<PAGE>
As filed with the Securities and Exchange Commission on May 6, 1999
Registration No. 333-72151
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Litronic Inc.
(Exact name of registrant as specified in its charter)
Delaware 3577 33-0757190
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Number) Identification
ofincorporation or Number)
organization)
Litronic Inc.
2030 Main Street, Suite 1250
Irvine, California 92614
(949) 851-1085
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Kris Shah
Chief Executive Officer and Chairman of the Board
Litronic Inc.
2030 Main Street, Suite 1250
Irvine, California 92614
(949) 851-1085
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Arent Fox Kintner Plotkin & Kahn, Tenzer Greenblatt LLP
PLLC 405 Lexington Avenue
1050 Connecticut Avenue, N.W. New York, New York 10017
Washington, D.C. 20036-5339 Attention: Robert J. Mittman, Esq.
Attention: Gerald P. McCartin, Esq. Telephone No.: (212) 885-5000
Telephone No.: (202) 857-6090 Facsimile No.: (212) 885-5001
Facsimile No.: (202) 857-6395
---------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Number Proposed Maximum
of Shares to Maximum Aggregate Amount of
Title of each Class of be Offering Price Offering Registration
Shares to be Registered Registered(1) Per Share(2) Price(2) Fee
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 4,255,000 $11.00 $46,805,000 $13,011.79(3)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes 555,000 shares subject to an option granted to the Underwriters
to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a)
(3) Includes $10,550.10 previously paid in connection with the original filing
on February 11, 1999 and a balance of $2,461.69 paid in connection with
this Amendment No. 2.
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, or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
dated May 6, 1999
[LITRONIC LOGO APPEARS HERE]
3,700,000 shares of common stock
This is an initial public offering of the common stock of Litronic Inc. We
expect that the initial public offering price will be between $9.00 and $11.00
per share. We anticipate that our common stock will be listed on the Nasdaq
National Market under the symbol "LTNX."
------------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 9.
------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................... $ $
Underwriting discounts and commissions.............. $ $
Proceeds, before expenses, to Litronic.............. $ $
</TABLE>
------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
We have granted BlueStone Capital Partners, L.P. and Pacific Crest
Securities Inc., the representatives of the underwriters, a 45-day option to
purchase up to 555,000 additional shares of our common stock to cover any over-
allotments.
------------
BlueStone Capital Partners, L.P. Pacific Crest Securities Inc.
, 1999
<PAGE>
The inside front cover contains a graphic depicting the interface between
applications, Litronic's Maestro product, Litronic's ProFile Manager and
Litronic's Security Tokens to provide a PKI Security solution. Above the graphic
across the top of the page appears Litronic's name and the words "Internet
Security." The graphic itself is comprised of four interlocking circles. The
circle on the upper left corner contains the words "Application Open Standards
Support." The circle in the lower left corner contains the words "Maestro
Integrates Tokens with Multiple Applications." The circle in the upper right
corner contains the words "ProFile Manager PKI Lifestyle Management Solution."
The circle in the lower right corner contains the words "Security Tokens
Personalized and Portable Security." In the space where the four circles
interlock there is a smaller circle containing the words "PKI Security." Under
the graphic appears a textual description of Litronic's ProFile Manager, Maestro
and Security Tokens, which highlights features of each product. The presentation
is set forth in three columns. Above the left column appears the words "ProFile
Manager/tm/." The column contains the following phrases, each separated by a
bullet: Secure archive and recovery of user and certificate information;
Hardware key generation; Certificate authority support; Integrates with existing
database for user input; and Security token initiative. Above the second column
appears the word "Maestro." The column contains the following phrases, each
separated by a bullet: Significantly reduces developer and end-user risks;
Supports multiple APIs, operating systems and security tokens; and Concurrent
support for multiple applications. Above the third column appears the words
"Security Tokens." The column contains the following language, each separated by
a bullet: Supports multiple encryption algorithms and digital signatures;
Certificate and personal data storage; Certified random number generation; Fast
serial interface; and Tamper protection.
The inside back cover contains the names of some of Litronic's strategic
partners, along with their respective logos, appearing in two columns down the
page. To the right of each strategic partner's name appears a word describing
the nature of Litronic's relationship with each vendor. The left column contains
the following company names and descriptive words: Netscape -- Integration,
Microsoft -- Compatibility, VeriSign -- Preferred Partner, DataCard -- Joint
Marketing and Key Tronic Corporation -- Joint Marketing. The left column
contains the following company names and descriptive words: RSA Secure --
Technology License, Atmel --Joint Development, SCM Microsystems -- Hardware
Supplier, Certicom --OEM Readers and Schlumberger -- Joint Marketing. Above the
two captions across the top of the page is Litronic's name and the phrase
"Strategic Partners."
<PAGE>
PROSPECTUS SUMMARY
This is a summary of the information contained in this prospectus. To
understand this offering fully, you should read the entire prospectus,
especially the risk factors and financial statements.
As of the date of this prospectus, the stockholders of Litronic Industries,
Inc. will exchange all of their outstanding common stock for all of the
outstanding common stock of Litronic Inc. Upon the closing of this offering,
the newly reorganized Litronic Inc. will acquire all of the outstanding common
stock of Pulsar Data Systems, Inc.
In this prospectus, unless the context indicates otherwise, the term
"Litronic" refers to Litronic Inc. and its subsidiaries, after giving effect to
its reorganization with Litronic Industries, Inc., and the terms "we" or "our"
refer to Litronic Inc. and its subsidiaries after giving effect to both its
reorganization with Litronic Industries, Inc. and its acquisition of Pulsar.
The historical financials for Litronic in this prospectus have been
retroactively adjusted to reflect the reorganization. Since Litronic Inc. has
had no operations of its own, the information presented in those financials,
other than the capital structure, relates solely to Litronic Industries, Inc.
The pro forma financial data in this prospectus has been prepared to illustrate
the effect of the Pulsar acquisition and this offering on data derived from
Litronic's historical financials.
Our business
Litronic provides professional Internet data security services and develops
and markets software and microprocessor-based products needed to secure
electronic commerce business transactions and communications over the Internet
and other communications networks based on Internet protocols. To increase
sales capacity for its proprietary products and to capitalize on opportunities
in the rapidly growing Internet-based information technology security market,
Litronic is acquiring Pulsar, a network integration solutions company that
develops large-scale network solutions for commercial and government
organizations.
Our products
Our primary data security products use an advanced form of computer security
technology referred to as public key infrastructure, or PKI, which is the
standard technology for securing Internet-based commerce and communications.
Our Internet security products can be used with world-wide-web browsers,
including Netscape Communicator and Microsoft Internet Explorer, to facilitate
secure electronic commerce transactions and other data communications, such as
secure e-mail.
Strategic relationships
We have established strategic relationships with other industry leaders who
have adopted PKI as a core feature of their secure product offerings,
including:
. Netscape Communications Corporation . Microsoft Corporation
. VeriSign, Inc. . International Business Machines Corp.
. RSA Data Security, Inc. . SCM Microsystems, Inc.
. Atmel Corporation . U.S. National Security Agency
3
<PAGE>
Our customers
Our data security customers come from diverse industries, such as the
finance, healthcare, telecommunications, electronic commerce and government
industries, and include:
. VeriSign, Inc.
. Bank of America, N.A.
. Lucent Technologies Inc. . Lockheed Martin Corporation
. Deloitte & Touche LLP . Netscape Communications Corporation
. Schlumberger Limited
. U.S. Army Corps of Engineers
. Nippon Telegraph and
. National Security Agency Telecommunications Data Corporation
In addition, our newly acquired Pulsar client base will include over 100
federal agencies, such as the Executive Offices of the President of the United
States, the Federal Bureau of Investigation and the Federal Communications
Commission, as well as over 40 commercial, state and local customers.
Our strategy
The PKI-based Internet security market is forecasted by Datamonitor, an
independent research firm, to grow at an annual rate of 124% from 1997 to 2001.
To capitalize on expanding market opportunities in this market, we intend to
exploit:
. the substantial experience and knowledge of Litronic's existing
management team in the Internet data security, computer networking and
semi-conductor industries; and
. Pulsar's extensive expertise in the sale and implementation of large-
scale networking systems, as well as its significant market access.
----------------
Litronic Inc. was incorporated under the laws of the State of Delaware in
1997 but has conducted no operations todate. Its predecessor, Litronic
Industries, Inc., was incorporated under the laws of the State of California in
1970. Our principal executive offices are located at 2030 Main Street, Suite
1250, Irvine, California 92614, and our telephone number is (949) 851-1085. We
also maintain executive offices in Lanham, Maryland. Our website is located at
www.litronic.com. Information contained in our website is not part of this
prospectus.
4
<PAGE>
The Offering
Common stock offered...........
3,700,000 shares
Common stock to be outstanding
after this offering................
9,740,631 shares, including 2,169,938
shares to be issued in connection with
the Pulsar acquisition. This does not
include:
. 555,000 shares reserved for issuance
upon exercise of the representatives'
over-allotment option;
. 281,419 shares reserved for issuance
upon exercise of options granted under
our 1998 stock option plan;
. an aggregate of 600,000 shares reserved
for issuance upon exercise of options
available for future grant under our
1999 stock option plan; and
. 370,000 shares reserved for issuance
upon exercise of warrants to be issued
upon the closing of this offering to
BlueStone and Pacific Crest for serving
as the representatives of the
underwriters.
Use of proceeds.....................
We intend to use the net proceeds of this
offering for reduction of debt, sales and
marketing, product development, vendor
settlements and working capital and
general corporate purposes.
Risk factors........................ Investing in our common stock involves a
high degree of risk and immediate and
substantial dilution.
Proposed Nasdaq National Market
symbol............................. LTNX
5
<PAGE>
Summary Financial Information--Litronic
(dollars in thousands, except per share data)
The following table presents summary financial information for Litronic for
the periods, and as of the dates, indicated. The data is derived from, and
should be read in conjunction with, the consolidated financial statements of
Litronic, including the related notes, appearing elsewhere in this prospectus.
The information presented below is qualified in its entirety by, and should be
read in conjunction with, "Selected Financial Data--Litronic," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Litronic and related notes included
elsewhere in this prospectus.
Statements of operations information:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
---------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net product revenue..... $ 7,855 $ 8,627 $ 5,214 $ 1,354 $ 885
License and service
revenue................ 1,541 1,539 1,439 309 525
---------- ---------- ---------- ---------- ----------
Total revenue........... 9,396 10,166 6,653 1,663 1,410
---------- ---------- ---------- ---------- ----------
Product cost of
revenue................ 4,098 3,211 2,821 667 507
License and service cost
of revenue............. 581 643 950 176 140
---------- ---------- ---------- ---------- ----------
Total cost of revenue... 4,679 3,854 3,771 843 647
---------- ---------- ---------- ---------- ----------
Gross margin............ 4,717 6,312 2,882 820 763
Selling, general, and
administrative
expenses............... 2,052 3,487 2,631 662 871
Research and development
expenses............... 725 1,172 1,334 341 765
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. 1,940 1,653 (1,083) (183) (873)
Interest expense, net... 19 42 418 108 109
---------- ---------- ---------- ---------- ----------
Earnings (loss) from
continuing operations
before income taxes.... 1,921 1,611 (1,501) (291) (982)
Provision for (benefit
from) income taxes..... 29 22 (95) (51) (9)
---------- ---------- ---------- ---------- ----------
Earnings (loss) from
continuing operations.. $ 1,892 $ 1,589 $ (1,406) (240) (973)
========== ========== ========== ========== ==========
Net earnings (loss)..... $ 906 $ 15,334 $ (1,406) $ (240) $ (973)
========== ========== ========== ========== ==========
Earnings (loss) from
continuing operations
per share: basic and
diluted................ $ .49 $ .41 $ (.36) $ (.06) $ (.25)
========== ========== ========== ========== ==========
Net earnings (loss) per
share: basic and
diluted................ $ .23 $ 3.96 $ (.36) $ (.06) $ (.25)
========== ========== ========== ========== ==========
Shares used in per share
computations: basic and
diluted................ 3,870,693 3,870,693 3,870,693 3,870,693 3,870,693
========== ========== ========== ========== ==========
</TABLE>
Balance sheet information:
<TABLE>
<CAPTION>
December 31,
---------------------------------- March 31,
1996 1997 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 862 $ 490 $ 898 $ 557
Working capital......... 1,662 385 758 520
Total assets............ 7,409 2,347 2,791 2,895
Short-term debt......... 545 -- 580 424
Long-term debt, less
current installments... 4,997 3,506 5,200 5,950
Total liabilities....... 7,510 5,148 6,998 8,075
Net stockholders'
deficit................ (101) (2,801) (4,207) (5,180)
</TABLE>
6
<PAGE>
Summary Financial Information--Pulsar
(dollars in thousands, except per share data)
The following table presents summary financial information for Pulsar for
the periods, and as of the dates, indicated. The data is derived from, and
should be read in conjunction with, the financial statements of Pulsar,
including the related notes, appearing elsewhere in this prospectus. The
information presented below is qualified in its entirety by, and should be read
in conjunction with, "Selected Financial Data--Pulsar," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of Pulsar and related notes included elsewhere in this
prospectus.
Statements of operations information:
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
-------------------------- -----------------
1996 1997 1998 1998 1999
-------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Service revenue................ $ 10,253 $ 8,818 $ 3,373 $ 1,241 $ 369
Product revenue................ 155,705 142,702 77,159 16,777 9,579
-------- -------- ------- -------- -------
Total revenue.................. 165,958 151,520 80,532 18,018 9,948
-------- -------- ------- -------- -------
Cost of service revenue........ 4,870 4,115 1,553 730 155
Cost of product revenue........ 144,494 138,086 71,818 16,742 9,109
-------- -------- ------- -------- -------
Total cost of revenue.......... 149,364 142,201 73,371 17,472 9,264
-------- -------- ------- -------- -------
Gross margin................... 16,594 9,319 7,161 546 684
Selling, general, and
administrative expenses....... 13,545 17,152 13,264 2,256 2,017
-------- -------- ------- -------- -------
Operating income (loss)........ 3,049 (7,833) (6,103) (1,710) (1,333)
Interest income................ 639 457 61 200 20
Interest expense............... 3,564 3,640 2,099 706 478
-------- -------- ------- -------- -------
Net earnings (loss)............ $ 124 $(11,016) $(8,141) $ (2,216) $(1,791)
======== ======== ======= ======== =======
Net earnings (loss) per share:
basic and diluted............. $ 124 $(11,016) $(8,141) $ (2,216) $(1,791)
======== ======== ======= ======== =======
Weighted average shares
outstanding................... 1,000 1,000 1,000 1,000 1,000
======== ======== ======= ======== =======
</TABLE>
Balance sheet information:
<TABLE>
<CAPTION>
December 31,
-------------------------- March
1996 1997 1998 31, 1999
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents...... $ 2,451 $ 2,236 $ 352 $ 441
Working capital (deficit)...... 1,553 (2,436) (8,168) (10,067)
Total assets................... 59,785 40,871 12,730 8,539
Short-term debt................ 41,352 28,982 14,435 11,744
Long-term debt, less current
installments.................. 53 4,203 3,241 3,085
Total liabilities.............. 52,077 42,681 22,681 20,281
Net stockholders' equity
(deficit)..................... 7,708 (1,810) (9,951) (11,742)
</TABLE>
7
<PAGE>
Summary Pro Forma Financial Information
(dollars in thousands, except per share data)
The following table presents unaudited summary pro forma financial
information for the periods, and as of the dates, indicated. This information
is based on data derived from the historical financial statements of Litronic
and Pulsar and has been prepared to illustrate the effects of the Pulsar
acquisition and this offering on that data, as if they had occurred as of
January 1, 1998, with respect to the statements of operations information, and
as of March 31, 1999, with respect to the balance sheet information. This
financial information is provided for comparative purposes only and is not
intended to reflect the results that actually would have been obtained if the
acquisition and this offering had been effected on the dates indicated. The
information presented below is qualified in its entirety by, and should be read
in conjunction with, "Pro Forma Financial Data," "Selected Financial Data--
Litronic," "Selected Financial Data--Pulsar," "Management's Discussion and
Analysis of Financial Condition and Result of Operations" and the financial
statements and related notes included elsewhere in this prospectus.
Pro forma statements of operations information:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1998 1999
------------ ------------
<S> <C> <C>
Net product revenue................................. $ 82,373 $ 10,464
License and service revenue......................... 4,812 894
---------- ----------
Total revenue....................................... 87,185 11,358
---------- ----------
Product cost of revenue............................. 74,639 9,616
License and service cost of revenue................. 2,503 295
---------- ----------
Total cost of revenue............................... 77,142 9,911
---------- ----------
Gross margin........................................ 10,043 1,447
Selling, general, and administrative expenses....... 15,895 2,888
Research and development expenses................... 1,334 765
Amortization of goodwill and other intangibles...... 2,601 651
---------- ----------
Operating loss...................................... (9,787) (2,857)
Interest expense.................................... 1,723 253
Interest income..................................... 61 20
---------- ----------
Loss from continuing operations before income
taxes.............................................. (11,449) (3,090)
Benefit from income taxes........................... -- --
---------- ----------
Loss from continuing operations..................... $ (11,449) $ (3,090)
========== ==========
Net loss............................................ $ (11,449) $ (3,090)
========== ==========
Loss per share from continuing operations: basic and
diluted............................................ $ (1.18) $ (.32)
========== ==========
Net loss per share: basic and diluted............... $ (1.18) $ (.32)
========== ==========
Shares used in per share computations: basic and
diluted............................................ 9,740,631 9,740,631
========== ==========
</TABLE>
Pro forma balance sheet information:
<TABLE>
<CAPTION>
March 31,
1999
------------
<S> <C>
Cash and cash equivalents........................... $16,198
Working capital..................................... 13,470
Total assets........................................ 60,075
Short-term debt..................................... 5,451
Long-term debt, less current installments........... 452
Total liabilities................................... 11,956
Net stockholders' equity............................ 48,119
</TABLE>
8
<PAGE>
RISK FACTORS
An investment in our common stock is speculative and involves a high degree
of risk. In addition to the other information in this prospectus, you should
carefully consider the following risk factors before making an investment
decision.
We have a history of losses and may incur future losses.
Even with the proceeds of this offering, we may not become profitable or
significantly increase our revenue. Litronic incurred net losses of $1.4
million for the year ended December 31, 1998 and $973,000 for the three months
ended March 31, 1999. Pulsar incurred net losses of $8.1 million for the year
ended December 31, 1998 and $1.8 million for the three months ended March 31,
1999. Our pro forma combined statements of operations reflect net losses of
$11.4 million for the year ended December 31, 1998 and $3.1 million for the
three months ended March 31, 1999.
Our inability to integrate, or implement our plans for, the operations of
Pulsar may adversely affect our business.
Our failure to successfully integrate, or implement our plans for, the
operations of Pulsar would significantly diminish the value of the Pulsar
acquisition and adversely affect our future operations. Moreover, integration
of the Pulsar acquisition may place strain on our managerial and financial
resources, which could, in turn, adversely affect our business. To achieve the
full benefits of the Pulsar acquisition, we will need to:
. integrate our administrative, financial and engineering resources and
coordinate our marketing and sales efforts;
. roll out our data security products to Pulsar's existing client base;
. successfully complete the implementation of Pulsar's recent shift in
product reselling focus;
. expand Pulsar's professional service offerings; and
. increase sales of Pulsar's products and professional services.
We may not be able to successfully implement any of these plans.
The goodwill and other intangibles acquired in the Pulsar acquisition may have
an adverse impact on our operating results and the market price of our common
stock.
Approximately $33.4 million, or 56%, of our pro forma combined, as adjusted,
assets as of March 31, 1999, consisted of intangible assets, including
goodwill, arising from the acquisition of Pulsar. This amount, the components
of which will be amortized over 10 to 15 years, constitutes a non-cash, non-tax
deductible expense in each amortization period that will reduce net income or
increase net loss for that period. The reduction in our net earnings or an
increase in our net loss resulting from the amortization of goodwill and other
intangibles may have an adverse impact on our operating results and the market
price of our common stock. There is also a risk that we may never realize the
value of our intangible assets.
A default under our secured credit arrangements could result in a foreclosure
of our assets by our creditors.
All of our assets are pledged as collateral to secure portions of our debt.
This means that if we default on our secured debt obligations our indebtedness
could become immediately due and payable
9
<PAGE>
and the lenders could foreclose on our assets. From time to time we have been
in violation of financial covenants under our existing credit arrangements and
have had to negotiate with our lenders for waivers or forbearance agreements
for these violations.
The terms of our loan agreements could limit our ability to implement our
business strategy.
The terms of our loan agreements with our credit providers could limit our
ability to implement our strategy. In addition to substantially prohibiting us
from incurring additional indebtedness, our loan agreements with these
creditors limit or prohibit us from:
. declaring or paying cash dividends;
. making capital distributions or other payments to stockholders;
. merging or consolidating with another corporation; or
. selling all or substantially all of our assets.
We derive a substantial portion of our revenue from a small number of customers
and, therefore, the loss of even one of these customers could significantly and
negatively impact our operating results.
We depend on a limited number of customers for a substantial portion of our
revenue and many of our contracts with our significant customers are short-term
contracts. The nonrenewal of any significant contract upon expiration, or a
substantial reduction in sales to any of our significant customers, would
adversely affect our business unless we were able to replace the revenue we
received from these customers. For the year ended December 31, 1998, Litronic
derived 81% of its revenue from three customers and Pulsar derived 23% of its
revenue from one customer. For the three months ended March 31, 1999, Litronic
derived 71% of its revenue from three customers and Pulsar derived 18% of its
revenue from one customer.
Doing business with the U.S. government entails many risks which could
adversely affect us.
Sales to U.S. government agencies accounted for 90% of our pro forma
combined revenue for the year ended December 31, 1998 and 86% of our pro forma
combined revenue for the three months ended March 31, 1999. Our sales to these
agencies are subject to risks, including:
. early termination of our contracts;
. disallowance of costs upon audit; and
. the necessity to participate in competitive bidding and proposal
processes, which is costly, time consuming and may result in unprofitable
contracts.
In addition, the government may be in a position to obtain greater rights
with respect to our intellectual property than we would grant to other
entities. Government agencies also have the power, based on financial
difficulties or investigations of its contractors, to deem contractors
unsuitable for new contract awards. Because we engage in the government
contracting business, we have been and will be subject to audits and may be
subject to investigation by governmental entities. Failure to comply with the
terms of any of our governmental contracts could result in substantial civil
and criminal fines and penalties, as well as our suspension from future
government contracts for a significant period of time, any of which could
adversely affect our business.
10
<PAGE>
If use of the Internet and other communications networks based on Internet
protocols does not continue to grow, demand for our products may not increase.
Increased demand for our products depends in large part on the continued
growth of the Internet and Internet protocol-based networks and the widespread
acceptance and use of these mediums for electronic commerce and communications.
Because electronic commerce and communications over these networks are
evolving, we cannot predict the size of the market and its sustainable growth
rate. A number of factors may affect market size and growth rate, including:
. the use of electronic commerce and communications may not increase, or
may increase more slowly than we expect;
. the Internet infrastructure and communications services to support
electronic commerce may not be able to continue to support the demands
placed on it by continued growth; and
. the growth and reliability of electronic commerce and communications
could be harmed by delays in development or adoption of new standards and
protocols to handle increased levels of activity or by increased
governmental regulation.
If PKI technology is compromised, our business would be adversely affected.
Many of our products are based on PKI technology. The security afforded by
this technology depends on the integrity of a user's private key, which depends
in part on the application of algorithms, or advanced mathematical factoring
equations. The occurrence of any of the following could result in a decline in
demand for our data security products:
. any significant advance in techniques for attacking PKI systems,
including the development of an easy factoring method or faster, more
powerful computers;
. publicity of the successful decoding of cryptographic messages or the
misappropriation of private keys; and
. government regulation limiting the use, scope or strength of PKI.
If we do not respond to rapid technological changes, our products and service
offerings could become obsolete.
If we are unable to modify existing products and develop new products that
are responsive to changing technology and standards and meet customer needs in
a timely and cost effective manner, our business could be adversely affected.
The markets we serve are characterized by rapidly changing technology, emerging
industry standards and frequent introduction of new products. The introduction
of products embodying new technologies and the emergence of new industry
standards may render our products obsolete or less marketable. The process of
developing our products and services is extremely complex and requires
significant continuing development efforts.
If we fail to establish and maintain strategic relationships, our ability to
develop and market our products would be adversely affected.
The loss of any of our existing strategic relationships, or the inability to
create new strategic relationships in the future, could adversely affect our
ability to develop and market our products. We depend upon our partners to
develop and market products and to fund and perform their obligations as
contemplated by our agreements with them. We do not control the time and
resources devoted by our partners to these activities. These relationships may
not continue or may require us to spend
11
<PAGE>
significant financial, personnel and administrative resources from time to
time. We may not have the resources available to satisfy our commitments, which
may adversely affect our strategic relationships. Further, our products and
services may compete with the products and services of our strategic partners.
This competition may adversely affect our relationships with our strategic
partners, which could adversely affect our business.
We depend on key management personnel.
Our success will depend largely on the continuing efforts of our executive
officers and senior management, especially those of Kris Shah, our chairman of
the board and chief executive officer, and William W. Davis, Sr., our president
and chief operating officer. Our business may be adversely affected if the
services of any of our key personnel become unavailable to us. We have not
entered into employment agreements with any employees other than Messrs. Shah
and Davis. Even with these agreements, there is a risk that these individuals
will not continue to serve for any particular period of time. While we have
obtained key person life insurance policies on the lives of Messrs. Shah and
Davis, each in the amount of $3.0 million, these amounts may not be sufficient
to offset the loss of their services.
There is significant competition in our industry for highly skilled employees
and our failure to attract and retain technical personnel would adversely
affect our business.
We may not be able to successfully attract or retain highly skilled
employees. Our inability to hire or retain highly qualified individuals may
impede our ability to develop, install, implement and service our software and
hardware systems, customers and potential customers or efficiently conduct our
operations, all of which may adversely affect our business. The data security
and networking solution industries are characterized by a high level of
employee mobility, and the market for highly qualified individuals in the
computer-related fields is intense. This competition means there are fewer
highly qualified employees available to hire and the costs of hiring and
retaining these individuals are high. Even if we are able to hire these
individuals, we may be unable to retain them. Furthermore, there is increasing
pressure to provide technical employees with stock options and other equity
interests, which may dilute earnings per share.
Potential product defects could subject us to claims from customers.
Products as complex as those we offer may contain undetected errors or
result in failures when first introduced or when new versions are released.
Despite our product testing efforts and testing by current and potential
customers, it is possible that errors will be found in new products or
enhancements after commencement of commercial shipments. The occurrence of
product defects or errors could result in adverse publicity, delay in product
introduction, diversion of resources to remedy defects, loss of or a delay in
market acceptance or claims by customers against us, or could cause us to incur
additional costs, any of which could adversely affect our business.
We may be exposed to potential liability for actual or perceived failure to
provide required products or services.
Because our customers rely on our products for critical security
applications, we may be exposed to potential liability claims for damage caused
to an enterprise as a result of an actual or perceived failure of our products.
An actual or perceived breach of enterprise network or data security systems of
one of our customers, regardless of whether the breach is attributable to our
products or solutions, could adversely affect our business reputation.
12
<PAGE>
Furthermore, our failure or inability to meet a customer's expectations in
the performance of our services, or to do so in the time frame required by the
customer, regardless of our responsibility for the failure, could:
. result in a claim for substantial damages against us by the customer;
. discourage customers from engaging us for these services; and
. damage our business reputation.
In addition, as a professional services provider, a portion of our business
involves employing people and placing them in the workplace of other
businesses. Therefore, we are also exposed to liability for actions taken by
our employees while on assignment.
Problems relating to the year 2000 issue could adversely affect our business.
We are in the process of surveying our major vendors regarding year 2000
compliance. Until we complete our survey we cannot fully assess the year 2000
status of any of our vendors or suppliers. The failure of our significant
vendors and customers to make their products and systems year 2000 compliant
may adversely affect the performance of our products, which may in turn
adversely affect our business. Customers or third parties might seek
indemnification or damages from us as a result of year 2000 issue-related
errors caused by or not prevented by our products or services. We cannot
predict the extent to which we might be liable for these costs, but it is
conceivable in general that year 2000 errors could result in substantial
judgments against us or other providers of information technology. If we were
to suffer an adverse judgment as a result of prior year 2000 noncompliance of
our products, it may have an adverse impact on our business.
Customers' purchasing decisions could be affected by the year 2000 issue as
they may need to expend significant resources to correct their existing
systems. This situation may result in reduced funds available to implement the
infrastructure needed to conduct trusted and secure electronic commerce and
communications over the Internet, intranets and extranets. These factors could
lead to a decline in sales of our products and services, which could, in turn,
adversely affect our business.
The extent of the potential impact of the year 2000 issue generally is not
known, and we cannot predict the likelihood that the year 2000 issue will cause
a significant disruption in the economy as a whole.
We face intense competition from a number of sources.
The markets for our products and services are intensely competitive and, as
a result, we face significant competition from a number of different sources.
We may be unable to compete successfully as many of our competitors are more
established, benefit from greater name recognition and have substantially
greater financial, technical and marketing resources than we have. In addition,
there are several smaller and start-up companies with which we compete from
time to time. We also expect that competition will increase as a result of
consolidation in the information security technology and product reseller
industries.
Third parties could obtain access to our proprietary information or
independently develop similar technologies because of the limited protection
for our intellectual property.
Our business, financial condition and operating results could be adversely
affected if we are unable to protect our intellectual property rights.
Notwithstanding the precautions we take, third
13
<PAGE>
parties may copy or obtain and use our proprietary technologies, ideas, know-
how and other proprietary information without authorization or independently
develop technologies similar or superior to our technologies. In addition, the
confidentiality and non-competition agreements between us and our employees,
distributors, and clients may not provide meaningful protection of our
proprietary technologies or other intellectual property in the event of
unauthorized use or disclosure. Policing unauthorized use of our technologies
and other intellectual property is difficult, particularly because the global
nature of the Internet makes it difficult to control the ultimate destination
or security of software or other data transmitted. Furthermore, the laws of
other jurisdictions may afford little or no effective protection of our
intellectual property rights.
We may face claims of infringement of proprietary rights.
There is a risk that our products infringe the proprietary rights of third
parties. In addition, whether or not our products infringe on proprietary
rights of third parties, infringement or invalidity claims may be asserted or
prosecuted against us and we could incur significant expense in defending them.
If any claims or actions are asserted against us, we may be required to modify
our products or seek licenses for these intellectual property rights. We may
not be able to modify our products or obtain licenses on commercially
reasonable terms, in a timely manner or at all. Our failure to do so could
adversely affect our business.
Our efforts to expand international operations are subject to a number of
risks.
We are currently seeking to increase our international sales. Our inability
to maintain or to obtain federal or foreign regulatory approvals relating to
the import or export of our products on a timely basis could adversely affect
our ability to expand our international business. Additionally, our
international operations could be subject to a number of risks, any of which
could adversely affect our future international sales, including:
. increased collection risks;
. trade restrictions;
. export duties and tariffs; and
. uncertain political, regulatory and economic developments.
Our ability to produce the Forte PKIcard on a timely and cost-effective basis
depends on the availability of a computer chip from a third-party supplier,
with whom we do not expect to maintain a supply agreement.
Any inability to receive adequate supplies of Atmel Corporation's specially
designed Forte microprocessor would adversely affect our ability to complete
and sell the Forte PKIcard. We do not anticipate maintaining a supply agreement
with Atmel Corporation for the Forte microprocessor. If Atmel were unable to
deliver the Forte microprocessor for a lengthy period of time or terminated its
relationship with us, we would be unable to produce the Forte PKIcard until we
could design a replacement computer chip for the Forte microprocessor. We
anticipate this would take substantial time and resources to complete.
After this offering, a small number of stockholders, including our officers and
directors, will have the ability to control stockholder votes.
Upon the closing of this offering, Kris Shah and members of his family,
William W. Davis, Sr. and Lillian A. Davis will beneficially own, in the
aggregate, approximately 62.0% of our outstanding common stock. These
stockholders, if acting together, would have the ability to elect our directors
14
<PAGE>
and to determine the outcome of corporate actions requiring stockholder
approval, irrespective of how other stockholders may vote. This concentration
of ownership may also have the effect of delaying or preventing a change in
control.
A significant portion of the proceeds of this offering will be used to repay
indebtedness and thus will be unavailable to fund future growth.
We have allocated $15.3 million, or 48.4% of the net proceeds of this
offering to reduce outstanding indebtedness, including approximately $9.0
million of indebtedness assumed in connection with the acquisition of Pulsar,
and $1.1 million, or 3.5%, of the net proceeds to fund settlements with several
of Pulsar's trade vendors. Consequently, these funds will not be available to
fund future growth. The $15.3 million of indebtedness being repaid is
personally guaranteed by, and/or secured by pledges of assets of, Kris Shah,
William Davis or Lillian Davis. These persons will receive a benefit from the
release of these guarantees and security pledges.
There are lawsuits pending against Pulsar which could adversely affect our
business if they are resolved against Pulsar.
Lawsuits are pending against Pulsar which, if resolved against Pulsar, could
materially and adversely affect our business and financial condition. These
lawsuits claim: (a) damages of approximately $10.3 million resulting from
Pulsar's alleged breach of a contract for government contract bid preparation
services and (b) unspecified damages resulting from alleged race and age
discrimination in connection with the termination of a Pulsar employee. See
"Business--Legal Proceedings."
Our stock price could be extremely volatile.
The trading price of our common stock may be highly volatile as a result of
factors specific to us or applicable to our market and industry in general.
These factors, include:
. variations in our annual or quarterly financial results or those of our
competitors;
. changes by financial research analysts in their recommendations or
estimates of our earnings;
. conditions in the economy in general or in the information technology
service sector in particular;
. announcements of technological innovations or new products or services by
us or our competitors; and
. unfavorable publicity or changes in applicable laws and regulations, or
their judicial or administrative interpretations, affecting us or the
information technology service sectors.
In addition, the stock market has recently been subject to extreme price and
volume fluctuations. This volatility has significantly affected the market
prices of securities issued by many companies for reasons unrelated to the
operating performance of these companies. In the past, following periods of
volatility in the market price of a company's securities, some companies have
been sued by their stockholders. If we were sued, it could result in
substantial costs and a diversion of management's attention and resources,
which could adversely affect our business.
We have anti-takeover defenses that could delay or prevent an acquisition and
could adversely affect the price of our common stock.
Our certificate of incorporation and bylaws contain provisions that may
deter a takeover or a change in control or prevent an acquisition not approved
by our board of directors, or that may adversely affect the price of our common
stock. See "Description of Securities."
15
<PAGE>
The number of shares eligible for future sale and the existence of registration
rights could depress the market for our common stock.
The possibility that a substantial number of additional shares of common
stock may become tradeable in the public market following this offering may
adversely affect prevailing market prices for our common stock and could impair
our ability to raise capital through the sale of equity securities. An
aggregate of 3,870,693 of the 6,040,631 shares currently restricted from
trading in the public market will become eligible for sale 90 days following
the date of this prospectus, subject to agreements with BlueStone restricting
their sale for periods of at least six months. We cannot predict the effect, if
any, that sales of these additional securities or the availability of these
additional securities for sale will have on the market prices prevailing from
time to time. In addition, the representatives of the underwriters have also
been granted registration rights commencing one year from the date of this
prospectus providing for the registration under the Securities Act of the
securities issuable upon exercise of the representatives' warrants. The
exercise of these rights could result in substantial expense to us.
Furthermore, if the representatives exercise their registration rights, they
will be unable to make a market in our securities for up to nine days before
the initial sales of the warrants until the discontinuation of sales. If the
representatives cease making a market, the market and market prices for the
securities may be adversely affected and the holders of these securities may be
unable to sell them.
FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions and may be identified by the use of words such as
expects, anticipates, intends, and plans and other similar expressions. Our
actual results will differ from those discussed in these statements and you may
consider these differences important to your investment decision. Factors that
could contribute to these differences include those discussed in the "Risk
Factors" section and elsewhere in this prospectus. This prospectus also
contains forward-looking statements attributed to third parties relating to
their estimates regarding market growth. You should not place undue reliance on
the forward-looking statements in this prospectus, which speak only as of the
date the statement is made.
16
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of common stock in this
offering are estimated to be approximately $31.6 million or $36.7 million if
the representatives' over-allotment option is exercised in full. These amounts
assume we receive an initial public offering price of $10.00 per share, which
is the midpoint of the currently anticipated range of the initial public
offering price, and include deductions for underwriting discounts and estimated
offering expenses. We expect to use the net proceeds approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate percentage of
Anticipated use of net proceeds dollar amount net proceeds
- ------------------------------- ------------- -------------
<S> <C> <C>
Reduction of debt.................................. $15,300,000 48.4%
Sales and marketing................................ 5,000,000 15.8%
Product development................................ 5,000,000 15.8%
Vendor settlements................................. 1,100,000 3.5%
Working capital and general corporate purposes..... 5,200,000 16.5%
----------- -----
Total............................................ $31,600,000 100.0%
=========== =====
</TABLE>
Reduction of debt
We expect to use proceeds to reduce debt as follows:
. $5.9 million to repay BYL Bank Group for anticipated borrowings through
the date of this prospectus. This debt bears interest at the annual rate
of 6.6% and matures on July 31, 2000, except that it is required to be
repaid upon a change of control of our wholly-owned subsidiary, Litronic
Industries. It is guaranteed by Kris Shah, our chief executive officer
and chairman of the board, and is secured by personal assets pledged by
Mr. Shah.
. $3.6 million to repay in full the principal amount of notes to Wilmington
Trust Company. The Wilmington Trust Company debt bears interest at the
prime rate as in effect from time to time and matures in December 2002.
The Wilmington Trust Company debt is personally guaranteed by William W.
Davis, Sr., our president and chief operating officer, and Lillian A.
Davis, a principal stockholder, and is secured by property pledged by a
family member of Mr. Davis.
. $3.3 million to repay in full six promissory notes payable to various
vendors, which bear interest at annual rates ranging from 10% to 18% and
are due in May and June 1999.
. $1.4 million to IBM Global Finance Corporation to reduce the amount
outstanding under an asset-based inventory and working capital financing
agreement. The financing line bears interest at an annual rate of prime
plus 2.375% and is guaranteed by Mr. Davis and Ms. Davis and secured by
substantially all of the assets of Pulsar as well as by assets pledged by
Mr. Davis and Ms. Davis. This $1.4 million payment will eliminate the
pledge of assets by Mr. Davis and Ms. Davis.
. $650,000 to pay IBM Global under its forbearance agreement with Pulsar
which becomes payable upon closing of this offering. The obligations
under the forbearance agreement are guaranteed by Mr. Davis and Ms. Davis
and secured by assets pledged by Mr. Davis.
. $450,000 to repay in full a line of credit from Fidelity Funding, Inc.
The Fidelity Funding, Inc. debt currently bears interest at an annual
rate of prime plus 1.5%, is due on February 28, 2000, and is personally
guaranteed by Mr. Shah.
17
<PAGE>
Sales and marketing
We expect to use the proceeds allocated to sales and marketing as follows:
. to expand our sales and marketing efforts, primarily to commercial
markets, including hiring approximately 20 additional sales and marketing
personnel;
. to open additional sales and support offices;
. to expand our Internet and other advertising efforts;
. to improve our web site; and
. to expand strategic alliances.
Product development
We expect to use the proceeds allocated to product development to pay our
estimated costs of software and product development, including compensation and
benefits payable to additional software and hardware engineers and developers.
Vendor settlements
We expect to use the proceeds allocated to vendor settlements to pay amounts
owed under litigation settlements with various Pulsar trade vendors, as well as
anticipated amounts to pay as-yet-unsettled claims filed against Pulsar by
other trade vendors.
Working capital and general corporate purposes
If our cash from operations proves to be insufficient to fund our
outstanding trade payables, including up to approximately $3.1 million of
accounts payable more than 90 days overdue, we may use a portion of the
proceeds to fund these obligations. In addition, we may use a portion of the
proceeds for potential acquisitions of technologies, product lines and
businesses and to upgrade our existing management information systems and
supporting information technology equipment. We currently have no commitments,
understandings or arrangements with respect to any future acquisitions.
If the representatives of the underwriters exercise their over-allotment
option in full, we will realize additional net proceeds of approximately $5.1
million. We would use these proceeds for working capital and general corporate
purposes. Pending the uses described above, we intend to invest the net
proceeds of this offering in U.S. government securities, certificates of
deposit or other investment grade, interest-bearing securities.
The allocations described above represent our best estimate of the
anticipated use of the offering proceeds. Our estimate is based upon our
operating plans and our assumptions about research and development progress,
general economic conditions and industry factors. If any of these factors
change, we may find it necessary or advisable to reallocate our use of
proceeds.
In addition to the proceeds of this offering, we expect to obtain a new
$20.0 million revolving line of credit facility with Fidelity Funding, Inc. and
to borrow under this facility as needed to finance our operations and working
capital requirements. We have entered into a letter of intent with Fidelity
relating to this new facility and expect to enter into a definitive agreement
permitting us to borrow under this facility commencing with the closing of this
offering. The letter of intent contemplates a three-year term, subject to one-
year renewals at Fidelity's option, an annual interest rate of prime plus .625%
and a pledge of substantially all of our personal and real property as
collateral.
18
<PAGE>
We believe that the net proceeds of this offering, together with anticipated
cash flow from operations, availability under our new $20.0 million credit
facility and existing cash and cash equivalents, will be sufficient to satisfy
our contemplated cash requirements for at least 12 months following the closing
of this offering, including planned capital expenditures of $1.0 million and an
anticipated increase in rent expense for our California operations of $400,000
per year following our anticipated relocation of our California headquarters.
We could be required to seek additional financing, however, if:
. our plans change due to changes in market conditions, competitive
factors, progress of our research and development efforts or new
opportunities that may become available in the future;
. our assumptions change or prove to be inaccurate; or
. the net proceeds of this offering or our cash flows prove to be
insufficient to finance our growth strategy.
DIVIDEND POLICY
Before the date of this prospectus, Litronic Industries was an S corporation
for federal and California state income tax purposes. As an S corporation,
Litronic Industries made cash distributions of approximately $18.0 million to
its stockholders during the year ended December 31, 1997. We do not anticipate
paying cash dividends. We intend to retain future earnings for the development
and expansion of our business. The declaration and payment of dividends or
other distributions is currently prohibited by the terms of financing
agreements we have with our lenders and is likely to continue to be restricted.
DILUTION
The difference between the initial public offering price per share of common
stock and the net tangible book value per share of common stock after the
offering constitutes the dilution to new investors. Our net tangible book value
per share is calculated by dividing the difference between our total tangible
assets and our total liabilities by the number of shares of our common stock
outstanding.
At March 31, 1999, the net tangible book value (deficit) of Litronic was
$(5.2 million), or $(1.34) per share. After giving retroactive effect to (a)
the Pulsar acquisition and (b) Litronic's receipt and anticipated application
of the net proceeds from the sale of the 3,700,000 shares of our common stock
in this offering, at an assumed price of $10.00 per share, Litronic's as
adjusted net tangible book value at March 31, 1999 would have been $14.7
million or $1.51 per share. This represents an immediate increase in net
tangible book value of $2.85 per share to existing stockholders and an
immediate dilution of $8.49 per share to new investors.
The following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $10.00
Net tangible book value (deficit) before the offering...... $(1.34)
Increase attributable to the Pulsar acquisition and this
offering.................................................. 2.85
------
Adjusted net tangible book value after this offering........ 1.51
------
Dilution to new investors................................... $ 8.49
======
</TABLE>
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<PAGE>
The following table summarizes, on a pro forma basis, as of March 31, 1999,
and giving retroactive effect to the Pulsar acquisition, the differences
between the number of shares of common stock purchased from us, the total
consideration paid, and the average price per share paid by existing
stockholders and new investors purchasing common stock in this offering. In
summarizing this information, we have:
. calculated the total consideration paid by existing stockholders based on
the historical value of Litronic's common stock and the fair value of the
common stock issued in connection with the Pulsar acquisition; and
. assumed an average price per share of $10.00 for new investors and for
the fair value of the common stock issued in connection with the Pulsar
acquisition.
<TABLE>
<CAPTION>
Shares Acquired Total Consideration Average
----------------- ------------------- Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 6,040,631 62.0% $33,402,000 47.4% $ 5.53
New investors................... 3,700,000 38.0 37,000,000 52.6 $10.00
--------- ----- ----------- -----
9,740,631 100.0% $70,402,000 100.0%
========= ===== =========== =====
</TABLE>
The table above assumes the representatives of the underwriters have not
exercised their over-allotment option. If this option is exercised in full, the
new investors will have paid $42.6 million, based on an assumed offering price
of $10.00 per share, for 4,255,000 shares of common stock, representing
approximately 56.0% of the total consideration for 41.3% of the total number of
shares outstanding. In making the computations in the table, we excluded:
. 281,419 shares of common stock reserved for issuance upon the exercise of
outstanding options under our 1998 stock option plan, at an exercise
price of $.70 per share;
. 600,000 shares of common stock reserved for issuance upon the exercise of
options available for future grant under our 1999 stock option plan; and
. 370,000 shares of common stock reserved for issuance upon the exercise of
warrants to be issued to the representatives of the underwriters in
connection with this offering.
20
<PAGE>
CAPITALIZATION
(dollars in thousands, except share data)
The following table presents Litronic's short-term debt and capitalization,
as of March 31, 1999, on (a) an historical basis, (b) a pro forma combined
basis to reflect the Pulsar acquisition, and (c) a pro forma combined, as
adjusted, basis to reflect the anticipated application of the proceeds of sale
of 3,700,000 shares of our common stock at an assumed price of $10.00 per
share. This table should be read in conjunction with "Use of Proceeds," "Pro
Forma Financial Data" and the financial statements, including the related
notes, appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------
Pro Forma
Pro Combined,
Forma As
Historical Combined Adjusted
---------- -------- ---------
<S> <C> <C> <C>
Short-term debt:
Financing arrangement--IBM Global.............. $ -- $ 7,201 $ 5,175
Notes payable--vendors......................... -- 3,361 61
Current installments of debt................... 424 1,606 215
------ ------- -------
Total short-term debt.......................... $ 424 $12,168 $ 5,451
====== ======= =======
Long-term debt:
Long-term debt................................. $5,950 $ 5,950 $ --
Notes payable, net of current installments..... -- 3,085 452
------ ------- -------
Total long-term debt........................... 5,950 9,035 452
------ ------- -------
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000,000 shares; no shares issued or
outstanding (historical, pro forma combined
and pro forma combined, as adjusted).......... -- -- --
Common stock, $.01 par value: 25,000,000 shares
authorized; 3,870,693 shares issued and
outstanding (historical), 6,040,631 shares
issued and outstanding (pro forma combined),
and 9,740,631 shares issued and outstanding
(pro forma combined, as adjusted)............. 39 61 98
Additional paid-in capital..................... -- 16,458 48,021
Accumulated deficit............................ (5,219) -- --
------ ------- -------
Total stockholders' equity (deficit)........ (5,180) 16,519 48,119
------ ------- -------
Total capitalization..................... $ 770 $25,554 $48,571
====== ======= =======
</TABLE>
The above table excludes the following shares:
. 281,419 shares of common stock reserved for issuance upon exercise of
options granted under our 1998 stock option plan;
. 600,000 shares of common stock reserved for issuance upon exercise of
options available for future grant under our 1999 stock option plan; and
. 370,000 shares of common stock reserved for issuance upon exercise of the
representatives' warrants.
21
<PAGE>
SELECTED FINANCIAL DATA--LITRONIC
(dollars in thousands, except per share data)
The following table presents selected financial data as of and for each of
the years in the five-year period ended December 31, 1998, derived from the
consolidated financial statements of Litronic. The consolidated financial
statements of Litronic as of December 31, 1997 and 1998 and for each of the
years in the three-year period ended December 31, 1998 have been audited by
KPMG LLP, independent certified public accountants. The consolidated financial
statements of Litronic as of December 31, 1997 and 1998, and for each of the
years in the three-year period ended December 31, 1998, and the related report,
are included in this prospectus.
The selected data presented below for the three month periods ended March
31, 1998 and 1999, and as of March 31, 1999, are derived from the unaudited
condensed consolidated financial statements of Litronic included elsewhere in
this prospectus.
The selected data should be read in conjunction with the consolidated
financial statements of Litronic for the three-year period ended December 31,
1998, the related notes and the independent auditors' report, appearing
elsewhere in this prospectus.
Selected Statements of Operations Data:
<TABLE>
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31,
------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net product revenue..... $ 1,447 $ 1,525 $ 7,855 $ 8,627 $ 5,214 $ 1,354 $ 885
License and service rev-
enue................... 487 1,181 1,541 1,539 1,439 309 525
--------- --------- --------- --------- --------- --------- ---------
Total revenue........... 1,934 2,706 9,396 10,166 6,653 1,663 1,410
--------- --------- --------- --------- --------- --------- ---------
Product cost of reve-
nue.................... 486 793 4,098 3,211 2,821 667 507
License and service cost
of revenue............. 169 465 581 643 950 176 140
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenue... 655 1,258 4,679 3,854 3,771 843 647
--------- --------- --------- --------- --------- --------- ---------
Gross margin............ 1,279 1,448 4,717 6,312 2,882 820 763
Selling, general, and
administrative
expenses............... 773 977 2,052 3,487 2,631 662 871
Research and development
expenses............... 226 341 725 1,172 1,334 341 765
--------- --------- --------- --------- --------- --------- ---------
Operating income
(loss)................. 280 130 1,940 1,653 (1,083) (183) (873)
Interest expense, net... 12 38 19 42 418 108 109
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from
continuing operations
before income taxes.... 268 92 1,921 1,611 (1,501) (291) (982)
Provision for (benefit
from) income taxes..... 4 1 29 22 (95) (51) (9)
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from
continuing operations.. $ 264 $ 91 $ 1,892 $ 1,589 $(1,406) $ (240) $ (973)
========= ========= ========= ========= ========= ========= =========
Net earnings (loss)..... $ 48 $ 210 $ 906 $ 15,334 $(1,406) $ (240) $ (973)
========= ========= ========= ========= ========= ========= =========
Earnings (loss) from
continuing operations
per share: basic and
diluted................ $ .07 $ .02 $ .49 $ .41 $ (.36) $ (.06) $ (.25)
========= ========= ========= ========= ========= ========= =========
Net earnings (loss) per
share: basic and dilut-
ed..................... $ .01 $ .05 $ .23 $ 3.96 $ (.36) $ (.06) $ (.25)
========= ========= ========= ========= ========= ========= =========
Shares used in per share
computations: basic and
diluted................ 3,870,693 3,870,693 3,870,693 3,870,693 3,870,693 3,870,693 3,870,693
========= ========= ========= ========= ========= ========= =========
</TABLE>
22
<PAGE>
Selected Balance Sheet Data:
<TABLE>
<CAPTION>
December 31,
------------------------------------------ March 31,
1994 1995 1996 1997 1998 1999
------- ------- ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............. $ 6 $ 95 $ 862 $ 490 $ 898 $ 557
Working capital....................... 87 (372) 1,662 385 758 520
Total assets.......................... 3,827 5,476 7,409 2,347 2,791 2,895
Short-term debt....................... 421 472 545 -- 580 424
Long-term debt, less current install-
ments................................ 3,718 4,313 4,997 3,506 5,200 5,950
Total liabilities..................... 5,045 6,483 7,510 5,148 6,998 8,075
Net stockholders' deficit............. (1,218) (1,007) (101) (2,801) (4,207) (5,180)
</TABLE>
During the year ended December 31, 1997, Litronic paid a cash dividend of
$9.5 million to its shareholders. No other dividends have been paid during the
periods presented.
23
<PAGE>
SELECTED FINANCIAL DATA--PULSAR
(dollars in thousands, except per share data)
The following table presents selected financial data as of and for each of
the years in the four-year period ended December 31, 1997, derived from the
financial statements of Pulsar, which have been audited by Keller Bruner &
Company, L.L.C., independent certified public accountants. The selected
financial data as of and for the year ended December 31, 1998 is derived from
the financial statements of Pulsar which have been audited by KPMG LLP,
independent certified public accountants. The financial statements of Pulsar as
of December 31, 1997 and 1998, and for each of the years in the three-year
period ended December 31, 1998, and the related reports are included elsewhere
in this prospectus.
The selected data presented below for the three month periods ended March
31, 1998 and 1999, and as of March 31, 1999, are derived from the unaudited
condensed financial statements of Pulsar included elsewhere in this prospectus.
The selected data should be read in conjunction with the financial
statements of Pulsar for the three-year period ended December 31, 1998, the
related notes and the independent auditors' reports, which contain explanatory
paragraphs that state that Pulsar's recurring losses from operations, violation
of debt covenants and net capital deficiency raise substantial doubt about the
entity's ability to continue as a going concern. The financial statements and
the selected data do not include any adjustments that might result from the
outcome of this uncertainty.
Selected Statement of Operations Data:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
----------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenue......... $ * $ * $10,253 $ 8,818 $ 3,373 $ 1,241 $ 369
Product revenue......... * * 155,705 142,702 77,159 16,777 9,579
------- ------- ------- -------- ------- --------- ---------
Total revenue........... 118,739 163,991 165,958 151,520 80,532 18,018 9,948
------- ------- ------- -------- ------- --------- ---------
Cost of service reve-
nue.................... * * 4,870 4,115 1,553 730 155
Cost of product reve-
nue.................... * * 144,494 138,086 71,818 16,742 9,109
------- ------- ------- -------- ------- --------- ---------
Total cost of revenue... 104,416 146,682 149,364 142,201 73,371 17,472 9,264
------- ------- ------- -------- ------- --------- ---------
Gross margin............ 14,323 17,309 16,594 9,319 7,161 546 684
Selling, general, and
administrative ex-
penses................. 8,580 10,410 13,545 17,152 13,264 2,256 2,017
------- ------- ------- -------- ------- --------- ---------
Operating income
(loss)................. 5,743 6,899 3,049 (7,833) (6,103) (1,710) (1,333)
Other income............ 325 -- -- -- -- -- --
Interest income......... 276 392 639 457 61 200 20
Interest expense........ 1,377 2,412 3,564 3,640 2,099 706 478
------- ------- ------- -------- ------- --------- ---------
Net earnings (loss)..... $ 4,967 $ 4,879 $ 124 $(11,016) $(8,141) $ (2,216) $ (1,791)
======= ======= ======= ======== ======= ========= =========
Net earnings (loss) per
share:
basic and diluted...... $ 4,967 $ 4,879 $ 124 $(11,016) $(8,141) $ (2,216) $ (1,791)
======= ======= ======= ======== ======= ========= =========
Weighted average shares
outstanding............ 1,000 1,000 1,000 1,000 1,000 1,000 1,000
======= ======= ======= ======== ======= ========= =========
</TABLE>
24
<PAGE>
- --------
* The breakdown of revenue and cost of revenue between services and products is
not available for the years ended December 31, 1994 and 1995 because, prior to
1996, Pulsar's accounting system did not track product and service revenue
separately. In 1996, Pulsar installed a new accounting system and has since
been able to break out product and service revenue.
Selected Balance Sheet Data:
<TABLE>
<CAPTION>
December 31,
---------------------------------------- March 31,
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............. $ 2,895 $ 2,144 $ 2,451 $ 2,236 $ 352 $ 441
Working capital (deficit)............. 8,145 8,090 1,553 (2,436) (8,168) (10,067)
Total assets.......................... 60,820 82,930 59,785 40,871 12,730 8,539
Short-term debt....................... 35,139 61,970 41,352 28,982 14,435 11,744
Long-term debt, less current install-
ments................................ 41 84 53 4,203 3,241 3,085
Total liabilities..................... 52,070 73,862 52,077 42,681 22,681 20,281
Net stockholders' equity (deficit).... 8,750 9,068 7,708 (1,810) (9,951) (11,742)
</TABLE>
25
<PAGE>
PRO FORMA FINANCIAL DATA
The following pro forma financial data is based upon data derived from
Litronic's and Pulsar's historical consolidated financial statements and has
been prepared to illustrate the effects on this data of the Pulsar acquisition
and this offering. The unaudited pro forma statements of operations for the
year ended December 31, 1998 and the three months ended March 31, 1999 give
effect to the acquisition and the closing of this offering as if these
transactions had occurred as of January 1, 1998. The unaudited pro forma
balance sheet as of March 31, 1999 gives effect to the acquisition and this
offering as if these transactions had occurred as of March 31, 1999. The Pulsar
acquisition will become effective simultaneously with, and as a condition to,
the closing of this offering. The acquisition will be recorded using the
purchase method of accounting.
The pro forma adjustments are based upon preliminary estimates, currently
available information and assumptions that management deems appropriate. We
have assumed for the purpose of determining the purchase price of the Pulsar
acquisition that our common stock issued to the Pulsar stockholders is valued
at the initial public offering price. The preliminary estimates regarding
allocation of the purchase price are subject to uncertainties, including the
final offering price per share and final determination of the fair value of the
net assets acquired. In management's opinion, the preliminary estimates
regarding allocation of the purchase price of Pulsar are not expected to differ
materially from the final allocation. The purchase price allocation will be
finalized after the closing of the acquisition. The pro forma financial data
are not necessarily indicative of the results we would have obtained had these
events occurred at the beginning of the period, as assumed, or of our future
results as a combined entity.
26
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------------------------------------
Pro Forma
Acquisition Offering Combined,
Adjustments Pro Forma Proceeds As
Litronic Pulsar (AA) Combined Adjustments Adjusted
--------- ------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net product revenue..... $ 5,214 $77,159 $ $ 82,373 $ $ 82,373
License and service
revenue................ 1,439 3,373 4,812 4,812
--------- ------- ---------- ---------- ---------- ----------
Total revenue........... 6,653 80,532 87,185 87,185
--------- ------- ---------- ---------- ---------- ----------
Product cost of
revenue................ 2,821 71,818 74,639 74,639
License and service cost
of revenue............. 950 1,553 2,503 2,503
--------- ------- ---------- ---------- ---------- ----------
Total cost of revenue... 3,771 73,371 77,142 77,142
--------- ------- ---------- ---------- ---------- ----------
Gross margin............ 2,882 7,161 10,043 10,043
Selling, general, and
administrative
expenses............... 2,631 13,264 15,895 15,895
Research and development
expenses............... 1,334 -- 1,334 1,334
Amortization of goodwill
and other intangibles.. -- -- 2,601(BB) 2,601 2,601
--------- ------- ---------- ---------- ---------- ----------
Operating loss.......... (1,083) (6,103) (2,601) (9,787) (9,787)
Interest expense........ 418 2,099 2,517 (794)(CC) 1,723
Interest income......... -- 61 61 61
--------- ------- ---------- ---------- ---------- ----------
Loss from continuing
operations before
income taxes........... (1,501) (8,141) (2,601) (12,243) 794 (11,449)
Benefit from income
taxes.................. (95) -- 95(DD) -- --
--------- ------- ---------- ---------- ---------- ----------
Loss from continuing
operations............. $ (1,406) $(8,141) $ (2,696) $ (12,243) $ 794 $ (11,449)
========= ======= ========== ========== ========== ==========
Loss per share from
continuing operations:
basic and diluted...... $ (.36) $(8,141) $ (2.03) $ (1.18)
========= ======= ========== ==========
Shares used in per share
com-
putations: basic and
diluted................ 3,870,693 1,000 (1,000)(EE) 6,040,631 3,700,000 (FF) 9,740,631
2,169,938 (EE)
========= ======= ========== ========== ========== ==========
</TABLE>
- --------
(AA)Includes adjustments directly attributable to the Pulsar acquisition.
(BB) Reflects the amortization of goodwill and other intangibles of $33.4
million attributable to the acquisition, amortized on a straight line
basis over 10- to 15-year periods.
(CC) Reflects the reduction of interest expense which would result from the
repayment of $15.3 million of debt as set forth in "Use of Proceeds."
(DD) Reflects the income tax effect of the change from an S corporation to a C
corporation.
(EE) Reflects the exchange of all of Pulsar's outstanding common stock for
2,169,938 shares of our common stock in connection with the Pulsar
acquisition.
(FF) Reflects the sale of 3,700,000 shares of our common stock in this
offering.
27
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
---------------------------------------------------------------------------
Acquisition Offering Pro Forma
Adjustments Pro Forma Proceeds Combined,
Litronic Pulsar (AA) Combined Adjustments As Adjusted
--------- ------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net product revenue..... $ 885 $ 9,579 $ $ 10,464 $ $ 10,464
License and service
revenue................ 525 369 894 894
--------- ------- --------- --------- ---------- -----------
Total revenue........... 1,410 9,948 11,358 11,358
--------- ------- --------- --------- ---------- -----------
Product cost of
revenue................ 507 9,109 9,616 9,616
License and service cost
of revenue............. 140 155 295 295
--------- ------- --------- --------- ---------- -----------
Total cost of revenue... 647 9,264 9,911 9,911
--------- ------- --------- --------- ---------- -----------
Gross margin............ 763 684 1,447 1,447
Selling, general, and
administrative
expenses............... 871 2,017 2,888 2,888
Research and development
expenses............... 765 -- 765 765
Amortization expense.... -- -- 651 (BB) 651 651
--------- ------- --------- --------- ---------- -----------
Operating loss.......... (873) (1,333) (651) (2,857) (2,857)
Interest expense........ 109 478 587 (334)(CC) 253
Interest income......... -- 20 20 20
--------- ------- --------- --------- ---------- -----------
Loss from continuing
operations before
income taxes........... (982) (1,791) (651) (3,424) 334 (3,090)
Provision for (benefit
from) income taxes..... (9) -- 9 (DD) -- --
--------- ------- --------- --------- ---------- -----------
Loss from continuing
operations............. $ (973) $(1,791) $ (660) $ (3,424) $ 334 $ (3,090)
========= ======= ========= ========= ========== ===========
Loss per share from
continuing operations:
basic
and diluted............ $ (.25) $(1,791) $ (.57) $ (.32)
========= ======= ========= ===========
Shares used in per share
computations: basic
and diluted............ 3,870,693 1,000 (1,000)(EE) 6,040,631 3,700,000(FF) 9,740,631
2,169,938 (EE)
========= ======= ========= ========= ========== ===========
</TABLE>
- --------
(AA) Includes adjustments directly attributable to the Pulsar acquisition.
(BB) Reflects the amortization of goodwill and other intangibles of $33.4
million attributable to the acquisition, amortized on a straight line
basis over 10- to 15-year periods.
(CC) Reflects the reduction of interest expense which would result from the
repayment of $15.3 million of debt as set forth in "Use of Proceeds."
(DD) Reflects the income tax effect of the change from an S corporation to a C
corporation.
(EE) Reflects the exchange of all of Pulsar's outstanding common stock for
2,169,938 shares of our common stock in connection with the Pulsar
acquisition.
(FF) Reflects the sale of 3,700,000 shares of our common stock in this
offering.
28
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------------------
Acquisition Offering Pro Forma
Adjustments Pro Forma Proceeds Combined,
Litronic Pulsar (AA) Combined Adjustments(D) As Adjusted
-------- ------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents............ $ 557 $ 441 $ $ 998 $15,200(C) $16,198
Accounts receivable,
net.................... 652 5,798 6,450 6,450
Inventories............. 452 890 1,342 1,342
Other current assets.... 984 -- 984 984
------ ------- ------- ------- ------- -------
Total current assets.... 2,645 7,129 9,774 15,200 24,974
Property and equipment,
net.................... 250 525 775 775
Goodwill and other
intangibles............ -- -- 33,441 (A) 33,441 33,441
Notes receivable--
related parties........ -- 543 543 543
Other assets............ -- 342 342 342
------ ------- ------- ------- ------- -------
Total assets............ $2,895 $ 8,539 $33,441 $44,875 $15,200 $60,075
====== ======= ======= ======= ======= =======
Liabilities and
Stockholders' Equity
(Deficit):
Financing arrangement--
IBM Global............. $ -- $ 7,201 $ $ 7,201 $(2,026)(C) $ 5,175
Current installments of
long-term debt......... 424 967 1,391 (1,391)(C) --
Notes payable--vendors.. -- 3,361 3,361 (3,300)(C) 61
Accounts payable........ 911 3,829 4,740 (1,100)(C) 3,640
Accrued liabilities..... 790 1,623 2,413 2,413
Notes payable to
shareholders........... -- 215 215 215
------ ------- ------- ------- ------- -------
Total current
liabilities............ 2,125 17,196 19,321 (7,817) 11,504
Long-term debt.......... 5,950 -- 5,950 (5,950)(C) --
Notes payable, net of
current maturities..... -- 3,085 3,085 (2,633)(C) 452
Stockholders' equity
(deficit):
Common stock............ 39 1 22 (A) 61 37 98
(1)(A)
Additional paid-in
capital................ -- 1,663 21,677 (A) 16,458 31,563 48,021
(1,663)(A)
(5,219)(B)
Accumulated deficit..... (5,219) (13,406) 13,406 (A) -- --
5,219 (B)
------ ------- ------- ------- ------- -------
Net stockholders' equity
(deficit).............. (5,180) (11,742) 33,441 16,519 31,600 48,119
------ ------- ------- ------- ------- -------
Total liabilities and
stockholders' equity
(deficit).............. $2,895 $ 8,539 $33,441 $44,875 $15,200 $60,075
====== ======= ======= ======= ======= =======
</TABLE>
- --------
(A) The adjustment reflects the acquisition of Pulsar under the purchase
method of accounting through the issuance of 2.17 million shares of common
stock with a fair value of $21.7 million and the assumption of net
liabilities of $11.7 million. The allocation of the purchase price to the
fair value of the assets acquired and liabilities assumed is preliminary
and will be finalized following completion of the acquisition of Pulsar.
Included in the amount allocated to goodwill and other intangibles is an
allocation of $11.1 million representing the preliminary estimate of value
of the customer base and strategic relationships.
(B) Reflects the restructuring of Litronic from an S corporation to a C
corporation with a corresponding reclassification of the $5.2 million
accumulated deficit to additional paid-in-capital.
(C) Reflects the repayment of debt and payment of vendor settlements from the
proceeds of this offering.
(D) Reflects the net proceeds from the sale of 3,700,000 shares of our common
stock at an assumed price of $10.00 per share.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the selected
financial data of Litronic and Pulsar, the pro forma financial data, and the
financial statements and related notes appearing elsewhere in this prospectus.
General
Litronic provides professional Internet data security services and develops
and markets software and microprocessor-based products needed to secure
electronic commerce and communications over the Internet and other
communications networks based on Internet protocols. Litronic's primary
technology offerings use public key infrastructure, which is the standard
technology for securing Internet-based commerce and communications.
Before 1990, Litronic was solely a provider of electronic interconnect
products to government and commercial entities. In 1990, Litronic formed its
data security division, which forms the basis of its operations today. The data
security division was engaged primarily in research and development until 1993
when it began to generate meaningful revenue. In September 1997, Litronic sold
its Intercon division, which consisted of the assets relating to its
interconnect operations, for cash to Allied Signal Inc., a non-related,
publicly-traded company. The gain on sale was $15.0 million, net of tax expense
of $241,000. In addition to the cash proceeds received, the sales agreement
provided for Litronic's right to receive a contingent purchase price. Effective
November 30, 1997, this right was distributed pro rata to the shareholders of
Litronic. Except for senior management, these operations were operated
independently from Litronic's data security operations. Litronic charged direct
costs to the division incurring them. Indirect or shared costs, such as senior
management compensation and benefits, rent, utilities and costs of tax, legal
and other advisory services, were allocated on the basis of actual usage and
head count. Litronic's historical consolidated financial statements have been
restated to reflect the sale of the Intercon division as discontinued
operations.
Upon the closing of this offering, Litronic is acquiring Pulsar, a provider
of network-based information technology consulting services to commercial
accounts and federal, state and local government agencies, in exchange for
2,169,938 shares of our common stock valued at $10.00 per share, the
anticipated initial public offering price. In addition to its consulting
services, Pulsar also has an established product reseller business, which
focuses on resales to government agencies, large corporate accounts and state
and local governments.
Results of operations--comparison of the three months ended March 31, 1998 and
1999
Litronic
Total revenue. Total revenue decreased 15% from $1.7 million during the
three months ended March 31, 1998 to $1.4 million during the three months ended
March 31, 1999. The decrease was primarily attributable to decreased sales of
the ARGUS 300 products to the U.S. Army Corps of Engineers and readers to
Lockheed Martin Corporation under the Defense Messaging System contract.
During the three months ended March 31, 1998, Litronic derived 36%, 35% and
16% of its revenue from sales to Lockheed Martin Corporation, U.S. Army Corps
of Engineers and the National Security Agency. During the three months ended
March 31, 1999, Litronic derived 39%, 27%, and
30
<PAGE>
5% of its revenue from sales to Lockheed Martin Corporation, the National
Security Agency and the U.S. Army Corps of Engineers.
Sales to federal government agencies accounted for approximately 51% and 32%
of Litronic's sales during the three months ended March 31, 1998 and 1999.
Product revenue. Product revenue decreased 35% from $1.4 million in the
three months ended March 31, 1998 to $885,000 in the three months ended March
31, 1999. This decrease is primarily attributable to reduced sales of our ARGUS
300 products to the U.S. Army Corps of Engineers as a result of the substantial
completion of the Corps of Engineers Financial Management Services, or CEFMS,
contract and reduced sales of reader/writers to Lockheed Martin Corporation
under the Defense Messaging System contract. We expect that sales of our ARGUS
300 products under the CEFMS contract will continue to diminish; however, we
expect significant additional sales of the ARGUS 300 and other products to the
U.S. Army Corps of Engineers as a result of its recently commenced program to
upgrade its information technology systems periodically. Based on our
experience with the U.S. Army Corps of Engineers, we expect to participate in
the program through sales of the ARGUS 300 and other products.
License and service revenue. License and service revenue increased from
$309,000 during the three months ended March 31, 1998 to $525,000 during the
three months ended March 31, 1999. This change is primarily due to $369,000 of
revenue related to the Forte project offset by a decrease of $246,000 in
revenue from the National Security Agency Defense Messaging System support
services.
Total gross margin. Total gross margin increased as a percentage of revenue
from 49% during the three months ended March 31, 1998 to 54% during the three
months ended March 31, 1999. The increase was due primarily to a change in
revenue mix comprised of decreased sales of the ARGUS 300 products to the U.S.
Army Corps of Engineers and increased higher margin license and service
revenue.
Product gross margin. Product gross margins decreased as a percentage of net
product revenue from 51% during the three months ended March 31, 1998 to 43%
during the three months ended March 31, 1999. The decrease resulted primarily
from decreased sales of ARGUS data encryption products to the U.S. Army Corps
of Engineers.
License and service gross margin. License and service gross margin increased
as a percentage of its revenue from 43% during the three months ended March 31,
1998 to 73% during the three months ended March 31, 1999. The increase resulted
primarily from $369,000 of revenue related to the Forte project; all costs
related to the Forte project are included in research and development expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 32% from $662,000 during the three months
ended March 31, 1998 to $871,000 during the three months ended March 31, 1999.
As a percentage of revenue, selling, general and administrative expenses
increased from 40% during the three months ended March 31, 1998 to 62% during
the three months ended March 31, 1999. Selling, general and administrative
expenses increased primarily due to increased staffing to support business
expansion and increased professional fees.
Research and development expenses. Research and development expenses
increased 124% from $341,000 during the three months ended March 31, 1998 to
$765,000 during the three months
31
<PAGE>
ended March 31, 1999. The increase was primarily attributable to increased
costs associated with increased new product development, including expenses
associated with the development efforts of the Forte microprocessor, which we
are designing in conjunction with Atmel Corporation, and increased staffing to
support research and development efforts including the Forte project. As a
percentage of revenue, research and development expenses increased from 21%
during the three months ended March 31, 1998 to 54% during the three months
ended March 31, 1999. The increase reflected our continued investment in
research and development of future products and services coupled with the
reduction in revenue described above.
Interest expense, net. Interest expense, net increased slightly from
$108,000 during the three months ended March 31, 1998 to $109,000 during the
three months ended March 31, 1999. The average borrowings required for
operations were comparable during the three months ended March 31, 1998 and
1999.
Income taxes. Before this offering, Litronic elected to be treated as an S
corporation under the provisions of Section 1362 of the Internal Revenue Code
of 1986 and used the accrual basis of reporting for income tax purposes.
Accordingly, Litronic did not provide for federal income taxes at the corporate
level. Litronic was subject to state taxes on earnings before taxes. The
provision for state income taxes was a credit of $51,000 and $9,000 for the
three months ended March 31, 1998 and 1999 as a result of losses from
operations.
Backlog. At March 31, 1999, Litronic had total backlog of $299,000,
including $227,000 attributable to the National Security Agency. Backlog
represents signed purchase orders received but not filled and, in the case of
the $227,000 attributable to the National Security Agency, funding of future
research and development costs. At March 31, 1998, we had total backlog of
$626,000, including $147,000 attributable to the U.S. Army Corps of Engineers
and $388,000 attributable to the National Security Agency.
Pulsar
Total revenue. Total revenue decreased 45%, from $18.0 million during the
three months ended March 31, 1998 to $9.9 million during the three months ended
March 31, 1999. During the three months ended March 31, 1998 and 1999, Pulsar
derived 16% and 18% of its revenue from sales to the U.S. Immigration and
Naturalization Service. Total revenue to federal government agencies declined
33% from $14.1 million during the three months ended March 31, 1998 to $9.4
million during the three months ended March 31, 1999. This decrease is
attributable primarily to the federal government's reallocation of budget
dollars from hardware and software procurements to resolving year 2000 issues.
Product revenue. Product revenue declined 43% from $16.8 million during the
three months ended March 31, 1998 to $9.6 million during the three months ended
March 31, 1999. This decrease is primarily attributable to the following
factors:
. In 1997, Pulsar made a strategic decision to eliminate its high volume,
low margin Federal Systems Integration, or FSI, program activities,
which accounted for 13% of its product revenue during the three months
ended March 31, 1998 and was completely eliminated as of March 31, 1999.
Sales under the FSI program were phased out due to the diminishing
margins produced by these sales.
32
<PAGE>
. Pulsar voluntarily withdrew from the Section 8(a) program in June 1997
in anticipation of its scheduled graduation from the program in November
1997. Section 8(a) contract revenue was $1.2 million during the three
months ended March 31, 1998 and was eliminated during the three months
ended March 31, 1999.
. Commercial, state and local government revenue decreased by 59%, from
$1.4 million during the three months ended March 31, 1998 to $569,000
during the three months ended March 31, 1999. This decrease is primarily
attributable to the loss of a contract with Montgomery County, Maryland,
and the closing of Pulsar's Atlanta sales office.
. Revenue from the General Services Administration, or GSA, schedule
contract and National Institutes of Health, or NIH, schedule contract
declined 25% from $12.0 million during the three months ended March 31,
1998 to $9.0 million during the three months ended March 31, 1999. This
decrease is primarily attributable to the reallocation of government
budget dollars from hardware and software procurements towards resolving
year 2000 issues.
Service revenue. Service revenue declined by 69%, from $1.2 million during
the three months ended March 31, 1998 to $369,000 during the three months ended
March 31, 1999. This decrease is primarily attributable to a reduction in
service revenue from expiring Section 8(a) contracts with the U.S. Department
of Education and the Naval Research Lab Contract.
Total gross margins. Pulsar's total gross margins increased 25%, from
$546,000 during the three months ended March 31, 1998 to $684,000 during the
three months ended March 31, 1999.
Product gross margins. Pulsar's product gross margins increased from 2%
during the three months ended March 31, 1998 to 5% during the three months
ended March 31, 1999. The increase in gross product margins was primarily
attributable to not filing for rebate income during the three months ended
March 31, 1998. Additional factors attributable to increased gross product
margins include a reduction in FSI sales, which relate to lower margin product
sales, and Pulsar's successful bidding for higher margin product contracts.
Service gross margin. Service gross margins increased from 41% during the
three months ended March 31, 1998 to 58% during the three months ended March
31, 1999. This increase is primarily attributable to Pulsar obtaining higher
margin contract work with Prince George's County and the loss of lower margin
contract work with the U.S. Department of Education and the Naval Research Lab
contract.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased 11% from $2.3 million during the three months
ended March 31, 1998 to $2.0 million during the three months ended March 31,
1999. The decrease was primarily attributable to a reduction in administrative
and sales staffing and rent expense partially offset by one-time fees of
approximately $450,000 associated with the acquisition of Pulsar by Litronic.
Bad debt expense increased from $75,000 during the three months ended March 31,
1998 to $165,000 during the three months ended March 31, 1999. The bad debt
expense for the three month periods ended March 31, 1998 and 1999 was related
to a reserve for the allowance for doubtful accounts against rebates receivable
and accounts receivable.
Interest expense. Interest expense decreased 32%, from $706,000 during the
three months ended March 31, 1998 to $478,000 during the three months ended
March 31, 1999. This is primarily attributable to a significant decrease in
Pulsar's average daily borrowings during the three months ended March 31, 1998
compared to the three months ended March 31, 1999.
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Interest income. Interest income decreased 90% from $200,000 during the
three months ended March 31, 1998 to $20,000 during the three months ended
March 31, 1999. The decrease is primarily attributable to the decrease in
interest recognized on the cash surrender value of life insurance policies.
Results of operations--comparison of years ended December 31, 1996, 1997 and
1998
Litronic
Total revenue. Total revenue increased 8% from $9.4 million during the year
ended December 31, 1996 to $10.2 million during the year ended December 31,
1997 and decreased 35% from 1997 to $6.7 million during the year ended December
31, 1998. The increase from 1996 to 1997 was primarily attributable to
increased sales of the ARGUS 300 products to the U.S. Army Corps of Engineers.
The decrease from 1997 to 1998 was primarily attributable to the decreased
sales of the ARGUS 300 products, as described below.
During the year ended December 31, 1996, Litronic derived 39%, 29% and 18%
of its revenue from sales to Lockheed Martin Corporation, U.S. Army Corps of
Engineers and the National Security Agency. During the year ended December 31,
1997, Litronic derived 45%, 20%, and 19% of its revenue from sales to U.S. Army
Corps of Engineers, Lockheed Martin Corporation and the National Security
Agency. During the year ended December 31, 1998, Litronic derived 44%, 20% and
17% of its revenue from sales to Lockheed Martin Corporation, the National
Security Agency and the U.S. Army Corps of Engineers. Sales to federal
government agencies accounted for approximately 84% and 81% of Litronic's sales
during the years ended December 31, 1997 and 1998.
Product revenue. Product revenue increased 10% from $7.9 million in the year
ended December 31, 1996 to $8.6 million in the year ended December 31, 1997 and
decreased 40% from 1997 to $5.2 million in the year ended December 31, 1998.
The increase from 1996 to 1997 was primarily attributable to increased sales of
our ARGUS 300 products to the U.S. Army Corps of Engineers. The decrease from
1997 to 1998 is primarily attributable to reduced sales of our ARGUS 300
products to the U.S. Army Corps of Engineers as a result of the substantial
completion of the CEFMS contract. The CEFMS contract with the U.S. Army Corps
of Engineers expired September 30, 1998. The Defense Messaging System contract
expires in November 1999, but it may be renewed by Lockheed Martin for up to
four one-year periods.
License and service revenue. License and service revenue was $1.5 million
during the years ended December 31, 1996 and 1997 and declined from 1997 by 7%
to $1.4 million for the year ended December 31, 1998. The decline from 1997 to
1998 was attributable primarily to reduced service revenue from the National
Security Agency as a result of its determination that it will no longer pay for
Litronic-provided support services for the Defense Messaging System and the
subsequent decline in support requests from users of Litronic's support
services. Also included in license and service revenue for the year ended
December 31, 1998 is $398,000 of revenue related to the Forte project which
Litronic received for its research and development efforts.
Total gross margin. Gross margin increased as a percentage of revenue from
50% during the year ended December 31, 1996 to 62% during the year ended
December 31, 1997 and decreased as a percentage of revenue to 43% during the
year ended December 31, 1998. The increase from 1996 to 1997 was due primarily
to a change in product mix comprised of increased sales of the ARGUS 300
products to the U.S. Army Corps of Engineers and sales of higher margin
software products. The decline from 1997 to 1998 is primarily attributable to
reduced product sales as described below.
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Product gross margin. Product gross margins increased as a percentage of net
product revenue from 48% during the year ended December 31, 1996 to 63% during
the year ended December 31, 1997 and decreased to 46% during the year ended
December 31, 1998. The increase from 1996 to 1997 resulted primarily from
increased sales of ARGUS data encryption products to the U.S. Army Corps of
Engineers. The decrease from 1997 to 1998 is primarily attributable to reduced
sales under the CEFMS contract and sales of low margin pass-through products to
the National Security Agency.
License and service gross margin. License and service gross margin decreased
as a percentage of its revenue from 62% during the year ended December 31, 1996
to 58% during the year ended December 31, 1997 and decreased from 1997 to 34%
during the year ended December 31, 1998. The decrease from 1996 to 1997 was due
to additional head count and higher per employee costs. The decrease from 1997
to 1998 resulted primarily from higher compensation costs associated with the
reduction of support services revenue under the Defense Messaging System
contract. All costs relating to the Forte project are included in research and
development expenses during the year ended December 31, 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 70% from $2.1 million during the year ended
December 31, 1996 to $3.5 million during the year ended December 31, 1997 and
decreased 25% from 1997 to $2.6 million during the year ended December 31,
1998. As a percentage of revenue, selling, general and administrative expenses
increased from 22% during the year ended December 31, 1996 to 34% during the
year ended December 31, 1997 and increased from 1997 to 40% during the year
ended December 31, 1998. Selling, general and administrative expenses during
1997 were higher due to nonrecurring bonuses of $1.0 million paid to
shareholder employees following the sale of the Intercon division. In addition,
selling, general and administrative expenses increased as a percentage of
revenue due to increased staffing to support the anticipated expansion of
Litronic's business.
Research and development expenses. Research and development expenses
increased 62% from $725,000 during the year ended December 31, 1996 to $1.2
million during the year ended December 31, 1997 and increased 14% from 1997 to
$1.3 million during the year ended December 31, 1998. The increases from 1996
to 1998 were primarily attributable to increased costs associated with
increased new product development, including expenses associated with the
development efforts of the Forte microprocessor, which we are designing in
conjunction with Atmel Corporation to be embedded in our Forte PKIcard. As a
percentage of revenue, research and development expenses increased from 8%
during the year ended December 31, 1996 to 12% during the year ended December
31, 1997 and increased from 1997 to 20% during the year ended December 31,
1998. These increases reflected our continued investment in research and
development of future products and services coupled with the reduction in
revenue in 1998 described above.
Interest expense, net. Interest expense, net, increased by 121% from $19,000
during the year ended December 31, 1996 to $42,000 during the year ended
December 31, 1997 and increased almost tenfold from 1997 to $418,000 during the
year ended December 31, 1998. The increases in interest expense from 1996 to
1998 were attributable to increased levels of borrowings required for
operations.
Income taxes. The provision for state income taxes was $29,000 and $22,000
for the years ended December 31, 1996 and 1997. For the year ended December 31,
1998, Litronic had a benefit of $95,000 as a result of losses from continuing
operations before income taxes of $1.5 million.
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Backlog. At December 31, 1998, Litronic had total backlog of $717,000,
including $109,000 attributable to Lockheed Martin Corporation and $596,000
attributable to the National Security Agency. In the case of the $596,000
attributable to the National Security Agency, backlog represents funding of
future research and development expense. At December 31, 1997, we had total
backlog of $1.1 million, including $466,000 attributable to Lockheed Martin
Corporation and $578,000 attributable to the National Security Agency.
Pulsar
Total revenue. Total revenue decreased 9%, from $166.0 million during the
year ended December 31, 1996 to $151.5 million during the year ended December
31, 1997 and decreased 47% from 1997 to $80.5 million during the year ended
December 31, 1998.
During the years ended December 31, 1997 and 1998, Pulsar derived 23% and
11% of its revenue from sales to the U.S. Immigration and Naturalization
Service. Total revenue to federal government agencies decreased 10% from $101.0
million during the year ended December 31, 1996 to $91.4 million for the year
ended December 31, 1997 and declined 21% from 1997 to $72.5 million during the
year ended December 31, 1998. The decrease was attributable primarily to a
decrease in Pulsar's sales to the U.S. government under its Section 8(a)
contracts, partially offset by an increase in GSA schedule revenue and NIH
contract revenue.
Product revenue. Product revenue declined 8%, from $155.7 million during the
year ended December 31, 1996 to $142.7 million during the year ended December
31, 1997, and declined 46% from 1997 to $77.2 million during the year ended
December 31, 1998. This decrease was primarily attributable to the following
factors:
. In 1997, Pulsar made a strategic decision to eliminate its high volume,
low margin FSI program activities, which accounted for 23% of its
revenue during 1996, 24% of its revenue during 1997 and 4% of its
revenue during 1998. Sales under the FSI program were phased out during
this period due to the diminishing margins produced by these sales. FSI
revenue decreased 4% from $38.1 million in the year ended December 31,
1996 to $36.7 million in the year ended December 31, 1997 and decreased
92% from 1997 to $3.2 million in the year ended December 31, 1998.
. Pulsar voluntarily withdrew from the Section 8(a) program in June 1997
in anticipation of its scheduled graduation from the program in November
1997. Section 8(a) contract revenue decreased by 71% from $50.1 million
during the year ended December 31, 1996 to $14.3 million during the year
ended December 31, 1997 and decreased 78% to $3.1 million during the
year ended December 31, 1998.
. Commercial, state and local government revenue decreased by 8% from
$24.8 million during the year ended December 31, 1996 to $22.9 million
during the year ended December 31, 1997, primarily due to a sales staff
focus on FSI program revenues, and decreased 83% to $3.9 million during
the year ended December 31, 1998 primarily due to the loss of a contract
with Montgomery County, Maryland and the closing of Pulsar's Atlanta
sales office.
. The reductions in revenue were partially offset by an increase in GSA
schedule revenue commencing in 1996 and NIH revenue commencing in 1998.
This revenue increased 61%, from $42.7 million during the year ended
December 31, 1996 to $68.8 million during the year ended December 31,
1997, and declined 3% from 1997 to $67.0 million during the year ended
December 31, 1998. The overall increase in GSA and NIH contract revenue
was
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primarily due to Pulsar's shift in sales focus in response to the
Federal Streamline Act of 1996, which encourages all agencies to use the
GSA or the NIH vehicle to procure products and services in support of
information technology requirements instead of traditional time-
restrictive contracting methods. The decrease in GSA revenue from 1997
to 1998 was due in part to the government's reallocation of budget
dollars from hardware and software procurements toward resolving year
2000 issues.
Service revenue. Service revenue declined by 14%, from $10.3 million during
the year ended December 31, 1996 to $8.8 million during the year ended
December 31, 1997 and declined 62% from 1997 to $3.4 million during the year
ended December 31, 1998. The decrease from 1996 to 1997 was attributable
primarily to the completion of a contract with Samsung Electronics. The
decrease from 1997 to 1998 was attributable primarily to a reduction in
service revenue from expiring Section 8(a) contracts with the U.S. Department
of Education and the Naval Research Lab contract.
Total gross margins. Pulsar's gross margin decreased as a percentage of
revenue from 10% during the year ended December 31, 1996 to 6% during the year
ended December 31, 1997 and increased from 1997 to 9% during the year ended
December 31, 1998. The gross margin declined from $16.6 million for the year
ended December 31, 1996 to $9.3 million for the year ended December 31, 1997
and declined from 1997 to $7.2 million for the year ended December 31, 1998.
The overall decrease from 1996 to 1997 was attributable primarily to the
reduction in total revenue combined with a decrease in gross margin
percentage. The decrease from 1997 to 1998 was attributable only to a
reduction in total revenue.
Product gross margin. Product gross margins declined as a percentage of
revenue from 7% during the year ended December 31, 1996 to 3% during the year
ended December 31, 1997 and increased from 1997 to 7% during the year ended
December 31, 1998. The decrease in product margins from 1996 to 1997 was
attributable to industry competition and write-off of obsolete inventory.
Consistent with Pulsar's business plan, the increase from 1997 to 1998 was
attributable primarily to reduced FSI sales, which are lower margin product,
and Pulsar's successful bidding for higher margin product contracts, partially
offset by the write-off of obsolete inventory.
The charge for obsolete inventory during the year ended December 31, 1998
was $344,000. Pulsar was unable to separately quantify the amount of expense
for obsolete inventory during the year ended December 31, 1997. This was due
to Pulsar's former practice of making one year-end reconciling adjustment to
the general ledger to adjust inventory for obsolescence and shrinkage and
differences between the physical inventory count and the general ledger
inventory balance. Since January 1, 1998, Pulsar has implemented a monthly
physical inventory reconciliation and a year-end reconciliation procedure to
separately account for obsolete inventory and differences in the physical
inventory and the general ledger inventory balance. Pulsar's historical year-
end reconciliation process ensured that inventory was stated accurately based
on physical count at each year-end and was not carried over from prior years.
Service gross margin. Service gross margins remained unchanged at 53%
during the years ended December 31, 1996 and 1997 and increased slightly from
1997 to 54% during the year ended December 31, 1998.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 27% from $13.5 million during the year ended
December 31, 1996 to $17.2 million during the year ended December 31, 1997 and
decreased 27% from 1997 to $13.3 million during the year
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ended December 31, 1998. The increase from 1996 to 1997 was attributable
primarily to bad debt expense associated with accounts receivable and notes
receivable. The decrease from 1997 to 1998 reflects a reduction in the total
amount of bad debt expense and a reduction in administrative and sales
staffing. Selling, general and administrative expenses increased as a
percentage of revenue from 8% during the year ended December 31, 1996 to 11%
during the year ended December 31, 1997 and increased from 1997 to 16% during
the year ended December 31, 1998.
Bad debt expense and measures designed to reduce bad debts. Bad debt write-
offs increased from $403,000 during the year ended December 31, 1996 to $4.6
million during the year ended December 31, 1997 and decreased from 1997 to $3.4
million during the year ended December 31, 1998. Bad debt expense in 1997 was
primarily attributable to extending credit to commercial clients who did not
meet their obligations in the amount of $3.9 million and commercial loans
outside of the normal course of business that were deemed uncollectible in the
amount of $702,000. Bad debt expense in 1998 was incurred from commercial
clients who did not meet their obligations in the amount of $1.8 million and
rebate receivables that expired because they were incomplete or not collected
on a timely basis in the amount of $1.6 million. Additionally, Pulsar has
implemented procedures to reduce the exposure to commercial bad debts,
including:
. performing thorough credit reviews on all new and existing non-
government customers, including verifying references and analyzing
customer's Dun and Bradstreet reports before extending credit;
. changing its customer profile by significantly reducing FSI reseller
clients from the federal government to Fortune 500 clients, thus
reducing credit risk;
. implementing a tickler system to ensure that rebates are filed in a
timely manner; and
. establishing a collections staff to follow-up on payments related to
rebates.
Notes receivable--related parties. Pulsar had previously assigned two notes
receivable from third parties to a related party in the aggregate principal
amount of $623,000. These notes receivable were assigned back to Pulsar in
December 1997. The notes and accrued interest were determined to be
uncollectible after pursuing legal action to collect and written off as bad
debt expense in the year ended December 31, 1997.
The provision for notes receivable-related parties of $655,000 for the year
ended December 31, 1998 relates to a note due from a company owned by a
relative of the shareholders of Pulsar. The note is payable upon the sale of
the related party's real estate asset. During 1998 the related party
experienced financial difficulties as a result of its commercial real estate
operations. Based upon the related party's cash flows and decline in its
financial condition, Pulsar determined that the note had become impaired. The
amount of the impairment was determined in accordance with Statement of
Financial Accounting Standards No. 114, and the note was fully reserved as of
December 31, 1998.
Cost cutting measures designed to reduce selling, general and administrative
expenses. In an effort to reduce selling, general and administrative expenses
in future periods, Pulsar has taken significant cost cutting measures,
including:
. automating administrative job functions through business process
reengineering and other reductions, thus reducing head count by 32
positions from January 30, 1998 to May 1, 1999; and
. relocating to less expensive office space beginning October 1, 1998,
thus decreasing monthly rent expense from $45,000 to $11,500.
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Costs incurred in 1998 to achieve these cost reductions included $24,000 in
severance fees and $750,000 in lease termination fees.
Interest expense. Interest expense increased by 2%, from $3.6 million during
the year ended December 31, 1996 to $3.6 million during the year ended December
31, 1997, and decreased by 42% from 1997 to $2.1 million during the year ended
December 31, 1998. Pulsar's average daily borrowings decreased during 1996, but
additional interest expense was recognized due to a new agreement Pulsar
entered into with its creditor, IBM Global. Interest expense decreased in 1998
due to a significant decrease in borrowings.
Interest income. Interest income decreased by 28%, from $639,000 during the
year ended December 31, 1996 to $457,000 during the year ended December 31,
1997 and decreased by 87% to $61,000 during the year ended December 31, 1998.
These decreased were attributable primarily to a reduction in the outstanding
notes receivable balances. Also, during 1998, Pulsar did not recognize interest
income on the related party notes receivable.
Liquidity and capital resources
On a pro forma combined, as adjusted, basis, we had working capital of $13.5
million as of March 31, 1999.
We have entered into a letter of intent with Fidelity Funding relating to a
new $20.0 million secured revolving line of credit facility and expect to enter
into a definitive agreement permitting us to borrow under this facility
commencing upon the closing of this offering. The letter of intent
contemplates:
. a three-year term, subject to one-year renewals at the lender's option;
. an annual interest rate of prime plus .625%;
. a pledge of substantially all of our personal and real property as
collateral; and
. a cap on our borrowings equal to 85% of our eligible accounts receivable
plus the lesser of (a) 50% of the value of our eligible on-hand
inventory or (b) $1.0 million.
We believe that the net proceeds of this offering, together with
availability under our new $20.0 million revolving line of credit and existing
cash and cash equivalents, will be sufficient to satisfy our contemplated cash
requirements for at least 12 months following the closing of this offering,
including planned capital expenditures of approximately $1.0 million and an
anticipated increase in rent expense for our California operation of $400,000
per year following our anticipated relocation of our California headquarters.
We could be required to seek additional financing if:
. our plans change due to changes in market conditions, competitive
factors, progress of our research and development efforts or new
opportunities that may become available in the future;
. our assumptions change or prove to be inaccurate; or
. the net proceeds of this offering or our cash flows prove to be
insufficient to finance our growth strategy.
Litronic
Historically, Litronic's cash requirements have been financed through a
combination of cash flow from operations, except in the year ended December 31,
1998, bank financing and loans from its
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principal shareholders and affiliates. Some of Litronic's borrowings contain
covenants and restrictions, including maintenance of minimum tangible net worth
and working capital, and they prohibit the payment of dividends. Litronic was
in compliance with or had received waivers for these covenants as of December
31, 1998 and March 31, 1999.
During the three months ended March 31, 1999, cash used in operations for
Litronic was $866,000, primarily due to a net loss of $973,000 and an increase
in other current assets of $599,000. These were partially offset by a decrease
in accounts receivable of $88,000 due to improved collections in 1999 and an
increase in accounts payable of $455,000.
During the three months ended March 31, 1999, cash provided by financing
activities was $594,000, consisting primarily of borrowings of $1.1 million
under the revolving note payable to a bank and $750,000 under the long-term
notes payable, partially offset by repayments of $1.3 million under the
revolving note payable to a bank.
Litronic's capital expenditures, including computer equipment, test
equipment and furniture and fixtures, were $69,000 during the three months
ended March 31, 1999. Litronic's capital expenditures were funded through cash
generated from operations and through its secured revolving credit line and
borrowing from its principal shareholders.
As of March 31, 1999, Litronic had an aggregate of $5.9 million outstanding
under various promissory notes to BYL Bank Group at a fixed annual interest
rate of 6.6%. These notes are due upon the earlier of July 31, 2000 or a change
of control of Litronic Industries and are personally guaranteed by Kris Shah
and secured by personal assets pledged by Mr. Shah. We intend to use proceeds
from this offering to repay the indebtedness under these notes.
In addition, we intend to use proceeds from this offering to repay in full
the outstanding balance under Litronic's $2.5 million line of credit facility
with Fidelity Funding Inc. in the approximate amount of $450,000. This facility
expires in February 2000 and is personally guaranteed by Mr. Shah.
Pulsar
Pulsar's capital requirements have been and will continue to be significant.
To date, its cash requirements have exceeded its cash flow from operations.
Pulsar historically has satisfied cash requirements through borrowings.
Pulsar's financial statements include an explanatory paragraph in the
independent auditors' report that states that Pulsar's losses from operations,
violation of debt covenants and net capital deficiency raise substantial doubt
about Pulsar's ability to continue as a going concern. The debt covenants
violated by Pulsar were contained in its inventory and working capital
financing agreement with IBM Global and in a series of subsequent forbearance
agreements. These covenants required Pulsar to maintain at various times
financial ratios of annualized revenue to working capital, net profit after tax
to revenue and total liabilities to tangible net worth. Pulsar has received a
forbearance from IBM Global through the closing of this offering and expects to
repay IBM Global in full following the closing of this offering.
Total cash provided for the three months ended March 31, 1999 was $89,000.
Pulsar's cash provided from operations for the three months ended March 31,
1999 was $2.9 million. This primarily resulted from collections of accounts
receivable of $4.2 million, and an increase in accrued liabilities of $551,000,
offset by a net loss of $1.8 million. The increase in accrued liabilities was
primarily attributable to accrued professional fees associated with the
acquisition of Pulsar by
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Litronic. Cash used in financing activities resulted primarily from repayments
of our line of credit for $2.2 million and repayments of vendor notes payable
for $587,000.
Total cash used for the year ended December 31, 1998 was $1.9 million.
Pulsar's cash provided from operations for the year ended December 31, 1998,
was $18.4 million. This primarily resulted from collections of accounts
receivable of $17.7 million, reduction of inventory of $1.6 million and an
increase in accounts payable of $2.6 million, offset by a net loss of $8.1
million, including a non-cash bad debt expense of $3.4 million. Inventory
decreased as a result of a change in business practices from carrying inventory
to anticipate customer requests to a just-in-time method of inventory.
Cash used in financing activities for the year ended December 31, 1998, was
$21.5 million, resulting primarily from $18.7 million in payments made to
decrease indebtedness outstanding under its financing arrangement with IBM
Global, a portion of which was funded by borrowings of $1.5 million against the
cash surrender value of life insurance policies.
Pulsar's capital expenditures, including computer equipment, warehouse
equipment, and furniture and fixtures, were $58,000 for the year ended December
31, 1998. Proceeds from loans from cash surrender value of life insurance net
of premium payments were $1.2 million.
During the year ended December 31, 1998 and the three months ended March 31,
1999, Pulsar repaid a total of approximately $1.0 million outstanding under its
term loan from Wilmington Trust Company which bears interest at the prime rate
in effect from time to time and matures in December 2002. On May 5, 1999, this
loan was reduced by an additional $543,000, leaving a balance due of
approximately $3.5 million. This debt is personally guaranteed by William W.
Davis, Sr. and Lillian A. Davis and is secured by property pledged by a family
member of Mr. Davis. We intend to use proceeds from this offering to repay the
balance of this indebtedness in full.
During the year ended December 31, 1998 and the three months ended March 31,
1999, Pulsar also converted $5.0 million in accounts payable to notes payable
due to negotiated agreements with vendors. As of March 31, 1999, $3.3 million
of these notes payable remained outstanding. We intend to use proceeds from
this offering to repay this balance.
In addition, since January 1, 1998, lawsuits were filed against Pulsar by
trade vendors and a local government agency seeking to collect an aggregate of
approximately $1.8 million, plus interest, attorney's fees and costs. Pulsar
incurred $173,000 and $102,000 of interest expense and penalties during the
year ended December 31, 1998 and the three months ended March 31, 1999 relating
to the amount due to these trade creditors and government agency. Pulsar has
entered into settlements relating to these claims under which it has paid a
total of $760,000, including interest of $30,000. Under these settlements,
Pulsar is required to pay an additional $815,000, including interest of
$54,000, all of which is due during 1999. The aggregate amount of claims that
have been filed but not settled is approximately $288,000. We have allocated
$1.1 million of the net proceeds of this offering to pay the amounts due under
the settlements, as well as anticipated amounts to pay as-yet-unsettled claims.
Additionally, Pulsar has approximately $3.1 million of accounts payable
balances which are more than 90 days overdue. We expect to use cash from
operations to fund these obligations to the extent we are not able to negotiate
extended payment arrangements. If these funds prove insufficient, we may use a
portion of the proceeds from this offering allocated to working capital to
satisfy these obligations.
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Pulsar funded its operations during the year ended December 31, 1998 through
its financing agreement with IBM Global. Under this agreement, Pulsar purchases
hardware and software from authorized suppliers and finances the purchases
through IBM Global. The agreement provided for an initial credit line up to $18
million, which has been increased and decreased over time through amendments to
the forbearance agreement, based on Pulsar's hardware and software procurement
requirements financed through the line of credit, and as a result of defaults
that have occurred related to the forbearance agreements. As of March 31, 1999,
the maximum amount available under the line of credit was $9.0 million, which
was reduced to $8.0 million as of April 30, 1999. As of March 31, 1999, $7.2
million was outstanding under the line. The line of credit allows Pulsar to
finance up to 85% of its eligible accounts receivable and 100% of the value of
its on-hand inventory. The credit line is secured by substantially all assets
of Pulsar and is personally guaranteed by, and secured by $1.4 million of the
personal assets of, Mr. Davis and Ms. Davis. We intend to use $1.4 million of
the proceeds from this offering to reduce amounts outstanding under this credit
line and eliminate the pledge of assets by Mr. Davis and Ms. Davis.
IBM Global has agreed to forbear Pulsar's violations of financial covenants
in the IBM Global financing agreement in exchange for Pulsar's agreement to pay
to IBM Global, on or before October 1999, either (a) warrants to purchase for a
nominal amount a fully diluted 4% ownership interest in Pulsar or (b) the
lesser of:
. $650,000,
. 4% of the sale price upon the sale of all or substantially all of
Pulsar's assets, or
. a pro rata share of $650,000 upon the sale of less than substantially
all of Pulsar's assets.
We intend to satisfy this obligation to IBM Global by paying $650,000 to it
upon the closing of this offering.
Pro forma information and future trends
Following this offering, we intend to roll out our enterprise-wide data
security products to Pulsar's significant existing client base. We believe that
Pulsar's custom-designed secure PCs will provide us with another type of data
security product offering, broadening the scope of our offerings and enabling
us to provide our customers with a comprehensive data security solution. Our
strategy also involves continuing Pulsar's recent shift in product reselling
focus to higher margin products, expanding Pulsar's professional service
offerings and increasing sales of Pulsar's products and professional services
to commercial customers and state and local governments. We also intend to
leverage Pulsar's direct sales force, distribution channels and partners to
expand our marketing of our Internet data security products.
Revenue
During the year ended December 31, 1998 and three months ended March 31,
1999, sales of Internet data security products, including NetSign, Pro File
Manager and CryptOS, accounted for 6% and 8% of our revenue on a pro forma
combined basis.
We are currently experiencing increased demand for our Internet data
security products, including NetSign, ProFile Manager and CryptOS, from
commercial customers. Our recently released Internet-related products such as
NetSign, NetSign Pro, CipherServer, and developer toolkits such as CryptOS SDK,
have also experienced favorable market acceptance. We expect to continue to
experience significant increases in sales of these products as a result of the
expected continued
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growth in electronic commerce and communications over the Internet and our plan
to roll out our data security products to Pulsar's existing and significant
client base.
During the year ended December 31, 1998 and three months ended March 31,
1999, on a pro forma combined basis, product reselling accounted for 89% and
84% of our revenue and license and service revenue accounted for 6% and 8% of
our revenue. As we expand our professional service offerings and grow our sales
of Internet data security products, we expect license and service revenue to
increase as a percentage of revenue and product reselling to account for a
decreasing portion of our revenue.
On a pro forma combined basis, only one of our customers, the U.S.
Immigration and Naturalization Service, has accounted for 10% or more of our
revenue, accounting for 21% of combined revenue during the year ended December
31, 1998 and 16% of combined revenue during the three months ended March 31,
1999. Sales to U.S. government agencies accounted for approximately 90% of our
pro forma combined revenue for the year ended December 31, 1998 and 86% during
the three months ended March 31, 1999.
Gross margins
During the year ended December 31, 1998 and three months ended March 31,
1999, Litronic's data security products had gross margins of 46% and 43% and
Pulsar's product reselling activities had gross margins of 7% and 5%. Pulsar
recently shifted its product reselling focus toward higher margin computer and
network security products, including intrusion detection software and
firewalls, which are custom designed configurations installed into a network to
prevent unauthorized access from outside the network. We intend to continue to
focus our product reselling efforts toward these products. As a result, we
expect product reselling gross margin to increase as a percentage of
corresponding revenue. Our license and service revenue has relatively high
gross margins, with a gross margin of 48% for the year ended December 31, 1998
and 67% for the three months ended March 31, 1999 on a pro forma combined
basis. Because we expect our higher gross margin sources of revenue to increase
as a percentage of revenue and our gross margin from product reselling to
increase, we expect our gross margin to increase as a percentage of total
revenue.
Cost cutting measures
Pulsar has taken several cost cutting measures since the beginning of 1998
which have significantly reduced the expenses associated with selling, general
and administrative activities, including an overall reduction of staff from 75
persons at December 31, 1997 to 44 persons at April 1, 1999, enhanced credit
procedures and reduced rent expense. In addition, as a combined entity, we
expect to consolidate Litronic's Washington, D.C. area offices into Pulsar's
offices in Lanham, Maryland.
Focused marketing efforts
We have recently begun to focus our marketing efforts on commercial
customers. The commercial markets for PKI security products are expected to be
intensely competitive. In addition, as we intensify our focus on the commercial
markets and expand the marketing of our Internet data security products, we
anticipate increasing expenditures for sales and marketing, particularly
expenses associated with
.opening additional marketing channel support offices;
.adding commercial sales personnel to focus on sales to commercial markets;
and
.continually introducing and refining products in response to market
demands.
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Our sales and marketing expenses are generally incurred in advance of
associated revenue and we expect these expenses to increase both as a
percentage of revenue as well as in amount. These measures could adversely
affect our operating income.
As a result of the cost cutting measures and focused marketing efforts
described above we expect a net reduction in selling, general and
administrative expenses.
Research and development
In an effort to increase our research and development activities, we have
allocated $5.0 million of the net proceeds of this offering to research and
development activities for the next 12 months. We expect expenses related to
research and development to increase significantly as a consequence of our
increased focus on these activities.
Intangible assets
The Pulsar acquisition will result in a significant increase in our
intangible assets. Approximately $33.4 million, or 56%, of our pro forma
combined, as adjusted, assets as of March 31, 1999, consisted of intangible
assets arising from the acquisition. This amount represents goodwill and other
intangibles, which will be amortized over 10- to 15-year periods and represents
the excess of the aggregate purchase price paid in connection with the
acquisition over the fair value of net assets acquired. The amount of goodwill
and other intangibles amortized in a particular period constitutes a non-cash
expense, which is not tax deductible, that reduces our net earnings or
increases our net loss.
Year 2000 issues
An issue affecting us and others is the inability of many computer systems
and applications to process the year 2000 date change, the date 9/9/99 and the
leap year 2000. Many currently installed computer systems and software
applications are coded to accept only two digit entries in the date code field.
These date code fields will need to accept entries to distinguish 21st century
dates from 20th century dates. The inability to recognize or properly treat the
year 2000 issue may cause Litronic's systems and applications to process
critical financial and operational information incorrectly.
We have established a committee to determine the extent to which we may be
vulnerable to the year 2000 issue. The committee is responsible for the ongoing
assessment, renovation of, testing, and certification of all business-critical
infrastructure systems and applications software. In the process of its
evaluation of the year 2000 issue, the committee has developed potential
business disruption scenarios and is developing a contingency plan, which we
anticipate will be completed by July 1999. The costs incurred to date related
to the year 2000 issue have related primarily to time spent by employees in
year 2000 compliance matters and have not been significant. We do not believe
future costs will be significant. The following is a description of how we have
categorized and are addressing the year 2000 issue.
Internal systems
We have evaluated our internal computer systems in an effort to determine
the actions, if any, necessary to make them year 2000 compliant. Our evaluation
has involved testing our systems to ensure that they are year 2000 compliant.
Based on its present review of our systems, the committee has determined that
we do not have a high risk of computer-related internal systems problems from
the year 2000 issue.
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Embedded systems
We also recognize that there are risks with respect to embedded systems that
are not necessarily part of our information technology systems but contain
microprocessor chips which may not function properly with the change of date to
the year 2000. The majority of the embedded systems on which we rely in our
day-to-day operations are owned and managed by the lessors of the buildings in
which our offices are located, or by agents of these lessors. We have received
letters from our lessors and, as applicable, their agents indicating the year
2000 compliance of the embedded systems. Based upon these responses we do not
believe there are any year 2000 compliance issues with our embedded systems.
Because we believe that our information technology and embedded systems will
be substantially year 2000 compliant in advance of the year 2000 date change,
we have no contingency plan to address non-compliance. We expect that, as we
complete testing of information technology and embedded systems, we will
develop contingency plans if we determine that any business critical systems
will not be year 2000 compliant.
Outside vendors and customers
Disruptions with respect to the computer systems of vendors or customers,
which are outside our control, could impair our ability to obtain services or
conduct business with our customers. Disruptions of our utilities or
telecommunications systems could have a material adverse effect upon our
financial condition and results of operations. We believe that no other
providers are material to our business. Disruptions of customers' computer
systems could interfere with customers' ability to make timely payments on
accounts, could disrupt our customers' ability to manage the installation
process of our products, which could adversely affect our ability to reach our
milestones, and thus to recognize revenue, and could disrupt other
administrative activities.
The committee has sent year 2000 issue questionnaires to our significant
vendors, suppliers and customers. Although the responses we have received do
not indicate any significant year 2000 issues, we do not have any assurances
that all of our significant vendors, suppliers and customers will take the
necessary steps to ensure that their respective systems will be protected
against the year 2000 issue or that even if such steps are taken, they will be
successful. As we continue to assess the risk of our significant vendors',
customers' and suppliers' systems, we will develop and implement, if necessary,
curative plans and contingency plans to address any year 2000 compliance
issues.
Our products
We have determined that our products, to the extent that underlying hardware
platforms, operating systems and databases will accommodate the year 2000 date
change, are year 2000 compliant and will accommodate the year 2000 date change.
We anticipate that virtually all of our customers and potential customers
will be required to evaluate their information technology systems with respect
to the year 2000 date change and that some of our customers and potential
customers may incur material costs in connection with this evaluation and any
necessary repairs and replacements. Customers and potential customers may be
required to devote material portions of their information technology budgets to
these evaluations, repairs and replacements, which could materially reduce
their other information technology purchases in 1999, including their purchases
of Litronic's products, particularly as the year 2000 date change draws closer.
We do not have any information as to the degree to which this issue will affect
our customers or potential customers.
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Summary
There can be no assurance that any year 2000 issue-related precautions with
respect to our internal information technology systems, embedded systems or our
products will eliminate the numerous and varied risks associated with the year
2000 date change. Further, there is a risk that we will be adversely affected
by the year 2000 issue or related difficulties encountered by vendors or
customers or by any downturn in information technology purchases or in the
economy in general as the year 2000 date change draws nearer. Any of these
risks could adversely affect our business.
Management believes that the most likely worst case scenario related to the
year 2000 issues that we may experience would be either an inability to obtain
inventory components from suppliers or delays in receiving orders or payments
from customers due to year 2000 problems experienced by these third parties.
These events, if experienced, could have a material adverse effect on our
business, results of operations, financial condition and liquidity.
Fluctuations in quarterly operating results
Our quarterly operating results may fluctuate significantly as result of a
variety of factors, many of which are outside our control. These factors
include:
. the length of our customer commitments;
. patterns of information technology spending by customers;
. the timing, size, mix and customer acceptance of our product and service
product offerings and those of our competitors;
. the timing and magnitude of required capital expenditures;
. the need to use outside contractors to complete some assignments; and
. general economic conditions.
In addition, the sales and implementation cycles associated with our product
sales and network design and implementation activities can, as a result, be
lengthy, potentially lasting from 45 to 90 days. Evaluating customers' data
security needs and designing and implementing custom networks typically
requires significant expenditure of time, capital and other resources.
Customers' purchasing decisions for our products and systems may be subject to
delay due to many factors not within our control, such as the significant
expense of many data security products and network systems, customers' internal
budgeting process, year 2000 concerns and the other procedures customers may
require for the approval of large purchases. Further, the implementation
process is subject to delays resulting from administrative concerns associated
with incorporating new technologies into existing networks, deployment of a new
network system and data migration to the new system.
As a result, comparisons of quarterly results may not be meaningful and
should not be relied upon, nor will they necessarily reflect on future
performance. Fluctuations in quarterly operating results may adversely affect
the trading price of our common stock if our operating results are below the
expectations of public market analysts and investors.
New accounting standards
In June 1998, the Financial Accounting Standards Board issued Statement 133,
Accounting for Derivative Instruments and Hedging Activities. The new statement
established accounting and reporting standards for derivative instruments and
for hedging activities and is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
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In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for
internal use, and is effective for fiscal years beginning after December 15,
1998.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 provides guidance on the financial reporting of start-up
costs and organization costs, and requires these costs to be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning after December 15,
1998.
In December 1998, the AICPA issued SOP 98-9. SOP 98-9 amends paragraphs of
SOP 97-2 to require recognition of revenue using the residual method under some
circumstances, and is effective for fiscal years beginning after March 15,
1999.
The adoption of these new standards is not expected to have a material
impact on our consolidated financial statements.
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INDUSTRY INFORMATION
Internet data security industry
The Internet data security market
Consumers, government agencies and corporations are increasingly relying
upon the Internet and Internet protocol-based networks to conduct electronic
commerce and communications. International Data Corporation estimates that the
number of Internet users will grow from 97 million in 1998 to 320 million in
2002, with electronic commerce growing from $32 billion to $426 billion over
the same period. The increasing proliferation of, and reliance upon, shared
electronic data has caused data security to become a paramount concern of
businesses, government, educational institutions and consumers.
Demand for information security products is forecast by Datamonitor, an
independent research firm, to increase from $1.6 billion in 1997 to almost $7
billion by 2001, an annual growth rate of 44%. In addition, Datamonitor
forecasts the Internet-security PKI segment to be the fastest growing segment
of this market, increasing from $75 million in 1997 to approximately $1.9
billion by 2001, an annual growth rate of 124%. The market for encryption
technology is estimated by Datamonitor to be the second fastest growing segment
of the market increasing from $168 million in 1997 to more than $1 billion in
2001.
We believe our data security products provide the solution for entities and
consumers seeking to provide protection for their proprietary data.
Increasing need for Internet data security
In addition to protecting against unauthorized access to proprietary
information, data security affects an enterprise's ability to conduct
electronic commerce. Companies such as Amazon.com, Inc., Bank of America, Cisco
Systems, Inc., Dell Computer Corp., eBay and E*Trade Group, Inc. have enjoyed
dramatic growth in their online customer base and revenue as consumers execute
an increasing number of transactions over the Internet. The Internet's ease of
use, 24-hour availability, speed of delivery, global reach and ability to
simplify product and vendor comparisons are fueling this growth. However,
consumer concerns about the trustworthiness and security of the Internet have
been one of the main impediments to even faster growth of electronic commerce
and other communications. Hacking tools, such as password guessing and address
spoofing programs, are freely available on the Internet and bulletin board
systems. Merchants and consumers need assurances that consumers making
electronic purchases are correctly identified and confirmed and that the
confidentiality of information such as credit card and bank account numbers are
maintained.
We believe that continued expansion of electronic commerce will require the
implementation of improved PKI security measures which will irrefutably verify
the identity of a party over the Internet and ensure that the information being
transmitted between that party and the other party is kept private. We also
believe the security required to fuel this continued expansion of electronic
commerce and communication will be provided through the continued advancement
in PKI mathematical formulas referred to as algorithms. Algorithms enable
digital document signing and encryption of proprietary data.
As enterprises place an increasing reliance on electronic commerce and
communication, the need to protect confidential data from unauthorized
intrusion has become paramount. According to the Computer Security Institute,
78% of respondents to its 1998 CSI/FBI Computer Crime and Security
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Survey reported that they are connected to the Internet, but 39% of the
respondents did not have a first line of defense against unauthorized intrusion
into their networks. Unauthorized use of computer systems within the previous
12 months was reported by 64% of these respondents, representing a 16% increase
from the prior year.
The consequences of unauthorized access, which is often undetected, can
range from theft of proprietary information or other assets to the alteration
or destruction of stored data. The Computer Security Institute survey reports
that approximately 72% of respondent companies experienced a financial loss
related to information security and disaster recovery in the past two years.
According to estimates by the Federal Bureau of Investigation, U.S. companies
experience estimated losses of $5 to $10 billion per year as a result of
unauthorized access to information and data. The Yankee Group, an independent
research firm, estimates that network security breaches cost corporations in
the U.S. over $5.0 billion per year in business losses, including productivity,
customer confidence and competitive advantage.
Requirements for end-to-end data security
Today's client operating systems and Internet protocol-based networks lack
basic security and key Internet security features such as data privacy and
integrity, identification, authentication and auditing.
End-to-end data security concerns can be addressed by a variety of means.
Traditionally, enterprises relied heavily on passwords to restrict access to
proprietary information and materials. However, because of the risk of loss or
theft, more advanced protective measures have been developed to include
combinations of passwords and tokens with message encryption and personal
identification devices. Regardless of the form of the data security device, the
level of security provided is evaluated based on a set of fundamental
principles, which include the following:
. Identification and authentication. Verifies the identity of the
authorized users to prevent unauthorized access to proprietary
information and resources.
. Confidentiality. Involves the encryption of data transmissions so that
only the intended recipient can access the information to ensure
privacy.
. Data integrity. Ensures that data is not compromised or manipulated.
. Non-repudiation. Prevents the sender of data transmissions from
disclaiming, or repudiating, authorship so that the sender cannot deny
the occurrence of the transaction.
. Audit control. Retraces information access and facilities use over a
particular time period at a systems administration level so an
enterprise can monitor and record authorized and unauthorized user
activity.
. Secured system administration. Maintains and controls corporate
intranets centrally through file encryption, password maintenance, audit
control, certificate and cryptographic key management and device
accessibility control.
The process of implementing Internet and Internet protocol-based network
solutions requires specialized skills lacking in most corporate information
technology departments. We provide the technology, products and services
necessary for most companies to implement or manage their data security
infrastructure.
Cryptographic technologies
Cryptography is the process of encoding and decoding electronic messages
using mathematical algorithms, or ciphers, to enable the confidential
transmission of electronic messages to authorized
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persons. Digital cryptography is performed using a combination of symmetric
ciphers and asymmetric ciphers to achieve each of the basic data security
elements of identification and authentication, confidentiality, integrity and
non-repudiation. Symmetric ciphers are commonly referred to as symmetric-key or
secret-key cryptography and asymmetric ciphers are commonly referred to as
asymmetric-key or public-key cryptography.
Both symmetric-key and asymmetric-key cryptography use an encrypting and a
decrypting key. The decrypting key is user's unique number that is input to the
mathematical algorithm, or the cipher, used to encrypt or decrypt the message.
In symmetric-key cryptography, the encrypting key and the decrypting key, which
is secret, are identical. Thus, to transmit a message, a secure key exchange
must be performed so that the key can be shared with the recipient of the
message. In asymmetric-key cryptography, the encrypting key, a public key, and
the decrypting key, a secret key, are different and thus the public key can be
distributed to authorized recipients without risk of security breach. Because
asymmetric cryptography allows for wide distribution of the encrypting key, it
permits secure communication among a large group of people without requiring
manual distribution of the key. Additionally, asymmetric-key cryptography
relies on the generation of digital certificates which can be used to provide
the user authentication, data integrity and non-repudiation elements of the
information security system. However, public-key cryptography requires the use
of extremely complicated ciphers, so that encryption of large messages is
relatively slow when compared to encryption using secret-key cryptography.
Thus, asymmetric-key cryptography is commonly used to protect symmetric keys
and symmetric-key cryptography is commonly used for bulk encryption.
Identification and authentication
Authentication of a user's identity is generally accomplished by passwords.
Because passwords are vulnerable to decoding or observation and subsequent use
by unauthorized persons, they are less secure than if used with tokens. Tokens
are small devices ranging from simple credit card-like objects, rings,
proximity cards and plastic keys to more advanced secure tokens, including
smartcards, PKI cards and PCMCIA cards. For greater protection, two-factor
identification and authentication is implemented by combining tokens with a
password or personal identification number to verify authentication of the
user. For added security, three factor authentication which consists of token,
password and biometric comparisons, can be implemented.
PKI cards are credit card-sized semiconductor plastic cards that contain an
embedded microprocessor, memory, a secure operating system and the user's
secret key, password and digital certificates. PKI cards have significant
advantages because of their ability to perform basic cryptographic functions on
the card itself rather than on the computer, thus reducing the risk that a
breach of security on the computer will lead to the unauthorized release of
proprietary information. Through the use of PKI cards, e-mail messages,
purchase orders, credit card numbers, videoclips, data inquiries and other
confidential transmissions are secured as they are sent and therefore can be
opened only by the intended recipient.
PCMCIA cards are parallel computer peripherals similar in size to a credit
card, though thicker, which contain multiple microprocessor chips. PCMCIA cards
have greater storage capacity, higher data exchange rate and greater processing
power than conventional smartcards and therefore are capable of performing
advanced cryptographic functions that cannot be performed on a conventional
smartcard. These advanced functions allow for use of more powerful algorithms
and thus provide for a greater overall level of security through the use of
PCMCIA cards.
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We are currently leading a joint effort with Atmel Corporation under a
contract with the National Security Agency to develop Forte, an ultra fast 32-
bit microprocessor. We are embedding the Forte chip into our new Forte PKIcard,
which we expect will be the world's fastest and most cryptographically advanced
PKI card. We expect that Forte will provide PCMCIA level performance at a price
competitive with advanced smartcards. Further, Forte is being designed to be
International Standards Organization compliant and therefore able to be used in
conventional reader/writers.
PKI digital certificates
The basic element of PKI, a cutting-edge development in the information
security field, is the digital certificate. Digital certificate technology
provides a highly advanced form of authentication and secure key exchange. PKI
digital certificates are specially prepared software files through which the
sender can digitally sign a message with a unique identification code. The
recipient of the message can authenticate the identity of the sender and verify
the integrity of the data through the use of a trusted third party known as a
certificate authority by obtaining the sender's public key from the certificate
digitally signed by the certificate authority. Furthermore, the uniqueness of
the certificates provides for non-repudiation, which prevents the sender from
denying that it sent the message and which is not available with less
sophisticated techniques. With the development of secure-token technology,
digital certificates can now be incorporated into smartcards, PKI cards and
PCMCIA cards to provide an information security system that provides two-factor
identification and authentication or three-factor identification and
authentication with the incorporation of biometric technology.
Biometric technology utilizes fingerprints or other unique characteristics
of an individual to serve as a digital identification. The use of digital
certificates is expanding rapidly across the Internet. In fact, several states
now consider digital signatures contractually binding and there is a growing
acceptance within the federal government to effectuate transactions through the
use of digital certificates.
Systems integration and networking solutions industry
In recent years, there has been an increasing demand for open system
approaches designed to create interoperability among commercial off-the-shelf
computer software and hardware products manufactured by different suppliers. In
addition, excessive development costs and the rapid pace of technological
change have led both governmental and commercial customers to demand more
flexible systems created by adapting readily-available commercial off-the-shelf
software and hardware.
The emergence of the rapidly developing Internet protocol-based network
technologies in the 1990s has further fueled the demand for network computer
systems. Although information technologies, secure data transmissions, and data
encryption have long been in use in the military intelligence arena, recent
technological advancements in computer hardware and software have now made
these applications economically viable for use by private companies. This has
given rise to the need for specialized expertise in the areas of local and wide
area network design and installation, network management and operation and
network security, using new and complex information technology hardware and
software products. Typically, the design and implementation of these systems in
both commercial enterprises and government agencies also involves the resale of
the hardware and software required for the system to the customer.
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BUSINESS
Overview
Litronic provides professional Internet data security services and develops
and markets software and microprocessor-based products needed to secure
electronic commerce and communications over the Internet and other
communications networks based on Internet protocols. Litronic's primary
technology offerings utilize PKI, which is the standard technology for securing
Internet-based commerce and communications. PKI helps ensure the integrity and
privacy of information being transmitted and verifies the identity,
authenticity and authority of the sender and the recipient of that information.
To increase sales capacity for its proprietary products and to capitalize on
opportunities in the rapidly growing Internet security market, simultaneously
with the closing of this offering, Litronic is acquiring Pulsar, a network
integration solutions company that specializes in deploying large-scale network
solutions to organizations in the commercial and government sectors.
Strategy
We believe that significant market opportunities exist due to the increasing
prevalence of electronic communication resulting from advancements in Internet
and electronic commerce technologies. These opportunities are expected to
create a primary need for PKI. Thus, we intend to pursue a strategy of growth
which is designed to capitalize on the market opportunities and the competitive
advantages we believe will result from the Pulsar acquisition. Key elements of
our business strategy include:
. Increasing Internet market penetration. We intend to capitalize on
Pulsar's existing and significant client base and sales and marketing
infrastructure to broaden and accelerate the market penetration of our
comprehensive data security product offerings. In our experience, large
commercial accounts frequently seek to secure total integrated network
security solutions from a limited number of suppliers. We intend to
utilize our brand recognition in the Internet protocol-based network
security market and Pulsar's network implementation expertise and
integration capabilities to support our efforts to gain greater market
penetration.
. Increasing marketing opportunities. The creation of a larger marketing
and service organization, a higher market profile and greater financial
strength is expected to generate greater opportunities for marketing our
products in the U.S. and internationally.
. Maintaining technological leadership in Internet protocol-based network
security. Through our industry-recognized research and development
capabilities, we intend to upgrade and enhance our existing security
products and develop new products to meet the expanding market's
continually evolving requirements, technologies and standards. Enhanced
versions of ProFile Manager and Maestro are expected to be released in
the third quarter of 1999. We believe that our research and development
capabilities and the combined expertise of our technical staff position
us to respond quickly and effectively to technological change, increased
competition and market demands.
. Expanding professional Internet protocol-based network security
services. We intend to provide our customers with a full range security
services, including security policy assessments and evaluations, custom
software development, integration and maintenance for the Internet and
other Internet protocol based communications network.
. Expanding and leveraging strategic alliances. We intend to maintain and
leverage existing strategic alliances and develop new strategic
alliances with vendors with
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complementary technologies, products and services to maximize sales and
market development opportunities.
. Strategic acquisitions. To the extent opportunities arise, we will seek
to acquire other technologies, product lines and businesses which
complement our products.
. Increasing sales per customer. We will seek to increase average sales
per customer based on our enhanced ability to offer system integration
services in addition to our suite of data security products.
. Minimizing risk of sales and service delays. The unavailability of
skilled professionals in the information technology and Internet
security solution outsourcing and integration sectors has in the past
caused companies with advanced proprietary technologies to experience
sales and service delays. By bringing together our research and
development staff and Pulsar's existing sales and technical personnel
and procedures, we aim to minimize the risk of these delays.
. Increasing international sales. We will seek to generate additional
sales in foreign markets by establishing a network of international
distributors and value-added resellers. The U.S. government has recently
relaxed the export restrictions for our ProFile Manager, NetSign and
other high-level encryption products. These products may now be exported
without a license to most countries for use by banks, online merchants,
healthcare, insurance organizations and overseas subsidiaries of U.S.
companies. To capitalize on these opportunities, we are in the process
of building or have built relationships with distributors and resellers
with computer security expertise in these market sectors:
. we have appointed distributors in Japan and Spain;
. we are negotiating with potential distributors and resellers in
Europe, Africa and Asia; and
. we intend to appoint a director of international sales who will be
responsible for the management of our international distributor
network.
In addition, we expect to experience the following benefits as a result of
our acquisition of Pulsar:
. Experience of management, key personnel and consultants. We believe the
added depth, breadth and experience of Pulsar's management team, key
employees and consultants enhances our ability to successfully implement
our business strategy.
. Comprehensive data security products and services offering. We believe
we can satisfy the comprehensive requirements of enterprises through the
combination of our open-architecture, open-platform, open-token and
algorithm-independent technologies and products and Pulsar's networking
solution services. We believe our ability to offer synergistic products
and services distinguishes us from other PKI information technology
solution providers by enabling us to provide comprehensive information
security systems rather than addressing only selected aspects of
customers' data security needs.
. Solutions addressing the key elements of Internet data security. Unlike
other integrators that rely on reselling of products produced by other
vendors to respond to the needs of an enterprise, we develop,
manufacture and market many of the applications, software, cryptographic
libraries, readers/writers and tokens that are required to create
comprehensive
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token-based PKI security solutions that address the key data security
elements of: identification and authentication; confidentiality; data
integrity; non-repudiation; audit control; and system administration.
Additionally, because our applications are open standards, we can integrate
products and services of other vendors into our products to enhance our
solutions capability.
Internet data security products
General
Our Internet data security products provide the highest level of
commercially-available security for secure e-mail, secure file transport, file
protection, remote access, authentication and authorization in an open multi-
platform standards-based framework. The foundation of our Internet data
security products is our extensive cryptographic library and device drivers
supporting numerous different operating system platforms and token management
systems which enable users to seamlessly integrate token-based security
enhancements into existing networking environments or into newly designed and
implemented networks. Our products can also be used by software developers to
add token-based information security to applications such as browsers,
firewalls, e-mail systems, database management systems and other client/server
applications.
Our data security products are designed with an open architecture, so they
can operate independently of:
. algorithms--our security products are designed to use different suites
of algorithms depending upon the application requirements, for example,
military or banking and finance.
. platforms--our security products may be used with many different
computer types and operating systems, for example, Windows, UNIX, and
MacIntosh.
. applications--our security products may be used with various software
applications, for example, e-mail, e-commerce, database systems or word
processors.
. tokens--our security products function with various types of tokens, for
example, software tokens, smartcards and PC cards.
As a result of this open architecture, these products are compatible with
virtually all commonly used network hardware. Algorithm independence allows our
products to be tailored to numerous encryption algorithms through software
selection. As a result, our libraries, drivers and security devices are
compatible with a variety of encryption algorithms, and popular software
applications and operating systems. We develop and embed these cryptographic
technologies in a multitude of devices and tokens, including smartcards, PKI
cards, PCMCIA cards, embedded industry standard architecture, or ISA, and
peripheral component interconnect, or PCI, bus cards. We are also working with
other companies to implement use of PCMCIA cards, PKI cards and smartcards to
support biometric technologies such as fingerprint and voice recognition. These
products provide the added protection of a security token utilizing public-key
cryptography, key exchange techniques and electronic signatures on most popular
operating systems and hardware platforms. In addition, our technologies permit
functions to be scaled as performance and pricing requirements dictate.
Internet application software
NetSign and NetSign PRO. These products are software adapters that integrate
smartcards and digital certificate technology to enhance security in software
systems designed to provide electronic commerce, e-mail, Internet access, file
access and world-wide-web browsers such as Netscape
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Communicator and Microsoft Explorer. NetSign and NetSign PRO software products
are bundled with a smartcard reader/writer and smartcards. NetSign PRO has the
added security feature of file encryption capabilities and other security
utilities.
ProFile Manager. ProFile Manager is a complete, stand-alone, PKI lifecycle
management solution of token-based security systems from initialization to
secure archive and recovery. For the recovery of token-based information,
ProFile Manager provides an optional integration with a secured database of
private keys and other user identification information and the use of third-
party certificate authorities. ProFile Manager integrates with NetSign, NetSign
PRO and other token-enabled products to provide a complete solution for an
enterprise's security needs, including secure Internet access, digitally signed
and encrypted e-mail, desk-top file encryption and secure remote network
access.
Internet cryptographic API developer toolkits
CryptOS SDK and CryptOS SDK+. CryptOS SDK products are cryptographic APIs
that allow application developers to use off-the-shelf or custom application
software to integrate smartcard technology into existing systems, thus adding
hardware-strength security to software-only systems. CryptOS SDK is bundled
with a smartcard reader/writer and smartcards. CryptOS SDK+ has additional
tools for Java programming.
Maestro. Maestro, a product we have only recently introduced to the market,
is a multi-protocol cryptographic library that enables software developers to
incorporate secure token-based, symmetric- and asymmetric-key cryptography into
their application software. Maestro is a multi/concurrent access, cross-
platform system that supports multiple types of tokens such as smartcards,
PCMCIA cards and cryptographic algorithms. Coupled with token reader/writers,
Maestro supports devices over commonly used interfaces, including keyboard,
serial, small computer system interface, or SCSI, parallel port and Universal
Serial Bus. Maestro currently supports two commonly used cryptographic
interface protocols. We are developing additional protocol adapters to expand
the functionality of Maestro. Maestro is compatible with Windows 95, 98 and NT
operating systems as well as all popular UNIX platforms.
Security tokens
ISO smartcards. We offer a family of off-the-shelf International Standards
Organization, or ISO, standard smartcards ranging from storage-only cards to
cards containing cryptographic capabilities.
Moniker, PC-cryptocard. We also offer Moniker, a Fortezza standard PCMCIA
card. The Fortezza standard PCMCIA cards are commonly used by the Department of
Defense, as well as by other governmental and commercial entities.
Forte PKIcard. We are in the process of developing a next generation PKI
card, the Forte PKIcard, in cooperation with Atmel Corporation. Forte is an
ultra fast 32-bit microprocessor which is being designed with a high speed
Universal Serial Bus interface in addition to the ISO interface. Forte is also
to be designed with a larger storage capacity and processing speed than
existing smartcards. The Forte PKIcard is expected to be manufactured in the
U.S. and we anticipate shipments to begin in late 1999.
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Other tokens. Because our products are open-architecture, open-platform,
open-token, algorithm and API-independent, we offer third-party tokens, such as
PCMCIA cards, smartcards, rings, proximity cards and plastic keys and other
commercially available tokens, for use with our reader/writers and application
software.
Token reader/writers
A token reader/writer is a hardware component that electronically reads the
content of a smartcard, PCMCIA card, or PKI card. We manufacture several
different types of reader/writers. Following is a brief description of their
features.
Serial and keyboard port smartcard and PKI card reader/writers. We sell our
reader/writers as a security product component or bundled with other products
such as ProFile Manager, NetSign and/or CryptOS SDK to provide token-based data
security solutions.
We manufacture and sell compact, hand-held smartcard reader/writers that
interface through the RS-232 serial port of a PC or workstation. The Series 215
and 220 reader/writers are compatible with Windows 95, 98, NT and UNIX and
MacIntosh operating systems. The Series 220 reader/writer can optionally be
connected through the keyboard port which provides the added security of a
protected personal identification number, or PIN, path. With a protected PIN
path, the password authentication is intercepted by the reader/writer thus
preventing a hacker from implanting an unauthorized program in the PC to
intercept the password. We offer a Series 230 reader/writer which is integrated
into a keyboard, and also offer a Series 410 reader/writer which connects to a
computer through its PCMCIA slot.
ARGUS 300. The ARGUS 300 consists of a tamper-resistant ISA board and
external reader/writer and is connected to the keyboard. The ARGUS 300
incorporates DES encryption technologies and offers additional security
features such as boot protection, electronic commerce security and protected
PIN path directly through the board rather than through an external device that
might be tampered with by an unauthorized user. The ARGUS 300 is validated for
electronic signature by the National Institute of Standards and Technology, or
NIST, the U.S. Treasury Department and General Accounting Office.
PCMCIA client reader/writer. We offer a series of single-and dual-socket
PCMCIA card reader/writers for both internal and external application, that
interface via various ports such as SCSI, ISA bus, PCI bus, Universal Serial
Bus and parallel port. These reader/writers incorporate our proprietary device
drivers which provide the interface between the reader/writer and its
application software such as Maestro and third-party application software.
CipherServer. We offer a reader/writer that contains sockets for up to eight
PCMCIA cards, is used on the enterprise's server side and incorporates the
device drivers and other technologies of our other PCMCIA readers. CipherServer
interfaces with the host server to enable the host server to provide
rapid/simultaneous processing of cryptographic functions received from numerous
clients.
Other custom-designed security products
Secure PCs
Pulsar has developed and we intend to offer a family of secure, year 2000
compliant, servers which are based on a two-state workstation technology that
operate in either the secured state or the public state. A transition between
the two states causes all temporary data in the volatile memory to
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be fully erased. This process precludes an unauthorized subsequent user from
accessing the classified information that would otherwise be resident in the
system's memory.
Managed firewall and virtual private networks solutions
Through our Pulsar operations, we will offer secure architecture based
firewall and virtual private networks gateway technology using intrusion
detection software for high data capacity and scalable security solutions.
These software and hardware systems provide for multi-user remote
administration, and integrated management of multiple security policies and
firewalls.
Network security and management tools
Our network security and management tools are a scalable, comprehensive
collection of network security and management solutions assembled into an
integrated security suite of hardware and software. The tools include a multi-
tiered approach to virus protection covering the client, server and Internet
gateway through a combination of encryption, firewall and virtual private
networks technologies. These tools protect networking systems against attacks,
and compromise and loss, while maintaining the integrity of business functions
and data. These products ensure full network performance with a proactive
approach by fixing problems, planning growth and optimizing functionality and
reliability.
Professional data security services
Through our Pulsar operations, we will offer comprehensive networking
solutions with a particular emphasis on designing, developing, implementing,
supporting and maintaining networks that provide for a high level of data
security. Pulsar develops and implements complete turn-key networks or enhances
or expands existing networks, as the customer requires.
These services include:
. strategic consulting, including site risk and requirements analysis and
design;
. custom design and development;
. project management;
. construction, installation and implementation;
. on-site or remote system support, maintenance and repair; and
. on-site system management.
Pulsar approaches the design and development of solutions for customers by
evaluating their existing infrastructure, architecture and technologies to
optimize the performance of their existing system and augment their systems as
necessary to meet their changing requirements. Project responsibilities
typically require the integration of access control, intrusion detection and
biometric validation.
Because of Pulsar's expertise in designing and implementing systems
providing for robust security, our solutions will address the networking and
data security needs of our customers, including:
. Internet access and security;
. secured intranet/extranet capabilities;
. enterprise security procedures and administration;
. secured critical private network and remote dial-in network
capabilities;
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. secured distributive applications;
. open-systems migration of data;
. information security communication services; and
. artificial intelligence technologies.
Pulsar provides network solutions through the implementation of the latest
technologies, including high speed baseband and broadband media, fiber optics,
hard wired connect systems, and wireless and satellite transmission systems.
Pulsar also provides information technology outsourcing services for customers,
including ongoing management of network systems. Pulsar delivers professional
services on either fixed-price delivery or time-based delivery modes through
its data security group, which provides consulting and integration services,
and its enterprise information group, which provides network design,
implementation and management, legacy systems migration, and systems
configuration and evaluation.
Our newly acquired Pulsar staff has specific expertise in the following
areas of networking systems:
. Internet enterprise network consulting: As computer networks become more
complex the assistance of knowledgeable network professionals is
critical for maximum performance. Our network consulting staff will be
able to help organizations realize their business goals and objectives.
. Network management: Today's network managers must cope with a maze of
network protocols, configuration options and computing platforms. Our
network management staff will be able to support information systems
departments in their effort to manage these diverse networking platforms
by assisting with the training, configuration and implementation of
network management systems and products.
. Remote computing: As companies increasingly decentralize their business
functions, they must consider connectivity options for remote users. Our
remote computing team will be able to effectively deliver the most cost-
effective and reliable methods to allow users access to corporate
systems. Whether a business requires dial-in dial-out capability or
Internet access, we will be able to provide a complete solution that
incorporates training and implementation.
Product reselling
Historically, a substantial portion of Pulsar's product resale revenues was
derived from sales of low-end, low-margin computer and network security
products. Pulsar has, however, increasingly been shifting its focus in the
reseller market, primarily in the government information technology segment, to
sales of high-end, high-margin specialized computer and network security
products and customized configurations of these products.
Examples of these high-end, high-margin computer and network security
products include:
. Intrusion detection software--used to detect unauthorized access, and
identify the source of the access, within a network. These products
include Net Ranger and PIX.
. Firewalls--custom designed software and hardware configurations
installed into a network to prevent unauthorized access from outside the
network. Pulsar offers high-end firewall
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solutions from leading vendors, including Lucent Technologies, Inc.,
Network Associates, Inc., Cyberguard Corporation, Cisco Systems, Inc.,
and Bay Networks, Inc.
. Network hardware components--servers, routers, hubs and switches
configured to the customer's networking requirements. Pulsar offers
components manufactured by leading vendors, including Cisco Systems,
Inc., Bay Networks, Inc., Hewlett-Packard Company, Bell Computers,
International Business Machines Corp., Lucent Technologies, Inc. and Sun
MicroSystems, Inc.
. Anti-virus software--high-end software programs installed at server
level to prevent viruses from entering the network, and client-level
software programs to prevent virus corruption to client-server
applications.
. Virtual private networks--a secure point-to-point connection over the
Internet through which encrypted messages can be transmitted to protect
communications between remote locations.
. Data security products--access control products, including third-party
APIs, device drivers, token reader/writers and tokens, and, following
this offering, those of Litronic.
We believe that focusing on these high-end, high-margin products will lead
to higher rates of customer retention. This is because of the complex nature
of the product configurations, which results in customers' making purchasing
decisions based on factors other than simply the lowest price. Further,
because the products are highly customized, we will not be required to make
substantial investments in inventory.
After the offering, we will, where appropriate, also include our own data
security products within our product configuration solutions.
Customers
Our customers represent a wide range of commercial enterprises, including
financial, telecommunications, healthcare and information service companies,
airlines, automobile manufacturers, as well as federal, state, local and
foreign government agencies. We believe significant cross-marketing
opportunities exist with the integration of Pulsar's customer base of over 100
federal agencies and over 40 commercial and state and local government
customers.
Following the Pulsar acquisition, our combined customer base will include:
. Netscape Communications . Federal National Mortgage
Corporation Association
. Walt Disney Company . S.W.I.F.T.
. Nippon Telephone and . Executive Offices of the
Telecommunications Data President of the United States
Corporation . U.S. Army Corps of Engineers
. American Express Company . Lockheed Martin Corporation
. Bank of America, N.A. . Booz Allen & Hamilton Inc.
. National Security Agency
. Federal Communications Commission . Schlumberger Limited
. Deloitte & Touche LLP . Federal Bureau of
Investigation
. Lucent Technologies, Inc.
Customer service and support
We believe that customer service and support is critical to retaining
existing customers and attracting prospective customers. Our combined customer
service and support staff consists of 16
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persons, including engineers and technical support personnel, and works closely
with customers and prospective customers to provide comprehensive service and
support for our products and systems.
We provide enhanced customer support by maintaining a toll-free customer
service line and a two-tier support system. The first tier consists of help
desk support personnel responding to phone and mail requests for service and
accessing customer information and a problem database for solutions. For more
sophisticated problems, second tier support is provided by systems technical
support staff.
Sales and marketing
We market our products and services through the Internet, our direct sales
forces, third-party distribution channels, including systems-integrators,
value-added resellers and original equipment manufacturers, strategic alliances
and international distributors. We intend to devote significant resources to
marketing and business development activities to expand our business to
additional distribution channels.
Direct marketing effort
As of May 1, 1999, on a combined basis, we employed a direct sales and
marketing force of 31 individuals located in offices in California, the
Washington, D.C. area and Atlanta, Georgia to market our products and services
to industry and vertical market segments, including e-commerce, financial,
telecommunications, healthcare and information services companies and federal,
state, local and foreign government agencies. Our sales force is responsible
for soliciting prospective customers and providing technical advice and support
with respect to our products and services. Additionally, we use telemarketing
efforts to target commercial accounts and federal government agencies. We seek
to achieve greater vertical market penetration by using direct sales personnel
with significant market expertise, as well as consultants with established
relationships in the commercial marketplace.
Following the closing of this offering, we intend to expand our direct sales
force to increase the number of representatives located in our California,
Georgia and Washington, D.C. offices. We may also open direct sales force
offices in other locations as we determine our clients' needs and our market
opportunities.
Indirect marketing effort
An important component of our sales strategy is the development of indirect
sales channels such as systems integrators, value-added network service
providers and original equipment manufacturers. Currently, we use these
indirect sales channels to augment the efforts of our direct sales forces.
We also use the services of third-party consultants with established
relationships and contacts with prospective customers to which we would not
otherwise have access. As part of our expansion strategy, we will seek to
develop relationships with additional third-party sales channels.
Strategic alliances
We plan to increase our vertical market penetration by continuing to develop
strategic alliances with other companies in the data security and network
integration industries. We have developed significant strategic alliances with
companies in an effort to:
. incorporate our products into third-parties' products;
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. jointly develop products and services;
. conduct joint research and development efforts;
. jointly conduct proposals and presentations for products and services and
reseller arrangements.
These alliances assist us in expanding our marketing and technical capabilities
and are intended to increase the distribution and market acceptance of our
Internet, intranet and extranet security products and services.
We believe that strategic alliances allow us to cost-effectively integrate
third-party products into our product offerings to provide our clients with
customized information technology solutions. Our strategic alliances currently
include the following:
. Netscape and Microsoft--we provide enhanced e-mail security features to
their browser programs through integration of our NetSign product lines.
. VeriSign--we have a marketing agreement with VeriSign and act as
VeriSign's recommended PKI card partner.
. Atmel Corporation--we have an alliance with Atmel Corporation in which
we are jointly developing Forte, an advanced microprocessor, which we
are embedding in our next generation PKI cards, the Forte PKIcard.
. Keytronic--We and Keytronic sell versions of NetSign bundled with the
Keytronic keyboard, which currently incorporate an integrated PKI
card/smartcard reader and will incorporate our Forte PKIcard reader.
. RSA Data Security--we have a distribution license agreement with RSA
which allows us to incorporate RSA technology into our products.
. Datacard--Datacard serves as an official distributor of our PKI card
products and integrates our NetSign and ProFile Manager and CryptOS
products into our PKI card printers.
. SCM Microsystems, Inc.--we engage in cooperative marketing and selling
of SCM hardware produced with our software.
Additionally, Pulsar has formed alliances with a number of equipment
manufacturers to generate leads for its technology product sales, including
Lucent Technologies, Inc., Photon Vision Systems LLC, Northern Computers, Inc.,
Hewlett-Packard Company and International Business Machines Corp. We expect
these alliances to generate qualified leads for our sales force to contact and
close.
Sales to the government information technology market
The government information technology market is generally characterized by
highly-structured procurement rules and procedures, large contracts, a
relatively long sales cycle, significant barriers to entry and low collection
risks. In response to these characteristics and requirements, a number of
avenues, such as GSA schedule contracts, blanket purchase agreements and
bidding procedures, have been developed to access this market.
The GSA, which is the central procurement agency for the U.S. government,
negotiates schedule contracts. Government agencies and other authorized
purchasers, although not required to do so, may purchase goods and professional
services under GSA schedule contracts at predetermined price ceilings, terms
and conditions. GSA schedule contracts are awarded on the basis of a number of
factors, the most important of which are compliance with applicable government
regulations and the
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prices of the products to be sold. A blanket purchase agreement, or BPA, is a
simplified but non-mandatory, fixed-price, indefinite delivery-indefinite
quantity, contract for the government to purchase products, at pre-negotiated
terms and conditions. Purchases made under BPAs are often paid for with a
government-issued credit card. Federal government agencies are authorized to
enter into BPAs with GSA schedule holders. The GSA-authorized BPAs incorporate
many terms and conditions of GSA schedule contracts, often at lower prices than
available on the GSA schedules.
A significant portion of the purchases of computer products and services by
the federal government is made under contracts or purchase orders awarded
through formal competitive bids and negotiated procurements. Substantially all
of these bids are awarded on the basis of a number of factors, including the
best value to the government, which, depending on the bid, can be a combination
of price, technical expertise, past performance on other government contracts.
Major procurements can exceed millions of dollars in total revenue for a
reseller, span many years, and provide a purchasing vehicle for many agencies.
In addition, networking products are purchased by the federal government
through open-market procurements. These procurements are separate and apart
from GSA schedules, and include simplified acquisition procedures, requests for
quotes, invitations for bids and requests for proposals. Most purchases in the
state and local government market are made through individual competitive
procurements. State and local procurements typically require formal responses
and the posting of bid bonds or performance bonds to ensure complete and proper
service by a prospective bidder. Each state maintains a separate code of
procurement regulations that must be understood and complied with by entities
selling products to the state.
We are on most government bid lists relevant to our product offerings and
respond with proposals to hundreds of bid solicitations each year. In addition,
our marketing employees actively prepare bids for federal, state and local
government agencies for open market procurements. After the closing of this
offering, we intend to expand our bid proposal unit to compete and capture
additional projects submitted for proposal.
Advertising
Our marketing efforts include maintaining a web site, Internet advertising,
including links with other web sites, direct mail, public relations, events,
sales tools, broadcast messaging, telemarketing and corporate marketing
materials. We believe that our future business activity depends in part on our
marketing and sales through the Internet. Our website describes our business,
products and services. We are currently integrating Pulsar's website material
and upgrading our site to allow for automated on-line purchases.
Our public relation efforts are designed to target the appropriate press
coverage and consist of press kits, targeted media lists and press releases.
These efforts are designed to complement our sales and marketing efforts.
Trade shows and presentations
We attend and exhibit our products and services at trade shows in the U.S.
and internationally each year in an effort to increase our market exposure. We
intend to continue to attend trade shows as well as to make joint presentations
with strategic partners to prospective customers relating to products and
services.
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Suppliers
Some of the components incorporated into our Internet data security products
are produced by other vendors. We also integrate third-party products and
components into the networks we design and develop for our customers. To
maintain quality control and enhance working relationships, we generally rely
on multiple vendors for these products. However, some of these products are
produced or sold only by a single supplier, thus presenting a risk that they
may not be available on commercially reasonable terms in the future or at all.
While we believe that alternative sources of supply could be obtained, our
inability to develop alternative sources if, and as required, in the future
could result in delays or reductions in product shipments that could adversely
affect our business.
Research and development
We conduct extensive research and development efforts which focus on the
development of cryptographic PKI software and hardware products that can be
readily integrated and adapted to the expanding requirements of the Internet,
intranets and extranets. After the closing of this offering, we expect to
devote substantial additional research and development resources to enhance our
data security product line.
Our current research and development efforts include:
. Expanding Maestro to offer additional application program interfaces,
including Microsoft's CAPI--a cryptographic API--for Windows 95/98 and
Windows NT; further, expanding the suite of tokens supported by Maestro;
. Expanding the capabilities of ProFile Manager to provide certificate
exchange features with additional third-party certificate authorities
and increased capability for the PKI enterprise manager;
. Developing Forte, an advanced 32-bit RISC microprocessor which we are
embedding in our Forte PKIcard. We expect the Forte PKIcard will be an
ISO standard smartcard with greater flexibility and a higher degree of
processing power than existing PKI cards, due in part to the inclusion
of a Universal Serial Bus interface on-board the microprocessor chip.
Given that Forte is an advanced security chip that will provide advanced
security features, we expect to be able to embed it in a variety of
devices, including PC mother boards;
. Developing series of Universal Serial Bus interface reader/writers;
. Developing technologies to incorporate biometric technologies into
Litronic PKI products to provide further advanced identification and
authentication protection;
. Expanding the security features of applications programs such as NetSign
and NetSign PRO; and
. Developing a version of the ARGUS 300 for the PCI bus while retaining
its validation by the NIST. The ARGUS 300 is currently an ISA bus
security product that has been validated by the NIST for a security
level approved for digital signature operations. Newer computer designs
now have the PCI architecture. The PCI version of the ARGUS 300 is being
designed to enable the NIST to extend the certification to the new PCI
design without a complete new laboratory validation process.
The process of developing our products and services is extremely complex and
requires significant continuing development efforts. There is a risk that we
will not successfully develop and market new products or product enhancements
that respond to technological change and evolving industry standards and
customer requirements in a timely manner.
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As of May 1, 1999, our research and development staff consisted of 29
employees, of whom 26 were engineers. Approximately 90% of these engineers were
engaged principally in the development of software, including cryptographic
libraries and device drivers. Our retention rate for our research and
development staff over the past three years is 80%. We believe that our ability
to attract and retain qualified development personnel is essential to the
continued success of our development programs. The market for these personnel
is highly competitive and our development activities could be adversely
affected if we are unsuccessful in attracting and retaining skilled technical
personnel.
During the years ended December 31, 1996, 1997 and 1998, our net expenses
for research and development were $752,000, $1.2 million and $1.3 million. We
have allocated $5.0 million of the proceeds of this offering for research and
development activities.
Competition
We compete in numerous markets, including;
. Internet and intranet electronic security;
. access control;
. token authentication;
. smartcard-based security applications;
. electronic commerce applications;
. systems integration;
. product reselling; and
. government information technology markets.
The markets for our products and services are intensely competitive and are
characterized by rapidly changing technology and industry standards, evolving
user needs and the frequent introduction of new products. We believe that the
principal factors affecting competition in our markets include:
. product functionality;
. performance;
. flexibility and features;
. use of open standards technology;
. quality of service and support;
. company reputation; and
. price.
We face significant competition from a number of different sources. Many of
our competitors are more established, benefit from greater name recognition and
have substantially greater financial, technical and marketing resources than we
have. One of our significant competitors is Microsoft Corporation, which has
recently announced its intention to begin making smartcards. Some of our other
significant data security competitors include:
. International Business Machines Corp.
. Motorola, Inc.
. RSA Data Security, Inc.
. Network Associates, Inc.
. Secure Computing Corporation
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. Rainbow Technologies, Inc.
Some of our competitors for systems integration and product reselling
include:
. BTG, Inc.
. Inacom Corporation
. Government Technology Services, Inc.
In addition there are several smaller or start-up companies with which we
compete from time to time. We also expect that competition will increase as a
result of consolidation in the information security technology and product
reseller industries. We may be unable to compete successfully in the future
with our competitors, which may adversely affect our business.
Intellectual property
We depend substantially on our proprietary information and technologies. We
rely on a combination of trademark, patent, copyright and trade secret laws,
employee and third-party non-disclosure agreements, technical measures and
other methods to protect our software products and other proprietary
technologies and know-how. We also rely on standardized license agreements that
are not signed by the end user to license our products and, therefore, may not
always be unenforceable.
We currently have two patents registered with the U.S. Patent and Trademark
Office and three patent applications pending with the U.S. Patent and Trademark
Office that cover aspects of data security technology. Prosecution of these
patent applications and any other patent applications that we may subsequently
determine to file may require the expenditure of substantial resources. The
issuance of a patent from the filing of a patent application is a lengthy
process. Our technology may become obsolete while our applications for patents
are pending. Further, any pending or future patent may not be granted, and any
future patents may be challenged, invalidated or circumvented and the scope of
any patents may be reduced. The rights granted to us through our patents may
not provide us with any advantages. We have not pursued any patent protection
outside the U.S. for any technology.
Our technical measures and non-disclosure agreements may not be adequate to
prevent misappropriation or provide any meaningful protection for our
proprietary technology in the event of misappropriation. Further, others may
independently develop substantially equivalent or superior technologies or
duplicate any technology we develop, or our technology may infringe on the
patents, copyrights or other intellectual property rights owned by others.
We may also be at risk when we enter into transactions in countries where
intellectual property laws are not well developed or are poorly enforced. Legal
protection of our rights may be ineffective in foreign markets, and technology
manufactured or sold abroad may not be protectable in jurisdictions in
circumstances where protection is ordinarily available in the U.S.
We believe that, due to the rapid pace of technological innovation for
network security products, our ability to establish, and if established,
maintain a position of technological leadership in the industry, is dependent
more upon the skills of our development personnel than upon legal protections
afforded our existing or future technology.
Because our products are designed with an open architecture and are
algorithm-independent, they can be utilized with a variety of encryption
algorithms. Some algorithms are in the public
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<PAGE>
domain and can be incorporated into our products at no charge. To the extent
that a customer desires to incorporate a proprietary algorithm into a security
solution, we or the customer must obtain a license from the algorithm owner.
Depending on the algorithm and its owner, the license fee may be a flat fee, a
per unit royalty or a combination of the two.
We are developing Forte under a task order issued under a contract with
National Security Agency. The contract incorporates the Department of Defense's
standard licenses for technical data and computer software, commonly known as
the data rights clauses. Data rights clauses are only applicable to data or
software actually delivered to the federal government under a contract. If the
data rights clauses were applicable to our agreement with the National Security
Agency to develop Forte, one of the data rights licenses, commonly called a
government purpose rights license, would permit the federal government to
create second sources of supply of the Forte technical data and source code for
itself without paying us royalties. The government purpose license clause would
not authorize the federal government to create competitors to us in the
commercial market. We do not believe the data rights clauses generally, or the
government purpose license specifically, apply to Forte because our contract
with the National Security Agency does not provide for the delivery of Forte to
the federal government. The task order provides that the National Security
Agency will obtain detailed design information about Forte.
We own or have rights to trademarks and trade names that we use in
conjunction with the sale and licensing of our products. The following
trademarks mentioned in this prospectus are our registered trademarks: Cyper
Server and CryptOS. We also own the trade names Litronic, Pulsar, Pulsar Data
and Pulsar Data Systems, Inc. We have applied for the trademarks Pro File
Manager, Netsign, Netsign Pro, Forte PKIcard and Maestro. All other trademarks
or trade names referred to in this prospectus are the property of their
respective owners.
Government regulation
Because we sell our products internationally, we must comply with federal
laws regulating the export of, and applicable foreign government laws
regulating the import of, our products. The U.S. government has recently
relaxed the export restrictions for our NetSign and ProFile Manager products.
However, the federal government may rescind these approvals at any time. Under
current regulations these products can be exported without a license to most
countries for use by banks, healthcare, insurance organizations and overseas
subsidiaries of U.S. companies.
Additionally, we may apply for export approval, on a specific criteria
basis, for our future products. Government export regulation for security
products is less stringent for products designed for banking and finance, e-
commerce, health, insurance and for use by U.S. subsidiaries. We may not
receive approval to export any future products on a timely basis, on the basis
we request or at all. As a result of government regulation of our products, we
may be at a disadvantage in competing for international sales compared to
foreign companies that are not subject to these restrictions.
Employees
As of May 1, 1999, Litronic employed 65 full-time and five part-time people,
including 40 in product management, research, development and support, two in
professional services, 14 in field operations including sales, marketing and
customer management, and 14 in finance, human resources, business development,
legal and administration. As of May 1, 1999, Pulsar employed 60 people,
including four in product management, 17 in professional services, 17 in field
operations including sales, marketing and customer management, and 22 in
finance, human resources, business
66
<PAGE>
development, legal and administration. After the closing of this offering, we
expect to integrate Pulsar's workforce.
Our employees are not represented by labor unions. We do not expect that any
of our employees will be represented by any labor unions after the closing of
this offering. We consider our relations with our employees to be good.
Facilities
After the closing of this offering, we will be headquartered in Irvine,
California where we currently lease approximately 12,000 square feet of office
space for our executive offices with a lease expiring in September 2001 and
approximately 1,800 square feet of space in a production and warehouse facility
and which has a lease expiring in June 1999. We are currently negotiating and
expect to enter into a lease for a new headquarters facility in California of
approximately 40,000 square feet. This would replace our current headquarters
which we would attempt to sublet. We expect our new facility would have an
annual rent of approximately $600,000 and a lease term ranging from seven to
ten years. In addition, after the closing of this offering, we will conduct a
significant portion of our operations at Pulsar's offices in our 12,700 square
foot Lanham, Maryland facility, which we use as office space for our executive
offices and as warehouse space, under a lease that expires in 2003.
Legal proceedings
We are involved from time to time in routine litigation that arises in the
ordinary course of business. We are not currently involved in any litigation
which we believe will have a material impact on our results of operations,
financial condition or liquidity, other than the following:
In the course of its business, Pulsar has been extended credit from several
trade vendors for the purchase of supplies, equipment, merchandise and
services. Pulsar's accounts for several of these trade vendors have been past
due for a significant amount of time. As a result, several of these trade
vendors have filed lawsuits against Pulsar seeking to collect the amounts owed
by Pulsar. In addition, a local government agency has filed a claim for back
taxes owed by Pulsar. Following is a summary of these lawsuits:
<TABLE>
<CAPTION>
Name of Plaintiff Date Filed Court
- -------------------------------- ----------------- --------------------------
<S> <C> <C>
Performance Engineering October 26, 1998 Circuit Court of Fairfax
Corporation County, Virginia
Lynn Runnels January 15, 1999 General District Court of
Loudoun County, Virginia
Signal Corporation February 11, 1999 U.S. District Court,
District of Maryland
AST Research, Inc. February 26, 1999 Superior Court of Orange
County, California
Prince George's County, Maryland March 11, 1999 Circuit Court for Prince
George's County, Maryland
Weisman and Associates, Inc. March 15, 1999 Circuit Court for Prince
George's County, Maryland
Softmart, Inc. March 22, 1999 Chester County Court of
Common Pleas, Pennsylvania
Gates/Arrow Distributing, Inc. August 14, 1998 Circuit Court for Prince
George's County, Maryland
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Continuous Graphics, Inc. February 22, 1999 District Court for Baltimore
County, Maryland
Sales and Marketing March 2, 1999 Circuit Court for Prince
Assistance Corp. (filed but not served) George's County, Maryland
Stackig, Inc. March 19, 1999 Circuit Court of Fairfax
County, Virginia
Octave Systems, Inc. March 30, 1999 Superior Court of Santa Clara
County, California
Systems Solutions April 12, 1999 Circuit Court for Prince
Technology, Inc. George's County, Maryland
</TABLE>
The aggregate amount claimed under these lawsuits was approximately $1.8
million, plus interest, attorney's fees and costs. Pulsar has entered into
settlements including stipulated judgments covering some of the lawsuits. As of
May 5, 1999, Pulsar has paid approximately $760,000 under those settlements. As
of May 5, 1999, the aggregate amount Pulsar owes on claims that have been filed
and settled is approximately $815,000. The aggregate amount of claims,
excluding interest, attorney's fees and costs, that have been filed but not
settled is approximately $288,000.
We intend to use the net proceeds from this offering to resolve and pay
these claims and settlements. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
On January 16, 1998, G2 Resources Inc. filed a complaint against Pulsar in
the Circuit Court, Fifteenth Judicial Circuit, Palm Beach County, Florida. G2
claims that Pulsar breached a contract under which G2 agreed to provide
services related to the monitoring of government contracts available for bid
and the preparation and submission of bids on behalf of Pulsar. The contract
provides that Pulsar pay G2 $500,000 in 30 monthly installments of $16,666 and
an additional fee of 2% of the gross dollar amount generated by awards. In its
complaint, G2 alleged that Pulsar failed to make payments under the contract
and claimed damages in excess of $525,000 plus interest, costs and attorneys
fees. In the course of discovery G2 asserted that its losses/costs arising out
of its claim amount to approximately $10.3 million. Pulsar has asserted that G2
failed to perform the services required under the contract and Pulsar filed a
claim for compensatory damages, interest and attorneys fees against G2.
Classical Financial Services, LLC intervened in the case. Classical claims that
G2 assigned its accounts receivable to Classical under a financing program and
that Pulsar breached its obligations to Classical by failing to make payments
under the contract with G2. Pulsar has asserted defenses to Classical's claim.
Pulsar believes that the claims of G2 and Classical against Pulsar are without
merit and intends to continue to vigorously defend against the claims. If G2 or
Classical were to prevail in this lawsuit, our business and financial condition
could be materially adversely affected.
On July 11, 1997, Rudolph Menna filed a complaint against Pulsar and William
W. Davis, Sr. in the U.S. District Court for Northern District of Georgia,
Atlanta Division. Mr. Menna alleges that he was wrongfully terminated as a
Pulsar employee and that Pulsar and Mr. Davis unlawfully discriminated against
him on the basis of race and age. Mr. Menna's complaint seeks an unspecified
amount of damages including back pay, front pay, benefits, compensatory and
punitive damages, interest and attorneys fees. Pulsar and Mr. Davis have filed
an answer denying the material allegations in the complaint. Pulsar and Mr.
Davis believe that Mr. Menna's lawsuit is without merit and intend to continue
to vigorously defend against it. If Mr. Menna were to prevail in the suit our
business and financial condition could be materially adversely affected.
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<PAGE>
MANAGEMENT
Executive officers, directors and key employees
The following table contains information concerning our directors, director
nominees, officers, persons who have agreed to serve as executive officers upon
the closing of this offering and other key employees, and their respective ages
as of April 1, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Kris Shah............. 59 Chairman of the Board and Chief Executive Officer
William W. Davis, Sr.. 48 President, Chief Operating Officer and Director
Thomas W. Seykora..... 55 Chief Financial Officer
Robert J. Brich....... 55 Vice President, Government Marketing and Sales
Robert J. Gray........ 62 Vice President, Product Development
William S. Holmes..... 52 Vice President, Commercial Marketing and Sales
Mark Gembicki......... 33 Director Nominee
Matthew Medeiros...... 42 Director Nominee
</TABLE>
Kris Shah is our chairman of the board and chief executive officer. Mr. Shah
has been Litronic's president and chief executive officer since he founded the
company in 1970. Mr. Shah's career has involved every major aspect of circuit
design and chip packaging technology, including research and development,
manufacturing, engineering, marketing and strategic planning. Before forming
Litronic, Mr. Shah held management level positions at Hughes Aircraft Co.,
Fiberite Inc. and Bell Industries, Inc. Mr. Shah earned his B.S. and M.S.
degrees in mechanical engineering from the University of Southern California in
1962 and 1964.
William W. Davis, Sr. is our president and chief operating officer. Mr.
Davis served as Pulsar's president and chief executive officer since he founded
the company in 1982. Mr. Davis sits on the advisory boards of IBM, Ingram Micro
and Pinacor Corporation. Over the past 16 years, Mr. Davis grew Pulsar into a
diversified technology company, specializing in providing network-based
information technology services and customized products to Fortune 1000 and
government accounts. Before founding Pulsar, Mr. Davis held various management
positions with several Fortune 1000 companies, including DuPont, Chevron and
Occidental Petroleum Corporation. He is the recipient of numerous industry
awards, including awards for outstanding leadership and performance from the
Government Computer News (1994-1997), Lockheed Martin Corporation and various
industry associations. Mr. Davis earned his B.S. in agronomy from Southern
University in 1972 and completed advanced executive management programs at
Dartmouth University in 1994 and the University of Miami in 1995.
Thomas W. Seykora is our chief financial officer. Mr. Seykora joined
Litronic in July 1995 as its chief financial officer. Before joining Litronic,
Mr. Seykora was an independent management consultant to companies and financial
institutions from 1986 to July 1995. From 1982 to 1986, he served as chief
financial officer and senior vice president-finance and operations for Curley
Bates Co., a closely held distribution company. Before that, Mr. Seykora worked
for KPMG LLP, then known as Peat, Marwick, Mitchell & Co., most recently as an
audit manager. Mr. Seykora also served as an officer, achieving the rank of
captain, in the U.S. Marine Corps. He received a B.A. degree in accounting from
Minnesota State University.
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<PAGE>
Robert J. Brich has agreed to serve as our vice president, government
marketing and sales, upon closing of this offering. Mr. Brich will be
responsible for the development, management and performance of Litronic's
networking and data security solutions and services. Mr. Brich has served as
executive vice president of technical services of Pulsar since September 1998.
From January 1998 to September 1998, Mr. Brich served as president of Infotex
Ltd., a developer of data security products. From September 1997 to December
1997, Mr. Brich served as director of business development for SFA, Inc., an
engineering services company. Mr. Brich served as executive vice president of
Management Systems Applications, Inc., a worldwide information and electronic
security provider, from June 1994 to September 1997. Mr. Brich served as senior
vice president of SEACOR, an engineering consulting firm from January 1990 to
June 1994. Mr. Brich retired as a commander in the U.S. Navy after 22 years of
service. Mr. Brich serves as chairman of the board of directors for the
Tidewater Center for Technology Access, a community charitable organization.
Mr. Brich holds a B.S. in education from East Stroudsburg University, an M.S.
from the Naval War College and an MBA from Marymount College. He also attended
strategic management curriculums at Wharton School of Business. Mr. Brich is
currently a Ph.D. candidate in business and education at Old Dominion
University.
Robert J. Gray has agreed to serve as our vice president, product
development upon the closing of this offering. Mr. Gray joined Litronic in May
1990. Mr. Gray served as president of Cyphernet, Inc., a division of Codercard,
Inc., a data security company, from January 1985 to May 1990. Mr. Gray has also
served as president of Genisco Computers Corp., a leading manufacturer of
computer graphics and imaging hardware for the computer aided design, image
processing and simulation markets. After obtaining his education in
meteorology, oceanography and computer sciences from various military schools
including the Naval Postgraduate School in Monterey, California, Mr. Gray
served as an officer in the U.S. Navy for 22 years, specializing in meteorology
and computer sciences. During his Naval career, Mr. Gray completed numerous
assignments within the Department of Defense, the National Security Agency and
the Naval Security Service.
William S. Holmes has agreed to serve as our vice president, commercial
marketing and sales, upon closing of this offering. Mr. Holmes has over thirty
years experience in the computer industry. Mr. Holmes joined Litronic in
October 1998 as vice president, marketing and sales. From September 1996 to
September 1998, Mr. Holmes served as vice president, sales and marketing for
Gigatron Software Corporation, a private information management company. From
April 1996 to September 1996, Mr. Holmes served as consultant to Novaquest
Infosystems Inc., a computer reseller. From October 1985 to April 1996, Mr.
Holmes served as vice president, managing director of California Software
Products, Inc. From June 1984 to October 1985, Mr. Holmes served as sales
manager of Data Logic Ltd., a subsidiary of Raytheon Corporation. From February
1971 to June 1984, Mr. Holmes served in project management for International
Computer Limited in England and South Africa. Mr. Holmes attended Watford
College of Technology in England.
Mark Gembicki has agreed to serve as one of our directors commencing as of
the date of this prospectus. Mr. Gembicki is currently chairman and chief
technology officer of WarRoom Research Inc., an Annapolis, Maryland-based
company Mr. Gembicki founded in August 1995. WarRoom Research provides
Internet-based technologies and processes that enable organizations to
effectively manage their enterprise-wide knowledge for corporate advantage. Mr.
Gembicki acted as an advisor to the U.S. government from August 1993 to August
1995, consulting on topics focusing on computer security applications and
cybercrime investigations. Mr. Gembicki has worked for, or advised, the U.S.
government in computer security and related fields for seventeen years. Mr.
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<PAGE>
Gembicki is a co-author of The WarRoom Guide to Competitive Intelligence, which
provides analysis and information on business intelligence and information
security. Mr. Gembicki is cited in over 250 publications as well as television
and radio programs. In January 1999, Mr. Gembicki was named by Computerworld as
one of the Top 20 Visionaries for the next decade.
Matthew Medeiros has agreed to serve as one of our directors commencing as
of the date of this prospectus. Since February 1998, Mr. Medeiros has served as
chairman and chief executive officer of Phillips Flat Display Systems. Before
joining Phillips, Mr. Medeiros served as vice president and general manager for
the optical polymers group, and as vice president of business development for
the electronic materials division, of Allied Signal Inc. from January 1996 to
February 1998. Mr. Medeiros served as an executive officer of Radius, Inc.,
including as its vice president and general manager, MacIntosh systems, and as
its vice president operations and information systems, from March 1993 to
January 1996. Mr. Medeiros also previously served in executive positions with
Radius, Inc., NeXT Computer and Apple Computer, Inc. in which positions he
developed an extensive background in personal computer manufacturing,
operations and materials management. Mr. Medeiros received his B.S. in business
administration, management science and finance from the University of San
Francisco.
Board of directors
Our board of directors consists of three classes of directors. Class I, II
and III directors serve until our 2000, 2001 and 2002 annual meeting of
stockholders. After these initial terms, directors serve until the third annual
meeting of stockholders following their election or until a successor is duly
elected and qualified. Executive officers are elected by the board of directors
to serve until their successors are elected and qualified. Mr. Medeiros will
serve as a Class I director, Mr. Gembicki will serve as a Class II director,
and Messrs. Shah and Davis will serve as Class III directors.
We have agreed that for a period of three years from the date of this
prospectus, at BlueStone's request, we will nominate and use our best efforts
to elect two designees of BlueStone as directors of our company or, at
BlueStone's option, as non-voting advisors to our board of directors. Our
officers, directors and stockholders have agreed to vote their common stock in
favor of BlueStone's designees. BlueStone has not yet exercised its designation
right.
Directors compensation
Except for grants of stock options, directors will not receive any cash
compensation for their services as board members although they will be
reimbursed for expenses in attending board and committee meetings.
Committees of the board of directors
The board of directors will establish a compensation committee and an audit
committee to serve commencing as of the date of this prospectus. The initial
members of each of the committees will be Messrs. Medeiros and Gembicki. The
compensation committee will be responsible for receiving and making
recommendations to the board on all compensation and hiring issues relating to
officers and senior staff members and administering the 1999 stock option plan.
The audit committee will be responsible for making recommendations to the board
regarding the selection of our independent accountants, consulting with our
independent accountants and financial and accounting staff and reviewing and
reporting to the board on the scope of audit procedures, accounting practices
and internal accounting and financial controls.
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<PAGE>
Executive compensation
The following table lists the total compensation paid or accrued for the
year ended December 31, 1998 for our chief executive officer, who was the only
executive officer whose compensation was over $100,000 during the fiscal year
ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Name and Principal Position Year Salary and Bonus All Other Compensation
- --------------------------- ---- ------------------- ----------------------
<S> <C> <C> <C>
Kris Shah...................... 1998 $231,998 (See below)
Chief Executive Officer and
Chairman of the Board
</TABLE>
Mr. Shah also received other fringe benefits from Litronic in his capacity
as chief executive officer and chairman of the board; however, those benefits
were less than $50,000 during the year ended December 31, 1998.
We anticipate that during the fiscal year ending December 31, 1999 the only
executive officers that will earn $100,000 or more will be Messrs. Shah, Davis
and Gray.
<TABLE>
<CAPTION>
Option/SARs Grants in Last Fiscal Year
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
---------------------------------------------------- ---------------------------
(b) (c)
Number of % Of Total
Securities Options/SARS (d)
Underlying Granted to Exercise (e)
Options/ Employees in or Base Expiration (f) (g)
Name SARs Granted(#) Fiscal Year Price ($/SH) Date 5% ($) 10% ($)
- ---- --------------- ------------ ------------ ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Bob Gray................ 77,419 27.5% $0.70 None $ 34,082 $86,370
Thomas Seykora.......... 11,613 4.1% 0.70 12/31/03 5,112 12,956
</TABLE>
No other executive officer whose name appears in the table under
"Management-Executive officers, directors and key employees" received stock
options or stock appreciation rights in the year ended December 31, 1998.
Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at FY-End(#) at FY-End(#)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert Gray................. 77,419 -- $410,321 --
Thomas Seykora.............. 2,323 9,310 $ 12,312 $49,343
</TABLE>
The value of the options described above is based upon the difference
between the exercise price per share and the estimated fair market value per
share at December 31, 1998, as determined by the board of directors, multiplied
by the number of shares subject to the options.
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<PAGE>
Employment agreements
General
Kris Shah and William Davis have each entered into a two-year employment
agreement with Litronic, effective as of the date of this prospectus. The
agreement provides that after the initial term it will automatically renew for
successive one year terms unless it is terminated by us or by the employee
through written notice given to the other party 90 days before the expiration
of the then current term. The agreements provide that Messrs. Shah and Davis
will each receive an annual salary of $175,000 for the 12-month period
following the date of this prospectus. Their salaries may be adjusted by our
compensation committee. Each of Messrs. Shah and Davis are also entitled to
receive annual bonus awards of $100,000 if we have earnings of $2.5 million or
more and an additional $37,500 for each additional $1.0 million of earnings in
excess of $2.5 million.
In making the calculation for the bonuses we will measure earnings before
interest and taxes and will add back the amortization of goodwill and other
intangibles resulting from the Pulsar acquisition.
Termination of employment
Each employment agreement provides that, in addition to being terminated
through the notice features described above, employment may be terminated as
follows:
. by the employee if the employee has good reason to terminate the
agreement. Good reason exists if:
. the employee is relieved of his position as, or is not reappointed
as, an officer of our company;
. the employee's title, office or responsibilities change
substantially;
. the employee's base salary is reduced to an amount that is less than
$175,000 or by more than 10%;
. we fail to maintain our employee benefit plan;
. we sell or transfer our company and fail to obtain the successor's
assumption of the employment agreement; or
. we fail to comply with a material term of the employment agreement
and fail to cure our default after appropriate notice.
. by us if we determine that due cause for termination exists. Due
cause exists if we find that the employee:
. intentionally misapplied our money or property;
. committed an act of dishonesty that harmed our company;
. was convicted of a felony or a crime involving moral turpitude;
. has used a controlled substance, including alcohol, which affects
his ability to perform his job duties; or
. breached the terms of the employee agreement.
. Additionally, we can terminate the agreement upon the employee's:
. death;
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<PAGE>
. disability for more than 180 days after we give 30 days notice of
our intention to terminate the agreement; or
. retirement.
