVENTORY MANAGEMENT
The contractor shall perform inventory and installation management for
equipment and systems. In accomplishing this task, the contractor shall:
a. Generate installation plans for equipment and systems. The contractor
shall generate regular reports identifying equipment requirements, shipping
schedules, contractor delivery schedules, and installations planned and
completed.
b. Review SHIPALT proposals required to install equipment and systems
including SHIPALT proposals prepared by other activities. The contractor shall
recommend changes and action based on the review of SHIPALT documentation.
c. Maintain a SHIPALT data base and reporting system describing the status
of SHIPALT documentation including Proposed Military Improvements, Proposed
Technical Improvements, Justification/Cost Forms, Ship Alteration Records,
drawing
10
<PAGE> 46
developments as well as financial information pertinent to the Fleet
Modernization Program.
d. Review Installation Control Drawings, Ship Installation Drawings,
equipment testing procedures, Shipboard Operational Verification Test plans, and
Pre-Installation Test and Checkout requirements. The contractor shall recommend
changes and action based on review.
e. Determine the ability to execute the Fleet Communications Planning and
Programming (FCPP) program by analysis of budget data, Alteration Installation
Team plans, Fleet Maintenance Program Management Information System information,
Ship Project Directives, SHIPALT documentation and the equipment availability
situation. The contractor shall report on the analysis and recommend action to
improve implementation of the FCPP based on results of the analysis.
f. Analyze problems experienced during installation of equipment and
systems. The contractor shall recommend action to resolve installation problems
including modification of installation procedures, logistic support
improvements, engineering/design changes, and documentation changes and
additions.
g. Maintain inventory records and installation plans using a data base
program compatible with government systems. The contractor shall participate in
data links with SPAWAR activities and shall utilize his own equipment to
communicate via modem.
h. Maintain financial records associated with SCN installations and review
Ship Project Directives.
i. Review Alteration Installation Team (AIT) involvement in the
installation of equipment. The contractor shall recommend AIT schedules,
generate AIT tasking documents and track AIT installations.
3.6.1 DELIVERABLE PRODUCTS
The contractor shall deliver plans and reports as specified in individual
task orders.
3.6.2 SCHEDULE
The schedule for deliverables will be defined in the specific technical
directions.
3.7 CONFIGURATION MANAGEMENT
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<PAGE> 47
The contractor shall furnish technical and management support resources for
studies, analyses, reports and technical documentation related to configuration
management. The contractor shall:
a. Analyze the currency of configuration management policy, procedures, and
reports. Recommend revisions to the configuration management documents.
b. Develop procedures for the management of contractual data to include:
requirements determination, schedule, quality inspection and acceptance,
distribution, disposition and maintenance. Monitor contractor performance for
quality and delivery on contractual data items to include development and
maintenance of a data item tracking system.
c. Develop procedures for the operation and maintenance of the document,
data, software media, and drawings libraries, including input, storage,
retrieval, disposition, classified material handling and change control.
d. Maintain master files created for tracking the status of new
requirements expressed by the operating forces and mission sponsors.
e. Contribute to the configuration control functions by reviewing
engineering change proposals, waivers and deviations. Formulate configuration
control board agenda. Attend Configuration Control Board Meetings with Navy
representatives and prepare technical documents to implement approved changes.
Establish, monitor and participate in configuration status accounting of both
hardware and software.
f. Create listings of proposed and/or approved configuration changes.
Determine and record the current status and planned schedule for completion of
each change.
g. Attend (with program representatives) planning, scheduling and technical
meetings conducted by industry and government and support the accomplishment of
objectives presented and their compliance with DOD policy and procedures
guidance.
h. Develop an identification and tracking system for the directorate for
the management of technical documentation specific in contracts/tasks. Extract
status information for each data item contracted for. Analyze the impact of late
delivery of technical documentation.
i. Review data management plans and schedules submitted by other
contractors and government agencies and analyze the impact of late delivery of
technical documentation.
j. Create a repository/library for baseline drawings. baseline documents,
interface
12
<PAGE> 48
documents, technical documents and other data delivered to the directorate as a
Contract Data Requirements List (CDRL) item. Generate listings of items
received, held, and disposed of.
k. Review configuration management proposals, studies, reports, statements
of work, plans, and procedures submitted to the directorate by activities
participating in Command Systems programs for conformance to configuration
management policy and procedures and evaluate the impact of on-going and future
program configuration management efforts.
l. Evaluate contractor development plans, configuration management
procedures, library controls, development procedures, quality assurance
programs, software support facility plans, and test plans and procedures for
adherence to contract requirements and intracompatibility in providing quality
control of the delivered and items, software, and related technical
documentation.
m. Review specifications, technical documentation, plans and other Contract
Data Requirements List (CDRL) items delivered from contracts. Identify
deviations from contractual requirements, schedules, specifications, and
standards. Analyze these deliverables for intracompatibility in delivering a
quality end item and all associated data.