Finally, we can terminate the employment agreement for any other reason, at
any time, but we will be deemed to have constructively terminated the agreement
and will be liable to pay the employee the severance payment described below.
Payment upon termination
We may be obligated to make payments to the employee upon termination of
employment depending on the circumstances surrounding the termination.
Following is a description of situations in which we may or may not be
obligated to make severance payments:
. If the employment agreement is terminated by the employee after giving
notice, by us for cause or by the employee in breach of the agreement,
we will not be obligated to pay any compensation after the termination
date, except:
. employee benefits;
. unpaid base salary the employee has earned which we have not yet
paid; and
. vested stock options.
. If the employment agreement is terminated by the employee for good cause
or by us through a constructive termination, we will be obligated to pay
the employee:
. his annual salary through the latter of the end of the employment
agreement term or a period of two years;
. a pro rata bonus for the fiscal year in which the termination
occurs;
. continuing medical and life employee benefits for six months after
the termination; and
. vested stock options.
Confidentiality and noncompete clauses
Each of the employment agreements also contains noncompete, confidentiality
and nondisclosure clauses designed to protect our intellectual property.
Additionally, each agreement contains a provision designed to preclude the
employee from claiming rights to any products or technologies he developed
while in our employ or for a two-year period following his termination.
Stock option plans
1998 stock option plan
Our 1998 stock option plan was established to provide directors, officers
and employees with an opportunity to invest in our company and to advance our
interest and our stockholders' interests by enabling our company to attract and
retain qualified personnel. Under the plan our board of directors has authority
to grant incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code of 1986 to our employees and non-qualified stock options
to our employees, officers and directors or to some other individuals as the
board determined. Generally, the board of directors has discretion to amend,
suspend or terminate the plan from time to time. Administration of the plan may
be delegated to a committee appointed by the board of directors. The option
period and
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<PAGE>
provisions for exercise of each option granted are determined by the committee
at the time of each the grant. Unless it is terminated earlier, the plan
terminates on April 1, 2008.
Options to purchase an aggregate of 281,419 shares of common stock have been
granted under the 1998 stock option plan at an exercise price of $.70 per
share. Of these, options to purchase 142,927 shares are vested as of the date
of this prospectus. Of these options,
. options to purchase 77,419 shares have been granted to Mr. Gray, all of
which have vested;
. options to purchase 11,613 shares have been granted to Mr. Seykora, of
which options to purchase 2,323 shares have vested and the remaining
9,073 options will vest at a rate of 2,323 per year.
No additional options will be granted under the 1998 stock option plan.
1999 stock option plan
Our 1999 stock option plan is intended to provide directors, officers and
employees with an opportunity to invest in our company and to advance our
interest and our stockholders' interests by enabling our company to attract and
retain qualified personnel. Under the plan our board of directors has authority
to grant incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code of 1986 to our employees and non-qualified stock options
to our employees, officers and directors or to some other individuals as the
board may determine. Generally, the board of directors has discretion to amend,
suspend or terminate the plan from time to time. Administration of the plan may
be delegated to a committee appointed by the board of directors. The option
period and provisions for exercise of each option granted shall be determined
by the committee at the time of the grant. A total of 600,000 shares of common
stock have been reserved for issuance in the aggregate under the plan. No
options have been granted under the plan. Unless it is terminated earlier, the
plan will terminate on March 31, 2009. Options or other awards that are granted
under the plan but which expire unexercised are available for future grants.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents, as of the date of this prospectus, information
we know regarding the beneficial ownership of our common stock by (a) each
person or entity known to us to own beneficially more than 5% of the common
stock, (b) each director, (c) each director nominee, (d) each named executive
officer, and (e) all directors and executive officers as a group. In presenting
this information, we have:
. given effect to the Pulsar acquisition;
. assumed that there are 6,040,631 shares outstanding as of the date of
this prospectus and 9,740,631 shares outstanding immediately after the
consummation of this offering.
The address of each person in the table below is the address of Litronic.
<TABLE>
<CAPTION>
Percentage of Outstanding
Number of Shares Beneficially Owned
Shares -------------------------
Name and Address of Beneficially Before After
Beneficial Owner Owned Offering Offering
- ------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Kris Shah.................... 3,220,479 53.3% 33.1%
William W. Davis, Sr......... 1,084,969 18.0% 11.1%
Lillian Davis................ 1,084,969 18.0% 11.1%
Ramesh R. Shah
Patricia L. Shah............ 463,657 7.7% 4.8%
Robert J. Gray............... 77,419 1.3% .8%
Matthew Medeiros............. 0 0% 0%
Mark Gembicki................ 0 0% 0%
All directors and executive
officers as a group (8
persons).................... 4,367,019 71.3% 44.4%
</TABLE>
In calculating the information in this table, we relied on the following
assumptions:
. all the persons named in the table have sole voting and investment power
over all shares they beneficially own, subject to community property
laws, where applicable;
. a person or entity is considered the beneficial owner of securities that
it can acquire through the exercise of options within 60 days from the
date of this prospectus;
. In calculating each beneficial owner's percentage ownership we assumed
that only options held by that person that are exercisable within 60
days from the date of this prospectus have been exercised.
The shares beneficially owned by Kris Shah include: (a) 435,301 shares held
by the Chandra L. Shah Trust, of which Mr. Shah is the trustee, (b) 435,301
shares held by the Leena Shah Trust, of which Mr. Shah is the trustee and (c)
2,349,877 shares held by the Kris and Geraldine Shah Family Trust, of which Mr.
Shah and his wife are the trustees and beneficiaries.
The shares beneficially owned by Ramesh R. Shah and Patricia L. Shah are
held by the Ramesh R. Shah and Patricia L. Shah Living Trust, of which Ramesh
R. Shah and Patricia L. Shah are trustees and beneficiaries. Ramesh Shah is the
brother of Kris Shah and Patricia Shah is the sister-in-law of Kris Shah.
The shares beneficially owned by Mr. Gray are shares issuable upon exercise
of his currently exercisable options.
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The shares beneficially owned by all directors and executive officers as a
group include 80,904 shares issuable upon exercise of currently exercisable
options and exclude 69,846 shares issuable upon exercise of options which
become exercisable at various times commencing December 31, 1999. The inclusion
of shares in this table as beneficially owned is not an admission of beneficial
ownership.
CERTAIN TRANSACTIONS
The Pulsar acquisition
Litronic entered into a stock acquisition agreement with Pulsar and William
W. Davis, Sr., our president and chief operating officer, and Lillian Davis,
the former stockholders of Pulsar. The agreement provides that Mr. Davis and
Ms. Davis will exchange all of their stock for an aggregate of 2,169,938 shares
of our common stock simultaneously with the closing of this offering. The
shares of our common stock that Mr. Davis and Ms. Davis will receive are valued
at approximately $21.7 million, based on an assumed initial public offering
price of $10.00 per share. As a result of the Pulsar acquisition, Pulsar will
become a wholly-owned subsidiary of Litronic and William Davis and Lillian
Davis will become principal stockholders of Litronic.
Other transactions with related parties
We had obligations aggregating approximately $211,000 to Kris Shah, our
chief executive officer and chairman of the board, for accrued compensation at
December 31, 1994. On January 2, 1995, this obligation was converted into an
unsecured note, bearing interest at an annual rate of 8%, which was due on
December 31, 1998. On October 29, 1997, the aggregate principal and interest
amounting to approximately $252,000 due on the note was repaid.
In 1996 and 1997, in the ordinary course of business, we have financed
equipment for our operations in the aggregate amount of approximately $1.5
million. These obligations were personally guaranteed by Kris Shah, and were
satisfied in full during 1997.
In June 1995, Davis Holding, Inc., a privately held corporation owned
entirely by the son of William W. Davis, Sr., purchased a building in Atlanta,
Georgia. This purchase was financed through loans to Davis Holding, Inc. from
Wilmington Trust Company in the amount of $2.4 million.
Between July 1995 and June 1996, Pulsar made a series of eight loans
aggregating $2.8 million to Davis Holding, Inc. These loans bear interest at
annual rates varying from 7.5% to 10.0% and are due on demand. Two of these
loans were in the form of assignment of notes receivable to Pulsar from third
parties in the aggregate principal amount of $623,000, which were assigned back
to Pulsar in December 1997. The notes were written off as bad debt expense in
the year ended December 31, 1997.
In October 1995, Davis Holding, Inc. and Mr. Davis' son purchased Palmer III
Limited Partnership. At the time of the purchase, the principal asset of Palmer
was a building in Lanham, Maryland. This purchase was financed through a loan
to Davis Holding, Inc. from Wilmington Trust Company in the amount of $2.8
million which was guaranteed by Pulsar and personally guaranteed by William W.
Davis, Sr. and Lillian Davis. Following the acquisition of the building, Davis
Holding, Inc. leased a portion of the Lanham, Maryland building to Pulsar at
fair market rate rents. Payments of rent under the lease were $1,042,000,
$955,500 and $409,500 during the years ended December 31, 1996, 1997 and 1998.
A portion of the rent expense incurred under the related party
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lease was used to offset the notes receivable balance of the related party. The
amount of rent expense used to offset the notes receivables from Davis Holding,
Inc. for the years ended December 31, 1997 and 1998 was $182,000 and $344,000.
In addition, principal and interest under the notes were reduced by $750,000 as
payment of a fee for terminating the lease as of September 30, 1998. As of
January 1, 1999, the approximately $1.3 million outstanding under these loans
was converted into a $543,000 promissory note and a $804,000 promissory note,
each bearing interest at an annual rate of interest of 7.5%, payable monthly,
and maturing upon the sales of the Lanham, Maryland and Atlanta, Georgia
properties. On April 30, 1999, Davis Holding, Inc. sold the Lanham property.
The proceeds from the sale of the building went into an escrow account with
Wilmington Trust Company. On May 5, 1999, Wilmington Trust offset the Davis
Holding, Inc. note of $543,000, plus interest of $13,000 against the
outstanding Pulsar loan balance with Wilmington Trust Company. A determination
was made on the remaining $804,000 note that there were not sufficient assets
within Davis Holding, Inc. to repay the outstanding notes payable in the
future. Therefore, the remaining receivable was completely reserved as of
December 31, 1998.
In May 1996, Pulsar entered into a line of credit with Wilmington Trust
Company which was personally guaranteed by William W. Davis, Sr., and Lillian
Davis. Under the line of credit, Pulsar could borrow up to the lesser of its
accounts receivable or $22.0 million secured by a pledge of eligible accounts
receivable, inventory, machinery and equipment. Interest on the outstanding
line of credit accrues at a variable rate of interest. In October 1997, the
line of credit was converted to a term loan of $5.2 million which is guaranteed
by William W. Davis, Sr., Lillian Davis, Palmer III Limited Partnership and
Davis Holding, Inc., and is secured by an indemnity mortgage and security deed
from Palmer III Limited Partnership on its Lanham, Maryland property and a
security deed from Davis Holding, Inc. on its Atlanta, Georgia property.
We had an unsecured revolving line of credit up to $1.0 million from Kris
Shah which accrued interest at an annual rate of 8%. All unpaid principal and
interest under this line was repaid during 1996. During the year ended December
31, 1996, $30,000 of the interest under this line was paid to Mr. Shah. The
line of credit expired on January 31, 1997 and was not renewed.
In June 1996, we entered into a one-year loan and security agreement with
Fidelity Funding, Inc., which was personally guaranteed by Kris Shah. Under the
agreement, Fidelity extended a variable rate credit line of up to $5.95
million, of which $1.0 million was collateralized by fixed assets, $2.2 million
was collateralized by real estate, $2.5 million was collateralized by accounts
receivable and inventory and $250,000 in the form of a standby line of credit.
In September 1997, we sold the building securing the $2.2 million real estate
line and repaid the line. In March 1998, the $2.5 million revolving credit
facility was extended to February 2000. As of March 31, 1999, $424,000 was
outstanding under this facility. We intend to repay the outstanding
indebtedness under this credit facility out of the proceeds from this offering.
This will release Mr. Shah's guarantee.
In December 1996, we entered into a line of credit at a fixed annual rate of
interest of 6.6% with the Bank of Yorba Linda for up to $1.0 million, which was
personally guaranteed by Kris Shah and his wife, Geraldine Shah, and secured by
a pledge of their personal assets. This line was repaid in June 1997.
In January 1997, we formed KRDS, Inc. as a wholly owned subsidiary in
connection with the acquisition of real estate. In connection with the
formation of KRDS, Inc. we made a capital contribution in the amount of $8.5
million to KRDS, Inc. Following the acquisition, KRDS leased to us at market a
portion of the property acquired to use in our former Intercon division. In
December
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1997, we made a cash distribution of $9.5 million to our stockholders.
Subsequently, as discussed below, we distributed the capital stock and net
assets of KRDS to our stockholders. As a result of the KRDS distribution, we
removed the property and the corresponding mortgage and related liabilities
from our consolidated balance sheet. Following the distribution, we borrowed
$2.9 million from KRDS which was evidenced by an unsecured promissory note. In
February 1998, we borrowed an additional $600,000 from KRDS which borrowing was
evidenced by an unsecured promissory note. Each of these notes bore interest at
an annual rate of 10% and were paid in full in September 1998 with the proceeds
of our loan from BYL Bank Group.
In October 1997, Pulsar entered into an inventory and working capital
financing agreement with IBM Global which provides that Pulsar can finance
purchases of products through IBM Global. As amended on February 2, 1999, the
agreement provides for a credit line up to the lesser of $8 million, a
specified percentage of Pulsar's eligible accounts receivable or a specified
percentage of Pulsar's on-hand inventory. The credit line is secured by
substantially all of Pulsar's assets and personal assets of William W. Davis,
Sr. and is personally guaranteed by Mr. Davis and Lillian Davis. We intend to
repay a portion of the indebtedness outstanding under this financing agreement
using proceeds from this offering. This will release Mr. Davis' guarantee and
the assets pledged by him.
During the year ended December 31, 1997 we made pro rata distributions to
our stockholders of: (a) $9.5 million in cash, (b) the rights to the contingent
payment relating to the sale of our Intercon division, (c) the rights to a
gross-up payment for expected tax liability resulting from the gain on the sale
of our Intercon division and (d) the capital stock and net assets of KRDS
consisting of $8.5 million of cash.
During the year ended December 31, 1998 and the three months ended March 31,
1999, we executed promissory notes aggregating $5.9 million in favor of BYL
Bank Group at a fixed annual rate of interest of 6.6%. The notes are personally
guaranteed by Kris Shah and secured by a pledge of personal assets of Mr. Shah.
We intend to use a portion of the proceeds of this offering to repay the
indebtedness under this loan, at which time Mr. Shah's guarantee and the assets
pledged by Mr. Shah will be released.
Mr. Davis loaned to Pulsar $120,000 on November 23, 1998 and $95,000 on
January 5, 1999. These loans bear interest at the annual rate of 6% beginning
April 1, 1999.
DESCRIPTION OF SECURITIES
Upon the closing of the offering, our authorized capital stock will consist
of 25,000,000 shares of common stock, $.01 par value per share and 5,000,000
shares of preferred stock, $.01 par value per share. As of the date of this
prospectus, there are 3,870,693 shares of our common stock held of record by
five stockholders, and, after giving effect to the Pulsar acquisition, there
will be 6,040,631 shares of our common stock outstanding held of record by
seven stockholders.
Common stock
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Therefore, holders of a majority of the shares of common stock
may elect all of the directors standing for election. Holders of common stock
are entitled to receive any dividends that are declared by the board of
directors. Upon our liquidation, dissolution or winding up, and after payment
of all debts and other liabilities, holders of our common stock are entitled to
receive our remaining net assets. Holders of common
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stock have no preemptive, subscription or redemption rights. The outstanding
shares of common stock are, and the shares we are offering in this offering
will be when issued and paid for, fully paid and non-assessable.
Preferred stock
Our certificate of incorporation authorizes our board of directors to issue
up to 5,000,000 shares of preferred stock with a par value of $.01 per share.
The board may issue the stock in one or more series and may determine the
price, rights, including voting rights, preferences, privileges and
restrictions of each series of preferred stock, without any vote or action by
our stockholders. The board may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of the common stock. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control and may adversely affect the market price of the
common stock and the voting and other rights of the holders of common stock. As
of the date of this prospectus, no shares of preferred stock have been issued.
Registration rights
We have entered into a registration rights agreement with our stockholders
which grants our stockholders the right to include their shares in any
registration of our common stock in an underwritten offering that occurs after
this offering. All of the stockholders have agreed not to exercise this right
for two years following the closing of this offering, without the prior written
consent of BlueStone. We have also granted the representatives of the
underwriters registration rights with respect to their warrants to purchase up
to 370,000 shares of our common stock.
Anti-takeover provisions
Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law generally prohibits us
from engaging in a merger, asset sale and other transaction with an interested
stockholder that results in a financial benefit to the interested stockholder
for a three-year period from the date the person became an interested
stockholder unless (a) before such date, our board of directors approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (b) upon completion of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of our voting stock outstanding at
the time the transaction commenced, excluding select shares, or (c) on or after
that date, the business combination is approved by our board of directors and
by the affirmative vote of at least 66% of our outstanding voting stock which
is not owned by the interested stockholder. Generally, an interested
stockholder is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of our voting stock.
Our certificate of incorporation does not exclude Litronic from the
restrictions imposed under Section 203 of the Delaware General Corporation Law.
We expect the provisions of Section 203 of the Delaware General Corporation Law
may encourage companies interested in acquiring us to negotiate in advance with
the board, since the stockholder approval requirement would be avoided if a
majority of the directors then in office approve, prior to the time the
stockholder becomes an interested stockholder, either the business combination
or the transaction which results in the stockholder becoming an interested
stockholder.
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Under Delaware General Corporation Law the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend our certificate
of incorporation or bylaws.
Charter and bylaw provisions
Our certificate of incorporation and bylaws divide the board into three
classes as nearly equal in size as possible with staggered three-year terms.
The classification of the board could make it more difficult for a third party
to acquire, or discourage a third party from acquiring, control of us. In
addition, our certificate of incorporation provides that any action required or
permitted to be taken by our stockholders at an annual meeting or a special
meeting may be taken only if it is properly brought before the meeting, and may
not be taken by written action instead of a meeting. Our bylaws provide that
special stockholders' meetings may be called only by the board, the president,
or by one or more stockholders holding shares in the aggregate entitled to cast
not less than 10% of the votes at that meeting.
Delaware law and charter and bylaw provisions limiting liability of officers
and directors
Our certificate of incorporation contains provisions limiting the liability
of our directors. Specifically, the provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, except in cases involving
wrongful acts, such as the breach of a director's duty of loyalty, or acts or
omissions which involve intentional misconduct or a knowing violation of law.
Further, our certificate of incorporation contains provisions to indemnify our
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. We believe these provisions will assist us in attracting and
retaining qualified individuals to serve as directors.
Transfer agent and registrar
The transfer agent and registrar for the common stock is American Stock
Transfer Company, 40 Wall Street, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
An aggregate of 3,870,693 of the 6,040,631 shares currently restricted from
trading in the public market will become eligible for sale 90 days following
the date of this prospectus, subject to agreements with BlueStone restricting
their sale for periods of at least six months. We cannot predict the effect, if
any, that sales of these additional securities or the availability of these
additional securities for sale will have on the market prices prevailing from
time to time. In addition, the representatives have been granted registration
rights commencing one year from the date of this prospectus providing for the
registration under the Securities Act of the securities issuable upon exercise
of the representatives' warrants. The exercise of these rights could result in
substantial expense to us. Furthermore, if the representatives exercise their
registration rights, they will be unable to make a market in our securities for
up to nine days before the initial sales of the warrants until the
discontinuation of sales. If the representatives cease making a market, the
market and market prices for the securities may be adversely affected and the
holders of these securities may be unable to sell them.
Upon completion of this offering, we will have outstanding an aggregate of
9,740,631 shares of our common stock, assuming no exercise of the
representatives' over-allotment option and no exercise of outstanding options.
Of these shares, all of the shares sold in this offering will be freely
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tradable without restriction or further registration under the Securities Act,
unless these shares are purchased by our affiliates. The remaining 6,040,631
shares of common stock held by existing stockholders are restricted securities
under Rule 144 under the Securities Act. Restricted securities may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act.
Contractual restrictions on resales
All of our officers, directors and security holders have agreed not to
transfer or dispose of, directly or indirectly, any of their shares of our
common stock, or any securities convertible into or, exchangeable or
exercisable for shares of our common stock, for a period of 24 months from the
date of this prospectus. Transfers or dispositions may be made sooner than 24
months as follows:
. BlueStone may waive the restrictions on transfer or sale at any time
more than six months after the date of this prospectus; or
. beginning twelve months after the date of this prospectus, owners
subject to the restrictions may transfer or dispose of their common
stock, without BlueStone's permission, if aggregate sales by them in any
90-day period are not more than the greater of:
. one percent of our common stock outstanding at the time of the sale;
or
. the average weekly trading volume of our common stock during the
four calendar weeks preceding the holder's sale.
Beginning 12 months after the date of this prospectus, existing optionholders
who have exercised their options may transfer or dispose of in the aggregate
up to 100,000 shares of their common stock registered under a Form S-8
registration statement.
Subject to these contractual restrictions and to the provisions of Rule
144, 3,870,693 shares of common stock will be available for sale in the public
market commencing six months after the date of this prospectus, and an
additional 2,169,938 shares of common stock will be available for sale in the
public market commencing twelve months after the date of this prospectus.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of those shares that does not exceed the greater
of:
. one percent of the number of common shares then outstanding, which will
equal approximately 97,400 shares immediately after this offering; or
. the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 for the sale.
Sales under Rule 144 are also subject to restrictions on the manner of sale
and require notice to the Securities and Exchange Commission of the sale.
Sales under Rule 144 are also restricted based on the availability of public
information about us.
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Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates 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,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, 144(k) shares may be sold immediately upon the
completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases securities, including
options, from us before the date of this prospectus through our stock option
plans or through some other written agreement is eligible to resell those
shares, including shares issued upon the exercise of options, 90 days after the
effective date of this offering in reliance on Rule 144, but without compliance
with the holding period, information and volume restrictions contained in Rule
144.
UNDERWRITING
BlueStone Capital Partners, L.P. and Pacific Crest Securities Inc. are
acting as representatives of the several underwriters named below. The
underwriters have agreed, severally and not jointly, subject to the terms and
conditions contained in the underwriting agreement relating to this offering,
to purchase the 3,700,000 shares of our common stock. The number of shares of
common stock that each underwriter has agreed to purchase is set forth opposite
its name below:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
BlueStone Capital Partners, L.P.............................
Pacific Crest Securities Inc................................
---------
Total..................................................... 3,700,000
=========
</TABLE>
Other than shares offered through the over-allotment option, the
underwriters are committed to purchase and pay for all of the shares of common
stock offered by this prospectus, if any shares are purchased. The obligations
of the underwriters under the underwriting agreement are subject to approval of
legal matters by counsel and to various other conditions.
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price listed on
the cover page of this prospectus. The underwriters may allow to dealers who
are members of the National Association of Securities Dealers, Inc.
concessions, not in excess of $. per share, of which not in excess of $. per
share may be reallowed to other dealers who are members of the NASD.
We have granted to the representatives an option, exercisable not later than
45 days after the date of this prospectus, to purchase up to 555,000 additional
shares of our common stock at the public offering price set forth on the cover
page of this prospectus, less underwriting discounts and commissions. The
representatives may exercise this option only to cover over-allotments, if any,
made in connection with the sale of the shares of common stock offered by this
prospectus. If the representatives exercise the over-allotment in full, the
total price to public would be $ , the
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total underwriting discounts and commissions would be $ and the total
proceeds paid to us, before payment of the expenses of this offering, would be
$ . We estimate the expenses of this offering, including those payable to or
on behalf of the representatives and/or the underwriters described below, to be
$2.8 million.
We have agreed to reimburse the representatives for their accountable out-
of-pocket expenses incurred in connection with this offering, up to a maximum
amount equal to 1% of the gross proceeds derived from the sale of the shares
offered by this prospectus, including shares sold, if any, as a result of the
exercise of all or part of the representatives' over-allotment option. We have
also agreed to pay all expenses in connection with qualifying the shares
offered under the laws of the states designated by the representatives,
including expenses of counsel retained for this purpose by the representatives.
At the closing of this offering, we will sell to the representatives and
their designees, for an aggregate of $370, warrants to purchase up to 370,000
shares of our common stock. The representatives' warrants will be exercisable
at any time, in whole or in part, during the four-year period commencing one
year from the date of this prospectus, at an exercise price of $ per share,
which is 165% of the public offering price per share. The representatives'
warrants are assignable or transferable only to the officers and partners of
the representatives or the underwriters or members of the selling group during
the one-year period following the date of this prospectus. During the exercise
period, the holders of the representatives' warrants will have the opportunity
to profit from a rise in the market price of the common stock, which will
dilute the interests of our stockholders. We expect that the representatives'
warrants will be exercised when we would, in all likelihood, be able to obtain
any capital we need on terms more favorable than those provided by the
representatives' warrants. Any profit realized by the representatives on the
sale of their warrants or the underlying shares of common stock may be deemed
additional underwriting compensation. The representatives' warrants contain a
cashless exercise provision. We have agreed that, upon the request of the
holders of a majority of the representatives' warrants, we will at our own
expense, on one occasion during the exercise period, register the
representatives' warrants and the shares of common stock underlying the
representatives' warrants under the Securities Act. We have also agreed to
include the representatives' warrants and all shares of common stock underlying
the warrants in any appropriate registration statement which we file under the
Securities Act during the seven years following the date of this prospectus.
In connection with the acquisition of Pulsar, BlueStone has served as our
financial advisor and will receive a fee of $500,000 for these services upon
closing of this offering.
All of our officers, directors and securityholders have agreed not to sell,
offer for sale, transfer, pledge or otherwise dispose of any of their shares of
our common stock, or securities convertible, exchangeable or exercisable for
shares of our common stock, for a period of 24 months from the date of this
prospectus, provided that, after the first six months of this period, this
restriction can be waived by BlueStone, in its sole discretion, and provided
further that, after the first 12 months of this period, sales may be made,
without BlueStone's consent, as long as the number of shares or share
equivalents sold by any of these holders does not exceed, during any 90-day
period, the greater of (a) 1% of the then outstanding shares of our common
stock and (b) the average weekly trading volume of our common stock during the
four calendar weeks preceding the holder's sale.
The representatives have informed us that they do not expect sales of the
securities offered to discretionary accounts to exceed 3% of the shares offered
by this prospectus.
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We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act.
Before this offering there has been no public market for our common stock.
Accordingly, the initial public offering price of the common stock will be
determined by negotiation between us and the representatives and may not
necessarily be related to our asset value, net worth or other established
criteria of value. Factors to be considered in determining the price include
our financial condition and prospects, an assessment of our management, market
prices of similar securities of comparable publicly-traded companies,
financial and operating information of companies engaged in activities similar
to those of our company and the general condition of the securities market.
In connection with this offering, the underwriters may engage in passive
market making transactions in the shares on Nasdaq in accordance with Rule 103
of Regulation M promulgated under the Exchange Act.
In connection with this offering, the underwriters may purchase and sell
the common stock in the open market. These transactions may include over-
allotment and stabilizing transactions. Stabilizing transactions consist of
bids or purchases for the purpose of preventing or retarding a decline in the
market price of the common stock. The underwriters may also place bids or
purchase shares to reduce a short position created in connection with the
offering. Short positions are created by persons who sell shares which they do
not own in anticipation of purchasing shares at a lower price in the market to
deliver in connection with the earlier sale. Short positions tend to place
downward pressure on the market price of a stock. In addition, the
representatives and/or the underwriters may impose a penalty bid by reclaiming
the selling concession to be paid to an underwriter or selected dealer when
the securities sold by the underwriter or selected dealer are purchased to
reduce a short position created in connection with this offering. These
activities may stabilize or maintain the market price of the common stock,
which may be higher than the price that might have prevailed in the open
market without these activities, and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on Nasdaq, the
over-the-counter market or otherwise.
LEGAL MATTERS
The validity of the shares of our common stock offered by this prospectus
will be passed upon for us by Arent Fox Kintner Plotkin & Kahn, PLLC,
Washington, D.C. Tenzer Greenblatt LLP, New York, New York has served as
counsel to the underwriters in connection with this offering.
EXPERTS
The consolidated financial statements of Litronic Inc. as of December 31,
1997 and 1998, and for each of the years in the three-year period ended
December 31, 1998, have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
The financial statements of Pulsar Data Systems, Inc. as of and for the
year ended December 31, 1998 have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG LLP covering
the December 31, 1998 financial statements contains an explanatory paragraph
that states Pulsar Data
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Systems, Inc.'s losses from operations and working capital deficiency raise
substantial doubt about the entity's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of that uncertainty.
The financial statements and schedules of Pulsar Data Systems, Inc. as of
December 31, 1997, and for each of the years in the two-year period ended
December 31, 1997, have been included in this prospectus and in the
registration statement in reliance upon the report of Keller Bruner & Company,
L.L.C., independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of Keller Bruner & Company, L.L.C. as
experts in accounting and auditing. The report of Keller Bruner & Company,
L.L.C. covering the December 31, 1997 financial statements contains an
explanatory paragraph that states that Pulsar's recurring losses from
operations and net capital deficiency raise substantial doubt about the
entity's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of that
uncertainty.
ADDITIONAL INFORMATION
We intend to furnish to our stockholders annual reports containing audited
consolidated financial statements examined by an independent accounting firm
and quarterly reports for the first three quarters of each fiscal year
containing interim unaudited consolidated financial information.
We have filed with the Securities and Exchange Commission a registration
statement, including this prospectus and exhibits, on Form S-1 under the
Securities Act for the common stock offered by this prospectus. This prospectus
does not contain all of the information contained in the registration
statement. References in this prospectus to any contract, agreement or other
document are not necessarily complete. For a more complete description of any
of these contracts, agreements or other documents, you should refer to the
registration statement and the exhibits attached to the registration statement,
which may be obtained for a fee from the Securities and Exchange Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or
at its regional offices located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Also, we have filed electronic versions of this
registration statement, including its exhibits and this prospectus, with the
Securities and Exchange Commission through its Electronic Data Gathering,
Analysis, and Retrieval system. The Securities and Exchange Commission
maintains a worldwide web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission.
86
<PAGE>
LITRONIC INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998, and March
31, 1999 (unaudited) and March 31, 1999 Pro Forma (unaudited)............ F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998, and the three months ended March 31, 1998 and 1999
(unaudited).............................................................. F-4
Consolidated Statements of Shareholders' Deficit for the years ended
December 31, 1996, 1997 and 1998, and the three months ended March 31,
1999 (unaudited)......................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998, and the three months ended March 31, 1998 and 1999
(unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
(WHEN THE REORGANIZATION AS DESCRIBED IN NOTE 1 OF THE ACCOMPANYING
CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A
POSITION TO RENDER THE FOLLOWING OPINION.)
/s/ KPMG LLP
The Board of Directors
Litronic Inc.:
We have audited the accompanying consolidated financial statements of
Litronic Inc. and subsidiary as of December 31, 1997 and 1998 and for each of
the years in the three-year period ended December 31, 1998 as listed in the
accompanying index. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Litronic
Inc. and subsidiary as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Orange County, California
February 26, 1999
F-2
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31 March 31
--------------- -----------------------
1999
1997 1998 1999 Pro Forma
------- ------ ----------- -----------
(Unaudited) (Unaudited)
(Note 1)
<S> <C> <C> <C> <C>
ASSETS (NOTE 5)
Cash and cash equivalents............. $ 490 898 557 557
Accounts receivable (note 8).......... 996 740 652 652
Inventories (note 3).................. 405 533 452 452
Other current assets.................. 136 385 984 984
------- ------ ------ ------
Total current assets............ 2,027 2,556 2,645 2,645
Property and equipment, net (note 4).. 320 235 250 250
------- ------ ------ ------
$ 2,347 2,791 2,895 2,895
======= ====== ====== ======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current installments of long-term debt
(note 5)............................. $ -- 580 424 424
Accounts payable...................... 415 456 911 911
Accrued liabilities (note 6).......... 1,227 762 790 790
------- ------ ------ ------
Total current liabilities....... 1,642 1,798 2,125 2,125
Long-term debt, less current
installments (note 5)................ 606 5,200 5,950 5,950
Notes payable to related parties (note
7)................................... 2,900 -- -- --
------- ------ ------ ------
Total liabilities............... 5,148 6,998 8,075 8,075
Shareholders' deficiency (note 10):
Preferred stock, no par value.
Authorized 5,000,000 shares; no
shares issued or outstanding..... -- -- -- --
Common stock, $0.01 par value.
Authorized 25,000,000 shares;
issued and outstanding 3,870,693
shares........................... 39 39 39 39
Additional paid-in capital.......... -- -- -- (5,219)
Accumulated deficit................. (2,840) (4,246) (5,219) --
------- ------ ------ ------
Net shareholders' deficit............. (2,801) (4,207) (5,180) (5,180)
------- ------ ------ ------
Commitments and contingencies (note 9)
$ 2,347 2,791 2,895 2,895
======= ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net product revenue
(note 8)............... $ 7,855 8,627 5,214 1,354 885
License and service
revenue (note 8)....... 1,541 1,539 1,439 309 525
--------- --------- --------- --------- ---------
Total revenue....... 9,396 10,166 6,653 1,663 1,410
--------- --------- --------- --------- ---------
Product cost of
revenue................ 4,098 3,211 2,821 667 507
License and service cost
of revenue............. 581 643 950 176 140
--------- --------- --------- --------- ---------
Total cost of
revenue............ 4,679 3,854 3,771 843 647
--------- --------- --------- --------- ---------
Gross margin........ 4,717 6,312 2,882 820 763
Selling, general and
administrative
expenses............... 2,052 3,487 2,631 662 871
Research and development
expenses............... 725 1,172 1,334 341 765
--------- --------- --------- --------- ---------
Operating income
(loss)............. 1,940 1,653 (1,083) (183) (873)
Interest expense, net
(notes 5 and 7)........ 19 42 418 108 109
--------- --------- --------- --------- ---------
Earnings (loss) from
continuing operations
before income taxes.... 1,921 1,611 (1,501) (291) (982)
Provision for (benefit
from) income taxes..... 29 22 (95) (51) (9)
--------- --------- --------- --------- ---------
Earnings (loss) from
continuing operations.. 1,892 1,589 (1,406) (240) (973)
Discontinued operations
(note 2):
Loss from discontinued
operations, net of
applicable income tax
benefit of $13 in
1996 and $23 in
1997................. (986) (1,278) -- -- --
Gain on disposal of
discontinued
operations, net of
income tax expense of
$241................. -- 15,023 -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss)..... $ 906 15,334 (1,406) (240) (973)
========= ========= ========= ========= =========
Pro forma net earnings
(loss) (unaudited):
Historical earnings
(loss) from
continuing operations
before income taxes.. $ 1,921 1,611 (1,501) (291) (982)
Pro forma provision
for (benefit from)
income taxes......... 672 547 (510) (99) (333)
--------- --------- --------- --------- ---------
Pro forma earnings
(loss) from
continuing
operations........... 1,249 1,064 (991) (192) (649)
Discontinued
operations, net of
applicable pro forma
income tax effect.... (599) 8,377 -- -- --
--------- --------- --------- --------- ---------
Pro forma net earnings
(loss)............... $ 650 9,441 (991) (192) (649)
========= ========= ========= ========= =========
Earnings (loss) from
continuing operations
per share--basic and
diluted................ $ .49 .41 (.36) (.06) (.25)
Discontinued operations,
net of applicable
income tax effect, per
share--basic and
diluted................ (.26) 3.55 -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss) per
share--basic and
diluted................ $ .23 3.96 (.36) (.06) (.25)
========= ========= ========= ========= =========
Pro forma earnings
(loss) from continuing
operations per share--
basic and diluted...... $ .32 .28 (.26) (.05) (.17)
Discontinued operations,
net of applicable pro
forma income tax
effect, per share--
basic and diluted...... (.15) 2.16 -- -- --
--------- --------- --------- --------- ---------
Pro forma net earnings
(loss) per share--basic
and diluted............ $ .17 2.44 (.26) (.05) (.17)
========= ========= ========= ========= =========
Shares used in per share
computations--basic and
diluted................ 3,870,693 3,870,693 3,870,693 3,870,693 3,870,693
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
Common Stock Net
------------- Accumulated Shareholders'
Shares Amount Deficit Deficit
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995............ 3,871 $ 39 (1,046) (1,007)
Net earnings.......................... -- -- 906 906
----- ---- ------ ------
Balance, December 31, 1996............ 3,871 39 (140) (101)
Net earnings.......................... -- -- 15,334 15,334
Cash dividends to shareholders (note
7)................................... -- -- (9,534) (9,534)
Distribution of KRDS, Inc. stock to
shareholders (note 7)................ -- -- (8,500) (8,500)
----- ---- ------ ------
Balance, December 31, 1997............ 3,871 39 (2,840) (2,801)
Net loss.............................. -- -- (1,406) (1,406)
----- ---- ------ ------
Balance, December 31, 1998............ 3,871 39 (4,246) (4,207)
Net loss (unaudited).................. -- -- (973) (973)
----- ---- ------ ------
Balance, March 31, 1999 (unaudited)... 3,871 $ 39 (5,219) (5,180)
===== ==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, March 31,
------------------------- --------------
1996 1997 1998 1998 1999
-------- ------- ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings (loss)................ $ 906 15,334 (1,406) (240) (973)
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization...... 61 129 203 54 54
Gains on disposal of discontinued
operations, net of tax............ -- (15,023) -- -- --
Cash payments related to
discontinued operations........... 942 152 -- -- --
Changes in assets and liabilities:
Accounts receivable............... (896) 1,048 256 (442) 88
Inventories....................... (586) 715 (128) 23 81
Other current assets.............. (126) 13 (249) 93 (599)
Accounts payable.................. (305) (418) 41 (71) 455
Accrued liabilities............... 574 92 (465) (441) 28
-------- ------- ------ ------ ------
Net cash provided by (used in)
operating activities............ 570 2,042 (1,748) (1,024) (866)
-------- ------- ------ ------ ------
Cash flows from investing
activities:
Purchases of property and
equipment......................... (560) (4,919) (118) (30) (69)
Proceeds from disposal of
discontinued operations........... -- 20,567 -- -- --
-------- ------- ------ ------ ------
Net cash provided by (used in)
investing activities............ (560) 15,648 (118) (30) (69)
-------- ------- ------ ------ ------
Cash flows from financing
activities:
Discontinued operations financing
activities........................ -- (698) -- -- --
Proceeds from revolving note
payable to bank................... 11,049 18,649 6,496 1,100 1,142
Proceeds from related party
revolving line of credit.......... 190 -- -- -- --
Proceeds from related party note
payable........................... -- 2,900 600 600 --
Proceeds from long-term debt....... 4,645 3,038 5,200 -- 750
Principal payments on revolving
notes payable to bank............. (11,122) (18,445) -- -- --
Repayment of related party
revolving line of credit.......... (944) -- -- -- --
Repayment of related party note
payable........................... -- (248) (3,500) -- --
Principal payments on long-term
debt.............................. (3,061) (5,224) (6,522) (931) (1,298)
Cash dividends to shareholders...... -- (9,534) -- -- --
Cash distribution to shareholders... -- (8,500) -- -- --
-------- ------- ------ ------ ------
Net cash provided by (used in)
financing activities............ 757 (18,062) 2,274 769 594
-------- ------- ------ ------ ------
Net increase (decrease) in cash.. 767 (372) 408 (285) (341)
-------- ------- ------ ------ ------
Cash and cash equivalents at
beginning of year.................. 95 862 490 490 898
-------- ------- ------ ------ ------
Cash and cash equivalents at end of
year............................... $ 862 490 898 205 557
======== ======= ====== ====== ======
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest........................... $ 589 119 418 31 103
Income taxes....................... 1 204 -- -- 2
======== ======= ====== ====== ======
Supplemental disclosure of noncash
investing and financing activities:
Liabilities transferred in
connection with sale of Intercon
division (note 2)................. $ -- (366) -- -- --
Mortgage transferred in connection
with distribution of KRDS, Inc.
(note 7).......................... -- (3,038) -- -- --
======== ======= ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998
(in thousands, except per share data)
(1) General Information and Summary of Significant Accounting Policies
General
Litronic Inc. (through a reorganization with Litronic Industries, Inc., as
described further below) (the Company) designs and produces high grade
information security solutions. In addition, the Company also provides
engineering and other services to various government agencies on a time and
material basis. Through its Intercon division (Intercon), which was
discontinued during 1997 (see note 2), Litronic Industries, Inc. provided
state-of-the-art electronic interconnect products for both government and
commercial entities.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which are normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 1999, and the consolidated statements of operations, shareholders'
deficiency and cash flows for the three months ended March 31, 1998 and 1999.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal
year.
Proposed Public Offering and Reorganization
During 1998, Litronic Industries, Inc. engaged attorneys and investment
bankers to assist in the effectuation of an initial public offering of common
stock of Litronic Inc., a newly formed corporation with no operations (the
"Offering"). Litronic Industries, Inc. has also initiated certain events (the
"Reorganization") in connection with the Offering which will result in it
becoming a wholly-owned subsidiary of Litronic Inc. as of the effective date of
the Offering. The Reorganization will be accomplished through a stock-for-stock
exchange between Litronic Inc. and Litronic Industries, Inc. and will be
accounted for as an "as if pooling of interests" for entities under common
control. The Company has also entered into a stock acquisition agreement with
Pulsar Data Systems, Inc. to be effected simultaneously with the Offering. This
acquisition is contingent upon the successful completion of the Offering.
All of the outstanding shares of Litronic Industries, Inc. will be exchanged
for 3,870,693 shares of the Company's common stock. Consequently, upon the
effective date of the Offering and the related Reorganization, the consolidated
group will include the operations of Litronic Inc. and its wholly-owned
subsidiary, Litronic Industries, Inc.
Basis of Financial Statement Presentation
The consolidated financial statements and related notes presented herein
have been retroactively adjusted to reflect the Reorganization. The capital
structure presented in these financial statements is that of Litronic Inc., but
all other information presented relates to the historical and pro forma
operations of Litronic Industries, Inc., as Litronic Inc. had no operations
during the periods presented and will have no operations until the consummation
of the Reorganization. All references herein to "the Company" refer to Litronic
Inc. as consolidated with Litronic Industries, Inc.
Pro Forma Presentation
Concurrently with the Reorganization, Litronic Industries, Inc. will
terminate its Subchapter S corporation status and will become subject to
federal and state income taxes. The accompanying pro forma consolidated balance
sheet reflects this change from an S corporation to a C corporation. The
accompanying pro forma
F-7
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consolidated financial statements of operations include a pro forma
presentation to reflect a provision for income taxes in accordance with
Statement of Financial Accounting Standards No. (Statement) 109, "Accounting
for Income Taxes." Statement 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Measurement of deferred income
tax is based on enacted tax laws including tax rates, with the measurement of
deferred income tax assets being reduced by available tax benefits not expected
to be realized. The Company has not recorded any deferred tax assets in the
accompanying unaudited consolidated pro forma balance sheet as management
believes it is not more likely than not that the Company will realize the
benefit of such deferred tax assets.
Unaudited pro forma earnings (loss) for the years ended December 31, 1996,
1997 and 1998, and for the three months ended March 31, 1998 and 1999, reflect
a provision for (benefit from) income taxes as if the Company had been subject
to federal and state income taxes at an estimated effective tax rate of
approximately 34%.
Pro Forma Earnings (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued Statement 128,
"Earnings Per Share." Statement 128 provides for the calculation of basic and
diluted earnings per share. Basic earnings per share includes no dilution and
is computed by dividing earnings (loss) available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity. Such shares are not included when there is
a loss as the effect would be anti-dilutive.
Principles of Consolidation
The consolidated financial statements include the accounts of Litronic Inc.,
its wholly-owned subsidiary Litronic Industries, Inc. and, in 1997, Litronic
Industries, Inc.'s wholly owned subsidiary, KRDS, Inc., which was formed as a
corporation on January 30, 1997. All significant intercompany balances and
transactions have been eliminated in consolidation. On December 31, 1997, the
Company distributed KRDS, Inc. to the Company's primary shareholders (note 7).
Revenue Recognition
Revenue from product sales, including embedded software, is recognized upon
shipment unless contract terms call for a later date, net of an allowance to
cover estimated warranty costs. Customers do not have the right of return
except for product defects, and product sales are not contingent upon customer
testing, approval and/or acceptance. The costs of providing postcontract
customer support are not significant. Revenue under service and development
contracts is recorded as services are rendered. The Company's revenue
recognition policies are in compliance with the American Institute of Certified
Public Accountants Statement of Position 97-2, Software Revenue Recognition.
Reimbursements under consortium agreements were recorded as revenue as they
became payable to the Company upon completion of related milestones.
Included in license and service revenue for the year ended December 31, 1998
and the three months ended March 31, 1999 is $398 and $369 (unaudited),
respectively, related to a contract with the National Security Agency (NSA).
The Company is designing a microprocessor meeting certain minimum
specifications under a contract with the NSA. The Company has contracted with
others to perform certain aspects of the project. All related project costs are
expensed as research and development as incurred. No other funds received for
research and development projects were recorded during any of the periods
presented. The amounts received from the NSA are not refundable regardless of
the results of the development efforts. The related research and development
costs are not separately identifiable, therefore the corresponding costs of the
entire development effort are included in research and development expenses.
F-8
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed on a straight-line basis over the estimated useful lives
of 2 to 7 years.
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Business Segments
As of January 1, 1998, the Company adopted Statement 131, "Disclosure about
Segments of an Enterprise and Related Information," which requires entities to
report financial and descriptive information about its reportable operating
segments. The Company historically operated in two business segments,
information security solutions and electronic interconnect products. On
September 30, 1997, the Company sold its Intercon division, which produced
electronic interconnect products. Accordingly, the Intercon division operations
have been accounted for as discontinued operations (note 2). The Company's
remaining operations pertain only to its information security solutions
segment.
Accounting for Stock Options
The Company applies the provisions of Statement 123, "Accounting for Stock-
Based Compensation," which requires entities to recognize as expense over the
vesting period the fair value as of the date of grant of all stock based
awards. Alternatively, Statement 123 allows entities to apply the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations, and to provide pro forma net income
and pro forma net income per share disclosures for employee stock option grants
made in 1996 and future years as if the fair-value-based method defined in
Statement 123 had been applied. The Company has elected to apply the provisions
of APB Opinion No. 25, under which compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price, and provide the pro forma disclosure provisions of
Statement 123 in its annual financial statements (see note 10).
Fair Value of Financial Instruments
The Company applies the provisions of Statement 107, "Disclosures about Fair
Value of Financial Instruments." Statement 107 requires all entities to
disclose the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet, for which it is practicable
to estimate fair value. Statement 107 defines fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. As of December 31, 1997 and 1998
and March 31, 1999 (unaudited), management believes the fair value of all
financial instruments approximated carrying value.
Income Taxes
The Company has elected to be taxed as an S corporation under the provisions
of Section 1362 of the Internal Revenue Code and uses the accrual basis of
reporting for income tax purposes. Accordingly, the
F-9
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company has not provided for Federal income taxes since the liability is that
of the shareholders. The Company is subject to state income taxes on earnings
before taxes. The provision (benefit) for state income taxes was $29 for
continuing operations and $(13) for discontinued operations for the year ended
December 31, 1996. The provision (benefit) for state income taxes was $22 for
continuing operations, $(23) for discontinued operations, and $241 for the gain
on disposal of discontinued operations for the year ended December 31, 1997.
The benefit for state income taxes was $95 for continuing operations for the
year ended December 31, 1998. The provision (benefit) for state income taxes
was ($51) and ($9) for continuing operations for the three months ended March
31, 1998 and 1999, respectively (unaudited).
Comprehensive Income
As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income." Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption
of Statement 130 had no impact on the Company's consolidated financial
statements as the Company had no transactions that would be considered other
comprehensive income.
Estimates
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the dates of
the balance sheets and revenues and expenses for the periods. Actual results
could differ from those estimates.
New Accounting Standards
In December 1998, the AICPA issued Statement of Position (SOP) 98-9. SOP 98-
9 amends certain paragraphs of SOP 97-2 to require recognition of revenue using
the "residual method" under certain circumstances. The "residual method"
established by SOP 98-9 is effective for fiscal years beginning after March 15,
1999. The Company believes the adoption of SOP 98-9 will not have a significant
impact on its financial position or results of operations.
(2) Discontinued Operations
The Company sold its Intercon division on September 30, 1997 for cash to
AlliedSignal Inc., a non-related publicly-traded company. The gain on sale was
$15,023, net of tax expense of $241. The results of the Intercon division have
been classified as discontinued operations in the accompanying consolidated
financial statements. For the year ended December 31, 1996, Intercon revenues
were $8,175. Intercon's 1997 revenues through the sale date were $7,653.
In addition to the cash proceeds received upon the close of the transaction,
the agreement provided for the right to receive a contingent purchase price not
to exceed $45,400 as well as a "gross-up" payment based upon the approximate
expected tax benefit related to the assets transferred. Effective November 30,
1997, this right was distributed pro rata to the Company's shareholders.
On December 31, 1997, the Company spun-off its subsidiary, KRDS, Inc., to
the Company's shareholders. The results of KRDS, Inc. have been classified as
discontinued operations in the accompanying consolidated financial statements.
For the year ended December 31, 1997, KRDS, Inc.'s revenues were $380.
F-10
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) Inventories
A summary of inventories follows:
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Raw materials...................................... $ 230 $ 239 $278
Work-in-process.................................... 45 25 65
Finished goods..................................... 130 269 109
------ ------ ----
$ 405 $ 533 $452
====== ====== ====
</TABLE>
(4) Property and Equipment
A summary of property and equipment follows:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998 March 31, 1999
------ ------ ---------------
(unaudited)
<S> <C> <C> <C>
Machinery and equipment...................... $ 68 $ 68 $ 68
Furniture and fixtures....................... 458 576 645
------ ------ ----
526 644 713
Less accumulated depreciation and
amortization................................ 206 409 463
------ ------ ----
$ 320 $ 235 $250
====== ====== ====
</TABLE>
(5) Long-Term Debt
A summary of long-term debt follows:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998 March 31, 1999
------------- ---------------
(unaudited)
<S> <C> <C> <C>
Notes payable to bank secured by
substantially all assets of the Company and
personal assets of, and a guarantee by, the
Company's president and
majority shareholder, bearing interest at
6.6% payable monthly, maturing February 28,
2000........................................ $ -- $5,200 $5,950
Revolving note payable to bank (the Revolver)
bearing interest at prime plus 1.5% (9.75%
at December 31, 1998) payable in monthly
interest-only payments through maturity on
February 28, 2000; secured by substantially
all assets of the Company and by personal
assets of, and a guarantee by, the Company's
president and majority shareholder;
renewable at the bank's option for
additional one-year periods................. 606 580 424
----- ------- ------
606 5,780 6,374
Less current installments.................... -- 580 424
----- ------- ------
606 5,200 5,950
===== ======= ======
</TABLE>
F-11
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principal maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
----------------- --------------
(unaudited)
<S> <C> <C>
1999........................................ $ 580 $ 424
2000........................................ 5,200 5,950
2001 and thereafter......................... -- --
------ ------
$5,780 $6,374
====== ======
</TABLE>
The Revolver contains certain covenants and restrictions, including
maintenance of certain financial ratios and a restriction on future borrowings.
As of December 31, 1998 and March 31, 1999 (unaudited), the Company was not in
compliance with certain of these covenants, and has received a waiver of these
covenants until April 1, 1999. In addition, the Revolver was amended through
the earlier of the closing of the Offering or May 31, 1999.
As of December 31, 1998 and March 31, 1999, the Company had available
borrowings of $1,920 and $2,076 (unaudited), respectively, under the Revolver.
(6) Accrued Liabilities
A summary of accrued liabilities follows:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998 March 31, 1999
------- ---------------------
(unaudited)
<S> <C> <C> <C>
Professional fees.............................. $ 395 $ 350 $390
Deferred revenue............................... 165 107 55
Accrued vacation............................... 145 127 149
Accrued compensation........................... 346 93 143
Other.......................................... 176 85 53
------- ----- ----
$ 1,227 $ 762 $790
======= ===== ====
</TABLE>
(7) Related Party Transactions
At December 31, 1994, the Company had an obligation of $248 to two of the
Company's executive officers for accrued compensation. On January 2, 1995, such
obligation was converted to two unsecured notes payable bearing interest at 8%,
which were due and payable on December 31, 1998. On October 29, 1997, the
principal and interest amounting to $305 due on the notes was repaid. The
Company incurred interest expense on these notes aggregating $20 and $18 in
1996 and 1997, respectively.
The Company had an unsecured revolving line of credit with the Company's
president and majority shareholder, which permitted borrowings of up to $1,000.
All unpaid principal and accrued interest at 8% per annum were due and payable
on January 31, 1997. The Company incurred interest expense under this line of
credit aggregating $30 in 1996. All outstanding borrowings and accrued interest
under this line of credit were repaid during 1996. The line was not renewed
when it expired on January 31, 1997.
The primary shareholders of Litronic Industries, Inc. formed KRDS, Inc., for
the sole purpose of purchasing real estate property. The majority of the
property acquired was leased to the Intercon division and
F-12
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the acquirer of the Intercon division has subsequently executed a continuing
lease arrangement with KRDS, Inc. KRDS's only operations consisted of a
mortgage obligation, interest, depreciation and rental income from the Company
related to the real estate property. The operations of KRDS, Inc. were
consolidated with the operations of Litronic Industries, Inc. through December
31, 1997, when concurrent with the sale of the Intercon division, the Company
distributed KRDS, Inc. to the Company's shareholders. As the operations of
KRDS, Inc. were related to the Intercon operations, the 1997 net income for
KRDS, Inc. of $2 (after intercompany eliminations) is included in the loss from
discontinued operations in the accompanying consolidated statement of
operations.
As a result of the sale of the Intercon division on September 30, 1997, the
Company distributed $9,534 in cash dividends and distributed the common stock
of KRDS, Inc., to the shareholders of Litronic on a pro rata basis in 1997. The
net assets of KRDS, Inc. consisted of $8,500 in cash at the time of the
distribution.
On December 31, 1997, the Company entered into two unsecured notes payable
with KRDS, Inc., it is which the Company was extended $900 and $2,000 in
working capital funds and a total of $2,900 was outstanding under these related
party notes at December 31, 1997. In February 1998, the Company entered into a
third unsecured note payable with KRDS, Inc., under which the Company was
extended $600 in working capital funds. Interest was at 10% for each of the
unsecured notes payable and each of these unsecured notes and accrued interest
were paid in full during 1998. The Company incurred $252 of interest expense on
these notes in 1998.
(8) Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentration
of credit risk are trade receivables. Credit risk on trade receivables is
limited as a result of the Company's customer base and their dispersion across
different industries and geographic regions. As of December 31, 1997 and 1998,
accounts receivable included $447 and $308, respectively, due from the U.S.
Government and related agencies.
The Company had sales to three customers which represented 39%, 29% and 18%
of 1996 total revenue, respectively. The Company had sales to three customers
which represented 45%, 20% and 19% of 1997 total revenue, respectively. The
Company had sales to three customers which represented 44%, 17% and 20% of 1998
total revenues, respectively. The Company had sales to two customers which
represented 39% (unaudited) and 27% (unaudited), respectively, of total revenue
for the three months ended March 31, 1999. No other customers accounted for
more than 10% of net revenues in 1996, 1997 or 1998. Trade accounts receivable
aggregated $709, $493 and $388 (unaudited) from the aforementioned major
customers as of December 31, 1997 and 1998, and March 31, 1999, respectively.
(9) Commitments and Contingencies
The Company leases office space under noncancelable operating leases. The
terms of the leases range up to four years. The following summarizes the future
minimum lease payments under all noncancelable operating lease obligations:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1999.................................................................. $290
2000.................................................................. 243
2001.................................................................. 162
----
$695
====
</TABLE>
F-13
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rental expense under noncancelable operating leases was $206, $215 and $310
for the years ended December 31, 1996, 1997 and 1998.
As the Company provides engineering and other services to various government
agencies, it is subject to retrospective audits which may result in adjustments
to amounts recognized as revenues, and the Company may be subject to
investigation by governmental entities. Failure to comply with the terms of any
governmental contracts could result in civil and criminal fines and penalties,
as well as suspension from future government contracts. The Company is not
aware of any adjustments, fines or penalties which could have a material
adverse effect on its financial position or results of operations.
(10) Stock Option Plans
Under the Company's Employee Stock Option Plan (the Plan), which was
established in April 1998, the exercise price of options granted will not be
less than the fair market value of the related common stock at the date of
grant. The total number of shares of common stock available for grant under the
Plan is 600. All stock options granted have 10 year terms. Unless otherwise
provided by the Board of Directors or a committee of the Board administering
the Plan, each option granted under the Plan vested on December 31, 1998 as to
10-15%, plus an additional 2.5% for each year of service with the Company, and
20% each December 31 thereafter until fully vested.
Following is a summary of stock option transactions:
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise Price
Shares Per Share
------ --------------
<S> <C> <C>
Options outstanding at December 31, 1997............... -- $--
Granted................................................ 285 0.70
Cancelled.............................................. 4 0.70
---
Options outstanding at December 31, 1998............... 281 0.70
===
</TABLE>
As of December 31, 1998, the number of options exercisable was 143.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for its stock options in the consolidated financial statements.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under Statement 123, the Company's net loss
would have been increased to the pro forma amount indicated below.
<TABLE>
<CAPTION>
Year Ended
December 31,
1998
------------
<S> <C>
Net loss as reported............................................ $(1,406)
Assumed stock compensation cost................................. 16
-------
Pro forma net loss.............................................. $(1,422)
=======
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: risk-
free interest rate of 5%; dividend yield of 0.0%; average expected lives of 6
years; and volatility of 0%. The weighted-average fair value per option granted
in 1998 was
F-14
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$0.70. The Black-Scholes model, as well as other currently accepted option
valuation models, was developed to estimate the fair value of freely-tradable,
fully-transferable options without vesting restrictions, which significantly
differ from the Company's stock option plans. These models also require highly
subjective assumptions, including future stock price volatility and expected
time until exercise, which greatly affect the calculated fair value on the
grant date.
(11) Employee Retirement Savings Plan
Effective January 1, 1998, the Company established a retirement plan, which
is intended to qualify under Section 401(k) of the Internal Revenue Code. Under
the plan, eligible employees are able to contribute up to 20% of their
compensation not to exceed the maximum IRS deferral amount. The Company may
also match employee contributions at its discretion. During 1998, the Company
made contributions of $40 to this plan.
F-15
<PAGE>
PULSAR DATA SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Reports......................................... F-17-F-18
Balance sheets........................................................ F-19
Statements of operations.............................................. F-20
Statements of stockholders' equity (deficit).......................... F-21
Statements of cash flows.............................................. F-22
Notes to financial statements......................................... F-23
Schedule II--Valuation and qualifying accounts........................ S-1
</TABLE>
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pulsar Data Systems, Inc.
We have audited the accompanying balance sheet of Pulsar Data Systems, Inc.
as of December 31, 1998 and the related statements of operations, stockholders'
equity (deficit) and cash flows for the year then ended. In connection with our
audit of the financial statements, we also have audited the financial statement
schedule for the year ended December 31, 1998 as listed in the accompanying
index. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit.
We conducted our audit 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 audit provides 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 Pulsar Data Systems, Inc.
as of December 31, 1998, and the results of its operations and its cash flow
for the year ended December 31, 1998, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements take as
a whole, presents fairly, in all materials respects, the information set forth
therein.
The accompanying financial statements and financial statement schedule have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note 14 to the financial statements, the Company has suffered a
net loss of $8,141,000 in 1998 and has a net capital deficiency of $9,951,000
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 14.
The financial statements and financial statement schedule do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
McLean, Virginia
March 31, 1999
except for the third
paragraph of Note 5
which is as of
May 5, 1999
F-17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Pulsar Data Systems, Inc.
Lanham, Maryland
We have audited the accompanying balance sheet of Pulsar Data Systems, Inc.
as of December 31, 1997, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the two
year period ended December 31, 1997 and the financial statement schedule for
each of years in the two year period ended December 31, 1997. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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 Pulsar Data Systems, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for each of the years in the two year period ended December 31, 1997 in
conformity with generally accepted accounting principles. Also in our opinion
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects, the information set forth therein.
The accompanying financial statements and financial statement schedule have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note 14 to the financial statements, the Company incurred a net
loss of approximately $11,016,000 during the year ended December 31, 1997 and
has a net capital deficiency of approximately $1,810,000 at December 31, 1997.
In addition, as of December 31, 1997, the Company is in violation of its
financing agreement debt covenants. These factors, among others, as discussed
in Note 14 to the financial statements, raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements and
financial statement schedule do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Keller Bruner & Company, L.L.C.
Bethesda, Maryland
April 27, 1998
F-18
<PAGE>
PULSAR DATA SYSTEMS, INC.
BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
---------------- March 31,
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 2,236 $ 352 $ 441
Accounts receivable.............................. 31,213 10,145 5,798
Inventory........................................ 2,348 775 890
Other current assets............................. 245 -- --
------- ------- --------
Total current assets......................... 36,042 11,272 7,129
------- ------- --------
Property and equipment........................... 1,100 581 525
Notes receivable--related parties................ 2,218 543 543
Cash surrender value of life insurance........... 1,416 216 224
Deposits and other assets........................ 95 118 118
------- ------- --------
4,829 1,458 1,410
------- ------- --------
$40,871 $12,730 $ 8,539
======= ======= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Financing arrangement--IBM....................... $28,067 $ 9,403 $ 7,201
Current installments of long-term debt........... 915 964 967
Notes payable--vendors........................... -- 3,948 3,361
Accounts payable................................. 7,267 3,933 3,829
Accrued liabilities.............................. 2,229 1,072 1,623
Notes payable to shareholder..................... -- 120 215
------- ------- --------
Total current liabilities.................... 38,478 19,440 17,196
Notes payable, net of current maturities......... 4,203 3,241 3,085
------- ------- --------
Total liabilities............................ 42,681 22,681 20,281
------- ------- --------
Commitments and Contingencies
Stockholders' Deficit
Common stock; par value $1; authorized, issued
and outstanding 1,000 shares.................. 1 1 1
Additional paid-in capital..................... 1,663 1,663 1,663
Accumulated deficit............................ (3,474) (11,615) (13,406)
------- ------- --------
Net stockholders' deficit.................... (1,810) (9,951) (11,742)
------- ------- --------
$40,871 $12,730 $ 8,539
======= ======= ========
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE>
PULSAR DATA SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
--------------------------- ----------------
1996 1997 1998 1998 1999
-------- -------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues....................... $165,958 $151,520 $80,532 $18,018 $ 9,948
Cost of revenues............... 149,364 142,201 73,371 17,472 9,264
-------- -------- ------- ------- -------
Gross margin............... 16,594 9,319 7,161 546 684
Selling, general and adminis-
trative expenses.............. 13,545 17,152 13,264 2,256 2,017
-------- -------- ------- ------- -------
Operating income (loss).... 3,049 (7,833) (6,103) (1,710) (1,333)
-------- -------- ------- ------- -------
Other income (expense)
Interest expense............. (3,564) (3,640) (2,099) (706) (478)
Interest income.............. 639 457 61 200 20
-------- -------- ------- ------- -------
(2,925) (3,183) (2,038) (506) (458)
-------- -------- ------- ------- -------
Net earnings (loss)........ $ 124 $(11,016) $(8,141) $(2,216) $(1,791)
======== ======== ======= ======= =======
Earnings (loss) per share: ba-
sic and diluted............... $ 124 $(11,016) $(8,141) $(2,216) $(1,791)
======== ======== ======= ======= =======
Weighted average shares out-
standing...................... 1,000 1,000 1,000 1,000 1,000
======== ======== ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE>
PULSAR DATA SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
------------- Paid In Earnings
Shares Amount Capital (Deficit) Total
------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996.... 1 $ 1 $ 21 $ 9,045 $ 9,067
Net earnings.............. -- -- -- 124 124
Distributions to
stockholders............. -- -- -- (1,483) (1,483)
--- --- ------ -------- --------
Balance, December 31, 1996.. 1 1 21 7,686 7,708
Additional paid-in capital
contributed by
stockholders............. -- -- 291 -- 291
Forgiveness of
stockholder's deferred
compensation............. -- -- 1,351 -- 1,351
Net loss.................. -- -- -- (11,016) (11,016)
Distributions to
stockholders............. -- -- -- (144) (144)
--- --- ------ -------- --------
Balance, December 31, 1997.. 1 1 1,663 (3,474) (1,810)
Net loss.................. -- -- -- (8,141) (8,141)
--- --- ------ -------- --------
Balance, December 31, 1998.. 1 1 1,663 (11,615) (9,951)
Net loss (unaudited)...... -- -- -- (1,791) (1,791)
--- --- ------ -------- --------
Balance, March 31, 1999
(unaudited)................ 1 $ 1 $1,663 $(13,406) $(11,742)
=== === ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
PULSAR DATA SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
-------------------------- ----------------
1996 1997 1998 1998 1999
------- -------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net earnings (loss)............. $ 124 $(11,016) $(8,141) $(2,216) $(1,791)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating
activities:
Depreciation and amortization... 467 585 415 103 61
Loss on disposal of assets...... 63 -- 162 -- --
Deferred compensation........... 364 -- -- -- --
Provisions for doubtful accounts
and notes receivable........... 403 4,621 3,370 75 164
Provision for notes receivable-
related parties................ -- 682 655 -- --
Deferred rent................... (28) -- -- -- --
Changes in assets and
liabilities:
Accounts receivable............ 11,743 10,236 17,698 13,050 4,183
Inventories.................... 11,789 1,312 1,573 555 (115)
Other assets................... 33 (11) 222 (80) --
Deferred governmental agency
contract costs................ 1,833 817 -- -- --
Accounts payable............... (2,184) 2,761 2,550 (615) (104)
Accrued liabilities............ 310 842 (137) (813) 551
Customer deposit............... 2,098 (2,098) -- -- --
Deferred governmental agency
contract revenue.............. (1,697) (1,327) -- -- --
------- -------- ------- ------- -------
Net cash provided by operating
activities...................... 25,318 7,404 18,367 10,059 2,949
------- -------- ------- ------- -------
Cash Flows from Investing
Activities:
Increase in cash surrender value
of life insurance.............. (355) (65) (294) (140) (8)
Net collections (issuance) of
notes receivable............... 392 (291) -- -- --
Net collections (issuance) of
notes receivable -- related
parties........................ (1,975) 1,175 -- 60 --
Proceeds from loans on cash
surrender value of life
insurance...................... -- -- 1,494 -- --
Purchase of equipment........... (942) (364) (58) (36) (5)
------- -------- ------- ------- -------
Net cash provided by (used in)
investing activities............ (2,880) 455 1,142 (116) (13)
------- -------- ------- ------- -------
Cash Flows from Financing
Activities:
Net repayments on line of
credit......................... (7,600) (2,000) -- -- --
Net repayments on financing
arrangement -- IBM............. (13,023) (6,058) (18,664) (11,090) (2,202)
Proceeds from notes payable to
stockholder.................... -- -- 120 -- 95
Repayments of long term
borrowing...................... (25) (163) (913) (215) (153)
Repayment of vendors notes
payable........................ -- -- (1,936) -- (587)
Additional paid-in capital from
stockholders................... -- 291 -- -- --
Distributions to stockholders... (1,483) (144) -- -- --
------- -------- ------- ------- -------
Net cash used in financing
activities...................... (22,131) (8,074) (21,393) (11,305) (2,847)
------- -------- ------- ------- -------
Net increase (decrease) in cash.. 307 (215) (1,884) (1,362) 89
Cash and cash equivalents at
beginning of period............. 2,144 2,451 2,236 2,236 352
------- -------- ------- ------- -------
Cash and cash equivalents at end
of period....................... $ 2,451 $ 2,236 $ 352 $ 874 $ 441
======= ======== ======= ======= =======
Supplemental Schedule of Non-cash
Investing and Financing
Activities:
Conversion of line of credit to
term note payable.............. $ -- $ 5,200 $ -- $ -- $ --
======= ======== ======= ======= =======
Forgiveness of deferred
compensation recorded as
capital contribution........... $ -- $ 1,351 $ -- $ -- $ --
======= ======== ======= ======= =======
Conversion of accounts payable
to vendors notes payable....... $ -- $ -- $ 5,884 $ -- $ --
======= ======== ======= ======= =======
Distribution of assets and
related notes to stockholders.. $ -- $ -- $ 28 $ -- $ --
======= ======== ======= ======= =======
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest........................ $ 3,649 $ 2,812 $ 2,502 $ 1,177 $ 362
======= ======== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Pulsar Data Systems, Inc. (the Company) was incorporated
in 1984 under the laws of the State of Delaware. The Company is engaged
primarily in the sale of computer hardware, software, peripheral equipment, and
support services to governmental agencies and commercial enterprises throughout
the United States. The Company was certified by the Small Business
Administration under Section 8(a) of the Small Business Act and was therefore
eligible to enter into contracts with agencies of the Federal Government on a
limited competitive basis. The Company voluntarily withdrew from the 8(a)
program in June 1997 in anticipation of graduation.
A summary of the Company's significant accounting policies follows:
Revenue and cost recognition: Revenue is primarily derived from short-term
firm-fixed price delivery order type contracts. Revenue from these contracts is
recognized upon transfer of title, generally upon delivery. The Company also
has time and material contracts. Revenue from time and material contracts is
recognized on the basis of man-hours provided plus other reimbursable contract
costs incurred during the period.
Deferred governmental agency contract costs and revenue: Deferred costs and
revenue from contracts with governmental agencies represent costs incurred and
accounts receivable billed as of year end, for which an acceptance period has
not expired. The agencies involved have negotiated acceptance periods from
seven to thirty days from delivery of the product. General and administrative
expenses related to other costs that were deferred were included as a component
of deferred costs. All equipment subject to the acceptance period at December
31, 1996 was subsequently accepted by the government. Substantially all
contracts with acceptance periods terminated during the year ended December 31,
1997.
Cash and cash equivalents: For the purpose of reporting cash flows, the
Company considers all highly-liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Inventory: Inventory consists primarily of purchased computer hardware,
purchased software and peripheral equipment. Inventory is stated at the lower
of cost or market using the first-in, first-out (FIFO) method. Cost consists of
the direct cost of purchased inventory.
Property and equipment: Property and equipment are stated at cost.
Depreciation and amortization is computed using straight-line and accelerated
methods over the estimated useful lives of the related assets.
Income taxes: The Company has elected to be treated as an "S" corporation
under Subchapter "S" of the Internal Revenue Code. Consequently, the Company is
not liable for Federal and state income taxes except to the extent that the
Company operates in state jurisdictions that do not recognize "S" corporations.
For the income related to activity in these states, the Company has provided
for the resulting income taxes. Otherwise the stockholders are liable
individually for income taxes on the Company's income.
Financial credit risk: The Company's accounts receivable are derived
primarily from contracts with governmental agencies and commercial enterprises.
All accounts receivable are made on an unsecured basis.
Additionally, the Company maintains its cash in bank deposit accounts, which
at times may exceed Federally insured limits. The Company has not experienced
any losses in such accounts. The Company believes it is not exposed to any
significant credit risk on cash.
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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
F-23
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings (loss) per share: The computations of basic and diluted earnings
(loss) per common share are based upon the weighted average number of common
shares outstanding during the year. There were no potentially dilutive
securities for any period presented.
Unaudited condensed interim information: The accompanying unaudited
condensed financial statements contain all adjustments, which are normal
recurring accruals, necessary to present fairly the financial position as of
March 31, 1999 and the statements of operations, stockholders' equity
(deficit) and cash flows for the three months ended March 31, 1998 and 1999.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal
year.
Note 2. Accounts Receivable
Accounts receivable consist of the following as of December 31, 1997 and
1998 and March 31, 1999:
<TABLE>
<CAPTION>
December 31,
---------------- March 31,
1997 1998 1999
------- ------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
8(a) government receivables.................. $ 2,095 $ -- $ --
Government receivables....................... 16,483 9,135 5,517
Commercial receivables....................... 10,902 1,382 342
Recoverable costs and accrued profit on
progress completed-not billed............... 497 -- --
Other receivables............................ 2,489 628 272
------- ------- ------
32,466 11,145 6,131
Less allowance for doubtful accounts......... (1,253) (1,000) (333)
------- ------- ------
$31,213 $10,145 $5,798
======= ======= ======
</TABLE>
Note 3. Property and Equipment
Property and equipment consist of the following as of December 31, 1997 and
1998 and March 31, 1999:
<TABLE>
<CAPTION>
Estimated December 31,
Useful Life ---------------- March 31,
(in years) 1997 1998 1999
----------- ------- ------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Furniture and fixtures........... 7 $ 628 $ 407 $ 407
Office equipment................. 5-7 511 508 508
Computer equipment............... 5 706 756 761
Software......................... 5 545 553 553
Vehicles......................... 5 273 17 17
Leasehold improvements........... 7 162 78 78
Warehouse equipment.............. 5-7 23 26 26
------- ------- -------
2,848 2,345 2,350
Less accumulated depreciation and
amortization.................... (1,748) (1,764) (1,825)
------- ------- -------
$ 1,100 $ 581 $ 525
======= ======= =======
</TABLE>
F-24
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 4. Deferred Compensation and Life Insurance
Through December 31, 1996 the Company had a deferred compensation agreement
with its President, which was funded through Company-owned life insurance
policies. The cash surrender value of these policies as of December 31, 1997
and 1998 and March 31, 1999, was $1,416,000, $216,000 and $224,000 (unaudited),
respectively.
On December 31, 1997, the deferred compensation liability of $1,351,000 was
forgiven by the President of the Company, and the liability was removed from
the Company's balance sheet and included as a contribution to additional paid-
in capital. In April 1998, the Company borrowed $1,494,000 against the cash
surrender value of the life insurance policies to reduce amounts owed under the
financing arrangement with IBM.
Note 5. Notes Receivable--Related Parties
Between July 1995 and June 1996, the Company made a series of eight loans
aggregating $2.8 million to a related party. These loans bear interest at
annual rates varying from 7.5% to 10.0% and were due on demand. Two of these
loans were in the form of assignment of notes receivable to the Company from
third parties in the aggregate principal amount of $623,000, which were
assigned back to Pulsar in December 1997. At that time these notes were deemed
uncollectible and written off to bad debt expense. The outstanding balance of
these notes as of December 31, 1997 was $2,218,000.
In October 1995, a related party purchased the building to be occupied by
the Company. This purchase was financed through a loan to the related party
from a lending institution in the amount of $2.8 million, which was guaranteed
by the Company and personally guaranteed by the shareholders of the Company.
Following the acquisition of the building, the related party leased a portion
of the property to the Company at fair market rents. Payments of rent under the
lease were $1,042,000, $955,500 and $409,500 during the years ended December
31, 1996, 1997 and 1998, respectively. A portion of the rent expense incurred
under the related party lease was used to offset the related party notes
receivable balance. The amount of rent expense used to offset the notes
receivable and interest receivable from the related party for the years ended
December 31, 1996, 1997 and 1998 was $0, $182,000 and $344,000, respectively.
In addition, the principal amount under the notes was reduced by $750,000 as
payment of a fee for terminating the lease as of September 30, 1998. As of
January 1, 1999, outstanding loans of $1,347,000 were converted into two
promissory notes of $543,000 and $804,000, bearing interest at the rate of 7.5%
per annum, payable monthly, and maturing upon the sales of each individual
property. During 1998, the related party experienced financial difficulties as
a result of its commercial real estate operations. Based upon the related
party's cash flows and decline in its financial condition the Company
determined that one of the notes had become impaired and recorded a bad debt
expense of $655,000 and reversed $149,000 of interest income recorded on the
note in 1998. The repayment of the notes is dependent upon the sale of the
related party's real estate assets.
On April 1, 1999, the related party defaulted on both notes by not making
the scheduled interest payments in accordance with the note agreements. As of
April 30, 1999, the related party sold one of the properties. The note for
$543,000 was repaid on May 5, 1999 through the reduction of the note payable-
financial institution. In connection with the payment of a portion of the note
payable-financial institution, the financial institution released the Company
from its guarantee obligation on the related party's remaining liabilities
(unaudited).
Note 6. Line of Credit
In May 1996, the Company obtained a line of credit from a financial
institution. Under the line of credit, the Company may borrow up to the lessor
of eligible receivables or $22,000,000. Interest accrued on the
F-25
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
outstanding balance at a variable rate consistent with the bank's national
commercial rate. The line is collateralized by all eligible accounts
receivable, inventory, machinery, and equipment. In October 1997, the line of
credit was converted to a term loan of $5,200,000. (See Note 8)
Note 7. Financing Arrangement--IBM
The Company entered into an Inventory and Working Capital Financing
Agreement, with IBM Global Finance Corporation (IBM) whereby the Company
purchases hardware and software from authorized suppliers and finances the
purchases through IBM. The agreement provides for a credit line up to
$35,000,000, which allows the Company to borrow up to 85% of the Company's
eligible accounts receivable, and up to 100% of the Company's on-hand
inventory. The credit line is secured by substantially all assets of the
Company and is personally guaranteed by the Company's stockholders.
At December 31, 1997, the interest rate on the line of credit was prime plus
1.75% or 2.00% depending on the nature of the borrowings. The effective
interest rate at that date was 10.25% or 10.5%. Effective February 1, 1998, the
financing agreement interest rate was increased to prime plus 2.375%. The
effective interest rate at December 31, 1998 and March 31, 1999 (unaudited) was
10.125%. For any amount that the outstanding advances exceed the formula
borrowing base, interest was accrued at the rate of prime plus 6.5%.
The agreement provides for certain financial covenants to be met by the
Company. At December 31, 1998 the Company was in violation of these covenants.
In August 1997, the Company was in violation of the related debt covenants
and entered into a forbearance agreement with IBM. Subsequently the Company
violated the forbearance agreement and received several amendments to the
agreement. Pursuant to amendments of the forbearance agreement the Company is
currently obligated to pay, at the Company's option, the lesser of: (i)
warrants representing 4% of the Company on a fully diluted to basis, or (ii)
pay $650,000, or (iii) pay a pro rata portion of the $650,000 is less than
substantially all of the assets are sold. As the Company intends to pay
$650,000, the Company has accrued this amount as of December 31, 1997. In
further consideration of the forbearance agreement and the related amendments,
the Company was obligated to pay $50,000 or issue warrants representing 0.5% of
the Company on a fully diluted basis, per month from February through May,
1998. The Company has paid an aggregate of $200,000 which has been recorded as
additional interest expense in 1998. These payments were made in lieu of the
issuance of warrants to IBM.
An October 1998 amendment to the forbearance agreement decreased the credit
line to $18,000,000 for the period through January 6, 1999, at which time the
line was further reduced to $15,000,000. The financing arrangement has a
termination date of October 30, 1999.
A February 1999 amendment to the forbearance agreement decreased the credit
line to $8,000,000 until further amended. A March 1999 amendment to the
forbearance agreement increased the credit line to $9,000,000 for the period
through April 30, 1999, at which time the line was reduced to $8,000,000. The
forbearance agreement expires on the date of the anticipated acquisition and
initial public offering (Note 14).
F-26
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 8. Notes Payable
Long-term debt consists of the following notes payable as of December 31,
1997 and 1998 and March 31, 1999:
<TABLE>
<CAPTION>
December 31,
-------------- March 31,
1997 1998 1999
------ ------ -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Note payable--financing company; secured by an
automobile with a cost of $71,000; bears
interest at an effective rate of 13.183%;
liquidated by monthly principal and interest
payments of $1,000. On December 31, 1998 the
note and related automobile were transferred
to the shareholders of the Company............ $ 17 $ -- $ --
Note payable--financing company; secured by an
automobile with a cost of $85,000; bears
interest at an effective rate of 10.460%;
liquidated by monthly principal and interest
payments of $2,000. On December 31, 1998, the
note and related automobile were transferred
to the shareholders of the Company............ 39 -- --
Note payable--financial institution;
collateralized by inventory, accounts
receivable, machinery and equipment, the
assets of a related party and the president of
the Company; bears interest at the financial
institution's prime lending rate; 8.5% at
December 31, 1997, 7.75% at December 31, 1998
and March 31, 1999 (unaudited) liquidated by
monthly principal and interest payments of
$104,000; due to mature December 2002......... 5,062 4,205 4,052
------ ------ ------
$5,118 $4,205 $4,052
Less current maturities........................ (915) (964) (967)
------ ------ ------
$4,203 $3,241 $3,085
====== ====== ======
</TABLE>
Maturities on the notes payable as of December 31, 1998 due in future years
are as follows:
<TABLE>
<CAPTION>
Year ending December 31, (in thousands)
------------------------ --------------
<S> <C>
1999........................................................ $ 964
2000........................................................ 1,041
2001........................................................ 1,125
2002........................................................ 1,075
------
$4,205
======
</TABLE>
Note 9. Notes Payable--Vendors
Notes payable--vendors consist of notes payable to nine vendors which were
entered into in August to December 1998 for a total of $5,884,000. The notes
accrue interest at rates ranging from 10% to 18%, and are due in full during
1999. The balance at March 31, 1999 was approximately $3,361,000 (unaudited).
As of March 31, 1999, the Company had defaulted on substantially all of these
notes.
F-27
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 10. Revenue and Cost of Revenue
The breakout of service and product revenue and cost of revenue are as
follows for the years ended December 31, 1996, 1997, and 1998, and the three
months ended March 31, 1998 and 1999:
<TABLE>
<CAPTION>
Year ended December 31, March 31,
------------------------- --------------
1996 1997 1998 1998 1999
-------- -------- ------- ------- ------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Service revenue............... $ 10,253 $ 8,818 $ 3,373 $ 1,241 $ 369
Product revenue............... 155,705 142,702 77,159 16,777 9,579
-------- -------- ------- ------- ------
Total Revenue............... $165,958 $151,520 $80,532 $18,018 $9,948
======== ======== ======= ======= ======
Cost of revenue
Cost of service revenue....... $ 4,870 $ 4,115 $ 1,553 $ 730 $ 155
Cost of product revenue....... 144,494 138,086 71,818 16,742 9,109
-------- -------- ------- ------- ------
Total Cost of Revenue....... $149,364 $142,201 $73,371 $17,472 $9,264
======== ======== ======= ======= ======
</TABLE>
Note 11. Leasing Arrangements
In January 1996, the Company entered into a lease with a related party for
office space, which was due to expire in December 2000. In September 1998 this
lease was terminated and the Company paid a $750,000 termination fee to the
related party. The fee was offset against notes receivable owed from the
related party. Deposits and other assets includes a deposit to be refunded from
the related party of approximately $87,000. The Company has leased other office
and warehouse space under separate lease agreements expiring through September
2003. Rent expense was $1,690,000, $811,000, $1,252,000 and $51,000 (unaudited)
for the years ended December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1999, respectively. Lease payments for the year ended December
31, 1998 were offset against interest receivable and notes receivable from the
related party (see Note 5).
Future minimum rental payments required under these leasing arrangements as
of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending December 31, (in thousands)
------------------------ --------------
<S> <C>
1999....................................................... $144
2000....................................................... 125
2001....................................................... 112
2002....................................................... 115
2003....................................................... 88
----
$584
====
</TABLE>
Note 12. Employee Retirement Plan
The Company has adopted a retirement plan under Section 401(k) of the
Internal Revenue Code. The plan provides benefits to all employees who meet
certain age and service eligibility requirements. Under the terms of the plan,
the Company will match 50% of the first 6% of an employee's elective
contribution. Company contributions for the years ended December 31, 1996, 1997
and 1998 were $71,000, $66,000, and $28,000, respectively. The contribution for
the three months ended March 31, 1999 was $5,000 (unaudited).
Note 13. Major Customers
During the years ended December 31, 1996, 1997, and 1998 and the three
months ended March 31, 1999, 61%, 60%, 90% and 94% (unaudited), respectively,
of the Company's revenue was derived from contracts with
F-28
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
the Federal Government. The receivable balance for these contracts at December
31, 1997 and 1998 and March 31, 1999 was $19,075,000, $9,135,000 and $5,517,000
(unaudited), respectively.
Note 14. Going Concern
As shown in the accompanying financial statements, the Company incurred a
net operating loss of $11,016,000 and $8,141,000 for the years ended December
31, 1997, and 1998, respectively, and has a net capital deficiency of
$1,810,000 and $9,951,000 at December 31, 1997 and 1998, respectively. At
December 31, 1998, the Company is in violation of the financial covenants
related to its financing agreement. These factors create a substantial doubt
about the Company's ability to continue as a going concern. The Company is in
negotiations to be acquired by another company. The combined company is in the
process of preparing an initial public offering. The ability of the Company to
continue as a going concern is dependent upon the success of the pending
acquisition and initial public offering. The financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Note 15. Contingent Liabilities
The Company had cost reimbursable type contracts with the Federal
Government. Consequently, the Company is reimbursed based upon their direct
expenses attributable to the contract, plus a percentage based upon overhead,
material handling, and general and administrative expenses. The overhead,
material handling, and general and administrative rates are estimates.
Accordingly, if the actual rates as determined by the Defense Contract Audit
Agency are below the Company's estimates, a refund for the difference would be
due to the Federal Government. It is management's opinion that no material
liability will result from any cognizant audit agency audits.
The Company is subject to several lawsuits and threatened actions relating
to the non-payment of debts. Each of these amounts have been included as
liabilities in the financial statements.
The Company has been named as a defendant in a lawsuit which claims breach
of contract under which the Company was required to pay $500,000 over a thirty
month period plus a commission on contracts awarded as a result of the
contract. The plaintiff claims damages in an amount in excess of $10 million.
Based upon discussions with counsel, the Company believes that the case is
without merit and intends to vigorously defend against the claim; however, the
outcome of this matter cannot currently be determined. No amounts have been
accrued in the financial statements relating to this matter.
The Company is also involved in various routine legal actions arising in the
normal course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that any potential
liability, arising from these claims against the Company not covered by
insurance would be minimal.
As of March 31, 1999, the Company had not yet filed the Form 5500 Annual
Return/Report for 1997 for its Employee Retirement Plan. The Form 5500 along
with an audit report was due October 15, 1998. The Company may be assessed
penalties by both the Department of Labor and the Internal Revenue Service for
its late filing. The Company has reserved $50,000 which represents the
Company's estimate of the maximum amount of penalties that could be assessed.
F-29
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or any other person to give
any information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information. This prospectus does not offer
to sell or buy any shares in any jurisdiction where it is unlawful.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Forward-Looking Statements............................................... 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 19
Dilution................................................................. 19
Capitalization........................................................... 21
Selected Financial Data--Litronic........................................ 22
Selected Financial Data--Pulsar.......................................... 24
Pro Forma Financial Data................................................. 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Industry Information..................................................... 47
Business................................................................. 52
Management............................................................... 69
Principal Stockholders................................................... 76
Certain Transactions..................................................... 77
Description of Securities................................................ 79
Shares Eligible for Future Sale.......................................... 81
Underwriting............................................................. 83
Legal Matters............................................................ 85
Experts.................................................................. 85
Additional Information................................................... 86
Index to Consolidated Financial Statements
--Litronic Inc. ....................................................... F-1
Index to Financial Statements--Pulsar Data Systems, Inc. ................ F-16
</TABLE>
Until , 1999, all dealers that effect transactions in the registered
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,700,000 SHARES
[Logo of Litronic, Inc.]
COMMON STOCK
----------------
PROSPECTUS
----------------
Bluestone Capital Partners, L.P.
Pacific Crest Securities Inc.
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is a statement of expenses incurred by Registrant in
connection with the issuance and distribution of the securities being
registered hereunder, other than underwriting discounts and expenses. All
amounts are estimated except the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the NASDAQ/NMS quotation fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 13,012
National Association of Securities Dealers, Inc. filing fee...... 5,181
NASDAQ/NMS quotation fee......................................... 75,625
Printing and engraving expenses.................................. 225,000
Legal fees and expenses.......................................... 835,000
Accounting fees and expenses..................................... 675,000
Transfer Agent and Registrar fees and expenses................... 4,000
Blue Sky fees and expenses (including legal fees)................ 10,000
Miscellaneous.................................................... 57,182
----------
Total.......................................................... $1,900,000
==========
</TABLE>
--------
* To be provided by amendment
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at its request in such capacity in another
corporation or business association, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he 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 action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 107(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability (a) for any breach of the director's duty of loyalty to
the corporation or its shareholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(c) under Section 174 of the Delaware General Corporation Law, or (d) for any
transaction from which the director derived an improper personal benefit.
II-1
<PAGE>
Article V of the Registrant's Amended and Restated Certificate of
Incorporation provides for the elimination of personal liability for a director
for breach of fiduciary duty as permitted by 102(b)(7) of the Delaware General
Corporation Law. Article VI of the Registrant's Amended and Restated By-Laws
provide that the Registrant shall indemnify its directors, officers and
employees to the full extent permitted by Section 145 of the Delaware General
Corporation Law.
The Underwriting Agreement (filed as Exhibit 1 hereto) provides for
indemnification by the Underwriters of the Registrant and its directors,
officers and controlling persons for certain liabilities arising under the
Securities Act or otherwise.
Item 15. Recent Sales of Unregistered Securities
In February 1999 Registrant issued 100 shares of its common stock to Kris
Shah, its promoter, in connection with the organization of the Registrant and
this offering for $100. On the date of this prospectus, Registrant issued
3,870,593 shares of common stock to the shareholders of Litronic Industries,
Inc. in exchange for all the outstanding capital stock of Litronic Industries,
Inc.
The issuance of the securities in the transactions described above were
deemed to be exempt from registration under the Securities Act in reliance on
(a) Section 4(2) of the Securities Act and Regulation D promulgated thereunder
as a transaction by an issuer not involving any public offering.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1 Form of Underwriting Agreement among the Registrant and the
Underwriters+
2 Stock Acquisition Agreement and Reorganization Agreement*
3.1 Certificate of Incorporation, as amended on February 5, 1999*
3.2 By-Laws of the Registrant*
3.3 Form of Amended and Restated Certificate of Incorporation*
4.1 Registration Rights Agreement*
4.2 Warrant Agreement+
4.3 Stock Certificate
5 Form of Opinion of Arent Fox Kintner Plotkin & Kahn, PLLC re
validity [to be filed by amendment]
10.01 Employment Agreement with Kris Shah*
10.02 Employment Agreement with William Davis*
10.03 Promissory Note from Dril-Tron, Inc. (Litronic Industries, Inc.)
To Kris Shah dated December 12, 1994 in the principal amount of
$210,822*
10.04 Commercial Guaranty from Pulsar Data Systems, Inc. to Wilmington
Trust Company dated June 23, 1995*
10.05 Business Loan Agreement between Pulsar Data Systems, Inc. and
Wilmington Trust Company dated July 24, 1995*
10.06 Commercial Security Agreement between Pulsar Data Systems, Inc.
and Wilmington Trust Company dated July 24, 1995+
10.07 Commercial Guaranty from Pulsar Data Systems, Inc. to Wilmington
Trust Company dated October 23, 1995*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.08 Purchase Order between Loral Federal Systems Company and Litronic
Industries, Inc. dated November 17, 1995*
10.09 Loan and Security Agreement between Litronic Industries, Inc. and
Fidelity Funding of California, Inc. dated June 27, 1996*
10.10 First Amendment to Loan and Security Agreement between Litronic
Industries Inc. and Fidelity Funding, Inc. dated June 27, 1997*
10.11 Award Contract between Maryland Procurement Office and Litronic
Industries, Inc. dated June 27, 1997+
10.12 Forbearance Agreement between Pulsar Data Systems, Inc. and IBM
Credit Corporation dated August 8, 1997*
10.13 Letter Agreement between Pulsar Data Systems, Inc. and IBM Credit
Corporation dated October 10, 1997*
10.14 Sublease Agreement between Litronic Industries, Inc. and E. I. du
Pont de Nemours and Company dated October 20, 1997+
10.15 Inventory Working Capital and Finance Agreement between Pulsar
Data Systems, Inc. and IBM Credit Corporation dated October 30,
1997+
10.16 Lease and Service Agreement between Alliance Business Centers and
Litronic Industries, Inc. dated January 6, 1999*
10.17 Lease Agreement between Airport Industrial Complex and Litronic
Industries, Inc. dated December 4, 1997+
10.18 Promissory Note from Litronic Industries, Inc. to KRDS, Inc. dated
December 31, 1997 in the principal amount of $900,000*
10.19 Revolving Promissory Note from Litronic Industries, Inc. to KRDS,
Inc. dated December 31, 1997 in the principal amount of
$2,900,000*
10.20 Revolving Promissory Note from Litronic Industries, Inc. to KRDS,
Inc. dated December 31, 1997 in the principal amount of
$2,000,000*
10.21 Letter Agreement between Pulsar Data Systems, Inc. and IBM Credit
Corporation dated February 4, 1998*
10.22 Revolving Promissory Note from Litronic Industries, Inc. to KRDS,
Inc. dated February 24, 1998 in the principal amount of $600,000*
10.23 Second Amendment to Loan and Security Agreement between Litronic
Industries, Inc. and Fidelity Funding, Inc. dated March 1, 1998*
10.24 Litronic Industries, Inc. Stock Option Plan dated April 1, 1998*
10.25 Litronic Industries, Inc. Stock Option Plan dated February ,
1999*
10.26 Modification dated February 3, 1999 of Original GSA Contract GS-
35F-4232D dated May 3, 1996*
10.27 Deed of Lease Agreement between Pulsar Data Systems, Inc. and
Massachusetts Mutual Life Insurance Company dated August 11, 1998+
10.28 Forbearance Agreement between Pulsar Data Systems, Inc. and IBM
Credit Corporation dated August 31, 1998*
10.29 Business Loan Agreement between Litronic Industries, Inc. and BYL
Bank Group dated September 29, 1998*
10.30 Promissory Note from Litronic Industries, Inc. to BYL Bank Group
dated September 29, 1998 in the principal amount of $3,800,000*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.31 Promissory Note from Litronic Industries, Inc. to BYL Bank Group
dated September 29, 1998 in the principal amount of $1,400,000*
10.32 Amendment to Forbearance Agreement between Pulsar Data Systems,
Inc. and IBM Credit Corporation dated October 8, 1998*
10.33 Promissory Note from Davis Holding Company to Pulsar Data Systems,
Inc. dated January 1, 1999 in the principal amount of $804,342.08*
10.34 Promissory Note from Davis Holding Company to Pulsar Data Systems,
Inc. dated January 1, 1999 in the principal amount of $543,017.40*
10.35 Letter Agreement between Pulsar Data Systems, Inc. and Wilmington
Trust Company dated June 20, 1997*
10.36 Third Amendment to Loan and Security Agreement dated March 31,
1999*
10.37 Dallas Semiconductor Standard Consulting Agreement dated February
2, 1999 between Litronic and Dallas Semiconductor Corporation
10.38 Basic Ordering Agreement dated April 16, 1998 between the United
States of America and Litronic
10.39 Nonexclusive Distributor Agreement dated April 27, 1999 among
Litronic and Itochu Techno-Science Corporation and Itochu
Corporation [to be filed by amendment]
10.40 Equipment Purchase, Software License and Maintenance Agreement
dated April 20, 1999 between Bank of America and Litronic
10.41 Nonexclusive reseller agreement dated as of April 1, 1999 between
Litronic and South African Certification Agency
10.42 Loan and Security Agreement dated as of May 5, 1999 between
Litronic and Fidelity Funds [to be filed by amendment]
23.1 Form of Consent of KPMG LLP+
23.2 Form of Consent of KPMG LLP+
23.3 Form of Consent of Keller Bruner & Company, LLC+
27 Financial Data Schedule
99.1 Consent of Mark Gembicki+
99.2 Consent of Matthew Medeiros
</TABLE>
(b) Financial Statement Schedules.
The following financial statement schedules are filed herewith:
Report of Independent Public Accountants
Schedule II--Valuation and qualifying accounts
Other schedules have been omitted because of the absence of conditions under
which they are required or because the required information is included in the
financial statements or notes thereto.
- --------
* Previously filed.
+ Supercedes previously filed exhibit.
II-4
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements 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 foregoing provisions, 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 Act 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 of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the registration statement to be signed on
its behalf by the undersigned, hereunto duly authorized, in the State of New
York, on the 6th day of May, 1999.
Litronic Inc.
/s/ Kris Shah
By: _________________________________
Kris Shah Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
Director, Chairman
/s/ Kris Shah of the Board and May 6, 1999
- ------------------------------------- Chief Executive
Kris Shah Officer
* Chief Financial
- ------------------------------------- Officer and May 6, 1999
Thomas W. Seykora principal
accounting officer
* Director, President
- ------------------------------------- and Chief Operating May 6, 1999
William W. Davis, Sr. Officer
/s/ Kris Shah
* By: __________________________
Attorney-in-Fact
II-6
<PAGE>
PULSAR DATA SYSTEMS, INC.
SCHEDULE II
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1996, 1997 and 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- ---------- ----------- -------------
Additions
Balance at Charged to
Beginning Costs and Amounts Balance at
Classification of Period Expenses Written Off End of Period
-------------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for doubtful
accounts.................... 450 403 33 820
===== ===== ===== =====
Allowance for notes
receivable.................. -- -- -- --
===== ===== ===== =====
Allowance for notes
receivable-related party.... -- -- -- --
===== ===== ===== =====
Year Ended December 31, 1997
Allowance for doubtful
accounts.................... 820 3,460 3,027 1,253
===== ===== ===== =====
Allowance for notes
receivable.................. -- 1,220 1,220 --
===== ===== ===== =====
Allowance for notes
receivable-related party.... -- 623 623 --
===== ===== ===== =====
Year Ended December 31, 1998
Allowance for doubtful
accounts.................... 1,253 3,370 3,623 1,000
===== ===== ===== =====
Allowance for notes
receivable.................. -- -- -- --
===== ===== ===== =====
Allowance for notes
receivable-related party.... -- 655 -- 655
===== ===== ===== =====
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1 Form of Underwriting Agreement among the Registrant and the
Underwriters+
2 Stock Acquisition Agreement and Reorganization Agreement*
3.1 Certificate of Incorporation, as amended on February 5, 1999*
3.2 By-Laws of the Registrant*
3.3 Form of Amended and Restated Certificate of Incorporation*
4.1 Registration Rights Agreement*
4.2 Warrant Agreement+
4.3 Stock Certificate
5 Form of Opinion of Arent Fox Kintner Plotkin & Kahn, PLLC re
validity [to be filed by amendment]
10.01 Employment Agreement with Kris Shah*
10.02 Employment Agreement with William Davis*
10.03 Promissory Note from Dril-Tron, Inc. (Litronic Industries, Inc.)
To Kris Shah dated December 12, 1994 in the principal amount of
$210,822*
10.04 Commercial Guaranty from Pulsar Data Systems, Inc. to Wilmington
Trust Company dated June 23, 1995*
10.05 Business Loan Agreement between Pulsar Data Systems, Inc. and
Wilmington Trust Company dated July 24, 1995*
10.06 Commercial Security Agreement between Pulsar Data Systems, Inc.
and Wilmington Trust Company dated July 24, 1995+
10.07 Commercial Guaranty from Pulsar Data Systems, Inc. to Wilmington
Trust Company dated October 23, 1995*
10.08 Purchase Order between Loral Federal Systems Company and Litronic
Industries, Inc. dated November 17, 1995*
10.09 Loan and Security Agreement between Litronic Industries, Inc. and
Fidelity Funding of California, Inc. dated June 27, 1996*
10.10 First Amendment to Loan and Security Agreement between Litronic
Industries Inc. and Fidelity Funding, Inc. dated June 27, 1997*
10.11 Award Contract between Maryland Procurement Office and Litronic
Industries, Inc. dated June 27, 1997+
10.12 Forbearance Agreement between Pulsar Data Systems, Inc. and IBM
Credit Corporation dated August 8, 1997*
10.13 Letter Agreement between Pulsar Data Systems, Inc. and IBM Credit
Corporation dated October 10, 1997*
10.14 Sublease Agreement between Litronic Industries, Inc. and E. I. du
Pont de Nemours and Company dated October 20, 1997+
10.15 Inventory Working Capital and Finance Agreement between Pulsar
Data Systems, Inc. and IBM Credit Corporation dated October 30,
1997+
10.16 Lease and Service Agreement between Alliance Business Centers and
Litronic Industries, Inc. dated January 6, 1999*
10.17 Lease Agreement between Airport Industrial Complex and Litronic
Industries, Inc. dated December 4, 1997+
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.18 Promissory Note from Litronic Industries, Inc. to KRDS, Inc. dated
December 31, 1997 in the principal amount of $900,000*
10.19 Revolving Promissory Note from Litronic Industries, Inc. to KRDS,
Inc. dated December 31, 1997 in the principal amount of
$2,900,000*
10.20 Revolving Promissory Note from Litronic Industries, Inc. to KRDS,
Inc. dated December 31, 1997 in the principal amount of
$2,000,000*
10.21 Letter Agreement between Pulsar Data Systems, Inc. and IBM Credit
Corporation dated February 4, 1998*
10.22 Revolving Promissory Note from Litronic Industries, Inc. to KRDS,
Inc. dated February 24, 1998 in the principal amount of $600,000*
10.23 Second Amendment to Loan and Security Agreement between Litronic
Industries, Inc. and Fidelity Funding, Inc. dated March 1, 1998*
10.24 Litronic Industries, Inc. Stock Option Plan dated April 1, 1998*
10.25 Litronic Industries, Inc. Stock Option Plan dated February ,
1999*
10.26 Modification dated February 3, 1999 of Original GSA Contract GS-
35F-4232D dated May 3, 1996*
10.27 Deed of Lease Agreement between Pulsar Data Systems, Inc. and
Massachusetts Mutual Life Insurance Company dated August 11, 1998+
10.28 Forbearance Agreement between Pulsar Data Systems, Inc. and IBM
Credit Corporation dated August 31, 1998*
10.29 Business Loan Agreement between Litronic Industries, Inc. and BYL
Bank Group dated September 29, 1998*
10.30 Promissory Note from Litronic Industries, Inc. to BYL Bank Group
dated September 29, 1998 in the principal amount of $3,800,000*
10.31 Promissory Note from Litronic Industries, Inc. to BYL Bank Group
dated September 29, 1998 in the principal amount of $1,400,000*
10.32 Amendment to Forbearance Agreement between Pulsar Data Systems,
Inc. and IBM Credit Corporation dated October 8, 1998*
10.33 Promissory Note from Davis Holding Company to Pulsar Data Systems,
Inc. dated January 1, 1999 in the principal amount of $804,342.08*
10.34 Promissory Note from Davis Holding Company to Pulsar Data Systems,
Inc. dated January 1, 1999 in the principal amount of $543,017.40*
10.35 Letter Agreement between Pulsar Data Systems, Inc. and Wilmington
Trust Company dated June 20, 1997*
10.36 Third Amendment to Loan and Security Agreement dated March 31,
1999*
10.37 Dallas Semiconductor Standard Consulting Agreement dated February
2, 1999 between Litronic and Dallas Semiconductor Corporation
10.38 Basic Ordering Agreement dated April 16, 1998 between the United
States of America and Litronic
10.39 Nonexclusive Distributor Agreement dated April 27, 1999 among
Litronic and Itochu Techno-Science Corporation and Itochu
Corporation [to be filed by amendment]
10.40 Equipment Purchase, Software License and Maintenance Agreement
dated April 20, 1999 between Bank of America and Litronic
10.41 Nonexclusive reseller agreement dated as of April 1, 1999 between
Litronic and South African Certification Agency
10.42 Loan and Security Agreement dated as of May 5, 1999 between
Litronic and Fidelity Funds [to be filed by amendment]
23.1 Form of Consent of KPMG LLP+
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
23.2 Form of Consent of KPMG LLP+
23.3 Form of Consent of Keller Bruner & Company, LLC+
27 Financial Data Schedule
99.1 Consent of Mark Gembicki+
99.2 Consent of Matthew Medeiros
</TABLE>
- --------
* Previously filed.
+ Supercedes previously filed exhibit.
3
<PAGE>
LITRONIC INC.
3,700,000 Shares of Common Stock
(Par Value $.01 per share)
UNDERWRITING AGREEMENT
New York, New York
_____, 1999
BlueStone Capital Partners, L.P.
Pacific Crest Securities Inc.
as Representatives of the
Several Underwriters named
in Schedule A hereto
575 Fifth Avenue
New York, New York 10017
Dear Sirs:
Litronic Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to the underwriters (the "Underwriters") named in Schedule A to this
Underwriting Agreement (the "Agreement"), for whom BlueStone Capital Partners,
L.P. ("BlueStone") and Pacific Crest Securities Inc. are acting as
representatives (together, hereinafter referred to as the "Representatives"),
three million seven hundred thousand (3,700,000) shares of common stock, par
value $.01 per share (the "Offered Shares"), which Offered Shares are presently
authorized but unissued shares of the common stock, par value $.01 per share
(individually a "Common Share" and collectively the "Common Shares"), of the
Company. In addition, the Representatives, in order to cover over-allotments in
the sale of the Offered Shares, may purchase from the Company, for their own
accounts, up to an aggregate of five hundred fifty-five thousand (555,000)
Common Shares (the "Optional Shares"; the Offered Shares and the Optional Shares
are hereinafter sometimes collectively referred to as the "Shares"). The Shares
are described in the Registration Statement, as defined below. The Company also
proposes to issue and sell to the Representatives for their own accounts and/or
the accounts of their designees, warrants to purchase an aggregate of three
hundred and seventy thousand (370,000) Common Shares (the "Warrant Shares") at
an exercise price of $_____ [165% of the initial public offering price per
share] per Warrant Share (the "Representatives'
<PAGE>
Warrants"), which sale will be consummated in accordance with the terms and
conditions of the form of Representatives' Warrant Agreement filed as an exhibit
to the Registration Statement.
The Representatives hereby warrant to the Company that they have been
authorized by each of the Underwriters to enter into this Underwriting Agreement
on their behalf and to act for them in the manner herein provided. The Company
hereby confirms its respective agreements with the Representatives and each of
the Underwriters, on whose behalf the Representatives are signing this
Agreement, as follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered
Shares to the Underwriters, severally, and each Underwriter agrees, severally
and not jointly, to purchase from the Company, at a purchase price of $____ [93%
of the initial public offering price] per share, the number of Offered Shares
set forth opposite the name of such Underwriter in Schedule A attached hereto,
plus any additional Offered Shares which such Underwriter may become obligated
to purchase pursuant to the provisions of Section 10 hereof. The Underwriters
plan to offer the Offered Shares to the public at a public offering price of
$_____ per share.
2. Payment and Delivery.
--------------------
(a) Payment for the Offered Shares will be made to the Company by
wire transfer against delivery of the Offered Shares to the Representatives.
Such payment and delivery will be made at 10:00 A.M. New York City time, on the
third business day following the Effective Date (the fourth business day
following the Effective Date in the event that trading of the Offered Shares
commences on the day following the Effective Date), the date and time of such
payment and delivery being herein called the "Closing Date." The certificates
representing the Offered Shares to be delivered will be in such denominations
and registered in such names as the Representatives may request not less than
two full business days prior to the Closing Date, and will be made available to
the Representatives for inspection, checking and packaging at the offices of
Continental Stock Transfer & Trust Company, the Company's transfer agent, at Two
Broadway, New York, New York 10004 not less than one full business day prior to
the Closing Date.
(b) On the Closing Date, the Company will sell the Representatives'
Warrants to the Representatives or to their designees (limited to officers and
partners of the Representatives and Underwriters). The Representatives' Warrants
will be in the form of, and in accordance with, the provisions of the
-2-
<PAGE>
Representatives' Warrant Agreement attached as an exhibit to the Registration
Statement, with such changes as the Representatives shall approve. The aggregate
purchase price for the Representatives' Warrants is $300. The Representatives'
Warrants will be restricted from sale, transfer, assignment or hypothecation for
a period of one year from the Effective Date, except to officers or partners of
the Representatives and Underwriters and members of the selling group and/or
their officers or partners. Payment for the Representatives' Warrants will be
made to the Company by check or checks payable to its order on the Closing Date
against delivery of the certificates representing the Representatives' Warrants.
The certificates representing the Representatives' Warrants will be in such
denominations and such names as the Representatives may request prior to the
Closing Date.
3. Option to Purchase Optional Shares.
-----------------------------------
(a) On the basis of the representations and warranties and subject to
the terms and conditions set forth herein, for the purposes of covering any
overallotments in connection with the distribution and sale of the Offered
Shares as contemplated by the Prospectus as defined below, the Representatives
are hereby granted an option to purchase for their own accounts, and not as
representatives of the Underwriters, all or any part of the Optional Shares from
the Company. The purchase price to be paid for the Optional Shares will be the
same price per Optional Share as the price per Offered Share set forth in
Section 1 hereof. The option granted hereby may be exercised by the
Representatives as to all or any part of the Optional Shares at any time within
45 days after the Effective Date. The Representatives will not be under any
obligation to purchase any Optional Shares prior to the exercise of such option.
(b) The option granted hereby may be exercised by the Representatives
by giving oral notice to the Company, which must be confirmed by a letter, telex
or telegraph setting forth the number of Optional Shares to be purchased, the
date and time for delivery of and payment for the Optional Shares to be
purchased and stating that the Optional Shares referred to therein are to be
used for the purpose of covering over-allotments in connection with the
distribution and sale of the Offered Shares. If such notice is given prior to
the Closing Date, the date set forth therein for such delivery and payment will
not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two (2) full business days thereafter. In either event, the date o
set forth will not be more than 15 full business days after the date of such
notice. The date and time set forth in such notice is herein called the "Option
Closing Date." Upon
-3-
<PAGE>
exercise of such option, the Company will become obligated to convey to the
Representatives, and, subject to the terms and conditions set forth in Section
3(d) hereof, the Representatives will become obligated to purchase, the number
of Optional Shares specified in such notice.
(c) Payment for any Optional Shares purchased will be made to the Company
by wire transfer against delivery of the Optional Shares purchased to the
Representatives. The certificates representing the Optional Shares to be
delivered will be in such denominations and registered in such names as the
Representatives request not less than two full business days prior to the Option
Closing Date, and will be made available to the Representatives for inspection,
checking and packaging at the aforesaid office of the Company's transfer agent
or correspondent not less than one full business day prior to the Option Closing
Date.
The obligation of the Representatives to purchase and pay for any of the
Optional Shares is subject to the accuracy and completeness (as of the date
hereof and as of the Option Closing Date) of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy and completeness of the statements of the Company or its officers made
in any certificate or other document to be delivered by the Company pursuant to
this Agreement, to the performance in all material respects by the Company of
its obligations hereunder, to the satisfaction by the Company of the conditions,
as of the date hereof and as of the Option Closing Date, set forth in Section
3(b) hereof, and to the delivery to the Representatives of opinions,
certificates and letters dated the Option Closing Date substantially similar in
scope to those specified in Sections 5 and 6(b), (c), (d) and (e) hereof, but
with each reference to "Offered Shares" and "Closing Date" to be, respectively,
to the Optional Shares and the Option Closing Date.
4. Representations and Warranties of the Company and Pulsar. The Company
--------------------------------------------------------
and Pulsar (defined hereinafter) each represents and warrants to, and agrees
with, the several Underwriters that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full power and
authority, corporate and other, to own or lease, as the case may be, and operate
its properties and to conduct its business as described in the Registration
Statement and to execute, deliver and perform this Agreement and the
Representatives' Warrant Agreement and to consummate the transactions
contemplated hereby and thereby. The Company has no subsidiaries as of the date
hereof other than Litronic Industries, Inc., a corporation duly organized,
validly existing and in good standing under the laws of the State of California
("LIT"), and, as of the Closing Date, will have no subsidiaries other than LIT
and Pulsar Data Systems, Inc., a corporation duly organized, validly existing
and in good
-4-
<PAGE>
standing under the laws of the State of Delaware ("Pulsar" and, together with
LIT, the "Subsidiaries"). The Company has no equity interest in any entities
other than the Subsidiaries. Unless the context otherwise requires, all
references to the "Company" in this Agreement shall include the Subsidiaries.
(b) Each of the Company and the Subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and failure so to qualify could have a
material adverse effect on the financial condition, results of operations,
business or properties of the Company or any of the Subsidiaries. Each of the
Subsidiaries has full power and authority, corporate and other, and all Permits
(defined hereafter) necessary to own or lease, as the case may be, and operate
its properties and to conduct its business as described in the Registration
Statement. On the Closing Date, the Company will own all of the issued and
outstanding shares of capital stock of all of the Subsidiaries, free and clear
of any security interests, liens, encumbrances, claims and charges, and all of
such shares have been duly authorized and validly issued and are fully paid and
non-assessable. There are no options or warrants for the purchase of, or other
rights to purchase, or outstanding securities convertible into or exchangeable
for, any capital stock or other securities of any Subsidiary other than those
described in the Prospectus.
(c) This Agreement has been duly executed and delivered by the
Company and Pulsar and constitutes the valid and binding obligation of the
Company and Pulsar, enforceable against the Company and Pulsar in accordance
with its terms, and the Representatives' Warrant Agreement, when executed and
delivered by the Company on the Closing Date, will be the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms. The execution, delivery and performance of this Agreement by the
Company and Pulsar and the Representatives' Warrant Agreement by the Company,
the consummation by the Company and Pulsar of the transactions herein
contemplated and by the Company of the transactions therein contemplated and the
compliance by the Company and Pulsar with the terms of this Agreement and by the
Company with the terms of the Representatives' Warrant Agreement have been duly
authorized by all necessary corporate action and do not and will not, with or
without the giving of notice or the lapse of time, or both, (i) result in any
violation of the Company's or of any of the Subsidiaries' Certificate of
Incorporation or Articles of Incorporation, as the case may be, or By-Laws (or
similar charter documents); (ii) result in a breach of or conflict with any of
the terms or provisions of,
-5-
<PAGE>
or constitute a default under, or result in the modification or termination of,
or result in the creation or imposition of any lien, security interest, charge
or encumbrance upon any of the properties or assets of the Company or any of the
Subsidiaries pursuant to any indenture, mortgage, note, contract, commitment or
other agreement or instrument to which the Company or any of the Subsidiaries is
a party or by which the Company or any of the Subsidiaries or any of their
respective properties or assets is or may be bound or affected; (iii) violate
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any of the Subsidiaries or any of their respective properties or
business; or (iv) have any effect on any permit, certification, registration,
approval, consent, order, license, franchise or other authorization
(collectively, the "Permits") necessary for the Company or any of the
Subsidiaries to own or lease and operate their respective properties or conduct
their respective businesses or the ability of the Company to make use thereof;
except in the case of clauses (ii), (iii) and (iv) where such breach, conflict,
default, violation, effect or other action or failure would not have a material
adverse effect on the business, financial condition, or results of operations of
the Company and its Subsidiaries taken as a whole.
(d) No Permits of any court or governmental agency or body, other
than under the Securities Act of 1933, as amended (the "Act"), the Regulations
(as hereinafter defined) and applicable state securities or Blue Sky laws, are
required (i) for the valid authorization, issuance, sale and delivery of the
Shares to the Underwriters, and (ii) the consummation by the Company of the
transactions contemplated by this Agreement and the Representatives' Warrant
Agreement or, if so required, all such Permits have been duly obtained and are
in full force and effect, except to the extent that the failure to obtain any
such Permit would not have a material adverse effect on the business, financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole.
(e) The conditions for use of a registration statement on Form S-1
set forth in the General Instructions to Form S-1 have been satisfied with
respect to the Company and the transactions contemplated herein and in the
Registration Statement. The Company has prepared in all material respects in
conformity with the requirements of the Act and the rules and regulations (the
"Regulations") of the Securities and Exchange Commission (the "Commission") and
filed with the Commission a registration statement (File No. 333-72151) on Form
S-1 and has filed one or more amendments thereto, covering the registration of
the Shares under the Act, including the related preliminary prospectus or
preliminary prospectuses (each thereof being herein called a
-6-
<PAGE>
"Preliminary Prospectus") and a proposed final prospectus. Each Preliminary
Prospectus was endorsed with the legend required by Item 501(b)(10) of
Regulation S-K of the Regulations and, if applicable, Rule 430A of the
Regulations. Such registration statement including any documents incorporated by
reference therein and all financial schedules and exhibits thereto, as amended
at the time it becomes effective, and the final prospectus included therein are
herein, respectively, called the "Registration Statement" and the "Prospectus,"
except that, (i) if the prospectus filed by the Company pursuant to Rule 424(b)
of the Regulations differs from the Prospectus, the term "Prospectus" shall mean
the prospectus filed pursuant to Rule 424(b), and (ii) if the Registration
Statement is amended or such Prospectus is supplemented after the date the
Registration Statement is declared effective by the Commission (the "Effective
Date") and prior to the Option Closing Date, the terms "Registration Statement"
and "Prospectus" shall include the Registration Statement as amended or
supplemented.
(f) Neither the Commission nor, to the best of the Company's
knowledge, any state regulatory authority has issued any order preventing or
suspending the use of any Preliminary Prospectus or has instituted or, to the
best of the Company's knowledge, threatened to institute any proceedings with
respect to such an order.
(g) The Registration Statement when it becomes effective, the
Prospectus (and any amendment or supplement thereto) when it is filed with the
Commission pursuant to Rule 424(b), and both documents as of the Closing Date
and the Option Closing Date referred to below, will contain all statements which
are required to be stated therein in accordance with the Act and the Regulations
and will in all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, on such dates, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with information furnished in writing to the
Company in connection with the Registration Statement or Prospectus or any
amendment or supplement thereto by the Representatives, or by any Underwriter
through the Representatives, expressly for use therein.
(h) Based on the assumptions stated in the Registration Statement and
the Prospectus, the Company had at the date or dates indicated in the Prospectus
a duly authorized and outstanding capitalization as set forth in the
Registration
-7-
<PAGE>
Statement and the Prospectus, and on the Closing Date the Company will have the
adjusted stock capitalization set forth therein. Except as set forth in the
Registration Statement or the Prospectus, on the Effective Date and on the
Closing Date, there will be no options to purchase, warrants or other rights to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell shares of the Company's capital stock
or any such warrants, convertible securities or obligations. Except as set forth
in the Prospectus, no holder of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act.
(i) The descriptions in the Registration Statement and the Prospectus
of contracts and other documents are accurate and present fairly the information
required to be disclosed, and there are no contracts or other documents required
to be described in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement under the Act or the Regulations which
have not been so described or filed as required.
(j) KPMG LLP, the accountants who have certified the consolidated
financial statements of the Company and certain of the financial statements of
Pulsar (collectively, the "Financial Statements") filed and to be filed with the
Commission as part of the Registration Statement and the Prospectus, are
independent public accountants within the meaning of the Act and Regulations.
The Financial Statements and schedules and the notes thereto filed as part of
the Registration Statement and included in the Prospectus are complete, correct
and present fairly in all material respects the financial position of Pulsar and
the Company as of the dates thereof, and the results of operations and changes
in financial position of the Company and Pulsar for the periods indicated
therein, all in conformity with generally accepted accounting principles applied
on a consistent basis throughout the periods involved, except as otherwise
stated in the Registration Statement and the Prospectus. The selected financial
data set forth in the Registration Statement and the Prospectus present fairly
in all material respects the information shown therein and have been compiled on
a basis consistent with that of the audited and unaudited financial statements
included in the Registration Statement and the Prospectus.
(k) Each of the Company and the Subsidiaries has filed with the
appropriate federal, state and local governmental agencies, and all appropriate
foreign countries and political subdivisions thereof, all tax returns, including
franchise tax returns, which are required to be filed or has duly obtained
extensions of time for the filing thereof and has paid all taxes shown on such
returns and all assessments received by it to the
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extent that the same have become due; and the provisions for income taxes
payable, if any, shown on the Financial Statements filed with or as part of the
Registration Statement are sufficient for all accrued and unpaid foreign and
domestic taxes, whether or not disputed, and for all periods to and including
the dates of such Financial Statements. Except as disclosed in writing to the
Representatives, neither the Company nor any Subsidiary has executed or filed
with any taxing authority, foreign or domestic, any agreement extending the
period for assessment or collection of any income taxes and is not a party to
any pending action or proceeding by any foreign or domestic governmental agency
for assessment or collection of taxes; and no claims for assessment or
collection of taxes have been asserted against the Company or any Subsidiary.
(l) The outstanding Common Shares and outstanding options and
warrants to purchase Common Shares have been duly authorized and validly issued.
The outstanding Common Shares are fully paid and nonassessable. The outstanding
options and warrants to purchase Common Shares constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms. None of
the outstanding Common Shares or options or warrants to purchase Common Shares
has been issued in violation of the preemptive rights of any shareholder of the
Company. None of the holders of the outstanding Common Shares is subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Common Shares and outstanding options and warrants to
purchase Common Shares were at all relevant times either registered under the
Act and the applicable state securities or Blue Sky laws or exempt from such
registration requirements. The authorized Common Shares and outstanding options
and warrants to purchase Common Shares conform to the descriptions thereof
contained in the Registration Statement and Prospectus. Except as set forth in
the Registration Statement and the Prospectus, on the Effective Date and the
Closing Date, there will be no outstanding options or warrants for the purchase
of, or other outstanding rights to purchase, Common Shares or securities
convertible into Common Shares.
(m) No securities of the Company have been sold by the Company or by
or on behalf of, or for the benefit of, any person or persons controlling,
controlled by, or under common control with the Company within the three years
prior to the date hereof, except as disclosed in the Registration Statement.
(n) The issuance and sale of the Shares and the Warrant Shares have
been duly authorized and, when the Shares and the Warrant Shares have been
issued and duly delivered against payment therefor as contemplated by this
Agreement and the Representatives' Warrant Agreement, respectively, the Shares
and
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the Warrant Shares will be validly issued, fully paid and nonassessable, and the
holders thereof will not be subject to personal liability solely by reason of
being such holders. Neither the Shares nor the Warrant Shares will be subject to
preemptive rights of any shareholder of the Company.
(o) The issuance and sale of the Representatives' Warrants have
been duly authorized and, when issued, paid for and delivered as contemplated by
the Representatives' Warrant Agreement, the Representatives' Warrants will
constitute valid and binding obligations of the Company, enforceable as to the
Company in accordance with their terms. The Representatives' Warrants will not
be subject to preemptive rights of any shareholder of the Company. The Warrant
Shares have been duly reserved for issuance upon exercise of the
Representatives' Warrants in accordance with the provisions of the
Representatives' Warrant Agreement. The Representatives' Warrants conform to the
description thereof contained in the Registration Statement and Prospectus.
(p) Neither the Company nor any Subsidiary is in violation of (i) any
term or provision of its Certificate of Incorporation, Articles of Incorporation
(as the case may be) or By-Laws (or similar charter documents), each as amended;
(ii) in default in any material respect under any material term or provision or
any financial covenants of any indenture, mortgage, contract, commitment or
other agreement or instrument to which it is a party or by which it or any of
its property or business is or may be bound or affected; or (iii) in violation
in any material respect of any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company, any Subsidiary or any of their
respective properties or business. The Company and each Subsidiary owns,
possesses or has obtained all governmental and other (including those obtainable
from third parties) Permits necessary to own or lease, as the case may be, and
to operate its properties, whether tangible or intangible, and to conduct the
business and operations of the Company as presently conducted, and all such
Permits are outstanding and in good standing, and there are no proceedings
pending or to the best of the Company's and Pulsar's knowledge, threatened (nor,
to the best of the Company's and Pulsar's knowledge, is there any basis
therefor) which seek to cancel, terminate or limit such Permits.
(q) Except as set forth in the Prospectus, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court or tribunal, domestic or foreign, or before any
private arbitration tribunal, pending, or, to the best of the Company's and
Pulsar's knowledge, threatened against the Company or any Subsidiary or
involving the Company's or any of the Subsidiaries' properties or
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<PAGE>
business which, if determined adversely to the Company or any of the
Subsidiaries would, individually or in the aggregate, result in any material
adverse change in the financial position, shareholders' equity, results of
operations, properties, business, management or affairs or business prospects of
the Company or any of the Subsidiaries or which question the validity of the
capital stock of the Company or this Agreement or of any action taken or to be
taken by the Company pursuant to, or in connection with, this Agreement; nor, to
the best of the Company's and Pulsar's knowledge, is there any basis for any
such claim, action, suit, proceeding, arbitration, investigation or inquiry.
There are no outstanding orders, judgments or decrees of any court, governmental
agency or other tribunal naming the Company or any of the Subsidiaries and
enjoining the Company or any of the Subsidiaries from taking, or requiring the
Company or any of the Subsidiaries to take, any action, or to which the Company
or any of the Subsidiaries or the Company's or any Subsidiaries' properties or
business is bound or subject.
(r) Neither the Company nor any of the Subsidiaries nor any of their
affiliates has incurred any liability for any finder's fees or similar payments
in connection with the transactions herein contemplated.
(s) Each of the Company and the Subsidiaries owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, service marks, copyrights, rights, trade secrets, confidential
information, processes and formulations used or proposed to be used in the
conduct of its business as described in the Prospectus (collectively the
"Intangibles"); to the best of the Company's and Pulsar's knowledge, neither the
Company nor any of the Subsidiaries has infringed or is infringing upon the
rights of others with respect to the Intangibles; and neither the Company nor
any of the Subsidiaries has received any notice of conflict with the asserted
rights of others with respect to the Intangibles which could, singly or in the
aggregate, materially adversely affect its business as presently conducted or
the prospects, financial condition or results of operations of the Company or
any Subsidiary and neither the Company nor Pulsar knows of any basis therefor;
and, to the best of the Company's and Pulsar's knowledge, no others have
infringed upon the Intangibles of the Company or any Subsidiary.
(t) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus and the Financial Statements,
neither the Company nor any Subsidiary has incurred any material liability or
obligation, direct or contingent, or entered into any material transaction,
whether or not incurred in the ordinary course of business, or sustained any
material loss or interference with its business from
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<PAGE>
fire, storm, explosion, flood or other casualty, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree; and since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there have not been, and prior to the
Closing Date there will not be, any changes in the capital stock or any material
increases in the long-term debt of the Company or any Subsidiary or any material
adverse change in or affecting the general affairs, management, financial
condition, shareholders' equity, results of operations or prospects of the
Company or any Subsidiary, other than as set forth or contemplated in the
Prospectus.
(u) Neither the Company nor any Subsidiary owns any real property.
Each of the Company and the Subsidiaries has good title to all personal property
(tangible and intangible) owned by it, free and clear of all security interests,
charges, mortgages, liens, encumbrances and defects, except such as are
described in the Registration Statement and Prospectus or such as do not
materially affect the value or transferability of such property and do not
interfere with the use of such property made, or proposed to be made, by the
Company or any of the Subsidiaries. The leases, licenses or other contracts or
instruments under which the Company and the Subsidiaries lease, hold or are
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not interfere
with the use of such property made, or proposed to be made, by the Company or
any Subsidiary, and all rentals, royalties or other payments, if any, accruing
thereunder which became due prior to the date of this Agreement have been duly
paid, and neither the Company nor any Subsidiary, nor, to the best of the
Company's and Pulsar's knowledge, any other party is in default thereunder and,
to the best of the Company's and Pulsar's knowledge, no event has occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. Neither the Company nor any Subsidiary has
received notice of any violation of any applicable law, ordinance, regulation,
order or requirement relating to its owned or leased properties. Each of the
Company and each of the Subsidiaries has adequately insured its properties
against loss or damage by fire or other casualty and maintains, in adequate
amounts, such other insurance as is usually maintained by companies engaged in
the same or similar businesses located in its geographic area.
(v) Each contract or other instrument (however characterized or
described) to which the Company or a Subsidiary is a party or by which their
respective properties or businesses are or may be bound or affected and to which
reference is made in the Prospectus has been duly and validly executed, is in
full force and effect in all material respects and is enforceable against
the
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<PAGE>
parties thereto in accordance with its terms, and none of such contracts or
instruments has been assigned by the Company or any Subsidiary, and neither the
Company nor any Subsidiary, nor, to the best of the Company's and Pulsar's
knowledge, any other party is in default thereunder and, to the best of the
Company's and Pulsar's knowledge, no event has occurred which, with the lapse of
time or the giving of notice, or both, would constitute a default thereunder.
None of the material provisions of such contracts or instruments violates
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court having jurisdiction over the Company or any
Subsidiary or any of their respective assets or businesses.
(w) The employment, consulting, confidentiality and non-competition
agreements between the Company and its officers, employees and consultants and
between each of the Subsidiaries and its respective officers, employees and
consultants, described in the Registration Statement, are binding and
enforceable obligations upon the respective parties thereto in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity.
(x) Except as set forth in the Prospectus, neither the Company nor
any Subsidiary has any employee benefit plans (including, without limitation,
profit sharing and welfare benefit plans) or deferred compensation arrangements
that are subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended.
(y) To the best of the Company's and Pulsar's knowledge, no labor
problem exists with any of the Company's employees or any Subsidiary's employees
or is imminent which could adversely affect the Company or any Subsidiary.
(z) Neither the Company nor any Subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than, in each case, payments or contributions required or allowed
by applicable law. Each of the Company's and each of the Subsidiaries' internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
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<PAGE>
(aa) The Shares have been approved for listing on the Nasdaq National
Market ("Nasdaq").
(ab) The representations and warranties of each of LIT and Pulsar and
their respective stockholders and of the Company contained in the Stock
Acquisition Agreement dated as of February 9, 1999, by and among the Company,
LIT, Pulsar, William W. Davis, Sr., Lillian A. Davis, Kris Shah and Geraldine M.
Shah, as Trustees of the Kris Shah and Geraldine M. Shah Living Trust dated
October 9, 1997, Ramesh R. Shah and Patricia L. Shah, as Trustees of the Ramesh
R. Shah and Patricia L. Shah Living Trust dated March 22, 1982 as amended on
October 14, 1997, Dilip R. Shah and Shila D. Shah, as Trustees of the Shah
Living Trust dated November 14, 1995, Kris Shah as Trustee of the Leena Shah
Trust dated October 16, 1997 and Kris Shah, as Trustee of the Chandra L. Shah
Trust dated October 9, 1997, are true, accurate and complete in all material
respects as of the date hereof and all conditions to the consummation by the
Company of the acquisition of Pulsar as described in the Prospectus (the
"Acquisition") have been satisfied.
(ac) The exchange by all of the stockholders of LIT of all of the
outstanding common stock of LIT for all of the currently outstanding Common
Shares of the Company as described in the Prospectus (the "Reorganization") has
been completed on the terms described in the Prospectus.
(ad) The Company has provided to Tenzer Greenblatt LLP, counsel to the
several Underwriters ("Underwriters' Counsel"), all material agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated September __,
1998.
Any certificate signed by an officer of the Company or by an officer of a
Subsidiary and delivered to the Representatives or to Underwriters' Counsel
shall be deemed to be a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
5. Certain Covenants of the Company and Pulsar. The Company and Pulsar
-------------------------------------------
covenant with the several Underwriters as follows:
(a) The Company will not at any time, whether before the Effective
Date or thereafter during such period as the Prospectus is required by law to be
delivered in connection with the sales of the Shares by the Representatives or a
dealer, file or publish any amendment or supplement to the Registration
Statement or Prospectus of which the Representatives have not been
previously
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<PAGE>
advised and furnished a copy, or to which the Representatives shall in good
faith object in writing.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective and will advise the Representatives promptly, and,
if requested by the Representatives, confirm such advice in writing, (i) when
the Registration Statement, or any post-effective amendment to the Registration
Statement or any supplemented Prospectus is filed with the Commission; (ii) of
the receipt of any comments from the Commission; (iii) of any request of the
Commission for amendment or supplementation of the Registration Statement or
Prospectus or for additional information; and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any Preliminary
Prospectus, or of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, or of the initiation of any proceedings for any of
such purposes. The Company will use its best efforts to prevent the issuance of
any such stop order or of any order preventing or suspending such use and shall
use every reasonable effort to obtain as soon as possible the lifting thereof,
if any such order is issued.
(c) The Company will deliver to each Underwriter, without charge,
from time to time until the Effective Date, as many copies of each Preliminary
Prospectus as each Underwriter may reasonably request, and the Company hereby
consents to the use of such copies for purposes permitted by the Act. The
Company will deliver to each Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as each Underwriter may
reasonably request. The Company has furnished or will furnish to each of the
Representatives a signed copy of the Registration Statement as originally filed
and of all amendments thereto, whether filed before or after the Registration
Statement becomes effective, a copy of all exhibits filed therewith and a signed
copy of all consents and certificates of experts.
(d) The Company will comply with the Act, the Regulations, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations thereunder so as to permit the continuance of sales of and
dealings in the Offered Shares and in any Optional Shares which may be issued
and sold. If, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event occurs as a result of which the
Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements
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<PAGE>
therein, in light of the circumstances under which they were made, not
misleading, or if it shall be necessary to amend or supplement the Registration
Statement and Prospectus to comply with the Act or the regulations thereunder,
the Company will promptly file with the Commission, subject to Section 5(a)
hereof, an amendment or supplement which will correct such statement or omission
or which will effect such compliance.
(e) The Company will make generally available to its security
holders, in the manner specified in Rule 158(b) under the Act, and deliver to
the Representatives and Underwriters' Counsel as soon as practicable and in any
event not later than 45 days after the end of its fiscal quarter in which the
first anniversary date of the effective date of the Registration Statement
occurs, an earning statement meeting the requirements of Rule 158(a) under the
Act covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement.
(f) For a period of three years from the Effective Date, the Company
will deliver to the Representatives, on a timely basis (i) a copy of each report
or document, including, without limitation, reports on Forms 8-K, 10-C, 10-K and
10-Q and exhibits thereto, filed or furnished to the Commission, any securities
exchange or the National Association of Securities Dealers, Inc. (the "NASD") on
the date each such report or document is so filed or furnished; (ii) as soon as
practicable, copies of any reports or communications (financial or other) of the
Company mailed to its security holders; (iii) as soon as practicable, a copy of
any Schedule 13D, 13G, 14D-1 or 13E-3 received or prepared by the Company from
time to time; (iv) to the extent available, quarterly statements setting forth
such information regarding the Company's results of operations and financial
position (including balance sheet, profit and loss statements and data regarding
backlog) as is regularly prepared by management of the Company; and (v) such
additional information concerning the business and financial condition of the
Company as the Representatives may from time to time reasonably request and
which can be prepared or obtained by the Company without unreasonable effort or
expense. The Company will furnish to its stockholders annual reports containing
audited financial statements and such other periodic reports as it may determine
to be appropriate or as may be required by law.
(g) Neither the Company nor any person that controls, is controlled
by or is under common control with the Company will take any action designed to
or which might be reasonably expected to cause or result in the stabilization or
manipulation of the price of the Common Shares.
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<PAGE>
(h) If the transactions contemplated by this Agreement are
consummated, the Company will pay or cause to be paid the following: all costs
and expenses incident to the performance of the obligations of the Company under
this Agreement, including, but not limited to, the fees and expenses of
accountants and counsel for the Company; the preparation, printing, mailing and
filing of the Registration Statement (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements thereto; the reproducing and mailing of the Selected Dealer
Agreement; the issuance and delivery of the Shares to the Representatives; all
taxes, if any, on the issuance of the Shares; the fees, expenses and other costs
of listing the Shares on Nasdaq and of qualifying the Shares for sale under the
"Blue Sky" or securities laws of those states in which the Shares are to be
offered or sold, including the fees and disbursements of Underwriters' Counsel
incurred in connection therewith, and the cost of reproducing and mailing the
"Blue Sky Survey"; the filing fees incident to securing any required review by
the NASD; the cost of furnishing to the several Underwriters copies of the
Registration Statement, Preliminary Prospectuses and the Prospectus as herein
provided; the costs of placing "tombstone advertisements" in any publications
which may be selected by the Representatives; and all other costs and expenses
incident to the performance of the Company's obligations hereunder which are not
otherwise specifically provided for in this Section 5(h).
In addition, at the Closing Date and the Option Closing Date, the
Representatives will deduct from the payment for the Shares an amount equal to
the Representatives' accountable out-of-pocket costs, fees and expenses (up to
an aggregate maximum of $_______ [1.0% of the gross proceeds from the sale of
the Shares]) incurred in connection with the registration process, which amount
will include the fees and expenses of Underwriters' Counsel (other than those
payable by the Company in connection with "Blue Sky" qualifications referred to
in the preceding paragraph) incurred in connection with the registration process
and all of the costs associated with the marketing and selling of the Shares.
(i) If the transactions contemplated by this Agreement or related
hereto are not consummated because the Company and/or Pulsar decides not to
proceed with the offering and/or the Acquisition for any reason or if the
Representatives decide not to proceed with the offering because of a breach by
the Company and/or Pulsar of their representations, warranties or covenants in
this Agreement or as a result of adverse changes in the affairs of the Company
and/or Pulsar, the Company and Pulsar will reimburse the Representatives for all
of their accountable expenses reasonably incurred in connection with the
offering. In no event, however, will the Representatives, in the event the
offering is terminated,
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<PAGE>
be entitled to receive more than an amount equal to their actual accountable
out-of-pocket expenses.
(j) The Company intends to apply the net proceeds from the sale of
the Shares for the purposes set forth in the Prospectus.
(k) During the period of twenty-four (24) months following the date
hereof, (i) neither the Company nor any of its officers, directors or
securityholders will offer for sale, sell, transfer, pledge or otherwise dispose
of, directly or indirectly, any securities of the Company, in any manner
whatsoever, whether pursuant to Rule 144 of the Regulations or otherwise, (other
than by bona fide gift, will or the laws of descent or distribution to the
securityholder's spouse, children or grandchildren, or partnership, the general
partner of which is the securityholder (or a corporation, a majority of whose
outstanding stock is owned of record or beneficially by the securityholder or
any of the foregoing) or partners of the securityholder in connection with the
securityholder partnership's distribution of its Common Shares to its partners;
provided in each case that the transferee first executes and delivers to the
Underwriter an undertaking to be bound by the provisions of this Section 5(k))
provided that, after the first six (6) months of such period, this restriction
can be waived by BlueStone, in its sole discretion, and provided further that,
after the first twelve (12) months of such period, sales may be made, without
BlueStone's consent, as long as the number of shares (or share equivalents) sold
by all of such holders, in the aggregate, does not exceed, during any 90-day
period, the greater of (I) 1% of the then outstanding shares of Common Stock and
(II) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the holder's sale, and (ii) no holder of registration
rights relating to securities of the Company will execute any such registration
rights without the prior written consent of BlueStone. The Company will deliver
to the Representatives the undertakings as of the date hereof of its officers,
directors and securityholders to this effect.
(l) The Company will not file any registration statement relating to
the offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the twenty-four (24) months following the date
hereof (the "Restriction Period") without BlueStone's prior written consent;
except that after the twelve month (12) anniversary of the date hereof, the
Company may file a registration statement on Form S-8, provided that no more
than 100,000 shares of Common Stock may be sold pursuant to such registration
statement during the Restriction Period by persons who are not officers or
directors of the Company or family members of an officer or director of the
Company.
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(m) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(n) The Company will use its best efforts to maintain the listing of
the Shares on Nasdaq or another exchange that is mutually agreed upon by the
Company and the Representatives for so long as the Shares are qualified for such
listing.
(o) The Company will, concurrently with the Effective Date, register
the class of equity securities of which the Shares are a part under Section
12(g) of the Exchange Act and the Company will maintain the registration for a
minimum of five (5) years after the Effective Date.
(p) Subject to the sale of the Offered Shares, BlueStone and its
successors will have the right to designate up to two (2) nominees for election,
at its or their option, either as members of or non-voting advisors to the Board
of Directors of the Company, and the Company will use its best efforts to cause
such nominees to be elected and continued in office as a director of the Company
or as such advisor until the expiration of three (3) years from the Effective
Date. Following the election of such nominee(s) as a director(s) or advisor(s),
such persons shall receive no more or less compensation than is paid to other
non-officer directors of the Company for attendance at meetings of the Board of
Directors of the Company and shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings, including, but not limited
to, food, lodging and transportation. The Company agrees to indemnify and hold
each of such director(s) and/or advisor(s)harmless, to the maximum extent
permitted by law, against any and all claims, actions, awards and judgments
arising out of his service as a director or advisor and, in the event the
Company maintains a liability insurance policy affording coverage for the acts
of its officers and directors, to include such director(s) or advisor(s) as an
insured under such policy. The rights and benefits of such indemnification and
the benefits of such insurance shall, to the extent possible, extend to
BlueStone insofar as it may be or may be alleged to be responsible for such
director(s) or advisor(s).
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If BlueStone does not exercise its option to designate members of or
advisors to the Company's Board of Directors, it shall nonetheless have the
right to send a representative (who need not be the same individual from meeting
to meeting) to observe each meeting of the Board of Directors. The Company
agrees to give BlueStone notice of each such meeting and to provide BlueStone
with an agenda and minutes of the meeting no later than it gives such notice and
provides such items to the directors.
(q) The Company shall retain a transfer agent for the Common Shares,
reasonably acceptable to BlueStone, for a period of three (3) years following
the Effective Date. In addition, for a period of three (3) years following the
Effective Date, the Company, at its own expense, shall cause its transfer agent
to provide BlueStone, if so requested in writing, with copies of the Company's
daily transfer sheets and when requested by BlueStone, a current list of the
Company's security holders, including a list of the beneficial owners of
securities held by a depository trust company and other nominees.
(r) The Company hereby agrees, at its sole cost and expense, to
supply and deliver to Underwriters' Counsel, within a reasonable period from the
date hereof, five bound volumes, including the Registration Statement, as
amended or supplemented, all exhibits to the Registration Statement, the
Prospectus and all other underwriting documents.
(s) The Company shall, within ten days of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service (including
annual report information) or Moody's Industrial Manual (Moody's OTC Industrial
Manual not being sufficient for these purposes) and shall use its best efforts
to have the Company listed in such manual and shall maintain such listing for a
period of three (3) years following the Effective Date.
(t) For a period of two (2) years from the Effective Date, the
Company shall provide BlueStone, on a not less than annual basis, with internal
forecasts setting forth projected results of operations for each annual period
in the two (2) fiscal years following the respective dates of such forecasts;
provided, however, that BlueStone shall keep confidential and shall not disclose
to any third party any material non-public information. Such forecasts shall be
provided to BlueStone more frequently than annually if prepared more frequently
by management, and revised forecasts shall be prepared and provided to BlueStone
when required to reflect more current information, revised assumptions or actual
results that differ materially from those set forth in the forecasts.
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(u) For a period of three (3) years following the Effective Date, the
Company shall continue to retain KPMG Peat Marwick LLP (or such other nationally
recognized accounting firm as is acceptable to BlueStone) as the Company's
independent public accountants.
(v) For a period of three (3) years following the Effective Date, the
Company, at its expense, shall cause its independent certified public
accountants, as described in Section 5(u) above, to review (but not audit) the
Company's financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-Q quarterly report and the mailing of quarterly financial
information to shareholders.
(w) For a period of twenty-five (25) days following the Effective
Date, the Company will not issue press releases or engage in any other publicity
without BlueStone's prior written consent, other than normal and customary
releases issued in the ordinary course of the Company's business or those
releases required by law.
(x) For a period of three (3) years following the Effective Date, the
Company will cause its Board of Directors to meet, either in person or
telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per annum.
(y) For a period of 18 months following the Effective Date, the
Company will not offer or sell any of its securities (i) pursuant to Regulation
S of the Act, or (ii) at a discount from the then current market price, without
the prior written consent of BlueStone.
(z) On or prior to the Closing Date, the Company will complete the
Acquisition on the terms described in the Prospectus.
6. Conditions of the Underwriters' Obligation to Purchase Shares from the
----------------------------------------------------------------------
Company. The obligation of the several Underwriters to purchase and pay for the
- -------
Offered Shares which they have agreed to purchase from the Company is subject
(as of the date hereof and the Closing Date) to the accuracy of, and the
Company's compliance in all material respects with, the representations and
warranties of the Company herein, to the accuracy of the statements of the
Company and its officers made pursuant hereto, to the performance in all
material respects by the Company or its Subsidiaries of their respective
obligations hereunder, and to the following additional conditions:
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(a) The Registration Statement will have become effective not later
than 9:30 A.M., New York City time, on the day following the date of this
Agreement, or at such later time or on such later date as the Representatives
may agree to in writing; prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or, to
the best of the Representatives' or the Company's knowledge, will be
contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Underwriters' Counsel.
(b) At the time that this Agreement is executed and at the Closing
Date, there will have been delivered to the Representatives a signed opinion of
Arent Fox Kintner Plotkin & Kahn, PLLC, counsel for the Company ("Company
Counsel"), dated as of the date hereof or the Closing Date, as the case may be,
substantially in the form of Exhibit 6(b) hereto.
In rendering its opinion pursuant to this Section 6(b), Company counsel may
rely upon the certificates of government officials and officers of the Company
as to matters of fact, provided that Company shall state that they have no
reason to believe, and no not believe, that they are justified in relying upon
such opinions or such certificates of government officials and officers of the
Company as to matters of fact, as the case may be.
The opinion letters delivered pursuant to this Section 6(b) shall state
that any opinion given therein qualified by the phrase "to the best of our
knowledge" is being given by Company Counsel after due investigation of the
matters therein discussed.
(c) At the Closing Date, there will have been delivered to the
Representatives a signed opinion of Underwriters' Counsel, dated as of the
Closing Date, to the effect that the opinions delivered pursuant to Section 6(b)
hereof appear on their face to be appropriately responsive to the requirements
of this Agreement, except to the extent waived by the Representatives,
specifying the same, and with respect to such other related matters as the
Representatives may require.
(d) At the Closing Date (i) the Registration Statement and the
Prospectus and any amendments or supplements thereto will contain all material
statements which are required to be stated therein in accordance with the Act
and the Regulations and will conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state
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any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there will not have been any
material adverse change in the financial condition, results of operations or
general affairs of the Company from that set forth or contemplated in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and the Prospectus indicate might occur after the Effective Date;
(iii) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no material
transaction, contract or agreement entered into by the Company, other than in
the ordinary course of business, which would be required to be set forth in the
Registration Statement and the Prospectus, other than as set forth therein; and
(iv) no action, suit or proceeding at law or in equity will be pending or, to
the best of the Company's knowledge, threatened against the Company which is
required to be set forth in the Registration Statement and the Prospectus, other
than as set forth therein, and no proceedings will be pending or, to the best of
the Company's knowledge, threatened against the Company before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would materially adversely affect the
business, property, financial condition or results of operations of the Company,
other than as set forth in the Registration Statement and the Prospectus. At the
Closing Date, there will be delivered to the Representatives a certificate
signed by the Chairman of the Board or the President or a Vice President of the
Company, dated the Closing Date, evidencing compliance with the provisions of
this Section 6(d) and stating that the representations and warranties of the
Company set forth in Section 4 hereof were accurate and complete in all material
respects when made on the date hereof and are accurate and complete in all
material respects on the Closing Date as if then made; that the Company has
performed all covenants and complied with all conditions required by this
Agreement to be performed or complied with by the Company prior to or as of the
Closing Date; and that, as of the Closing Date, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been initiated or, to the best of his knowledge, are
contemplated or threatened. In addition, the Representatives will have received
such other and further certificates of officers of the Company as the
Representatives or Underwriters' Counsel may reasonably request.
(e) At the time that this Agreement is executed and at the Closing
Date, the Representatives will have received a signed letter from KPMG LLP,
dated the date such letter is to be received by the Representatives and
addressed to it, confirming that it is a firm of independent public accountants
within the
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meaning of the Act and Regulations and stating that: (i) insofar as reported on
by it, in its opinion, the Financial Statements included in the Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act and the applicable Regulations; (ii) on the basis of
procedures and inquiries (not constituting an examination in accordance with
generally accepted auditing standards) consisting of a reading of the unaudited
interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus and the latest available unaudited
interim financial statements of the Company and Pulsar, if more recent than that
appearing in the Registration Statement and Prospectus, inquiries of officers of
the Company and officers of Pulsar responsible for financial and accounting
matters as to the transactions and events subsequent to the date of the latest
audited financial statements of the Company and Pulsar, and a reading of the
minutes of meetings of the shareholders, the Board of Directors and any
committees of the Board of Directors of each of the Company and of Pulsar, as
set forth in the minute books of the Company and of Pulsar, nothing has come to
its attention which, in its judgment, would indicate that (A) during the period
from the date of the latest financial statements of the Company and Pulsar
appearing in the Registration Statement and Prospectus to a specified date not
more than three business days prior to the date of such letter, there have been
any decreases in net current assets or net assets as compared with amounts shown
in such financial statements or decreases in net sales or decreases in total or
per share net income compared with the corresponding period in the preceding
year or any change in the capitalization or long-term debt of the Company or
Pulsar, except in all cases as set forth in or contemplated by the Registration
Statement and the Prospectus, and (B) the unaudited interim financial statements
of the Company and Pulsar, if any, appearing in the Registration Statement and
the Prospectus, do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Regulations or are not
fairly presented in conformity with generally accepted accounting principles and
practices on a basis substantially consistent with the audited financial
statements included in the Registration Statement or the Prospectus; and (iii)
it has compared specific dollar amounts, numbers of shares, numerical data,
percentages of revenues and earnings, and other financial information pertaining
to the Company and Pulsar set forth in the Prospectus (with respect to all
dollar amounts, numbers of shares, percentages and other financial information
contained in the Prospectus, to the extent that such amounts, numbers,
percentages and information may be derived from the general accounting records
of the Company or Pulsar, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance
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<PAGE>
with generally accepted auditing standards) set forth in the letter, and found
them to be in agreement.
(f) There shall have been duly tendered to the Representatives
certificates representing the Offered Shares to be sold on the Closing Date.
(g) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Offered Shares by the
Underwriters or the sale of the Shares by the Representatives.
(h) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date or
the Option Closing Date, as the case may be, for any member firm of the NASD to
execute transactions (as principal or as agent) in the Shares, and no
proceedings for the purpose of taking such action shall have been instituted or
shall be pending, or, to the best of the Representatives' or the Company's
knowledge, shall be contemplated by the Commission or the NASD. The Company
represents at the date hereof, and shall represent as of the Closing Date or
Option Closing Date, as the case may be, that it has no knowledge that any such
action is in fact contemplated by the Commission or the NASD.
(i) The Common Shares have been approved for listing on Nasdaq.
(j) All proceedings taken at or prior to the Closing Date or the
Option Closing Date, as the case may be, in connection with the authorization,
issuance and sale of the Shares shall be reasonably satisfactory in form and
substance to the Representatives and to Underwriters' Counsel, and such counsel
shall have been furnished with all such documents, certificates and opinions as
they may request for the purpose of enabling them to pass upon the matters
referred to in Section 6(c) hereof and in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have delivered to the
Representatives the written undertakings of its officers, directors and security
holders and/or registration rights holders, as the case may be, to the effect of
the matters set forth in Section 5(l).
(l) Each of the Company's current officers, directors and
securityholders shall have agreed to vote all of the Common Shares owned by such
person or entity so as to elect and
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<PAGE>
continue in office such nominee(s) of BlueStone as more fully set forth in
section 5(p) above.
If any of the conditions specified in this Section 6 have not been
fulfilled, this Agreement may be terminated by the Representatives on notice to
the Company.
7. Indemnification.
----------------
(a) Each of the Company and Pulsar agrees, jointly and severally, to
indemnify and hold harmless each Underwriter, including specifically each person
that may be substituted for an Underwriter as provided in Section 10 hereof,
each officer, director, partner, employee and agent of any Underwriter, and each
person, if any, who controls any of the Underwriters within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any
and all losses, claims, damages, expenses or liabilities, joint or several (and
actions in respect thereof), to which they or any of them may become subject
under the Act or under any other statute or at common law or otherwise, and,
except as hereinafter provided, will reimburse each of the Underwriters and each
such person, if any, for any legal or other expenses reasonably incurred by them
or any of them in connection with investigating or defending any actions,
whether or not resulting in any liability, insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained (i) in
the Registration Statement, in any Preliminary Prospectus or in the Prospectus
(or the Registration Statement or Prospectus as from time to time amended or
supplemented) or (ii) in any application or other document executed by the
Company, or based upon written information furnished by or on behalf of the
Company, filed in any jurisdiction in order to qualify the Shares under the
securities laws thereof (hereinafter "application"), or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, in light of the circumstances under which they were
made, unless such untrue statement or omission was made in such Registration
Statement, Preliminary Prospectus, Prospectus or application in reliance upon
and in conformity with information furnished in writing to the Company in
connection therewith by the Underwriter or any such person through the
Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares which are the subject thereof from such
Underwriter or other indemnified person; (B) such
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<PAGE>
Underwriter or other indemnified person failed to send or give a copy of the
Prospectus to such person at or prior to the written confirmation of the sale of
such Shares to such person; and (C) the Prospectus did not contain any untrue
statement or alleged untrue statement or omission or alleged omission giving
rise to such cause, claim, damage, expense or liability.
(b) Each Underwriter (including specifically each person that may be
substituted for an Underwriter as provided in Section 11 hereof) agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions in respect thereof), to
which they or any of them may become subject under the Act or under any other
statute or at common law or otherwise, and, except as hereinafter provided, will
reimburse the Company and each such director, officer or controlling person for
any legal or other expenses reasonably incurred by them or any of them in
connection with investigating or defending any actions, whether or not resulting
in any liability, insofar as such losses, claims, damages, expenses, liabilities
or actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Shares under
state securities or Blue Sky laws), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, in light of the circumstances under which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by such Underwriter, or by the Representatives on behalf of such
Underwriter, expressly for use therein.
(c) Promptly after receipt of notice of the commencement of any
action in respect of which indemnity may be sought against any indemnifying
party under this Section 7, the indemnified party will notify the indemnifying
party in writing of the commencement thereof, and the indemnifying party will,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel satisfactory to the indemnified party and
the payment of expenses) insofar as such action relates to an alleged liability
in respect of which indemnity may be sought against the indemnifying party.
After notice from the indemnifying party of its election to assume the
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<PAGE>
defense of such claim or action, the indemnifying party shall no longer be
liable to the indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that if, in the reasonable judgment of the indemnified party or parties, it is
advisable for the indemnified party or parties to be represented by separate
counsel, the indemnified party or parties shall have the right to employ a
single counsel to represent the indemnified parties who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the indemnified parties thereof against the indemnifying party, in which
event the fees and expenses of such separate counsel shall be borne by the
indemnifying party. Any party against whom indemnification may be sought under
this Section 7 shall not be liable to indemnify any person that might otherwise
be indemnified pursuant hereto for any settlement of any action effected without
such indemnifying party's consent.
8. Contribution. To provide for just and equitable contribution, if
------------
(i) an indemnified party makes a claim for indemnification pursuant to Section 8
hereof (subject to the limitations thereof) and it is finally determined, by a
judgment, order or decree not subject to further appeal, that such claim for
indemnification may not be enforced, even though this Agreement expressly
provides for indemnification in such case; or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company and Pulsar (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) as one entity and the Underwriters (including, for this purpose,
any contribution by or on behalf of each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee and agent of any of
the Underwriters) as a second entity, shall contribute to the losses,
liabilities, claims, damages and expenses whatsoever to which any of them may be
subject, so that the Underwriters are responsible for the proportion thereof
equal to the percentage which the underwriting discount per Share set forth on
the cover page of the Prospectus represents of the initial public offering price
per Share set forth on the cover page of the Prospectus and the Company is
responsible for the remaining portion; provided, however, that if applicable law
does not permit such allocation, then, if applicable law permits, other relevant
equitable considerations such as the relative fault of the Company and Pulsar on
the one hand, and the Underwriters, on the other hand, in connection with the
facts which resulted in such losses, liabilities, claims, damages and expenses
shall also be considered. The relative fault, in the case of an
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untrue statement, alleged untrue statement, omission or alleged omission, shall
be determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by the Company or
by the Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission. The Company and Pulsar, on one hand,
and the Underwriters, on the other hand, agree that it would be unjust and
inequitable if the respective obligations of the Company, Pulsar and the
Underwriters for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses or
by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 8. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls any of the Underwriters within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee
and agent of any of the Underwriters will have the same rights to contribution
as the Underwriters, and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company will have the same rights to contribution as the
Company, subject in each case to the provisions of this Section 8. Anything in
this Section 8 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8 is intended to supersede, to the
extent permitted by law, any right to contribution under the Act or the Exchange
Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
-----------------------------------------------------
Representations. The respective indemnity and contribution agreements of the
- ---------------
Company, Pulsar and the Underwriters contained in Sections 7 and 8 hereof, and
the representations and warranties of the Company and Pulsar contained in this
Agreement shall remain operative and in full force and effect, regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of the Underwriters, the Company or any of its directors and officers or
Pulsar or any controlling person referred to in said Sections, and shall survive
the delivery of, and payment for, the Shares.
10. Substitution of Underwriters.
-----------------------------
(a) If one or more Underwriters should default in its or their
obligation to purchase and pay for any Offered Shares
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<PAGE>
hereunder and if the aggregate number of such Offered Shares which all
Underwriters so defaulting have agreed to purchase does not exceed 10% of the
total number of the Offered Shares, the non-defaulting Underwriters will be
obligated severally to purchase and pay for (in addition to the number of
Offered Shares set forth opposite their names in Schedule A attached hereto) the
full number of Offered Shares agreed to be purchased by all defaulting
Underwriters, and not so purchased, in proportion to their respective
commitments hereunder. In such event the Representatives, for the accounts of
the several nondefaulting Underwriters, may take up and pay for all or any part
of such additional Offered Shares to be purchased by each such Underwriter under
this Section 10(a), and may postpone the Closing Date to a time not exceeding
three full business days after the Closing Date determined as provided in
Section 2 hereof.
(b) If one or more Underwriters should default in its or their
obligation to purchase and pay for any Offered Shares hereunder and if the
aggregate number of such Offered Shares which all Underwriters so defaulting
have agreed to purchase exceeds 10% of the total number of Offered Shares, or if
one or more Underwriters for any reason permitted hereunder should cancel its or
their obligation to purchase and pay for Offered Shares hereunder, the non-
cancelling and non-defaulting Underwriters (hereinafter called the "remaining
Underwriters") will have the right to purchase such Offered Shares in such
proportion as may be agreed among them at the Closing Date determined as
provided in Section 2 hereof. If the remaining Underwriters do not purchase and
pay for such Offered Shares at such Closing Date, the Closing Date will be
postponed for 24 hours and the remaining Underwriters will have the right to
purchase such Offered Shares, or to substitute another person or persons to
purchase the same, or both, at such postponed Closing Date. If purchasers have
not been found for such Offered Shares by such postponed Closing Date, the
Closing Date will be postponed for a further 24 hours, and the Company will have
the right to substitute another person or persons, reasonably satisfactory to
the Representatives to purchase such Offered Shares at such second postponed
Closing Date. If it shall be arranged for the remaining Underwriters or
substituted underwriters to take up the Firm Shares of the defaulting
Underwriter or Underwriters as provided in this Section, (A) the Company shall
have the right to postpone the time of delivery for a period of not more than
three (3) full Business Days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary. If the Company has not found such purchasers for
such Offered Shares by such second postponed Closing Date, then this Agreement
will automatically terminate, and neither the
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Company nor the remaining Underwriters will be under any obligation under this
Agreement (except that the Company and the Underwriters will remain liable to
the extent provided in Sections 7 and 8 hereof and the Company will also remain
liable to the extent provided in Section 5(j) hereof). As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10(b). Nothing in Section 11 hereof will relieve
a defaulting Underwriter from the liability for its default and nothing in this
Section 10(b) will obligate any Underwriter to purchase or find purchasers for
any Offered Shares in excess of those agreed to be purchased by such Underwriter
under the terms of Section 2 hereof.
11. Termination of Agreement.
-------------------------
(a) The Company, by written or telegraphic notice to the
Representatives, or the Representatives, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriters, after the Registration Statement becomes
effective, release the Offered Shares for public offering. The time when the
Underwriters "release the Offered Shares for public offering" for the purposes
of this Section 11 means the time when the Underwriters release for publication
the first newspaper advertisement, which is subsequently published, relating to
the Offered Shares, or the time when the Underwriters release for delivery to
members of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Shares, whichever will first occur.
(b) This Agreement, including without limitation, the obligation
to purchase the Shares and the obligation to purchase the Optional Shares after
exercise of the option referred to in Section 3 hereof, is subject to
termination in the absolute discretion of the Underwriters, by notice given to
the Company prior to delivery of and payment for all the Offered Shares or the
Optional Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or cannot be complied with; (iii)
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange will have been suspended, other than intra-day programmed trading
curbs imposed by Nasdaq; (iv) limited or minimum prices will have been
established on either such Exchange; (v) a banking moratorium will have been
declared either by federal or New York State authorities; (vi) any other
restrictions on transactions in securities materially affecting the free market
for securities
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<PAGE>
or the payment for such securities, including the Offered Shares or the Optional
Shares, will be established by either of such Exchanges, by the Commission, by
any other federal or state agency, by action of the Congress or by Executive
Order; (vii) trading in any securities of the Company shall have been suspended
or halted by any national securities exchange, the NASD or the Commission;
(viii) there has been a materially adverse change in the condition (financial or
otherwise), prospects or obligations of the Company; (ix) the Company will have
sustained a material loss, whether or not insured, by reason of fire, flood,
accident or other calamity; (x) any action has been taken by the government of
the United States or any department or agency thereof which, in the judgment of
the Representatives, has had a material adverse effect upon the market or
potential market for securities in general; or (xi) the market for securities in
general or political, financial or economic conditions will have so materially
adversely changed that, in the judgment of the Representatives, it will be
impracticable to offer for sale, or to enforce contracts made by the
Underwriters for the resale of, the Offered Shares or the Optional Shares, as
the case may be.
(c) If this Agreement is terminated pursuant to Section 6 hereof or
this Section 11 or if the purchases provided for herein are not consummated
because any condition of the Underwriters' obligations hereunder is not
satisfied or because of any refusal, inability or failure on the part of the
Company to comply with any of the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to any of the Underwriters for damages on account of loss of anticipated
profits arising out of the transactions covered by this Agreement, but the
Company will remain liable to the extent provided in Sections 5(j), 7, 8 and 9
of this Agreement.
12. Information Furnished by the Underwriters to the Company. It is hereby
--------------------------------------------------------
acknowledged and agreed by the parties hereto that for the purposes of this
Agreement, including, without limitation, Sections 4(e), 7(a), 7(b) and 8
hereof, the only information given by the Underwriters to the Company for use in
the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, information in the ____ paragraph on page ___ with
respect to concessions and reallowances, the table on page _____ regarding the
offering syndicate, and the information in the ____, ________ and ________ full
paragraphs on page ____ with respect to discretionary accounts, the
determination of the public offering price and stabilizing the market price of
the Shares, respectively, as such information appears in any Preliminary
Prospectus and in the Prospectus.
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13. Notices and Governing Law. All communications hereunder will be in
-------------------------
writing and, except as otherwise provided, will be delivered at, or mailed by
certified mail, return receipt requested, or telecopied to, the following
addresses: if to BlueStone, the Representatives, or the Underwriters, to
BlueStone Capital Partners, L.P., Attention: Mark T. Behrman, 575 Fifth Avenue,
New York, New York 10017, Facsimile No. (212) 681-8320, with a copy to Tenzer
Greenblatt LLP, Attention: Robert J. Mittman, Esq., 405 Lexington Avenue, New
York, New York 10174, Facsimile No. (212) 885-5001; if to the Company, to
Litronic Inc., 2030 Main Street, Suite 1250, Irvine, California 92614,
Attention: Kris Shah, Chief Executive Officer; with a copy to Arent Fox Kintner
Plotkin & Kahn, PLLC, 1050 Connecticut Avenue, N.W., Washington, D.C. 20036-
4339, Attention: Gerald P. McCartin, Esq., Facsimile No. (202) 857-6395.
This Agreement shall be deemed to have been made and delivered in New York
City and shall be governed as to validity, interpretation, construction, effect
and in all other respects by the internal laws of the State of New York. The
Company (1) agrees that any legal suit, action or proceeding arising out of or
relating to this Agreement shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (2) waives any objection which the Company
may have now or hereafter to the venue of any such suit, action or proceeding,
and (3) irrevocably consents to the jurisdiction of the New York State Supreme
Court, County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Company
further agrees to accept and acknowledge service of any and all process which
may be served in any such suit, action or proceeding in the New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York and agrees that service of process upon the
Company mailed by certified mail to the Company's address (Attention: President)
shall be deemed in every respect effective service of process upon the Company
in any such suit, action or proceeding.
14. Parties in Interest. This Agreement is made solely for the benefit of
-------------------
the several Underwriters, the Company and, to the extent expressed, any person
controlling the Company or the Underwriters, each officer, director, partner,
employee and agent of the Underwriters, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares from any
of the Underwriters, as such purchaser.
-33-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement between the Company, Pulsar and the Underwriters in
accordance with its terms.
Very truly yours,
LITRONIC INC.
By: ___________________________
Name:
Title:
PULSAR DATA SYSTEMS, INC.
By:____________________________
Name:
Title:
Confirmed and accepted in New York, N.Y.,
as of the date first above written:
BLUESTONE CAPITAL PARTNERS, L.P.
By: BlueStone Capital Management, Inc.,
General Partner
By: ____________________________________
Name:
Title:
PACIFIC CREST SECURITIES INC.
By: ____________________________________
Name:
Title:
Acting on behalf of themselves as the
Representatives of the several Underwriters
named in Schedule A hereto.
-34-
<PAGE>
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
Underwriter Number of Shares
- ----------- ----------------
BlueStone Capital Partners, L.P
Pacific Crest Securities Inc. _________
Total.................................. 3,700,000
=========
<PAGE>
EXHIBIT 6(b)
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
power and authority, corporate and other, and with all Permits necessary to own
or lease, as the case may be, and operate its properties, whether tangible or
intangible, and to conduct its business as described in the Registration
Statement. Other than LIT, the Company has no subsidiaries as of the date hereof
and, as of the Closing Date, will have no subsidiaries other than LIT and
Pulsar. The Company has no equity interest in any entities other than the
Subsidiaries. Each of the Subsidiaries is a corporation duly organized and
validly existing under the laws of its state of incorporation. Unless the
context otherwise requires, all references to the "Company" in this opinion
shall include the Subsidiaries. Each of the Company and of the Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions wherein such qualification is necessary and failure so to
qualify could have a material adverse effect on the financial condition, results
of operations, business or properties of the Company. Each of the Subsidiaries
has full power and authority, corporate and other, and all Permits necessary to
own or lease, as the case may be, and operate its properties, whether tangible
or intangible, and to conduct its business as described in the Registration
Statement.
On the Closing Date, the Company will own all of the issued and
outstanding shares of capital stock of each of the Subsidiaries, free and clear
of any security interests, liens, encumbrances, claims and charges, and all of
such shares have been duly authorized and validly issued and are fully paid and
non-assessable. There are no options or warrants for the purchase of, or other
rights to purchase, or outstanding securities convertible into or exchangeable
for, any capital stock or other securities of any Subsidiary other than those
described in the Prospectus.
(ii) The Company and Pulsar each has full power and
authority, corporate and other, to execute, deliver and perform this Agreement
and to consummate the transactions contemplated hereby and the Company has full
power and authority, corporate and other, to execute, deliver and perform the
Representatives' Warrant Agreement and to consummate the transactions
contemplated thereby. The execution, delivery and performance of this Agreement
by the Company and Pulsar and the Representatives' Warrant Agreement by the
Company, the consummation by the Company and Pulsar of the transactions herein
and by the Company of the transactions therein contemplated and the compliance
by the Company and Pulsar with the terms of this Agreement and by the Company
with the terms of the Representatives' Warrant Agreement have been duly
authorized by all
-1-
<PAGE>
necessary corporate action. This Agreement has been duly executed and delivered
by the Company and Pulsar and constitutes the valid and binding obligation of
the Company and Pulsar, and the Representatives' Warrant Agreement, when
executed and delivered by the Company on the Closing Date, will be the valid and
binding obligation of the Company, enforceable in accordance with their
respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions set
forth in Section 7 and the contribution provisions set forth in Section 8 of
this Agreement may be limited by the federal securities laws or public policy
underlying such laws.
(iii) The execution, delivery and performance of this Agreement
by the Company and Pulsar and the Representatives' Warrant Agreement by the
Company, the consummation by the Company and Pulsar of the transactions herein
contemplated and by the Company of the transactions therein contemplated and the
compliance by the Company and Pulsar with the terms of this Agreement and by the
Company with the terms of the Representatives' Warrant Agreement do not, and
will not, with or without the giving of notice or the lapse of time, or both,
(A) result in a violation of the Certificate of Incorporation or Articles of
Incorporation, as the case may be, or By-Laws (or similar charter documents),
each as amended, of the Company or of any Subsidiary, (B) result in a breach of
or conflict with any terms or provisions of, or constitute a default under, or
result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties or assets are or may be bound
or affected; (C) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of their
respective properties or business; or (D) have any effect on any Permit
necessary for the Company or any Subsidiary to own or lease and operate their
respective properties or conduct their businesses or the ability of the Company
to make use thereof except in the case of clauses (ii), (iii) and (iv) where
such breach, conflict, default, violation, effect or other action or failure
would not have a material adverse effect on the business, financial condition or
results of operations of the Company and its Subsidiaries taken as a whole.
-2-
<PAGE>
(iv) To the best of Company Counsel's knowledge, no Permits of
any court or governmental agency or body (other than under the Act, the
Regulations and applicable state securities or Blue Sky laws) are required for
the valid authorization, issuance, sale and delivery of the Shares or the
Representatives' Warrants, and the consummation by the Company and Pulsar of the
transactions contemplated by this Agreement and by the Company of the
transactions contemplated by the Representatives' Warrant Agreement.
(v) The Registration Statement has become effective under the
Act; to the best of Company Counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued; and no proceedings
for that purpose have been instituted or are pending, threatened or contemplated
under the Act or applicable state securities laws.
(vi) The Registration Statement and the Prospectus, as of the
Effective Date, and each amendment or supplement thereto as of its effective or
issue date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form S-1 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement and the
Prospectus of statutes, regulations, government classifications, contracts and
other documents (including opinions of such counsel); and the response to Item
10 of Form S-1 have been reviewed by Company Counsel, and, based upon such
review, are accurate in all material respects and present fairly the information
required to be disclosed, and there are no material statutes, regulations or
government classifications, or, to the best of Company Counsel's knowledge,
material contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
None of the material provisions of the contracts or instruments
described above violates any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or any Subsidiary or any of their assets or
businesses. To the best of Company counsel's knowledge, the Company is not in
default under any contract or agreement material to its business or under any
promissory note or other evidence of indebtedness for borrowed funds.
-3-
<PAGE>
(viii) The outstanding Common Shares and outstanding options and
warrants to purchase Common Shares have been duly authorized and validly issued.
The outstanding Common Shares are fully paid and nonassessable. The outstanding
options and warrants to purchase Common Shares constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms. None of
the outstanding Common Shares or options or warrants to purchase Common Shares
has been issued in violation of the preemptive rights of any shareholder of the
Company. None of the holders of the outstanding Common Shares is subject to
personal liability solely by reason of being such a holder. The offers and sales
of the outstanding Common Shares and outstanding options and warrants to
purchase Common Shares were at all relevant times either registered under the
Act and the applicable state securities or Blue Sky laws or exempt from such
registration requirements. The authorized Common Shares and outstanding options
and warrants to purchase Common Shares conform to the descriptions thereof
contained in the Registration Statement and Prospectus. To the best of Company
Counsel's knowledge, except as set forth in the Prospectus, no holders of any of
the Company's securities has any rights, "demand", "piggyback" or otherwise, to
have such securities registered under the Act.
(ix) The issuance and sale of the Shares and Warrant Shares
have been duly authorized and, when the Shares and Warrant Shares have been
issued and duly delivered against payment therefor as contemplated by this
Agreement and the Representatives' Warrant Agreement, respectively, the Shares
and the Warrant Shares will be validly issued, fully paid and nonassessable, and
the holders thereof will not be subject to personal liability solely by reason
of being such holders. Neither the Shares nor the Warrant Shares are subject to
preemptive rights of any shareholder of the Company. The certificates
representing the Shares are in proper legal form.
(x) The issuance and sale of the Representatives' Warrants
have been duly authorized and, when issued, paid for and delivered pursuant to
the terms of the Representatives' Warrant Agreement, they will constitute the
valid and binding obligations of the Company, enforceable as to the Company in
accordance with their terms. The Warrant Shares have been duly reserved for
issuance upon exercise of the Representatives' Warrants in accordance with the
provisions of the Representatives' Warrant Agreement. The Representatives'
Warrants conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(xi) Upon delivery of the Offered Shares to the Underwriters
against payment therefor as provided in this Agreement, the Underwriters
(assuming they are bona fide purchasers
-4-
<PAGE>
within the meaning of the Uniform Commercial Code) will acquire good title to
the Offered Shares, free and clear of all liens, encumbrances, equities,
security interests and claims.
(xii) Assuming that the Representatives exercise the over-allotment
option to purchase any of the Optional Shares and make payment therefor in
accordance with the terms of this Agreement, upon delivery of the Optional
Shares so purchased to the Representatives hereunder, the Representatives
(assuming they are bona fide purchasers within the meaning of the Uniform
Commercial Code) will acquire good title to such Optional Shares, free and clear
of any liens, encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's knowledge, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, foreign or domestic, or
before any private arbitration tribunal, pending or threatened against the
Company or any Subsidiary, or involving the Company's or any Subsidiary's
properties or businesses, other than as described in the Prospectus, such
description being accurate, and other than litigation incident to the kind of
business conducted by the Company which, individually and in the aggregate, is
not material.
(xiv) Each of the Company and of the Subsidiaries owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, service marks, copyrights, rights, trade secrets, confidential
information, processes and formulations used or proposed to be used in the
conduct of its business as described in the Prospectus (collectively the
"Intangibles"); to the best of Company Counsel's knowledge, neither the Company
nor any Subsidiary has infringed or is infringing upon the rights of others with
respect to the Intangibles; and, to the best of Company Counsel's knowledge,
neither the Company nor any Subsidiary has received any notice that it has or
may have infringed upon, is infringing upon or is conflicting with the asserted
rights of others with respect to the Intangibles which might, singly or in the
aggregate, materially adversely affect its business, results of operations or
financial condition and such counsel is not aware of any licenses with respect
to the Intangibles which are required to be obtained by the Company or any
Subsidiary.
(xv) Company Counsel has participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement
-5-
<PAGE>
(except as to the financial statements and other financial data contained
therein, as to which Company Counsel need not express an opinion), on the
Effective Date, contained any untrue statement of a material fact required to be
stated therein or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which Company Counsel need not express an opinion)
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering its opinion pursuant to this Section 6(b), Company
counsel may rely upon the certificates of government officials and officers of
the Company as to matters of fact, provided that Company shall state that they
have no reason to believe, and no not believe, that they are justified in
relying upon such opinions or such certificates of government officials and
officers of the Company as to matters of fact, as the case may be.
The opinion letters delivered pursuant to this Section 6(b) shall
state that any opinion given therein qualified by the phrase "to the best of our
knowledge" is being given by Company Counsel after due investigation of the
matters therein discussed.
-6-
<PAGE>
Exhibit 4.2
WARRANT AGREEMENT dated as of _______ __, 1999 between Litronic
Inc., a Delaware corporation with executive offices located at 2030 Main
Street, Suite 1250, Irvine, California 92610 (the "Company"), on one hand,
and BlueStone Capital Partners, L.P. with executive offices located at
575 Fifth Avenue, New York, New York 10017 ("BlueStone") and Pacific Crest
Securities Inc. with executive offices located at ______________ (together,
BlueStone hereinafter referred to as the "Representatives"), on the other hand.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company proposes to issue to the Representatives, in
their individual capacities and not as representatives of the several
Underwriters (defined below), warrants ("Warrants") to purchase up to 370,000
(as such number may be adjusted from time to time pursuant to Article 8 of this
Agreement) shares (the "Shares") of common stock, par value $.01 per share,
of the Company (the "Common Stock"); and
WHEREAS, the Representatives have agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated _______ __, 1999 between the
Representatives, as representatives of the several underwriters named in
Schedule A to the Underwriting Agreement (the "Underwriters") and the Company,
to act as representatives of the several Underwriters in connection with the
Company's proposed initial public offering (the "Public Offering") of 3,700,000
shares of Common Stock (the "Public Shares") at an initial public offering
price of $____ per Public Share; and
WHEREAS, the Warrants issued pursuant to this Agreement are being
issued by the Company to the Representatives and/or to their designees who are
officers or partners of the Representatives and/or, at the Representatives'
direction, to members of the selling group or underwriting syndicate and/or
their respective officers or partners (collectively, the "Designees"), in
consideration for, and as part of the Representatives' compensation in
connection with, the Representatives' acting as representative of the several
Underwriters pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of THREE HUNDRED AND SEVENTY DOLLARS ($370.00),
the agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. GRANT.
-----
The Representatives and/or the Designees are hereby granted the right
to purchase, at any time from ______ __, 2000 until 5:00 P.M., New York City
time, on ______ __, 2004, (the "Warrant Exercise Term"), up to 370,000 fully
paid and non-assessable Shares at an initial exercise price (subject to
adjustment as provided in Article 8 hereof) of $_______ per Share.
<PAGE>
2. WARRANT CERTIFICATES.
--------------------
The warrant certificates delivered and to be delivered pursuant to
this Agreement (the "Warrant Certificates") shall be in the form set forth as
Exhibit A attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. EXERCISE OF WARRANTS.
--------------------
3.1 CASH EXERCISE. The Warrants initially are exercisable at a
-------------
price of $______ per Share [165% of the initial offering price of the Public
Shares], payable in cash or by check to the order of the Company, or any
combination thereof, subject to adjustment as provided in Article 8 hereof. Upon
surrender of a Warrant Certificate with the annexed Form of Election to Purchase
duly executed, together with payment of the Exercise Price (as hereinafter
defined) for the Shares purchased, at the Company's principal offices in
California (currently located at 2030 Main Street, Suite 1250, Irvine,
California 92610) the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
Shares so purchased. The purchase rights represented by each Warrant Certificate
are exercisable at the option of the Holder thereof, in whole or in part (but
not as to fractional shares of the Common Stock). In the case of the purchase of
less than all the Shares purchasable under any Warrant Certificate, the Company
shall cancel said Warrant Certificate upon the surrender thereof and shall
execute and deliver a new Warrant Certificate of like tenor for the balance of
the Shares purchasable thereunder.
3.2 CASHLESS EXERCISE. At any time during the Warrant Exercise
-----------------
Term, the Holder may, at the Holder's option, exchange, in whole or in part, the
Warrants represented by such Holder's Warrant Certificate (a "Warrant
Exchange"), into the number of Shares determined in accordance with this Section
3.2, by surrendering such Warrant Certificate at the principal office of the
Company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Warrants to be so
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new Warrant
Certificate of like tenor representing the Warrants which were subject to the
surrendered Warrant Certificate and not included in the Warrant Exchange, shall
be issued as of the Exchange Date and delivered to the Holder within three (3)
business days following the Exchange Date. In connection with any Warrant
Exchange, the Holder shall be entitled to subscribe for and acquire (i) the
number of Shares (rounded to the next highest integer) which would, but for the
Warrant Exchange, then be issuable pursuant to the provision of Section 3.1
<PAGE>
above upon the exercise of the Warrants specified by the Holder in its Notice of
Exchange (the "Total Number") less (ii) the number of Shares equal to the
quotient obtained by dividing (a) the product of the Total Number and the
existing Exercise Price (as hereinafter defined) by (b) the Market Price (as
hereinafter defined) of a Public Share on the day preceding the Warrant
Exchange. "Market Price" at any date shall be deemed to be the last reported
sale price, or, in case no such reported sales takes place on such day, the
average of the last reported sale prices for the last three (3) trading days, in
either case as officially reported by the principal securities exchange on which
the Common Stock is listed or admitted to trading or as reported in the Nasdaq
National Market System, or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on the Nasdaq National
Market System, the closing bid price as furnished by (i) the National
Association of Securities Dealers, Inc. through Nasdaq or (ii) a similar
organization if Nasdaq is no longer reporting such information.
4. ISSUANCE OF CERTIFICATES.
------------------------
Upon the exercise of the Warrants, the issuance of certificates for
the Shares purchased shall be made forthwith (and in any event within three (3)
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 5
hereof) be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of Directors
or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants, in part
or in whole, certificates representing the Shares shall bear a legend
substantially similar to the following:
<PAGE>
"The securities represented by this certificate and the other
securities issuable upon exercise thereof have not been
registered for purposes of public distribution under the
Securities Act of 1933, as amended (the "Act"), and may not be
offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant
to Rule 144 under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) upon the
delivery by the holder to the Company of an opinion of counsel,
reasonably satisfactory to counsel to the Company, stating that
an exemption from registration under such Act is available."
5. RESTRICTION ON TRANSFER OF WARRANTS.
-----------------------------------
The Holder of a Warrant Certificate, by the Holder's acceptance
thereof, covenants and agrees that the Warrants are being acquired as an
investment and not with a view to the distribution thereof, and that the
Warrants may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of one (1) year from the date
hereof, except to the Designees.
6. PRICE.
-----
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial exercise
-----------------------------------
price of each Warrant shall be $____ per Share [165% of the initial offering
price of the Public Shares]. The adjusted exercise price per Share shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Article 8 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean
--------------
the initial exercise price or the adjusted exercise price, depending upon the
context.
7. REGISTRATION RIGHTS.
-------------------
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. None of the
---------------------------------------------
Warrants or Shares have been registered for purposes of public distribution
under the Securities Act of 1933, as amended (the "Act").
7.2 REGISTRABLE SECURITIES. As used herein the term
----------------------
"Registrable Security" means each of the Shares and any shares of Common Stock
issued upon any stock split or stock dividend in respect of such Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Act and disposed
of pursuant thereto, (ii) registration under the Act is no longer required for
the subsequent public distribution of such security or
<PAGE>
(iii) it has ceased to be outstanding. The term "Registrable Securities" means
any and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be made in the definition of
"Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Article 7.
7.3 PIGGYBACK REGISTRATION. If, at any time during the seven
----------------------
years following the effective date of the Public Offering, the Company proposes
to prepare and file one or more post-effective amendments to the registration
statement filed in connection with the Public Offering or any new registration
statement or post-effective amendments thereto covering equity or debt
securities of the Company, or any such securities of the Company held by its
shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form), (for purposes of this
Article 7, collectively, the "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) days prior to the filing of each such Registration Statement, to all
holders of the Registrable Securities. Upon the written request of such a holder
(a "Requesting Holder"), made within twenty (20) days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Act of the Registrable Securities which it has been so requested to register
("Piggyback Registration"), at the Company's sole cost and expense and at no
cost or expense to the Requesting Holders (except as provided in Section 7.5(b)
hereof); provided, however, that if, in the written opinion of the Company's
managing underwriter, if any, for such offering, the inclusion of all or a
portion of the Registrable Securities requested to be registered, when added to
the securities being registered by the Company or the selling shareholder(s),
will exceed the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to their then current market value, or (ii)
without otherwise materially adversely affecting the entire offering, then the
Company may exclude from such offering all or a portion of the Registrable
Securities which it has been requested to register.
Notwithstanding the provisions of this Section 7.3, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 7.3 (irrespective of whether any written request for
inclusion of Registrable Securities shall have already been made) to elect not
to file any such proposed Registration Statement, or to withdraw the same after
the filing but prior to the effective date thereof.
7.4 DEMAND REGISTRATION.
-------------------
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4.(c) below) of the
Registrable Securities shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, at the sole expense of the
Company (except as provided in Section 7.5.(b) hereof), a Registration Statement
and such other documents, including a prospectus, as may be necessary (in the
opinion of both counsel for
<PAGE>
the Company and counsel for such Majority Holder), in order to comply with the
provisions of the Act, so as to permit a public offering and sale of the
Registrable Securities by the holders thereof. The Company shall use its best
efforts to cause the Registration Statement to become effective under the Act,
so as to permit a public offering and sale of the Registrable Securities by the
holders thereof. Once effective, the Company will use its best efforts to
maintain the effectiveness of the Registration Statement until the earlier of
(i) the date that all of the Registrable Securities have been sold or (ii) the
date that the holders of the Registrable Securities receive an opinion of
counsel to the Company that all of the Registrable Securities may be freely
traded (without limitation or restriction as to quantity or timing and without
registration under the Act) under Rule 144(k) promulgated under the Act or
otherwise. Notwithstanding the foregoing, if (i) in the good faith judgment of
the Board of Directors of the Company, such registration would be materially
detrimental to the Company, and the Board of Directors concludes, as a result,
that it is essential to defer the filing of such Registration Statement at such
time, and (ii) the Company shall furnish to such Holders a certificate signed by
the Chief Executive Officer of the Company stating that, in the good faith
judgment of the Board of Directors of the Company, it would be materially
detrimental to the Company for such Registration Statement to be filed in the
near future and that it is, therefore, essential to defer the filing of such
Registration Statement, then the Company shall have the right to defer such
filing for a period of not more than ninety (90) days after receipt of the
Demand Registration Request, and provided further, that the Company shall not
defer its obligation in this manner more than two (2) times or for more than an
aggregate of one hundred and twenty (120) days in any rolling twelve (12) month
period and should the Company delay the filing of the Registration Statement
upon receipt of a Demand Registration Request, the exercise period of the
Warrants shall be extended, for each delay, for a period of time equal in length
to the delay in registration.
(b) The Company covenants and agrees to give written notice
of any Demand Registration Request to all holders of the Registrable Securities
within ten (10) business days from the date of the Company's receipt of any such
Demand Registration Request. After receiving notice from the Company as provided
in this Section 7.4(b), holders of Registrable Securities may request the
Company to include their Registrable Securities in the Registration Statement to
be filed pursuant to Section 7.4(a) hereof by notifying the Company of their
decision to have such securities included within ten (10) days of their receipt
of the Company's notice.
(c) The term "Majority Holder" as used in Section 7.4
hereof shall mean any holder or any combination of holders of Registrable
Securities, if included in such holders' Registrable Securities are that
aggregate number of Shares (including Shares already issued and Shares issuable
pursuant to the exercise of outstanding Warrants) as would constitute a majority
of the aggregate number of Shares (including Shares already issued and Shares
issuable pursuant to the exercise of outstanding Warrants) included in all the
Registrable Securities.
7.5. COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. The
-----------------------------------------------------
Company covenants and agrees as follows:
(a) In connection with any registration under Section 7.4
hereof, the Company shall file the Registration Statement as expeditiously as
possible, but in any event no later than thirty (30) business days following
receipt of any demand therefor, shall use its best efforts to have any such
Registration Statement declared effective at the earliest possible time, and
shall furnish each holder of Registrable Securities such number of prospectuses
as shall reasonably be requested.
(b) The Company shall pay all costs, fees and expenses
(other than underwriting fees, discounts and nonaccountable expense allowances
applicable to the Registrable Securities and the fees and expenses of counsel
retained by the
<PAGE>
holders of the Registrable Securities) in connection with all Registration
Statements filed pursuant to Sections 7.3. and 7.4.(a) hereof including, without
limitation, the Company's legal and accounting fees, printing expenses, and blue
sky fees and expenses.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in the
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are reasonably requested by the holders of such
securities, provided that the Company shall not be obligated to execute or file
any general consent to service of process or to qualify as a foreign corporation
to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration Statement and any
underwriter or person deemed to be an underwriter under the Act and each person,
if any, who controls such holder or underwriter or person deemed to be an
underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss,
claim, damage, expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising from such registration statement to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify
the Underwriters contained in Section 7 of the Underwriting Agreement and to
provide for just and equitable contribution as set forth in Section 8 of the
Underwriting Agreement.
(e) Any holder of Registrable Securities to be sold
pursuant to a Registration Statement, and such Holder's successors and assigns,
shall severally, and not jointly, indemnify, the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Act, the Exchange Act or otherwise,
arising from information furnished by or on behalf of such Holder, or such
Holder's successors or assigns, for specific inclusion in such Registration
Statement to the same extent and with the same effect as the provisions pursuant
to which the Underwriters have agreed to indemnify the Company contained in
Section 7 of the Underwriting Agreement and to provide for just and equitable
contribution as set forth in Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be construed
as requiring any Holder to exercise the Warrants held
<PAGE>
by such Holder prior to the initial filing of any Registration Statement or the
effectiveness thereof.
(g) The Company shall promptly deliver copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the Registration Statement to each Holder of Registrable Securities
included for registration in such Registration Statement pursuant to Section 7.3
or Section 7.4 hereof that requests such correspondence and memoranda and to the
managing underwriter, if any, of the offering in connection with which such
Holder's Registrable Securities are being registered and shall permit each such
Holder and managing underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
Registration Statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder or managing underwriter shall
reasonably request.
8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES.
--------------------------------------------------
8.1 COMPUTATION OF ADJUSTED PRICE. In case the Company shall at
-----------------------------
any time after the date hereof pay a dividend in shares of Common Stock or make
a distribution in shares of Common Stock, then upon such dividend or
distribution, the Exercise Price in effect immediately prior to such dividend or
distribution shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of shares of Common
Stock outstanding immediately prior to such dividend or distribution multiplied
by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
For the purposes of any computation to be made in accordance with
the provisions of this Section 8.1, the Common Stock issuable by way of dividend
or other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the date following the date
fixed for the determination of stockholders entitled to receive such dividend or
other distribution.
8.2 SUBDIVISION AND COMBINATION. In case the Company shall at
---------------------------
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be
<PAGE>
proportionately decreased in the case of subdivision or increased in the case of
combination.
8.3 ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
------------------------------
Exercise Price pursuant to the provisions of this Article 8, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Shares issuable
upon exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
8.4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
---------------------------------------------
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holders shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of the shares of Common Stock
underlying the Warrants immediately prior to any such events at a price equal to
the product of (x) the number of shares of Common Stock issuable upon exercise
of the Holder's Warrants and (y) the Exercise Price in effect immediately prior
to the record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holders had exercised the Warrants.
8.5 DETERMINATION OF OUTSTANDING SHARES OF COMMON STOCK. The
---------------------------------------------------
number of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares of Common Stock issued and the aggregate number of
shares of Common Stock issuable upon the exercise of options, rights, warrants
and upon the conversion or exchange of convertible or exchangeable securities.
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO
-------------------------------------------------
OUTSTANDING SECURITIES. In the event that the Company shall at any time prior to
- ----------------------
the exercise of all Warrants make any distribution of its assets to holders of
its Common Stock as a liquidating or a partial liquidating dividend, then the
holder of Warrants who exercises its Warrants after the record date for the
determination of those holders of Common Stock entitled to such distribution of
assets as a liquidating or partial liquidating dividend shall be entitled to
receive for the Exercise Price per Warrant, in addition to each share of Common
Stock, the amount of
<PAGE>
such distribution (or, at the option of the Company, a sum equal to the value of
any such assets at the time of such distribution as determined by the Board of
Directors of the Company in good faith) which would have been payable to such
holder had he been the holder of record of the Common Stock receivable upon
exercise of his Warrant on the record date for the determination of those
entitled to such distribution. At the time of any such dividend or distribution,
the Company shall make appropriate reserves to ensure the timely performance of
the provisions of this Subsection 8.6.
8.7 SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK OR OTHER
-------------------------------------------------------
SECURITIES. If the Company or an affiliate of the Company shall at any time
- ----------
after the date hereof and prior to the exercise of all the Warrants issue any
rights, warrants or options to subscribe for shares of Common Stock or any
other securities of the Company or of such affiliate to all the shareholders of
the Company, the Holders of unexercised Warrants on the record date set by the
Company or such affiliate in connection with such issuance of rights, warrants
or options shall be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise of the Warrants, to receive such rights,
warrants or options that such Holders would have been entitled to receive had
they been, on such record date, the holders of record of the number of whole
shares of Common Stock then issuable upon exercise of their outstanding Warrants
(assuming for purposes of this Section 8.7, that the exercise of the Warrants
is permissible immediately upon issuance).
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
------------------------------------------------
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant
Certificate, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS.
-----------------------------------
The Company shall not be required to issue certificates representing
fractions of Shares, nor shall it be required to issue
<PAGE>
scrip or pay cash in lieu of fractional interests, it being the intent of the
parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Shares.
11. RESERVATION AND LISTING OF SECURITIES.
-------------------------------------
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all Shares
issuable upon such exercise shall be duly and validly issued, fully paid, non-
assessable and not subject to the preemptive rights of any shareholder. As long
as the Warrants shall be outstanding, the Company shall use its best efforts to
cause all shares of Common Stock issuable upon the exercise of the Warrants to
be listed on the Nasdaq National Market or listed on such national securities
exchanges as the Common Stock is listed at such time.
12. NOTICES TO WARRANT HOLDERS.
--------------------------
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; or
(d) reclassification or change of the outstanding shares of
Common Stock (other than a change in par value to no par value, or from no par
value to par value, or as a result of a
<PAGE>
subdivision or combination), consolidation of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger in which
the Company is the surviving corporation and which does not result in any
reclassification or change of the outstanding shares of Common Stock, except a
change as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or a sale or conveyance to another corporation of the
property of the Company as an entirety is proposed; or
(e) The Company or an affiliate of the Company shall propose to
issue any rights to subscribe for shares of Common Stock or any other securities
of the Company or of such affiliate to all the shareholders of the Company;
then, in any one or more of said events, the Company shall give written notice
to the Holder or Holders of such event at least fifteen (15) days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend or distribution, or the
issuance of any convertible or exchangeable securities or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
13. NOTICES.
-------
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of
this Agreement or to such other address as the Company may designate by notice
to the Holders.
14. SUPPLEMENTS AND AMENDMENTS.
--------------------------
The Company and BlueStone may from time to time supplement or amend
this Agreement without the approval of any Holders of Warrant Certificates in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and BlueStone may deem necessary or desirable and which the
Company and the BlueStone deem not to
<PAGE>
adversely affect the interests of the Holders of Warrant Certificates.
15. SUCCESSORS.
----------
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
16. TERMINATION.
-----------
This Agreement shall terminate at the close of business on _______ __,
2007. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Warrants have been exercised and all the Shares have been
resold to the public; provided, however, that the provisions of Section 7.5.
hereof shall survive any termination pursuant to this Section 16 until the close
of business on _______ __, 2010.
17. GOVERNING LAW.
-------------
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of New York and for all
purposes shall be construed in accordance with the laws of said State.
18. BENEFITS OF THIS AGREEMENT.
--------------------------
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Representatives and any other
registered holder or holders of the Warrant Certificates, Warrants or the Shares
any legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Representatives and any other holder or holders of the Warrant Certificates,
Warrants or the Shares.
19. COUNTERPARTS.
------------
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] LITRONIC INC.
By:
------------------------------------------
Name:
Title:
Attest:
____________________________
BLUESTONE CAPITAL PARTNERS, L.P.
By: BlueStone Capital Management, Inc.,
General Partner
By:
------------------------------------------
Name: Kerry J. Dukes,
Title: President
PACIFIC CREST SECURITIES INC.
By:
------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _______ __, 2004
No. W-
_______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______________ ____________ or
registered assigns, is the registered holder of _______ Warrants to purchase, at
any time from _______ __, 2000 until 5:00 P.M. New York City time on ______ __,
2004 ("Expiration Date"), up to _____ fully-paid and non-assessable shares (the
"Shares") of common stock, par value $.01 per share (the "Common Stock"), of
Litronic Inc., a Delaware corporation (the "Company"), at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of $____
per Share upon surrender of this Warrant Certificate and payment of the Exercise
Price at an office or agency of the Company, but subject to the conditions set
forth herein and in the warrant agreement dated as of ______ __, 1999 between
the Company and BlueStone Capital Partners, L.P. and Pacific Crest Securities
Inc. (the "Warrant Agreement"). Payment of the Exercise Price may be made in
cash, or by certified or official bank check in New York Clearing House funds
payable to the order of the Company, or any combination thereof.
No Warrant may be exercised after 5:00 P.M., New York City time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly authorized
issue of Warrants issued pursuant to the Warrant Agreement, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights,
<PAGE>
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events, the
Exercise Price and/or number of the Company's securities issuable thereupon may,
subject to certain conditions, be adjusted. In such event, the Company will, at
the request of the holder, issue a new Warrant Certificate evidencing the
adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant Certificate at
an office or agency of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the absolute
owner(s) of this Warrant Certificate (notwithstanding any notation of ownership
or other writing hereon made by anyone), for the purpose of any exercise hereof,
and of any distribution to the holder(s) hereof, and for all other purposes, and
the Company shall not be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed under its corporate seal.
Dated: _______ __, 1999 LITRONIC INC.
[SEAL] By:________________________________
Name:
Title:
Attest:
______________________________
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase _________ Shares and herewith tenders in
payment for such Shares cash or a certified or official bank check payable in
New York Clearing House Funds to the order of Litronic Inc. in the amount of
$__________ , all in accordance with the terms hereof. The undersigned requests
that a certificate for such Shares be registered in the name of , whose address
is __________________, and that such Certificate be delivered to
__________________, whose address is _____________.
Dated: Signature:
________________________________________
(Signature must conform in
all respects to name of holder
as specified on the face of
the Warrant Certificate.)
___________________________
___________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED
_____________________________
hereby sells, assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee) this Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint _______________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: Signature:
________________________________________
(Signature must conform in
all respects to name of holder
as specified on the face of
the Warrant Certificate.)
________________________________________
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
___________________________
___________________________
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
EXHIBIT 4.3
[LITRONIC INC. LOGO]
LITRONIC INC.
SEE REVERSE FOR CERTAIN DEFINITIONS
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP
537004 10 3
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF THE COMMON
STOCK OF
==================== LITRONIC INC. =======================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate properly
endorsed. This certificate is not valid unless countersigned by the Transfer
Agent and Registrar.
WITNESS the facsimile signatures of its duly authorized officers. Dated:
TREASURER OR SECRETARY PRESIDENT OR CHAIRMAN
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT- ________ CUSTODIAN _______
TEN ENT- as tenants by the entireties (CUST) (MINOR)
JT TEN- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act__________
in common (state)
Additional abbreviations may also be used though not in the above list.
For Value received, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[______________________________________]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OR ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______ Shares of the Common Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint.
________________________________________________________________________________
_______ Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
DATED ____________________
____________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT
TO S.E.C. RULE 17AD-15
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST,
STOLEN, MUTILATED OR DESTROYED, THE CORPORATION
WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION
TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE
2
<PAGE>
EXHIBIT 10.06
WILMINGTON TRUST
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$22,000,000.00 07-24-1995 10 0777 938
- ------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: PULSAR DATA SYSTEMS, INC. Lender: WILMINGTON TRUST COMPANY
5000 PHILADELPHIA WAY SUITE H C/L WH MAJOR
LANHAM, MD 20706 RODNEY SQUARE NORTH
1100 NORTH MARKET STREET
WILMINGTON, DE 19890
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT is entered into between PULSAR DATA SYSTEMS,
INC. (referred to below as "Grantor"); and WILMINGTON TRUST COMPANY (referred to
below as "Lender"). For valuable consideration, Grantor grants to Lender a
security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
All inventory, accounts, general intangibles and equipment, together
with the following specifically described property:
ALL RECORDS OF ANY KIND RELATING TO ANY OF THE FOREGOING; ALL
PROCEEDS RELATING TO ANY OF THE FOREGOING (INCLUDING INSURANCE,
GENERAL INTANGIBLES AND OTHER ACCOUNTS PROCEEDS).
<PAGE>
Possession of the Premises ("Possession") shall be delivered to Sublessee on the
commencement of the Term. If for any reason Sublessor does not deliver
Possession to Sublessee on the commencement of the Term, Sublessor shall not be
subject to any liability for such failure, the Termination Date shall not be
extended by the delay, and the validity of this Sublease shall not be impaired,
but rent shall abate until delivery of Possession. Notwithstanding the
foregoing, if Sublessor has not delivered Possession to Sublessee within thirty
(30) days after the Commencement Date, then at any time thereafter and before
delivery of Possession, sublessee may give written notice to Sublessor of
Sublessee's intention to cancel this Sublease. Said notice shall set forth an
effective date for such cancellation which shall be at least ten (10) days after
delivery of said notice to Sublessor. If Sublessor delivers Possession to
Sublessee on or before such effective date, this Sublease shall remain in full
force and effect. If Sublessor fails to deliver Possession to Sublessee on or
before such effective date, this Sublease shall be cancelled, in which case all
consideration previously paid by Sublessee to Sublessor on account of this
Sublease shall be returned to Sublessee, this Sublease shall thereafter be of no
further force and effect, and Sublessor shall have no further liability to
Sublessee on account of such delay or cancellation. If Sublessor permits
Sublessee to take Possession prior to the commencement of the Term, such early
Possession shall not advance the Termination Date and shall be subject to the
provisions of this Sublease, including without limitation the payment of rent.
6. RENT.
6.1. Minimum Rent. Sublessee shall pay to Sublessor as minimum rent, without
deduction, setoff, notice, or demand, at E.I. du Pont de Nemours, Attn:
Corporate Real Estate, 1007 Market Street, D12048A, Wilmington, DE 19898, or at
such other place as Sublessor shall designate from time to time by notice to
Sublessee, the sum of See Addendum One Dollars ($_________) per month, in
advance on the first day of each month of the Term. Sublessee shall pay to
Sublessor upon execution of this Sublease the sum of Twenty Thousand Two Hundred
Fifty and 40/100ths Dollars ($20,250.40) as rent for the first month. If the
Term begins or ends on a day other than the first or last day of a month, the
rent for the partial months shall be prorated on a per diem basis. Additional
provisions: See attached Addendum One
6.2. Operating Costs. If the Master Lease requires Sublessor to pay to Lessor
all or portion of the expenses of operating the building and/or project of which
the Premises are a part ("Operating Costs"), including but not limited to taxes,
utilities, or insurance, then Sublessee shall pay to Sublessor as additional
rent seventy and 24/100ths percent (70.24%) of the amounts payable by Sublessor
for Operating Costs incurred during the Term. Such additional rent shall be
payable as and when Operating Costs are payable by Sublessor to Lessor. If
the Master Lease provides for the payment by Sublessor of Operating Costs on the
basis of an estimate thereof, then as and when adjustments when estimated and
actual Operating Costs are made under the Master Lease, the obligations of
Sublessor and Sublessee hereunder shall be adjusted in a like manner, and if any
such adjustment shall occur after the expiration of
2
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 3
(Continued)
NOTE. The word "Note" means the note or credit agreement dated July 24,
1995, in the principal amount of $22,000,000.00 from Grantor to Lender,
together with all modifications of and renewals, replacements, and
substitutions for the note or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 4
(Continued)
for services theretofore performed by Grantor with or for the account
debtor; there shall be no setoffs or counterclaims against any such
account; and no agreement under which any deductions or discounts may be
claimed shall have been made with the account debtor except those disclosed
to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Maryland, without the prior written consent of
Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge, other than
the security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if junior
in right to the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement shall
not constitute consent by Lender to any sale or other disposition. Upon
receipt, Grantor shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 5
(Continued)
office other than those which reflect the security interest created by this
Agreement or to which Lender has specifically consented. Grantor shall
defend Lender's rights in the Collateral against the claims and demands of
all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and
equipment, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, reasonable attorneys' fees or other charges that could
accrue as a result of foreclosure or sale of the Collateral. In any
contest Grantor shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral. Grantor shall
name Lender as an additional obligee under any surety bond furnished in the
contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 6
(Continued)
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Publ L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis acceptable
to Lender and issued by a company or companies acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time to time
the policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or diminished
without at least twenty (20) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to give
such a notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any way
by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at any
time fails to obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain such insurance
as Lender deems appropriate, including if it so chooses "single interest
insurance," which will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 7
(Continued)
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 8
(Continued)
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and b e
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such rights shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-
help, repossession or any other method by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of Grantor's
deposit accounts with Lender.
EVENTS AFFECTING GRANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's
financial condition or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Maryland Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may Declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of title
and other documents relating to the Collateral. Lender may require Grantor
to assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 9
(Continued)
Collateral contains other goods not covered by this Agreement at the time
of repossession, grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
Sell THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days before the time of the sale or disposition.
All expenses relating to the disposition of the Collateral, including
without limitation the expenses of retaking, holding, insuring, preparing
for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a receiver,
may collect the payments, rents, income and revenues from the Collateral. Lender
may at any time in its discretion transfer any Collateral into its own name or
that of its nominee and receive the payments, rents, income and revenues
therefrom and hold the same as security for the Indebtedness or apply it to
payment of the Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles, insurance
policies, instruments, chattel paper, choses in action, or similar property,
Lender may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Collateral as Lender may determine, whether or
not indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to be
sent; and endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining on the
Indebtedness due to Lender after application of all amounts received from the
exercise of the rights provided in this Agreement. Grantor shall be liable for
a deficiency even if the transaction described in this subsection is a sale of
accounts or chattel paper.
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 10
(Continued)
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may be
amended from time to time. In addition, Lender shall have and may exercise any
or all other rights and remedies it may have available at law, in equity, or
otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced by
this Agreement or the Related Documents or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Agreement. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Agreement shall be governed by, controlled and enforced in
accordance with the laws of the State of Maryland. LENDER AND GRANTOR EACH
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LENDER OR
GRANTOR MAY BE PARTIES, ARISING OUT OF, OR IN ANY WAY PERTAINING TO, THIS
AGREEMENT. IT IS AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY
OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS. THIS WAIVER IS
KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY LENDER AND GRANTOR, AND LENDER AND
GRANTOR EACH HEREBY REPRESENT 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. GRANTOR FURTHER REPRESENTS THAT GRANTOR
HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF GRANTOR'S OWN FREE WILL, AND
THAT GRANTOR HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
ATTORNEYS' FEES; EXPENSES. Grantor agrees that if Lender hires an attorney to
help enforce this Agreement or to collect any sums owing under this Agreement,
Grantor will pay, subject to any limits under applicable law, Lender's
reasonable attorneys fees, and all of Lender's other collection expenses,
Whether or not there is a lawsuit and including without limitation additional
legal expenses for bankruptcy proceedings.
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 11
(Continued)
CAPTION HEADINGS. Caption headings in this Agreement and for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under this
Agreement shall be joint and several, and all references to Grantor shall mean
each and every Grantor. This means that each of the Borrowers signing below is
responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be given in
writing, may be sent by facsimile, and shall be effective when actually
delivered if hand delivered or when deposited as certified or registered mail in
the United States mail, first class, postage prepaid, addressed to the party to
whom the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written notice to
the other parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if there is more
than one Grantor, notice to any Grantor will constitute notice to all Grantors.
For notice purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing or
payable from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants issued in payment for
the Collateral; (c) to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Grantor, to execute and deliver its
release and settlement for the claim; and (d) to file any claim or claims or to
take any action or institute or take part in any proceedings, either in its own
name or in the name of Grantor, or otherwise, which in the discretion of Lender
may seem to be necessary or advisable. This power is given as security for the
Indebtedness, and the authority hereby conferred is and shall be irrevocable and
shall remain in full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
person or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer of
the Collateral, this Agreement shall be binding upon and inure to the benefit of
the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 12
(Continued)
a waiver of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of the Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 24,
1995.
GRANTOR:
PULSAR DATA SYSTEMS, INC.
By: /s/ William W. Davis, Sr. (SEAL) By: /s/ LILLIAN A. DAVIS (SEAL)
--------------------------------------- -------------------------------
WILLIAM W. DAVIS, SR., PRESIDENT LILLIAN A. DAVIS, EXECUTIVE
VICE PRESIDENT
LENDER:
WILMINGTON TRUST COMPANY
By: [AUTHORIZED SIGNATORY]
----------------------
Authorized Officer
<PAGE>
07-24-1995 COMMERCIAL SECURITY AGREEMENT Page 2
(Continued)
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means PULSAR DATA SYSTEMS, INC., its
successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness and their personal representatives,
successors and assigns.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal, interest, and fees, costs, and expenses,
if any, together with all modifications of and renewals, replacements and
substitutions for any of the foregoing.
LENDER. The word "Lender" means WILMINGTON TRUST COMPANY, its successors
and assigns.
<PAGE>
AWARD FEE PLAN
FOR
MULTI-LEVEL INFORMATION
SYSTEM SECURITY INITIATIVE
CRYPTO CARD
SYSTEM ANALYSIS AND
LIBRARY AND DRIVER ARCHITECTURE AND DEVELOPMENT
10 June 1997 (Rev. 2)
<PAGE>
I. INTRODUCTION
l. This plan covers the administration of the award fee provisions for the
Litronic Program contract.
2. The following award fee provisions are applicable to this contract:
a. The base fee is 0% of the initial award.
b. The award fee pool is 10% of the total negotiated cost amount less
Facilities Capital Cost of Money. There shall be no "base fee" or "profit"
amount in the negotiated loaded hourly rates.
c. The estimated cost, base fee, and award fee pool are subject to
equitable adjustments on account of changes or other contract modifications.
d. The award fee earned and payable will be determined periodically by the
Fee Determination Officer (FDO) in accordance with this plan.
e. Award fee determinations are not subject to the Disputes clause of the
contract.
f. The Contracting Officer (CO) must approve all changes to this plan. The
contractor must receive notice of the changes at least 15 working days prior to
the beginning of the evaluation period to which the changes apply, Any changes
must be made by modification of the contract.
3. The objective of the award fee provision of the contract is to motivate the
contractor to optimally perform by relating the contractor's actual performance
to the amount of fee to be earned.
II. ADMINISTRATION
1. Fee Determination Officer(FDO)
a. The FDO is the Chief, Workstation Security Products
b. The primary responsibilities are:
(1) Determining the award fee earned and payable for each evaluation
period.
(2) Review changes to the AFDP.
2. Performance Evaluation Board
a. The Performance Evaluation Board shall consist of the Program Manager,
Business Manager, Contracting Officer, and the Contracting Specialist. The
Program Manager is the Chairperson of the Performance Evaluation Board.
b. Primary responsibilities of the Performance Evaluation Board are:
(1) Conducting on-going evolutions of contractor performance.
(2) Submitting a Performance Evaluation Board Report (PEBR) to the FDO
detailing the Performance Evaluation Board's findings and recommendations for
each evaluation period.
(3) Considering proposed changes to the AFDP and recommending those it
determines appropriate for adopting by the FDO.
III. EVALUATION PERIODS
l. Evaluation Periods
Performance will be evaluated at the conclusion of the base year (30
September l 997) and at the conclusion of each option year, if exercised. Each
evaluation will occur so that the final determination of award fee earned will
be accomplished within 30 working days after the end of an evaluation period.
<PAGE>
IV. EVALUATION CRITERIA
The performance areas to be evaluated are identified below. The evaluation
criteria for each area are attached. Assigned weights in each performance area
shall be applied only to those elements applicable in a given evaluation period.
Area Identification Weight
---- -------------- ------
1 Technical
Staffing 10%
Performance 40%
Schedule 10%
2 Cost 40%
Technical Area Weight 60%
- ---------
This category is an evaluation of the contractor's ability to satisfy the
technical requirements of the Statement of Work.
Subareas to Consider:
l. Staffing:
Evaluates how well the effort is managed to make the best use of available
resources. This includes utilization of resources in an economic manner,
productivity of people assigned, and assignment of personnel with the required
skills.
2. Performance:
Evaluates how the contractor accomplishes the design, development,
integration, testing, and delivery of the Fortezza Support software as well as
systems engineering and technical support. It will consider completeness of the
design and development, quality of the integration, success of the test,
thoroughness of the documentation, and timeliness of delivery.
3. Schedule:
Evaluates the contractor's success in meeting design and development
schedules, fulfilling plans and objectives for development. In addition, it
includes preventative action to avoid anticipated delays with alternative or
innovative approaches, and action taken to recover from actual delays and from
implementation of Government or contractor initiated contract changes and
technical direction.
Cost Area Weight 40%
- ----
Evaluates how effective the contractor is able to control and accurately
project program costs. Evaluates the contractor's ability to perform the
requirements of the Statement of Work in an efficient and effective manner. This
includes evaluating the contractors cost and schedule information that has been
generated to satisfy the Funds and Manhour Expenditures Report Status.
V. GRADING TABLE
<TABLE>
<CAPTION>
Adjective Rating Description Point Score
- ---------------- ----------- ----------
<S> <C> <C>
EXCELLENT Contractor performance exceeds the requirements 100%
of the contract in at least one of the following
elements and meets the remainder: Performance/
product quality meets/exceeds the requirements
of the contract. All milestones/deliveries are on/
ahead of schedule. Costs are at/under the estimated
target amount.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
GOOD Performance/product quality meets the requirements 75%
of the contract, Although some performance elements
may need improvement, they are offset by better
performance in other areas. All milestones/deliveries
are on schedule. Costs are at estimated target amounts.
MARGINAL Performance/product quality is minimally acceptable. 50%
Contractor's performance has resulted in technical
problems or schedule delays. Contractor has experienced
cost growth which has resulted in adjustments to the
contract.
UNACCEPTABLE Performance/product quality does not meet the 0%
requirements of the contract. Contractor has experienced
major schedule/delivery slippages. Substantial cost
overruns have occurred.
</TABLE>
METHOD OF DETERMINING AWARD FEE
The Award Fee will be determined as follows:
Weight of factor multiplied by the point score for adjective rating
received for each factor/subfactor = AF earned per factor
The total AF earned per factor/subfactor will then be applied to the AF
pool for the rating period to determine the total amount of the AF payable.
VI. METHOD FOR DETERMINING AWARD FEE
The following is a summary of the principal action involved in determining
the award fee for each evaluation period:
1. Within 10 days following the completion of an evaluation period, the
Performance Evaluation Board shall meet and assess the contractor's overall
performance.
2. The Board shall summarize their findings in the form of a Performance
Evaluation Report and submit it to the Fee determination Official within 15 days
following the completion of the evaluation period.
3. The FDO shall consider the Performance Evaluation Report and discuss it with
the Performance Evaluation Board, if necessary, within 20 days following the
completion of the evaluation period.
4. The FDO shall forward an Award Fee Determination to the Contracting Officer
within 25 days following the completion of the evaluation period. The
Contracting Officer will issue a contract modification reflecting the amount of
award fee earned by the contractor within 30 days following the evaluation
period.
<PAGE>
Multi Level Information System Security Initiative
Crypto Card
System Analysis and
Library and Driver Architecture and Development
Statement Of Work
10 January 1997
<PAGE>
1. SCOPE
This Statement of Work (SOW) defines the requirements for technical support
and product development for the MISSI Program. This support will provide
research, analysis, and recommendations on MISSI interoperability issues such as
system software specifications and documentation, and other development and
investigative tasks assigned by the Government. Product development will include
documenting, developing, testing, and maintaining, ANSI C Type 1 and Type 2
Cryptologic Interface (CI) Library Modules and Device Drivers for the MISSI
Crypto Cards.
2. APPLICABLE DOCUMENTS
Fortezza Cryptographic Interface Programmers Guide, version P1.52, dated
January 1996, NSA, Unclassified
Fortezza Implementors Guide, version 1.52, dated March, 1996, NSA,
Unclassified
MISSI Release 2 Fortezza Plus Programmers Guide, version 0.26, dated 9
January 1995, NSA, Unclassified
MIL-STD-498 Software Development and Documentation, 5 December 1994,
Unclassified
Fortezza Plus Interface Control Document, Version 1.3, 27 February 1995,
NSA, FOUO
Interface Control Document for the Fortezza Crypto Card, Version P1.5, 22
December 1994, NSA, Unclassified
3. REQUIREMENTS
Task 1: Technical Support
Subtask 1: MISSI Library:
The Contractor shall provide technical research, analysis, and
recommendations on the MISSI Type 1 and Type 2 libraries ("the Libraries").
The Libraries will continue to evolve as commands are added, deleted, or
modified and PCMCIA standards evolve. The Contractor shall use their
knowledge of the Libraries's software requirements and architecture to
perform research and provide recommendations on modifications to the
Libraries. The research shall be documented and presented to the Government
for consideration for incorporation into future releases of the Libraries.
The Contractor shall evaluate Government provided modification proposals to
the Libraries and provide iterative recommendations on the modifications'
formation until a resolution is reached.
<PAGE>
Subtask 2: MISSI Crypto Card Device Drivers:
The Contractor shall provide technical research, analysis, and
recommendations on the MISSI Crypto Card Device Drivers (the "Drivers").
The Contractor shall document the interface to the Drivers and provide such
information to other library vendors as specified by the government in
order to provide for interoperability of MISSI Libraries and Drivers. As
PCMCIA standards evolve, the requirements on the drivers are affected. The
Contractor shall use their knowledge of the device driver software
requirements and architecture to perform research and provide
recommendations on modifications to the Device Drivers. The research shall
be documented and presented to the Government for consideration for
incorporation into future releases of the Device Drivers. The Contractor
shall also evaluate Government provided modification proposals to the
Libraries and provide iterative recommendations on the modifications'
formation until a resolution is reached.
Subtask 3: PCMCIA Driver Development and Certifications:
The Contractor shall establish and maintain a working relationship
with producers of PCMCIA Card and Socket Services operating system software
for the purpose of ensuring that Contractors Device Drivers and versions of
MISSI cards are fully PCMCIA compliant and compatible. The Contractor shall
supply MISSI cards, an average of 2 per vendor, to Card and Sockets
Services vendors for the purpose of testing and certification. Card and
Socket Services platforms include, but are not limited to, DOS and MS
Windows. Vendors include, but are not limited to, SystemSoft, Phoenix
Technology, Databook, and Award.
Subtask 3: MISSI Support Activities:
The Contractor shall provide support to MISSI related activities as
directed by the Government. These activities include, but shall not be
limited to MISSI Interoperability Forum (MIF), WSP and appropriate
standards meetings.
Task 2: Product Development
Subtask 1: MISSI Libraries:
The Contractor shall develop, upgrade and maintain, as necessary,
the Library Modules for platforms specified by the Government. The
Contractor shall produce, or update when applicable, the Libraries for
production MISSI products. The Libraries shall provide an ANSI C interface
to calling applications. The Contractor shall develop the internal code for
the Libraries using ANSI C and other tools or languages approved by the
government. The Contractor shall provide the Government full and
unrestricted rights to the software, including source code for all software
products developed, upgraded and maintained under this SOW. System
platforms include, but are not limited to the current (and possibly a
previous) version of:
a. SOLARIS 1.X (SUN OS 4.1.3)
b. SOLARIS 2.X (X86 and Sparc platform)
c. AIX
d. MS Windows NT
e. WIN95
f. BSDi
<PAGE>
Subtask 2: Device Drivers:
The Contractor shall develop, upgrade and maintain, as necessary, the
Device Drivers for platforms specified by the Government. The Contractor
shall produce or update MISSI Device Drivers for production MISSI products.
The Contractor shall provide the Government full and unrestricted rights to
the software, including source code for all software products developed,
upgraded and maintained under this SOW. The Government shall have the right
to freely reproduce and distribute both source and object code to any
Government or non-Government party without royalty or additional license.
System platforms include, but are not limited to the current (and possibly
a previous) version of:
a. SOLARIS 1.X
b. SOLARIS 2.X (X86 and Sparc platform)
c. AIX for SCSI II
d. MS Windows NT
e. DOS/ MS Windows 3.1
f. WIN 95
g. BSDi
Subtask 3: PCMCIA Reader Compatibility:
The Contractor developed libraries and device drivers shall provide
100% functionality with a minimum, for both the Spyrus and Litronic
families, up to three (3) models of reader/writers and two (2) additional
parallel reader/writers, if directed by the Government. The Contractor
shall provide evidence to the Government verifying compliance. All
documentation, including in-line comments and install/ readme files shall
reflect this compliance. Also, installation procedures shall be written in
such a manner as to enable ease of installation and shall use generic names
versus proprietary terminology (ex: device name shall be "Fortezza.*" or
"PCMCIA.*") versus the name of a specific PCMCIA product.
Subtask 4: Crypto Card Interoperability:
The Contractor developed libraries and device drivers shall provide
100% functionality with all Fortezza Compliant Crypto Cards. The Contractor
shall provide evidence to the Government verifying compliance.
Subtask 5: Software Requirements Specification
The Contractor shall develop and deliver a document (a paper copy and
soft copy which can be read by Microsoft WORD for MS Windows 95, version
7.0) for the Software Requirements Specification. The document shall
describe the requirements of the Library and Drivers, as well as the
testing methods to be used to ensure each requirement has been met. The
Government will evaluate Contractor efforts and the Contractor shall
respond with revisions until a resolution is reached.
Subtask 6: Fortezza Application Implementors Guide:
The Contractor shall provide technical assistance on two (2)
Government documents, called the "Application Implementors Guide," for
Fortezza Crypto Card and the Fortezza PLUS Crypto Card respectively. The
Contractor shall review and comment on the documents.
<PAGE>
Task 3: Product Testing
Subtask 1: Test Plans:
a. The Contractor shall provide the Government with a formal Software
Test Plan (STP) document (a paper copy and soft copy which can be read by
Microsoft WORD for MS Windows 95, version 7.0) for all deliverable software
products. The test plan shall: provide a description of the organization
which shall have the responsibility for conducting the activity at each
level; describe or reference a discussion on the configuration management
of the tests, results, and evaluation reports; describe the test
equipment/tool or any special techniques to be used. The Test Plan shall
include descriptions of any complier, linker, loader, simulator, emulator,
etc. used and not previously described. The test plan shall also describe
in chart/ graph form, the timetable for each level of testing and the
duration of each test.
b. The Contractor shall provide the Government with a Software Test
Procedure (SWTP) document (a paper copy and soft copy which can be read by
Microsoft WORD for MS Windows 95, version 7.0) for all deliverable software
products. The document shall provide the purpose of the test and the
software requirement the test is to verify for each level of testing. Also,
the document shall identify the data required for input and output (with
both normal and extreme values, if applicable) and detailed test scenarios
for input, output, computation, branching, interfacing, and/or other
executable statements or logic.
c. The Contractor shall provide the Government with a Software Test
Report (STR) document (a paper copy and soft copy which can be read by
Microsoft WORD for MS Windows 95, version 7.0) for all deliverable software
products noted in Task 2, Subtasks 1 and 2. The STR shall summarize the
results of testing. A chart shall be used and include test procedure name,
results expected, and the results realized. Besides identifying tests,
dates, reference documents, etc., the results shall be accompanied by an
evaluation from Q&A as to whether there are problems and/or limitations to
be resolved or errors to be corrected.
d. The Contractor shall use, in addition to, or in lieu of, its own
test plan, any test plan offered by the Government.
Subtask 2: Test Software:
a. The Contractor shall produce script tools to exercise all
functionality of the libraries and device drivers on all required platforms
for both Type 1 and Type 2 (i.e., 2 per platform). The script tools shall
allow an evaluator to program MACROS to execute commands or a sequence of
commands. The Contractor shall provide the Government with the object code
(on a 3.5" floppy) and a user's manual (a paper copy and soft copy which
can be read by Microsoft WORD for MS Windows 95, version 7.0). The
Government shall have the right to freely reproduce and distribute the
object code and user's manual to any Government or non-Government party
without royalty or additional license. The Contractor shall also provide
maintenance on the product (bug fixes, enhancements, and upgrades) for the
duration of the contract.
b. The Contractor shall produce a test tool for the SUN OS 4.1.3
platform to independently exercise all functionality of the libraries and
device drivers on all required platforms for both Type 1 and Type 2 (i.e.,
2 per platform). The test tool shall allow user to step through commands
one at a time, with the result immediately made available to the user. The
Contractor shall provide the Government the object code (on a 3.5" floppy)
and a user's manual (a paper copy and soft copy which can be read by
Microsoft WORD for MS
<PAGE>
Windows 95, version 7.0). The Government shall have the right to freely
reproduce and distribute the source and object code and user's manual to
any Government or non-Government party without royalty or additional
license. The Contractor shall also provide maintenance on the product (bug
fixes, enhancements, and upgrades) for the duration of the contract.
Subtask 3: Software Quality And Assurance:
The Contractor shall support the Quality and Assurance (Q&A) efforts
of the Government. The Contractor support includes making required changes
to its deliverable library and device driver software products until the
product quality is acceptable to the Government. The Contractor shall meet
two minimum parameters for the Government Q&A evaluation: a cyclomatic
complexity of every routine of 10 or less, and a executable statements to
comments ratio of 1.5 or less. The Government may wave that requirement on
a per module basis, if the Contractor can adequately justify the
implementation. The Government will provide technical assistance in
explaining the procedures, tests and results, and the code modification
necessary for compliance. The Government will use Q&A tools at its disposal
for Q&A testing. This Q&A testing shall include code development quality
and may include security quality.
Task 4: Customer Support
Subtask 1: Developer Support:
The Contractor shall provide support for applications developers using
the Contractor's products. The Contractor shall respond to queries via
telephone calls, written correspondence or E-MAIL within 24 hours of
receipt.
Subtask 2: User Support:
The contractor shall provide installation, integration, and support
services as assigned by the Government. These services and support efforts
shall be exclusive to the Government and Government-designated contractors,
and will include not only applicable library modules and drivers, but also
any hardware components and/or application software, as directed by the
Government.
Task 5: Contract Support
Subtask 1: Configuration Control:
The Contractor shall perform the following administrative functions in
support of this Contract:
a. Maintain a MISSI software, firmware, and the documentation
Configuration Control system for Contractor's products.
b. Product part designation shall incorporate a labeling scheme
provided by the Government.
Subtask 2: Contract Administration:
a. Submit a monthly Technical and Fiscal Progress Report describing
the status of each task, the labor category status and material
expenditures as described in the subject CDRL.
<PAGE>
b. The Contractor shall support design and program reviews scheduled
by the Government. Reviews will not exceed one trip per month and will be
held in the Linthicum, Maryland area as required.
<PAGE>
FOR OFFICIAL USE ONLY
Task Order for an Advanced Fortezza and
Commercial Algorithm Smartcard
Version 2.3
6 October 1998
FOR OFFICIAL USE ONLY
<PAGE>
1.0 Introduction
1.1 Introduction
This task order establishes and defines the requirements for development of
a FORTEZZA enhancement for a smartcard that incorporates both Government
and commercial algorithms along with sufficient storage for certificates
supporting both hierarchies and features for use with either the Government
or commercial infrastructure(s). To date, many smartcards are being
produced by a variety of vendors, but none have the storage capacity or
performance required to easily operate using both Government and commercial
algorithm suites. All are limited by the relatively slow operation of the
ISO 7816 interface. Until a final name has been selected, this smartcard
shall be referred to as the Forte' Smartcard.
In addition to standard smartcard capabilities, the Forte' shall
incorporate a dual interface feature in such a way as to operate as one
would normally expect in a standard ISO 7816 compliant reader, while
providing an enhanced mode for a Universal Serial Bus (USB) capable reader
to transfer data to and from the smartcard at speeds much higher than now
possible with the ISO 7816 interface. The smartcard processor shall also
have an integral serial EEPROM interface so that a non-standard multi-chip
smartcard can be developed at a future time.
Likely the first of it's kind, this combination of storage space,
performance, and fast interface will result in a true cryptographic
processor smartcard. This is a substantial improvement over any card
currently on the market. Present smartcards act as nothing more than fancy
stored value cards that can perform public key and signature operations
relatively faster than possible with software only operation, but they do
little to provide security for the bulk symmetric encryption functions.
They rely on software running on the untrusted host workstation to provide
these services.
The present FORTEZZA PC card provides a level of physical protection for
storage of credentials as well as the bulk encryption operation. Analysis
from the system perspective shows that this is highly desirable even when
taking into consideration the limitations of operating on an untrusted host
workstation. The Forte' Smartcard will provide the benefits of a low cost
form factor while approaching the level of physical integrity of a PC card.
The low cost and user acceptance of the smartcard form factor for secure
credential storage in conjunction with the crypto processing provided by
this smartcard will provide an ideal solution for the customer. Limitations
as a result of mechanical flexibility and operating environment of the
smartcard may hinder the ultimate physical security that can be achieved
using membranes or other forms of active security barriers such as used
with higher security PC cards, however, this may provide an interesting
area for research beyond the scope of this effort.
================================================================================
FOR OFFICAL USE ONLY Page 2 of 17
<PAGE>
1.2 Terminology and Language
Within this task order, the terms "shall", "is required to", "must", and other
imperative language obligates the contractor. The term "may", in association
with actions of either the Government or the contractor, means those actions are
optional.
1.3 Prior Versions of the SOW
Version 1.2 of this Statement of Work, dated 23 February 1998, made many
references to the Hurricane smartcard processor being developed by VLSI
Technology in partnership with the Government. For various reasons, both the
Government and VLSI Technology have agreed that this is no longer in the
interest of either party and have discontinued all work on the design. It is
anticipated that many other vendors can meet or exceed the requirements for an
acceptable replacement engine. Moreover, the Government recognizes that it
would be preferable for the smartcard developer to be the primary responsible
party for the development of the engine.
Development of the smartcard engine shall be incorporated in this effort and
shall be the responsibility of the contractor. Details of the Hurricane design
that the Government considers critical have been added to this SOW and the
contractor should pay particular attention to these requirements as they are
recent additions.
In the event there is a conflict or omission in this or any other document,
whether part of the contract, this SOW, or part of a preliminary or informal
discussion, the contractor shall immediately identify the conflict or omission
to the Contracting Officer, in the form of a written communication, for
resolution by the Government Program Office.
1.4 Background
In an effort to expand the options available to FORTEZZA customers such as the
Defense Messaging System (DMS) the Government has opted to pursue development of
complementary FORTEZZA enabled products including software only versions and
smartcard enabled versions which incorporate most if not all of the FORTEZZA
functions.
In addition to and in parallel with the expansion of FORTEZZA products, the
Government recognizes that the future of cryptographic support will be based
wherever possible on commercially available off the shelf security enabled
applications. To that end, the Government is adding support for commercial
algorithms to FORTEZZA enabled products in anticipation of the need to bridge
the gap between full Government and full commercial operation. This is the
primary reason for development of security products such as this FORTEZZA with
Commercial Smartcard.
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<PAGE>
1.5 Special Provision
Successful operation of this smartcard will depend on a supporting library. The
supporting library shall be developed in conjunction with the smartcard but no
portion of a software only library, a "Software FORTEZZA", shall be developed or
funded under this contracted effort.
2.0 Applicable Documents
The following documents, or the latest released versions, shall be used as
reference information.
. Interface Control Document for the Fortezza Crypto Card, Revision P1.5,
dated 22 December, 1994
. Minimum Essential Requirements for the Fortezza Crypto Card, Revision 1.1,
dated June 26, 1995
. Cryptographic Interface Programmer's Guide for the Fortezza Crypto Card,
Revision P1.52, dated 30 January 1996
. Fortezza Card Certification Test Plan, Revision 2.00, dated 10 January
1995
. Fortezza Card Certification Test Procedures, Revision 2.00, dated 7 April
1995
. Fortezza Card Certification Test Program ("LIBTEST.EXE"), dated 2 May
1995
. "LIB_TEST" User Reference Guide, Version 2.00, dated 7 April 1995
. CAW Firmware Loading Interface and Requirements Specification, dated June
30, 1995
. Firmware Implementation Guidelines for the Fortezza Crypto Card, Version
1.0, dated July 8, 1995
. Fortezza Application Implementors Guide, Version 1.52, dated 5 March 1996
. ISO Standard 7816-I through 7816-4, Identification Cards, latest released
version
. Software FORTEZZA Concept of Operations, latest released version
. Software Fortezza Initialization, Version 0.4, dated December 9, 1997
. Software Fortezza Initialization File ASN.1 Definition, Version I, dated
November 19, 1997
. KEA and DSA Software Accelerator Study, Version 2, dated December 30, 1997
. SKIPJACK Software Accelerator Study, Version 2, dated December 3, 1997
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<PAGE>
3.0 Technical Requirements
3.1 General Requirements
The contractor shall provide an Advanced Fortezza with Commercial Smartcard, the
Forte' Smartcard, including all necessary libraries and utilities to be used in
place of a Fortezza PCMCIA card, as used by current applications, providing that
an appropriate smartcard reader is used. This task is for the purpose of
producing a limited quantity of prototype of proof-of-concept units. Upon
successful completion the Government may decide to pursue purchase of production
quantities using another contract vehicle.
3.2 FORTEZZA Compliance
Reference the Fortezza ICD. The Forte' Smartcard and supporting library shall
provide all of the functionality required to support the FORTEZZA ICD. Where
the smartcard cannot meet the requirements of the ICD, the contractor shall
immediately identify all variances in writing.
The contractor shall be required to pass applicable Government FORTEZZA
certification tests. Exceptions will be made for issues related to the
performance and storage space of the smartcard. Final Government approval of the
smartcard prototype design shall be required prior to final acceptance of the
prototypes.
3.3 ISO Compliance
The contractor shall comply with applicable requirements of the ISO 7816
smartcard (Identification Card) specifications and standards. Should the
contractor not be able to meet any of the requirements contained therein, the
contractor shall immediately notify the Contracting Officer of any and all
deviations, and shall not proceed until a waiver or other resolution has been
approved by the Government.
3.4 Smartcard Engine Requirements
The following requirements shall be met by the contractor by subcontracting with
an ASIC vendor. The contractor shall work with the Government to develop the
final smartcard engine architecture but the following architectural blocks shall
be considered essential unless otherwise agreed upon in writing. The contractor
shall submit an architecture and design specification to the Government prior to
engaging in any development with the subcontractor.
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<PAGE>
The Government recognizes that there are significant limitations with respect to
the die size of the engine. The goal shall be for the die size to be limited to
25mm/2/. The Government anticipates that this goal can be met with all of the
specified blocks in the target technology of a 0.5 micron CMOS process. In any
event, the Government and the contractor shall reach agreement on the final
architecture of the design before the final smartcard engine specification is
finalized. The contractor shall also investigate all options for using a
standard size die as well as a larger than standard die size with appropriate
stabilization or stiffener support on the smartcard before making a final
recommendation.
3.4.1 ISO 7816-3 Interface
The Forte' Smartcard Engine (FSE) shall have a standard ISO 7816 interface.
The only deviation shall be for an additional mode for fast interface
operation. The USB interface shall reuse contacts in a way that does not
interfere with ISO 7816 operation. The contractor shall be responsible for
ensuring that dual functionality exists with neither affecting the other
and where the interface is automatically and safely selected.
3.4.2 USB Interface
The contractor shall be required to incorporate a Universal Serial Bus
(USB) interface. The same restrictions with respect to interoperability,
standard compliance, and automatic configuration shall apply.
3.4.3 Serial EEPROM Interface
The contractor shall include a Serial EEPROM interface. The interface
shall be able to detect the external memory or otherwise be able to be
manually configured for operation. The interface shall support a minimum of
address space for 1MByte of memory.
The serial EEPROM interface shall not preclude encryption/decryption of
information in the external EEPROM device under control of the on-board
RISC processor, or the RISC processor and a hardware encryption engine.
3.4.4 32 bit RISC Processor
The contractor shall select a chip vendor that can provide a 32 bit RISC
processor core.
3.4.5 Encryption/Decryption Engines
The contractor shall study the possibility of incorporating both encryption
algorithms in hardware. The contractor shall make a recommendation based
on an analysis of the anticipated use of the card for these operations and
determine if full hardware support, partial hardware support, or software
only operation will suffice.
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<PAGE>
3.4.5.1 DES Engine
The contractor shall use a DES engine that complies with the NIST
certified specification.
3.4.5.2 Skipjack Engine
The contractor shall implement the Skipjack engine in compliance with
existing Government documentation and the soon to be released NIST
standard for Skipjack.
3.4.6 Non-Deterministic Randomizer
The hardware randomizer is one of the most critical elements of the
smartcard engine. The contractor shall seek design guidance from the
Government and shall incorporate a hardware randomizer that meets following
requirements as a minimum:
The randomizer design shall incorporate at least nine (9) oscillator rings.
The clock or operating rate of each ring shall not be same as or a multiple
of any other ring.
None of the rings shall operate at or near the sample clock rate for the
randomizer.
The contractor shall ensure that the physical layout of the randomizer
prevents inadvertent synchronization of the rings.
The contractor shall be required to meet Government certification of the
randomizer output. The Government shall provide an example design to the
contractor if requested.
3.4.7 Exponentiator/Multiplier
The contractor shall incorporate an exponentiator or basic multiplier block
into the design. This block shall enable math processing performance in
excess of the current Government smartcard. The block shall be designed so
that it does not place an arbitrary limit on the size of the base or
exponent in an exponentiation operation. The size shall only be limited by
the amount of memory available for storage of interim and final results.
The contractor shall be required to perform operations using a maximum of
2K base and a 1024 bit exponent.
3.4.8 Hardware Security and Anti-Tamper Features
The contractor shall research the available security features that can be
added to the engine. Several features routinely included in common
smartcards include, under and over voltage
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<PAGE>
detectors, current masking, slow and fast clock detectors, and encrypted memory.
The contractor shall incorporate as many security features as possible and shall
submit a proposal along with the final design proposal to the Government. The
Government shall provide detailed guidance as requested.
3.4.9 Static RAM
The contractor shall incorporate a minimum of 2KB of on-board static RAM.
3.4.10 Masked ROM
The contractor shall include a minimum of 8KB of masked ROM for storage of
common routines, checks and bootup tests.
3.4.11 FLASH Memory
The contractor shall include a minimum of 16KB of on-board FLASH or EEPROM
memory.
3.4.12 Alarm Checks
The contractor shall fully specify any alarms checks that are to be
performed in hardware.
3.4.13 Test Mode Bypasses
The contractor shall identify any "undocumented" or test mode functions
used for debugging. The contractor shall submit a report documenting such
functions. The contractor shall be responsible for ensuring that an
acceptable lock-out mechanism be put in place so that these modes cannot be
tampered with beyond the prototype period.
3.5 Required Algorithms
The algorithms to be supported are the same as those which are required for
FORTEZZA(R) compliance. Reference the applicable documents in Section 2.0.
3.5.1 Distribution of Processing
The following algorothims and functions shall be incorporated and/or
performed primarily by hardware and firmware entirely resident on the
smartcard when access to the smartcard is through use of a fast USB
smartcard reader. The contractor shall include hardware macro blocks into
the smartcard engine design to support the following provided that the
engine die size can be restricted to the ISO 7816 limits. The contractor
shall seek Government
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<PAGE>
guidance and approval before finalizing the hardware design. Reference the
smartcard engine requirements section.
. DSA and RSA signature operations
. KEA, RSA, and Diffie-Hellman key development and exchange
operations
. Random Number Generation
. Skipjack and DES encryption and dsecryption
. SHA-1 and MD5 hashing
The following algorithms and functions shall be incorporated and/or
performed primarily by hardware and firmware entirely resident on the
smartcard when access to the smartcard is through use of a standard ISO
7816 smartcard reader. All other functions may, at the contractor's
discretion, be performed either on the card or in the supporting library.
. DSA and RSA signature generation and verification
. KEA, RSA, and Diffie-Hellman key development operations
. Random Number Generation
3.5.2 Algorithms Classification
The Skipjack and KEA algorithms were declassified on 17 June 1998.
The contractor shall be required to sign a Use and Non-Disclosure Agreement
(NDA) with the Government that controls disclosure of algorithm and
implementation details regardless of classification. The contractor shall
be required to sign this agreement prior to starting any work on this
effort. The contractor shall include any subcontractors as specified in
the NDA prior to commencing work with them.
3.5.3 Export Restrictions
The Forte' Smartcard shall incorporate the Skipjack and KEA algorithms.
Export restrictions may still apply. The contractor shall be required to
follow all applicable export restrictions and laws that apply in addition
to any other restrictions called for in the above referenced NDA.
3.5.4 KEA Modes
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<PAGE>
The smartcard shall support both versions of KEA for on-line and e-mail
applications in accordance with FORTEZZA ICD.
3.6 Infrastructure Support
3.6.1 Fortezza Interoperability
The contractor shall propose a method of "keying" or adding certificates to
the Forte' Smartcard that is consistent and compatible with the existing
FORTEZZA infrastructure. The contractor shall identify a specific means for
both importing and exporting certificates and keys with the Forte'
Smartcard.
The contractor may propose a commercial method of providing this support
but it must be interoperable and able to function as a subordinate in
an/the existing hierarchy based on the NSM CAW. The proposal also must
include details of the physical and logical interfaces to the smartcard.
The contractor shall submit an infrastructure support plan for the Forte'
Smartcard.
The contractor shall prepare all infrastructure documentation such that it
can be used as a standard or benchmark for future crypto smartcard vendors
to follow. The plan shall allow for other implementations and shall not
require any specific support from the architecture or design of this
particular smartcard. The contractor shall propose an infrastructure
support plan and shall work with the Government to coordinate with any
ongoing smartcard standards in development, and shall be required to attain
Government approval prior to delivery of prototype units.
3.6.2 Certificate Storage
The Forte' Smartcard shall be capable of holding a minimum of five (5)
Version 3 X.509 certificates on board including the root certificate.
Version 3 certificate sizes are variable, however, the contractor shall
base storage estimates on a presumed maximum of 2048 bytes per certificate.
The Forte' Smartcard shall be capable of storing a minimum of 3 RSA based
certificates.
The contractor shall be required to provide the above certificate storage
space concurrently and shall not require reprogramming or off-card caching
to take place in order to support the above requirements.
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<PAGE>
3.7 Security Mechanisms
The following security mechanisms are identified as critical functions and shall
be firm requirements of the development:
3.7.1 PIN Protection
The contractor shall ensure that proper security checks and zeroization
mechanisms are used on the card Personal Identification Number (PIN) to
prevent exhaustion attacks.
The contractor shall provide a flexible and configurable mechanism in
conjunction with the proposed infrastructure support to allow for use of a
"memphrase" in place of a PIN should the user's infrastructure support this
operation. The contractor shall seek Government guidance with respect to
this requirement.
The contractor's design shall not preclude the memphrase from being
populated with information from a biometric input device.
3.7.2 Software Authentication
The contractor shall propose a method of applying a signature to the
supporting library software which the smartcard will verify upon initial
invocation. The contractor shall identify options and alternatives for
providing this functionality. Run-time checks past the point of invocation
are not required.
3.7.3 Randomizer
The contractor shall use an on-chip hardware randomizer. At no time is it
acceptable for randomization to be dependent on host platform interaction
or support. The contractor shall ensure that the randomization performed
on the smartcard is acceptable to the Government. Documentation and test
data shall be provided to assure that the randomizer is non-deterministic
and that it will operate in this manner in all expected operating
conditions. The contractor shall identify in writing any special
conditions, possible failure modes, or on-board firmware support required
to achieve proper random operation.
The contractor shall obtain Government approval of the randomizer operation
prior to acceptance of prototype units.
3.7.4 Key Wrapping
The contractor shall provide the ability to wrap and export keys consistent
with existing processes supported by the Fortezza PC card.
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<PAGE>
3.7.5 NIST Certification
The contractor shall obtain National Institute of Standards and Technology
(NIST) Federal Information Processing Standards (FIPS) certification prior
to delivery of production units. The certification shall be at a minimum of
FIPS 140-1/Level 1.
3.8 Smartcard Engine Firmware Development
The contractor shall be responsible for developing the processor level code
for the smartcard engine. This may include but not be limited to base
level functions such as math and memory management routines and would
typically be contained in masked ROM.
The contractor shall author appropriate tests to ensure that the engine
that is delivered meets all performance and security specifications and
that the resident firmware is free of errors.
3.9 Smartcard Firmware Development
The contractor shall develop all firmware that is resident on the smartcard
including any code that is not permanently contained in the smartcard
engine. This code shall control operation of the smartcard in conjunction
with the library and may contain features to support plug and play
operation and configuration.
The contractor shall include all necessary code to allow the smartcard to
work in conjunction with the library, driver, and reader, such that
automatic configuration of the smartcard interface can be accomplished.
3.10 Library Support
3.10.1 Minimum Operation
The contractor shall provide a supporting library which enables the Forte'
Smartcard. The library shall also be compatible with the PCMCIA FORTEZZA
in such a way that if a smartcard is not present, the library can be used
to access a FORTEZZA PC card. The library shall be able to support a
minimum of operation on Windows 95 and Windows NT 4.0 operating systems and
shall support the MACI extensions.
The library shall be capable of performing supporting operations in both
the advanced interface and ISO 7816 modes of operation.
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<PAGE>
3.10.2 Smartcard/Library Interaction
The contractor shall specify and document all handshaking that occurs
between the library and the smartcard such as that required for
configuration or plug and play operation. This specification shall be
freely distributable.
3.11 Driver Support
The contractor shall provide a driver to enable operation of the Forte'
Smartcard in conjunction with the supporting library. This driver, or a
combination of drivers, shall be capable of operation with a range of standard
ISO 7816 smartcard readers. The driver(s) shall also be capable of operating
with an advanced USB smartcard reader that the contractor anticipates
developing.
It is highly desirable that the drivers be combined into the same unit of code
in a way that the driver, or driver in combination with the reader and/or
library, recognizes the reader resources that are available and automatically
configures for the highest performance operation. This type of operation has
implications for the level of security that the user can rely upon and it may be
appropriate for some sort of interaction with the user's application to provide
an indication of the level of support provided. There is no firm requirement
for this sort of interaction and the contractor shall work with the Government
to identify possible options for enabling this functionality.
In the absence of the above configurability, the contractor shall be required to
deliver separate drivers to be configured by the user at the time of
installation.
3.12 Firmware Functionality Waivers
The following functions which are typically implemented in firmware have been
recently put forward as waivers to the standard FORTEZZA requirements. The
contractor shall seek further guidance and documentation from the Government.
3.12.1 Firmware Update Command
The Firmware Update Command shall be designed such that a user logged on to
the Forte' Smartcard in USER mode will be authorized to update the firmware
with a new firmware version containing a valid card manufacturer's
signature.
3.12.2 InstallX Command
The InstallX command shall operate consistent with the description in the
cited document.
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<PAGE>
3.12.3 CFB8/CFB16 Modes
The modem support modes shall operate consistent with the description in
the cited document.
3.13 Testing
The Forte' Smartcard shall be required to pass all applicable library and
certification tests frequently referred to as the CSC test suite for FORTEZZA
functionality. Because of the difference between a full PCMCIA and smartcard
implementation, discrepancies will exist and must be brought to the attention of
the Government in form of written communication from the contractor.
The contractor shall develop and propose a means for fully testing the
smartcard's capabilities, including the commercial algorithms. Testing the
Forte' Smartcard with security enabled commercial applications as a primary
means of testing is acceptable. The contractor shall author and deliver an
overall test plan.
The contractor shall be required to perform all testing identified above, and
must attain written Government approval, prior to final acceptance of the
prototypes.
3.13.1 Prototype Units
The contractor shall deliver ten (10) alpha prototype units to the
Government. These prototype units should be designed so that extensive
functional and security tests may be performed on them. The prototypes
shall be constructed using standard commercial practices and design
techniques commonly referred to as a "breakout board". The contractor
shall submit a proposal for their design to the Government for approval.
The contractor shall deliver an additional one hundred (100) beta prototype
units constructed as standard smartcards.
3.13.2 Smartcard Readers
The contractor shall be required to deliver one hundred (100) USB enabled
smartcard readers. The readers shall be able to access the USB interface
on the Forte' smartcard and shall have a high-speed interface to the host
which may also be USB compliant.
3.13.3 Demonstration of Fortezza Interoperability
The contractor shall demonstrate interoperability between all possible
pairings of the latest released version of the following:
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<PAGE>
. FORTEZZA PCMCIA Card
. Forte' Smartcard
. Software FORTEZZA
3.13.4 Demonstration of Commercial Operation
Upon completion of the alpha prototypes and all above tests, the contractor
shall demonstrate operation of the cards using a security enabled
commercial application of the contractor's choice. The contractor shall
demonstrate the operation of all on-board commercial algorithms.
3.13.5 Demonstration of Advanced Features
3.13.5.1 USB Interface
Prior to delivery of the beta prototype units and readers, the
contractor shall show operation of the Forte' Smartcard in
combination with the advanced USB reader, performing all
applicable Fortezza functions.
3.13.5.2 Serial EEPROM Interface
The contractor shall show operation of the serial EEPROM
interface by incorporation with one or more alpha prototype
units. The contractor shall show that the smartcard engine, in
combination with on-board firmware, is capable of accessing a
standard serial EEPROM device. The EEPROM device shall contain
1MByte or more of memory.
4.0 Documentation
The contractor shall provide an interface description (ICD), an application
implementors guide (AIG), and the equivalent of a CI programmer's guide (CIPG),
describing the smartcard interface and operations. All documentation shall be
created using best commercial practices and it may be based upon current
Fortezza documentation. These shall be freely distributable.
The contractor shall provide as required, detailed design information necessary
for the Government to perform a security analysis of the card implementation.
Detailed design information shall include all information such as electronic
schematics and software source code. This information will be handled as
proprietary and used for evaluation purposes only.
5.0 Deliverables and Schedule
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<PAGE>
<TABLE>
<CAPTION>
The following milestones and delivery dates shall be met by contractor:
<S> <C>
. Test plan for the Forte' Smartcard 1 Month ADAD
. Infrastructure support plan 2 Months ADAD
. Preliminary smartcard engine design specification 2 Months ADAD
. Final smartcard engine design specification 3 Months ADAD
. Name and labeling submission and approval 4 Months ADAD
. Prototype smartcard engine available 6 Months ADAD
. Smartcard FORTEZZA(R) ICD 6 Months ADAD
. Smartcard FORTEZZA(R) CIPG 6 Months ADAD
. Smartcard FORTEZZA(R) AIG 6 Months ADAD
. Randomizer test report and test data 7 Months ADAD
. Operational demonstration and 10 alpha prototype units 9 Months ADAD
. Alpha library and driver 9 Months ADAD
. Detailed design documentation, source code, etc. 10 Months ADAD
. Smartcard personalization plan 11 Months ADAD
. 100 beta smartcards and readers 11 Months ADAD
. Beta library and driver 11 Months ADAD
. Fortezza interoperability demonstration 12 Months ADAD
. Commercial operation demonstration 13 Months ADAD
. Web page support 14 Months ADAD
. Customer support plan 14 Months ADAD
. Final library and driver set 15 Months ADAD
. Contractor begins commercial sales 15 Months ADAD
</TABLE>
6.0 Warranty and Support
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<PAGE>
The contractor shall provide warranty for prototype smartcard units,
supporting library, and readers for a period of 12 months after delivery.
The 12 month period of warranty shall also include web based support for
user installation, operation, and updates. The contractor shall provide for
commercial fee for service support of the product after the initial 12
month period. Support may be provided by one or more services including
phone support and/or web based support. The plan detailing the contractor's
support shall be required according to the schedule in Section 5.0.
7.0 Packaging and Labeling
7.1 Labeling
The contractor shall design a new label or silkscreen for the cards such
that it can still be identified as FORTEZZA (R) compatible, but it shall be
easily discernible that it is different from any existing commercial
smartcard. The contractor shall propose a name and label design to be
approved by the Government prior to delivery of alpha prototype units.
7.2 Personalization
The contractor shall design the aforementioned label/silkscreen in such a
way as to not preclude or interfere with the addition of a picture and 2
line embossing as is possible with smartcard personalization tools. The
contractor shall submit in writing a detailed plan for personalization of
the smartcards prior to delivery of beta prototypes. The contractor shall
not be required to deliver the personalization tools as part of this task.
7.3 Magnetic Stripe
The contractor shall manufacture the beta prototype cards with a magnetic
stripe on the reverse side in accordance with commercial standards. The
magnetic stripe shall be unprogrammed at time of delivery.
8.0 Program Reviews
TBD.
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<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 8 PAGES
2. AMENDMENT/MODIFICATION NO. P00015
3. EFFECTIVE DATE: 12 APR 1999
4. REQUISITION/PURCHASE REQ. NO. I6-99-3084-0000
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 854-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
DUNS: 050761998
Litronic Inc.
ATTN: Bob Gray (949)851-1085
2030 Main Street, Suite 1250
Irvine, CA 92614-7240
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitation is amended as set forth in Item 14. The
hour and date specified for receipt of Offers
| | is extended, | | is not extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE SECTION G.1
Obligate: $135,000.00
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X) D. OTHER (Specify type of modification and authority)
FAR 43.103 (a) Bilateral Modification.
E. IMPORTANT: Contractor | | is not, |X| is required to sign this
document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section
headings, including solicitation/contract subject matter where
feasible).
A. The purpose of this modification is to:
<PAGE>
1. exercise a portion of the option under Section H.13 paragraph (b)
Option year 2 - Fiscal Year 1999, in the FPAF amount of $135,000.00;
and
2. reduce the option by the portion being exercised.
B. Accordingly, this contract is hereby modified as follows. (Continued on
following page)
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remains unchanged and in full force
and effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
ROBERT J. GRAY
V.P. PROD. DEV.
15B. CONTRACTOR/OFFEROR
BY /S/ ROBERT GRAY
---------------
(Signature of person authorized to sign)
15C. DATE SIGNED 4/12/99
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
MARGARET M. QUASNY
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ MARGARET M. QUASNY
(Signature of Contracting Officer)
16C. DATE SIGNED 4/12/99
<PAGE>
MDA904-97-C-0424
P00014
Page 2 of 8
PART 1 - Exercise a Portion of Option Year 2 - Fiscal Year 1999
SECTION B - SUPPLIES/SERVICES AND PRICES is restated as follows (changes are in
bold):
B.3 SUPPLIES/SERVICES (Date of Contract Modification P00009 - 30 September 1999)
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS Gov't XXX
necessary materials, facilities, From: 8,203
equipments, supplies, and services By: 1,240
of skilled professional, technical To: 9,443
and support personnel to fulfill
the requirements set forth in the Cont'r 5,237
revised Statement of Work entitled
"Task Order for an Advanced Fortezza
and Commercial Algorithm Smartcard,
Version 2.3," dated 6 October 1998.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $75.41 XXXX
0001AC Electronic Technician X XXX $69.32 XXXX
0001AD Systems Analyst X XXX $75.38 XXXX
0001AE Sr. Software Engineer X XXX $98.38 XXXX
0001AF Software Engineer X XXX $62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed
ACR. AC $519,434.00 Government's Share From: $669,434.00
ACR: AD $150,000.00 By: $103,182.00
ACR: AE $103,182.00 To: $772,616.00
Contractor's Share $424,991.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00014
Page 3 of 8
<TABLE>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0002 Award Fee Pool, to be determined For the Period
in accordance with the Award Fee
Determination Plan for Multi
Level Information System
Security Initiative Crypto Card
System Analysis and Library and
Driver Architecture and
Development, dated 10 June 1997
(Rev. 2). There shall be one
evaluation for the period, date of
contract modification - 30
September 1999. The contractor
is authorized to bill for up to 50%
of the available award fee, on
a monthly basis in equal amounts.
ACR: AC $51,943.00 From: $66,943.00
ACR: AD $15,000.00 By: $10,318.00
ACR: AE $10,318.00 To: $77,261.00
0003 Travel For the Job Not-To-Exceed
(Inclusive of Burdens) Government's Share $8,371.00
ACR: AC Contractor's Share 6,849.00
0004 Other Direct Costs For the Job Not-To-Exceed
(Inclusive of Burdens)
ACR: AC $214,252.00 Government's Share From: $324,252.00
ACR: AD $110,000.00 By: $ 21,500.00
ACR: AE $21,500.00 To: $345,752.00
Contractor's Share $288,050.00
0005 Data, in accordance with the For the Lot Not-Separately-Priced
Contract Data Requirements
List (CDRL), DD Form 1423,
dated 13 February 1997
ACR: AC
TOTAL NOT TO-EXCEED Government's Share From: $1,069,000.00
Total By: $135,000.00
To: $1,204,000.00
Contractor's Share $721,890.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00014
Page 4 of 8
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus
applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at
actual costs; meals and incidental expenses shall be reimbursed at the
applicable flat rate. The total of lodging, meals, and incidental expenses shall
not exceed the established rate for each location set forth in the "Federal
Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and
the Standardized Regulation (Government Civilians Foreign Areas), Section 925,"
as applicable. These costs shall be directly chargeable to this contract in
accordance with the contractor's established method of distributing such costs.
First class travel shall not be reimbursed. Contractor shall be reimbursed for
coach rates only. Travel is non fee bearing. Invoices which request
reimbursement of travel expenses must be accompanied by airline ticket subs,
hotel/motel receipts, and rental car receipts.
SECTION G - CONTRACT ADMINISTRATION DATA
G.l ACCOUNTING AND APPROPRIATION DATA, ACR: AE is added as follows:
----------------------------------
<TABLE>
<CAPTION>
ACR: AA Obligate
<S> <C>
977/80400.4500 574E51 999-2520 S18119 03200106 IX 0000 X22 I20B
Previously Obligated for Section B.1 CLINs 000l, 0003 and 0004 $446,874.00
Previously Obligated for Provisional Award Fee Payments $0.00
Previously Obligated for Future Award Fee Payments $0.00
Previously Obligated for Award Fee Earned $36,433.00
Total Amount Obligated ACR: AA $483,307.00
ACR: AB Obligate
978/90400.4500 584E51 999-2520 S18119 04700400 IX 0000 X22 I25D
Previously Obligated for Section B.2 CLINs 0001, 0003 and 0004 $1,151,319.20
Previously Obligated for Provisional Award Fee Payments $0.00
Previously Obligated for Future Award Fee Payments $0.00
Previously Obligated for Award Fee Earned $76,720.70
Total Amount Obligated ACR: AB $1,228,039.90
ACR: AC Obligate
978/90400.4500 584E51 999-2550 S18119 04700100 IX 0000 X21 I25D
Previously Obligated for section B.3 CLINs 0001, 0003 and 0004 $742,057.00
Previously Obligated for Provisional Award Fee Payments $25,971.50
Previously Obligated for Future Award Fee Payments $25,971.50
Total Obligated (PR: I6-98-3701-0000) ACR: AC $794,000.00
ACR: AD Obligate
979/00400.4500 594E51 999-2550 S18119 04700100 IX 0000 X21 I125D
Total Previously Obligated for Section B.3 CLINs 0001, 0003 and 0004 $260,000.00
Total Previously Obligated for Provisional Award Fee Payments Section B.3 $7,500.00
Total Previously Obligated for Future Award Fee Payments Section B.3 $7,500.00
Total Previously Obligated for Section B.3 $275,000.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00014
Page 5 of 8
<TABLE>
<CAPTION>
<S> <C>
ACR: AD Obligate
Total Previously Obligated for Section B.4 CLINs 0001, 0003 and 0004 $22,727.00
Total Previously Obligated for Provisional Award Fee Payments Section B.4 $1,136.50
Total Previously Obligated for Future Award Fee Payments Section B.4 $1,136.50
Total Previously Obligated for Section B.4 $25,000.00
Total Previously Obligated (PR:I6-98-3701-0001) ACR:AD $300,000.00
ACR: AE Obligate
979/00400.4500 594E51 999-2550 S18119 04700100 IX 0000 V33 I25D
Obligate This Action for Section B.3 CLINs 0001, 0003 and 0004 $124,682.00
Obligate This Action for Provisional Award Fee Payments Section B.3 $5,159.00
Obligate This Action for Future Award Fee Payments Section B.3 $5,159.00
Total Obligated (PR:I6-99-3084-0000) ACR: AE $135,000.00
</TABLE>
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows:
Funds in the amount of $38,630.50, for Section B.3; and $1,136.50, for
Section B.4 have been obligated under this contract towards future award fee
determinations but are not available for the Contractor to bill against or incur
costs against. Obligated award fee funds identified above will be released to
the Contractor via subsequent modifications after the Government has rendered an
award fee determination in accordance with the Award Fee Plan currently in force
under this contract. Upon receipt of the aforementioned modifications, the
Contractor is authorized to bill for the earned fee.
PART 2 - Reduce Option Year 2 - Fiscal Year 1999 by the portion being exercised:
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H.13 352.217-9001 OPTION TO EXTEND THE TERM OF THE CONTRACT (OCT 1993)
(a) The Government may unilaterally extend the term of this contract by written
notice to the Contractor within 60 days following the President's signing of the
annual Appropriations Act or October 1, whichever is later, for each respective
option, provided that the Contracting Officer has given preliminary notice, in
writing, to the Contractor, of the Government's intent to renew, in any portion
and from time to time, at least 60 days prior to the expiration date of the
current period of performance. Such preliminary notice will not be deemed to
commit the Government to renewals. If the Government exercises this right to
renew, the contract, as renewed shall be deemed to include this option clause.
The total duration of this contract, including the exercise of any option to
renew under this clause, shall not exceed 36 months.
(b) The composition of the total man-hours of direct labor and other direct
costs for each option is as follows:
<PAGE>
MDA904-97-C-0424
P00014
Page 6 of 8
OPTION YEAR 2 - FISCAL YEAR 1999 (1 October 1998 - 30 September 1999) is
restated to transfer funds from CLIN 0001, Labor; and CLIN 0002, Award Fee; to
CLIN 0004, Other Direct Costs, and to reduce the option by the portion being
exercised:
<TABLE>
<CAPTION>
UNIT
CLIN SUPPLIES/SERVICES UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the necessary HRS From: 4,285 XXX From: $386,799.00
materials, facilities, equipment, supplies By: (1,240) Reduced By: ($103,182.00)
and services of skilled professional, technical To: 3,045 Transferred By: ($16,000.00)
and support personnel to fulfill the requirements To: $267,617.00
set forth in the Statement of Work entitled "Multi
Level Information System Security Initiative Crypto
Card System Analysis and Library and Driver
Architecture and Develoment," dated 10 January
1977 and the documents referenced in Section C. The
contractor's management shall provide for the effective
timely and integrated implementation of contract requirements.
0001AA Program Manager X XX $118.06 XXXX
0001AB Sr. Electrical Eng. X XX $ 75.41 XXXX
0001AC Electronic Technician X XX $ 69.32 XXXX
0001AD Systems Analyst X XX $ 75.38 XXXX
0001AE Sr. Software Engineer X XX $ 98.38 XXXX
0001AF Software Engineer X XX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $267,617.00
0002 Award Fee Pool, to be determined in accordance For the Period From: $38,680.00
with the Award Fee Plan for Multi-Level Information Reduced By: ($10,318.00)
System Security Initiative Crypt Card System Transferred By:($1,600.00)
Analysis and Library and Driver Architecture and To: $26,762.00
Development, dated 10 June 1997 (Rev. 2). There
shall be one evaluation of performance at the end
of the period of performance (Date of contract
award through 30 September 1997.) If the
Government exercises the options to extend the
terms of the contract, there shall be an evaluation
of performance at the conclusion of each option
year. The contractor is authorized to bill for up to
50% of the available award fee, on a monthly basis
in equal amounts.
0003 TRAVEL For the Job Not-To-Exceed $19,100.00
(Includes Applicable Burdens)
0004 OTHER DIRECT COSTS For the Job Not-To-Exceed From:$3,900.00
(Includes Applicable Buardens Transferred By: $17,600.00
By: ($21,500.00)
To: $0.00
0005 Data, in accordance with the Contract For the Lot Not-Separately-Priced
Data Item Requirements List (CDRL)
Dated 13 February 1997.
</TABLE>
<PAGE>
MDA904-97-C-0424
P00014
Page 7 of 8
TOTAL NOT TO-EXCEED From: $448,479,00
By: ($135,000.00)
To: $313,479.00
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus
applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at
actual costs; meals and incidental expenses shall be reimbursed at the
applicable flat rate. The total of lodging, meals, and incidental expenses shall
not exceed the established rate for each location set forth in the "Federal
Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and
the Standardized Regulation (Government Civilians Foreign Areas), Section 925,"
as applicable. These costs shall be directly chargeable to this contract in
accordance with the contractor's established method of distributing such costs.
First class travel shall not be reimbursed. Contractor shall be reimbursed for
coach rates only. Travel is non fee bearing. Invoices which request
reimbursement of travel expenses must be accompanied by airline ticket subs,
hotel/motel receipts, and rental car receipts.
C. As a result of the foregoing, the total contract price is restated as
follows:
<TABLE>
<CAPTION>
Section B.l FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $446,874.00 $0.00 $446,874.00
Award Fee Pool $0.00 $0.00 $0.00
Earned Award Fee $36,433.00 $0.00 $36,433.00
------------- ----------- -------------
Total FPAF Amount $483,307.00 $0.00 $483,307.00
Section B.2 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $1,151,319.20 $0.00 $1,151,319.20
Award Fee Pool $0.00 $0.00 $0.00
Earned Award Fee $76,720.70 $0.00 $76,720.70
------------- ----------- -------------
Total FPAF Amount $1,228,039.90 $0.00 $1,228,039.90
Section B.3 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $1,002,057.00 $124,682.00 $1,126,739.00
Award Fee Pool $66,943.00 $10,318.00 $77,261.00
Earned Award Fee $0.00 $0.00 $0.00
------------- ----------- -------------
Total FPAF Amount $1,069,000.00 $135,000.00 $1,204,000.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00014
Page 8 of 8
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section B.4 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $22,727.00 $0.00 $22,727.00
Award Fee Pool $2,273.00 $0.00 $2,273.00
Earned Award Fee $0.00 $0.00 $0.00
Total FPAF Amount $25,000.00 $0.00 $25,000.00
FROM BY TO
Total Contract Price $2,805,346.90 $135,000.00 $2,940,346.90
</TABLE>
D. Except as provided herein, all terms and conditions of this contract, as
previously modified, remain unchanged and in full force and effect.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 7 PAGES
2. AMENDMENT MODIFICATION NO. P00014
3. EFFECTIVE DATE: 12 JAN 1999
4. REQUISITION PURCHASE REQ. NO. N/A
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
DUNS: 050761998
Litronic Inc.
ATTN: Bob Gray (949)851-1085
2030 Main Street, Suite 1250
Irvine, CA 92614-7240
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers | | is extended, | | is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X) D. OTHER (Specify type of modification and authority)
FAR 43.103 (a) Bilateral Modification.
E. IMPORTANT: Contractor | | is not, |X| is required to sign this
document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
A. The purpose of this modification is to move $275,000.00 of funds from
Section B.4 to Section B.3.
<PAGE>
B. Accordingly, this contract is hereby modified as follows. (Continued on
following page)
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (type or print)
ROBERT J. GRAY
V.P. PROD. DEV.
15B. CONTRACTOR/OFFEROR
BY /S/ ROBERT GRAY
---------------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 11 JAN 1999
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
MARGARET M. QUASNY
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ MARGARET M. QUASNY
(Signature of Contracting Officer)
16C..DATE SIGNED 1/22/99
<PAGE>
MDA904.97-C-0424
P00014
Page 2 of 7
SECTION B - SUPPLIES/SERVICES AND PRICES is revised to include:
B.3 SUPPLIES/SERVICES (Date of Contract Modification P00009 - 30 September 1998)
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS Gov't XXX
necessary materials. facilities, From: 6,400
equipments, supplies and services By: 1,803
of skilled professional, technical To: 8,203
and support personnel to fulfill
the requirements set forth in the Cont'r 5,237
Statement of Work entitled
"Task Order for an
Advanced Fortezza and
Commercial Algorithm
Smartcard, Version 2.3," dated 6
October 1998.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed
ACR. AC Government's Share From: $519,434.00
ACR: AD By: $150,000.00
To: $669,434.00
Contractor's Share $424,991.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00014
Page 3 of 7
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C>
0002 Award Fee Pool, to be determined For the Period
in accordance with the Award Fee
Determination Plan for Multi
Level Information System
Security Initiative Crypto Card
System Analysis and Library and
Driver Architecture and
Development, dated 10 June 1997
(Rev. 2). There shall be one
evaluation for the period, date of
contract modification - 30
September 1998. The contractor
is authorized to bill for up to 50%
of the available award fee ($), on
a monthly basis in equal amounts.
ACR: AC From: $51,943.00
ACR: AD By: $15,000.00
To: $66,943.00
0003 Travel For the Job Not-To-Exceed
(Inclusive of Burdens) Government's Share $8,371.00
ACR: AC Contractor's Share 6,849.00
0004 Other Direct Costs For the Job Not-To-Exceed
(Inclusive of Burdens)
ACR: AC Government's Share From: $214,252.00
ACR: AD By: $110,000.00
To: $324,252.00
Contractor's Share $288,050.00
0005 Data, in accordance with the For the Lot Not-Separately-Priced
Contract Data Requirements
List (CDRL), DD Form 1423,
dated 13 February 1997
ACR: AC
TOTAL NOT TO-EXCEED Government's Share From: $794,000.00
Total By: $275,000.00
To: $1,069,000.00
Contractor's Share $721,890.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00014
Page 4 of 7
B.4 SUPPLIES/SERVICES Option Year 2 Fiscal Year 1999 (1 October 1998-30
------------------------------------------------------------------
September 1999) is restated as follows:
- --------------
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the necessary HRS FromP: 2,553 XXX $ 258,727.00
materials, facilities, equipment, supplies By: (2,328) ($236,000.00)
and services of skilled professional, technical To: 225 $ 22,727.00
and support personnel to fulfill the requirements
set forth in the Statement of Work entitled "Multi
"Level Information System Security Initiative Crypto
Card System Analysis and Library and Driver
Architecture and Develoment," dated 10 January
1977 and the documents referenced in Section C. The
contractor's management shall provide for the effective
timely and integrated implementation of contract requirements.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $75.41 XXXX
0001AC Electronic Technician X XXX $69.32 XXXX
0001AD Systems Analyst X XXX $75.38 XXXX
0001AE Sr. Software Engineer X XXX $98.38 XXXX
0001AF Software Engineer X XXX $62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed From: $25,873.00
By: ($236,000.00)
To: $22,727.00
ACR: AD
0002 Award Fee Pool, to be determined in accordance For the Period From: $258,727.00
with the Award Fee Plan Plan for MultiLevel Information By: ($23,600.00)
System Security Initiative Crypto Card System To: $2,273.00
Analysis and Library and Driver Architecture and By:
Development, dated 10 June 1997 (Rev. 2). If the
Government exercises the options to extend the
terms of the contract, there shall be an evaluation
of performance at the conclusion of each option
year. The contractor is authorized to bill for up to
50% of the available award fee on a monthly basis
in equal amounts.
ACR: AD
0003 TRAVEL For the Job Not-To-Exceed From: $ 12,900.00
(Includes Applicable Burdens) By: ($12,900.00)
ACR: AD To: $ 0.00
0004 OTHER DIRECT COSTS For the Job Not-To-Exceed From: $2,500.00
(Includes Applicable Burdens) By: ($2,500.00)
ACR: AD To: $ 0.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00014
Page 5 of 7
<TABLE>
<CAPTION>
<S> <C> <C> <C>
0005 Data, in accordance with the Contract For the Lot Not-Separately-Priced
Data Requirements List (CDRL)
Dated 13 February 1997
ACR: AD
TOTAL NOT TO-EXCEED From: $300,000.00
By: ( $275,000.00)
To: $25,000.00
</TABLE>
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus
applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at
actual costs; meals and incidental expenses shall be reimbursed at the
applicable flat rate. The total of lodging, meals, and incidental expenses shall
not exceed the established rate for each location set forth in the "Federal
Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and
the Standardized Regulation (Government Civilians Foreign Areas), Section 925,"
as applicable. These costs shall be directly chargeable to this contract in
accordance with the contractor's established method of distributing such costs.
First class travel shall not be reimbursed. Contractor shall be reimbursed for
coach rates only. Travel is non fee bearing. Invoices which request
reimbursement of travel expenses must be accompanied by airline ticket subs,
hotel/motel receipts, and rental car receipts.
SECTION F - DELIVERIES OR PERFORMANCE
F.7 352.211-9004 PERIOD OF PERFORMANCE (APR 1989) is added:
---------------------------------------------
Section B.3 of this contract shall extend from date of contract
modification P00009 to 30 September 1998, unless performance is sooner
terminated under the terms of the contract.
(End of Clause)
SECTION C - CONTRACT ADMINISTRATION DATA
G.l ACCOUNTING AND APPROPRIATION DATA ACR: AD only, is restated as follows:
---------------------------------
<TABLE>
<CAPTION>
ACR: AA Obligate
<S> <C>
977/80400.4500 574E51 999-2520 S18119 03200106 IX 0000 X22 I20B
Previously Obligated for Section B.1 CLINs 000l, 0003 and 0004 $ 446,874.00
Previously Obligated for Provisional Award Fee Payments $ 0.00
Previously Obligated for Future Award Fee Payments $ 0.00
Previously Obligated for Award Fee Earned $ 36,433.00
Total Amount Previously Obligated ACR: AA $ 483,307.00
ACR: AB Obligate
978/90400.4500 584E51 999-2520 S18119 04700400 IX 0000 X22 I25D
Previously Obligated for section B.2 CLINs 0001, 0003 and 0004 $1,151,319.20
Previously Obligated for Provisional Award Fee Payments $ 0.00
Previously Obligated for Future Award Fee Payments $ 0.00
Previously Obligated for Award Fee Earned $ 76,720.70
Total Amount Obligated ACR: AB $1,228,039.90
</TABLE>
<PAGE>
MDA904-97-C-0424
P00014
Page 6 of 7
<TABLE>
<CAPTION>
ACR: AC Obligate
<S> <C>
978/90400.4500 584E51 999-2550 S18119 04700100 IX 0000 X21 I25D
Previously Obligated for section B.3 CLINs 0001, 0003 and 0004 $ 742,057.00
Previously Obligated for Provisional Award Fee Payments $ 25,971.50
Previously Obligated for Future Award Fee Payments $ 25,971.50
Total Obligated (PR: I6-98-3701-0000) ACR: AC $ 794,000.00
ACR: AD Obligate
979/00400.4500 594E51 999-2550 S18119 04700100 IX 0000 X21 I125D
Previously Obligated for Section B.4 CLINs 0001, 0003 and 0004 $ 274,127.00
Deobligate This Action Section B.4 CLINs 0001, 0003 and 0004 ($251,400.00)
Total Obligated for Section B.4 CLINs 0001, 0003 and 0004 $ 22,727.00
Previously Obligated for Section B.3 CLINs 0001, 0003 and 0004 $ 0.00
Deobligate This Action Section B.3 CLINs 0001, 0003 and 0004 $ 260,000.00
Total Obligated for Section B.3 CLINs 0001, 0003 and 0004 $ 260,000.00
Previously Obligated for Provisional Award Fee Payments Section B.4 $ 12,936.50
Deobligate this Action for Provisional Award Fee Payments Section B.4 ($11,800.00)
Total Obligated for Provisional Award Fee Payments Section B.4 $ 1,136.50
Previously Obligated for Provisional Award Fee Payments Section B.3 $ 0.00
Deobligate this Action for Provisional Award Fee Payments Section B.3 $ 7,500.00
Total Obligated for Provisional Award Fee Payments Section B.3 $ 7,500.00
Previously Obligated for Future Award Fee Payments Section B.4 $ 12,936.50
Deobligate this Action for Future Award Fee Payments Section B.4 ($11,800.00)
Total Obligated for Future Award Fee Payments Section B.4 (1,136.50)
Previously Obligated for Future Award Fee Payments Section B.3 $ 0.00
Deobligate this Action for Future Award Fee Payments Section B.3 $ 7,500.00
Total Obligated for Future Award Fee Payments Section B $ 7,500.00
Total Obligated (PR: I6-98-3701-0001) ACR: AD $ 300,000.00
</TABLE>
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows:
Funds in the amount of $33,471.50, for Section B.3; and $1,136.50, For
Section B.4 have been obligated under this contract towards future award fee
determinations but are not available for the Contractor to bill against or incur
costs against. Obligated award fee funds identified above will be released to
the Contractor via subsequent modifications after the Government has rendered an
award fee determination in accordance with the Award Fee Plan currently in force
under this contract. Upon receipt of the aforementioned modifications, the
Contractor is authorized to bill for the earned fee.
<PAGE>
MDA904-97-C-0424
P00014
Page 7 of 7
C. As a result of the foregoing, the total contract price is restated as
follows:
<TABLE>
<CAPTION>
Section B.l FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $ 446,874.00 $ 0.00 $ 446,874.00
Award Fee Pool $ 0.00 $ 0.00 $ 0.00
Earned Award Fee $ 36,433.00 $ 0.00 $ 36,433.00
Total FPAF Amount $ 483,307.00 $ 0.00 $ 483,307.00
Section B.2 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $1,151,319.20 $ 0.00 $1,151,319.20
Award Fee Pool $ 0.00 $ 0.00 $ 0.00
Earned Award Fee $ 76,720.70 $ 0.00 $ 76,720.70
Total FPAF Amount $1,228,039.90 $ 0.00 $1,228,039.90
Section B.3 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $ 742,057.00 $ 260,000.00 $1,002,057.00
Award Fee Pool $ 51,943.00 $ 15,000.00 $ 66,943.00
Earned Award Fee $ 0.00 $ 0.00 $ 0.00
Total FPAF Amount $ 794,000.00 $ 275,000.00 $1,069,000.00
Section B.4 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $ 274,127.00 ($251,400.00) $ 22,727.00
Award Fee Pool $ 25,873.00 ($23,600.00) $ 2,273.00
Earned Award Fee $ 0.00 $ 0.00 $ 0.00
Total FPAF Amount $ 300,000.00 ($275,000.00) $ 25,000.00
FROM BY TO
Total Contract Price $2,805,346.90 $ 0.00 $2,805,346.90
</TABLE>
D. Except as provided herein, all terms and conditions of this contract, as
previously modified, remain unchanged and in full force and effect.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 3 PAGES
2. AMENDMENT MODIFICATION NO. P00013
3. EFFECTIVE DATE: 15 DEC 1998
4. REQUISITION PURCHASE REQ. NO. N/A
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
DUNS: 050761998
Litronic Inc.
ATTN: Bob Gray (949) 851-1085
2950 Redhill Avenue
Costa Mesa, CA 92626
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers | | is extended, | | is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE SECTION G.1
Obligate $794,000.000
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE
CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM
10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE AD
MINISTRATIVE CHANGES (such as changes in paying office, appropriate
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X) D. OTHER (Specify type of modification and authority)
FAR 43.103 (a) Bilateral Modification.
E. IMPORTANT: Contractor | | is not, |X| is required to sign this
document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
<PAGE>
A. The purpose of this modification is to incorporate the requirements of
the Statement of Work, entitled "Task Order for an Advanced Fortezza and
Commercial Algorithm Smartcard, Version 2.3, dated 6 October 1998," into this
contract and to extend the period of performance for Section B.3 at no
additional cost.
B. Accordingly, this contract is hereby modified as follows. (Continued on
following page)
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (type or print)
Robert J. Gray, VP. PROD. DEV.
Director, Business Development
15B. CONTRACTOR/OFFEROR
BY /S/ ROBERT GRAY
---------------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 11/5/98
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
MARGARET M. QUASNY
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ MARGARET M. QUASNY
(Signature of Contracting Officer)
16C. DATE SIGNED 12/15/98
<PAGE>
MDA904.97-C-0424
P00009
Page 2 of 3
SECTION B - SUPPLIES/SERVICES AND PRICES is revised to include:
B.3 SUPPLIES/SERVICES (Date of Contract Modification P00009 - 31 December 1998)
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS Gov't 6,400 XXX
necessary materials. facilities, Cont'r 5,237
equipments, supplies and services
of skilled professional, technical
and support personnel to fulfill
the requirements set forth in the
revised Statement of Work
entitled "Task Order for an
Advanced Fortezza and
Commercial Algorithm
Smartcard, Version 2.3," dated
6 October 1998.
0001AA Program Manager X XXX $ 118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed
ACR. AC Government's Share $519,434.00
Contractor's Share $424,991.00
0002 Award Fee Pool, to be determined For the Period $51,943.00
in accordance with the Award Fee
Determination Plan for Multi
Level Information System
Security Initiative Crypto Card
System Analysis and Library and
Driver Architecture and
Development, dated 10 June
1997 (Rev. 2). There shall be one
evaluation for the period, date of
contract modification - 31
December 1998. The contractor
is authorized to bill for up to 50%
of the available award fee, on
a monthly basis in equal amounts.
ACR: AC
</TABLE>
<PAGE>
MDA904-97-C-0424
P00009
Page 3 of 3
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
0003 Travel For the Job Not-To-Exceed
(Inclusive of Burdens) Government's Share $ 8,371.00
ACR: AC Contractor's Share $ 6,849.00
0004 Other Direct Costs For the Job Not-To-Exceed
(Inclusive of Burdens) Government's Share $214,252.00
ACR: AC Contractor's Share $288,050.00
0005 Data, in accordance with the For the Lot Not-Separately-Priced
Contract Data Requirements
List (CDRL), DD Form 1423,
dated 13 February 1997
ACR: AC
TOTAL NOT TO-EXCEED Government's Share $794,000.00
Total Contractor's Share $721,890,00
</TABLE>
SECTION C - DESCRIPTION/SPECIFICATION WORK STATEMENTS is revised to include:
C.6 Statement of Work entitled, "Task Order for an Advanced Fortezza and
Commercial Algorithm Smartcard, Version 2.3" dated 6 October 1998
SECTION F - DELIVERIES OR PERFORMANCE
F.7 352.211-9004 PERIOD OF PERFORMANCE (APR 1989) is revised as follows:
Section B.3 of this contract shall extend from date of contract
modification to 31 December 1998, unless performance is sooner terminated under
the terms of the contract.
(End of Clause)
SECTION J - LIST OF ATTACHMENTS is revised to include:
J.5 Statement of Work entitled, "Task Order for an Advanced Fortezza and
Commercial Algorithm Smartcard, Version 2.3," dated 6 October 1998, 17 pages
(previously provided).
C. As a result of the foregoing, the total contract price is unchanged.
D. Except as provided herein, all terms and conditions of this contract, as
previously modified, remain unchanged and in full force and effect.
<PAGE>
FOR OFFICIAL USE ONLY
Task Order for an Advanced Fortezza and
Commercial Algorithm Smartcard
Version 2.3
6 October 1998
FOR OFFICIAL USE ONLY
<PAGE>
1.0 Introduction
1.1 Introduction
This task order establishes and defines the requirements for development of
a FORTEZZA enhancement for a smartcard that incorporates both Government
and commercial algorithms along with sufficient storage for certificates
supporting both hierarchies and features for use with either the Government
or commercial infrastructure(s). To date, many smartcards are being
produced by a variety of vendors, but none have the storage capacity or
performance required to easily operate using both Government and commercial
algorithm suites. All are limited by the relatively slow operation of the
ISO 7816 interface. Until a final name has been selected, this smartcard
shall be referred to as the Forte' Smartcard.
In addition to standard smartcard capabilities, the Forte' shall
incorporate a dual interface feature in such a way as to operate as one
would normally expect in a standard ISO 7816 compliant reader, while
providing an enhanced mode for a Universal Serial Bus (USB) capable reader
to transfer data to and from the smartcard at speeds much higher than now
possible with the ISO 7816 interface. The smartcard processor shall also
have an integral serial EEPROM interface so that a non-standard multi-chip
smartcard can be developed at a future time.
Likely the first of it's kind, this combination of storage space,
performance, and fast interface will result in a true cryptographic
processor smartcard. This is a substantial improvement over any card
currently on the market. Present smartcards act as nothing more than fancy
stored value cards that can perform public key and signature operations
relatively faster than possible with software only operation, but they do
little to provide security for the bulk symmetric encryption functions.
They rely on software running on the untrusted host workstation to provide
these services.
The present FORTEZZA PC card provides a level of physical protection for
storage of credentials as well as the bulk encryption operation. Analysis
from the system perspective shows that this is highly desirable even when
taking into consideration the limitations of operating on an untrusted host
workstation. The Forte' Smartcard will provide the benefits of a low cost
form factor while approaching the level of physical integrity of a PC card.
The low cost and user acceptance of the smartcard form factor for secure
credential storage in conjunction with the crypto processing provided by
this smartcard will provide an ideal solution for the customer. Limitations
as a result of mechanical flexibility and operating environment of the
smartcard may hinder the ultimate physical security that can be achieved
using membranes or other forms of active security barriers such as used
with higher security PC cards, however, this may provide an interesting
area for research beyond the scope of this effort.
================================================================================
FOR OFFICIAL USE ONLY Page 2 of 17
<PAGE>
1.2 Terminology and Language
Within this task order, the terms "shall", "is required to", "must", and other
imperative language obligates the contractor. The term "may", in association
with actions of either the Government or the contractor, means those actions are
optional.
1.3 Prior Versions of the SOW
Version 1.2 of this Statement of Work, dated 23 February 1998, made many
references to the Hurricane smartcard processor being developed by VLSI
Technology in partnership with the Government. For various reasons, both the
Government and VLSI Technology have agreed that this is no longer in the
interest of either party and have discontinued all work on the design. It is
anticipated that many other vendors can meet or exceed the requirements for an
acceptable replacement engine. Moreover, the Government recognizes that it
would be preferable for the smartcard developer to be the primary responsible
party for the development of the engine.
Development of the smartcard engine shall be incorporated in this effort and
shall be the responsibility of the contractor. Details of the Hurricane design
that the Government considers critical have been added to this SOW and the
contractor should pay particular attention to these requirements as they are
recent additions.
In the event there is a conflict or omission in this or any other document,
whether part of the contract, this SOW, or part of a preliminary or informal
discussion, the contractor shall immediately identify the conflict or omission
to the Contracting Officer, in the form of a written communication, for
resolution by the Government Program Office.
1.4 Background
In an effort to expand the options available to FORTEZZA customers such as the
Defense Messaging System (DMS) the Government has opted to pursue development of
complementary FORTEZZA enabled products including software only versions and
smartcard enabled versions which incorporate most if not all of the FORTEZZA
functions.
In addition to and in parallel with the expansion of FORTEZZA products, the
Government recognizes that the future of cryptographic support will be based
wherever possible on commercially available off the shelf security enabled
applications. To that end, the Government is adding support for commercial
algorithms to FORTEZZA enabled products in anticipation of the need to bridge
the gap between full Government and full commercial operation. This is the
primary reason for development of security products such as this FORTEZZA with
Commercial Smartcard.
================================================================================
FOR OFFICIAL USE ONLY Page 3 of 17
<PAGE>
1.5 Special Provision
Successful operation of this smartcard will depend on a supporting library.
The supporting library shall be developed in conjunction with the smartcard
but no portion of a software only library, a "Software FORTEZZA", shall be
developed or funded under this contracted effort.
2.0 Applicable Documents
The following documents, or the latest released versions, shall be used as
reference information.
. Interface Control Document for the Fortezza Crypto Card, Revision P1.5,
dated 22 December, 1994
. Minimum Essential Requirements for the Fortezza Crypto Card, Revision
1.1, dated June 26, 1995
. Cryptographic Interface Programmer's Guide for the Fortezza Crypto Card,
Revision P1.52, dated 30 January 1996
. Fortezza Card Certification Test Plan, Revision 2.00, dated 10 January
1995
. Fortezza Card Certification Test Procedures, Revision 2.00, dated 7
April 1995
. Fortezza Card Certification Test Program ("LIBTEST.EXE"), dated 2 May
1995
. "LIBTEST" User Reference Guide, Version 2.00, dated 7 April 1995
. CAW Firmware Loading Interface and Requirements Specification, dated
June 30, 1995
. Firmware Implementation Guidelines for the Fortezza Crypto Card, Version
1.0, dated July 8, 1995
. Fortezza Application Implementors Guide, Version 1.52, dated 5 March
1996
. ISO Standard 7816-I through 7816-4, Identification Cards, latest
released version
. Software FORTEZZA Concept of Operations, latest released version
. Software Fortezza Initialization, Version 0.4, dated December 9, 1997
. Software Fortezza Initialization File ASN.1 Definition, Version I, dated
November 19, 1997
. KEA and DSA Software Accelerator Study, Version 2, dated December 30,
1997
. SKIPJACK Software Accelerator Study, Version 2, dated December 3, 1997
================================================================================
FOR OFFICIAL USE ONLY Page 4 of 17
<PAGE>
3.0 Technical Requirements
3.1 General Requirements
The contractor shall provide an Advanced Fortezza with Commercial
Smartcard, the Forte' Smartcard, including all necessary libraries and
utilities to be used in place of a Fortezza PCMCIA card, as used by current
applications, providing that an appropriate smartcard reader is used. This
task is for the purpose of producing a limited quantity of prototype of
proof-of-concept units. Upon successful completion the Government may
decide to pursue purchase of production quantities using another contract
vehicle.
3.2 FORTEZZA Compliance
Reference the Fortezza ICD. The Forte' Smartcard and supporting library
shall provide all of the functionality required to support the FORTEZZA
ICD. Where the smartcard cannot meet the requirements of the ICD, the
contractor shall immediately identify all variances in writing.
The contractor shall be required to pass applicable Government FORTEZZA
certification tests. Exceptions will be made for issues related to the
performance and storage space of the smartcard. Final Government approval
of the smartcard prototype design shall be required prior to final
acceptance of the prototypes.
3.3 ISO Compliance
The contractor shall comply with applicable requirements of the ISO 7816
smartcard (Identification Card) specifications and standards. Should the
contractor not be able to meet any of the requirements contained therein,
the contractor shall immediately notify the Contracting Officer of any and
all deviations, and shall not proceed until a waiver or other resolution
has been approved by the Government.
3.4 Smartcard Engine Requirements
The following requirements shall be met by the contractor by subcontracting
with an ASIC vendor. The contractor shall work with the Government to
develop the final smartcard engine architecture but the following
architectural blocks shall be considered essential unless otherwise agreed
upon in writing. The contractor shall submit an architecture and design
specification to the Government prior to engaging in any development with
the subcontractor.
================================================================================
FOR OFFICIAL USE ONLY Page 5 of 17
<PAGE>
The Government recognizes that there are significant limitations with respect to
the die size of the engine. The goal shall be for the die size to be limited to
25mm/2/. The Government anticipates that this goal can be met with all of the
specified blocks in the target technology of a 0.5 micron CMOS process. In any
event, the Government and the contractor shall reach agreement on the final
architecture of the design before the final smartcard engine specification is
finalized. The contractor shall also investigate all options for using a
standard size die as well as a larger than standard die size with appropriate
stabilization or stiffener support on the smartcard before making a final
recommendation.
3.4.1 ISO 7816-3 Interface
The Forte' Smartcard Engine (FSE) shall have a standard ISO 7816 interface.
The only deviation shall be for an additional mode for fast interface
operation. The USB interface shall reuse contacts in a way that does not
interfere with ISO 7816 operation. The contractor shall be responsible for
ensuring that dual functionality exists with neither affecting the other
and where the interface is automatically and safely selected.
3.4.2 USB Interface
The contractor shall be required to incorporate a Universal Serial Bus
(USB) interface. The same restrictions with respect to interoperability,
standard compliance, and automatic configuration shall apply.
3.4.3 Serial EEPROM Interface
The contractor shall include a Serial EEPROM interface. The interface
shall be able to detect the external memory or otherwise be able to be
manually configured for operation. The interface shall support a minimum of
address space for 1MByte of memory.
The serial EEPROM interface shall not preclude encryption/decryption of
information in the external EEPROM device under control of the on-board
RISC processor, or the RISC processor and a hardware encryption engine.
3.4.4 32 bit RISC Processor
The contractor shall select a chip vendor that can provide a 32 bit RISC
processor core.
3.4.5 Encryption/Decryption Engines
The contractor shall study the possibility of incorporating both encryption
algorithms in hardware. The contractor shall make a recommendation based
on an analysis of the anticipated use of the card for these operations and
determine if full hardware support, partial hardware support, or software
only operation will suffice.
================================================================================
FOR OFFICIAL USE ONLY Page 6 of 17
<PAGE>
3.4.5.1 DES Engine
The contractor shall use a DES engine that complies with the NIST
certified specification.
3.4.5.2 Skipjack Engine
The contractor shall implement the Skipjack engine in compliance
with existing Government documentation and the soon to be released
NIST standard for Skipjack.
3.4.6 Non-Deterministic Randomizer
The hardware randomizer is one of the most critical elements of the
smartcard engine. The contractor shall seek design guidance from the
Government and shall incorporate a hardware randomizer that meets following
requirements as a minimum:
The randomizer design shall incorporate at least nine (9) oscillator rings.
The clock or operating rate of each ring shall not be same as or a multiple
of any other ring.
None of the rings shall operate at or near the sample clock rate for the
randomizer.
The contractor shall ensure that the physical layout of the randomizer
prevents inadvertent synchronization of the rings.
The contractor shall be required to meet Government certification of the
randomizer output. The Government shall provide an example design to the
contractor if requested.
3.4.7 Exponentiator/Multiplier
The contractor shall incorporate an exponentiator or basic multiplier block
into the design. This block shall enable math processing performance in
excess of the current Government smartcard. The block shall be designed so
that it does not place an arbitrary limit on the size of the base or
exponent in an exponentiation operation. The size shall only be limited by
the amount of memory available for storage of interim and final results.
The contractor shall be required to perform operations using a maximum of
2K base and a 1024 bit exponent.
3.4.8 Hardware Security and Anti-Tamper Features
The contractor shall research the available security features that can be
added to the engine. Several features routinely included in common
smartcards include, under and over voltage
================================================================================
FOR OFFICIAL USE ONLY Page 7 of 17
<PAGE>
detectors, current masking, slow and fast clock detectors, and encrypted memory.
The contractor shall incorporate as many security features as possible and shall
submit a proposal along with the final design proposal to the Government. The
Government shall provide detailed guidance as requested.
3.4.9 Static RAM
The contractor shall incorporate a minimum of 2KB of on-board static RAM.
3.4.10 Masked ROM
The contractor shall include a minimum of 8KB of masked ROM for storage of
common routines, checks and bootup tests.
3.4.11 FLASH Memory
The contractor shall include a minimum of 16KB of on-board FLASH or EEPROM
memory.
3.4.12 Alarm Checks
The contractor shall fully specify any alarms checks that are to be
performed in hardware.
3.4.13 Test Mode Bypasses
The contractor shall identify any "undocumented" or test mode functions
used for debugging. The contractor shall submit a report documenting such
functions. The contractor shall be responsible for ensuring that an
acceptable lock-out mechanism be put in place so that these modes cannot be
tampered with beyond the prototype period.
3.5 Required Algorithms
The algorithms to be supported are the same as those which are required for
FORTEZZA(R) compliance. Reference the applicable documents in Section 2.0.
3.5.1 Distribution of Processing
The following algorothims and functions shall be incorporated and/or
performed primarily by hardware and firmware entirely resident on the
smartcard when access to the smartcard is through use of a fast USB
smartcard reader. The contractor shall include hardware macro blocks into
the smartcard engine design to support the following provided that the
engine die size can be restricted to the ISO 7816 limits. The contractor
shall seek Government
================================================================================
FOR OFFICIAL USE ONLY Page 8 of 17
<PAGE>
guidance and approval before finalizing the hardware design. Reference the
smartcard engine requirements section.
. DSA and RSA signature operations
. KEA, RSA, and Diffie-Hellman key development and exchange
operations
. Random Number Generation
. Skipjack and DES encryption and decryption
. SHA-1 and MD5 hashing
The following algorithms and functions shall be incorporated and/or
performed primarily by hardware and firmware entirely resident on the
smartcard when access to the smartcard is through use of a standard ISO
7816 smartcard reader. All other functions may, at the contractor's
discretion, be performed either on the card or in the supporting library.
. DSA and RSA signature generation and verification
. KEA, RSA, and Diffie-Hellman key development operations
. Random Number Generation
3.5.2 Algorithms Classification
The Skipjack and KEA algorithms were declassified on 17 June 1998.
The contractor shall be required to sign a Use and Non-Disclosure Agreement
(NDA) with the Government that controls disclosure of algorithm and
implementation details regardless of classification. The contractor shall
be required to sign this agreement prior to starting any work on this
effort. The contractor shall include any subcontractors as specified in
the NDA prior to commencing work with them.
3.5.3 Export Restrictions
The Forte' Smartcard shall incorporate the Skipjack and KEA algorithms.
Export restrictions may still apply. The contractor shall be required to
follow all applicable export restrictions and laws that apply in addition
to any other restrictions called for in the above referenced NDA.
3.5.4 KEA Modes
================================================================================
FOR OFFICIAL USE ONLY Page 9 of 17
<PAGE>
The smartcard shall support both versions of KEA for on-line and e-mail
applications in accordance with FORTEZZA ICD.
3.6 Infrastructure Support
3.6.1 Fortezza Interoperability
The contractor shall propose a method of "keying" or adding certificates to
the Forte' Smartcard that is consistent and compatible with the existing
FORTEZZA infrastructure. The contractor shall identify a specific means for
both importing and exporting certificates and keys with the Forte'
Smartcard.
The contractor may propose a commercial method of providing this support
but it must be interoperable and able to function as a subordinate in
an/the existing hierarchy based on the NSM CAW. The proposal also must
include details of the physical and logical interfaces to the smartcard.
The contractor shall submit an infrastructure support plan for the Forte'
Smartcard.
The contractor shall prepare all infrastructure documentation such that it
can be used as a standard or benchmark for future crypto smartcard vendors
to follow. The plan shall allow for other implementations and shall not
require any specific support from the architecture or design of this
particular smartcard. The contractor shall propose an infrastructure
support plan and shall work with the Government to coordinate with any
ongoing smartcard standards in development, and shall be required to attain
Government approval prior to delivery of prototype units.
3.6.2 Certificate Storage
The Forte' Smartcard shall be capable of holding a minimum of five (5)
Version 3 X.509 certificates on board including the root certificate.
Version 3 certificate sizes are variable, however, the contractor shall
base storage estimates on a presumed maximum of 2048 bytes per certificate.
The Forte' Smartcard shall be capable of storing a minimum of 3 RSA based
certificates.
The contractor shall be required to provide the above certificate storage
space concurrently and shall not require reprogramming or off-card caching
to take place in order to support the above requirements.
================================================================================
FOR OFFICIAL USE ONLY Page 10 of 17
<PAGE>
3.7 Security Mechanisms
The following security mechanisms are identified as critical functions and shall
be firm requirements of the development:
3.7.1 PIN Protection
The contractor shall ensure that proper security checks and zeroization
mechanisms are used on the card Personal Identification Number (PIN) to
prevent exhaustion attacks.
The contractor shall provide a flexible and configurable mechanism in
conjunction with the proposed infrastructure support to allow for use of a
"memphrase" in place of a PIN should the user's infrastructure support this
operation. The contractor shall seek Government guidance with respect to
this requirement.
The contractor's design shall not preclude the memphrase from being
populated with information from a biometric input device.
3.7.2 Software Authentication
The contractor shall propose a method of applying a signature to the
supporting library software which the smartcard will verify upon initial
invocation. The contractor shall identify options and alternatives for
providing this functionality. Run-time checks past the point of invocation
are not required.
3.7.3 Randomizer
The contractor shall use an on-chip hardware randomizer. At no time is it
acceptable for randomization to be dependent on host platform interaction
or support. The contractor shall ensure that the randomization performed
on the smartcard is acceptable to the Government. Documentation and test
data shall be provided to assure that the randomizer is non-deterministic
and that it will operate in this manner in all expected operating
conditions. The contractor shall identify in writing any special
conditions, possible failure modes, or on-board firmware support required
to achieve proper random operation.
The contractor shall obtain Government approval of the randomizer operation
prior to acceptance of prototype units.
3.7.4 Key Wrapping
The contractor shall provide the ability to wrap and export keys consistent
with existing processes supported by the Fortezza PC card.
================================================================================
FOR OFFICIAL USE ONLY Page 11 of 17
<PAGE>
3.7.5 NIST Certification
The contractor shall obtain National Institute of Standards and Technology
(NIST) Federal Information Processing Standards (FIPS) certification prior
to delivery of production units. The certification shall be at a minimum of
FIPS 140-1/Level 1.
3.8 Smartcard Engine Firmware Development
The contractor shall be responsible for developing the processor level code
for the smartcard engine. This may include but not be limited to base
level functions such as math and memory management routines and would
typically be contained in masked ROM.
The contractor shall author appropriate tests to ensure that the engine
that is delivered meets all performance and security specifications and
that the resident firmware is free of errors.
3.9 Smartcard Firmware Development
The contractor shall develop all firmware that is resident on the smartcard
including any code that is not permanently contained in the smartcard
engine. This code shall control operation of the smartcard in conjunction
with the library and may contain features to support plug and play
operation and configuration.
The contractor shall include all necessary code to allow the smartcard to
work in conjunction with the library, driver, and reader, such that
automatic configuration of the smartcard interface can be accomplished.
3.10 Library Support
3.10.1 Minimum Operation
The contractor shall provide a supporting library which enables the Forte'
Smartcard. The library shall also be compatible with the PCMCIA FORTEZZA
in such a way that if a smartcard is not present, the library can be used
to access a FORTEZZA PC card. The library shall be able to support a
minimum of operation on Windows 95 and Windows NT 4.0 operating systems and
shall support the MACI extensions.
The library shall be capable of performing supporting operations in both
the advanced interface and ISO 7816 modes of operation.
================================================================================
FOR OFFICIAL USE ONLY Page 12 of 17
<PAGE>
3.10.2 Smartcard/Library Interaction
The contractor shall specify and document all handshaking that occurs
between the library and the smartcard such as that required for
configuration or plug and play operation. This specification shall be
freely distributable.
3.11 Driver Support
The contractor shall provide a driver to enable operation of the Forte'
Smartcard in conjunction with the supporting library. This driver, or a
combination of drivers, shall be capable of operation with a range of standard
ISO 7816 smartcard readers. The driver(s) shall also be capable of operating
with an advanced USB smartcard reader that the contractor anticipates
developing.
It is highly desirable that the drivers be combined into the same unit of code
in a way that the driver, or driver in combination with the reader and/or
library, recognizes the reader resources that are available and automatically
configures for the highest performance operation. This type of operation has
implications for the level of security that the user can rely upon and it may be
appropriate for some sort of interaction with the user's application to provide
an indication of the level of support provided. There is no firm requirement
for this sort of interaction and the contractor shall work with the Government
to identify possible options for enabling this functionality.
In the absence of the above configurability, the contractor shall be required to
deliver separate drivers to be configured by the user at the time of
installation.
3.12 Firmware Functionality Waivers
The following functions which are typically implemented in firmware have been
recently put forward as waivers to the standard FORTEZZA requirements. The
contractor shall seek further guidance and documentation from the Government.
3.12.1 Firmware Update Command
The Firmware Update Command shall be designed such that a user logged on to
the Forte' Smartcard in USER mode will be authorized to update the firmware
with a new firmware version containing a valid card manufacturer's
signature.
3.12.2 InstallX Command
The InstallX command shall operate consistent with the description in the
cited document.
================================================================================
FOR OFFICIAL USE ONLY Page 13 of 17
<PAGE>
3.12.3 CFB8/CFB16 Modes
The modem support modes shall operate consistent with the description in
the cited document.
3.13 Testing
The Forte' Smartcard shall be required to pass all applicable library and
certification tests frequently referred to as the CSC test suite for FORTEZZA
functionality. Because of the difference between a full PCMCIA and smartcard
implementation, discrepancies will exist and must be brought to the attention of
the Government in form of written communication from the contractor.
The contractor shall develop and propose a means for fully testing the
smartcard's capabilities, including the commercial algorithms. Testing the
Forte' Smartcard with security enabled commercial applications as a primary
means of testing is acceptable. The contractor shall author and deliver an
overall test plan.
The contractor shall be required to perform all testing identified above, and
must attain written Government approval, prior to final acceptance of the
prototypes.
3.13.1 Prototype Units
The contractor shall deliver ten (10) alpha prototype units to the
Government. These prototype units should be designed so that extensive
functional and security tests may be performed on them. The prototypes
shall be constructed using standard commercial practices and design
techniques commonly referred to as a "breakout board". The contractor
shall submit a proposal for their design to the Government for approval.
The contractor shall deliver an additional one hundred (100) beta prototype
units constructed as standard smartcards.
3.13.2 Smartcard Readers
The contractor shall be required to deliver one hundred (100) USB enabled
smartcard readers. The readers shall be able to access the USB interface
on the Forte' smartcard and shall have a high-speed interface to the host
which may also be USB compliant.
3.13.3 Demonstration of Fortezza Interoperability
The contractor shall demonstrate interoperability between all possible
pairings of the latest released version of the following:
================================================================================
FOR OFFICIAL USE ONLY Page 14 of 17
<PAGE>
. FORTEZZA PCMCIA Card
. Forte' Smartcard
. Software FORTEZZA
3.13.4 Demonstration of Commercial Operation
Upon completion of the alpha prototypes and all above tests, the contractor
shall demonstrate operation of the cards using a security enabled
commercial application of the contractor's choice. The contractor shall
demonstrate the operation of all on-board commercial algorithms.
3.13.5 Demonstration of Advanced Features
3.13.5.1 USB Interface
Prior to delivery of the beta prototype units and readers, the
contractor shall show operation of the Forte' Smartcard in
combination with the advanced USB reader, performing all
applicable Fortezza functions.
3.13.5.2 Serial EEPROM Interface
The contractor shall show operation of the serial EEPROM
interface by incorporation with one or more alpha prototype
units. The contractor shall show that the smartcard engine, in
combination with on-board firmware, is capable of accessing a
standard serial EEPROM device. The EEPROM device shall contain
1MByte or more of memory.
4.0 Documentation
The contractor shall provide an interface description (ICD), an application
implementors guide (AIG), and the equivalent of a CI programmer's guide (CIPG),
describing the smartcard interface and operations. All documentation shall be
created using best commercial practices and it may be based upon current
Fortezza documentation. These shall be freely distributable.
The contractor shall provide as required, detailed design information necessary
for the Government to perform a security analysis of the card implementation.
Detailed design information shall include all information such as electronic
schematics and software source code. This information will be handled as
proprietary and used for evaluation purposes only.
5.0 Deliverables and Schedule
================================================================================
FOR OFFICIAL USE ONLY Page 15 of 17
<PAGE>
<TABLE>
The following milestones and delivery dates shall be met by contractor:
<S> <C> <C>
. Test plan for the Forte' Smartcard 1 Month ADAD
. Infrastructure support plan 2 Months ADAD
. Preliminary smartcard engine design specification 2 Months ADAD
. Final smartcard engine design specification 3 Months ADAD
. Name and labeling submission and approval 4 Months ADAD
. Prototype smartcard engine available 6 Months ADAD
. Smartcard FORTEZZA(R) ICD 6 Months ADAD
. Smartcard FORTEZZA(R) CIPG 6 Months ADAD
. Smartcard FORTEZZA(R) AIG 6 Months ADAD
. Randomizer test report and test data 7 Months ADAD
. Operational demonstration and 10 alpha prototype units 9 Months ADAD
. Alpha library and driver 9 Months ADAD
. Detailed design documentation, source code, etc. 10 Months ADAD
. Smartcard personalization plan 11 Months ADAD
. 100 beta smartcards and readers 11 Months ADAD
. Beta library and driver 11 Months ADAD
. Fortezza interoperability demonstration 12 Months ADAD
. Commercial operation demonstration 13 Months ADAD
. Web page support 14 Months ADAD
. Customer support plan 14 Months ADAD
. Final library and driver set 15 Months ADAD
. Contractor begins commercial sales 15 Months ADAD
</TABLE>
6.0 Warranty and Support
================================================================================
FOR OFFICIAL USE ONLY Page 16 of 17
<PAGE>
The contractor shall provide warranty for prototype smartcard units, supporting
library, and readers for a period of 12 months after delivery. The 12 month
period of warranty shall also include web based support for user installation,
operation, and updates. The contractor shall provide for commercial fee for
service support of the product after the initial 12 month period. Support may
be provided by one or more services including phone support and/or web based
support. The plan detailing the contractor's support shall be required
according to the schedule in Section 5.0.
7.0 Packaging and Labeling
7.1 Labeling
The contractor shall design a new label or silkscreen for the cards such
that it can still be identified as FORTEZZA (R) compatible, but it shall be
easily discernible that it is different from any existing commercial
smartcard. The contractor shall propose a name and label design to be
approved by the Government prior to delivery of alpha prototype units.
7.2 Personalization
The contractor shall design the aforementioned label/silkscreen in such a
way as to not preclude or interfere with the addition of a picture and 2
line embossing as is possible with smartcard personalization tools. The
contractor shall submit in writing a detailed plan for personalization of
the smartcards prior to delivery of beta prototypes. The contractor shall
not be required to deliver the personalization tools as part of this task.
7.3 Magnetic Stripe
The contractor shall manufacture the beta prototype cards with a magnetic
stripe on the reverse side in accordance with commercial standards. The
magnetic stripe shall be unprogrammed at time of delivery.
8.0 Program Reviews
TBD.
================================================================================
FOR OFFICIAL USE ONLY Page 17 of 17
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 5 PAGES
2. AMENDMENT MODIFICATION NO. P00012
3. EFFECTIVE DATE: 30 OCT 1998
4. REQUISITION PURCHASE REQ. NO. N/A
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
DUNS: 050761998
Litronic Inc.
ATTN: Mark Watterson (703-905-9700)
2950 Redhill Avenue
Costa Mesa, CA 92626
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers | | is extended, | | is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE SECTION G.1
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X) D. OTHER (Specify type of modification and authority)
352.216-9007 Notice: Award Fee Funding and Award Fee Determination Plan
E. IMPORTANT: Contractor |X| is not, | | is required to sign this document
and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
A. The purpose of this modification is to recognize the amount of award
fee earned during the second evaluation period, 1 October 1997 through 30
September 1998 (Section B.2, CLIN 0002), in accordance with the award fee
determination plan
<PAGE>
dated 10 June 1997 (Rev.2). The contractor has earned a score of 87.5 for the
period and, therefore, shall earn 87.5% of the available award pool for the
period $87,680.80, for a total amount of $76,720.70. Interim award fee payments
in the amount of $43,840.40 have been made available for payment during the
period. The contractor is hereby authorized to invoice for the remaining balance
of $32,880.30.
B. Accordingly, this contract is hereby modified as follows. (Continues on
following page)
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (type or print)
ROBERT J. GRAY
15B. CONTRACTOR/OFFEROR
BY /S/ ROBERT GRAY
---------------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 10/30/98
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
MARGARET M. QUASNY
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ MARGARET M. QUASNY
(Signature of Contracting Officer)
16C. DATE SIGNED 10/30/98
<PAGE>
MDA904.97-C-0424
P00012
Page 2 of 5
SECTION B - SUPPLIES/SERVICES AND PRICES is revised to include:
B.3 SUPPLIES/SERVICES (Date of Contract Modification P00009 - 30 September 1998)
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS 9,404 XXX $876,808.87
necessary materials. facilities,
equipments, supplies and services
of skilled professional, technical
and support personnel to fulfill
the requirements set forth in the
Statement of Work for Multi
Level Information System Sec-
urity Initiative Crypto Card Sys-
tem Analysis and Library and
Driver Architectcure and Devel-
opment, dated 10 January 1997.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $876,808.87
ACR: AB
0002 Award Fee Earned For the Period From: $87,680.80
ACR: AB By: ($10,960.10)
To: $76,720.70
To: $66,943.00
0003 Travel For the Job Not-To-Exceed $3,347.56
(Inclusive of Burdens)
ACR: AC
0004 Other Direct Costs For the Job Not-To-Exceed $271,162.77
(Inclusive of Burdens)
ACR: AB
0005 Data, in accordance with the Con- For the Lot Not-Separately-Priced
tract Data Requirements List
(CDRL), DD Form 1423, dated
13 February 1997
ACR: AB
</TABLE>
<PAGE>
MDA904.97-C-0424
P00012
Page 3 of 5
<TABLE>
<CAPTION>
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
TOTAL NOT TO-EXCEED From: $1,239,000.00
Total By: ($10,960.10)
To: $1,228,039.90
</TABLE>
SECTION G - CONTRACT ADMINISTRATION DATA
<TABLE>
G.l ACCOUNTING AND APPROPRIATION DATA ACR: AB only, is revised as follows:
- ---------------------------------------------------------------------------
ACR: AA Obligate
<S> <C>
977/80400.4500 574E51 999-2520 S18119 03200106 IX 0000 X22 I20B
Previously Obligated for Section B.1 CLINs 000l, 0003 and 0004 $ 446,874.00
Previously Obligated for Provisional Award Fee Payments $0.00
Previously Obligated for Future Award Fee Payments $0.00
Previously Obligated for Award Fee Earned $36,433.00
Total Amount Previously Obligated ACR: AA $483,307.00
ACR: AB Obligate
978/90400.4500 584E51 999-2520 S18119 04700400 IX 0000 X22 I25D
PR: I6-97-2093-0003, I6-97-2093-0004 and
I6-97-2093-0005
Previously Obligated for section B.2 CLINs 0001, 0003 and 0004 $1,151,319.20
Previously Obligated for Provisional Award Fee Payments $43,840.40
Deobligate This Action for Provisional Award Fee Payments ($43,840.40)
Total Obligated for PRovisional Award Fee Payments $0.00
Previously Obligated for Future Award Fee Payments $43,840.40
Obligate This Action for Future Award Fee Payments ($43,840.40)
Total Obligated for Future Award Fee Payments $0.00
Previously Obligated for Award Fee Earned $0.00
Obligate This Action for Award Fee Earned $76,720.70
Total Obligated for Award Fee Earned $76,720.70
Total Amount Previously Obligated ACR: AB $1,239,000.00
Deobligate This Action ACR: AB ($10,960.10)
Total Amount Obligated ACR: AB $1,228,039.90
</TABLE>
<PAGE>
MDA904-97-C-0424
P00012
Page 4 of 5
<TABLE>
<CAPTION>
ACR: AC Obligate
<S> <C>
978/90400.4500 584E51 999-2550 S18119 04700100 IX 0000 X21 I25D
Previously Obligated for section B.3 CLINs 0001, 0003 and 0004 $742,057.00
Previously Obligated for Provisional Award Fee Payments $25,971.50
Previously Obligated for Future Award Fee Payments $25,971.50
Total Obligated (PR: I6-98-3701-0000) ACR: AC $794,000.00
ACR: AD Obligate
979/00400.4500 594E51 999-2550 S18119 04700100 IX 0000 X21 I125D
PR: I6-98-3701-0001
Previously Obligated for Section B.4 CLINs 0001, 0003 and 0004 $274,127.00
Obligate This Action for Provisional Award Fee Payments $12,936.50
Obligate This Action for Future Award Fee Payments $12,936.50
Total Obligated ACR: AD $300,000.00
</TABLE>
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows:
Funds in the amount of $25,971.50, for Section B.3; and $12,936.50, for
Section B.4 have been obligated under this contract towards future award fee
determinations but are not available for the Contractor to bill against or incur
costs against. Obligated award fee funds identified above will be released to
the Contractor via subsequent modifications after the Government has rendered an
award fee determination in accordance with the Award Fee Plan currently in force
under this contract. Upon receipt of the aforementioned modifications, the
Contractor is authorized to bill for the earned fee.
C. As a result of the foregoing, the total contract price is restated as
follows:
<TABLE>
<CAPTION>
Section B.l FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $446,874.00 $0.00 $446,874.00
Award Fee Pool $0.00 $0.00 $0.00
Earned Award Fee $36,433.00 $0.00 $36,433.00
Total FPAF Amount $483,307.00 $0.00 $483,307.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MDA904-97-C-0424
P00012
Page 5 of 5
Section B.2 FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $1,151,319.20 $0.00 $1,151,319.20
Award Fee Pool $87,680.80 ($87,680.80) $0.00
Earned Award Fee $0.00 $76,720.70 $76,720.70
Total FPAF Amount $1,239,000.00 ($10,960.10) $1,228,039.90
Section B.3 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $742,057.00 $0.00 $742,057.00
Award Fee Pool $51,943.00 $0.00 $51,943.00
Earned Award Fee $0.00 $0.00 $0.00
Total FPAF Amount $794,000.00 $0.00 $794,000.00
Section B.4 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $274,127.00 $0.00 $274,127.00
Award Fee Pool $25,873.00 $0.00 $25,873.00
Earned Award Fee $0.00 $0.00 $0.00
Total FPAF Amount $300,000.00 $0.00 $25,000.00
FROM BY TO
Total Contract Price $2,805,346.90 ($10,960.10) $2,805,346.90
</TABLE>
D. Except as provided herein, all terms and conditions of this contract, as
previously modified, remain unchanged and in full force and effect.
<PAGE>
Performance Evaluation Board
Recommendations
for
System Analysis and Library Driver Architecture and
Development
Award Fee
Option 1 Award Fee
(Litronic Inc.)
5 October, 1998
<PAGE>
The Performance Evaluation Board discussed Litronic, Inc.'s performance during
the base year award fee period via informal meetings. The conclusions reached
are summarized as follows.
TECHNICAL
Staffing:
. Skilled personnel were immediately assigned to all tasks, and all
subtasks appear to have been well managed.
Rating: EXCELLENT
Performance
. System Engineering produced a flexible architecture that was able
to respond to numerous problems.
. Few of the bugs in the CI Library 1.52b were the result of any
deficiency in Litronic's test engineering process. While
Litronic's Software Engineering Process is not perfect, it
certainly was capable of responding to this particular debugging
exercise.
. Litronic is responsive in addressing support concerns.
. Litronic communicates problems and concerns very well with the
Program Office.
Rating: EXCELLENT
Schedule:
. The contractor had some difficulty in meeting the schedule for CI
Library 1.52b.
Rating: GOOD
COST
. Litronic effectively controlled program costs.
. No problems were evident in Litronic's billing procedures.
Rating: GOOD
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 9 PAGES
2. AMENDMENT MODIFICATION NO. P00011
3. EFFECTIVE DATE: 30 OCT 1998
4. REQUISITION PURCHASE REQ. NO. N/A
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
DUNS: 050761998
Litronic Inc.
ATTN: Mark Watterson (703-905-9700)
2950 Redhill Avenue
Costa Mesa, CA 92626
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers | | is extended, | | is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE SECTION G.1 Obligate
$300,000.00
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM
10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X) D. OTHER (Specify type of modification and authority)
FAR 43.103 (a) Bilateral Modification.
E. IMPORTANT: Contractor | | is not, |X| is required to sign this
document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
A. The purpose of this modification is to:
<PAGE>
1. restate Section H.13 Option to Extend the Term of the Contract; and
2. exercise a portion of the option under Section H.13 paragraph (b)
Option Year 2 - Fiscal Year 1999, in the FPAF amount of $300,000.00.
B. Accordingly, this contract is hereby modified as follows.
(Continued on following page)
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (type or print)
Paul R. Johnson
Director, Special Projects
15B. CONTRACTOR/OFFEROR
BY /S/ PAUL R. JOHNSON
-------------------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 28 OCT 1998
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
MARGARET M. QUASNY
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ MARGARET M. QUASNY
(Signature of Contracting Officer)
16C.DATE SIGNED 10/30/98
<PAGE>
MDA904.97-C-0424
P00011
Page 2 of 9
PART 1 - Restate Section H.13 Option to Extend the Term of the Contract
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H.13 52.217-9001 OPTION TO EXTEND THE TERM OF THE CONTRACT (OCT 1993) is
restated as follows to allow greater flexibility in exercising the option:
(a) The Government may unilaterally extend the term of this contract by written
notice to the Contractor within 60 days following the President's signing of the
annual Appropriations Act or October 1, whichever is later, for each respective
option, provided that the Contracting Officer has given preliminary notice, in
writing, to the Contractor, of the Government's intent to renew, in any portion
and from time to time, at least 60 days prior to the expiration date of the
current period of performance. Such preliminary notice will not be deemed to
commit the Government to renewals. If the Government exercises this right to
renew, the contract, as renewed shall be deemed to include this option clause.
The total duration of this contract, including the exercise of any option to
renew under this clause, shall not exceed 36 months.
(b) The composition of the total man-hours of direct labor and other direct
costs for each option is as follows:
OPTION YEAR 2 - FISCAL YEAR 1999 (1 October 1998 - 30 September 1999)
<TABLE>
<CAPTION>
UNIT
CLIN SUPPLIES/SERVICES UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the necessary 6838 XXX $645,526.00
materials, facilities, equipment, supplies
and services of skilled professional, technical
and support personnel to fulfill the requirements
set forth in the Statement of Work entitled "Multi
Level Information System Security Initiative Crypto
Card System Analysis and Library and Driver
Architecture and Development," dated 10 January
1977 and the documents referenced in Section C. The
contractor's management shall provide for the effective
timely and integrated implementation of contract requirements.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $645,526.00
</TABLE>
<TABLE>
<S> <C> <C>
0002 Award Fee Pool, to be determined in accordance For the Period $ 64,553.00
with the Award Fee Plan Plan for MultiLevel Information
System Security Initiative Crypto Card System
Analysis and Library and Driver Architecture and
Development, dated 10 June 1997 (Rev. 2). There
shall be one evaluation of performance at the end of
the period of performance (Date of contract award through
30 September 1997.) If the Government exercises the
options to extend the term of the contract, there
shall be an
</TABLE>
<PAGE>
MDA904.97-C-0424
P00011
Page 3 of 9
<TABLE>
<S> <C> <C> <C>
evaluation of performance at the conclusion
of each option year. The contractor is
authorized to bill for up to 50% of the
available award fee on a monthly basis
in equal amounts.
0003 TRAVEL For the Job Not-To-Exceed $ 32,000.00
(Includes Applicable Burdens)
0004 OTHER DIRECT COSTS For the Job Not-To-Exceed $ 6,400.00
(Includes Applicable Burdens)
0005 Data in accordance with the contract For the Lot Not-Separately Priced
Data Item Requirements List (CDRL)
Dated 13 February 1997.
TOTAL NOT-TO-EXCEED $748,479.00
</TABLE>
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus
applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at
actual costs; meals and incidental expenses shall be reimbursed at the
applicable flat rate. The total of lodging, meals, and incidental expenses shall
not exceed the established rate for each location set forth in the "Federal
Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and
the Standardized Regulation (Government Civilians Foreign Areas), Section 925,"
as applicable. These costs shall be directly chargeable to this contract in
accordance with the contractor's established method of distributing such costs.
First class travel shall not be reimbursed. Contractor shall be reimbursed for
coach rates only. Travel is non fee bearing. Invoices which request
reimbursement of travel expenses must be accompanied by airline ticket subs,
hotel/motel receipts, and rental car receipts.
PART 2 - Exercise a Portion of Option Year 2 - Fiscal Year 1999
SECTION B - SUPPLIES/SERVICES AND PRICES
<TABLE>
<CAPTION>
CLIN SUPPLIES/SERVICES UNIT QTY UNIT
PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the necessary HRS 2,553 XXX $258,727.00
materials, facilities, equipment, supplies
and services of skilled professional, technical
and support personnel to fulfill the requirements
set forth in the Statement of Work entitled "Multi
Level Information System Security Initiative Crypto
Card System Analysis and Library and Driver
Architecture and Development," dated 10 January
1977 and the documents referenced in Section C. The
contractor's management shall provide for the effective
timely and integrated implementation of contract requirements.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
</TABLE>
<PAGE>
MDA904.97-C-0424
P00011
Page 4 of 9
<TABLE>
<S> <C> <C> <C> <C> <C>
0001AD Systems Analyst X XXX $75.38 XXXX
0001AE Sr. Software Engineer X XXX $98.38 XXXX
0001AF Software Engineer X XXX $62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $258,727.00
ACR: AD
0002 Award Fee Pool, to be determined in accordance For the Period $25,873.00
with the Award Fee Plan Plan for MultiLevel Information
System Security Initiative Crypto Card System
Analysis and Library and Driver Architecture and
Development, dated 10 June 1997 (Rev. 2). If the
Government exercises the options to extend the
term of the contract, there shall be an evaluation
of performance at the conclusion of each option
year. The contractor is authorized to bill for up to
50% of the available award fee on a monthly basis
in equal amounts.
0003 TRAVEL For the Job Not-To-Exceed $12,900.00
(Includes Applicable Burdens)
ACR: AD
0004 OTHER DIRECT COSTS For the Job Not-To-Exceed $2,500.00
(Includes Applicable Burdens)
ACR: AD
0005 Data in accordance with the contract For the Lot Not-Separately Priced
Data Item Requirements List
(CDRL)
Dated 13 February 1997.
ACR: AD
TOTAL NOT-TO-EXCEED $300,000.00
</TABLE>
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus
applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at
actual costs; meals and incidental expenses shall be reimbursed at the
applicable flat rate. The total of lodging, meals, and incidental expenses shall
not exceed the established rate for each location set forth in the "Federal
Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and
the Standardized Regulation (Government Civilians Foreign Areas), Section 925,"
as applicable. These costs shall be directly chargeable to this contract in
accordance with the contractor's established method of distributing such costs.
First class travel shall not be reimbursed. Contractor shall be reimbursed for
coach rates only. Travel is non fee bearing. Invoices which request
reimbursement of travel expenses must be accompanied by airline ticket subs,
hotel/motel receipts, and rental car receipts.
SECTION F - DELIVERIES OR PERFORMANCE
F.6 352.211-9004 PERIOD OF PERFORMANCE (OCT 1990)
This contract shall extend from the date of contract award to 30 September
1999, unless performance is sooner terminated under the contract.
<PAGE>
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SECTION G - CONTRACT ADMINISTRATION DATA
G.l ACCOUNTING AND APPROPRIATION DATA ACR: AB only, is revised as follows:
---------------------------------
<TABLE>
<CAPTION>
ACR: AA Obligate
<S> <C>
977/80400.4500 574E51 999-2520 S18119 03200106 IX 0000 X22 I20B
Previously Obligated for Section B.1 CLINs 000l, 0003 and 0004 $ 446,874.00
Previously Obligated for Provisional Award Fee Payments $ 0.00
Previously Obligated for Future Award Fee Payments $ 0.00
Previously Obligated for Award Fee Earned $ 36,433.00
Total Amount Previously Obligated ACR: AA $ 483,307.00
ACR: AB Obligate
978/90400.4500 584E51 999-2520 S18119 04700400 IX 0000 X22 I25D
Previously Obligated for section B.2 CLINs 0001, 0003 and 0004 $1,151,319.20
Previously Obligated for Provisional Award Fee Payments $ 43,840.40
Previously Obligated for Future Award Fee Payments $ 43,840.40
Total Amount Previously Obligated (PR: I6-97-2093-0003) $ 850,000.00
Total Amount Previously Obligated (PR: I6-97-2093-0004) $ 205,000.00
Total Amount Previously Obligated (PR: I6-97-2093-0005) $ 184,000.00
Total Amount Obligated ACR: AB $1,239,900.00
ACR: AC Obligate
978/90400.4500 584E51 999-2550 S18119 04700100 IX 0000 X21 I25D
Previously Obligated for section B.3 CLINs 0001, 0003 and 0004 $ 742,057.00
Previously Obligated for Provisional Award Fee Payments $ 25,971.50
Previously Obligated for Future Award Fee Payments $ 25,971.50
Total Obligated (PR: I6-98-3701-0000) ACR: AC $ 794,000.00
</TABLE>
<PAGE>
MDA904.97-C-0424
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<TABLE>
<CAPTION>
ACR: AD Obligate
<S> <C>
979/00400.4500 594E51 999-2550 S18119 04700100 IX 0000 X21 I125D
Obligate This Action for Section B.4 CLINs 0001, 0003 and 0004 $274,127.00
Obligate This Action for Provisional Award Fee Payments $ 12,936.50
Obligate This Action for Future Award Fee Payments $ 12,936.50
Total Obligated (PR: I6-98-3701-0001) ACR: AD $300,000.00
</TABLE>
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows:
Funds in the amount of $43,840.40, for Section B.2; $25,971.50, for Section
B.3; and $12,936.50 for Section B.4 have been obligated under this contract
towards future award fee determinations but are not available for the Contractor
to bill against or incur costs against. Obligated award fee funds identified
above will be released to the Contractor via subsequent modifications after the
Government has rendered an award fee determination in accordance with the Award
Fee Plan currently in force under this contract. Upon receipt of the
aforementioned modifications, the Contractor is authorized to bill for the
earned fee.
G.4 352.216-9003 INVOICING AND PAYMENT (OCT 1993) is revised as follows:
Invoices shall be submitted to:
CONTRACTS-ACCOUNTS PAYABLE
FINANCE AND ACCOUNTING OFFICE
PO BOX 400 (MDA904-97-C-0424)
FT MEADE MD 20755-6000
Through: Mark Altizer, X21, FANX III
Contracting Officer's Representative
MDA904-97-C-0424
9800 Savage Road
Fort George G. Meade, MD 20755-6000
Copy to: MARYLAND PROCUREMENT OFFICE
ATTN: N141 (MDA904-97-C-0424)
9800 SAVAGE RD
FT MEADE MD 20755-6720
NOTE: Invoices are subject to verification by the Contracting Officer's
Representative(s) (CORs) that the actual ex-penses for the billing period have
been incurred.
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H.13 52.217-9001 OPTION TO EXTEND THE TERM OF THE CONTRACT (OCT 1993) is
restated as follows to allow greater flexibility in exercising the option:
(a) The Government may unilaterally extend the term of this contract by written
notice to the Contractor within 60 days following the President's signing of the
annual Appropriations Act or October 1, whichever is later, for each respective
option, provided that the Contracting Officer has given preliminary notice, in
writing, to the Contractor, of the Government's intent to renew, in any portion
and from time to time, at least 60 days prior to the expiration date of the
current period of performance. Such preliminary notice will not be deemed to
commit the Government to renewals. If the Government exercises this right to
renew, the contract, as renewed shall be deemed to include this option
<PAGE>
MDA904.97-C-0424
P00011
Page 7 of 9
clause. The total duration of this contract, including the exercise of any
option to renew under this clause, shall not exceed 36 months.
(b) The composition of the total man-hours of direct labor and other direct
costs for each option is as follows:
OPTION YEAR 2 - FISCAL YEAR 1999 (1 October 1998 - 30 September 1999) is
restated to reduce the option by the portion being exercised:
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the necessary HRS From: 6838 XXX From: $645,526.00
materials, facilities, equipment, supplies By: (2553) By: ($258,727.00)
and services of skilled professional, technical To: 4285 To: $386,799.00
and support personnel to fulfill the requirements
set forth in the Statement of Work entitled "Multi
"Level Information System Security Initiative Crypto
Card System Analysis and Library and Driver
Architecture and Develoment," dated 10 January
1977 and the documents referenced in Section C. The
contractor's management shall provide for the effective
timely and integrated implementation of contract requirements.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $386,799.00
0002 Award Fee Pool, to be determined in accordance For the Period From: $64,553.00
with the Award Fee Plan Plan for MultiLevel Information By: ($25,873.00)
System Security Initiative Crypto Card System To: $38,680.00
Analysis and Library and Driver Architecture and
Development, dated 10 June 1997 (Rev. 2).There
shall be one evaluation of performance at the end of the
period of performance (Date of contract award through
30 September 1997.) If the Government exercises the
options to extend the term of the contract, there shall be an
evaluation of performance at the conclusion of each option
year. The contractor is authorized to bill for up to 50% of
the available award fee on a monthly basis
in equal amounts.
0003 TRAVEL For the Job Not-To-Exceed From: $32,000.00
(Includes Applicable Burdens) By: ($12,900.00)
ACR: AD To: $19,100.00
0004 OTHER DIRECT COSTS For the Job Not-To-Exceed From: $6,400.00
(Includes Applicable Burdens) By: ($2,500.00)
ACR: AD To: $ 3,900.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00011
Page 8 of 9
<TABLE>
<S> <C> <C> <C>
0005 Data, in accordance with the Contract For the Lot Not-Separately-Priced
Data Requirements List (CDRL)
Dated 13 February 1997
ACR: AD
TOTAL NOT TO-EXCEED From: $748,479.00
By: ($300,000.00)
To: $448,479.00
</TABLE>
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus
applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at
actual costs; meals and incidental expenses shall be reimbursed at the
applicable flat rate. The total of lodging, meals, and incidental expenses shall
not exceed the established rate for each location set forth in the "Federal
Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and
the Standardized Regulation (Government Civilians Foreign Areas), Section 925,"
as applicable. These costs shall be directly chargeable to this contract in
accordance with the contractor's established method of distributing such costs.
First class travel shall not be reimbursed. Contractor shall be reimbursed for
coach rates only. Travel is non fee bearing. Invoices which request
reimbursement of travel expenses must be accompanied by airline ticket subs,
hotel/motel receipts, and rental car receipts.
C. As a result of the foregoing, the total contract price is restated as
follows:
<TABLE>
<CAPTION>
Section B.l FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $ 446,874.00 $0.00 $ 446,874.00
Award Fee Pool $ 0.00 $0.00 $ 0.00
Earned Award Fee $ 36,433.00 $0.00 $ 36,433.00
Total FPAF Amount $ 483,307.00 $0.00 $ 483,307.00
Section B.2 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $1,151,319.20 $0.00 $1,151,319.20
Award Fee Pool $ 87,680.80 $0.00 $ 87,680.80
Earned Award Fee $ 0.00 $0.00 $ 0.00
Total FPAF Amount $1,239,000.00 $0.00 $1,239,000.00
Section B.3 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $ 742,057.00 $0.00 $ 742,057.00
Award Fee Pool $ 51,943.00 $0.00 $ 51,943.00
Earned Award Fee $ 0.00 $0.00 $ 0.00
Total FPAF Amount $ 794,000.00 $0.00 $ 794,000.00
</TABLE>
<PAGE>
MDA904-97-C-0424
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<TABLE>
<CAPTION>
Section B.4 FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $0.00 $0.00 $274,127.00
Award Fee Pool $0.00 $0.00 $ 25,873.00
Earned Award Fee $0.00 $0.00 $ 0.00
Total FPAF Amount $0.00 $0.00 $300,000.00
FROM BY TO
Total Contract Price $2,516,307.00 $300,000.00 $2,816,307.00
</TABLE>
D. Except as provided herein, all terms and conditions of this contract, as
previously modified, remain unchanged and in full force and effect.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 5 PAGES
2. AMENDMENT MODIFICATION NO. P00010
3. EFFECTIVE DATE: 12 SEP 1998
4. REQUISITION PURCHASE REQ. NO. N/A
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
DUNS: 050761998
Litronic Inc.
ATTN: James Prohaska (703-905-9700)
2950 Redhill Avenue
Costa Mesa, CA 92626
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers | | is extended, | | is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE SECTION G.1
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate
date etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY
OF:
(X) D. OTHER (Specify type of modification and authority)
FAR 43.13 (a) Bilateral Modification
E. IMPORTANT: Contractor |X| is not, | | is required to sign this document
and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
A. The purpose of this modification is to convert $34,339.67 of funds from
CLIN 0003, Travel, and CLIN 0004, Other Direct Costs, to 400 hours of level-of-
effort, CLIN 0001, and Award Fee, CLIN 0002, in Section B.2.
<PAGE>
B. Accordingly, this contract is hereby modified as follows. (Continues on
following page)
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (type or print)
Mark Watterson
Sales Engineer
15B. CONTRACTOR/OFFEROR
BY /S/ Mark Watterson
------------------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 21 SEP 1998
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
MARGARET M. QUASNY
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ MARGARET M. QUASNY
(Signature of Contracting Officer)
16C..DATE SIGNED 9/21/98
<PAGE>
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SECTION B - SUPPLIES/SERVICES AND PRICES is revised to include:
B.3 SUPPLIES/SERVICES (Date of Contract Modification P00009 - 30 September 1998)
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS From: 9,004 XXX From: $845,591.00
necessary materials. facilities, By: 400 By: $ 31,217.87
equipments, supplies and services To: 9,404 To: $876,808.87
of skilled professional, technical
and support personnel to fulfill
the requirements set forth in the
Statement of Work for Multi
Level Information System Sec-
urity Initiative Crypto Card Sys-
tem Analysis and Library and
Driver Architectcure and Devel-
opment, dated 10 January 1997.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $876,808.87
ACR: AB
0002 Award Fee Pool, to be determined For the Period From: $84,559.00
in accordance with the Award Fee By: $ 3,121.80
Determination Plan for Multi To: $87,680.80
Level Information System
Security Initiative Crypto Card
System Analysis and Library and
Driver Architecture and
Development, dated 10 June 1997
(Rev. 2). There shall be one
evaluation for the period, date of
contract modification - 1
October 1997 - 30 September
1998. The contractor is authorized
to bill for up to 50% of the
available award fee ($43,840.40), on
a monthly basis in equal amounts.
ACR: AB
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C> <C> <C>
0003 Travel For the Job Not-To-Exceed From: $27,750.00
(Inclusive of Burdens) By: ($24,402.44)
ACR: AB To: $3,347.56
0004 Other Direct Costs For the Job Not-To-Exceed From: $281,100.00
(Inclusive of Burdens) By: ($9,937.23)
ACR: AB To: $271,162.77
0005 Data, in accordance with the Con- For the Lot Not-Separately-Priced
tract Data Requirements List
(CDRL), DD Form 1423, dated
13 February 1997
ACR: AB
TOTAL NOT TO-EXCEED From: $1,239,000.00
Total By: $0.00
To: $1,239,000.00
</TABLE>
SECTION G - CONTRACT ADMINISTRATION DATA
G.l ACCOUNTING AND APPROPRIATION DATA ACR: AB only, is revised as follows:
<TABLE>
<CAPTION>
ACR: AA Obligate
<S> <C>
977/80400.4500 574E51 999-2520 S18119 03200106 IX 0000 X22 I20B
Previously Obligated for Section B.1 CLINs 000l, 0003 and 0004 $ 446,874.00
Previously Obligated for Provisional Award Fee Payments $0.00
Previously Obligated for Future Award Fee Payments $0.00
Previously Obligated for Award Fee Earned $36,433.00
Total Amount Previously Obligated ACR: AA $483,307.00
ACR: AB Obligate
978/90400.4500 584E51 999-2520 S18119 04700400 IX 0000 X22 I25D
Previously Obligated for section B.2
CLINs 0001, 0003 and 0004 $1,151,441.00
Deobligate This Action for section B.2 CLINs 003 and 004 ($3,121.80)
Total Obligated for section B.2 CLINs 0001, 0003 and 0004 $1,151,319.20
Previously Obligated for Provisional Award Fee Payments $42,279.50
Obligate This Action for Provisional Award Fee Payments $1560.90
Total Obligated for Provisional Award Fee Payments $43,840.40
</TABLE>
<PAGE>
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Page 4 of 5
<TABLE>
<S> <C>
Previously Obligated for Future Award Fee Payments $ 42,279.50
Obligate This Action for Future Award Fee Payments $ 1,560.90
Total Obligated for Future Award Fee Payments $ 43,840.40
Total Amount Previously Obligated (PR: I6-97-2093-0003) $ 850,000.00
Total Amount Previously Obligated (PR: I6-97-2093-0004) $ 205,000.00
Total Amount Previously Obligated (PR: I6-97-2093-0005) $ 184,000.00
Total Amount Obligated ACR: AB $1,239,000.00
ACR: AC Obligate
978/90400.4500 584E51 999-2550 S18119 04700100 IX 0000 X21 I25D
Previously Obligated for section B.3 CLINs 0001, 0003 and 0004 $ 742,057.00
Previously Obligated for Provisional Award Fee Payments $ 25,971.50
Previously Obligated for Future Award Fee Payments $ 25,971.50
Total Obligated (PR: I6-98-3701-0000) ACR: AC $ 794,000.00
</TABLE>
C. As a result of the foregoing, the total contract price is restated as
follows:
<TABLE>
<CAPTION>
Section B.l FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $ 446,874.00 $ 0.00 $ 446,874.00
Award Fee Pool $ 0.00 $ 0.00 $ 0.00
Earned Award Fee $ 36,433.00 $ 0.00 $ 36,433.00
Total FPAF Amount $ 483,307.00 $ 0.00 $ 483,307.00
<CAPTION>
Section B.2 FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $1,154,441.00 ($3,121.80) $1,151,319.20
Award Fee Pool $ 84,559.00 $ 3,121.80 $ 87,680.80
Earned Award Fee $ 0.00 $ 0.00 $ 0.00
Total FPAF Amount $1,239,000.00 $ 0.00 $1,239,000.00
<CAPTION>
Section B.3 FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $ 742,057.00 $ 0.00 $ 742,057.00
Award Fee Pool $ 51,943.00 $ 0.00 $ 51,943.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00010
Page 5 of 5
<TABLE>
<S> <C> <C> <C>
Earned Award Fee $0.00 $0.00 $0.00
Total FPAF Amount $794,000.00 $0.00 $794,000.00
FROM BY TO
Total Contract Price $2,516,307.00 $0.00 $2,516,307.00
</TABLE>
D. Except as provided herein, all terms and conditions of this contract, as
previously modified, remain unchanged and in full force and effect.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 7 PAGES
2. AMENDMENT/MODIFICATION NO. P00009
3. EFFECTIVE DATE: 29 JUN 1998
4. REQUISITION/PURCHASE REQ. NO. I6-98-3701-0000
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
DUNS: 050761998
Litronic Inc.
ATTN: James Prohaska (703-905-9700)
2950 Redhill Avenue
Costa Mesa, CA 92626
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers
| | is extended, | | is not extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE SECTION G.1
Obligate $794,000.000
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date,
etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X)D. OTHER (Specify type of modification and authority)
FAR 43.103 (a) Bilateral Modification.
E. IMPORTANT: Contractor | | is not, |X| is required to sign this
document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
<PAGE>
A. The purpose of this modification is to incorporate the requirements of
the Statement of Work, entitled "Task Order for an Advanced Fortezza and
Commercial Algorithm Smartcard, Version 2.0, dated 27 May 1998," into this
contract.
B. Accordingly, this contract is hereby modified as follows. (Continued on
following page)
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (type or print)
James S. Prohaska
Director, Business Development
15B. CONTRACTOR/OFFEROR
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of person authorized to sign)
15C. DATE SIGNED 6/29/98
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
MARGARET M. QUASNY
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ MARGARET M. QUASNY
(Signature of Contracting Officer)
16C.DATE SIGNED 6/29/98
<PAGE>
MDA904-97-C-0424
P00009
Page 2 of 7
SECTION B - SUPPLIES/SERVICES AND PRICES is revised to include:
B.3 SUPPLIES/SERVICES (Date of Contract Modification P00009 - 30 September 1998)
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS Gov't 6,400 XXX
necessary materials. facilities, Cont'r 5,237
equipment, supplies and services
of skilled professional, technical
and support personnel to fulfill
the requirements set forth in the
Statement of Work entitled
"Task Order for an Advanced
Fortezza and Commercial
Algorithm Smartcard, Version
2.0," dated 27 May 1998.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed
ACR. AC Government's Share $519,434.00
Contractor's Share $424,991.00
0002 Award Fee Pool, to be determined For the Period $51,934.00
in accordance with the Award Fee
Determination Plan for Multi
Level Information System
Security Initiative Crypto Card
System Analysis and Library and
Driver Architecture and
Development, dated 10 June
1997 (Rev. 2). There shall be one
evaluation for the period, date of
contract modification - 30
September 1998. The contractor
is authorized to bill for up to 50%
of the available award fee ($), on
a monthly basis in equal amounts.
ACR: AC
0003 Travel For the Job Not-To-Exceed
(Inclusive of Burdens) Government's Share $8,371.00
ACR: AC Contractor's Share $6,849.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00009
Page 3 of 7
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0004 Other Direct Costs For the Job Not-To-Exceed
(Inclusive of Burdens) Government's Share $214,252.00
ACR: AC Contractor's Share $288,050.00
0005 Data, in accordance with For the Lot Not-Separately-Priced
the Contract Data Requirements
List (CDRL), DD Form 1423,
dated 13 February 1997
ACR: AC
TOTAL NOT TO-EXCEED Government's Share $794,000.00
Total Contractor's Share $721,890,00
</TABLE>
SECTION C - DESCRIPTION/SPECIFICATION/WORK STATEMENTS is revised to include:
C.4 Statement of Work entitled, "Task Order for an Advanced Fortezza and
Commercial Algorithm Smartcard, Version 2.0" dated 27 May 1998.
C.5 The Government shall submit individual task orders to the Contractor. Upon
review of the task, the contractor will review the task requirement and provide
the Government with an estimate of the required labor hours, by category,
material and travel for performance. If acceptable, the Government will
authorize the work to proceed by signing the task order and returning it to the
Contractor. The Contractor is not authorized to deviate from the specified labor
hours, per labor category, by more than ten percent (10%) without prior
authorization from the Contracting Officer. In the event the Contractor cannot
perform the effort within the authorized deviation, a revised estimate shall be
submitted to the Government for approval. If acceptable, the task order will be
amended accordingly. However, in no event shall the Contractor exceed the total
Not-to-Exceed portion of the contract regardless of the authorized deviation
specified herein. Man Hours expended in preparing Task Order estimates shall not
be directly charged to this contract.
SECTION F - DELIVERIES OR PERFORMANCE
F.7 352.211-9004 PERIOD OF PERFORMANCE (APR 1989) is added:
Section B.3 of this contract shall extend from date of contract
modification to 30 September 1998, unless performance is sooner terminated under
the terms of the contract.
(End of Clause)
<PAGE>
MDA904-97-C-0424
P00009
Page 4 of 7
SECTION C - CONTRACT ADMINISTRATION DATA
G.l ACCOUNTING AND APPROPRIATION DATA is revised to include ACR: AC:
<TABLE>
<CAPTION>
ACR: AA Obligate
<S> <C>
977/80400.4500 574E51 999-2520 S18119 03200106 IX 0000 X22 I20B
Previously Obligated for Section B.1 CLINs 000l, 0003 and 0004 $ 446,874.00
Previously Obligated for Provisional Award Fee Payments $ 0.00
Previously Obligated for Future Award Fee Payments $ 0.00
Previously Obligated for Award Fee Earned $ 36,433.00
Total Amount Previously Obligated ACR: AA $ 483,307.00
ACR: AB Obligate
978/90400.4500 584E51 999-2520 S18119 04700400 IX 0000 X22 I25D
Previously Obligated for section B.2 CLINs 0001, 0003 and 0004 $1,154,441.00
Previously Obligated for Provisional Award Fee Payments $ 42,279.50
Previously Obligated for Future Award Fee Payments $ 42,279.50
Total Amount Previously Obligated (PR: I6-97-2093-0003) $ 850,000.00
Total Amount Previously Obligated (PR: I6-97-2093-0004) $ 205,000.00
Total Amount Previously Obligated (PR: I6-97-2093-0005) $ 184,000.00
Total Amount Previously Obligated ACR: AB $1,239,000.00
ACR: AC Obligate
978/90400.4500 584E51 999-2550 S18119 04700100 IX 0000 X21 I25D
Obligate This Action for section B.3 CLINs 0001, 0003 and 0004 $ 742,057.00
Obligate This Action for Provisional Award Fee Payments $ 25,971.50
Obligate This Action for Future Award Fee Payments $ 25,971.50
Total Obligated This Action (PR: I6-98-3701-0000) ACR: AC $ 794,000.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00009
Page 5 of 7
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows:
Funds in the amount of $42,279.50 Section B.2, and $25,971.50, Section B.3,
have been obligated under this con tract towards future award fee
determinations but are not available for the Contractor to bill against or incur
costs against. Obligated award fee funds identified above will be released to
the Contractor via subsequent modifications after the Government has rendered an
award fee determination in accordance with the Award Fee Plan currently in force
under this contract. Upon receipt of the aforementioned modifications, the
Contractor is authorized to bill for the earned fee.
G.14 METHOD OF INVESTMENT CALCULATION / INVOICING (applicable to Section B.3
only)
The Contractor agrees that it will make an investment of 45% of total costs
incurred up to a maximum investment contribution of $721,890.00. In order to
implement this investment, the Contractor agrees that each of its invoices for
incurred costs on the effort contained in Section B.3 will include the following
information:
Total costs incurred
55% of those costs charged to the Government
45% of those costs charged to the Contractor
Total amount to be paid by the Government
Total investment to date by Contractor
It is further agreed by the parties that, once the maximum investment is
reached, any additional costs incurred above the estimated costs contained
herein that are otherwise allowable, allocable, and reasonable and in accordance
with the other provisions of the contract, will be invoiced up to a total of
$1,515,890.00, which total includes the contractor's maximum investment of
$721,890.00, and the government's investment of $794,000.00 for the current
period of performance. The contractor's maximum investment is $721,890.00. All
invoices will be paid in accordance with the payment provisions stated in this
contract. In no case will the contractor invoice the government for more than
the Not-To-Exceed amount listed in the contract. The Contractor shall notify the
Contracting Officer in writing whenever it has reason to believe that the costs
it expects to incur under this contract in the next 60 days, when added to all
costs previously incurred, will exceed 75 percent of the amount currently
obligated on the contract. The Contractor's notice shall include an estimate of
funds required to continue performance. If, after notification by the Contractor
pursuant to this clause, additional funds are required to be obligated for a
further period, the government will negotiate an appropriable resolution.
(End of Clause)
SECTION H - SPECIAL CONTRACTOR REQUIREMENTS is revised to include:
H.19 352.227-9005 NOTIFICATION OF FOREIGN ORIGIN SOFTWARE AND/OR FIRMWARE (OCT
1997)
Offerors/Contractor shall notify the Contracting Officer in writing if any
foreign manufactured, developed, main tained and/or modified software and/or
firmware will be used or included in the deliverables under this contract. For
eign-origin software and/or firmware that is merely a possible candidate for use
under this contract shall also be identified. Notification pursuant to this
clause must include the identity of the foreign source and the nature of the
software application, and is required as soon as there is a reason to know or
suspect foreign origin.
NSA reserves the right to exclude foreign-origin software and/or firmware
from use under contract on a case-by-case basis.
(End of clause)
H.20 352.216-9012 TECHNICAL TASK ORDERS (OCT 1993)
(a) Technical Task Orders shall be issued by the Contracting Officer or
his/her duly authorized representative. The TTOs will include a ceiling price,
beyond which the Contractor shall not incur costs.
(b) The performance of the work under each TTO order shall be subject to
the technical direction and surveillance of the Contracting Officer's
Representatives (CORs) who are identified under separate letter. "Technical
Direction",
<PAGE>
MDA904-97-C-0424
P00009
Page 6 of 7
as used herein, is direction to the Contractor which fills in details or
otherwise completes or explains the scope of the work and specific requirements
as set forth in the Statement of Work and in each TTO. Furthermore, the COR may
suggest to the Contractor lines of inquiry or methods of approach with respect
to work under this order. It is intended that the Technical Task Orders (TTOs)
or suggestions furnished shall be within the general scope of the work as set
forth in the Statement of Work and shall not constitute changes as described in
the "Changes" clause.
(c) The following procedures shall be followed in initiating tasks under
this order:
A TTO setting forth the detailed requirements of a particular task,
together with any necessary attachments (draw ings, schematics, etc.,) shall be
furnished to the Contractor in writing by a designated COR. The Contractor is
obligated to perform all TTOs issued pursuant to the technical specification
cited in paragraph (b), above. TTOs shall not constitute a basis for any
increase in the fee or extension to the period of performance. Nothing contained
in this clause authorizes the Contractor to incur costs in excess of the
estimated cost or fund limitation set forth in the order.
(d) All TTOs furnished to the Contractor shall be incorporated into this
order by reference.
(End of Clause)
H.21 MPO 232-9009 CEILING PRICE
The price negotiated for this contract and for any subsequent job orders
resulting hereunder shall be a ceiling price which the contractor exceeds at his
own risk without prior approval of the Contracting Officer.
SECTION I - CONTRACT CLAUSES
1.5 REFERENCED CLAUSES is revised to include:
52.215-2 Audits and Records - Negotiations (AUG 1996)
SECTION J - LIST OF ATTACHMENTS is revised to include:
J.4 Statement of Work entitled, "Task Order for an Advanced Fortezza and
Commercial Algorithm Smartcard, Version 2.0," dated 27 May 1998, 22 pages
(previously provided).
<PAGE>
MDA904-97-C-0424
P00009
Page 7 of 7
C. As a result of the foregoing, the total contract price is restated as
follows:
<TABLE>
<CAPTION>
Section B.l FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $ 446,874.00 $ 0.00 $ 446,874.00
Award Fee Pool $ 0.00 $ 0.00 $ 0.00
Earned Award Fee $ 36,433.00 $ 0.00 $ 36,433.00
Total FPAF Amount $ 483,307.00 $ 0.00 $ 483,307.00
Section B.2 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $1,154,441.00 $ 0.00 $1,154,441.00
Award Fee Pool $ 84,559.00 $ 0.00 $ 84,559.00
Earned Award Fee $ 0.00 $ 0.00 $ 0.00
Total FPAF Amount $1,239,000.00 $ 0.00 $1,239,000.00
Section B.3 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $ 0.00 $742,057.00 $ 742,057.00
Award Fee Pool $ 0.00 $ 51,943.00 $ 51,943.00
Earned Award Fee $ 0.00 $ 0.00 $ 0.00
Total FPAF Amount $ 0.00 $794,000.00 $ 794,000.00
</TABLE>
FROM BY TO
Total Contract Price $1,722,307.00 $794,000.00 $2,516,307.00
D. Except as provided herein, all terms and conditions of this contract, as
previously modified, remain unchanged and in full force and effect.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 4 PAGES
2. AMENDMENT/MODIFICATION NO. P00008
3. EFFECTIVE DATE: 06 JUN 1998
4. REQUISITION/PURCHASE REQ. NO. 16-97-2093-0005
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
DUNS: 050761998
Litronic, Inc.
ATTN: James Prohaska (703-905-9700)
2950 Redhill Avenue
Costa Mesa, CA 92626
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
| | The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers | | is extended, | | is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE SECTION G.1
Obligate: $184,000.00
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X)D. OTHER (Specify type of modification and authority)
FAR 43.103 (a) Bilateral Modification.
E. IMPORTANT: Contractor | | is not, |X| is required to sign this
document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
A. The purpose of this modification is to increase CLIN 0004, Other Direct
Costs/Materials, in Section B.2.
<PAGE>
B. Accordingly, this contract is hereby modified as follows. (Continued on
following page)
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A NAME AND TITLE OF SIGNER (type or print)
James S. Prohaska
Director, Business Development
15B CONTRACTOR/OFFEROR
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of person authorized to sign)
15C. DATE SIGNED 08 JUN 1998
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
MARGARET M. QUASNY
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ Margaret M. Quasny
----------------------
(Signature of Contracting Officer)
16C.DATE SIGNED 6/8/98
<PAGE>
MDA904-97-C-0424
P00008
Page 2 of 4
SECTION B - SUPPLIES/SERVICES AND PRICES
B.2 SUPPLIES/SERVICES (Fiscal Year 1998 - 1 October 1997 - 30 September 1998)
is restated as follows:
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS 9,004 XXX $845,591.00
necessary materials, facilities,
equipment, supplies and services
of skilled professional, technical
and support personnel to fulfill
the requirements set forth in the
Statement of Work for Multi Level
Information System Security
Initiative Crypto Card System
Analysis and Library and Driver
Architecture and Development,
dated 10 January 1997.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $845,591.00
ACR: AB
0002 Award Fee Pool, to be determined For the Period $84,559.00
in accordance with the Award
Fee Determination Plan for
Multi Level Information System
Security Initiative Crypto Card
System Analysis and Library and Driver
Architecture and Development , dated 10 June
1997 (Rev. 2). There shall be one
evaluation for the period of 1
October 1997 - 30 September
1998. The contractor is
authorized to bill for up to 50% of
the available award fee ($42,279.50), on a
monthly basis in equal amounts.
ACR: AB
</TABLE>
<PAGE>
MDA904-97-C-0424
P00008
Page 3 of 4
<TABLE>
<CAPTION>
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0003 Travel For the Job Not-to-Exceed $ 27,750.00
(Inclusive of Burdens)
ACR: AB
0004 Other Direct Costs For the Job Not-to-Exceed From: $97,100.00
(Inclusive of Burdens) By: $184,000.00
ACR: AB To: $281,100.00
0005 Data, in accordance with For the Lot Not-Separately-Priced
the Contract Data
Requirements List
(CDRL), DD Form 1423,
dated 13 February 1997
ACR: AB
TOTAL NOT-TO-EXCEED From: $1,055,000.00
By: $184,000.00
To: $1,239,000.00
</TABLE>
SECTION G - CONTRACT ADMINISTRATION DATA
G.1 ACCOUNTING AND APPROPRIATION DATA is revised to include the following:
<TABLE>
<CAPTION>
ACR: AB Obligate
<S> <C>
978/90400.4500 584E5l 999-2520 S18119 04700400 IX 0000 X22 I25D
Previously Obligated for section B.2 CLINs 0001, 0003 and 0004 $970,441.00
Obligate this action for section B.2 CLIN 004 $184,000.00
Total Obligated for section B.2 CLINs 0001, 0003 and 0004 $1,154,441.00
Total Previously Obligated for Provisional Award Fee Payments $42,279.50
Total Previously Obligated for Future Award Fee Payments $42,279.50
Total Amount Previously Obligated (PR: I6-97-2093-0003) $850,000.00
Total Amount Previously Obligated (PR: I6-97-2093-0004) $205,000.00
Total Amount Obligated This Action (PR: I6-97-2093-0005) $184,000.00
Total Amount Obligated ACR: AB $1,239,000.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00008
Page 4 of 4
C. As a result of the foregoing, the total contract price is restated as
follows:
<TABLE>
<CAPTION>
Section B.1 FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $ 446,874.00 $0.00 $ 446,874.00
Award Fee Pool $ 0.00 $0.00 $ 0.00
Earned Award Fee $ 36,433.00 $0.00 $ 36,433.00
------------- ----------- -------------
Total FPAF Amount $ 483,307.00 $0.00 $ 483,307.00
Section B.2 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $ 970,441.00 $184,000.00 $1,154,441.00
Award Fee Pool $ 84,559.00 $ 0.00 $ 84,559.00
Earned Award Fee $ 0.00 $ 0.00 $ 0.00
------------- ----------- -------------
Total FPAF Amount $1,055,000.00 $184,000.00 $1,239,000.00
FROM BY TO
Total Contract Price $1,538,307.00 $184,000.00 $1,722,307.00
</TABLE>
D. Except as provided herein, all terms and conditions of this contract, as
previously modified, remain unchanged and in full force and effect.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 11 PAGES
2. AMENDMENT/MODIFICATION NO. P00007
3. EFFECTIVE DATE: 28 MAY 1998
4. REQUISITION/PURCHASE REQ. NO. 16-97-2093 A/4
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
LITRONIC, INC.
ATTN: James Prohaska (703-905-9700)
43088 Winter Grove Drive
Ashburn, VA 22011
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA###-##-####
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
[_] The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers [_ ] is extended, [_] is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) Obligate $205,000.00
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X) D. OTHER (Specify type of modification and authority) FAR 43.103 (a)
Bilateral Modification.
E. IMPORTANT: Contractor [_] is not, [X] is required to sign this document
and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
1. Part I-Revise section H.13 paragraph (b) OPTION 3;
2. Part II-Exercise the revised OPTION 3 in the FPAF amount of
$205,000.00, which is hereby added to Section B.2; and
3. Part II-Incorporate government furnished property.
<PAGE>
B. Accordingly, this contract is hereby modified as follows. (Continued on
following page)
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (type or print)
James S. Prohaska
Director, Business Development
15B CONTRACTOR/OFFEROR
BY /s/ JAMES S. PROHASKA
---------------------
(Signature of person authorized to sign)
15C. DATE SIGNED 27 MAY 1998
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
MARGARET M. QUASNY
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ Margaret M. Quasny
(Signature of Contracting Officer)
16C.DATE SIGNED 5/28/98
<PAGE>
MDA904-97-C-0424
P00007
Page 2 of 11
PART 1 - Reduce the Level Of Effort under H.13 paragraph (b) OPTION 3
OPTION 3 - FISCAL YEAR 1998 (1 OCTOBER 1997- 30 SEPTEMBER 1998) is hereby
restated as follows:
<TABLE>
<CAPTION>
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS 1,140 XXX $107,091.00
necessary materials, facilities,
equipment, supplies, and services
of skilled professional, technical
and support personnel to fulfill the
requirements set forth in
the Statement of Work for Multi
Level Information System Security
Initiative Crypto Card System Analysis
and Library and Driver Architecture
and Development, dated 10 January 1997.
</TABLE>
NOTE: The above stated amounts reflect the following revisions:
<TABLE>
<CAPTION>
FROM BY TO
<S> <C> <C> <C> <C> <C>
Quantity in hours 3,536 (2,396) 1,140
Total Price $332,965.00 ($225,874.00) $107,091.00
0001AA Program Manager X XXX $ 118.06 XXXX
0001AB Sr Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $107,091.00
</TABLE>
<PAGE>
MDA904-97-C-0424
P00007
Page 3 of 11
<TABLE>
<S> <C> <C> <C> <C>
0002 Award Fee Pool, to be For the Period $10,709.00
determined in accordance
with the Award Fee
Determination Plan for Multi
Level Information System
Security Initiative Crypto
Card System Analysis and
Library and Driver Architecture
and Development, dated 10 June 1997 (Rev. 2)
NOTE: The above stated amounts reflect the following revisions:
FROM BY TO
$33,297.00 ($22,588.00) $10,709.00
0003 Travel For the Job Not-to-Exceed $2,600.00
(Inclusive of Burdens)
NOTE: The above stated amounts reflect the following revisions:
FROM BY TO
$24,850.00 $22,250.00) $2,600.00
0004 OTHER DIRECT COSTS For the Job Not-to-Exceed $ 84,600.00
(Inclusive of Burdens)
NOTE: The above stated amounts reflect the following revisions:
FROM BY TO
$0.00 $84,600.00 $84,600.00
0005 Data, in accordance with the For the Lot Not-Separately-Priced
Contract Data Requirements
List (CDRL), DD Form
1423, dated 13 February 1997
FROM BY TO
TOTAL NOT-TO-EXCEED $391,112.00 ($186,112.00) $205,000.00
</TABLE>
<PAGE>
MDA904-97-C-0424
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Page 4 of 11
PART II - Exercise the option under H.13 paragraph (b) OPTION 3
SECTION B - SUPPLIES/SERVICES AND PRICES
B.2 SUPPLIES/SERVICES (Fiscal Year 1998 - 1 October 1997 - 30 September 1998)
Option 3 is hereby added to this section as follows:
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish HRS From: 7,864 XXX From: $738,500.00
the necessary materials, By: 1,140 By: $107,091.00
facilities, To: 9,004 To: $845,591.00
equipment, supplies
and services
of skilled professional, technical
and support personnel to
fulfill
the requirements set forth in
the Statement of Work for Multi
Level Information System
Security
Initiative Crypto Card System
Analysis and Library and Driver
Architecture and Development,
dated 10 January 1997.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $75.41 XXXX
0001AC Electronic Technician X XXX $69.32 XXXX
0001AD Systems Analyst X XXX $75.38 XXXX
0001AE Sr. Software Engineer X XXX $98.38 XXXX
0001AF Software Engineer X XXX $62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $845,591.00
ACR: AB
0002 Award Fee Pool, to be For the Period From: $73,850.00
determined By: $10,709.00
in accordance with the Award To: $84,559.00
Fee Determination Plan for Multi
Level Information System
Security Initiative Crypto Card
System Analysis and Library and
Driver Architecture and
Development, dated 10 June
1997 (Rev. 2). There shall be one
evaluation for the period of 1
October 1997-30 September
1998. The contractor is authorized
to bill for up to 50% of the
available award fee ($42,279.50),
on a monthly basis in equal
amounts.
ACR: AB
</TABLE>
<PAGE>
MDA904-97-C-0424
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Page 5 of 11
<TABLE>
<CAPTION>
UNIT
----
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
- ---- ------------------------------------ ----------- --- --------------------- -----------------
<C> <S> <C> <C> <C> <C>
0003 Travel For the Job Not-To-Exceed From: $25,150.00
(Inclusive of Burdens) By: $2,600.00
ACR: AB To: $27,750.00
0004 Other Direct Costs For the Job Not-To-Exceed From: $12,500.00
(Inclusive of Burdens) By: $84,600.00
ACR: AB To: $97,100.00
0005 Data, in accordance with the Con- For the Lot Not-Separately-Priced
tract Data Requirements List
(CDRL), DD Form 1423, dated
13 February 1997
ACR: AB
TOTAL NOT-TO-EXCEED From: $850,000.00
By: $205,000.00
To: $1,055,000.00
</TABLE>
<TABLE>
<CAPTION>
SECTION G - CONTRACT ADMINISTRATION DATA
<S> <C>
G.1 ACCOUNTING AND APPROPRIATION DATA is revised to include the following:
ACR: AB Obligate
978/90400.4500 584E51 999-2520 S18119 04700400 IX 0000 X22 I125D
Previously Obligated for section B.2 CLINs 0001, 0003 and 0004 $776,150.00
Obligate this action for section B.2 CLINs 0001, 0003 and 0004 $194,291.00
Total Obligated for section B.2 CLINs 0001, 0003 and 0004 $970,441.00
Previously Obligated for Provisional Award Fee Payments $ 36,925.00
Obligate this action for Provisional Award Fee Payments $ 5,354.50
Total Obligated for Provisional Award Fee Payments $ 42,279.50
Previously Obligated for Provisional Award Fee Payments $ 36,925.00
Obligate this action for Future Award Fee Payments $ 5,354.50
Total Obligated for Future Award Fee Payments $ 42,279.50
Total Amount Previously Obligated (PR: I6-97-2093-0003) $850,000.00
Total Amount Obligated This Action (PR: I6-97-2093-0004) $205,000.00
Total Amount Obligated ACR: AB $1,055,000.00
</TABLE>
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows
Funds in the amount of $42,279.50 have been obligated under this contract
towards future award fee determinations but are not available for the Contractor
to bill against or incur costs against. Obligated award fee funds identified
above will be
<PAGE>
MDA904-97-C-0424
P00007
Page 6 of 11
released to the Contractor via subsequent modifications after the Government has
rendered an award fee determination in accordance with the Award Fee Plan
currently in force under this contract. Upon receipt of the aforementioned
modifications, the Contractor is authorized to bill for the earned fee.
G.13 NOTICE - CONTRACT ADMINISTRATION FUNCTION (OCT 1993) is added:
(a) The Procuring Contracting Officer (PCO) will retain all administrative
functions under this contract except for those assigned to the cognizant Defense
Contract Management Command (DCMC) component, in accordance with Part 42 of the
FAR, Part 242 of the DoD FAR Supplement and the PCO's letter dated 27 May 1998.
(b) The Contractor's 5-position CAGE Code is 4F972.
(c) The following administration functions are hereby delegated to the
cognizant DCMC component (see FAR/DFARS references below):
(1) 42.302(a)(1). Review the Contractor's compensation structure.
(2) 42.302(a)(2). Review the Contractor's insurance plans.
(3) 42.302(a)(5). Negotiate forward pricing rate agreements (see FAR
15.809).
(4) 42.302(a)(9). Establish final indirect cost rates and billing rates
for those contractors meeting the criteria for contracting officer determination
in FAR Subpart 42.7.
(5) 42.302(a)(11). In connection with Cost Accounting Standards (see FAR
Part 30)
(i) Determine the accuracy of the Contractor's disclosure statements;
(ii) Determine whether disclosure statements are in compliance with Cost
Accounting Standards and FAR Part 31;
(iii) Determine the Contractor's compliance with Cost Accounting
Standards and disclosure statements, if applicable; and
(iv) Negotiate price adjustments and execute supplemental agreements
under the Cost Accounting Standards clause at FAR 52.230-3, 52.230-4, and
52.230-5. Note: the ACO will negotiate the amount of the adjustment, but the
MPO CO will issue the modification to the contract.
(6) 42.302(a)(16). Monitor the Contractor's financial condition and advise
the contracting officer when it jeopardizes contract performance.
(7) 42.302(a)(19). Ensure processing and execution of duty-free
certificates.
(8) 42.302(a)(25). Process and execute novation and change of name
agreements under FAR Subpart 42.12.
(9) 42.302(a)(26). Perform property administration and and plant clearance
(see FAR Part 45).
(10) 42.302(a)(33). Advise and assist contractors regarding their
priorities and allocations responsibilities and assist contracting offices in
processing requests for special assistance and for priority ratings for
privately owned capital equipment.
<PAGE>
MDA904-97-C-0424
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(11) 42.302(a)(34). Monitor Contractor industrial relations matters under
the contract; apprise the contracting officer of actual or potential labor
disputes; and coordinate the removal of urgently required material from the
strikebound contractor's plant upon instruction from, and authorization of, the
contracting officer.
(12) 42.302(a)(36). Review the adequacy of the Contractor's traffic
operations.
(13) 42.302(a)(37). Review and evaluate preservation, packaging, and
packing.
(14) 42.302(a)(42). Review and evaluate for technical adequacy the
Contractor's logistics support, maintenance, and modification programs.
(15) 42.302(a)(48). Evaluate and monitor the Contractor's procedures for
complying with procedures regarding restrictive markings on data.
(16) 42.302(a)(49). Monitor the Contractor's value engineering program.
(17) 42.302(a)(50). Review, approve or disapprove, and maintain
surveillance of the Contractor's purchasing system (see FAR Part 44).
(18) 42.302(a)(52). Review, evaluate, and approve plant or division-wide
small and small disadvantaged business master subcontracting plans.
(19) 42.302(a)(53). Obtain the Contractor's currently approved company or
division-wide plans for small business and small disadvantaged business
subcontracting for its commercial products, or, if there is no currently
approved plan, assist the contracting officer in evaluating the plans for those
products.
(20) 42.302(a)(54). Assist the contracting officer, upon request, in
evaluating an offeror's proposed small business and small disadvantaged business
subcontracting plans, including documentation of compliance with similar plans
under prior contracts.
(21) 42.302(a)(55). By periodic surveillance, ensure the Contractor's
compliance with small business and small disadvantaged business subcontracting
plans and any labor surplus area contractual requirements; maintain
documentation of the Contractor's performance under and compliance with these
plans and requirements; and provide advice and assistance to the firms involved,
as appropriate.
(22) 42.302(a)(58). Ensure timely submission of required reports.
(23) 42.302(a)(66). Determine that the Contractor has a drug-free
workplace program and drug-free awareness program (see FAR Subpart 23.5).
(24) 242.302(a)(4). Also, review and evaluate:
(A) Contractor estimating system (see FAR 15.811); and
(B) Contractor material management and accounting system under DFARS
Subpart 242.72.
(25) 242.302(a)(8). Monitor the Contractor's costs under DFARS Subpart
242.70.
(26) 242.302(a)(9). For additional contract administration functions
related to IR&D/B&P projects performed by major contractors, see 242.771-3(a).
(c) The following contract administration functions (marked (X) when
applicable) are hereby delegated to the cognizant DCMC component (see FAR/DFARS
references below):
<PAGE>
MDA904-97-C-0424
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( ) (1) 42.302(a)(3). Conduct post-award orientation conferences.
( ) (2) 42.302(a)(4). Review and evaluate contractors' proposals under FAR
Subpart 25.8 and, when negotiation will be accomplished by the contracting
officer, furnish comments and recommendations to that officer.
( ) (3) 42.302(a)(6). Negotiate advance agreements applicable to treatment
of costs under contracts currently assigned for administration (see FAR Subpart
31.109).
( ) (4) 42.302(a)(12). Review and approve or disapprove the Contractor's
requests for payments under the progress payments clause.
( ) (5) 42.302(a)(13). Make payments on assigned contracts when prescribed
in agency acquisition regulations (see FAR Subpart 42.205).
( ) (6) 42.302(a)(15). Ensure timely notification by the Contractor of any
anticipated overrun or underrun of the estimated cost under cost-reimbursement
contracts.
( ) (7) 42.302(a)(17). Analyze quarterly limitation on payments statements
and recover overpayments from the Contractor. Note: use with 42.302(a)(12)
above.
( ) (8) 42.302(a)(20). For classified contracts, administer those portions
of the applicable industrial security program designated as ACO responsibilities
(see FAR Subpart 4.4).
( ) (9) 42.302(a)(28). Perform necessary screening, redistribution, and
disposal of contractor inventory.
( ) (10) 42.302(a)(29). Issue contract modifications requiring the
Contractor to provide packing, crating, and handling services on excess
Government property. When the ACO determines it to be in the Government's
interests, the services may be secured from a contractor other than the
contractor in possession of the property.
( ) (11) 42.302(a)(31). Perform production support, surveillance, and
status reporting, including timely reporting of potential and actual slippages
in contract delivery schedules.
( ) (12) 42.302(a)(32). Perform pre-award surveys (see FAR Subpart 9.1).
( ) (13) 42.302(a)(38). Ensure Contractor compliance with contractual
quality assurance requirements (see FAR Part 46).
( ) (14) 42.302(a)(39). Ensure Contractor compliance with contractual
safety requirements. Note: see DFARS 223.370 for safety requirements on
contracts for ammunition and explosives.
( ) (15) 42.302(a)(40). Perform engineering surveillance to assess
compliance with contractual terms for schedule, cost, and technical performance
in the areas of design, development, and production.
( ) (16) 42.302(a)(41). Evaluate for adequacy and perform surveillance of
Contractor efforts and management systems that relate to design, development,
production, engineering changes, subcontractors, tests, management of
engineering resources, reliability and maintainability, data control systems,
configuration management, and independent research and development.
( ) (17) 42.302(a)(43). Report to the contracting office any inadequacies
noted in specifications.
( ) (18) 42.302(a)(44). Perform engineering analyses of Contractor cost
proposals.
<PAGE>
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( ) (19) 42.302(a)(45). Review and analyze Contractor proposed
engineering and design studies and submit comments and recommendations to the
contracting office, as required.
( ) (20) 42.302(a)(46). Review engineering change proposals for proper
classification, and when required, for need, technical adequacy of design,
productibility, and impact on quality, reliability, schedule, and cost; submit
comments to the contracting office.
( ) (21) 42.302(a)(47). Assist in evaluating and make recommendations for
acceptance or rejection of waivers and deviations.
( ) (22) 42.302(a)(51). Consent to the placement of subcontracts.
( ) (23) 42.302(a)(57). Assign and perform supporting contract
administration.
( ) (24) 42.302(a)(59). Issue administrative changes, correcting errors or
omissions in typing, Contractor address, facility or activity code, remittance
address, computations which do not require additional contract funds, and other
such changes (see FAR Subpart 43.101).
( ) (25) 42.302(a)(60). Cause release of shipments from Contractor's plants
according to the shipping instructions. When applicable, the order of assigned
priority shall be followed; shipments within the same priority shall be
determined by date of the instructions.
( ) (26) 42.302(a)(61). Obtain Contractor proposals for any contract price
adjustments resulting from amended shipping instructions. ACOs shall review all
amended shipping instructions on a periodic, consolidated basis to assure that
adjustments are timely made. Except when the ACO has settlement authority, the
ACO shall forward the proposal to the contracting officer for contract
modification. The ACO shall not delay shipments pending completion and
formalization of negotiations of revised shipping instructions.
( ) (27) 42.302(a)(65). Accomplish administrative closeout procedures (see
FAR Subpart 4.804-5).
( ) (28) 242.302(a)(19). Also negotiate and issue contract modifications
reducing contract prices in connection with the provisions of paragraph (b) of
the clause at FAR 52.225-10, Duty-Free Entry, and paragraph (c) of the clause at
252.225-7009, Duty-Free Entry--Qualifying Country End Products and Supplies.
( ) (29) 242.302(a)(33). Also perform industrial readiness and mobilization
productions planning field surveys and negotiate schedules.
( ) (30) 242.302(a)(41). In contracts with cost schedule control systems
requirements (see DFARS Subpart 234.005-70;
(A) Perform postaward surveillance of Contractor progress in
demonstrating that its cost schedule control systems meet the cost schedule
control systems criteria;
(B) Provide assistance in the review and acceptance of the Contractor's
cost schedule control systems; and
(C) After acceptance of the systems, perform surveillance to monitor
their continuing acceptable operation.
<PAGE>
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H.17 352.245-9001 GOVERNMENT FURNISHED PROPERTY (APR 1989) is added:
(a) The Government shall deliver to the Contractor, F.O.B. carrier's
equipment, wharf, or freight station Ashburn, VA, where the work will be
performed, the following property to be used for this requirement:
Description Qty. Value To be delivered to Contractor
GTC FORTEZZA Crypto Card 2 $140.00 In Place
(b) The Contractor shall inspect the property within thirty (30) days of its
receipt. Damaged or defective property will be promptly reported to the
Contracting Officer after having a confirming inspection thereof made by the
Government Representative. The Contractor will also request a confirming
inspection by the carrier's representative where he considers the damage to be
attributable in some degree to the carrier.
(c) A representative of the Contracting Officer may be present to inspect the
condition of the property prior to packaging thereof for return to the
Government. The Contractor will notify the designated property administrator
prior to the packaging of the property for return so that personnel may be
assigned for these examinations.
(d) In fulfillment of the requirements of the contract clause entitled
"Government Property", reporting of Government Property inventory shall be
submitted in accordance with FAR 45.508.
(e) Under no circumstances shall government property be accepted by the
contractor without a contracting officer's signature on the shipping document.
(f) All inquiries with regard to the above property should be directed to the
designated property administrator.
H.18. DESIGNATION OF PROPERTY ADMINISTRATOR - RECORDS OF GOVERNMENT PROPERTY
(OCT 1993) is added:
(a) The cognizant Defense Contract Management Command (DCMC) component is
designated to administer the maintenance by the Contractor of official
Government Property Records for all Government property.
(b) The Contractor will sign one (1) copy of the shipping or inspection
document acknowledging receipt of property and forward same to the designated
property administrator.
(End of clause)
SECTION I - CONTRACT CLAUSES
1.1 REFERENCED CLAUSES. The following contract clause(s) pertinent to this
section are hereby incorporated by reference:
CLAUSE NO TITLE
FAR CLAUSES
52.245-4 Government-Furnished Property (Short Form) (APR 1984)
<PAGE>
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C. As a result of the foregoing, the total contract price is restated as
follows.
<TABLE>
<CAPTION>
Section B.1 FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001, 0003 and 0004 $446,874.00 $0.00 $446,874.00
Award Fee Pool $ 0.00 $0.00 $ 0.00
Earned Award Fee $ 36,433.00 $0.00 $ 36,433.00
----------- ----- -----------
Total FPAF Amount $483,307.00 $0.00 $483,307.00
Section B.2 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $776,150.00 $194,291.00 $ 970,441.00
Award Fee Pool $ 73,850.00 $ 10,709.00 $ 84,559.00
Earned Award Fee $ 0.00 $ 0.00 $ 0.00
----------- ----------- -------------
Total FPAF Amount $ 50,000.00 $205,000.00 $1,055,000.00
FROM BY TO
Total Contract Price $1,333,307.00 $205,000.00 $1,538,307.00
</TABLE>
D. Except as provided herein, all terms and conditions of this contract, as
previously modified, remain unchanged and in full force and effect.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 3 PAGES
2. AMENDMENT/MODIFICATION NO. P00006
3. EFFECTIVE DATE: 07 NOV 1997
4. REQUISITION/PURCHASE REQ. NO. N/A
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
LITRONIC, INC.
ATTN: JAMES PROHASKA (703-729-1700)
43088 WINTER GROVE DRIVE
ASHBURN, VA 22011
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
[_] The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers [_] is extended, [_] is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
(X) C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
43.103(a) Bilateral Modification.
D. OTHER (Specify type of modification and authority)
E. IMPORTANT: Contractor [_] is not, [X] is required to sign this
document and return ______ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
1. The purpose of this modification is to decrease the Not-to-Exceed amounts
for CLIN 0003, Travel and CLIN 0004, Other Direct Costs, and increase the number
of labor hours for CLIN 0001 in Section B.1 of this contract.
2. Accordingly, this contract is hereby modified as follows. (Continued on
following page)
<PAGE>
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A NAME AND TITLE OF SIGNER (Type or print)
James S. Prohaska
Director, Business Development
15B CONTRACTOR/OFFEROR
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of person authorized to sign)
15C. DATE SIGNED 07 NOV 1997
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
MARGARET M. QUASNY
Contracting Officer
16B UNITED STATES OF AMERICA
BY /S/ Margaret M. Quasny
----------------------
(Signature of Contracting Officer)
16C. DATE SIGNED 11/7/97
<PAGE>
MDA904-97-C-0424
P00006
Page 2 of 3
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
B.1 SUPPLIES/SERVICES (Basic period 27 June 1997 - 30 September 1997) is revised
to read:
<TABLE>
<CAPTION>
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
<S> <C> <C> <C> <C>
0001 The contractor shall furnish HRS 4,832 XXX $443,445.57
the necessary materials,
facilities, equipment,
supplies, and services of
skilled professional,
technical and support
personnel to fulfill the
requirements set forth in the
Statement of Work for Multi
Level Information System
Security Initiative Crypto
Card System Analysis and
Library and Driver
Architecture and
Development, dated 10
January 1997.
</TABLE>
NOTE: The above stated amounts reflect the following revisions:
<TABLE>
<CAPTION>
FROM BY TO
<S> <C> <C> <C> <C>
Quantity in hours 4,582 250 4,832
Total Price $421,116.00 $22,329.57 $443,445.57
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
000l AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $443,445.57
0002 Award Fee Earned For the Period $36,433.00
0003 Travel For the Job Not-To-Exceed $0.00
(Inclusive of Burdens)
NOTE: The above stated amounts reflect the following revisions:
FROM BY TO
$15,000.00 ($15,000.00) $0.00
0004 OTHER DIRECT COSTS For the Job Not-To-Exceed $3,428.43
(Inclusive of Burdens)
</TABLE>
<PAGE>
MDA904-97-C-0424
P00006
Page 3 of 3
NOTE: The above stated amounts reflect the following revisions:
<TABLE>
<CAPTION>
FROM BY TO
<S> <C> <C> <C>
$10,758.00 ($7,329.57) $3,428.43
0005 Date, in accordance with the For the Lot Not-Separately-Priced
Contract Data Requirements
List (CDRL), DD Form 1423,
dated 13 February 1997
Total Not-To-Exceed $483,307.00
</TABLE>
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus
applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at
actual costs; meals and incidental expenses shall be reimbursed at the
applicable flat rate. The total of lodging, meals, and incidental expenses shall
not exceed the established rate for each location set forth in the "Federal
Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and
the Standardized Regulation (Government Civilians Foreign Areas), Section 925,"
as applicable. These costs shall be directly chargeable to this contract in
accordance with the contractor's established method of distributing such costs.
First class travel shall not be reimbursed. Contractor shall be reimbursed for
coach rates only. Travel is non fee bearing. Invoices which request
reimbursement of travel expenses must be accompanied by airline ticket subs,
hotel/motel receipts, and rental car receipts.
3. As a result of the foregoing, the total contact value remains the same.
4. Except as provided for herein, all terms and conditions and provisions
remain unchanged and in full force and effect.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 3 PAGES
2. AMENDMENT/MODIFICATION NO. P00005
3. EFFECTIVE DATE: 24 OCT 1997
4. REQUISITION/PURCHASE REQ. NO. N/A
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
Litronic Inc.
ATTN: James Prohaska (703-729-1700)
43088 Winter Grove Drive
Ashburn, VA 22011
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
[_] The above numbered solicitation is amended as set forth in Item 14. The
hour and date specified for receipt of Offers
[_}] is extended, [_] is not extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE SECTION G.1
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE
CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM
10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X) D. OTHER (Specify type of modification and authority) 352.216-9007 Notice:
Award Fee Funding and Award Fee Determination Plan
E. IMPORTANT: Contractor [X] is not, [_] is required to sign this
document and return ____ copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
1. The purpose of this modification is to recognize the amount of award fee
earned during the first evaluation period, 27 June 1997 through 30 September
1997 (Section B.1, CLIN 0002), in accordance with the award fee determination
plan dated 10
<PAGE>
June 1997 (Rev.2). The contractor has earned a score of 85 for the period and,
therefore, shall earn 85% of the available award fee pool for the period
$42,862.00, for a total amount of $36,433.00. Interim award fee payments in the
amount of $21,431.00 have been made available for the payment during the period.
The contractor is hereby authorized to invoice for the remaining balance of
$15,002.00.
2. Accordingly, this contract is hereby modified as follows.
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
15B. CONTRACTOR/OFFEROR
(Signature of person authorized to sign)
15C. DATE SIGNED
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
MARGARET M. QUASNY
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ Margaret M. Quasny
----------------------
(Signature of Contracting Officer)
16C. DATE SIGNED 10/24/97
<PAGE>
MDA904-97-C-0424
P00005
Page 2 of 3
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
B.1 SUPPLIES/SERVICES (Basic period 27 June 1997 - 30 September 1997) is
revised to read:
Changes are in bold print.
<TABLE>
<CAPTION>
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS 4582 XXX $421,116.00
necessary materials, facilities,
equipment, supplies and services
of skilled professional, technical
and support personnel to fulfill
the requirements set forth in the
Statement of Work for Multi
Level Information System Security
Initiative Crypto Card System
Analysis and Library and Driver
Architecture and Development,
dated 10 January 1997.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $421,116.00
0002 Award Fee Earned For the Period $36,433.00
0003 Travel For the Job Not-To-Exceed $15,000.00
(Inclusive of Burdens)
0004 OTHER DIRECT COSTS For the Job Not-To-Exceed $10,758.00
(Inclusive of Burdens)
0005 Date, in accordance with the For the Lot Not-Separately-Priced
Contract Data Requirements
List (CDRL), DD Form
1423, dated 13 February 1997
Total Not-To-Exceed: 483,307.00
</TABLE>
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus
applicable burdens. ODCs are non fee bearing.
<PAGE>
MDA904-97-C-0424
P00005
Page 3 of 3
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at
actual costs; meals and incidental expenses shall be reimbursed at the
applicable flat rate. The total of lodging, meals, and incidental expenses shall
not exceed the established rate for each location set forth in the "Federal
Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and
the Standardized Regulation (Government Civilians Foreign Areas), Section 925,"
as applicable. These costs shall be directly chargeable to this contract in
accordance with the contractor's established method of distributing such costs.
First class travel shall not be reimbursed. Contractor shall be reimbursed for
coach rates only. Travel is non fee bearing. Invoices which request
reimbursement of travel expenses must be accompanied by airline ticket subs,
hotel/motel receipts, and rental car receipts.
SECTION G - CONTRACT ADMINISTRATION DATA
G.l ACCOUNTING AND APPROPRIATION DATA, ACR: AA only, is revised to read:
<TABLE>
<CAPTION>
ACR: AA Obligate
<S> <C>
977/80400.4500 574E51 999-2590 S18119 03200106 IX 0000 X22 I20B
Previously Obligated for Section B.l CLINs 0001, 0003 and 0004 $446,874.00
Previously Obligated for Provisional Award Fee Payments $21,431.00
DeObligate for Provisional Award Fee Payments This Action ($21,43 l .00)
Total Amount Obligated for Provisional Award Fee Payments $0.00
Previously Obligated for Future Award Fee Payments $21,431.00
Deobligate for Future Award Fee Payments ($21,431.00)
Total Amount Obligated for Future Award Fee Payments $0.00
Previously Obligated for Award Fee Earned $0.00
Obligate for Award Fee Earned This Action $36,433.00
Total Amount Obligated for Award Fee Earned $36,433.00
Total Amount Previously Obligated for ACR: AA $489,736.00
DeObligate ACR: AA This Action ($6,429.00)
Total Amount Obligated ACR: AA $483,307.00
</TABLE>
3. As a result of the foregoing, the total contract value is decreased as
follows:
FROM By TO
Not-To-Exceed $1,339,736.00 ($6,429.00) $1,333,307.00
4. Except as provided for herein, all terms and conditions and provisions remain
unchanged and in full force and effect.
<PAGE>
The Performance Evaluation Board discussed Litronic, Inc.'s performance during
the base year award fee period via informal meetings. The conclusions reached
are summarized as follows.
TECHNICAL
STAFFING:
. Skilled personnel were assigned to the task, and all subcontracts appear to
have been well managed.
. There were no problems with personnel equipped with inadequate skills
working on the task.
Rating: EXCELLENT
PERFORMANCE:
. System Engineering produced a flexible architecture that was able to
respond to numerous problems.
. Few of the many bugs in the CI Library 1.52b were the result of any
deficiency in Litronic's test engineering process. While Litronic's
Software Engineering Process has some way to go, it certainly was capable
of responding to this particular debugging exercise.
. Litronic is very responsive in addressing support concerns.
. Litronic communicates problems and concerns very well with the Program
Office.
Rating: EXCELLENT
SCHEDULE:
. Contractor had some difficulty in meeting schedule for CI Library 1.52b. As
a result, library release was delayed for several months.
Rating: MARGINAL
COST
. Litronic effectively controlled program costs.
. No problems were evident in Litronic's billing procedures.
. Status reporting is deficient. It is often late, not available, or not
useful. If this problem is not corrected by the next evaluation period,
cost will be further affected.
Rating: GOOD
PERB Recommendations: Litronic, Inc. Base Year Award Period
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 7 PAGES
2. AMENDMENT/MODIFICATION NO. P00004
3. EFFECTIVE DATE: 23 OCT 1997
4. REQUISITION/PURCHASE REQ. NO. 16-97-2093 A/3
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Road
Ft. Meade, Md 20755-6000
Attn: N141 (M. Lynn Miller) (410) 859-4071
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
Litronic, Inc.
ATTN: James Prohaska (703-729-1700)
43088 Winter Grove Drive
Ashburn, VA 22011
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
[_] The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers [_] is extended, [_] is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) Obligate $850,000.00
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
(X) D. OTHER (Specify type of modification and authority)
FAR 43.103 (a) Bilateral Modification.
E. IMPORTANT: Contractor [_] is not, [X] is required to sign this
document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
A. The purpose of this modification is to:
1.Reduce the quantity of hours in section H.13 paragraph (b) OPTION I,
2.Exercise a portion of the option under section H.13 paragraph (b) OPTION I, in
the FPAF amount of $850,000.00.
<PAGE>
3.Add OPTION 3 for additional level of effort in Fiscal Year 1998 in the amount
of $391,112.00.
B. Accordingly, this contract is hereby modified as follows.
(Continued on following page)
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15.A NAME AND TITLE OF SIGNER (Type or print)
James S. Prohaska
Director, Business Development
15B. CONTRACTOR/OFFEROR
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of person authorized to sign)
15C. DATE SIGNED 03 OCT 1997
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Gregory A. Fream
Contracting Officer
16B UNITED STATES OF AMERICA
BY /S/ GREGORY A. FREAM
--------------------
(Signature of Contracting Officer)
16C. DATE SIGNED 03 Oct. 1997
<PAGE>
MDA904-97-C-0424
P00004
Page 2 of 7
PART I - Reduce the Level Of Effort under H.13 paragraph (b) OPTION 1
OPTION 1 - FISCAL YEAR 1998 (1 OCTOBER 1997 - 30 SEPTEMBER 1998) is hereby
restated as follows.
<TABLE>
<CAPTION>
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
<S> <C> <C> <C> <C>
0001 The contractor shall furnish HRS 7864 XXX $738,500.00
the necessary materials,
facilities, equipment,
supplies, and services of
skilled professional,
technical and support
personnel to fulfill the
requirements set forth in the
Statement of Work for Multi
Level Information System
Security Initiative Crypto
</TABLE>
NOTE: The above stated amounts reflect the following revisions:
<TABLE>
<CAPTION>
FROM BY TO
<S> <C> <C> <C> <C>
Quantity in hours 11,400 (3,536) 7864
Total Price $1,071,465.00 ($332,965.00) $738,500.00
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $75.41 XXXX
0001AC Electronic Technician X XXX $69.32 XXXX
0001AD Systems Analyst X XXX $75.38 XXXX
0001AE Sr. Software Engineer X XXX $98.38 XXXX
0001AF Software Engineer X XXX $62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $738,500.00
</TABLE>
<PAGE>
MDA904-97-C-0494
P00004
Page 3 of 7
0002 Award Fee Pool, to be For the Period $73,850.00
determined in accordance
with the Award Fee
Determination Plan for Multi
Level Information System
Security Initiative Crypto
Card System Analysis and
Library and Driver Architecture
and Development, dated 10 June 1997 (Rev. 2).
NOTE: The above stated amounts reflect the following revisions:
<TABLE>
<CAPTION>
FROM BY TO
<S> <C> <C> <C> <C>
$107,147.00 ($33,297.00) $73,850.00
0003 Travel For the Job Not-To-Exceed $25,150.00
(Inclusive of Burdens)
NOTE: The above stated amounts reflect the following revisions:
FROM BY TO
$50,000.00 ($24,850.00) $25,150.00
0004 OTHER DIRECT COSTS For the Job Not-To-Exceed $12,500.00
(Inclusive of Burdens)
NOTE: The above stated amounts reflect the following revisions:
FROM BY TO
$12,500.00 ($0.00) $12,500.00
0005 Date, in accordance with the For the Lot Not-Separately-Priced
Contract Data Requirements
List (CDRL), DD Form
1423, dated 13 February 1997
</TABLE>
<PAGE>
MDA904-97-C-0424
P00004
Page 4 of 7
PART II -Exercise the option under H.13 paragraph (b) OPTION 1.
SECTION B - SUPPLIES/SERVICES AND PRICES
B.2 SUPPLIES/SERVICES - Fiscal Year 1998 (1 October 1997 - 30 September 1998) is
hereby added to this contract as follows.
<TABLE>
<CAPTION>
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
<S> <C> <C> <C> <C>
0001 The contractor shall furnish HRS 7,864 XXX $738,500.00
the necessary materials,
facilities, equipment,
supplies, and services of
skilled professional,
technical and support
personnel to fulfill the
requirements set forth in the
Statement of Work for Multi
Level Information System
Security Initiative Crypto
Card System Analysis and
Library and Driver Architecture
and Development, dated 10
January 1997.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $ 75.41 XXXX
0001AC Electronic Technician X XXX $ 69.32 XXXX
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38 XXXX
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $738,500.00
0002 Award Fee Pool, to be determined For the Period $73,850.00
in accordance with the Award Fee
Determination Plan for Multi
Level Information System
Security Initiative Crypto Card
System Analysis and Library and
Driver Architecture and
Development, dated 10 June
1997 (Rev. 2). There shall be one
evaluation for the period of 1
October 1997 - 30 September
1998. The contractor is authorized
to bill for up to 50% of the
available award fee ($36,925.00),
on a monthly basis in equal
amounts of $3,077.08.
</TABLE>
<PAGE>
MDA904-97-C-0424
P00004
Page 5 of 7
<TABLE>
<CAPTION>
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C>
0003 Travel For the Job Not-To-Exceed $25,150.00
(Inclusive Of Burdens)
0004 Other Direct Costs For the Job Not-To-Exceed $12,500.00
(Inclusive of Burdens)
0005 Data, in accordance with the Con- For the Lot Not-Separately-Priced
tract Data Requirements List
(CDRL), DD Form 1423, dated
13 February 1997
</TABLE>
SECTION F - DELIVERIES OR PERFORMANCE
F.3 352.211-90004 PERIOD OF PERFORMANCE (OCT 1990) - ALTERNATE III (OCT 1990)
is hereby restated as follows.
The period of performance shall extend from the date of contract award to 30
September 1998, unless performance is sooner terminated under the terms of the
contract. However, the Government reserves the right to exercise the option to
renew the contract for up to one (1) year, as set forth elsewhere in this
contract.
SECTION G - CONTRACT ADMINISTRATION DATA
G.1 ACCOUNTING AND APPROPRIATION DATA has the following fund cite added.
<TABLE>
<CAPTION>
ACR: AB Obligate
<S> <C>
978/90400.4500 584E51 999-2520 S18119 04700400 IX 0000 X22 I25D
PR I69720930003
Obligated for section B.2 CLINs 0001, 0003 and 0004 $776,150.00
Obligated for Provisional Award Fee Payments $ 36,925.00
Obligated for Future Award Fee Payments $ 36,925.00
Total Amount Obligated $850,000.00
</TABLE>
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H.13 OPTION TO EXTEND THE TERM OF THE CONTRACT paragraph (b) OPTION 1 only, as
restated in PART I of this modification, is hereby deleted in its entirety.
PART III - Add OPTION 3
H.13 OPTION TO EXTEND THE TERM OF THE CONTRACT paragraph (b) OPTION 3 is hereby
added to this contract as follows.
<PAGE>
MDA904-97-C-0424
P00004
Page 6 of 7
OPTION 3 - FISCAL YEAR 1998 (1 OCTOBER 1997 - 30 SEPTEMBER 1998).
<TABLE>
<CAPTION>
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
<S> <C>
0001 The contractor shall furnish HRS 3,536 XXX $107,091.00
the necessary materials, facilities,
equipment, supplies, and services
of skilled professional, technical
and support personnel to fulfill
the requirements set forth in the
Statement of Work for Multi
Level Information System
Security Initiative Crypto Card
System Analysis and Library and
Driver Architecture and
Development, dated 10 January 1997.
0001AA Program Manager X XXX $118.06 XXXX
0001AB Sr. Electrical Engineer X XXX $75.41 XXXX
0001AC Electronic Technician X XXX $69.32 XXXX
0001AD Systems Analyst X XXX $75.38 XXXX
0001AE Sr. Software Engineer X XXX $98.38 XXXX
0001AF Software Engineer X XXX $62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $107,091.00
0002 Award Fee Pool, to be For the Period $10,709.00
determined in accordance
with the Award Fee
Determination Plan for Multi
Level Information System
Security Initiative Crypto
Card System Analysis and
Library and Driver Architecture and
Development, dated 10 June
1997 (Rev. 2).
0003 Travel For the Job Not-To-Exceed $2,600.00
(Inclusive of Burdens)
0004 Other Direct Costs For the Job Not-To-Exceed $84,600.00
(Inclusive of Burdens)
0005 Date, in accordance with the For the Lot Not-Separately-Priced
Contract Data Requirements
List (CDRL), DD Form
1423, dated 13 February 1997
</TABLE>
<PAGE>
MDA904-97-C-0424
P00004
Page 7 of 7
C. As a result of the foregoing, the total contract price is restated as
follows..
<TABLE>
<CAPTION>
Section B.l FROM BY TO
<S> <C> <C> <C>
Cost of CLINs 0001 0003 and 0004 $338,465.00 $0.00 $338,465.00
Award Fee Pool $31,271.00 $0.00 $31,271.00
Earned Award Fee $0.00 $0.00 $0.00
Total CPAF Amount $369,736.00 $0.00 $369,736.00
Section B.2 FROM BY TO
Cost of CLINs 0001, 0003 and 0004 $0.00 $776.150.00 $776.150.00
Award Fee Pool $0.00 $73,850.00 $73,850.00
Earned Award Fee $0.00 $0.00 $0.00
Total CPAF Amount $0.00 $850,000.00 $850.000.00
FROM BY TO
Total Contract Price $489,736.00 $850,000.00 $1,339,736.00
</TABLE>
D. Except as provided herein, all terms and conditions of this contract, as
previously modified, remain unchanged and in full force and effect.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 3 PAGES
2. AMENDMENT/MODIFICATION NO. P00003
3. EFFECTIVE DATE: 15 SEP 1997
4. REQUISITION/PURCHASE REQ. NO. 16-97-2093-0002
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Rd., FANX III
Ft. George G. Meade, MD 20755-6000
Attn: N141 (MLM)
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
LITRONIC
ATTN: JAMES PROHASKA (703-729-1700)
43088 WINTER GROVE DRIVE
ASHBURN, VA 22011
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA###-##-####
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
[_] The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers [_] is extended, [_] is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE PAGE 2 Obligate:
$75,000.00
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
(X) C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
FAR 43.103(a)
D. OTHER (Specify type of modification and authority)
E. IMPORTANT: Contractor [_] is not, [X] is required to sign this
document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible:)
1. The purpose of this modification is to provide additional funds to increase
the level of effort and to change the subcontract number of page 2 of the
basis contract from SB0920-96-602356 to SB0920-97-706672.
<PAGE>
2. Accordingly, the following sections are hereby modified: SEE PAGE 2
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remains unchanged and in full force
and effect.
15A NAME AND TITLE OF SIGNER (Type or print)
James S. Prohaska
Director, Business Development
15B CONTRACTOR/OFFEROR
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of person authorized to sign)
15C. DATE SIGNED 12 SEP 1997
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
GREGORY A. FREAM
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ GREGORY A. FREAM
--------------------
(Signature of Contracting Officer)
16C. DATE SIGNED 15 Sept. 1997
<PAGE>
page 2
MDA904-97-C-0424/ P00003
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
B.l SUPPLIES/SERVICES, CLINs 0001 and 0002 only, are revised as follows:
<TABLE>
<CAPTION>
UNIT
CLIN SUPPLIES/SERVICES UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C>
0001 The Contractor shall furnish HRS From 3873 XXX From $353,616.00
the necessary materials, facilities, equipment, By 709 By $ 67,500.00
supplies To 4582 To $421,116.00
and services of skilled professional,
technical and support personnel
to fulfill the
requirements set forth in the
Statement of
Work entitled, "Multi Level
Information
System Security Initiative Crypto Card System
Analysis and Library and Driver Architecture
and Development,"
dated 10 January
1997 and
the documents referenced in Section C. The
contractors's management shall provide for the
effective timely and integrated implementation
of contract requirements.
0001AA Program Manager X XX $118.06 XXXX
0001AB Sr. Electrical Eng. X XX $ 75.41 XXXX
0001AC Electronic Technician X XX $ 69.32 XXXX
0001AD Systems Analyst X XX $ 75.38 XXXX
0001AE Sr. Software Engineer X XX $ 98.38 XXXX
0001AF Software Engineer X XX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $421,116.00
0002 Award Fee Pool, to be For the Period From $ 35,362.00
determined in accordance By $ 7,500.00
with the To $ 42,862.00
Award Fee Plan for Multi-Level Information System
Security Initiative Crypto Card System Analysis and
Library and Driver Architecture and Development dated 10
June 1997 (Rev. 2). There shall be one evaluation of
performance at the end of the period of performance (Date
of contract award through 30 September 1997.) If the
Government exercises the options to extend the term of
the contract, there shall be an evaluation of performance at
the conclusion of each option year. The contractor is
authorized to bill for up to 50% of the available award fee
($21,431.00), on a monthly basis in equal amounts of $5,357.75.
</TABLE>
SECTION G - CONTRACT ADMINISTRATION DATA
G1 ACCOUNTING AND APPROPRIATION DATA is revised as follows:
ACR: AA Obligate
<PAGE>
977/780400.4500 574E5l 999-2520 S18119 03200106 IX 0000
X22 I20B
<TABLE>
<CAPTION>
PR: I6-97-2093-0002 From By To
<S> <C> <C> <C>
Obligated for CLINs 0001, 0003 and 0004 $379,374.00 $67,500.00 $446,874.00
Obligated for Provisional Award Fee Payments $ 17,681.00 $ 3,750.00 $ 21,431.00
Obligated for Future Award Fee Payments $ 17,681.00 $ 3,750.00 $ 21,431.00
Total Amount Obligated $414,736.00 $75,000.00 $489,736.00
</TABLE>
<PAGE>
page 3
MDA904-97-C-0424/ P00003
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows:
Funds in the amount of $21.431.00 have been obligated under this contract
towards future award fee determinations but are not available for the Contractor
to bill against or incur costs against. Obligated award fee funds identified
above will be released to the Contractor via subsequent modifications after the
Government has rendered an award fee determination in accordance with the Award
Fee Plan currently in force under this contract. Upon receipt of the
aforementioned modifications, the Contractor is authorized to bill for the
earned fee.
3. As a result of this modification, total contract value is increased as
follows:
FROM BY TO
FFP (LOE) $414,736.00 $75,000.00 $489,736.00
4. Except as provided herein all other terms and conditions of the subject
contract remain unchanged and in full force.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 3 PAGES
2. AMENDMENT/MODIFICATION NO. P00002
3. EFFECTIVE DATE: 04 SEP 1997
4. REQUISITION/PURCHASE REQ. NO. 16-97-2093-0001
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Rd., FANX III
Ft. George G. Meade, Md 20755-6000
Attn: N141 (MLM)
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
LITRONIC
ATTN: JAMES PROHASKA (703-729-1700)
43088 WINTER GROVE DRIVE
ASHBURN, VA 22011
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA###-##-####
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
[_] The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers [_] is extended, [_] is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) SEE PAGE 2 Obligate:
$45,000.00
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
(X)C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
FAR 43.103(a)
D. OTHER (Specify type of modification and authority)
E. IMPORTANT: Contractor [_] is not, [X] is required to sign this
document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
1. The purpose of this modification is to provide additional funds to
increase the level of effort.
2. Accordingly, the following sections are hereby modified: SEE PAGE 2
<PAGE>
Except as provided herein, all terms and conditions of the document referenced
in Item 9A or 10A, as heretofore changed, remains unchanged and in full force
and effect.
15.A NAME AND TITLE OF SIGNER (Type or print)
James S. Prohaska
Director, Business Development
15B CONTRACTOR/OFFER
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of person authorized to sign)
15C. DATE SIGNED 03 SEP 1997
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
James M. Russell
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ JAMES M. RUSSELL
--------------------
16C. DATE SIGNED 04 SEP 1997
<PAGE>
page 2
MDA904-97-C-0424 / P00002
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
B.1 SUPPLIES/SERVICES, CLINs 0001 and 0002 only arc revised as follows:
<TABLE>
<CAPTION>
UNIT
CLIN SUPPLIES/SERVICES UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS From 3425 XXX From $312,707.00
necessary materials, facilities, By 448 By $ 40,909.00
equipment, supplies and services To 3873 To $353,616.00
of skilled professional, technical and
support personnel to fulfill the
requirements set forth in the Statement
of work entitled, "Multi Level Information
System Security Initiative Crypto Card
System Analysis and Library and Driver
Architecture and Development," dated 10 January
1997 and the documents referenced in Section C.
The contractor's management shall provide for the
effective timely and integrated implementation of
contract requirements.
0001AA Program Manager X XX $118.06 XXXX
0001AB Sr. Electrical Eng. X XX $75.41 XXXX
0001AC Electronic Technician X XX $69.32 XXXX
0001AD Systems Analyst X XX $75.38 XXXX
0001AE Sr. Software Engineer X XX $98.38 XXXX
0001AF Software Engineer X XX $62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $353,616.00
0002 Award Fee Pool, to be determined in For the Period From $31,271.00
accordance with the Award Fee Plan By $4,091.00
for Multi-Level Information System To $35,362.00
Security Initiative Crypto Card
System Analysis and Library and Driver
Architecture and Development, dated 10 June
1997 (Rev. 2). There shall be one evaluation of
performance at the end of the period of performance
(Date of contract award through 30 September
1997.) If the Government exercises the
options to extend the term of the contract, there
shall be an evaluation of performance at the
conclusion of each option year. The contractor
is authorized to bill for up to 50% of
the available award fee ($17,681.00), on a
monthly basis in equal amounts of $4,420.25.
</TABLE>
SECTION G - CONTRACT ADMINISTRATION DATA
G.1 ACCOUNTING AND APPROPRIATION DATA is revised as follows:
<TABLE>
<CAPTION>
ACR: AA Obligate
977/780400.4500 574E51 999-2520 S18119 03200106 IX 0000
X22 120B
PR: I6-97-2093-0001 From By To
<S> <C> <C> <C>
Obligated for CLINs 0001, 0003 and 0004 $338,465.00 $40,909.00 $379,374.00
Obligated for Provisional Award Fee Payments $ 15,635.50 $ 2,045.50 $ 17,681.00
Obligated for Future Award Fee Payments $ 15,635.50 $ 2,045.50 $ 17,681.00
Total Amount Obligated $369,736.00 $45,000.00 $414,736.00
</TABLE>
<PAGE>
page 3
MDA904-97-C-0424 / P00002
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993) is restated as follows:
Funds in the amount of $17,681.00 have been obligated under this contract
towards future award fee determinations but are not available for the Contractor
to bill against or incur costs against. Obligated award fee funds identified
above will be released to the Contractor via subsequent modifications after the
Government has rendered an award fee determination in accordance with the Award
Fee Plan currently in force under this contract. Upon receipt of the
aforementioned modifications, the Contractor is authorized to bill for the
earned fee.
3. As a result of this modification, total contract value is increased as
follows:
FROM BY TO
FFP (LOE) $369,736.00 $45,000.00 $414,736.00
4. Except as provided herein all other terms and conditions of the subject
contract remain unchanged and in full force.
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE OF PAGES
2. AMENDMENT/MODIFICATION NO. 01
3. EFFECTIVE DATE: 26 AUG 97
4. REQUISITION/PURCHASE REQ. NO.
5. PROJECT NO. (If applicable)
6. ISSUED BY:
U.S. SMALL BUSINESS ADMINISTRATION
ATTN: MED
200 W. SANTA ANA BLVD., STE. #700
SANTA ANA, CA 92701
ATTN: JOE DWORNICZAK 714-550-7420
CODE
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
LITRONIC INDUSTRIES
ATTN: JAMES PROHASKA
43088 WINTER GROVE DRIVE
ASHBURN, VA 22011
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: SB0920-96-602356
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 JUN 97
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
[_] The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers [_] is extended, [_] is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
(X) B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
D. OTHER (Specify type of modification and authority)
E. IMPORTANT: Contractor [X] is not, [_] is required to sign this
document and return ________ copies to the issuing office.
<PAGE>
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
1. Reference contract MDA904-97-C-0424, with NSA.
2. Effective immediate, the subcontract #SB0920-96-602356 is changed to the
new number SBO920-97-706672.
3. The SBA office which issues/administrates the subcontract is as in block
6 above.
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A NAME AND TITLE OF SIGNER (Type or print)
15B CONTRACTOR/OFFEROR
(Signature of person authorized to sign)
15C. DATE SIGNED
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
Joseph Dworniczak
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ JOSEPH DWORNICZAK
---------------------
(Signature of Contracting Officer)
16C. DATE SIGNED 26 Aug 97
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 3 PAGES
2. AMENDMENT/MODIFICATION NO. P00001
3. EFFECTIVE DATE: 03 JULY 1997
4. REQUISITION/PURCHASE REQ. NO. N/A
5. PROJECT NO. (If applicable)
6. ISSUED BY:
Maryland Procurement Office
9800 Savage Rd., FANX III
Ft. George G. Meade, MD 20755-6000
Attn: N141 (MLM)
CODE H98230
7. ADMINISTERED BY (If other than Item 6)
CODE
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county, State and ZIP Code)
LITRONIC
ATTN: JAMES PROHASKA (703-729-1700)
43088 WINTER GROVE DRIVE
ASHBURN, VA 22011
(X)
9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (See Item 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.: MDA904-97-C-0424
CODE FACILITY CODE
X10B. DATED (See Item 13): 27 June 1997
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
[_] The above numbered solicitations is amended as set forth in Item 14. The
hour and date specified for receipt of Offers [_] is extended, [_] is not
extended.
Offer's must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing Items 8 and 15, and returning __________ copies of the
amendment; (b) By acknowledging receipt of this amendment on each copy of the
offer submitted; or (c) by separate letter or telegram which includes a
reference to the solicitation and amendment numbers. FAILURE OF YOUR
ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS
PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If
by virtue of this amendment you design to change an offer already submitted,
such change may be made by telegram or letter, provided each telegram or letter
makes reference to the solicitation and this amendment, and is received prior to
the opening hour and date specified.
12. ACCOUNTING AND APPROPRIATION DATA (If required) N/A Obligate: N/A
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACT/ORDERS, IT MODIFIES THE
CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
(X)
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES
SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriate
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b)
(X) C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:
FAR 43.103(a)
D. OTHER (Specify type of modification and authority)
E. IMPORTANT: Contractor [_] is not, [X] is required to sign this
document and return 3 copies to the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible).
1. The purpose of this modification is to incorporate the requirements of
the attached Contract Security Classifications Specification DD Form 254,
dated 23 June 1997.
2. Accordingly, the following sections are hereby modified: SEE PAGE 2
<PAGE>
Except as provided herein all terms and conditions of the document referenced in
Item 9A or 10A, as heretofore changed, remains unchanged and in full force and
effect.
15A. NAME AND TITLE OF SIGNER (Type or print)
James S. Prohaska
Director, Business Development
15B CONTRACTOR/OFFEROR
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of person authorized to sign)
15C. DATE SIGNED 7/3/97
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
JAMES M. RUSSELL
Contracting Officer
16B. UNITED STATES OF AMERICA
BY /S/ JAMES M. RUSSELL
--------------------
(Signature of Contracting Officer)
16C. DATE SIGNED 03 JUL 1997
<PAGE>
page 2
MDA904-97-C-0424 / P00001
SECTION C - DESCRIPTION/SPECIFICATION/WORK STATEMENTS is revised to add:
C.4 Contract Security Classification Specification, DD Form 254, dated 23 June
1997.
SECTION D - PACKAGING AND MARKING is revised to add:
D.3 352.247-9004 PACKING AND SHIPPING (OCT 1993)
(a) Packing
(1) Material shall be packed by personnel duly cleared for the level of
classification in question, to conceal it properly and to avoid suspicion as to
its contents, and to reach destination in satisfactory condition. Internal
markings or internal packaging will clearly indicate the classification. NO
NOTATION TO INDICATE THE CLASSIFICATION SHALL APPEAR ON EXTERNAL MARKINGS.
(2) Documents shall be enclosed in two sealed envelopes or covers.
Typewritten or printed matter in the contents shall be protected by a cover
sheet or by folding inward to avoid direct contact with the inner envelope or
cover. The inner cover shall be addressed, return addressed, sealed and marked
with the security classification on front and back so that the marking will be
easily seen when the outer cover is removed. Receipt for, if required, shall be
enclosed identifying the addressor, addressee, and listing the contents by short
title. The outer envelope or cover shall be of sufficient opaqueness and density
as to prevent the classification marking of the inner cover from being visible
and shall be addressed, return addressed, and carefully sealed with no markings
or notations.
(b) Shipping
(1) Classified material shall be shipped in accordance with the Industrial
Security Manual for Safeguarding Classified Material and Security Guidelines
contained in DD Form 254.
(2) Unclassified material shall be shipped in accordance with the
Contractor's best commercial practice to insure safe arrival at destination.
<PAGE>
page 3
MDA904-97-C-0424 / P00001
SECTION H- SPECIAL CONTRACT REQUIREMENTS is revised to add:
H.16 352.290-9001 RETENTION OF INFORMATION (OCT 1993)
After completion of the contract, the Contractor shall not retain in his
possession (unless specified by the contract document) any drawings, sketches,
prints, reports, or other data developed under this contract without written
approval of the Contracting Officer, or his duly authorized representative.
SECTION I - CONTRACT CLAUSES
1.5 REFERENCED CLAUSES - WHEN APPLICABLE is revised to add:
52.204-2 Security Requirements (AUG 1996)
3. As a result of this modification, total contract value is unchanged.
4. Except as provided herein all other terms and conditions of the subject
contract remain unchanged and in full force.
<PAGE>
DEPARTMENT OF DEFENSE CONTRACT SECURITY CLASSIFICATION SPECIFICATION (The
requirements of the DoD industrial Security Manual apply to all security aspects
of this effort)
1. CLEARANCE AND SAFEGUARDING
a. FACILITY CLEARANCE REQUIRED: SECRET
b. LEVEL OF SAFEGUARDING REQUIRED: SECRET
2. THIS SPECIFICATION IS FOR: (x and complete as applicable)
X a. PRIME CONTRACT NUMBER: MDA904-97-C-0424
b. SUBCONTRACT NUMBER
c. SOLICITATION OR OTHER NUMBER
DUE DATE (YYMMDD)
3. THIS SPECIFICATION IS: (X and complete as applicable)
X a. ORIGINAL (Complete date in all cases) DATE (YYMMDD): 970623
b. REVISED (Supercedes all previous specs) / Revision No. / DATE (YYMMDD)
c. FINAL (Complete Item 5 in all cases) / DATE (YYMMDD)
4. IS THIS A FOLLOW-ON CONTRACT? X YES; NO. IF YES, complete the
---
following:
Classified material received or generated under MDA904-95-C-4074 .
--------------------------
(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 date _____________________, 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
Litronic Industries
2950 Redhill Avenue
Costa Mesa, CA 92626-7900
b. CAGE CODE:
4F972
c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
Defensive Investigative Service
Industrial Secuiryt Field Office, San Diego
16855 W. Bernardo Drive, Suite 150
San Diego, CA 92127-1619
7. SUBCONTRACTOR
a. NAME, ADDRESS AND ZIP CODE:
b. CAGE CODE:
c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
<PAGE>
8. ACTUAL PERFORMANCE
a. LOCATION:
b. CAGE CODE:
c. COGNIZANT SECURITY OFFICE (Name, Address, and Zip Code)
9. GENERAL IDENTIFICATION OF THIS PROCUREMENT
Multi Level Information System Security Initiative Crypto Card System Analysis,
and Library and Driver Architecture and Development.
10.THIS CONTRACT WILL REQUIRES ACCESS TO: YES NO
a. COMMUNICATIONS SECURITY (COMSEC) INFORMATION: X
b. RESTRICTED DATA X
c. CRITICAL NUCLEAR WEAPON DESIGN INFORMATION X
d. FORMERLY RESTRICTED DATA X
e. INTELLIGENCE INFORMATION:
(1) Sensitive Compartmented Information (SCI) X
(2) Non-SCI X
f. SPECIAL ACCESS INFORMATION X
g. NATO INFORMATION X
h. FOREIGN GOVERNMENT INFORMATION X
i. LIMITED DISSEMINATION INFORMATION X
j. FOR OFFICIAL USE ONLY INFORMATION X
k. OTHER (Specify
11.IN PERFORMING THIS CONTRACT, THE CONTRACTOR WILL: YES NO
a. HAVE ACCESS TO CLASSIFIED INFORMATION ONLY AT
ANOTHER CONTRACTOR'S FACILITY OR A GOVERNMENT
ACTIVITY X
b. RECEIVE CLASSIFIED DOCUMENTS ONLY X
c. RECEIVE AND GENERATE CLASSIFIED MATERIAL X
d. FABRICATE MODIFY, OR STORE CLASSIFIED HARDWARE X
e. PERFORM SERVICES ONLY X
f. HAVE ACCESS TO U.S. CLASSIFIED INFORMATION
OUTSIDE THE U.S., PUERTO RICO, U.S. POSSESSIONS AND
TRUST TERRITORIES X
g. BE AUTHORIZED TO USE THE SERVICES OF DEFENSE
TECHNICAL INFORMATION CENTER (DTIC) OR OTHER
SECONDARY DISTRIBUTION CENTER X
h. REQUIRE A COMSEC ACCOUNT X
i. HAVE TEMPEST REQUIREMENTS X
j. HAVE OPERATIONS SECURITY (OPSEC) REQUIREMENTS X
k. BE AUTHORIZED TO USE THE DEFENSE COURIER
SERVICE X
l. OTHER (Specify)
12. PUBLIC RELEASE. Any information (classified or unclassified) pertaining to
this contract shall not be released for public dissemination except as provided
by the Industrial Security Manual or unless it
<PAGE>
has been approved for public release by appropriate U.S. Government authority.
Proposed public releases shall be submitted for approval prior to release
X DIRECT ____________________ Through (Specify)
Proposed public releases shall be submitted for approval prior to release
direct to the Contracting Officer.
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 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)
Additional security requirements begin on page 3.
CLASSIFIED AIS PROCESSING WILL BE INVOLVED?
X YES NO
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ANNUAL REVIEW OF THIS FORM REQUIRED
NO X YES (date) One year ADAD
------- ------- ------------------------------------
TYPED NAME, TITLE AND SIGNATURE OF
PROGRAM/PROJECT MANAGER/COR OR OTHER
DESIGNATED OFFICIAL
John Centafont
Program Manager
/S/ JOHN CENTAFONT
ACTIVITY NAME ADDRESS, ZIP CODE, TELEPHONE
NUMBER AND OFFICE SYMBOL
Director, National Security Agency
9800 Savage Road, Attn: X22
Fort George G. Meade, MD 20755-6733 (410) 859-4464
ONLY AUTHORIZED NSA CONTRACTING OFFICERS MAY SERVE AS CERTIFYING OFFICIALS FOR
NSA SCI CONTRACTS AND SUBCONTRACTS.
14. ADDITIONAL SECURITY REQUIREMENTS. Requirements, in addition to ISM
requirements, are established for this contract. (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.) X YES NO
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<PAGE>
15. INSPECTIONS. Elements of this contract are outside the inspection
responsibility of the cognizant security office. (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.) YES X NO
----- -----
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 OFFICIAL
James Russell
b. TITLE
Contracting Officer
c. TELEPHONE (Include Area Code)
(410) 684-7102
d. ADDRESS (Include Zip Code)
Maryland Procurement Office
9800 Savage Road
Fort George G. Meade, MD 20755-6000
e. SIGNATURE
/S/ JAMES M. RUSSELL
17.REQUIRED FOR DISTRIBUTION
X a. Contractor
b. Subcontractor
X c. Cognizant Security Office for Prime and Subcontractor
d. U.S. Activity Responsible for Overseas Security Administration
X e. Administrative Contracting Officer
X f. Others As Necessary S412, DCS
<PAGE>
Attachment A
September 1996
SECURE TELECOMMUNICATION REQUIREMENTS
Secure telecommunications are required as this contract involves access to
classified information or sensitive unclassified, Government or Government-
derived information at the contractor facility. These requirements apply to the
use of Government contractor telecommunications equipment over which classified
information or sensitive unclassified Government or Government-derived
information is transmitted.
The following definitions apply:
Telecommunications: Preparation, transmission, communication, or related
processing of information (writing, images, sounds or other data) by electrical
electromagnetic, electromechanical, electro-optical or electronic means.
"Government Contractor" telecommunications: Voice and data
telecommunications between or among Federal Government Agencies and their
contractor/subcontractors. This includes management information processing
systems and local data networks.
"Secured" means the application of communications security (COMSEC)
equipments, devices or techniques to telecommunications or information
processing systems over which classified information is transmitted.
"Protected" means the application of National Security Agency (NSA) approved
protection equipment, devices or techniques to contractor telecommunications
over which sensitive unclassified, Government or Government-derived information
is transmitted.
"Sensitive unclassified, Government or Government-derived information" is
defined as any information, the loss, misuse or unauthorized access to, or
modification of which might adversely affect the U.S. national interest, the
conduct of DoD programs or the privacy of DoD personnel.
A COMSEC account is required for this contract. The NSA Central Office of
Record has primary responsibility for auditing all COMSEC material held in this
account. NSA will ensure that all Government contractor secure
telecommunications facilities are operated in accordance with NSA requirements.
The contractor or subcontractor shall comply with DoD 5220.22-A, COMSEC Annex
to the National Industrial Security Program Operating Manual, dated June 1995.
<PAGE>
Equipment, devices, techniques and services required for securing or
protecting contractor telecommunications will be acquired only from sources
listed in the NSA Information Systems Security Products and Services Catalog.
Contractors shall comply with the STU-III Doctrine or other appropriate
doctrine.
Keying materials required for the operation of secured and protected
telecommunications systems will be furnished by the government. A Defense
Courier Service account may be required for shipment of this material.
The prime contractor shall include requirements that conform with this DD254
in all subcontracts that require secured or protected equipment or services.
COMSEC incidents will be reported as follows: The contractor shall make an
immediate telephonic notification to NSA of any incident or violation of COMSEC
requirements. Notification will be made to the Office of COMSEC Insecurities on
(410) 859-6811. Violations or possible compromises of COMSEC information should
also be reported to S41 at (410) 859-6255 or the NSA Support Services Operations
Center, Security Duty Officer at (301) 688-6911. A follow-up written report is
required and shall be appropriately classified. Specific guidance as to proper
classification will be provided by NSA. The report shall be submitted to the
Contracting Officer, ATTN: V514 and the appropriate Defense Investigative
Service (DIS) Cognizant Security Office. If accountable COMSEC material is
involved, the Central Office of Record will also be provided a copy of the
report.
Clarification and guidance for COMSEC requirements may be directed to the NSA
Procedural and Material Control Branch at (301) 688-8110.
<PAGE>
Attachment C
September 1996
COLLATERAL (NON-SCI) CONTRACTS
Contractor employees may not carry any classified material on commercial
aircraft unless approved by the Contracting Officer (CO) or his designated
representative.
Classified material released under this contract does not become the property
of the contractor and can be withdrawn by the National Security Agency (NSA) at
anytime. Upon expiration of the contract, all classified materials released to
the contractor and all other materials of any kind incorporating data from such
classified materials will be returned to the NSA for final disposition. A
certificate of destruction in lieu of the material will suffice when the
material has been destroyed, either at the direction or under the supervision of
the CO or his designee.
The contractor will not release classified material to any activity or
individual of the contractor's organization not directly engaged in providing
services under the contract, or to another contractor (including a
subcontractor), government agency, private individual, or organization without
the written consent of the CO. In the event that consent for such release is
requested, the NSA will verify that the proposed recipient is appropriately
cleared and has need-to-know.
Contractor and subcontractor personnel, as well as individuals who are
consultants to the contractor or subcontractor, who have access to certain
specified classified cryptographic information or materials, or to spaces where
such classified cryptographic information or materials are produced, processed
or stored are subject to requirements set forth in NSA/CSS Regulation 90-15. The
Contractor Security Officer shall notify such personnel that they are subject to
this requirement and shall provide the CO written confirmation that this notice
was provided within 90 days of the effective date of this DD254.
Non-US citizens, to include immigrant aliens, are not authorized access to
classified or to unclassified portions of this contract, proposal or study
without the express written approval of NSA, Facilities Security Services (S41).
Contractors will maintain such records as will permit them to furnish on
demand the names of individuals who have or have had access to classified
material in the custody of the contractor.
Reproduction of any material released to the contractor must be approved by
the Contracting Officer's Representative (COR).
<PAGE>
The following marking applies to all classified elements of information
generated under this contract:
DERIVED FROM: (Insert source document)
DECLASSIFY ON: (Insert date)
These documents apply to this contract:
Form G9006, "Classification Guidelines"
Director of Central Intelligence Directive 1/7, Security Controls on the
Dissemination of Intelligence Information, effective 15 June 1996
Executive Order 12958, Classified National Security Information, dated
October 1995
32 Code of Federal Regulations Part 2001, Implementation of Executive Order
12958, dated October 1995
DoD 5220.22-M, National Industrial Security Program Operating Manual, dated
January 1995
DoD 5220.22-M-Sup 1, National Industrial Security Program Operating Manual
Supplement, dated February 1995
Handling, Control and Accountability Requirements for NSA Sensitive
Compartmented Information Contracts, dated 8 August 1994
NSA/CSS Classification Manual 123-2, dated 3 September 1991
These additional documents and paragraphs will be included on DD254
attachments for COMSEC collateral efforts:
DoD 5220.22-A, COMSEC Annex to the National Industrial Security Program
Operating Manual, dated June 1995
NSA/CSS Regulation 90-15, Access to Classified Cryptographic Information,
dated 16 March 1992
NCSC-6, National Policy Governing the Disclosure or Release of COMSEC to
Foreign Governments or International Organizations, dated 16 January 1981
The contractor/subcontractor shall not divulge to any individual, company,
organization, or other U.S. Government Department or Agency any information,
either classified or unclassified, pertaining to the design or capabilities of
COMSEC or communications protection systems or equipment being developed,
produced, purchased, or provided as Government-furnished equipment under this
and/or previous NSA contracts without the prior approval of the NSA.
<PAGE>
Classified and COMSEC waste paper products should be destroyed daily.
Classified and Controlled Cryptographic Item (CCI) hardware production scrap
resulting from this contract shall be disposed of at intervals not to exceed six
months.
Any external view or photographs of the end item hardware, provided all
covers are in place, shall be unclassified, but the information shall be marked
FOR OFFICIAL USE ONLY and released based on need-to-know. This information will
not be published in periodicals or trade publications without prior approval of
the CO.
Contractor/subcontractor-generated documents, both classified and
unclassified, shall not be released to the Defense Technical Information Center
(DTIC). They shall bear the statement "Not Releasable to the Defense Technical
Information Center per DoD Directive 3200.12."
All material created from the pattern generation tape, whether intermediate
or end product, shall be afforded the same protection as the pattern generation
tape. The contractor or subcontractor shall ensure that an appropriate
classification marking is affixed to each item in a manner that affords the item
sufficient protection. Reticles, masters and submasters, working plates,
blowbacks, and any other material created from the pattern generation tape or
its derivative shall be marked with the appropriate classification and shall be
controlled within the "in-process" accounting system as required by DoD 5220.22-
A. Depending upon the process used for the fabrication or CCI products, reticles
and other materials produced from the pattern generation tape or its derivatives
shall be marked to reflect either a classification or a CCI designation, as
appropriate. Such material shall also be controlled within the "in-process"
accounting system.
All classified COMSEC documents (drawings, reports, test date,
correspondence, etc.) originated by the contractor or subcontractor shall not be
disclosed to foreign nationals and must be marked "US ONLY." The release of
those documents that need to be shared with foreign governments must be approved
by Director, NSA as specified in NCSC-6. Documents approved for release to a
foreign government shall be marked "REL to US and (insert name of specified
country) ONLY".
In addition to other applicable caveats, contractor or subcontractor-
generated classified COMSEC documents, photographs, reports, etc., shall be
marked with the following caveat: "COMSEC MATERIAL -- Access by Contractor
Personnel Is Restricted to U.S. Citizens Holding Final Government Clearance."
Requirements for contractor handling of classified operational keying
material marked CRYPTO are provided in DoD 5220.22-A.
<PAGE>
DEPARTMENT OF DEFENSE
MARYLAND PROCUREMENT OFFICE
9800 SAVAGE ROAD
FORT GEORGE G. MEADE, MARYLAND 20755-6000
IN REPLY REFER TO
MPO -N141,(MLM) Date: 3 September 1998
Litronic, Inc.
ATTN: Mr. Jim Prohaska
8150 Leesburg Pike
Vienna, VA 22182
Subject: Appointment of Contracting Officer's Representatives
Reference: Contract MDA904-97-C-0424
Mr. Prohaska:
The following employees of the Department of Defense are hereby designated
Contracting Officer's Representatives, CORs for the above referenced contract.
These appointments may not be redelegated. No other appointment(s) pertaining
to this contract is/are to be recognized by our company unless the undersigned
notifies you in writing of changes to this/these appointment(s).
This letter supersedes previous editions.
<TABLE>
<CAPTION>
Name Telephone No. Function/Area of
- ---- -------------- ----------------
Responsibility
- --------------
<S> <C> <C>
Joseph Havrilla (410) 859-4492 Technical, X21
Mark Altizera (410) 859-4492 Technical, X21
John Centafoot (410) 859-4463 Technical, X22
</TABLE>
The authority of the CORs is limited to:
1. Providing technical advice and guidance with regards to specifications,
purchase description, or the Statement of Work.
2. Maintaining liaison and coordination between your company representatives
and the Contracting Officer.
3. Performing inspections, acceptance, and quality assurance functions.
4. Other technical or administrative duties specified in the COR appointment
letter from the Contracting Officer to the CORs.
<PAGE>
A COR is not authorized to give direction or instructions which exceed his/her
authority. All changes involving the unit cost, total contract price, quantity,
quality, or delivery schedule must be accomplished by a Change Order or
Supplemental Agreement to be negotiated and signed by the Contracting Officer.
The above designated appointments shall be effective until completion of the
contract, unless otherwise revoked by the Contracting Officer.
Your attention is directed to DOD Directive 5500.7 dated 15 Jan 77, regarding
responsibilities for Standards of Conduct for Government employees, and your
cooperation in this matter is requested.
Please acknowledge receipt of this letter by signing the enclosed original and
returning it to the Maryland Procurement Office, ATTN: N141, (MLM), 9800 Savage
Road, Fort George G. Meade, MD 20755-6720.
Sincerely,
/S/MARGARET M. QUASNY
Margaret M. Quasny
Contracting Officer
I acknowledge receipt of this letter and understand the responsibilities and
limitations of the COR appointments as stated above.
/S/
- ------------------------------
Company Representative
<PAGE>
DEPARTMENT OF DEFENSE
MARYLAND PROCUREMENT OFFICE
9800 SAVAGE ROAD
FORT GEORGE G. MEADE, MARYLAND 20755
IN REPLY REFER TO N141-0144-98
MPO -N141 (MLM) Date: 10 August 1998
Litronic, Inc.
ATTN: Mr. Jim Prohaska
8150 Leesburg Pike, Suite 700
Vienna, VA 22182
Subject: Contractor Performance Evaluation Assessment Forms
Reference: Contract MDA904-97-C-0424
Dear Mr. Prohaska:
Enclosed is the Contractor Performance Evaluation Assessment for Contract
MDA904-97-C-0424. This information, along with other information from the
Maryland Procurement Office Past Performance database, may be utilized for
future solicitations for the purposes of past performance evaluation. It is
important to us that the information in the database be accurate and complete
and that it fully reflect contractor performance. Please review the data and
then sign and return the report no later than thirty calendar days from the date
of receipt of this letter. Your signature evidences that the report has been
reviewed. It does not imply that you necessarily agreed with the evaluation. You
are free to provide any additional comments or information which you believe is
relevant to the Government's assessment, to include rebuttal information. If
the Contractor disagrees with the rating received, the matter shall be reviewed
at one level above the Contracting Officer in accordance with FAR 42.1503(b).
However, the ultimate conclusion on the performance evaluation is a decision of
the Contracting Agency. Any additional information or rebutting statements
provided by the Contractor will be retained on file with the report. Copies of
the signed report should be sent to the undersigned and to the Contracting
Officer whose signature appears on the report. If a signed assessment is not
received within the 30 days provided, the data will be entered into the Agency's
database as stated in the enclosed report/s. Please sign and return a copy of
this letter to the undersigned to indicate receipt of the letter and CPEA forms.
If you have any questions, please call the undersigned on (401) 859-4071.
Sincerely,
/S/MARGARET M. QUASNY
MARGARET M. QUASNY
Contracting Officer
<PAGE>
enclosures:
CPEA - Contract MDA904-97-C-0424
/S/
- -------------------------------------------------
Signature of Authorized Contractor Representative
(Acknowledgment of receipt)
cc: Program Office
Past Performance Database Office
N141
<PAGE>
CONTRACTOR PERFORMANCE Note: In the event of a response requiring an
EVALUATION ASSESSMENT explanation or comment, state a brief description
of the issue, the date it arose, when the
contractor was notified and the resolution of the
issue.
PART I - GENERAL INFORMATION
1. CONTRACTOR NAME AND ADDRESS
Litronic, Inc.
ATTN: Mr. Jim Prohaska
8150 Leesburg Pike, Suite 700
Vienna, VA 22182
2. CONTRACT NUMBER
MDA904-97-C-0424
3. TYPE (lf Award Fee or Incentive. the Award fee ratings and Incentives
missed/earned should be utilized wherever possible in providing the following
information (Time and Materials (T&M); Time and Materia/s, Awards Fee (T&M/AF);
Fixed Price Level-of-Effort (FFP Term/LOE)
Firm Fixed Price Term/LOE Award Fee
4. PERIOD OF PERFORMANCE (Date of award to final delivery, i.e., 6/24/93 to
9/30/93)
06/27/97 to 09/30/98
5. PERIOD BEING EVALUATED (Dates from and to the period being evaluated, i.e.,
10/1/92 to 9/30/93).
06/27/97 to 06/30/98
6. CURRENT DOLLAR VALUE
$2,516,307.00
7. Interim Final
X Report Report
8. X Sole Source Competitive
8a. AWARD?
X YES NO
10.CONTRACTING OFFICER'S REPRESENTATIVE (Name) (Phone Number)
John Centafont, X22 410-859 4463
11. BRIEF DESCRIPTION OF SUPPLIES / SERVICES
Engineering Support for MISSI Products
<PAGE>
PART II - CONTRACTOR PERFORMANCE EVALUATION ASSESSMENT
QUALITY
1. COMPLIANCE WITH
SPECIFICATIONS NONCOMPLIANT
(i.e., Compliance with all contract (Comment)
requirements including S.O.W.s
P.D.s. technical specifications, part
numbers, staffing requirements,
terms and conditions of the
contract. etc.) (If contractor has not
met one or more of the
specifications, indicate which X COMPLIANT
one(s) and indicate any action
taken by the contractor to correct
the deficiency or deficiencies).
NONCOMPLIANT
(Comment)
2. COMPLIANCE WITH
TECHNICAL DATA X COMPLIANT
REQUIREMENTS N/A
3. TIMELY RESPONSE TO X YES
SERVICE CALLS (Should
be in accordance with the
contract language for NO(Explain)
service calls. Otherwise,
self-explanatory).
N/A
COST
X YES
1. IF THE CONTRACT
CONTAINS TASK ORDERS,
DOES THE CONTRACTOR NO (Explain)
STAY WITHIN THE
PRESCRIBED CEILINGS?
N/A
FORM C7051 SEP 95 - Page 1 SOURCE SELECTION INFORMATION (when filled in)
NSN: 7540-FM401-5542 SEE FAR 2.104
<PAGE>
PART II-CONTRACTOR PERFORMANCE EVALUATION ASSESSMENT (continued)
1. DATE - DELIVERY ON TIME
YES NO X N/A
2. MATERIALS - DELIVERY ON TIME?
x YES NO N/A
3. LEVEL-OF-EFFORT COMPLETED WITHIN TIME SET
OUT IN THE CONTRACT OR ON THE INDIVIDUAL
TASK ORDERS?
YES NO N/A
4. IF "NO" ANSWERED TO ANY OF THE ABOVE:
A. How long was the delay?
B. Did the Government contribute to the delay?
YES NO N/A
C. What was the cause of the delay?
PROGRAM MANAGEMENT
1. NOTIFICATION OF l
CHANGES (Timely
notification in accordance with YES
FAR 52.243-7, Notification of
Changes). (lf contractor did not
notify the Government in time-
frame specified in FAR 52.243- 7 of
Government conduct that the
contractor regards as a change to
the contract terms and conditions NO(explain)
indicate this by stating "NO." If the
response to the initial question is
"NO," state length of delay in the
notification process. NOTE: FAR
52.243-7, Notification of Changes
is used primarily in negotiated
research and development or
supply contracts for the acquisition X N/A
of major weapons systems or
principal subsystems. It normally is
not used when the contract amount
is expected to be less than
$1,000,000. (See FAR 43.107)).
<TABLE>
<S> <C> <C>
2. GOVERNMENT
PROPERTY TRACKING X YES (EXPLAIN)
PROBLEMS. (State "YES," if Contractor lost a PC, Government was reimbursed
</TABLE>
<PAGE>
the contractor is not keeping
proper records or reporting
government property losses,
i.e., Defense Contract NO
Management Command
(DCMC) or L15 may have
found a deficiency in the
contractor's property control X N/A
system. Otherwise, self
explanatory).
C3. SECURITY
RQMTS. (Only Violation YES (Explain)
applies if there reports
list a DD Form 254 from DIS/ NO
Contract Security
Classification
Specification, in Were Yes
Section C- cleared
Description/ personnel
Specification, provided NO (Explain)
Check N/A. in a timely
Otherwise. self- manner?
explanatory). X N/A
4. CONTRACTOR FACILITIES
(Indicate whether contractor X ADEQUATE
has provided or has failed to
provide the necessary facili-
ties to perform the contract, INADEQUATE
i.e., failure to set up a pro- (Comment)
duction line in time to satisfy
delivery schedule specified
in the contract. If no facilities N/A
were proposed, check N/A).
FORM C7051 SEP 95 - Page 2 SOURCE SELECTION INFORMATION (when filled in)
NSN: 7540-FM-001-5542 SEE FAR 2.104
|
PART II-CONTRACTOR PERFORMANCE EVALUATION ASSESSMENT (continued)
1 . INVOICES - PROPERLY SUBMITTED (If N4 has rejected invoices that were
improperly prepared, or Defense Finance and Accounting Services (FAS) or N1
personnel upon review of progress payments, has found errors, i.e., lack of an
ACR code break-out and/or loss ratio information required by FAR 32.503-6(g),
check "NO." Otherwise, self-explanatory).
<PAGE>
X YES NO N/A
- --- --- ---
2. RESPONSIVENESS FOR PROPOSAL REQUESTS (In the event that the Government
requires a change proposal, indicate whether the contract responds in the
required time-frame).
Responsive Proposals? Submitted on time?
X YES _ NO N/A X YES NO N/A
- --- --- --- --- --- ---
3. SUBMISSION OF CLAIMS
A. Number Submitted C. If "8" is greater than zero, explain
B. Number Denied (Claims not incorporated
or being incorporated into the contract)
4. MET SUBCONTRACTING GOALS? (Only
applicable if a subcontracting plan was
submitted by the contractor. Information to
complete this item can be obtained through
periodic reports submitted by contractor, or by
querying the cognizant DCMC component or
the contractor).
YES __ NO X N/A
5. COMPLIANCE WITH WAGE RATE DETERMINATION? If contractor does not comply with
the SF 98 Wage Rate determination, check "NO" and explain).
YES __ NO X N/A
PART III- WERE THERE ANY AREAS AS LISTED IN PART II, WHERE THE CONTRACTOR'S
PERFORMANCE EXCEEDED CONTRACTUAL REQUIREMENTS? (Comment on any factors in PART
II where the Contractor clearly exceeded contractual requirements, i.e.,
acceleration of scheduled deliveries without additional consideration, exceeding
contractual technical specification requirements by the introduction of
new/innovative processes or techniques. However, if these outstanding
achievements on the part of the Contractor are done as additional work with
additional compensation it then becomes a contractual requirement. The exception
to this would be when the contract is award fee or incentive fee and the
Contractor earns an excellent rating or achieves the maximum incentives
available. In these instances. you clearly have support for performance
exceeding "TARGET" contractual requirements).
Contractor proactively performed several small investigative efforts to enhance
the technology
FORM C7051 SEP 95 - Page 3 SOURCE SELECTION INFORMATION (when filled in)
NSN: 7540-FM 001-5542 SEE FAR 2.104
RATING
<PAGE>
EXCELLENT - The contractor clearly is exceeding or has exceeded the requirements
of the contract in a manner which is of benefit to the Government. Major
contractual milestones are met and some are ahead of schedule, costs are within
or under the estimated target or cost of the contract and the contractor has
demonstrated a dynamic, positive approach to the administration of the contract.
(Cost language is not applicable to FPP contracts.)
GOOD - The contractor is/has satisfied all major requirements of the contract.
Although some performance elements may need improvement, they are more than
offset by better performance in other more critical areas. Needed improvements
do not impede ability to meet contract milestones and to satisfy requirements.
Target or estimated cost are withing budget. (Cost language is not applicable
to FFP contracts.)
MARGINAL - Contractor performance is/was minimally acceptable. Contract
performance is or has caused schedule delays. technical problems or cost impacts
requiring contractual adjustments. Interim reports: contractor has not met
certain performance requirements, but is taking corrective action.
UNACCEPTABLE - Interim reports: to date the contractor has not met major
contractual requirement. The present rate of progress indicates major obstacles
to successful fulfillment of contractual requirements. Final report: the
contractor experienced obstacles that have precluded meeting major contractual
requirements and have resulted in adverse Government actions (i.e., termination
for default, descopes, etc.)
OVERALL I WOULD RATE THIS CONTRACTOR FOR THIS PERIOD: (If "EXCELLENT" is
marked, specific examples must be cited in PART III).
X EXCELLENT ____ GOOD ___ MARGINAL ___ ACCEPTABLE
IF THIS IS A FINAL REPORT, I WOULD RATE THIS CONTRACTOR: (If "EXCELLENT" is
marked, specific examples must be cited in PART iii.)
__ EXCELLENT ____ GOOD ___ MARGINAL ___ ACCEPTABLE
CONTRACTING OFFICER (Typed Name)
MARGARET M. QUASNY
(Signature)
/S/MARGARET M. QUASNY
DATE FORM ISSUED TO CONTRACTOR FOR COMMENTS
8/10/98
ACKNOWLEDGMENT OF RECEIPT
TYPED NAME TITLE
<PAGE>
James S. Prohaska Director. Business Development
SIGNATURE (Acknowledges receipt
ONLY and NOT concurrence) DATE
/S/ August 17, 1998
CONTRACTOR COMMENTS (if any) (Use additional sheets if necessary)
__ ADDITIONAL SHEETS ATTACHED
FORM C70441 SEP 94 - PAGE 4 SOURCE SELECTION INFORMATION (when filled in)
NSN? 7540-FM-001-5542 SEE FAR 2.104
<PAGE>
DEPARTMENT OF DEFENSE
MARYLAND PROCUREMENT OFFICE
9800 SAVAGE ROAD
FORT GEORGE G. MEADE, MARYLAND 20755-6000
IN REPLY REFER TO
MPO -N141, (MLM) Date: 29 July 1998
Litronic, Inc.
ATTN: Mr. Jim Prohaska
8150 Leesburg Pike
Suite 700
Vienna, VA 22182
Subject: Appointment of Contracting Officer's Representatives
Reference: Contract MDA904-97-C-0424
Mr. Prohaska:
The following employees of the Department of Defense are hereby designated
Contracting Officer's Representatives, CORs, for the above referenced contract.
These appointments may not be redelegated. This letter supersedes previous
editions.
<TABLE>
<CAPTION>
Name Telephone No, Function/Area of Responsibility
- ---------------------- -------------- -------------------------------
<S> <C> <C>
John Centafont (410) 859-4463 Program Manager, X22
Christopher Johnson (410) 859-4463 Program Manager, X22
Steve Lowe (410) 859-4463 Business Manager, X22
Joseph Havrilla (410) 859-4492 Program Manager, X21
Mark Altizer (410) 859-4492 Program Manager, X21
</TABLE>
The authority of the CORs is limited to:
1. Providing technical advice and guidance with regards to specifications,
purchase description, or the Statement of Work.
2. Maintaining liaison and coordination between your company representatives and
the Contracting Officer.
3. Performing inspections, acceptance, and quality assurance functions.
4.Other technical or administrative duties specified in the COR appointment
letter from the Contracting Officer to the CORs.
<PAGE>
A COR is not authorized to give direction or instructions which exceed his/her
authority. All changes involving the unit cost, total contract price, quantity,
quality, or delivery schedule must be accomplished by a Change Order or
Supplemental Agreement to be negotiated and signed by the Contracting Officer.
The above designated appointments shall be effective until completion of the
contract, unless otherwise revoked by the Contracting Officer.
Your attention is directed to DOD Directive 5500.7 dated 15 Jan 77, regarding
responsibilities for Standards of Conduct for Government employees, and your
cooperation in this matter is requested.
Please acknowledge receipt of this letter by signing the enclosed original and
returning it to the Maryland Procurement Office, ATTN: N141, (MLM), 9800 Savage
Road, Fort George G. Meade, MD 20755-6720.
Sincerely,
/X/ GEORGE A. FREAM
George A. Fream
Contracting Officer
I acknowledge receipt of this letter and understand the responsibilities and
limitations of the COR appointments as stated above.
/s/ 8/17/98
- ---------------------------------------
Company Representative
<PAGE>
DEPARTMENT OF DEFENSE
MARYLAND PROCUREMENT OFFICE
9800 SAVAGE ROAD
FORT GEORGE G. MEADE, MARYLAND 20755-6000
IN REPLY REFER TO Serial No.: N141-0106-98
MPO -N141, (MLM) Date: 27 May 1998
DCMC - Santa Ana
Attn: Property Administrator
34 Civic Center Plaza
P.O. Box C-12700
Santa Ana, CA 92712-2700
SUBJECT: Letter of Delegation (LoD) for Partial DCMAO Coverage of Contract
MDA904-97-C-0424
Gentlemen:
I hereby request the cognizant DCMC office to perform the property
administration functions listed in Section G.13, Contract Administration
Functions of the subject contract, enclosed.
Contractor: Litronic Inc.
Attn: Robert Gray, (714)545-6649
2950 Redhill Avenue
Costa Mesa. CA 92626
Cage Code: 4F972
Your particular attention is invited to the provisions of Public Law 86-36 and
DoD Directive 5100.23 which state in part: "Statistics, reports or information
which will disclose the organization or any function of the National Security
Agency, any of its activities, or the names, titles, salaries, or number of
persons employed by the Agency will not be released outside the DoD to any
individual, organization, or Government department or agency except when
authorized by the Director, National Security Agency, the Secretary or Defense,
or other proper authority, or when required by law." I request that you notify
the undersigned immediately upon receipt of any request for such information.
Please note that no information related to this contract can be released without
appropriate authorization from the cognizant Maryland Procurement Office
Contracting Officer.
Please provide your written acceptance of the above contract responsibility to
the undersigned. Should you have any questions regarding this LoD. please
contact the undersigned at (410) 859-4071.
<PAGE>
/s/MARGARET M. QUASNY
MARGARET M. QUASNY
Contracting Officer
ENCL: MDA904-97-C-0424
Copy Furnished: Litronic Inc.
<PAGE>
DEPARTMENT OF DEFENSE
MARYLAND PROCUREMENT OFFICE
9800 SAVAGE ROAD
FORT GEORGE G. MEADE, MARYLAND 20755-6000
IN REPLY REFER TO
MPO -N141, (MLM) Date: 6 June 1997
Litronic, Inc.
ATTN: Mr. Jim Prohaska
43088 Wintergrove Drive
Ashburn, VA 22011
Subject: Appointment of Contracting Officer's Representatives
Reference: Contract MDA904-97-C-0424
Mr. Prohaska:
The following employees of the Department of Defense are hereby designated
Contracting Officer's Representatives, CORs, for the above referenced contract.
These appointments may not be redelegated. This letter supersedes previous
editions.
<TABLE>
<CAPTION>
Name Telephone No. Function/Area of Responsibility
- ----------------- -------------- -------------------------------
<S> <C> <C>
William Nace (410) 859-4463 Program Manager, X22
John Centafont (410) 859-4463 Work Center Chief, X22
</TABLE>
The authority of the CORs is limited to:
1. Providing technical advice and guidance with regards to specifications,
purchase description, or the Statement of Work.
2. Maintaining liaison and coordination between your company representatives and
the Contracting Officer.
3. Performing inspections, acceptance, and quality assurance functions.
4. Other technical or administrative duties specified in the COR appointment
letter from the Contracting Officer to the CORs.
A COR is not authorized to give direction or instructions which exceed his/her
authority. All changes involving the unit cost, total contract price, quantity,
quality, or delivery schedule must be accomplished by a Change Order or
Supplemental Agreement to be negotiated and signed by the Contracting Officer.
<PAGE>
The above designated appointments shall be effective until completion of the
contract, unless otherwise revoked by the Contracting Officer.
Your attention is directed to DOD Directive 5500.7 dated 15 Jan 77, regarding
responsibilities for Standards of Conduct for Government employees, and your
cooperation in this matter is requested.
Please acknowledge receipt of this letter by signing the enclosed original and
returning it to the Maryland Procurement Office, ATTN: N141, (MLM), 9800 Savage
Road, Fort George G. Meade, MD 20755-6720.
Sincerely,
/S/JAMES M. RUSSELL
James M. Russell
Contracting Officer
I acknowledge receipt of this letter and understand the responsibilities and
limitations of the COR appointments as stated above.
/S/
- ----------------------
Company Representative
<PAGE>
AWARD/CONTRACT
1. This contract is rated order under DPAS (15 CFR 350)
Rating DO: S10
Page 1 of Pages 34
2. Contract (Proc. Inst. Indent.) NO. MDA904-97-C-0424
3. Effective date 27 June '97
4. Requisition/Purchase Request/Project No. 16-97-2093-0000
5. Issued By
Maryland Procurement Office
9800 Savage Road, FANX III
Fort George G. Meade, MD 20755-6000
Attn: Margaret L. Miller, (N141)
Code H98230
6. Administered By (If other than Item 5) CODE
7. Name and Address of Contractor (No., street, county, State and ZIP Code)
Litronic Industries
Attn: James Prohaska
43088 Winter Grove Drive
Ashburn, VA 22011 (703-729-1700)
and U.S. Small Business Administration
409 3rd Street, S.W.
Washington, DC 20416
Code Facility Code
8. Delivery FOB Origin X Other (See below)
9. Discount for Prompt Payment NET 30
10. Submit Invoices (4 copies unless otherwise specified) to the address shown
in: Item See Section G.4
11. Ship to/Mark for See Section F.4
CODE H98230
12. Payment will be made by contracts -- Accounts Payable Finance and
Accounting Office, P.O. Box 400, Ft. Meade, MD 20755-6000 (410) 684-7538 Code
H98230
13. Authority for using other than full and open competition: X 10 U.S.C.
2304(c) (6) and 10 U.S.C. 637(a) ___ 41 U.S.C. 253(c)( )
14. Accounting and Appropriation Data: See Section G.1
15A. Item No.:
15B. Supplies/Services
15C. Quality
15D. Unit
15E. Unit Price
15F. Amount
This is a firm fixed price level of effort award fee type contract
This contract is subject to the Prompt Payment Act, Public Law 97-177, as
amended.
15G. Total amount of contract $369,736.00
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> <C> <C>
X A Solicitation/Contract Form 1-2 X I Contract Clauses 22-33
X B Supplies or Services and Prices/Costs 3 Part III - List of Documents, Exhibits and Other Attach.
X C Description/Specs./Work Statement 4 X J List of Attachments 34
X D Packaging and Marking 4 Part IV - Representations and Instructions
X E Inspection and Acceptance 5 K Representations, Certifications and
X F Deliveries or Performance 6-7 Other Statements of Offerors
X G Contract Administration Data L Instrs., Cond., and Notices to Offerors
8-11 M Evaluation Factors for Award
X H Special Contract Requirements 11-21
</TABLE>
Contracting Officer will complete item 17 or 18 as applicable
<PAGE>
17. X Contractor's Negotiated Agreement (Contractor is required to sign this
document and return 3 copies to issuing office.) Contractor agrees to furnish
and deliver all items or perform all the service set forth or otherwise
identified above and on any continuation sheets for the consideration stated
herein. The rights and obligations of the parties to this contract shall be
subject to and governed by the following documents: (a) this award/contract, (b)
the solicitation, if any, and (c) such provisions, representations,
certifications, and specifications, as are attached or incorporated by reference
herein. (Attachments are listed herein)
18. ____ Award (Contractor is not required to sign this document.) You offer on
Solicitation Number _________________ including the additions or changes made by
you which additions or changes are set forth in full above, is hereby accepted
as to the items listed above or on any continuation sheets. This award
consummates the contract which consists of the following documents: (a) the
Government solicitation and your offer, and (b) this award/contract. No further
contractual document is necessary.
19A. Name and title of signer (Type or print) See Page Two
19B. Contractor/Offeror By (Signature of person authorized to sign)
19C Date signed
20A. Name and Title of Contracting Officer (Type or print) See Page Two
20B. United States of America By (Signature of Contracting Officer)
20C. Date Signed
NSN 7540-01-152-8069
Standard Form 26 (Rev 4) Prescribed by GSA
<PAGE>
SECTION A, PAGE 2
MDA904-97-C-0424
TRIPARTITE AGREEMENT
8(a) CONTRACTOR:
By: ______________________________________
TYPED NAME AND TITLE: James S. Prohaska Director, Business Development
DATED SIGNED: 6/24/97
SMALL BUSINESS ADMINISTRATION:
OFFICE OF MINORITY ENTERPRISE DEVELOPMENT SB0920 96 602356
----------------
Division of Program Development SBA Number
409 3/RD/ Street, SW Suite 8000
Washington, D.C. 20416
Attn: Della Ford
By: /S/ JOSEPH DWORNICZAK
TYPED NAME AND TITLE: JOSEPH DWORNICZAK
Contracting Officer
DATE SIGNED: 27 June 97
PROCURING ACTIVITY:
MARYLAND PROCUREMENT OFFICE
9800 Savage Road
Fort George G. Meade, Maryland 20755
BY: /S/ JAMES M. RUSSELL
TYPED NAME AND TITLE: James M. Russell, Contracting Officer
DATE SIGNED: 6/27/97
<PAGE>
MDA904-97-C-0424
3 of 34
SECTION B - SUPPLIES OR SERVICES AND PRICES COSTS
<TABLE>
<CAPTION>
B.1 SUPPLIES/SERVICES
UNIT
CLIN SUPPLIES/SERVICES UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
000l The contractor shall furnish the necessary HRS 3425 XXX $312,707.00
materials, facilities, equipment, supplies $421,116.00
and services of skilled professional, P00005
technical and support personnel to fulfill the
requirements set forth in the Statement of Work
entitled, "Multi Level Information System
Security Initiative Crypto Card System Analysis
and Library and Driver Architecture and Development,"
dated 10 January 1997 and the documents referenced
in Section C. The contractor's management shall
provide for the effective timely and integrated
implementation of contract requirements.
0001AA Program Manager X XX $118.06 XXXX
0001AB Sr. Electrical Eng. X XX $ 75.41 XXXX
0001AC Electronic Technician X XX $ 69.32 XXXX
0001AD Systems Analyst X XX $ 75.38 XXXX
0001AE Sr. Software Engineer X XX $ 98.38 XXXX
0001AF Software Engineer X XX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $312,707.00
0002 Award Fee Pool, to be determined in For the Period $ 31,271.00
accordance with the Award Fee Plan for
Multi-Level Information System Security Initiative
Crytp Card System Analysis and Library and Driver
Architecture and Development, dated 10 June 1997
(Rev. 2). There shall be one evaluation of performance
at the end of the period of performance (Date of
contract award through 30 September 1997.) If the
Government exercises the options to extend the term
of the contract, there shall be an evaluation of
performance at the conclusion of each option
year. The contractor is authorized to bill for up to 50% of
the available award fee ($15,635.50), on a monthly basis
in equal amounts of $3,908.88.
0003 TRAVEL For The Job Not-To-Exceed $15,000.00
(Includes Applicable Burdens)
0004 OTHER DIRECT COSTS For The Job Not-To-Exceed $10,758.00
(Includes Applicable Burdens)
0005 Data in accordance with the Contact For The Lot Not-Separately Priced
Data Item Requirements List (CDRL)
Dated 13 February 1997.
</TABLE>
<PAGE>
SMDA904-97-C-0424
4 of 34
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus
applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at
actual costs; meals and incidental expenses shall be reimbursed at the
applicable flat rate. The total of lodging, meals, and incidental expenses shall
not exceed the established rate for each location set forth in the "Federal
Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and
the Standardized Regulation (Government Civilians Foreign Areas), Section 925,"
as applicable. These costs shall be directly chargeable to this contract in
accordance with the contractor's established method of distributing such costs.
First class travel shall not be reimbursed. Contractor shall be reimbursed for
coach rates only. Travel is non fee bearing. Invoices which request
reimbursement of travel expenses must be accompanied by airline ticket subs,
hotel/motel receipts, and rental car receipts.
SECTION C - DESCRIPTION/SPECIFICATION/WORK STATEMENTS
C.1 Statement of Work entitled, "Multi Level Information System Security
Initiative, Crypto Card System Analysis and Library and Driver Architecture and
Development," dated 10 January 1997.
C.2 Contract Data Requirements List, DD Form 1423, dated 13 February 1997.
C.3 Award Fee Plan (Revision 2), dated 10 June 1997.
SECTION D - PACKAGING AND MARKING
D.l 352.247-9002 PACKAGING AND PACKING (OCT 1993)
Packaging and packing shall be in accordance with the contractor's best
commercial practice for domestic shipment to insure safe arrival at destination.
(End of clause)
D.2 352.247-9003 MARKING OF DOCUMENTS (SEP 1994)
(a) All Contractor-generated technical reports shall bear the statement
"Not Releasable to the Defense Technical Information Center per DoD Directive
3200.12."
(b) In addition to the above marking all unclassified technical reports
photographs, drawings, schematics, design circuits and description of equipment
designed and/or produced under the contract shill be marked with the legend
"DISTRIBUTION LIMITED TO U.S. GOVERNMENT AGENCIES ONLY, THIS DOCUMENT CONTAINS
NSA INFORMATION (Applicable Date). REQUEST FOR THIS DOCUMENT MUST BE REFERRED TO
THE DIRECTOR, NSA." Where SF Form 298 is required to accompany a document, the
legend shall be entered in Block 12a thereof.
<PAGE>
MDA904 97-C-0424
5 of 34
(c) The Contractor shall be responsible for inserting the appropriate
application date in the aforementioned legend. This date shall be the date upon
which the document was completed.
SECTION E - INSPECTION AND ACCEPTANCE
E.l REFERENCED CLAUSES - The following contract clauses pertinent to this
section are hereby incorporated by reference:
FAR CLAUSES
CLAUSE NO. TITLE
52.246-4 Inspection of Services - Fixed Price (AUG 1996)
52.246-16 Responsibility for Supplies (APR 1984)
E.2 352.246-9003 NOTICE: MATERIAL AND WORKMANSHIP (OCT 1993)
All material incorporated in the work shall be new and the work shall be
performed in a skillful and workmanlike efficient manner. Both materials and
workmanship shall be subject to the inspection of the Contracting Officer or his
duly authorized representative who may require the Contractor to correct
defective workmanship or materials without cost to the Government.
(End of clause)
E.3 INSPECTION AND ACCEPTANCE
a. Preliminary inspection of the work called for herein shall be conducted
at the contractor's facilities or the site of the sponsoring Agency by the
Contracting Officer or his duly designated Contracting Officer's
Representative(s). Such inspections may be conducted from time to time and at
any time upon prior notification by the Government that such an inspection is to
occur.
b. Final inspection and acceptance of the work and all deliverables will be
conducted at destination by the Contracting Officer or duly authorized Agency
personnel.
(End of clause)
<PAGE>
MDA904-97-C-0424
6 of 34
SECTION F - DELIVERIES OR PERFORMANCE
F.1 REFERENCED CLAUSES - The following contract clauses pertinent to this
section arc hereby incorporated by reference:
FAR CLAUSES
CLAUSE NO. TITLE
52.212-13 Stop Work Order (AUG 1989)
52.247-34 F.O.B. Destination (NOV 1991)
52.247-54 Diversion of Shipment Under F.O.B. Destination Contracts (MAR 1989)
F.2 352.247-9000 NOTICE: F.O.B. DESTINATION (OCT 1993)
Supplies shall be shipped F.O.B. destination with delivery service required to
the consignee's receiving dock.
(End of clause)
F.3 352.215-9011 PLACE OF PERFORMANCE (OCT 93)
Unless the written approval of the Contracting Officer is obtained in
advance, the work herein shall not be performed at any facility other than the
contractor's plants located at Costa Mesa, CA, and Ashburn, VA, or the site of
the sponsoring Agency.
(End of Clause)
F.4 352.247-9006 SHIPPING INSTRUCTIONS - DORSEY ROAD (SEP 1996)
Supplies shall be shipped to the following:
Dorsey Road Warehouse
1472 Dorsey Rd, Doors 1, 2 or 3
Hanover, MD 21076
Attn: S71 Receiving Officer
REF: MDA904-97-C-0424
NOTE: Schedule shipments to arrive at destination from 7:00 AM to 2:30 PM
Monday through Friday, excluding Federal holidays. Call 410-691-2735 no less
than 24 hours in advance of delivery if any pallet will exceed 60" in height or
2,000 lbs in weight so that the receiving personnel will be prepared to accept
your shipment.
(End of clause)
<PAGE>
MDA904-97-C-0424
7 of 34
F.5 352.247-9009 SHIPPING INSTRUCTIONS - TECHNICAL DATA (MAR 1996)
Technical Data shall be shipped F.O.B. Destination to:
Director, National Security Agency
Chief, Central Security Service
Attn: (See Block 14 of DD 1423)
9800 Savage Road
Fort George G. Meade, MD 20755-6000
REF: MDA904-97-C-0424
NOTE: Schedule shipments to arrive at destination from 7:00 AM to 12:00 Noon
Monday through Friday, excluding Federal holidays. Shipments will not be
accepted on Saturday or Sunday.
F.6 352.211-9004 PERIOD OF PERFORMANCE (OCT 1990) - ALTERNATE III (OCT 1990)
This contract shall extend from the date of contract award to 30 September 1997,
unless performance is sooner terminated under the contract. However. the
Government reserves the right to exercise the option to renew the contract for
up to TWO (2) years, as set forth elsewhere in this contract.
<PAGE>
MDA904-97-C-0424
8 of 34
SECTION G - CONTRACT ADMINISTRATION DATA
<TABLE>
<CAPTION>
G.1 ACCOUNTING AND APPROPRIATION DATA
ACR: Obligate
<S> <C>
AA: 977/80400.4500 574E51 999-2520 S18119 03200106 1X 0000
X22 120B
PR: 16-97-2093-0000
Obligated for CLINs 0001, 0003 and 0004 $338.465.00
Obligated for Provisional Award Fee Payments $ 15,635.50
Obligated for Future Award Fee Payments $ 15,635.50
Total Amount Obligated $369,736.00
</TABLE>
G.2 352.216-9007 NOTICE: AWARD FEE FUNDING (JUL 1993)
Funds in the amount of $15,635.50 have been obligated under this contract
towards future award fee determinations but are not available for the Contractor
to bill against or incur costs against. Obligated award fee funds identified
above will be released to the Contractor via subsequent modifications after the
Government has rendered an award fee determination in accordance with the Award
Fee Plan currently in force under this contract. Upon receipt of the
aforementioned modifications, the Contractor is authorized to bill for the
earned fee.
G.3 352.242-9002 CONTRACT ADMINISTRATION DATA (OCT 1993)
The Procuring Contracting Officer will retain all administration functions
under this contract.
(End of clause)
G.4 352.216-9003 INVOICING AND PAYMENT (OCT 1993)
Invoices shall be submitted to:
CONTRACTS - ACCOUNTS PAYABLE
FINANCE AND ACCOUNTING OFFICE
PO BOX 400 (MDA904-97-C-0424)
FT MEADE MD 20755-6000
Through:
William Nace, X22, FANX III
Contracting Officer's Representative
MDA904-97-C-0424
9800 Savage Road
Fort George G. Meade, MD 20755-6000
<PAGE>
MDA904-97-C-0424
9 of 34
Copy to:
MARYLAND PROCUREMENT OFFICE
ATTN: N141 (MDA904-97-C-0424)
9800 SAVAGE RD
FT MEADE, MD 20755-6720
NOTE: Invoices are subject to verification by the Contracting Officer's
Representative(s) (CORs) that the actual expenses for the billing period have
been incurred.
G.5 INVOICING AND PAYMENT
Invoices shall be submitted monthly by the contractor and shall include at a
minimum:
a. Period of Performance covered by the invoice.
b. Number of Labor Hours, by category, expended on the contract and covered
by the invoice.
c. The contractor shall be paid by multiplying the hourly rate set forth in
Section B by the number of direct labor hours performed. Final payment shall be
subject to verification by the Government as to the actual amount of effort
applied by the contractor in the performance therein.
NOTE 1: Contractor requests for Travel reimbursement shall be accompanied by
airline, hotel and rental car receipts.
NOTE 2: Contractor requests for Other Direct Cost Reimbursements shall be
accompanied by vendor receipts/invoices.
G.6 352.242-9001 CONTRACTING OFFICER'S REPRESENTATIVE (OCT 1993)
(a) The Contracting Officer may appoint one or more Government employees as
Contracting Officer's Representatives (COR) for technical purposes applicable to
this contract. "Technical" is restricted to scientific, engineering, or field-
of-discipline matters directly applicable to the work performed by the
Contractor under the requirements of this contract.
(b) The appointment(s) will be in writing, signed by the Contracting
Officer, and will set forth the authority granted to and the limitations on the
COR. Two copies of the letter of appointment will be provided to the Contractor
who shall acknowledge receipt of the appointment by immediately signing and
returning one copy of the letter. Such signing shall represent the Contractor's
acknowledgement of the limited authority of the COR.
(c) When, in the opinion of the contractor, the COR or anyone else requests
effort outside of the existing scope of the contract, the contractor shall
promptly notify the Contracting Officer in writing. No action shall be taken by
the contractor under such direction until the Contracting Officer has issued a
contractual change or otherwise resolved the issue.
(d) Appointments may be changed or revoked by the Contracting Officer. The
Contracting Officer will notify the Contractor, in writing of any such changes
or revocations. (End of clause)
<PAGE>
MDA904-97-C-0424
10 of 34
G.7 352.229-9001 MD TAX EXEMPTION NUMBER (APR 1989)
Certain transactions which occur pursuant to this contract, for example,
the purchase of materials or supplies, may be exempt from the imposition of
state or local taxes. It is the contractor's responsibility to determine whether
any transactions under the contract are exempt under the particular tax statute
and to take advantage of any applicable exemptions. In addition, it may be
useful for the contractor to inform the taxing authorities that the Maryland
Procurement Office (MPO) is a federal government agency. In Maryland, it may be
useful to inform Maryland taxing authorities that the MPO has been assigned
Maryland State Tax Exemption Certificate Number 3000500 4.
(End of clause)
G.8 352.232-9025 NOTICE OF PROMPT PAYMENT ACT APPLICABILITY (OCT 1993)
This contract is subject to the Prompt Payment Act, Public Law 97-177, as
amended.
(End of clause)
G.9 352.229-9000 NOTICE OF TAXATION (SEP 94)
The Contractor shall provide the Contracting Officer with written notice of
any proposed tax assessments, exemptions, exclusions or refunds which could
increase or decrease costs or liabilities to the contractor and/or the
Government. The notice shall be submitted in sufficient time to provide the
Government a meaningful opportunity to assert its immunity, participate in
negotiations or litigation with the taxing authority concerning the
applicability of the tax, and/or adjust the parties' liability for costs
according to the increase or decrease in tax.
(End of Clause)
G.10 352.229-9001 CONTRACTOR LIABILITY FOR STATE AND LOCAL TAXES (SEP 1994)
Generally, the contractor is liable for payment of state or local taxes on
this contract to the same extent that it would be liable for such taxes on a
contract with a non-governmental entity. Although it may be useful for the
contractor to inform the taxing authorities that the Maryland Procurement Office
(MPO) is a federal government agency, this fact alone does not in and of itself
create a tax exemption for the contractor. While some transactions undertaken by
the contractor pursuant to this contract may be exempt from a state or local
tax, it is the contractor's responsibility to identify such exemption under the
applicable statute, and to resolve the applicability of such with state or local
taxing authorities.
(End of Clause)
G.11 352.232-9012 SMALL DISADVANTAGED BUSINESS CONCERN PAYMENTS (JUN 1994)
In accordance with DFARS 232.905(2), this award is made to a small
disadvantaged business concern and is subject to payment as quickly as possible
after receipt of a proper invoice by our Finance and Accounting Office.
<PAGE>
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G.12 352.932-9020 ALLOCATION OF CONTACT COSTS (OCT 1993)
lt is anticipated that this contract will be supported by two or more fund
citations. Therefore, all invoices submitted for payment shall allocate costs
based on the Accounting Classification References (ACR) tasks defined in Section
B. An invoice not properly allocated shall be considered an improper invoice
under the Prompt Payment Act.
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H.1 352.204-900l DISCLOSURE OF INFORMATION - CONTRACT (SEP 1996)
(a) DFARS 252.204-7000 and this clause shall govern any disclosure of
information regarding this contract. In using information authorized by this
clause, the contractor (i) shall not disclose any information concerning the
sponsorship of this contract, or (ii) the nature of the Government's interest in
and application of the subject matter of this contract unless this type of
information is expressly allowed to be disclosed by paragraph (b) and/or (c)
below, or by written approval of the cognizant Contracting Officer.
(b) The information listed below may be disclosed in proposals to United
States Government Agencies in response to requests for past performance
assessments: When this information is completed at time of contract award, the
document shall be marked "FOR OFFICIAL USE ONLY." If any of the information that
follows changes in your disclosure, the Contracting Officer must be notified in
writing of the change.
CONTRACT NUMBER: (complete at award) _____________________
CONTRACT TYPE: (complete at award) _______________________
AWARD DATE: (complete at award) _________________________
GOVERNMENT CONTRACTING ACTIVITY:
MARYLAND PROCUREMENT OFFICE
9800 SAVAGE ROAD
FORT GEORGE G. MEADE, MD 20755-6000
ORIGINAL CONTRACT VALUE: (complete at award) ___________________
CURRENT OR COMPLETED CONTRACT VALUE: (contractor may update)
_______________________
PERIOD OF PERFORMANCE: from: (complete at award) _______________
to: (contractor may update) _______________________
COMPETITIVE/NONCOMPETITIVE/FOLLOW-ON (circle, underline or highlight appropriate
description)
PROGRAM TITLE: (complete at award) ______________________
CONTACT EFFORT DESCRIPTION: (unclassified - as provided in solicitation package
and completed as part of the award document)
PLACE OF PERFORMANCE: (complete at award) ______________________
POINTS OF CONTACT/PHONE NUMBER:
Contracting Officer: (complete at award) (contractor may update)
______________________ Program Manager: (complete at award) (contractor may
update) ________________________
<PAGE>
MDA904-97-C-0424
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(c) For additional disclosures which require specific prior approval by the
Contracting Officer, once authorization to use any specific information has been
approved by the Contracting Officer, the contractor is authorized to reuse such
specific information without obtaining additional authorizations from the
Contracting Officer. The contractor shall maintain a log of the additional uses
and submit a copy of the log to the Contracting Officer when each additional
disclosure is made.
(End of clause)
H.2 352.904-90l0 NOTICE: CONTRACT ADMINISTRATION AND CLOSEOUT GUIDANCE (AUG
1996)
The following guidance is provided for your use in administering and
closing out the contract. When the contract is complete, the contractor shall
initiate final accounting and disposition. This shall be done in accordance with
the following instructions. If a portion of the instructions are not applicable
to this contract, then disregard that portion.
(a) Government Furnished Property/Documents
(1) The cognizant property administration office (Defense Contract
Management Command (DCMC), Office of Naval Research (ONR), and/or L14) is
designated to administer the maintenance by the contractor of official
Government Property Records for all Government property/documents. See Section G
- - Contract Administration Data for the cognizant office for this contract.
(2) The contractor shall sign (1) copy of the shipping or inspection
document acknowledging receipt of property/documents and forward same to the
designated property administrator.
(3) At the end of the contract, the contractor shall submit the Government
Furnished Property/Documents Inventory Schedule, requesting disposition, to the
cognizant office. The cognizant property administration office shall then obtain
the disposition instructions from the contracting Officer's Representative
(COR), and they will forward them to the contractor. The contractor shall
provide the cognizant office with a declaration that all Government furnished
property/documents have been accounted for or expended (disposition is complete)
in the performance of the contract. The cognizant property administration office
will provide the Maryland Procurement Office (MPO) and the COR with the
appropriate releases.
(b) Contractor Acquired Property. At the end of the contract, the
contractor shall submit the Contractor Acquired Property list, requesting
disposition, to the cognizant property administration office. This office will
then obtain the disposition instructions from the COR, and then will forward
them to the contractor. The contractor shall provide the cognizant office with a
declaration that Contractor Acquired Property has been dispositioned as
requested. The cognizant property administration office will provide the MPO and
the COR with the appropriate releases.
(c) Plant Clearance. The cognizant property administration office is
automatically delegated plant clearance procedures.
<PAGE>
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(d) Classified Material/Documents (DD254 on the contract). The
disposition/retention action of classified holding should be initiated pursuant
to paragraphs 5.1 and 5.m of the Industrial Security Manual. The inventory,
shall be submitted to the Director, NSA/CSS. ATTN: _____ (the applicable COR
with office designator), 9800 Savage Road, Ft. George G. Meade. Maryland 20755-
6000. After compliance with the COR's disposition instructions, the contractor
shall submit evidence of compliance, certified by the CSSO, to the MPO (ATTN:
N1_______ (Contracting Officer's name), Maryland Procurement Office, 9800 Savage
Road, Fort George G. Meade, MD 20755-6000), with a courtesy copy to S41 and the
COR.
(e) Report of Inventions and Subcontracts (Form DD882). Pursuant to the
Patent Rights Clause of this contract, the contractor shall submit the DD Form
882 to the Director, NSA/CSS, ATTN: ______ (the applicable COR with office
designator), 9800 Savage Road, Ft. George G. Meade, Maryland 20755-6000, with a
courtesy copy to the MPO (ATTN: N141 (Contracting Officer's name), Maryland
Procurement Office, 9800 Savage Road, Fort George G. Meade, MD 20755-6000).
(f) Final Payment
(1) For contracts requiring final DCAA audit, the contractor shall submit
the final voucher with release and assignment documentation to the cognizant
Defense Contract Audit Agency (DCAA) office for processing in accordance with
FAR 4.804 (within 180 days).
(2) For all contracts not requiring final DCAA audit, the contractor shall
submit the final invoice, DD250, to the COR for processing.
(g) Contract Data Requirements List (CDRL) - DD Form 1423. If not
previously provided to the COR, the contractor shall provide the COR with status
of the documentation for final resolution. This shall be submitted to the
Director, NSA/CSS, ATTN :_____ (the applicable COR with the office designator),
9800 Savage Road, Ft. George G. Meade, Maryland 20755-600, with a courtesy copy
to the MPO (ATTN: Nl___(Contracting Officer's name), Maryland Procurement
Office, 9800 Savage Road, Fort George G. Meade, MD 20755-6000).
(h) Quick Closeout.
(1) The contractor shall review the contract for applicability of the Quick
Close Out Procedures, in accordance with the FAR 42.708, and determine if this
method applies. If applicable, the contractor may request, in writing, Quick
Close Out authorization from the CO.
(2) The MPO will authorize Quick Closeout Procedures, if applicable. The
Contractor shall then submit a copy of the letter, the final voucher, etc.,
directly to the cognizant DCAA office (see Section G).
(End of notice)
<PAGE>
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H.3 352.215-9000 NOTICE: INCORPORATION OF SECTION K BY REFERENCE (OCT 1993)
In accordance with FAR 15.406-1(b), Part IV of the Uniform Contract Format
shall not be physically included in the contract, but Section K,
Representations, Certifications, and Other Statements of Offerors (as completed
by the Contractor) shall be deemed incorporated by reference in the contract.
(End of clause)
H.4 352.244-9001 NOTICE: SUBCONTRACTING WITH CANADIAN CONTRACTORS (OCT 1993)
Provided the sponsoring Government Activity is not disclosed, the Offeror
is not prohibited from subcontracting with Canadian Contractors, unless the work
to be performed under any resulting contract is classified in nature.
Federal Acquisition Regulation (FAR), Part 44, Subcontracting Policies and
Procedures, particularly Subpart 44.2 -Consent to Subcontract, applies.
In addition to those clauses which the prime contractor is normally
required to insert in subcontracts, the following must be included, as required.
FAR 52.225-11 Restrictions on Certain Foreign Purchases (APR 91)
DFARS 252.225-7026 Reporting of Overseas Subcontracts (DEC 1991)
(End of Notice)
H.5 352.290-9006 UTILIZATION OF PROJECT PERSONNEL (OCT 1993)
Any technical personnel who, during the performance of the contract, are
assigned by the Contractor to replace the technical personnel identified by the
Contractor in his technical proposal (or during negotiations) for work on the
Project shall possess at least the same technical qualifications and be capable
of assuring satisfactory performance of the work required by this contract.
H.6 352.227-9001 SOFTWARE CERTIFICATION (OCT 1993)
The Contractor certifies that, to the best of its knowledge and belief,
software provided under this contract does not contain any malicious code,
program, or other internal component (e.g., computer virus) which could damage,
destroy, or alter software, firmware, or hardware or which could reveal any data
or other information accessed through or processed by the software. Further, the
Contractor shall immediately inform the Contracting Officer upon reasonable
suspicion that any software provided hereunder may cause the harm described
above.
(End of clause)
<PAGE>
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H.7 352.243-9000 NOTICE: UNAUTHORIZED CHANGE ORDERS (APR 1989)
The Contracting Officer (CO) may appoint a Contracting Officer's
Representative, Inspector, or other technical representative. No order,
statement or conduct of any such person shall constitute a change under the
"Changes" clause of this contract or entitle the Contractor to an equitable
adjustment of the contract price or delivery schedule under that or any other
clause. No appointee of the CO is acting within the limits of his/her authority
when he/she attempts to change the con tract. The contract shall not be changed
except by issuance of a written change order signed by the CO. No representative
of the CO shall be authorized to issue a written change order under the
"Changes" clause of this contract.
H.8 IMPORTANT NOTICE
(a) The Contractor shall not accept any instruction issued by any person
other than the Contracting Officer or the Contracting Officer's
Representative(s) (CORs) acting within the limits of their authority. CORs will
be designated in writing to the Contractor, and the scope of their authority
will be set forth therein.
(b) No information, other than that which may be contained in an authorized
amendment to the contract duly issued by the Contracting Officer will be
considered as grounds for deviation from any stipulation of the contract, the
specifications, or reference drawings.
H.9 SUBCONTRACTS
The contractor shall not enter into a subcontract involving the type of
work specified herein without obtaining, in advance, the written approval of the
Contacting Officer and subject to the conditions that he may prescribe.
H.10 352.204-9009 ACQUISITION OF COMSEC EQUIPMENT, COMPONENTS, AND PARTS OUTSIDE
THE UNITED STATES (OCT 1993)
(a) Definitions
(1) "COMSEC equipment", as used in this clause, means equipment
designed to provide security to telecommunications by converting information to
a form unintelligible to an unauthorized interceptor and by reconverting such
information to its original form for authorized recipients, as well as equipment
designed specifically to aid in, or as an essential element of, the conversion
process. COMSEC equipment is crypto-equipment, crypto-ancillary equipment, cryp
to-production equipment, and authentication equipment.
(2) "Component", as used in this clause, means any assembly or
subassembly incorporated directly into an end product. An assembly is a group of
parts, elements, subassemblies and circuits assembled as a separately removable
item of COMSEC equipment. A subassembly is a major subdivision of an assembly.
<PAGE>
MDA904-97-C-0424
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(3) "Part", as used in this clause, means any single. unassembled
element of a major or minor subassembly, accessory, or attachment which is not
normally subject to disassembly without the destruction or the impairment of the
design use.
(4) "Contractor", as used in this clause, means the supplier of the
end item and associated support items to the Government under the terms of a
specific contract.
(5) "Subcontractor", as used in this clause, means a person or
business that contracts to provide some service or material necessary for the
performance of another's contract.
(6) "Vendor", as used in this clause, means a person or agency that
sells supplies or materials to a Contractor or subcontractor.
(7) "United States", as used in this clause, means all areas under the
territorial sovereignty of the United States (U.S.) and the Trust Territory of
the Pacific Islands.
(b) No subcontracts or purchase orders which involve design, manufacture,
production, assembly, inspection, or test in a location not in the U.S., of
COMSEC equipment, components, or parts, which are not covered by a specification
or standard listed in MIL-P-11268, MIL-E-16400, or MIL-E-5400 shall be made
under this contract without the prior written approval of the Contracting
Officer. The Contractor further agrees to include this clause in any or all
subcontracts or purchase orders he may let pursuant to this contract for COMSEC
equipment, components, or parts, except those subcontracts/purchase orders for
which waiver is required (i.e., non-US sources). Under no circumstances will any
custom large scale integrated circuit or likeness thereof be sent outside the
U.S. for any reason.
(c) Requests for permission to deviate from the requirements of paragraph
(b) will be handled on a case-by-case basis through the Contracting Officer.
Each waiver request must provide a strong and compelling reason why the waiver
should be granted in addition to the benefit the Government would gain by the
granting of a waiver. Furthermore, prior to the approval of any waiver, the
Contractor shall demonstrate to the Government through submission of an
acceptable Anonym ity Plan (data item Dl-NDTl-80566), that procedures are in
place to ensure that the offshore vendor remains unaware of the relationship
between the prime contractor and the Department of Defense and/or Maryland
Procurement Office (MPO). As a minimum, the following conditions will be imposed
if a waiver is granted:
(1) Purchase orders and drawings provided to a subcontractor or vendor
outside the United States shall not carry any identification that reveals a
contractor relationship with the Department of Defense and the MPO. This
restriction includes the Contractor's prime contract number with the Government
and 98230/0NXXXXXX parts identification numbers.
(2) The prime contractor, when required to mark items with the
manufacturer's code 98230 or drawing numbers 0NXXXXXX, shall only mark these
items at a facility located within the U.S. Marking parts with 0N markings and
the 98230 code specifics that the parts are for MPO use only. lf parts marked
with the MPO identification code (including rejects and parts not usable for MPO
programs) are allocated for non-MPO programs or for resale to other customers,
then
<PAGE>
MDA904-97-C-0424
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markings associated with the MPO identification code must be removed from the
parts before the parts are sent to non-MPO programs or other customers.
(3) The Government has the right to an equitable adjustment to the contract
price as consideration for granting approval to acquire COMSEC equipment,
components and parts from sources outside the United States (unless the waiver
as granted prior to contract award).
H.l l 352.204-9008 CONTROL OF COMMUNICATIONS SECURITY (COMSEC) MATERIAL (OCT
1993)
The accountable COMSEC material produced under the contract, or provided as
Government Furnished Property will be distributed through COMSEC distribution
channels. The Contractor shall establish a COMSEC account, nominate a custodian
and alternate custodian, and control the material in accordance with procedures
specified in the "COMSEC Supplement to the Industrial Security Manual for
Safeguarding Information" dated April 1975. Existing COMSEC accounts established
as a result of previous or other contracts may be used.
H.12 352.227-9004 YEAR 2000 COMPLIANCE - NON-COMMERCIAL ITEMS (JAN 1997)
Definition: INFORMATION TECHNOLOGY means any equipment or interconnected system
or subsystem of equipment, that is used in the automatic acquisition, storage,
manipulation, management, movement, control, display, switching, interchange,
transmission, or reception of data or information. This is for equipment used by
the government directly or is used by a contractor under a contract with the
Agency which (1) requires the use of such equipment, or (2) requires the use, to
a significant extent, of such equipment in the performance of a service of the
furnishing of a product. Information technology includes computers, ancillary
equipment, software, firmware and similar procedures, services (including
support services), and related resources. lt does NOT include any equipment that
is acquired by a Federal Contractor incidental to a Federal contract.
The contractor warrants that each non-commercial item of information
technology delivered or developed under this contract and listed below shall be
able to accurately process date data (including but not limited to:
calculating, comparing, and sequencing) from, into and between the twentieth and
twenty-first centuries, including leap year calculations, when used in
accordance with the item documentation provided by the contractor, provided that
all listed or unlisted items (e.g., hardware, software, firmware) used in
combination with such listed item properly exchange date data with it. The words
"listed below" refer to products that the offeror has identified as being Year
2000 compliant in response to the procuring agency's specifications. If the
contract requires that specific listed items must perform as a system in
accordance with the foregoing warranty, then that warranty shall apply to those
listed items as a system. The duration of this warranty and the remedies
available to the Government for breach of this warranty shall be as defined in,
and subject to, the terms and limitations of any general warranty provisions of
this contract. Nothing in this warranty shall be construed to limit any rights
or remedies the Government may otherwise have under this contract with respect
to defects other than Year 2000 performance.
<PAGE>
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H.13 352.217-9001 OPTION TO EXTEND THE TERM OF THE CONTRACT (OCT 1993)
(a) The Government may unilaterally extend the term of this contract by
written notice to the Contractor within 60 days following the President's
signing of the annual Appropriations Act or October 1, whichever is later, for
each respective option, provided that the Contracting Officer has given
preliminary notice, in writing, to the Contractor, of the Government's intent to
renew, at least 60 days prior to the expiration date of the current period of
performance. Such preliminary notice will not be deemed to commit the Government
to renewals. If the Government exercises this right to renew, the contract, as
renewed shall be deemed to include this option clause. The total duration of
this contract, including the exercise of any option to renew under this clause,
shall not exceed 36 months.
(b) The composition of the total man-hours of direct labor and other direct
costs for each option is as follows:
OPTION YEAR 1 - FISCAL YEAR 1998 (1 October 1997 - 30 September 1998)
<TABLE>
<CAPTION>
UNIT
CLIN SUPPLIES/SERVICES UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS 7,864 XXX $738,500.00
necessary materials, facilities, equipment,
supplies and services of skilled professional,
technical and support personnel to fulfill the
requirements set forth in the Statement of Work
entitled, "Multi Level Information System Security
Initiative Crypto Card System Analysis and
Library and Driver Architecture and Development,"
dated 10 January 1997 and the documents referenced
in Section C. The contractor's management shall
provide for the effective timely and integrated
implementation of contract requirements.
0001AA Program Manager X XX $118.06 XXXX
0001AB Sr. Electrical Eng. X XX $75.41 XXXX
0001AC Electronic Technician X XX $69.32 XXXX
0001AD Systems Analyst X XX $75.38 XXXX
0001AE Sr. Software Engineer X XX $98.38 XXXX
0001AF Software Engineer X XX $62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $738,500.00
</TABLE>
<PAGE>
MDA904-97-C-0424
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<TABLE>
<S> <C> <C> <C> <C> <C>
0002 Award Fee Pool, to be determined in accordance For the Period $73,850.00
with the Award Fee Plan for Multi-Level Information
System Security Initiative Crypt Card System
Analysis and Library and Driver Architecture and
Development, dated 10 June 1997 (Rev. 2). There
shall be one evaluation of performance at the end of the
period of performance (Date of contract award through
30 September 1997.) If the Government exercises the
options to extend the term of the contract, there shall be an
in equal amounts of $4,464.46.
0003 TRAVEL For The Job Not-To-Exceed $ 25,150.00
(Includes Applicable Burdens)
0004 OTHER DIRECT COSTS For The Job Not-To-Exceed $ 12,500.00
(Includes Applicable Burdens)
0005 Data in accordance with the Contract For the Lot Not-Separately Priced
Data Item Requirements List (CDRL)
Dated 13 February 1997.
</TABLE>
OPTION YEAR 2 - FISCAL YEAR 1999 (1 October 1998 - 30 September 1999)
<TABLE>
<CAPTION>
UNIT
CLIN SUPPLIES/SERVICES UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C>
0001 The contractor shall furnish the necessary HRS 2553 XXX $258,727.00
materials, facilities, equipment, supplies
and services of skilled professional, technical
and support personnel to fulfill the requirements
set forth in the Statement of Work entitled, "Multi
Level Information System Security Initiative Crypto
Card System Analysis and Library and Driver
Architecture and Development," dated 10 January
1997 and the documents referenced in Section C. The
contractor's management shall provide for the effective
timely and integrated implementation of contract
requirements.
0001AA Program Manager X XX $118.06 XXXX
0001AB Sr. Electrical Eng. X XX $ 75.41 XXXX
0001AC Electronic Technician X XX $ 69.32 XXXX
0001AD Systems Analyst X XX $ 75.38 XXXX
0001AE Sr. Software Engineer X XX $ 98.38 XXXX
0001AF Software Engineer X XX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $258,727.00
</TABLE>
<PAGE>
MDA904-97-C-0424
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<TABLE>
<S> <C> <C>
0002 Award Fee Pool, to be determined in For the Period $25,873.00
accordance with the Award Fee Plan for
Multi-Level Information System Security
Initiative Crypt Card System Analysis and
Library and Driver Architecture and
Development, dated 10 June 1997 (Rev. 2).
There shall be one evaluation of performance
at the end of the period of performance (Date of
contract award through 30 September 1997.) If the
Government exercises the options to extend the term
of the contract, there shall be an evaluation of
in equal amounts of $2,689.71.
0003 TRAVEL For The Job Not-To-Exceed $ 12,900.00
(Includes Applicable Burdens)
0004 OTHER DIRECT COSTS For The Job Not-To-Exceed $ 2,500.00
(Includes Applicable Burdens)
0005 Data in accordance with the Contact For The Lot Not-Separately Priced
Data Item Requirements List (CDRL)
Dated 13 February 1997.
Total $300,000.00
</TABLE>
NOTE 1: OTHER DIRECT COSTS (ODCs) shall be reimbursed at actual costs plus
applicable burdens. ODCs are non fee bearing.
NOTE 2: TRAVEL shall be reimbursed at cost. Lodging shall be reimbursed at
actual costs; meals and incidental expenses shall be reimbursed at the
applicable flat rate. The total of lodging, meals, and incidental expenses shall
not exceed the established rate for each location set forth in the "Federal
Travel Regulations (FTR);" the "Joint Travel Regulations," Volume 2 (JTR); and
the Standardized Regulation (Government Civilians Foreign Areas), Section 925,"
as applicable. These costs shall be directly chargeable to this contract in
accordance with the contractor's established method of distributing such costs.
First class travel shall not be reimbursed. Contractor shall be reimbursed for
coach rates only. Travel is non fee bearing. Invoices which request
reimbursement of travel expenses must be accompanied by airline ticket subs,
hotel/motel receipts, and rental car receipts.
H.14 Contractor Participation in Contractor Performance Evaluation Assessments
This contract will be subject to periodic Contractor Performance Evaluation
Assessments. In accordance with FAR 42.1502, the Maryland Procurement Office
maintains a database on Contractor past performance applicable to all contracts
over $500,000. Information on the performance of this contract will be
maintained in the database and updated on a yearly basis (if contract period of
performance exceeds one year) and at the completion of the contract. The
Contractor's participation in this process, in terms of review of the Contractor
Performance Evaluation Assessment form, shall not cause an increase in the
estimated cost/price of this contract. Any costs which are anticipated to be
expended towards participation in this review process should be (have been)
proposed in the initial price of this contract.
<PAGE>
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H.15 DELINQUENT AWARD FEE MODIFICATION PENALTY
The Contracting Officer shall issue a contract modification identifying the
results of the fee determination official's findings for each performance
evaluation period in accordance with a schedule set forth in the current Award
Fee Plan as cited in the contract. If a contract modification is not issued in
compliance with the timeframe specified in the Award Fee Plan, the contractor
shall be entitled to interest on the determined award fee amount for that
specific period at the rate established by the secretary of the Treasury under
Section 12 of the Contract Disputes Act of 1978 (41 U.S.C. 611) that is in
effect on the modification issuance date. This rate is referred to as the
"Treasury Rate", and is published in the FEDERAL REGISTER semiannually or about
January 1 and July 1. The interest on any late award fee determination amount
will be calculated using the following formula from the first day after the
expiration of the timeframe specified in the current Award Fee Plan through the
actual date of the contract modification identifying what award fee has been
earned for that specific period. In the event that provisional billing has been
authorized under the contract, the Government shall only be liable for interest
on the balance between the final Award Fee determination for the specified
period and what has been authorized under the Provisional Billing clause.
Notwithstanding the above, the Government shall not be liable for any interest
penalty that is in excess of the sum total of the Award Fee available in the
current evaluation period and the unearned Award Fee from the prior evaluation
period at the time of the contract modification.
However, in the event that the Government has exercised an option or renewed
the contract into a subsequent fiscal year, where annual appropriations (O&M
funds) were utilized to fund the action, the Government's liability for any
interest penalty in the first evaluation period of that year shall be restricted
to the amount of the Award Fee available in the first evaluation period ONLY.
Subsequent Award Fee modifications for evaluation periods during that fiscal
year shall be subject to aforementioned terms where the Government's liability
for interest will be restricted to the sum total of the amount of Award Fee
available in the current evaluation period and the unearned Award Fee from the
prior evaluation period.
Current Treasury Rate % x No. of days Govt. is delinquent x (Amount of Award Fee
earned # of Annual Calendar Days (Beyond 60 Calendar Days) in the period -
Amount of Provisional Award Fee authorized for the period)
<TABLE>
<CAPTION>
IF:
<S> <C> <C>
Available Award Fee in the Period $250,000
Amount authorized for Provisional Billing 50.00% $125,000
Amount Earned in the Period 90.00% $225,000
Award Fee Plan Modification Time Frame 60
Government Days Late (beyond 60 days) 60
Current Treasury Rate 5.50%
</TABLE>
CALCULATION:
[(5.5% / 360) X 60] X (225,000 - 125,000) = 916.67
(End of Clause)
<PAGE>
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SECTION I - CONTRACT CLAUSES
1.1 REFERENCED CLAUSES. The following contract clauses pertinent to this
section are
hereby incorporated by reference:
CLAUSE NO. TITLE
FAR CLAUSES
52.202-1 Definitions (SEP 1991)
52.203-5 Covenant Against Contingent Fees (APR 1984)
52.203-6 Restriction on Subcontractor Sales to the Government (JUL 1985)
52.203-7 Anti-Kickback Procedures (OCT 1988)
52.203-8 Cancellation, Rescission, and Recovery of Funds for Illegal or
Improper Activity (JAN 1997))
52.203-10 Price or Fee Adjustment for Illegal or Improper Activity (SEP 1990)
52.204-4 Contractor Establishment Code (MAY 1995)
52.209-6 Protecting the Government's Interest When Subcontracting With
Contractors Debarred, Suspended, or Proposed for Debarment
(NOV 1992)
52.211-5 New Material (MAY 1995)
52 211-15 Defense Priority and Allocation Requirements (SEP 1990)
52 215-33 Order of Precedence (JAN 1986) 52.219-8 Utilization of Small
Business Concerns and Small Disadvantaged Business Concerns
(OCT 1995)
52.222-4 Contract Work Hours and Safety Standards Act - Overtime Compensation
(JUL 1995)
52.225-11 Restrictions on Certain Foreign Purchases (OCT 1996)
52.232-1 Payments (APR 1984)
52.232-11 Extras (APR 1984)
52.232-17 Interest (JUN 1996)
52.232-23 Assignment of Claims (JAN 1986)
52.233-3 Protest After Award (AUG 1996)
52.242-13 Bankruptcy (JUL 1995)
52.249-8 Default (Fixed Price Supply and Service) (APR 1984)
52.253-1 Computer Generated Forms (JAN 1991)
DFARS CLAUSES
252.203-7001 Special Prohibition on Employment (NOV 1995)
252.204-7003 Control of Government Personnel Work Product (APR 1992)
252.209-7000 Acquisition From Subcontractors Subject to On-Site Inspection
Under the Intermediate-Range Nuclear Forces (INF) Treaty
(NOV 1995)
252.223-7004 Drug-Free Work Force (SEP 1988)
252.225-7012 Preference for Certain Domestic Commodities (NOV 1995)
252.225-7016 Restriction on Acquisition of Ball and Roller Bearings (SEP 1996)
252.225-7031 Secondary Arab Boycott of Israel (JUN 1992)
252.231-7000 Supplemental Cost Principles (DEC 1991)
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252.232-7006 Reduction or Suspension of Contract Payments Upon Finding of
Fraud (AUG 1992)
252.243-7001 Pricing of Contract Modifications (DEC 1991)
252.247-7023 Transportation of Supplies by Sea (NOV 1995)
1.2 52.252-2 CLAUSES INCORPORATED BY REFERENCE (JUN 1988)
This contract incorporates one or more 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.
(End of clause)
1.3 52.232-33 MANDATORY INFORMATION FOR ELECTRONIC FUNDS TRANSFER PAYMENT (AUG
1996)
(a) Method of payment. Payments by the Government under this contract,
including invoice and contract financing payments, may be made by check or
electronic funds transfer (EFT) at the option of the Government. If payment is
made by EFT, the Government may, at its option, also forward the associated
payment information by electronic transfer. As used in this clause, the term
"EFT" refers to the funds transfer and may also include the information
transfer.
(b) Mandatory submission of Contractor's EFT information.
(1) The Contractor is required, as a condition to any payment under
this contract, to provide the Government with the information required to make
payment by EFT as described in paragraph (d) of this clause, unless the payment
office determines that submission of the information is not required. However,
until January 1, 1999, in the event the Contractor certifies in writing to the
payment office that the Contractor does not have an account with a financial
institution or an authorized payment agent, payment shall be made by other than
EFT. For any payments to be made after January 1, 1999, the Contractor shall
provide EFT information as described in paragraph (d) of this clause.
(2) If the Contractor provides EFT information applicable to multiple
contracts, the Contractor shall specifically state the applicability of this EFT
information in terms acceptable to the payment office.
(c) Contractor's EFT information. Prior to submission of the first request
for payment (whether for invoice or contract financing payment) under this
contract, the Contractor shall provide the information required to make contract
payment by EFT, as described in paragraph (d) of this clause, directly to the
Government payment office named in this contract. If more than one payment
office is named for the contract, the Contractor shall provide a separate notice
to each office. ln the event that the EFT information changes, the Contractor
shall be responsible for providing the changed information to the designated
payment office(s).
(d) Required EFT information. The Government may make payment by EFT
through either an Automated Clearing House (ACH) subject to the banking laws of
the United States or the Federal Reserve Wire Transfer System at the
Government's option. The Contractor shall provide
<PAGE>
MDA904-97-C-0424
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the following information for both methods in a form acceptable to the
designated payment office. The Contractor may supply this data for this or
multiple contracts (sec paragraph (b) of this clause).
(1) The contract number to which this notice applies.
(2) The Contractor's name and remittance address, as stated in the
contract, and account number at the Contractor's financial agent.
(3) The signature (manual or electronic, as appropriate), title, and
telephone number of the Contractor official authorized to provide this
information.
(4) For ACH payments only:
(i) Name, address, and 9-digit Routing Transit Number of the
Contractor's financial agent.
(ii) Contractor's account number and the type of account (checking,
saving, or lockbox).
(5) For Federal Reserve Wire Transfer System payments only:
(i) Name, address, telegraphic abbreviation, and the 9-digit
Routing Transit Number for the Contractor's financial agent.
(ii) If the Contractor's financial agent is not directly on-line to
the Federal Reserve Wire Transfer System and, therefore, not the receiver of the
wire transfer payment, the Contractor shall also provide the name, address, and
9-digit Routing Transit Number of the correspondent financial institution
receiving the wire transfer payment.
(e) Suspension of payment.
(1) Notwithstanding the provisions of any other clause of this contract,
the Government is not required to make any payment under this contract until
after receipt, by the designated payment office, of the correct EFT payment
information from the Contractor or a certificate submitted in accordance with
paragraph (b) of this clause. Until receipt of the correct EFT information, any
invoice or contract financing request shall be deemed not to be a valid invoice
or contact financing request as defined in the Prompt Payment clause of this
contract.
(2) lf the EFT information changes after submission of correct EFT
information, the Government shall begin using the changed EFT information no
later than the 30th day after its receipt to the extent payment is made by EFT.
However, the Contractor may request that no further payments be made until the
changed EFT information is implemented by the payment office. If such suspension
would result in a late payment under the Prompt Payment clause of this contract,
the Contractor's request for suspension shall extend the due date for payment by
the number of days of the suspension.
<PAGE>
MDA904-97-C-0494
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(f) Contractor EFT arrangements. The Contractor shall designate a single
financial agent capable of receiving and processing the electronic funds
transfer using the EFT methods described in paragraph (d) of this clause. The
Contractor shall pay all fees and charges for receipt and processing of
transfers.
(g) Liability for uncompleted or erroneous transfers.
(1) If an uncompleted or erroneous transfer occurs because the Government
failed to use the Contractor-provided EFT information in the correct manner, the
Government remains responsible for (i) making a correct payment, (ii) paying any
prompt payment penalty due, and (iii) recovering any erroneously directed funds.
(2) If an uncompleted or erroneous transfer occurs because Contractor-
provided EFT information was incorrect at the time of Government release of the
EFT payment transaction instruction to the Federal Reserve System, and-
(i) If the funds are no longer under the control of the payment
office, the Government is deemed to have made payment and the Contractor is
responsible for recovery of any erroneously directed funds; or
(ii) If the funds remain under the control of the payment office, the
Government retains the right to either make payment by mail or suspend the
payment in accordance with paragraph (e) of this clause.
(h) EFT and prompt payment.
(1) A payment shall be deemed to have been made in a timely manner in
accordance with the Prompt Payment clause of this contract if, in the EFT
payment transaction instruction given to the Federal Reserve System, the date
specified for settlement of the payment is on or before the prompt payment due
date, provided the specified payment date is a valid date under the rules of the
Federal Reserve System.
(2) When payment cannot be made by EFT because of incorrect EFT
information provided by the Contractor, no interest penalty is due after the
date of the uncompleted or erroneous payment transaction, provided that notice
of the defective EFT information is issued to the Contractor within 7 days after
the Government is notified of the defective EFT information.
(i) EFT and assignment of claims. lf the Contractor assigns the proceeds of
this contract as provided for in the Assignment of Claims clause of this
contract, the assignee shall provide the assignee EFT information required by
paragraph (d) of this clause. In all respects, the requirements of this clause
shall apply to the assignee as if it were the Contractor. EFT information which
shows the ultimate recipient of the transfer to be other than the Contractor, in
the absence of a proper assignment of claims acceptable to the Government, is
incorrect EFT information within the meaning of paragraph (e) of this clause.
(j) Payment office discretion. If the Contractor does not wish to receive
payment by EFT methods for one or more payments, the Contractor may submit a
request to the designated
<PAGE>
MDA904-97-C-0424
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payment office to refrain from requiring EFT information or using the EFT
payment method. The decision to grant the request is solely that of the
Government.
(k) Change of EFT information by financial agent. The Contractor agrees
that the Contractor's financial agent may notify the Government of a change to
the routing transit number, Contractor account number, or account type. The
Government shall use the changed data in accordance with paragraph (e)(2) of
this clause. The Contractor agrees that the information provided by the agent is
deemed to be correct information as if it were provided by the Contractor. The
Contractor agrees that the agent's notice of changed EFT data is deemed to be a
request by the Contractor in accordance with paragraph (e)(2) that no further
payments be made until the changed EFT information is implemented by the payment
office.
(End of clause)
1.4 252.247-7023 TRANSPORTATION OF SUPPLIES BY SEA (DEC 1991)
(a) Definitions.
As used in this clause --
(1) "Components" means articles materials, and supplies incorporated
directly into end products at any level of manufactures 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
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MDA904-97-C-0494
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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'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.
Requests 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 message 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;
(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.
(c) 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;
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(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 has the written
consent of the Contacting 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 contract, which exceed the small purchase
limitation of section 13.000 of the Federal Acquisition Regulation.
(End of clause)
I.5 REFERENCED CLAUSES - WHEN APPLICABLE. The following clause(s) marked (X)
when applicable) pertinent to this section is/are hereby incorporated by
reference:
<TABLE>
<CAPTION>
CLAUSE NO. TITLE
FAR CLAUSES
<S> <C> <C>
(X) 52.203-3 Gratuities (NOV 1990)
(X) 52.203-12 Limitation on Payments to Influence Certain Federal Transactions (JAN 1990)
( ) 52.204-2 Security Requirements (AUG 1996)
( ) 52.207-5 Option to Purchase Equipment (FEB 1995)
( ) 52.208-8 Helium Requirement Forecast and Required Sources for Helium (FEB 1995)
( ) 52.209-1 Qualification Requirements (FEB 1995)
(X) 52.210-7 Other Than New Material, Residual Inventory, and Former Government Surplus Property (MAY 1995)
( ) 52.215-2 Audits and Records - Negotiations (AUG 1996)
( ) 52.215-2 Audits and Records - Negotiations (AUG 1996) - Alternate II (JAN 1997)
( ) 52.215-2 Audits and Records - Negotiations (AUG 1996) - Alternate III (JAN 1997)
( ) 52.215-21 Changes or Additions to Make-Or Buy Program (APR 1984)
( ) 52.215-21 Changes or Additions to Make-Or-Buy Program (APR 1984) - Alternate I (APR 1984)
(X) 52.215-22 Price Reduction for Defective Cost or Pricing Data (OCT 1995)
( ) 52.215-23 Price Reduction for Defective Cost or Pricing Data - Modifications (OCT 1995)
(X) 52.215-24 Subcontractor Cost or Pricing Data (OCT 1995)
( ) 52.215-25 Subcontractor Cost or Pricing Data - Modifications (OCT 1995)
( ) 52.215-26 Integrity of Unit Prices (FEB 1997) - Alternate I (APR 1991)
( ) 52.215 27 Termination of Defined Benefit Pension Plans (MAR 1996)
( ) 52.215-31 Waiver of Facilities Capital Cost of Money (SEP 1987)
( ) 52.215-39 Reversion or Adjustment of Plans for Postretirement Benefits Other Than Pensions (PRB) (MAR 1996)
( ) 52.215-40 Notification of Ownership Changes (FEB 1995)
( ) 52.215-42 Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data - Modifications (JAN 1997)
( ) 52.215-42 Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data Modifications
(JAN 1997) - Alternate II (OCT 1995)
( ) 52.217-2 Cancellation Under Multiyear Contracts (JUL 1996)
(X) 52.217-8 Option to Extend Services (AUG 1989)
( ) 52.219-6 Notice of Total Small Business Set-Aside (JUL 1996)
</TABLE>
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MDA904-97-C-0424
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<TABLE>
<S> <C> <C>
( ) 52.219-7 Notice of Partial Small Business Set Aside (JUL 1996)
( ) 52.219-9 Small, Small Disadvantaged and Women-Owned Small Business Subcontracting Plan (AUG 1996)
( ) 52.219-9 Small, Small Disadvantaged and Women-Owned Small Business Subcontracting Plan (AUG 1996) - Alternate II
(MAR 1996)
(X) 52.219-14 Limitations on Subcontracting (DEC 1996)
( ) 52.219-16 Liquidated Damages - Subcontracting Plan (OCT 1995)
( ) 52.222-1 Notice to the Government of Labor Disputes (FEB 1997)
( ) 52.222-3 Convict Labor (AUG 1996)
( ) 52.222-20 Walsh-Healey Public Contracts Act (DEC 1996)
(X) 52.227-26 Equal Opportunity (APR 1984)
(X) 52.222-28 Equal Opportunity Pre-Award Clearance of Subcontracts (APR 1984)
( ) 52.222-29 Notification of Visa Denial (APR 1984)
(X) 52.222-35 Affirmative Action for Special Disabled and Vietnam Era Veterans (APR 1984)
(X) 52.222-36 Affirmative Action for Handicapped Workers (APR 1984)
(X) 52.222-37 Employment Reports on Special Disabled Veterans and Veterans of the Vietnam Era (JAN 1988)
( ) 52.222-41 Service Contract Act of 1965, as Amended (MAY 1989)
( ) 52.222-43 Fair Labor Standards Act and Service Contract Act - Price Adjustment (Multiple Year and Option Contracts)
(MAY 1989)
( ) 52.222-44 Fair Labor Standards Act and Service Contract Act - Price Adjustment (MAY 1989)
( ) 52.222-48 Exemption from Application of Service Contract Act Provisions for Contracts Maintenance, Calibration,
and/or Repair of Certain Information Technology, Scientific and Medical and/or Office and
Business Equipment - Contractor Certification (AUG 1996)
(X) 52.223-2 Clean Air and Water (JAN 1997)
( ) 52.223-3 Hazardous Material Identification and Material Safety Data (NOV 1991)
(X) 52.223-6 Drug-Free Workplace (JAN 1997)
( ) 52.223-9 Certification of Percentage of Recovered Material Consent for EPA Designated Items Used in Performance of
the Contract (MAY 1995)
( ) 52.223-10 Waste Reduction Program (MAY 1995)
( ) 52.223-12 Refrigeration Equipment and Air Conditioners (MAY l995)
( ) 52.223-14 Toxic Chemical Release Reporting (OCT 1996)
( ) 52.224-1 Privacy Act Notification (APR 1984)
( ) 52.224-2 Privacy Act (APR 1984)
( ) 52.225-10 Duty-Free Entry (APR 1984)
( ) 52.225-14 Inconsistency Between English Version and Translation of Contract (AUG 1989)
( ) 52.225-17 Buy American Act - Supplies Under European Community Agreement (MAY 1995)
( ) 52.226-1 Utilization of Indian Organizations and Indian-Owned Economic Enterprises (SEP 1996)
(X) 52.227-1 Authorization and Consent (JUL 1995)
( ) 52.227-1 Authorization and Consent (JUL 1995) - Alternate II (APR 1984)
( ) 52.227-2 Notice and Assistance Regarding Patent and Copyright Infringement (AUG 1996)
( ) 52.227-3 Patent Indemnity (APR 1984)
( ) 52.227-9 Refund of Royalties (APR 1984)
( ) 52.227-10 Filing of Patent Applications - Classified Subject Matter (APR 1984)
( ) 52.227-11 Patent Rights - Retention by the Contractor (Short Form) (JUN 1989)
( ) 52.227-11 Patent Rights - Retention by the Contractor (Short Form) (JUN 1989) - Alternate II (JUN 1989)
(X) 52.227-12 Patent Rights - Retention by the Contractor (Long Form) (JAN 1997)
( ) 52.227-12 Patent Rights - Retention by the Contractor (Long Form) (JAN 1997) - Alternate II (JUN 1989)
( ) 52.227-13 Patent Rights - Acquisition by the Government (JAN 1997)
( ) 52.227-13 Patent Rights - Acquisition by the Government (JAN 1997) - Alternate II (JUN 1989)
( ) 52.228-3 Workers' Compensation Insurance (Defense Base Act) (APR 1984)
( ) 52.228-4 Workers' Compensation and War Hazard Insurance Overseas (APR 1984)
( ) 52.228-5 Insurance - Work on a Government Installation (JAN 1997)
( ) 52.228-14 Irrevocable Letter of Credit (JUN 1996)
( ) 52.228-16 Performance and Payment Bonds - Other Than Construction (SEP 1996)
( ) 52.228-16 Performance and Payment Bonds - Other Than Construction (SEP 1996) -Alternate I (SEP 1996)
( ) 52.229-3 Federal, State and Local Taxes (JAN 1991)
(X) 52.229-4 Federal, State and Local Taxes (Noncompetitive Contract) (JAN 1991)
(X) 52.229-5 Taxes - Contracts Performed in U.S. Possessions or Puerto Rico (APR 1984)
( ) 52.229-6 Taxes - Foreign Fixed Price Contracts (JAN 1991)
( ) 52.230-2 Cost Accounting Standards (AUG 1992)
( ) 52.230-3 Disclosure and Consistency of Cost Accounting Practices (APR 1996)
( ) 52.230-4 Consistency in Cost Accounting Practices (AUG 1992)
( ) 52.230-5 Cost Accounting Standards - Educational Institution (APR 1996)
( ) 52.230-6 Administration of Cost Accounting Standards (APR 1996)
( ) 52.232-4 Payments Under Transportation Contracts and Transportation-Related Service Contracts (APR 1984)
(X) 52.232-9 Limitation on Withholding of Payments (APR 1984)
( ) 52.232-16 Progress Payments (JUL 1991)
( ) 52.232-16 Progress Payments (JUL 1991) - Alternate I (AUG 1987)
( ) 52.232-18 Availability of Funds (APR 1984)
( ) 52.232 24 Prohibition of Assignment of Claims (JAN 1986)
(X) 52.232-25 Prompt Payment (MAR 1994)
( ) 52.232-33 Mandatory Information for Electronic Funds Transfer Payment (AUG 1996)
( ) 52.232-34 Optional Information for Electronic Funds Transfer Payment (AUG 1996)
(X) 52.233-1 Disputes (OCT 1995)
</TABLE>
<PAGE>
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<TABLE>
<S> <C> <C>
( ) 52.233-1 Disputes (OCT 1995) - Alternate I (DEC 1991)
( ) 52.237-2 Protection of Government Buildings, Equipment, and Vegetation (APR 1984)
( ) 52.237-3 Continuity of Services (JAN 1991)
( ) 52.237-9 Waiver of Limitation on Severance Payments to Foreign Nationals (OCT 1998)
( ) 52.239-1 Privacy or Security Safeguards (AUG 1996)
( ) 52.242-1 Notice of Intent to Disallow Costs (APR 1984)
( ) 52.242-2 Production Progress Reports (APR 1991)
(X) 52.242-3 Penalties for Unallowable Costs (OCT 1995)
( ) 52.242-4 Certification of Final Indirect Costs (JAN 1997)
( ) 52.242-10 F. O. B. Origin - Government Bills of Lading or Prepaid Postage (APR 1984)
( ) 52.243-1 Changes - Fixed Price (AUG 1987) - Alternate I (APR 1984)
(X) 52.243-1 Changes - Fixed Price (AUG 1987) - Alternate II (APR 1984)
( ) 52.243-1 Changes - Fixed Price (AUG 1987) - Alternate III (APR 1984)
(X) 52.244-5 Competition in Subcontracting (DEC 1996)
( ) 52.244-6 Subcontracts for Commercial Items and Commercial Components (OCT 1995)
( ) 52.245-1 Property Records (APR 1984)
( ) 52.245-2 Government Property (Fixed-Price Contracts) (DEC 1989)
( ) 52.245-2 Government Property (Fixed Price Contracts) (DEC 1989) - Alternate I (APR 1984)
( ) 52.245-4 Government - Furnished Property (Short Form) (APR 1984)
( ) 52.245-18 Special Test Equipment (FEB 1993)
( ) 52.245-19 Government Property Furnished "As Is" (APR 1984)
( ) 52.246-23 Limitation of Liability (FEB 1997)
( ) 52.246-24 Limitation of Liability - High Value Items (FEB 1997)
( ) 52.246-24 Limitation of Liability - High Value Items (FEB 1997) - Alternate I (APR 1984)
(X) 52.246-25 Limitation of Liability - Services (FEB 1997)
( ) 52.247-1 Commercial Bill of Lading Notations (APR 1984)
( ) 52.247-64 Preference for Privately Owned U.S. Flag Commercial Vessels (AUG 1996)
( ) 52.247-64 Preference for Privately Owned U.S. Flag Commercial Vessels (AUG 1996) - Alternate I (APR 1984)
( ) 52.248-1 Value Engineering (MAR 1989)
( ) 52.248-1 Value Engineering (MAR 1989) - Alternate I (APR 1984)
( ) 52.248-1 Value Engineering (MAR 1989) - Alternate II (APR 1984)
( ) 52.248-1 Value Engineering (MAR 1989) - Alternate III (APR 1984)
( ) 52.249-2 Termination for Convenience of the Government (Fixed Price) (SEP 1996)
( ) 52.249-2 Termination for Convenience of the Government (Fixed Price) (SEP 1996) Alternate II (SEP 1996)
(X) 52.249-4 Termination for Convenience of the Government (Services) (Short Form) (APR 1984)
(X) 52.251-1 Government Supply Sources (APR 1984)
DFARS CLAUSES
(X) 252.201-7000 Contracting Officer's Representative (DEC 1991)
(X) 252.203-7000 Statutory Prohibitions on Compensation to Former Department of Defense Employees (NOV 1995)
( ) 252.203-7002 Display of DoD Hotline Poster (DEC 1991)
(X) 252.204-7000 Disclosure of Information (DEC 1991)
( ) 252.204-7002 Payment for Subline Items Not Separately Priced (DEC 1991)
(X) 252.205-7000 Provision of Information to Cooperative Agreement Holders (DEC 1991)
( ) 252.209-7004 Reporting of Commercial Transactions With The Government of a Terrorist Country (SEP 1994)
( ) 252.209-7005 Military Recruiting on Campus (FEB 1996)
( ) 252.211-7000 Acquisition Streamlining (DEC 1991)
( ) 252.215-7000 Pricing Adjustments (DEC 1991)
( ) 252.215-7002 Cost Estimating System Requirements (DEC 1991)
() 252.219-7001 Notice of Partial Small Business Set-Aside with Preferential Consideration for Small
Disadvantaged Business Concerns (MAY 1995)
( ) 252.219-7001 Notice of Partial Small Business Set-Aside with Preferential Consideration for Small
Disadvantaged Business Concerns (MAY 1995) - Alternate I (MAY 1994)
( ) 252.219-7003 Small Business and Small Disadvantaged Business Subcontracting Plan (DoD Contracts) (APR 1996)
( ) 252.219-7006 Notice of Evaluation Preference for Small Disadvantaged Business Concerns (MAY 1995)
( ) 252.219-7006 Notice of Evaluation Preference for Small Disadvantaged Business Concerns (MAY 1998) - Alternate I (DEC 1991)
( ) 252.223-7001 Hazard Warning Labels (DEC 1991)
( ) 252.223-7005 Hazardous Waste Liability and Indemnification (OCT 1992)
( ) 252.223-7006 Prohibition on Storage and Disposal of Toxic and Hazardous Materials (APR 1993)
( ) 252.223-7006 Prohibition on Storage and Disposal of Toxic and Hazardous Waste (APR 93) - Alternate I (NOV 1995)
( ) 252.225-7001 Buy American Act and Balance of Payments Program (JAN 1994)
( ) 252.225-7002 Qualifying Country Sources as Subcontractors (DEC 1991)
( ) 252.225-7005 Identification of Expenditures in the United States (DEC 1991)
(X) 252.225-7007 Trade Agreements Act (JUL 1996)
( ) 252.225-7008 Supplies to be Accorded Duty Free Entry (DEC 1991)
( ) 252.225-7009 Duty-Free Entry - Qualifying Country End Products and Supplies (DEC 1991)
( ) 252.225-7010 Duty-Free Entry - Additional Provisions (DEC 1991)
( ) 252.225-7011 Restriction on Acquisition of Supercomputers (JUL 1995)
( ) 252.225-7014 Preference for Domestic Speciality Metals (NOV 1995)
( ) 252.225-7015 Preference for Domestic Hand or Measuring Tools (DEC 1991)
</TABLE>
<PAGE>
MDA904-97-C-0424
31 of 34
<TABLE>
<S> <C> <C>
( ) 252.225-7022 Restriction on Acquisition of Polyacrylonitrile (PAN) Based Carbon Fiber (DEC 1991)
( ) 252.225-7024 Restriction on Acquisition of Night Vision Image Intensifier Tubes and Devices (DEC 1991)
( ) 252.225-7025 Foreign Source Restrictions (SEP 1996)
( ) 252.225-7026 Reporting of Overseas Subcontracts (NOV 1995)
( ) 252.225-7028 Exclusionsay Policies and Practices of Foreign Governments (DEC 1991)
( ) 252.225-7032 Waiver of United Kingdom Levies (OCT 1992)
( ) 252.225-7036 North American Free Trade Agreement Implementation Act (JAN 1994)
( ) 252.225-7036 North American Free Trade Agreement Implementation Act (JAN 1994) - Alternate I (MAY 1995)
( ) 252.225-7037 Duty-Free Entry - NAFTA Country End Products and Supplies (JAN 1994)
( ) 252.226-7000 Notice of Historically Black Colleges or Universities and Minority Institution Set-asides (APR 1994)
(X) 252.227-7013 Rights in Technical Data - Noncommercial Items (NOV 1995)
(X) 252.227-7014 Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation (JUN 1995)
( ) 252.227-7014 Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation
(JUN 1995) - Alternate I (JUN 1995)
( ) 252.227-7019 Validation of Asserted Restrictions - Computer Software (JUN 1995)
( ) 252.227-7020 Rights in Data--Special Works (JUN 1995)
( ) 252.227-7021 Rights in Data--Existing Work (MAR 1979)
( ) 252.227-7025 Limitation on the Use or Disclosure of Government-Furnished Information Marked With
Restrictive Legends (JUN 1995)
( ) 252.227-7026 Deferred Delivery of Technical Data or Computer Software (APR 1988)
( ) 252.227-7027 Deferred Ordering of Technical Data or Computer Software (APR 1988)
(X) 252.227-7030 Technical Data-Withholding of Payments (OCT 1988)
( ) 252.227-7032 Rights in Technical Data and Computer Software (Foreign) (JUN 1975)
(X) 252.227-7036 Certification of Technical Data Conformity (MAY 1987)
(X) 252.227-7037 Validation of Restrictive Markings Technical Data (NOV 1995)
( ) 252.227-7039 Patents - Reporting of Subject Inventions (APR 1990)
( ) 252.228-7000 Reimbursement for War-Hazard Losses (DEC 1991)
( ) 252.228-7003 Capture and Detention (DEC 1991)
( ) 252.232-7002 Progress Payments for Foreign Military Sales Acquisitions (DEC 1991)
( ) 252.232-7004 DoD Progress Payment Rates (FEB 1996)
( ) 252.232-7007 Limitation of Government's Obligation (AUG 1993)
( ) 252.232-7007 Limitation of Government s Obligation (AUG 1993) - Alternate I (AUG 1993)
(X) 252.233-7000 Certification of Claims and Requests for Adjustment or Relief (MAY 1994)
( ) 252.234-7001 Cost/Schedule Control Systems (DEC 1991)
( ) 252.239-7000 Protection Against Compromising Emanations (DEC 1991)
( ) 252.239-7002 Access (DEC 1991)
( ) 252.242-7000 Postaward Conference (DEC 1991)
( ) 252.242-7003 Application for U.S. Government Shipping Documentation/Instructions (DEC 1991)
( ) 252.242-7004 Material Management and Accounting System (SEP 1996)
( ) 252.245-7000 Government-Furnished Mapping, Charting and Geodesy Property (DEC 1991)
( ) 252.245-7001 Reports of Government Property (MAY 1994)
(X) 252.246-7000 Material Inspection and Receiving Report (DEC 1991)
( ) 252.246-7001 Warranty of Data (DEC 1991)
( ) 252.246-7001 Warranty of Data (DEC 1991) - Alternate I (DEC 1991)
( ) 252.246-7001 Warranty of Data (DEC 1991) - Alternate II (DEC 1991)
( ) 252.249-7001 Notification of substantial Impact on Employment (DEC 1991)
( ) 252.249-7002 Notification of Proposed Program Termination or Reduction (MAY 1995)
(X) 252.251-7000 Ordering From Government Supply Sources (MAY 1995)
</TABLE>
FULL TEXT CLAUSES - WHEN APPLICABLE. Pursuant to FAR 52 102-2, the following
clauses (marked (X) when applicable) shall be incorporated in this solicitation
and/or contract in full text Therefore, a copy of the applicable clause(s)
follows:
<TABLE>
<CAPTION>
CLAUSE NO. TITLE
FAR CLAUSES
<S> <C> <C>
( ) 52.209-1 Qualification Requirement (FEB 1995)
( ) 52.209-3 First Article Approval - Contractor Testing (SEP 1989)
( ) 52.209-3 First Article Approval - Contractor Testing (SEP 1989) - Alternate I (JAN 1997)
( ) 52.209-3 First Article Approval - Contractor Testing (SEP 1989) - Alternate II (SEP 1989)
( ) 52.209-4 First Article Approval - Government Testing (SEP 1989)
( ) 52.209-4 First Article Approval - Government Testing (SEP 1989) - Alternate I (JAN 1996)
( ) 52.209-4 First Article Approval - Government Testing (SEP 1989) - Alternate II (SEP 1989)
( ) 52.215-42 Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data
Modifications (JAN 1997) - Alternative I (OCT 1995)
( ) 52.215 42 Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data
Modifications (JAN 1997) - Alternate III (OCT 1995)
( ) 52.215-42 Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data
Modifications (JAN 1997) - Alternate IV (OCT 1995)
( ) 52.216-16 Incentive Price Revision - Firm Target (FEB 1997)
( ) 52.216-16 Incentive Price Revision - Firm Target (FEB 1997) - Alternate I (APR 1984)
( ) 52.216-17 Incentive Price Revision - Successive Targets (FEB 1997)
( ) 52.216-17 Incentive Price Revision - Successive Targets (FEB 1997) - Alternate I (APR 1984)
</TABLE>
<PAGE>
MDA904-97-C-0424
32 of 34
<TABLE>
<S> <C> <C>
( ) 52.216-23 Execution and Commencement of Work (APR 1984)
( ) 52.216-24 Limitation of Government Liability (APR 1984)
( ) 52.216-25 Contract Definitization (APR 1984)
( ) 52.216 25 Contract Definitization (APR 1984) - Alternate I (APR 1984)
( ) 52.217-6 Option for Increased Quantity (APR 1984)
(X) 52.217-9 Option to Extend the Term of the Contract (MAR 1989)
( ) 52.222-26 Equal Opportunity (APR 1984) - Alternate (APR 1984)
( ) 52.222-42 Statement of Equivalent Rates for Federal Hires (MAY 1989)
( ) 52.222-47 SCA Minimum Wages and Fringe Benefits Applicable to Successor Contract Pursuant to
Predecessor Contractor Collective Bargaining Agreements (CBA) (MAY 1989)
( ) 52.222-49 Service Contract Act - Place of Performance Unknown (MAY 1989)
( ) 52.227-3 Patent Indemnity (APR 1984) - Alternate I (APR 1984)
( ) 52.227-3 Patent Indemnity (APR 1984) Alternate II (APR 1984)
( ) 52.227-3 Patent Indemnity (APR 1984) - Alternate III (JUN 1995)
( ) 52.227-5 Waiver of Indemnity (APR 1984)
( ) 52.227-11 Patent Rights - Retention by the Contractor (Short Form) (JUN 1989) - Alternate I (JUN 1989)
( ) 52.227-12 Patent Rights - Retention by the Contractor (Long Form) (JAN 1997) Alternate I (JUN 1989)
( ) 52.227-13 Patent Rights - Acquisition by the Government (JAN 1997) - Alternate I (JUN 1989)
( ) 52.229-7 Taxes--Fixed-Price Contracts with Foreign Governments (JAN 1991)
( ) 52.232-16 Progress Payments (JUL 1991) - Alternate II (AUG 1987)
( ) 52.243-7 Notification of Changes (APR 1984)
( ) 52.244 1 Subcontracts (Fixed Price Contracts) (FEB 1995)
( ) 52.244-1 Subcontracts (Fixed Price Contracts) (FEB 1995) Alternate I (APR 1984)
( ) 52.244-2 Subcontracts Under Cost-Reimbursement and Letter Contracts (FEB 1997) - Alternate I (AUG 1996)
( ) 52.246 20 Warranty of Services (APR 1984)
( ) 52.247-66 Returnable Cylinders (MAY 1994)
( ) 52.252-4 Alterations in Contract (APR 1984)
( ) 52.252-6 Authorized Deviations in Clauses (APR 1984)
DFARS CLAUSES
( ) 252.217-7027 Contract Definitization (FEB 1996)
( ) 252.219-7005 Incentive for Subcontracting with small Businesses, Small Disadvantaged Businesses,
Historically Black Colleges and Universities and Minority Institutions (NOV 1995)
( ) 252.219-7005 Incentive for Subcontracting with Small Businesses, Small Disadvantaged Businesses,
Historically Black Colleges and Universities and Minority Institutions (NOV 1995) -Alternate I (DEC 1991)
( ) 252.225-7027 Limitation on Sales Commissions and Fees (DEC 1991)
( ) 252.232-7003 Flexible Progress Payments (DEC 1991)
( ) 252.232-7007 Limitation of Government's Obligation (AUG 1993)
( ) 252.239-7016 Telecommunications Security Equipment, Devices, Techniques and Services (DEC 1991)
( ) 252.243-7000 Engineering Change Proposals (MAY 1994)
( ) 252.243-7000 Engineering Change Proposals (MAY 1994) - Alternate I (MAY 1994)
( ) 252.247-7024 Notification of Transportation of Supplies by Sea (NOV 1995)
( ) 252.249-7000 Special Termination Costs (DEC 1991)
</TABLE>
I.6 THE FOLLOWING 8(A) CLAUSES, PROVISIONS, AND CERTIFICATIONS ARE IN
CORPORATED:
PART 1 - CERTIFICATION OF SUBCONTRACTING
I certify that at least the percentage of work required by 13 CFR 124.314 shall
be performed by employees of my firm and the SBA approval will be obtained prior
to entering a subcontract with any other concern. Those percentages are:
[X] SERVICES (except construction) -- At least 50 percent of the cost of
contract performance incurred for labor must be expended for employees of an
8(a) concern.
[ ] SUPPLIES (other than from regular dealers) -- At least 50 percent of the
cost of manufacturing that supplies, not including the ocst of material.
<PAGE>
MDA904-97-C-0424
33 of 34
[ ] GENERAL CONSTRUCTION -- At least 15 percent of the cost of the contract,
not including the cost of materials. must be expended or employees of the 8 (a)
concern.
[ ] CONSTRUCTION BY SPECIAL TRADE CONTRACTORS -- At least 25 percent of the cost
of the contract, not including the cost of materials must be expended for
employees of the 8 (a) concern.
PART 2
I hereby request permission to subcontract with ___________________for the
amount specified in our Best and Final Offer.
PART 3 - COMPETITIVE BUSINESS MIX CERTIFICATION
(A) [X] FIRM NAME: LITRONICS INC _____________________is in the development
stage.
(B) [ ] FIRM NAME: _________________________________acknowledges that it is
currently in the transition stage of the 8 (a) Program Participation and
certifies that it is in compliance
with the non-8(a) business activity targets established pursuant to 13 CFR
124.312(c) (4) and (5).
(C) [ ] FIRM NAME: _________________________________certifies that it is in
compliance with the remedial measures imposed by SBA, if any, pursuant to 13 CFR
124.312(c) (12). Disrepresentation by falsely certifying to past compliance
with the non-8(a) business activity targets established in the business plan
approved by SBA shall subject that individual to:
(1) Punishment by a fine of not more than $500,000 or imprisonment for not
more than 10 years, or both;
(2) The administrative remedies prescribed by th eProgram fraud Civil
Remedies Act of 1986 (31 USC 3801.3812);
(3) Suspension and debarment as specified in 13 CFR 145 of Subpart 9.4 of
Title 48 Code of Federal Regulations (or any successor regulation) on the basis
that such misrepresentation indicates a lack of business integrity that
seriously and directly affects the present responsibility of a person or entity
to transact business with the Federal Government; and
(4) Ineligibility for participation in any program or activity conducted
under the authority of the Small Business Act or the Small Business investment
Act for a period of not to exceed 3 years.
<PAGE>
MDA904-97-C-0424
34 of 34
FIRM NAME: ______________________________
ADDRESS: ________________________________
CITY, STATE, ZIP: _________________________
- ------------------------------------------------
Signature of President, Partner or Proprietor Date: _________________
ORIGINAL SIGNATURES ONLY, REPRODUCTIONS WILL NOT BE ACCEPTED.
PART 4 - ADDITIONAL CLAUSES AND PROVISIONS
52.219-11 Special 8(a) Contract Conditions (FEB 1990)
Name of Agency: Maryland Procurement Office
52.219-12 Special 8(a) Subcontract Conditions (FEB 1990)
Prime Contract Number:
Name of Agency: Maryland Procurement Office
Name of Subcontractor:
52.219-14 Limitations on Subcontracting (JAN 1991)
52.219-17 Section 8(a) Award (DEC 1996)
Name of Agency: Maryland Procurement Office
52.203-11 Certification and Disclosure Regarding Payment s to Influence
Certain Federal Transactions (APR 1991)
Certification of Subcontracting
Certification of Competitive Business Mix
SECTION J - LIST OF ATTACHMENTS
J.1 Statement of Work entitled, "Multi Level Information System Security
Initiative, Crypto Card System Analysis and Library and Driver Architecture and
Development," dated 10 January 1997, 7 pages.
J.2 Contract Data Requirements List, DD Form 1423, dated 13 February 1997, 18
pages.
J.3 Award Fee Plan (Rev. 2), dated 10 June 1997, 5 pages.
<PAGE>
CONTRACT DATA REQUIREMENTS LIST
FOR THE
MISSI Library, Crypto Card System Analysis and Library and Driver Architecture
and Development
1. THE CONTRACTOR SHALL PREPARE AND DELIVER THE TECHNICAL DATA ITEMS LISTED ON
THE FOLLOWING PAGES. EACH DATA ITEM SHALL BE PREPARED ACCORDING TO THE
"AUTHORITY" CITED (BLOCK #4), APPENDICES TO THE DATA ITEM DESCRIPTIONS, AND
QUALIFYING INFORMATION IN "REMARKS" (BLOCK #16), AS APPLICABLE.
2. PREPARATION OF ALL OF THE DATA ITEMS SHALL BE CONTROLLED BY THE ISSUES OF THE
SPECIFICATIONS, MILITARY STANDARDS, OR OTHER SUCH REGULATORY MATERIAL WHICH ARE
CURRENT ON THE DATE OF THE SOLICITATION, UNLESS OTHERWISE SPECIFIED.
3. DATA DELIVERY REQUIREMENTS STATED IN DAYS SHALL DENOTE WORKING DAYS AND THE
REQUIREMENTS STATED IN MONTHS SHALL DENOTE CALENDAR MONTHS, UNLESS OTHERWISE
SPECIFIED IN BLOCK 16 OF THE DD FORM 1423. DATA SHALL BE DELIVERED TO THE
INDIVIDUAL ADDRESSES LISTED ON THE DISTRIBUTION APPENDIX LOCATED AT THE REAR OF
THE CDRL.
4. A COPY OF ALL DATA TRANSMITTAL LETTERS SHALL BE SIMULTANEOUSLY DELIVERED TO
THE BUSINESS MANAGER, X22, Fanx3.
5. DATA ITEMS WHICH ARE RETURNED TO THE CONTRACTOR BECAUSE OF NONCONFORMANCE
WITH THE CONTRACTUAL REQUIREMENTS OR OTHER INADEQUACIES OF THE DATA, SHALL BE
CORRECTED OR UPDATED AND RETURNED TO THE GOVERNMENT WITHIN TEN DAYS AFTER
RECEIPT BY THE CONTRACTOR, UNLESS OTHERWISE SPECIFIED.
PREPARED BY: /S/STEVEN LOWE
--------------
Steven Lowe, Program Business Manager, X22
DATE 13 February 1997
APPROVED BY: /S/WILLIAM NACE
---------------
William Nace, Program Manager, X22
DATE 13 February 1997
REVISION
DATE
PAGE 1 OF 14 PAGES
<PAGE>
REVISION PAGE FOR
MISSI Library, Crypto Card System Anal. and Library and Driver Arch & Dev/
REV DESCRIPTION DATE
PAGE 2 OF 14 PAGES
<PAGE>
INSTRUCTIONS TO OFFERORS FOR COMPLETING DD FORM 1423 (FACSIMILE)
AND EXPLANATION OF ENTRIES BY GOVERNMENT PERSONNEL
DIGITAL SUBMISSION OF DATA
- --------------------------
IF THE DOCUMENT TO BE SUBMITTED IS ENTIRELY TEXTUAL OR IF THE ENTIRE DOCUMENT
(INCLUDING GRAPHICS) MAY BE SUBMITTED DIGITALLY, TWO COPIES OF THIS DATA ITEM
SHALL BE SUBMITTED AS FRAMEMAKER (VERSION 4.0 OR LOWER), WORDPERFECT (VERSION
6.0 OR LOWER), OR FLAT ASCII FILES ON MAGNETIC MEDIA, UNLESS OTHERWISE DIRECTED
IN BLOCK 16. THE SPECIFIC MEDIA TYPE TO BE DETERMINED BY THE GOVERNMENT PRIOR TO
THE INTIAL SUBMISSION. IF THE DOCUMENT CANNOT BE SUBMITTED DIGITALLY, PLEASE
CONTACT THE PROGRAM OFFICE TO OBTAIN ADDITIONAL NUMBER OF HARD COPIES REQUIRED.
FOR THE CONTRACTOR
- ------------------
ITEM 17. SPECIFY APPROPRIATE PRICE GROUP FROM ONE OF THE FOLLOWING GROUPS OF
EFFORT IN DEVELOPING ESTIMATED PRICES FOR EACH DATA ITEM LISTED ON THE DD FORM
1423.
A. GROUP 1. DEFINITION - DATA WHICH IS NOT OTHERWISE ESSENTIAL TO THE
CONTRACTOR'S PERFORMANCE OF THE PRIMARY CONTRACTED EFFORT (PRODUCTION,
DEVELOPMENT, TESTING, AND ADMINISTRATION) BUT WHICH IS REQUIRED BY FORM DD 1423.
ESTIMATED PRICE - COSTS TO BE INCLUDED UNDER GROUP I ARE THOSE APPLICABLE TO
PREPARING AND ASSEMBLING THE DATA ITEM IN CONFORMANCE WITH GOVERNMENT
REQUIREMENTS, AND THE ADMINISTRATION AND OTHER EXPENSES RELATED TO REPRODUCING
AND DELIVERING SUCH DATA ITEMS TO THE GOVERNMENT.
B. GROUP II. DEFINITION - DATA WHICH IS ESSENTIAL TO THE PERFORMANCE OF THE
PRIMARY CONTRACTED EFFORT BUT THE CONTRACTOR IS REQUIRED TO PERFORM ADDITIONAL
WORK TO CONFORM TO GOVERNMENT REQUIREMENTS WITH REGARD TO DEPTH OF CONTENT,
FORMAT, FREQUENCY OF SUBMITTAL, PREPARATION, CONTROL, OR QUALITY OF THE DATA
ITEM.
ESTIMATED PRICE - COSTS TO BE INCLUDED UNDER GROUP II ARE THOSE INCURRED OVER
AND ABOVE THE COST OF THE ESSENTIAL DATA ITEM WITHOUT CONFORMING TO GOVERNMENT
REQUIREMENTS, AND THE ADMINISTRATIVE AND OTHER EXPENSES RELATED TO REPRODUCING
AND DELIVERING SUCH DATA ITEM TO THE GOVERNMENTS.
C. GROUP III. DEFINITION - DATA WHICH THE CONTRACTOR MUST DEVELOP FOR HIS
INTERNAL USE IN PERFORMANCE OF THE PRIMARY CONTRACTED EFFORT AND DOES NOT
REQUIRE ANY SUBSTANTIAL CHANGE TO CONFORM TO GOVERNMENT REQUIREMENTS WITH REGARD
TO DEPTH OF CONTENT, FORMAT, FREQUENCY OF SUBMITTAL, PREPARATION, CONTROL, AND
QUALITY OF THE DATA ITEM.
PAGE 3 OF 14 PAGES
<PAGE>
ESTIMATED PRICE - COSTS TO BE INCLUDED UNDER GROUP III ARE THE ADMINISTRATIVE
AND OTHER EXPENSES RELATED TO REPRODUCING AND DELIVERING SUCH DATA ITEM TO THE
GOVERNMENT.
D. GROUP IV. DEFINITION - DATA WHICH IS DEVELOPED BY THE CONTRACTOR AS PART OF
HIS NORMAL OPERATING PROCEDURES AND HIS EFFORT IN SUPPLYING THESE DATA TO THE
GOVERNMENT IS MINIMAL.
ESTIMATED PRICE - GROUP IV ITEMS SHOULD NORMALLY BE SHOWN ON THE DD FORM 1423 AT
NO COST.
ITEM 18. FOR EACH DATA ITEM, ENTER AN AMOUNT EQUAL TO THAT PORTION OF THE TOTAL
PRICE WHICH IS ESTIMATED TO ATTRIBUTABLE TO THE PRODUCTION OR DEVELOPMENT FOR
THE GOVERNMENT OF THAT ITEM OF DATA. THESE ESTIMATED DATA PRICES SHALL BE
DEVELOPED ONLY FROM THOSE COSTS WHICH WILL BE INCURRED AS A DIRECT RESULT OF THE
REQUIRMENT TO SUPPLY THE DATA, OVER AND ABOVE THE COSTS WHICH WOULD OTHERWISE BE
INCURRED IN PERFORMANCE OF THE CONTRACT IF NO DATA WERE REQUIRED. THE ESTIMATED
DATA PRICES SHALL NOT INCLUDE ANY AMOUNT FOR RIGHTS IN DATA. THE GOVERNMENT'S
RIGHT TO USE CONTRACT.
EXPLANATION OF ENTRIES BY GOVERNMENT PERSONNEL
1.EXPLANATION OF ENTRIES IN BLOCKS A THROUGH J:
A. BLOCK A, CONTRACT LINE ITEM NO. - THAT IS ASSOCIATED WITH THE CDRL.
B. BLOCK B, EXHIBIT NO. - ENTER THE CONTRACT EXHIBIT NUMBER ASSIGNED TO THE
CDRL.
C. BLOCK C, CATEGORY - CHECK THE APPROPRIATE BLOCK FOR TECHNICAL DATA PACKAGE
(TPD) OR TECHNICAL MANUAL (TM). TYPES OF DATA WHICH COMPROMISE A TDP ARE DEFINED
IN MIL-T-31000 AND TYPES OF MANUALS INCLUDED UNDER THE TM CATEGORY ARE DEFINED
IN PART IX, SECTION B, OF DODI 5000.2. "OTHER" DATA MAY BE FURTHER CATEGORIZED,
SUCH AS ADMINISTRATIVE DATA, CONFIGURATION MANAGEMENT, ETC., PER THE FUNCTIONAL
AREA ASSIGNMENTS CONTAINED IN THE AMDSL.
D. BLOCK D, SYSTEM/ITEM - ENTER THE SYSTEM/ITEM/PROJECT DESIGNATOR OR NAME.
E. BLOCK E, CONTRACTOR/PR NO. - ENTER THE CONTRACT OR PURCHASE REQUEST (PR)
NUMBER WHEN KNOWN; IF UNKNOWN, ENTER THE REQUEST FOR PROPOSAL (RFP) NUMBER OR
OTHER APPROPRIATE - DESIGNATOR.
PAGE 4 OF 14 PAGES
<PAGE>
F. BLOCK F, CONTRACTOR - ENTER THE CONTRACTOR'S NAME. FOLLOWING THE NAME, A
SLASH (/) AND THE APPROPRIATE COMMERCIAL AND GOVERNMENT ENTITY (CAGE) CODED MAY
BE INSERTED.
G. BLOCK G, PREPARED BY - ENTER THE NAME OF THE CDRL PREPARER OR THE NAME OF THE
ACTIVITY RESPONSIBLE FOR PREPARATION OF THE CDRL.
H. BLOCK H, DATE - ENTER THE DATE THE CDRL WAS PREPARED.
I. BLOCK I, APPROVED BY - ENTER THE NAME OF THE INDIVIDUAL RESPONSIBLE FOR
APPROVING THE CDRL.
J. BLOCK J, DATE - ENTER THE DATE THE CDRL WAS APPROVED.
2.EXPLANATION OF THE ENTRIES BLOCKS 1 THROUGH 16.
A. BLOCK 1, DATA ITEM NUMBER - ENTER THE EXHIBIT LINE ITEM NUMBER.
B. BLOCK 2, TITLE OF DATA ITEM - THE TITLE SHALL BE IDENTICAL TO THE TITLE OF
THE DID WHEN CITED IN BLOCK 4.
C. BLOCK 3, SUBTITLE - IF THE TITLE IN BLOCK 2 REQUIRES FURTHER IDENTIFICATION,
ENTER A SUBTITLE.
D. BLOCK 4, AUTHORITY (DATA ACQUISITION DOCUMENT NUMBER) - ENTER THE DID NUMBER
WHICH PROVIDES THE DATA PREPARATION INSTRUCTIONS. WITH THE EXCEPTION OF A ONE-
TIME DID, THE DOCUMENT CITED IN THIS BLOCK MUST BE ONE WHICH HAS BEEN CLEARED
FOR LISTING IN THE AMSDL.
E. BLOCK 5, CONTRACT REFERENCE - ENTER THE SPECIFIC PARAGRAPH NUMBER OF THE
STATEMENT OF WORK, SPECIFICATION, STANDARD, OR OTHER APPLICABLE DOCUMENT WHICH
CONTAINS THE TASKING WHICH GENERATES A REQUIREMENT FOR THE DATA ITEM.
F. BLOCK 6, REQUIRING OFFICE - ENTER THE TECHNICAL OFFICE RESPONSIBLE FOR
ENSURING THE ADEQUACY OF THE DATA.
G. BLOCK 7, DD 250 REQUIREMENT - ENTER THE APPLICABLE CODE, DESIGNATING THE
REQUIREMENT FOR INSPECITON AND ACCEPTANCE OF THE DATA ITEM, AS SHOWN IN THE
FOLLOWING LIST:
<TABLE>
<CAPTION>
DD FORM 250 CODE INSPECTION ACCEPTANCE
- ------------------- ----------- -----------
<S> <C> <C>
SS (1) (2)
DD (3) (4)
SD (1) (4)
DS (3) (5)
*LT (6) (7)
*NO (8) (8)
XX (9) (9)
</TABLE>
PAGE 5 OF 14 PAGES
<PAGE>
(1) INSPECTION AT SOURCE.
(2) ACCEPTANCE AT SOURCE.
(3) NO INSPECTION PERFORMED AT SOURCE. FINAL INSPECTION PERFORMED AT
DESTINATION.
(4) ACCEPTANCE AT DESTINATION.
(5) ACCEPTANCE AT SOURCE. ACCEPTANCE BASED ON WRITTEN APPROVAL FROM THE
CONTRACTING OFFICER.
(6) LETTER OF TRANSMITTAL ONLY. LT SHOULD NOT BE USED WHEN INSPECTION IS
REQUIRED. THE DATA IS SENT BY THE CONTRACTOR DIRECTLY TO THE PERSONNEL LISTED IN
BLOCK 14 OF DD FORM 1423. LT IS USED WHEN THE CONTRACTING AGENCY DOES NOT DESIRE
TO HAVE A DD FORM 250 FOR EACH AND EVERY PIECE OF DATA DEVELOPED BY THE
CONTRACTOR. THE ONLY OTHER AUTHORIZED USE OF LT IS THE SPECIAL CASE WHERE THE
CONTRACTING AGENCY DOES NOT DESIRE TO HAVE SEPARATE DD FORMS 250 BUT DESIRES TO
HAVE A GOVERNMENT QUALITY ASSURANCE REPRESENTATIVE PERFORM INSPECTION. THE
GOVERNMENT QUALITY ASSURANCE REPRESENTATIVE SHALL BE LISTED ON THE DISTRIBUTION
IN BLOCK 14 AND REQUESTED TO PROVIDE COMMENTS VIA THE QUALITY ASSURANCE LETTER
OF INSTRUCTION.
* USE OF THE SYMBOL LT IS NOT AUTHORIZED FOR DATA COMPRISING FINAL DELIVERY OF
TECHNICAL DATA PACKAGES OR FOR TECHNICAL MANUALS. (LT MAY, HOWEVER, BE USED FOR
DELIVERY OF PRELIMINARY TPD'S OR TM'S).
(7) AS SPECIFIED IN BLOCK 8 OF THE DD FORM 1423.
(8) NO INSPECTION OR ACCEPTANCE REQUIRED. NO DD FORM 250 OR LETTER OF
TRANSMITTAL REQUIRED.
* USE OF THE SYMBOL NO IS NOT AUTHORIZED FOR DATA COMPRISING TECHNICAL DATA
PACKAGES OR FOR TECHNICAL MANUALS.
(9) INSPECTION AND ACCEPTANCE REQUIREMENTS SPECIFIED ELSEWHERE IN THE CONTRACT.
H. BLOCK 8, APPROVAL CODE - ITEMS OF CRITICAL DATA REQUIRING SPECIFIC ADVANCED
WRITTEN APPROVAL PRIOR TO DISTRIBUTION OF THE FINAL DATA ITEM SHOULD BE
IDENTIFIED BY PLACING AN "A" IN THIS FIELD. THIS DATA ITEM REQUIRES SUBMISSION
OF A PRELIMINARY DRAFT PRIOR TO PUBLICATION OF A FINAL DOCUMENT. WHEN A
PRELIMINARY DRAFT IS REQUIRED, BLOCK 16 OF THE DD FORM 1423 WILL SHOW LENGTH OF
TIME REQUIRED FOR GOVERNMENT APPROVAL / DISAPPROVAL AND SUBSEQUENT TURN-AROUND
TIME FOR THE CONTRACTOR TO RESUBMIT THE DATA AFTER GOVERNMENT APPROVAL
DISAPPROVAL HAS BEEN ISSUED. BLOCK 16 WILL ALSO INDICATE THE EXTENT OF THE
APPROVAL REQUIREMENTS, E.G., APPROVAL OF TECHNICAL CONTENT AND/OR FORMAT.
PAGE 6 OF 14 PAGES
<PAGE>
I. BLOCK 9, DISTRIBUTION STATEMENT REQURIED - ENTER THE CODE LETTER (A, B, C, D,
E, F, OR x) CORRESPONDING TO THE DISTRIBUTION STATEMENT TO BE MARKED ON THE DATA
ITEM BY THE CONTRACTOR IN ACCORDANCE WITH DODD 5230.24.
J. BLOCK 10, FREQUENCY - THE FOLLOWING IS A LIST OF TYPICAL CODES USED TO
SPECIFY FREQUENCY OF SUBMITTALS.
ANNLY ANNUALLY
ASGEN AS GENERATED *
ASREQ AS REQUIRED *
Bl-MO EVERY TWO MONTHS
Bl-WE EVERY TWO WEEKS
DAILY DAILY
DFDEL DEFERRED DELIVERY
MTHLY MONTHLY
ONE/R ONE TIME WITH REVISIONS
QRTLY QUARTERLY
SEMIA EVERY SIX MONTHS
WEKLY WEEKLY
XTIME NUMBER OF TIMES TO BE SUBMITTED
(1TIME, 2TIME. . . 9TIME)
* USE OF THESE CODES REQUIRES FURTHER EXPLANATION IN BLOCK 16 TO PROVIDE THE
CONTRACTOR WITH GUIDANCE NECESSARY TO ACCURATELY PRICE THE DELIVERABLE DATA
ITEM.
K. BLOCK 11, AS OF DATE - IF THE DATA IS TO BE SUBMITTED ONLY ONCE, ENTER THE
"AS OF" DATA AS FOLLOWS: YEAR/MONTH/DAY (E.G., "9OMAR10"). THIS IS THE DATE
THAT THE DATA IS TO BE RECEIVED BY THE REQUIRING OFFICE. IF THE DATA IS
SUBMITTED MULTIPLE TIMES, ENTER THE NUMBER OF CALENDAR DAYS AFTER THE END OF THE
REPORTING PERIOD THE REQUIRING OFFICE IS TO RECEIVE THE DATA. FOR EXAMPLE, "15"
WOULD PLACE THE "AS OF' DATE FOR THE DATA AT 15 DAYS AFTER THE END OF THE MONTH,
QUARTER OR YEAR DEPENDING ON THE FREQUENCY ESTABLISHED IN BLOCK 10 (E.G., REPORT
FOR MAY SHOULD BE RECEIVED BY REQUIRING OFFICE BY 15 JUNE). IF DATA IS REQUIRED
PRIOR TO END OF REPORTING PERIOD, EXPLAIN IN BLOCK 16 OF CDRL. IF AN "AS OF"
DATE IS NOT APPLICABLE, END N/A IN BLOCK 11.
L. BLOCK 12, DATE OF FIRST SUBMISSION - ENTER THE INITIAL SUBMISSION DATE AS
FOLLOWS: YEAR/MONTH/DAY (E.G., "9OMAR10"). IF SUBMITTAL IS CONSTRAINED BY A
SPECIFIC EVENT OR MILESTONE, ENTER THIS CONSTRAINT. IF THE CONTRACT START DATE
IS NOT KNOWN, INDICATE THE NUMBER OF DAYS AFTER CONTRACT (DAC) START THAT THE
DATA IS DUE FOR EXAMPLE, "90 DAC"). TYPICAL ABBREVIATIONS IN BLOCK 12 ARE:
ASGEN AS GENERATED *
ASREQ AS REQUIRED *
DAC DAYS AFTER CONTRACT START
DFDEL DEFERRED DELIVERY *
EOC END OF CONTRACT
EOM END OF MONTH
EOG END OF QUARTER
PAGE 7 OF 14 PAGES
<PAGE>
* PROVIDE SPECIFIC INSTRUCTIONS FOR THESE REQUIREMENTS IN BLOCK 16.
NOTE: DO NOT INSERT CLASSIFIED DATES.
M. BLOCK 13, DATE OF SUBSEQUENT SUBMISSION - IF DATA IS SUBMITTED MORE THAN
ONCE, ENTER THE DATE(S) OF SUBSEQUENT SUBMISSION(S). IF SUBMITTAL IS CONSTRAINED
BY A SPECIFIC EVENT OR MILESTONE, EXPLAIN THE CONSTRAINT IN BLOCK 16.
NOTE: DO NOT INSERT CLASSIFIED DATES.
N. BLOCK 14, DISTRIBUTION - ENTER THE ADDRESSES AND THE NUMBER OF DRAFT COPIES
AND THE NUMBER OF FINAL COPIES (REGULAR AND REPRODUCIBLE) TO BE PROVIDED TO
EACH. DOD COMPONENT DESIGNATORS AND OFFICE SYMBOLS/CODES OR UNIT IDENTIFICATION
CODES (UIC'S) MAY BE USED. HOWEVER, AN EXPLANATION OF THESE CODES SHOULD BE
PROVIDED. THE FIRST ADDRESSEE SHOULD BE THE ACCEPTANCE ACTIVITY FOR THE DATA IF
ACCEPTANCE BY DD FORM 250 IS TO BE ACCOMPLISHED AT DESTINATION (SEE BLOCK 7).
WHEN REPRODUCIBLE COPIES (E.G. DIGITAL SUBMISSION, VELLUM, NEGATIVE, ETC.) ARE
REQUIRED, SEE INSTRUCTIONS TO THE OFFERORS, PARAGRAPH, DIGITAL SUBMISSION OF
DATA. IF THE DATA IS NOT ACTUALLY TO BE DELIVERED TO THE GOVERNMENT OR
ASSOCIATED CONTRACTORS OR IF DEFERRED DELIVERY IS REQUIRED, INDICATE BY PLACING
"DFDEL" IN THIS BLOCK AND PROVIDE DISPOSITION INSTRUCTIONS IN BLOCK 16.
NOTE: DO NOT INSERT CLASSIFIED DATES.
O. BLOCK 15 - DELETED
P. BLOCK 16, REMARKS - THIS BLOCK SHALL BE USED TO PROVIDE ADDITIONAL OR
CLARIFYING INFORMATION FOR BLOCKS 1 THROUGH 15. THIS BLOCK SHALL ALSO BE USED TO
TAILOR THE DOCUMENT LISTED IN BLOCK 4. TAILORING MAY BE ACCOMPLISHED BY STATING
THE DELETIONS (E.G., "DELETE 10.4") OR BY STATING WHICH REQUIREMENTS APPLY
(E.G., "ONLY 10.4 AND 10.5 APPLY"), WHICHEVER IS MOST EFFICIENT. BLOCK 16 MAY
ALSO BE USED TO SPECIFY "CONTRACTOR FORMAT IS ACCEPTABLE," OR TO INDICATE THE
DESIRED MEDIUM FOR DELIVERY OF THE DATA.
PAGE 8 OF 14 PAGES
<PAGE>
<TABLE>
<CAPTION>
CDRL INFORMATION AND INDEX
- --------------------------
<S> <C> <C>
SEQ NO DESCRIPTION ID NO
- --------- ------------------------------------ ---------------
A001 Technical and Fiscal Progress Report DI-A-5554
AQ01 Computer Program End Item Doc. DI-ISPC-80590.R
AR01 Technical Report DI-MISC-80508
</TABLE>
PAGE 9 OF 14 PAGES
<PAGE>
CONTRACT DATA REQUIREMENTS LIST FORM APPROVED
(1 DATA ITEM) OMB NO. 1704-0188
<TABLE>
<CAPTION>
<S> <C> <C>
A. CONTRACT LINE ITEM NO.
B. EXHIBIT NO.
C. CATEGORY:
TDP: TM: HER: A A
SYSTEM/ITEM E. CONTRACTOR NO. F. CONTRACTOR
MISSI Library Driver Arch. Dev. X220-010-97 Litronic Industries
1. DATA 2. TITLE OF DATA ITEM 3. SUBTITLE
ITEM TECHNICAL AND FISCAL PROGRESS REPORT
A001
4. AUTHORITY 5. CONTRACT REFERENCE 6. REQUIRING
(DATA ACQUISITION DOC NO.)
DI-A-5554 Task 5, Subtask 2 X22
7. D 250 REQ 9.DIST STATEMENT 10. FREQUENCY 12. DATE OF 1ST
LT STATEMENT MTHLY SUBMISSION
REQUIRED SEE BLOCK 16
8. APP CODE 11. AS OF DATE 13. DATE OF SUBSE-
QUENT SUBMISSION
SEE BLOCK 16
</TABLE>
14. DISTRIBUTION
SEE DISTRIBUTION APPENDIX
17. PRICE GROUP
18. EST TOTAL
PRICE
16. REMARKS
DELIVER INITIAL SUBMISSION OF THIS DATA ITEM NLT 30 DAYS ADAD. SUBSEQUENT
SUBMISSIONS SHALL BE DELIVERED NLT 15 DAYS AFTER THE END OF EACH SUCCEEDING
MONTH. SEE INSTRUCTIONS TO OFFERORS FOR DIGITAL SUBMISSION.
G. PREPARED BY H. DATE I. APPROVED BY J. DATE
Seven Lowe, PBM 13 February 1997 William Nace, PM 13 February
1997
DD FORM 1423 (COMPUTER FACSIMILE) PAGE 10 OF 14 PAGES
<PAGE>
CONTRACT DATA REQUIREMENTS LIST FORM APPROVED
(1 DATA ITEM) OMB NO. 1704-0188
<TABLE>
<CAPTION>
<S> <C> <C>
A. CONTRACT LINE ITEM NO.
B. EXHIBIT NO.
C. CATEGORY:
TDP: TM: OTHER: MISC
SYSTEM/ITEM E. CONTRACTOR NO. F. CONTRACTOR
MISSI Library Driver Arch. Dev. X220-010-97 Litronic Industries
1. DATA 2. TITLE OF DATA ITEM 3. SUBTITLE
ITEM TECHNICAL REPORT - STUDY/SERVICES
AR01
4. AUTHORITY 5. CONTRACT REFERENCE 6. REQUIRING
(DATA ACQUISITION DOC NO.)
DI-MISC-80508 Task 1, 2, & 3 X22
7. D 250 REQ 9.DIST STATEMENT 10. FREQUENCY 12. DATE OF 1ST
LT STATEMENT As Required SUBMISSION
REQUIRED SEE BLOCK 16
8. APP CODE 11. AS OF DATE 13. DATE OF SUBSE-
QUENT SUBMISSION
SEE BLOCK 16
</TABLE>
14. DISTRIBUTION
SEE DISTRIBUTION APPENDIX
17. PRICE GROUP
18. EST TOTAL
PRICE
16. REMARKS
DELIVERY OF THIS DATA ITEM SHALL BE ONE MONTH AFTER COMPLETION OF THE
STUDY/SERVICES TASK. SEE INSTRUCTIONS TO OFFERORS FOR DIGITAL SUBMISSION.
THE DOCUMENTS SHALL BE DELIVERED ON SIZE A PAPER
THE DISKS SHALL BE DELIVERED ON 3.5" DISK DOS FORMATTED AND READABLE AT
MICROSOFT WORD FOR MS WINDOWS, VERSION 6.0 OR OTHER FORMAT AT DIRECTION OF
GOVERNMENT PROGRAM MANAGER.
|G. PREPARED BY H. DATE I. APPROVED BY J. DATE
Seven Lowe, PBM 13 February 1997 William Nace, PM 13 February
1997
DD FORM 1423 (COMPUTER FACSIMILE) PAGE 11 OF 14 PAGES
<PAGE>
CONTRACT DATA REQUIREMENTS LIST FORM APPROVED
(1 DATA ITEM) OMB NO. 1704-0188
<TABLE>
<S> <C> <C> <C>
A. CONTRACT LINE ITEM NO. B. EXHIBIT NO. C. CATEGORY:
TDP: TM: OTHER: IPSC
D. SYSTEM/ITEM E. CONTRACTOR NO. F. CONTRACTOR
MISSI Library Driver Arch. Dev. X220-010-97 Litronic Industries
1. DATA 2. TITLE OF DATA ITEM 3. SUBTITLE
ITEM COMPUTER PROGRAM END ITEM
AQ01 DOCUMENTATION
4. AUTHORITY 5. CONTRACT REFERENCE 6. REQUIRING
(DATA ACQUISITION DOC NO.)
DI-IPSC-80590A Task 1, 2, & 3 X22
7. D 250 REQ 9.DIST STATEMENT 10. FREQUENCY 12. DATE OF 1ST
LT STATEMENT As Required SUBMISSION
REQUIRED SEE BLOCK 16
8. APP CODE 11. AS OF DATE 13. DATE OF SUBSE-
QUENT SUBMISSION
</TABLE>
SEE BLOCK 16
14. DISTRIBUTION
SEE DISTRIBUTION APPENDIX
17. PRICE GROUP
18. EST TOTAL
PRICE
16. REMARKS
1. CONCURRENT WITH SOFTWARE END PRODUCT ACCEPTANCE DELIVER TWO HARDCOPY COPIES
AND TWO SOFTWARE END PRODUCTS AND SUPPORTING TOOLS. THE SOFTWARE SHALL BE
SUBMITTED VIA 3.5" DISKS, FORMATTED IN THE NATIVE OPERATING SYSTEMS.
2. REVISIONS SHALL BE SUBMITTED IN ACCORDANCE WITH U-H-5588.
3. WHEN ANY GOVERNMENT APPROVED SOFTWARE CHANGE COMES IN, ALL SOFTWARE PRODUCTS
(SOURCE CODE, RELATED S/W DOCUMENTATION AND FIRMWARE) WILL BE UPDATED AND
DELIVERED WITHIN 30 DAYS OF GOVERNMENT APPROVAL OF THE CHANGE.
4. COMPUTER PRODUCT IDENTIFICATION WILL BE IMPLEMENTED ACCORDING TO NSA DATA
STANDARD 61.
5. A SPARE SET OF FIRMWARE WILL BE DELIVERED FOR VALIDATION.
"SEE INSTRUCTIONS TO OFFERORS FOR DIGITAL SUBMISSION."
|G. PREPARED BY H. DATE I. APPROVED BY J. DATE
Seven Lowe, PBM 13 February 1997 William Nace, PM 13 February 1997
DD FORM 1423 (COMPUTER FACSIMILE) PAGE 12 OF 14 PAGES
<PAGE>
DISTRIBUTION APPENDIX
FOR
MISSI Library, Driver Arch. Development
A. ALL DELIVERABLE DATA SHALL BE DELIVERED TO THE ADDRESSES
INDICATED IN THE DISTRIBUTION APPENDIX AND IN THE QUANTITIES SPECIFIED.
B. EXTERNAL DISTRIBUTION OF DATA:
1. ALL ORIGINAL DATA TRANSMITTAL LETTERS SHALL BE SERIALIZED, DATED, AND
ADDRESSED TO THE MARYLAND PROCUREMENT OFFICE MAILING ADDRESS IDENTIFIED IN
PARAGRAPH C BELOW.
2. ALL COPIES OF DATA DELIVERABLE TO N14, AS SPECIFIED IN THE DISTRIBUTION
MATRIX, SHALL BE SUBMITTED DIRECTLY AND SEPARATELY FROM ALL OTHER DELIVERABLE
DATA SUBMISSIONS TO NSA.
3. WITH THE EXCEPTION OF THE N14 DISTRIBUTION/MAILING REQUIREMENT IDENTIFIED
ABOVE, ALL OTHER NSA DATA SUBMISSIONS SHALL BE PREPARED AS FOLLOWS. THE
DELIVERABLE DATA FOR ADDRESS #1 (MARYLAND PROCUREMENT OFFICE) SHALL BE SEPARATED
INTO THE QUANTITY AS SPECIFIED BY THE "NSA INTERNAL CDRL DISTRIBUTION MATRIX"
AND SUBMITTED IN A SINGLE PACKAGE. THIS SINGLE PACKAGE SHALL BE FURTHER
SEPARATED INTERNALLY BY INDIVIDUAL COPIES OF THE COVER/ TRANSMITTAL LETTER(S)
INDICATING THEIR INTERNAL DISTRIBUTION.
C. CONTRACTOR EXTERNAL MAILING ADDRESSES:
1. MARYLAND PROCUREMENT OFFICE
ATTN: X22 (CONTRACT NO. _______________)
9800 SAVAGE ROAD
FORT GEORGE G. MEADE, MD 20755
2. MARYLAND PROCUREMENT OFFICE
ATTN: N141 (CONTRACT NO.
9800 SAVAGE ROAD
FORT GEORGE G. MEADE, MD 20755
3. GPR AT FACILITY
ATTN: RESIDENT MANAGER
GOVERNMENT PLAN REPRESENTATIVE
CONTRACTOR'S FACILITY
PAGE 13 OF 14 PAGES
<PAGE>
<TABLE>
<CAPTION>
EXT CDRL LIST
MATRIX TOTAL NSA INTERNAL CDRL DISTRIBUTION MATRIX
DATA N
<S> <C> <C> <C> <C>
AUTHORITY ADDRESSEE ITEM X 1
NUMBERS COPIES 2 4
1 2 3 4 5 6 2 1
A001 2 1
AQ01 2 1
ARO1 2 1
</TABLE>
PAGE 14 OF 14 PAGES
<PAGE>
DATA ITEM DESCRIPTION 2. .IDENTIFICATION NO(S).
AGENCY NUMBER
1. TITLE
TECHNICAL AND FISCAL PROGRESS REPORT DI-A-5554
3. DESCRIPTION/PURPOSE 4. APPROVAL DATE
810219
3.1 To compare the progress achieved
on a contract to the funds expended. 5. OFFICE OF PRIMARY
RESPONSIBILITY
NSA-S5
6. DDC REQUIRED
7. APPLICATION/INTERRELATIONSHIP 8. APPROVAL LIMITATION
7.1 This data item describes the reporting required on a bi-weekly basis
during the contract.
9. REFERENCES (Mandatory as cited
in block 10)
MCSL NUMBER (S)
10. PREPARATION INSTRUCTIONS
10.1 This report will be subdivided into individual task reports.
10.2 Each task report will contain the following:
a. Statement of task objective and requested date of completion.
b. Total allocated funds for task.
c. Technical summary of work done since last report to include description of
accomplishments and problems.
d. Projected date of task completion.
e. Itemized cost during reporting period.
(1) Labor categories.
(2) Materials and other direct costs.
f. Percent of task completed to date and percent of allocated funds expended on
this task.
DD FORM 1664 (Computer Facsimile) PAGE 1 OF 1 PAGES
<PAGE>
DATA ITEM DESCRIPTION Form Approved
OMB No. 0704-0188
Public reporting burden for this collection of information is estimated to
average 110 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden to Washington Headquarters
Services. Directorate tor Information Operations and Reports, 1215 Jefferson
Davis Highway, Suite 1204, Arlington VA 22202-4302, and to the Office of
Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC
20503
1.TITLE 2. IDENTIFICATION NUMBER
COMPUTER PROGRAM END ITEM DOCUMENTATION DI-IPSC-80590A
3. DESCRIPTION/PURPOSE*
3.1 Computer program end item documentation defines the requirements for
documentation to accompany the delivery of software end items.
4. APPROVAL DATE 5. OFFICE OF PRIMARY RESPONSIBILITY (OPR) 6a. DTIC
APPLICABLE 6b. GIDEP APPLICABLE
(YYMMDD)
940112 G/T213
7.APPLICATION/INTERRELATIONSHIP
7.1 This Data Item Description (DID) contains the format and content preparation
instructions for tech data products generated by the specific and discrete task
requirement as delineated in the contract.
7.2 This DID is applicable for contracts which specify delivery of software
developed for the Government.
7.3 This DID supersedes DI-IPSC-80590.
.
8. APPROVAL LIMITATION 9a. APPLICABLE FORMS 9b. AMSC NUMBER
G6981
10. PREPARATION INSTRUCTIONS
10.1 Format. The documentation shall be in contractor format.
-------
10.2 Content.
--------
10.2.1 Computer Listings. A program listing for each computer program in the
------------------
assembler and compiler language as specified in the contract. These listings
shall include:
10.2.1.1 Source programs. A listing containing comments in sufficient detail to
---------------
allow for easy modification of the program and furnish insight into the
relationship of a section to the operation of the total system.
10.2.1 .2 Object programs. Listing of all object programs in the same format as
----------------
the source programs. Listings shall be annotated to allow for easy reference or
comparison to the source coding for that particular program.
10.2.1.3 Executable Programs. All executable programs and databases shall be
developed on the media as specified b the DD Form 1423.
11. DISTRIBUTION STATEMENT
DISTRIBUTION STATEMENT A: Approved for public release; distribution is
unlimited.
DD Form 1665 APR 89 (computer Facsimile) Previous editions are obsolete.
Page 1 of 1
<PAGE>
DATA ITEM DESCRIPTION Form Approved
OMB No. 0704-0188
Public reporting burden for this collection of information is estimated to
average 110 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden to Washington Headquarters
Services. Directorate tor Information Operations and Reports, 1215 Jefferson
Davis Highway, Suite 1204, Arlington VA 22202-4302, and to the Office of
Management and Budget, Paperwork Reduction Project (0704-0188), Washington, DC
20503
1.TITLE 2. IDENTIFICATION NUMBER
TECHNICAL REPORT - STUDY/SERVICES DI-MISC-80508
<TABLE>
<S> <C>
3. DESCRIPTION/PURPOSE*
3.1 A technical report provides fully documented results of studies or analyses
performed.
4. APPROVAL DATE 5. OFFICE OF PRIMARY RESPONSIBILITY (OPR) 6a. DTIC APPLICABLE 6b. GIDEP APPLICABLE
(YYMMDD)
880115 G/T2137
</TABLE>
7.APPLICATION/INTERRELATIONSHIP
7.1 This data item description contains the format and content instructions for
the data product generated by the specific and discrete task; requirement as
delineated in the contract.
7.2 This DID supersedes DI-A-5029.
8. APPROVAL LIMITATION 9a. APPLICABLE FORMS 9b. AMSC NUMBER
G429l
10. PREPARATION INSTRUCTIONS
10.1 Format.
(a) The report and all attachments shall be typewritten, or otherwise clearly
lettered. and shall be duplicated using non-fading ink.
(b) Text shall be prepared on standard letter size paper (8 1/2" x 11").
(c) When attachments are included, they shall be fully identified, referenced in
the text. and folded to conform to the size paper used in the report.
(d) Security classification and distribution markings shall conform to the
requirements of the contract. purchase description and security requirements
checklist, as applicable.
10.2 Content.
(a) Title Page - Identifies the report by providing contract number, project
name or purchase description title, task number and reporting period.
(b) Table of Contents
(continued)
11. DISTRIBUTION STATEMENT
Distribution Statement: .Approved for public release: distribution is
unlimited.
DB Form 1664, APR 89 (computer facsimile) Previous editions are obsolete.
Page 1 of 2
<PAGE>
DI-MISC-80508 (continued)
10. Preparation Instructions (continued)
(c) Section I - Includes the following:
(I) Introduction
(2) Summary - A brief statement of results obtained from the analytic effort.
(3) Conclusions and their condensed technical substantiations.
(d) Section II - A complete and detailed description of the analytic results
which led to the conclusions stated in Section I above.
Page 2 of 2
<PAGE>
EXHIBIT 10.14
SUBLEASE
NOTE: This Sublease document is being used as a Sub-sublease document.
Therefore, the terms "sublease", "sublessor" and "sublessee" will often be used
as "sub-sublease", "sub-sublessor" and sub-sublessee", respectively.
1. PARTIES.
This Sublease, dated October 20, 1997, is made between E.I. du Pont de Nemours
and Company, a Delaware corporation (Sublessor"), and Lintronic Industries, a
California corporation ("Sublessee").
2. MASTER LEASE.
Sublessor is the Sub-lessee under a written lease dated February 21, 1991,
wherein Koll Tower Four Associates, a California limited partnership ("Lessor")
leased to Lessee Hadson Power Systems, a Delaware corporation, the real property
located in the City of Irvine, County of Orange, State of California, described
as portions of that certain 16-story office building located at 2030 Main
Street, Irvine, California, as identified in the Master Lease as the "Premises"
("Master Premises"). Said lease has been amended by the following amendments
that certain Sublease dated April 7, 1995 by and between Hadson Power Systems
("Hadson")*, a Delaware corporation and E.I. du Pont de Nemours and Company (as
existing "Sublessor"); said lease and amendments are herein collectively
referred to as the "Master Lease" and are attached hereto as Exhibit "A".
*Hadson Systems is now LG & E Energy Systems, Inc., a Kentucky Corporation
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set forth in
this Sublease the following portions of the Master Premises ("Premises"):
approximately 11.912 rentable square feet as identified as Exhibit One to the
sublease and further identified as 2030 SE Main Street, Suite 1250, Irvine,
California.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents that the Master Lease has not been amended or
modified except as expressly set forth herein, that Sublessor is not now, and as
of the commencement of the Term hereof will not be, in default or breach of any
of the provisions of the Master Lease, and that Sublessor has no knowledge of
any claim by Lessor that Sublessor is in default or breach of any of the
provisions of the Master Lease.
5. TERM.
The Term of this Sublease shall commence on November 1, 1997 ("Commencement
Date"), or when Lessor consents to this Sublease (if such consent is required
under the Master Lease), whichever shall last occur, and end on September 17,
2001 ("Termination Date"), unless otherwise sooner terminated in accordance with
the provisions of this Sublease. In the event the Term commences on a date other
than the Commencement Date, Sublessor and Sublessee shall execute a memorandum
setting forth the actual date of the commencement of the Term.
<PAGE>
Possession of the Premises ("Possession") shall be delivered to Sublessee on the
commencement of the Term. If for any reason Sublessor does not deliver
Possession to Sublessee on the commencement of the Term, Sublessor shall not be
subject to any liability for such failure, the Termination Date shall not be
extended by the delay, and the validity of this Sublease shall not be impaired,
but rent shall abate until delivery of Possession. Notwithstanding the
foregoing, if Sublessor has not delivered Possession to Sublessee within thirty
(30) days after the Commencement Date, then at any time thereafter and before
delivery of Possession, sublessee may give written notice to Sublessor of
Sublessee's intention to cancel this Sublease. Said notice shall set forth an
effective date for such cancellation which shall be at least ten (10) days after
delivery of said notice to Sublessor. If Sublessor delivers Possession to
Sublessee on or before such effective date, this Sublease shall remain in full
force and effect. If Sublessor fails to deliver Possession to Sublessee on or
before such effective date, this Sublease shall be cancelled, in which case all
consideration previously paid by Sublessee to Sublessor on account of this
Sublease shall be returned to Sublessee, this Sublease shall thereafter be of no
further force and effect, and Sublessor shall have no further liability to
Sublessee on account of such delay or cancellation. If Sublessor permits
Sublessee to take Possession prior to the commencement of the Term, such early
Possession shall not advance the Termination Date and shall be subject to the
provisions of this Sublease, including without limitation the payment of rent.
6. RENT.
6.1. Minimum Rent. Sublessee shall pay to Sublessor as minimum rent, without
deduction, setoff, notice, or demand, at E.I. du Pont de Nemours, Attn:
Corporate Real Estate, 1007 Market Street, D12048A, Wilmington, DE 19898, or at
such other place as Sublessor shall designate from time to time by notice to
Sublessee, the sum of See Addendum One Dollars ($_________) per month, in
advance on the first day of each month of the Term. Sublessee shall pay to
Sublessor upon execution of this Sublease the sum of Twenty Thousand Two Hundred
Fifty and 40/100ths Dollars ($20,250.40) as rent for the first month. If the
Term begins or ends on a day other than the first or last day of a month, the
rent for the partial months shall be prorated on a per diem basis. Additional
provisions: See attached Addendum One
6.2. Operating Costs. If the Master Lease requires Sublessor to pay to Lessor
all or portion of the expenses of operating the building and/or project of which
the Premises are a part ("Operating Costs"), including but not limited to taxes,
utilities, or insurance, then Sublessee shall pay to Sublessor as additional
rent seventy and 24/100ths percent (70.24%) of the amounts payable by Sublessor
for Operating Costs incurred during the Term. Such [illegible text] shall be
payable as and [illegible text] Operating Costs are payable by Sublessor to
Lessor if the Master Lease provides for the payment by Sublessor of Operating
Costs on the basis of an estimate thereof, then as and when adjustments when
estimated and actual Operating Costs are made under the Master Lease, the
obligations of Sublessor and Sublessee hereunder shall be adjusted in a like
manner, and if any such adjustment shall occur after the expiration of
2
<PAGE>
earlier termination of the term, then the obligations of Sublessor and Sublessee
under this Section 6.2 shall survive such expiration or termination. Sublessor
shall, upon request by Sublessee, furnish Sublessee with copies of all
statements submitted by Lessor of actual or estimated Operating Costs during the
Term.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the sum
of Twenty Thousand Two Hundred Fifty and 40/100ths Dollars ($20,250.40) as
security for Sublessee's faithful performance of Sublessee's obligations
hereunder ("Security Deposit"). If Sublessee fails to pay rent or other charges
when due under this Sublease, or fails to perform any of its other obligations
hereunder, Sublessor may use or apply all or any portion of the Security Deposit
for the payment of any rent or other amount then due hereunder and unpaid, for
the payment of any other sum for which Sublessor may become obligated by reason
of Sublessee's default or breach, or for any loss or damage sustained by
Sublessor as a result of Sublessee's default or breach. If Sublessor so uses any
portion of the Security Deposit, Sublessee shall, within ten (10) days after
written demand by Sublessor, restore the Security Deposit to the full amount
originally deposited, and Sublessee's failure to do so shall constitute a
default under this Sublease. Sublessor shall not be required to keep the
Security Deposit separate from its general accounts, and shall have no
obligation or liability for payment of interest on the Security Deposit. In the
event Sublessor assigns its interest in this Sublease, Sublessor shall deliver
to its assignee so much of the Security Deposit as is then held by Sublessor.
Within ten (10) days after the Term has expired, or Sublessee has vacated the
Premises, or any final adjustment pursuant to Subsection 6.2 hereof has been
made, whichever shall last occur, and provided Sublessee is not then in default
of any of its obligations hereunder, the Security Deposit, or so much thereof as
had not theretofore been applied by Sublessor, shall be returned to Sublessee or
to the last assignee, if any, of Sublessee's interest hereunder.
8. USE OF PREMISES.
The Premises shall be used and occupied only for sales, consulting and related
general office functions, and for no other use or purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part of
the Premises without the prior written consent of Sublessor (and the consent of
Lessor, if such is required under the terms of the Master Lease).
10. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are incorporated into
and made a part of this Sublease as if Sublessor were the lessor thereunder,
Sublessee the lessee thereunder, and the Premises the Master Premises, except
for the following:
See attached Addendum One to the Sublease
Sublessee assumes and agrees to perform the lessee's obligations under the
Master Lease during the Term to the extent that such obligations are applicable
to the Premises, except that the
3
<PAGE>
obligation to pay rent to Lessor under the Master Lease shall be considered
performed by Sublessee to the extent and in the amount rent is paid to Sublessor
in accordance with Section 6 of this Sublease. Sublessee shall not commit or
suffer any act or omission that will violate any of the provisions of the Master
Lease. Sublessor shall exercise due diligence in attempting to cause Lessor to
perform its obligations under the Master Lease for the benefit of Sublessee. If
the Master Lease terminates, this Sublease shall terminate and the parties shall
be relieved of any further liability or obligation under this Sublease, provided
however, that if the Master Lease terminates as a result of a default or breach
by Sublessor or Sublessee under this Sublease and/or the Master Lease, then the
defaulting party shall be liable to the nondefaulting party for the damage
suffered as a result of such termination. Notwithstanding the foregoing, if the
Master Lease gives Sublessor any right to terminate the Master Lease in the
event of the partial or total damage, destruction, or condemnation of the Master
Premises or the building or project of which the Master Premises are a part, the
exercise of such right by Sublessor shall not constitute a default or breach
hereunder.
11. ATTORNEYS' FEES
If Sublessor, Sublessee, or Broker shall commence an action against the other
arising out of or in connection with this Sublease, the prevailing party shall
be entitled to recover its costs of suit and reasonable attorney's fees.
12. AGENCY DISCLOSURE.
Sublessor and Sublessee each warrant that they have dealt with no other real
estate broker in connection with this transaction except: CB COMMERCIAL REAL
ESTATE GROUP, INC., who represents Sublessor and Sublessee. In the event that CB
COMMERCIAL REAL ESTATE GROUP, INC. represents both Sublessor and Sublessee,
Sublessor and Sublessee hereby confirm that they were timely advised of the dual
representation and they consent to the same, and that they do not expect said
broker to disclose to either of them the confidential information of the other
party.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such consent
is required under the terms of the Master Lease), Sublessor shall pay Broker a
real estate brokerage commission in accordance with Sublessor's contract with
Broker for the subleasing of the Premises, if any, and otherwise in the amount
of (Per separate agreement) Dollars ($_________) for services rendered in
effecting this Sublease. Broker is hereby made a third party beneficiary of
this Sublease for the purpose of enforcing its right to said commission.
14. NOTICES.
All notices and demands which may or are to be required or permitted to be given
by either party on the other hereunder shall be in writing. All notices and
demands by the Sublessor shall be sent by United States Mail, postage prepaid,
addressed to the Sublessee at the Premises, and to the address hereinbelow, or
to such other place as Sublessee may from time to time designate in a notice to
the Sublessor. All notices and demands by the Sublessee to Sublessor shall be
sent by
4
<PAGE>
United States Mail, postage prepaid, addressed to the Sublessor at the address
set forth herein, and to such other person or place as the Sublessor may from
time to time designate in a notice to the Sublessee.
To Sublessor: E.I. du Pont de Nemours and Company, Corporate Real Estate,
D12048A, 1007 Market Street, Wilmington, Delaware 19898.
To Sublessee: Lintronic Industries, 2030 SE Main Street, Suite 1250, Irvine,
CA 92714.
15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER THE
TERMS OF THE MASTER LEASE.
16. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state and local
laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The Americans With
Disabilities Act.
Sublessor: E.I. du Pont de Nemours and Sublessee: Lintronic Industries, a
Company, a Delaware California corporation
corporation
By:___________________________________ By: /S/ KRIS SHAH
---------------------------------
Title: _______________________________ Title: President
-----------------------------
Date: ________________________________ Date: Oct. 24, 1997
------------------------------
LESSOR'S AND LESSEE'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease and the undersigned
Lessee hereby consents to the foregoing Sublease without waiver of any
restriction in the Master Lease concerning further assignment or subletting.
Lessor certifies that, as of the date of Lessor's execution hereof, Sublessor is
not in default or breach of any of the provisions of the Master Lease, and that
the Master Lease has not been amended or modified except as expressly set forth
in the foregoing Sublease.
Lessor: Koll Tower Four Associates, Lessee: LG & E Energy Systems, Inc.
5
<PAGE>
a California limited partnership a Kentucky corporation
By: __________________________________ By: _________________________________
Title: ________________________________ Title: ______________________________
CONSULT YOUR ADVISORS -- This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker as to the legal
sufficiency or tax consequences of this document or the transaction to which it
relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
6
<PAGE>
EXHIBIT ONE
[Floorplan]
7
<PAGE>
ADDENDUM ONE TO THAT CERTAIN SUBLEASE DATED OCTOBER 20, 1997
BY AND BETWEEN E.I. DU PONT DE NEMOURS AND COMPANY ("DU PONT")
AND LINTRONIC INDUSTRIES ("LINTRONIC")
FOR THE PREMISES LOCATED AT
2030 MAIN STREET, SUITE 1250, IRVINE, CALIFORNIA
BASE RENT: Months Rate/Rentable S.F. Monthly Total
1-46 $1.70 Fully Serviced $20,250.40
TENANT IMPROVEMENTS: Landlord shall clean the premises and shampoo the carpet.
Otherwise, Tenant must accept the premises in its "as is"
condition. Any proposed modifications to the suite must
have the written approval of Sublessor and Lessor, and
shall be at Sublessee's expense.
PARKING: Du Pont shall make available a maximum of forty-eight
(48) in-common unreserved parking spaces to Lintronic at
a monthly charge of $30.00 per space per month. Lintronic
shall lease a minimum of thirty (30) of these parking
spaces for the sublease term. Lintronic shall pay a one-
time charge of $10.00 for each parking card issued.
HAZARDOUS MATERIALS: Du Pont has no knowledge of any toxic or hazardous
materials within the proposed sublease premises. Du Pont
will not provide any warranties or guarantees or be
responsible for any remedies as a result of the presence
of any toxic or hazardous materials.
INDEMNITY: Lintronic shall indemnify and hold Du Pont safe and
harmless from and against any and all loss, costs,
damages, claims, actions or liability on account of the
death of or injury to any person or persons, or the
damage to or destruction of any property or pollution
arising from or growing out of Lintronic's use and
occupancy of the subleased premises, unless caused in
whole or in part by the willful misconduct or sole
negligence of Du Pont or Lessor.
OPERATING EXPENSES: Lintronic shall have a 1998 base year. Lintronic shall
pay for increases in operating expenses in excess of the
1998 base year, which shall be calculated to reflect 95%
occupancy and in accordance with Section 6.2 of the
Sublease document.
8
<PAGE>
EARLY OCCUPANCY: Lintronic shall not commence to pay base rent or operating
expenses other than after-hours heating, ventilation and
air conditioning until November 18, 1997 regardless of
Lintronic's actual occupancy date. Lintronic will be
responsible for parking charges during its early occupancy.
In the event Lintronic cannot occupy the Premises prior to
November 17, 1997, and the delay in occupancy is through no
fault of Lintronic, then rent shall commence one (1)
business day after all approvals have been obtained from
all parties to this Sublease.
FURNITURE: Du Pont shall allow Tenant to utilize the private office,
conference room, reception area and modular furniture
systems in place within the premises as of October 20, 1997
hereinafter referred to as Furniture. By signing below,
Lintronic acknowledges that it has inspected and accepts
the Furniture with respect to quantity and quality. As a
condition of utilizing said Furniture, Lintronic and Du
Pont shall comply with the following:
a. Lintronic shall deposit $30,000 as a non-refundable
deposit towards the purchase of the Furniture.
b. Lintronic's deposit will be retained by Du Pont until
the expiration of the sublease term and then applied
together with a rental credit of $595.60 per month ($.05
per rentable square foot per month) towards the purchase
price for a total rental credit of $27,397.60.
c. Du Pont will convey title to the Furniture to
Lintronic for $1.00 at the end of the sublease term. Title
shall be conveyed by a bill of sale prepared by Du Pont.
d. Any default of the sublease terms or conditions will
result in Lintronic's forfeiture of both the deposit and
rental credit paid by Lintronic.
RIGHT TO ASSIGN
SUBLEASE: Lintronic's rights to sublease or assign all or any portion
of the Premises to any other entity or person per the terms
of the Master Lease and subject to the approval of Lessor,
Lessee and Sublessor.
SIGNAGE: No exterior signage is available from Lessor. All directory
and suite signage shall be obtained through the Master
Lessor and shall be at Lintronic's cost.
9
<PAGE>
Sublessor: E.I. du Pont de Nemours and Sublessee: Lintronic Industries, a
Company, a Delaware California corporation
corporation
By: /S/ AUTHORIZED SIGNATORY By: /S/ KRIS SHAH
------------------------------------ --------------------------------
Title: Manager, Corporate Real Estate Title: President
-------------------------------- -----------------------------
By: /S/ NANCY J. McDANIEL By:________________________________
------------------------------------
Title: Properties Manager Title:_____________________________
--------------------------------
Date: 10/28/97 Date: Oct. 24, 1997
---------------------------------- ------------------------------
Lessor: Koll Tower Four Associates, Lessee: LG & E Energy Systems, Inc.
a California limited a Kentucky corporation
partnership
By: Koll Management Services, Inc., By: a Delaware Corporation As Agent
------------------------------------ --------------------------------
Title: ________________________________ Title: ____________________________
By: /S/ AUTHORIZED SIGNATORY BY:________________________________
------------------------------------
Title: Portfolio Manager Title:_____________________________
---------------------------------
Date: 11/7/97 Date:______________________________
----------------------------------
10
<PAGE>
1st Mo. 20,250.40/mo.
Sec Dep 20,250.40
Furniture Dep 30,000.00
Total 70,500,80
E.I. Du Pont de Nemours & Co.
11
<PAGE>
LITRONIC INDUSTRIES, INC.
GENERAL ACCOUNT
2950 RED HILL AVE PH 714-545-6649
COSTA MESA, CA 92626
BANK OF YORBA LINDA
COSTA MESA, CALIFORNIA 92626
90-3789-1222
24667
024667
PAY **SEVENTY THOUSAND FIVE HUNDRED DOLLARS & 80 CENTS**
TO THE ORDER OF
E.I. DUPONT DE NEMOURS & COMPANY
DATE 10/24/97
AMOUNT $70,500.80
/S/ Kris Shah
/S/ Nancy R. Mckenna
LITRONIC INDUSTRIES, INC.
24667
024667
DATE
10/24/97
INVOICE NO.
COMMENT
AMOUNT
70,500.80
DISCOUNT
NET AMOUNT
$70,500.80
12
<PAGE>
CHECK: 024667
10/24/97
E.I. DUPONT DE NEMOURS & CO.
TOTAL: $70,500.80
13
<PAGE>
AMENDMENT NO. 1 TO OFFICE BUILDING SUB-SUBLEASE
This Amendment No. 1 to the Office Building Sub-sublease (the "Amendment") is
made as of this 24 day of November 1997 by and between E. I. du Pont de Nemours
and Company, a Delaware corporation ("Sublessor") and Lintronic Industries, a
California Corporation ("Sublessee").
Sublessor and Sublessee are parties to that certain Office Building Sub-sublease
dated October 20, 1997 (the "Sub-sublease") pursuant to which Sublessor sub-
subleases to Sublessee that certain space identified as 11,912 rentable square
feet in 2030 Main Street, Suite 1250, Irvine, California.
Sublessor and Sublessee agree to amend the Sub-sublease as follows:
1. Rent Commencement Date: Rent shall start November 24, 1997 and will
continue through September 17, 2001.
Except as herein provided, all other terms and conditions of the Sub-sublease
shall be in full force and effect.
Sublessor: Sublessee:
E.I. duPont de Nemours and Company, Lintronic Industries,
a Delaware corporation a California corporation
By:________________________________ By: /s/ Kris Shah
-------------------------------------
Title:_____________________________ Title: President
----------------------------------
Date:______________________________ Date: Dec. 1, 97
-----------------------------------
14
<PAGE>
EXHIBIT A
OFFICE BUILDING LEASE
BETWEEN
KOLL TOWER FOUR ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
LANDLORD
AND
HADSON POWER SYSTEMS,
A DELAWARE CORPORATION
TENANT
<PAGE>
OFFICE BUILDING LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. TERMS AND DEFINITIONS ....................................... 1
2. PREMISES AND COMMON AREAS LEASED ............................ 3
3. TERM ........................................................ 7
4. POSSESSION .................................................. 7
5. ANNUAL BASIC RENT ........................................... 8
6. RENT ADJUSTMENT ............................................. 11
7. SECURITY DEPOSIT ............................................ 22
8. USE ......................................................... 23
9. NOTICES ..................................................... 25
10. BROKERS ..................................................... 26
11. HOLDING OVER ................................................ 26
12. TAXES ON TENANT'S PROPERTY .................................. 26
13. CONDITION OF PREMISES ....................................... 27
14. ALTERATIONS ................................................. 28
15. REPAIRS ..................................................... 30
16. LIENS ....................................................... 31
17. ENTRY BY LANDLORD ........................................... 31
18. UTILITIES AND SERVICES ...................................... 32
19. BANKRUPTCY .................................................. 33
20. EXONERATION ................................................. 34
21. INDEMNIFICATION ............................................. 35
22. INSURANCE ................................................... 36
23. DAMAGE OR DESTRUCTION ....................................... 40
24. EMINENT DOMAIN .............................................. 44
25. DEFAULTS AND REMEDIES ....................................... 45
26. ASSIGNMENT AND SUBLETTING ................................... 48
27. SUBORDINATION ............................................... 52
28. ESTOPPEL CERTIFICATE ........................................ 54
29. LANDLORD ESTOPPEL CERTIFICATE ............................... 55
30. RULES AND REGULATIONS ....................................... 55
31. CONFLICT OF LAWS ............................................ 55
32. SUCCESSORS AND ASSIGNS ...................................... 55
33. SURRENDER OF PREMISES ....................................... 55
34. PROFESSIONAL FEES ........................................... 56
35. PERFORMANCE BY TENANT ....................................... 56
36. MORTGAGEE PROTECTION ........................................ 57
37. DEFINITION OF LANDLORD ...................................... 57
38. WAIVER ...................................................... 57
39. IDENTIFICATION OF TENANT .................................... 58
40. PARKING ..................................................... 58
41. FORCE MAJEURE ............................................... 61
42. TERMS AND HEADINGS .......................................... 61
43. EXAMINATION OF LEASE ........................................ 61
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
44. TIME ........................................................ 61
45. PRIOR AGREEMENT; AMENDMENTS ................................. 61
46. SEPARABILITY ................................................ 62
47. RECORDING ................................................... 62
48. LIMITATION ON LIABILITY ..................................... 62
49. MODIFICATION FOR LENDER ..................................... 63
50. FINANCIAL STATEMENTS ........................................ 63
51. QUIET ENJOYMENT ............................................. 63
52. TENANT AS CORPORATION OR PARTNERSHIP ........................ 63
53. MOVING EXPENSES ............................................. 63
54. ATHLETIC CLUE MEMBERSHIP .................................... 64
55. OPTION TO EXTEND TERM ....................................... 64
56. EXPANSION OPTION ............................................ 67
57. FIRST RIGHT TO LEASE ELEVENTH FLOOR ......................... 68
58. LANDLORD'S RIGHT TO TERMINATE ............................... 69
59. REFURBISHMENT ALLOWANCE ..................................... 74
60. LEASE REFURBISHMENT AGREEMENT ............................... 75
61. ACCESS TO PREMISES .......................................... 75
62. SIGNAGE ..................................................... 75
63. [Intentionally Omitted] ..................................... 77
64. ABATEMENT OF RENT WHEN TENANT IS PREVENTED
FROM USING PREMISES ....................................... 77
65. GUARANTEE ................................................... 77
SIGNATURE PAGES ..................................................... 78
</TABLE>
EXHIBITS:
A-I Outline of Floor Plan of Premises
A-II Parking Facilities
A-III Site Plan
A-IV Common Areas
B Work Letter Agreement
C Notice of Lease Term Dates and Tenant's Percentage
D Standards for Utilities and Services
E Tenant Estoppel Certificate
F Rules and Regulations
G Agreement Regarding Existing Lease Obligations
H Guaranty of Lease
I Expansion Space
-ii-
<PAGE>
OFFICE BUILDING LEASE
THIS OFFICE BUILDING LEASE ("Lease") is made as of the 21st day of
February, 1991, by and between KOLL TOWER FOUR ASSOCIATES, a California limited
partnership ("Landlord"), and HADSON POWER SYSTEMS, a Delaware corporation
("Tenant").
1. TERMS AND DEFINITIONS. For the purposes of this Lease, the following
terms shall have the following definitions and meanings:
(a) Landlord: Koll Tower Four Associates, a California limited
partnership
(b) Landlord's Asset Management Office address (For Rent and Notices)
The Koll Company
4343 Von Karman Avenue
Newport Beach, California 92660
Attention: Division Manager
With a copy to:
KCIN FOUR, L.P., a California Limited
Partnership
c/o The Koll Company
4343 Von Karman Avenue
Newport Beach, California 92660
(c) Tenant: Hadson Power Systems, a Delaware corporation
(d) Tenant's address:
(i) Prior to Tenant's occupancy:
Hadson Power Systems
16845 Von Karman Avenue
Irvine, California 92714
Attention: President
(ii) On and After Tenant's occupancy:
<PAGE>
Hadson Power Systems
2030 Main Street
Suites 1200-1500,
Irvine, California 92714
Attention: President
(g) Premises: Those certain premises defined in Subparagraph 2(a)
below.
(h) Development: The parcel or parcels of real property defined in
Subparagraph 2(a) below.
(i) Premises Area: Approximately _________ subject to final
determination in accordance with Subparagraph 2(c) below.
(l) Tenant Improvement Allowance: _________ Usable Square Foot of the
Premises (as determined in accordance with Subparagraph 2(c) below).
(m) Tenant Improvements: All work performed by Landlord to prepare the
Premises for occupancy pursuant to the Work Letter Agreement described in
Subparagraph 2(a) below.
(o) Annual Basic Rent and Monthly Basic Rent: __________________
subject to adjustment pursuant to Paragraph 5(b) below.
-2-
<PAGE>
(q) Tenant's Percentage: Tenant's percentage of the Building on a
Rentable Square Foot basis, which initially is _____________________,
subject to final determination in accordance with Subparagraph 2(c) below.
(y) Use: General Office Use.
(w) Building Area: Approximately Three Hundred Forty-Six Thousand Six
Hundred Eighty Four (346,684) Rentable Square Feet, subject to final
determination in accordance with Subparagraph 2(c) below.
2. PREMISES AND COMMON AREAS LEASED.
-3-
<PAGE>
By taking possession of the Premises for the purpose of conducting its
business therein, Tenant accepts the Tenant Improvements as completed or as
substantially completed, and in the latter case, Landlord's and Tenant's
construction representatives shall compile a list of incomplete and/or
corrective items, and Landlord shall complete and/or correct such items within
thirty (30) days following completion of such list; provided, however, in the
event that a longer period of time is reasonably required for the completion and
correction of any such item, Landlord shall proceed with due diligence to
complete and/or correct such item as soon as reasonably possible. Tenant
acknowledges that the Site Plan is conceptual only with respect to those
portions of the Development which have not yet been constructed, and that
Landlord shall have no obligation to construct or complete any additional
buildings or improvements to the Common Areas (as hereinafter defined) or in any
way further develop or improve the Development.
(b) The parties hereto agree that said "letting and hiring is upon and
subject to the terms, covenants and conditions herein set forth and Tenant and
Landlord covenant as a material part of the consideration for this Lease to keep
and perform each and all of said terms, covenants and conditions by it to be
kept and performed and that this Lease is made upon the condition of such
performance.
(c) The Rentable Square Feet and Usable Square Feet of the Premises and the
Rentable Square Feet of the Building shall be determined in accordance with the
standards set forth in ANSI Z65.l-1980, as promulgated by the Building Owners
and Managers Association ("BOMA Standard"), subject to the following
modifications with respect to the determination of the Rentable Square Feet of
the Premises: (i) the rentable area of the premises shall include Tenant's
Percentage of the total square feet contained in the lobby area on the ground
floor of the Building and the other areas of the Building used as Building
Common Areas or for Building services including, without limitation, any fire
control room, telephone room, mail room, service elevator areas, mechanical
rooms on the ground floor and any connecting service corridor, management
office, and security office, and (ii) the rentable area of each floor of the
Building shall be computed using the average Rentable/Usable Ratio (as defined
in the BOMA Standard) for the Building. For purposes of establishing the initial
Tenant's Percentage, Operating Expenses Allowance, Annual Basic Rent, Tenant
Improvement Allowance, and parking privileges, all as shown in ______________-
of this Lease, the approximate Rentable Square Feet of the
-4-
<PAGE>
Premises is deemed to be as set forth in ________________ the approximate
Rentable Square Feet of the Building is deemed to be as set forth in
Subparagraph 1(w), and the approximate Usable Square Feet of the Premises is
deemed to be ________________. Prior to the Commencement Date,
__________________________, Landlord, at Landlord's expense, shall provide
Tenant with a certification from Stevenson Systems, Inc. (or another entity
reasonably acceptable to Tenant), of the Rentable Square Feet and Usable Square
Feet of the Premises and the Rentable Square Feet of the Building, calculated in
accordance with the provisions of this Subparagraph 2(c). Within thirty (30)
days after the Commencement Date, Tenant shall have the right, at Tenant's sole
cost and expense, to cause its architect to confirm the rentable area of the
Premises and the Building, and the usable area of the Premises as set forth in
such certification. In no event shall any adjustments be made to any such
rentable or usable area calculations for the Premises or the Building set forth
in such certification unless with respect to the particular rentable or usable
area calculation for the Premises or the Building, the calculation made by
Stevenson Systems, Inc. (or other entity described above) is in error by more
than two percent (2%) of the actual correct measurement. Upon final
determination of the rentable and usable areas of the Premises and the rentable
area of the Building, as specified above, appropriate adjustments to reflect
such measurements shall be made to Tenant's Percentage, Operating Expense
Allowance, Annual Basic Rent, Tenant Improvement Allowance, parking privileges
and other applicable provisions of the Lease based upon such measurements.
(d) Tenant shall have the nonexclusive right to use in common with other
tenants in the Building and the Development and subject to the Rules and
Regulations referred to in Paragraph 30 below and all covenants, conditions and
restrictions affecting the Development, the following areas appurtenant to the
Premises:
(i) The Building's common entrances, lobbies, restrooms, elevators,
stairways and accessways, loading docks, ramps, drives and platforms and
any passageways and serviceways thereto, and the common pipes, conduits,
wires and appurtenant equipment serving the Premises (collectively,
"Building Common Areas");
(ii) Loading and unloading areas, trash areas, parking areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas and
similar areas and facilities situated within the Development (collectively,
"Common Areas"); and
-5-
<PAGE>
(iii) The Parking Facilities.
The current Common Areas are depicted on Exhibit "A-IV" attached to this Lease,
and incorporated herein by this reference.
(e) Landlord reserves for itself and for the owner(s) and operator(s) of
the Common Areas, the Parking Facilities and the remaining portions of the
Development, the right from time to time without unreasonable interference with
Tenant's use or access to the Premises, and without any material increase in
Tenant's obligations or costs under the Lease including but not limited to, any
increase in Operating Expenses:
(i) To install, use, maintain, repair and replace pipes, ducts,
conduits, wires and appurtenant meters and equipment for service to other
parts of the Building above the ceiling surfaces, below the floor surfaces,
within the walls and in the central core areas, and to relocate any pipes,
ducts, conduits, wires and appurtenant meters and equipment included in the
Premises which are located in the Premises or located elsewhere outside the
Premises, and to expand the Building and/or the Parking Facilities;
(ii) To make changes to the Building Common Areas, the Common Areas
and/or the Parking Facilities, including, without limitation, changes in
the location, size, shape and number of driveways, entrances, parking
spaces or parking areas (but, except as otherwise provided in Paragraph 40
below, without reducing the number of parking privileges to which Tenant is
entitled hereunder), loading and unloading areas, ingress, egress,
direction of traffic, landscaped areas and walkways;
(iii) To close temporarily any of the Building Common Areas, the
Common Areas and/or the Parking Facilities for maintenance purposes so long
as reasonable access to the Premises and the parking privileges to which
Tenant is entitled pursuant to Paragraph 40 below, remains available;
(iv) To designate other land outside the boundaries of the Building
or the Development to be a part of the Common Areas;
(v) To add additional buildings and improvements to the Common
Areas;
-6-
<PAGE>
(vi) To use the Building Common Areas, the Common Areas and/or the
Parking Facilities while engaged in making additional improvements, repairs
or alterations to the Building, the Parking Facilities, the Development, or
any portion thereof; and
(vii) To do and perform such other acts and make such other changes
in, to or with respect to the Building Common Areas, the Common Areas, the
Building, the Parking Facilities or the Development as Landlord and/or the
owner(s) and/or operator(s) of the Common Areas, the Parking Facilities and
the remaining portions of the Development may, in the exercise of sound
business judgment, deem to be appropriate.
3. TERM. The Term of this Lease shall be for the period designated in
__________, commencing on the Commencement Date, and ending on the last day of
the calendar month in which the expiration of such period occurs, unless the
Term hereby demised shall be sooner terminated as hereinafter provided. Each
consecutive twelve (12) month period of the Term of this Lease, commencing on
the Commencement Date and including the last twelve (12) month period of the
Term of this Lease or portion thereof (if the expiration of the Term of this
Lease occurs prior to the expiration of such last twelve (12) month period),
shall be referred to herein as a "Lease Year". The Commencement Date, the date
upon which the Term of this Lease shall end, the Rentable Square Feet within the
Premises and the Building and Tenant's Percentage shall be specified in
Landlord's Notice of Lease Term Dates and Tenant's Percentage ("Notice"), in the
form of Exhibit "C" which is attached hereto and is incorporated herein by this
reference, and shall be served upon Tenant as provided in Paragraph 9, after
Landlord delivers or tenders possession of the Premises to Tenant. The Notice
shall be binding upon Tenant unless Tenant objects to the Notice in writing,
served upon Landlord as provided for in Paragraph 9 hereof, within ten (10)
business days of Tenant's receipt of the Notice.
4. POSSESSION. Subject to the terms of Paragraph 8 of the Work Letter
Agreement and Tenant Delays, __________________, Tenant agrees that, if Landlord
is unable to substantially complete (as defined in Paragraph 8 of EXHIBIT "B")
the Tenant Improvements by that date specified in the Work Schedule (as such
term is defined in the Work Letter Agreement), this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, nor shall the expiration date of the above Term be in any
way extended, but in such event Tenant shall not be liable for any rent until
the Commencement Date. Subject to ___________ Paragraph 8 of
-7-
<PAGE>
Exhibit "B", if Landlord completes construction of the Tenant Improvements prior
to the date scheduled in the Work Schedule, Landlord shall deliver Possession of
the Premises to Tenant Upon such completion and the Term of this Lease shall
thereupon commence. On or before thirty (30) days prior to Landlord's projected
date for substantial completion of the Premises Landlord shall provide Tenant
with written notice of such projected substantial completion date. Landlord
shall thereafter provide Tenant with reasonable good faith notice of any changes
in such projected substantial completion date.
5. ANNUAL BASIC RENT.
(a) Tenant agrees to pay Landlord as Annual Basic Rent for the
Premises the Annual Basic Rent ___________ (subject to adjustment as
hereinafter provided) in twelve (12) equal monthly installments, each in
advance on the first day of each calendar month during the Term, except
that one (1) full installment of Monthly Basic Rent at the rate of ________
per Rentable Square Foot of the Premises shall be paid upon the execution
of this Lease, with such Monthly Basic Rent to be applied as provided in
Subparagraph 5(c) below. If the Term of this Lease commences or ends on a
day other than the first day of a calendar month, then the rent for such
period shall be prorated in the proportion that the number of days this
Lease is in effect during such period bears to the actual number of days in
such calendar month. In addition to the Annual Basic Rent, Tenant agrees to
pay as additional rent the amount of rent adjustments and other charges
required by this Lease. All rent shall be paid to Landlord, without prior
demand and without any deduction or offset (except as otherwise provided in
Paragraph 64 and Exhibit "G"), in lawful money of the United States of
America, at the address of ________________________ or to such other person
or at such other place as Landlord may from time to time designate in
writing. Further, all charges to be paid by Tenant hereunder, including,
without limitation, payments for Operating Expenses, insurance, repairs and
parking, shall be considered additional rent for purposes of this Lease,
and the word rent" in this Lease shall include such additional rent unless
the context specifically or clearly implies that only Annual Basic Rent is
referenced.
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(d) Late Charges. In the event Tenant fails to pay any installment of
rent when due or in the event Tenant fails to make any other payment for
which Tenant is obligated under this Lease when due, such late amount shall
accrue interest and Tenant shall pay Landlord as additional rent such
interest on such amount at the lesser of the Prime Rate (as defined below)
plus two (2) percentage points or the maximum rate permitted by law (the
"Interest Rate") from the date such amount became due until such amount is
paid. "Prime Rate" shall mean the prime or reference rate announced by Bank
of America, N.T.&S.A., from time to time, or in the event such institution
no longer makes commercial loans in Southern California, the then
prevailing prime or reference rate announced by the three (3) largest banks
(in terms of assets) in the United States. In addition, on any third (3rd)
and subsequent occasion during a particular Lease Year which Landlord
notifies Tenant in writing of a late payment of rent under this Lease,
Tenant shall pay to Landlord, as additional rent, concurrently with such
late payment amount, or promptly upon receipt of such third (3rd) or
subsequent notice, whichever is later, a late charge equal to four percent
(4%) of the amount due to compensate Landlord for the extra costs incurred
as a result of such late payment. Unless Landlord notifies Tenant in
writing, within thirty (30) days following the due date of a payment, that
Landlord is imposing such late charge, then Landlord shall waive the right
to impose such late charge. The parties agree that such interest and late
charge represent a fair and reasonable estimate of the detriment that
Landlord will suffer by reason of late payment by Tenant. Acceptance of any
such interest and late charge shall not constitute a waiver of the Tenant's
default with respect to the overdue amount, or prevent Landlord from
exercising any of the other rights and remedies available to Landlord.
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6. RENT ADJUSTMENT.
(a) For the purposes of this Subparagraph 6(a), the following terms are
defined as follows:
Tenant's Percentage: Tenant's Percentage shall mean that portion of the
total rentable area of the Building leased by Tenant as set forth as a
percentage in Subparagraph 1(q) above, subject to adjustment in accordance with
Subparagraph 2(c) above.
Operating Expenses: Operating Expenses shall consist of all direct costs of
operation, management, maintenance and repair of the Building, including without
limitation, the Building Common Areas, the Parking Facilities, and the Common
Areas, including any expansions to the Parking Facilities and/or the Common
Areas by Landlord or by the owner(s) and/or the operator(s) of the Parking
Facilities and/or the Common Areas in accordance with the provisions of this
Lease, as determined by standard accounting practices, calculated assuming the
Building is ninety-five percent (95%) occupied and fully assessed for real
property tax purposes (without exemption or abatement) as a completed Building,
ready for occupancy (including tenant improvements), including the following
costs by way of illustration, but not limitation: any and all assessments
Landlord must pay for the Building or the Parking Facilities pursuant to any
covenants, conditions or restrictions, reciprocal easement agreements,
tenancy-in-common agreements or similar restrictions and agreements affecting
the Building, the Parking Facilities or the Development; real property taxes
with respect to the Building, Parking Facilities and Common Areas (as defined
hereinbelow); water and sewer charges; accounting, legal and other consulting
fees directly related to the operation of the Building, Common Areas or Parking
Facilities; the net cost and expense of insurance for which Landlord and/or the
owner(s) and/or the operator(s) of the Parking Facilities and/or the Common
Areas is (are) responsible hereunder or which Landlord and/or the owner(s)
and/or the operator(s) of the Parking Facilities and/or the Common Areas or any
first mortgagee with a lien affecting the Premises, Building, Parking Facilities
and/or Common Area reasonably deems necessary; utilities; janitorial services;
security; labor; utilities surcharges, or any other costs levied, assessed or
imposed by, or at the direction of, or resulting from statutes or regulations or
interpretations thereof, promulgated by any federal, state, regional, municipal
or local government authority in connection with
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the use or occupancy, of the Building, the Premises, the Common Areas or the
Parking Facilities serving the Premises or the Development; the cost (amortized
over such reasonable period as Landlord shall determine together with interest
at the Interest Rate) of any capital improvements made to the Building, the
Parking Facilities or the Common Areas by Landlord or by the owner(s) and/or the
operator(s) of the Parking Facilities and/or the Common Areas or replacement of
any building equipment needed to operate the Building, the Parking Facilities or
the Common Areas at the same quality levels as prior to the improvement or
replacement or as mandated by revisions or governmental interpretations of any
applicable building codes or other applicable governmental laws, orders,
regulations or ordinances; costs incurred in the management of the Building, the
Common Areas and the Parking Facilities, if any (including supplies,
commercially reasonable on site management office rent, wages and salaries of
employees used in the management, operation and maintenance of the Building, the
Parking Facilities, and the Common Areas, and payroll taxes and similar
governmental charges with respect thereto, a fee for the management of the
Building and, any commercially reasonable management or administration fee
respecting the Common Areas or Parking Facilities assessed against or allocated
to the Building pursuant to the CC&R's or Parking CC&R's or any amendment,
modification, supplement or replacement thereof or thereto which does not
increase Tenant's rental obligations hereunder; air conditioning; waste
disposal; heating; ventilating; elevator repair and maintenance; supplies;
materials; equipment; tools; repair and maintenance of the structural portions
of the Building and the Parking Facilities, including the plumbing, heating,
ventilating, air conditioning and electrical systems installed or furnished by
Landlord; maintenance costs, including utilities and payroll expenses, rent of
personal property used in maintenance, and all other upkeep of the Building, the
Parking Facilities, and the Common Areas; costs and expenses of gardening and
landscaping; maintenance of signs (other than signs identifying Tenant (the
expenses for which shall be directly paid by Tenant), other tenants, or Landlord
(as opposed to the Building or Development)); personal property taxes levied on
or attributable to personal property used in connection with the entire
Building, including the Parking Facilities and Common Areas; reasonable audit or
verification fees; and the costs and expenses of repairs, resurfacing,
repairing, maintenance, painting, lighting, cleaning, refuse removal, security
and similar items, including appropriate reserves; and any other operation,
management, maintenance and repair costs respecting the Common Areas or Parking
Facilities assessed against or allocated to the Building pursuant to the CC&R's
or Parking CC&R's, or any amendments, modifications,
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supplements or replacements thereto or thereof, or any other covenants,
conditions and restrictions later placed on the Development, to the extent that
any such amendments, modifications, supplements, replacements, or subsequent
covenants, conditions and restrictions do not increase Tenant's rental
obligations hereunder. Operating Expenses shall not include depreciation on the
Building, the Parking Facilities or equipment therein, Landlord's executive
salaries or real estate brokers' commissions.
For purposes of this Lease, the "CC&R's" shall mean that certain Amended
and Restated Declaration of Establishment of Covenants, Conditions and
Restrictions and Grant of Easements for Koll Center Irvine North, dated January
29, 1987, by and among The Koll-Columbia Venture, Holiday Inns, Inc., Embassy
Suites Division, Columbia Savings and Loan Association, Liberty Service
Corporation, KCIN ONE, and KCIN TWO, and recorded in the Official Records of
Orange County, California on February 9, 1987 as Instrument No. 89-096801. For
purposes of this Lease, the "Parking CC&R's" shall mean that certain Declaration
Establishing Easements, Covenants and Restrictions for KCIN Parking Facilities
dated February, 1989, by The Koll-Columbia Venture, a California general
partnership, and recorded in the Official Records of Orange County, California
on February 23, 1989, as Instrument No. 89-096802, and re-recorded on October 9,
1959.
As used herein, the term "real property taxes" shall include any form of
assessment, license fee, license tax, business license fee, commercial rent tax,
levy, charge, penalty, tax or similar imposition, imposed by any authority
having the direct power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
or special assessment district thereof, as against any legal or equitable
interest in the Building, Premises, Common Areas or Parking Facilities, for the
period in question, including, but not limited to, the following:
(i) any tax on Landlord's "right" to other income from the Premises
or as against Landlord's business of leasing the Building or the Premises;
(ii) any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge
previously included within the definition of real estate tax, including but
not limited to, any assessments, taxes, fees, levies and charges that may
be imposed by governmental agencies for such services as fire protection,
street, sidewalk and
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road maintenance, refuse removal and for other governmental services
formerly provided without charge to property owners or occupants. It is the
intention of Tenant and Landlord that all such new and increased
assessments, taxes, fees, levies and charges be included within the
definition of "real property taxes" for the purposes of this Lease;
(iii) any assessment, tax, fee, levy or charge allocable to or
measured by the area of the Premises or the Building or the rent payable
hereunder or pursuant to other leases in the Building, including, without
limitation, any gross income tax or excise tax levied by the State, city or
federal government, or any political subdivision thereof, with respect to
the receipt of such rent, or upon or with respect to the possession,
leasing, operating, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Building or the Premises, or any portion
thereof; provided, however, that no such tax shall be treated as a "real
property tax" unless the revenues generated by such tax are used
exclusively for city, county or other local purposes, as opposed to state
or federal purposes, and unless such tax is assessed only to the address of
the Building (or all other buildings similarly situated) and not to
Landlord generally without regard to its ownership of the Building;
(iv) any assessment, tax, fee, levy or charge upon this transaction
or any document to which Tenant is a party creating or transferring an
interest or an estate in the Premises, or based upon a reassessment of the
Development or any portion thereof, due to a change in ownership or
transfer of all or part of Landlord's interest in this Lease, the
Development, or any portion thereof.
Notwithstanding any provision of this Subparagraph 6(a) expressed or
implied to the contrary, "real property taxes" shall not include Landlord's
federal or state income, franchise, inheritance or estate taxes.
Notwithstanding any provision of this Subparagraph 6(a) to the contrary,
during the initial Term of the Lease only, "real property taxes" shall not
include any increase in real property taxes attributable to an assessment or
reassessment of the Building, Development, or any portion thereof due to (i) the
first Third Party Change in Ownership (as defined below) during the initial Term
with respect to such reassessed portion of the Building or Development, or (ii)
an Existing Owner Change in Ownership (as defined below)
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during the initial Term with respect to such reassessed portion of the Building
or Development which Existing Owner Change in Ownership occurs prior to the
first Third Party Change in Ownership with respect to such reassessed portion
of the Building or Development. The exclusion from real property taxes set forth
in the immediately preceding sentence shall not apply to any increase in real
property taxes attributable to a change in ownership (as defined in Rule 462 of
the Rules of the State Board of Equalization) ("Change in Ownership") of any
portion of the Building or Development which has previously been the subject of
a reassessment based upon a Third Party Change in Ownership. In addition, any
exclusion from real property taxes set forth in this paragraph shall not be
applicable during any extension of the initial 122 month Term of this Lease. An
"Existing Owner Change in Ownership" shall mean any Change in Ownership which
constitutes a transfer of legal or beneficial ownership of such applicable
portion of the Building or Development only among those persons or entities
which hold legal or beneficial (i.e., through ownership interests in other
entities) ownership in such applicable portion of the Building or Development as
of the date of this Lease. A "Third Party Change in Ownership" shall mean any
Change in Ownership other than an Existing Owner Change in Ownership.
Landlord and Tenant agree that in determining Operating Expenses, only the
Building's Share (as defined below) of the Operating Expenses attributable to
the Common Areas shall be included in Operating Expenses hereunder. The
"Building Share" shall mean that portion of the operating expenses of the Common
Areas which is allocated to the Building pursuant to the CC&R's or Parking
CC&R's, or any amendment, modifications, supplements or replacements thereto or
thereof, to the extent such amendments, modifications, supplements or
replacements do not increase Tenant's rental obligations hereunder.
Landlord and Tenant acknowledge that since the Building is part of a
larger, integrated Development, in many instances a pure segregation between
costs of operation of the Building and the remaining portions of the Development
may not be available. Consequently, except for Operating Expenses attributable
to the Common Areas which shall be allocated to the Building as provided in the
immediately preceding paragraph, in those instances in which a pure segregation
between costs of operation of the Building and other portions of the Development
is not available, a fair and equitable allocation of such costs shall be made
among the various buildings in the Development.
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Operating Expenses shall be "net" only and for that purpose shall be deemed
reduced by the amounts of any insurance reimbursement, other reimbursement,
recoupment, payment, discount, credit, reduction, allowance or the like received
by Landlord from any source whatsoever in connection with such Operating
Expenses.
Notwithstanding anything to the contrary contained in this Paragraph 6(a)
the following shall be excluded from the definition of Operating Expenses:
(i) repairs or other work occasioned by fire, windstorm or other
insured casualty (except that deductibles paid pursuant to any insurance
shall be included as Operating Expenses) or by the exercise of eminent
domain, to the extent Landlord is reimbursed by insurance or by the
condemning authority, or would have been so reimbursed if Landlord had
maintained in force the insurance required to be carried by Landlord under
the provisions of the Lease;
(ii) leasing commissions, attorneys' and other professional fees,
costs and disbursements and other expenses incurred in connection with
procuring new tenants and/or negotiations or disputes with present or
prospective tenants or other occupants of the Building or the Development;
(iii) costs incurred in renovating or otherwise improving or
decorating, painting or redecorating space leased to tenants or occupied by
occupants of the Building;
(iv) Landlord's cost of electricity or other services that are sold
to tenants for which Landlord is entitled to reimbursement, other than
through the payment of rent or a tenant's prorata share of Operating
Expenses;
(v) depreciation, amortization and interest payments, except as
provided herein and except on materials, tools, supplies and vendor-type
equipment purchased by Landlord to enable Landlord to supply services
Landlord might otherwise contract for with a third party where such
depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party's services, all as determined
in accordance with generally accepted accounting principles, consistently
applied, and when depreciation or amortization is permitted or required.
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the item shall be amortized over its reasonably anticipated useful life
with interest at the Interest Rate;
(vi) costs of a capital nature, including, but not limited to,
capital improvements, capital replacements, capital repairs, capital
equipment and capital tools, determined in accordance with generally
accepted accounting principles, consistently applied, except for any such
capital costs which (i) reduce other Operating Expenses, amortized over the
useful life of the asset, including interest at the Interest Rate, but only
to the extent of the reduction of other Operating Expenses, (ii) are
required under any governmental law or regulation that was not applicable
to the Building at the time the Building was constructed, amortized over
the useful life of the asset, with interest at the Interest Rate, or (iii)
constitute costs of a capital nature, including, without limitation,
capital improvements, capital repairs, capital equipment and capital tools,
in an aggregate amount not to exceed Twenty Thousand Dollars ($20,000.00)
during any calendar year;
(vii) expenses in connection with services or other benefits offered
or provided to other tenants in the Building, but not to Tenant;
(viii) costs incurred due to or in connection with a violation by
Landlord or any tenant of the terms and conditions of any lease of space in
the Building;
(ix) overhead and profit increment paid to a subsidiary, affiliate
or other entity related to Landlord for services to the extent the same
exceed competitive costs (taking into account the quality of service
provided in maintaining a Class-A office building) of such services were
they not so rendered by a subsidiary, affiliate or other Landlord-related
entity;
(x) interest on ____ or amortization payments on any mortgage or
mortgages, and rental under any ground or underlying lease or leases,
including without limitation, costs incurred in obtaining or refinancing
any such financing;
(xi) Landlord's general overhead not related to the operation of the
Development;
(xii) all costs and expenses for which Tenant or other tenants
directly reimburse Landlord other than as part of rent or Operating
Expenses;
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(xiii) costs incurred in advertising and promotional activities for
the Building and Development;
(xiv) fines or penalties, and interest accrued thereon, incurred as
a result of late payments by Landlord to governmental authorities;
(xv) management fees for the operation of the Building or Parking
Facilities to the extent such fees exceed four percent (4%) of actual gross
revenue; "gross revenue" shall mean the actual gross rent, operating
expense escalations and parking revenues received by Landlord, grossed-up
to reflect a ninety-five percent (95%) occupancy rate for the Building in
the event that the Building occupancy rate is less than ninety-five (95%);
provided, however, this clause (xv) shall not apply to any management or
administrative fee applicable to the Common Areas and assessed or imposed
against the Building pursuant to the CC&R's;
(xvi) acquisition costs of the sculptures, paintings, or other
objects of art, except that Operating Expenses shall include maintenance of
such items;
(xvii) wages, salaries or other compensation paid to any executive
employees above the grade of building manager;
(xviii) rentals and other related expenses, if any, incurred in
leasing air conditioning systems, elevators or other equipment ordinarily
considered to be of a capital nature;
(xix) any compensation paid to clerks, attendants, or other persons
in commercial concessions operated by Landlord, except as it directly
relates to the operation of the Development or the Parking Facilities;
(xx) capital expenditures required by Landlord's failure to comply
with laws enacted on or before the date the Building's temporary
Certificate of Occupancy is validly issued, with respect to the
construction of the base building work, or enacted on or before the
issuance of an occupancy permit for Tenant's occupancy of the Premises,
with respect to the construction of the Tenant Improvements; and
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(xxi) insurance premiums for earthquake coverage, unless earthquake
coverage is carried by Landlord during the period of determination of the
Operating Expense Allowance.
Landlord shall not be permitted to "double recover" any operating Expenses
(i.e., recover more than 100% of Operating Expenses) from the tenants of the
Building.
(b) If Tenant's Percentage of the Operating Expenses paid or incurred by
Landlord for any calendar year exceeds the Operating Expense Allowance, then
Tenant shall pay such excess as additional rent. For each calendar year during
the Term of the Lease, or portion thereof, Tenant shall pay Landlord's estimate
of the amount by which Tenant's Percentage of Operating Expenses for that year
shall exceed the Operating Expense Allowance, which estimate may be changed by
Landlord on not more than two (2) occasions during any calendar year. On or
before each April 1 following the calendar year in which the Term commences, or
as soon thereafter as reasonably practicable, Landlord shall deliver to Tenant
its estimate of the amount by which Tenant's Percentage of Operating Expenses is
projected to exceed the Operating Expense Allowance. Such estimate shall be
determined by Landlord in good faith, using reasonable business judgment, and
shall take into consideration any limitation on Controllable Costs set forth in
Subparagraph 6(d). Landlord's initial estimated amount each year shall be
divided into twelve (12) equal monthly installments. Commencing with the second
(2nd) Lease Year, Tenant shall pay to Landlord, concurrently with the regular
monthly rent payment next due following the receipt of the estimate for the
remaining calendar year of such second (2nd) Lease year, an amount equal to one
monthly installment multiplied by the number of months from the first (1st)
anniversary of the Commencement Date to the month of such payment, both months
inclusive. Subsequent installments shall be payable concurrently with the
regular monthly rent payments for the balance of that calendar year and shall
continue until the next calendar year's or any revised estimate is rendered. If
during any year Landlord revises its previous estimate, any such revision shall
be applied prospectively only; provided, however, that such prospective
application shall not prevent Landlord from recovering from Tenant, upon
delivery of its statement of actual Operating Expenses for the previous year,
the amount, if any, by which Tenants Percentage Share of actual Operating
Expenses exceeds Landlord's estimates
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thereof, as described below. If, in any calendar year, Tenant's Percentage of
actual Operating Expenses is less than the estimate for that year, then upon
receipt of Landlord's statement, any overpayment made by Tenant on the monthly
installment basis shall be credited towards the next monthly rent falling due
(or, at Tenant's request, repaid to Tenant) and the estimated monthly
installments of the amount by which Tenant's Percentage of Operating Expenses
exceeds the Operating Expense Allowance shall be adjusted to reflect such lower
Operating Expenses for the most recent calendar year. Similarly, if Tenant's
Percentage of the actual Operating Expenses for any calendar year is greater
than that previously estimated by Landlord for such year, Tenant shall pay the
amount of such difference to Landlord on the regular monthly rent payment date
next following Tenant's receipt of Landlord's statement of actual Operating
Expenses.
(c) Even though the Term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's Percentage of Operating
Expenses for the year in which this Lease terminates, Tenant shall immediately
pay any increase due over the estimated expenses paid and, conversely, any
overpayment made in the event said expenses decrease shall be immediately
rebated by Landlord to Tenant.
(d) Commencing with the first (1st) anniversary of the Commencement Date
and continuing thereafter to and including the sixtieth (60th) month of the Term
of the Lease, the portion of Operating Expenses which constitute "Controllable
Costs" (as defined below) shall not increase over such four (4) year period at
an average rate in excess of five percent (5%) per annum. During the period from
months sixty-one (61) through ninety (90) of the Term of the Lease, Controllable
Costs shall not increase beyond the "Secondary Cap". The "Secondary Cap" shall
mean an average rate per annum equal to the greater of (i) five percent (5%) per
annum, or (ii) the average annual cost of living increase between the first
(1st) month and the sixtieth (60th) month of the Term of this Lease (which shall
be determined by comparing the Consumer Price Index - Urban Wage Earners and
Clerical Workers - Los Angeles-Anaheim-Riverside, California, Base 1982-84
("CPI") compiled by the U.S. Department of Labor, Bureau of Labor Statistics,
for month one (1) with the CPI for month sixty (60), and dividing any such total
increase by five (5)). During the period from months ninety-one (91) through
one-hundred twenty-two (122) of the Term of the Lease, Controllable Costs shall
not increase beyond the "Final Cap". The "Final Cap" shall mean an average rate
per annum of the greater of (x) the Secondary Cap, or (y) the average annual CPI
increase between the sixty-first (61st) month through the ninetieth (90th) month
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of the Term of the Lease. The rate specified in clause (y) shall be computed by
comparing the CPI for month sixty-one (61) of the Term with the CPI for month
ninety (90) of the Term and dividing any such total increase by 2.5. For
purposes of illustration, if the total CPI increase from the first (1st) month
of the Term to the sixtieth (60th) month of the Term is thirty-five percent
(35%), then the Secondary Cap shall be seven percent (7%). Similarly, if the
total CPI increase from the sixty-first (61st) to the ninetieth (90th) month of
the Term is twenty percent (20%), the Final Cap shall be eight percent (8%).
"Controllable Costs" shall mean all Operating Expenses which can increase or
decrease at the independent and sole discretion of Landlord, as opposed to
increases or decreases which are industry-wide or are caused by third parties or
over which Landlord has no independent control. By way of illustration but not
limitation, Operating Expenses over which Landlord has no independent and sole
discretion include any Operating Expenses paid to a public utility, insurer and
taxing authority for utilities, insurance, real property taxes, and costs of
operating, maintaining and repairing the Building, Common Areas and Parking
Facilities at the level of a Qualified Building (as defined in Paragraph 55) as
required by this Lease, as contrasted with the cost of operating, maintaining
and repairing the Building, Common Areas and Parking Facilities at a level below
that of a Qualified Building. If the parties disagree upon whether a specific
Operating Expense is a Controllable Cost, such disagreement shall be submitted
to arbitration in accordance with the provisions of the American Arbitration
Association. Landlord agrees that approximately every two (2) years Landlord
shall rebid the janitorial, security, landscape and parking service contracts
for the Building.
(e) In the event Tenant shall dispute the amount set forth in Landlord's
statement of actual Operating Expenses for the previous year (or the statement
setting forth the Operating Expense Allowance), Tenant shall have the right not
later than ninety (90) days following receipt of such statement to notify
Landlord in writing that Tenant intends to examine Landlord's books and records
with respect to both the calendar year described in such statement and the
calendar year immediately preceding the calendar year described in such
statement, and, if Tenant elects, shall also have the right within such ninety
(90) day period to notify Landlord in writing that Tenant intends to cause
Landlord's books and records with respect to such two (2) calendar years
described above to be audited by a certified public accountant mutually
acceptable to Landlord and Tenant. Any such examination or audit shall be
performed at Landlord's offices during normal business hours and shall be
completed within ninety (90) days following Tenant's notice
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described above. The amounts payable under Subparagraph 6(b) by Landlord to
Tenant or by Tenant to Landlord, as the case may be, shall be appropriately
adjusted on the basis of such audit. If such audit discloses an overstatement by
Landlord of Operating Expenses for the particular calendar year(s) which is the
subject of the audit in excess of five percent (5%) of the aggregate actual
Operating Expenses for such year(s), the cost of such audit shall be borne by
Landlord; otherwise, the cost of such audit shall be borne by Tenant. Tenant
shall have no right to audit the Operating Expenses unless Tenant complies with
the time limitations regarding notice and completion of such audit set forth in
this Subparagraph 6(e) and if Tenant shall fail to comply with such time
limitations, Landlord's actual statement of Operating Expenses respecting any
time period as to which Tenant's audit rights have lapsed shall be conclusively
binding upon Landlord and Tenant.
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8. USE.
(a) Tenant's Use of the Premises. Tenant shall use the Premises for the
uses set forth in Subparagraph 1(v) above, and shall not use or permit the
Premises to be used for any other purpose without the prior written consent of
Landlord. Nothing contained herein shall be deemed to give Tenant any exclusive
right to such use in the Building, the Parking Facilities (other than Tenant's
right to use its reserved parking spaces pursuant to Paragraph 40) or any
portion of the Development.
(b) Compliance.
(i) Tenant shall not use or occupy the Premises in violation of law or
of the Certificate of Occupancy issued for the Building, and shall, upon
written notice from Landlord, discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a
violation of law or of said Certificate of Occupancy. The Certificate of
Occupancy shall not prevent Tenant from using the Premises for general
office purposes. Tenant shall comply with any direction of any governmental
authority having jurisdiction which shall, by reason of the nature of
Tenant's use or occupancy of the Premises, impose any duty upon Tenant or
Landlord with respect to the Premises or with respect to the use or
occupation thereof. Tenant shall comply with all rules, orders, regulations
and requirements of the Pacific Fire Rating Bureau or any other
organization performing a similar function; provided, however, Landlord
agrees that the provisions of this sentence shall not interfere with
Tenant's occupancy of the Premises for general office use. Tenant shall
promptly, upon demand, reimburse Landlord for any additional premium
charged for such policy by reason of Tenant's failure to comply with the
provisions of this Paragraph. Tenant shall not do or permit anything to be
done in or about the Premises
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which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building, the Parking Facilities or the
Development, or injure them, or use or allow the Premises to be used for
any unlawful purpose, nor shall Tenant cause, maintain or permit any
nuisance in, on or about the Premises. Tenant shall comply with all
restrictive covenants and obligations created by private contracts which
affect the use and operation of the Premises, the Building, the Parking
Facilities, the Common Areas or the Development. Landlord agrees that,
subject to any such private contracts or provisions thereof as are required
by applicable law, any such private contracts entered into after the date
of this Lease shall be nondiscriminatory and shall not unreasonably
interfere with Tenant's use of or access to the Premises or materially
increase Tenant's obligations under the Lease. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises and shall keep the
Premises in first class repair and appearance. Landlord reserves the right
to prescribe the weight and position of all files, safes and heavy
equipment which Tenant desires to place in the Premises so as to properly
distribute the weight thereof in accordance with the structural
requirements of the Building. Further, Tenant's business machines and
mechanical equipment which cause vibration or noise that may be transmitted
to the Building structure or to any other space in the Building shall be so
installed, maintained and used by Tenant as to eliminate such vibration or
noise. Tenant shall be responsible for all structural engineering required
to determine structural load.
(ii) Tenant shall not cause or permit any hazardous, toxic or
radioactive materials, including those materials identified in Sections
66680 through 66685 of Title 22 of the California Administrative Code,
Division 4, Chapter 30, as amended from time to time ("Hazardous
Materials"), to be brought upon, kept or used in or about the Premises, the
Building, the Parking Facilities or the Common Areas by Tenant, its agents,
employees, contractors or invitees, unless such Hazardous Materials (in
incidental quantities) are necessary or useful to Tenant's business and
will be used, kept and stored in a manner that complies with all laws
regulating any such Hazardous Materials, and provided that Tenant first
obtains the written consent of Landlord and the owner(s) and/or operator(s)
of the Parking Facilities and Common Areas, and provided further that
Tenant indemnifies Landlord, and the owner(s) and operator(s) of the
Parking Facilities and
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Common Areas from any and all liability with respect to such Hazardous
Materials as more particularly described below. If Tenant breaches the
covenants and obligations set forth herein or, if the presence of Hazardous
Materials on, in or about the Premises, the Building, the Parking
Facilities, the Common Areas or any other portion of the Development caused
or permitted by Tenant, its agents, employees, contractors or invitees,
results in contamination of the Premises, the Building, the Parking
Facilities, the Common Areas or any other portion of the Development or, if
contamination of the Premises, the Building, the Parking Facilities, the
Common Areas or any other portion of the Development by Hazardous Materials
otherwise occurs for which Tenant is legally liable to Landlord, the
owner(s) or operator(s) of the Parking Facilities and/or the Common Areas,
whether jointly or severally, for damage resulting therefrom, then Tenant
shall indemnify, defend and hold Landlord and the owner(s) and operator(s)
of the Parking Facilities and the Common Areas free and harmless from and
against any and all claims, judgments, damages, penalties, fines, costs,
liabilities and losses (including, without limitation, diminution in the
value of the Premises, the Parking Facilities and/or the Common Areas,
damages for the loss or restriction on use of rentable or useable space or
of any amenity of the Premises, the Building, the Common Areas or any other
portion of the Development, and sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees) which arise during or
after the Lease Term as a result of such contamination. This
indemnification by Tenant of Landlord, the owner(s) and operator(s) of the
Parking Facilities and the Common Areas, includes without limitation, any
and all costs incurred in connection with any investigation of site
conditions or any clean up, remedial, removal or restoration work required
by any federal, state or local governmental agency or political subdivision
because of the presence of such Hazardous Material in, on or about the
Premises, the Building, the Parking Facilities, the Common Areas or the
soil or ground water on or under the Development.
(iii) The provisions of this Paragraph 8 shall survive the termination
of this Lease.
9. NOTICES. Any notice required or permitted to be given hereunder must be
in writing and may be given by personal delivery or by mail, and if given by
mail shall be deemed sufficiently given if sent by registered or certified mail
addressed if to Tenant, at the address set forth in ______________________ if
such notice is sent prior to Tenant taking
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occupancy of the Premises, or to the Premises, if such notice is sent on or
after Tenant taking occupancy of the Premises, or if to Landlord, at each of the
addresses ________________________________________. Either party may specify a
different address for notice purposes by written notice to the other, except
that on or after Tenant taking occupancy of the Premises, the Landlord may in
any event use the Premises as Tenant's address for notice purposes.
10. BROKERS. Landlord and Tenant each warrant to the other party that it
has had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, except for those certain brokers whose names are set
forth in ___________ whose commission shall be payable by Landlord, and that
it knows of no other real estate broker or agent who is or might be entitled to
a commission in connection with this Lease. If either party has dealt with any
other person or real estate broker with respect to leasing or renting space in
the Building, such party shall be solely responsible for the payment of any fee
due said person or firm and shall hold the other party free and harmless against
any liability in respect thereto, including attorneys' fees and costs.
11. HOLDING OVER. If Tenant holds over after the expiration or earlier
termination of the Term hereof with the express written consent of Landlord,
Tenant shall become a Tenant at sufferance only, at a rent rate equal to one
hundred fifty percent (150%) of the rent in effect upon the date of such
expiration (subject to adjustment as provided in Paragraphs 5 and 6 hereof and
prorated on a daily basis), and otherwise subject to the terms, covenants and
conditions herein specified, so far as applicable. Acceptance by Landlord of
rent after such expiration or earlier termination shall not result in a renewal
of this Lease. The foregoing provisions of this Paragraph 11 are in addition to
and do not affect Landlord's right of re-entry or any rights of Landlord
hereunder or as otherwise provided by law. If Tenant fails to surrender the
Premises upon the expiration of this Lease despite demand to do so by Landlord,
Tenant shall indemnify and hold Landlord harmless from all loss or liability,
including without limitation, any claim made by any succeeding tenant founded on
or resulting from such failure to surrender and any attorneys' fees and costs.
12. TAXES ON TENANT'S PROPERTY.
(a) Tenant shall be liable for and shall pay, at least ten (10) days
before delinquency, all taxes levied against any personal property or trade
fixtures placed by Tenant in or about the Premises. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of the Premises is increased
by the inclusion therein
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of a value placed upon such personal property or trade fixtures of Tenant
and if Landlord, after written notice to Tenant, pays the taxes based upon
such increased assessment, which Landlord shall have the right to do
regardless of the validity thereof, but only under proper protest if
requested by Tenant, Tenant shall, upon demand, repay to Landlord the taxes
so levied against Landlord, or the portion of such taxes resulting from
such increase in the assessment.
(b) If the Tenant Improvements in the Premises, whether installed,
and/or paid for by Landlord or Tenant and whether or not affixed to the
real property so as to become a part thereof, are assessed for real
property tax purposes at a valuation higher than the valuation at which
tenant improvements conforming to Landlord's "Building Standard" for other
space in the Building are assessed, then the real property taxes and
assessments levied against the Building by reason of such excess assessed
valuation shall be deemed to be taxes levied against personal property of
Tenant and shall be governed by the provisions of Paragraph 12(a) above. If
the records of the County Assessor are available and sufficiently detailed
to serve as a basis for determining whether the Tenant Improvements are
assessed at a higher valuation than "Building Standard" improvements, such
records shall be binding on both Landlord and Tenant. If the records of the
County Assessor are not available or sufficiently detailed to serve as a
basis for making said determination, the actual cost of construction shall
be used. Notwithstanding any contrary provision of this Subparagraph 12(b),
the provisions of this Subparagraph 12(b) shall be applicable only to the
extent the cost of the Tenant Improvements initially installed in the
Premises, or any alterations made thereto by or on behalf of Tenant during
the Term exceeds Thirty Dollars ($30.00) per Usable Square Foot of the
Premises.
13. CONDITION OF PREMISES. Tenant acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty with respect to
the Premises, the Building, the Parking Facilities or any other portion of the
Development or with respect to the suitability of same for the conduct of
Tenant's business. The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises, the Building and the Parking
Facilities were in satisfactory condition at such time, subject to the approved
punch-list items, and latent defects, which Landlord shall promptly repair.
Landlord agrees to enforce all applicable warranty obligations of contractors
and materialmen in connection with the construction of the Building and
Premises. Without limiting the foregoing, Tenant's execution of the Notice
attached hereto as Exhibit "C" shall constitute a specific acknowledgment
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and acceptance of the various start-up inconveniences that may be associated
with the use of the Building, the Parking Facilities, the Common Areas and other
portions of the Development such as certain construction obstacles including
scaffolding, delays in use of freight elevator service, certain elevators not
being available to Tenant, the passage of work crews using elevators, uneven air
conditioning services and other typical conditions incident to recently
constructed office buildings; provided, however, that such inconveniences shall
not materially interfere with Tenant's use of or access to the Premises.
14. ALTERATIONS.
(a) Tenant shall make no alterations, additions or improvements in or
to the Premises without Landlord's prior written consent, which consent
shall not be unreasonably withheld or delayed, and then only by contractors
or mechanics reasonably approved by Landlord, which approval shall not be
unreasonably delayed. Tenant shall submit to Landlord plans and
specifications for any proposed alterations, additions or improvements to
the Premises, and may not make such alterations, additions or improvements
until Landlord has approved of such plans and specifications. Tenant shall
construct such alterations, additions or improvements in accordance with
the plans and specifications approved by Landlord, and shall not amend or
modify such plans and specifications without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed. If
the proposed change requires the consent or approval of any lessor of a
superior lease, or the holder of a mortgage encumbering the Premises, such
consent or approval must be secured prior to the construction of such
alteration, addition or improvement. Tenant agrees that there shall be no
construction of partitions or other obstructions which might interfere with
Landlord's free access to mechanical installations or service facilities of
the Building or interfere with the moving of Landlord's equipment to or
from the enclosures containing said installations or facilities. All such
work shall be done at such times and in such manner as Landlord may from
time to time designate. Tenant covenants and agrees that all work done by
Tenant shall be performed in full compliance with all laws, rules, orders,
ordinances, regulations and requirements of all governmental agencies,
offices and boards having jurisdiction, and in full compliance with the
rules, regulations and requirements of the Pacific Fire Rating Bureau, and
of any similar body. Before commencing any work, Tenant shall give Landlord
at least ten (10) days written notice of the proposed commencement of such
work and shall, if reasonably required by Landlord based upon the
reputation and financial capability of the contractor and the nature
of
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the work to be performed (including Landlord's particular reasons
therefor), secure at Tenant's own post and expense, a completion and lien
indemnity bond reasonably satisfactory to Landlord for said work. Tenant
further covenants and agrees that any mechanic's lien filed against the
Premises or against the Building for work claimed to have been done for, or
materials' claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within twenty (20) days after the filing
thereof, at the cost and expense of Tenant, except that Tenant shall not be
obligated to so discharge such lien prior to ten (10) days following
Tenant's receipt of notice of the existence thereof. As long as Tenant
properly discharges the lien by bond or otherwise, as provided above,
Tenant shall have the right to contest such lien in accordance with
applicable law. All alterations, additions or improvements upon the
Premises made by either party, including (without limiting the generality
of the foregoing) all wallcovering, built-in cabinet work, paneling and
the like, shall, unless Landlord elects otherwise, become the property of
Landlord, and shall remain upon, and be surrendered with the Premises, as a
part thereof, at the end of the Term hereof, except that Landlord may, by
written notice to Tenant at the time Landlord consents to such alteration,
or within twenty (20) days after receipt of notice thereof, if no consent
is required, require Tenant to remove at the end of the Term, all
partitions, counters, railings and the like installed by Tenant, and Tenant
shall repair all damage resulting from such removal or, at Landlord's
option, shall pay to Landlord all costs arising from such removal.
Notwithstanding any contrary provision of this Subparagraph 14(a),
Landlord's prior consent shall not be required for any nonstructural
alteration to the Premises, the cost of which does not exceed Thirty
Thousand Dollars ($30,000.00), as long as such alteration does not affect
the structural integrity of the Building, does not adversely affect the
Building systems and is not visible from the exterior of the Premises;
provided, however, all other provisions of this Subparagraph 14(a) shall be
applicable to any such alteration, including, but not limited to Tenant's
obligation to provide Landlord with prior written notice of any such
alteration, along with the plans and specifications related thereto, if
appropriate.
(b) All articles of personal property and all business and trade
fixtures, machinery and equipment, furniture and movable partitions owned
by Tenant or installed by Tenant at its expense in the Premises shall be
and remain the property of Tenant and may be removed by Tenant at any time
during the Lease Term when Tenant is not in default hereunder, or within
fifteen (15) days following the end of such Lease Term. If Tenant shall
fail to remove all of its
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effects from the Premises within fifteen (15) days after termination of
this Lease for any cause whatsoever, Landlord may, at its option, remove
the same in any manner that Landlord shall choose, and store said effects
without liability to Tenant for loss thereof. In such event, Tenant agrees
to pay Landlord upon demand any and all expenses incurred in such removal,
including court costs and attorneys' fees and storage charges on such
effects, for any length of time that the same shall be in Landlord's
possession. Landlord may, at its option, without notice, sell said effects,
or any of the same, at private sale and without legal process, for such
price as Landlord may obtain and apply the proceeds of such sale upon any
amounts due under this Lease from Tenant to Landlord and upon the expense
incident to the removal and sale of said effects.
15. REPAIRS.
(a) By entry hereunder, Tenant accepts the Premises as being in good
and sanitary order, condition and repair. Tenant shall keep, maintain and
preserve the Premises in first class condition and repair and free from any
Hazardous Materials, and shall, when and if needed, at Tenant's sole cost
and expense, but subject to the provisions of Subparagraph 15(b) below,
make all repairs to the Premises and every part thereof. Tenant's
obligation to keep, maintain, preserve and repair the Premises shall
specifically extend to the cleanup and removal of all Hazardous Materials
occurring in, on or about the Premises, the Building, the Parking
Facilities or any other portion of the Development, caused or permitted by
Tenant, its agents, employees, contractors or invitees. Tenant shall, upon
the expiration or sooner termination of the Term hereof, surrender the
Premises to Landlord in the same condition as when received, free of any
Hazardous Materials, usual and ordinary wear and tear and casualty
excepted. Landlord shall have no obligation to alter, remodel, improve,
repair, decorate or paint the Premises or any part thereof. The parties
hereto affirm that Landlord has made no representations to Tenant
respecting the condition of the Premises, the Building, the Parking
Facilities or the Common Areas except as specifically herein set forth.
(b) Anything contained in Paragraph 15(a) above to the contrary
notwithstanding, Landlord shall repair and maintain or cause to be repaired
and maintained, in a first class condition the structural portions of the
Building and the Parking Facilities, and the plumbing, heating,
ventilating, air conditioning, elevator and electrical systems installed or
furnished by Landlord, unless such maintenance and repairs are attributable
to items installed
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in Tenant's Premises which are above standard interior improvements (such
as, for example, custom lighting, kitchen or restroom facilities
constructed within Tenant's Premises) or, are caused in part or in whole by
the act, neglect or omission of any duty by Tenant, its agents, servants,
employees or invitees, in which case Tenant shall pay to Landlord, as
additional rent, the reasonable cost of such maintenance and repairs.
Landlord shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant. Except as provided in
Paragraphs 23 and 64 hereof, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in or
to fixtures, appurtenances and equipment therein. Tenant waives the right
to make repairs at Landlord's expense under any law, statute or ordinance
now or hereafter in effect. Landlord agrees that all necessary repairs to
items located in the Premises which do not serve the Premises but
exclusively serve other tenants' premises shall be made after normal
business hours, so as to minimize interference with Tenant's use and
occupancy of the Premises.
16. LIENS. Tenant shall not permit to be filed against the Building or any
portion of the Development nor against Tenant's leasehold interest in the
Premises, any mechanics', materialmen's or other liens, including, without
limitation, any state, federal or local "super-fund" or Hazardous Material
cleanup lien imposed as a result of the presence of Hazardous Materials in, on
or about the Premises, the Building or any other portion of the Development.
Landlord shall have the right at all reasonable times to post and keep posted on
the Premises any notices which it deems necessary for protection from such
liens. If any such liens are filed, Landlord may, without waiving its rights and
remedies based on such breach of Tenant and without releasing Tenant from any of
its obligations, cause such liens to be released by any means it shall deem
proper, including payments in satisfaction of the claim giving rise to such
lien. Tenant shall pay to Landlord at once, upon notice by Landlord, any sum
paid by Landlord to remove such liens, together with interest at the maximum
rate per annum permitted by law from the date of such payment by Landlord.
17. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times
have the right to enter the Premises upon not less than twenty-four (24) hours
prior notice, except in the case of an emergency, to inspect the same, to supply
janitor service and any other service to be provided by Landlord to
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Tenant hereunder, to show the Premises to prospective purchasers or tenants, to
post notices of nonresponsibility, to alter, improve or repair the Premises or
any other portion of the Building and/or the Parking Facilities, all without
being deemed guilty of any eviction of Tenant and, except as otherwise provided
in Paragraph 64, without abatement of rent. Landlord may, in order to carry out
such purposes, erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, provided that the
business of Tenant shall be interfered with as little as is reasonably
practicable. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss in, upon and about the
Premises. Landlord shall at all times have and retain a key with which to unlock
all doors in the Premises, excluding Tenant's vaults, safes and other security
areas. Landlord shall have the right to use any and all means which Landlord may
deem proper to open said doors in an emergency in order to obtain entry to the
Premises. Any entry to the Premises obtained by Landlord by any of said means,
or otherwise, shall not be construed or deemed to be a forcible or unlawful
entry into the Premises, or an eviction of Tenant from the Premises or any
portion thereof, and any damages caused on account thereof shall be paid by
Tenant. It is understood and agreed that no provision of this Lease shall be
construed as obligating Landlord to perform any repairs, alterations or
decorations except as otherwise expressly agreed herein by Landlord. Except in
the event of an emergency, Tenant shall have the right to have one of its
personnel accompany Landlord on any entry by Landlord to the Premises.
Landlord's absolute right of entry to the Premises to show the Premises to
prospective tenants shall be limited to the last year of the Term; provided,
that at all other times Tenant shall use its commercially reasonable efforts to
cooperate with Landlord's reasonable requests to display the Premises to
prospective tenants.
18. UTILITIES AND SERVICES. Landlord agrees to furnish or cause to be
furnished to the Premises the utilities and services described in the Standards
for Utilities and Services, attached hereto as Exhibit "D", subject to the
conditions and in accordance with the standards set forth therein. Landlord's
failure to furnish any of the foregoing items when such failure is caused by (i)
accident, breakage or repairs; (ii) strikes, lockouts or other labor disturbance
or labor dispute of any character; (iii) governmental regulation, moratorium or
other governmental action; (iv) inability despite the exercise of reasonable
diligence to obtain electricity, water or fuel; or by (v) any other cause beyond
Landlords reasonable control, shall not result in any liability to Landlord. In
addition, subject to the provisions, of Paragraph 64, Tenant shall not be
entitled to
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any abatement or reduction of rent by reason of such failure, no eviction of
Tenant shall result from such failure and Tenant shall not be relieved from the
performance of any covenant or agreement in this Lease because of such failure.
In the event of any failure, stoppage or interruption thereof, Landlord shall
diligently attempt to resume service promptly. If Tenant requires or utilizes
more water than reasonably required for normal drinking and lavatory purposes,
as specified in Paragraph 4 of Exhibit "D", or utilizes more electricity than
the standard electrical consumption specified in Paragraph 3 of Exhibit "D",
Landlord may at its option require Tenant to pay, as additional rent, the cost,
as fairly determined by Landlord, incurred by such extraordinary usage. In
addition, if Tenant utilizes excess water or electricity as described above, and
continues such excess use after written notice thereof by Landlord, then upon an
additional prior written notice to Tenant Landlord may install separate meter(s)
for the Premises, at Tenant's sole expense, and Tenant thereafter shall pay all
charges of the utility providing service and Landlord shall make an appropriate
adjustment to Tenant's Operating Expenses calculation to account for the fact
Tenant is directly paying such metered charges, provided Tenant shall remain
obligated to pay its proportionate share of Operating Expenses subject to such
adjustment.
19. BANKRUPTCY. If Tenant shall file a petition in bankruptcy under any
provision of the Bankruptcy Code as then in effect, or if Tenant shall be
adjudicated a bankrupt in involuntary bankruptcy proceedings and such
adjudication shall not have been vacated within ninety (90) days from the date
thereof, or if a receiver or trustee of Tenant's property shall be appointed and
the order appointing such receiver or trustee shall not be set aside or vacated
within ninety (90) days after the entry thereof, or if Tenant shall assign
Tenant's estate or effects for the benefit of creditors, or if this Lease shall,
by operation of law or otherwise, pass to any person or persons other than
Tenant, then in any such event Landlord may terminate this Lease, if Landlord so
elects, with or without notice of such election and with or without entry or
action by Landlord. In such case, notwithstanding any other provisions of this
Lease, Landlord, in addition to any and all rights and remedies allowed by law
or equity, shall, upon such termination, be entitled to recover damages in the
amount provided in Paragraph 25(b) hereof. Neither Tenant nor any person
claiming through or under Tenant or by virtue of any statute or order of any
court shall be entitled to possession of the Premises but shall surrender the
Premises to Landlord. Nothing contained herein shall limit or prejudice the
right of Landlord to recover damages by reason of any such termination equal to
the maximum allowed by any statute or rule of law in effect at the time when,
and governing the
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proceedings in which, such damages are to be proved; whether or not such amount
is greater, equal to or less than the amount of damages recoverable under the
provisions of this Paragraph 19.
20. EXONERATION.
(a) Except as set forth in Subparagraphs 20(c) and 21(a) below, due
to the gross negligence or willful misconduct of Landlord or its agents,
employees or invitees, Landlord shall not be liable to Tenant for any loss
or damage to Tenant's personal property in the Premises (or outside the
Premises to the extent insured by Tenant and not insured by Landlord with
insurance paid for as part of Operating Expenses) caused by theft, fire,
act of God, acts of the public enemy, riot, strike, insurrection, war,
court order, requisition or order of governmental body or authority or for
any damage or inconvenience which may arise through repair or alteration of
any part of the Building or Development or failure to make any such repair
except as expressly otherwise provided in Subparagraph 20(c) and elsewhere
herein. Tenant shall not be liable to Landlord for any loss or damage to
property caused by theft, fire, act of God, acts of the public enemy, riot,
strike, insurrection, war, court order, requisition or order of
governmental body or authority or for any damage or destruction which is
covered by insurance obtained, or would have been covered by insurance
required to be obtained, by Landlord as part of Operating Expenses. Neither
Landlord nor Tenant shall be liable for consequential damages.
(b) Tenant shall indemnify Landlord and hold Landlord harmless of and
from any and all loss, cost, damage, injury or expense arising out of or
related to claims of injury to or death of persons occurring or resulting
directly or indirectly from Tenant's use or occupancy of the Premises or
activities of Tenant in or about the Premises or Development, such
indemnity to include, but without limitation, the obligation to provide all
costs of defense against any such claims; provided, however, that the
foregoing indemnity shall not be applicable to claims arising by reason of
the negligence or willful misconduct of Landlord, its agents, employees or
invitees unless covered by insurance required to be carried by Tenant under
the terms of the Lease.
(c) Landlord shall indemnify Tenant and hold Tenant harmless of and
from any and all loss, cost, damage, injury or expense arising out of or
related to claims or injury to or death of persons, or damage to property
occurring or resulting directly or indirectly from the use or operation of
the Building, Parking Facilities, or the Common
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Areas by Landlord or the owner or operator thereof (or activities of
Landlord which occur outside the Premises, but within the Development),
such indemnity to include, but without limitation, the obligation to
provide all costs of defense against any such claim.
21. INDEMNIFICATION.
(a) Notwithstanding the provisions of Paragraphs 20 to the contrary,
because Landlord is required to maintain insurance on the Building and the
Tenant Improvements and all alterations, additions or improvements to the
Premises and Tenant compensates Landlord for such insurance as part of
Tenant's Percentage of Operating Expenses, and to the extent of the
existence of waivers of subrogation set forth in Paragraph 22(f) of this
Lease, Landlord hereby indemnifies and holds Tenant harmless from any loss,
cost, liability, damage or expense (including, but not limited to,
penalties, fines and reasonable, actual attorneys' fees and costs) to any
person or property inside or outside of the Premises to the extent such
loss, costs, liability, damage or expenses are covered by such insurance
obtained by Landlord (or which would have been covered by insurance
required to be obtained by Landlord hereunder had Landlord complied with
its obligation to so maintain insurance in accordance with this Lease),
even if resulting from the negligent acts or omissions of Tenant or those
of its agents, contractors, servants, employees or licensees. Similarly,
since Tenant must carry insurance pursuant to Paragraph 22(a) of this Lease
to cover its personal property within the Premises but excluding the Tenant
Improvements and all alterations, additions or improvements to the
Premises, then, to the extent of the waivers of subrogation set forth in
Paragraph 22(f) of this Lease, Tenant hereby indemnifies and holds Landlord
harmless from any loss, cost, liability, damage or expense (including, but
not limited to, penalties, fines and reasonable, actual attorneys' fees and
costs) to any personal property within the Premises or the Development, to
the extent such loss, costs, liability, damage or expenses are covered by
such insurance obtained by Tenant (or would have been covered by insurance
required to be maintained by Tenant hereunder had Tenant complied with its
obligation to so maintain insurance in accordance with this Lease), even if
resulting from the negligent acts or omissions of Landlord or those of its
agents, contractors, servants, employees or licensees.
(b) Notwithstanding the provisions of Paragraph 20 to the contrary,
Tenant shall not be required to indemnify and hold Landlord harmless from
any loss, cost, liability, damage or expense, including, but not limited
to, penalties,
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fines and actual attorneys' fees and costs (collectively, "Claims"), to any
person, property or entity resulting from the acts, omissions or the
willful misconduct of Landlord or its agents, contractors, servants,
employees or licensees or other owners or operators of the Parking
Facilities or Common Areas, in connection with the use or operation of the
Building, parking Facilities, or Common Areas by Landlord or the owners or
operators thereof (except for damage to Tenant's personal property,
fixtures, furniture and equipment in the Premises, to the extent that
Tenant is required to obtain the requisite insurance coverage, and to the
extent that the waiver of subrogation applies), and Landlord hereby so
indemnifies and saves Tenant harmless from any such Claims. However,
Tenant's agreement to indemnity and hold Landlord harmless pursuant to
Paragraph 20, the exclusion from Tenant's indemnity set forth above, and
the agreement by Landlord to indemnify and hold Tenant harmless set forth
above are not intended to, and shall not, except to the extent to which the
waiver of subrogation provision applies, relieve any insurance carrier of
its obligations under policies required to be carried by Landlord or
Tenant, respectively, pursuant to the provisions of this Lease to the
extent that such policies cover the results of such acts or conduct. The
parties hereby agree that if either party fails to carry required
insurance, such failure shall automatically be deemed to be the covenant
and agreement by such party to self-insure said required coverage, with
full waiver of subrogation in favor of the other party. The parties further
agree that to the extent any damage or repair obligation of Tenant is
covered by insurance obtained by Landlord or would have been covered by
insurance had Landlord maintained the insurance required to be maintained
by Landlord under this Lease as part of the Operating Expenses, but is not
covered by insurance obtained by Tenant, then Tenant shall be relieved of
its indemnity obligation up to the amount of the insurance proceeds which
Landlord shall actually receive (or would have received had Landlord
maintained insurance as aforesaid)
22. INSURANCE.
(a) Tenant shall, during the Term hereof and any other period of
occupancy, at its sole cost and expense, keep in full force and effect the
following insurance:
(i) Standard form property insurance insuring against the perils
of fire, extended coverage, vandalism, malicious mischief, special
extended coverage ("All-Risk") and sprinkler leakage. This insurance
policy shall be upon all property owned by Tenant, for which Tenant is
legally liable or that was installed at
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Tenant's expense, and which is located in the Building including,
without limitation, furniture, fittings, installations, fixtures
(other than Tenant Improvements installed by Landlord), and any other
personal property, in an amount not less than one hundred percent
(100%) of the full replacement cost thereof. In the event that there
shall be a dispute as to the amount which comprises full replacement
cost, the decision of Landlord or any mortgagees of Landlord shall be
conclusive. Such policy shall name Landlord and any mortgagees of
Landlord as insured parties, as their respective interests may appear.
(ii) Commercial Liability Insurance insuring Tenant against any
liability arising out of the lease, use, occupancy or maintenance of
the Premises and all areas appurtenant thereto. Such insurance shall
be in the amount of $5,000,000 Combined Single Limit for injury to, or
death of one or more persons in an occurrence, and for damage to
tangible property (including loss of use) in an occurrence, with such
liability amount to be adjusted from year to year to reflect increases
in the Consumer Price Index. The policy shall include coverage against
personal injury, bodily injury (including wrongful death), broad form
property damage, operations hazard, Owner's protective coverage,
contractual liability, liquor liability (if Tenant serves alcohol on
the Premises), products and completed operations liability, and
owned/non-owned auto liability, and shall (1) name Landlord as an
additional insured, (2) contain a cross liability provision and (3)
contain a provision that the insurance provided the Landlord hereunder
shall be primary and non-contributing with any other insurance
available to the Landlord.
(iii) Worker's Compensation and Employer's Liability insurance
(as required by state law).
(iv) To the extent not included in Tenant's insurance carried in
satisfaction of clause (i) above or otherwise covered by blanket
coverage, boiler and machinery insurance including, but not limited
to, steam pipes, pressure pipes, condensation return pipes and other
pressure vessels and HVAC equipment with limits per accident of not
less than the replacement cost of all of Tenant's leasehold
improvements and of all of Tenant's boilers, pressure valves, HVAC
equipment and miscellaneous electrical and mechanical equipment on the
Premises.
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(v) Business interruption insurance which shall cover any direct
or indirect loss of earnings attributable to perils insured against in
Subparagraph 22(a)(i) above; provided, however, Tenant shall have the
right to self-insure the coverage described in this clause (v). In
the event Tenant elects to self-insure such coverage, such
self-insured coverage shall be deemed to include all the provisions of
this paragraph 22 which would have been required to be applicable to
such coverage if Tenant had obtained such coverage from a third party,
including full waiver of subrogation.
(vi) If commonly required from time to time by the landlords of
the Qualified Buildings, any other form or forms of insurance as
Tenant or Landlord or any mortgagees of Landlord may reasonably
require from time to time in form, in amounts and for insurance risks
against which a prudent tenant would protect itself.
(b) All policies shall be written in a form satisfactory to Landlord
and shall be taken out with insurance companies holding a rating typically
required by the landlords of the Qualified Buildings. Within ten (10) days
prior to Tenant's entry into the Premises for Tenant's Fixturing Work (as
defined in Paragraph 9 of Exhibit "B"), but in any event not later than ten
(10) days prior to the Commencement Date, Tenant shall deliver to Landlord
copies of policies or certificates evidencing the existence of the amounts
and forms of coverage satisfactory to Landlord. No such policy shall be
cancellable or reducible in coverage except after thirty (30) days prior
written notice to Landlord. Tenant shall, within ten (10) days prior to the
expiration of such policies, furnish Landlord with renewals or "binders"
thereof, or Landlord may order such insurance and charge the cost thereof
to Tenant as additional rent. If Landlord obtains any insurance that is the
responsibility of Tenant under this Paragraph 22, Landlord shall deliver to
Tenant a written statement setting forth the cost of any such insurance and
showing in reasonable detail the manner in which it has been computed and
Tenant shall promptly remit said amount to Landlord. Tenant shall be
permitted to satisfy any insurance coverage required hereunder, or any
portion thereof, with blanket coverage as long as such coverage satisfies
all the requirements of this Lease and Landlord's rights with respect
thereto are not affected thereby.
(c) During the Term of this Lease, Landlord shall insure the Building
and the Parking Facilities (to the extent Landlord is the owner thereof)
(excluding any property which
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Tenant is obligated to insure under Subparagraphs 22(a) and (b) hereof)
against damage with All-Risk insurance and public liability insurance, all
in such amounts and with such deductibles as commonly carried by other
landlords of the Qualified Buildings. Landlord may, but shall not be
obligated to, obtain and carry any other commercially reasonable form or
forms of insurance as it or Landlord's mortgagees may determine advisable.
Notwithstanding any contribution by Tenant to the cost of insurance
premiums, as provided herein, Tenant acknowledges that it has no right to
receive any proceeds from any insurance policies carried by Landlord. For
the purpose of the waiver of subrogation provisions set forth in
Subparagraph 22(f) below, Landlord shall be deemed to have carried the
insurance required under this Subparagraph 22(c) in an amount equal to full
replacement value, with a commercially reasonable deductible.
(d) Tenant will not keep, use, sell or offer for sale in or upon the
Premises any article which may be prohibited by any insurance policy
periodically in force covering the Building, the Parking Facilities or the
Development. If Tenant's occupancy or business in, or on, the Premises,
whether or not Landlord has consented to the same, results in any increase
in premiums for the insurance periodically carried by Landlord with respect
to the Building or the Parking Facilities, Tenant shall pay any such
increase in premiums as additional rent within ten (10) days after being
billed therefor by Landlord. In determining whether increased premiums are
a result of Tenant's use of the Premises, a schedule issued by the
organization computing the insurance rate on the Building, the Parking
Facilities or the Tenant Improvements showing the various components of
such rate, shall be conclusive evidence of the several items and charges
which make up such rate. Notwithstanding any contrary provision of this
Subparagraph 22(d), Landlord's insurance policies shall not prevent Tenant
from using the Premises for general office purposes, nor shall Tenant be
required to directly pay any increased premiums under this Subparagraph
22(d) due to Tenant's use of the Premises for general office use. Tenant
shall promptly comply with all reasonable requirements of the insurance
authority or any present or future insurer relating to the Premises.
(e) If any of Landlord's insurance policies shall be cancelled or
cancellation shall be threatened or the coverage thereunder reduced or
threatened to be reduced in any way because of the use of the Premises or
any pact thereof by Tenant or any assignee or subtenant of Tenant or by
anyone Tenant permits on the Premises, Tenant shall remedy the condition
giving rise to such cancellation, threatened cancellation, reduction of
coverage, threatened reduction of
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coverage, increase in premiums, or threatened increase in premiums on or
before the later of (i) ten (10) days prior to the effective date of such
cancellation, coverage reduction or premium increase, or (ii) forty-eight
(48) hours after notice thereof from Landlord. If Tenant fails to remedy
such condition within the above time period, Landlord may (x) enter upon
the Premises and attempt to remedy such condition, and Tenant shall
promptly pay the cost thereof to Landlord as additional rent, or (y) in the
event that such insurance carrier has notified Landlord in writing of its
intention to cancel or reduce its coverage, terminate the Lease. Subject to
the provisions of Paragraphs 20 and 21, Landlord shall not be liable for
any damage or injury caused to any property of Tenant or of others located
on the Premises resulting from such entry. If Landlord is unable, or elects
not to remedy such condition, then Landlord shall have all of the remedies
provided for in this Lease in the event of a default by Tenant.
Notwithstanding the foregoing provisions of this Subparagraph 22(e), if
Tenant fails to remedy as aforesaid, Tenant shall be in default of its
obligation hereunder and Landlord shall have no obligation to remedy such
default.
(f) All policies of insurance required hereunder shall include a
clause or endorsement denying the insurer any rights of subrogation against
the other party to the extent rights have been waived by the insured before
the occurrence of injury or loss. Landlord and Tenant waive any rights of
recovery against the other for injury or loss due to hazards covered by
policies of insurance containing such a waiver of subrogation clause or
endorsement to the extent of the injury or loss covered thereby.
23. DAMAGE OR DESTRUCTION.
(a) In the event the Building and/or the Premises is damaged by fire
or other perils covered by Landlord's insurance, Landlord shall:
(i) In the event of damage or destruction to the Building to an
extent exceeding twenty-five percent (25%) of the full insurable value
of the Building, or damage or destruction to the Premises to an extent
exceeding thirty-three percent (33%) of the full insurable value of
the Premises, as applicable, at Landlord's option, as soon as
reasonably possible thereafter, commence repair, reconstruction and
restoration of the Building and/or the Premises and prosecute the same
diligently to completion, in which event this Lease shall remain in
full force and effect; or within ninety (90) days after such damage,
elect not
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to so repair, reconstruct or restore the Building and/or the Premises,
in which event this Lease shall terminate; provided, however, in the
event of a casualty which includes material damage or destruction to
portions of the Building outside of the Premises, Landlord shall not
be entitled to selectively terminate this Lease unless Landlord also
elects to terminate the leases of all tenants similarly situated,
other than Wells Fargo or any other tenants in the Building whose
lease may not permit such a termination, but such restriction on
Landlord's termination of the Lease shall not result in Landlord's
expending more for the repair and/or reconstruction of such damage
than the proceeds from Landlord's insurance required hereunder plus
permitted deductibles. In either event, Landlord shall give Tenant
written notice of its intention within said ninety (90) day period. In
the event Landlord elects not to restore the Building and/or the
Premises, this Lease shall be deemed to have terminated as of the date
of such total destruction.
(ii) In the event of a partial destruction which constitutes
neither damage to the Building to an extent exceeding twenty-five
percent (25%) of the full insurable value of the Building, nor damage
to the Premises to an extent exceeding thirty-three percent (33%) of
the full insurable value of the Premises, and if the damage is such
that the Building and the Premises may be repaired, reconstructed or
restored within a period of six (6) months from the date of the
happening of such casualty, as determined by an independent qualified
third party and if Landlord will receive (or if Landlord would have
carried the insurance required hereunder, would have received)
insurance proceeds sufficient to cover the cost of such repairs, less
the deductibles described in Paragraph 22(c), commence and proceed
diligently with the work of repair, reconstruction and restoration and
this Lease shall continue in full force and effect. If such work of
repair, reconstruction and restoration shall require a period longer
than six (6) months or exceeds the applicable percentage of full
insurable value set forth above, or if said insurance proceeds
(determined assuming Landlord carried the insurance coverage required
hereunder) will not be sufficient to cover the cost of such repairs,
less the deductible described in Paragraph 22(c), then Landlord either
may elect to so repair, reconstruct or restore and the Lease shall
continue in full force and effect or Landlord may elect not to repair,
reconstruct or restore and the Lease shall then terminate; provided,
however, in the event of
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a casualty which includes material damage or destruction to portions
of the Building outside of the Premises, Landlord shall not be
entitled to selectively terminate this Lease unless Landlord also
elects to terminate the leases of all tenants similarly situated,
other than Wells Fargo or any other tenant in the Building whose lease
may not permit such a termination, but such restriction on termination
of the Lease shall not result in Landlord's expending more for the
repair and/or reconstruction of such damage than the proceeds from
Landlord's insurance required hereunder, plus permitted deductibles;
provided, further, in the event that Landlord elects not to repair the
damage or destruction and to terminate the Lease solely on the basis
of an inadequacy of insurance proceeds as provided above, then Tenant
shall have the right, by written notice to Landlord within twenty (20)
days following Landlord's termination notice, to nullify Landlord's
termination notice by agreeing to pay for the amount by which the cost
of repair or restoration (less deductibles described in Paragraph
22(c)) exceeds Landlord's insurance proceeds (calculated assuming
Landlord had maintained the required insurance hereunder). The
projected cost to be paid by Tenant shall be deposited into escrow
prior to the commencement of repair or reconstruction work. Under any
of the conditions of this Subparagraph 23(a)(ii), Landlord shall give
written notice to Tenant of its intention within said ninety (90) day
period. In the event Landlord elects not to restore the Building
and/or the Premises, this Lease shall be deemed to have terminated as
of the date of such partial destruction.
(b) Upon any termination of this Lease under any of the provisions of
this Paragraph 23, the parties shall be released without, further
obligation to the other from the date possession of the Premises is
surrendered to Landlord except for items which have heretofor accrued and
are then unpaid.
(c) In the event of repair, reconstruction or restoration by Landlord
of the Premises, Building or Parking Facilities as herein provided, the
rent payable under this lease shall be abated proportionately with the
degree to which Tenant's use of the Premises is impaired during the period
of such repair, reconstruction or restoration. Tenant shall not be entitled
to any compensation or damages for loss in the use of the whole or any part
of the Premises and/or any inconvenience or annoyance occasioned by such
damage, repair, reconstruction or restoration.
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(d) Notwithstanding anything to the contrary contained in this
Paragraph 23, if all or any part of the Premises or Building is damaged or
destroyed, and if Landlord is unable, within ninety (90) days following
such damage or destruction, to provide Tenant with a certificate from
Landlord's general contractor stating that Tenant will be given reasonable
use of, and access to, a fully-repaired and restored Premises within one
(1) year of the damage or destruction, Tenant may terminate this Lease upon
ten (10) days' written notice to Landlord, given at any time within thirty
(30) days following the earlier of (i) the end of such ninety (90) day
period or (ii) the date upon which Landlord notifies Tenant that Landlord
does not intend to or is not able to deliver the above-described
certificate to Tenant.
(e) In the event that the Parking Facilities are damaged or destroyed
due to casualty, and if Landlord is unable, within thirty (30) days
following such damage or destruction, to provide Tenant with a good faith,
reasonable assurance that Tenant can be given reasonable use of, and access
to, its parking privileges in the Parking Facilities specified herein, or
use of and access to substitute parking within the Development within a
reasonable walking distance to the Building (or temporary parking as
provided below), on or before the later of (i) sixty (60) days after such
damage or destruction or, (ii) if the Building has been damaged or
destroyed, concurrent with Landlord's restoration of the Building, then
Tenant shall have the right to terminate this Lease upon ten (10) days'
written notice to Landlord, given at any time within sixty (60) days after
the date of the casualty. Tenant agrees that Landlord shall have the right
during any reasonable repair or reconstruction period to temporarily
relocate Tenant's parking privileges to a parking facility served by a
Landlord provided shuttle. During any period during which Tenant is denied
access to its parking privileges in the Parking Facilities due to damage or
destruction to the Parking Facilities and Landlord does not provide
replacement parking as provided herein, a prorata portion of Tenant's
parking charges herein shall abate based upon the proportion of such
parking privileges which Landlord fails to replace. In the event that the
Parking Facilities are damaged or destroyed and due to Landlord's election
not to repair the Parking Facilities Tenant's parking privileges are
permanently relocated as provided herein, Tenant's parking charges shall be
subject to equitable reduction in the event that the quality and/or
location of Tenant's new parking facilities are not commensurate with the
Parking Facilities.
(f) If Landlord is obligated to or elects to repair or restore as
herein provided, Landlord shall be
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obligated to make repair or restoration only of those portions of the
Building and the Premises which were originally provided at Landlord's
expense, and the repair and restoration of items not provided at Landlord's
expense shall be the obligation of Tenant.
(g) Notwithstanding anything to the contrary contained in this
Paragraph 23, either Landlord or Tenant shall have the right to terminate
this Lease in the event of damage or destruction to the Premises which
occurs during the last twelve (12) months of the Term of this Lease or any
extension hereof, if such damage or destruction cannot reasonably be
repaired within sixty (60) days after the date thereof.
(h) The provisions of California Civil Code Section 1932, Subsection
2, and Section 1933, Subsection 4, and any other similarly enacted statute
or court decision relating to the abatement or termination of a lease upon
destruction of the leased premises, are hereby waived by Tenant; and the
provisions of this Paragraph shall govern in case of such destruction.
24. EMINENT DOMAIN.
(a) In case all of the Premises, Building or Parking Facilities or
such part thereof as shall substantially interfere with Tenants access to
or intended use and occupancy of the Premises, shall be taken for any
public or quasi-public purpose by any lawful power or authority by exercise
of the right of appropriation, condemnation or eminent domain, or sold to
prevent such taking, either party shall have the right to terminate this
Lease effective as of the date possession is required to be surrendered to
said authority; provided, however, Tenant shall not have the right to
terminate this Lease due to a taking of the Parking Facilities, as long as
Landlord shall replace that portion of Tenant's parking privileges affected
by such taking with other parking facilities within a reasonable distance
from the Premises. Tenant shall not assert any claim against Landlord or,
except as otherwise provided below, the taking authority, for any
compensation because of such taking, and Landlord shall be entitled to
receive the entire amount of any award; provided, however, Tenant shall be
entitled to fifty percent (50%) of any portion of the award attributable to
the bonus value of Tenant's leasehold estate. In the event the amount of
property or the type of estate taken shall not substantially interfere with
the conduct of Tenant's business, Landlord shall be entitled to the entire
amount of the award without deduction for any estate or interest of Tenant,
Landlord
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shall restore the Premises to substantially their same condition prior to
such partial taking, and a proportionate allowance shall be made to Tenant
for the rent corresponding to the time during which, and to the part of the
Premises of which, Tenant shall be so deprived on account of such taking
and restoration. Nothing contained in this Subparagraph shall be deemed to
give Landlord any interest in any award made to Tenant for the taking of
personal property and fixtures belonging to Tenant, Tenant's goodwill or
moving expenses incurred in connection with the relocation of Tenant's
business. In the event that Landlord permanently relocates Tenant's parking
due to a taking of the Parking Facilities, Tenant's parking charges shall
be subject to equitable reduction in the event that the quality and/or
location of Tenant's new parking facilities are not commensurate with the
Parking Facilities.
(b) In the event of taking of the Premises or any part thereof for
temporary use, (i) this Lease shall be and remain unaffected thereby and
rent shall not abate, and (ii) Tenant shall be entitled to receive for
itself such portion or portions of any award made for such use with respect
to the period of the taking which is within the Term, provided that if such
taking shall remain in force at the expiration or earlier termination of
this Lease, Tenant shall then pay to Landlord a sum equal to the reasonable
cost of performing Tenant's obligations under Paragraph 15 with respect to
surrender of the Premises and upon such payment shall be excused from such
obligations. For purpose of this Subparagraph 24(b), a temporary taking
shall be defined as a taking for a period of 270 days or less.
25. DEFAULTS AND REMEDIES.
(a) The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:
(i) The abandonment of the Premises by Tenant as defined in
California Civil Code Section 1951.3.
(ii) The failure by Tenant to make any payment of rent or
additional rent or any other payment required to be made by Tenant
hereunder, as and when due, where such failure shall continue for a
period of five (5) days after written notice thereof from Landlord to
Tenant; provided, however, that any such notice shall be in lieu of,
and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 regarding unlawful detainer actions or
any similar successor statute.
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(iii) The failure by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to be
observed or performed by Tenant, other than as specified in
Subparagraph 25(a)(i) or (ii) above, where such failure shall continue
for a period of thirty (30) days after written notice thereof from
Landlord to Tenant. Any such notice shall be in lieu of, and not in
addition to, any notice required under California Code of Civil
Procedure Section 1161 regarding unlawful detainer actions or any
similar successor statute. If the nature of Tenant's default is such
that more than thirty (30) days are reasonably required for its cure,
then Tenant shall not be deemed to be in default if Tenant shall
commence such cure within said thirty (30) day period and thereafter
diligently prosecute such cure to completion.
(iv) (1) The making by Tenant of any general assignment for the
benefit of creditors; (2) the filing by or against Tenant of a
petition to have Tenant adjudged a bankrupt or a petition for
reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against Tenant the same is
dismissed within ninety (90) days); (3) the appointment of a trustee
or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within ninety (90) days; or (4)
the attachment, execution or other judicial seizure of substantially
all of Tenant's assets located at the Premises or of Tenant's interest
in this Lease where such seizure is not discharged within ninety (90)
days.
(b) In the event of any such default by Tenant, in addition to any
other remedies available to Landlord at law or in equity, including,
without limitation, the remedies of Civil Code Section 1951.4 and any
successor statute, Landlord shall have the immediate option to terminate
this Lease and all rights of Tenant hereunder. In the event that Landlord
shall elect to so terminate this Lease then Landlord may recover from
Tenant:
(i) The worth at the time of award of any unpaid rent which
had been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rent loss that Tenant proves
could have been reasonably avoided; plus
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(iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award
exceeds the amount of such rent loss that Tenant proves could be
reasonably avoided; plus
(iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease or which in the ordinary course
of things would be likely to result therefrom.
As used in Subparagraphs 25(b)(i) and (ii) above, the "worth at the
time of award" is computed by allowing interest at the maximum rate
permitted by law. As used in Subparagraph 25(b)(iii) above, the "worth at
the time of award" is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus
one percent (1%).
(c) In the event of any such default by Tenant, Landlord shall also
have the right, with or without terminating this Lease, to re-enter the
Premises and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant. No re-entry or taking possession
of the Premises by Landlord pursuant to this Paragraph 25(c) shall be
construed as an election to terminate this Lease unless a written notice of
such intention is given to Tenant or unless the termination thereof is
decreed by a court of competent jurisdiction.
(d) In the event of the vacation or abandonment of the Premises by
Tenant or in the event that Landlord shall elect to re-enter as provided
above or shall take possession of the Premises pursuant to legal proceeding
or pursuant to any notice provided by law, then if Landlord does not elect
to terminate this Lease as provided above, Landlord may from time to time,
without terminating this Lease, either recover all rent as it becomes due
or relet the Premises or any part thereof for the Term of this Lease on
terms and conditions as Landlord in its sole discretion may deem advisable
with the right to make alterations and repairs to the Premises.
In the event that Landlord shall elect to so relet, then rents
received by Landlord from such reletting shall be applied: first, to the
payment of any indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any cost of such reletting: third, to
the payment of the cost of any alterations and repairs to the Premises;
fourth, to the payment of rent due and unpaid hereunder and
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the residue, if any, shall be held by Landlord and applied to payment of
future rent as the same may become due and payable hereunder. Should that
portion of such rents received from such reletting during any month, which
is applied to the payment of rent hereunder, be less than the rent payable
during that month by Tenant hereunder, then Tenant shall pay such
deficiency to Landlord immediately upon demand therefor by Landlord. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by
Landlord in such reletting or in making such alterations and repairs not
covered by the rents received from such reletting.
(e) All rights, options and remedies of Landlord contained in this
Lease shall be construed and held to be cumulative, and no one of them
shall be exclusive of the other, and Landlord shall have the right to
pursue any one or all of such remedies or any other remedy or relief which
may be provided by law, whether or not stated in this Lease. No waiver of
any default of Tenant hereunder shall be implied from any acceptance by
Landlord of any rent or other payments due hereunder or any omission by
Landlord to take any action on account of such default if such default
persists or is repeated, and no express waiver shall affect defaults other
than as specified in said waiver. The consent or approval of Landlord to or
of any act by Tenant requiring Landlord's consent or approval shall not be
deemed to waive or render unnecessary Landlord's consent or approval to or
of any subsequent similar acts by Tenant.
26. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not voluntarily or by operation of law, assign,
encumber or transfer its interest in this Lease or in the Premises or
sublease all or any part of the Premises, or allow any other person or
entity to occupy or use all or any part of the Premises, without first
obtaining Landlord's prior written consent, which consent Landlord shall
not unreasonably withhold or delay. Any assignment, encumbrance or sublease
without Landlord's prior written consent shall be voidable at Landlord's
election and shall constitute a default.
(b) For purposes hereof, if Tenant is a corporation (other than a
publicly-held corporation), partnership or other entity, any transfer,
assignment, encumbrance or hypothecation of forty-nine percent (49%) or
more (individually or in the aggregate) of any stock or other ownership
interest in such entity, and/or any transfer, assignment, hypothecation or
encumbrance of any controlling ownership or voting interest in such entity,
shall be deemed
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an assignment of this Lease and shall be subject to all of the restrictions
and provisions contained in this Paragraph 26; provided, however, no sale
of all of Tenant's stock reasonably approved by Landlordshall be subject to
the provisions of this Paragraph 26. No consent to an assignment,
encumbrance or sublease shall constitute a further waiver of the provisions
of this Paragraph 26.
(c) In the event Tenant desires to assign, hypothecate or otherwise
transfer this Lease or sublet the Premises, then at least thirty days prior
to the date when Tenant desires the assignment or sublease to be effective
(the "Assignment Date"), Tenant shall give Landlord a notice (the
"Assignment Notice"), which shall set forth the name, address and business
of the proposed assignee or sublessee, information (including references)
concerning the character, ownership, and financial condition of the
proposed assignee or sublessee, the Assignment Date, any ownership or
commercial relationship between Tenant and the proposed assignee or
sublessee, and the consideration and all, other material terms and
conditions of the proposed assignment or sublease, all in such detail as
Landlord shall reasonably require. If Landlord reasonably requests
additional detail, the Assignment Notice shall not be deemed to have been
received until Landlord receives such additional detail, and Landlord may
withhold consent to any assignment or sublease until such information is
provided to it.
(d) Within thirty (30) days of Landlord's receipt of such Assignment
Notice, and additional information requested by Landlord concerning the
proposed assignee's or sublessee's financial responsibility, Landlord shall
elect to either consent to such proposed assignment, encumbrance or
sublease or refuse such consent, which refusal shall be on reasonable
grounds. In addition, a condition to Landlord's consent to any assignment,
transfer or hypothecation of this Lease shall be the delivery to Landlord
of a true copy of the fully executed instrument of assignment, transfer or
hypothecation, and the delivery to Landlord of an agreement executed by the
assignee in form and substance satisfactory to Landlord and expressly
enforceable by Landlord, whereby the assignee assumes and agrees to be
bound by all of the terms and provisions of this Lease and to perform all
of the obligations of Tenant hereunder. As a condition to Landlord's
consent to any sublease, such sublease shall provide that it is subject and
subordinate to this Lease and to all mortgages; that Landlord may enforce
the provisions the sublease, including collection of rent; that in the
event of termination of this Lease for any reason, including
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without limitation a voluntary surrender by tenant, or in the event of any
reentry or repossession of the Premises by Landlord, Landlord may, at its
option, either (i) terminate the sublease or (ii) take over all of the
right, title and interest of Tenant, as sublessor, under such sublease, in
which case such sublessee shall attorn to Landlord, but that nevertheless
Landlord shall not (1) be liable for any previous act or omission of Tenant
under such sublease, (2) be subject to any defense or offset previously
accrued in favor of the sublessee against Tenant, or (3) be bound by any
previous modification of any sublease made without Landlord's written
consent, or by any previous prepayment by sublessee of more than one
month's rent.
(e) Landlord shall be deemed reasonable in withholding its consent
based upon any of the following factors: (i) the financial net worth of the
proposed assignee or sublessee is not equal to or greater than Tenant's
financial net worth as of the date of this Lease as increased by the
increase in the CPI, if any, between the date of this Lease and the date of
the assignment or sublease; (ii) the intended use of the Premises by the
proposed assignee or sublessee is incompatible with other uses in the
Building; (iii) the intended use of the Premises by the proposed assignee
or sublessee will require more than insignificant alteration of the
Premises; or (iv) the intended use of the Premises by the proposed assignee
or sublessee will constitute a violation of this Lease or any governmental
law, rule, ordinance or regulation governing the Premises or the Building
or would involve the storage, use or keeping of Hazardous Materials in, on
or about the Premises, the Building, the Parking Facilities, the Common
Areas or any other portion of the Development.
(f) In the event that Landlord shall consent to an assignment or
sublease under the provisions of this Paragraph 26, Tenant shall pay
Landlord's processing costs and attorneys' fees incurred in giving such
consent. If Landlord shall consent to any assignment of this Lease, Tenant
shall pay to Landlord, as additional rent, fifty percent (50%) of all sums
and other consideration payable to and for the benefit of Tenant by the
assignee on account of the assignment ("Assignment Transfer profits"), as
and when such sums and other consideration are due and payable by the
assignee to or for the benefit of Tenant (or, if Landlord so requires, and
without any release of Tenant's liability for the same, Tenant shall
instruct the assignee to pay such sums and other consideration directly to
Landlord). If for any proposed sublease Tenant receives rent or other
consideration, either initially or over the Term of the sublease, in excess
of the rent called for hereunder or, in
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case of the sublease of a portion of the Premises, in excess of such rent
fairly allocable to such portion, after appropriate adjustments to assure
that all other payments called for hereunder are taken into account, Tenant
shall pay to Landlord as additional rent hereunder fifty percent (50%) of
the excess of each such payment of rent or other consideration received by
Tenant (the "Sublease Transfer Profits") promptly after its receipt.
Notwithstanding any contrary provision of this Subparagraph 26(f), in
determining Assignment Transfer Profits or Sublease Transfer Profits,
Tenant shall be entitled to deduct advertising costs, brokerage
commissions, improvement allowances and/or retrofit costs, legal fees, and
space planning fees incurred by Tenant in assigning the Lease or subleasing
the Premises. Landlord's waiver or consent to any assignment or subletting
shall not relieve Tenant or any assignee or sublessee from any obligation
under this Lease whether or not accrued. Occupancy of all or part of the
Premises by parent or subsidiary companies of Tenant shall not be deemed an
assignment or subletting.
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(h) Notwithstanding any provision of this paragraph 26 to the
contrary, Tenant shall have the right upon prior written notice to
Landlord, to sublease all or any portion of the Premises to (i) an entity
resulting from a merger or a consolidation with Tenant or any organization
purchasing substantially all of Tenant's assets, (ii) any entity succeeding
to substantially all of the business and assets of Tenant, or (iii) any
corporation which controls, is controlled by or is under common control
with, Tenant ((i), (ii) and (iii) hereafter referred to as "Affiliate
Subtenant(s)"), without first obtaining Landlord's consent; provided,
however, Tenant shall remain responsible for the performance of the Lease;
and provided, further, Tenant shall give Landlord prior notice of any such
sublease. Landlord shall not have the right to receive from Tenant any
portion of the Transfer Profits on a sublease or an assignment to an
Affiliate Subtenant, nor shall the provisions of Subparagraph 26(g) above
be applicable to any such sublease. No sublease to an Affiliate Subtenant
shall relieve Tenant from any obligation under this Lease.
27. SUBORDINATION.
(a) Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and at the election of
Landlord or any mortgagee with a lien on the Building or the Development or
any ground lessor with respect to the Building or the Development, this
Lease shall be subject and subordinate at all times to:
(i) all ground leases or underlying leases which may now exist
or hereafter be executed affecting the Building, the Development, or
the land upon which the Building and the Development are situated, or
both; and
(ii) the lien of any mortgage or deed of trust which may now
exist or hereafter be executed in any amount for which the Building,
the Development, the land upon which the Building and the Development
are situated, ground leases or underlying leases, or Landlord's
interest or estate in any of said items is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate
or cause to be subordinated any such ground leases or underlying leases or
any such liens to this Lease.
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In the event that any ground lease or underlying lease terminates for any
reason or any mortgage or deed of trust is foreclosed or a conveyance in
lieu of foreclosure is made for any reason, Tenant shall, notwithstanding
any subordination, attorn to and become the Tenant of the successor-in-
interest to Landlord, at the option of such successor-in-interest. Tenant
covenants and agrees to execute and deliver, upon demand by Landlord and in
a commercially reasonable form, any additional documents evidencing the
priority or subordination of this Lease with respect to any such ground
leases or underlying leases or the lien of any such mortgage or deed of
trust. Should Tenant fail to sign and return any such documents within ten
(10) business days of written request, Tenant shall be in default and
Landlord shall have the right to send Tenant a notice, entitled "Lease
Termination Notice", notifying Tenant that Landlord intends to terminate
the Lease unless Tenant signs and returns the requested document within ten
(10) business days following the date of such Lease Termination Notice. If
Landlord delivers such Lease Termination Notice and Tenant fails to sign
and return such requested document within such additional ten (10) business
day period, Landlord shall thereafter have the right to terminate the Lease
by notice to Tenant at any time within thirty (30) days following the date
of the Lease Termination Notice. No such termination of the Lease by
Landlord shall relieve the Tenant of any liability for a default by Tenant
under this Lease. Notwithstanding any contrary provision of Subparagraph
25(a), Tenant's failure to sign and deliver the documents required
hereunder within ten (10) business days after the Lease Termination Notice
shall constitute an event of default under the provisions of Subparagraph
25(a) of the Lease, without any additional opportunity to cure.
(b) Landlord agrees that prior to the commencement of the Term of the
Lease it will provide Tenant with commercially reasonable non-disturbance
agreements in favor of Tenant from any ground lessors, mortgage holders or
lien holders then in existence, which shall be in recordable form and which
may, at Tenant's election and expense, be recorded. Landlord also agrees to
provide Tenant with commercially reasonable non-disturbance agreements in
favor of Tenant from any ground lessors, mortgage holders or lien holders
of Landlord who later come into existence at any time during the Term of
this Lease, in consideration of, and as a condition to, Tenant's agreement
to be bound by the provisions of Subparagraph 27(a) above. Tenant hereby
waives the provisions of any current or future statute, rule or law which
may give or purport to give Tenant any right to elect to terminate or
otherwise adversely affect this Lease and the obligations of Tenant
hereunder in the event of any foreclosure proceeding or sale, and agrees
that this Lease
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shall not be affected in any way whatsoever by any such foreclosure
proceeding or sale, except that this sentence shall not affect Landlord's
obligation to provide commercially reasonable non-disturbance agreements to
Tenant.
28. ESTOPPEL CERTIFICATE.
(a) Within ten (10) business days following any written request which
Landlord may make from time to time, Tenant shall execute and deliver to
Landlord a statement, in a form substantially similar to the form of
Exhibit "E" attached hereto, certifying: (i) the date of commencement of
this Lease; (ii) the fact that this Lease is unmodified and in full force
and effect (or, if there have been modifications hereto, that this Lease is
in full force and effect, and stating the date and nature of such
modifications); (iii) the date to which the rent and other sums payable
under this Lease have been paid; (iv) that there are no current defaults
under this Lease by either Landlord or Tenant except as specified in
Tenant's statement; and (v) such other matters requested by Landlord.
Landlord and Tenant intend that any statement delivered pursuant to this
Paragraph 28 may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or any interest therein.
(b) Tenant's failure to deliver such statement within such time shall
be conclusive upon. Tenant (i) that this Lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) that
there are no uncured defaults in Landlord's performance, and (iii) that not
more than one (1) month's rent has been paid in advance. Tenant's failure
to deliver said statement to Landlord within ten (10) working days of
receipt shall constitute a default under this Lease and Landlord shall have
the right to send Tenant a notice, entitled "Lease Termination Notice",
notifying Tenant that Landlord intends to terminate the Lease unless Tenant
delivers said statement to Landlord within ten (10) business days following
the date of such Lease Termination Notice. If Landlord delivers such Lease
Termination Notice and Tenant fails to deliver said statement to Landlord
within such ten (10) business day period, Landlord shall thereafter have
the right to terminate the Lease by notice to Tenant at any time within
thirty (30) days following the date of the Lease Termination Notice. No
such termination of the Lease by Landlord shall relieve the Tenant of any
liability for a default by Tenant under this Lease. Notwithstanding any
contrary provision of Subparagraph 25(a), Tenant's failure to deliver said
statement within ten (10) business days after the Lease Termination Notice
shall
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constitute an event of default under the provisions of Subparagraph 25(a)
of the Lease without any additional opportunity to cure.
29. LANDLORD ESTOPPEL CERTIFICATE. Landlord shall, within ten (10) business
days following written notice by Tenant from time to time, execute and deliver
to Tenant a statement in writing prepared by Tenant and edited by Landlord as
appropriate, certifying that this Lease is unmodified and in full force and
effect (or if there have been modifications hereto, that this Lease is in full
force and effect as modified, and stating the date and nature of such
modifications), the dates to which Tenant has paid rent, adjustments to rent,
and other charges in advance, if any, stating whether or not to the actual
knowledge of Landlord, Tenant is in default in the performance of any covenant,
agreement or condition contained in this Lease, and if so, specifying each such
default of which Landlord may have knowledge, or containing any other
information or certifications which reasonably may be requested by Tenant, any
proposed assignee or sublessee of Tenant or any proposed lender of Tenant. Any
such statement delivered pursuant to this Paragraph 29 may be relied upon by any
proposed assignee or sublessee or any proposed lender of Tenant. Landlord's
failure to deliver such statement within such time period shall be conclusive
upon Landlord (i) that this Lease is in full force and effect without
modification except as represented by Tenant, and (ii) there are no uncured
defaults in Tenant's performance.
30. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with
the "Rules and Regulations," a copy of which is attached hereto and marked
Exhibit "F", and all reasonable and nondiscriminatory modifications thereof and
additions thereto from time to time put into effect by Landlord, as long as such
additions and modifications do not materially increase Tenant's obligations
hereunder or materially adversely affect its use or occupancy of the Premises.
Landlord shall not be responsible to Tenant for the violation or non-performance
by any other tenant or occupant of the Building of any of said Rules and
Regulations.
31. CONFLICT OF LAWS. This Lease shall be governed by and construed
pursuant to the laws of the State of California.
32. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease, all
of the covenants, conditions and provisions of this Lease shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
33. SURRENDER OF PREMISES. The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of
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Landlord, operate as an assignment to it of any or all subleases or
subtenancies. Upon the expiration or termination of this Lease, Tenant shall
peaceably surrender the Premises and all alterations and additions thereto,
broom clean the Premises, leave the Premises in good order, repair and
condition, free from any and all Hazardous Materials, reasonable wear and tear
excepted, and comply with the provisions of Paragraph 15. The delivery of keys
to any employee of Landlord or to Landlord's agent or any employee thereof shall
not be sufficient to constitute a termination of this Lease or a surrender of
the Premises.
35. PERFORMANCE BY TENANT. All covenants and agreements to be performed by
Tenant under any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of rent. If (i) Tenant
shall, prior to delinquency, fail to pay any sum of money owed to any party
other than Landlord, for which it is liable hereunder, and such failure shall
continue for ten (10) days after notice thereof by Landlord, or (ii) if Tenant
shall fail to perform any other act on its part to be performed hereunder, and
such failure shall continue for thirty (30) days after notice thereof by
Landlord (or such longer reasonable cure period if more than thirty (30) days
are reasonably required for such cure and Tenant commences cure within such
thirty (30) day period and diligently prosecutes such cure to completion),
Landlord may upon notice to Tenant, without waiving or releasing Tenant from
obligations of Tenant, but shall not be obligated to, make any such payment or
perform any such other act to be made or performed by Tenant. All sums so paid
by Landlord and all necessary incidental costs together with interest thereon at
the maximum rate permissible by law, from the date of such payment by Landlord,
shall be payable to Landlord on demand. Tenant covenants to pay any such sums,
and Landlord shall have (in addition to any other right or remedy of Landlord)
all rights and remedies in the event of the non-payment thereof by Tenant as
are set forth in Paragraph 25.
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38. WAIVER. The waiver by either party of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or any other term, covenant or condition herein
contained, nor shall any custom or practice which may grow up between the
parties in the administration of the terms hereof be deemed a waiver of or in
any way affect the right of either party to insist upon the performance by the
other party in strict accordance with said terms. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent. No acceptance by Landlord of a lesser sum than the basic rent and
additional rent or other sum then due shall be deemed to be other than on
account of the earliest installment of such rent or other amount due, nor shall
any endorsement or statement on any check or any letter accompanying any check
be deemed an accord and satisfaction, and
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Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of Such installment or other amount or pursue any other
remedy provided in this Lease.
39. IDENTIFICATION OF TENANT. If more than one person executes this Lease
as Tenant, (a) each of them is jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions, provisions
and agreements of this Lease to be kept, observed and performed by Tenant, and
(b) the term "Tenant" as used in this Lease shall mean and include each of them
jointly and severally. The act of or notice from, or notice or refund to, or the
signature of any one or more of them, with respect to the tenancy of this Lease,
including, but not limited to, any renewal, extension, expiration, termination
or modification of this Lease, shall be binding upon each and all of the persons
executing this Lease as Tenant with the same force and effect as if each and all
of them had so acted or so given or received such notice or refund or so signed.
40. PARKING. Tenant's parking rights and obligations shall be subject to
the following terms and conditions:
(a) Visitor Parking. So long as this Lease is in effect, Tenant's
visitors and guests shall be entitled to use those specific parking areas
which are designated for short term visitor parking and which are located
within the surface parking area(s), if any, and/or within the parking
structure(s) which serve the Building. Visitor parking shall be made
available at a charge to all visitors and guests, with the rate being
established by Landlord in its discretion from time to time. Tenant, at its
sole cost and expense, may elect to validate such parking for its visitors
and guests. All such visitor parking shall be on a non-exclusive, in-
common basis with all other visitors and guests of the Development.
Notwithstanding any contrary provision of this Lease, in the event that the
number of Tenant's visitors utilizing the Parking Facilities consistently
exceeds fifty (50) visitors per day, Landlord shall have the right from
time to time to reduce Tenant's maximum number of unreserved monthly
parking privileges to accommodate such excessive visitor usage.
(b) Unreserved Employee Parking. So long as this Lease is in effect,
Landlord hereby agrees to lease to Tenant up to _______________ unreserved
employee parking privileges; provided, however, that Tenant stall at all
tines be obligated to lease a minimum of ________________ of such
unreserved employee parking privileges (the "Minimum Parking Requirement");
provided, however, the Minimum Parking Requirement shall be subject to
reduction to reflect governmentally mandated reductions in the number of
vehicles
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which Tenant and its employees are permitted to utilize for access to the
Premises. Tenant shall notify Landlord from time to time of the exact
number of unreserved privileges which Tenant desires to lease. Subject to
the rental abatement provisions set forth in Paragraph 5(c) above, as
consideration for the use of such unreserved employee parking privileges
Tenant shall pay to Landlord during the initial Term of the Lease, as
additional rent under the Lease, _____________________ per month for each
such unreserved employee parking privilege. Tenant shall pay Landlord the
additional rent for such unreserved employee parking privileges monthly,
concurrently with each monthly payment of Monthly Basic Rent. All
unreserved employee parking spaces shall be made available to Tenant, its
employees and all other tenants and employees of the Development entitled
to use such parking facilities, on a non-exclusive, in-common basis.
(c) Reserved Parking. So long as this Lease is in effect, Landlord
here leases to Tenant and Tenant hereby lease from Landlord _____________
reserved parking spaces. Subject to the rental abatement provisions set
forth in Paragraph 5(c) above, as consideration for the use of such
reserved parking spaces Tenant shall pay to Landlord the additional rent
under the Lease. Tenant shall pay Landlord the additional rent for such
reserved parking spaces monthly, concurrently with each monthly payment of
Monthly Basic Rent.
(d) Use of Unreserved and Reserved Parking Spaces. With respect to
reserved parking, Tenant shall use only the parking space(s) specifically
designated by Landlord for use by Tenant. With respect to unreserved
employee parking, Tenant shall not use any spaces which have been
specifically assigned by Landlord to other tenants or occupants or for
other uses such as visitor parking or which have been designated by any
governmental entity as being restricted to certain uses. Tenant shall be
obligated to lease the reserved and unreserved parking spaces specified
herein throughout the Term of the Lease and shall not be entitled to any
additional reserved or unreserved parking privileges applicable to the
Premises for the remainder of the Term of the Lease; provided, however, if
at any tine Tenant desires to increase or reduce the number of reserved or
unreserved parking spaces it leases under the terms of this Lease, Tenant
shall notify Landlord in writing of such desire and Landlord shall have the
right, in its sole and
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absolute discretion, to either (a) approve such requested increase in the
number of parking spaces allocated to Tenant (with an appropriate increase
to the additional rent payable by Tenant for such additional spaces based
on the then prevailing parking rates), (b) approve such requested decrease
in the number of parking spaces allocated to Tenant (with an appropriate,
reduction in the additional rent payable by Tenant to Landlord for such
eliminated parking spaces based on the then prevailing parking rates), or
(c) disapprove such requested increase or decrease in the number of parking
spaces leased to Tenant. Promptly following receipt of Tenant's written
request, Landlord shall provide Tenant with written notice of its decision
including a statement of any adjustments to the additional rent payable by
Landlord to Tenant for parking under the Lease, if applicable.
(e) General Provisions. Except as otherwise set forth in this
Paragraph 40, Landlord reserves the right to set and increase monthly fees
and/or daily and hourly rates for parking privileges from time to time
during the Term of the Lease. Landlord may assign any unreserved and
unassigned parking spaces and/or make all or any portion of such spaces
reserved, if Landlord reasonably determines that it is necessary for
orderly and efficient parking. Failure to pay for the lease of any
particular parking spaces may be treated by Landlord as a failure to pay
rent as required under the Lease, and, in addition to all other remedies
available to Landlord under the Lease, at law or in equity, Landlord may
elect to recapture such parking spaces for the balance of the Term of this
Lease if Tenant does not cure such failure to pay within the applicable
cure period set forth in the Default section of this Lease. Tenant's
parking rights and privileges described herein are personal to Tenant and
may not be assigned or otherwise transferred, or otherwise conveyed,
without Landlord's prior written consent, which consent Landlord may
withhold in its sole and absolute discretion. In any event, under no
circumstances may Tenant's parking rights and privileges be transferred,
assigned or otherwise conveyed separate and apart from Tenant's interest in
the Lease. The use by Tenant, its employees and invitees of the parking
described herein shall be subject to the terms and conditions of the
Parking Rules and Regulations set forth in Exhibit "F" attached to the
Lease and by this reference incorporated herein. Notwithstanding any
contrary provision of this Lease, in the event necessitated by damage or
destruction, condemnation, or governmental authority. Landlord reserves the
right to change the location of the Parking Facilities and/or the location
of Tenant's parking privileges therein to another location in the
Development with reasonable access to, and within a reasonable walking
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distance from, the Building (or on a temporary basis during any reasonable
period of repair or restoration, to a location served by a shuttle), as
long as such change is applied on a nondiscriminatory basis to Tenant in
relation to the other tenants in the Building. In the event that such
parking relocation is permanent, Tenant's parking charges shall be subject
to an equitable reduction in the event that the quality and/or location of
Tenant's new parking facilities are not commensurate with the Parking
Facilities.
41. FORCE MAJEURE. Neither party shall have any liability whatsoever to the
other party on account of (a) the inability to fulfill, or delay in fulfilling,
any obligations under this Lease by reason of strike, other labor trouble,
governmental preemption or priorities or other controls in connection with a
national or other public emergency, or shortages of fuel, supplies or labor
resulting therefrom, or any other cause, whether similar or dissimilar to the
above, beyond the reasonable control of the performing party; or (b) any failure
or defect in the supply, quantity or character of electricity or water furnished
to the Premises, by reason of any requirement, act or omission of the public
utility or others furnishing the Building with electricity or water, or for any
other reason, whether similar or dissimilar to the above, beyond the performing
party's reasonable control. If this Lease specifies a time period for
performance of an obligation, that time period shall be extended by the period
of any delay in such performance caused by any of the events of force majeure
described above. Notwithstanding any contrary provision of this Paragraph 41,
the provisions of this Paragraph 41 shall not be applicable to the monetary
obligations of either party hereunder.
42. TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein
shall include the plural as well as the singular. Words used in any gender
include other genders. The paragraph headings of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part hereof.
43. EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for lease,
and it is not effective as a lease or otherwise until execution by and delivery
to both Landlord and Tenant.
44. TIME. Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.
45. PRIOR AGREEMENT; AMENDMENTS. This Lease contains all of the agreements
of the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreement
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or understanding pertaining to any such matter shall be effective for any
purpose. No provisions of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective
successors-in-interest.
46. SEPARABILITY. Any provision of this Lease which shall prove to be
invalid, void or illegal in no way affects, impairs or invalidates any other
provision hereof, and such other provisions shall remain in full force and
effect.
47. RECORDING. Neither Landlord nor Tenant shall record this Lease nor a
short form memorandum thereof without the consent of the other.
48. LIMITATION ON LIABILITY. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:
(a) The sole and exclusive remedy shall be against the Landlord's
interest in the Building (including the right to attach rents in accordance
with applicable law);
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49. MODIFICATION FOR LENDER. If, in connection with obtaining construction,
interim or permanent financing for the Building the lender shall request
reasonable modifications in this Lease as a condition to such financing, Tenant
will not unreasonably withhold, delay or defer its consent thereto, provided
that such modifications do not increase the obligations of Tenant hereunder or
materially adversely affect the leasehold interest hereby created or Tenant's
rights hereunder.
50. FINANCIAL STATEMENTS. At any time during the Term of this Lease, Tenant
shall upon ten (10) days prior written notice from Landlord not more often than
twice in any calendar year, provide Landlord with a current financial statement
and financial statements of the two (2) years prior to the current financial
statement year for Tenant. Such statement shall be prepared in accordance with
generally accepted accounting principles and, if such is the normal practice of
Tenant, shall be audited by an independent certified public accountant.
51. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon
Tenant paying the rent required under this Lease and paying all other charges
and performing all of the covenants and provisions aforesaid on Tenant's part to
be observed and performed under this Lease, Tenant shall and may peaceably and
quietly have, hold and enjoy the Premises in accordance with this Lease.
52. TENANT AS CORPORATION OR PARTNERSHIP. If Tenant executes this Lease as
a corporation or partnership, then Tenant and the persons executing this Lease
on behalf of Tenant represent and warrant that such entity is duly qualified to
do business in California and that the individuals executing this Lease on
Tenant's behalf are duly authorized to execute and deliver this Lease on its
behalf, in the case of a corporation, in accordance with a duly adopted
resolution of the board of directors of Tenant, a copy of which is to be
delivered to Landlord on execution hereof, and in accordance with the by-laws of
Tenant, and in the case of a partnership, in accordance with the partnership
agreement and the most current amendments thereto, if any, copies of which are
to be delivered to Landlord on execution hereof, and that this Lease is binding
upon Tenant in accordance with its terms.
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PAGES 64-74 OF TILE
LEASE ARE NOT
APPLICABLE TO THE
SUBLEASE
<PAGE>
61. ACCESS TO PREMISES. Tenant shall have access to the Premises
twenty-four (24) hours per day, seven (7) days per week, fifty-two (52) weeks
per year (after-hours access to be in compliance with reasonable security
procedures established by Landlord).
62. SIGNAGE. Tenant shall be entitled to an eyebrow identity sign on the
exterior face of the Building. Such exterior sign shall identify only the
original Tenant or an
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Affiliate Subtenant. The exact location, size, materials, graphics and lighting
(if any) with respect to such signage shall be consistent and compatible with
any covenants, conditions and restrictions affecting the Building and/or
Development, all applicable laws, regulations and ordinances of the City of
Irvine or any other applicable governmental body, and the sign criteria for the
Development, and shall also be subject to Landlord's reasonable approval. As
soon as reasonably possible after the execution of this Lease, Landlord shall
notify Tenant in writing of the alternative locations for Tenant's signage on
the exterior face of the Building. During the thirty (30) day period following
Landlord's notice Tenant shall have the right to select which of such
alternative signage locations Tenant desires to utilize. Prior to the earlier of
Tenant's selection of its signage location or the end of such thirty (30) day
period, Landlord shall not offer any other non-retail tenant in the Building
exterior signage rights at a specific location without Tenant's prior written
consent. In addition, without the prior written consent of Tenant, during any
period during which Tenant retains its exterior signage rights described in this
Paragraph 62, Landlord shall not hereafter permit another non-retail tenant in
the Building to install signage (excluding existing Wells Fargo signage) on the
exterior face of the Building other than at those alternative signage locations
offered to Tenant which Tenant did not select for the location of its sign.
Landlord shall be responsible for the costs associated with the initial
installation of such exterior signage. Tenant shall be responsible for all
maintenance and utility costs with respect to such exterior sign. At the
termination of this Lease or at any other time when Tenant no longer is entitled
to its signage hereunder, Landlord shall have the right, but not the obligation,
at Landlord's sole cost and expense, to remove such exterior sign.
Notwithstanding any contrary provision of this Paragraph 62, Tenant's exterior
signage rights granted herein shall cease and be of no further force or effect
if at any time during the Term the original Tenant and Affiliate Subtenants fail
to physically occupy at least fifty percent (50%) of the rentable area of the
Premises. Tenant shall, at Tenant's sole cost and expense, be permitted to
install appropriate signage on the walls of the elevator lobbies of the four
floors of the Building under lease by Tenant, and on the entrance doors to its
Premises. The exact location, size, materials, graphics and lighting (if any)
with respect to such interior signage shall be subject to Landlord's reasonable
approval. At the termination of this Lease, Tenant shall be responsible for the
cost of removal of all such interior signage and the cost of repairing any
damage to the Building caused by such removal. Except as otherwise provided in
this Paragraph 62 or as provided in Paragraph 4 of Exhibit "F" regarding the
Building directory, Tenant shall have no right to install or maintain Tenant
identification signs in any other location in, on or about the Premises or the
Development and
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shall not display or erect any other signs, displays or other advertising
materials that are visible from the exterior of the Building. The signage rights
granted to Tenant pursuant to this Paragraph 62 shall be personal to the
original Tenant and Affiliate Subtenants and may not be exercised or be
assigned, voluntarily or involuntarily, by or to any entity other than the
original Tenant or an Affiliate Subtenant.
63. [Intentionally Omitted.]
64. ABATEMENT OF RENT WHEN TENANT IS PREVENTED FROM USING PREMISES. In the
event that Tenant is prevented from using and does not use the Premises or any
portion thereof, for five (5) consecutive business days ("Eligibility Period"),
as a result of any damage or destruction (subject to the provisions of Paragraph
23) to the Premises or Building, any failure of Landlord to provide services,
utilities or access to the Premises, any failure of Landlord to provide access
to the parking described in this Lease or any Landlord repairs or other
construction work preventing Tenant's access to or use of the Premises, then
Tenant's Basic Rent, parking charges, and Operating Expense escalation charges
shall be abated or reduced, as the case may be, during the period during which
Tenant continues to be so prevented from using the Premises, or a portion
thereof, in the proportion that the rentable area of the portion of the Premises
that Tenant is prevented from using, and does not use, bears to the total
rentable area of the Premises. However, in the event that Tenant is prevented
from conducting, and does not conduct its business in any portion of the
Premises for a period of time exceeding the Eligibility Period, and the
remaining portion of the Premises is not sufficient to allow Tenant to conduct
its business therein, and if Tenant does not conduct its business from such
remaining portion, then during the period during which Tenant is so prevented
from conducting its business therein, the Rent (including parking charges, and
Operating Expenses escalation charges) for the entire Premises shall be abated;
provided, however, if Tenant reoccupies and conducts its business from any
portion of the Premises during such period, the rent allocable to such
reoccupied portion, based on the proportion that the rentable area of such
reoccupied portion bears to the total rentable area of the Premises, shall be
payable by Tenant from the date such business operations commence.
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EXHIBIT 10.15
Table of Contents
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
<TABLE>
<S> <C>
Section 1. DEFINITIONS............................................................. 3
1.1. Special Definitions.................................................. 3
1.2. Other Defined Terms.................................................. 11
1.3 Attachments.......................................................... 11
Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES............................... 11
2.1. Credit Line.......................................................... 11
2.2. Product Advances..................................................... 11
2.3. A/R Advances......................................................... 13
2.4. Finance and Other Charges............................................ 14
2.5. Statements Regarding Customer's Account.............................. 15
2.6. Shortfall............................................................ 15
2.7. Application of Payments.............................................. 15
2.8. Prepayment and Reborrowing By Customer............................... 15
Section 3. CREDIT LINE/ADDITIONAL PROVISIONS....................................... 15
3.1. Ineligible Accounts.................................................. 15
3.2. Reimbursement for Charges............................................ 17
3.3. Lockbox and Special Account.......................................... 17
3.4. Collections.......................................................... 18
3.5. Application of Remittances and Credits............................... 18
3.6. Power of Attorney.................................................... 18
Section 4. SECURITY -- COLLATERAL.................................................. 20
4.1. Grant................................................................ 20
4.2. Further Assurances................................................... 20
Section 5. CONDITIONS PRECEDENT.................................................... 21
5.1. Conditions Precedent to the Effectiveness of This Agreement.......... 21
5.2. Conditions Precedent to Each Advance................................. 22
Section 6. REPRESENTATIONS AND WARRANTIES.......................................... 22
6.1. Organization and Qualifications...................................... 22
6.2. Rights in Collateral; Priority of Liens.............................. 22
6.3. No Conflicts......................................................... 23
6.4. Enforceability....................................................... 23
6.5. Locations of Offices, Records and Inventory.......................... 23
6.6. Fictitious Business Names............................................ 23
6.7. Organization......................................................... 24
6.8. No Judgments or Litigation........................................... 24
6.9. No Defaults.......................................................... 24
6.10. Labor Matters........................................................ 24
6.11. Compliance with Law.................................................. 24
6.12. ER1SA................................................................ 24
6.13. Compliance with Environmental Laws................................... 24
6.14. Intellectual Property................................................ 25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.15. Licenses and Permits................................................. 25
6.16. Investment Company................................................... 25
6.17. Taxes and Tax Returns................................................ 26
6.18. Status of Accounts................................................... 26
6.19. Affiliate/Subsidiary Transactions.................................... 26
6.20. Accuracy and Completeness of Information............................. 26
6.21. Recording Taxes...................................................... 26
6.22. Indebtedness......................................................... 26
Section 7. AFFIRMATIVE COVENANTS................................................... 27
7.1. Financial and Other Information...................................... 27
7.2. Location of Collateral............................................... 29
7.3. Changes in Customer.................................................. 29
7.4. Corporate Existence.................................................. 30
7.5. ERISA................................................................ 30
7.6. Environmental Matters................................................ 30
7.7. Collateral Books and Records/Collateral Audit........................ 31
7.8. Insurance; Casualty Loss............................................. 31
7.9. Taxes................................................................ 32
7.10. Compliance With Laws................................................. 32
7.11. Fiscal Year.......................................................... 32
7.12. Intellectual Property................................................ 32
7.13. Maintenance of Property.............................................. 32
7.14. Collateral........................................................... 33
7.15. Subsidiaries......................................................... 34
7.16 Financial Covenants; Additional Covenants............................ 34
Section 8. NEGATIVE COVENANTS...................................................... 34
8.1. Liens................................................................ 34
8.2. Disposition of Assets................................................ 34
8.3. Corporate Changes.................................................... 34
8.4. Guaranties........................................................... 35
8.5. Restricted Payments.................................................. 35
8.6. Investments.......................................................... 35
8.7. Affiliate/Subsidiary Transactions.................................... 35
8.8. ERISA................................................................ 36
8.9. Additional Negative Pledges.......................................... 36
8.10. Storage of Collateral with Bailees and Warehousemen.................. 36
8.11. Use of Proceeds...................................................... 36
8.12. Accounts............................................................. 36
8.13. Indebtedness......................................................... 37
8.14. Loans................................................................ 37
Section 9. DEFAULT................................................................. 37
9.1 Event of Default..................................................... 37
9.2. Acceleration......................................................... 38
9.3. Remedies............................................................. 39
9.4. Waiver............................................................... 40
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 10. MISCELLANEOUS......................................................... 40
10.1 Term; Termination.................................................... 40
10.2 Indemnification...................................................... 41
10.3 Additional Obligations............................................... 41
10.4. Limitation of Liability.............................................. 41
10.5. Alteration/Waiver.................................................... 41
10.6. Severability......................................................... 42
10.7 One Loan............................................................. 42
10.8 Additional Collateral................................................ 42
10.9. No Merger or Novations............................................... 42
10.10. Paragraph Titles..................................................... 43
10.11. Binding Effects; Assignment.......................................... 43
10.12. Notices.............................................................. 43
10.13. Counterparts......................................................... 43
10.14. Attachment A modifications........................................... 43
10.15. Submission and Consent to Jurisdiction and
Choice of Law..................................................... 43
10.16. Jury Trail Waiver.................................................... 44
10.14. Additional Provision................................................. 44
</TABLE>
<PAGE>
INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT
This INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT (as amended, supplemented
or otherwise modified from time to time, this "Agreement") amends and restates
that Agreement for Wholesale Financing dated August 9, 1989 (as amended from
time to time, the "Financing Agreement") and is hereby made this 30th day of
October, 1997, by and between IBM CREDIT CORPORATION with a place of business at
1500 RiverEdge Parkway, Atlanta, GA 30328, a Delaware corporation, ("IBM
Credit"), and PULSAR DATA SYSTEMS, incorporated, with a place of business at
4500 Forbes Boulevard, Lanham, MD 20706, a Delaware corporation,
("Customer").
WITNESSETH
WHEREAS, IBM Credit and Customer are parties to that certain Financing
Agreement pursuant to which IBM Credit finances Customer's acquisition of
inventory and equipment;
WHEREAS, in the course of Customer's operations, Customer intends to
purchase from Persons approved in writing by IBM Credit for the purposes of this
Agreement (the "Authorized Suppliers") computer hardware and software products
manufactured or distributed by or bearing any trademark or trade name of such
Authorized Suppliers (the "Products") (as of the date hereof the Authorized
Suppliers are as set forth on Attachment E hereto);
WHEREAS, Customer has requested that IBM Credit finance its purchase of
Products from such Authorized Suppliers and its working capital requirements,
and IBM Credit is willing to provide such financing to Customer subject to the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree that the Financing Agreement is hereby
amended and restated in its entirety as follows:
Section 1. DEFINITIONS; ATTACHMENTS
1.1 Special Definitions. The following terms shall have the following
respective meaning in this Agreement:
"A/R Advance": any loan or advance of funds made by IBM Credit to or on behalf
of Customer pursuant to Section 2.3 of this Agreement, including, as the context
may require, a WCO Advance, a PRO Advance and a Takeout Advance.
"A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance
under this Agreement.
"A/R Advance Term": shall be the collective or individual reference, as the
context may require, to a PRO Advance Term and a WCO Advance Term.
Page 4 of 46
<PAGE>
"A/R Finance Charges": as defined on Attachment A.
"Accounts": as defined in the U.C. C.
"Advance": any loan or other extension of credit by IBM Credit to or on behalf
of Customer pursuant to this Agreement including, without limitation, (i)
Product Advances and (ii) A/R Advances.
"Affiliate": with respect to the Customer, any Person meeting one of the
following: (i) at least 10% of such Person's equity is owned, directly or
indirectly, by Customer; (ii) at least 10% of Customer's equity is owned,
directly or indirectly, by such Person; or (iii) at least 10% of Customer's
equity and at least 10% of such Person's equity is owned, directly or
indirectly, by the same Person or Persons. All of Customer's officers,
directors, joint venturers, and partners shall also be deemed to be Affiliates
of Customer for purposes of this Agreement.
"Agreement": as defined in the caption.
"Auditors": a nationally recognized firm of independent certified public
accountants selected by Customer and satisfactory to IBM Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding Advances at such time.
"Average Daily Balance": the sum of the unpaid principal of Outstanding Product
Advances or Outstanding A/R Advances, as the case may be, as of each day during
a calendar month, divided by the number of days in the calendar month.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.
"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any successor statute.
"Collateral": as defined in Section 4.1.
"Collateral Management Report": a report to be delivered by Customer to IBM
Credit from time to time, as provided herein, signed by the chief executive
officer or chief financial officer of Customer, substantially in the form and
detail of Attachment F hereto, detailing and certifying, among other items: a
summary of Customer's inventory on hand financed by IBM Credit and Customer's
Eligible Accounts, the amounts and aging of all of Customer's Accounts,
Customer's inventory on hand financed by IBM Credit by quantity, type, model,
Authorized Supplier's invoice price to Customer and the total of the line item
values for all inventory listed on the report, the amounts and aging of
Customer's accounts payable as
Page 5 of 46
<PAGE>
of a specified date, all of Customer's IBM Credit borrowing activity during a
specified period and the total amount of Customer's Borrowing Base as well as
Customer's Outstanding A/R Advances, Outstanding Product Advances, Available
Credit and any Shortfall Amount as of a specified date.
"Common Due Date": (1) the fifth day of a calendar month if the Product
Financing Period or A/R Advance Term, whichever is applicable, expires on the
first through tenth of such calendar month; (2) the fifteenth day of a calendar
month if the Product Financing Period or A/R Advance Term, whichever is
applicable, expires on the eleventh through twentieth of such calendar month;
and (3) the twenty-fifth day of a calendar month if the Product Financing Period
or A/R Advance Term, whichever is applicable, expires on the twenty-first
through the last day of such calendar month.
"Compliance Certificate": a certificate substantially in the form of
Attachment C.
"Credit Line": as defined in Section 2.1.
"Customer": as defined in the caption.
"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Eligible Accounts": as defined in Section 3.1.
"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to emissions,
discharges or release of pollutants, contaminants, hazardous substances or
wastes into the environment.
"Environmental Liability": any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
expense, resulting from the violation or alleged violation of any Environmental
Laws or the imposition of any Lien pursuant to any Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or any
successor statutes.
"Event of Default": as defined in Section 9.1.
"Financial Statements": the consolidated and consolidating balance sheets
(including, without limitation, securities such as stocks and investment bonds),
statements of operations, statements of cash flows and statements of changes in
shareholder's equity of Customer and its Subsidiaries for the period specified,
prepared in accordance with GAAP and Consistent with prior practices.
Page 6 of 45
<PAGE>
"Floor Plan Lender": any Person who now or hereinafter provides inventory
financing to Customer, provided that such Person executes an Intercreditor
Agreement (as defined in Section 5.1 of this Agreement) or a subordination
agreement with IBM Credit in form and substance satisfactory to IBM Credit.
"Free Financing Period": for each Product Advance, the period, if any, in which
IBM Credit does not charge Customer a financing charge. IBM Credit shall
calculate the Customer's Free Financing Period utilizing a methodology that is
consistent with the methodologies used for similarly situated customers of IBM
Credit. The Customer understands that IBM Credit may not offer or may cease to
offer a Free Financing Period for the Customer's purchases of Products. IBM
Credit will use its best efforts to timely inform Customer of a change in a Free
Financing Period made available by an Authorized Supplier, however IBM Credit
assumes no liability of any kind for any delay or failure on its part to provide
such information.
"Free Financing Period Exclusion Fee": as defined in Attachment A.
"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.
"Governmental Authority": any nation or government, any state or other political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled (through stock or capital
ownership or otherwise) by any of the foregoing.
"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under any
Environmental Laws.
"IBM Credit": as defined in the caption.
Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases (including obligations under any leases Customer may enter into,
now or in the future with IBM Credit), (3) all obligations of such Person in
respect of letters of credit, banker's acceptances or similar obligations issued
or created for the account of such Person, (4) liabilities arising under any
interest rate protection, future, option swap, cap or hedge agreement or
arrangement under which such Person is a party or beneficiary, (5) all
obligations under guaranties of such Person and (6) all liabilities secured by
any Lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.
Page 7 of 46
<PAGE>
"Investment": with respect to any Person (the "Investor"), (1) any investment by
the Investor in any other Person, whether by means of share purchase, capital
contribution, purchase or other acquisition of a partnership or joint venture
interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty
by the Investor of any Indebtedness or other obligation of any other Person.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Material Adverse Effect": a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of the
Customer, (2) on the aggregate value of the Collateral or the aggregate amount
which IBM Credit would be likely to receive (after giving consideration to
reasonably likely delays in payment and reasonable costs of enforcement) in the
liquidation of such Collateral to recover the Obligations in full, or (3) on the
rights and remedies of IBM Credit under this Agreement.
"Maximum Advance Amount": at any time, the lesser of (1) the Credit Line and (2)
the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Customer, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding), fees,
reasonable expenses, indemnities, liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Customer
to IBM Credit.
"Other Documents": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules of assignment, contracts and similar agreements
executed by Customer and delivered to IBM Credit, pursuant to this Agreement or
otherwise, and all amendments, supplements and other modifications to the
foregoing from time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of (1) the unpaid
principal amount of all Advances made by IBM Credit under this Agreement, and
(2) any finance charge, fee, expense or other amount related to Advances charged
to Customer's account with IBM Credit.
"Outstanding A/R Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all A/R Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
A/R Advances charged to Customer's account with IBM Credit.
Page 8 of 46
<PAGE>
"Outstanding Product Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all Product Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
Product Advances charged to Customer's account with IBM Credit.
"Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
(2) Indebtedness described in Section VII of Attachment B;
(3) Indebtedness to any Floor Plan Lender;
(4) Purchase Money Indebtedness;
(5) guaranties in favor of IBM Credit; and
(6) other Indebtedness consented to by IBM Credit in writing prior to incurring
such Indebtedness.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an Intercreditor Agreement, in effect from
time to time between IBM Credit and any other secured creditor;
(2) Purchase Money Security Interests;
(3) Liens described in Section I of Attachment B;
(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other appropriate
provisions shall have been made therefor as required to be in conformity with
GAAP and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(5) attachment or judgement Liens individually or in the aggregate not in
excess of $250,000 (exclusive of (A) any amounts that are duly bonded to the
satisfaction of IBM Credit or (B) any amount fully covered by insurance as to
which the insurance company has acknowledged its obligation to pay such
judgement in full);
(6) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of Customer;
(7) extensions of renewals of the foregoing permitted Liens; provided that (A)
the aggregate amount of such extended or renewed Liens do not
Page 9 of 46
<PAGE>
exceed the original principal amount of the Indebtedness for which it secures,
(B) such Liens do not extend to any property other than property already
previously subject to the Lien and (C) such extended or renewed Liens are on
terms and conditions no more restrictive than the terms and conditions of the
Liens being extended or renewed;
(8) Liens arising from deposits or pledges to secure bids, tenders, contracts,
leases, surety and appeal bonds and other obligations of like nature arising in
the ordinary course of the Customer's business;
(9) Liens for taxes, assessments or governmental charges not delinquent or
being contested, in good faith, by appropriate proceedings promptly instituted
and diligently conducted if an adequate reserve or other appropriate provisions
shall have been made therefor as required in order to be in conformity with GAAP
and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(10) Liens arising out of deposits in connection with workers' compensation,
unemployment insurance or other social security or similar legislation;
(11) Liens arising pursuant to this Agreement; and
(12) other Liens consented to by IBM Credit in writing prior to incurring such
Lien.
"Person": any individual, association, firm, corporation, partnership, trust,
unincorporated organization or other entity whatsoever.
"Policies": all policies of insurance required to be maintained by Customer
under this Agreement or any of the Other Documents.
"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., Chase Manhattan Bank and Bank of America
National Trust & Savings Association (or any other bank which IBM Credit uses in
its normal course of business of determining Prime Rate) as their prime or base
rate, as of the last Business Day of the calendar month immediately preceding
the date of determination, whether or not such announced rates are the actual
rates charged by such banking institutions to their most creditworthy borrowers.
"PRO Advance": an A/R Advance, with a PRO Advance Term, made by IBM Credit to
itself on behalf of Customer to repay all or a portion of a Product Advance that
is due and payable.
"PRO Advance Term": for each PRO Advance, a period, in increments of ten days as
specified by Customer in the Request for A/R Advance with respect to such PRO
Advance, but in no event in excess of thirty days, commencing on the A/R Advance
Date for such PRO Advance.
"Product Advance": any advance of funds made or committed to be made by IBM
Credit for the account of Customer to an Authorized Supplier in respect of an
invoice delivered by such Authorized Supplier to IBM Credit describing Products
purchased by Customer, including any such purchased by Customer, including any
such
Page 10 of 46
<PAGE>
advance made or committed to be made as of the date hereof pursuant to the
Financing Agreement.
"Product Financing Charge": as defined in Attachment A.
"Product Financing Period": for each Product Advance, a period of days equal to
that set forth in Attachment A from time to time, commencing on the invoice date
of such Product Advance.
"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets (other than assets manufactured or
distributed by or bearing any trademark or trade name of any Authorized
Supplier) to be used in the Customer's business not to exceed the lesser of (1)
the purchase price or acquisition cost of such asset and (2) the fair market
value of such asset.
"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.
"Request for A/R Advance": as defined in Section 2.3.
"Requirement of Law": as to any Person, the articles of incorporation and by-
laws of such Person, and any law, treaty, rule or regulation or determination of
an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Shortfall Amount": as defined in Section 2.6.
"Shortfall Transaction Fee": as defined in Attachment A.
"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Person performing similar
functions are at the time directly or indirectly owned by such Person.
"Takeout Advance": an A/R Advance made to existing creditors of Customer on
behalf of Customer, in an amount sufficient to discharge Customer's indebtedness
to such creditor.
"Termination Date": shall mean the first anniversary of the date of this
Agreement or such other date as IBM Credit and Customer may agree to from time
to time.
"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions). "WCO Advance": an A/R Advance, with a WCO Advance
Term.
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"WCO Advance Term": for each WCO Advance, a period of one hundred eighty (180)
days commencing on the A/R Advance Date for such WCO Advance.
1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
(the "U.C.C.") shall have the meanings assigned to them therein.
1.3. Attachments. All attachments, exhibits, schedules and other addenda
hereto, including, without limitation, Attachment A and Attachment B, are
specifically incorporated herein and made a part of this Agreement.
Section 2. CREDIT LINE/ FINANCE CHARGES/ OTHER CHARGES
2.1. Credit Line. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (x) the date on which this Agreement is terminated pursuant to
Section 10. and (y) the date on which IBM Credit terminates the Credit Line
pursuant to Section 9., IBM Credit agrees to extend to the Customer a credit
line ("Credit Line") in the amount set forth the Attachment A pursuant to which
IBM Credit will make to the Customer, from time to time, Advances in an
aggregate amount at any one time outstanding not to exceed the Maximum Advance
Amount. Notwithstanding any other term or provision of this Agreement, IBM
Credit may, at any time and from time to time, in its sole discretion (x)
temporarily increase the amount of the Credit Line above the amount set forth in
Attachment A and decrease the amount of the Credit Line back to the amount of
the Credit Line set forth in Attachment A, in each case upon written notice to
the Customer and (y) make Advances pursuant to this Agreement upon the request
of Customer in an aggregate amount at any one time outstanding in excess of the
Credit Line.
2.2. Product Advances. (A) Subject to the terms and conditions of this
Agreement, IBM Credit shall make Product Advances in connection with Customer's
purchase of Products from Authorized Suppliers (as defined under WITNESSETH).
Customer hereby authorizes and directs IBM Credit to pay the proceeds of Product
Advances directly to the applicable Authorized Supplier in respect of invoices
delivered to IBM Credit for such Products by such Authorized Supplier and
acknowledges that each such Product Advance constitutes a loan by IBM Credit to
Customer pursuant to this Agreement as if the Customer received the proceeds of
the Product Advance directly from IBM Credit.
(B) No finance charge shall accrue on any Product Advance during the Free
Financing Period, if any, applicable to such Product Advance. Customer shall
repay each Product Advance no later than the Common Due Date for such Product
Advance. Customer may, at its option, repay each Product Advance by requesting
IBM Credit to apply all or any part of the principal amount of an A/R Advance to
the Outstanding Product Advances. Customer's request for such application shall
be made in accordance with Section 2. When so requested and subject to the terms
and conditions of this Agreement, IBM Credit shall apply the amount so requested
to the amounts due in respect of the Outstanding Product Advances. Nothing
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contained herein shall relieve Customer of its obligation to repay Product
Advances when due. Each Product Advance shall accrue a finance charge on the
Average Daily Balance thereof from and including the first (1st) day following
the end of the Free Financing Period, if any, for such Product Advance, or if no
such Free Financing Period shall be in effect, from and including the date of
invoice for such Product Advance, in each case, to and including the date such
Product Advance shall become due and payable in accordance with the terms of
this Agreement, at a per annum rate equal to the lesser of (a) the finance
charge set forth in Attachment A to this Agreement as the "Product Financing
Charge" and (b) the highest rate from time to time permitted by applicable law.
In addition, for any Product Advance with respect to which a Free Financing
Period shall not be in effect, Customer shall pay a Free Financing Period
Exclusion Fee. Such fee shall be due and payable on the Common Due Date for
such Product Advance. If it is determined that amounts received from Customer
were in excess of the highest rate permitted by law, then the amount
representing such excess shall be considered reductions to principal of
Advances.
(C) Customer acknowledges that IBM Credit does not warrant the Collateral.
Customer shall be obligated to pay IBM Credit in full even if the Collateral is
defective or fails to conform to the warranties extended by the Authorized
Supplier. The Obligations of Customer shall not be affected by any dispute
Customer may have with any manufacturer, distributor or Authorized Supplier.
Customer will not assert any claim or defense which it may have against any
manufacturer, distributor or Authorized Supplier against IBM Credit.
(D) Customer hereby authorizes IBM Credit to collect directly from any
Authorized Supplier any credits, rebates, bonuses or discounts owed by such
Authorized Supplier to Customer ("Supplier Credits"). Any Supplier Credits
received by IBM Credit may be applied by IBM Credit to the Outstanding Advances.
IBM Credit will use its best efforts to provide a schedule of Supplier Credits
to Customer weekly or upon Customer's reasonable demand. Any Supplier Credits
collected by IBM Credit shall in no way reduce Customer's debt to IBM Credit in
respect of the Outstanding Advances until such Supplier Credits are applied by
IBM Credit.
(E) IBM Credit may apply any payments and Supplier Credits received by
IBM Credit to reduce finance charges first and then to principal amounts of
Advances owed by Customer. IBM Credit may apply principal payments to the
oldest (earliest) invoices (and related Product Advances) first, but, in any
case, all principal payments will be applied in respect of the Outstanding
Product Advances made for Products which have been sold, lost, stolen,
destroyed, damaged or otherwise disposed of prior to any other application
thereof.
(F) Customer will indemnify and hold IBM Credit harmless from and against
any claims or demands asserted by any Person relating to or arising from the
Collateral for any reason whatsoever, including, without limitation, the
condition of the Collateral, any misrepresentation made about the Collateral by
any representative of
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Customer, or any act or failure to act by Customer except to the extent such
claims or demands are directly attributable to IBM Credit's gross negligence or
willful misconduct. Nothing contained in the foregoing shall impair any rights
or claims which the Customer may have against any manufacturer, distributor or
Authorized Supplier.
2.3. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide an
A/R Advance, Customer shall deliver to IBM Credit written notice of Customer's
request for such an Advance ("Request for A/R Advance"). For any requested A/R
Advance pursuant to which monies will be disbursed to Customer or any Person
other than IBM Credit, a Request for A/R Advance shall be delivered to IBM
Credit on or prior to 1:00 p.m. (eastern time) one Business Day prior to the
requested A/R Advance Date. The Request for A/R Advance shall specify (i) the
requested A/R Advance Date; (ii) the amount of the requested A/R Advance; (iii)
whether such A/R Advance is a WCO Advance or a PRO Advance; (iv) if applicable,
the PRO Advance Term for such A/R Advance; (v) for each PRO Advance, the month,
day and year of the Common Due Date, as set forth in Customer's applicable
billing statement from IBM Credit, for the Product Advance to which the PRO
Advance is to be applied; and (vi) if applicable, the amount of the requested
A/R Advance that should be applied to the Outstanding Product Advances (provided
that all PRO Advances shall be applied to the Outstanding Product Advances).
Customer may deliver a Request for A/R Advance via facsimile. Any Request for
A/R Advance delivered to IBM Credit shall be irrevocable. Notwithstanding any
other provision of this Agreement, Customer shall not (i) request more than one
PRO Advance in respect of any Product Advance; and (ii) request a PRO Advance
for any Common Due Date on which Customer will take a discount offered by IBM
Credit for invoice amounts paid in full within fifteen days of the invoice date
under IBM Credit's High Turnover Option ("HTO") Program.
(B) Subject to the terms and conditions of this Agreement, on the A/R
Advance Date specified in a Request for A/R Advance, IBM Credit shall make the
principal amount of each A/R Advance available to the Customer in immediately
available funds to an account maintained by Customer (or in the case of a
Takeout Advance, as directed by Customer). If IBM Credit is making an A/R
Advance hereunder on a day on which Customer is to repay all or any part of an
Outstanding Advance (or any other amount owing hereunder), IBM Credit shall
apply the proceeds of the A/R Advance to such repayment and only an amount equal
to the difference, if any, between the amount of the A/R Advance and the amount
being repaid shall be made available to Customer as provided in the immediately
preceding sentence.
(C) Each A/R Advance shall accrue a finance charge on the unpaid principal
amount thereof, from and including the date of each A/R Advance to and including
the date such A/R Advance is due and payable in accordance with the terms of
this Agreement at a per annum rate equal to the lesser of (a) the finance charge
set forth in Attachment A to this Agreement under the caption "A/R Finance
Charge" for such type of A/R Advance, or (b) the highest rate from time to time
permitted by applicable law. If it is determined that amounts received from the
Customer were in excess of such highest rate, then the amount
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representing such excess shall be considered reductions to principal of
Advances.
(D) Unless otherwise due and payable at an earlier date, the unpaid
principal amount of each A/R Advance, other than a Takeout Advance, shall be due
and payable on the applicable Common Due Date. Unless otherwise notified by
Customer in writing prior to the day the principal amount of any WCO Advance
becomes due and payable, the customer shall be deemed to have provided IBM
Credit with a Request for A/R Advance requesting a WCO Advance on the day such
principal amount is due and payable in an amount equal to the unpaid principal
amount of the WCO Advance so due. Subject to the terms and conditions of this
Agreement, the principal amount of such WCO Advance shall automatically renew
for an additional WCO Advance Term. Notwithstanding any other provision of this
Agreement, a Takeout Advance may only be requested on the Closing Date and such
Takeout Advance shall be limited to an amount sufficient to discharge the
indebtedness that is the subject of a Takeout Advance.
Unless otherwise agreed in writing, a Takeout Advance shall be due pursuant to
the Schedule of Repayments in Attachment D to this Agreement.
2.4. Finance and Other Charges. (A) Finance charges shall be calculated by
multiplying the applicable Delinquency Fee Rate, Product Financing Charge or A/R
Finance Charge provided for in this Agreement by Customer's applicable Average
Daily Balance. The Delinquency Fee Rate, the Product Financing Charge and the
various A/R Finance Charges provided for in this Agreement are each computed on
the basis of an actual day, 360 day year.
(B) The Customer hereby agrees to pay to IBM Credit the charges set forth
as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit
additional charges for any returned items of payment received by IBM Credit.
The Customer hereby acknowledges that any such charges are not interest but that
such charges, if unpaid, will constitute part of the Outstanding Advances.
(C) The finance charges and Other Charges owed under this Agreement, and
any charges hereafter agreed to in writing by the parties, are payable monthly
on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its
sole discretion, add unpaid finance charges and Other Charges to the Customer's
outstanding Advances.
(D) If any amount owned under this Agreement, including, without
limitation, any Advance, is not paid when due (whether at maturity, by
acceleration or otherwise), the unpaid amount thereof will bear a late charge
from and including the day after such Advance was due and payable to and
including the date IBM Credit receives payment thereof, at a per annum rate
equal to the lesser of (a) the amount set forth in Attachment A to this
Agreement as the "Delinquency Fee Rate" and (b) the highest rate from time to
time permitted by applicable law. In addition, if any Shortfall Amount shall
not be paid when due pursuant to Section 2.6 hereof, Customer shall pay IBM
Credit a Shortfall Transaction Fee. If
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it is determined that amounts received from Customer were in excess of such
highest rate, then the amount representing such excess shall be considered
reductions to principal of Advances.
2.5 Statements Regarding Customer's Account. IBM Credit will send statements of
each transaction hereunder as well as monthly billing statements to Customer
with respect to Advances and other charges due on Customer's account with IBM
Credit. Each statement of transaction and monthly billing statement shall be
deemed, absent manifest error, to be correct and shall constitute an account
stated with respect to each transaction or amount described therein unless
within seven (7) Business Days after such statement of transaction or billing
statement is received by Customer, Customer provides IBM Credit written notice
objecting that such amount or transaction is incorrectly described therein and
specifying the error(s), if any, contained therein. IBM Credit may at any time
adjust such statements of transaction or billing statements to comply with
applicable law and this Agreement.
2.6. Shortfall. If, on any date, the Outstanding Advances shall exceed the
Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer
shall on such date prepay the Outstanding Advances in an amount equal to such
Shortfall amount.
2.7. Application of Payments. The Customer hereby agrees that all checks and
other instruments delivered to IBM Credit on account of Customer's Obligations
shall constitute conditional payment until such items are actually collected by
IBM Credit. The Customer waives the right to direct the application of any and
all payments at any time or times hereafter received by IBM Credit on account of
the Customer's Obligations. Customer agrees that IBM Credit shall have the
continuing exclusive right to apply and reapply any and all such payments to
Customer's Obligations in such manner as IBM Credit may deem advisable
notwithstanding any entry by IBM Credit upon any of its books and records.
2.8. Prepayment and Reborrowing By Customer. (A) Customer may at any time
prepay, without notice or penalty, in whole or in part amounts owed under this
Agreement. IBM Credit may apply payments made to it (whether by the Customer or
otherwise) to pay finance charges and other amounts owing under this Agreement
first and then to the principal amount owed by the Customer.
(B) Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be
reborrowed by Customer in accordance with the provisions of this Agreement.
Section 3. CREDIT LINE ADDITIONAL PROVISIONS
3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall
have the sole right to determine eligibility of Accounts from an Account debtor
for purposes of determining the Borrowing Base; however, without limiting such
right, the following Accounts will be deemed to be ineligible for purposes of
determining the Borrowing Base;
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(A) Accounts created from the sale of goods and/or performance of services
(i) on non-standard terms or (ii) that allow for payment to be made more than
thirty (30) days from the date of such sale or performance or services or (iii)
to Nexus Unlimited, Inc.
(B) Accounts unpaid more than: (i) one hundred twenty (120) days from date
of invoice if the Account debtor is a United States government institution; or
(ii) ninety (90) days from date of invoice for all other Account debtors;
(C) Accounts payable by an Account debtor if fifty percent (50%) or more of
the aggregate outstanding balance of all such Accounts remain unpaid for more
than: (i) one hundred twenty (120) days from date of invoice if the Account
debtor is a United States government institution; or (ii) ninety (90) days from
date of invoice for all other Account debtors;
(D) Accounts payable by an Account debtor that is an Affiliate of Customer,
or an officer, employee, agent, guarantor, stockholder of Customer or an
Affiliate of Customer, or is related to or has common shareholders, officers or
directors with Customer;
(E) Accounts arising from consignment sales;
(F) Except for state, local and United States government institutions and
public educational institutions, Accounts with respect to which the payment by
the Account debtor is or may be conditional;
(G) Except for state, local and United States government institutions and
public educational institutions, Accounts with respect to which : (i) the
Account debtor is not a commercial entity, or (ii) the Account debtor is not a
resident of the United States;
(H) Accounts payable by any Account debtor to which Customer is or may
become liable for goods sold or services rendered by such Account debtor to
Customer;
(I) Accounts arising from the sale or lease of goods purchased for a
personal, family or household purpose;
(J) Accounts arising from the sale or other disposition of goods that have
been used for demonstration purposes or loaned or leased by the Customer to
another party;
(K) Accounts which are progress payment accounts or contra accounts;
(L) Accounts upon which IBM Credit does not have a valid, perfected, first
priority security interest;
(M) Accounts payable by an Account debtor that is or Customer knows will
become, subject to proceedings under United States Bankruptcy Law or other law
for the relief of debtors;
(N) Accounts that are not payable in US dollars;
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(O) Accounts payable by any Account debtor that is a remarketer of computer
hardware and software products and whose purchases of such products from
Customer have been financed by another person, other than IBM Credit, who
pays the proceeds of such financing directly to Customer on behalf of such
debtor ("Third Party Financer") unless (i) such Third Party Financer does not
have a separate financing relationship with Customer or (ii) such Third Party
Financer has a separate financing relationship with Customer and has waived its
right to set off its obligations to Customer;
(P) Accounts arising from the sale or lease of goods which are billed to
any Account debtor but have not yet been shipped by Customer;
(Q) Accounts with respect to which Customer has permitted or agreed to any
extension, compromise or settlement, or made any change or modification of any
kind or nature, including, but not limited to, any change or modification to the
terms relating thereto;
(R) Accounts that do not arise from undisputed bona fide transactions
completed in accordance with the terms and conditions contained in the invoices,
purchase orders and contracts relating thereto;
(S) Accounts that are discounted for the full payment term specified in
Customer's terms and conditions with its Account debtors, or for any longer
period of time.
(T) Accounts on cash on delivery (C.O.D.) Terms;
(U) Accounts arising from maintenance or service contracts that are billed
in advance of full performance of service;
(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates, discounts, credits,
and refunds from a supplier; and
(X) Upon thirty (30) days prior notice, any and all other Accounts that IBM
Credit deems, in its sole and absolute discretion, to be ineligible, provided
however, that no direct obligation of the government of the United States of
America shall be deemed ineligible pursuant to this subsection (X).
The aggregate of all Accounts that are not ineligible Accounts shall hereinafter
be referred to as "Eligible Accounts".
3.2 Reimbursement for Charges. Customer agrees to pay for all costs and
expenses of Customer's bank in respect to collection of checks and other items
of payment, all fees relating to the use and maintenance of the Lockbox and the
Special Account (each as defined in Section 3.3) and with respect to remittances
of proceeds of the Advances hereunder.
3.3 Lockbox and Special Account. Customer shall establish and maintain a
lockbox ("Lockbox") at the address set forth in Attachment A
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with the financial institution listed in Attachment A ("Bank") pursuant to an
agreement between the Customer and Bank in form and substance satisfactory to
IBM Credit. Customer shall also establish and maintain a deposit account which
shall contain only proceeds of Customer's Accounts ("Special Account") with such
Bank. Customer shall enter into and maintain a contingent blocked account
agreement with such Bank for the benefit of IBM Credit in form and substance
satisfactory to IBM Credit pursuant to which, among other things, such Bank
shall agree that, upon notice from IBM Credit, disbursements from the Special
Account shall be made only as IBM Credit shall direct.
3.4. Collections. Customer shall instruct all Account debtors to remit
payments directly to a Lockbox. In addition, Customer shall have such
instruction printed in conspicuous type on all invoices. Customer shall
instruct such Bank to deposit all remittances to such Bank's Lockbox into its
Special Account. Customer further agrees that it shall not deposit or permit
any deposits of funds other than remittances paid in respect of the Accounts
into the Special Account(s) or permit any commingling of funds with such
remittances in any Lockbox or Special Account. Without limiting the Customer's
foregoing obligations, if, at any time, Customer receives a remittance directly
from an Account debtor, then Customer shall make entries on its books and
records in a manner that shall reasonably identify such remittances and shall
keep a separate account on its record books of all remittances so received and
deposit the same into a Special Account. Until so deposited into the Special
Account, Customer shall keep all remittances received in respect of Accounts
separate and apart from Customer's other property so that they are capable of
identification as the proceeds of Accounts in which IBM Credit has a security
interest.
3.5. Application of Remittances and Credits. Customer shall apply all
remittances against the aggregate of Customer's outstanding Accounts no later
than the end of the Business Day on which such remittances are deposited into
the Special Account. Customer also agrees to apply each remittance against its
respective Account no later than three (3) Business Days from the date such
remittance is deposited into the Special Account. In addition, Customer shall
promptly apply any credits owing in respect to any Account when due.
3.6. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with
full power of substitution, as its true and lawful attorney-in-fact with full
power, in good faith and in compliance with commercially reasonable standards,
in the discretion of IBM Credit, to:
(A) sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Documents;
(B) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligation; and
upon the occurrence and during the continuance of an Event of Default, as
defined in Section 9.1 hereof, which is not waived by the IBM Credit;
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(C) demand payment, enforce payment and otherwise exercise all Customer's
rights and remedies with respect to the collection of any Accounts;
(D) settle, adjust, compromise, extend or renew any Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect
any Accounts;
(F) sell or assign any Accounts upon such terms, for such amounts and at
such time or times as IBM Credit may deem advisable;
(G) discharge and release any Accounts;
(H) prepare, file and sign Customer's name on any Proof of Claim in
Bankruptcy or similar document against any Account debtor;
(I) prepare, file and sign Customer's name on any notice of lien, claim of
mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or
similar document in connection with any Accounts;
(J) endorse the name of Customer upon any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar document or agreement relating
to any Account or goods pertaining thereto;
(K) endorse the name of Customer upon any of the items of payment of proceeds
and deposit the same in the account of IBM Credit for application to the
Obligation;
(L) sign the name of Customer to requests for verification of Accounts and
notices thereof to Account debtors;
(M) sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to enforce any and all remedies it may have
under this Agreement, at law or otherwise; and
(N) make, settle and adjust claims under the Policies with respect to the
Collateral and endorse Customer's name on any check, draft, instrument or other
item of payment of the proceeds of the Policies with respect to the Collateral;
and
(O) take control in any manner of any term of payment or proceeds and for such
purpose to notify the postal authorities to change the address for delivery of
mail addressed to Customer to such address as IBM Credit may designate.
The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding. Nothing done by IBM Credit pursuant to such
power of attorney will reduce any of Customer's Obligations other than
Customer's payment Obligations to the extent IBM Credit has received monies.
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Section 4. SECURITY -- COLLATERAL
4.1 Grant. To secure Customer's full and punctual payment and performance of
the Obligations (including obligations under leases Customer may enter into, now
or in the future, with IBM Credit) when due (whether at the stated maturity, by
acceleration or otherwise), Customer hereby grants IBM Credit a security
interest in all of Customer's right, title and interest in and to the following
property, whether now owned or hereafter acquired or existing and wherever
located:
(A) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;
(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owning to Customer, whether or not arising out
of or in connection with the sale or lease of goods or the rendering of services
an all books, invoices, documents and other records in any form evidencing or
relating to any of the foregoing;
(C) general intangibles;
(D) all rights now or hereafter existing in and to all mortgages, security
agreements, leases or other contracts securing or otherwise relating to any of
the foregoing; and
(E) all substitutions and replacements for all of the foregoing, all
proceeds of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing.
All of the above assets shall be collectively defined herein as the
"Collateral."
Customer covenants and agrees with IBM Credit that: (a) the security constituted
to by this Agreement is in addition to any other security from time to time held
by IBM Credit and (b) the security hereby created is a continuing security
interest and will cover and secure the payment of all Obligations both present
and future of Customer to IBM Credit.
4.2 Further Assurances. Customer shall, from time to time upon the request of
IBM Credit, execute and deliver to IBM Credit, or cause to be executed and
delivered, at such time or times as IBM Credit may request such other and
further documents, certificates and instruments that IBM Credit may deem
necessary to perfect and maintain perfected IBM Credit's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement and the Other Documents. Customer shall make
appropriate entries on its books and records disclosing IBM Credit's security
interests in the Collateral.
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Section 5. CONDITIONS PRECEDENT
5.1. Conditions Precedent to the Effectiveness of this Agreement. The
effectiveness of this Agreement is subject to the receipt by IBM Credit of, or
waiver in writing by IBM Credit of compliance with, the following conditions
precedent:
(A) this Agreement executed and delivered by Customer and IBM Credit;
(B) (i) copies of the resolutions of the Board of Directors of Customer
certified by the secretary or assistant secretary of Customer authorizing the
execution, delivery and performance of this Agreement and each Other Document
executed and delivered in connection herewith, (ii) a certificate of the
secretary or an assistant secretary of Customer, in form and substance
satisfactory to IBM Credit, certifying the names and true signatures of the
officers of Customer authorized to sign this Agreement and the Other Documents
and (iii) copies of the articles of incorporation and by-laws of Customer
certified by the secretary or assistant secretary of Customer;
(C) certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of Customer in the
jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business;
(D) copies of all approvals and consents from any Person, in each case in
form and substance satisfactory to IBM Credit, which are required to enable
Customer to authorize, or required in connection with, (a) the execution,
delivery or performance of this Agreement and each of the Other Documents, and
(b) the legality, validity, binding effect or enforceability of this Agreement
and each of the Other Documents;
(E) a lockbox agreement executed by Customer and each Bank, in form and
substance satisfactory to IBM Credit;
(F) a contingent blocked account agreement executed by Customer and each
Bank in form and substances satisfactory to IBM Credit;
(G) intercreditor agreements ("Intercreditor Agreement"), in form and
substance satisfactory to IBM Credit, executed by each other secured creditor of
Customer as set forth in Attachment A;
(H) a favorable opinion of counsel for Customer in substantially the form
of Attachment H;
(I) UCC-1 financing statements for each jurisdiction reasonably requested by
IBM Credit executed by Customer and each guarantor whose guaranty to IBM Credit
is intended to be secured by a pledge of its assets;
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(J) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B; and
(K) all such other statements, certificates, documents, instruments, financing
statements, agreements and other information with respect to the matters
contemplated by this Agreement as IBM Credit shall have reasonably requested.
5.2. Conditions Precedent to Each Advance. No Advance will be required to be
made or renewed by IBM Credit under this Agreement unless, on and as of the date
of such Advance, the following statements shall be true to the satisfaction of
IBM Credit;
(A) The representations and warranties contained in this Agreement or
in any document, instrument or agreement executed in connection herewith, are
true and correct in all material respects on and as of the date of such Advance
as though made on and as of such date;
(B) No event has occurred and is continuing or after giving effect
to such Advance or the application of the proceeds thereof would result in or
would constitute a Default;
(C) No event has occurred and is continuing which could reasonably be
expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Advance,
no Shortfall Amount exists.
Except as Customer has otherwise disclosed to IBM Credit in writing prior to
each request, each request (or deemed request pursuant to Section 2.3 (D)) for
an Advance hereunder and the receipt (or deemed receipt) by the Customer of the
proceeds of any Advance hereunder shall be deemed to be a representation and
warranty by Customer that, as of and on the date of such Advance, the statements
set forth in (A) through (D) above are true statements. No such disclosures by
Customer to IBM Credit shall in any manner be deemed to satisfy the conditions
precedent to each Advance that are set forth in this Section 5.2.
Section 6. REPRESENTATIVES AND WARRANTIES
To induce IBM Credit to enter into this Agreement, Customer represents and
warrants to IBM Credit as follows;
6.1. Organization and Qualifications. Customer and each of its Subsidiaries
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii) has the power and
authority to own its properties and assets and to transact the businesses in
which it presently is engaged and (iii) is duly qualified and is authorized to
do business and is in good standing in each jurisdiction where it presently is
engaged in business and is required to be so qualified. 6.2. Rights in
Collateral; Priority of Liens. Customer and each of its Subsidiaries owns the
property granted by it respectively as Collateral
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to IBM Credit, free and clear of any and all Liens in favor of third parties
except for the Liens otherwise permitted pursuant to Section 8.1. The Liens
granted by the Customer and each of its Subsidiaries pursuant to this Agreement,
the Guaranties and the Other Documents in the Collateral constitute the valid
and enforceable first, prior and perfected Liens on the Collateral, except to
the extent any Liens that are prior to IBM Credit's Liens are (i) the subject of
an Intercreditor Agreement or (ii) Purchase Money Security Interests in product
of a brand that is not financed by IBM Credit.
6.3. No Conflicts. The execution, delivery and performance by Customer of this
Agreement and each of the Other Documents (i) are within its corporate power;
(ii) are duly authorized by all necessary corporate action; (iii) are not in
contravention in any respect of any Requirement of Law or any indenture,
contract, lease, agreement, instrument or other commitment to which it is a
party or by which it or any of its properties are bound; (iv) do not require the
consent, registration or approval of any Governmental Authority or any other
Person (except such as have been duly obtained, made or given, and are in full
force and effect); and (v) will not, except as contemplated herein, result in
the imposition of any Liens upon any of its properties.
6.4. Enforceability. This Agreement and all of the other documents executed and
delivered by the Customer in connection herewith are the legal, valid and
binding obligations of Customer, and are enforceable in accordance with their
terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto.
6.5. Locations of Offices, Records and Inventory. The address of the principal
place of business and chief executive office of Customer is as set forth on
Attachment B or on any notice provided by Customer to IBM Credit pursuant to
Section 7.7(C) of this Agreement. The books and records of Customer, and all of
its chattel paper (other than the chattel paper delivered to IBM Credit pursuant
to Section 7.14(E)) and records of Accounts, are maintained exclusively at such
locations.
There is no jurisdiction in which Customer has any assets, equipment or
inventory (except for vehicles and inventory in transit for processing) other
than those jurisdictions identified on Attachment B or on any notice provided by
Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment
B, as amended from time to time by any notice provided by Customer to IBM Credit
in accordance with Section 7.7(C) of this Agreement, also contains a complete
list of the legal names and addresses of each warehouse at which the Customer's
inventory is stored. None of the receipts received by Customer from any
warehouseman states that the goods covered thereby are to be delivered to bearer
or to the order of a named person or to a named person and such named person's
assigns. 6.6. Fictitious Business Names. Customer has not used any corporate or
fictitious name during the five (5) years preceding the date of this Agreement,
other than those listed on Attachment B.
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6.7. Organization. All of the outstanding capital stock of Customer has been
validly issued, is fully paid and nonassessable.
6.8. No Judgments or Litigation. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against Customer nor is
there now pending or, to the best of Customer's knowledge after due inquiry,
threatened, any litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Customer.
6.9. No Defaults. The Customer is not in default under any term of any
indenture, contract, lease, agreement, instrument or other commitment to which
it is a party or by which it, or any of its properties are bound. Customer has
no knowledge of any dispute regarding any such indenture, contract, lease,
agreement, instrument or other commitment. No Default or Event of Default has
occurred and is continuing.
6.10. Labor Matters. Except as set forth on any notice provided by Customer to
IBM Credit pursuant to Section 7.1(G) of this Agreement, the Customer is not a
party to any labor dispute. There are no strikes or walkouts or labor
controversies pending or threatened against the Customer which could reasonably
be expected to have a Material Adverse Effect.
6.11. Compliance with Law. Customer has not violated or failed to comply with
any Requirement of Law or any requirement of any self regulatory organization.
6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or "multi-employer benefit plan", which Customer has
established, maintained, or to which it is required to contribute (collectively,
the "Plans") is in compliance with all applicable provisions of ERISA and the
Code and the rules and regulations thereunder as well as the Plan's terms and
conditions. There have been no "prohibited transactions" and no "reportable
event" has occurred within the last 60 months with respect to any Plan. Customer
has no "multi-employer benefit plan".
As used in this Agreement the terms "employee benefit plan", "employee pension
benefit plan", "defined benefit plan", and "multi-employer benefit plan" have
the respective meanings assigned to them in Section 3 of ERISA and any
applicable rules and regulations thereunder. The Customer has not incurred any
"accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the Pension Benefit Guaranty Corporation (the "PBGC") in connection
with a Plan (other than for premiums due in the ordinary course).
6.13. Compliance with Environmental Laws. Except as otherwise disclosed in
Attachment B:
(A) The Customer has obtained all government approvals required with
respect to the operation of their businesses under any Environmental Law.
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(B) (i) the Customer has not generated, transported or disposed of any
Hazardous Substances; (ii) the Customer is not currently generating,
transporting or disposing of any Hazardous Substances; (iii) the Customer has no
knowledge that (a) any of its real property (whether owned, leased, or otherwise
directly or indirectly controlled) has been used for the disposal of or has been
contaminated by any Hazardous Substances, or (b) any of its business operations
have contaminated lands or waters of others with any Hazardous Substances; (iv)
the Customer and its respective assets are not subject to any Environmental
Liability and, to the best of the Customer's knowledge, any threatened
Environmental Liability; (v) the Customer has not received any notice of or
otherwise learned of any governmental investigation evaluating whether any
remedial action is necessary to respond to a release or threatened release of
any Hazardous Substances for which the Customer may be liable; (vi) the Customer
is not in violation of any Environmental Law; (vii) there are no proceedings or
investigations pending against Customer with respect to any violation or alleged
violation of any Environmental Law; provided however, that the parties
acknowledge that any generation, transportation, use, storage and disposal of
certain such Hazardous Substances in Customer's or its Subsidiaries' business
shall be excluded from representations (i) and (ii) above, provided, further,
that Customer is at all times generating, transporting, utilizing, storing and
disposing such Hazardous Substances in accordance with all applicable
Environmental Laws and in a manner designed to minimize the risk of any spill,
contamination, release or discharge of Hazardous Substances other than as
authorized by Environmental Laws.
6.14. Intellectual Property. Customer possesses such assets, licenses, patents,
patent applications, copyrights, service marks, trademarks, trade names and
trade secrets and all rights and other property relating thereto or arising
therefrom ("Intellectual Property") as are necessary or advisable to continue to
conduct its present and proposed business activities.
6.15. Licenses and Permits. Customer has obtained and holds in full force and
effect all franchises, licenses, leases, permits, certificates, authorizations,
qualifications, easements, rights of way and other rights and approvals which
are necessary for the operation of its businesses as presently conducted.
Customer is not in violation of the terms of any such franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way, right
or approval.
6.16. Investment Company. The Customer is not (i) an investment company or a
company controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a
holding company, or an Affiliate of a holding company or of a subsidiary of a
holding company, within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) subject to any other law which purports to regulate
or restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the Other Documents or to perform its
obligations hereunder or thereunder.
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6.17. Taxes and Tax Returns. Customer has timely filed all federal, state,
and local tax returns and other reports which it is required by law to file, and
has either duly paid all taxes, fees and other governmental charges indicated to
be due on the basis of such reports and returns or pursuant to any assessment
received by the Customer, or made provision for the payment thereof in
accordance with GAAP. The charges and reserves on the books of the Customer in
respect of taxes or other governmental charges are in accordance with GAAP. No
tax liens have been filed against Customer or any of its property.
6.18. Status of Accounts. Each Account is based on an actual and bona fide
sale and delivery of goods or rendition of services to customers, made by
Customer, in the ordinary course of its business; the goods and inventory being
sold and the Accounts created are its exclusive property and are not and shall
not be subject to any Lien, consignment arrangement, encumbrance, security
interest or financing statement whatsoever (other than Permitted Liens). The
Customer's customers have accepted goods or services and owe and are obligated
to pay the full amounts stated in the invoices according to their terms. There
are no proceedings or actions known to Customer which are pending or threatened
against any Material Account Debtor (as defined in Section 7.14(B) of this
Agreement) of any of the Accounts which could reasonably be expected to result
in a Material Adverse Effect on the debtor's ability to pay the full amounts due
to Customer.
6.19. Affiliate/Subsidiary Transactions. Customer is not a party to or bound
by any agreement or arrangement (whether oral or written) to which any Affiliate
or Subsidiary of the Customer is a party except (i) in the ordinary course of
and pursuant to the reasonable requirements of Customer's business and (ii) upon
fair and reasonable terms no less favorable to Customer than it could obtain in
a comparable arm's-length transaction with an unaffiliated Person.
6.20. Accuracy and Completeness of Information. All factual information
furnished by or on behalf of the Customer to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any Other Document, or any
transaction contemplated hereby or thereby is or will be true and accurate in
all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary to
make such information not misleading at such time.
6.21. Recording Taxes. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by Customer or arrangements for the
payment of such amounts by Customer have been made to the satisfaction of IBM
Credit.
6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted
Indebtedness; and (ii) has not guaranteed the obligations of any other Person
(except as permitted by Section 8.4).
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Section 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
7.1. Financial and Other Information. Customer shall cause to be furnished to
IBM Credit the following information within the following time periods:
(A) as soon as available and in any event within ninety (90) days after the
end of each fiscal year of Customer (i) audited Financial Statements (provided
that, to the extent not otherwise audited by the Auditors, the consolidating
Financial Statements may be unaudited) as of the close of the fiscal year and
for the fiscal year, together with a comparison to the Financial Statements for
the prior year, in each case accompanied by (a) either an opinion of the
Auditors without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit or, if so qualified, an
opinion which shall be in scope and substance reasonably satisfactory to IBM
Credit, (b) such Auditors' "Management Letter" to Customer, if any, (c) a
written statement signed by the Auditors stating that in the course of the
regular audit of the business of Customer and its consolidated Subsidiaries,
which audit was conducted by the Auditors in accordance with generally accepted
auditing standards, the Auditors have not obtained any knowledge of the
existence of any Default under any provision of this Agreement, or, if such
Auditors shall have obtained from such examination any such knowledge, they
shall disclose in such written statement the existence of the Default and the
nature thereof, it being understood that such Auditors shall have no liability,
directly or indirectly, to anyone for failure to obtain knowledge of any such
Default; (ii) if composed, a narrative discussion of the consolidated financial
condition and results of operations and the consolidated liquidity and capital
resources of Customer and its Subsidiaries for such fiscal year prepared by the
chief executive officer or chief financial officer of Customer; and (iii) a
Compliance Certificate along with a schedule, in substantially the form of
Attachment C hereto, of the calculations used in determining, as of the end of
such fiscal year, whether Customer is in compliance with the financial covenants
set forth in Attachment A;
(B) as soon as available and in any event within forty-five (45) days after
the end of each fiscal quarter of Customer (i) Financial Statements as of the
end of such period and for the fiscal year to date, together with a comparison
to the Financial Statements for the same periods in the prior year, all in
reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by the chief executive
officer or chief financial officer of Customer as having been prepared in
accordance dance with GAAP; (ii) if composed, a narrative discussion of the
consolidated financial condition and results of operations and the consolidated
liquidity and capital resources of Customer and its Subsidiaries
for such period and for the fiscal year to date prepared by the chief executive
officer or chief financial officer of Customer; and (iii) a Compliance
Certificate along with a schedule, in substantially the form of Attachment C
hereto, of the calculations used in determining, as of the end of such fiscal
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quarter, whether Customer is in compliance with the financial covenants set
forth in Attachment A;
(C) as soon as available and in any event within thirty (30) days after the
end of each fiscal month of Customer (i) Financial Statements as of the end of
such period and for the fiscal year to date, together with a comparison to the
Financial Statements for the same periods in the prior year, all in reasonable
detail and duly certified (subject to normal year-end audit adjustments and
except for the absence of footnotes) by the chief executive officer or chief
financial officer of Customer as having been prepared in accordance with GAAP;
(ii) if composed, a narrative discussion of the consolidated financial condition
and results of operations and the consolidated liquidity and capital resources
of Customer and its Subsidiaries for such period and for the fiscal year to date
prepared by the chief executive officer or chief financial officer of Customer;
and (iii) a Compliance Certificate along with a schedule, in substantially the
form of Attachment C hereto, of the calculations used in determining, as of the
end of such fiscal month, whether Customer is in compliance with the financial
covenants set forth in Attachment A;
(D) as soon as available and in any event within forty-five (45) days after
the end of each fiscal year of Customer (i) projected Financial Statements,
broken down by quarter, for the current and following fiscal year; and (ii) if
composed, a narrative discussion relating to such projected Financial
Statements;
(E) as soon as available and in any event within thirty (30) days after the
end of each fiscal quarter of Customer, revised projected Financial Statements,
broken down by quarter, for (i) the current fiscal year from the beginning of
such fiscal quarter to the fiscal year end and (ii) the following fiscal year;
(F) promptly after Customer obtains knowledge of (i) the occurrence of a
Default or Event of Default, or (ii) the existence of any condition or event
which would result in the Customer's failure to satisfy the conditions precedent
to Advances set forth in Section 5, a certificate of the chief executive officer
or chief financial officer of Customer specifying the nature thereof and the
Customer's proposed response thereto, each in reasonable detail;
(G) promptly after Customer obtains knowledge of (i) any proceeding(s) being
instituted or threatened to be instituted by or against Customer in any federal,
state, local or foreign court or before any commission or other regulatory body
(federal, state, local or foreign), or (ii) any actual or prospective change,
development or event which, in any such case, has had or could reasonably be
expected to have a Material Adverse Effect, a certificate of the chief executive
officer or chief financial officer of Customer specifying the nature thereof and
the Customer's proposed response thereto, each in reasonable detail;
(H) promptly after Customer obtains knowledge that (i) any orders, judgments
or decrees which in the aggregate exceed Fifty Thousand Dollars ($50,000.00)
shall have been entered against Customer or any of its properties or assets, or
(ii) it has received any notification of a
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material violation of any Requirement of Law from any Governmental Authority, a
certificate of the chief executive officer or chief financial officer of
Customer specifying the nature thereof and the Customer's proposed response
thereto, each in reasonable detail;
(I) promptly after Customer learns of any material labor dispute to which
Customer may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
Customer is a party or by which it is bound, a certificate of the chief
executive officer or chief financial officer of Customer specifying the nature
thereof and the Customer's proposed response thereto, each in reasonable detail;
(J) within five (5) Business Days after request by IBM Credit, any
written certificates, schedules and reports together with all supporting
documents as IBM Credit may reasonably request relating to the Collateral or
the Customer's or any guarantor's business affairs and financial condition;
(K) by the fifth (5th) Business Day of each month, or as otherwise agreed
in writing, a Collateral Management Report as of a date no earlier than the
last day of the immediately preceding month;
(L) along with the Financial Statements set forth in Section 7.1(A) and
(B); the name, address and phone number of each of its Account debtors' primary
contacts for each Account on the Accounts aging report contained in its most
recent Collateral Management Report; and
(M) within five (5) days after the same are sent, copies of all financial
statements and reports which Customer sends to its stockholders, and within five
(5) days after the same are filed, copies of all financial statements and
reports which Customer may make to, or file with, the Securities and Exchange
Commission or any successor or analogous governmental authority.
Each certificate, schedule and report provided by Customer to IBM Credit shall
be signed by an authorized officer of Customer, and which signature shall be
deemed a representation and warranty that the information contained in such
certificate, schedule or report is true and accurate in all material respects on
the date as of which such certificate, schedule or report is made and does not
omit to state a material fact necessary in order to make the statements
contained therein not misleading at such time. Each financial statement
delivered pursuant to this Section 7.1 shall be prepared in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods.
7.2 Location of Collateral. The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment B
or on any notice provided by Customer to IBM Credit in accordance with Section
7.7(C). Such locations shall be certified quarterly to IBM Credit substantially
in the form of Attachment G.
7.3 Changes in Customer. Customer shall provide thirty (30) days prior
written notice to IBM Credit of any change in Customer's name,
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chief executive office and principal place of business, organization, form of
ownership or corporate structure; provided, however, that Customer's compliance
with this covenant shall not relieve it of any of its other obligations or any
other provisions under this Agreement or any Other Document limiting actions of
the type described in this Section.
7.4. Corporate Existence. Customer shall (A) maintain its corporate existence,
maintain in full force and effect all licenses, bonds, franchises, leases and
qualifications to do business, and all contracts and other rights necessary to
the profitable conduct of its business, (B) continue in, and limit its
operations to, the same general lines of business as presently conducted by it
unless otherwise permitted in writing by IBM Credit and (C) comply with all
Requirements of Law.
7.5. ERISA. Customer shall promptly notify IBM Credit in writing after it
learns of the occurrence of any event which would constitute a "reportable
event" under ERISA or any regulations thereunder with respect to any Plan, or
that the PBGC (as defined in Section 6.12 of this Agreement) has instituted or
will institute proceedings to terminate any Plan. Notwithstanding the foregoing,
the Customer shall have no obligation to notify IBM Credit as to any "reportable
event" as to which the 30-day notice requirement of Section 4043(b) has been
waived by the PBGC, until such time as such Customer is required to notify the
PBGC of such reportable event.
Such notification shall include a certificate of the chief financial officer of
Customer setting forth details as to such "reportable event" and the action
which Customer proposes to take with respect thereto, together with a copy of
any notice of such "reportable event" which may be required to be filed with the
PBGC, or any notice delivered by the PBGC evidencing its intent to institute
such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause
the plan administrator to furnish, to IBM Credit the most recently filed annual
report for each Plan.
7.6. Environmental Matters. (A) Customer and any other Person under Customer's
control (including, without limitation, agents and Affiliates under such
control) shall (i) comply with all Environmental Laws in all material respects,
and (ii) undertake to use commercially reasonable efforts to prevent any
unlawful release of any Hazardous Substance by Customer or such Person into,
upon, over or under any property now or hereinafter owned, leased or otherwise
controlled (directly or indirectly) by Customer.
(B) Customer shall notify IBM Credit, promptly upon its obtaining knowledge
of (i) any non-routine proceeding or investigation by any Governmental Authority
with respect to the presence of any Hazardous Substances on or in any property
now or hereinafter owned, leased or otherwise controlled (directly or
indirectly) by Customer, (ii) all claims made or threatened by any Person or
Governmental Authority against Customer or any of Customer's assets relating to
any loss or injury resulting from any Hazardous Substance, (iii) Customer's
discovery of evidence of unlawful disposal of or environmental contamination by
any Hazardous Substance on any property now or
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hereinafter owned, leased or otherwise controlled (directly or indirectly) by
Customer, and (iv) any occurrence or condition which could constitute a
violation of any Environmental Law.
7.7. Collateral Books and Records/Collateral Audit. (A) Customer agrees to
maintain books and records pertaining to the Collateral in such detail, form and
scope as is consistent with good business practice, and agrees that such books
and records will reflect IBM Credit's interest in the Accounts.
(B) Customer agrees that IBM Credit or its agents may enter upon the premises
of Customer at any time and from time to time, during normal business hours and
upon reasonable notice under the circumstances, and at any time at all on and
after the occurrence and during the continuance of an Event of Default for the
purposes of (i) inspecting the Collateral, (ii) inspecting and/or copying (at
Customer's expense) any and all records pertaining thereto, (iii) discussing the
affairs, finances and business of Customer with any officers, employees and
directors of Customer or with the Auditors and (iv) verifying Eligible Accounts
and other Collateral. Customer also agrees to provide IBM Credit with such
reasonable information and documentation that IBM Credit deems necessary to
conduct the foregoing activities, including, without limitation, reasonably
requested samplings of purchase orders, invoices and evidences of delivery or
other performance.
Upon the occurrence and during the continuance of an Event of Default which has
not been waived by IBM Credit in writing, IBM Credit may conduct any of the
foregoing activities in any manner that IBM Credit deems reasonably necessary.
(C) Customer shall give IBM Credit thirty (30) days prior written notice of
any change in the location of any Collateral, the location of its books and
records or in the location of its chief executive office or place of business
from the locations specified in Attachment B, and will execute in advance of
such change and cause to be filed and/or delivered to IBM Credit any financing
statements, landlord or other lien waivers, or other documents reasonably
required by IBM Credit, all in form and substance reasonably satisfactory to IBM
Credit.
(D) Customer agrees to advise IBM Credit promptly, in reasonably sufficient
detail, of any substantial change relating to the type, quantity or quality of
the Collateral, or any event which could reasonably be expected to have a
Material Adverse Effect on the value of the Collateral or on the security
interests granted to IBM Credit therein.
7.8. Insurance Casualty Loss. (A) Customer agrees to maintain with financially
sound and reputable insurance companies: (i) insurance on its properties, (ii)
public liability insurance against claims for personal injury or death as a
result of the use of any products sold by it and (iii) insurance coverage
against other business risks, in each case, in at least such amounts and against
at least such risks as are usually and prudently insured against in the same
general geographical area by companies of established repute engaged in the same
or a similar business. Customer will furnish to IBM Credit, upon its written
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request, the insurance certificates with respect to such insurance. In addition,
all Policies so maintained are to name IBM Credit as an additional insured as
its interest may appear.
(B) Without limiting the generality of the foregoing, Customer shall keep and
maintain, at its sole expense, the Collateral insured for an amount not less
than the amount set forth on Attachment A from time to time opposite the caption
"Collateral Insurance Amount" against all loss or damage under an "all risk"
Policy with companies mutually acceptable to IBM Credit and Customer, with a
lender's loss payable endorsement or mortgagee clause in form and substance
reasonably satisfactory to IBM Credit designating that any loss payable
thereunder with respect to such Collateral shall be payable to IBM Credit. Upon
receipt of proceeds by IBM Credit the same shall be applied on account of the
Customer's Outstanding Product Advances first, then to the Outstanding A/R
Advances. Customer agrees to instruct each insurer to give IBM Credit, by
endorsement upon the Policy issued by it or by independent instruments furnished
to IBM Credit at least ten (10) days written notice before any Policy shall be
altered or cancelled and that no act or default of Customer or any other person
shall affect the right of IBM Credit to recover under the Policies. Customer
hereby agrees to direct all insurers under the Policies to pay all proceeds with
respect to the Collateral directly to IBM Credit.
If Customer fails to pay any cost, charges or premiums, or if Customer fails
to insure the Collateral, IBM Credit may pay such costs, charges or premiums.
Any amounts paid by IBM Credit hereunder shall be considered an additional debt
owed by Customer to IBM Credit and are due and payable immediately upon receipt
of an invoice by IBM Credit.
7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied
or assessed against Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good faith,
by appropriate proceedings promptly instituted and diligently conducted and an
adequate reserve or other appropriate provisions have been made therefore as
required in order to be in conformity with GAAP and an adverse determination in
such proceedings could not reasonably be expected to have a Material Adverse
Effect.
7.10. Compliance With Laws. Customer agrees to comply with all Requirements of
Law applicable to the Collateral or any part thereof, or to the operation of its
business.
7.11. Fiscal Year. Customer agrees to maintain its fiscal year as a year
ending December 31 unless Customer provides IBM Credit at least thirty (30)
days prior written notice of any change thereof.
7.12. Intellectual Property. Customer shall do and cause to be done all things
necessary to preserve and keep in full force and effect all registrations of
Intellectual Property which the failure to do or cause to be done could
reasonably be expected to have a Material Adverse Effect.
7.13. Maintenance of Property. Customer shall maintain all of its material
properties (business and otherwise) in good condition and
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repair (ordinary wear and tear excepted) and pay and discharge all costs of
repair and maintenance thereof and all rental and mortgage payments and related
charges pertaining thereto and not commit or permit any waste with respect to
any of its material properties.
7.14. Collateral. Customer shall:
(A) from time to time upon request of IBM Credit, provide IBM Credit with
access to copies of all invoices, delivery evidences and other such documents
relating to each Account;
(B) promptly upon Customer's obtaining knowledge thereof, furnish to and
inform IBM Credit of all material adverse information relating to the financial
condition of any Account debtor, other than the government of the United States
of America, whose outstanding obligations to Customer constitute five percent
(5%) or more of the Accounts at such time (a "Material Account Debtor");
(C) promptly upon Customer's learning thereof, notify IBM Credit in writing
of any event which would cause any obligation of a Material Account Debtor to
become an Ineligible Account;
(D) keep all goods rejected or returned by any Account debtor and all goods
repossessed or stopped in transit by Customer from any Account debtor segregated
from other property of Customer, holding the same in trust for IBM Credit until
Customer applies a credit against such Account debtor's outstanding obligations
to Customer or sells such goods in the ordinary course of business, whichever
occurs earlier;
(E) stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by it in conspicuous type to show that the same are subject
to IBM Credit's security interest and immediately thereafter deliver or cause
such chattel paper and instruments to be delivered to IBM Credit or any agent
designated by IBM Credit with appropriate endorsements and assignments to vest
title and possession in IBM Credit;
(F) use commercially reasonable efforts to collect all Accounts owed;
(G) promptly notify IBM Credit of any loss, theft or destruction of or
damage to any of the Collateral. Customer shall diligently file and prosecute
its claim for any award or payment in connection with any such loss, theft,
destruction of or damage to Collateral. Customer shall, upon demand of IBM
Credit, make, execute and deliver any assignments and other instruments
sufficient for the purpose of assigning any such award or payment to IBM Credit,
free of any encumbrances of any kind whatsoever;
(H) consistent with reasonable commercial practice, observe and perform all
matters and things necessary or expedient to be observed or performed under or
by virtue of any lease, license, concession or franchise forming part of the
Collateral in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;
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(I) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the Collateral and the earnings,
incomes, rents, issues and profits thereof; and
(J) at any time and from time to time, upon the request of IBM Credit, and
at the sole expense of Customer, Customer will promptly and duly execute and
deliver such further instruments and documents and take such further action as
IBM Credit may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction with
respect to the security interests granted herein and the payment of any and all
recording taxes and filing fees in connection therewith. IBM Credit shall use
its best efforts to provide prior written notice to Customer if the filing of
any such instrument, document or financing statement is expected to result in
any expense to Customer.
7.15. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer
become parties to this Agreement or any other agreement executed in connection
with this Agreement as guarantors or sureties. Customer will comply, and cause
all Subsidiaries of Customer to comply with Sections 7 and 8 of this Agreement,
as if such sections applied directly to such Subsidiaries.
7.16. Financial Covenants; Additional Covenants. Customer acknowledges and
agrees that Customer shall at all times maintain the financial covenants and
other covenants set forth in the attachments, exhibits and other addenda
incorporated in this Agreement.
Section 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations due hereunder:
8.1. Liens. The Customer will not, directly or indirectly mortgage, assign,
pledge, transfer, create, incur, assume, permit to exist or otherwise permit any
Lien or judgment to exist on any of its property, assets, revenues or goods,
whether real, personal or mixed, whether now owned or hereafter acquired, except
for Permitted Liens.
8.2. Disposition of Assets. The Customer will not, directly or indirectly, sell,
lease, assign, transfer or otherwise dispose of any assets other than (i) sales
of inventory in the ordinary course of business and short term rental of
inventory as demonstrations in amounts not material to Customer, and (ii)
voluntary dispositions of individual assets and obsolete or worn out property in
the ordinary course of business, provided, that the aggregate book value of all
such assets and property so sold or disposed of under this section 8.2 (ii) in
any fiscal year shall not exceed 5% of the consolidated assets of the Customer
as of the beginning of such fiscal year.
8.3. Corporate Changes. The Customer will not, without the prior written consent
of IBM Credit, directly or indirectly, merge,
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consolidate, liquidate, dissolve or enter into or engage in any operation or
activity materially different from that presently being conducted by Customer.
8.4. Guaranties. The Customer will not, without the prior written consent of IBM
Credit, directly or indirectly, assume, guaranty, endorse, or otherwise become
liable upon the obligations of any other Person, except (i) by the endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business, (ii) by the giving of indemnities in connection
with the sale of inventory or other asset dispositions permitted hereunder, and
(iii) for guaranties in favor of IBM Credit.
8.5. Restricted Payments. The Customer will not, directly or indirectly: (i)
declare or pay any dividend (other than dividends payable solely in common stock
of Customer) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of capital stock of
Customer or any warrants, options or rights to purchase any such capital stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Customer; or (ii) make any optional payment or prepayment on or
redemption (including, without limitation, by making payments to a sinking or
analogous fund) or repurchase of any Indebtedness (other than the Obligations).
8.6. Investments. The Customer will not, directly or indirectly, make, maintain
or acquire any Investment in any Person other than:
(A) interest bearing deposit accounts (including certificates of deposit)
which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a
similar federal insurance program;
(B) direct obligations of the government of the United States of America or
any agency or instrumentality thereof or obligations guaranteed as to principal
and interest by the United States of America or any agency thereof;
(C) stock or obligations issued to Customer in settlement of claims against
others by reason of an event of bankruptcy or a composition or the readjustment
of debt or a reorganization of any debtor of Customer; and
(D) commercial paper of any corporation organized under the laws of any State
of the United States or any bank organized or licensed to conduct a banking
business under the laws of the United States or any State thereof having the
short-term highest rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation.
8.7. Affiliate/Subsidiary Transactions. The Customer will not, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service to any Affiliate or Subsidiary of Customer except in
the ordinary course of business and
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pursuant to the reasonable requirements of Customer's business upon fair and
reasonable terms no less favorable to customer than could be obtained in a
comparable arm's-length transaction with an unaffiliated Person.
8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a
material liability to the PBGC (as defined in Section 6.12 of this Agreement),
(B) permit any "prohibited transaction" involving any Plan (other than a "multi-
employer benefit plan") which would subject the Customer to a material tax or
penalty on "prohibited transactions" under the Code or ERISA, (C) fail to pay to
any Plan any contribution which they are obligated to pay under the terms of
such Plan, if such failure would result in a material "accumulated funding
deficiency", whether or not waived, (D) allow or suffer to exist any occurrence
and during the continuance of a "reportable event" or any other event or
condition, which presents a material risk of termination by the PBGC (as defined
in Section 6.12 of this Agreement) of any Plan (other than a "multi-employer
benefit plan"), or (E) fail to notify IBM Credit as required in Section 7.5. As
used in this Agreement, the terms "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
the Code and ERISA. For purposes of this Section 8.8, the terms material
liability, tax, penalty, accumulated funding deficiency and risk of termination
shall mean a liability, tax, penalty, accumulated funding deficiency or risk of
termination which could reasonably be expected to have a Material Adverse
Effect.
8.9. Additional Negative Pledges. Customer will not, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of the Collateral or any part thereof after the occurrence
and during the continuance of an Event of Default.
8.10. Storage of Collateral with Bailees and Warehousemen. Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior written
consent of IBM Credit unless Customer will, concurrently with the delivery of
such Collateral to such party, cause such party to issue and deliver to IBM
Credit, warehouse receipts in the name of IBM Credit evidencing the storage of
such Collateral.
8.11. Use of Proceeds. The Customer shall not use any portion of the proceeds
of any Advances other than to acquire Products from Authorized Suppliers and for
its general working capital requirements.
8.12. Accounts. The Customer shall not permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating thereto,
which would affect IBM Credit's ability to collect payment on any Account in
whole or in part, except for such extensions, compromises or settlements made by
Customer in the ordinary course of its business, provided, however, that the
aggregate amount of such extensions, compromises or settlements does not exceed
five percent (5%) of the Customer's Accounts at any time.
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8.13. Indebtedness. The Customer will not create, incur, assume or permit to
exist any Indebtedness, except for Permitted Indebtedness.
8.14. Loans. The Customer will not make any loans, advances, contributions or
payments of money or goods to any Subsidiary, Affiliate or parent corporation or
to any officer, director or stockholder of Customer or of any such corporation
(except for compensation for personal services actually rendered), except for
transactions expressly authorized in this Agreement.
Section 9. DEFAULT
9.1. Event of Default. Any one or more of the following events shall
constitute an Event of Default by the Customer under this Agreement and the
Other Documents:
(A) The failure to make timely payment of the Obligations or any part thereof
when due and payable;
(B) Customer fails to comply with or observe any term, covenant or agreement
contained in this Agreement or any Other Documents;
(C) Any representation, warranty, statement, report or certificate made or
delivered by or on behalf of Customer or any of its officers, employees or
agents or by or on behalf of any guarantor to IBM Credit was false in any
material respect at the time when made or deemed made;
(D) The occurrence of any event or circumstance which could reasonably be
expected to have a Material Adverse Effect;
(E) Customer, any Subsidiary or any guarantor shall generally not pay its
debts as such debts become due, become or otherwise declare itself insolvent,
file a voluntary petition for bankruptcy protection, have filed against it any
involuntary bankruptcy petition, cease to do business as a going concern, make
any assignment for the benefit of creditors, or a custodian, receiver, trustee,
liquidator, administrator or person with similar powers shall be appointed for
Customer, any Subsidiary or any guarantor or any of its respective properties or
have any of respective properties seized or attached, or take any action to
authorize, or for the purpose of effectuating, the foregoing, provided, however,
that Customer, any Subsidiary or any guarantor shall have a period of forty-five
(45) days within which to discharge any involuntary petition for bankruptcy or
similar proceeding;
(F) The use of any funds borrowed from IBM Credit under this Agreement for
any purpose other than as provided in this Agreement;
(G) The entry of any judgment against Customer or any guarantor in an amount
in excess of $250,000 and such judgment is not satisfied, dismissed, stayed or
superseded by bond within thirty (30) days after the day of entry thereof (and
in the event of a stay or {superseded} bond, such judgment is not discharged
within thirty (30) days after termination of any such stay or bond) or such
judgment is not fully
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covered by insurance as to which the insurance company has acknowledged its
obligation to pay such judgment in full;
(H) The dissolution or liquidation of Customer or any guarantor, or Customer
or any guarantor or its directors or stockholders shall take any action to
dissolve or liquidate Customer or any guarantor;
(I) Any "going concern" or like qualification or exception, or qualification
arising out of the scope of an audit by an Auditor of his opinion relative to
any Financial Statement delivered to IBM Credit under this Agreement;
(J) There issues a warrant of distress for any rent or taxes with respect to
any premises occupied by Customer in or upon which the Collateral, or any part
thereof, may at any time be situated and such warrant shall continue for a
period of ten (10) Business Days from the date such warrant is issued;
(K) Customer suspends business;
(L) The occurrence of any event or condition which enables the holder of any
Indebtedness arising in one or more related or unrelated transactions to
accelerate the maturity thereof or the failure of Customer to pay when due any
such Indebtedness;
(M) Any guaranty of any or all of the Customer's Obligations executed by any
guarantor in favor of IBM Credit, shall at any time for any reason cease to be
in full force and effect or shall be declared to be null and void by a court of
competent jurisdiction or the validity or enforceability thereof shall be
contested or denied by any such guarantor, or any such guarantor shall deny that
it has any further liability or obligation thereunder or any such guarantor
shall fail to comply with or observe any of the terms, provisions or conditions
contained in any such guaranty;
(N) Customer is in default under the material terms of any of the Other
Documents after the expiration of any applicable cure periods;
(O) There shall occur a "reportable event" with respect to any Plan, or any
Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or termination
proceedings a liability of Customer to the PBGC which in the reasonable opinion
of IBM Credit will have a Material Adverse Effect;
(P) Any "person" (as defined in Section 13(d)(3) of the Securities
Exchange Act of {1934}, as amended) acquires a beneficial interest in 50% or
more of the Voting Stock of Customer.
9.2. Acceleration. Upon the occurrence and during the continuance of an Event of
Default which has not been waived in writing by IBM Credit, IBM Credit may, in
it sole discretion, take any or all of the following actions, without prejudice
to any other rights it may have at law or under this Agreement to enforce its
claims against the Customer: (a) declare its Obligations to be immediately due
and payable (except with
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respect to any Event of Default set forth in Section 9.1(E) hereof, in which
case all Obligations shall automatically become immediately due and payable
without the necessity of any notice or other demand) without presentment,
demand, protest or any other action or obligation of IBM Credit; and
(b) immediately terminate the Credit Line hereunder.
9.3. Remedies. (A) Upon the occurrence and during the continuance of any
Event of Default which has not been waived in writing by IBM Credit, IBM Credit
may exercise all rights and remedies of a secured party under the U.C.C. Without
limiting the generality of the foregoing, IBM Credit may: (i) remove from any
premises where same may be located any and all documents, instruments, files and
records (including the copying of any computer records), and any receptacles or
cabinets containing same, relating to the Accounts, or IBM Credit may use (at
the expense of the Customer) such of the supplies or space of the Customer at
Customer's place of business or otherwise, as may be necessary to properly
administer and control the Accounts or the handling of collections and
realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit
and generally shall have all other rights respecting said Accounts, including
without limitation the right to accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credit in the name of the Customer or IBM Credit;
(iii) sell, assign and deliver the Accounts and any returned, reclaimed or
repossessed merchandise, with or without advertisement, at public or private
sale, for cash, on credit or otherwise, at IBM Credit's sole option and
discretion, and IBM Credit may bid or become a purchaser at any such sale; and
(iv) foreclose the security interests created pursuant to this Agreement by any
available judicial procedure, or to take possession of any or all of the
Collateral without judicial process and to enter any premises where any
Collateral may be located for the purpose of taking possession of or removing
the same.
(B) Upon the occurrence and during the continuance of any Event of Default
which has not been waived in writing by IBM Credit, IBM Credit shall have the
right to sell, lease, or otherwise dispose of all or any part of the Collateral,
whether in its then condition or after further preparation or processing, in the
name of Customer or IBM Credit, or in the name of such other party as IBM Credit
may designate, either at public or private sale or at any broker's board, in
lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM Credit in its
sole discretion may deem advisable, and IBM Credit shall have the right to
purchase at any such sale. If IBM Credit, in its sole discretion may deem
advisable, and IBM Credit shall have the right to purchase at any such sale. If
IBM Credit, in its sole discretion determines that any of the Collateral
requires rebuilding, repairing, maintenance or preparation, IBM Credit shall
have the right, at its option, to do such of the aforesaid as it deems necessary
for the purpose of putting such Collateral in such salable form as IBM Credit
shall deem appropriate. The Customer hereby agrees that any disposition by IBM
Credit of any Collateral pursuant to and in accordance with the terms of a
repurchase agreement between IBM Credit and the manufacturer or any supplier
(including any Authorized Supplier) of such Collateral
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constitutes a commercially reasonable sale. The Customer agrees, at the request
of IBM Credit, to assemble the Collateral and to make it available to IBM Credit
at places which IBM Credit shall select, whether at the premises of the Customer
or elsewhere, and to make available to IBM Credit the premises and facilities of
the Customer for the purpose of IBM Credit's taking possession of, removing or
putting such Collateral in salable form. If notice of intended disposition of
any Collateral is required by law, it is agreed that ten (10) Business Days
notice shall constitute reasonable notification.
(C) Unless expressly prohibited by the licensor thereof, if any, IBM
Credit is hereby granted, upon the occurrence and during the continuance of any
Event of Default which has not been waived in writing by IBM Credit, an
irrevocable, non-exclusive license to use, assign, license or sublicense all
computer software programs, data bases, processes and materials used by the
Customer in its businesses or in connection with any of the Collateral.
(D) The net cash proceeds resulting from IBM Credit's exercise of any
of the foregoing rights (after deducting all charges, costs and expenses,
including reasonable attorneys' fees) shall be applied by IBM Credit to the
payment of Customer's Obligations, whether due or to become due, in such order
as IBM Credit may in it sole discretion elect. Customer shall remain liable to
IBM Credit for any deficiencies, and IBM Credit in turn agrees to remit to
Customer or its successors or assigns, any surplus resulting therefrom.
(E) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other rights, all of which shall be cumulative.
9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral
by any court process Customer hereby irrevocably waives to the extent permitted
by applicable law any bonds, surety and security relating thereto required by
any statute, court rule or otherwise as an incident to such possession and any
demand for possession of the Collateral prior to the commencement of any suit or
action to recover possession thereof. In addition, Customer waives to the
extent permitted by applicable law all rights of set-off it may have against IBM
Credit. Customer further waives to the extent permitted by applicable law
presentment, demand and protest, and notices of non-payment, non-performance,
any right of contribution, dishonor, and any other demands, and notices required
by law.
Section 10. MISCELLANEOUS
10.1. Term; Termination. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by the Customer that they intend to terminate this Agreement which date shall be
no less than ninety (90) days following the receipt by IBM Credit of such
written notice, and (iii) termination by IBM Credit after the occurrence and
during the continuance of any Event of Default. Upon the date that this
Agreement is terminated, all of Customer's Obligations shall be immediately due
and payable in their entirety, even if they are not yet due under their terms.
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(B) Until the indefeasible payment in full of all of Customer's
Obligations, no termination of this Agreement or any of the Other Documents
shall in any way affect or impair (i) Customer's Obligations to IBM Credit
including, without limitation, any transaction or event occurring prior to and
after such termination, or (ii) IBM Credit's rights hereunder, including,
without limitation IBM Credit's security interest in the Collateral. On and
after a Termination Date, IBM Credit may, but shall not be obligated to, upon
request of Customer, continue to provide Advances hereunder.
10.2. Indemnification. The Customer hereby agrees to indemnify and hold
harmless IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys' fees and court
costs now or hereinafter arising from the enforcement of this Agreement, the
"Losses") to which any of them may become subject insofar as such Losses arise
out of or are based upon any event, circumstance or condition (a) occurring or
existing on or before the date of this Agreement relating to any financing
arrangements IBM Credit may from time to time have with (i) Customer, (ii) any
Person that shall be acquired by Customer or (iii) any Person that Customer may
acquire all or substantially all of the assets of, or (b) directly or
indirectly, relating to the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby or thereby or to any
of the Collateral or to any act or omission of the Customer in connection
therewith. Notwithstanding the foregoing, the Customer shall not be obligated to
indemnify IBM Credit for any Losses incurred by IBM Credit which are a result of
IBM Credit's gross negligence or willful misconduct. The indemnity provided
herein shall survive the termination of this Agreement.
10.3. Additional Obligations. IBM Credit, without waiving or releasing any
Obligation or Default of the Customer, may perform any Obligations of the
Customer that the Customer shall fail or refuse to perform and IBM Credit may,
at any time or times hereafter, but shall be under no obligation so to do, pay,
acquire or accept any assignment of any security interest, lien, encumbrance or
claim against the Collateral asserted by any person. All sums paid by IBM
Credit in performing in satisfaction or on account of the foregoing and any
expenses, including reasonable attorney's fees, court costs, and other charges
relating thereto, shall be a part of the Obligations, payable on demand and
secured by the Collateral.
10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM
CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY
OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM
HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
10.5 Alteration Waiver. This Agreement and the Other Documents may not be
altered or amended except by an agreement in writing signed by
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the Customer and by IBM Credit. No delay or omission of IBM Credit to exercise
any right or remedy hereunder, whether before or after the occurrence of any
Event of Default, shall impair any such right or remedy or shall operate as a
waiver thereof or as a waiver of any such Event of Default. In the event that
IBM Credit at any time or from time to time dispenses with any one or more of
the requirements specified in this Agreement or any of the Other Documents, such
dispensation may be revoked by IBM Credit at any time and shall not be deemed to
constitute a waiver of any such requirement subsequent thereto. IBM Credit's
failure at any time or times to require strict compliance and performance by the
Customer of any undertakings, agreements, covenants, warranties and
representations of this Agreement or any Other Document shall not waive, affect
or diminish any right of IBM Credit thereafter to demand strict compliance and
performance thereof. Any waiver by IBM Credit of any Default by the Customer
under this Agreement or any of the Other Documents shall not waive or affect any
other Default by the Customer under this Agreement or any of the Other
Documents, whether such Default is prior or subsequent to such other Default and
whether of the same or a different type. None of the undertakings, agreements,
warranties, covenants, and representations of the Customer contained in this
Agreement or the Other Documents and no Default by the Customer shall be deemed
waived by IBM Credit unless such waiver is in writing signed by an authorized
representative of IBM Credit.
10.6. Severability. If any provision of this Agreement or the Other Documents
or the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Documents and the
application of such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other Documents being
severable in any such instance.
10.7. One Loan. All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Customer under this Agreement or the Other Documents
shall constitute one loan secured by IBM Credit's security interests in the
Collateral and by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by the Customer to IBM
Credit or any assignor of IBM Credit.
10.8. Additional Collateral. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of the
Customer in possession of IBM Credit at any time or times hereafter are hereby
pledged by Customer to IBM Credit as security for the payment of Customer's
Obligations and shall be applied promptly by IBM Credit on account of the
Customer's Obligations; provided, however, IBM Credit may release to the
Customer such portions of such monies, reserves and proceeds as IBM Credit may
from time to time determine, in its sole discretion.
10.9. No Merger or Novations. A) Notwithstanding anything contained in any
document to the contrary, it is understood and agreed by the Customer and IBM
Credit that the claims of IBM Credit arising hereunder and existing as of the
date hereof constitute continuing claims arising out of the Obligations of
Customer under the Financing Agreement and any Other Document. Customer
acknowledges and agrees that such Obligations
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outstanding as of the date hereof have not been satisfied or discharged and
that this Agreement is not intended to effect a novation of the Customer's
Obligations under the Financing Agreement or any Other Document.
(B) Neither the obtaining of any judgment nor the exercise of any power
of seizure or sale shall operate to extinguish the Obligations of the Customer
to IBM Credit secured by this Agreement and shall not operate as a merger of any
covenant in this Agreement, and the acceptance of any payment or alternate
security shall not constitute or create a novation and the obtaining of a
judgment or judgments under a covenant herein contained shall not operate as a
merger of that covenant or affect IBM Credit's rights under this Agreement.
10.10. Paragraph Titles. The Section titles used in this Agreement and the
Other Documents are for convenience only and do not define or limit the contents
of any Section.
10.11. Binding Effect; Assignment. This Agreement and the Other Documents shall
be binding upon and inure to the benefit of IBM Credit and the Customer and
their respective successors and assigns; provided, that the Customer shall have
no right to assign this Agreement or any of the Other Documents without the
prior written consent of IBM Credit.
10.12. Notices. Except as otherwise expressly provided in this Agreement, any
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(A) upon receipt if deposited in the United States mails, first class mail, with
proper postage prepaid, (B) upon receipt of confirmation or answerback if sent
by telecopy, or other similar facsimile transmission, (C) one Business Day after
deposit with a reputable overnight courier with all charges prepaid, or (D) when
delivered, if hand-delivered by messenger, all of which shall be properly
addressed to the party to be notified and sent to the address or number
indicated as follows:
(i) If to IBM Credit at:
IBM Credit Corporation
1500 RiverEdge Parkway
Atlanta, GA 30328
Attention: Remarketer Finance Center Manager
Telecopy: (770) 644-4826
(ii) If to Customer at:
Pulsar Data Systems, Incorporated
4500 Forbes Boulevard
Lanham, MD 20706
Attention: Mr. John Shutz
Telecopy: (301) 459-9353
or to such other address or number as each party designates to the other in the
manner prescribed herein.
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10.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
10.14. ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product Financing
Period set forth in Attachment A from time to time if on at least two occasions
during any three-month period a Shortfall Amount has become due and payable and
may modify the Collateral Insurance Amount set forth in Attachment A from time
to time, in each case, by providing Customer with a new Attachment A. Any such
new Attachment A shall be effective as of the date specified in the new
Attachment A.
10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, THE CUSTOMER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER DOCUMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN NEW YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS
SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL
HAVE BEEN NOTIFIED PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PROVISIONS) OF THE STATE OF NEW YORK.
10.16. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER
ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION
HEREWITH.
10.17. Additional Provision. In the event that any conflict arises between
this Agreement and that certain Forbearance Agreement dated August 8, 1997 by
and among Customer, IBM Credit, Lillian Davis and William W. Davis, Sr. (the
"Forbearance Agreement"), the Forbearance Agreement, while it remains in effect,
shall govern provided however,
45 of 46
<PAGE>
that the occurance of any event that causes a termination of the Forbearance
Agreement shall create an Event of Default under this Agreement.
IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has caused
its authorized representatives to execute this Agreement and has caused its
corporate seal to be affixed hereto as of the date first written above.
PULSAR DATA SYSTEMS, INCORPORATED
By: /s/ William W. Davis, Sr.
------------------------------
Print Name: William W. Davis, Sr.
----------------------
PRESIDENT/CEO
Title:____________________________
ACCEPTED this ______________ day of ________________, 1997:
IBM CREDIT CORPORATION
By:_______________________________
Print Name:_______________________
Title:____________________________
Page 46 of 46
<PAGE>
ATTACHMENT A, EFFECTIVE DATE OCTOBER 15, 1997 ("IWCF ATTACHMENT A")
TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
DATED AUGUST 9, 1989
CUSTOMER: PULSAR DATA SYSTEMS, INCORPORATED
I. Fees, Rates and Repayment Terms:
(A) Credit Line: THIRTY FIVE MILLION DOLLARS ($35,000,000.00);
(B) Borrowing Base:
(i) 85% of the amount of the Customer's Eligible Accounts as of the
date of determination as reflected in the Customer's most recent
Collateral Management Report;
(ii) 100% of the Customer's inventory in the Customer's possession as
of the date of determination as reflected in the Customer's most
recent Collateral Management Report constituting Products (other
than service parts) financed through a Product Advance by IBM
Credit, provided, however, IBM Credit has a first priority
security interest in such Products and such Products are in new
and in un-opened boxes. The value to be assigned to such
inventory shall be based upon the Authorized Supplier's invoice
price to Customer for Products net of all applicable price
reduction credits.
(C) Product Financing Charge: Prime Rate Plus 1.75%
(D) Product Financing Period: 150 Days
(E) Collateral Insurance Amount: Seventeen Million five hundred
Thousand Dollars ($17,500,000.00)
Page 1 of 23
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
I. Fees, Rates and Repayment Terms (Continued):
(F) A/R Finance Charge:
(i) PRO Advance Charge: Prime Rate plus 2.00%
(ii) WCO Advance Charge: Prime Rate plus 1.75%
(G) Delinquency Fee Rate: Prime Rate plus 6.500%
(H) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%
(I) Free Financing Period Exclusion Fee: Product Advance multiplied by
0.40%
(J) Other Charges:
(i) Application Processing Fee: $ 0.00
(ii) Monthly Service Fee: $1,000.00
(iii) Closing Fee: $ 0.00
(iv) Commitment Fee: $ 0.00
Page 2 of 23
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) will be maintained at the
following Bank(s):
Name Of Bank: Nationsbank, N.A.
Address: 8300 Greensboro Drive, Suite 550
McLean, VA 22102-3604
Phone: _________________________________________________________________________
Lockbox Address: P.O. Box 630037 Baltimore, MD 21263-0037
Special Account #: 3933900355
Name of Bank: __________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Phone: _________________________________________________________________________
Lockbox Address: _______________________________________________________________
Special Account #:______________________________________________________________
Name of Bank: __________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Phone: _________________________________________________________________________
Lockbox Address: _______________________________________________________________
Special Account: _______________________________________________________________
Name of Bank: __________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Phone: _________________________________________________________________________
Lockbox Address: _______________________________________________________________
Special Account: _______________________________________________________________
Page 3 of 23
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants:
Definitions: The following terms shall have the following respective meanings
in this Attachment A. All amounts shall be determined in accordance with
generally accepted accounting principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become cash
within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past or
current transactions that require settlement within the on-going twelve
month period. All indebtedness to IBM Credit shall be considered a Current
Liability for purposes of determining compliance with the Financial
Covenants.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible assets,
investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which mature
more than twelve months from the date of determination, or mature within
twelve months from such date but are renewable or extendible at the option
of the debtor to a date more than twelve months from the date of
determination.
Net Profit after Tax shall mean Revenue plus all other income, minus all
costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products or
services transferred by an enterprise to its customers for which said
customers have paid or are obligated to pay, plus other income as allowed.
Subordinated Debt shall mean Customer's indebtedness to third parties as
evidenced by an executed Notes Payable Subordination Agreement in favor of
IBM Credit.
Page 4 of 23
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses,
software development costs, leasehold expenses, trademarks,
trade names, copyrights, patents, patent applications,
privileges, franchises, licenses and rights in any thereof,
and other similar intangibles (but not including contract
rights) and other current and non-current assets as
identified in Customer's financial statements; and
(b) all accounts receivable from employees, officers, directors,
stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long Term Assets.
Total Liabilities shall mean the Current Liabilities and Long Term Debt
less Subordinated Debt, resulting from past or current transactions, that
require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in an
enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current Liabilities.
Page 5 of 23
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Customer will be required to maintain the following financial ratios,
percentages and amounts as of the last day of the fiscal period under review by
IBM Credit:
a) Revenue on an annual basis (i.e., the current fiscal year-to-date
Revenue annualized) to Working Capital ratio greater than zero
and equal to or less than 30.0:1.0 at 09/30/97, 28.0:1.0 at
12/31/97 and 27.0 at 03/31/98.
c) Net Profit after Tax to Revenue percentage equal to or greater
than -1.0 at 9/30/97, 0.0 percent at 12/31/97 and 0.5 percent at
03/31/98.
d) Total Liabilities to Tangible Net Worth ratio greater than zero
and equal to or less than 17.0 at 9/31/97, 15.0:1.0 at 12/31/97
and 14.0:1.0 at 03/31/98.
Page 6 of 23
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the
Agreement:
. Executed Contingent Blocked Account Amendment;
. Executed guaranty of any shareholder(s) owning ten (10) percent or
more of the equity of Customer. Customer shall cause guarantor(s) to
submit a personal financial statement upon the request of IBM Credit;
. Executed Waiver of Landlord Lien for all premises in which a landlord
has the right of levy for rent;
. Fiscal year-end financial statements of Customer as of December 31,
1997 audited by an independent certified public accountant and
delivered to IBM Credit no later than March 31, 1998;
. A Certificate of Location of Collateral whereby the Customer certifies
where Customer presently keeps or sells inventory, equipment and other
tangible Collateral;
. Subordination or Intercreditor Agreements from all creditors having a
lien which is superior to IBM Credit in any assets that IBM Credit
relies on to satisfy Customer's obligations to IBM Credit.
Page 7 of 23
<PAGE>
IWCF ATTACHMENT B TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
Customer: PULSAR DATA SYSTEMS, INC.
I. LIENS.
II. Locations of Offices, Records and Inventory.
(A) Principal Place of Business and Chief Executive Office
(B) Locations of Assets, Inventory and Equipment (including warehouses)
Leased (Y/N)
Location
III. Fictitious Names.
IV. Organization.
(A) Subsidiaries
Name Jurisdiction Owner Percent
Owned
Page 8 of 23
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
IV. Additional Conditions Precedent Pursuant to Section 5.1 (K) of the
Agreement (continued):
. A Compliance Certificate as to Customer s compliance with the
financial covenants set forth in Attachment A as of the last fiscal
month of Customer for which financial statements have been published;
. An Opinion of Counsel substantially in the form and substance of
Attachment H whereby the Customer's counsel states his or her opinion
about the execution, delivery and performance of the Agreement and
other documents by the Customer;
. Termination or release of Uniform Commercial Code filing by another
creditor as required by IBM Credit;
. A copy of an all-risk insurance certificate pursuant to Section 7.8
(B) of the Agreement;
Page 9 of 23
<PAGE>
IWCF ATTACHMENT B TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
("IWCF AGREEMENT")
I. Liens. Wilmington Trust Co.
II. Locations of Offices. Records and Inventory
A) 4500 Forbes Blvd.
Lanham, MD 20706
CEO: William W. Davis
B)
Location of Assets, Inventory and Equipment (including warehouses)
Location Leased (Y/N)
4500 Forbes Blvd., Lanham, MD 20706 YES
4611 Assembly Drive Suite N Lanham, MD 20706 YES
III. Fictitious Names.
None
IV. Organization.
A) Subsidiaries
None
Name Jurisdiction Owner Percent Owned
B) Affiliates
None
Name Capacity
Page 10 of 23
<PAGE>
IWCF ATTACHMENT C
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
COMPLIANCE CERTIFICATE
TO: IBM CREDIT CORPORATION
(INSERT RFC ADDRESS)
The undersigned authorized officers of __________________________
("__________"), hereby certify on behalf of the Customer, with respect to the
Inventory and Working Capital Financing Agreement executed by and between
____________________ and IBM Credit Corporation ("IBM Credit") on
_________________, 19__, as amended from time to time (the "Agreement"), that
(A) _____________________ has been in compliance for the period from
_____________, 19__ to ____________ ___, 19__ with the financial covenants set
forth in Attachment A to the Agreement, as demonstrated below, and (B) no
Default has occurred and is continuing as of the date hereof, except, in either
case, as set forth below. All capitalized terms used herein and not otherwise
defined shall have the meanings assigned to them in the Agreement.
I. Financial Covenants
FINANCIAL COVENANTS REQUIRED ACTUAL
Annualized Revenue
to Working Capital
Current Assets to
Current Liabilities
Net Profit After
Tax to Revenue
Total Liabilities
to Tangible Net
Worth
Tangible Net Worth
Page 11 of 23
<PAGE>
IWCF ATTACHMENT C
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
II. Calculation of Tangible Net Worth.
Total Assets MINUS Total Liabilities ______________________
LESS:
goodwill ______________________
organizational expenses ______________________
pre-paid expenses ______________________
deferred charges, etc. ______________________
leasehold expenses ______________________
all other ______________________
callable/redeemable preferred stock ______________________
officer, employee, director, stockholder ______________________
and affiliate receivables
Total Tangible Net Worth ======================
Attached hereto are Financial Statements as of and for the end of the
fiscal __________ ended on the applicable date, as required by Section 7.1 of
the Inventory and Working Capital Financing Agreement.
Submitted by:
___________________________________________
(Customer Name)
By: _______________________________________
Print Name: _______________________________
Title: ____________________________________
Page 12 of 23
<PAGE>
Attachment F
Pulsar Data Systems, Inc.
Accounts Receivable (A/R) Advance Authorization Form/Borrowing Certificate(BC)
Account as of COB xx/xx/xx
Schedule #1
<TABLE>
<CAPTION>
Gross
Collateral Net Collateral
Collateral Status Other Values Value Value
<S> <C> <C> <C>
1 Previous Assigned A/R Balance 0.00
2 Additions to A/R 0.00
a New Billings 0.00
b Other A/R adjustments 0.00
c
-------------------
3 Deductions from A/R
a Cash Receipts (change in MTD posting total) 0.00
b Billing Credit 0.00
c Other A/R adjustments 0.00
------------------
New assigned A/R Balance (1+2+3) 0.00
4
Month End Aging report 0.00
5 a Unapplied Cash 0.00
b Other Adjustments
8 a A/R Over 120 days 0.00
b 50% Rule (Prior months collateral report) 0.00
c Contra Account (A/P) 0.00
d Other (per Vickie $) 0.00 0.00
------------------
Total A/R Eligible Collateral 0.00 85% 0.00
9
IBM Finance Inventory
------------------
11 Shipped not Billed 0.00
------------------
-------------
Warehouse 01 (Pulsar) 100% 0.00
-------------
ICC Factor 44% 0.00
Pricing Factor 72% 0.00 0.00
-------------
</TABLE>
Page 12 of 23
<PAGE>
Other Collateral
12 WWD assets 0.00 0.00
-----
Total of Eligible Collateral
-----
13 0.00
=====
------
Loan Stat IBM Credit Outstanding RFS 0.00
------
1 a Suspense 0.00
------
Less Subtotal 0.00
1 b In transit (3 /days, per IBM) 0.00
Advances Posted
c RMA Credits
d Price Protection Credits 0.00 0.00
-----
Add
a Unapplied Cash posted to IBM RFS 0.00
Outstanding
Funds in Lockbox Posted by Pulsar to
A/R
a Sweep not posted by IBM 0.00
b Unavailable funds not swept (Float) 0.00 0.00
----- -----
Loan Balance 0.00
=====
3
Collateral Excess (Shortfall) -----
0.00
=====
4 Requested Advance 0.00
=====
5
Signature
______________________________________ __________________________________
Authorized Customer Signature (date) IBM Credit Corporation (date)
The above officer or delegated individual of Pulsar Data Systems, Inc. certifies
that he/she is authorized to provide this information on behalf of Pulsar Data
Systems, Inc. and agrees that to the best of his/her knowledge the information
is accurate. This faxed document if introduced as evidence on paper in any
judicial, arbitration, mediation or administrative proceedings will be
admissible as between the parties to the same extent and under the same
conditions as other business records originated and maintained in documentary
form and when so execute and delivered (whether by facsimile or otherwise) shall
be an original.
Page 13 of 23
<PAGE>
IWCF ATTACHMENT E TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
Pulsar Data Systems, Incorporated
AUTHORIZED SUPPLIERS
Access Graphics
Almo
Ashton-Tate (AST)
Cannon
Cabletron Systems, Inc.
Compaq
Comstor
Comtech Micro Systems, Inc.
Digital
Dell Computer Systems
Diamond Flower Electric
Dolch American Instruments, Inc.
Decision Support Systems, Inc.
First Source International
Gates
Graphic Technologies
Ingram Alliance
Int'l Computer Graphics, Inc.
Inacom
Ingram
Lexmark
Matrix Marketing, Inc.
Megahertz
Merisel
Microage
Memory products and More
NCR Corporation
Nippon Electric Company (NEC)
International Business Machines (IBM)
IMB Personal Computer Company (PCC)
Powerstar, Inc.
Procom Technology
PC Wholesale
QMS
Robec
SDI
Southern Electronics Corp. (SED)
Simple Technology
Sony
Southland Micro Systems
Storage Dimensions
Sun Microsystems
Tech Data
Toshiba
Viking Components, Inc.
Zenith Data Systems
Page 14 of 23
<PAGE>
IWCF ATTACHMENT G TO
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
("IWCF AGREEMENT")
CERTIFICATE OF LOCATION OF COLLATERAL
The undersigned, the Chief Executive Officer of Pulsar Data Systems, hereby
certifies with reference to the Inventory and Working Capital Financing
Agreement, dated October 19. 1997, between Pulsar Data Systems and IBM Credit
Corporation as follows:
a) The following are all the locations where Pulsar Data Systems presently
keeps or sells inventory, equipment or other tangible Collateral:
LOCATION LEASE (YES/NO)
4500 Forbes Blvd, Lanham, MD 20706 YES
4611 Assembly Drive Suite N, Lanham, MD 20706 YES
IN WITNESS WHEREOF. I HAVE HEREUNTO SET MY HAND THIS DAY
OF ______________________, 19____.
_______________________________
(Customer Name)
By: /s/ William W. Davis, Sr.
Title: WILLIAM W. DAVIS, SR.
PRESIDENT/CEO
Page 15 of 23
<PAGE>
ATTACHMENT H
Technology Management Services
Pulsar(TM) Data Systems, Inc.
October 24, 1997
IBM Credit Corporation
1500 River Edge Parkway
Atlanta, GA 30328
Re: Pulsar Data Systems, Inc.
Inventory and Working Capital Financing Agreement
Ladies and Gentlemen:
We have acted as counsel for Pulsar Data Systems, Incorporated, a Delaware
corporation (the "Borrower") in connection with the exception and delivery of
that certain Inventory and Working Capital Financing Agreement, dated as of
October 24, 1997 (the "Financing Agreement"), by and among the Borrower and IBM
Credit Corporation ("IBM Credit"), and the other agreements, instruments, and
documents executed and delivered by the Borrower in connection with the
Financing Agreement. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to such terms in the Financing
Agreement.
In this connection, we have examined the following document:
(i) The Certificate of Incorporation of the By-laws of the Borrower, each
as amended to date;
(i) The records of the proceedings taken by the Board of Directors of the
Borrower in connection with the execution, delivery, and performance of the
Financing Documents to which they are a party (as defined below);
Corporate Headquarters
4500 Forbes Blvd., Suite 400
Lanham, MD 20706
301/459-2650 Voice 301/459-2654 FAX
http://www.pulsardata.com
Page 16 of 23
<PAGE>
IBM Credit Corporation
June 27, 1997
Page Two
(iii) The Financing Agreement;
(iv) The contingent Blocked Account Amendment;
(v) Acknowledgment copies of the UCC-1 Financing Statements listed on
Exhibit A hereto (the "Financing Statements") executed by the
Borrower naming it as Debtor and IBM Credit as Secured Party and
filed in the offices set forth on Exhibit A;
The documents referred to in clauses (iii) through (vi) above are
hereinafter referred to as the Financing Documents.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original copies, and
the authenticity of the originals of such latter documents, and, regarding
documents executed by parties other than the Borrower, that those parties had
the power and the capacity to enter into, execute, delivery and perform all
obligations under such documents, the due authorization of all requisite action
with respect to such documents, and the validity and binding effect of such
documents upon such other parties.
As to any facts material to this opinion, we have relied upon the
representations and warranties of the Borrower contained in each of the
Financing Documents, and in certificates delivered by the Borrower pursuant to
each of the Financing Documents, statements, and representations of officers and
other representatives of the Borrower, and, as to the matters addressed therein,
certificates or correspondence from public officials. For purposes of the
opinion set forth in Paragraph 4, the term "Material Contracts" means the
agreements and instruments to which the Borrower is subject which have been
identified to us by officers of the Borrower and set forth on Exhibit B hereto
as the agreements and instruments which are material to the business or
financial condition of the Borrower: and the term "Material Orders" means those
orders and decrees to which the Borrower is subject which have
Page 17 of 23
<PAGE>
IBM Credit Corporation
June 27, 1997
Page Three
been identified to us by officers of the Borrower and set forth in Exhibit C
hereto as the orders and decrees, agreements, and instruments which are material
to the business or financial condition of the Borrower.
As used herein, the term "UCC" refers to the Uniform commercial Code as in
effect in the State of New York.
We are members of the bar in the State of Maryland and Pennsylvania and
express no opinion as to the laws of any other jurisdiction except the General
Corporation Law of the State of Maryland and the federal laws of the United
States of America.
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, we are of the opinion that:
1. Borrower by July 10, 1997 will be a corporation duly organized,
validity existing and in good standing under the laws of the jurisdiction of its
incorporation and is duly qualified and authorized to do business and in good
standing as a foreign corporation in each jurisdiction where, to our knowledge,
it presently is engaged in business and is required to be qualified.
2. Borrower has all or will have all the requisite corporate power and
authority (a) to own, lease, and operate its properties and assets and to carry
on its business as now being conducted; and (b) to execute, delivery, and
performance of the Financing Documents to which it is a party.
3. All corporate action on the part of the Borrower requisite for the
execution, delivery, and performance of the Financing Documents to which it is
party will be duly taken.
4. The execution, delivery, and performance by the Borrower of the
Financing Documents to which it is a party will not (a) violate, be in conflict
with, result in the breach of, or constitute (with due notice or
Page 18 of 23
<PAGE>
IBM Credit Corporation
June 27, 1997
Page Four
lapse of time, or both) a default under (I) the Certificate of Incorporation or
By-laws of Borrower or any resolution of its Board of Directors or any committee
thereof, (ii) any Material Contract, or (iii) any federal or state law
(including, without limitation, environmental or occupational health, and safety
law), regulation, rule, Material Order, or legal requirement of any federal,
state, or public authority or agency applicable to Borrower; or (b) result in
the creation or imposition of a lien of any nature whatsoever upon any of the
Borrower's property or assets other than as represented by the Financing
Documents.
5. Borrower has obtained any and all consents, approvals, or other
authorizations required to be obtained pursuant to its Certificate of
Incorporation and By-laws in connection with the execution, delivery, and
performance of the Financing Documents. No consent, approval, or authorization
of or by any court, administrative agency, other governmental authority, or any
other Person is required in connection with the execution, delivery, and
performance by the Borrower of the Financing Documents that has not already been
obtained.
6. To our knowledge, there are no actions, proceedings, or investigations
pending or threatened against the Borrower which question the validity of the
Financing Documents to which it is a party or relating the transactions
contemplated thereby, except for those investigations which IBM Credit has
knowledge of by full disclosure of the Borrower.
7. Each of the Financing Documents has been duly executed and delivered
by duly authorized officer of the Borrower and constitutes the legal, valid,
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, except that, in each case, (I) enforcement may be
subject to and limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws now or hereafter in effect relating to creditors'
rights generally, (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought. and
(iii) certain of the
Page 19 of 23
<PAGE>
IBM Credit Corporation
June 27, 1997
Page Five
remedial provisions including waivers with respect to the exercise of remedies
against the Collateral contained in the Financing Documents may be unenforceable
in whole or in part, but the inclusion of such provisions does not affect the
validity of the Financing Documents, each taken as a whole and, the Financing
Documents, each taken as a whole, contain adequate remedial provisions for the
practical realization of the security purported to be afforded thereby.
8. The Financing Agreement is effective to create in favor of IBM Credit
a valid security interest within the meaning of the UCC in the Collateral as
security for the obligations purported to be secured thereby; and (ii) the
Financing Statements are in appropriate form and have been duly filed resulting
in a perfected security interest (as such term is defined in Section 9-303 of
the UCC) of IBM Credit in the Collateral in which security interests to which
Article 9 of the UCC applies.
9. Borrower is not an "investment company" or a company "controlled" by
an "investment company," within the meaning of the Investment Company Act of
1940, as amended.
This opinion is rendered solely to and for the benefit of IBM Credit in
connection with the execution and delivery of the Financing Documents and may
not be relied upon by any other person, firm, or corporation without our prior
written consent, except that it may be furnished to any prospective purchaser of
a participation in the rights of IBM Credit and may be furnished to an relied
upon by any Person which hereafter acquires such a participation.
This opinion is limited to laws as currently in effect on the date hereto
and the facts as they currently exist. We assume no obligation to revise,
supplement or otherwise update this opinion.
Very truly yours,
/s/ Christopher R. Locke
Christopher R. Locke
Page 20 of 23
<PAGE>
ATTACHMENT I
CORPORATE SECRETARY'S CERTIFICATE AS TO RESOLUTIONS
AUTHORIZING BORROWING BY CORPORATION
IBM CREDIT CORPORATION
_______________________________
_______________________________
_______________________________
I, Lillian Davis, certify that I am the Secretary of Pulsar Data Systems
("Customer") and that I am custodian of the Customer's organizational books and
records, including the minutes of the meetings of the Customer's Board of
Directors. I further certify as follows:
1. Customer is a corporation organized under the laws of the State of
Delaware, and has its principal place of business at 4500 Forbes Blvd., Lanham,
MD 20706.
2. Customer is registered to conduct business or as otherwise required in
the following states and localities:
______________________________________________________________________________
______________________________________________________________________________
3. True and complete copies of the Customer's Articles of Incorporation
and By-laws ("Governing Documents") are delivered herewith, together with all
amendments and addenda thereto as in effect on the date hereof.
4. The following is a true, accurate and compared copy of a Resolution
(the "Resolution") adopted by the Customer's Board of Directors at a special
meeting thereof held on due notice at which there was present a quorum
authorized to adopt the Resolution and the entire proceedings of which were
proper and in accordance with the Customer's Governing Documents. The Resolution
was duly made, seconded and unanimously adopted, remains in full force and
effect and has not been revoked, annulled, amended or modified in any manner
whatsoever, and each authorization and empowerment contained in the Resolution
is permitted and proper under the Customer's Governing Documents:
"Resolved, that:
(a) Each executive or managing officer and agent of the Company (each
an "Authorized Person") is and shall be authorized and empowered, separately or
collectively, to obtain financing from IBM Credit Corporation, a Delaware
corporation ("IBM Credit") on behalf of the Company, from time to time, in
amounts and upon terms and conditions as such Authorized Person deems proper,
and for that purpose: (1) to execute notes, financing statements and other
evidences of the Company's indebtedness with respect thereto; (2) to enter into
financing agreements, loan agreements, security agreements, pledge agreements
and any other agreements with IBM Credit and third parties relating to the terms
and
Page 21 of 23
<PAGE>
conditions upon which any such financing may be obtained and to the security to
be furnished by the Company thereof; (3) to enter into, as lessor or lessee, or
to assign or sell any interest Company may have in, any lease or similar rental
agreement; (4) to modify, supplement or amend any such agreements, any such
terms or conditions in such agreements and any such security therefor; (5) to
grant powers of attorney, (6) to pledge, assign, guarantee, mortgage, consign,
grant security interest in and otherwise transfer to IBM Credit as collateral
security for any and all debts and obligations of the Company to IBM Credit or
its affiliates, whenever and however arising, any assets of this Company; (7) to
execute and deliver any and all assignments, schedules, transfers, endorsements,
contracts, guarantees, agreements, designations, consignments, deeds of trust,
mortgages, instruments of pledge or other instruments in respect thereof and to
make remittances and payments in respect thereof by checks, drafts or otherwise;
and (8) to do and perform all other acts and things deemed by such Authorized
Person to be necessary, convenient or proper to carry out any of the foregoing.
(b) The authorization contained herein shall apply whether or not
proceeds of any loans or advances made at the request of any Authorized Person
shall be paid or credited by IBM Credit to the Company or shall be paid or
credited to the individual order of any affiliates of the Company or other third
party, and IBM Credit shall be under no obligation to inquire as to the
application or disposition of the proceeds of any such loan or advance.
(c) Hereby ratified, approved, confirmed and consented to are all that
any Authorized Person has done or may do in the premises."
5. Appearing below are the names, titles and specimen signatures of at
least two Authorized Persons, as defined in the Resolution cited in the
preceding paragraph, (list at least three such Authorized Persons):
Authorized Person(s) Title Signature
(print) (print)
William W. Davis President /s/ William W. Davis
Lillian A. Davis Vice President
John Shutt Chief Financial Officer /s/ John Shutt
The foregoing is not intended to be a comprehensive or exclusive list of the
Customer's Authorized Persons. Upon request, Customer will promptly provide to
IBM Credit additional certificates containing the name, title and specimen
signature of other Authorized Persons, and IBM Credit may now and in the future
rely on the signature of any Authorized Person whether or not listed on this or
any other certificate or on the signature page(s) hereof. Nevertheless, it is
hereby certified that each name, title and signature appearing above or on the
signature page(s) hereof, is consistent with the books and records of the
Customer.
Page 22 of 23
<PAGE>
EXHIBIT 10.17
EARLY POSSESSION AGREEMENT
Reference is made to that lease dated December 4, 1997 ("Lease") Between Airport
Industrial Complex, a California Limited Partnership , Landlord, and Litronic
Industries, Inc., a California Corporation , Tenant, at 17895 Sky Park Circle,
Suite A, Irvine, CA 92614 Building/Unit 2401/A
Tenant is to be allowed to occupy the premises on December 05, 1997 and rent is
to begin on January 01, 1998 (the "Early Possession Period"). Landlord and
Tenant agree that all the terms and conditions of the Lease are to be in full
force and effect as of the date of Tenant's possession of the premises.
Tenant accepts premises in their present condition. Landlord agrees to complete
all tenant improvements as set forth in the Lease. Tenant understands that his
early occupancy may cause some delay in the construction of the tenant
improvements and that such delay will not be a cause for forgiveness of any rent
due. It is further understood that any improvement of the leased premises by the
Tenant which may result in the delay in construction of tenant improvements or
in the obtaining of a building permit without prior written consent of Landlord
is hereby prohibited.
(initials)
In the event Tenant takes possession of the premises prior to completion of any
construction, Tenant agrees to hold Landlord harmless from any and all claims
for damages to goods, equipment or inconvenience.
Tenant hereby agrees that if Tenant breaches the Lease and/or abandons the
premises before the end of the Lease term, if Tenant's right to possession is
terminated by Landlord because of Tenant's breach of the Lease, Landlord shall,
at its option, (i) void this Early Possession Agreement; and (ii) recover from
Tenant, in addition to any damages due Landlord under the terms and conditions
of the Lease, rent prorated for the duration of the Early Possession Period at a
rental rate equivalent to one and a half (1 1/2) times the monthly rental rate
in effect at the commencement of the Lease.
DATE: December 4, 1997
LANDLORD: Airport Industrial Complex, a California Limited Partnership
By: /S/ JULIE GROOT
Julie A. Groot, Senior Manager
TENANT: Litronic Industries, Inc., a California Corporation
By: /S/ KRIS SHAH
Kris Shah, Chief Executive Officer
<PAGE>
AIRPORT BUS. CENTER
Dated: December 4, 1997
----------------
1. BASIC LEASE TERMS. For purposes of this Lease, the following terms have the
following definitions and meanings:
(a) LANDLORD: Airport Industrial Complex, a California Limited Partnership
------------------------------------------------------------
Landlord's Address (For Notices):
17755 Sky Park East, Ste 100,
------------------------------------
Irvine, CA 92614
------------------------------------
or such other place as Landlord may from time to time designate by notice
to Tenant with a copy to Koll Management Services, P.O. Box 1980, Newport
Beach, California 92660.
(b) Tenant: Litronic Industries, Inc., a California Corporation
---------------------------------------------------
TENANT'S TRADE NAME: Litronic
--------
TENANT'S ADDRESS FOR NOTICES (PREMISES):
17895 Sky Park Circle, Suite A
------------------------------
Irvine. CA 92614 Attention: Kris Shah
------------------------------ ---------
(c) PREMISES: Suite(s) A of building 2401 (the "Building") of AIRPORT BUS.
- ---- ------------
CENTER (the "Project"), located in the City of Irvine ("City"), County of
------ ------
Orange ("County"), State of California ('State") as shown on Exhibit "A-I".
------ ----------
The Premises are depicted on Exhibit "A-II" and contain approximately 1,800
-----
Rentable Square Feet (subject to adjustment as provided in this Lease).
(d) TENANT'S SHARE: 0.2%
----
(e) TERM: 18 Lease Months and 0 Days.
-- -
(f) COMMENCEMENT DATE: January 1, 1998.
---------------
(g) EXPIRATION DATE: June 30, 1999.
-------------
(h) INITIAL MONTHLY BASE RENT: $1,476.00, subject to adjustment as provided in
---------
Exhibit "B" and as otherwise provided in this Lease.
(i) MONTHLY OPERATING EXPENSE CHARGE: $54.00, subject to adjustment as
------
provided in Exhibit "B" and as set forth in Paragraph 6.
(j) SECURITY DEPOSIT: $1,655.00.
---------
(k) NON-REFUNDABLE CLEANING FEE PORTION OF SECURITY DEPOSIT: $125.00
-------
<PAGE>
(l) PERMITTED USE: General office for computer programming and installation of
-----------------------------------------------------------
computer chips and no other use without the express written consent of
--------------
Landlord, which consent Landlord may withhold in its sole and absolute
discretion.
(m) BROKER(S): Dave Desner, CB Commercial.
--------------------------
(n) GUARANTOR(S): None
----
(o) INTEREST RATE: The greater of ten percent (10%) per annum or two percent
(2%) in excess of the prime lending or reference rate of Wells Fargo Bank
N.A. or any successor bank in effect on the twenty-fifth (25th) day of the
calendar month immediately prior to the event giving rise to the Interest
Rate imposition; provided, however, the Interest Rate will in no event
exceed the maximum interest rate permitted to be charged by applicable
law.
(p) EXHIBITS: A-l through H, inclusive, which Exhibits are attached to this
Lease and incorporated herein by this reference.
This Paragraph 1 represents a summary of the basic terms and definitions of this
Lease. In the event of any inconsistency between the terms contained in this
Paragraph 1 and any specific provision of this Lease, the terms of the more
specific provision shall prevail.
2. PREMISES AND COMMON AREAS.
(a) PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises upon and subject to the terms, covenants and conditions
contained in this Lease to be performed by each party.
(b) TENANT'S USE OF COMMON AREAS. During the Term of this Lease, Tenant shall
have the nonexclusive right to use in common with all other occupants of the
Project, the following common areas of the Project (collectively, the "Common
Areas"): the parking facilities of the Project which serve the Building, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, and similar areas and facilities situated within
the Project and appurtenant to the Building which are not reserved for the
exclusive use of any Project occupants.
(c) LANDLORD'S RESERVATION OF RIGHTS. Provided Tenant's use of and access to
the Premises is not interfered with in an unreasonable manner, Landlord reserves
for itself and for all other owner(s) and operator(s) of the Common Areas and
the balance of the Project, the right from time to time to: (i) install, use,
maintain, repair, replace and relocate pipes, ducts, conduits, wires and
appurtenant meters and equipment above the ceiling surfaces, below the floor
surfaces and within the walls of the Building; (ii) make changes to the design
and layout of the Project, including, without limitation, changes to buildings,
driveways, entrances, loading and unloading
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areas, direction of traffic, landscaped areas and walkways, parking spaces and
parking areas; and (iii) use or close temporarily the Common Areas, and/or other
portions of the Project while engaged in making improvements, repairs or
alterations to the Building, the Project, or any portion thereof.
3. TERM. The term of this Lease ("Term") will be for the period designated in
Subparagraph 1(e), commencing on the Commencement Date, and ending on the
Expiration Date. Each consecutive twelve (12) month period of the Term of this
Lease, commencing on the Commencement Date, will be referred to herein as a
"Lease Year".
4. POSSESSION.
(a) DELIVERY OF POSSESSION. Landlord will deliver possession of the Premises to
Tenant in its current "as-is" condition with the addition of only those items of
work described on Exhibit "C" which are to be completed by Landlord on or before
the Commencement Date. If, for any reason not caused by Tenant, Landlord cannot
deliver possession of the Premises to Tenant on the Commencement Date, this
Lease will not be void or voidable, nor will Landlord be liable to Tenant for
any loss or damage resulting from such delay, but in such event, the
Commencement Date and Tenant's obligation to pay rent will not commence until
Landlord delivers possession to Tenant. If the delay in possession is caused by
Tenant, then the Term and Tenant's obligation to pay rent will commence as of
the Commencement Date even though Tenant does not yet have possession.
Notwithstanding the foregoing, Landlord will not be obligated to deliver
possession of the Premises to Tenant (but Tenant will be liable for rent if
Landlord can otherwise deliver the Premises to Tenant) until Landlord has
received from Tenant all of the following: (i) a copy of this Lease fully
executed by Tenant and the guaranty of Tenant's obligations under this Lease, if
any, executed by the Guarantor(s), (ii) the Security Deposit and the first
installment of Monthly Rase Rent; and (iii) copies of policies of insurance or
certificates thereof as required under Paragraph 19 of this Lease.
(b) CONDITION OF PREMISES. By taking possession of the Premises, Tenant will be
deemed to have accepted the Premises in its "as-is" condition on the date of
delivery of possession and to have acknowledged that all work to be completed by
Landlord as described on Exhibit "C" has been completed and there are no
additional items needing work or repair by Landlord. Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation or
warranty with respect to the Premises, the Building, the Project or any portions
thereof or with respect to the suitability of same for the a conduct of Tenant's
business and Tenant further acknowledges that Landlord will have no obligation
to construct or complete any additional buildings or improvements within the
Project. Landlord shall deliver the premises in a good working condition,
including but not limited to the HVAC, electrical, plumbing and mechanical
systems, etc. Tenant shall have (30) days after possession to notify Landlord.
3
<PAGE>
5. RENT
(a) MONTHLY BASE RENT. Tenant agrees to pay Landlord the Monthly Base Rent for
the Premises (subject to adjustment as hereinafter provided) in advance on the
first day of each calendar month during the Term without prior notice or demand,
except that Tenant agrees to pay the Monthly Base Rent for the first month of
the Term directly to Landlord concurrently with Tenant's delivery of the
executed Lease to Landlord. All rent must be paid to Landlord, without any
deduction or offset, in lawful money of the United States of America, at the
address designated by Landlord or to such other person or at such other place as
Landlord may from time to time designate in writing. Monthly Base Rent will be
adjusted during the Term of this Lease as provided in Exhibit "B".
(b) ADDITIONAL RENT. All amounts and charges to be paid by Tenant hereunder,
including, without limitation, payments for Operating Expenses, insurance and
repairs, will be considered additional rent for purposes of this Lease, and the
word "rent" as used in this Lease will include all such additional rent unless
the context specifically or clearly implies that only Monthly Base Rent is
intended.
(c) LATE PAYMENTS. Late payments of Monthly Base Rent and/or any item of
additional rent will be subject to interest and a late charge as provided in
Subparagraph 22(t) below.
6. OPERATING EXPENSES.
(a) OPERATING EXPENSES. Throughout the Term of this Lease, commencing on the
Commencement Date, Tenant agrees to pay Landlord as additional rent in
accordance with the terms of this Paragraph 6, Tenant's Share of Operating
Expenses for the taxes and insurance for the Project and all costs and expenses
of the operation, maintenance, repair, and replacement of the Project including,
without limitation: (i) any form of real property tax assessment, license fee,
license tax, business license fee, commercial rental tax, levy, charge,
improvement bond or similar imposition of any kind or nature imposed by any
authority having the direct power to tax, including any city, county, state or
federal government, or any school, agricultural lighting, drainage or other
improvement or special assessment district thereof; (ii) any and all assessments
under any covenants, conditions and restrictions affecting the Project; (iii)
water, sewer and other utility charges; (iv) costs of insurance obtained by
Landlord pursuant to Paragraph 19 of the Lease; (v) waste disposal and
janitorial services; (vi) security; (vii) labor; (viii) management costs
including, without limitation: (A) wages and salaries (and payroll taxes and
similar charges) of property management employees, and (B) management office
rental, supplies, equipment and related operating expenses and management fees;
(ix) supplies, materials, equipment and tools including rental of personal
property; (x) repair and maintenance of the structural portions of the buildings
with the Project, including the plumbing, heating, ventilating, air-conditioning
and electrical systems installed or furnished by Landlord; (xi) maintenance,
costs and upkeep of all parking and other Common Areas; (xii) depreciation on a
straight line basis and rental of personal property used in maintenance;
4
<PAGE>
(xiii) amortization on a straight line basis over the useful life [together with
interest at the Interest Rate on the unamortized balance] of all capitalized
expenditures which are: (A) reasonably intended to produce a reduction in
operating charges or energy consumption; or (B) required under any governmental
law or regulation that was not applicable to the Project at the time it was
originally constructed; or (C) for replacement of any Project equipment needed
to operate the Project at the same quality levels as prior to the replacement;
(xiv) gardening and landscaping; (xv) maintenance of signs (other than signs of
tenants of the Project); (xvi) personal property taxes levied on or attributable
lo personal property used in connection with the Common Areas; (xvii) reasonable
accounting, audit, verification, legal and other consulting fees; and (xviii)
costs and expenses of repairs, resurfacing, repairing, maintenance, painting,
lighting, cleaning, refuse removal, security and similar items, including
appropriate reserves
(b) DETERMINATION OF TENANT'S MONTHLY OPERATING EXPENSE CHARGE. Tenant's
Monthly Operating Expense Charge shall be determined as provided in Subparagraph
1(i) of this Lease. If Tenant's Monthly Operating Expense Charge is scheduled
for each year of the Lease Term as shown on Exhibit "B", then Subparagraphs (c)
and (d) below will not apply.
(c) ESTIMATE STATEMENT. Prior to the Commencement Date and on or about March
1st of each subsequent calendar year during the Term of this Lease, Landlord
will endeavor to deliver to Tenant a statement ("Estimate Statement") wherein
Landlord will estimate both the Operating Expenses and Tenant's Monthly
Operating Expense Charge for the then current calendar year. Tenant agrees to
pay Landlord, as additional rent, Tenant's estimated Monthly Operating Expense
Charge each month thereafter, beginning with the next installment of rent due,
until such time as Landlord issues a revised Estimate Statement or the Estimate
Statement for the succeeding calendar year; except that, concurrently with the
regular monthly rent payment next due following the receipt of each such
Estimate Statement, Tenant agrees to pay Landlord an amount equal to one monthly
installment of Tenant's estimated Monthly Operating Expense Charge (less any
applicable Operating Expenses already paid) multiplied by the number of months
from January, in the current calendar year, to the month of such rent payment
next due, all months inclusive. If at any time during the Term of this Lease,
but not more often than quarterly, Landlord reasonably determines that
Tenant's's share of Operating Expenses for the current calendar year will be
greater than the amount set forth in the then current Estimate Statement,
Landlord may issue a revised Estimate Statement and Tenant agrees to pay
Landlord, within ten (10) days of receipt of the revised Estimate Statement, the
difference between the amount owed by Tenant under such revised Estimate
Statement and the amount owed by Tenant under the original Estimate Statement
for the portion of the then current calendar year which has expired. Thereafter
Tenant agrees to pay Tenant's Monthly Operating Expense Charge based on such
revised Estimate Statement until Tenant receives the next calendar year's
Estimate Statement or a new revised Estimate Statement for the current calendar
year.
(d) ACTUAL STATEMENT. By March 1st of each calendar year during the Term of
this Lease, Landlord will also endeavor to deliver to Tenant a statement
("Actual Statement") which states Tenant's Share of the actual Operating
Expenses for the preceding calendar year. If the
5
<PAGE>
Actual Statement reveals that Tenant's Share of the actual Operating Expenses is
more than the total Additional Rent paid by Tenant for Operating Expenses on
account of the preceding calendar year, Tenant agrees to pay Landlord the
difference in a lump sum within ten (10) days of receipt of the Actual
Statement. If the Actual Statement reveals that Tenant's Share of the actual
Operating Expenses is less than the Additional Rent paid by Tenant for Operating
Expenses on account of the preceding calendar year, Landlord will credit any
overpayment toward the next monthly installment(s) of Tenant's Share of the
Operating Expenses due under this Lease.
(e) MISCELLANEOUS. Any delay or failure by Landlord in delivering any Estimate
Statement or Actual Statement pursuant to this Paragraph 6 will not constitute a
waiver of its right to require an increase in rent nor will it relieve Tenant of
its obligations pursuant to this Paragraph 6, except that Tenant will not be
obligated to make any payments based on such Estimate Statement or Actual
Statement unless ten (10) days after receipt of such Estimate Statement or
Actual Statement. If Tenant does not object to any Estimate Statement or Actual
Statement within thirty (30) days after Tenant receives any such statement, such
statement will be deemed final and binding on Tenant. Even though the Term has
expired and Tenant has vacated the Premises, when the final determination is
made of Tenant's Share of the actual Operating Expenses for the year in which
this Lease terminates, Tenant agrees to promptly pay any increase due over the
estimated expenses paid and, conversely, any overpayment made in the event said
expenses decrease shall promptly be rebated by Landlord to Tenant. Such
obligation will be a continuing one which will survive the expiration or
termination of this Lease. Prior to the expiration or sooner termination of the
Lease Term and Landlord's acceptance of Tenant's surrender of the Premises,
Landlord will have the right to estimate the actual Operating Expenses for the
then current Lease Year and to collect from Tenant prior to Tenant's surrender
of the Premises, Tenant's Share of any excess of such actual Operating Expenses
over the estimated Operating Expenses paid by Tenant in such Lease Year.
7. SECURITY DEPOSIT AND CLEANING FEE. Upon Tenant's execution of this Lease,
Tenant will deposit with Landlord the Security Deposit designated in
Subparagraph 1(j). The Security Deposit will be held by Landlord as security for
the full and faithful performance by Tenant of all of the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the Term
hereof. The Security Deposit is not, and may not be construed by Tenant to
constitute, rent for the last month or any portion thereof. If Tenant defaults
with respect to any provisions of this Lease including, but not limited to, the
provisions relating to the payment of rent or additional rent, Landlord may (but
will not be required to) use, apply or retain all or any part of the Security
Deposit for the payment of any rent or any other sum in default, or for the
payment of any other amount which Landlord may spend by reason of Tenant's
default or to compensate Landlord for any loss or damage which Landlord may
suffer by reason of Tenant's default. If any portion to the Security Deposit is
so used or applied, Tenant agrees, within ten (10) days after Landlord's written
demand therefor, to deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount and Tenant's failure to do
so shall constitute a default under this Lease. Landlord is not required to keep
Tenant's Security Deposit separate from its general funds, and Tenant is
not
6
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entitled to interest on such Security Deposit. If Tenant is not in default at
the expiration or termination of this Lease, Landlord will return the Security
Deposit to Tenant, less the non-refundable Cleaning Fee portion designated in
Subparagraph 1(k). Landlord's obligations with respect to the Security Deposit
are those of a debtor and not of a trustee.
8. USE.
(a) TENANT'S USE OF THE PREMISES. The Premises may be used for the use or uses
set forth in Subparagraph 1(1) only, and Tenant will not use or permit the
Premises to be used for any other purpose without the prior written consent of
Landlord, which consent Landlord may not unreasonably withhold. Nothing in this
Lease will be deemed to give Tenant any exclusive right to such use in the
Project.
(b) COMPLIANCE. At Tenant's sole cost and expense, Tenant agrees to procure,
maintain and hold available for Landlord's inspection, all governmental licenses
and permits required for the proper and lawful conduct of Tenant's business from
the Premises, it any. Tenant agrees not to use, alter or occupy the Premises or
allow the Premises to be used, altered and occupied in violation of, and Tenant,
at its sole cost and expense, agrees to use and occupy the Premises, and cause
the Premises to be used and occupied, in compliance with: (i) any and all laws,
statutes, zoning restrictions, ordinances, rules, regulations, orders and
rulings now or hereafter in force and any requirements of any insurer, insurance
authority or duly constituted public authority having jurisdiction over the
Premises, the Building or the Project now or hereafter in force, (ii) the
requirements of the Board of Fire Underwriters and any other similar body, (iii)
the Certificate of Occupancy issued for the Building, and (iv) any recorded
covenants, conditions and restrictions and similar regulatory agreements, if
any, which affect the use, occupation or alteration of the Premises, the
Building and/or the Project. Tenant agrees to comply with the Rules and
Regulations referenced in Paragraph 28 below. Tenant agrees not to do or permit
anything to be done in or about the Premises which will in any manner obstruct
or interfere with the rights of other tenants or occupants of the Project, or
injure or unreasonably annoy them, or use or allow the Premises to be used for
any unlawful or unreasonably objectionable purpose. Tenant agrees not to place
or store any articles or materials outside of the Premises or to cause, maintain
or permit any nuisance or waste in, on, under or about the Premises or elsewhere
within the Project. Tenant shall not use or allow the Premises to be used for
lodging, bathing or the washing of clothes.
(c) HAZARDOUS MATERIALS. Except for ordinary and general office supplies, such
as copier toner, liquid paper, glue, ink and common household cleaning materials
(some or all of which may constitute "Hazardous Materials" as defined in this
Lease), Tenant agrees not to cause or permit any Hazardous Materials to be
brought upon, stored, used, handled, generated, released or disposed of on, in,
under or about the Premises, the Building, the Common Areas or any other portion
of the Project by Tenant, its agents, employees, subtenants, assignees,
licensees, contractors or invitees (collectively, "Tenant's Parties"), without
the prior written consent of Landlord, which consent Landlord may withhold in
its sole and absolute discretion. Concurrently
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with the execution of this Lease, Tenant agrees to complete and deliver to
Landlord an Environmental Questionnaire in the form of Exhibit "G" attached
hereto. Upon the expiration or earlier termination of this Lease, Tenant agrees
to promptly remove from the Premises, the Building and the Project, at its sole
cost and expense, any and all Hazardous Materials, including any equipment or
systems containing Hazardous Materials which are installed, brought upon,
stored, used, generated or released upon, in, under or about the Premises, the
Building and/or the Project or any portion thereof by Tenant or any of Tenant's
Parties. To the fullest extent permitted by law, Tenant agrees to promptly
indemnity, protect, defend and hold harmless Landlord and Landlord's partners,
officers, directors, employees, agents, successors and assigns (collectively,
"Landlord indemnified Parties") from and against any and all claims, damages,
judgments, suits, causes of action, losses, liabilities, penalties, fines,
expenses and costs (including, without limitation, clean-up, removal,
remediation and restoration costs, sums paid in settlement of claims, attorneys'
fees, consultant fees and expert fees and court costs) which arise or result
from the presence of Hazardous Materials on, in, under or about the Premises,
the Building or any other portion of the Project and which are caused or
permitted by Tenant or any of Tenant's Parties. Tenant agrees to promptly notify
Landlord of any release of Hazardous Materials in the Premises, the Building or
any other portion of the Project which Tenant becomes aware of during the Term
of this Lease, whether caused by Tenant or any other persons or entities. In the
event of any release of Hazardous Materials caused or permitted by Tenant or any
of Tenant's Parties, Landlord shall have the right, but not the obligation, to
cause Tenant to immediately take all steps Landlord deems necessary or
appropriate to remediate such release and prevent any similar future release to
the satisfaction of Landlord and Landlord's mortgagee(s). At all times during
the Term of this Lease, Landlord will have the right, but not the obligation, to
enter upon the Premises to inspect, investigate, sample and/or monitor the
Premises to determine if Tenant is in compliance with the terms of this Lease
regarding Hazardous Materials. As used in this Lease, the term "Hazardous
Materials" shall mean and include any hazardous or toxic materials, substances
or wastes as now or hereafter designated under any law, statute, ordinance,
rule, regulation, order or ruling of any agency of the State, the United States
Government or any local governmental authority, including, without limitation,
asbestos, petroleum, petroleum hydrocarbons and petroleum based products, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), and freon and
other chlorofluorocarbons. The provisions of this Subparagraph 8(c) will survive
the expiration or earlier termination of this Lease.
(d) REFUSE AND SEWAGE. Tenant agrees not to keep any trash, garbage, waste or
other refuse on the Premises except in sanitary containers and agrees to
regularly and frequently remove same from the Premises. Tenant shall keep all
containers or other equipment used for storage of such materials in a clean and
sanitary condition. Tenant shall properly dispose of all sanitary sewage and
shall not use the sewage disposal system for the disposal of anything except
sanitary sewage. Tenant shall keep the sewage disposal system free of all
obstructions and in good operating condition. If the volume of Tenant's trash
becomes excessive in Landlord's judgment, Landlord shall have the right to
charge Tenant for additional trash disposal services and/or to
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require that Tenant contract directly for additional trash disposal services at
Tenant's sole cost and expense.
9. NOTICES. Any notice required or permitted to be given hereunder must be in
writing and may be given by personal delivery (including delivery by overnight
courier or an express mailing service) or by mail, if sent by registered or
certified mail. Notices to Tenant shall be sufficient if delivered to Tenant at
the Premises and notices to Landlord shall be sufficient if delivered to
Landlord at the address designated in Subparagraph 1(a). Either party may
specify a different address for notice purposes by written notice to the other,
except that the Landlord may in any event use the Premises as Tenant's address
for notice purposes.
10. BROKERS. The parties acknowledge that the broker(s) who negotiated this
Lease are stated in Subparagraph 1(m) Landlord and Tenant each agree to promptly
indemnify, protect, defend and hold harmless the other from and against any and
all claims, damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs (including attorneys" fees and court
costs) resulting from any breach by the indemnifying party of the foregoing
representation, including, without limitation, any claims that may be asserted
by any broker, agent or finder undisclosed by the indemnifying party. The
foregoing mutual indemnity shall survive the expiration or earlier termination
of this Lease. Tenant agrees that Landlord will not recognize or compensate any
third party broker with regards to any renewals and/or expansions unless such
renewal or expansion rights are included within this Lease at the time of
execution by the parties and in Landlord's commission agreement with the
broker(s) specified in Subparagraph 1(m).
11. SURRENDER; HOLDING OVER.
(a) SURRENDER. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not constitute a merger, and shall, at the
option of Landlord, operate as an assignment to Landlord of any or all subleases
or subtenancies. Upon The expiration or earlier termination of this Lease,
Tenant agrees to peaceably surrender the Premises to Landlord broom clean and in
a state of good order, repair and condition, ordinary wear and tear and casually
damage excepted, with all of Tenant's personal property and alterations removed
from the Premises to the extent required under Paragraph 13 and all damage
caused by such removal repaired as required by Paragraph 13. The delivery of
keys to any employee of Landlord or to Landlord's agent or any employee thereof
alone will not be sufficient to constitute a termination of this Lease or a
surrender of the Premises.
(b) HOLDING OVER. If Tenant holds over after the expiration or earlier
termination of the Term, Landlord may, at its option, treat Tenant as a tenant
at sufferance only, and evict Tenant immediately, or consent in writing to the
continued occupancy by Tenant which shall be subject to all of the terms,
covenants and conditions of this Lease, so far as applicable, including the
payment of Operating Expenses, except that the Monthly Base Rent for any month
or partial month during which Tenant holds over shall be equal to one hundred
fifty percent
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(150%) of the Monthly Base Rent in effect under this Lease immediately prior to
such holdover. Acceptance by Landlord of rent alter such expiration or earlier
termination will not result in a renewal of this Lease. If Tenant fails to
surrender the Premises upon the expiration of this Lease in accordance with the
terms of this Paragraph 11 despite demand to do so by Landlord, Tenant agrees to
promptly indemnify, protect, defend and hold Landlord harmless from all claims,
damages, judgments, suits, causes of action, losses, liabilities, penalties,
fines, expenses and costs (including attorneys" fees and costs), including,
without limitation, costs and expenses incurred by Landlord in returning the
Premises to the condition in which Tenant was to surrender it and claims made by
any succeeding tenant founded on or resulting from Tenant's failure to surrender
the Premises. The provisions of this Subparagraph 11(b) will survive the
expiration or earlier termination of this Lease.
12. TAXES ON TENANT'S PROPERTY. Tenant agrees to pay before delinquency, all
taxes and assessments (real and personal) levied against Tenant's business
operations or any personal property, improvements, alterations, trade fixtures
or merchandise placed by Tenant in or about the Premises
13. ALTERATIONS. Tenant shall not make any alterations to the Premises or any
other aspect of the Project, without Landlord's prior written consent, which
consent Landlord may withhold in its reasonable but subjective discretion. All
permitted alterations must be performed in compliance with Landlord's standard
rules and regulations regarding alterations. All alterations will become the
property of Landlord and will remain upon and be surrendered with the Premises
at the end of the Term of this Lease; provided, however, Landlord may require
Tenant to remove any or all alterations at the end of the Term of this Lease. If
Tenant fails to remove by the expiration or earlier termination of this Lease
all of its personal property, or any alterations identified by Landlord for
removal, Landlord may, at its option, treat such failure as a hold-over pursuant
to Subparagraph 11(b) above, and/or Landlord may (without liability to Tenant
for loss thereof) treat such personal property and/or alterations as abandoned
and, at Tenant's sole cost and expense and in addition to Landlord's other
rights and remedies under this Lease, at law or in equity: (a) remove and store
such items; and/or (b) upon ten (10) days" prior notice to Tenant, sell, discard
or otherwise dispose of all or any such items at private or public sale for such
price as Landlord may obtain or by other commercially reasonable means. Tenant
shall be liable for all costs of disposition of Tenant's abandoned property and
Landlord shall have no liability to Tenant with respect to any such abandoned
property. Landlord agrees to apply the proceeds of any sale of any such property
to any amounts due to Landlord under this Lease from Tenant (including
Landlord's attorneys" fees and other costs incurred in the removal, storage
and/or sale of such items), with any remainder to be paid to Tenant.
14. REPAIRS.
(a) LANDLORD'S OBLIGATIONS. Landlord agrees to repair and maintain the
structural portions of the Building, including the foundations, bearing and
exterior walls (excluding glass),
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subflooring and roof (excluding skylights), and the unexposed electrical,
plumbing and sewer systems, including those portions of such systems which are
outside the Premises, gutters and downspouts on the Building and the heating,
ventilating and air conditioning systems which serve the Premises, unless such
maintenance and repairs are caused in part or in whole by the act, neglect or
omission of any duty by Tenant, its agents, servants, employees or invitees, in
which case Tenant will pay to Landlord, as additional rent, the reasonable cost
of such maintenance and repairs. The costs of maintenance and repairs performed
by Landlord will be included in Operating Expenses. Except as provided in this
Subparagraph 14(a), Landlord has no obligation to alter, remodel, improve,
repair, decorate or paint the Premises or any part thereof. Landlord will not be
liable for any failure to make any such repairs or to perform any maintenance
unless such failure shall persist for an unreasonable time after written notice
of the need of such repairs or maintenance is given to Landlord by Tenant.
Tenant will not be entitled to any abatement of rent and Landlord will not have
any liability by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to any
portion of the Building or the Premises or in or to fixtures, appurtenances and
equipment therein. Tenant waives the right to make repairs at Landlord's expense
under any law, statute, ordinance, rule, regulation, order or ruling (including,
without limitation, to the extent the Premises are located in California, the
provisions of California Civil Code Sections 1941 and 1942 and any successor
statutes or laws of a similar nature).
(b) TENANT'S OBLIGATIONS. Tenant agrees to keep, maintain and preserve the
Premises in a state of condition and repair consistent with the Building and,
when and if needed, at Tenant's sole cost and expense, to make all repairs to
the Premises and every part thereof including, without limitation, all walls,
storefronts, floors, ceilings, interior and exterior doors and windows and
fixtures and interior plumbing. Any such maintenance and repairs will be
performed by Landlord's contractor, or at Landlord's option, by such contractor
or contractors as Tenant may choose from an approved list to be submitted by
Landlord. Tenant agrees to pay all costs and expenses incurred in such
maintenance and repair within seven (7) days after billing by such contractor or
contractors. If Tenant refuses or neglects to repair and maintain the Premises
property as required hereunder to the reasonable satisfaction of Landlord,
Landlord, at any time following ten (10) days from the date on which Landlord
makes a written demand on Tenant to effect such repair and maintenance, may
enter upon the Premises and make such repairs and/or maintenance, and upon
completion thereof, Tenant agrees to pay to Landlord as additional rent,
Landlord's costs for making such repairs plus an amount not to exceed ten
percent (10%) of such costs for overhead, within ten (10) days of receipt from
Landlord of a written itemized bill therefor. Any amounts not reimbursed by
Tenant within such ten (10) day period will bear interest at the interest Rate
until paid by Tenant.
15. LIENS. Tenant agrees not to permit any mechanic's, materialmen's or other
liens to be filed against all or any part of the Project, the Building or the
Premises, nor against Tenant's leasehold interest in the Premises, by reason of
or in connection with any repairs, alterations, improvements or other work
contracted for or undertaken by Tenant or any other act or omission
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of Tenant or Tenant's agents, employees, contractors, licensees or invitees. At
Landlord's request, Tenant agrees to provide Landlord with enforceable,
conditional and final lien releases (or other evidence reasonably requested by
Landlord to demonstrate protection from liens) from all persons furnishing labor
and/or materials at the Premises. Landlord will have the right at all reasonable
times to post on the Premises and record any notices o/ non-responsibility which
it deems necessary for protection from such liens. If any such liens are filed,
Tenant will, at its sole cost and expense, promptly cause such liens to be
released of record or bonded so that it no longer affects title to the Project,
the Building or the Premises. If Tenant fails to cause any such liens to be so
released or bonded within ten (10) days after filing thereof, such failure will
be deemed a material breach by Tenant under this Lease without the benefit of
any additional notice or cure period described in Paragraph 22 below, and
Landlord may, without waiving its rights and remedies based on such breach, and
without releasing Tenant from any of its obligations, cause such liens to be
released by any means it shall deem proper, including payment in satisfaction of
the claims giving rise to such liens. Tenant agrees to pay to Landlord within
ten (10) days after receipt of invoice from Landlord, any sum paid by Landlord
to remove such liens, together with interest at the Interest Rate from the date
of such payment by Landlord.
16. ENTRY BY LANDLORD. Landlord and its employees and agents will at all
reasonable times have the right to enter the Premises to inspect the same, to
show the Premises to prospective purchasers or tenants, to post notices of
nonresponsibility, and/or to repair the Premises as permitted or required by
this Lease. In exercising such entry rights, Landlord will endeavor to minimize
as reasonably practicable, the interference with Tenant's business, and will
provide Tenant with reasonable advance notice of any such entry (except in
emergency situations). Landlord will at all times have and retain a key with
which to unlock all doors in the Premises, excluding Tenant's vaults and safes.
Tenant shall not alter any lock or install any new or additional locks or bolts
on any door of the Premises without Landlord's prior written consent and without
providing Landlord with a key to all such locks. Except in the case of the gross
negligence or willful misconduct of Landlord, any entry to the Premises obtained
by Landlord will not be construed or deemed to be a forcible or unlawful entry
into the Premises, or an eviction of Tenant from the Premises and Landlord will
not be unable to Tenant for any damages or losses resulting from any such entry.
17. UTILITIES AND SERVICES. Throughout the Term of this Lease, Tenant shall pay
directly to the utility company providing such service all costs for water, gas,
heat, light, power, sewer, electricity, telephone and other services metered,
chargeable or provided to the Premises. Landlord will not be liable to Tenant
for any failure to furnish any of the foregoing utilities and services if such
failure is caused by all or any of the following: (i) accident, breakage or
repairs" (ii) strikes, lockouts or other labor disturbance or labor dispute of
any character; (iii) governmental regulation, moratorium or other governmental
action or inaction; (iv) inability despite the exercise of reasonable diligence
to obtain electricity, water or fuel, or (v) any other cause beyond Landlord's
reasonable control. In addition, in the event of any stoppage or interruption of
services or utilities, Tenant shall not be entitled to any abatement or
reduction of
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rent (except as expressly provided in Subparagraphs 20(f) or 21(b) if such
failure results from a damage or taking described therein), no eviction of
Tenant will result from such failure and Tenant will not be relieved from the
performance of any covenant or agreement in this Lease because of such failure.
In the event of any failure, stoppage or interruption thereof, Landlord agrees
to diligently attempt to resume service promptly.
18. ASSUMPTION OF RISK AND INDEMNIFICATION.
(a) ASSUMPTION OF RISK. Tenant, as a material part other consideration to
Landlord, agrees that neither Landlord nor any Landlord indemnified Parties (as
defined in Subparagraph 8(c) above) will be liable to Tenant for, and Tenant
expressly assumes the risk of and waives any and all claims it may have against
Landlord or any Landlord Indemnified Parties with respect to, (i) any and all
damage to property or injury to persons in, upon or about the Premises, the
Building or the Project resulting from the act or omission (except for the
grossly negligent or intentionally wrongful act or omission) of Landlord, (ii)
any such damage caused by other tenants or persons in or about the Building or
the Project, or caused by quasi-public work, (iii) any damage to property
entrusted to employees of the Building, (iv) any loss of or damage to property
by them or otherwise, or (v) any injury or damage to persons or property
resulting from any casualty, explosion, falling plaster or other masonry or
glass, steam, gas, electricity, water or rain which may leak from any part of
the Building or any other portion of the Project or from the pipes, appliances
or plumbing works therein or from the root, street or subsurface or from any
other place, or resulting from dampness. Neither Landlord nor any Landlord
Indemnified Parties will be liable for consequential damages arising out of any
loss of the use of the Premises or any equipment or facilities therein by Tenant
or any Tenant Parties (as defined in Subparagraph 8(c) above) or for
interference with light. Tenant agrees to give prompt notice to Landlord in case
of fire or accidents in the Premises or the Building, or of detects therein or
in the fixtures or equipment.
(b) INDEMNIFICATION. Tenant will be liable for, and agrees, to the maximum
extent permissible under applicable law, to promptly indemnify, protect, defend
and hold harmless Landlord and all Landlord Indemnified Parties, from and
against, any and all claims, damages, judgments, suits, causes of action,
losses, liabilities, penalties, fines, expenses and costs, including attorneys"
fees and court costs (collectively, "Indemnified Claims"), arising or resulting
from (i) any act or omission of Tenant or any Tenant Parties; (ii) the use of
the Premises and Common Areas and conduct of Tenant's business by Tenant or any
Tenant Parties, or any other activity, work or thing done, permitted or suffered
by Tenant or any Tenant Parties, in or about the Premises, the Building or
elsewhere within the Project and/or (iii) any default by Tenant of any
obligations on Tenant's part to be performed under the terms of this Lease. In
case any action or proceeding is brought against Landlord or any Landlord
indemnified Parties by reason of any such indemnified Claims, Tenant, upon
notice from Landlord, agrees to promptly defend the same at Tenant's sole cost
and expense by counsel approved in writing by Landlord, which approval Landlord
will not unreasonably withhold.
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(c) SURVIVAL; NO RELEASE OF INSURERS. Tenant's indemnification obligations
under Subparagraph 18(b) will survive the expiration or earlier termination of
this Lease Tenant's covenants, agreements and indemnification obligation in
Subparagraphs 18(a) and 18(b) above, are not intended to and will not relieve
any insurance carrier of its obligations under policies required to be carried
by Tenant pursuant to the provisions of This Lease.
19. INSURANCE.
(a) TENANT'S INSURANCE. On or before the earlier to occur of (i) the
Commencement Date, or (ii) the date Tenant commences any work of any type in the
Premises pursuant to this Lease (which may be prior to the Commencement Date),
and continuing throughout the entire Term hereof and any other period of
occupancy, Tenant agrees to keep in full force and effect, at its sole cost and
expense, the insurance specified on Exhibit "F" attached hereto. Landlord
reserves the right to require any other form or forms of insurance as Tenant or
Landlord or any mortgagees of Landlord may reasonably require from time to time
in form, in amounts, and for insurance risks against which, a prudent tenant
would protect itself, but only to the extent coverage for such risks and amounts
are available in the insurance market at commercially acceptable rates Landlord
makes no representation that the limits of liability required to be carried by
Tenant under the terms of this Lease are adequate to protect Tenant's interests
and Tenant should obtain such additional insurance or increased liability limits
as Tenant deems appropriate.
(b) SUPPLEMENTAL TENANT INSURANCE REQUIREMENTS. All policies must be in a form
reasonably satisfactory to Landlord and issued by an insurer admitted to do
business in the State. All policies must be issued by insurers with a
policyholder rating of "A" and a financial rating of "X" in the most recent
version of Best's Key Rating Guide. All policies must contain a requirement to
notify Landlord (and Landlord's property manager and any mortgagees or ground
lessors of Landlord who are named as additional insureds, if any) in writing not
less than thirty (30) days prior to any material change, reduction in coverage,
cancellation or other termination thereof. Tenant agrees to deliver to Landlord,
as soon as practicable after placing the required insurance, but in any event
within the time frame specified in Subparagraph 19(a) above, certificate(s) of
insurance and/or if required by Landlord, certified copies of each policy
evidencing the existence of such insurance and Tenant's compliance with the
provisions of this Paragraph 19. Tenant agrees to cause replacement policies or
certificates to be delivered to Landlord not less than thirty (30) days prior to
the expiration of any such policy or policies. If any such initial or
replacement policies or certificates are not furnished within the time(s)
specified herein, Landlord will have the right, but not the obligation, to
obtain such insurance as Landlord deems necessary to protect Landlord's
interests at Tenant's expense. Tenant's insurance under Subparagraphs 19(a)(iii)
and (iv) must name Landlord and Landlord's property manager (and at Landlord's
request, Landlord's mortgagees and ground lessors of which Tenant has been
informed in writing) as additional insureds and must also contain a provision
that the insurance afforded by such policy is primary insurance and any
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insurance carried by Landlord and Landlord's property manager or Landlord's
mortgagees or ground lessors, if any, will be excess over and non-contributing
with Tenant's insurance.
(c) WAIVER OF SUBROGATION. Tenant's property insurance shall contain a clause
whereby the insurer waives all rights of recovery by way of subrogation against
Landlord. Tenant shall also obtain and furnish evidence to Landlord of the
waiver by Tenant's worker's compensation insurance carrier of all rights of
recovery by way of subrogation against Landlord.
20. DAMAGE OR DESTRUCTION.
(a) PARTIAL DESTRUCTION. If the Premises or the Building are damaged by fire or
other casualty to an extent not exceeding twenty-five percent (25%) of the full
replacement cost thereof and Landlord's contractor reasonably estimates in a
writing delivered to Landlord and Tenant that the damage thereto may be
repaired, reconstructed or restored to substantially its condition immediately
prior to such damage within one hundred eighty (180) days from the date of such
casualty, and Landlord will receive insurance proceeds sufficient to cover the
costs of such repairs reconstruction and restoration (including proceeds from
Tenant and/or Tenants insurance which Tenant is required to deliver to Landlord
pursuant to Subparagraph 20(d) below to cover Tenant s obligation for the costs
of repair, reconstruction and restoration of any portion of the tenant
improvements and any alterations for which Tenant is responsible under this
Lease) then Landlord agrees to commence and proceed diligently with the work of
repair, reconstruction and restoration and this Lease will continue in full
force and effect.
(b) SUBSTANTIAL DESTRUCTION. Any damage or destruction to the Premises or the
Building which Landlord is not obligated to repair pursuant to Subparagraph
20(a) above will be deemed a substantial destruction. In the event of a
substantial destruction, Landlord may elect to either: (i) repair reconstruct
and restore the portion of the Building or the Premises damaged by such casualty
in which case this Lease will continue in full force and effect, subject to
Tenant's termination right contained in Subparagraph 20(c) below; or (ii)
terminate this Lease effective as of the date of Tenant's receipt of Landlord s
election to so terminate.
(c) TERMINATION RIGHTS. It Landlord elects to repair, reconstruct and restore
pursuant to Subparagraph 20(b)(i) hereinabove, and if Landlord's contractor
estimates that as a result of such damage, Tenant cannot be given reasonable use
of and access to the Premises within two hundred forty (240) days after the date
of such damage then either Landlord or Tenant may terminate this Lease effective
upon delivery of written notice to the other within ten (10) days after Landlord
delivers notice to Tenant of its election to so repair reconstruct or restore;
provided, however, Tenant shall have no right to terminate this Lease if
Landlord can relocate Tenant to other comparable Premises in the Building or the
Project within one hundred eighty (180) days after the date of such damage.
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(d) TENANTS COSTS AND INSURANCE PROCEEDS. In the event of any damage or
destruction of all or any part of the Premises, Tenant agrees to immediately (i)
notify Landlord thereof, and (ii) deliver to Landlord all property insurance
proceeds received by Tenant with respect to any tenant improvements installed by
or at the cost of Tenant and any alterations , but excluding proceeds for Tenant
s furniture, fixtures, equipment and other personal property whether or not this
Lease is terminated as permitted in this Paragraph 20 and Tenant hereby assigns
to Landlord all rights to receive such insurance proceeds. If for any reason
(including Tenants failure to obtain required insurance) Tenant fails to receive
insurance proceeds covering the full replacement cost of any tenant improvements
and any alterations which are damaged, Tenant will be deemed to have self-
insured the replacement cost of such items, and upon any damage or destruction
thereto Tenant agrees to immediately pay to Landlord the full replacement cost
of such items less any insurance proceeds actually received by Landlord from
Landlord's or Tenant's insurance with respect to such items.
(e) ABATEMENT OF RENT. In the event of any damage, repair reconstruction and/or
restoration described in this Paragraph 20, rent will be abated or reduced, as
the case may be, from the date of such casualty in proportion to the degree to
which Tenant s use of the Premises is impaired during such period of repair
until such use is restored. Except for abatement of rent as provided
hereinabove, Tenant will not be entitled to any compensation or damages for loss
of, or interference with, Tenant's business or use or access of all or any part
of the Premises or for lost profits or any other consequential damages of any
kind or nature, which result from any such damage, repair, reconstruction or
restoration.
(f) DAMAGE NEAR END OF TERM. Landlord and Tenant shall each have the right to
terminate this Lease if any damage to the Premises or the Building occurs during
the last twelve (12) months of the Term of this Lease where Landlord s
contractor estimates in a writing delivered to Landlord and Tenant that the
repair, reconstruction or restoration of such damage cannot be completed within
sixty (60) days after the date of such casualty. If either party desires to
terminate this Lease under this Subparagraph (f), it shall provide written
notice to the other party of such election within ten (10) days after receipt of
Landlord's contractor's repair estimates.
(g) WAIVER OF TERMINATION RIGHT. Landlord and Tenant agree that the foregoing
provisions of this Paragraph 20 are to govern their respective rights and
obligations in the event of any damage or destruction and supersede and are in
lieu of the provisions of any applicable law, statute, ordinance, rule,
regulation, order or ruling now or hereafter in force which provide remedies for
damage or destruction of leased premises (including, without limitation, to the
extent the Premises are located in California, the provisions of California
Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 and any
successor statute or laws of a similar nature).
21. EMINENT DOMAIN.
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(a) SUBSTANTIAL TAKING. If the whole of the Premises or such part hereof as
shall substantially interfere with Tenant s use and occupancy of the Premises,
as contemplated by this Lease, is taken for any public or quasi-public purpose
by any lawful power or authority by exercise of the right of appropriation,
condemnation or eminent domain, or sold to prevent such taking, either party
will have the right to terminate this Lease effective as of the date possession
is required to be surrendered to such authority.
(b) PARTIAL TAKING; ABATEMENT OF RENT. In the event of a taking of a portion of
the Premises which does not substantially interfere with Tenant s use and
occupancy of the Premises including any temporary taking of ninety (90) days or
less, then, neither party will have the right to terminate this Lease and
Landlord will thereafter proceed to make a functional unit of the remaining
portion of the Premises (but only to the extent Landlord receives proceeds
therefor from the condemning authority), and rent will be abated with respect to
the part of the Premises which Tenant is deprived of on account of such taking.
Notwithstanding the immediately preceding sentence to the contrary , if any part
of the Building or the Project is taken (whether or not such taking
substantially interferes with Tenant's use of the Premises), Landlord may
terminate this Lease upon thirty (30) days' prior written notice to Tenant if
Landlord also terminates the leases of the other tenants of the Building which
are leasing comparably sized space for comparable lease terms.
(c) CONDEMNATION AWARD. In connection with any taking of the Premises or the
Building Landlord will be entitled to receive the entire amount of any award
which may be made or given in such taking or condemnation, without deduction or
apportionment for any estate or interest of Tenant, it being expressly
understood and agreed by Tenant that no portion of any such award will be
allowed or paid to Tenant for any so-called bonus or excess value of this Lease,
and such bonus or excess value will be the sole property of Landlord. Tenant
agrees not to assert any claim against Landlord or the taking authority for any
compensation because of such taking (including any claim for bonus or excess
value of this Lease); provided, however, if any portion of the Premises is
taken, Tenant will have the right to recover from the condemning authority (but
not from Landlord) any compensation as may be separately awarded or recoverable
by Tenant for the taking of Tenant's furniture, fixtures, equipment and other
personal property within the Premises, for Tenant's relocation expenses, and for
any loss of goodwill or other damage to Tenant's business by reason of such
taking.
22. DEFAULTS AND REMEDIES.
(a) DEFAULTS. The occurrence of any one or more of the following events will be
deemed a default by Tenant:
(i) The abandonment or vacation of the Premises by Tenant
(ii) The failure by Tenant to make any payment of rent or additional rent or any
other payment required to be made by Tenant hereunder, as and when due, where
such failure
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continues for a period of three (3) days after written notice thereof from
Landlord to Tenant; provided, however that any such notice will be in lieu of,
and not in addition to, any notice required under applicable law (including,
without limitation, to the extent the Premises are located in California, the
provisions of California Code of Civil Procedure Section 1161 regarding unlawful
detainer actions or any successor statute or law of a similar nature).
(iii) The failure by Tenant to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in Subparagraph 22(a)(i) or (ii) above, where
such failure continues for a period of five (5) days after written notice
thereof from Landlord to Tenant the provisions of any such notice will be in
lieu of, and not in addition to, any notice required under applicable law
(including, without limitation, to the extent the Premises are located in
California, California Code of Civil Procedure Section 1161 regarding unlawful
detainer actions and any successor statute or similar law). If the nature of
Tenants default is such that more than five (5) days are reasonably required for
its cure, then Tenant will not be deemed to be in default if Tenant, with
Landlord's concurrence, commences such cure within such five (5) day period and
thereafter diligently prosecutes such cure to completion.
(iv) (A) The making by Tenant of any general assignment for the benefit of
creditors; (B) the filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or a petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days); (C) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (D) the attachment,
execution or other judicial seizure of substantially all of Tenant s assets
located at the Premises or of Tenant s interest in this Lease where such seizure
is not discharged within thirty (30) days.
(b) LANDLORD'S REMEDIES; TERMINATION. In the event of any default by Tenant, in
addition to any other remedies available to Landlord at law or in equity under
applicable law (including without limitation to the extent the Premises are
located in California, the remedies of Civil Code Section 1951.4 and any
successor statute or similar law), Landlord will have the immediate right and
option to terminate this Lease and all rights of Tenant hereunder. If Landlord
elects to terminate this Lease then, to the extent permitted under applicable
law Landlord may recover from Tenant: (i) the worth at the time of award of any
unpaid rent which had been earned at the time of such termination; plus (ii) the
worth at the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount of
such rent loss that Tenant proves could have been reasonably avoided; plus (iii)
the worth at the time of award of the amount by which the unpaid rent for the
balance of the Term after the time of award exceeds the amount of such rent loss
that Tenant proves could be reasonably avoided; plus (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its
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obligations under this Lease or which, in the ordinary course of things, results
therefrom including, but not limited to: attorneys" fees and costs; brokers
commissions; the costs of refurbishment, alterations, renovation and repair of
the Premises, and removal (including the repair of any damage caused by such
removal) and storage (or disposal) of Tenant's personal property, equipment,
fixtures, alterations, the tenant improvements and any other items which Tenant
is required under this Lease to remove, but does not remove, as well as the
unamortized value of any free rent, reduced rent, free parking, reduced rate
parking and any tenant improvement allowance or other costs or economic
concessions provided, paid, granted, or incurred by Landlord pursuant to this
Lease. As used in Subparagraphs 22(b)(i) and (ii) above the "worth at the time
of award" is computed by allowing interest at the interest Rate. As used in
Subparagraph 22(b)(iii) above, the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
(c) LANDLORD S REMEDIES; RE-ENTRY RIGHTS. In the event of any default by
Tenant, in addition to any other remedies available to Landlord under this
Lease, at law or in equity, Landlord will also have the right, with or without
terminating this Lease, to re-enter the Premises and remove all persons and
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere and/or disposed of at the sole cost and expense of and
for the account of Tenant in accordance with the provisions of Paragraph 13 of
this Lease or any other procedures permitted by applicable law. No re-entry or
taking possession of the Premises by Landlord pursuant to this Subparagraph
22(c) will be construed as an election to terminate this Lease unless a written
notice of such intention is given to Tenant or unless the termination thereof is
decreed by a court of competent jurisdiction.
(d) LANDLORD S REMEDIES; RE-LETTING. If Landlord does not elect to terminate
this Lease, Landlord may from time to time, without terminating this Lease,
either recover all rent as it becomes due or relate the Premises or any part
thereof on terms and conditions as Landlord in its sole and absolute discretion
may deem advisable with the right to make alterations and repairs to the
Premises in connection with such reletting. If Landlord elects to relet the
Premises then rents received by Landlord from such reletting will be applied:
first, to the payment of any indebtedness other than rent due hereunder from
Tenant to Landlord; second, to the payment of any cost of such reletting; third,
to the payment of the cost of any alterations and repairs to the Premises
incurred in connection with such reletting; fourth, to the payment of rent due
and unpaid hereunder and the residue, if any will be held by Landlord and
applied to payment of future rent as the same may become due and payable
hereunder. Should that portion of such rents received from such reletting during
any month, which is applied to the payment of rent hereunder, be less than the
rent payable during that month by Tenant hereunder, then Tenant agrees to pay
such deficiency to Landlord immediately upon demand therefor by Landlord. Such
deficiency will be calculated and paid monthly.
(e) LANDLORD'S REMEDIES; PERFORMANCE FOR TENANT. All covenants and agreements
to be performed by Tenant under any of the terms of this Lease are to be
performed by Tenant
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at Tenant's sole cost and expense and without any abatement of rent. If Tenant
fails to pay any sum of money owed to any party other than Landlord, for which
it is liable under this Lease, or if Tenant fails to perform any other act on
its part to be performed hereunder, and such failure continues for ten (10) days
after notice thereof by Landlord, Landlord may, without waiving or releasing
Tenant from its obligations, but shall not be obligated to, make any such
payment or perform any such other act to be made or performed by Tenant. Tenant
agrees to reimburse Landlord upon demand for all sums so paid by Landlord and
all necessary incidental costs, together with interest thereon at the Interest
Rate, from the date of such payment by Landlord until reimbursement by Tenant.
This remedy shall be in addition to any other right or remedy of Landlord set
forth in this Paragraph 22.
(f) LATE PAYMENT. If Tenant fails to pay any installment of rent within seven
(7) days when due or if Tenant fails to make any other payment for which Tenant
is obligated under this Lease when due, such late amount will accrue interest at
the Interest Rate until such amount is paid by Tenant to Landlord. In addition
Tenant agrees to pay to Landlord concurrently with such late payment amount, as
additional rent, a late charge equal to ten percent (10%) of the amount due to
compensate Landlord for the extra costs Landlord will incur as a result of such
late payment. Landlord and Tenant agree that such late charge represents a fair
and reasonable estimate of the costs that Landlord will incur by reason of any
such late payment. Acceptance of any such interest and late charge will not
constitute a waiver of the Tenant's default with respect to the overdue amount,
or prevent Landlord from exercising any of the other rights and remedies
available to Landlord. If Tenant incurs a late charge more than three (3) times
in any period of twelve (12) months during the Lease Term, then, notwithstanding
that Tenant cures the late payments for which such late charges are imposed
Landlord will have the right to require Tenant thereafter to pay all
installments of Monthly Base Rent quarterly in advance in the form of a
cashier's check throughout the remainder of the Lease Term. Any payments of any
kind returned for insufficient funds will be subject to an additional handling
charge of $25.00 and thereafter, Landlord may require Tenant to pay all future
payments of rent or other sums due by money order or cashier's check.
(g) RIGHTS AND REMEDIES CUMULATIVE. All rights, options and remedies of
Landlord contained in this Lease will be construed and held to be cumulative,
and no one of them will be exclusive of the other, and Landlord shall have the
right to pursue any one or all of such remedies or any other remedy or relief
which may be provided by law or in equity whether or not stated in this Lease.
Nothing in this Paragraph 22 will be deemed to limit or otherwise affect
Tenant's indemnification of Landlord pursuant to any provision of This
Lease.
23. LANDLORD'S DEFAULT. Landlord will not be in default in the performance of
any obligation required to be performed by Landlord under this Lease unless
Landlord fails to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure to
perform; provided, however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for performance, then Landlord will
not be deemed in default if it commences such performance within such
thirty
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(30) day period and thereafter diligently pursues the same to completion. Upon
any default by Landlord, Tenant may exercise any of its rights provided at law
or in equity subject to the limitations on liability set forth in Paragraph 35
of This Lease.
24. ASSIGNMENT AND SUBLETTING.
(a) RESTRICTION ON TRANSFER. Except as expressly provided in this Paragraph 24,
Tenant will not, either voluntarily or by operation of law, assign or encumber
this Lease or any interest herein or sublet the Premises or any part thereof, or
permit the use or occupancy of the Premises by any party other than Tenant (any
such assignment encumbrance sublease, or the like will sometimes be referred to
as a "Transfer"), without the prior written consent of Landlord, which consent
Landlord will not unreasonably withhold. For purposes of this Paragraph 24 , if
Tenant is a corporation, partnership or other entity, any transfer, assignment,
encumbrance or hypothecation of fifty percent (50%) or more (individually or in
the aggregate) of any stock or other ownership interest in such entity, and/or
any transfer, assignment, hypothecation or encumbrance of any controlling
ownership or voting interest in such entity, will be deemed a Transfer and will
be subject to all of the restrictions and provisions contained in this Paragraph
24; provided, however, this provision will not apply to public corporations, the
stock of which is traded through a public stock exchange or over the counter
system.
(b) TRANSFER NOTICE. If Tenant desires to elect a Transfer, then at least
thirty (30) days prior to the date when Tenant desires the Transfer to be
effective (the "Transfer Date") Tenant agrees to give Landlord a notice (the
"Transfer Notice") stating the name, address and business of the proposed
assignee, sublessee or other transferee (sometimes referred to hereinafter as
"Transferee") reasonable information (including references) concerning the
character, ownership, and financial condition of the proposed Transferee, the
Transfer Date, any ownership or commercial relationship between Tenant and the
proposed Transferee, and the consideration and all other material terms and
conditions of the proposed Transfer, all in such detail as Landlord may
reasonably require.
(c) LANDLORDS OPTIONS. Within fifteen (15) days of Landlord's receipt of any
Transfer Notice and any additional information requested by Landlord concerning
the proposed Transferee's financial responsibility, Landlord will notify Tenant
of its election to do one of the following: (i) consent to the proposed Transfer
subject to such reasonable conditions as Landlord may impose in providing such
consent; (ii) refuse such consent, which refusal shall be on reasonable grounds;
or (iii) terminate this Lease as to all or such portion of the Premises which is
proposed to be sublet or assigned and recapture all or such portion of the
Premises for reletting by Landlord.
(d) ADDITIONAL CONDITIONS. A condition to Landlord's consent to any transfer of
this Lease will be the delivery to Landlord of a true copy of the fully executed
instrument of assignment, sublease, transfer or hypothecation, in form and
substance reasonably satisfactory to Landlord.
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Tenant agrees to pay to Landlord, as additional rent, all sums and other
consideration payable to and for the benefit of Tenant by the assignee or
sublessee in excess of the rent payable under this Lease for the same period and
portion of the Premises. In calculating excess rent or other consideration which
may be payable to Landlord under this paragraph, Tenant will be entitled to
deduct commercially reasonable third party brokerage commissions and attorney's
fees and other amounts reasonably and actually expended by Tenant in connection
with such assignment or subletting if acceptable written evidence of such
expenditures is provided to Landlord. No Transfer will release Tenant of
Tenant's obligations under This Lease or alter the primary liability of Tenant
to pay the rent and to perform all other obligations to be performed by Tenant
hereunder. Landlord may require that any Transferee remit directly to Landlord
on a monthly basis, all monies due Tenant by said Transferee. Consent by
Landlord to one Transfer will not be deemed consent to any subsequent Transfer.
In the event of default by any Transferee of Tenant or any successor of Tenant
in the performance of any of the terms hereof, Landlord may proceed directly
against Tenant without the necessity of exhausting remedies against such
Transferee or successor. If Tenant effects a Transfer or requests the consent of
Landlord to any Transfer (whether or not such Transfer is consummated), then,
upon demand, Tenant agrees to pay Landlord a non-refundable administrative fee
of not less than One Hundred Dollars ($100.00) and actual expenses incurred,
plus Landlord's reasonable attorneys" fees.
25. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee or beneficiary with a deed of trust
encumbering the Building and/or the Project, or any lessor of a ground or
underlying lease with respect to the Building, this Lease will be subject and
subordinate at all times to: (i) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Building; and (ii) the lien
of any mortgage or deed of trust which may now exist or hereafter be executed
for which the Building, the Project or any leases thereof, or Landlord's
interest and estate in any of said items, is specified as Security.
Notwithstanding the foregoing, Landlord reserves the right to subordinate any
such ground leases or underlying leases or any such liens to This Lease. If any
such ground lease or underlying lease terminates for any reason or any such
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, at the election of Landlord's successor in interest,
Tenant agrees to attorn to and become the tenant of such successor in which
event Tenant's right to possession of the Premises will not be disturbed as long
as Tenant is not in default under this Lease. Tenant hereby waives its rights
under any law which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease and the obligations of Tenant hereunder in
the event of any such foreclosure proceeding or sale. Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form
reasonably required by Landlord, any additional documents evidencing the
priority or subordination of this Lease and Tenant's attornment agreement with
respect to any such ground lease or underlying leases or the lien of any such
mortgage or deed of trust. If Tenant fails to sign and return any such documents
within ten (10) days of receipt, Tenant will be in default hereunder.
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26. ESTOPPEL CERTIFICATE. Within ten (10) days following any written request
which Landlord may make from time to time, Tenant agrees to execute and deliver
to Landlord an estoppel certificate, in Landlord's standard form or as may
reasonably be required by Landlord's lender. Landlord and Tenant intend that any
Statement delivered pursuant to this Paragraph 26 may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the Building or
any interest therein. Tenant's failure to deliver such statement within such
time will be conclusive upon Tenant (i) that this Lease is in full force and
effect without modification except as may be represented by Landlord, (ii) that
there are no uncured defaults in Landlord's performance, and (iii) that not more
than one (1) month's rent has been paid in advance. Without limiting the
foregoing, if Tenant fails to deliver any such statement within such ten (10)
day period, Landlord may deliver to Tenant an additional request for such
Statement and Tenant's failure to deliver such Statement to Landlord within ten
(10) days after delivery of such additional request will constitute a default
under this Lease. Tenant agrees to indemnify and protect Landlord from and
against any and all claims, damages, losses, liabilities and expenses (including
attorneys fees and costs) attributable to any failure by Tenant to timely
deliver any such estoppel certificate to Landlord as required by this Paragraph
26.
27. BUILDING PLANNING. If Landlord requires the Premises for use in conjunction
with another suite or for other reasons connected with the planning program for
the Building or the Project, Landlord will have the right upon sixty (60) days'
prior written notice to Tenant, to move Tenant to other space in the Building of
substantially similar size as the Premises, and with tenant improvements of
substantially similar age, quality and layout as then existing in the Premises.
Any such relocation will be at Landlord's cost and expense, including the cost
of providing such substantially similar tenant improvements (but not any
furniture or personal property) and Tenant's reasonable moving, telephone
installation and stationary reprinting costs. If Landlord so relocates Tenant,
the terms and conditions of this Lease will remain in full force and effect and
apply to the new space, except that (a) a revised Exhibit "A" will become part
of this Lease and will reflect the location of the new space, (b) Paragraph 1 of
This Lease will be amended to include and state all correct data as to the new
space, (c) the new space will thereafter be deemed to be the "Premises," and (d)
all economic terms and conditions (e.g. rent, total Operating Expense Allowance,
etc.) will be adjusted on a per square foot basis based on the total number of
rentable square feel of area contained in the new space. Landlord and Tenant
agree to cooperate fully with one another in order to minimize the inconvenience
to Tenant resulting from any such relocation.
28. RULES AND REGULATIONS. Tenant agrees to faithfully observe and comply with
the "Rules and Regulations," a copy of which is attached hereto and incorporated
herein by this reference as Exhibit "E," and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord will not be responsible to Tenant for the
violation or non-performance by any other tenant or occupant of the Building of
any of the Rules and Regulations.
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29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS. Tenant,
within ten (10) days after request therefor, agrees to execute any reasonable
amendments to this Lease which may be requested by any lender or ground lessor
of the Project, provided any such amendments do not increase the obligations of
Tenant under this Lease or adversely affect the leasehold estate created by this
Lease. In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgage covering the Premises or ground lessor of Landlord whose address has
been furnished to Tenant, and Tenant agrees to offer such beneficiary, mortgagee
or ground lessor a reasonable opportunity to cure the default (including with
respect to any such beneficiary or mortgagee, time to obtain possession of the
Premises, subject to this Lease and Tenant's rights hereunder, by power of sale
or a judicial foreclosure, if such should prove necessary to effect a
cure).
30. DEFINITION OF LANDLORD. The term "Landlord" as used in this Lease, so far
as covenants or obligations on the part of Landlord are concerned, means and
includes only the owner or owners, at the time in question, of the fee title of
the Premises or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title (other
than a transfer for security purposes only), Landlord herein named (and in case
of any subsequent transfers or conveyances, the then grantor) will be
automatically relieved from and after the date of such transfer, assignment or
conveyance of all liability as respects, the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, so long as the transferee assumes in writing all such covenants and
obligations of Landlord arising after the date of such transfer. Landlord and
Landlord's transferees and assignees have the absolute right to transfer all or
any portion of their respective title and interest in the Project, the Building,
the Premises and/or this Lease without the consent of Tenant, and such transfer
or subsequent transfer will not be deemed a violation on Landlord's part of any
of the terms and conditions of This Lease.
31. WAIVER. The waiver by either party of any breach or any term, covenant or
condition herein contained will not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition herein contained,
nor will any custom or practice which may develop between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of either party to insist upon performance in strict accordance with
said terms. The subsequent acceptance of rent or any other payment hereunder by
Landlord will not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent. No acceptance by
Landlord of a lesser sum than the basic rent and additional rent or other sum
then due will be deemed to be other than on account of the earliest installment
of such rent or other amount due, nor will any endorsement or statement on any
check or any letter accompanying any check be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such installment or other amount or pursue any
other remedy provided in this Lease. The consent or
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approval of Landlord to or of any act by Tenant requiring Landlord's consent or
approval will not be deemed to waive or render unnecessary Landlord's consent or
approval to or of any subsequent similar acts by Tenant.
32. PARKING. So long as this Lease is in effect and provided Tenant is not in
default hereunder, Landlord grants to Tenant, Tenant's visitors and guests a
non-exclusive license to use the parking areas which serve the Building subject
to the terms and conditions of this Paragraph 32 and the Rules and Regulations
regarding parking contained in Exhibit "E" attached hereto. Tenant will not use
or allow any of Tenant's employees or guests to use any parking spaces which
have been specifically assigned by Landlord to other tenants or occupants or for
other uses such as visitor parking or which have been designated by any
governmental entity as being restricted to certain uses. Landlord may assign any
unreserved and unassigned parking spaces and/or make all or any portion of such
spaces reserved, if Landlord reasonably determines that it is necessary for
orderly and efficient parking or for any other reasonable reason. Tenant agrees
to cause its employees, subtenants, assignees, contractors, suppliers, customers
and invitees to comply with the Rules and Regulations. Landlord reserves the
right from time to lime to modify and/or adopt such other reasonable and non-
discriminatory rules and regulations for the parking facilities as it deems
reasonably necessary for the operation of the parking facilities.
33. FORCE MAJEURE. If either Landlord or Tenant is delayed, hindered in or
prevented from the performance of any act required under this Lease by reason of
strikes, lock-outs, labor troubles, inability to procure standard materials,
failure of power, restrictive governmental laws, regulations or orders or
governmental action or inaction (including failure, refusal or delay in issuing
permits, approvals and/or authorizations which is not the result of the action
or inaction of the party claiming such delay), riots, civil unrest or
insurrection, war, fire, earthquake, flood or other natural disaster, unusual
and unforeseeable delay which results from an interruption of any public
utilities (e.g., electricity, gas, water, telephone) or other unusual and
unforeseeable delay not within the reasonable control of the party delayed in
performing work or doing acts required under the provisions of this Lease, then
performance of such act will be excused for the period of the delay and the
period for the performance of any such act will be extended for a period
equivalent to the period of such delay. The provisions of this Paragraph 33 will
not operate to excuse Tenant from prompt payment of rent or any other payments
required under the provisions of this Lease.
34. SIGNS. Landlord will designate the location on the Premises, if any, any
for one or more Tenant identification sign(s). Tenant has no right to install
Tenant identification signs in any other location in on or about the Premises or
the Project and will not display or erect any other signs, displays or other
advertising materials that are visible from the exterior of the Building or from
within the Building in any interior or exterior common areas. The size, design,
color and other physical aspects of any and all permitted sign(s) will be
subject to (i) Landlord's written approval prior to installation, which approval
may be withheld in Landlord s discretion (ii) any covenants, conditions or
restrictions and sign criteria governing the
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Project, and (iii) any applicable municipal or governmental permits and
approvals. Tenant will be solely responsible for all costs for installation,
maintenance, repair and removal of any Tenant identification sign(s). If Tenant
fails to remove Tenant's sign(s) upon termination of this Lease and repair any
damage caused by such removal, Landlord may do so at Tenant's sole cost and
expense. Tenant agrees to reimburse Landlord for all costs incurred by Landlord
to effect any installation, maintenance or removal on Tenant's account, which
amount will be deemed additional rent, and may include, without limitation, all
sums disbursed, incurred or deposited by Landlord including Landlord's costs,
expenses and actual attorneys" fees with interest thereon at the Interest Rate
from the date of Landlord's demand until paid by Tenant. Any sign rights granted
to Tenant under this Lease are personal to Tenant and may not be assigned,
transferred or otherwise conveyed to any assignee or subtenant of Tenant without
Landlord's prior written consent, which consent Landlord may withhold in its
sole and absolute discretion.
35. LIMITATION ON LIABILITY. In consideration of the benefits accruing
hereunder, Tenant on behalf of itself and all successors and assigns of Tenant
covenants and agrees that, in the event of any actual or alleged failure, breach
or default hereunder by Landlord: (a) Tenant's recourse against Landlord for
monetary damages will be limited to Landlord's interest in the Building
including, subject to the prior rights of any Mortgagee, Landlord's interest in
the rents of the Building and any insurance proceeds payable to Landlord; (b)
except as may be necessary to secure jurisdiction of the partnership, no partner
of Landlord shall be sued or named as a party in any suit or action and no
service of process shall be made against any partner of Landlord; (c) no partner
of Landlord shall be required to answer or otherwise plead to any service of
process; (d) no judgment will be taken against any partner of Landlord and any
judgment taken against any partner of Landlord may be vacated and set aside at
any time after the fact; (e) no writ of execution will be levied against the
assets of any partner of Landlord; (f) the obligations under this Lease do not
constitute personal obligations of the individual partners, directors, officers
or shareholders of Landlord, and Tenant shall not seek recourse against the
individual partners, directors, officers or shareholders of Landlord or any of
their personal assets for satisfaction of any liability in respect to this
Lease; and (g) these covenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.
36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by Landlord and
at any time during the Term of this Lease upon ten (10) days prior written
notice from Landlord, Tenant agrees to provide Landlord with a current financial
statement for Tenant and any guarantors of Tenant and financial statements for
the two (2) years prior to the current financial statement year for Tenant and
any guarantors of Tenant. Such statements are to be prepared in accordance with
generally accepted accounting principles and, if such is the normal practice of
Tenant, audited by an independent certified public accountant.
37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon Tenant
paying the rent required under this Lease and paying all other charges and
performing all of the covenants and provisions on Tenant's part to be observed
and performed under this Lease Tenant
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may peaceably and quietly have hold and enjoy the Premises in accordance with
this Lease
38. MISCELLANEOUS.
(a) CONFLICT OF LAWS. This Lease shall be governed by and construed solely
pursuant to the laws of the State without giving effect to choice of law
principles thereunder.
(b) SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease all of
the covenants conditions and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
(c) PROFESSIONAL FEES AND COSTS. If either Landlord or Tenant should bring suit
against the other with respect to this Lease, then all costs and expenses,
including without limitation, actual professional fees and costs such as
appraisers, " accountants" and attorneys" fees and costs, incurred by the party
which prevails in such action, whether by final judgment or out of court
settlement, shall be paid by the other party, which obligation on the part of
the other party shall be deemed to have accrued on the date of the commencement
of such action and shall be enforceable whether or not the action is prosecuted
to judgment. As used herein , attorneys" fees and costs shall include, without
limitation , attorneys" fees, costs and expenses incurred in connection with any
(i) post-judgment motions; (ii) contempt proceedings; (iii) garnishment, levy
and debtor and third party examination; (iv) discovery; and (v) bankruptcy
litigation. Tenant agrees to pay all collection agency fees and attorneys " fees
charged to Landlord in connection with any late payment or non-payment of rent
or any other amounts due under this Lease including, without limitation, a fee
of $75.00 for the preparation of any demand for delinquent rent or any notice to
pay rent or quit.
(d) TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in any gender include
other genders. The paragraph headings of this Lease are not a part of this Lease
and shall have no effect upon the construction or interpretation of any part
hereof.
(e) TIME. Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.
(f) PRIOR AGREEMENT; AMENDMENTS. This Lease constitutes and is intended by the
parties to be a final, complete and exclusive statement of their entire
agreement with respect to the subject matter of this Lease. This Lease
supersedes any and all prior and contemporaneous agreements and understandings
of any kind relating to the subject matter of this Lease. There are no other
agreements, understandings, representations, warranties or statements, either
oral or in written form, concerning the subject matter of this Lease. No
alteration, modification, amendment or
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interpretation of this Lease shall be binding on the parties unless contained in
a writing which is signed by both parties.
(g) SEPARABILITY. The provisions of this Lease shall be considered separable
such that it any provision or part of this Lease is ever held to be invalid,
void or illegal under any law or ruling all remaining provisions of this Lease
shall remain in full force and effect to the maximum extent permitted by law.
(h) RECORDING. Neither Landlord nor Tenant shall record this Lease nor a short
form memorandum thereof without the consent of the other.
(i) COUNTERPARTS. This Lease may be executed in one or more counterparts, each
of which shall constitute an original and all of which shall be one and the same
agreement.
(j) NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees that the terms
of this Lease are confidential and constitute proprietary information of
Landlord. Disclosure of the terms could adversely affect the ability of Landlord
to negotiate other leases and impair Landlords relationship with other tenants.
Accordingly, Tenant agrees that it, and its partners, officers, directors,
employees, agents and attorneys, shall not intentionally and voluntarily
disclose the terms and conditions of this Lease to any newspaper or other
publication or any other Tenant or apparent prospective tenant of the Building
or other portion of the Project, or real estate agent, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees under
this Lease.
(k) NON-DISCRIMINATION. Tenant acknowledges and agrees that there shall be no
discrimination against, or segregation of, any person, group of persons, or
entity on the basis of race, color, creed, religion, age, sex, marital status,
national origin, or ancestry in the leasing, subleasing, transferring,
assignment, occupancy, tenure, use, or enjoyment of the Premises, or any portion
thereof.
39. EXECUTION OF LEASE.
(a) Joint and Several Obligations. If more than one person executes this Lease
as Tenant, their execution of this Lease will constitute their covenant and
agreement that (i) each of them is jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions, provisions
and agreements of this Lease to be kept, observed and performed by Tenant, and
(ii) the term "Tenant" as used in this Lease means and includes each of them
jointly and severally.
The act of or notice from, or notice or refund to, or the signature of any one
or more of them, with respect to the tenancy of this Lease, including, but not
limited to, any renewal, extension, expiration, termination or modification of
this Lease, will be binding upon each and all of the persons executing this
Lease as Tenant with the same force and effect as if each and all of
28
<PAGE>
them had so acted or so given or received such notice or refund or so
signed.
(b) TENANT AS CORPORATION OR PARTNERSHIP. If Tenant executes this Lease as a
corporation or partnership, then Tenant and the persons executing this Lease on
behalf of Tenant represent and warrant that such entity is duly qualified and in
good standing to do business in California and that the individuals executing
this Lease on Tenant's behalf are duly authorized to execute and deliver this
Lease on its behalf, and in the case of a corporation, in accordance with a duly
adopted resolution of the board of directors of Tenant, a copy of which is to be
delivered to Landlord on execution hereof, if requested by Landlord, and in
accordance with the by-laws of Tenant, and, in the case of a partnership, in
accordance with the partnership agreement and the most current amendments
thereto, if any, copies of which are to be delivered to Landlord on execution
hereof, if requested by Landlord, and that this Lease is binding upon Tenant in
accordance with its terms.
(c) EXAMINATION OF LEASE. Submission of this instrument by Landlord to Tenant
for examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed by
their duly authorized representatives as of the date first above written.
TENANT: LANDLORD:
Litronic Industries, Inc., Airport Industrial Complex,
a California Corporation a California Limited Partnership
By: /S/ KRIS SHAH By: /S/ JULIE GROOT
--------------------------- -------------------------
Name: Kris Shah Name: Julie A. Groot
Title: Chief Executive Officer Title: Senior Manager
29
<PAGE>
ADDITIONAL LEASE PROVISIONS
17.(a) UTILITIES AND SERVICES: The electricity for the Premises is currently
in Landlord's name. Tenant agrees to contact Southern California Edison at
(800) 990-7788 within ten (10) days from the date Tenant takes possession of the
Premises and have the bill for electricity put into Tenant's name.
Tenant shall reimburse Landlord for any interim charges actually billed to
Landlord for electricity from the date Tenant takes possession of the Premises
until the date the bill is put into Tenant's name.
In the event Tenant fails to put the bill for electricity in Tenant's name
within ten (10) days from the date Tenant takes possession of the Premises,
Landlord shall have the right to contact Southern California Edison on the
eleventh (11th) day after Tenant takes possession of the Premises and have the
electricity for the Premises turned off.
Tenant hereby acknowledges that Tenant has the absolute responsibility to
contact Southern California Edison and have electrical service put into Tenant's
name. In the event Tenant fails to put the bill for electrical service into
Tenant's name as required hereinabove and Landlord has electrical service turned
off, Tenant understands that there will be no electrical service to the
Premises. In such event, Tenant releases and holds Landlord harmless from any
claims, demands, liabilities, damages, expenses, actions and causes of action
based on, arising out of, or related thereto.
Tenant waives the right to additional notice of any kind from Landlord and/or
Southern California Edison and specifically waives any rights or remedies
provided by Civil Code Section 789.3.
Landlord (initials)
Tenant ________
Tenant ________
30
<PAGE>
ADDITIONAL SECTIONS
40. OPTION TO EXTEND: Provided Tenant has complied with all of the terms and
conditions of the Lease and is still in occupancy of the Premises, Tenant shall
have an option to extend the Least Term for one (1) additional eighteen (18)
month period on the same general terms and conditions then in existence under
the Lease, except that all economic terms of the Lease for the option period
shall be adjusted to the prevailing market terms and conditions for like or
similar space in the project, but in any event, no less than the then-applicable
Monthly Base Rent under the Lease. Tenant shall notify Landlord at least three
(3) months, but no earlier than six (6) months, prior to the end of the Lease
Term if Tenant desires to exercise its option. Tenant's option to extend shall
be personal to Tenant and shall not be assignable.
Landlord (initials)
Tenant (initials
Tenant ________
31
<PAGE>
Exhibit A-1 - THE PROJECT
[MAP OF THE EXACT LOCATION
OF THE LEASED PREMISES IN
THE AIRPORT INDUSTRIAL COMPLEX]
AIRPORT INDUSTRIAL COMPLEX
INITIAL
Landlord (initials)
Tenant _______
KOLL
EXHIBIT A-II - THE PREMISES
[DIAGRAM OF UNITS A-K IN THE AIRPORT
INDUSTRIAL COMPLEX, IRVINE, CALIF.]
(Initials)
LANDLORD
(Initials)
Airport Industrial Complex
BUILDING 24 The cross hatched area represents leased premises.
17895 Sky Park Circle
Irving, CA 92714 KOLL
TOTAL APPROX. 18,000 SQ FT
<PAGE>
EARLY POSSESSION AGREEMENT
Reference is made to that lease dated December 4, 1997 ("Lease") Between Airport
Industrial Complex, a California Limited Partnership , Landlord, and Litronic
Industries, Inc., a California Corporation , Tenant, at 17895 Sky Park Circle,
Suite A, Irvine, CA 92614 Building/Unit 2401/A
Tenant is to be allowed to occupy the premises on December 05, 1997 and rent is
to begin on January 01, 1998 (the "Early Possession Period"). Landlord and
Tenant agree that all the terms and conditions of the Lease are to be in full
force and effect as of the date of Tenant's possession of the premises.
Tenant accepts premises in their present condition. Landlord agrees to complete
all tenant improvements as set forth in the Lease. Tenant understands that his
early occupancy may cause some delay in the construction of the tenant
improvements and that such delay will not be a cause for forgiveness of any rent
due. It is further understood that any improvement of the leased premises by
the Tenant which may result in the delay in construction of tenant improvements
or in the obtaining of a building permit without prior written consent of
Landlord is hereby prohibited.
(initials)
In the event Tenant takes possession of the premises prior to completion of any
construction, Tenant agrees to hold Landlord harmless from any and all claims
for damages to goods, equipment or inconvenience.
Tenant hereby agrees that if Tenant breaches the Lease and/or abandons the
premises before the end of the Lease term, if Tenant's right to possession is
terminated by Landlord because of Tenant's breach of the Lease, Landlord shall,
at its option, (i) void this Early Possession Agreement; and (ii) recover from
Tenant, in addition to any damages due Landlord under the terms and conditions
of the Lease, rent prorated for the duration of the Early Possession Period at a
rental rate equivalent to one and a half (1 1/2) times the monthly rental rate
in effect at the commencement of the Lease.
DATE: December 4, 1997
LANDLORD: Airport Industrial Complex, a California Limited Partnership
By: /S/ JULIE GROOT
33
<PAGE>
Julie A. Groot, Senior Manager
TENANT: Litronic Industries, Inc., a California Corporation
By: /S/ KRIS SHAH
Kris Shah, Chief Executive Officer
34
<PAGE>
ADJUSTMENTS TO
MONTHLY BASE RENT AND OPERATING EXPENSE CHARGE
----------------------------------------------
SCHEDULED BASE RENT ADJUSTMENTS
-------------------------------
EFFECTIVE DATE OF INCREASE MONTHLY BASE RENT
-------------------------- -----------------
October 1, 1998 $1,530.00
--------------- ---------
SCHEDULED MONTHLY OPERATING EXPENSE CHARGE
------------------------------------------
EFFECTIVE DATE OF INCREASE OPERATING EXPENSE CHARGE
-------------------------- ------------------------
(INITIALS)
INITIAL
Landlord (Initials)
------------
Tenant ______________
EXHIBIT "B"
-----------
<PAGE>
DESCRIPTION OF TENANT IMPROVEMENT WORK
--------------------------------------
[To be supplied]
1. WORK TO BE PERFORMED BY LANDLORD Landlord shall complete the following
tenant improvements at Landlord's sole cost:
a. Paint all office walls with building standard paint.
b. Clean carpet.
c. Clean suite.
Tenant may remove walls in two (2) rear offices as shown in Exhibit H,
attached, at Tenant's sole cost which is estimated at $1,207.50 plus the cost to
patch the carpet. Tenant shall not be responsible to re-install the walls after
such removal.
(initials) (initials)
(INITIALS)
INITIAL
Landlord (Initials)
------------
Tenant ______________
EXHIBIT "C"
-----------
<PAGE>
SIGN CRITERIA
-------------
1. Recitals:
--------
Signs and other graphics are an essential element of any community. As such
their location, number, size and design consistency have a significant influence
upon a community's visual environment and a resultant effect upon a viewer's
perception of that community.
In communities where signs have not been property regulated, they have
---
contributed to visual clutter, unpleasant impressions and even confusion. In
many of these instances signs have failed to achieve their original objective:
-----------------------------------------------------
Communication of their intended message.
Under proper regulation, however, signs and other graphics may be designed and
displayed to effectively communicate their message and at the same time be
appropriate to their surroundings. Signs so designed and displayed can
contribute to community identity and help create a community which is
efficiently organized and visually attractive. All new leases and renewals will
contain this exhibit and management will strictly enforce its intent.
2. Criteria:
--------
Tenant shall be allowed only one sign regardless of size of occupancy. No
advertising placards, merchandise, banners, pennants, names, insignia,
trademarks, or other descriptive material shall be affixed or maintained in a
fashion to be displayed to the exterior of the suite or on the glass panes of
the building, landscaped areas, streets or parking areas. No alarm company
stickers larger than 3-1/2" x 2-1/2" will be allowed. Koll standard U.P.S.
signs are available at the leasing office for the asking. No other U.P.S.
signage will be permissible.
3. Signage Layout Submitted to Landlord for Approval:
-------------------------------------------------
A layout of each proposed sign showing copy/logo and color samples must be
submitted to the Landlord for Approval prior to fabrication and installation.
4. Sign Specification/Method of Building Attachment:
------------------------------------------------
The subject premises have an 18" x 48" aluminum receptacle/frame provided by and
at the sole expense of the Landlord for insertion and placement of Tenant
signage. The Tenant's sign/insert shall be constructed at the sole expense of
the Tenant constructed of Opaque Lumisite or second-surface Lumisite coated in
white. If it is necessary to coat the exterior surface to obtain the desired
background color, the entire surface must be coated the same color with no
masking and the coating must have a five (5) to seven (7) year exterior life
expectancy without fading or peeling. All lettering legends and logos are to be
computer-cut two (2) mil. high performance vinyl. Hand painting in not
permitted.
5. Window Lettering:
----------------
<PAGE>
No window lettering is permitted except for the Tenant's business name only
---------------------------
which may be placed in the window immediately adjacent to the main entry door.
Tenants with little or no adjacent glass may place their name on the door. Copy
is to be computer cut two (2) mil. high performance white vinyl in 3" helvetica
medium lettering. Lettering is to be centered between the window frames with a
minimum 1-1/2" border on each side. Lettering is not to be condensed more than
75%. Letter height may be reduced up to 1/2" to stay within the other criteria.
If the business name still cannot be accommodated on one line, then it may be
placed on two (2) lines using a 2-1/2" letter height and 1-3/4" spacing between
lines. The top edge of the top line is to be 69" above the concrete slab. Any
and all other attachments to the glass will be in non-conformance. Subtenant
names, business services or types, and all other attachments to the glass or
glazing, except as described above, shall be considered non-conforming and
subject to removal.
6. Window Tinting:
---------------
No mirrored or colored tinting will be authorized. Before any tinting is
applied to the Tenant's windows, a sample must be submitted to the Landlord for
written approval prior to installation.
7. Landlord's Right to Enforce:
----------------------------
This criteria establishes the uniform policies for all Tenant sign
identification. This criteria has been established for the purpose of
maintaining the over all appearance of the complex and to provide our tenants
with a consistent quality environment from which to conduct business. Any sign,
graphics or other material installed that does not conform to this criteria may
be brought Into conformity by the Landlord without notice. Any cost incurred by
the Landlord to remove nonconforming signs or to correct defacement from
mounting of non-conforming signs shall be the responsibility of Tenant.
(initials)
INITIAL
Landlord (initials)
------------
Tenant ______________
EXHIBIT "D"
-----------
<PAGE>
RULES AND REGULATIONS
---------------------
A. General Rules and Regulations. The following rules and regulations govern the
------------------------------
use of the Building and the Common Areas. Tenant will be bound by such rules
and regulations and agrees to cause Tenant's Authorized Users, its employees,
subtenants, assignees, contractors, suppliers, customers, and invitees to
observe the same.
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, stickers, banners,
advertisement, name or notice may be installed or displayed on any part of the
outside or inside of the Building without the prior written consent of Landlord.
Landlord will have the right to remove, at Tenant's expense and without notice.
any sign installed or displayed in violation of this rule. All approved signs
or lettering on doors and walls are to be printed, painted, affixed or inscribed
at the expense of Tenant and under the direction of Landlord by a person or
company designated or approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection with
any window or door of the Premises, or placed on any windowsill which is visible
from the exterior of the Premises, Tenant will immediately discontinue such use.
Tenant agrees not to place anything against or near glass partitions or doors or
windows which may appear unsightly from outside the Premises, including without
limitation, stickers, tinting materials, foil shades, blinds or screens.
3. Tenant will not obstruct any sidewalks, passages, exits or entrances of the
Project. The sidewalks, passages, exits and entrances are not open to the
general public, but are open, subject to reasonable regulations, to Tenant s
business invitees. Landlord will in all cases retain the right to control and
prevent access thereto of all persons whose presence in the reasonable judgment
of Landlord would be prejudicial to the safety, character, reputation and
interest of the Project and its tenants, provided that nothing herein contained
will be construed to prevent such access to persons with whom any tenant
normally deals in the ordinary course of its business, unless such persons are
engaged in illegal or unlawful activities. No tenant and no employee or invitee
of any tenant will go upon the roof of the Building.
4. Landlord expressly reserves the right to absolutely prohibit solicitation,
canvassing, distribution of handbills or any other written material or goods,
peddling, sales and displays of products goods and wares in all portions of the
Project except for such activities as may be expressly permitted under the
Lease. Landlord reserves the right to restrict and regulate the use of the
Common Areas of the project by invitees of tenants providing services to tenants
on a periodic or daily basis including food and beverage vendors. Such
restrictions may include limitations on time, place, manner and duration of
access to a tenant's premises for such purposes.
5. Landlord reserves the right to prevent access to the Project in case of
invasion, mob, riot, public excitement or other commotion by closing the doors
or by other appropriate action.
<PAGE>
6. Landlord reserves the right to approve companies providing cleaning and
janitorial services for the Premises. Tenant will not cause any unnecessary
labor by carelessness or indifference to the good order and cleanliness of the
Premises.
7. Landlord will furnish Tenant, free of charge, with two keys to each exterior
entry door lock to the Premises. Landlord may make a reasonable charge for any
additional keys. Tenant shall not make or have made additional keys, and Tenant
shall not alter any lock or install any new additional lock or bolt on any door
of the Premises. Tenant, upon the termination of its tenancy, will deliver to
Landlord the keys to all doors which have been furnished to Tenant.
8. If Tenant requires telegraphic, telephonic, burglar alarm, satellite dishes,
antennae or similar services, it will first obtain Landlord's approval, and
comply with Landlord's reasonable rules and requirements applicable to such
services, which may include separate licensing by, and fees paid to, Landlord,
as well as all federal. state and local regulations. Tenant will not transmit
or receive any electromagnetic, microwave or other radiation which may be
harmful or hazardous to any person or property in or about the Premises or
elsewhere within the Project.
9. No deliveries will be made which impede or interfere with other tenants or
the operation of the Building.
10. Tenant will not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant will not
sleep, cook, or wash clothes in the Premises or use or permit to be used in the
Premises any foul or noxious gas or substance, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors, or vibrations intense
glare light or heat nor will Tenant bring into or keep in or about the Premises
any birds or animals.
11. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
Without the written consent of Landlord, Tenant will not use the name of the
Building or the Project in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
12. The toilet rooms, toilets, urinals, wash bowls and other apparatus will not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein. The expense
of any breakage stoppage or damage resulting from any violation of this rule
will be borne by the tenant who, or whose employees or invitees break this rule.
13. Tenant will not sell, or permit the sale at retail of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant will not make any building-to-
building solicitation of business from other tenants in the Project. Tenant
will not use the Premises for any business or activity other than that
specifically provided for in this Lease. Tenant will not conduct, nor permit to
be conducted, either voluntarily or involuntarily, any auction upon the Premises
without first having obtained
<PAGE>
Landlord's prior written consent, which consent landlord may withhold in its
sole and absolute discretion.
14. Except for the ordinary hanging of pictures and wall decorations, Tenant
will not mark, drive nails, screw or drill into the partitions, woodwork or
plaster or in any way deface the premises or any part thereof, except in
accordance with the provisions of the Leases pertaining to alterations. Landlord
reserves the right to direct electricians as to where and how telephone and
telegraph wires are to be introduced to he Premises. Tenant will not cut or
bore holes for wires. Tenant will
EXHIBIT "E"
-----------
<PAGE>
not affix any floor covering to the floor of the Premises in any manner except
as approved by Landlord. Tenant shall repair any damage resulting from
noncompliance with this rule.
15. Landlord reserves the right to exclude or expel from the Project any person
who, in Landlord's judgment, is intoxicated or under the influence of liquor or
drugs or who is in violation of any of the Rules and Regulations of the
Building.
16. Tenant will store all its trash and garbage within its Premises or in other
facelifts provided by Landlord. Tenant will not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
is to be made in accordance with directions issued from time to time by
Landlord.
17. The Premises will not be used for lodging nor shall the Premises be used for
any improper, immoral or objectionable purpose.
18. Tenant agrees to comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
19. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed. Tenant will not leave or store any
equipment, materials or items of any kind outside the walls of the Premises.
20. Tenant shall use at Tenant's cost such pest extermination and control
contractor(s) as Landlord may direct and at such intervals as Landlord may
reasonably require.
21. To the extent Landlord reasonably deems it necessary to exercise exclusive
control over any portions of the Common Areas for the mutual benefit of the
tenants in the Project, Landlord may do so subject to reasonable non-
discriminatory additional rules and regulations.
22. Tenant's requirements will be attended to only upon appropriate application
to Landlord's management office for the Project by an authorized individual of
Tenant. Employees of Landlord will not perform any work or do anything outside
of their regular duties unless under special instructions from Landlord, and no
employee of Landlord will admit any person (Tenant or otherwise) to any office
without specific instructions from Landlord.
23. These Rules and Regulations are in addition to, and will not be construed to
in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of the Lease. Landlord may waive any one or more of
these Rules and Regulations for the benefit of Tenant or any other tenant, but
no such waiver by Landlord will be construed as a waiver of such Rules and
Regulations in favor of Tenant or any other tenant nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all of the
tenants of the Project.
<PAGE>
24. Landlord reserves the right to make such other and reasonable and non-
discriminatory Rules and Regulations as, in its judgment, may from time to time
be needed for safety and security, for care and cleanliness of the Project and
for the preservation of good order therein. Tenant agrees to abide by all such
Rules and Regulations herein above stated and any additional reasonable and non-
discriminatory rules and regulations which are adopted. Tenant is responsible
for the observance of all of the foregoing rules by Tenant's employees, agents,
clients, customers, invitees and guests.
B. Parking Rules and Regulations. The following rules and regulations govern
-----------------------------
the use of the parking facilities which serve the Building. Tenant will be bound
by such rules and regulations and agrees to cause its employees, subtenants,
assignees, contractors, suppliers, customers and invitees to observe the same:
1. Tenant will not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenants employees, subtenants, customers or invitees to
be loaded, unloaded or parked in areas other than those designated by Landlord
for such activities. No vehicles are to be left in the parking areas overnight
and no vehicles are to be parked in the parking areas other than normally sized
passenger automobiles, motorcycles and pick-up trucks. No extended term storage
of vehicles is permitted.
2. Vehicles must be parked entirely within painted stall lines of a single
parking stall.
3. All directional signs and arrows must be observed.
4. The speed limit within all parking areas shall be five (5) miles per hour.
5. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles
or on ramps; (c) where no parking signs are posted; (d) in cross-hatched areas;
and (e) in such other areas as may be designated from time to time by Landlord
or Landlord's parking operator.
6. Landlord reserves the right without cost or liability to Landlord to tow any
vehicle if such vehicle's audio theft alarm system remains engaged for an
unreasonable period of time.
7. Washing waxing cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.
8. Landlord may refuse to permit any person to park in the parking facilities
who violates these rules with unreasonable frequency, and any violation of these
rules shall subject the violator's car to removal, at such car owner's expense.
Tenant agrees to use its best efforts to acquaint its employees, subtenants,
assignees, contractors, suppliers, customers and invitees with these parking
provisions, rules and regulations.
9. Landlord reserves the right, without cost or liability to Landlord, to tow
any vehicles which are used or parked in violation of these rules and
regulations.
<PAGE>
10. Landlord reserves the right from time to time to modify and/or adopt such
other reasonable and non-discriminatory rules and regulations for the parking
facilities as it deems reasonably necessary for the operation of the parking
facilities.
(initials)
INITIAL
Landlord (initials)
------------
Tenant _____________
E-2
<PAGE>
TENANT'S INSURANCE REQUIREMENTS
-------------------------------
This outlines the insurance requirements of your Lease. To assure compliance
with these terms, we suggest you send a copy of this Exhibit to your insurer or
agent. Initial Certificates must be provided to Landlord prior to occupancy of
the Premises, renewals ten (10) days before expiration.
1. Comprehensive or Commercial General Liability Insurance:
$1,000,000 Combined Single Limit, each occurrence
$1,000,000 Aggregate (minimum) this location
$1,000,000 Products/Completed Operations Aggregate
$ 50,000 Fire Legal Liability Limit, per fire
Bodily Injury. Property Damage. Personal Injury and Advertising Injury; Blanket
Contractual Liability - Coverage Indemnity Paragraph 18(b); Products and
Completed Operations Liability; Landlord as an Additional Insured; Severability
of Interest permitting Cross liability among insureds; provision stating that
tenant's insurance is primary and non-contributing with any insurance carried by
Landlord.
2. Tenant's Property Insurance:
All Risks coverage of Property owned by Tenant or for which the Tenant is
legally liable; replacement cost basis, covering no less than 90% of all values.
3. Tenant's Business Interruption Insurance (if requested):
All Risks coverage of operations at leased premises; covering one-years business
interruption due to insured peril.
4. Tenant's Workers Compensation and Employer s Liability Insurance (if
requested):
Statutory Limits and terms required by state of leased premises; $1,000,000
Employer' Liability Limit.
5. Tenant s Automobile Insurance (if requested):
$1,000,000 Combined Limit per accident; covering all owned, non-owned, hired
autos (Symbol 1 - any auto).
All insurance is to be with licensed insurers having a Best's rating of "A 10"
or better and must include the following:
<PAGE>
Waiver of Subrogation in favor of Landlord
Thirty (30) day pre-pre-notice of cancellation/non renewal to Landlord
SEND CERTIFICATE TO:
Airport Industrial complex
- --------------------------
Koll
17755 Sky Park East, Ste 100
- ----------------------------
Irvine,-CA-92714
- ---------- -----
(714) 261-2499
- --------------
PLEASE INCLUDE:
Project No.: 03501
-----
Lease No.
Lease Execution Date: December 4, 1997
----------------
(initials)
INITIAL
Landlord (initials)
----------
Tenant ___________
EXHIBIT "F"
-----------
<PAGE>
EXHIBIT "H"
FLOOR PLAN
----------
KOLL
MANAGEMENT
SERVICES
[DIAGRAM OF INTERIOR LAYOUT OF THE AIRPORT BUSINESS CENTER, IRVINE, CALIF.]
THIS PLAN IS A GRAPHIC REPRESENTATION AND MAY VARY SLIGHTLY
AIRPORT BUSINESS CENTER
- -----------------------
17895 SKYPARK CIRCLE IRVINE, CA
BUILDING 24 SUITE A
1,800 RENTABLE SQUARE FEET
7/25/95
(initials)
INITIAL
Landlord (initials)
----------
Tenant ___________
<PAGE>
EXHIBIT 10.27
DEED OF LEASE AGREEMENT
THIS DEED OF LEASE AGREEMENT (hereinafter referred to as "Lease"), made
this 11th day of August 1998, by and between Massachusetts Mutual Life Insurance
Company, a corporation organized and existing under the laws of Maryland
(hereinafter referred to as the "Landlord") and Pulsar Data Systems, Inc., a
Corporation organized and existing under the laws of Maryland, (hereinafter
referred to as the "Tenant").
WITNESSETH, THAT FOR AND IN CONSIDERATION of the mutual entry into this
Lease by the parties hereto, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged by each party hereto, the
Landlord hereby leases to the Tenant and the Tenant hereby leases from the
Landlord all of that real property, situated and lying in Prince George's
County, Maryland, which consists of the space (containing 12,790 rentable square
feet of floor area) outlined in Exhibit A attached hereto and made a part hereof
(hereinafter referred to as the "Premises") and located in a building
(hereinafter referred to as the "Building") at 4390 Parliament Place, Lanham,
Maryland (the Premises, the remainder of the Building, such tract of land, other
buildings thereon, and any other buildings or improvements to be constructed
thereon being hereinafter referred to collectively as the "Property").
SUBJECT TO THE OPERATION AND EFFECT of any and all instruments and matters
of record or in fact.
UPON THE TERMS AND SUBJECT TO THE CONDITIONS which are hereinafter set
forth:
SECTION 1. TERM.
1.1. LENGTH. This Lease shall be for a term (hereinafter referred to as
the "Term") (a) commencing on the first day after the date on which the Landlord
substantially completes the improvements to be made to the Premises under the
provisions of Section 5 and tenders possession thereof to the Tenant (herein-
after referred to as the "Commencement Date", except that if the date of such
commencement is hereafter advanced or postponed by written agreement of the
parties hereto, the date to which it is advanced or postponed shall thereafter
be the "Commencement Date"), and (b) terminating at 12:01 A.M., local time, on
the fifth (5th) anniversary of the first (1st) day of the first (1st) full
calendar month during the Term (hereinafter referred to as the "Termination
Date", except that if the date of such termination is hereafter advanced or
postponed pursuant to any provision of this Lease, or by written agreement of
the parties hereto, the date to which it is advanced or postponed shall
thereafter be the Termination Date).
1.2. Taking of possession by Tenant shall be deemed conclusively to
establish that said
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buildings and other improvements have been completed in accordance with the
plans and specifications and that the Premises are in good and satisfactory
condition, as of when possession was so taken. Tenant acknowledges that no
representations as to the repair of the Premises have been made by Landlord,
unless such are expressly set forth in this Lease. After such "Commencement
Date" Tenant shall, upon demand, execute and deliver to Landlord a letter of
acceptance of delivery of the Premises. In the event of any dispute as to
substantial completion or work performed or required to be performed by
Landlord, the certificate of Landlord's architect or general contractor shall be
conclusive.
1.3. SURRENDER. The Tenant shall at its expense, at the expiration of the
Term/1// or upon any earlier termination of this Lease, (a) promptly surrender
to the Landlord possession of the Premises (including any fixtures or other
improvements which, under the provisions of Section 5, are owned by the
Landlord) in good order and repair (ordinary wear and tear excepted) and broom
clean, (b) remove therefrom the Tenant's signs, goods and effects and any
machinery, trade fixtures and equipment used in conducting the Tenant's trade or
business and not owned by the Landlord, and (c) repair any damage to the
Premises or the Building caused by such removal.
1.4 HOLDING OVER.
1.4.1. If the Tenant continues to occupy the Premises after the
expiration of the Term or any earlier termination of this Lease after obtaining
the Landlord's express, written consent thereto,
(a) such occupancy shall (unless the parties hereto otherwise
agree in writing) be deemed to be under a month-to-month tenancy, which shall
continue until either party hereto notifies the other in writing, by at least
thirty (30) days before the end of any calendar month, that the notifying party
elects to terminate such tenancy at the end of such calendar month, in which
event such tenancy shall so terminate;
(b) anything contained in the foregoing provisions of this
Section to the contrary notwithstanding, the rental payable for each such
monthly period shall equal one-twelfth (1/12) of the Base Rent and the
Additional Rent payable under the provisions of subsection 2.2 (calculated in
accordance with such provisions of subsection 2.2 as if this Lease had been
renewed for a period of twelve (12) full calendar months after such expiration
or earlier termination of the Term or such renewal); and
(c) such month-to-month tenancy shall be upon the same terms and
subject to the same conditions as those set forth in the provisions of this
Lease; provided, that if the Landlord gives the Tenant, by at least thirty (30)
days before the end of any calendar month during such month-to-month tenancy,
written notice that such terms and conditions (including any thereof relating to
the amount or payment of Rent) shall, after such month, be modified in
___________________
/1// or any extension thereof
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any manner specified in such notice, then such tenancy shall, after such month,
be upon the said terms and subject to the said conditions, as so modified.
1.4.2. If the Tenant continues to occupy the Premises after the
expiration of the Term or any earlier termination of this Lease without
obtaining the Landlord's express, written consent thereto, such occupancy shall
be on the same terms and subject to the same conditions as those set forth in
the provisions of paragraph 1.4.1, except that, anything contained in the
provisions of this Lease to the contrary notwithstanding, (a) the rental payable
during the period of such occupancy shall equal/2// of the rental which would be
payable during such period under the provisions of subparagraph 1.4.1.(b), had
the Tenant obtained the Landlord's express, written consent to such occupancy,
as aforesaid, and (b) nothing in the provisions of paragraph 1.4.1. or any other
provision of this Lease shall be deemed in any way to alter or impair the
Landlord's right immediately to evict the Tenant or exercise its other rights
and remedies under the provisions of this Lease or applicable law on account of
the Tenant's occupancy of the Premises without having obtained such
consent.
SECTION 2. RENT
2.1. AMOUNT. As rent for the Premises (all of which is hereinafter referred
to collectively as "Rent"), the Tenant shall pay to the Landlord in advance,
without demand, deduction or set off, for the entire Term hereof, all of the
following:
2.1.1. Base Rent. An annual rent in the amounts specified in Exhibit
D.
2. 1.2. Additional Rent. Additional rent (hereinafter referred to as
"Additional Rent") in the amount of any payment referred to as such in any
provision of this Lease which accrues while this Lease is in effect.
2. 1.3. Lease Year. As used in the provisions of this Lease, the term
"Lease Year" means (a) the period commencing on the Commencement Date and
terminating on the first (1st) anniversary of the last day of the calendar month
containing the Commencement Date, and (b) each successive period of twelve ( 12)
calendar months thereafter during the Term.
____________________
/2// one hundred fifty percent (150%) for the first three (3) months and two
hundred percent (200%) thereafter
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2.2. ANNUAL OPERATING COSTS/3//
2.2.1. Taxes.
(a) Tenant agrees to pay before they become delinquent all taxes,
assessments and governmental charges of any kind and nature whatsoever
(hereinafter referred to as "Taxes") lawfully levied or assessed against the
Building and the grounds, parking areas, driveways and alleys around the
Building. Tenant shall furnish to Landlord, not later than twenty (20) days
before the date any such Taxes become delinquent, official receipts of the
appropriate taxing authority or other evidence satisfactory to Landlord
evidencing payment thereof. If Tenant should fail to pay any Taxes, assessments
or governmental charges required to be paid by Tenant hereunder, in addition to
any other remedies provided herein, Landlord may, if it so elects, pay such
Taxes, assessments and governmental charges. Any sums so paid by Landlord shall
be deemed to be Additional Rent owing by Tenant to Landlord and due and payable
on demand by Landlord, together with interest thereon at the rate of twelve
percent (12%) per annum from the date paid by Landlord to the date of repayment
by Tenant.
(b) In the event the Premises constitute a portion of a multiple
occupancy building, in lieu of Tenant paying the Taxes as provided above,
Landlord agrees to pay, before they become delinquent, all Taxes lawfully levied
or assessed against such Building and the grounds, parking areas, driveways and
alleys around the Building, and Tenant agrees to pay to Landlord, as Additional
Rent, upon demand, the amount of Tenant's proportionate share of such Taxes paid
by Landlord. Tenant's proportionate share means the percentage assigned to the
Premises for purposes of allocating Taxes as set forth herein and other Annual
Operating Costs as set forth in Subsection 2.2.2 below and represents the
approximate and (for purposes of this Lease) hereby agreed upon proportion which
the floor area of the Premises bears to the aggregate net rentable space within
the Building and the Property and shall be twenty two and 40/100 percent (22.40
%) of the Building and twenty two and 40/00 percent (22.40 % ) of the Property.
2.2.2. Maintenance.
(a) Maintenance by Tenant. Tenant shall, at its own cost and
expense, keep and maintain all parts of the Premises in good condition, promptly
making all necessary repairs and replacements, interior and non-structural,
ordinary and extraordinary, including but not limited to, glass and plate glass,
doors and office entry(s), walls and finish work, floors and floor covering,
heating and air conditioning systems, electrical systems, plumbing work and
fixtures, termite and pest extermination, regular removal of trash and debris.
The cost of maintenance and repair of any common party wall (any wall, divider,
partition or any other structure separating the premises from any adjacent
premises occupied by other tenants) shall be shared equally by
___________________
/3// In no event shall Tenant's annual increase in controllable Annual
Operating Costs (not including, real estate taxes, insurance, utilities and snow
removal) exceed six percent (6%) of the Tenant's previous years costs.
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Tenant and the tenant occupying adjacent premises. Tenant shall not damage any
party wall or disturb the integrity and support provided by any party wall and
shall, at its sole cost and expense, promptly repair any damage or injury to any
party wall caused by Tenant or its employees, agents or invitees.
(b) Maintenance by Landlord. Tenant and its employees, customers and
licensees shall have the non-exclusive right to use the parking areas, if any,
as may be designated by Landlord in writing, subject to such reasonable rules
and regulations as Landlord may from time to time prescribe. Further, in
multiple occupancy buildings, Landlord shall perform the roof, paving, and
landscape maintenance, exterior painting and common sewage line plumbing which
are otherwise Tenant's obligations under Subsection 2.2.2(a) above, and Tenant
shall, in lieu of the obligations set forth under Subsection 2.2.2(a) above with
respect to such items, be liable for its proportionate share (as defined in
Subsection 2.2.1(b) above) of the cost and expense of Building maintenance and
the care for the grounds around the Building, including but not limited to, the
mowing of grass, care of shrubs, general landscaping, maintenance of parking
areas, driveways and alleys, roof maintenance, exterior repainting and common
sewage line plumbing; provided, however, that Landlord shall have the right to
require Tenant to pay such other reasonable proportion of said mowing, shrub
care and general landscaping costs as may be determined by Landlord in its sole
discretion; and further provided that if Tenant or any other particular tenant
of the Building can be clearly identified as being responsible for obstruction
or stoppage of the common sanitary sewage line then Tenant, if Tenant is
responsible, or such other responsible tenant, shall pay the entire cost
thereof, upon demand, as additional rent. Tenant shall pay/4// when due its
share, determined as aforesaid, of such costs and expenses along with the other
tenants of the Building to Landlord upon demand, as Additional Rent, for the
amount of its share of such costs and expenses in the event Landlord elects to
perform or cause to be performed such work. Such share shall include a
management fee equal to five percent (5%) of the Rent for each Lease Year,
administrative and accounting costs, and a/5// reserve for asphalt, roof repairs
and repainting.
(c) Maintenance Contract. Tenant shall, at its own cost and expense,
enter into a regularly scheduled preventative maintenance/service contract with
a maintenance contractor for servicing all heating and air conditioning systems
and equipment within the Premises and shall provide Landlord with copies of all
service reports. The maintenance contractor and contract
________________
/4// within thirty (30) days
/5// reasonable
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<PAGE>
must be approved by Landlord./6// The service contract must include all services
suggested by the equipment manufacturer within the operation/maintenance manual
and must become effective (and a copy thereof delivered to Landlord) within
thirty (30) days of the date Tenant takes possession of the Premises. Each Lease
year Landlord will inspect the HVAC system to determine that the aforementioned
maintenance is being performed. If the HVAC system is not being maintained
pursuant to this Section Landlord will send notice of such lack of maintenance
to Tenant and Tenant shall thereafter have thirty (30) days to perform the
necessary maintenance. Failure by Tenant to complete the necessary maintenance
in such thirty (30) day period shall be a material Event of Default and Landlord
shall have the right to cure such Event of Default pursuant to Section 13.
Should the inspection demonstrate a lack of maintenance of the HVAC system,
Tenant shall pay for the cost of such inspection. Thirty days before Tenant
vacates the Premises, Landlord will have the HVAC equipment inspected by a
qualified HVAC mechanic at Landlord's expense. If in the opinion of the HVAC
mechanic, the equipment has not been properly maintained,/7// then Landlord may
authorize necessary repairs to be made to the system. Such repairs will be
deducted from the Tenant's security deposit. Tenant shall reimburse Landlord for
any and all costs associated with such repairs which exceed the amount of any
security deposit. The remainder of the security deposit, if any, shall be
refunded to Tenant in accordance with the terms of the Lease.
2.2.3. Computation. After the end of each calendar year during the
Term, the Landlord shall compute the total of the Annual Operating Costs
incurred for all of the Property during such calendar year, and shall allocate
them to the net rentable space within the Property in proportion to the
respective operating costs percentages assigned to such spaces; provided, that
anything contained in the foregoing provisions of this subsection 2.2 to the
contrary notwithstanding, wherever the Tenant and/or any other tenant of space
within the Property has agreed in its lease or otherwise to provide any item of
such services partially or entirely at its own expense, or wherever in the
Landlord's judgment any such significant item of expense is not incurred with
respect to or for the benefit of all of the net rentable space within the
Property, in allocating the Annual Operating Costs pursuant to the foregoing
provisions of this subsection the Landlord shall make an appropriate adjustment,
using generally accepted accounting principles, as aforesaid, so as to avoid
allocating to the Tenant or to such other tenant (as the case may be) those
Annual Operating Costs covering such services already being provided by the
Tenant or by such other tenant at its own expense, or to avoid allocating to all
of the net rentable space within the Property those Annual Operating Costs
incurred only with respect to a portion thereof, as aforesaid.
2.2.4. Payment as Additional Rent. The Tenant shall, within fifteen
(15) days after demand therefor by the Landlord (with respect to each calendar
year during the Term), accompanied by a statement setting forth in reasonable
detail the Annual Operating Costs for
____________________
/6// , which approval shall not be unreasonably withheld, conditioned or
delayed
/7// , reasonable wear and tear excepted
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such calendar year, pay to the Landlord as Additional Rent the amount of the
Tenant's operating costs percentage of the Annual Operating Costs for such
calendar year (as derived and allocated under the provisions of paragraph
2.2.3).
2.2.5. Proration. If only part of any calendar year falls within the
Term, the amount computed as Additional Rent for such calendar year under the
foregoing provisions of this subsection shall be prorated in proportion to the
portion of such calendar year falling within the Term (but the expiration of the
Term before the end of a calendar year shall not impair the Tenant's obligation
hereunder to pay such prorated portion of such Additional Rent for that portion
of such calendar year falling within the Term, which shall be paid on demand, as
aforesaid).
2.2.6. Landlord's right to estimate. Anything contained in the
foregoing provisions of this subsection to the contrary notwithstanding, the
Landlord may, at its discretion, (a) make from time to time during the Term a
reasonable estimate of the Additional Rent which may become due under such
provisions for any calendar year, (b) require the Tenant to pay to the Landlord
for each calendar month during such year one twelfth (1/12) of such Additional
Rent, at the time and in the manner that the Tenant is required hereunder to pay
the monthly installment of the Base Rent for such month, and (c) at the
Landlord's reasonable discretion, increase or decrease from time to time during
such calendar year the amount initially so estimated for such calendar year, all
by giving the Tenant written notice thereof, accompanied by a schedule setting
forth in reasonable detail the expenses comprising the Annual Operating Costs,
as so estimated. In such event, the Landlord shall cause the actual amount of
such Additional Rent to be computed and certified to the Tenant within 120 days
after the end of such calendar year, and the Tenant or the Landlord, as the case
may be, shall promptly thereafter pay to the other the amount of any deficiency
or overpayment therein, as the case may be./8//
____________________________
/8// Right to Audit:
(a) Selection of Accountants: If Tenant disputes the amount of an
adjustment or the proposed estimated increase or decrease in Taxes or
Annual Operating Costs, Tenant shall give Landlord written notice of
such dispute within thirty (30) days after Landlord advises Tenant of
such adjustment or proposed increase or decrease. Tenant's failure to
give such notice shall waive its right to dispute the amounts so
determined. Tenant shall also not be entitled to dispute the
foregoing amounts if Tenant is then in default hereunder. If Tenant
is entitled to and timely objects, Tenant shall have the right to
engage its own accountants ("Tenants Accountants") for the purposes
of verifying the accuracy of the statement in dispute, or the
reasonableness of the adjustment or estimated increase or decrease.
If Tenant's Accountants determine that an error has been made,
Landlord and Tenant's Accountants shall endeavor to agree upon the
matter. If they cannot agree within twenty (20) days from the date
Tenant's Accountants commence reviewing Landlord's records, Landlord
and Tenant's Accountants shall jointly
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2.3. WHEN DUE AND PAYABLE.
2.3.1. The Base Rent for any Lease Year shall be due and payable in
twelve (12) consecutive, equal monthly installments, in advance, on the first
(lst) day of each calendar month during such Lease Year; provided, that the
first monthly installment of the Base Rent will be due and payable upon lease
execution.
2.3.2. Any Additional Rent, other than Annual Operating Costs which
are due and payable with each payment of Base Rent, accruing to the Landlord
under any provision
______________________
select an independent certified public accounting firm (the
"Independent Accountant") which firm shall conclusively determine
whether the adjustment or estimated increase or decreases is
reasonable, and if not, what amount is reasonable. Both parties shall
be bound by such determination. If Tenant's Accountants do not
participate in choosing the Independent Accountant within 20 days
from the date Landlord and Tenant's Accountant's determine that they
cannot agree as to whether or not an error has been made, then
Landlord's determination of the adjustment or estimated increase or
decrease shall be conclusively determined to be reasonable and Tenant
shall be bound hereby.
(b) Payment of Costs: All costs incurred by Tenant in obtaining Tenant's
Accountants and the cost of the Independent Accountant shall be paid
by Tenant unless Tenant's Accountants disclose an error, acknowledge
by Landlord (or found to have conclusively occurred by the
Independent Accountant), of more than ten percent (10%) in the
computation of the total amount of Taxes or Annual Operating Costs as
set forth in the statement submitted by Landlord with respect to the
matter in dispute; in which event Landlord shall pay the reasonable
costs incurred by Tenant in obtaining such audits. No subtenant shall
have the right to conduct an audit and no assignee shall conduct an
audit for any period during which such assignee was not in possession
of the Premises.
(c) Continuation of Payments Pending Determination: Tenant shall continue
to timely pay Landlord the amount of the prior year's adjustment and
adjusted Additional Rent determined to be incorrect as aforesaid
until the parties have concurred as to the appropriate adjustment or
have deemed to be bound by the determination of the Independent
Accountant in accordance with the preceding terms. Landlord's delay
in submitting any statement contemplated herein for any Lease Year
shall not affect the provisions of this Paragraph, nor constitute a
waiver of Landlord's rights as set forth herein for said Lease Year
or any subsequent Lease Years during the Lease Term or any extensions
thereof.
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of this Lease shall, except as is otherwise set forth herein, be due
and/9//
2.3.3. Each such payment shall be made promptly when due, without
any deduction or setoff whatsoever, and without demand, failing which the Tenant
shall pay to the Landlord as Additional Rent, a late charge equaling/10// of
the sum of the Base Rent and Additional Rent outstanding.
2.4. WHERE PAYABLE. The Tenant shall pay the Rent, in lawful currency of
the United States of America, to the Landlord by delivering or mailing it
(postage prepaid) to the Landlord's address which is set forth in Section 16, or
to such other address or in such other manner as the Landlord from time to time
specifies by written notice to the Tenant. Any payment made by the Tenant to the
Landlord on account of Rent may be credited by the Landlord to the payment of
any Rent then past due, including late fees, interest and penalties, before
being credited to Rent currently falling due. Any such payment which is less
than the amount of Rent then due shall constitute a payment made on account
thereof, the parties hereto hereby agreeing that the Landlord's acceptance of
such payment (whether or not with or accompanied by an endorsement or statement
that such lesser amount or the Landlord's acceptance thereof constitutes payment
in full of the amount of Rent then due) shall not alter or impair the Landlord's
rights hereunder to be paid all of such amount then due, or in any other
respect.
2.5. TAX ON LEASE. If federal, state or local law now or hereafter imposes
any tax, assessment, levy or other charge (other than any income, inheritance or
estate tax) directly or indirectly upon (a) the Landlord with respect to this
Lease or the value thereof, (b) the Tenant's use or occupancy of the Premises,
(c) the Base Rent, Additional Rent or any other sum payable under this Lease, or
(d) this transaction, then (except if and to the extent that such tax,
assessment, levy or other charge is included in the Annual Operating Costs) the
Tenant shall pay the amount thereof as Additional Rent to the Landlord upon
demand, unless the Tenant is prohibited by law from doing so, in which event the
Landlord may, at its election, terminate this Lease by giving written notice
thereof to the Tenant.
2.6. SECURITY DEPOSIT.
2.6.1. Simultaneously with the entry into this Lease by the parties
hereto, the Tenant shall deposit with the Landlord the sum of twenty-six
thousand two hundred nineteen and 50/100 Dollars ($26,219.50), which shall be
retained by the Landlord as security for the Tenant's payment of the Rent and
performance of all of its other obligations under the provisions of this
___________________
/9// within thirty (30) days after Tenant's receipt of invoice.
/10// twelve percent (12%)
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Lease./11//
2.6.2. On the occurrence of an Event of Default, the Landlord shall
be entitled, at its sole discretion,
(a) to apply any or all of such sum in payment of (i) any
Rent then due and unpaid, (ii) any expense incurred by the Landlord in curing
any such event of default, and/or (iii) any damages incurred by the Landlord by
reason of such event of default (including, by way of example rather than of
limitation, that of reasonable attorneys' fees); and/or
(b) to retain any or all of such sum to reimburse for any or
all damages suffered by the Landlord by reason of event of such default. If at
any time Landlord draws upon the security deposit in accordance with this
section Tenant upon demand agrees to immediately pay to Landlord an amount
sufficient to return the security deposit to the amount stated above.
2.6.3. On the termination of this Lease, any of such sum which is
not so applied or retained shall be returned to the Tenant within/12// of the
Lease termination date.
2.6.4. Such sum shall not bear interest while being held by the
Landlord hereunder.
2.6.5. No Mortgagee (as that term is defined by the provisions of
Section 12) or purchaser of any or all of the Property at any foreclosure
proceeding brought under the provisions of any Mortgage (as that term is defined
by the provisions of Section 12) shall (regardless of whether the Lease is at
the time in question subordinate to the lien of any Mortgage under the
provisions of Section 12 or otherwise) be liable to the Tenant or any other
person for any or all of such sum (or any other or additional security deposit
or other payment made by the Tenant under the provisions of this Lease), unless
both (a) the Landlord has actually delivered it in cash to such Mortgagee or
purchaser, as the case may be, and (b) it has been specifically identified, and
accepted by the Lender or such purchaser, as the case may be, as such and for
such purpose, then Landlord will have no further liability for return of the
security deposit.
SECTION 3. USE OF PREMISES.
3.1 The Tenant shall, continuously throughout the Term occupy and use the
Premises for and only for general office and warehouse purposes.
____________________
/11// Notwithstanding anything contained herein to the contrary provided Tenant
hasn't been in default, Landlord will refund one month of the security deposit
in the amount of eight thousand seven hundred thirty-nine and 83/100 ($8,739.83)
at the end of the first (1st) Lease Year.
/12// thirty (30) days
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3.2 In its use of the Premises and the remainder of the Property, the
Tenant shall not violate any applicable law, ordinance or regulation.
3.3 License.
3.3.1 The Landlord hereby grants to the Tenant a non-exclusive
license to use (and to permit its officers, directors, agents, employees and
invitees to use in the course of conducting business at the Premises),
(a) any and all portions of the said tract of land on which the
Building is located (excluding that portion thereof which is improved by any
other building) which, by their nature, are manifestly designed and intended for
common use by the occupants of the Building and of any other improvements on
such tract, for pedestrian ingress and egress to and from the Premises and for
any other such manifest purposes; and
(b) any and all portions of such tract of land as from time to time
are designated (by striping or otherwise) by the Landlord for such purpose, for
the parking of automobiles.
3.3.2. Such license shall be exercised in common with the exercise
thereof by the Landlord, any tenant or owner of the building or any other
building located on such tract, and their respective officers, directors,
agents, employees and invitees, and in accordance with the Rules and Regulations
promulgated from time to time pursuant to the provisions of Section 11.
3.4 SIGNS. The Tenant shall have the right to erect from time to time
within the Premises such signs as it desires, in accordance with applicable law,
except that the Tenant shall not erect any sign within the Premises in any place
where such sign is visible from the exterior of the Premises, unless the
Landlord has given its express, written consent thereto.
3.5 [DELETED]
SECTION 4. INSURANCE AND INDEMNIFICATION.
4.1 INCREASE IN RISK. The Tenant
4.1.1. shall not do or permit to be done any act or thing as a
result of which either (a) any policy of insurance of any kind covering (i) any
or all of the Property or (ii) any liability of the Landlord in connection
therewith may become void or suspended, or (b) the insurance risk under any such
policy would (in the opinion of the insurer thereunder) be made greater; and
4.1.2. shall pay as Additional Rent the amount of any increase in
any premium for such insurance resulting from any breach of such covenant.
4.2 INSURANCE TO BE MAINTAINED BY TENANT.
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4.2.1. The Tenant shall maintain at its expense, throughout the
Term, insurance against loss or liability in connection with bodily injury,
death, property damage or destruction, occurring within the Premises or arising
out of the use thereof by the Tenant or its agents, employees, officers or
invitees, visitors and guests, under one or more policies of general public
liability insurance having such limits as to each as are reasonably required by
the Landlord from time to time, but in any event of not less than a total of Two
Million Dollars ($2,000,000.00) for bodily injury to or death of all persons or
property damage or destruction in any one occurrence, and (b) Fifty Thousand
Dollars ($50,000.00) Fire Legal Liability. Each such policy shall (a) name as
the insured thereunder the Tenant and the Landlord (and, at the Landlord's
request, any Mortgagee) as additional insureds, (b) by its terms, not be
cancellable without at least thirty (30) days' prior written notice to the
Landlord (and, at the Landlord's request, any such Mortgagee), and (c) be issued
by any insurer of recognized responsibility licensed to issue such policy in the
State of Maryland.
4.2.2. (a) At least five (5) days before the Commencement Date, the
Tenant shall deliver to the Landlord a certificate of each such policy, and (b)
at least thirty (30) days before any such policy expires, the Tenant shall
deliver to the Landlord an original or a signed duplicate copy of a replacement
policy therefor; provided, that so long as such insurance is otherwise in
accordance with the provisions of this Section, the Tenant may carry any such
insurance under a blanket policy covering the Premises for the risks and in the
minimum amounts specified in paragraph 4.2.1, in which event the Tenant shall
deliver to the Landlord two (2) insurer's certificates therefor in lieu of an
original or a copy thereof, as aforesaid.
4.3 INSURANCE TO BE MAINTAINED BY LANDLORD. The Landlord shall maintain
throughout the Term all-risk insurance upon the Building, including as needed
but not limited to Personal Property, Loss of Rents, Glass, Boiler and
Machinery, General Liability and Umbrella Liability in at least such amounts and
having at least such forms of coverage as are required from time to time by the
Landlord's lender. The cost of the premiums for such insurance and of each
endorsement thereto and of any applicable deductibles therefor shall be deemed,
for purposes of the provisions of Section 2, to be a cost of operating and
maintaining the Property.
4.4 WAIVER OF SUBROGATION. If either party hereto is paid any proceeds
under any policy of insurance naming such party as an insured, on account of any
loss, damage or liability, then such party hereby releases the other patty
hereto, to and only to the extent of the amount of such proceeds, from any and
all liability for such loss, damage or liability, notwithstanding that such
loss, damage or liability may arise out of the negligent or intentionally
tortious act or omission of the other party, its agents or employees; provided,
that such release shall be effective only as to a loss, damage or liability
occurring while the appropriate policy of insurance of the releasing party
provides that such release shall not impair the effectiveness of such policy or
the insured's ability to recover thereunder. Each party hereto shall use
reasonable efforts to have a clause to such effect included in its said
policies, and shall promptly notify the other in writing if such clause cannot
be included in any such policy.
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<PAGE>
4.5 LIABILITY OF PARTIES. Except if and to the extent that such party is
released from liability to the other party hereto pursuant to the provision of
subsection 4.4.
4.5.1. the Landlord (a) shall be responsible for, and shall
indemnify and hold harmless the Tenant against and from any and all liability
arising out of, any injury to or death of any person or damage to any property,
occurring anywhere upon the Property, if, only if and to the extent that such
injury, death or damage is proximately caused by the grossly negligent or
intentionally tortious act or omission of the Landlord or its agents, officers
or employees, but (b) shall not be responsible for or be obligated to indemnify
or hold harmless the Tenant against or from any liability for any such injury,
death or damage occurring anywhere upon the Property (including the Premises),
(i) by reason of the Tenant's occupancy or use of the Premises or any other
portion of the Property, or (ii) because of fire, windstorm, act of God or other
cause unless solely caused by such gross negligence or intentionally tortious
act or omission of the Landlord, as aforesaid; and
4.5.2. subject to the operation and effect of the foregoing
provisions of this subsection, the Tenant shall be responsible for, and shall
defend, indemnify and hold harmless the Landlord against and from, any and all
liability or claim of liability (including without limitation reasonable
attorney's fees) arising out of any injury to or death of any person or damage
to any property, occurring within the Premises, or, if caused by Tenant, its
employees, agents or invitees, on the Property.
SECTION 5. IMPROVEMENTS TO PREMISES.
5.1 BY LANDLORD./13//
5.1.1. The Landlord/14// shall make the improvements to the
Premises which are set forth in the plans and specifications attached hereto as
Exhibit B-1.
_____________________
/13// Landlord shall provide a turn key buildout based upon the final approved
space plan dated July 24,1998 and attached hereto in Exhibit B-1. The cost of
any additional improvements or services incurred due to Tenant's modification of
the final approved space plan shall be promptly paid directly by Tenant to
Landlord upon written request by Landlord (to include invoice with back-up), and
failure to pay such sum in accordance with the schedule below shall constitute
an Event of Default under the Lease. Landlord's contractor shall perform all
work to be done within the Premises, with the exception of Tenant's telephone
and data cabling.
In the event the cost of the improvement exceeds the Allowance, Tenant shall
repay such costs in accordance with the following schedule; (a) seventy five
percent (75%) upon requisition of the improvements and (b) twenty five percent
(25%) upon the substantial completion of the improvements.
/14// at its sole cost and expense
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<PAGE>
5.1.2. [Deleted]
5.1.3. the Landlord shall use reasonable efforts to complete such
improvements by the date on which the Tenant is entitled to occupy the Premises
pursuant to this Lease, but shall have no liability to the Tenant hereunder if
prevented from doing so by reason of any (a) strike, lock-out or other labor
troubles, (b) governmental restrictions or limitations, (c) failure or shortage
of electrical power, gas, water, fuel oil, or other utility or service, (d)
riot, war, insurrection or other national or local emergency (e) accident,
flood, fire or other casualty, (f) adverse weather condition, (g) other act of
God, (h) inability to obtain a certificate of occupancy, or (i) shortage of
materials or labor, or (j) other cause similar or dissimilar to any of the
foregoing and beyond the Landlord's reasonable control. In such event, (a) the
Commencement Date shall be postponed for a period equalling the length of such
delay, (b) the Termination Date shall be determined pursuant to the provisions
of subsection 1.1 by reference to the Commencement Date as so postponed, and (c)
the Tenant shall accept possession of the Premises within three (3) days after
such completion. If Tenant does not submit drawings or approvals in a timely
manner and, as a result, the Landlord cannot deliver the Premises timely, the
Lease Commencement Date shall not be postponed.
5.2 BY TENANT. The Tenant shall not make any alteration, addition or
improvement to the Premises without first obtaining the Landlord's written
consent thereto.
If the Landlord consents to any such proposed alteration, addition or
improvement, it shall be made at the Tenant's sole expense (and the Tenant shall
hold the Landlord harmless from any cost incurred on account thereof), and at
such time and in such manner as not unreasonably to interfere with the use and
enjoyment of the remainder of the Property by any tenant thereof or other
person.
5.3 MECHANICS' LIEN. The Tenant shall (a) immediately after it is filed or
claimed, bond or have released any mechanics', materialman's or other lien filed
or claimed against any or all of the Premises, the Property, or any other
property owned or leased by the Landlord, by reason of labor or materials
provided for the Tenant or any of its contractors or subcontractors (other than
labor or materials provided by the Landlord pursuant to the provisions of
subsection 5.1), or otherwise arising out of the Tenant's use or occupancy of
the Premises or any other portion of the Property, and (b) defend, indemnify and
hold harmless the Landlord against and from any and all liability, claim of
liability or expense (including, by way of example rather than of limitation,
that of reasonable attorneys' fees) incurred by the Landlord on account of any
such lien or claim.
5.4 FIXTURES. Any and all improvements, repairs, alterations and all other
property attached to, used in connection with or otherwise installed within the
Premises by the Landlord or the Tenant shall, immediately on the completion of
their installation, become the Landlord's property without payment therefor by
the Landlord, except that any machinery, equipment or fixtures installed by the
Tenant and used in the conduct of the Tenant's trade or business (rather than to
service the Premises or any of the remainder of the Building or the Property
generally)
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<PAGE>
shall remain the Tenant's property.
SECTION 6. UTILITIES AND SERVICES.
6.1 UTILITIES. Landlord agrees to provide at its cost water and electricity
service connections into the Premises and telephone service connections to the
Building, but Tenant shall pay for all water, gas, heat, light, power,
telephone, sewer, sprinkler charges, meter installation charges, and other
utilities and services used on or from the Premises, together with any taxes,
penalties, surcharges or the like pertaining thereto and any maintenance charges
for utilities and shall furnish all electric light bulbs and tubes. If any such
services are not separately metered to Tenant, Tenant shall pay its
proportionate share as determined by Landlord of all charges jointly metered
within the Building.
6.2 INTERRUPTION. The Landlord shall have no liability to the Tenant for
any compensation or reduction of rent on account of any failure, modification or
interruption of any such service which either (a) arises out of any of the
causes enumerated in the provisions of subsection 5.1.3, or (b) is required by
applicable law (including, by way of example rather than of limitation, any
federal law or regulation relating to the furnishing or consumption of energy or
the temperature of buildings).
SECTION 7. LANDLORD'S RIGHT OF ENTRY.
The Landlord and its agents shall be entitled to enter the Premises at any
reasonable time (a) to inspect the Premises, (b) to exhibit the Premises to any
existing or prospective purchaser, tenant/15// or Mortgagee thereof, (c) to make
any alteration, improvement or repair to the Building or the Premises, or (d)
for any other purpose relating to the operation or maintenance of the Property;
provided that the Landlord shall (a) (unless doing so is impractical or
unreasonable because of emergency) give the Tenant at least twenty-four (24)
hours' prior notice of its intention to enter the Premises, and (b) use
reasonable efforts to avoid thereby interfering more than is reasonably
necessary with the Tenant's use and enjoyment thereof.
SECTION 8. FIRE AND OTHER CASUALTIES.
8.1 GENERAL. If the Premises are damaged by fire or other casualty during
the term,
8.1.1. the Landlord shall, with reasonable promptness (taking into
account the time required by the Landlord to effect a settlement with, and to
procure any insurance proceeds from, any insurer against such casualty, but in
any event within/16// days after the date of such casualty), substantially
restore the premises to their condition immediately before such casualty,
_________________________
/15// (if during the last six (6) months of the Term)
/16// one hundred eighty (180)
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<PAGE>
and may temporarily enter and possess any or all of the Premises for such
purpose (provided, that the Landlord shall not be obligated to repair, restore
or replace any fixture, improvement, alteration, furniture, or other property
owned, installed or made by the Tenant), but
8.1.2. the times for commencement and completion of any such
restoration shall be extended for the period of any delay occasioned by the
Landlord in doing so arising out of any of the causes enumerated in the
provisions of subsection 5.1. If the Landlord undertakes to restore the Premises
and such restoration is not accomplished within the said period of/17// days
plus the period of any extension thereof, as aforesaid, the Tenant may terminate
this Lease by giving written notice thereof to the Landlord within thirty (30)
days after the expiration of such period, as so extended; and
8.1.3. so long as the Tenant is deprived of the use of any or all of
the Premises on account of such casualty, the Base Rent and any Additional Rent
payable under the provisions of subsection 2.2 shall be abated in proportion to
the number of square feet of the Premises rendered substantially unfit for
occupancy by such casualty, unless, because of any such damage, the undamaged
portion of the Premises is made materially unsuitable for use by the Tenant for
the purposes set forth in the provisions of Section 3, in which event the Base
Rent and any such Additional Rent shall be abated entirely during such period of
deprivation.
8.2 SUBSTANTIAL DESTRUCTION. Anything contained in the foregoing provisions
of this Section to the contrary notwithstanding,
8.2.1. if during the Term the Building is so damaged by fire or
other casualty that (a) either the Premises or (whether or not the Premises are
damaged) the Building is rendered substantially unfit for occupancy, as
reasonably determined by the Landlord, or (b) the Building is damaged to the
extent that the Landlord reasonably elects to demolish the Building, or if any
Mortgagee requires that any or all of such insurance proceeds be used to retire
any or all of the debt secured by its Mortgage, then in any such case the
Landlord may elect to terminate this Lease, as of the date of such casualty by
giving written notice thereof to the Tenant within thirty (30) days after the
date of such casualty; and
8.2.2. in such event, (a) the Tenant shall pay to the Landlord the
Base Rent and any Additional Rent payable by the Tenant hereunder and accrued
through the date of such termination, (b) the Landlord shall repay to the Tenant
any and all prepaid Rent for periods beyond such termination, and (c) the
Landlord may enter upon and repossess the Premises without further notice.
8.3 TENANT'S NEGLIGENCE. Anything contained in any provision of this Lease
to the contrary notwithstanding, if any such damage to the Premises, the
Building or both are caused by or result from the negligent or intentionally
tortious act or omission of the Tenant, those claiming
_________________________
/17// one hundred eighty (180)
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<PAGE>
under the Tenant or any of their respective officers, employees, agents or
invitees,
8.3.1. the Rent shall not be suspended or apportioned as aforesaid,
and
8.3.2. except if and to the extent that the Tenant is released from
liability therefor pursuant to the provisions of subsection 4.4, the Tenant
shall pay to the Landlord upon demand, as Additional Rent, the cost of (a) any
repairs and restoration made or to be made as a result of such damage, or (b)
(if the Landlord elects not to restore the Building) any damage or loss which
the Landlord incurs as a result of such damage.
SECTION 9. CONDEMNATION.
9.1 RIGHT TO AWARD.
9.1.1. If any or all of the Premises are taken by the exercise of
any power of eminent domain or are conveyed to or at the direction of any
governmental entity under a threat of any such taking (each of which is
hereinafter referred to as a "Condemnation"), the Landlord shall be entitled to
collect from the condemning authority thereunder the entire amount of any award
made in any such proceeding or as consideration for such conveyance, without
deduction therefrom for any leasehold or other estate held by the Tenant under
this Lease.
9.1.2. The Tenant hereby (a) assigns to the Landlord all of the
Tenant's right, title and interest, if any, in and to any such award; (b) waives
any right which it may otherwise have in connection with such Condemnation,
against the Landlord or such condemning authority, to any payment for (i) the
value of the then-unexpired portion of the Term, (ii) leasehold damages, and
(iii) any damage to or diminution of the value of the Tenant's leasehold
interest hereunder or any portion of the Premises not covered by such
Condemnation; and (c) agrees to execute any and all further documents which may
be required to facilitate the Landlord's collection of any and all such
awards.
9.1.3. Subject to the operation and effect of the foregoing
provisions of this Section, the Tenant may seek, in a separate proceeding, a
separate award on account of any damages or costs incurred by the Tenant as a
result of such Condemnation, so long as such separate award in no way diminishes
any award or payment which the Landlord would otherwise receive as a result of
such Condemnation and Tenants right of recovery is limited to moving expenses
and the cost of trade fixtures.
9.2 EFFECT OF CONDEMNATION.
9.2.1. If (a) all of the Premises are covered by a Condemnation, or
(b) any part of the Premises is covered by a Condemnation and the remainder
thereof is insufficient for the reasonable operation therein of the Tenant's
business, or (c) any of the Building is covered by a Condemnation and, in the
Landlord's reasonable opinion, it would be impractical to restore the
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<PAGE>
remainder thereof, or (d) any of the rest of the Property is covered by a
Condemnation and, in the Landlord's reasonable opinion, it would be impractical
to continue to operate the remainder of the Property thereafter, then, in any
such event, the Term shall terminate on the date on which possession of so much
of the Premises, the Building or the rest of the Property, as the case may be,
as is covered by such Condemnation is taken by the condemning authority
thereunder, and all Rent (including, by way of example rather than of
limitation, any Additional Rent payable under the provision of subsection 2.2),
taxes and other charges payable hereunder shall be apportioned and paid to such
date.
9.2.2. If there is a Condemnation and the Term does not terminate
pursuant to the foregoing provision of this subsection, the operation and effect
of this Lease shall be unaffected by such Condemnation, except that the Base
Rent shall be reduced in proportion to the square footage of floor area, if any,
of the Premises covered by such Condemnation.
9.3 If there is a Condemnation, the Landlord shall have no liability to the
Tenant on account of any (a) interruption of the Tenant's business upon the
Premises, (b) diminution in the Tenant's ability to use the Premises, or (c)
other injury or damage sustained by the Tenant as a result of such Condemnation.
9.4 Except for any separate proceeding brought by the Tenant under the
provisions of paragraph 9.1.3., the Landlord shall be entitled to conduct any
such condemnation proceeding and any settlement thereof free of interference
from the Tenant, and the Tenant hereby waives any right which it otherwise has
to participate therein.
SECTION 10. ASSIGNMENT AND SUBLETTING.
10.1 The Tenant hereby acknowledges that the Landlord has entered into this
Lease because of the Tenant's financial strength, goodwill, ability and
expertise and that, accordingly, this Lease is one which is personal to the
Tenant, and agrees for itself and its successors and assigns in interest
hereunder that it will not (a) assign any of its rights under this Lease, or (b)
make or permit any total or partial sale, lease, sublease, assignment,
conveyance, license, mortgage, pledge, encumbrance, or a transfer of a
controlling interest in Tenant, or other transfer of any or all of the Premises
or the occupancy or use thereof (each of which is hereinafter referred to as a
"Transfer"), without first obtaining the Landlord's written consent thereto
(which consent/18// and, if given, shall not constitute a consent to any
subsequent such Transfer, whether
____________________
/18// shall not be unreasonably withheld, conditioned or delayed, so long as
such transferee meets Landlord's reasonable criteria, which criteria are as
follows:
a. The financial strength of the proposed assignee or subtenant, both in
terms of net worth and in terms of reasonably anticipated cash flow
over the Lease term, is not materially less than Tenant's financial
strength at the time this Lease was signed or at the time of such
assignment or sublease, whichever is greater.
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<PAGE>
by the person hereinabove named as the "Tenant" or by any such transferee). The
Landlord shall be entitled, at its sole discretion, to condition any such
consent upon the entry by such person into an agreement with (and in form and
substance satisfactory to) the Landlord, by which it assumes all of the Tenant's
obligations hereunder. Any person to whom any Transfer is attempted without such
consent shall have no claim, right or remedy whatsoever hereunder against the
Landlord, and the Landlord shall have no duty to recognize any person claiming
under or through the same. No such action taken with or without the Landlord's
consent shall in any way relieve or release the Tenant from liability for the
timely performance of all of the Tenant's obligations hereunder. The Tenant
hereby acknowledges that any merger, consolidation or other restructuring of
ownership interests in Tenant constitutes a Transfer hereunder. As additional
rent, Tenant shall reimburse Landlord promptly for reasonable legal and other
expenses incurred by Landlord in connection with any request by Tenant for
consent to assignment or subletting; no assignment or subletting shall affect
the continuing primary liability of Tenant (which, following assignment, shall
be joint and several with the assignee); no consent to any of the foregoing in a
specific instance shall operate as a waiver in any subsequent instance. In the
event that any assignee or subtenant pays to Tenant any amounts in excess of the
Annual Rent and additional rent then payable hereunder, or pro rata portion
thereof on a square footage basis for any portion of the Premises, Tenant shall
promptly pay/19// said excess to Landlord as and when received by Tenant.
10.2 Anything contained in the foregoing provisions of this Section to the
contrary
________________________
b. The proposed assignee or subtenant will not burden the Premises
and/or Common Areas to an extent substantially disproportionate to
typical tenants of the Building, whether through disproportionate
demand for landlord services or utilities, disproportionate bearing
weights on floor areas, disproportionate parking requirements,
deterioration of floors or other elements of the Building, or
otherwise.
c. The proposed assignee or subtenant does not intend to make
substantial alterations to the Premises which would, in Landlord's
reasonable judgement, result in a material net decrease in the value
of the Premises as improved.
d. The proposed assignee's or subtenant's use of the Premises will, in
Landlord's sole judgment, be compatible with the uses of the other
tenants in the Building or will be appropriate for a Class A office
building.
e. Any other basis on which Landlord can reasonably refuse to withhold
its consent to the proposed assignment or sublease, including any
failure of the proposed assignee or subtenant to meet any of the
reasonable criteria of Landlord that Tenant was required to meet
prior to the execution of this Lease.
/19// fifty percent (50%) of
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<PAGE>
notwithstanding, neither the Tenant nor any other person having an interest in
the possession, use or occupancy of the Premises or any other portion of the
Property shall enter into any lease, sublease, license, concession or other
agreement for the possession, use or occupancy of space in the Premises or any
other portion of the Property which provides for any rental or other payment for
such use, occupancy or utilization based in whole or in part upon the net income
or profits derived by any person from the space in the Premises or other portion
of the Property so leased, used or occupied (other than any amount based on a
fixed percentages of receipts or sales).
10.3. /20//In the event of any/21// transfer without Landlord's consent,
Landlord may, at its sole option, have the right at any time or from time to
time or from time after such Transfer to terminate this Lease as to all or any
portion of the Premises and enter into a direct lease agreement with the
proposed sublessee. Neither Tenant nor any party claiming an interest under or
through Tenant shall interfere with Landlord's exercise of its rights hereunder.
Tenant hereby indemnifies and holds Landlord harmless from and against any and
all liabilities, costs, losses or damages, including reasonable attorneys fees
and court costs, arising from any breach of the provisions of this section by
Tenant.
SECTION 11. RULES AND REGULATIONS.
The Landlord shall have the right to prescribe, at its sole discretion,
reasonable rules and regulations (hereinafter referred to as the "Rules and
Regulations") having uniform applicability to all tenants of the Building
(subject to the provisions of their respective leases) and governing their use
and enjoyment of the Building and the remainder of the Property; provided, that
the Rules and Regulations shall not materially interfere with the Tenant's use
and enjoyment of the Premises, in accordance with the provisions of this Lease,
for the purposes enumerated in the provisions of Section 3. The Tenant shall
adhere to the Rules and Regulations and shall cause its agents, employees,
invitees, visitors and guests to do so. A copy of the Rules and Regulations in
effect on the date hereof is attached hereto as Exhibit C.
SECTION 12. SUBORDINATION; ATTORNMENT AND NON-DISTURBANCE.
12.1. SUBORDINATION. This Lease shall be subject and subordinate to the
lien, operation and effect of each mortgage, deed of trust, ground lease and/or
other, similar instrument of encumbrance heretofore or hereafter covering any or
all of the Premises or the remainder of the Property (and each renewal,
modification, consolidation, replacement or extension thereof), (each of which
is herein referred to as a "Mortgage"), all automatically and without the
necessity of any action by either party hereto.
12.2. ATTORNMENT AND NON-DISTURBANCE. The Tenant shall, promptly at the
request of the
______________________
/20// Except for the Transfers to subsidiaries or other affiliates of
Tenant,
/21// other
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<PAGE>
Landlord or the holder of any Mortgage (herein referred to as a "Mortgagee"),
execute, enseal, acknowledge and deliver such further instrument or instruments
12.2.1. evidencing such subordination as the Landlord or such
Mortgagee deems necessary or desirable, and
12.2.2. (at such Mortgagee's request) attorning to such Mortgagee.
Landlord will use reasonable efforts to obtain an agreement from the Mortgagee
(in such Mortgagee's usual form) that such Mortgagee will, in the event of a
foreclosure of any such mortgage or deed of trust (or termination of any such
ground lease) take no action to interfere with the Tenant's rights hereunder,
except on the occurrence of an Event of Default.
12.3. Anything contained in the provisions of this Section to the contrary
notwithstanding, any Mortgagee may at any time subordinate the lien of its
Mortgage to the operation and effect of this Lease without obtaining the
Tenant's consent thereto, by giving the Tenant written notice thereof, in which
event this Lease shall be deemed to be senior to such Mortgage without regard to
their respective dates of execution, delivery and/or recordation among the Land
Records of the said County, and thereafter such Mortgagee shall have the same
rights as to this Lease as it would have had, were this Lease executed and
delivered before the execution of such Mortgage.
SECTION 13. DEFAULT.
13.1. DEFINITION: As used in the provisions of this Lease, each of the
following events shall constitute, and is hereinafter referred to as, an "Event
of Default":
13.1.1. If the Tenant fails to (a) pay any Rent or any other sum
which it is obligated to pay by any provision of this Lease, when and as due and
payable hereunder and without demand therefor, or (b) perform any of its other
obligations under the provisions of this Lease; or
13.1.2. if the Tenant (a) applies for or consents to the
appointment of a receiver, trustee or liquidator of the Tenant or of all or a
substantial part of its assets, (b) files a voluntary petition in bankruptcy or
admits in writing its inability to pay its debts as they come due, (c) makes an
assignment for the benefit of its creditors, (d) files a petition or an answer
seeking a reorganization or an arrangement with creditors, or seeks to take
advantage of any insolvency law, (e) performs any other act of bankruptcy, or
(f) files an answer admitting the material allegations of a petition filed
against the Tenant in any bankruptcy, reorganization or insolvency proceeding;
or
13.1.3. if (a) an order, judgment or decree is entered by any court
of competent jurisdiction adjudicating the Tenant a bankrupt or insolvent,
approving a petition seeking such a reorganization, or appointing a receiver,
trustee or liquidator of the Tenant or of all or a substantial part of its
assets, or (b) there otherwise commences as to the Tenant or any of its assets
any proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment, receivership or similar law, and if such order, judgment, decree
or proceeding continues unstayed for more than sixty (60) consecutive days;
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13.1.4. if the Tenant fails to occupy and assume possession of the
Premises within/22// days after the Commencement Date;
13.1.5. [deleted]
13.1.6./23// [deleted]
13.2. NOTICE TO TENANT; GRACE PERIOD. Anything contained in the provisions
of this Section to the contrary notwithstanding, on the occurrence of an Event
of Default the Landlord shall not exercise any right or remedy which it holds
under any provision of this Lease or applicable law unless and until
13.2.1. the Landlord has given written notice thereof to the Tenant,
if written notice is required by this Section for the Event of Default which has
occurred, and
13.2.2. the Tenant has failed, (a) if such Event of Default consists
of a failure to pay money, within five (5) days/24//, or (b) if such Event of
Default consists of something other than a failure to pay money, within thirty
(30) days thereafter actively, diligently and in good faith to begin to cure
such Event of Default and to continue thereafter to do so until it is fully
cured; provided, that
13.2.3. no such notice shall be required, and the Tenant shall be
entitled to no such grace period, (a) in an emergency situation in which the
Landlord acts to cure such Event of Default pursuant to the provisions of
paragraph 13.3.5; or (b) more than twice during any twelve (12) month period, or
(c) if the Tenant has substantially terminated or is in the process of
substantially terminating its continuous occupancy and use of the Premises for
the purpose set forth in the provisions of Section 3, or (d) in the case of any
Event of Default enumerated in the provisions of paragraphs 13.1.2, 13.1.3,
13.1.4 and 13.1.6.
13.3. LANDLORD'S RIGHTS ON EVENT OF DEFAULT. On the occurrence of any Event
of Default, the Landlord may (subject to the operation and effect of the
provisions of subsection 13.2) take any
_______________________
/22// thirty (30)
/23// In the event Tenant should cease to continue to operate its business at
the Premises for a period of forty-five (45) consecutive days for any reason
other than Tenant's alterations, casualty or other reason beyond Tenant's
reasonable control, Landlord shall have the right at any time thereafter to
terminate the Lease and recapture the Premises upon thirty (30) days prior
written notice to Tenant. Landlord shall also have the option to recapture the
Premises upon thirty (30) days prior written notice to Tenant without
terminating the Lease. In such event, Tenant shall remain liable for the Rent
until such time as Landlord leases the Premises to another party.
/24// after written notice is received; however, Landlord shall only be
obligated to provide written notice to Tenant twice in each Lease Year;
thereafter, no notice shall be due from Landlord to Tenant and Tenant shall be
in default if it fails to pay such amounts when due.
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<PAGE>
or all of the following actions:
13.3.1. re-enter and repossess the Premises and any and all
improvements thereon and additions thereto;
13.3.2. declare the entire balance of the Rent for the remainder of
the Term to be due and payable, and collect such balance in any manner not
inconsistent with applicable law;
13.3.3. terminate this Lease;
13.3.4. relet any or all of the Premises for the Tenant's account
for any or all of the remainder of the Term as hereinabove defined, or for a
period exceeding such remainder, in which event the Tenant shall pay to the
Landlord, at the times and in the manner specified by the provisions of Section
2, the Base Rent and any Additional Rent accruing during such remainder, less
any monies received by the Landlord, with respect to such remainder, from such
reletting, as well as the cost to the Landlord of any/25// attorneys' fees or of
any repairs or other action (including those taken in exercising the Landlord's
rights under any provision of this Lease) taken by the Landlord on account of
such Event of Default;
13.3.5. cure such Event of Default in any other manner (after giving
the Tenant written notice of the Landlord's intention to do so except as
provided in paragraph 13.2.3), in which event the Tenant shall reimburse the
Landlord for all expenses incurred by the Landlord in doing so, plus interest
thereon at the lesser of the rate of/26// per annum or the highest rate then
permitted on account thereof by applicable law, which expenses and interest
shall be Additional Rent and shall be payable by the Tenant immediately on
demand therefor by the Landlord; and/or
13.3.6. pursue any combination of such remedies and/or any other
remedy available to the Landlord on account of such Event of Default under
applicable law.
13.4. NO WAIVER. No action taken by the Landlord under the provisions of
this Section shall operate as a waiver of any right which the Landlord would
otherwise have against the Tenant for the Rent hereby reserved or otherwise, and
the Tenant shall remain responsible to the Landlord for any loss and/or damage
suffered by the Landlord by reason of any Event of Default.
13.5. DEFAULT BY LANDLORD. In the event of any default by Landlord,
Tenant's exclusive remedy shall be an action for actual direct damages (Tenant
hereby waiving the benefit of any laws granting it a lien upon the property of
Landlord and/or upon rent due Landlord), but prior to any such action Tenant
will give Landlord written notice specifying such default with particularity,
and Landlord shall thereupon have thirty (30) days in which to cure any such
default. Unless and until Landlord fails to so cure any default after such
notice, Tenant shall not have any remedy or cause of
______________________
/25// reasonable
/26// twelve percent (12%)
-23-
<PAGE>
action by reason thereof. All obligations of Landlord hereunder will be
construed as covenants, not conditions, and all such obligations will be binding
upon Landlord only during the period of its possession of the Premises and not
thereafter. The term "Landlord" shall mean only the owner, for the time being of
the Premises, and in the event of the transfer by such owner of its interest in
the Premises, such owner shall thereupon be released and discharged from all
covenants and obligations of the Landlord thereafter accruing, but such
covenants and obligations shall be binding during the lease term upon each new
owner for the duration of such owner's ownership. Notwithstanding any other
provision hereof, Landlord shall not have any personal liability hereunder. In
the event of any breach or default by Landlord in any term or provision of this
Lease, Tenant agrees to look solely to the equity or interest then owned by
Landlord in the Property, however, in no event, shall any deficiency judgment or
any money judgment of any kind be sought or obtained against any Landlord.
SECTION 14. ESTOPPEL CERTIFICATE.
The Tenant shall from time to time, within five (5) days after being
requested to do so by the Landlord or any Mortgagee, execute, enseal,
acknowledge and deliver to the Landlord (or, at the Landlord's request, to any
existing or prospective purchaser, transferee, assignee or Mortgagee of any or
all of the Premises, the Property, any interest therein or any of the Landlord's
rights under this Lease) an instrument in recordable form,
14.1. certifying (a) that this Lease is unmodified and in full force and
effect (or, if there has been any modification thereof, that it is in full force
and effect as so modified, stating therein the nature of such modification); (b)
as to the dates to which the Base Rent and any Additional Rent and other charges
arising hereunder have been paid; (c) as to the amount of any prepaid Rent or
any credit due to the Tenant hereunder; (d) that the Tenant has accepted
possession of the Premises, and the date on which the Term commenced; (e) as to
whether, to the best knowledge, information and belief of the signer of such
certificate, the Landlord or the Tenant is then in default in performing any of
its obligations hereunder (and, if so, specifying the nature of each such
default); and (f) as to any other fact or condition reasonably requested by the
Landlord or such other addressee; and
14.2. acknowledging and agreeing that any statement contained in such
certificate may be relied upon by the Landlord and any such other addressee.
14.3 In the event that Tenant fails to deliver in a timely manner the
estoppel certificate described in Section 14, Landlord may complete such a
certificate on behalf of Tenant, which certificate shall be binding against
Tenant as if Tenant itself signed such certificate. For such purpose, Tenant
hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-
fact (which appointment shall be deemed coupled with an interest) for and in its
name to prepare and sign on Tenant's behalf such an estoppel certificate, Tenant
hereby ratifying and confirming all the said attorney shall lawfully do or
choose to do or be done by virture hereof, it being understood and agreed that
the aforesaid provisions impose no burden or obligation on the Landlord to do or
perform any act whatsoever. After said estoppel certificate has been prepared by
Landlord, Landlord shall provide Tenant a copy thereof. Unless Tenant modifies
such certificate as may be appropriate to make the certificate fully accurate,
and signs and returns to Landlord the certificate within three
-24-
<PAGE>
(3) days after receipt from Landlord, Landlord shall be entitled and authorized
to sign such estoppel certificate and deliver to any Mortgagee or other person
such estoppel certificate in the name and on behalf of Tenant.
SECTION 15. QUIET ENJOYMENT.
The Landlord hereby covenants that the Tenant, on paying the Rent and
performing the covenants set forth herein, shall peaceably and quietly hold and
enjoy, throughout the Term, (a) the Premises, and (b) such rights as the Tenant
may hold hereunder with respect to the remainder of the Property.
SECTION 16. NOTICES.
Any notice, demand, consent, approval, request or other communication or
document to be provided hereunder to a party hereto shall be (a) given in
writing, and (b) deemed to have been given (i) forty-eight (48) hours after
being sent as certified or registered mail in the United States mails, postage
prepaid, return receipt requested, upon its hand delivery to such party,
addressed as follows:
IF TO LANDLORD: Cornerstone Real Estate Advisers, Inc.
c/o Cambridge Asset Advisors Limited Partnership
560 Herndon Parkway, Suite 210
Herndon, Virginia 20170
IF TO TENANT: Pulsar Data Systems, Inc.
4390 Parliament Place, Suite R
Lanham, Maryland 20720
Each party may change its notice address by giving written notice of such
change to the other party in accordance with the terms of this Section 16.
SECTION 17. LANDLORD'S LIEN./27//
[Deleted]
SECTION 18. GENERAL.
18.1. EFFECTIVENESS. This Lease shall become effective upon and only upon
its execution by
_______________________
/27// Notwithstanding anything contained herein to the contrary, Landlord
agrees to forgive its lien on any furniture, fixture or equipment located in the
Premises, but does not waive any of its rights and or remedies granted under the
Uniform Commercial Code or any statutory lien for Rent in Landlord's favor.
-25-
<PAGE>
each party hereto./28//
18.2. COMPLETE UNDERSTANDING. This Lease represents the complete
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior written or oral negotiations, representations, warranties,
statements or agreements between the parties hereto as to the same.
18.3. AMENDMENT. This Lease may be amended by and only by an instrument
executed and delivered by each party hereto.
18.4. APPLICABLE LAW. This Lease shall be given effect and construed by
application of the laws of Maryland, and any action or proceeding arising
hereunder shall be brought in the Circuit Court for Prince Georges County,
Maryland, provided, that if such action or proceeding arises under the
Constitution, laws or treaties of the United States of America, or if there is a
diversity of citizenship between the parties thereto so that it is to be brought
in a United States District Court, it shall be brought in the United States
District Court for the appropriate District in Maryland.
18.5. WAIVER. The Landlord shall not be deemed to have waived the exercise
of any right which it holds hereunder unless such waiver is made expressly and
in writing (and no delay or omission by the Landlord in exercising any such
right shall be deemed to be a waiver of its future exercise). No such waiver as
to any instance involving the exercise of any such right shall be deemed a
waiver as to any other such instance, or any other such right.
18.6. TIME OF ESSENCE. Time shall be of the essence of this Lease.
18.7. HEADINGS. The headings of the Sections, subsections, paragraphs and
subparagraphs hereof are provided herein for and only for convenience of
reference, and shall not be considered in construing their contents.
18.8. CONSTRUCTION. As used herein,
18.8.1. the term "person" means a natural person, a trustee, a
corporation, a partnership and any other form of legal entity; and
18.8.2. all references made (a) in the neuter, masculine or
feminine gender shall be deemed to have been made in all such genders, (b) in
the singular or plural number shall be deemed to have been made, respectively,
in the plural or singular number as well, and (c) to any Section, subsection,
paragraph or subparagraph shall, unless therein expressly indicated to the
contrary, be deemed to have been made to such Section, subsection, paragraph or
subparagraph of this Lease.
18.9. EXHIBITS. Each writing referred to herein as being attached hereto as
an exhibit or otherwise designated herein as an exhibit hereto is hereby made a
part hereof.
_______________________
/28// and delivery by Landlord to Tenant
-26-
<PAGE>
18.10. SEVERABILITY. No determination by any court, governmental body or
otherwise that any provision of this Lease or any amendment hereof is invalid or
unenforceable in any instance shall affect the validity or enforceability of (a)
any other such provision, or (b) such provision in any circumstance not
controlled by such determination. Each such provision shall be valid and
enforceable to the fullest extent allowed by, and shall be construed wherever
possible as being consistent with, applicable law.
18.11. DEFINITION OF THE "LANDLORD".
18.11.1. As used herein, the term the "Landlord" means the person
hereinabove named as such, and its heirs, personal representatives, successors
and assigns (each of whom shall have the same rights, remedies, powers,
authorities and privileges as it would have had, had it originally signed this
lease as the Landlord).
18.11.2. No person holding the Landlord's interest hereunder
(whether or not such person is named as the "Landlord" herein) shall have any
liability hereunder after such person ceases to hold such interest, except for
any such liability accruing while such person holds such interest.
18.11.3. Neither the Landlord nor any principal of the Landlord,
whether disclosed or undisclosed, shall have any personal liability under any
provision of this Lease.
18.12. DEFINITION OF THE "TENANT". As used herein, the term the "Tenant"
means each person hereinabove named as such and such person's heirs, personal
representatives, successors and assigns, each of whom shall have the same
obligations, liabilities, rights and privileges as it would have possessed had
it originally executed this Lease as the Tenant; provided, that no such right or
privilege shall inure to the benefit of any assignee of the Tenant, immediate or
remote, unless the assignment to such assignee is made in accordance with the
provisions of Section 10. Whenever two or more persons constitute the Tenant,
all such persons shall be jointly and severally liable for performing the
Tenant's obligations hereunder.
18.13. COMMISSIONS. Each party hereto hereby represents and warrants to the
other that, in connection with the leasing of the Premises hereunder, the party
so representing and warranting has not dealt with any real estate broker, agent
or finder, other than Scheer Partners as Tenant's Agent and Cambridge Property
Group Limited Partnership as Landlords Agent and there is no other commission,
charge or other compensation due on account thereof Each party hereto shall
indemnify and hold harmless the other against and from any inaccuracy in such
party's representation.
18.14. RECORDATION. This Lease may not be recorded among the Land Records
of the said County or among any other public records, without the Landlord's
prior express, written consent thereto, and any attempt by the Tenant to do so
without having obtained the Landlord's consent thereto shall constitute an Event
of Default hereunder. If this Lease is recorded by either party hereto, such
party shall bear the full expense of any transfer, documentary stamp or other
tax, and any recording fee, assessed in connection with such recordation;
provided, that if under applicable law the recordation of this Lease hereafter
becomes necessary in order for this Lease to be or remain
-27-
<PAGE>
effective, the Tenant shall bear the full expense of any and all such taxes and
fees incurred in connection therewith.
18.15. APPROVAL BY MORTGAGEES. Anything contained in the provisions of this
Lease to the contrary notwithstanding, the Landlord shall be entitled at any
time hereafter but before the Landlord delivers possession of the Premises to
the Tenant hereunder, to terminate this Lease by giving written notice thereof
to the Tenant, if any Mortgagee fails to approve this Lease for purposes of the
provisions of its Mortgage, and in the manner set forth therein.
18.16 WAIVER OF TRIAL BY JURY. The Tenant hereby waives trial by jury in
any action or proceeding to which the Tenant and the Landlord may be parties,
arising out of or in any way pertaining to (a) this Lease, or (b) the Property.
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 Lease.
This waiver is knowingly, willingly and voluntarily made by the Tenant, and
the Tenant 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 Tenant further represents that it has been
represented in the signing of this Lease and in the 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.
18.17. FINANCIAL INFORMATION.
18.18. AUTHORITY.
By signing below, the undersigned individuals represent and warrant that
they have all requisite authority to sign this Lease Agreement and to bind the
entity on behalf of which they sign this Lease.
IN WITNESS WHEREOF, each party hereto has executed and ensealed this Lease
or caused it to be executed and ensealed on its behalf by its duly authorized
representatives, the day and year first above written.
WITNESS: LANDLORD: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
/s/ By: /S/ ROBERT R. VILLENEUVE
- ---------------------- ------------------------------------
Mr. Robert R. Villeneuve
Vice President
Date: 8/11/98
----------------------------------
-28-
<PAGE>
WITNESS: TENANT: PULSAR DATA SYSTEMS, INC.
/s/ By: /S/ DARYL B. DAVIS
- ----------------------- ------------------------------------
Name: Daryl B. Davis
----------------------------------
Title: V. P. Ops.
---------------------------------
Date: 8/10/98
----------------------------------
-29-
<PAGE>
AGREEMENT OF LEASE
by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT A
PREMISES
The Premises consists of approximately 12,790 rentable square feet in 4390
Parliament Place, a 57,089 square foot, office/flex project located at 4390
Parliament Place, Lanham, Prince George's County, Maryland; to be located in the
approximate location shown on the plan attached hereto as Exhibit A-1.
-30-
<PAGE>
AGREEMENT OF LEASE
by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT A-1
SITE PLAN
[DIAGRAM OF BUILDING
WITH A PARKING LOT AND
WOODED PICNIC AREA]
-31-
<PAGE>
AGREEMENT OF LEASE
by and between
Massachusetts Mutual Life Insurance Company
and
Pulsar Data Systems, Inc.
EXHIBIT B
TENANT IMPROVEMENTS
[DELETED]
-32-
<PAGE>
AGREEMENT OF LEASE
by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT B-1
SPACE PLAN
-33-
<PAGE>
AGREEMENT OF LEASE
by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT C
CURRENT RULES AND REGULATIONS
1. The sidewalks, lobbies, passages, elevators and stairways shall not be
obstructed by the Tenant and used by the Tenant for any purposes other than
ingress and egress from and to the Tenant's offices. The Landlord shall in
all cases retain the right to control or prevent access thereto by any
person whose presence, in the Landlord's judgment, would be prejudicial to
the safety, peace, character or reputation of the Building or of any tenant
of the Property.
2. The toilet rooms, water closets, sinks, faucets, plumbing and other service
apparatus of any kind shall not be used by the Tenant for any purpose other
than those for which they were installed, and no sweepings, rubbish, rags,
ashes, chemicals or other refuse or injurious substances shall be placed
therein or used in connection therewith by the Tenant, or left by the
Tenant in the lobbies, passages, elevators or stairways of the Building.
3. No skylight, window, door or transom of the Building shall be covered or
obstructed by the Tenant, and no window shade, blind, curtain, screen,
storm window, awning or other material shall be installed or placed on any
window or in any window space, except as approved in writing by the
Landlord. If the Landlord has installed or hereafter installs any shade,
blind or curtain in the Premises, the Tenant shall not remove it without
first obtaining the Landlord's written consent thereto.
4. No sign, lettering, insignia, advertisement, notice or other thing shall be
inscribed, painted, installed, erected or placed in any portion of the
Premises which may be seen from outside the Building, or on any window,
window space or other part of the exterior or interior of the Building,
unless first approved in writing by the Landlord. Names on suite entrances
shall be provided by and only by the Landlord and at the Tenant's expense,
using in each instance lettering of a design and in a form consistent with
the other lettering in the Building, and first approved in writing by the
Landlord. The Tenant shall/will not erect any stand, booth or showcase or
other article or matter in or upon the Premises and/or the Building without
first obtaining the Landlord's written consent thereto.
5. The Tenant shall not place any additional lock or security devices upon any
door within the
-34-
<PAGE>
EXHIBIT C
CURRENT RULES AND REGULATIONS (CONTINUED)
Premises or elsewhere upon the Property without Landlord's consent, and
shall surrender all keys for all such locks at the end of the Term. The
Landlord shall provide the Tenant with one set of keys to the Premises when
the Tenant assumes possession thereof
6. The delivery of towels, ice, water, food, beverages, newspaper and other
supplies, equipment and furniture will be permitted only under the
Landlord's direction and control.
7. The Tenant shall not do or permit to be done anything which obstructs or
interferes with the rights of any other tenant of the Property. The Tenant
shall not keep anywhere within the Property any matter having an offensive
odor, or any kerosene, gasoline, benzine, camphene, fuel or other explosive
or highly flammable material. No bird, fish or other animal shall be
brought into or kept in or about the Premises.
8. The Tenant shall keep the Premises in a good state of preservation and
cleanliness while in possession of the Premises.
9. If the Tenant desires to install signalling, telegraphic, telephonic,
protective alarm or other wires, apparatus or devices within the Premises,
the Landlord shall direct where and how they are to be installed and,
except as so directed, no installation, boring or cutting shall be
permitted. The Landlord shall have the right (a) to prevent or interrupt
the transmission of excessive, dangerous or annoying current of electricity
or otherwise into or through the Building or the Premises, (b) to require
the changing of wiring connections or layout at the Tenant's expense, to
the extent that the Landlord may deem necessary, (c) to require compliance
with such reasonable rules as the Landlord may establish relating thereto,
and (d) in the event of noncompliance with such requirements or rules,
immediately to cut wiring or do whatever else it considers necessary to
remove the danger, annoyance or electrical interference with apparatus in
any part of the Building. Each wire installed by the Tenant must be
clearly tagged at each distributing board and junction box and elsewhere
where required by Landlord, with the number of the office to which such
wire leads and the purpose for which it is used, together with the name of
the tenant or other concern, if any, operating or using it.
10. No furniture, package, equipment, supplies or merchandise may be received
in the Building, or carried up or down in the elevators or stairways,
except during such hours as are designated for such purpose by the
Landlord, and only after Tenant gives notice thereof to the Landlord. The
Landlord shall have the exclusive right to prescribe the method and manner
in which any of the same is brought into or taken out of the Building, and
the right to exclude from the Building any heavy furniture, safe or other
article which may create a hazard and to require it to be located at a
designated place in the Premises. The Tenant shall not place any weight
anywhere beyond the safe carrying capacity of the Building. The cost of
repairing any damage to the Building or any other part of the Property
caused by taking any of the same in or out of the Premises, or any damage
caused while it is in the Premises or the
-35-
<PAGE>
EXHIBIT C
CURRENT RULES AND REGULATIONS (CONTINUED)
rest of the Building, shall be borne by the Tenant.
11. Without the Landlord's prior written consent, (a) nothing shall be fastened
to (and no hole shall be drilled, or nail or screw driven into) any wall or
partition, (b) no wall, or partition shall be painted, papered or otherwise
covered or moved in any way or marked or broken, (c) no connection shall be
made to any electrical wire for running any fan, motor or other apparatus,
device or equipment, (d) no machinery of any kind other than customary
small business machinery shall be allowed in the Premises, (e) no
switchboard or telephone wiring or equipment shall be placed anywhere other
than where designated by the Landlord, and (f) no mechanic shall be allowed
to work in or about the Building other than one employed by the Landlord,
unless approved in writing by Landlord.
12. The Tenant shall have access to the Premises at all reasonable times. The
Landlord shall in no event be responsible for admitting or excluding any
person from the Premises. In case of invasion, hostile attack,
insurrection, mob violence, riot, public excitement or other commotion,
explosion, fire or any casualty, the Landlord shall have the right to bar
or limit access to the Building to protect the safety of occupants of the
Property, or any property within the Property.
13. The Landlord shall have the right to rescind, suspend or modify the Rules
and Regulations and to promulgate such other Rules or Regulations as, in
the Landlord's reasonable judgment, are from time to time needed for the
safety, care, maintenance, operation and cleanliness of the Building, or
for the preservation of good order therein. Upon the Tenant's having been
given notice of the taking of any such action, the Rules and Regulations as
so rescinded, suspended, modified or promulgated shall have the same force
and effect as if in effect at the time at which the Tenant's lease was
entered into (except that nothing in the Rules and Regulations shall be
deemed in any way to alter or impair any provision of such lease).
14. The use of any room within the Building as sleeping quarters is strictly
prohibited at all times.
15. The Tenant shall keep the windows and doors of the Premises (including
those opening on corridors and all doors between rooms entitled to receive
heating or air conditioning service and rooms not entitled to receive such
service), closed while the heating or air conditioning system is operating,
in order to minimize the energy used by, and to conserve the effectiveness
of, such systems. The Tenant shall comply with all reasonable Rules and
Regulations from time to time promulgated by the Landlord with respect to
such systems or their use.
16. Nothing in these Rules and Regulations shall give any Tenant any right or
claim against the Landlord or any other person if the Landlord does not
enforce any of them against any other
-36-
<PAGE>
EXHIBIT C
CURRENT RULES AND REGULATIONS (CONTINUED)
tenant or person (whether or not the Landlord has the right to enforce them
against such tenant or person), and no such nonenforcement with respect to
any tenant shall constitute a waiver of the right to enforce them as to the
Tenant or any other tenant or person.
-37-
<PAGE>
AGREEMENT OF LEASE
by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT D
BASE RENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RENTAL SQUARE ANNUAL MONTHLY
LEASE YEAR RATE FEET BASE RENT BASE RENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $8.20 12,790 $104,878.00 $8,739.83
- --------------------------------------------------------------------------------
2 $8.45 12,790 $108,024.34 $9,002.03
- --------------------------------------------------------------------------------
3 $8.70 12,790 $111,265.07 $9,272.09
- --------------------------------------------------------------------------------
4 $8.96 12,790 $114,603.02 $9,550.25
- --------------------------------------------------------------------------------
5 $9.23 12,790 $118,041.11 $9,836.76
- --------------------------------------------------------------------------------
</TABLE>
-38-
<PAGE>
AGREEMENT OF LEASE
by and between
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
and
PULSAR DATA SYSTEMS, INC.
EXHIBIT E
LEASE ADDENDUMS
1. Option to Terminate: Provided Tenant is not then in default under the terms
of this Lease, Tenant shall have the one-time right to terminate this Lease as
of the end of the thirty-sixth (36th) month of the Lease Term. Tenant must
provide Landlord at least one hundred eighty (180) days prior written notice
(i.e. 180 days prior to the end of the 36th month of the Lease Term) of its
election to exercise this option to terminate. If Tenant fails to provide
Landlord with such written notice on or before such one hundred eighty (180) day
period, Tenant's option to terminate shall become null and void and Tenant shall
have no further option(s) to terminate. In connection with said termination and
as liquidated damages to compensate Landlord for the damage it will incur in
connection with an early termination, Tenant shall pay a fee to Landlord equal
to all unamortized tenant improvement costs and leasing commissions amortized
over sixty (60) months at a per annum rate of ten percent (10%) per annum plus
three (3) months Base Rent at the then current rates. The parties acknowledge
that it would be difficult to calculate Landlord's damages in the event of an
early termination and that the above sum is a reasonable estimate of such
damages. Tenant shall pay such sum at the time of its giving the foregoing
notice or such notice shall be null and void and Tenant's option to terminate
shall thereupon be null and void. In addition, the parties shall execute a
termination agreement in connection with such early termination.
2. Right of First Offer: As long as Tenant has not been in default during the
Term of the Lease and is not in default under the Lease at the time of its
exercise of this right, and so long as this right is exercised in connection
with an expansion of Tenant's Premises and for no other purpose, and subject to
the prior rights of any other tenant in the Building, Landlord hereby grants to
Tenant a one-time right of first offer on the terms and conditions contained in
this paragraph to lease the 6,717 square feet in Suite P when it becomes
available and is not subject to the rights of any other tenant (the "Offer
Space"). The rent for such Space shall be the same rate Tenant is then paying
for the Premises, as escalated. Such lease shall be coterminous with the lease
for the existing Premises and if such Term is then less than three (3) Lease
Years, the Term for the existing Premises and the Offer Space shall be extended
so that it will expire at least three (3) Lease Years from the commencement date
of Tenant's lease of the Offer Space. Landlord shall also provide Tenant with a
tenant improvement allowance in the amount equal to the proportionate amount
with respect to the Lease Term remaining for improvements to the Offer Space. In
the event the Offer Space becomes available for lease during the Term, Landlord
shall give notice thereof to Tenant which notice shall
-39-
<PAGE>
contain the foregoing terms to lease the Offer Space. Within five (5) business
days of such notice, time being of the essence, Tenant shall give Landlord
notice that it either does or does not wish to lease the Offer Space or if
Tenant fails to give Landlord notice of its desires respecting the Offer Space
within the foregoing required five (5) business day period, then Landlord shall
be entitled to proceed to market and/or lease the Offer Space to a third party
free and clear of Tenant's right to first offer and such right shall be deemed
terminated in all respects and Tenant shall have no further rights of first
offer.
In the event Tenant gives Landlord a notice as required in the preceding
paragraph that it wishes to lease the Offer Space, then Landlord and Tenant
shall have twenty (20) days from the date of the notice within which to amend
this Lease by adding the Offer Space on the terms and conditions contained in
Landlord's notice. In the event Landlord and Tenant fail to sign such amendment
to this Lease, using good faith efforts, within said twenty (20) day period,
time being of the essence, then Landlord shall be entitled to proceed to market
and/or lease the Offer Space to a third party free and clear of such right and
such right shall be deemed terminated in all respects. Once Landlord has made
the offer to Tenant to lease any Offer Space during the Term, whether or not
Tenant leases such space, this right of first offer shall automatically
terminate in all respects and Tenant shall have no further rights of first offer
with respect to any other Offer Space.
3. Parking: Tenant shall have the right to use up to forty (40) parking spaces
on the surface lot adjacent to the Building. As the Tenant occupies additional
space in the Building, Tenant shall have the right to park additional
automobiles on the building lot based on the same ratio and terms as under the
initial lease agreement.
4. Signage: Landlord, at Landlord's sole cost and expense, shall install
Tenant's name on Tenant's entrance to the Premises. Landlord at Landlord's sole
cost and expense, shall have the right to install a building standard sign
bearing the Tenant name and logo on the facade of the Building facing Martin
Luther King, Jr. Highway. The exact location, design and method of installation
of the sign shall be approved by the Landlord and completed in accordance with
all necessary jurisdictional regulations.
H:\EDDIE\PULSAR.LSE
5. Designation of Agent. Landlord's resident agent for the purpose of service
of process, notice, order, or demand required or permitted by law to be served
upon Landlord and the agent's office address is R. Harvey Chappell, Jr., 1200
Mutual Building, Richmond, Virginia 23219.
(initials)
(initials)
(initials)
-40-
<PAGE>
DALLAS SEMICONDUCTOR
STANDARD CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is entered into this 2nd day of
February, 1999, by and between Litronic Corporation, a California corporation
having its principal place of business located at 2030 Main Street, Suite 1250,
Irvine, California 92614 ("Consultant"), and Dallas Semiconductor Corporation, a
Delaware corporation having its principal place of business at 4401 South
Beltwood Parkway, Dallas, Texas 75244-3292 ("Dallas").
1. Statement of Work
a. A statement of work describing the consulting services to be provided
by Consultant is attached hereto as Appendix A. The parties may agree to and
execute supplemental statements of work to describe additional consulting
services, each of which upon execution shall be deemed a part of this Agreement
(collectively with Appendix A, "Statements of Work"). Supplemental Statements of
Work shall be substantially in the form of Appendix B hereto. The consulting
services described in the Statement of Work in Appendix A, supplemental
Statements of Work executed by the parties, and any other consulting services
provided by Consultant to Dallas (the "Services") shall be governed by the terms
and conditions of this Agreement.
b. Each Statement of Work may contain such additional terms and conditions
as may be mutually agreed to by the parties, except that in the event of
conflict between the terms of the Statement of Work and the terms of this
Agreement, this Agreement shall govern and control.
2. Payment for Services
a. Fees, Price Protection. Dallas agrees to pay Consultant for the
Services in accordance with the Fee Schedule set forth in the Statement of Work.
The fees specified in the Statement of Work are the total fees and charges for
the Services and may not be increased during the term of this Agreement except
as the parties may agree in writing. Consultant represents that the price
stated for the Services performed hereunder is at least as favorable as that
charged to any other customer for the same or similar services.
b. Travel Expenses. Consultant shall be reimbursed for all reasonable
pre-approved travel expenses incurred in performance of the Services. Consultant
shall obtain the written approval of Steve Curry, Director Software Engineering
or Michael Bolan, Vice President of Marketing and Product Development before
incurring such expenses. Dallas shall not be responsible for reimbursement of
travel expense or other expenses that have not been pre-approved.
c. Invoices. Consultant shall invoice Dallas in accordance to the fee
schedule in the Statement of Work. The invoice will detail the Services
performed and expenses incurred during the applicable period. Dallas will pay
the invoices within forty-five (45) days after receipt.
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<PAGE>
d. Taxes. Consultant shall be responsible for the payment of all federal,
state, and local taxes of any kind which are attributable to the compensation
received by Dallas.
3. Obligations of Consultant
a. Performance of Services. Consultant agrees to diligently perform the
Services in a professional and ethical manner. Consultant may use any means
necessary and appropriate to perform the Services; provided, however, that in no
event shall Consultant take any action that may subject either Consultant or
Dallas to civil or criminal liability. Unless otherwise expressly set forth in
the Statement of Work, Consultant shall furnish at its own expense all
resources, equipment, tools, and supplies necessary for the performance of the
Services.
b. Independent Contractor/Authority. Consultant shall be an independent
contractor in all matters relating to the Services and this Agreement.
Consultant shall not have, and shall not act as or hold itself out as a sales
agent, distributor, officer, employee or representative of Dallas. Nor shall
Consultant have the authority or act as or hold itself out as having the
authority to legally bind Dallas to any agreement or sale or to make
representations and warranties on behalf of Dallas. Dallas shall have no
liability or responsibility with respect to income or other taxes or withholding
in connection with payments made to Consultant hereunder. Dallas shall not be
obligated to maintain any insurance for Consultant, including, without
limitation, medical, dental, life or disability insurance. To the extent that
Consultant employs others in providing services under this Agreement, Consultant
agrees to comply with all applicable workers' compensation laws, to provide
satisfactory evidence of such compliance to Dallas on request, and to indemnify
and hold harmless Dallas from any liability or obligation in connection
therewith.
c. Work on Dallas's Premises. Consultant will ensure that its employees
and agents will, whenever on Dallas's premises, obey all reasonable instructions
and directions issued by Dallas.
d. Key Personnel. The key personnel of Consultant shall be Bill Holmes,
Scott Quinn and any other person designated as key personnel in a Statement of
Work (the "Key Personnel"). The Key Personnel shall be responsible for the
performance of the Services and devote such time as is reasonably necessary for
the satisfactory performance of the Services. The Key Personnel is essential to
the Services offered pursuant to this Agreement and should the Key Personnel no
longer be active on Dallas's account or be employed by Consultant for whatever
reason, Dallas shall have the right to terminate this Agreement on seven (7)
days' written notice.
e. Compliance. Consultant will be responsible for compliance with all
applicable laws, rules, regulations, orders and ordinances of the United States
of America and any other state or country with jurisdiction over Consultant or
the Services, including without limitation all applicable import or export
regulations and all licensing, disclosure or permitting requirements.
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<PAGE>
6. Rights in Data and Works
a. Works. During the performance of the Services or using the facilities
or resources of Dallas or using the Confidential Information of Dallas,
Consultant may create certain original works of authorship, such as reports,
databases, files, displays, designs, computer programs, models, photographs, and
Consultant may conceive, invent or reduce to practice certain ideas, know-how,
technology, methods, processes, or inventions, whether patentable or not (the
"Works"). Consultant shall promptly disclose to Dallas all Works.
b. Ownership. Consultant agrees that Dallas shall own all rights and
title in and to the Works, including rights under patent law, trade secret law
and copyright law. Consultant agrees that the Works shall be considered "works
made for hire" under applicable copyright law, to the extent possible. To the
extent not deemed works made for hire and with respect to all other proprietary
rights it may have to the Works, Consultant hereby assigns to Dallas all rights
in and to Works and derivatives and improvements thereof, including all rights
under patent law, copyright law, trade secrets and other proprietary rights.
Consultant waives and/or release all rights of restraint and moral rights in the
Works. Consultant further agrees to assist Dallas in every proper way, at
Dallas' expense, to obtain and from time to time enforce patents, copyrights,
trademarks or other proprietary rights in such Works in any and all countries,
and Consultant will execute all documents for use in applying for and obtaining
such rights and enforcing them as Dallas may desire, together with any
assignments of them to Dallas or persons designated by it.
7. Warranties
Consultant warrants the following with respect to Services performed:
a. Non-Infringement of Third Party Rights. The Services and Works will not
violate or in any way infringe upon or misappropriate the rights of third
parties, including property, contractual, employment, or any proprietary rights,
including, trademark, copyright or patent rights.
b. Performance. Consultant shall perform the Services in a good and
workmanlike manner in accordance with industry standards.
8. Termination
a. Commencement and Renewal. This Agreement shall commence on the date set
forth above and shall remain in effect for one year or for the duration that
Services are performed for Dallas by Consultant, whichever event occurs later.
b. Termination. Either party, upon giving thirty days prior written notice
to the other party, may terminate this Agreement or any particular Statement of
Work. Dallas shall remit to Consultant any undisputed amounts due and owing for
Services rendered prior to the
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<PAGE>
termination of the Agreement or the particular Statement of Work.
c. Obligations Upon Expiration or Termination. Upon expiration or
termination of this Agreement or a particular Statement of Work, Consultant
shall promptly return to Dallas all Confidential Information and disclose all
Works. Expiration or termination of this Agreement shall not relieve either
party of its obligations regarding Confidential Information under Section 5.
9. Other Provisions
a. General Indemnity. Consultant specifically agrees to indemnify and
hold Dallas harmless with respect to any liabilities, claims or demands,
including attorneys' fees, with respect to injuries to persons or damage to
property resulting from Consultant's acts or omissions, and with respect to any
costs, expenses, claims, assessments, penalties, additions to tax, damages and
losses, including attorneys' fees, arising from any default or other breach of
this Agreement by Consultant. Such right to indemnity under this Agreement shall
be in addition to, rather than to the exclusion of, the rights of Dallas at law
or in equity.
b. Applicable Law. This Agreement will be governed by the laws of the
State of Texas and controlling U.S. Federal law, without regard to its choice of
law provisions. Any action to enforce this Agreement must be brought in the
courts of Dallas County, Texas, and Consultant consents to the exclusive
personal jurisdiction and venue in such courts.
c. Severability. If any provision of this Agreement is found to be
invalid or unenforceable, the unenforceable provision shall be deemed modified
to the limited extent required to permit its enforcement in a manner most
closely approximating the intention of the parties as expressed herein.
d. Entire Agreement/Modification. This Agreement (i) is the complete
agreement of the parties concerning the subject matter hereof; and (ii) may not
be modified or amended except by a written instrument signed by both parties
hereto. A waiver by either party of any term or condition of this Agreement in
any instance shall not constitute a waiver of such term or condition for the
future, or of any subsequent breach thereof.
e. Nonassignment. Consultant shall not assign, delegate or subcontract
the whole or any part of this Agreement without Dallas's prior written consent.
Any subcontract made by Consultant with the consent of Dallas shall incorporate
by reference all the terms of this Agreement. Consultant agrees to guarantee the
performance of any subcontractor used in performance of the Services.
f. Notices. Any notice or other communication required or permitted under
this Agreement shall be given in writing and delivered by hand or by registered
or certified mail, postage prepaid and return receipt requested, to the
following persons (or their successors
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<PAGE>
pursuant to due notice):
If to Dallas: Brian M. Kraman
Contracts Administrator
4401 South Beltwood Parkway
Dallas, Texas 75244-3292
brian.kraman @ dalsemi.com
---------------------------
If to Consultant: Bill Holmes
Litronic Corporation
2030 Main Street, Suite 1250
Irvine, California 92614
bill.holmes @ litronic.com
---------------------------
IN WITNESS WHEREOF, and in acknowledgment that the parties hereto have read and
understood each and every provision hereof, the parties have executed this
Agreement on the date first set forth above.
Dallas:
/S/ MICHAEL BOLAN
- -------------------------------
Michael Bolan, V.P. marketing
2-12-99
- ----------------------------------------------
DATE
CONSULTANT:
/S/----------------
- --------------------------------
SIGNATURE
WILLIAM S. HOLMES
- ---------------------------
Printed Name
V.P. Sales & Marketing
- --------------------------------
TITLE
2/9/99
- ---------------------------------------------
DATE
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<PAGE>
APPENDIX A
STATEMENT OF WORK
1. Effective Date and Term
This Statement of Work shall be effective as of the 2nd day of February, 1999
and shall terminate on the 2nd day of February, 2000.
2. Services
Consultant shall provide consulting services for Dallas Semiconductor. These
Services are to include:
1. Travel. Consultant shall travel to Dallas' headquarters in Dallas,
--------
Texas for one business day tentatively February 11th at Dallas' expense.
Subject to Article 3(para. 2) Dallas may elect to reserve and pay for airfare
and lodging in advance. Litronic representatives shall review, with Dallas'
representatives in Dallas, issues which are at hand to assist Dallas in writing
a Microsoft Crypto Service Provider API, which shall later be integrated into
NetSign and NetSign Pro(TM) (collectively "Consultant's Products"). VALUE:
$2,500.
2. Telephone Consultation. Consultant shall provide eight (8) hours of
------------------------
on-call consultation with Dallas. VALUE: $2,500.
3. Integration. Conditional upon Dallas' delivering a PKCS-l l API and at
-----------
Dallas' sole discretion a PC/SC API (collectively "Materials"), Consultant,
shall successfully integrate the Materials into Consultant' s Products, as proof
of concept, and deliver the integrated Consultant's Products to Dallas for
evaluation. This Article (2)(para. 3) Integration, shall not exceed a period of
-----------
greater than forty-five (45) calendar days. In the event this Article (2)(para.
3) is not completed, Consultant shall forfeit and return $5,000 payable to
Dallas Semiconductor, which shall become due immediately. VALUE: $2,500.
3. Payment Schedule
This Supplemental Statement of Work is a fixed price contract with three
equal installments of $2,500; payable upon execution of this; Appendix A:
Consultant shall be reimbursed for reasonable travel and communication
expenses, upon receipt of proper documentation. Consultant shall obtain the
prior approval of Dallas for all travel expenses.
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<PAGE>
4. Other Provisions
Upon successful and satisfactory integration of Materials, subject to
completion of Article 2 of Materials into Consultant's product, Consultant will
be granted a non-exclusive, non transferable, fully-paid-up license in and to
the Materials by Dallas Semiconductor.
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<PAGE>
APPENDIX B
SUPPLEMENTAL STATEMENT OF WORK
This Supplemental Statement of Work is entered into as of this __________
day of ____________, ________,, by and between a Litronic Corporation, a
California corporation, having a place of business located at, 2030 Main Street,
Suite 1250, Irvine, California 92614 ("Consultant"), and Dallas Semiconductor
Corporation, a Delaware corporation having a principal place of business at 4401
South Beltwood Parkway, Dallas, Texas 75244-3292 ("Dallas").
1. Relationship to Agreement
This Supplemental Statement of Work is subject to all the terms and
conditions of the Consulting Agreement between Dallas and Consultant
("Agreement").
2. Effective Date and Term
This Supplemental Statement of Work shall be effective as of the date first
written above and shall terminate on ________________.
3. Services
4. Payment Schedule
This Supplemental Statement of Work is:
_____ a fixed price contract ("FP"); or
_____ a time and materials Contract ("T&M").
Check one line above. If FP, such price shall be $_________; payable according
to the following fee schedule:
If T&M, Consultant agrees that the aggregate time costs shall not exceed $ (at
the
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<PAGE>
applicable daily rate), and materials cost will not exceed $______________.
[Consultant shall be reimbursed for all reasonable out-of-pocket expenses not
exceeding an allotment of $___________ per week incurred in performance of the
Services. Consultant shall obtain the written approval of Dallas before
incurring expenses in excess of this allotment.]
5. Other Provisions
IN WITNESS WHEREOF, and in acknowledgment that the parties hereto have read
and understood each and every provision hereof, the parties have executed thus
Supplemental Statement of Work on the date first set forth above.
AGREED:
Dallas:
__________________________
SIGNATURE
__________________________
NAME
__________________________
TITLE
CONSULTANT:
__________________________
SIGNATURE
__________________________
NAME
__________________________
TITLE
10 of 10
<PAGE>
MARYLAND PROCUREMENT OFFICE
9800 SAVAGE ROAD.
FORT GEORGE G. MEADE, MARYLAND 20755-6626
N121 (PAB)
BASIC ORDERING AGREEMENT
NO. MDA904-98-G-0198
BASIC ORDERING AGREEMENT BETWEEN
THE UNITED STATES OF AMERICA
AND
Litronic Industries, Inc.
2030 Main Street
12th Floor, Suite 1250
Irvine CA 92614-7240
This Basic Ordering Agreement is entered into as of the 16th day of Apr,
1998 between the United States of America, hereinafter called "the Government",
represented by the Government Contracting Officer and the contractor, a
corporation organized and existing under the laws of the State of
____________________.
The clauses and provisions of this Basic Ordering Agreement hereinafter set
forth have been agreed upon by the parties hereto for use in negotiating Cost
Type and Fixed Price Type job orders between the parties entered into on or
after the date of this Basic Ordering Agreement and prior to its termination.
The Basic Ordering Agreement may be amended only by mutual agreement of the
parties and the Basic Ordering Agreement may be terminated in its entirety by
either party upon their 30 days written notice to the other party, except that
this Basic Ordering Agreement may be terminated by the Government at any time if
the parties fail to agree upon any deletion, amendment, or addition to this
Basic Ordering Agreement which is required by Statute, Executive Order, or the
Federal Acquisition Regulation (FAR). No deletion, modification, addition to, or
termination of this Basic Ordering Agreement shall affect any contracts
heretofore entered into between the parties in which this Basic Ordering
Agreement, or a portion thereof, has been incorporated by reference.
This Basic Ordering Agreement shall be reviewed, at a minimum, annually
before the anniversary of its effective date and revised to conform with all
requirements of Statutes, Executive Orders, and the Federal Acquisition
Regulation. This revision shall be evidenced by an agreement modifying this
Basic Ordering Agreement or by the issuance of a superseding Basic Ordering
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Basic Ordering
Agreement as of the date and year first above written.
<PAGE>
UNITED STATES OF AMERICA
BY: /S/ PATRICIA BUSH
PATRICIA BUSH
Contracting Officer
BY: /S/ JS PROHASKA
James S. Prohaska
Director of Business Development
April 13, 1998
703-905-9700
05-076-1998
(Signature, typed name, title, date phone number, DUNS Number)
<PAGE>
Page 2
PART I - THE SCHEDULE
- ---------------------
SECTION A - SOLICITATION/CONTRACT FORM
- --------------------------------------
For the purposes of this Basic ordering Agreement (BOA) and its
modifications the terms `contractor', `Contractor', `offeror', `Offeror', and
`quoter' are defined as the company whose name appears on the face page of this
BOA. The words `order', `Order', `Job Order' and `job order' all refer to job
orders placed against this BOA. All references in the BOA to `contract' are
deemed to include job orders.
A.1 INTENT OF THE PARTIES
In order to expeditiously procure the future services of the Contractor, of
the nature hereinafter described, as the need therefore arises, the Government
represented by the Contracting officer and the Contractor mutually agree by
their execution of this Agreement that:
(a) This document shall be construed as an Agreement between the Government and
the Contractor to perform services prescribed under Section B by placement of
job orders which shall be bilaterally executed assuring a binding contract which
constitutes acceptance of all applicable clauses, provisions, and conditions
negotiated in the Basic Ordering Agreement. Job Orders will be written in the
Uniform Contract Format, as per FAR.
(b) Any additional clauses, terms or conditions affected by change in existing
laws or regulations, other than those agreed to in this Agreement, shall be
arrived at, in each instance, by separate negotiation between the parties and
shall be specifically stated in the Job Order. No differing provisions in any
Job Order shall affect a change to this BOA.
(c) Supplies and services provided under any and all job orders arising from
this Agreement shall be within the general scope of work as outlined in Section
B of this Agreement.
(d) Eight (8) different types of job orders may b- issued against this BOA as
follows:
(1) Cost plus award fee type orders.
(2) Cost plus-fixed-fee completion type orders
(3) Cost-plus fixed-fee term type orders
(4) Cost plus incentive fee type orders
(5) Firm Fixed Price completion type orders
(6) Fixed price incentive type orders
(7) Fixed price level of effort type orders
(8) Time & Material/Labor Hour
(End of clause)
A.2 PLACEMENT OF JOB ORDERS
<PAGE>
JOB ORDERS HAY NOT BE ISSUED AGAINST THIS BASIC ORDERING AGREEMENT EXCEPT BY THE
MARYLAND PROCUREMENT OFFICE, 9800 SAVAGE ROAD, FT GEORGE G. MEADE, MD 20755-
6000.
(End of clause)
SECTION B - SUPPLIES OR SERVICES AND PRICES/COST
- ------------------------------------------------
B.1 SUPPLIES OR SERVICES
The contractor shall:
Furnish the necessary facilities materials and professional engineering and
technical personnel together with adequate support and management personnel to
provide supplies or services as specified in the Job Order. The type of work
anticipated may include, but NOT be limited to, the following:
(a) Engineering design fabrication testing manufacture and modification of
equipments and components including spares.
(b) Study and evaluation of ideas and components.
(c) Preparation of drawings, manuals, technical data, technical
specifications, instructional materials (which may include instruction of
course(s)), and operational characteristics and preparation of technical
documentation.
(d) Wiring and testing, fabrication, of chassis and printed circuit cards.
(e) Signal analysis services.
(end of clause)
SECTION C - DESCRIPTION/SPECS/WORK STATEMENT
- --------------------------------------------
C.1 GENERAL REQUIREMENTS
The following general requirements will apply to this BOA:
(a) WORKMANSHIP All work conducted under this agreement shall be of a
thoroughly professional caliber. The work shall be conducted at all times in
accordance with the best techniques of technical research and development. All
parts shall be fabricated to maintain a tolerances as close as required by the
Government, or when unspecified, as close as is consistent with good engineering
practice. All components and finished equipments shall be free from any defects
which at delivery might affect their serviceability or appearance.
<PAGE>
Page 3
(b) Types of components: Commercial components shall be employed
throughout if practicable. Components peculiar to a particular supply source
shall be held to a minimum.
(c) Materials: The best material commercially available shall be used when
a definite material is not designated. If this not practical, it shall be so
stated at the time a proposal is submitted to the Government.
(d) Schematics: All drawings which show electrical circuitry without
regard to the physical position of the various components, and representing
these components by conventional symbols, shall be defined as `schematics' for
the purpose of job orders under this BOA.
(e) Original and Copies of Drawings: The contractor shall furnish to the
Government upon request, originals if available, and copies of all engineering
drawings, sketches, layouts and schematics. The Government reserves the right to
use the drawings, sketches, layouts and schematics in future procurements from
any supplier other than limited rights data as defined in the clause `Rights in
Technical Data and Computer Software.'
(f) Inspection and Test Procedures: Inspection and tests shall be performed
in accordance with instructions contained in the Job Order. The Government may
furnish test procedures or require the contractor to submit test procedures for
Government approval. The contractor shall furnish all necessary facilities and
equipment for testing except for unique testing equipment to be furnished by the
Government.
(End of clause)
C.2 JOB ORDER/CONTENT
The specific Job Order which may be issued under this Basic Ordering
Agreement to the Contractor shall be processed as provided by C.3 and shall
contain among other provisions, the following (in the Uniform Contract Format):
(a) A reference to the Basic Ordering Agreement.
(b) Technical instructions for performance of the work authorized,
descriptions of the material and/or services to be furnished in reasonable
detail, including, when appropriate, a reference to applicable plans, drawings,
and specifications.
(c) Packing packaging and marking requirements, if any.
(d) Inspection testing acceptance and delivery requirements as may be
applicable.
(e) The material, equipment, drawings, and other property, if any, to be
furnished to the Contractor by the Government and the date such property is to
be delivered or otherwise made available to the Contractor.
<PAGE>
(End of clause)
C.3 ACTIVATION OF JOB ORDER
(a) PRICED JOB ORDER
The following procedure will be followed to initiate work under this
Agreement:
(1) An oral and/or letter request shall be sent to the Contractor
setting forth the detailed requirements to be accomplished, together with the
necessary attachments (drawings, SOW, PD, DISTRICT DIRECTOR 1423, DISTRICT
DIRECTOR 254, and other applicable documents).
(2) The Contractor shall immediately acknowledge the request for a
proposal, either by signing and returning a copy of the letter request, or if no
letter is received, by initiating an acknowledgment of the oral request.
(3) (i) The Contractor shall review the requirements of the proposed
job order and submit to the Contracting Officer, within the time allotted
(expedited reply is required), a technical proposal and a cost proposal to
complete the requirements.
(ii) Such submission shall not contain conditions or provisions
not in accordance with the terms of this agreement. The Contractor may, however,
request a differing term from the agreement.
(4) The government shall review and, when applicable, negotiate
estimated cost and fee or profit and the technical requirements.
(5) Each Job Order shall be fully negotiated prior to the issuance of
the Standard Form 26 to reflect the Government and Contractor agreement of the
technical requirements and consideration.
(b) UNPRICED JOB ORDERS
(1) In an emergency where it is imperative that the designated task be
commenced prior to the execution of a priced job order, the following procedures
will apply. The procedures in Section C.3 (a) in paragraphs (1) (2) and (3) will
be followed for initiating the job order. Then:
(i) After receipt and review of the Contractor's proposal, the
Contracting officer may issue an unpriced job order stating a monetary ceiling
amount for the Job Order and containing a NOT-TO-EXCEED funding limitation
pending documentation of the Job Order. This Job Order will be on a Form DD1155
"Order for supplies or Services" and will contain a limitation of Government
Liability clause as stated in Section G, Paragraph G.5. The Contractor is
required to sign the Job Order (DD1155) as acceptance of the ceiling priced job
<PAGE>
order or provide a letter containing the proposed ceiling price and stating
agreement to accepting a job order on this basis. In exceptional cases, where
award must be made prior to receipt of a qualifying technical proposal, the
Government and the Contractor shall negotiate a maximum ceiling price which must
be confirmed in writing. Use of this procedure will limit the Contractor
expenditures to 50% of the proposed Ceiling price until a qualifying proposal is
received or negotiations have been completed. In no event shall an entire job
order be priced retroactively.
(ii) The initial cost proposal you submit to satisfy the Government's
requirement may be the amount specified for the NOT-TO-EXCEED ceiling amount of
an unpriced job order. This establishment of a not-to-exceed price ceiling is in
accordance with DFARS 217.7404-2. To comply with this, your proposal submitted
in response to the Government's request should have a validity period that
allows time for definitization of the job order. This time period could extend
as long as six months depending on the length and complexity of the audit and
other issues.
(2) When an unpriced job order is issued on a DD1155, the job order will
contain wording referencing the above BOA provision as well as a limitation on
the amount of funds that may be expended prior to definitization. The unpriced
job order may incorporate your cost proposal by reference.
(3) When definitizing the unpriced job order, the ceiling amount will be
subject to a downward negotiation only.
(4) Per the DFAR: Allowable Profit. The head of an agency or a designee
shall ensure that the profit allowed on a UCA, for which the final price is
negotiated after a substantial portion of the performance required is completed,
reflects:
(i) any reduced cost risk of the contractor with respect to costs
incurred during the performance of the contract before the final price is
negotiated; and
(ii) the reduced cost risk of the contractor with respect to costs
incurred during performance of the remaining portion of the contract.
(5) The Contractor shall submit a proposal not later than ons month after
the date of the ceiling priced job order award. Negotiations, per the FAR,
shall be completed not later than six months after the date of award of the
ceiling priced job order. Within these parameters, the Contracting Officer
shall state in the Job Order the actual definitization schedule in accordance
with FAR 52.216-25 Contract Definitization.
(End of clause)
SECTION D - PACKAGING AND MARKING
D.1 PACKING AND PACKAGING
<PAGE>
The equipments, devices and components required under this agreement shall
be packaged and packed for domestic shipment in accordance with best commercial
practice to ensure safe arrival at destination unless otherwise specified on the
individual Job Order or in writing by the contracting officer.
(End of clause)
D.2 MARKING
Shipments shall be marked in accordance with instructions to be supplied by
the contracting officer or his duly authorized representative.
(End of clause)
SECTION E - INSPECTION AND ACCEPTANCE
- -------------------------------------
E.1 REFERENCED CLAUSES - WHEN APPLICABLE: The following contract clause(s)
(when applicable) pertinent to this section is/are hereby incorporated by
reference:
CLAUSE NO. TITLE
FAR CLAUSES
52.246-2 Inspection of Supplies - Fixed Price (AUG 1996)
52.246-2 Inspection of Supplies Fixed Price (AUG 1996) - Alternate I (JUL
1985)
52.246-3 Inspection of Supplies Cost Reimbursement (APR 1984)
52.246-4 Inspection of Services - Fixed Price {AUG 1996)
52.246-5 Inspection of Services - Cost-Reimbursement (APR 1984)
52.246-6 Inspection -- Time-and-Material and Labor-Hour (JAN 1986)
52.246-6 Inspection -- Time-and-Material and Labor-Hour (JAN 1986) -
Alternate I (APR 1984)
52.246-7 Inspection of Research rnd Development - Fixed Price (AUG 1996)
52.246-8 Inspection of Research and Development - Cost-Reimbursement (APR
1984)
52.246-8 Inspection of Research and Development - Cost Reimbursement
Alternate I (APR 1984)
52.246-9 Inspection of Research and Development (Short Form) (APR 1984)
52.246-16 Responsibility for Supplies (APR 1984)
E.2 INSPECTION AND ACCEPTANCE
Unless otherwise indicated and/or negotiated by the parties inspection and
acceptance will be performed at destination by the duly authorized Contracting
officer's Representative
(End of clause)
SECTION F - DELIVERIES OR PERFORMANCE
- -------------------------------------
<PAGE>
F.1 REFERENCED CLAUSES - WHEN APPLICABLE. The following contract clause(s)
(when applicable) pertinent to this section is/are her by incorporated by
reference
CLAUSE NO. TITLE
FAR CLAUSES
<PAGE>
Page 5
52.211-17 Delivery of Excess Quantities (SEP 1989)
52.242-15 Stop Work Order (AUG 1989) - Alternate I (APR 1984)
52.242-17 Government Delay of Work (APR 1984)
52.247-29 F O B Origin (JUN 1988)
52.247-34 F o B Destination (NOV 1991)
F.2 PERIOD OF PERFORMANCE
The Government may issue Job Orders at its discretion and in conformity
with the ability of the Contractor to perform within the period from the
effective date of this Agreement through 31 MAY 2001. Notwithstanding this
period of performance, it is understood that all job orders negotiated prior to
the expiration of the period indicated above shall be completed in the
negotiated period of performance of that Job Order, except that the Contractor
shall not exceed the funds obligated in the Job Order in accordance with 52.232-
20, Limitation of Cost or 52.232-22, Limitation of Funds.
(End of clause)
F.3 DELIVERY
(a) Any it ms, components or other articles resulting from work performed
under this Agreement shall be delivered to the address shown on the Job Order,
or if not indicated therein to the following:
Transportation Officer
9705 Samford Road
Support Activities Building #4, Door #3, 4. or 5
Fort George G. Meade, MD 20755-6000
M/F Supply Officer
REF MDA904-_____________ (J.O. # _________)
NOTE: Schedule shipments to arrive at destination from 7:30 AM to 2:30 PM
Monday through Friday excluding Federal Holidays. Full trailer loads will be
accepted by appointment only. 24 Hours advance notice is required. Phone (301)
688-7173 for an appointment.
(Job Order numbers must be on all documents.)
(b) Technical Data requirement shall be prepared and delivered to the
government in such quantities and at such times as specified in the Contract
Data Requirements List DISTRICT DIRECTOR Form 1423.
(End of clause)
F.4 DISCONTINUANCE
<PAGE>
The Agreement may be discontinued upon thirty (30) days written notice by
either party hereto. It is understood, however, that discontinuance of this
Agreement by such action will NOT affect any individual Job Order issued prior
to the effective date of discontinuance.
(End of clause)
F.5 F.O.B. POINT
The FOB point unless otherwise indicated and/or negotiated by the parties
will be destination for delivery of supplies.
(End of clause)
SECTION G - CONTRACT ADMINISTRATION DATA
- ----------------------------------------
G.1 352.229-9000 NOTICE OF TAXATION (SEP 1994)
The Contractor shall provide the Contracting officer with written notice of
any proposed tax assessments, exemptions, exclusions, or refunds which could
increase or decrease costs or liabilities to the contractor and/ or the
Government. The notice shall be submitted in sufficient time to provide the
Government a meaningful opportunity to assert its immunity, participate in
negotiations or litigation with the taxing authority concerning the
applicability of the tax, and/or adjust the parties' liability for costs
according to the increase or decrease in tax.
(End of clause)
G.2 352.229-9001 CONTRACTOR LIABILITY FOR STATE AND LOCAL TAXES (SEP 1994)
Generally the contractor is liable for payment of state or local taxes on
this contract to the same extent that it would be liable for such taxes on a
contract with a non-governmental entity. Although it may be useful for the
contractor to inform the taxing authorities that the Maryland Procurement Office
(MPO) is a federal government agency, this fact alone does not in and of itself
create a tax exemption for the contractor. While some transactions undertaken by
the contractor pursuant to this contract may be exempt from a state or local
tax, it is the contractor's responsibility to identify such exemption under the
applicable statute and to resolve the applicability of such with state or local
taxing authorities.
(End of clause)
G.3 CONTRACT ADMINISTRATION DATA
<PAGE>
Page 6
The procuring Contracting Officer shall retain all administration functions
for job orders issued again t this Basic Ordering Agreement, except for the
administration of Government furnished property, which will be administered by
the contractor's cognizant Defense Contract Management Command. Any exceptions
to these administrative functions will be addressed in any Job Order.
(End of clause)
G.4 CONTRACTING OFFICER'S REPRESENTATIVE (COR)
An individual may be designated by the Contracting Officer as the CO's
representative for any resulting Job Order. The appointment of the COR and
extent of authority will be set forth in a letter from the Contracting Officer.
(End of clause)
G.5 INVOICES
Each Job Order shall be a separate contract and be treated as such. Payment
for invoices not containing the complete Job Order number may be delayed.
(a) CPFF OR CPIF JOB ORDERS
(1) The Contractor shall be reimbursed on the basis of invoices
submitted monthly for costs incurred, plus a proportionate amount of fixed fee.
Vouchers are to be submitted through the Contractor's cognizant DCAA office.
Payment of fixed fee shall be subject to the withholding provision of FM 52.232-
9. Monthly invoices submitted shall indicate to the extent such charges apply to
the total material, direct labor, overhead, other direct charges, cost of money,
C&A, and fixed fee applicable to each Job Order. INVOICES SHALL BE SEPARATE FOR
EACH JOB ORDER.
(2) All Public Vouchers (SF 1034a) shall be submitted.
THROUGH: DEFENSE CONTRACT AUDIT AGENCY
TO: FINANCE AND ACCOUNTING OFFICE
ATTN: N411 (9X-G-_______, J.O. #______)
9800 SAVAGE ROAD
FT GEORGE G. MEADE, MD 20755 6000
(b) FFP JOB ORDERS
(1) Invoices submitted under fixed price job orders that do not
authorize Progress Payments will be paid only after inspection and acceptance
and after "Military Inspection and Receiving Reports" (DISTRICT DIRECTOR 250's)
have been properly
<PAGE>
completed in accordance with the General Provision entitled Material and
Receiving Report (DoD FAR SUPP).
(2) Invoices under fixed price job orders shall be mailed to the
following address (except Requests for Progress Payments):
TO CONTRACT - ACCOUNTS PAYABLE
Finance and Accounting Office
P.O. Box 400
ATTN (9x-G-_____, J.O. #______ )
FT. GEORGE G. MEADE, MD 20755-6000
(3) Requests for Progress Payment shall be sent to the Contracting
Officer for that Job Order. Payment requests without the cognizant Contracting
Officer or Negotiator's name or initials delays payment. Sending the invoice to
other than the C.O. or negotiator for that job order (i.e., using the address in
2 above) shall delay payment.
(End of clause)
G.6 PLACE OF PERFORMANCE
Unless written approval of the Contracting Officer is obtained in advance,
the work to be performed under this Agreement may not be carried on in any plant
or factory other than the Contractor's plant on the face page of this BOA or in
the paragraph in Section X (Contractor's Representations and Certifications )
entitled "Place of Performance."
(End of clause)
G.7 LIMITATION OF GOVERNMENT LIABILITY. (This clause applicable to Ceiling
Priced Job Orders)
(a) The Contractor is not authorized to make expenditures or incur
obligations in the performance of EACH Job Order which exceed the total amount
obligated for that job order.
(b) If the proposed price for an Job Order as submitted by the Contractor
is not acceptable to the Government, the parties shall enter into negotiation
for the purpose of agreeing to fair and reasonable prices and satisfactory
delivery schedule. When agreement has been reached the Contracting Officer shall
prepare a Standard Form 30 setting forth the agreed prices, delivery schedule,
and other items, which will be executed by both parties.
(c) If the parties fail to reach an agreement, the failure to agree shall
be disposed of in accordance with the clause entitled "Disputes." Pending
settlement of such dispute, the Contracting Officer shall establish prices and
delivery schedules determined to be fair and reasonable and shall set forth same
in a priced modification to the Job Order indicating thereon that such prices
are billing prices pending the outcome of the dispute.
(End of clause)
<PAGE>
Page 7
G.8 PROMPT PAYMENT ACT APPLICABILITY
This contract is subject to the Prompt Payment Act Public Law 97-177, as
amended. Discount periods for Prompt Payment shall be computed as set forth in
the clause, DISCOUNTS FOR PROMPT PAYMENT (MODIFIED) in Section H.
(End of clause)
G.9 POINT OF CONTACT
Questions regarding specific job orders issued under this BOA should be
directed to the office which issued the job order.
(End of clause)
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H.1 352-204.9003 CONTRACTOR PERSONNEL CLEARANCES - CONTRACT (OCS 1993)
(a) It shall be the responsibility of the contractor to optimize the use
of currently cleared personnel in completing the requirements of this contract.
In the event that the contractor requires additional personnel clearances, any
delays incurred in the contract progress and/or schedule as a result of the time
required to clear such personnel shall be the contractor's responsibility. Under
no circumstances shall the Government recognize a claim for an equitable
adjustment in the contract price and/or schedule as a result of any delay due to
the failure to have properly cleared personnel.
(b) It is understood that the contractor will provide personnel as
suitable replacements on a best efforts basis.
(End of clause)
H.2 352.204-9010 NOTICE: CONTRACT ADMINISTRATION AND CLOSEOUT GUIDANCE (JAN
1993)
The following guidance is provided for your use in administering and
closing out the contract. When the contract is complete, the contractor shall
initiate final accounting and disposition. This shall be done in accordance with
the following instructions. If a portion of the instructions are not applicable
to this contract, disregard that portion.
(a) Government Furnished Property/Documents
(1) The cognizant property administration office (Defense Contract
Management Command (DCMC) and/or L15) is designated to administer the
maintenance by the
<PAGE>
contractor of official Government Property Records for all Government
property/documents. See section G - Contract Administration Data for the
cognizant office for this contract.
(2) The contractor shall sign (1) copy of the shipping or inspection
document acknowledging receipt of property/documents and forward same to the
designated property administrator.
(3) At the end of the contract, the contractor shall submit the
Government Furnished Property/Documents Inventory Schedule requesting
disposition to the cognizant office. The cognizant property administration
office shall then obtain the disposition instructions from the contracting
officer's Representative (COR), and they will forward them to the contractor.
The contractor shall provide the cognizant office with a declaration that all
Government furnished property/documents have been accounted for or expended
(disposition is complete) in the performance of the contract. The cognizant
property administration office will provide the Maryland Procurement Office
(MPO) and the COR with the appropriate releases.
(b) Contractor Acquired Property: At the end of the contract, the
contractor shall submit the Contractor Acquired Property list, requesting
disposition to the cognizant property administration office. This office will
then obtain the disposition instructions from the COR and then will forward them
to the contractor The contractor shall provide the cognizant office with a
declaration that Contractor Acquired Property has been dispositioned as
requested. The cognizant property administration office will provide the MPO and
the COR with the appropriate releases.
(c) Plant Clearance. The cognizant property administration office is
automatically delegated plant clearance procedures.
(d) Classified Material/Documents (DD254 on the contract). The
disposition/retention action of classified holding should be initiated pursuant
to paragraphs 5.1 and 5.m of the Industrial Security Manual. The inventory shall
be submitted to the Director, NSA/CSS, ATTN (the applicable COR with office
designator), 9800 Savage Road, Ft. George G. Meade, Maryland 20755-6000. After
compliance with the COR's disposition instructions, the contractor shall submit
evidence of compliance certified by the CSSO to the HPO (ATTN ________
(Contracting Officer's name), Maryland Procurement Office, 9800 Savage Road,
Fort George G. Meade, MD 20755-6000), with a courtesy copy to M52 and the COR.
(e) Report of Inventions and Subcontracts (Form DD882). Pursuant to
the Patent Rights Clause of this contract, the contractor shall submit the
DISTRICT DIRECTOR Form 882 to the Director, NSA/CSS, ATTN (the applicable COR
with office designator), 9800 Savage Road, Ft. George G. Meade, Maryland 20755-
6000, with a courtesy copy to the HPO (ATTN _______ (Contracting Officer's
name), Maryland Procurement Office, 9800 Savage Road, Fort George G. Meade, MD
20755-6000).
(f) Final Payment
<PAGE>
(1) For contracts requiring final DCAA audit, the contractor
shall submit the final voucher with release and assignment documentation to the
cognizant Defense Contract Audit Agency (DCAA) office for processing in
accordance with FAR 4.804 (within 180 days).
(2) For all contracts not requiring final DCAA audit the contractor
shall submit the final invoice DD250 to the COR for processing.
<PAGE>
Page 8
(g) Contract Data Requirements List (CDRL) DISTRICT DIRECTOR Form 1423. If
not previously provided to the COR, the contractor shall provide the COR with
status of the documentation for final resolution. This shall be submitted to the
Director, NSA/CSS, ATTN (the applicable COR with the office designator), 9800
Savage Road, Ft. George G. Meade, Maryland 20755-6000 with a courtesy copy to
the HPO (ATTN: N1 ______ (Contracting Officer's name), Maryland Procurement
Office, 9800 Savage Road, Fort George G. Meade, MD 20755-6000).
(h) Quick Closeout.
(1) The contractor shall review the contract for applicability of the
Quick Close Out Procedures in accordance with the FAR 42.708, and determine if
this method applies. If applicable, the contractor may request in writing Quick
Close Out authorization from the CO.
(2) The MPO will authorize Quick Closeout Procedures, if applicable.
The Contractor shall then submit a copy of the letter, the final voucher, etc.,
directly to the cognizant DCAA office (see section G).
(End of notice)
H.3 352 212-9002 NOTICE: GOVERNMENT CLOSURES (DEC 1997)
(a) Government Holidays:
New Year's Day - 1 January
Martin Luther King Jr's Birthday - 3rd Monday in January
President's Day - 3rd Monday in February
Memorial Day - Last Monday in May
Independence Day - 4 July
Labor Day - 1st Monday in September
Columbus Day - 2nd Monday in October
Veteran's Day - 11 November
Thanksgiving Day - 4th Thursday in November
Christmas Day - 25 December
Any other day designated by Federal Statute Executive order or a
Presidential proclamation.
When a holiday falls on a Sunday, the following Monday will be observed as
a legal holiday. When a holiday falls on a Saturday, the preceding Friday is
observed as a holiday by U.S. Government Agencies.
Unless authorized by the Contracting Officer or his duly authorized
representative, the contractor shall not work UNDER MPO CONTRACT at any
government facility on any holiday
<PAGE>
listed above nor should any deliveries under this contract be made to an any
government facility on those days.
The amounts in Section B of the contract include an allowance for holidays
to be observed; and, accordingly, the government will not be billed for such
holidays except when services are required by the government and are actually
performed on a holiday.
(b) Administrative leave
(1) When the Government grants administrative leave to employees as a
result of inclement weather, potentially hazardous conditions, or other special
circumstances, contractor personnel working at the specific facility/location
granted administrative leave shall also be dismissed. However, the contractor
shall provide sufficient on-site personnel to perform the requirements of
critical wort already in process if instructed by the contracting Officer or
duly authorized representative.
(2) On-site personnel working on this contract shall not be granted
access to Agency installations during closure situations unless they are
designated as emergency or essential personnel required to perform the
requirements of critical work already in process or are otherwise instructed by
the contracting Officer or duly authorized representative. On-site personnel at
another government facility shall only be granted access under terms agreed to
with that Agency.
(c) Except for emergency situations or when instructed by the Contracting
Officer or duly authorized representative, the costs associated with the period
of any such Agency closure shall not be a direct reimbursable cost under this
contract. If authorized in accordance with the contractor's normal accounting
procedures, these costs MAY be reimbursable as an indirect cost using
established indirect cost pools.
(End of clause)
H.4 352.227-9002 COMMERCIAL COMPUTER SOFTWARE - CONTRACTS (FEB 1996)
Pursuant to the requirements of Defense Federal Acquisition Regulation
Supplement (DFARS) 227.7202-1, commercial computer software to be delivered
under this contract will be acquired under the license customarily provided by
the contractor to the public to the extent those licenses are consistent with
Federal Procurement Law.
(End of clause)
H.5 352.227-9003 YEAR 2000 COMPLIANCE - COMMERCIAL ITEMS (JAN 1997)
(a) Definition: INFORMATION TECHNOLOGY means any equipment or
interconnected system or subsystem of equipment that is used in the automatic
acquisition, storage, manipulation, management, movement, control, display,
switching, interchange, transmission, or reception of data or information. This
is for equipment used by the government directly or is used by a contractor
under a contract with the Agency which (1) requires the use of
<PAGE>
such equipment, or (2) requires the use, to a significant extent, of such
equipment in the performance of a service or the furnishing of a product.
Information technology includes computers, ancillary equipment, software,
firmware and similar procedures, services (including support services) and
related resources. It does NOT include any equipment that is acquired by a
Federal Contractor incidental to a Federal contract.
<PAGE>
Page 9
(b) The Contractor warrants that each information technology product
delivered under this contract and listed below shall be able to accurately
process date data (including, but not limited to, calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first centuries,
including leap year calculations, when used in accordance with the product
documentation provided by the contractor, provided that all listed or unlisted
products (e.g., hardware, software, firmware) used in combination with such
listed product properly exchange date data with it. The words "listed below"
refer to products that the offeror has identified as being Year 2000 compliant
in response to the procuring agency's specifications. If the contract requires
that specific listed products must perform as a system in accordance with the
foregoing warranty, then that warranty shall apply to those listed products as a
system. The duration of this warranty and the remedies available to the
Government for breach of this warranty shall be as defined in and subject to the
terms and limitations of the contractor's standard commercial warranty or
warranties contained in this contract. Nothing in this warranty shall be
construed to limit any rights or remedies the Government may otherwise have
under this contract with respect to defects other than Year 2000 performance.
H.6 352.227-9004 YEAR 2000 COMPLIANCE - NON-COMMERCIAL ITEMS (JAN 1997)
(a) Definition: INFORMATION TECHNOLOGY means any equipment or
interconnected system or subsystem of equipment that is used in the automatic
acquisition, storage, manipulation, management, movement, control, display,
switching, interchange, transmission, or reception of data or information. This
is for equipment used by the government directly or is used by a contractor
under a contract with the Agency which (1) requires the use of such equipment,
or (2) requires the use to a significant extent of such equipment in the
performance of a service of the furnishing of a product. Information technology
includes computers, ancillary equipment, software, firmware and similar
procedures, services (including support services), and related resources. It
does NOT include any equipment that is acquired by a Federal Contractor
incidental to a Federal contract.
(b) The contractor warrants that each non commercial item of information
technology delivered or developed under this contract and listed below shall be
able to accurately process date data (including, but not limited to,
calculating, comparing, and sequencing) from, into, and between the twentieth
and twenty-first centuries, including leap year calculations, when used in
accordance with the item documentation provided by the contractor, provided that
all listed or unlisted items (e.g., hardware, software, firmware) used in
combination with such listed item properly exchange date data with it. The words
"listed below" refer to products that the offeror has identified as being Year
2000 compliant in response to the procuring agency's specifications. If the
contract requires that specific listed items must perform as a system in
accordance with the foregoing warranty, then that warranty shall apply to those
listed items as a system. The duration of this warranty and the remedies
available to the Government for breach of this warranty shall be as defined in
and subject to the terms and limitations of any general warranty provisions of
<PAGE>
this contract. Nothing in this warranty shall be construed to limit any rights
or remedies the Government may otherwise have under this contract with respect
to defects other than Year 2000 performance.
(End of clause)
H.7 352.227-9005 NOTIFICATION OF FOREIGN ORIGIN SOFTWARE AND/OR FIRMWARE (OCT
1997)
Offerors/contractor shall notify the Contracting officer in writing if any
foreign manufactured developed maintained and/or modified software and/or
firmware will be used or included in the deliverables under this contract.
Foreign-origin software and/or firmware that is merely a possible candidate for
use under this contract shall also be identified. Notification pursuant to this
clause must include the identity of the foreign source and the nature of the
software application and is required as soon as there is a reason to know or
suspect foreign origin.
NSA reserves the right to exclude foreign-origin software and/or firmware
from use under contract on a case-by-case basis.
(End of clause)
H.8 352.232-9009 DISCOUNTS FOR PROMPT PAYMENT (OCT 1993)
(a) Discounts for prompt payment will not be considered in the evaluation
of offers. However, any offered discount will form a part of the award and will
be taken if payment is made within the discount period indicated in the offer by
the offeror. As an alternative to offering a prompt payment discount in
conjunction with the offer, offerors awarded the contracts/purchase orders may
include prompt payment discounts on individual invoices.
(b) In connection with any discount offered time will be computed (i) from
date of delivery of the supplies to carrier when acceptance is at the point of
origin, (ii) from date of delivery at destination or port of embarkation when
delivery and acceptance are at either of these two points, or (iii) from the
date the correct invoice or voucher is received in the designated billing office
whichever is later. For the purpose of computing the discount earned payment
shall be considered to have been made on the date which appears on the payment
check or the date on which an electronic funds transfer was made.
(End of clause)
H.9 352.244-9000 NOTICE SUBCONTRACTING WITH CANADIAN CONTRACTORS (OCT 1993)
Provided the Sponsoring Government Activity is not disclosed, the offeror
is not prohibited from subcontracting with Canadian Contractors unless the work
to be performed under any resulting contract is classified in nature.
<PAGE>
Federal Acquisition Regulation (FAR) Part 44, Subcontracting Policies and
Procedures, particularly Subpart 44.2 - Consent to Subcontract, applies.
In addition to those clauses which the prime contractor is normally
required to insert in
<PAGE>
Page 10
subcontracts, the following must be included as required:
FAR 52.225-11 Restrictions on Certain Foreign Purchases (APR 91)
DFARS 252.225-7026 Reporting of Overseas Subcontracts (DEC 1991)
(End of notice)
H.10 DISCLOSURE OF INFORMATION
(a) The Contractor shall not disclose any information under this Basic
Ordering Agreement, any Job Order under this BOA or any contract, including the
following, to any person (including other Government agencies), unless (i) it is
required for the performance of this contract, or (ii) the individual is
specifically authorized in writing by the Contracting officer to receive the
information.
(1) The Basic ordering Agreement Job Order award or contract.
(2) Sponsorship of the BOA Job Order or contract to include:
(i) Any information about the organization, fiscal data,
functions, and activities of the Sponsoring Government Activity.
(ii) Any information concerning the personnel strength of the
Sponsoring Government Activity or its subdivisions, or the names, titles, or
salaries of the personnel assigned or detailed to or employed by the sponsoring
Government Activity without regard to classification status.
(3) The Government's use interest in or application of the following:
(i) The Basic Ordering Agreement or contract or Job Order
Schedule and technical data incorporated therein.
(ii) Purchase Description specifications and drawings.
(iii) Scientific studies research development and design service.
(iv) Components devices equipments and systems.
(v) Techniques methods and processes.
(vi) Details and/or results of performance.
(b) Disclosures by the contractor which require specific written
authorization from the Contracting Officer include information, whether written
or oral, to be revealed in
<PAGE>
technical conferences, symposia, meetings,periodicals, journals, brochures, or
advertising. Once authorization to use any specific information has been
approved by the Contracting Officer, the contractor is authorized to reuse such
specific information without obtaining additional authorization from the
Contracting Officer. The contractor shall maintain a log of the additional uses
and submit a copy of the log to the Contracting officer when each additional
disclosure is made.
(c) When prescribed by the Contracting Officer, the Contractor agrees
to insert in subcontracts and purchase orders hereunder provisions which shall
conform substantially to the language of paragraphs (a) and (b) above. Normally
these provisions will not be required by the Contracting officer in purchase
orders for standard commercial items which have been sold or offered for sale to
the public commercially by any supplier
(d) The provisions set forth in DFMS 252 204e7000 and Paragraphs (a),
(b), and (c) shall not be construed to preclude the contractor from otherwise
using for its normal commercial purposes, information, techniques, processes,
methods, developments, components, devices, equipments, systems, and proprietary
data employed in the conduct of the work, except that which is specifically
developed for or as a result of the contract or which is Protected Information,
as defined the Contractor Security Agreement, and precluded from disclosure
without pre-disclosure Government review. In so using the information as
authorized by this paragraph, the contractor (i) shall not disclose any
information concerning the sponsorship of this contract Basic ordering Agreement
or Job Order, or (ii) the nature of the Government's interest in application of
the subject matter of this contract Basic Ordering Agreement or Job Order.
(End of clause)
H.11 REPORTS
Reports and other data requirements will be outlined in DISTRICT DIRECTOR
Form 1423 furnished with each applicable Job Order
(End of clause)
H.12 GOVERNMENT PROPERTY
(a) The Government may furnish the Contractor certain items of material
and/or equipment as such action is considered to be in the best interest of the
Government. Such material and/or equipment will be designated on individual job
orders.
(b) In fulfillment of the requirements of the General Provision entitled
"Government Property", residual property schedules shall be submitted in
accordance with PAR 45.508.
(c) DESIGNATION OF PROPERTY ADMINISTRATOR - RECORDS OF PROPERTY (FM 45
105(a)).
<PAGE>
Page 11
The Defense Contract Management Command is designated to administer the
maintenance by the contractor of official Government Property Records, in
accordance with the provisions of Section 45 of the Federal Acquisition
Regulations.
(End of clause)
H.13 SUBCONTRACTING
(a) FAR 52.244-2 shall apply to any subcontract entered into for the
performance of the requirements of any Cost Type Job Order issued under this
Agreement.However, it is agreed that the term "Subcontracts", as used in
this Article, will not include normal Purchase Orders for any standard
commercial items required under those Job Orders. Therefore, such Purchase
Orders will be exempt from the provisions of this paragraph. It should be noted
that this definition of "subcontracts" does not apply to any requirement for
submission of a Subcontracting Plan as outlined in H.11 of this Agreement.
(b) The Contractor shall not enter into a subcontract involving the type of
work specified herein without obtaining in advance the written approval of the
Contracting Officer and subject to the conditions that he may prescribe when
required by the terms of FAR 52.244-2.
(End of clause)
H.14 SUBCONTRACTING PLAN FOR SMALL BUSINESS AND SMALL DISADVANTAGE BUSINESS
CONCERNS
(a) In accordance with Public Law 95-507, FAR and FAR SUP, a Subcontracting
Plan for small business and Small Disadvantaged Business Concerns will be
required prior to the award of any individual Job Order over $500 000. Offeror
may submit plan with initial proposal. If not submitted with the initial
proposal, a plan shall be submitted when requested by the Contracting Officer.
(b) The Offeror is hereby notified that no Job Order will be awarded unless
and until a plan is negotiated with and accepted by the Contracting Officer and
such acceptable plan is incorporated into the Job Order as a material part
thereof.
(End of clause)
H.15 CERTIFICATION OF INDIRECT COSTS
The Contractor shall provide a copy of the certification submitted to DCMC
pursuant to FAR Clause No. 52.242-4 for retention in each Job Order file.
(End of clause)
H.16 ACCESS TO GOVERNMENT FACILITIES BY UNCLEARED ELECTRONIC EQUIPMENT SERVICE
PERSONNEL
<PAGE>
Contractor personnel who have access to sponsoring Government facilities
under the terms of a Job Order, at a minimum, must successfully complete limited
personnel security screening consisting of a National Agency Check and a
polygraph interview confined to questions of a counterespionage nature.
Contractor personnel with continuing access also will be subject to a periodic
counterespionage-scope polygraph interviews.
(End of clause)
H.17 INCORPORATION OF SECTION K BY REFERENCE
In accordance with FAR 15.204-l(b), Part IV of the Uniform Contract Format
shall not be physically included in the Job Orders, but Section K,
Representations, Certifications, and Other Statements of Offerors (as completed
by the Contractor), shall be deemed incorporated by reference in each Job Order.
The provisions listed below shall be completed for each Job Order as applicable.
After supplied to the MPO, these shall be deemed incorporated by reference also.
52 215-6 PLACE OF PERFORMANCE
52 215-7 ANNUAL REPRESENTATIONS AND CERTIFICATIONS -NEGOTIATION
52 222-25 AFFIRMATIVE ACTION COMPLIANCE
52 223-1 CLEAN AIR AND WATER CERTIFICATION (APR 1984)
52 227-7 PATENTS - NOTICE OF GOVERNMENT LICENSEE
52 230-1 COST AND ACCOUNTING STAND M DS NOTICES AND CERTIFICATION
252 225 - 7000B BUY AMERICAN ACT - BALANCE OF PAYMENTS PROGRAM CERTIFICATE
252 225 - 7003 INFORMATION FOR DUTY-FREE ENTRY EVALUATION
252 225 - 7006 BUY AMERICAN ACT - TRADE AGREEMENTS ACT -BALANCE OF
PAYMENTS PROGRAM CERTIFICATE
252 225 - 7018 NOTICE OF PROHIBITION OF CERTAIN CONTRACTS WITH FOREIGN
ENTITIES FOR THE CONDUCT OF BALLISTIC MISSILE DEFENSE
RDT&E
352 209 - 9000 FINANCIAL RESOURCES
(End of clause)
H.18 RETENTION OF INFORMATION
After completion of each Job Order, and at the completion of the period of
performance of the Basic Ordering Agreement, the Contractor shall not retain in
his possession (unless specified by the Job Order document) any drawings,
sketches, prints, reports, or other data developed under each Job Order without
written approval of the Contracting Officer or his duly authorized
representative. If the Contracting Officer so directs, the contractor shall
return all information to the Government. This data to be provided to the
contracting officer does not include contractor proprietary financial data.
(End of clause)
<PAGE>
Page 12
H.19 SPECIAL PROVISION FOR LATE DELIVERY (APPLICABLE TO ALL FIXED PRICE JOB
ORDERS)
If the Contractor fails to make delivery of the items called for herein on
or before the contractual delivery date without proof of an excusable delay as
defined in the Default provision of this BOA and Job Order, and the Government
does not elect to terminate performance in accordance with the termination
provisions of this BOA, then the parties shall promptly and in good faith
negotiate an extended delivery schedule in exchange for adequate consideration
from the Contractor. Should the parties fail to reach agreement on such a
modification, the Contracting Officer may unilaterally determine what
constitutes a reasonable delivery schedule and the consideration therefore.
Failure to agree to such schedule and consideration shall be a dispute
concerning a question of fact within the meaning of the clause of this BOA
entitled "Disputes". The rights and remedies set forth in this clause shall not
be exclusive and are in addition to any other rights and remedies provided by
law or under this contract
(End of clause)
H.20 NOTICE - 52.232 PROMPT PAYMENT (SEP 1992) (DEVIATION)
A class deviation was received from the Offices of the Under Secretary of
Defense as follows:
(a) Delete from the lead-in paragraph: "The term "foreign vendor" means an
incorporated concern not incorporated in the United States or an unincorporated
concern having its principal place of business outside the United States.
(b) Delete the last sentence of paragraph (a)(5) which states: "An interest
penalty shall not be paid on contracts awarded to foreign vendors outside the
United States for work performed outside the United States".
(End of clause)
<PAGE>
Page 13
PART II - CONTRACT CLAUSES
SECTION I - CONTRACT CLAUSES
I.1 REFERENCED CLAUSES The following contract clauses are hereby incorporated
by reference.
CLAUSE NO. TITLE
FAR CLAUSES
52.202-1 Definitions (OCT 1995)
52.203-5 Covenant Against Contingent Fees (APR 1984)
52.203-7 Anti Kickback Procedures (JUL 1995)
52.203-8 Cancellation Rescission and Recovery of Funds for Illegal or
Improper Activity (JAN 1997)
52.203-10 Price or Fee Adjustment for Illegal or Improper Activity (JAN
1997)
52.204-4 Printing/Copying Double-Sided on Recycled Paper (JUN 1996)
52.209-6 Protecting the Government's Interest When Subcontracting with
contractors Debarred Suspended or Proposed for Debarment (AUG
1995)
52.211-5 Material Requirements (OCT 1997)
52.211-15 Defense Priority and Allocation Requirements (SEP 1990)
52.215-8 Order of Precedence - Uniform contract Format (OCT 1997)
52.219-8 Utilization of Small Business Concerns and Small Disadvantaged
Business Concerns (JUN 1997)
52.225-11 Restrictions on Certain Foreign Purchases (MAY 1992)
52.232-17 Interest (Jun 1996)
52.232-23 Assignment of Claims (JAN 1986)
52.242-13 Bankruptcy (JUL 1995)
52.253-1 Computer Generated Forms (JAN 1991)
DFARS CLAUSES
252.203-7001 Special Prohibition on Employment (JUN 1997)
252.204-7003 Control of Government Personnel Work Product (APR 1992)
252.209-7000 Acquisition From Subcontractors Subject to On-site
Inspection Under the Intermediate Range Nuclear Forces (INF)
Treaty (NOV 1995)
252.223-7004 Drug-Free Work Force (SEP 1988)
252.225-7012 Preference for Certain Domestic Commodities (FEB 1997)
252.225-7016 Restriction on Acquisition of Antifriction Bearings (JON 1997)
252.225-7031 Secondary Arab Boycott of Israel (JUN 1992)
252.231-7000 Supplemental Cost Principles (DEC 1991)
<PAGE>
252.232-7006 Reduction or Suspension of Contract Payments Upon Finding of
Fraud (AUG 1992)
252.243-7002 Certification of Requests for Equitable Adjustment (JUL 1997)
252.247-7023 Transportation of Supplies by Sea (NOV 1995)
I.2 FIXED PRICE R&D. The following contract clauses pertinent to Fixed Price
R&D contracts are hereby incorporated by reference
CLAUSE NO. TITLE
FAR CLAUSES
52.222-4 Contract Work Hours and safety Standards Act - Overtime
Compensation (JUL 1995)
52.232-2 Payments under Fixed-Price Research and Development Contracts
(APR 1984)
52.233-3 Protest After Award (OCT 1995)
52.243-1 Changes - Fixed Price (AUG 1987) - Alternate V (APR 1984)
52.249-9 Default (Fixed Price Research and Development) (APR 1984)
DFARS CLAUSES
252.235-7010 Acknowledgement of Support and Disclaimer (MAY 1995)
252.235-7011 Final Scientific or Technical Report (MAY 1995)
252.243-7001 Pricing of Contract Modifications (DEC 1991)
I.3 FIXED PRICE SERVICE. The following contract clauses pertinent to Fixed
Price Service contracts are hereby incorporated by reference
CLAUSE NO. TITLE
FAR CLAUSES
52.222-4 Contract Work Hours and Safety Standards Act - Overtime
Compensation (JUL 1995)
52.232-1 Payments (APR 1984)
52.232-11 Extras (APR 1984)
52.233-3 Protest After Award (OCT 1995)
52.249-8 Default (Fixed Price Supply and Service) (APR 1984)
DFARS CLAUSES
252.243-7001 Pricing of contract Modifications (DEC 1991)
<PAGE>
Page 14
I.4 FIXED PRICE SUPPLY. The following contract clauses pertinent to Fixed Price
Supply contracts are hereby incorporated by reference:
CLAUSE NO. TITLE
FAR CLAUSES
52.203-3 Gratuities (APR 1984)
52.215-26 Integrity of Unit Prices (FEB 1997) - Alternate I (APR 1991)
52.222-20 Walsh-Healey Public Contracts Act (DEC 1996)
52.232-1 Payments (APR 1984)
52.232-11 Extras (APR 1984)
52.233-3 Protest After Award (OCT 1995)
52.243-1 Changes - Fixed Price (AUG 1987)
52.249-8 Default (Fixed Price Supply and Service)(APR 1984)
52.251-1 Government Supply sources (APR 1984)
DFARS CLAUSES
252.225-7009 Duty Free Entry - Qualifying Country End Products and Supplies
(JAN 1997)
252.243-7001 Pricing of Contract Modifications (DEC 1991)
252.251-7000 Ordering From Government Supply Sources (MAY 1995)
I.5 COST REIMBURSEMENT R&D. The following contract clauses pertinent to Cost
Reimbursement RED contracts are hereby incorporated by reference:
CLAUSE NO. TITLE
FAR CLAUSES
52.203e3 Gratuities (APR 1984)
52.228e7 Insurance Liability to Third Persons (MAR 1996)
52.233e3 Protest After Award (OCT 1995)
52.242e1 Notice of Intent to Disallow Costs (APR 1984)
52.243e2 Changes - Cost Reimbursement (AUG 1987) Alternate V (APR 1984)
52.244e2 Subcontracts Under Cost Reimbursement and Letter Contracts (OCT
1997) Alternate I (AUG 1996)
DFARS CLAUSES
252.235-7010 Acknowledgement of Support and Disclaimer (MAY 1995
252.235-7011 Final Scientific or Technical Report (MAY 1995)
<PAGE>
I.6 COST REIMBURSEMENT SERVICE. The following contract clauses pertinent to
Cost Reimbursement Service contracts are hereby incorporated by reference:
CLAUSE NO. TITLE
FAR CLAUSES
52.203-3 Gratuities (APR 1984)
52.228-7 Insurance - Liability to Third Persons (M M 1996)
52.233-3 Protest After Award (OCT 1995)
52.242-1 Notice of Intent to Disallow Costs (APR 1984)
52.244-2 Subcontracts Under Cost-Reimbursement and Letter Contracts (OCT
1997) - Alternate I (AUG 1996)
I.7 COST REIMBURSEMENT SUPPLY. The following contract clauses pertinent to Cost
Reimbursement Supply contracts are hereby incorporated by reference:
CLAUSE NO. TITLE
FAR CLAUSES
52.203-3 Gratuities (APR 1984)
52.215-26 Integrity of Unit Prices (FEB 1997) - Alternate I (APR 1991)
52.222-20 Walsh-Healey Public Contracts Act (DEC 1996)
52.228-7 Insurance - Liability to Third Persons (MAR 1996)
52.233-3 Protest After Award (OCT 1995)
52.242-1 Notice of Intent to Disallow Costs (APR 1984)
52.243-2 Changes - Cost-Reimbursement (AUG 1987) - Alternate V (APR 1984)
52.244-2 Subcontracts Under Cost-Reimbursement and Letter Contracts (OCT
1997) - Alternate I (AUG 1996)
DFARS CLAUSES
252.225-7009 Duty Free Entry - Qualifying Country End Products and
Supplies (JAN 1997)
I.8 TIME-AND-MATERIAL/LABOR-HOURS. The following contract clauses pertinent to
Time-and-Materials/Labor-Hours contracts are hereby incorporated by reference:
CLAUSE NO. TITLE
FAR CLAUSES
52.222-4 Contract Work Hours and Safety Standards Act - Overtime
Compensation (JUL 1995)
<PAGE>
Page 15
52.233-3 Protest After Award (AUG 199 6)
52.243-3 Changes -- Time-and-Materials or Labor-Hours (AUG 19871
52.244-3 subcontracts Under Time-and-Materials and Labor-Hour Contracts
(OCT 1997)
52.249-14 Excusable Delays (APR 1984)
52.251-1 Government Supply sources (APR 19841
DFARS CLAUSES
252.243-7001 Pricing of contract Modifications (DEC 1991)
I.9 52.252-2 CLAUSES INCORPORATED BY REFERENCE (FEB 1998)
This contract incorporates one or more 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. Also, the full text of
a clause may be accessed electronically at this/these address(es): N/A at this
time.
(End of clause)
I.10 FOR COST REIMBURSEMENT CONTRACTS
(a) Allowable costs shall constitute the costs incurred by the Contractor
in the performance of Job Orders issued against this Agreement and acceptable to
the Contracting officer or his authorized representative as chargeable thereto
in accordance with FAR 52.216-7, limited by contract clause FAR 52.232-22 of
this Agreement. For purposes of the Agreement, the contract clauses concerning
"Limitation of Cost" and "Allowable Cost and Payments" shall be applicable to
Job Orders negotiated hereunder in the same manner as though the words "this
contract" in each instance in which they appear in the said clauses were to read
"each job order" negotiated under this Agreement".
(b) Reimbursement for costs shall be accomplished in accordance with the
following
(1) Use for fully funded cost reimbursement awards:
(i) Allowable costs constitute those costs incurred by the
contractor in the performance of this contract which are acceptable by the
Contracting Officer or his duly authorized representative and chargeable hereto
in accordance with FAR 52.216-7, limited by contract clause FAR 52.232-20
entitled "Limitation of Cost".
(ii) Travel shall be reimbursed at cost. Lodging shall be
reimbursed at actual cost; meals and incidental expenses shall be reimbursed at
the applicable flat rate. The total of lodging, meals, and incidental expenses
shall not exceed the established rate for each location set forth in the
"Federal Travel Regulations" (FTB), the "Joint Travel Regulations",
<PAGE>
Volume 2 (JTR), and the "Standardized Regulations" Government Civilians, Foreign
Areas), Section 925" as applicable. These costs shall be chargeable directly to
this contract in accordance with the contractor's established method of
distributing such costs.
(iii) Upon determination of the allowable costs, actual overhead,
and general and administrative expense costs applicable to this contract, any
payment that shall have been made to the contractor shall be adjusted to reflect
such actual costs.
NOTE: Add the following only when precontract costs have been authorized:
(iv) Precontract costs incurred on or after _______ in an amount
NTE $_______ in anticipation of contract award are recognized to the extent they
are otherwise reasonable, allowable, and allocable.
(2) Use for incrementally funded cost reimbursement awards
(i) Allowable costs constitute those costs incurred by the
contractor in the performance of this contract which are acceptable by the
Contracting Officer or his duly authorized representative and chargeable hereto
in accordance with FAR 52.216.7, limited by contract clause FAR 52.232.22
entitled "Limitation of Funds" .
(ii) Travel shall be reimbursed at cost Lodging shall be
reimbursed at actual cost meals and incidental expenses shall be reimbursed at
the applicable flat rate. The total of lodging, meals, and incidental expenses
shall not exceed the established rate for each location set forth in the
"Federal Travel Regulations" (FTR); the "Joint Travel Regulations", Volume 2
(JTR) and the "Standardized Regulations" Government Civilians, Foreign Areas)
Section 925" as applicable. These costs shall be chargeable directly to this
contract in accordance with the contractor's established method of distributing
such costs.
(iii) Upon determination of the allowable costs, actual overhead
and general and administrative expense costs applicable to this contract, any
payment that shall have been made to the contractor shall be adjusted to reflect
such actual costs.
NOTE: Add the following only when precontract costs have been authorized.
(iv) Precontract costs incurred on or after ________ in an
amount NTE $________ in anticipation of contract award are recognized to the
extent they are otherwise reasonable, allowable, and allocable.
(End of clause)
I.11 FOR FIXED FEE TERM CONTRACTS:
(a) The Statutory Fee Limitations stated in FAR 15.903(d) apply to Cost
Reimbursement to orders placed under this Basic ordering Agreement.
<PAGE>
(b) The following provisions are applicable to term type Cost-Plus-Fixed-
Fee job orders placed against this BOA.
(1) It is understood and agreed that the rate of man-hours per month may
fluctuate in
<PAGE>
Page 16
pursuit of the technical objective, however, such fluctuations will be
controlled to avoid and exhaustion of the total man-hours of effort before the
expiration of the term of the contract. In controlling the utilization of man-
hours of effort the Contractor shall promptly notify the Contracting in writing
when there is indication that premature exhaustion of the total man-hours is
predicted. When deemed necessary by the Contractor, the hours of effort in any
classification shown in each individual job order may be used in any other
direct labor classification in that job order.
(2) The estimated cost and fixed fee is predicated upon the contractor
furnishing the level of effort specified herein. The fee shall be payable in
direct proportion to the level of effort expended upon certification by the
Contractor of the effort expended and the Government acceptance of the technical
quality of performance.
(3) It is further agreed that the Contractor may submit written request for
acceleration of the average hourly rate of effort that will result in the
utilization of the total man-hours set forth in each individual job order prior
to the expiration date of that job order. If such request is approved by the
Contracting Officer, the accelerated performance shall be without increase in
fee and the transaction formalized by Supplemental Agreement to that job order.
When such accelerated performance is desired by the Government, the agreement
negotiated shall be formalized by Supplemental Agreement to that job order.
(End of clause)
I.12 REFERENCED CLAUSES - WHEN APPLICABLE. The following clauses (when
applicable) are hereby incorporated by reference:
CLAUSE NO. TITLE
FAR CLAUSES
52.203-3 Gratuities (NOV 1990)
52.203-6 Restrictions on Subcontracting Sales to the Government (JUL 1995)
52.203-6 Restrictions on subcontracting Sales to the Government (JUL 1995)
Alternate I (OCT 1995)
52.203-12 Limitations on Payments to Influence Certain Federal Transactions
(JUN 1997)
52.204-2 Security Requirements (AUG 1996)
52.204-2 Security Requirements (AUG 1996) - Alternate I (APR 1984)
52.215-2 Audits and Records Negotiations (AUG 1996)
52.215-2 Audits and Records - Negotiations (AUG 1996) - Alternate II (JAN
1997)
52.215-2 Audits and Records - Negotiations (AUG 1996) - Alternate III (JAN
1997)
<PAGE>
52.215-9 Changes or Additions to Make-or-Buy Program (OCT 1997)
52.215-9 Changes or Additions to Make-or-Buy Program (OCT 1997) -
Alternate I (OCT 1997)
52.215-9 Changes or Additions to Make-or-Buy Program (OCT 1997) -
Alternate II (OCT 1997)
52.215-10 Price Reduction for Defective Cost or Pricing Data (OCT 1997)
52.215-11 Price Reduction for Defective Cost or Pricing Data --
Modifications (OCT 1997)
52.215-12 Subcontractor Cost or Pricing Data (OCT 1997)
52.215-13 Subcontractor Cost or Pricing Data -- Modifications (OCT 1997)
52.215-14 Integrity of Unit Prices (OCT 1997)
52.215-14 Integrity of Unit Prices (OCT 1997) - Alternate I (OCT 1997)
52.215-15 Termination of Defined Benefit Pension Plans (OCT 1997)
52.215-17 Waiver of Facilities Capital Cost of Money (OCT 1997) 52.215-18
Reversion or Adjustment of Plans for Postretirement Benefits
(PRB) other Than Pensions (OCT 1997)
52.215-19 Notification of ownership Changes (OCT 1997)
52.216-7 Allowable Cost and Payment (FEB 1998)
52.216-7 Allowable Cost and Payment (FEB 1998) - Alternate I (APR 1984)
52.216-8 Fixed Fee (FEB 1997) (DEV)
52.216-11 Cost Contract - No Fee (APR 1984)
52.216-12 Cost Sharing Contract - No Fee (APR 1984)
52.216-15 Predetermined Indirect Cost Rates (FEB 1998)
52.217-8 Option to Extend services (AUG 1989)
52.219-9 Small, Small Disadvantaged and Women-Owned Small Business
Subcontracting Plan (AUG 1996)
52.219-9 Small, Small Disadvantaged and Women-Owned Small Business
Subcontracting Plan (AUG 1996) Alternate II (MAR 1996)
52.219-16 Liquidated Damages - subcontracting Plan (OCS 1995)
52.222-l Notice to the Government of Labor Disputes (FEB 1997)
52.222-3 Convict Labor (AUG 1996)
52.222-4 Contract Work Hours and Safety Standards Act Overtime
Compensation (JUL 1995)
52.222-26 Equal Opportunity (APR 1984)
52.222-28 Equal opportunity Pre-Award Clearance of Subcontracts (APR 1984)
52.222-35 Affirmative Action for Special Disabled and Vietnam Era Veterans
(APR 1984)
52.222-36 Affirmative Action for Handicapped Workers (APR 1984)
52.222-37 Employment Reports on Special Disabled Veterans and Veterans of
the Vietnam Era (JAN 1988)
52.222-50 Nondisplacement of Qualified Workers (AUG 1997)
52.223-2 Clean Air and Water (APR 1984)
52.223-3 Hazardous Material Identification and Material Safety Data (JAN
1997)
52.223-5 Pollution Prevention and Right-to-Know Information (NAR 1997)
52.223-6 Drug-Free Workplace (JAN 1997)
52.223-11 Ozone Depleting Substances (JUN 1996)
52.223-12 Refrigeration Equipment and Air Conditioners (MAY 1995)
<PAGE>
52.226-1 Utilization of Indian Organizations and Indian-Owned Economic
Enterprises (SEP 1996)
52.227-1 Authorization and Consent (JUL 1995)
52.227-2 Notice and Assistance Regarding Patent and Copyright Infringement
(AUG 1996)
52.227-3 Patent Indemnity (APR 1984)
52.227-10 Filing of Patent Applications-Classified Subject Natter (APR
1984)
52.227-11 Patient Rights - Retention by the Contractor (Short Form) (JUN
1997)
52.227-12 Patent Rights - Retention by the Contractor (Long Form) (JAN
1997)
52.228-5 Insurance - Work on a Government Installation (JAN 1997)
52.228-14 Irrevocable Letter of Credit (JUN 1996)
52.228-16 Performance and Payment Bonds - Other Than Construction(SEP 1996)
<PAGE>
Page 17
52.228-16 Performance and Payment Bonds Other Than Construction (SEP 1996)
-Alternate I (SEP 1996)
52.229-4 Federal State and Local Taxes (Noncompetitive Contract) (JAN
1991)
52.229-5 Taxes - Contracts Performed in V 5 Possessions or Puerto Rico
(APR 1984)
52.229-6 Taxes - Foreign Fixed Price Contracts (JAN 1991)
52.230-2 Cost Accounting Standards (AUG 1992)
52.230-3 Disclosure and Consistency of Cost Accounting Practices (APR
1996)
52.230-4 Consistency in Cost Accounting Practices (AVG 1992)
52.230-5 Cost Accounting Standards - Educational Institution (APR 1996)
52.230-6 Administration of Cost Accounting Standards (APR 1996)
52.232-9 Limitation on Withholding of Payments (APR 1984)
52.232-20 Limitation of Cost (APR 1984)
52.232-22 Limitation of Funds (APR 1984)
52.232-25 Prompt Payment (JAN 1997)
52.233-l Disputes (OCT 1995)
52.233-l Disputes (OCT 1995) - Alternate I (DEC 1991)
52.237-2 Protection of Government Buildings Equipment and Vegetation (APR
1984)
52.237-3 Continuity of Services (JAN 1991)
52.242-3 Penalties for Allowable Costs (OCT 1995)
52.242-4 Certification of Indirect Costs (JAN 1997)
52.242-12 Report of shipment (REPSHIP) (JUL 1995)
52.243-l Changes - Fixed Price (AUG 1987)
52.243-l Changes - Fixed Price (AUG 1987) - Alternate I (APR 1984)
52.243-l Changes - Fixed Price (AUG 1987) - Alternate II (APR 1984)
52.243-1 Changes - Fixed Price (AUG 1987) - Alternate V (APR 1984)
52.243-2 Changes Cost-Reimbursement (AUG 1987)
52.243-2 Changes - Cost-Reimbursement (AUG 1987) - Alternate I (APR 1984)
52.243-2 Changes - Cost-Reimbursement (AUG 1987) - Alternate II (APR 1984)
52.243-6 Change Order Accounting (APR 1984)
52.244-l Subcontracts (Fixed Price Contracts) (OCT 1997)
52.244-1 subcontracts (Fixed Price Contracts) (OCT 1997) Alternate I (APR
1984)
52.244-2 Subcontracts Under Cost-Reimbursement and Letter Contracts (OCT
1997) - Alternate I (AUG 1996)
52.244-5 Competition in Subcontracting (DEC 1996)
52.244-6 Subcontracts for Commercial Items and Commercial Components (OCT
1995)
52.245-2 Government Property (Fixed-Price Contracts) (DEC 1989)
52.245-2 Government Property (Fixed Price Contracts) (DEC 1989) -
Alternate I (APR 1984)
52.245-4 Government-Furnished Property (short Form) (APR 1984)
<PAGE>
52.245 5 Government Property (Cost-Reimbursement Time-and-Material or
Labor-Hour Contracts (JAN 1986)
52.245-5 Government Property (Cost Reimbursement Time-and Material or
Labor-Hour Contracts (JAN 1986) Alternate I (JUL 1985)
52.245-19 Government Property Furnished - As Is (APR 1984)
52.246-23 Limitation of Liability (FEB 1997)
52.246-25 Limitation of Liability - Services (FEB 1997)
52.247-1 Commercial Bill of Lading Notations (APR 19&4)
52.248-l Value Engineering (DEC) (MAR 1989)
52.249-1 Termination for Convenience of the Government (Fixed-Price)
(Short Form) (APR 1984)
52.249-2 Termination for Convenience of the Government (Fixed Price)(SEP
1996)
52.249-2 Termination for Convenience of the Government (Fixed Price)(SEP
1996) - Alternate II (SEP 1996)
52.249-4 Termination for Convenience of the Government (Services) (Short
Form) (APR 1984)
52.249-5 Termination for Convenience of the Government (Educational and
Other Non-Profit Institutions) (SEP 1996)
52.249-6 Termination (Cost-Reimbursement) (SEP 1996)
52.249-6 Termination (Cost-Reimbursement) (SEP 1996) Alternate IV (SEP
1996)
52.249-6 Termination (Cost-Reimbursement) (SEP 1996) - Alternate V (SEP
1996)
52.249-14 Excusable Delays (APR 1984)
52.251-l Government Supply Sources (APR 1984)
DFARS CLAUSES
252.201-7000 Contracting Officer's Representative (DEC 1991)
252.204-7000 Disclosure of Information (DEC 1991)
252.205-7000 Provision of Information to Cooperative Agreement Holders (DEC
1991)
252.215-7000 Pricing Adjustments (DEC 1991)
252.215-7002 Cost Estimating System Requirements (DEC 1991)
252.219-7003 small Business and Small Disadvantaged Business
subcontracting Plan (DoD Contracts) (NOV 1995)
252.223-7005 Hazardous Waste Liability (OCT 1992)
252.223-7006 Prohibitions on storage and Disposal of Toxic and Hazardous
Materials (APR 1993)
252.225-7001 Buy American Act and Balance of Payments Program (JAN 1994)
252.225-7002 Qualifying Country Sources as Subcontractors (DEC 1991)
252.225-7005 Identification of Expenditures in the United States (DEC 1991)
252.225-7026 Reporting of Contract Performance Outside the United States (NOV
1995)
252.225-7036 North American Free Trade Agreement Implementation Act (JAN 1994)
252.225-7036 North American Free Trade Agreement Implementation Act (JAN 1994)
- Alternate I (MAY 1995)
252.225-7037 Duty-Free Entry - NAFTA Country End Products and Supplies (JAN
1997)
<PAGE>
252.226-7000 Notice of Historically Black Colleges or Universities and
Minority Institution Set-asides (APR 1994)
252.227-7013 Rights in Technical Data - Noncommercial Items (NOV 1995)
252.227-7030 Technical Data - Withholding of Payments (OCT 1988)
252.232-7007 Limitation of Government's Obligation (AUG 1993)
252.232-7007 Limitation of Government's Obligation (AUG 1993) - Alternate I
(AUG 1993)
252.239-7000 Protection Against Compromising Emanations (DEC 1991)
252.244-7000 Subcontractors for Commercial Items and Commercial Components
(DoD Contracts) (FEB 1997)
<PAGE>
Page 18
252.245-7001 Reports of Government Property (MAY 1994)
252.246-7000 Material Inspection and Receiving Report (DEC 1991)
252.251-7000 Ordering From Government Supply Sources (MAY 1995)
FULL TEXT CLAUSES - WHEN APPLICABLE. The following clauses (when applicable)
shall be incorporated in this contract
I.13 52.222-2 PAYMENT FOR OVERTIME PREMIUMS (JUL l990)
(a) The use of overtime is authorized under this contract if the overtime
premium does not exceed __________ or the overtime premium is paid for work.
(l) Necessary to cope with emergencies such as those resulting from
accidents, natural disasters, breakdowns of production equipment, or occasional
production bottlenecks of a sporadic nature;
(2) By indirect-labor employees such as those performing duties in
connection with administration protection, transportation, maintenance, standby
plant protection, operation of utilities, or accounting;
(3) To perform tests, industrial processes, laboratory procedures,
loading or unloading of transportation conveyances, and op rations in flight or
afloat that are continuous in nature and cannot reasonably be interrupted or
completed otherwise; or
(4) That will result in lower overall costs to the Government.
(b) Any request for estimated overtime premiums that exceeds the amount
specified above shall include all estimated overtime for contract completion and
shall -
(1) Identify the work unit; e.g., department or section in which the
requested overtime will be used, together with present workload, staffing, and
other data of the affected unit sufficient to permit the Contracting officer to
evaluate the necessity for the overtime.
(2) Demonstrate the effect that denial of the request will have on the
contract delivery or performance schedule;
(3) Identify the extent to which approval of overtime would affect the
performance or payments in connection with other Government contracts, together
with identification of each affected contract; and
(4) Provide reasons why the required work cannot be performed by using
multishift operations or by employing additional personnel
(End of clause)
<PAGE>
Page 19
PART IV - REPRESENTATIONS AND INSTRUCTIONS
SECTION K - REPRESENTATIONS, CERTIFICATIONS, AND OTHER STATEMENTS OF OFFERORS
Award of any contract to the offeror shall incorporate the following applicable
representations certifications and other statements of offerors by reference.
REPRESENTATIONS/CERTIFICATIONS (Check or complete all applicable blocks ( ) and
Blanks)
K.1 REFERENCED PROVISIONS. The following contract provisions are hereby
incorporated by reference.
CLAUSE NO. TITLE
FAR CLAUSES
52.203-11 Certification and Disclosure Regarding Payments to Influence
Certain Federal Transactions (APR 1991)
52.222-21 Certification of Nonsegregated Facilities (APR 1984)
DFARS CLAUSES
252.209-7001 Disclosure of Ownership or Control by the Government of a
Terrorist Country(SEP 1994)
252.209-7002 Disclosure of Ownership or Control by a Foreign Government
(SEP 1994)
252.227-7028 Technical Data or Computer Software Previously Delivered to
the Government (JUN 1995)
K.2 52 204-3 TAXPAYER IDENTIFICATION (JAN 1997)
(a) Definitions
"Common Parent," as used in the solicitation provision means that corporate
entity that owns or controls an affiliated group of corporations that files its
Federal income tax returns on a consolidated basis and of which the offeror is a
member
"Corporate status" as used in this solicitation provision means a
designation as to whether the offeror is a corporate entity (e.g., sole
proprietorship or partnership) or a corporation providing medical and health
care services
"Taxpayer Identification Number (TIN)" as used in this solicitation
provision means the number required by the IRS to be used by the offeror in
reporting income tax and other returns
<PAGE>
(b) All offerors are required to submit the information required in
paragraphs (c) through (e) of this solicitation provision in order to comply
with reporting requirements of 26 U.S.C. 6041.6041A and 6050M and implementing
regulations issued by the Internal Revenue Service (IRS). If the resulting
contract is subject to reporting requirements described in 4 903, the failure or
refusal by the offeror to furnish the information may result in a 31 percent
reduction of payments otherwise due under the contract.
(c) Taxpayer Identification Number (TIN)
( ) TIN: 95-265-1703
( ) TIN has been applied for.
( ) TIN is not required because:
( ) Offeror is a nonresident alien, foreign corporation, or foreign
partnership that does not have income effectively connected with the conduct of
trade or business in the U S and does not have an office or place of business or
a fiscal paying agent in the U.S.
( ) Offeror is an agency or instrumentality of a foreign government.
( ) Offeror is an agency or instrumentality of a Federal state or
local government.
( ) Other State basis.
(d) Corporate Status
( ) Corporation providing medical and health care services or engaged
in the billing and collecting of payments for such services.
(X) Other corporate entity.
( ) Not a corporate entity.
( ) Sole proprietorship.
( ) Partnership.
( ) Hospital or extended care facility described in 26 CFR 501(c)(3)
that is exempt from taxation under 26 CFR 501(a).
(e) Common Parent:
( ) Offeror is not owned or controlled by a common parent as defined
in paragraph (a) of this provision.
( ) Name and TIN of common parent.
NAME
TIN
(End of provision)
K.3 52.204-5 WOMEN-OWNED BUSINESS (OCT 1995)
<PAGE>
Page 20
(a) Representation. The offeror represents that it ( ) is (X) is not a
women-owned business concern.
(b) Definitions
Women-owned business concern as used in this provision means a
business that is at least 51 percent owned by one or more women or in the case
of nay publicly owned business, at least 51 percent of the stock of which is
owned by one or more women and whose management and daily business operations
are controlled by one or more women.
(End of provision)
K.4 52.209-5 CERTIFICATION REGARDING DEBARMENT, SUSPENSION, PROPOSED DEBARMENT,
AND OTHER RESPONSIBILITY MATTERS (MAR 1996)
(a) (1) The Offeror certifies to the best of its knowledge and belief
that --
(i) The Offeror and/or any of its Principals -
(A) Are ( ) are not (X) presently debarred suspended proposed for
debarment or declared ineligible for the award of contracts by any Federal
agency.
(B) Have ( ) have not (K), within a 3 year period preceding this
offer, been convicted of or had a civil judgement rendered against them for
commission of fraud or a criminal offense in connection with obtaining,
attempting to obtain, or performing a public (Federal state or local) contract
or subcontract; violation of Federal or state antitrust statutes relating to the
submission of offers; or commission of embezzlement, theft, forgery, bribery,
falsification or destruction of records, making false statements, tax evasion or
receiving stolen property; and
(C) Are ( ) are not (X) presently indicted for or otherwise
criminally or civilly charged by government entity with commission of any of the
offenses enumerated in subdivision (a)(1)(i)(B) of this provision.
(ii) The offeror has (X) has not ( ) within a 3-year period preceding
this offer had one or more contracts terminated for default by any Federal
Agency.
(2) "Principals", for the purposes of this certification, means; officers;
directors; owners; partners; and persons having primary management or
supervisory responsibilities within a business entity (e.g., general manager;
plant manager; head of a subsidiary, division, or business segment and similar
positions).
<PAGE>
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 Section 1001
Title 18 United States Code.
(b) The Offeror shall provide immediate written notice to the Contracting
officer if, at any time prior to contract award, the Offeror learns that its
certification was erroneous when submitted or has become erroneous by reason of
changed circumstances.
(c) A certification that any of the items in paragraph (a) of this
provision exists will not necessarily result in withholding of an award under
this solicitation. However, the certification will be considered in connection
with a determination of the Offeror's responsibility. Failure of the offeror to
furnish a certification or provide such additional information as requested by
the Contracting Officer may render the Offeror nonresponsible.
(d) Nothing contained in the foregoing shall be construed to require
establishment of a system of records in order to render in good faith the
certification required by paragraph (a) of this provision The knowledge and
information of an offeror is not required to exceed that which is normally
possessed by a prudent person in the ordinary course of business dealings.
(e) The certification in paragraph (a) of this provision is a material
representation of fact upon which reliance was placed when making award. If it
is later determined that the offeror knowingly rendered an erroneous
certification in addition to other remedies available to the Government, the
Contracting Officer may terminate the contract resulting from this solicitation
for default.
(End of provision)
K.5 52.215-4 Type of Business Organization (OCT 1997)
The offeror or respondent by checking the applicable box represents that --
(a) It operates ( ) an individual, ( ) a partnership, ( ) a nonprofit
organization, ( ) a joint venture, or (XX) a corporation incorporated under the
laws of the State of California.
(b) If the offeror or respondent is a foreign entity, it operates as ( )
an individual, ( ) a partnership, ( ) a nonprofit organization, ( ) a joint
venture, or { ) a corporation registered for business in (country)
(End of provision)
K.6 52.215-6 Place of Performance (OCT 1997)
<PAGE>
Page 21
(a) The offeror or respondent, in the performance of any contract resulting
from this solicitation, ( ) intends, ( ) does not intend (check applicable
block) to use one or more plants or facilities located at a different address
from the address of the offeror or respondent as indicated in this proposal or
response to request for information.
(b) If the offeror or respondent checks "intends" in paragraph (a) of this
provision, it shall insert in the following spaces the required information:
Place of performance (street address, city, state, county, zip code
8150 Leesburg Pike #700
Vienna, VA 22182
Name and address of owner and operator of the plant or facility if other than
offeror or respondent.
(End of provision)
K.7 52.21577 Annual Representations and Certifications -- Negotiation (OCT
1997)
The offeror has [check the appropriate block]:
( ) (a) Submitted to the contracting office issuing this
solicitation, annual representations and certifications dated [insert date of
signature on submission] that are incorporated herein by reference, and are
current, accurate, and complete as of the date of this proposal, except as
follows [insert changes that affect only this proposal; if "none," so state]:
( ) (b) Enclosed its annual representations and certifications.
(End of provision)
K.8 52.219-1 SMALL BUSINESS PROGRAM REPRESENTATION (JAN 1997)
(a) (1) The standard industrial classification (SIC) code for this
acquisition is ______.
(2) The small business size standard is _____.
(3) The small business size standard for a concern which submits an
offer in its own name other than on a construction or service contract, but
which proposes to furnish a product which it did not itself manufacture, is 500
employees.
(b) Representation.
<PAGE>
(1) The offeror represents as part of its offer that it (X) is, ( )
is not a small business concern.
(2) (complete only if offeror represented itself as a small business
concern in block (b) (1) of this section.) The offeror represents as part of its
offer that it ( ) is, (X) is not a women-owned small business concern.
(c) Definition
Joint venture, for purposes of a small disadvantaged business (SDB)
set-aside or price evaluation preference (as prescribed at 13 CFR 124 321), is a
concern that is owned and controlled by one or more socially and economically
disadvantaged individuals entering into a joint venture agreement with one or
more business concerns and is considered to be affiliated for size purposes with
such other concern(s). The combined annual receipts or employees of the concerns
entering into the joint venture must meet the applicable size standard
corresponding to the SIC code designated for the contract. The majority of the
venture's earnings must accrue directly to the socially and economically
disadvantaged individuals in the SDB concern(s) in the joint venture. The
percentage of the ownership involvement in a joint venture by disadvantaged
individuals must be at least 51 percent.
Small business concern, as used in this provision, means a concern,
including its affiliates, that is independently owned and operated, not dominant
in the field of operation in which it is bidding on Government contracts, and
qualified as a small business under the criteria in 13 CPR Part 121 and the size
standard in paragraph (a) of this provision.
Small disadvantaged business concern, as used in this provision, means a
small business concern, that (1) is at least 51 percent unconditionally owned by
one or more individuals who are socially and economically disadvantaged, or a
publicly owned business, at least 51 percent of its stock unconditionally owned
by one or more socially and economically disadvantaged individuals; and (2) has
its management and daily business controlled by one or more such individuals.
This term also means a small business concern that is at least 51 percent
unconditionally owned by an economically disadvantaged Indian tribe or Native
Hawaiian Organization, or a publicly owned business having at least 51 percent
of its stock unconditionally owned by one or more of these entities, which has
its management and daily business controlled by members of an economically
disadvantaged Indian tribe or Native Hawaiian Organization and which meets the
requirements of 13 CFR 124.
Women-owned small business concern as used in this provision means a small
business concern -
(l) Which is at least 51 percent owned by one or more women or, in the case
of any publicly owned business, at least 51 percent of the stock of which is
owned by one or more women; and
<PAGE>
(2) Whose management and daily business operations are controlled by one or
more women.
<PAGE>
Page 22
(d) Notice
(1) If this solicitation is for supplies and has been set aside in
whole or in part for small business concerns, then the clause in this
solicitation providing notice of the set-aside contains restrictions on the
source of the end items to be furnished.
(2) Under 15 U.S.C. 645(d), any person who misrepresents a firm's
status as a small or small disadvantaged business concern in order to obtain a
contract to be awarded under the preference programs established pursuant to
sections 8(a), 8(d), 9 or 15 of the Small Business Act, or any other provision
of Federal law that specifically references section 8(d) for a definition of
program eligibility, shall
(i) Be punished by imposition of a fine, imprisonment, or both;
(ii) Be subject to administrative remedies, including suspension
and debarment; and
(iii) Be ineligible for participation in programs conducted
under the authority of the Act.
(End of provision)
K.9 52.219-2 EQUAL LOW BIDS (OCT 1995))
(a) This provision applies to small business concerns only.
(b) The bidder's status as a labor surplus area (LSA) concerns may affect
entitlement to award in case of tie bids. If the bidder wishes to be considered
for this priority, the bidder must identify, in the following space, the LSA in
which the costs to be incurred on account of manufacturing or production (by the
bidder or the first-tier subcontractors} amount to more than 50 percent of the
contract price.
_____________________________________
_____________________________________
(c) Failure to identify the labor surplus areas as specified in paragraph
(b) of this provision will preclude the bidder from receiving priority
consideration. If the bidder is awarded a contract as a result of receiving
priority consideration under this provision and would not have otherwise
received award, the bidder shall perform the contract or cause the contract to
be performed in accordance with the obligations of an LSA concern.
(End of provision)
K.10 52.222-22 PREVIOUS CONTRACTS AND COMPLIANCE REPORTS (APR 1984)
<PAGE>
The offeror represents that -
(a) It (X) has, ( ) has not participated in a previous contract or
subcontract subject either to the Equal Opportunity clause of this solicitation
the clause originally contained in Section 310 of Executive Order No 10925 or
the clause contained in Section 201 of Executive order No 11114;
(b) It (X) has, ( ) has not filed all required compliance reports; and
(c) Representations indicating submission of required compliance reports
signed by proposed subcontractors will be obtained before subcontract awards.
(End of provision)
K.11 52.222-25 AFFIRMATIVE ACTION COMPLIANCE (APR 1984)
The offeror represents that (a) it (X) has developed and has on file, ( )
has not developed and does not have on file at each establishment affirmative
action programs required by the rules and regulations of the Secretary of Labor
(41 CFR 60 1 and 60 2), or (b) it ( ) has not previously had contracts subject
to the written affirmative action programs requirement of the rules and
regulations of the Secretary of Labor.
(End of provision)
K.12 52.223-1 CLEAN AIR AND WATER CERTIFICATION (APR 1984)
The Offeror certifies that -
(a) Any facility to be used in the performance of this proposed contract
( ) is, (X) is not listed on the Environmental Protection Agency (EPA) List of
Violating Facilities;
(b) The Offeror will immediately notify the Contracting Officer, before
award of the receipt of any communication from the Administrator, or a designee,
of the EPA, indicating that any facility that the Offeror proposes to use for
the performance of the contract is under consideration to be listed on the EPA
List of Violating Facilities; and
(c) The offeror will include a certification substantially the same as
this certification including this paragraph (c) in every nonexempt subcontract.
(End of provision)
E.13 52.226-2 HISTORICALLY BLACK COLLEGE OR UNIVERSITY AND MINORITY INSTITUTION
REPRESENTATION (MAY 1997)
<PAGE>
Page 23
(a) Definitions. As used in this provision --
"Historically Black College or University" means an institution
determined by the Secretary of Education to m et the requirements of 34 CFR 608-
2. For the Department of Defense, the National Aeronautics and Space
Administration, and the Coast Guard, the term also includes any nonprofit
research institution that was an integral part of such a college or university
before November 14, 1986.
"Minority Institution" means an institution of higher education
meeting the requirements of Section 1046(3) of the Higher Education Act of 1965
(20 U.S.C. 1135d-5(3)) which, for the purpose of this provision, a Hispanic-
serving institution of higher education as defined in section 316(b)(1) of the
Act (20 U.S.C. 1059c(b)(1)).
(b) Representation. The offeror represents that it --
( ) is,(X) is not a Historically Black College or University;
( ) is (X) is not a Minority Institution.
(End of provision)
K.14 52.227-6 ROYALTY INFORMATION (APR 1984)
(a) Cost or charges for royalties. When the response to this solicitation
contains costs or charges for royalties totaling more than $250, the following
information shall be included in the response relating to each separate item of
royalty or license fee.
(1) Name and address of licensor.
(2) Date of license agreement.
(3) Patent numbers patent application serial numbers or other basis
on which royalty is payable.
(4) Brief description including any part or model numbers of each
contract item or component on which the royalty is payable.
(5) Percentage or dollar item of component on which royalty is
payable.
(6) Unit price of contract item.
(7) Number of units.
(8) Total dollar amount of royalties.
(b) Copies of current licenses. In addition if specifically requested by
the Contracting Officer before execution of the contract, the offeror shall
furnish a copy of the current license agreement and identification of applicable
claims of specific patents -
(End of provision)
K.15 52-227-7 PATENTS-NOTICE OF GOVERNMENT LICENSEE (APR 1984)
<PAGE>
The Government is obligated to pay a royalty application to the proposed
acquisition because of a license agreement between the Government and the patent
owner. The patent number is _____. If the offeror is the owner of or a license
under the patent, indicate below
( ) Owner
( ) Licensee
If an offeror does not indicate that it is the owner or a licensee of the
patent its offer will be evaluated by adding thereto an amount equal to the
royalty
(End of provision)
K.16 52.230.l COST AND ACCOUNTING STANDARDS NOTICES AND CERTIFICATION (APR
1996)
Note: This notice does not apply to small businesses or foreign
governments. This notice is in three parts identified by Roman numerals I
through III.
Offerors shall examine each part and provide the requested information in
order to determine Cost Accounting Standards (CAS) requirements applicable to
any resultant contract.
If the offeror is an educational institution, Part II does not apply unless
the contemplated contract will be subject to full or modified CAS coverage
pursuant to 48 CFR 9903.201-2(c)(5) or 9903.201-2(c)(6), respectively.
I. DISCLOSURE STATEMENT - COST ACCOUNTING PRACTICES AND CERTIFICATION
(a) Any contract in excess of $500 000 resulting from this solicitation,
except contracts in which the price negotiated is based on (1) established
catalog or market prices of commercial items sold in substantial quantities to
the general public, or (2) prices set by law or regulation will be subject to
the requirements of the Cost Accounting Standards Board (48 CFR Chapter 99)
except for those contracts which are exempt as specified in 48 CFR 9903.201-l.
(b) Any offeror submitting a proposal which, if accepted, will result in a
contract subject to the requirements of 48 CFR Chapter 99 must, as a condition
of contracting, submit a Disclosure Statement as required by 48 CFR 9903.202.
The Disclosure Statement must be submitted as a part of the offeror's proposal
under this solicitation unless the offeror has already submitted a Disclosure
statement disclosing the practices used in connection with the pricing of this
proposal. If an applicable Disclosure Statement has already been submitted, the
offeror may satisfy the requirement for submission by providing the information
requested in paragraph (c) of Part I of this provision.
CAUTION: In the absence of specific regulations or agreement, a
practice disclosed in a Disclosure Statement shall not, by virtue of such
disclosure, be deemed to be a proper approved or agreed-to practice for
<PAGE>
Page 24
pricing proposals or accumulating and reporting contract performance cost data.
(c) Check the appropriate box below
( ) (1) certificate of Concurrent Submission of Disclosure Statement.
The offeror hereby certifies that, as a part of the offer, copies of the
Disclosure Statement have been submitted as follows: (i) Original and one copy
to the cognizant Administrative Contracting Officer (ACO) or cognizant Federal
agency official authorized to act in that capacity (Federal official), as
applicable, and (ii) one copy to the cognizant Federal auditor.
(Disclosure must be on Form No. CASB DS-l or CASB DS-2. Forms may be
obtained from the cognizant ACO or Federal official and/or from the loose-leaf
version of the Federal Acquisition Regulation).
Date of Disclosure Statement:
Name and Address of Cognizant ACO or Federal Official where filed:
The offeror further certifies that practices used in estimating costs in
pricing this proposal are consistent with the cost accounting practices
disclosed in the Disclosure Statement.
( ) (2) certificate of Previously Submitted Disclosure Statement.
The offeror hereby certifies that Disclosure statement war filed as
follows:
Date of Disclosure Statement:
Name and Address of Cognizant ACO or Federal Official where filed:
The offeror further certifies that the practices used in estimating costs
in pricing this proposal are consistent with the cost accounting practices
disclosed in the applicable Disclosure Statement.
( ) (3) Certificate of Monetary Exemption.
The offeror hereby certifies that the offeror, together with all divisions,
subsidiaries, and affiliates under common control, did not receive net awards of
negotiated prime contracts and subcontracts subject to CAS totaling more than
$25 million (of which at least one award exceeded $1 million) in the cost
accounting period immediately preceding the period in which this proposal was
submitted. The offeror further certifies that if such status changes before an
award resulting from this proposal, the offeror will advise the Contracting
officer immediately.
<PAGE>
( ) (4) Certificate of Interim Exemption
The offeror hereby certifies that (i) the offeror first exceeded the
monetary exemption for disclosures defined in (3) of this subsection in the cost
accounting period immediately preceding the period in which this offer was
submitted, and (ii) in accordance with 48 CFR 9903 202-1, the offeror is not yet
required to submit a Disclosure Statement. The offeror further certifies that
if an award resulting from this proposal has not been made within 90 days after
the end of that period, the offeror will immediately submit a revised
certificate to the Contracting officer in the form specified under subparagraph
(c)(l) or (c)(2) of Part I of this provision as appropriate to verify submission
of a completed Disclosure Statement.
CAUTION: Offerors currently required to disclose because they were awarded
a CAS-covered prime contract or subcontract of $25 million or more in the
current cost accounting period may not claim this exemption (4). Further, the
exemption applies only in connection with proposals submitted before expiration
of the 90-day period following the cost accounting period in which the monetary
exemption was exceeded.
II. COST ACCOUNTING STANDARDS - ELIGIBILITY FOR MODIFIED CONTRACT
COVERAGE.
If the offeror is eligible to use the modified provisions of 48 CFR 9903
201 2(b) and elects to do so, the offeror shall indicate by checking the box
below. Checking the box below shall mean that the resultant contract is subject
to the Disclosure and Consistency of Cost Accounting Practices clause in lieu of
the Cost Accounting Standards clause.
The Offeror hereby claims an exemption from the Cost Accounting Standards
clause under the provisions of 48 CFR 9903 201-2(b) and certifies that the
offeror is eligible for use of the Disclosure and Consistency of Cost Accounting
Practices clause because during the cost accounting period in which this
proposal was submitted, the offeror received less then $25 million in awards of
CAS-covered prime contracts and subcontracts, or the offeror did not receive a
single CAS-covered award exceeding $1 million. The offeror further certifies
that if such status changes before an award resulting from this proposal the
offeror will advise the Contracting officer immediately.
CAUTION: An offeror may not claim the above eligibility for modified
contract coverage if this proposal is expected to result in the award of a CAS-
covered contract of $25 million or more if, during its current cost accounting
period, the offeror has been awarded a single CAS-covered prime contract or
subcontract of $25
<PAGE>
Page 25
million or more.
III. ADDITIONAL COST ACCOUNTING STANDARDS APPLICABLE TO EXISTING CONTRACTS
The offeror shall indicate below whether award of the contemplated contract
would, in accordance with paragraph (a) (3) of the Cost Accounting Standards
clause, require a change in established cost accounting practices affecting
existing contracts and subcontracts.
( ) YES ( ) NO
(End of provision)
K.17 252.219-7000 SMALL DISADVANTAGED BUSINESS CONCERN REPRESENTATION (DOD
CONTRACTS) (JUN 1997)
(a) Definition.
"Small disadvantaged business concern", as used in this provision, means a
small business concern, owned and controlled by individuals who are both
socially and economically disadvantaged, as defined by the Small Business
Administration at 13 CFR Part 124, the majority of earnings of which directly
accrue to such individuals. This term also means a small business concern owned
and controlled by an economically disadvantaged Indian tribe or Native Hawaiian
organization which meets the requirements of 13 CFR 124, 112 or 13 CFR 124, 113,
respectively. In general, 13 CFR 124 describes a small disadvantaged business
concern as a small business concern -
(1) Which is at least 51 percent unconditionally owned by one more socially
and economically disadvantaged individuals; or
(2) In the case of any publicly owned business, at least 51 percent of the
voting stock is unconditionally owned by one or more socially and economically
disadvantaged individuals; and
(3) Whose management and daily business operations are controlled by one or
more such individuals.
(b) Representations
Check the category in which your ownership falls:
X Subcontinent Asian (Asian-Indian) American (U.S. Citizen with origins from
- ---
India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives Islands, or Nepal)
<PAGE>
___ Asian-Pacific American (U.S. Citizen with origins from Japan, China, the
Philippines Vietnam, Korea, Samoa, Guam, U.S. Trust Territory of the Pacific
Islands (Republic of Palau), the Northern Mariana Islands, Laos, Kampuchea
(Cambodia), Taiwan, Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei,
Republic of the Marshall Islands, the Federated States of Micronesia, Macao,
Hong Kong, Fiji, Tonga, Kiribati, Tuvalu, or Nauru)
___ Black American (U.S. Citizen)
___ Hispanic American (U.S. citizen with origins from South America, Central
America, Mexico, Cuba, the Dominican Republic, Puerto Rico, Spain or Portugal)
___ Native American (American Indians, Eskimos, Aleuts, or Native Hawaiians,
including Indian tribes or Native Hawaiian organizations)
___ Individual/concern, other than one of the preceding, currently certified
for participation in the Minority Small Business and Capital Ownership
Development Program under Section 8 (a) of the Small Business Act
___ Other
(c) Complete the following
(1) The offeror is X is not ___ a small disadvantaged business
-----
concern.
(2) The small Business Administration (SBA) has X has not made a
determination concerning the offeror's status as a small disadvantaged business
concern. If the SBA has made a determination, the date of the determination was
_________ and the offeror -
X Was found by SBA to be socially and economically disadvantaged and
-----
circumstances have changed to vary that determination.
___ Was found by SBA not to be socially and economically disadvantaged but
circumstances which caused the determination have changed.
(d) Penalties and Remedies
Anyone who misrepresents the status of a concern as a small
disadvantaged business for the purpose of securing a contract or subcontract
shall -
(l) Be punished by imposition of a fine, imprisonment or both;
(2) Be subject to administrative rem dies including suspension and
debarment; and
(3) Be ineligible for participation in programs conducted under authority
of the small Business Act
<PAGE>
(End of provision)
<PAGE>
Page 26
K.18 252.225-7000 BUY AMERICAN ACT - BALANCE OF PAYMENTS PROGRAM CERTIFICATE
(DEC 1991)
(a) Definitions.
"Domestic end products", "qualifying country", "qualifying country end
product" and "nonqualifying country end product" have the meanings given in the
Buy American Act and Balance of Payments Program clause of this solicitation.
(b) Evaluation.
Offers will be evaluated by giving preference to domestic end products and
qualifying country end products over nonqualifying and products.
(c) Certifications
(1) The Offeror certified that -
(i) Each end product, except the end products listed in
paragraph (c)(2) or (3) of this clause is a domestic end product; and
(ii) Components of unknown origin have been considered to have
been mined produced or manufactured outside the United States or a qualifying
country.
(2) The Offeror certifies that the following end products are
qualifying country end products.
Qualifying Country End Products
Line Item No. Country of origin
___________________ _______________________________
___________________ _______________________________
___________________ _______________________________
(List only qualifying country end products.)
(3) The Offeror certifies that the following end products are
nonqualifying country end products:
Nonqualifying Country End Products
Line Item No. Country of Origin (If known)
___________________ _______________________________
___________________ _______________________________
<PAGE>
___________________ _______________________________
(End of provision)
K.19 252.225-7003 INFORMATION FOR DUTY-FREE ENTRY EVALUATION (AUG 1992)
(a) Is the offer based upon furnishing any supplies (i.e., end items,
components or material) of foreign origin other than those for which duty-free
entry is to be accorded pursuant to Duty-Free Qualifying Country End Products
and Supplies clause of this solicitation?
Yes ( ) No ( )
(b) If the answer in paragraph (a) is yes, answer the following questions:
(l) Are such foreign supplies now in the United States?
Yes ( ) No ( )
(2) Has the duty on such foreign supplies been paid?
Yes ( ) No ( )
(3) If the answer to paragraph (b)(2) is no, what amount is included in
the offer to cover such duty? $ ________
(c) If the duty has not been paid, the Government may elect to make award
on a duty-free basis. If so, the offered price will be reduced in the contract
award by the amount specified in paragraph (b)(3). The Offeror agrees to
identify at the request of the Contracting Officer, the foreign supplies which
are subject to such duty-free entry
(d) Offers will be valuated on a duty included basis except to the extent
that -
(l) The supplies are qualifying country end products as defined in
either the Buy American Act and Balance of Payments Program clause of this
solicitation; or
(2) The duty-free price is specified for use in the evaluation
procedure
(End of provision)
<PAGE>
Page 27
K.20 252.225-7006 BUY AMERICAN ACT - TRADE AGREEMENTS ACT - BALANCE OF
PAYMENTS PROGRAM CERTIFICATE (JUN 1997)
(a) Definitions
"Caribbean Basin country end product", "designated country end product",
"domestic end product", "NAFTA country end product", "nondesignated country end
product", "qualifying country end product", and "U.S. made end product" have the
meanings given in the Trade Agreements and the Buy American Act and Balance of
Payments Program clauses of this solicitation.
(b) Evaluation
Offers will be evaluated in accordance with the policies and procedures of
Part 225 of the Defense Federal Acquisition Regulation Supplement. Offers of
foreign end products that are not U.S. made, qualifying country, designated
country, Caribbean Basin country, or NAFTA country end products will not be
considered for award unless the Contracting officer determines that there are no
offers of such end products; or the offers of such end products are insufficient
to fulfill the requirements; or a national interest exception to the Trade
Agreements Act is granted.
(c) Certifications
(l) The Offeror certifies that -
(i) Each end product, except the end products listed in
paragraph (c)(2) of this provision, is a domestic end product (as defined in the
Buy American Act and Balance of Payments Program clause of this solicitation);
and
(ii) Components of unknown origin are considered to have been
mined, produced, or manufactured outside the United States or a qualifying
country.
(2) The Offeror must identify and certify all end products that are
not domestic end products.
(i) The Offeror certifies that the following supplies qualify as
U.S. made end products but do not meet the definition of "domestic end product":
______________________
(Insert line item no )
(ii) The offeror certifies that the following supplies are
qualify country end products:
______________________ __________________________
(Insert line item no ) (Insert country of origin)
<PAGE>
(iii) The Offeror certifies that the following supplies qualify
as designated country end products:
______________________ __________________________
(Insert line item no.) (Insert country of origin)
(iv) The Offeror certifies that the following supplies qualify
as Caribbean Basin country end products:
______________________ __________________________
(Insert line item no.) (Insert country of origin)
(v) The Offeror certifies that the following supplies qualify
as NAFTA country end products:
______________________ __________________________
(Insert line item no.) (Insert country of origin)
(vi) The Offeror certifies that the following supplies are other
nondesignated country end products:
______________________ __________________________
(Insert line item no.) (Insert country of origin)
(End of provision)
K.21 252.225-7018 NOTICE OF PROHIBITION OF CERTAIN CONTRACTS WITH FOREIGN
ENTITIES FOR THE CONDUCT OF BALLISTIC MISSILE DEFENSE RDT&E (JAN 1997)
(a) Definitions
(l) "Competent" means the ability of an offeror to satisfy the
requirements of the solicitation. This determination is based on a comprehensive
assessment of each offeror's proposal including consideration of the specific
areas of evaluation criteria in the relative order of importance described in
the solicitation.
(2) "Foreign firm" means a business entity owned or controlled by one
or more foreign nationals or a business entity in which more than 50 percent of
the stock is owned or controlled by one or more foreign nationals.
(3) "United States firm" means a business entity other than a foreign
firm.
(b) This provision implements Section 222 of the Defense Authorization Act
of FYs 1988 and 1989 (Public Law 100-180) which prohibits the award of certain
contracts for the conduct of Ballistic Missile Defense (BMD)
<PAGE>
Page 28
Program research, development, test or evaluation (RDT&E), to foreign
governments or firms.
(c) Except as provided for in paragraph (d) of this provision, any funds
appropriated to, or for the use of DoD may not be used to enter into or carry
out any contract, including any contract awarded as a result of a broad agency
announcement (BAA), with a foreign government, or firm if the contract provides
for the conduct of RDT&E in connection with the BMD. Foreign governments and
firms, however, are encouraged to submit offers since this provision is not
intended to restrict BMD access to unique foreign expertise when contract
performance requires a level of competency unavailable in the United States.
(d) The prohibition does not apply to a foreign government or firm if:
(l) The contract is to be performed within the United States or
(2) The contract is exclusively for RDTE in connection with
antitactical ballistic missile systems.
(3) The foreign government or firm agrees to share a substantial
portion of the total contract cost. The foreign share may be considered
substantial where it is equitable with respect to the relative benefits to be
derived from the contract by the U.S. and the foreign parties. For example, if
the contract is more beneficial to the foreign party, its share of the costs
should be correspondingly higher; or
(4) The U.S. Government determines that the contract cannot be
competently performed by a United States firm at a price equal to or less than
the price at which the RDTE can be performed by a foreign government or firm.
(e) The Offeror (X) is ( ) is not a U S firm.
(End of provision)
R.22 252.225-7035 BUY AMERICAN ACT NORTH AMERICAN FREE TRADE AGREEMENT
IMPLEMENTATION ACT - BALANCE OF PAYMENTS PROGRAM CERTIFICATE (MAY 1995)
(a) Definitions
"Domestic end products", "qualifying country end product" and "U.S.
made end product" have the meanings given in the North American Free Trade
Agreement Implementation Act or Buy American Act and Balance of Payments Program
clauses of this solicitation.
(b) Evaluation
<PAGE>
Page 28
Program research, development, test or evaluation (RDT&E), to foreign
governments or firms.
(c) Except as provided for in paragraph (d) of this provision, any funds
appropriated to, or for the use of DoD may not be used to enter into or carry
out any contract, including any contract awarded as a result of a broad agency
announcement (BAA), with a foreign government, or firm if the contract provides
for the conduct of RDT&E in connection with the BMD. Foreign governments and
firms, however, are encouraged to submit offers since this provision is not
intended to restrict BMD access to unique foreign expertise when contract
performance requires a level of competency unavailable in the United States.
(d) The prohibition does not apply to a foreign government or firm if:
(l) The contract is to be performed within the United States or
(2) The contract is exclusively for RDTE in connection with
antitactical ballistic missile systems.
(3) The foreign government or firm agrees to share a substantial
portion of the total contract cost. The foreign share may be considered
substantial where it is equitable with respect to the relative benefits to be
derived from the contract by the U.S. and the foreign parties. For example, if
the contract is more beneficial to the foreign party, its share of the costs
should be correspondingly higher; or
(4) The U.S. Government determines that the contract cannot be
competently performed by a United States firm at a price equal to or less than
the price at which the RDTE can be performed by a foreign government or firm.
(e) The Offeror (X) is ( ) is not a U S firm.
(End of provision)
R.22 252.225-7035 BUY AMERICAN ACT NORTH AMERICAN FREE TRADE AGREEMENT
IMPLEMENTATION ACT - BALANCE OF PAYMENTS PROGRAM CERTIFICATE (MAY 1995)
(a) Definitions
"Domestic end products", "qualifying country end product" and "U.S.
made end product" have the meanings given in the North American Free Trade
Agreement Implementation Act or Buy American Act and Balance of Payments Program
clauses of this solicitation.
(b) Evaluation
<PAGE>
Offers will be evaluated by giving preference to U.S. made end products,
qualifying country end products, or NAFTA country end products over other end
products.
(c) Certifications
(1) The Offeror certified that -
(i) Each end product, except the end products listed in
paragraph (c)(2) of this clause, is a domestic end product (as defined in the
Buy American Act and Balance of Payments Program clause of this solicitation);
and
(ii) Components of unknown origin are considered to have been
mined produced or manufactured outside the United States or a qualifying
country.
(2) The Offeror must identify all end products that are not domestic
end products.
(i) The Offeror certifies that the following supplies qualify
as U.S. made end products but do not meet the definition of domestic end
product:
(insert line item number)
(ii) The Offeror certifies that the following supplies are
qualifying country end products
(insert line item number) (insert country of origin)
(iii) The Offeror certifies that the following supplies qualify
as NAFTA country end products:
(insert line item number) (insert country of origin)
(iv) The Offeror certifies that the following supplies are other
non NAFTA country end products:
(insert line item number) (insert country of origin)
(End of provision)
K.23 252.226-7001 HISTORICALLY BLACK COLLEGE OR UNIVERSITY AND MINORITY
INSTITUTION STATUS (JAN 1997)
(a) Definitions. Historically black colleges and universities as used in
this provision means institutions determined by the Secretary of Education to
meet the requirements of 34 CFR 608-2. The term also means any nonprofit
research institution that was an integral part of such a college or university
before November 14, 1986.
<PAGE>
Minority institutions, as used in this provision, institutions meeting the
requirements of section 1046(3) of the Higher Education Act of 1965 (20 U.S.C.
1135d-5(3)). The term also includes Hispanic-serving institutions as defined in
section 316(b)(l) of such Act (20 U.S.C. 1059c(b)(l)).
(b) Status
<PAGE>
Page 29
If applicable, the offeror shall check the appropriate space below
____ A historically black college or university
____ A minority institution
(End of provision)
K.24 252.247-7022 REPRESENTATION OF EXTENT OF TRANSPORTATION BY SEA (AUG 1992)
(a) The Offeror shall indicate by checking the appropriate blank in
paragraph (b) of this provision whether transportation of supplies by sea is
anticipated under the resultant contract. The term "supplies" is defined in the
Transportation of Supplies by Sea clause of this solicitation.
(b) Representation.
The Offeror represents that it --
_____ Does anticipate that supplies will be transported by sea in the
performance of any contract or subcontract resulting from this solicitation.
_____ Does not anticipate that supplies will be transported by sea in
the performance of any contract or subcontract resulting from this solicitation.
(c) Any contract resulting from this solicitation will include the
Transportation of Supplies by Sea clause. If the offeror represents that it will
not use ocean transportation, the resulting contract will also include the
Defense FAR supplement clause at 252 247-7024, Notification of Transportation of
Supplies by Sea.
(End of provision)
K.25 352.204-9004 CERTIFICATION OF NON-FOREIGN AFFILIATION (JUL 1993)
1. Does the offeror hold an active DoD Facility security Clearance (FSC)?
Yes X, No
2. If a DISTRICT DIRECTOR Form 254, DoD Contract Security Classification
Specification, is attached to this solicitation package, the None Foreign
Affiliation certification below need not be completed. If a DISTRICT DIRECTOR
Form 254 is not attached, complete the following certification.
3. CERTIFICATION
(a) Do foreign interests own or have a controlling interest in the
offeror's organization's securities? Yes ___, No X .
---
<PAGE>
If yes explain:
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
(b) Do non-U.S. citizens hold executive positions with the Offeror?
Yes ____, No X .
---
If yes, please identify below:
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
(c) Will non-U.S. citizens be required to work on any resultant contract?
Yes ___, No X . Should the offeror intend to use any non-U.S. citizens on
---
any resulting contract, their names and their last country of citizenship must
be included below:
NOTICE: This Agency may prohibit non-U.S. citizens from all or certain aspects
of the work to be performed under any resulting contract. The fact that the
Offeror intends the use of non-U.S. citizens on any resulting contract will not
necessarily disqualify the company from consideration, nor may the non-U.S.
citizens finally
<PAGE>
Page 30
be prohibited from working on some or all aspects of any resultant contract.
4. Have the certification responses to section 3 above changed since the
last submission to the Maryland Procurement Office? Yes ___ No X Not
---
Applicable
(End of provision)
K.26 352.209-9000 FINANCIAL RESOURCES (OCT 1993)
(a) If the offeror has not furnished this agency with a copy of its most
current certified Balance Sheet and Profit and Loss Statement (within six months
from the date of submission of its proposal), such financial data must be
furnished with the proposal in order to evaluate financial responsibility. Where
financial data, as indicated above, have been furnished, the offeror will
indicate by checking below that information previously furnished reflects the
current position of the company. The failure of any offeror to furnish such
evidence may be deemed by the Contracting Officer to be sufficient grounds to
determine that the offeror does not have adequate financial resources to perform
the contract or the ability to obtain them.
(b) The offeror represents that the financial data previously furnished
reflect the current financial condition of the company (Date submitted _________
with RFP No. _________.)
( ) Certified Balance Sheet and Profit and Loss statement attached.
( ) Evidence attached of ability to obtain necessary financial resources.
(End of provision)
K.27 352.215-9003 CONTRACTOR'S SIGNATURE (APR 1989)
(a) Contracts with individuals. A contract with an individual shall be
signed by the individual in his/her own name. A contract with an individual
doing business as a firm shall be signed by the individual and will ordinarily
take the following form.
_____________________ (Signature)
JOHN DOE
JOHN DOE COMPANY
(b) Contracts with Partnerships. Contracts entered into with partnerships
shall be executed in the partnership name. The contract need be signed by only
one partner provided the authority of the particular partner to bind the
partnership has been established.
(c) Contracts with Corporations. Contracts with corporations shall be
executed in the corporate name, followed by the word "by" after which the person
who has been authorized to
<PAGE>
execute the contract on behalf of the corporation shall sign his name with the
designation of his official capacity.
(d) Contracts with Joint Ventures. Contracts with joint ventures may
involve a corporation and a partnership, a partnership and an individual, or
other combination. In these cases the contract shall be signed by each
participant in the joint venture in the manner indicated above for each type of
participant.
(e) When the contractual document is to be signed by an agent other than
as stated above, the fact of the agency must be clearly established by evidence
furnished with offer.
(End of provision)
SECTION L - INSTRUCTIONS, CONDITIONS, AND NOTICES TO OFFERORS
- -------------------------------------------------------------
L.l REFERENCED PROVISIONS. The following contract provisions are hereby
incorporated by reference.
CLAUSE NO. TITLE
FAR CLAUSES
52.204-6 Contractor Identification Number - Data Universal Numbering
System (DUNS) Number (DEC 1996)
52.222-24 Preaward On-Site Equal opportunity Compliance Review (APR 1984)
52.237-l Site Visit (APR 1984)
DFARS CLAUSES
252.204-7001 Commercial and Government Entity (CAGE) Code Reporting (DEC 1991)
252.206-7000 Domestic source Restriction (DEC 1991)
252.211-7003 Brand Name or Equal (DEC 1991)
252.234-7000 Notice of Earned Value Management System (MAR 1997)
L.2 52.211-2 AVAILABILITY OF SPECIFICATIONS AND STANDARDS LISTED IN THE DOD
INDEX OF SPECIFICATIONS AND STANDARDS (DODISS) AND DESCRIPTIONS LISTED IN DOD
5010.12-L (MAR 1994)
Single copies of specifications cited in this solicitation may be obtained
by submitting a written request to the supply point listed below. The request
must contain the title of the specification, its number, date, applicable
amendment(s), and the solicitation or contract number. A telephone order entry
system is available with the use of a touch tone telephone. A Customer Number is
required to use this system and may be obtained by written request to the
address listed below or by telephone (215-697-2179). In case of urgency,
telegraphic requests are acceptable. Voluntary standards which are not available
to offerors and contractors from Government sources may be obtained from the
organization responsible for their preparation maintenance or publication.
<PAGE>
Standardization Document
<PAGE>
Page 31
Order Desk, Building 4, Section D
700 Robbins Avenue
Philadelphia, PA 19111-5094
Facsimile No 215-697-2978
Telephone order Entry system (TOES) Numbers.........215-697-1157 through and
including 215-697-1197
(End of provision)
L.3 522.11-6 LISTING OF OTHER THAN NEW MATERIAL, RESIDUAL INVENTORY, AND
FORMER GOVERNMENT SURPLUS PROPERTY (MAY 1995)
(a) Definitions.
Material, as used in this provision, includes, but is not limited to, raw
material, parts, items, components, and end products.
New, as used in this provision, means previously unused or composed of
previously unused materials and may include unused residual inventory or unused
former Government surplus property.
Other than new, as used in this provision, includes, but is not limited to,
recycled, recovered, remanufactured, used, and reconditioned.
(b) If the offeror proposes to furnish other than new material, residual
inventory resulting from terminated Government contracts or former Government
surplus property, the offeror shall provide the following information as an
attachment to the offer.
(1) A complete description of the materials.
(2) Quantity.
(3) Name of Government agency from which acquired.
(4) Date of acquisition, if applicable.
No other than new material, residual inventory or former Government surplus
property other than that listed on the attachment shall be furnished under the
resulting contract unless authorized in writing by the contracting Officer.
(c) All material to be furnished under the resultant contract must comply with
the terms and specifications contained in the contract.
(End of provision)
<PAGE>
L.4 52.211114 NOTICE OF PRIORITY RATING FOR NATIONAL DEFENSE USE (SEP 1990)
Any contract awarded as a result of this solicitation will be a ( ) DX
rated order; ( ) DO rated order certified for national defense use under the
Defense Priorities and Allocations System (DPAS) (15 CFR 700), and the
contractor will be required to follow all of the requirements of the regulation.
(End of provision)
L.5 52.215-20 Requirements for Cost or Pricing Data or Information Other Than
cost or Pricing Data (OCT 1997)
(a) Exceptions from cost or pricing data
(1) In lieu of submitting cost or pricing data, offerors may submit a
written request for exception by submitting the information described in the
following subparagraphs. The contracting officer may require additional
supporting information, but only to the extent necessary to determine whether an
exception should be granted, and whether the price is fair and reasonable.
(i) Identification of the law or regulation establishing the price
offered. If the price is controlled under law by periodic rulings reviews, or
similar actions of a governmental body, attach a copy of the controlling
document, unless it was previously submitted to the contracting office.
(ii) Commercial item exception. For a commercial item exception, the
offeror shall submit, at a minimum, information on prices at which the same item
or similar items have previously been sold in the commercial market that is
adequate for evaluating the reasonableness of the price for this acquisition.
Such information may include:
(A) For catalog items, a copy of or identification of the catalog
and its date, or the appropriate pages for the offered items, or a statement
that the catalog is on file in the buying office to which the proposal is being
submitted. Provide a copy or describe current discount policies and price lists
(published or unpublished), e.g., wholesale, original equipment manufacturer, or
reseller. Also explain the basis of each offered price and its relationship to
the established catalog price, including how the proposed price relates to the
price of recent sales in quantities similar to the proposed quantities;
(B) For market-priced items, the source and date or period of the
market quotation or other basis for market price, the base amount, and
applicable discounts. In addition, describe the nature of the market;
(C) For items included on an active Federal Supply service
Multiple Award schedule contract, proof that an exception has been granted for
the schedule item.
<PAGE>
(2) The offeror grants the Contracting Officer or an authorized
representative the right to examine, at any time before award, books, records,
documents, or other directly pertinent records to verify any request
<PAGE>
Page 32
for an exception under this provision, and the reasonableness of price. For
items priced using catalog or market prices, or law or regulation, access does
not extend to cost or profit information or other data relevant solely to the
offeror's determination of the prices to be offered in the catalog or
marketplace.
(b) Requirements for cost or pricing data. If the offeror is not granted an
exception from the requirement to submit cost or pricing data, the following
applies:
(1) The offeror shall prepare and submit cost or pricing data and
supporting attachments in accordance with Table 15-2 of PAR 15.408.
(2) As soon as practicable after agreement on price, but before
contract award (except for unpriced actions such as letter contracts), the
offeror shall submit a certificate of Current Cost or Pricing Data, as
prescribed by FAR 15 406-2.
(End of provision)
L.6 52-233-2 SERVICE OF PROTEST (OCT 1995)
(a) Protests, as defined in Section 33 101 of the Federal Acquisition
Regulation, that are filed directly with an agency, and copies of any protests
that are filed with the General Accounting Office (GAO) or the General Services
Administration Board of Contract Appeals IGSBCA), shall be served on the
Contracting Officer (addressed as follows) by obtaining written and dated
acknowledgement of receipt from Assistant General Counsel (Contracts) (AGC/C).
(1) If delivered via the U.S. Postal Service:
Maryland Procurement Office
Attn: Assistant General Counsel (Contracts) (AGC/C)
9800 Savage Road
Ft. George G. Meade, MD 20755-6000
(2) If delivered via any means other than the U.S. Postal Service
(e.g. Federal Express, handcarried, commercial carrier):
Maryland Procurement Office
Attn: Assistant General Counsel (Contracts) (AGC/C)
9705 Samford Road
Ft. George G. Meade, MD 20755 6000
Upon arrival at gatehouse #10, call extension 688 6541
(b) The copy of any protest shall be received in the office designated
above on the same day a protest is filed with the GSBCA or within one day of
filing a protest with the GAO.
<PAGE>
(c) In this procurement, you __ may/__ may not protest to the GSBCA because
of the nature of the supplies or services being procured.
(End of provision)
L.7 52.252-1 SOLICITATION PROVISIONS INCORPORATED BY REFERENCE (FEB 1998)
This solicitation may incorporate one or more solicitation provision 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. The
offeror is cautioned that the listed provisions may included blocks that must be
completed by the offeror and submitted with its quotation or offer. In lieu of
submitting the full text of those provisions, the offeror may identify the
provision by paragraph identified and provide the appropriate information with
its quotation or offer. Also, the full text of a solicitation provision may be
accessed electronically at this/these address(es) N/A at this time.
(End of provision)
L.8 52.252-5 AUTHORIZED DEVIATIONS IN PROVISIONS (APR 1984)
(a) The use in this solicitation of any Federal Acquisition Regulation (48
CFR Chapter 1) provision with an authorized deviation is indicated by the
addition of "(DEVIATION)" after the date of the provision.
(b) The use in this solicitation of any DoD FAR Supplement (48 CFR Chapter
2) provision with an authorized deviation is indicated by the addition of
"(DEVIATION)" after the name of the regulation.
(End of provision)
The offeror is responsible for marking proprietary information contained in
an proposal(s) and/or other information submitted by the offeror or in
accordance with FAR 3.104-4(j)(2). Appropriately marked information will be
treated as proprietary for the purposes of the Procurement Integrity Act.
(End of notice)
L.9 352.203-9001 NOTICE - MARKING PROPRIETARY INFORMATION (OCT 1993)
The offeror is responsible for marking proprietary information contained in
an proposal(s) and/or other information submitted by the offeror in accordance
with FAR 3.104-4(j)(2). Appropriately marked information will be treated as
proprietary for the purposes of the Procurement Integrity Act.
(End of notice)
L.10 352.204-9000 DISCLOSURE OF INFORMATION RFP (OCT 1993)
<PAGE>
Page 33
(a) The recipient organization of this Request for Proposal shall not,
unless authorized elsewhere in this RFP, disclose any information concerning the
request or its sponsorship to anyone other than those officers and employees of
the recipient organization who require the information in order to prepare and
submit a proposal or a response.
(b) The recipient organization may obtain necessary subcontracting and
purchasing data from prospective vendors or subcontractors provided that
sponsorship of this Request for Proposal is not disclosed; and where required,
the appropriate security regulations are observed.
(c) Any disclosure other than that described in Paragraphs (a) and (b}
above, considered necessary by the recipient organization may be made only with
the written consent of the Contracting Officer.
(End of provision)
L.11 352.209-9001 RESPONSIBLE PROSPECTIVE CONTRACTORS (APR 1989)
The offeror must have data available which will satisfactorily demonstrate
to the Contracting officer that the offeror has the experience, equipment, and
facilities to perform the contract. This information must be furnished within
three calendar days from the date of any request by the Contracting Officer.
Failure to furnish such data, if requested, may result in rejection of the
proposal.
(End of provision)
L.12 352.210-9000 NOTICE ELIMINATION OF USE OF CLASS I - OZONE DEPLETING
SUBSTANCES (AUG 1993)
Section 326 of the FY-93 Defense Authorization Act places restrictions on
the award and modification of contracts requiring the use of Class I - Ozone-
depleting substances (ODS). Class I ODS are identified in Section 602(a) of the
Clean Air Act (42 U.S.C. Section 7671(a)) and Title 40, Code of Federal
Regulations Section 82, Appendix A.
DOD has identified hundreds of military specifications that require Class I
ODS. Of these, MPO research indicates that MIL-STD 454, MIL-T 2000, and MIL-T
11268 are of particular applicability to some MPO contracts, although others may
also apply.
If any of these specifications are included in this acquisition, or if the
contractor knows of any other Class I ODS required, directly or indirectly, at
any level of contract performance, the contractor should notify the MPO
Contracting officer immediately. A subsequent assessment will be conducted by
the Government in an attempt to identify economically feasible substitute
substances or alternative technology.
(End of notice)
L.13 352.215-9001 CONFLICTING TERMS AND CONDITIONS (OCT 1993)
<PAGE>
The offeror's proposal shall not contain any terms and/or conditions
(preprinted or otherwise) which conflict with any required Government terms
and/or conditions. Any proposal containing conflicting terms and/or conditions
may be found unacceptable and rejected
(End of provision)
L.14 352.215-9002 INQUIRIES (OCT 1993)
Information concerning the status of an offeror's proposals and/or the
progress of the proposal evaluations shall be requested only from the
Contracting Officer.
(End of provision)
L.15 352.215-9004 DEFINITION OF "SHALL" (OCT 1993)
In consonance with the requirements of the Federal Acquisition Regulation
(FAR), the term "shall" is defined as imperative. Accordingly, wherever the term
"shall" appears, offerors are advised that such requirement is mandatory.
Deviations from such requirements may be granted only by the CO in writing/
(End of provision)
L.16 352.215-9005 UNALLOWABILITY OF PROPOSAL PREPARATION COSTS (OCT 1993)
The Government will not recognize as a direct cost to this acquisition the
costs incurred by the contractor in the preparation of its proposal.
(End of provision)
L.17 352.215-9006 LATE PROPOSALS (APR 1989)
The Defense Courier Service will be treated in the same manner as
Registered or Certified Mail concerning late offers, i.e., an official receipt
for classified material has been obtained and it has been determined by the
government that the late receipt was due solely to delays in the courier service
for which the offeror was not responsible.
(End of provision)
L.18 352.215-9021 OBTAINING SUBCONTRACTOR CERTIFIED COST OR PRICING DATA AND
ANALYSES (OCT 1993)
In accordance with the requirements of the FAR 15.804-6(g)-(h) and FAR 15
806, the contractor shall furnish the following subcontractor information as
part of the overall cost proposal:
(a) Subcontractor cost or pricing data and appropriate analyses; and
<PAGE>
Page 34
(b) Decrement factors which represent the historical difference between
vendors' proposed prices and the actual prices negotiated
It is DOD policy for Contracting officers to obtain the above information
so that it can be used effectively in prime contract negotiations. In urgent
situations where requirements must be negotiated quickly without subcontractor
cost data, subcontractor costs may be identified as "not to exceed" amounts,
subject to downward adjustment only.
(End of provision)
L.19 352.219-9000 SUBCONTRACTING PLAN FOR SMALL BUSINESS AND SMALL DISADVANTAGED
BUSINESS CONCERNS (OCT 1993)
(a) In accordance with Public Law 95-507 and as prescribed by FAR
19.708(b), a subcontracting Plan for Small Business and Small Disadvantaged
Business Concerns will be required from the apparent successful offeror prior to
the award of any resultant contract. Offerors may submit plans with initial
proposal. If not submitted with the initial proposal, a plan shall be submitted
when requested by the Contracting Officer.
(b) Offerors are hereby notified that no contract will be awarded unless
and until an acceptable plan is negotiated with the Contracting Officer and such
acceptable plan will be incorporated into the contract, as a material part
thereof
(End of provision)
L.20 352.245-9005 KNOWLEDGE OF ACQUISITION OF GOVERNMENT PRODUCTION AND RESEARCH
PROPERTY (OCT 1993)
Offerors shall state whether, to their knowledge, their proposal involves
the acquisition of Government production and research property, the disposal of
which may be restricted by patent or other rights. Pursuant to FAR 45.402(b),
offerors are required to obtain the written concurrence of the contracting
officer cognizant of the property. A copy of the concurrence shall be included
in the proposal.
(End of provision)
<PAGE>
EQUIPMENT PURCHASE,
SOFTWARE LICENSE AND
[LOGO OF BANK OF AMERICA] MAINTENANCE AGREEMENT
- --------------------------------------------------------------------------------
LITRONIC, INC. CONTRACT NO.: 98-11886
SUPPLIER
EFFECTIVE DATE: April 20, 1999
This EQUIPMENT PURCHASE, SOFTWARE LICENSE AND MAINTENANCE AGREEMENT
("Agreement") is entered into as of the Effective Date by and between BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"), a national banking
association, and the above-named SUPPLIER, a California corporation, and
consists of this signature page and the following attached documents, which are
incorporated in full by this reference:
SCHEDULE A, Special Terms & Conditions
SCHEDULE B, General Terms & Conditions
SCHEDULE C, Price, Payment & Delivery Terms
SCHEDULE D, Product Specifications
The rights of BofA set forth in this Agreement shall inure to all of its
Affiliates. The parties warrant that their respective signatories are
authorized to execute this Agreement as of the Effective Date.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
ON ITS OWN BEHALF AND AS AGENT FOR ITS
LITRONIC, INC. ("SUPPLIER") AFFILIATES ("BOFA")
SIGNATURE: /s/ Kris Sham SIGNATURE: /s/ Eric Stevens
------------------------ ---------------------
NAME: Kris Sham NAME: Eric Stevens
------------------------ ---------------------
TITLE President TITLE: Vice President
------------------------ ---------------------
<PAGE>
SCHEDULE A
SPECIAL TERMS AND CONDITIONS
S-1. DEFINITIONS
-----------
(a) Affiliate - a business entity controlled by, controlling or under
common control with a Party. Control exists when an entity owns or controls more
than 50% of the outstanding shares or securities representing the right to vote
for the election of directors or other managing authority of another entity.
(b) Bank - BofA and its Affiliates, including without limitation,
Nationsbank, N.A.
(c) Business Day - any day other than a Saturday or Sunday on which BofA
is open for business in California.
(d) Calling List - has the meaning specified in S-7(b).
(e) Compliance Date - has the meaning specified in S-16.
(f) Compliant Product - has the meaning specified in S-16.
(g) Correction - a modification to the Product to resolve one or more
Errors.
(h) Customizations - modifications to the Software and new coding made at
the request of Bank, together with related Documentation. "Initial
Customizations" are those Customizations described in Schedule C-11.
-------------
(i) Delivery Target Date - the respective date on which Supplier agrees to
deliver Product to Bank. The "Delivery Date" is the respective date on which
Supplier actually delivers Product to Bank.
(j) Documentation - all user, technical and operating manuals necessary to
enable Bank properly to install, use and maintain the Software (including any
Update or Upgrades thereof) and Equipment.
(k) Equipment - has the meaning specified in Section 5.3.
(l) Equipment Acceptance Date - the first Business Day after the day Bank
accepts the Equipment or it is deemed accepted pursuant to Section S-6.
---------------
(m) Equipment Acceptance Period - the period commencing on the
Installation Date and continuing for the number of days specified in Schedule C,
----------
as such period may be extended pursuant to Section S-6.
-----------
(n) Equipment Error - an instance of failure of the Equipment to be
Operative. An Equipment Error is a Class 1 Error if it renders continued use of
Equipment commercially infeasible. An Error is a Class 2 Error if it makes
continued use of Equipment seriously inconvenient and substantially reduces its
value to Bank. All other Errors are Class 3 Errors.
2
<PAGE>
(o) Equipment Installation Date - the date the Equipment has been properly
installed.
(p) Equipment Installation Site - the building or complex of buildings at
which Bank installs the Equipment.
(q) Error - means a "Software Error" or an "Equipment Error".
(r) IP Rights - all intellectual property rights, including copyrights,
patents, trademarks, trade secrets, and other proprietary rights that are
embodied in or used in connection with the Software.
(s) Maintenance Fees - the fees for Maintenance Services set forth in
Schedule C.
- ----------
(t) Maintenance Period - unless otherwise specified in Schedule C, the
----------
Maintenance Period shall be Monday through Friday, 8:00 a.m. to 5:00 p.m., local
San Francisco time, on all Business Days.
(u) Maintenance Services - the services described in Section S-7, and
-----------
any other services described in this Agreement or provided by Supplier
hereunder.
(v) Maintenance Term - has the meaning specified in Schedule C.
----------
(w) Object Code - machine-readable computer instructions that can be
executed by a computer.
(x) Operative - conforming in all material respects to performance levels
and functional specifications described in the Program Materials and in this
Agreement.
(y) Platform - the computer equipment and operating system which can
execute the Object Code.
(z) Product - means Software or Equipment, or both, as the context
indicates.
(aa) Profile - means an account record containing specific information
about a customer, established prior to the issuance of a card of cards to such
customer.
(bb) Program Materials - Supplier's proposals to Bank, Documentation and
any other documentation provided to Bank in connection with the Software or the
Equipment, including without limitation that described in Schedule D.
----------
(cc) Project Manager - the individual appointed by a party who shall act as
a liaison to the other party to this Agreement.
(dd) Repair Period - the time period commencing when Bank reports an Error
to Supplier and continuing for four hours or such other period as may be
specified in Schedule C.
----------
(ee) Service Release- a set of procedures or new program code that Supplier
releases to correct Errors and which may include modifications to improve
performance or a revised version or release of the Software which may
incidentally improve its functionality, together with related Documentation.
3
<PAGE>
(ff) Software - Object Code that produces the results described in the
Program Materials, together with the Documentation, all Corrections,
Customizations and Updates and any Upgrades acquired by Bank pursuant to this
Agreement, and, if licensed to Bank in this Agreement, the Source Code. Software
includes both Bank Resident Software and Remote Client Software.
(gg) Software Acceptance Date - the first Business Day after the day Bank
accepts the Software or it is deemed accepted pursuant to Section S-6.
(hh) Software Acceptance Period - the period commencing on the Installation
Date and continuing for the number of days specified in Schedule C, as such
----------
period may be extended pursuant to Section S-6.
-----------
(ii) Software Error - an instance of failure of the Software to be
Operative. A Software Error is a Class 1 Error if it renders continued use of
Software commercially infeasible. An Error is a Class 2 Error if it makes
continued use of Software seriously inconvenient and substantially reduces its
value to Bank. All other Errors are Class 3 Errors.
(jj) Software Installation Date - the date the Software has been properly
installed.
(kk) Software Installation Site - the building or complex of buildings at
which Bank installs the Software.
(ll) Source Code - the human-readable code from which a computer can
compile or assemble the Object Code of the Software, together with a description
of the procedure for generating the Object Code.
(mm) Time and Materials Rates - the rates specified in Schedule C that
----------
Supplier may charge for services provided under this Agreement which are not
covered by the Maintenance Fee, or if not so specified, Supplier's standard
rates for such services.
(nn) Update Release - a new version or release of computer programs
licensed hereunder which Supplier makes generally available to its customers to
improve the functionality of, or add functional capabilities to such computer
programs, together with related Documentation. Update Releases shall include
new programs which replace, or contain functionality similar to, the Software
already licensed to Bank hereunder.
(oo) Warranty Period - the time period specified in Schedule C commencing
----------
on the respective Software Acceptance Date or Equipment Acceptance Date, as
extended pursuant to paragraph S-15(a).
(pp) Year 2000 Compliant - has the meaning specified in S-16.
4
<PAGE>
S-2. LICENSES
--------
S-2.1. Bank Resident Software License:
(a) Upon delivery of the Bank Resident Software, Supplier grants
Bank a nonexclusive, nontransferable perpetual license which
shall permit the Bank, subject to the restrictions in this
Agreement to:
(i) Install the Bank Resident Software at the Installation
Sites in Schedule C on any one computer for each copy
----------
indicated in Schedule C. The Bank shall notify Supplier
----------
promptly when the Bank Resident Software is transferred to
another Installation Site.
(b) Subject to the limitations in subparagraph (i) of this
Section S-2.1(a),
(i) Use, reproduce, perform and execute the Bank Resident
Software for any internal Bank purpose, including for production, test,
development, backup, training, archival and emergency purposes; and
(ii) Transfer the Bank Resident Software to any other
Platform or Installation Site replacing that on which it was previously
installed.
(c) The Bank Resident Software is subject to the following
additional restrictions:
(i) Title to and ownership of the Bank Resident Software
shall remain with Supplier of its licensors;
(ii) Bank shall not reverse engineer, reverse compile or
disassemble any part of the Bank Resident Software
without the prior written consent of Supplier; and
(iii) Bank shall not remove, obscure or deface any
proprietary legend relating to the Bank Resident
Software and shall include in each copy all
proprietary notices contained in the Bank Resident
Software.
S-2.2 Remote Client Software License:
(a) Upon delivery of the Remote Client Software, Supplier grants
Bank a nonexclusive, nontransferable (except as specifically
provided) perpetual license which shall permit the Bank
subject to the restrictions in this Agreement to:
(i) Use, reproduce, perform and execute the Remote Client
Software for any Bank purpose, including for
production, test, development, backup, training,
archival and emergency purposes, and for providing
customer support.
(ii) Transfer the Remote Client Software to any other
Platform or Installation Site replacing that on which
it was previously installed.
(iii) License, sublicense, distribute and transfer to Bank
customers pursuant to an end-user license agreement
the Remote Client Software and all rights to the
Remote Client Software that are provided to Bank under
the
5
<PAGE>
terms of this Agreement. Such customer licenses shall
survive termination of this Agreement.
(iv) Copy the Remote Client Software subject to the
restrictions in Schedule C, for purposes of providing
----------
the Remote Client Software to Bank customers pursuant
to (iii) above.
(v) Determine the royalty basis, if any, upon which the
Remote Client Software will be provided to customers,
and Bank shall have discretion to label the products
as part of a Bank offering subject to the restrictions
in subsection (b) below
(b) The license for the Remote Client Software is subject to the following
additional restrictions:
(i) Title to and ownership of the Remote Client Software shall
remain with Supplier or its licensors.
(ii) Bank shall not reverse engineer, reverse compile or disassemble
any part of the Remote Client Software without the prior written
consent of Supplier.
(iii) Bank shall not remove, obscure or deface any proprietary legend
relating to the Remote Client Software and shall include in each
copy all proprietary notices contained in the Software.
(iv) Bank shall not license the Remote Client Software, except as in
accordance with the terms of subsection (a) above.
S-3. EQUIPMENT PURCHASE
------------------
Supplier agrees to sell, and Bank may purchase, on the terms and conditions
set forth herein, the equipment listed on Schedule D, Section D-2 (the
---------- -----------
"Equipment") at the prices set forth in Schedule C.
----------
S-4. ORDERING, DELIVERY AND INSTALLATION
-----------------------------------
(a) To order Product, Bank shall issue Supplier a Purchase Order or other
written authorization duly executed by its Technology Procurement Department,
delivered in hard copy or facsimile, referring to this Agreement. Bank shall not
be obligated to pay for Product in the absence of such Purchase Order.
(b) Supplier shall deliver the Product to Bank and at no additional charge
install the Product, except Supplier shall not be obligated to install the
Remote Client Software, at the Installation Site in the presence of the Bank
Project Manager identified in Schedule C, in accordance with the schedule
----------
specified in Schedule C.
----------
(c) Supplier shall be responsible for and shall bear any and all risk of
loss or damage to the Product until delivery to the Installation Site.
6
<PAGE>
S-5. DOCUMENTATION
-------------
(a) At no additional charge, Supplier shall deliver at the time of
installation a set of Documentation for the Bank Resident Software and the
Equipment and for every Customization and Update Release of the Bank Resident
Software delivered to Bank. The Documentation shall describe fully the proper
procedure for using the Software and the Equipment in accordance with this
Agreement. Supplier shall deliver reasonable Documentation to allow Bank to
install and use each Service Release and Update Release of the Bank Resident
Sotware. Bank may use and reproduce for internal purposes all Documentation
furnished by Supplier, including displaying the Documentation on Bank's intranet
or other internal electronic distribution system.
(b) Supplier shall deliver updated Documentation to Bank within 30 days
after delivery of any Update Release or Customizations or any other occasion of
issuance of Updated Documentation.
S-6. ACCEPTANCE
----------
(a) During the Software Acceptance Period, Bank may perform whatever
acceptance tests on the Software it may wish to confirm that the Software is
Operative. For purposes of this Section, the Software shall be deemed Operative
if it does not contain any Class 1 or Class 2 Errors. If Bank discovers during
the Software Acceptance Period that any Software is not Operative, Bank shall
notify Supplier of the deficiencies. Supplier, at its own expense, shall modify,
repair, adjust or replace the Software to make it Operative within 15 days after
the date of Bank's deficiency notice. Bank may perform additional acceptance
tests during a period commencing when Supplier has delivered revised Software
correcting all the deficiencies Bank has noted. This restarted Software
Acceptance Period shall have a duration equal to that of the initial Software
Acceptance Period. If the Software, at the end of the Software Acceptance
Period, still is not Operative in Bank's judgment after consultation with
Supplier, Bank may reject the Software and terminate this Agreement or, at its
option, repeat the procedure in this paragraph as often as it determines is
necessary. If Bank does not notify Supplier of acceptance or rejection of the
Software, it shall be deemed accepted at the end of the Software Acceptance
Period as extended pursuant to this paragraph.
(b) Bank shall also use the procedure in this Section to determine
acceptance of Customizations and Update Releases. If Bank finds an Update
Release not to be Operative and rejects it, Bank shall have no obligation to pay
for such Update Release, and Supplier shall continue to support the version or
release of the Software that Bank has installed for at least six months after
any such rejection.
(c) During the Equipment Acceptance Period, Bank may perform whatever
acceptance tests on the Equipment it may wish to confirm that the Equipment is
Operative. For purposes of this Section, the Equipment shall be deemed Operative
if it does not contain any Class 1 or Class 2 Errors. If Bank discovers during
the Equipment Acceptance Period that any Equipment is not Operative, Bank shall
notify Supplier of the deficiencies. Supplier, at its own expense, shall modify,
repair, adjust or replace the Equipment to make it Operative within 15 days
after the date of Bank's deficiency notice. Bank may perform additional
acceptance tests during a period commencing when Supplier has delivered revised
Equipment correcting all the deficiencies Bank has noted. This restarted
Equipment Acceptance Period shall have a duration equal to that of the initial
Equipment Acceptance Period. If the Equipment, at the end of the Equipment
Acceptance Period, still is not Operative in Bank's judgment after consultation
with Supplier, Bank may reject the Equipment and terminate this Agreement or, at
its option, repeat the procedure in this paragraph as often as it determines is
necessary. If Bank does not notify Supplier of
7
<PAGE>
acceptance or rejection of the Equipment, it shall be deemed accepted at the end
of the Equipment Acceptance Period as extended pursuant to this paragraph.
S-7. MAINTENANCE SERVICES
--------------------
(a) Maintenance Obligation; Price. Supplier shall provide the Maintenance
-----------------------------
Services described in this Section for the Software, Equipment, Customizations,
Service Releases and Update Releases provided to Bank pursuant to this
Agreement. After expiration of the Warranty Period, Bank shall pay for
Maintenance Services during the Maintenance Period, the Maintenance Fee.
(b) As part of Maintenance Services, Supplier shall provide the following:
(i) Help desk support available during the Maintenance Period via
telephone number or e-mail. Help desk technicians shall be sufficiently
trained and experienced to identify or resolve most support issues and
shall respond to all Bank requests for support within 15 minutes after
receiving a Bank request for assistance.
(ii) To enable Bank to escalate its support requests for issues that
cannot be resolved by a help desk technician or for circumstances where a
help desk technician does not respond within the time specified, Supplier
shall deliver to Bank and keep current a list of persons and telephone
numbers, including pager numbers, (the "Calling List") for Bank to contact.
The Calling List shall include (1) the first person to contact if a
question arises or problem occurs, and (2) the persons in successively more
responsible or qualified positions to provide the answer or assistance
desired. If Supplier does not respond promptly to any request by Bank for
telephone consultative service, then Bank may attempt to contact the next
more responsible or qualified person on the Calling List until contact is
made and a designated person responds to the call.
(c) Error Correction.
----------------
(i) For Class 1 Errors, Supplier shall provide a Correction or
workaround reasonable in Bank's judgment within the Repair Period after
Bank reports the Error, or within twelve hours if no other Repair Period is
specified. These steps shall include assigning fully-qualified technicians
to work with Bank without interruption or additional charge, until Supplier
provides a Correction or workaround reasonable in Bank's judgment.
(ii) For Class 2 Errors, Supplier shall take reasonable steps to
provide a Correction or a workaround reasonable in Bank's judgment within
one (1) Business Day after Bank reports the Error. These steps shall
include assigning fully-qualified technicians to work with Bank during
Bank's regular business hours until Supplier provides a workaround
reasonable in Bank's judgment or a Correction or Bank determines after
consultation with Supplier that such a workaround or Correction cannot be
produced by Supplier's technicians.
(iii) For Class 3 Errors, Supplier shall correct the Errors by all
reasonable means. Supplier shall correct Software Class 3 Errors caused by
the Object Code by modifying Source Code and distributing the modified
Software to Bank no later than the next Update, unless Supplier has
scheduled release of such Update less than ten (10) days after Bank's
notice, in which case Supplier shall correct the Error no later than the
following Update.
8
<PAGE>
(iv) Without limiting Supplier's obligations under this Section, if
Supplier does not deliver a Correction for an Error within the times
allowed by this Section (whether Supplier has delivered a reasonable
workaround or not), Supplier shall provide instead, a written analysis of
the problem and a written plan to supply Bank with a Correction.
(d) Remedies.
---------
(i) If Supplier fails to provide a reasonable workaround or
Correction for a Class 1 Error within the Repair Period, Supplier shall pay
Bank, as liquidated damages for the costs Bank will incur as a result of
the Class 1 Error and not as a penalty, the sum of 2/365 of the Maintenance
Fees, expressed as an annual charge, for each additional day or part
thereof (not to exceed 90 days) that Supplier fails to provide a reasonable
workaround or a Correction for the Class 1 Error.
(ii) If Supplier fails to provide a reasonable workaround in Bank's
judgment or Correction for a Class 2 Error within three Business Days after
Bank reports the Error, Supplier shall pay Bank, as liquidated damages for
the costs Bank will incur as a result of the Class 2 Error and not as a
penalty, the sum of 1/365 of the Maintenance Fees, expressed as an annual
charge, for each additional day or part thereof (not to exceed 60 days)
that Supplier fails to provide a reasonable workaround or a Correction for
the Class 2 Error.
(iii) In each case of Class 1 or Class 2 Errors for which Supplier
does not deliver a reasonable workaround or Correction on the schedule
called for in the preceding paragraphs (i) and (ii), respectively, Supplier
shall also credit Bank the pro rata portion of Maintenance Fees that would
otherwise be payable from the date Bank first reported the Error until
Supplier provides a Correction, in recognition that Maintenance Services
during that period have not achieved their objective. If Supplier fails to
provide a Correction within 30 days after Bank first reported the Class 1
or Class 2 Error, Bank may terminate this Agreement for Supplier's material
breach. Liquidated damages shall cease to accrue upon such termination.
(iv) Without limitation of Supplier's obligations above, Bank may, at
its option, use any previous version or release of the Software in which a
Class 1 or Class 2 Software Error does not occur or can be worked around,
and Supplier shall provide Maintenance Services at no charge, with respect
to that version until Supplier provides a Correction.
(v) The parties agree that the liquidated damages called for in this
Section are reasonable in light of the harm that will be caused by such
Errors, the difficulties of proof of loss and the inconvenience and
infeasibility of otherwise obtaining an adequate remedy.
(vi) Liquidated damages shall be excused to the extent Errors are
caused by actions or omissions of Bank.
(e) Diagnostic Information. At Supplier's reasonable request, Bank shall
----------------------
submit to Supplier a listing of output and such other data as Supplier
reasonably may request in order to reproduce operating conditions similar to
those present when Bank detected the Error.
9
<PAGE>
S-8. UPDATE RELEASES AND SERVICE RELEASES
------------------------------------
(a) Supplier shall provide all Service Releases and Update Releases to
Bank at no additional charge when such releases are made generally available to
Supplier's other customers.
(b) Supplier shall notify Bank as far in advance as reasonably possible,
but in no event less than six (6) months prior to release, of all Update
Releases and Software replacements/ phase-outs, and shall provide Bank all
relevant release notes and other Documentation as soon as possible after
notification.
(c) Supplier shall continue to provide Maintenance Services on the terms
and conditions of this Agreement for the version of Software Bank has installed
for at least 24 months after Supplier makes an Update Release generally
available to its customers.
S-9. ADDITIONAL TERMINATION RIGHTS
-----------------------------
In addition to the rights of Bank under the Section entitled Default,
-------
Survival,
- --------
(a) If Bank terminates this Agreement for material default by Supplier
prior to acceptance of the Software, Bank shall be entitled to a full refund,
within 30 days after notice of termination, of all license fees, Maintenance
Fees and other fees paid hereunder, for such Software.
(b) Bank may terminate this Agreement for convenience on at least 30 days
prior written notice, and Bank shall have no further obligations under this
Agreement, subject to the section entitled Default, Survival and payment of any
-----------------
fees that accrued and were attributable to the period prior to the effective
date of termination.
(c) Bank may terminate Maintenance Services for convenience on at least 90
days prior written notice, and Bank shall then have no obligation to pay any
additional Maintenance Fees, other than for Maintenance Services performed
through the date of termination. Bank may terminate Maintenance Services for
material default by Supplier, upon at least 30 days prior written notice to
Supplier specifying the basis of the default. Upon such termination for default,
Bank shall be entitled to a pro rata refund of all prepaid Maintenance Fees for
the period after the date of termination.
S-10. TRAINING
--------
Supplier shall provide at no additional charge the training classes called for
in use, operation and maintenance of the Software Customizations and Equipment
for Bank personnel on Bank premises on dates to be specified by Bank.
S-11. CUSTOMIZATIONS
--------------
If Bank requests Customizations, Supplier shall perform them for Bank on the
schedule and at the price set forth in Schedule C. Supplier shall retain all
----------
right, title and interest in the Customizations and related work in progress,
all of which shall be deemed Software or Equipment under this Agreement when
10
<PAGE>
delivered to Bank. Customizations to Software or Equipment shall be subject to
all provisions of this Agreement. If Bank rejects any Customization, Bank: (i)
shall have no further obligation to pay for such Customization and shall receive
a refund of all amounts previously paid for such Customization; and (ii) if Bank
rejects the Initial Customizations, Bank may terminate this Agreement and
receive a refund of all license fees paid and the pro rata portion of any
prepaid Maintenance Fees for the period after the effective date of termination.
S-12. FEES
----
Software license fees, fees for the Equipment, Customizations, Maintenance Fees
and the method of payment are set forth in Schedule C.
----------
S-13. ACCESS AND INSURANCE
--------------------
(a) Bank shall provide Supplier reasonable access to the Software and
Equipment to provide installation and Maintenance Services, subject to the
security regulations existing at the Installation Site.
(b) Without in any way limiting Supplier's liability under this
Agreement, Supplier shall maintain in force at all times the following insurance
to protect Supplier and Bank from risk of loss. Supplier shall provide Bank with
certificates of insurance evidencing these coverages and, upon demand, certified
copies of policies and endorsements. Supplier shall name Bank as an additional
insured on the Supplier's Commercial General Liability, Automobile Liability and
Umbrella Insurance. Such insurance shall be in such form and with a company or
companies acceptable to Bank and shall be written for not less than the
following limits:
(i) Workers' Compensation - statutory limits for state(s) in which
Supplier's operations take place.
(ii) Employer's Liability - minimum limits of $1,000,000 per
occurrence.
(iii) Commercial General Liability, including bodily injury,
property damage and personal injury, as provided in the Insurance
Services Office (ISO) form CG 00 01 dated 11/85 (or insurance company
equivalent) with coverage of not less than $1,000,000 per occurrence.
This insurance shall include contractual liability insurance coverage.
(iv) Umbrella Liability coverage of not less than $2,000,000 per
occurrence.
(c) All insurance carried by the Supplier shall be primary without the
right of contribution from any insurance carried by Bank. All policies shall
provide that Bank will receive at least 10 days' written notice prior to any
termination of insurance coverage. Supplier represents and warrants that any
subcontractor of the services hereunder shall maintain the same insurance
coverages as Supplier is obligated to maintain under the terms of this
Agreement. Supplier shall not subcontract any services unless such written
evidence of such insurance has been provided to and approved by Bank.
11
<PAGE>
S-14. EXPORT LAWS
-----------
Each party agrees that it will not knowingly (1) export or reexport,
directly or indirectly, any technical data (as defined by the U.S. Export
Administration Regulations), including software received from the other under
this Agreement or any direct product of such technical data to; or (2) disclose
such technical data for use in any destination to which such export or reexport
is restricted or prohibited by U.S. or applicable non-U.S. law without obtaining
necessary prior authorization from the U.S. Department of Commerce and other
pertinent government authorities to the extent required by those laws. This
clause shall survive termination or cancellation of this Agreement.
S-15. SUPPLIER'S LIMITED WARRANTY
---------------------------
In addition to the other warranties contained in this Agreement,
including those in the General Terms and Conditions, Supplier hereby represents
and warrants that.
(a) The Product shall be and shall remain Operative, from the Delivery
Date through the end of the Warranty Period and so long as Supplier provides
Maintenance Services for the Product. If the Product is not Operative at the
expiration of the initial Warranty Period, the Warranty Period shall be extended
until Supplier makes the Product Operative.
(b) Supplier will perform Maintenance Services and any requested
installation services in a timely, competent and professional manner using
qualified, trained technicians familiar with the Product and its operation.
Maintenance Services shall conform to or exceed the standards generally observed
in the industry for similar services.
(c) Supplier will develop any Customizations in a workmanlike manner,
using qualified personnel familiar with the Product and its operation.
(d) SUPPLIER'S EXPRESS WARRANTIES CONTAINED IN THIS AGREEMENT ARE IN
LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
The provisions of this Section shall survive any termination or expiration of
this Agreement.
S-16. YEAR 2000 COMPLIANCE WARRANTY
-----------------------------
(a) Supplier represents and warrants that the Product delivered or used
pursuant to the Agreement (referred to in this Section as "Compliant Product")
shall be "Year 2000 Compliant" as of the Compliance Date.
(b) "Year 2000 Compliant" means that:
(i) Compliant Product will accept, process and output data
containing any dates falling in the range from 1900 through 2037 without
loss of any functionality or any other processing anomalies, e.g., error
or interruption, arising from or relating to the fact that a date occurs
on or after September 9, 1999;
12
<PAGE>
(ii) Compliant Product will correctly interpret and process every
date that other Software/hardware may deliver to the Compliant Product in
the course of processing data, as long as the date delivered conforms to
the requirements of the Compliant Product, and it will deliver to
interfacing Software/hardware data that conform to a four-digit year date
format unless otherwise agreed; and
(iii) determination of whether a year is a leap year is made in
accordance with the Gregorian calendar.
(c) Supplier shall notify Bank, within 60 days after the date this
Agreement is fully executed, of the first date ("Compliance Date") on which all
Compliant Product it has supplied or will supply to Bank or any of its
Affiliates in fact will be Year 2000 Compliant, which shall not be later than
the Effective Date of this Agreement. Supplier's representation and warranty
shall be renewed as of the Compliance Date and be a continuing warranty for any
Product that Supplier provides to Bank or any Affiliate.
(d) Within 15 days after Bank's written request, which shall not be more
frequent than four times per year, Supplier shall report in writing its progress
(a) toward making Compliant Product in fact Year 2000 Compliant by the
Compliance Date and (b) in carrying out its plan to be Year 2000 Ready,
including its then-current assessment of the date that it will be Year 2000
Ready. "Year 2000 Ready" means that Supplier will be able, notwithstanding the
Year 2000 Problem, to fulfill its obligations under this Agreement before and
after the change from the 20th to the 21st century without delay or degradation
of performance or quality.
(e) Supplier shall notify Bank, within 60 days after the date this
Agreement is fully executed, of the date format Supplier will use externally to
achieve Year 2000 Compliance and of the date format Supplier will use for any
automated interface with Bank. Both formats shall be a four-digit year format
unless otherwise agreed.
(f) Notwithstanding any liability limitations set forth in this
Agreement, Supplier shall provide Bank, at no additional charge, with any
Service Release or Update Release, including engineering changes, etc., of
Compliant Product which prevent or correct a breach of the warranties in this
Section. At no additional charge, Bank shall have the right to the number of
copies of new versions, Update Releases or Service Releases of Software that is
equal to the number of copies of Software licensed or maintained pursuant to
this Agreement at the time Supplier makes such new version, update release or
service release of Software available to its customers.
(g) Supplier represents and warrants that it has implemented a plan and
process to ensure that it will be Year 2000 Ready no later than December 31,
1998.
(h) Within 15 days after the date this Agreement is fully executed,
Supplier shall deliver to Bank in writing a copy of its plan for becoming Year
2000 Ready, including milestone dates and requirements, if any, for testing its
systems with Bank. Unless otherwise agreed, this plan shall be Confidential
Information. The provisions of this Section shall survive any termination or
expiration of this Agreement.
13
<PAGE>
S-17. ENTIRE AGREEMENT
----------------
(a) This Agreement constitutes the final expression and the complete and
exclusive statement of the agreement between Bank and Supplier, and as of its
date supersedes all prior agreements, communications, negotiations,
representations and proposals, written or oral, relating to its subject matter.
Neither party shall be bound by or liable to the other party for any
representation, promise or inducement made by any agent or person in the other's
employ which is not embodied in this Agreement.
(b) If any conflict exists or arises among the documents constituting
this Agreement, the terms of Schedule B, General Terms and Conditions, shall
----------
prevail under all circumstances. The terms in Schedule C shall prevail over the
----------
terms in any other Schedule, except Schedule B. The terms of any other Schedule
----------
shall prevail over the terms in Schedule A, Special Terms and Conditions.
----------
(c) Unless defined in a Schedule for purposes of that Schedule, defined
terms used in any Schedule shall have the same meaning as in the Special Terms
and Conditions. Capitalized terms undefined in the Special Terms and Conditions
shall have the meanings assigned in any Schedule.
14
<PAGE>
SCHEDULE B
GENERAL TERMS AND CONDITIONS
G-1. DEFINITIONS
-----------
(a) Product - equipment, firmware, system designs, computer programs and
program materials, including any part thereof, customizations, maintenance
services, documentation, training and any other goods or services this Agreement
calls for Supplier to furnish or Supplier furnishes.
(b) Purchase Order - Bank's written instrument delivered to Supplier to
order the Product called for by this Agreement.
(c) Affiliate - a business entity controlled by, controlling or under
common control with a party. Control exists when an entity owns or controls more
than 50 % of the outstanding shares or securities representing the right to vote
for the election of directors or other managing authority of another entity.
(d) All defined terms not otherwise defined in these General Terms and
Conditions shall have the meanings given them in the Special Terms and
Conditions or any Schedule in which they are defined.
G-2. CONFIDENTIALITY
---------------
(a) The parties acknowledge that all information (including the terms and
conditions hereof) of a material nature marked as confidential and disclosed by
either party to the other or coming to the attention of either party or its
employees, officers, agents or advisors ("Representatives") during the course of
work pursuant to the terms of this Agreement, shall be Confidential Information.
Confidential Information constitutes a valuable asset of and is proprietary to
the party disclosing or originally possessing it. Supplier also acknowledges
that Bank, as a bank, has a responsibility to its customers to keep their
records strictly confidential. Supplier and its Representatives shall keep
strictly confidential any Bank customer records which are disclosed or of which
it or they become aware. Neither party shall disclose Confidential Information
or knowingly permit its Representatives to disclose Confidential Information to
any person other than its Affiliates or Representatives or to any person among
its Affiliates and Representatives not having a specific need to know in
performance of the work. Each party shall take reasonable care to insure
fulfillment of this obligation, including instructing its Representatives not to
sell, lease, assign, transfer, use outside their scope of employment or reveal
any Confidential Information or Bank customer information without prior written
consent of the other party. Supplier shall obtain the written agreement of its
Affiliates and Representatives who will receive Bank customer records or other
Confidential Information to conform to Supplier's obligations under this
Section.
(b) If a subpoena or other legal process in any way concerning
information disclosed in connection with this Agreement is served upon the
recipient of such Confidential Information ("Recipient"), the Recipient shall
notify the disclosing party ("Discloser") promptly, and the Recipient shall
cooperate with the Discloser, at the Discloser's expense, in any lawful effort
to contest the validity of such subpoena or other legal process.
15
<PAGE>
(c) This Section will in no way limit either party's ability to satisfy
any governmentally required disclosure of its relationship with the other party,
or Bank's ability to satisfy any requests or demands generated in the course of
audits of Bank or Bank's parent or Affiliates, or requests or demands generated
by National Bank Examiners or Bank's attorneys or auditors.
(d) The obligations of confidentiality in this Section shall not apply to
any information which a party has in its possession when disclosed to it by the
other party, information which a party independently develops, information which
is or becomes known to the public other than by breach of this Agreement or
information rightfully received by a party from a third party without the
obligation of confidentiality.
(e) If any item furnished by Supplier (or plan, design or specification
for producing the same) has been specifically designed, developed or modified by
Supplier for Bank at Bank's request or expense, then no such item, plan, design
or specification shall be duplicated or furnished to others by Supplier without
Bank's prior written consent. All copies of such item including the original (or
plan, design or specification for producing the same), and all of Bank's
Confidential Information shall be returned to Bank upon request or upon
termination or expiration of this Agreement.
(f) Supplier shall not use any name or logo of, or refer directly or
indirectly to, Bank or any of its Affiliates in any advertising, sales
presentation, news release, release to any professional or trade publication or
for any other purpose without Bank's prior written approval.
G-3. NONDISCLOSURE
-------------
(a) Bank may provide the Product to its own employees and those of any of
its Affiliates who have the need to know in exercising Bank's right to use the
Product.
(b) Bank or an Affiliate may disclose the Product to contractors for the
purpose of further handling, processing, modifying and adapting the Product for
the exclusive use of Bank or its Affiliates, provided that such contractors have
agreed to observe in substance the obligations of Bank set forth in the Section
entitled Confidentiality.
(c) Any other disclosure requires Supplier's prior written consent.
G-4. INFRINGEMENT WARRANTY AND INDEMNITY
-----------------------------------
(a) Supplier warrants that sale, licensing or use of any Product or any
part thereof furnished under this Agreement, including but not limited to
Software, Equipment, system design, equipment or documentation, shall not
infringe upon any patent, copyright, trade secret or other proprietary right of
any third party ("Intellectual Property Right"). Supplier shall defend or settle
at its expense any claim, suit or proceeding arising from or alleging
infringement of any Intellectual Property Right by Product or part thereof
furnished under this Agreement. Supplier shall indemnify and hold Bank harmless
from and pay any and all losses, costs and damages, including royalties and
license fees, reasonable counsel fees and allocated cost of Bank's in-house
counsel attributable to such claim, suit or proceeding. Bank shall give Supplier
prompt notice of, and the parties shall cooperate in, the defense of any such
claim, suit or
16
<PAGE>
proceeding, including appeals, negotiations and any settlement or compromise
thereof, provided that Bank shall approve the terms of any settlement or
compromise.
(b) If any Product or part thereof furnished under this Agreement,
including, without limitation, software, service, system design, equipment or
documentation, becomes, or in Bank's or Supplier's reasonable opinion is likely
to become, the subject of any claim, suit, or proceeding arising from or
alleging infringement of, or in the event of any adjudication that such Product
or part thereof infringes on, any Intellectual Property Right, Supplier, at its
own expense shall take the following actions in the listed order of preference:
(i) secure for Bank the right to continue using the Product or part
thereof; or if commercially reasonable efforts are unavailing.
(ii) replace or modify the Product or part thereof to make it
noninfringing; provided, however, that such modification or replacement
shall not degrade the operation or performance of the Product.
(c) This indemnity shall not extend to any claim of infringement
resulting from Bank's unauthorized modification of Product or from use or
incorporation of Product in a manner for which the Product is not designed with
products not provided by Supplier or by or for Bank with Supplier's approval.
G-5. DAMAGE TO BANK SYSTEMS
----------------------
The Product and any media used to distribute it contain no computer
instructions, circuitry or other technological means ("Harmful Code") whose
purpose is to disrupt, damage or interfere with Bank's use of its computer and
telecommunications facilities for their commercial, test or research purposes.
Harmful Code shall include, without limitation, any instrumentality that will
cause the Software or Equipment to cease to operate or to fail to conform to its
specifications upon (i) use by more than the licensed number of users or (ii)
termination or expiration of this Agreement, unless otherwise expressly
provided.
G-6. QUIET ENJOYMENT
---------------
(a) During the term of this Agreement, Bank may use Product without
disturbance, subject only to its obligations to make the payments required by
this Agreement. Supplier represents that this Agreement is not subject or
subordinate to any right of Supplier's creditors, or if such subordination
exists, the agreement or instrument creating it provides for nondisturbance of
Bank as long as it shall not be in default hereunder.
(b) Supplier warrants that it has full power and authority to grant the
rights herein granted without the consent of any other person. Supplier will
indemnify Bank and hold it harmless from and against any loss, cost, liability
or expense (including reasonable attorneys' fees and allocated cost of Bank's
in-house counsel) arising out of any breach or claimed breach of this warranty.
17
<PAGE>
G-7. DEFAULT, SURVIVAL
-----------------
(a) If either party fails to observe, keep or perform any material term or
condition of this Agreement, the other party may terminate this Agreement. The
party seeking to terminate this Agreement shall give the other party at least
thirty days' prior written notice of any of the foregoing claimed to be a basis
for termination, and the Agreement shall terminate on the date specified in the
notice if the party receiving the notice has by then failed to correct or remedy
the situation. The party charged with material breach may initiate the
procedures of the Section entitled Dispute Resolution.
(b) If a voluntary or involuntary petition is commenced by or against
Supplier under the United States Bankruptcy Code (Title 11, U.S. Code, referred
to hereafter as the "Code"), or Supplier becomes insolvent, or any substantial
part of Supplier's property becomes subject to any levy, seizure, assignment,
application or sale for or by any creditor or governmental agency, or a receiver
should be appointed for Supplier, Bank may terminate this Agreement by following
the procedure of the preceding paragraph G-7(a). The parties agree that all
software delivered pursuant to this Agreement and the documentation therefor
constitute "intellectual property" under Section 101(35A) of the Code (11 U.S.C.
(S) 101(35A)). Supplier agrees that if it, as a debtor-in-possession, or if a
trustee in bankruptcy for Supplier, in a case under the Code, rejects this
Agreement, Bank may elect to retain its rights under this Agreement as provided
in Section 365(n) of the Code. Bank, and any intellectual property rights,
licenses or assignments from Supplier of which Bank may have the benefit, shall
receive the full protection granted to Bank by applicable bankruptcy law.
(c) The licenses granted in this Agreement shall not terminate for any
reason unless Bank fails to pay in full the undisputed portion of license fees
for the Software or Bank terminates this Agreement and returns, or certifies
destruction of, the Software to Supplier.
(d) All provisions of this Agreement which by their nature must survive
termination in order to achieve the fundamental purposes of this Agreement,
including, without limitation, paragraph G-7(b) and the provisions of the
Sections entitled Confidentiality, Infringement Warranty and Indemnity,
Arbitration, Attorneys' Fees, Notices, Limitation of Liability, Warranty and
Miscellaneous shall survive any termination or expiration of this Agreement.
G-8. LIMITATION OF LIABILITY
-----------------------
(a) Supplier and Bank each indemnifies the other from any claim or damages
due to the injury or death of any individual, or the loss or damage to real or
tangible personal property, resulting from the acts or omissions of the
indemnifying party, its agents or employees.
(b) Neither party shall be liable to the other hereunder for any special,
indirect, consequential or exemplary damages, including, but not limited to,
lost profits, even if the parties have knowledge of the possibility of such
damages, except with respect to claims under the provisions of this Agreement
regarding indemnification.
(c) NOTWITHSTANIDNG ANY OTHER PROVISIONS OF THIS AGREEMENT, IN NO EVENT
WILL EITHER PARTY'S AGGREGATE LIABILITY TO THE OTHER PARTY HEREUNDER EXCEED TWO
HUNDRED THOUSAND DOLLARS ($200,000), EXCEPT THIS
18
<PAGE>
LIMIT SHALL NOT APPLY TO CLAIMS UNDER THE SECTIONS TITLED PATENT, COPYRIGHT AND
TRADE SECRET INDEMNITY AND SUBSECTION G-8 (A) ABOVE.
G-9. FORCE MAJEURE
-------------
(a) No failure, delay or default in performance of any obligation of a
party to this Agreement shall constitute an event of default or a breach of this
Agreement, to the extent that such failure to perform, delay or default arises
out of a cause, existing or future, that is beyond the control and without
negligence of the party otherwise chargeable with failure, delay or default;
including, but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute; flood; war;
riot; theft; earthquake and natural disaster. The affected party shall take
action to minimize the consequences of any such cause. Either party desiring to
rely upon any of the foregoing as an excuse for failure, default or delay in
performance shall, when the cause arises, give to the other party prompt notice
in writing of the facts which constitute such cause; and, when the cause ceases
to exist, give prompt notice thereof to the other party. This Section shall in
no way limit the right of either party to this Agreement to make any claim
against third parties for any damages suffered due to said causes.
(b) If any performance date under this Agreement is postponed or extended
pursuant to this Section for longer than 60 calendar days, Bank may, by written
notice given during the postponement or extension, terminate Supplier's right to
render further performance after the effective date of termination without
liability for that termination.
G-10. TAXES
-----
Bank shall pay or reimburse Supplier for sales and use taxes, where applicable,
and any other governmental charges levied, imposed or assessed on Product
furnished to Bank or on this Agreement, excluding, however, ordinary personal
property taxes assessed against or payable by Supplier, taxes based upon
Supplier's net income and Supplier's corporate franchise taxes. Alternatively
to such payment or reimbursement, Bank may satisfy its obligation in this
Section by providing Supplier with an applicable exemption certificate.
Supplier shall furnish Bank with invoices showing separately itemized amounts
due under this Section. If Bank pays or reimburses Supplier under this Section,
Supplier hereby assigns and transfers to Bank all of its right, title and
interest in and to any refund for taxes paid. Any claim for refund of taxes
against the assessing authority may be made in the name of Bank or Supplier, or
both, at Bank's option. Bank may initiate and manage litigation brought in the
name of Bank or Supplier, or both, to obtain amounts paid under this Section.
Supplier shall cooperate fully with Bank in pursuing any refund claims,
including any related litigation or administrative procedures.
G-11. ASSIGNMENT
----------
Neither party shall assign any of its rights nor delegate any of its obligations
under this Agreement without the prior written consent of the other party,
provided that Bank may assign its rights and benefits and delegate its duties
and obligations under this Agreement to its Affiliates. Supplier shall not
subcontract any of its rights and obligations hereunder to one or more third
parties without Bank's prior written approval. Any prohibited assignment or
delegation shall be null and void.
19
<PAGE>
G-12. DISPUTE RESOLUTION
------------------
The following procedure will be adhered to in all disputes arising under this
Agreement which the parties cannot resolve informally. The aggrieved party
shall notify the other party in writing of the nature of the dispute with as
much detail as possible about the deficient performance of the other party. The
Project Managers shall meet (in person or by telephone) within seven days after
the date of the written notification to reach an agreement about the nature of
the deficiency and the corrective action to be taken by the respective parties.
The Project Managers shall produce a report about the nature of the dispute in
detail to their respective management. If the Project Managers are unable to
agree on corrective action, senior managers of the parties having authority to
resolve the dispute without the further consent of any other person
("Management") shall meet or otherwise act to facilitate an agreement within 14
days of the date of the written notification. If Management cannot resolve the
dispute or agree upon a written plan of corrective action to do so within seven
days after their initial meeting or other action, or if the agreed-upon
completion dates in the written plan of corrective action are exceeded, either
party may request arbitration as provided for in this Agreement. Except as
otherwise specifically provided, neither party shall initiate arbitration,
mediation or litigation unless and until this dispute resolution procedure has
been employed or waived.
G-13. ARBITRATION
-----------
(a) Mandatory Arbitration. Any controversy or claim between or among the
parties, including, but not limited to, those arising out of or relating to this
Agreement or any agreements or instruments relating hereto and any claim based
on or arising from an alleged tort, shall at the request of a party be
determined by arbitration. The arbitration shall be conducted in San Francisco,
California in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Agreement, and under
the auspices and rules of the American Arbitration Association then in effect.
Each party may serve a single request for production of documents. If disputes
arise concerning these requests, the arbitrators shall have sole and complete
discretion to determine the disputes. The arbitrators shall give effect to
statutes of limitation in determining any claim, and any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrators. The
arbitrators shall deliver a written opinion setting forth findings of fact,
conclusions of law and the rationale for the decision. The arbitrators shall
reconsider the decision once upon the motion and at the expense of a party. The
Section of this Agreement entitled Confidentiality shall apply to the
arbitration proceeding, all evidence taken and the opinion, which are the
Confidential Information of both parties. Judgment upon the decision rendered by
the arbitrators may be entered in any court having jurisdiction. The institution
and maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of either party to
submit the controversy or claim to arbitration if the other party contests such
action for judicial relief.
(b) Provisional Remedies. No provision of this Section G-13. Arbitration
shall limit the right of a party to this Agreement to obtain provisional or
ancillary remedies from a court of competent jurisdiction before, after, or
during the pendency of any arbitration. The exercise of a remedy does not waive
the right of either party to resort to arbitration.
20
<PAGE>
G-14. ATTORNEYS' FEES
---------------
If a legal action or arbitration proceeding is commenced in connection with any
dispute under this Agreement, the prevailing party, as determined by the court
or arbitrators, shall be entitled to recover from the other attorneys' fees,
costs and necessary disbursements actually incurred (including allocated fees
and costs for in-house legal services), in connection with such action or
proceeding.
G-15. RELATIONSHIP OF THE PARTIES
---------------------------
The parties are independent contractors. Nothing in this Agreement or in the
activities contemplated by the parties hereunder shall be deemed to create an
agency, partnership, employment or joint venture relationship between the
parties. Each party shall be deemed to be acting solely on its own behalf and,
except as expressly stated, has no authority to pledge the credit of, or incur
obligations or perform any acts or make any statements on behalf of, the other
party. Neither party shall represent to any person or permit any person to act
upon the belief that it has any such authority from the other party.
G-16. AMENDMENT
---------
No changes, amendments or modifications of any of the terms or conditions of
this Agreement shall be valid unless made by an instrument in writing signed by
both parties.
G-17. NOTICES
-------
Any notice sent pursuant to this Agreement shall be sent by certified first
class mail, return receipt requested, postage prepaid, or other receipted
express delivery service to the addresses specified in Schedule C.
G-18. COMPLIANCE WITH LAWS
--------------------
(a) Supplier represents that it will comply with the provisions of
Executive Order 11246 (as amended) of the President of the United States on
Equal Employment Opportunity and the rules and regulations issued pursuant
thereto and are hereby incorporated into this Agreement, unless exempted.
(b) Supplier shall comply with all applicable federal, state and local
laws, regulations and ordinances, including, but not limited to, the regulations
of the United States Government as they relate to this Agreement and the
Product. If a charge of noncompliance with those laws or regulations is brought
against Supplier in connection with this Agreement or the Product, Supplier
shall promptly notify Bank of the charge in writing.
G-19. SUPPLIER DIVERSITY & ENVIRONMENTAL POLICIES
-------------------------------------------
(a) Supplier acknowledges that it is Bank's policy to encourage each
party with which it enters into an agreement for the provision of goods or
services to use, consistent with the efficient performance of such agreements:
21
<PAGE>
(i) business enterprises more than 50% of which are owned by
minorities, women and disabled veterans or other persons with
disabilities (each a "MWDVBE") as suppliers and subcontractors to such
person; and
(ii) recycled paper goods and to implement and adhere to other
environmentally beneficial policies and practices.
(b) Supplier may obtain Bank's guidelines pertaining to environmentally
beneficial policies and practices (the "Environmental Principles") by writing
to: Bank of America, Environmental Policies and Programs, #15800, P.O. Box
37000, San Francisco, CA 94137.
(c) Supplier shall provide to Bank a written description of its policies
and procedures regarding its use of MWDVBEs in Supplier's business and the
implementation of environmentally beneficial practices in its business.
(d) Supplier shall deliver the reports called for herein to:
Bank of America NT&SA
Technology Procurement #13411
P.O. Box 37000
San Francisco, CA 94137
G-20. WARRANTY
--------
(a) Supplier represents and warrants that:
(i) At all times during the term of this Agreement the Products or
services Supplier provides will comply with all applicable laws and
regulations.
(ii) Supplier shall provide its services it in a competent manner
using qualified and trained personnel.
(iii) Products and services provided to Bank will at all times and
in all material respects conform to the specifications set forth in the
applicable documentation.
(iv) Supplier has all necessary power and authority to grant Bank
the rights granted and to perform all of its obligations in this
Agreement without the further consent of any other person. Supplier will
indemnify Bank and hold it harmless from and against all claims, losses,
costs, liabilities, damages and expenses, including reasonable attorneys'
fees and, without duplication, allocated costs of Bank's in-house
counsel, arising out of any breach or claimed breach of this warranty.
(b) THE WARRANTIES CONTAINED IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
22
<PAGE>
G-21. MISCELLANEOUS
-------------
(a) Wherever this Agreement requires either party's approval, consent or
satisfaction, the response shall not be unreasonably withheld or delayed.
(b) Section headings are included for convenience only and are not to be
used to construe or interpret this Agreement.
(c) Neither party's officers or employees, agents or contractors shall
be deemed officers, employees, agents or contractors of the other party for any
purpose.
(d) No delay, failure or waiver of either party's exercise or partial
exercise of any right or remedy under this Agreement shall operate to limit,
impair, preclude, cancel, waive or otherwise affect such right or remedy.
(e) If any provision of this Agreement is held invalid, illegal or
unenforceable, the validity, legality or enforceability of the remaining
provisions shall in no way be affected or impaired thereby.
(f) This Agreement may be executed by the parties in one or more
counterparts, and each of which when so executed shall be an original, but all
such counterparts shall constitute one and the same instrument.
(g) This Agreement is entered into in and shall be governed by the
internal laws and not the laws regarding conflicts of laws of the State of
California. Software and Equipment each shall be deemed "goods" for purposes of
the Uniform Commercial Code. The parties agree to waive the application of the
United National Convention on International Contracts for the Sale of Goods.
(h) The remedies under this Agreement shall be cumulative and not
exclusive, and the election of one remedy shall not preclude pursuit of other
remedies. In arbitration a party may seek any remedy generally available under
the governing law.
23
<PAGE>
SCHEDULE C
PRICE, PAYMENT AND DELIVERY TERMS
C-1. INVOICES
--------
(a) Supplier invoices shall be submitted to:
Bank of America
Corporate General Accounting
Department #3707
P. O. Box 37000
San Francisco, CA 94137
A copy shall be submitted to Bank's Project Manager.
(b) Unless otherwise stated, all charges shall be invoiced when incurred,
provided, however, that for each Software Product, no charges shall be invoiced
prior to the Acceptance Date of such Product. Supplier's valid invoice shall be
due and payable in full thirty (30) days from the date of receipt.
(c) All Supplier invoices must contain the following data elements:
1) Purchase Order number
2) Agreement number
3) Charge unit number
4) Inventory (delivery) unit number
5) Supplier name and address
6) Description and release number
7) Price per line item and extended totals
C-2. TERM FOR ORDERING
-----------------
(a) SOFTWARE
Bank may order Software on the terms and conditions of this Agreement
for one (1) year from the Effective Date.
(b) EQUIPMENT
Bank may order Equipment on the terms and conditions of this
Agreement for one (1) year from the Effective Date.
(c) MAINTENANCE SERVICES
The Maintenance Term shall be one (1) year commencing on the day
after the last day of the Software Warranty Period. Thereafter, the Maintenance
Term shall automatically renew for successive one (1) year periods on the terms
and conditions of this Agreement unless Bank terminates
24
<PAGE>
Maintenance Services pursuant to this Agreement. During the initial Maintenance
Term and any renewal term, Maintenance Fees shall be paid in the increments
described below under Payment Terms.
-------------
C-3. PAYMENT TERMS
-------------
(a) LICENSE FEES. Unless otherwise provided in this Schedule:
(i) fifty percent (50%) of the license fees for Software may be
invoiced after execution of this Agreement,
(ii) an additional thirty percent (30%) may be invoiced after the
Installation Date, and
(iii) the remaining twenty percent (20%) may be invoiced after the
Acceptance Date.
(b) MAINTENANCE FEE. The Maintenance Fee shall be invoiced annually in
advance, on or after the first day of each Maintenance Term.
C-4. PRICE LIST
----------
(a) Software License Fees.
<TABLE>
<CAPTION>
BANK RESIDENT SOFTWARE
<S> <C>
One (1) Litronic Basic Package, inclusive of one copy $15,000
of each of the following:
Litronic Profile Manager
Litronic Key Generation Module
Litronic Administrator Authentication Module
Litronic SmartCard Issuance Module
Litronic Certificate Module
Litronic Custom Data Object Module
Litronic Data I/O Module
Litronic Online/Update Module
Litronic/VeriSign Interface
One (1) Disaster Copy of Litronic Basic Package Included in the above price
BANK RESIDENT SOFTWARE $ 5,000
One (1) Litronic Unblock PIN Service Module
One (1) Disaster Copy of Litronic Unblock PIN Service Included in the above price
Module
BANK RESIDENT SOFTWARE $10,000
One (1) Litronic Certificate Service Module
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
One (1) Disaster Copy of Litronic Certificate Service Included in the above price
Module
REMOTE CLIENT SOFTWARE No additional charge
One (1) NetSign PRO(TM) consisting of
One (1) Cryptos and
One (1) Jcryptos
One (1) Disaster Copy of NetSign PRO(TM) No additional charge
(b) Initial Customizations Fees.
BANK RESIDENT SOFTWARE
SmartCard Issuance Customization $ 4,000
Custom Data Object Customization $ 4,000
Data I/O Customization $ 8,000
Unblock PIN Service Customization $ 4,000
Certificate Service Customization $ 9,000
REMOTE CLIENT SOFTWARE
NetSign PRO(TM) Customization $ 9,400
-------
TOTAL $38,400
(c) Equipment: Litronic Readers/
SmartCard: Schlumberger 4K Cryptoflex
Quantity Description Price
--------- ----------- -----
Ten (10) User SmartCards No additional charge
Three (3) Security Officer SmartCards No additional charge
Four (4) Litronic 210 Readers No additional charge
(d) Maintenance Fee.
(i) During the Maintenance Period: 12% of the License Fees, excluding
Customizations.
(ii) Outside the Maintenance Period At the Time and Materials Rate
(e) Time and Materials Rate
(i) if performed at Supplier site (i)$135.00 per hour
(ii) if performed at Bank site (ii)$2000.00 per day/one day minimum
</TABLE>
26
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT I
TO SCHEDULE C
EQUIPMENT PURCHASE, SOFTWARE LICENSE AND MAINTENANCE AGREEMENT
SMART CARD - DIGITAL CERTIFICATE
REQUIREMENTS DOCUMENT
Bank of America
Smart Card Product Development #10039
201 Third Street
San Francisco, CA
March 10, 1999
Version 1.1
CLASSIFICATION: CONFIDENTIAL
INTERNAL USE ONLY
Doc: SC Digital Cer: Requirement
Date: March 10, 1999
- --------------------------------------------------------------------------------
<PAGE>
Smart Card - Digital Certificate
Requirements Document
March 10, 1999
- --------------------------------------------------------------------------------
Table of Contents
<TABLE>
<S> <C>
1. Description of Pilot Program............................................ 3
a. Goal................................................................... 3
b. Smartcard Issuance..................................................... 3
c. Registration........................................................... 3
d. Maintenance............................................................ 3
2. Smartcard Issuance System - Functional Requirements..................... 5
a. Import................................................................. 5
b. PINs................................................................... 5
c. Smartcard Initialization............................................... 5
d. Smartcard Printing..................................................... 5
e. Export................................................................. 6
3. Client-side Web Access Software - Functional Requirements............... 7
a. System must include the following components:.......................... 7
b. System requirements:................................................... 7
c. Installer Requirements................................................. 7
4. Remote Certificate Replacement Module - Functional Requirements......... 9
a. System Requirements.................................................... 9
5. Remote Unblock PIN Module - Functional Requirements..................... 9
6. Computer System Requirements............................................ 10
a. Client Computer........................................................ 10
b. ProFile Manager Computer............................................... 11
c. Web Server Computer.................................................... 11
d. Customer Service Computer.............................................. 11
</TABLE>
- --------------------------------------------------------------------------------
Classification: Confidential Page 2
<PAGE>
Smart Card - Digital Certificate
Requirements Document
March 10, 1999
- --------------------------------------------------------------------------------
1. DESCRIPTION OF PILOT PROGRAM
A. GOAL
To create a pilot program testing the feasibility of using smartcards
with digital IDs to provide secure access and client authentication
to Bank of America's On-line Banking Services. Banking Services are
not defined for pilot, but will be defined for production roll-out.
The purpose of this project is to deploy digital certificates on
SmartCards and to determine the feasibility of performing this on a
large scale and to what degree we can use the digital certificate to
authenticate a user/client.
B. SMARTCARD ISSUANCE
1) Clients are chosen for Pilot Program
2) User Information are imported or hand-entered into Smartcard
Issuance System
3) Random PIN for smartcard access is determined
4) Personalized Smartcard is issued with a 60-day temporary
(unregistered) Bank of America branded VeriSign certificate
5) Smartcard, Client-side Web Access software, and instructions are
delivered to Client
6) PIN is delivered to Client
C. REGISTRATION
1) Client installs smartcard reader and software
2) Client goes to Bank of America registration website
3) Client must insert smartcard (unregistered) in reader and enter PIN
in order to gain access to the registration website.
4) Client must additionally provide Banking Services user ID and
password to authenticate himself to Bank of America registration
website
5) Registration process begins
6) Client's temporary digital ID is replaced with a one year,
registered Bank of America branded VeriSign digital ID
7) Upon completion of registration, client is directed to the Bank of
America On-line Banking Website
8) Client must insert smartcard (registered) in reader and enter PIN
in order to gain access to the On-line Banking Website
D. MAINTENANCE
1) If a client blocks their PIN, they may contact a designated Bank of
America Representative who can assist them with unblocking their
PIN over the phone.
2) Client runs PIN Unblock (client-side) application
- --------------------------------------------------------------------------------
Classification: Confidential Page 3
<PAGE>
Smart Card - Digital Certificate
Requirements Document
March 10, 1999
- --------------------------------------------------------------------------------
3) A random code is generated
4) Bank Representative runs PIN Unblock (server-side) application
5) Client reads the code to Representative
6) Representative enters code and client's account number into server-side
application
7) Server-side application looks up SO PIN using Account Number and
provides an encoded response code
8) Client enters response code which Unlocks PIN
9) Client is prompted for new User PIN
10) New User PIN is confirmed with Client
- --------------------------------------------------------------------------------
Classification: Confidential Page 4
<PAGE>
Smart Card - Digital Certificate
Requirements Document
March 10, 1999
- --------------------------------------------------------------------------------
2. SMARTCARD ISSUANCE SYSTEM-FUNCTIONAL REQUIREMENTS
A. IMPORT
1) System must be capable of importing client data from a common-
delimited ASCII file
2) Client data to include during import for both proto and real
certificate:
a) First Name
b) Middle Initial
c) Last Name
d) Social Security Number
e) Account Number
f) Zip Code
g) Customer Since Date
h) E-mail Address
i) Banking Services User ID
j) Banking Services Password
B. PINS
1) System must randomly generate User PIN
2) System must randomly generate SO PIN
3) System must provide ability to access User PIN for delivery to
client
4) System must provide ability to access SO PIN for PIN Unblock
feature.
5) Defined as 4 to 8 numeric digits.
C. SMARTCARD INITIALIZATION
1) Smartcard must be initialized with random PINs as described above
2) System must be able to initialize smartcard for use with Netscape
Communicator version 4.5 (128-bit encryption version)
3) System must be able to place a Bank of America branded VeriSign
Class 2 Digital ID on the smartcard containing designated client
information
4) System must be able to set Digital ID expiration date to 60 days
from issuance
5) System should be able to initialize a single card or a batch of
cards
D. SMARTCARD PRINTING
1) Smartcards must be personalized with the following:
a) Bank of America Logo
b) Customer Name
- --------------------------------------------------------------------------------
Classification: Confidential Page 5
<PAGE>
Smart Card - Digital Certificate
Requirements Document
March 10, 1999
________________________________________________________________________________
c) Account Number (Embossed)
d) Customer Since Date
e) Card Issuance Date
2) Card Design
a) Graphics - The DataCard 280 has the ability to print
"graphics" in one color. The Bank of America logo will be
printed all in black in the top left hand corner of the card
b) Embossing - The DataCard 280 will emboss the the following
information:
Account Number, Customer Since Date (yyyy), Valid From Date
(mm/dd/yyyy)
c) Printing - The DataCard 280 has the ability to print "type" in
black. Field name data should be in smallest unembossed
readable font. The following data will be printed per the card
layout defined below:
(1) Account Number
(2) VALID FROM date (mm/dd/yyyy)
(3) Customer name (All Caps)
(4) CUSTOMER SINCE date (yyyy)
(5) Card Layout - see below
[CARD APPEARS HERE]
E. EXPORT
1) Remote Certificate Replacement Module
a) System must provide Remote Certificate Replacement Module with
access to client information, including:
(1) First Name
(2) Last Name
(3) Unregistered Certificate Data
________________________________________________________________________________
Classification: Confidential Page 6
<PAGE>
Smart Card - Digital Certificate
Requirements Document
March 10, 1999
- --------------------------------------------------------------------------------
(4) Banking Services User ID
(5) Banking Services Password
(6) Additional Fields to be included in Registered Cert will be
defined prior to production roll-out.
(2) Remote PIN Unblock Module
a) System must provide Remote PIN Unblock Module with access to client
information, including:
(1) First Name
(2) Last Name
(3) Account Number
(4) Social Security Number ????
(5) SO PIN
3. CLIENT-SIDE WEB ACCESS SOFTWARE - FUNCTIONAL REQUIREMENTS
A. SYSTEM MUST INCLUDE THE FOLLOWING COMPONENTS:
1) Software Installer
2) Litronic Cryptographic Module for Netscape Communicator version 4.5
(128-bit encryption)
3) Drivers for smartcard reader
4) Drivers for smartcard
5) Bank of America Root Certificate
6) JCryptos
7) Client-side PIN Unblock application
B. SYSTEM REQUIREMENTS:
1) System must not interfere with other smartcard-based applications on
the client's computer
2) System must provide a method of Internet Access.
3) System must provide client-side SSL authentication using the digital
ID on the smartcard for authentication
4) System must run in Windows 95, 98, or NT 4.0
C. INSTALLER REQUIREMENTS
- --------------------------------------------------------------------------------
Classification: Confidential Page 7
<PAGE>
Smart Card - Digital Certificate
Requirements Document
March 10, 1999
________________________________________________________________________________
1) General
a) Minimal User Interaction
b) Installation will install support for Netscape Communicator
c) Installation will begin automatically when CD is inserted
d) Installation application will be named: SETUP.EXE
e) Installation will install:
(1) NetSign for Communicator
(2) Application for PIN unblock
(3) JCryptos for digital ID Replacement
(4) Appropriate Reader Drivers
(5) Appropriate Smartcard Drivers
(6) Bank of America Root (Public Key)
2) Installation will check if appropriate drivers already exist before
installing and alert the user - keep or overwrite.
3) Installation will check for appropriate hard drive space before
continuing.
4) Graphics and Style must match Bank of America Online Banking Services.
5) Product will contain Bank of America License Agreement which will
be displayed during the installation.
6) Installation will include insertion of the Bank of America root
certificate into Browser.
7) Default installation directory: c:\bacert; unless otherwise specified
by customer.
8) The installer will require that the client insert the smartcard and
enter the initial Use PIN. The client will then be prompted to enter a
new user PIN (twice - for verification.)
9) PIN Retries:
a) Initial User PIN - 10 retries
b) User PIN - 10 retries
c) SO PIN - 10 retries
- --------------------------------------------------------------------------------
Classification: Confidential Page 8
<PAGE>
Smart Card - Digital Certificate
Requirements Document
March 10, 1999
________________________________________________________________________________
4. REMOTE CERTIFICATE REPLACEMENT MODULE - FUNCTIONAL REQUIREMENTS
A. SYSTEM REQUIREMENTS
1) System must be capable of remotely Replacing unregistered
(temporary) digital ID on client's smartcard with a registered
Digital ID capable of accessing the On-line Banking Service
2) System must be capable of handling multiple Replacement requests
using a queuing method
3) System must be a Java applet which installs on client's system
once client has properly authenticated himself.
4) System must push bank-customized HTML to client
5) System must get unregistered digital ID from client's smartcard
6) System must prompt client for Banking Services User ID and
Password
7) Information from unregistered digital ID along with Banking
Services User ID and password are used to authenticate client and
locate the proper client record in the "Certificate Replacement"
database.
8) System must then get a new digital ID from VeriSign with all
appropriate fields filled-in.
9) System must save the new digital ID onto the smartcard using the
following process:
a) Save unregistered digital ID to client hard drive
b) Delete unregistered digital ID from smartcard
c) Store new digital ID on smartcard
d) Delete unregistered digital ID from hard drive
10) System must provide status feedback to the client during the
entire process in the form of messages, progress bars, or
animated wait cursors
11) Applet must confirm to server that digital ID was successfully
Replaced or failed.
5. REMOTE UNBLOCK PIN MODULE - FUNCTIONAL REQUIREMENTS
a. System must be capable of remotely unblocking a blocked User PIN on
the client's smartcard
b. Client must not know (or learn) their SO PIN during the PIN unblock
process
c. Response Code must be based on random number to prevent Client from
using same code over again next time they want to unblock their PIN
d. System must be capable of locating client record in Unblock PIN
database using client's account number or first and last name
e. After three failed code response attempts, the PIN unblock application
should terminate.
________________________________________________________________________________
Classification: Confidential Page 9
<PAGE>
Smart Card - Digital Certificate
Requirements Documents
March 10, 1999
- --------------------------------------------------------------------------------
6. COMPUTER SYSTEM REQUIREMENTS
A. CLIENT COMPUTER
1) Software Requirements
a) Netscape Communicator version 4.5 (128-bit Encryption)
b) JDK 1.x Patch
2) Operating System Requirements
a) Windows 95, 98, NT 4.0
3) Hardware Requirements
a) 486 or Pentium system
b) 1 Available Serial Port
c) CD-ROM Drive or Diskette Drive
4) Definition of Minimal System (For Testing)
(Hardware)...
a) 486
b) 24 MB Ram
c) 30MB Available Hard Disk Space
d) 1 Available Serial Port
e) 3 1/2 Floppy Drive
(Operating System)... Windows 95
(Software)...
a) Netscape Communicator version 4.5 (128-bit Encryption)
b) JDCK 1.x Patch
5) Definition of Typical System (For Testing)
(a) (Hardware)...
1) 486
2) 24 MB Ram
3) 30MB Available Hard Disk Space
3) 1 Available Serial Port
4) CD-ROM
b) (Operating System)... Windows 98, Win NT 4.0
c) (Software)...
1) Netscape Communicator version 4.5 (128-bit
Encryption)
2) JDCK 1.x Patch
- --------------------------------------------------------------------------------
Classification: Confidential Page 10
<PAGE>
Smart Card - Digital Certificate
Requirements Document
March 10, 1999
- --------------------------------------------------------------------------------
B. PROFILE MANAGER COMPUTER
1) Operating System Requirements
a) Windows NT 4.0
2) Hardware Requirements
a) Pentium 233 or higher
b) 128 MB RAM
c) 4 Available Serial Ports
d) CD-ROM Drive
e) 2 PCMCIA Reader Ports
3) Networked to Location of Certificate Replacement Database
4) Internet Access to VeriSign On-Site
5) VeriSign On-Site (Auto-Admin)
C. WEB SERVER COMPUTER
1) Software Requirements
a) Web Server - NetScape Enterprise 3.51
b) Cert Replacement Application
2) Operating System Requirements
a) Windows NT 4.0
3) Hardware Requirements
a) Pentium 233 or Higher
b) 128 MB RAM
4) Networked to location of Certificate Replacement Database
D. CUSTOMER SERVICE COMPUTER
1) Software Requirements
N/A
2) Operating System Requirements
Windows 95, 98, NT 4.0
3) Hardware Requirements
486 or Pentium system
4) Networked to location of PIN Unblock Database
- --------------------------------------------------------------------------------
Classification: Confidential Page 11
<PAGE>
SCHEDULE D
PRODUCT SPECIFICATIONS
D-1. PRODUCT DESCRIPTION
-------------------
The Software to be delivered hereunder consists of the following:
(a) Litronic Profile Manager ("Profile Manager"):is Bank Resident Software
----------------------
used for the issuance of SmartCards.
1. General Parameters.
------------------
(A) Profile Manager is a secure end-to-end solution for the
management of SmartCard based systems from initialization
(secure generation) to secure backup and recovery of SmartCard-
based keys and certificates. Profile Manager operates as a
stand-alone or online application and may be used in conjunction
with customizable modules to expand and adapt to specific system
requirements.
(B) Profile Manager securely generates custom SmartCards for any
user in the system. SmartCard initialization is performed by the
security officer, not an end user, for fail-safe installation of
the certificate on the SmartCard. Security Officers can control
security by generating and backing-up keys and certificates in a
secure environment. Profile Manager supports international
standards including but not limited to SSL, S/MIME, PKS #11,
PC/SC, and CDSA, and enables the generation of X.509v3
certificates, public/private keypairs, symmetric keys and user
profile information.
(C) Profile Manager provides integration with a secure database.
SmartCard-based information is encrypted with the security
officer's 168-bit Triple DES key PIN-protected SmartCard and
optionally stored in a secure database. The security officer can
access information from an existing user and issue a duplicate
card if the card is lost or blocked.
(D) Profile Manager integrates with existing employee and customer
databases so that the security administrator is not required to
re-key user data for card initialization.
(E) Profile Manager may be used to modify privileges or access keys
by adding and deleting items from an existing user card. Keys
may be modified after the initial generation of the card and any
changes to a card creates a new backup entry in the database.
(F) Profile Manager integrates with Litronic's NetSign(TM), NetSign
PRO(TM) and other Litronic SmartCard-enabled products to provide
a complete solution for all enterprise security needs including,
but not limited to, secure web access, digitally signed and
encrypted email, desktop file encryption and remote network
access.
1
<PAGE>
2. Modules.
-------
(A) Description of Litronic Key Generation Module: The Litronic Key
Generation Module supplies all of the key generation tasks of
the Profile Manager. The system may be configured to produce
different types of keys. The Profile Manager generates 1024-bit
RSA public/private key pairs for digital signing and
authentication and 168-bit triple DESA keys for encryption and
decryption. The system may also be configured to support RSA
keys of different lengths, triple DES keys of different lengths
and other types of keys such as DSA keys. This module interfaces
with a Luna Card.
(B) Litronic Administrator Authentication Module: The security
officer is authenticated into a Profile Manager through the
Administrator Authentication Module. The security officer
inserts an administrator SmartCard into an administrator
SmartCard Reader. The administrator card contains the optional
signing certificate (if the system is not using an external
certificate authority) and a 168-bit Triple DES key that is used
to encrypt/decrypt all the vital information (keys,
certificates, Unblock PINS, etc.). Access to the system requires
an administrator card. The encryption is accomplished solely on
a SmartCard. The administrator's Triple DES key is never exposed
to the host computer system. This eliminates the threat of the
system being compromised by a Trojan Horse, a program designed
to anonymously "sniff" information resident in a host computer.
(C) Litronic SmartCard Issuance Module: The Litronic SmartCard
Issuance Module provides the means for initializing SmartCards
that are generated by the system. This module performs the card
initialization in either single or bulk mode. It supports output
devices such as the SmartCard Reader and Datacard.
(D) Litronic Certificate Module: The Litronic Certificate Module
provides the certificates for the key pairs generated by Profile
Manager. The system default creates its own root key certificate
for signing all of the Leaf Certificates. A Leaf Certificate is
a certificate at the bottom of a certificate chain used for
authentication and identification and is not enabled to sign new
certificates. The Profile Manager can be incorporated with
external Certificate Authorities to provide a more complete
certificate management system to compliment the SmartCard
management system.
(E) Litronic Custom Data Object Module: The Litronic Custom Data
Object Module allows additional information to be stored onto
the SmartCard. Customized applications can pull the custom data
object module for the card for its own purpose. The Profile
Manager currently deploys two different custom data object
modules: NetSign PRO(TM)'s Point'n Crypt Blowfish key and
NetSign PRO(TM)'s User Profile information for Secure Start and
Secure Dial features. Customized data objects can easily be
integrated to support any number of SmartCard aware
applications. Customized SmartCard aware applications may be
written into a programming language of choice. Languages,
including but not limited to, C,
2
<PAGE>
C++, Java(TM), ActiveX, Delphi, and Visual Basic are supported.
The Profile Manager has the ability to initialize data on the
deployed SmartCard that is specific to a custom application. An
In-house application which requires the security and portability
of a SmartCard can be written using the SDK and Profile Manager
can initialize SmartCards with the data values for the
application. Users can immediately use a Profile Manager issued
SmartCard with the custom application in addition to all the
features available in NetSign and NetSign PRO(TM).
(F) Litronic Data I/O Module: The Litronic Data I/O Module provides
the means for sending and retrieving data for the use of issuing
and backing up SmartCards. The Profile Manager can support many
different methods for data access: 1. ODBC (3) - Profile manager
can send and retrieve data to/from an SQL database via an ODBC
connection. 2. Flat File - User information from a flat file can
be imported into the Data I/O Module. The Profile Manager keeps
a log of events for every transaction performed within the
system. When a card is crated, restored, returned, unblocked,
etc., that event is logged and time dumped. The log file entries
are stored in the same SQL database that the system uses to
store user information and backup entries.
(G) Litronic Online/Update Module: The Litronic Online/Update Module
is an external to the normal Profile Manager executable yet it
still accesses the Profile Manager database(s). The database may
be divided into three sections (administrator card protected,
password protected and clear) and the Online/Update Module must
have the proper privileges to interact with the database
sections in which it is interested. It can handle tasks that
require database interaction but are not necessarily associated
with SmartCard issuance/recovery. The normal Profile Manager
executable should be used for most SmartCard issuance/recovery
functions. Online/Update can handle such things as certificate
inquiries, Online remote PIN unblocking, Online remote
certificate replacement, etc. Any functionality may be
incorporated as long as the module has the necessary permissions
to the database.
(H) Litronic Unblock PIN Service Module: The Litronic Unblock PIN
Service Module allows for PIN-blocked user cards to have their
PIN unblocked remotely without requiring the user to physically
bring the SmartCard to the Profile Manager station. The service
involves an application run by a technical support
representative and a Java(TM) applet run by the end user's
browser. The technical support application queries the Profile
Manager database, presents the necessary password to access the
Unblock PIN for the specific card, and "blinds" this PIN using
an algorithm known by both the tech support application and the
Java(TM) applet. The Tech support representative can then read
the blinded PIN over the telephone and the user types it into
the applet. The applet un-blinds the PIN and unblocks the card
so that the user is free to choose a new PIN. The tech support
representative could optionally be taken out of the loop in this
process; however, that would imply that the end user's browser
has some physical connection to the Profile Manager database
which may violate the security model.
3
<PAGE>
(I) Litronic Certificate Service Module: The Litronic Certificate
Service Module allows for certificates to be replaced remotely
by using a Java(TM) applet and a corresponding Java(TM) server
which has access to the Profile Manager database. In the system,
the original private key on the issued SmartCard is retained so
that a new keypair does not need to be generated in an insecure
environment. Only the certificate itself is replaced, and the
new certificate is then noted in the database.
(b) NetSign PRO(TM) consists of CryptOS and JCryptOS described below:
NetSign PRO is Remote Client Software, browser enabling Software that is
----------------------
supplied to users for the purpose of providing secure access to Bank protected
web pages.
. Litronic CryptOS API: Litronic CryptOS API ("CryptOS") is an object-
oriented, PKCS#11 interface to cryptographic tokens. CryptOS enables
SmartCards and other cryptographic tokens in web browsers including
Netscape Communicator and Microsoft Internet Explorer for SSL, S/MIME
and other security protocols. It enables tokens and reader/writers from
any vendor in a drop-in fashion.
. Litronic JcryptOS API: Litronic JCryptOS API ("JCryptOS") allow Java
applets access to SmartCards which is enabled in a web browser by
CryptOS. Applets may be stored on a web server for download to a
workstation in order to communicate with a smartcard and back to the
hosting server.
. NetSign for Communicator: NetScape Browser X.509 Certificate enabler
provides enabling technology to access X.509 Certificates stored on
various media, including SmartCards, for two factor authentication.
NetSign enables authenticated www pages access with SSL and support for
VeriSign X.509 Certificates.
. Drivers for Litronic 210 Reader: This driver provides the RS-232
interface between the Litronic 210 Reader and the CryptOS application
running browser to allow the browser application access to the
SmartCard.
. Drivers for Litronic 410 Reader: This driver provides the PCMCIA
interface between the Litronic 410 PCMCIA Reader and the CryptOS
application running the browser to allow the browser application access
to the SmartCard.
. Drivers for Schlumberger Cryptoflex SmartCard: ISO 7816 Compliant
SmartCard with 4K EEPROM for certificate and object storage.
(c) The Litronic-VeriSign Interface is Bank Resident Software which allows
----------------------
the Bank's webserver (a) to send to VeriSign's certificate authority the
PKCS-10 Certificate signing request and (b) for Bank to receive a PKCS 7
Certificate from VeriSign's certificate authority. This interface is
depicted in the SmartCard Issuance Diagram attached hereto as Exhibit 1 and
incorporated by this reference. Also attached in Exhibit 1 is an overview
of the proof of concept system dated August 26, 1998.
4
<PAGE>
D-2. EQUIPMENT DESCRIPTION
---------------------
The Litronic 210 Reader is a tabletop terminal that when connected to a
personal computer reads information imbedded in a chipscard and sends this
information to a server.
D-3. PROGRAM MATERIALS
-----------------
The Program Materials include the following:
Profile Manager
Profile Manager User's White Paper
Profile Manager White Paper
CryptOS API
NetSign(TM) User's Guide
PKCS#11 Specifications
PC/SC Specification
JcryptOS API
JcryptOS API Documentation
The Program Materials for the Equipment includes the following:
For the Litronic Readers:
Litronic Reader/Writer Specifications
D-4. PLATFORM
--------
The Platform for the Software and Hardware consists of the following:
For the issuance platform:
Operating System: Windows NT 4.0 or higher
For the non-issuance workstations:
Operating System: Windows NT 4.0 or higher or
Windows 95 or higher
For all platforms:
Computer: PC Workstation
Other Required
Components: Schlumberger 4K Cryptoflex SmartCard
Datacard 280
SmartCard Readers (support read/write
capability to ISO 7816 ICC)
Luna Card (Datacard IC-III)
For the Litronic Online/Update Module:
5
<PAGE>
Computer: WEB Server
6
<PAGE>
EXHIBIT 1
TO
SCHEDULE D
LITRONIC/VERISIGN INTERFACE
OVERVIEW OF PROOF OF CONCEPT SYSTEM
7
<PAGE>
LITRONIC/VERISIGN INTERFACE
SMARTCARD ISSUANCE
The following example illustrates the process that is undertaken when issuing a
user smartcard.
[DIAGRAM APPEARS HERE]
FIGURE 1
1. The Administrator selects a user from the Data I/O Module and retrieves the
user information.
2. The fields that will be used to construct the distinguished name for the
certificate are extracted from the user information and sent to the
certificate module.
3. An RSA public/private key pair is generated for the user (from the Key
Generation Module) and sent to the certificate module and the ProFile
Manager.
4. The certificate information and the public key are encoded and placed in a
PKCS-10 Certificate Signing Request, which is then signed and encrypted. It
is sent to the Certificate Authority URL.
5. A signed and encrypted certificate is sent back to the certificate module.
6. When the certificate module receives the encrypted certificate, it is
decrypted and sent to the ProFile Manager
7. The certificate, public/private keypair, and any optional custom data are
sent to the administrator authentication module to be encrypted with the
Administrator's 168-bit triple DES key.
8. The encrypted data is sent to the Data I/O module for storage.
9. The non-encrypted data is sent to the smartcard issuance module to be
printed onto the smartcard.
<PAGE>
EXHIBIT 1 to Schedule D
VeriSign Digital ID Center
OVERVIEW OF PROOF OF CONCEPT SYSTEM
- -----------------------------------
August 26, 1998 3:31 P.M.
[FLOW CHART APPEARS HERE]
<PAGE>
Page 1 of 16
[LOGO OF LITRONIC APPEARS HERE]
NON-EXCLUSIVE
RESELLER AGREEMENT
THIS LITRONIC NON-EXCLUSIVE RESELLER AGREEMENT ("Agreement"), is entered
into as of the EFFECTIVE DATE set forth below by and between LITRONIC, Inc., a
California U.S.A. corporation ("LITRONIC"), having its principal place of
business at 2030 Main, Suite 1250, Irvine, California 92614, U.S.A. and the
RESELLER identified below.
This Agreement consists of the following Term Sheet, the Standard Terms and
Conditions and the Exhibits attached hereto.
TERM SHEET
1. EFFECTIVE DATE: AS SIGNED AND DATED BELOW
2. RESELLER: SOUTH AFRICAN CERTIFICATION AGENCY (SACA) PTY LTD
Street Address: 1 Charles Crescent, Eastgate Ext 4, Sandton, South Africa.
Telephone:27 11 445 9475 Facsimile: 27 11 445 9452
3. CONTACT PERSON: TIM ELLIS
Title: Managing Director
Contact Person's Telephone: 27 11 445 9049
Contact Person's E-mail address: [email protected]
4. START DATE OF AGREEMENT: 1ST APRIL 1999
5. END DATE OF AGREEMENT: 31/ST/ DECEMBER 1999
6. TERRITORY: SOUTH AFRICA, LESOTHO, MALAWI, MOZAMBIQUE, NAMIBIA, SWAZILAND,
ZAMBIA, KENYA, MAURITIUS AND ZIMBABWE.
7. INITIAL ORDER VALUE: $2,200 - (25 NETSIGN 210 READERS AND SOFTWARE)
8. MINIMUM ANNUAL COMMITMENT: NONE FOR THE INITIAL TERM OF THIS AGREEMENT.
9. PRODUCT SCHEDULE AND DISCOUNT:
<PAGE>
Page 2 of 16
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
INCLUDED PRODUCT MINIMUM DISCOUNT
-----------------------------------
IN ORDER Minimum 1,000 5,000
SCHEDULE QUANTITY quantity to and
to 999 4,999 above
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ME2000 SMARTCARD 25 ) ) )
- --------------------------------------------------------------------------------------------------
MULTIFLEX SMARTCARD 25 ) ) )
- --------------------------------------------------------------------------------------------------
CRYPTOFLEX SMARTCARD - 4K 25 ) ) )
- --------------------------------------------------------------------------------------------------
CRYPTOFLEX SMARTCARD - 8K 25 ) ) )
- --------------------------------------------------------------------------------------------------
1000 MONIKER PC CARD 12 ) ) )
- --------------------------------------------------------------------------------------------------
210 READER 25 ) ) )
- --------------------------------------------------------------------------------------------------
300 SECURITY ADAPTER W/READER 25 ) ) )
- --------------------------------------------------------------------------------------------------
410 READER 25 ) ) )
- --------------------------------------------------------------------------------------------------
2000 READER 25 ) ) )
- --------------------------------------------------------------------------------------------------
2102 READER 12 ) 25% ) 35% ) 40%
- --------------------------------------------------------------------------------------------------
2108 CIPHERSERVER 10 ) ) )
- --------------------------------------------------------------------------------------------------
2202 READER 12 ) ) )
- --------------------------------------------------------------------------------------------------
NETSIGN W/210 READER 25 ) ) )
- --------------------------------------------------------------------------------------------------
NETSIGN W/410 READER 25 ) ) )
- --------------------------------------------------------------------------------------------------
NETSIGN PRO W/210 READER 25 ) ) )
- --------------------------------------------------------------------------------------------------
NETSIGN PRO W/410 READER 25 ) ) )
- --------------------------------------------------------------------------------------------------
NETSIGN PRO W/210 READER - EXPORT 25 ) ) )
- --------------------------------------------------------------------------------------------------
NETSIGN PRO W/410 READER - EXPORT 25 ) ) )
- --------------------------------------------------------------------------------------------------
CRYPTOS SDK 5 ) ) )
- --------------------------------------------------------------------------------------------------
CRYPTOS SDK PRO 2 ) ) )
- --------------------------------------------------------------------------------------------------
PROFILE MANAGER 1 40%
- --------------------------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LITRONIC, INC. RESELLER
By: /s/ W. S. Holmes By: /s/ T. Ellis
------------------------------- --------------------------------
Name: /s/ William S. Holmes Name: Tim Ellis
---------------------------- ------------------------------
Title: V.P. Sales & Marketing Title: Managing Director
---------------------------- -----------------------------
Date: April 30, 1999 Date: 12/4/1999
----------------------------- ------------------------------
<PAGE>
Page 3 of 16
STANDARD TERMS AND CONDITIONS
1. DEFINITIONS
Capitalized terms used and not otherwise defined in this Agreement or the
Schedules hereto shall have the meanings shown below:
1.1 "Intellectual Property" means all of the following owned by a party: (i)
trademarks and service marks (registered and unregistered) and trade names, and
goodwill associated therewith; (ii) patents, patentable inventions, computer
programs, and software; (iii) databases; (iv) trade secrets and the right to
limit the use or disclosure thereof; (v) copyrights in all works, including
software programs; and (vi) domain names. The rights owned by a party in its
Intellectual Property shall be defined, collectively, as "Intellectual Property
Rights."
1.2 "Product(s)" shall mean those LITRONIC products that have been explicitly
included in this agreement and specified on the term sheet. LITRONIC shall have
the right to withdraw any Product(s) from this Agreement upon ninety (90) days
advance written notice.
1.3 "Discount" shall mean the discount applicable to Unit Price for a product
as specified in the then current Reseller/Distributor Price List. The now
current Reseller/Distributor Price List is attached to this Agreement as
Exhibit A. All Reseller/Distributor Price Lists are incorporated in this
Agreement by this reference.
1.4 "Reseller" means retail dealers only, that is companies which sell only to
end-users. The term "Reseller" does not include companies which sell to
distributors or purchase products for their own use.
1.5 "Territory" shall mean the distribution territory set forth on the Term
Sheet attached hereto.
1.6 "Trademarks" shall mean LITRONIC's registered and unregistered trademarks,
trade names and other commercial symbols, including but not limited to those set
forth in Exhibit B.
2. APPOINTMENT AS RESELLER
2.1 Appointment. Subject to the terms and conditions of this Agreement,
-----------
LITRONIC hereby appoints RESELLER as a non-exclusive reseller for the Territory
under the LITRONIC Distributor Program (the "Program"). In connection with such
appointment, to the extent permitted by the laws of the Territory, LITRONIC
grants RESELLER a non-exclusive and non-transferable right to promote, market
and solicit orders in the Territory from Resellers for the Products and services
described in the Term Sheet.
2.2 Authorization. RESELLER may represent itself as a participant in the
-------------
Program and as a reseller for the Products. RESELLER shall not represent that
it is otherwise affiliated with LITRONIC. RESELLER is authorized to represent
to Resellers only such facts about LITRONIC and the Products as LITRONIC posts
on its Web site or as are contained in other published advertising and
promotional materials.
2.3 Independent Contractors. The relationship of LITRONIC and RESELLER is that
-----------------------
of independent contractors. Neither RESELLER nor RESELLER's employees,
consultants, contractors or agents are agents, employees, partners or joint
venturers of LITRONIC, nor do they have any authority to bind LITRONIC by
contract or otherwise to any obligation. They will not represent to the
contrary, either expressly, implicitly, by appearance or otherwise.
<PAGE>
Page 4 of 16
3. MARKETING LITRONIC PRODUCTS
3.1 