n. Review coordination/control drawings and WSICDS, originated by other
contractors and government activities, for conformance to contractual
requirements, specifications, and standards. Contribute to the approval and
authentication process of control drawings referred to the directorate for
coordination.
o. Attend (with Program representatives) and evaluate the preliminary and
critical design reviews, software design walk-through, functional and physical
configuration audits, and acceptance testing. Develop agendas and formulate
reports of the proceedings; investigate problems, discrepancies and recommend
alternatives/solutions.
p. Develop inventory management procedures and maintain inventory status
for PD 70 hardware and software, to include: inventory control for
hardware/software, disposal of excess hardware, and temporary storage of
hardware.
3.7.1 DELIVERABLE PRODUCTS
The contractor shall deliver plans, reports, and studies as specified in
individual technical directions.
3.7.2 SCHEDULE
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<PAGE> 49
The schedule for deliverables will be defined in the specific task
assignment.
4.0 REPORTING
The contractor shall prepare reports, including work progress, status of
assigned task, and cost reporting in accordance with DI-A-5001A. The reports
shall be submitted monthly beginning 15 days after the end of the first month of
the contract and shall be distributed as follows:
One copy each to PD 70A, PD 72P, PMW 176 and PMW 173.
The reports shall be typewritten on white paper, approximately 8.5" x 11"
and securely stapled at the left side. The reports shall include, but are not
limited to the following:
a. Contractor's name and address
b. Contract number
c. Date of report
d. Title
e. Serial number of report
f. Period covered by report and Accounting Classification Reporting Number.
g. Description of progress made during period reported, including problem
areas encountered and recommendations, if any, for subsequent solution beyond
scope of this contract.
h. Results obtained related to previously identified problem areas.
i. Man-hours planned and expended for the reporting period and cumulatively
during the contract.
j. Cost curves portraying actual/projected conditions by line item and
cumulative for the contract.
k. Cost incurred for the reporting period and total contractual
expenditures as of reporting date, by line item accumulated and reported by task
and by line task.
i. Trips and signature results, if applicable.
14
<PAGE> 50
m. Contract schedule status.
n. Plans for activities during the following period, if applicable.
o. Name of person(s) preparing report, including telephone number.
Reports shall bear the signature of the individual task leader
preparing the report, as well as the signature of the program manager
reviewing the report, and the signature of the contractor's approving and
releasing authority. A final report at the completion of the contract is
required.
15
<PAGE> 1
EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS
Advanced Communication Systems, Inc.
Pro forma Net Income Per share
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
September 30, December 31,
1996 1996
--------------- -------------
<S> <C> <C>
Weighted average common stock outstanding 3,732,750 3,738,033
Common stock equivalent 75,330 50,220
Stock options* issued during twelve months
immediately preceding the offering date (using the
treasury stock method and the estimated mid-point
of the proposed initial public offering price per share) 122,750 122,750
Stock issued to satisfy S corporation distribution in
excess of fiscal 1996 earnings based on the
estimated initial public offering price per share 309,500 309,500
--------------- -------------
Pro forma weighted average shares 4,240,330 4,220,503
=============== =============
Pro forma net income $ 1,162 $ 328
=============== =============
Pro forma net income per share $ 0.27 $ 0.08
=============== =============
</TABLE>
* includes options to purchase 115,000 shares of common stock issued on
January 2, 1997.
<PAGE> 1
Report of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Anderson LLP
Washington, DC
March __, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001035104
<NAME> ADVANCED COMMUNICATION SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,177
<SECURITIES> 0
<RECEIVABLES> 9,987
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,441
<PP&E> 1,574
<DEPRECIATION> 1,003
<TOTAL-ASSETS> 13,117
<CURRENT-LIABILITIES> 6,054
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> 4,308
<TOTAL-LIABILITY-AND-EQUITY> 13,117
<SALES> 0
<TOTAL-REVENUES> 31,665
<CGS> 19,307
<TOTAL-COSTS> 29,560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257
<INCOME-PRETAX> 1,905
<INCOME-TAX> 743
<INCOME-CONTINUING> 1,162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,162
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001035104
<NAME> ADVANCED COMMUNICATION SYSTEMS, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 902
<SECURITIES> 0
<RECEIVABLES> 10,519
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,735
<PP&E> 1,761
<DEPRECIATION> 1,068
<TOTAL-ASSETS> 13,686
<CURRENT-LIABILITIES> 5,837
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> 4,865
<TOTAL-LIABILITY-AND-EQUITY> 13,686
<SALES> 0
<TOTAL-REVENUES> 9,066
<CGS> 6,038
<TOTAL-COSTS> 8,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 538
<INCOME-TAX> 210
<INCOME-CONTINUING> 328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 328
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
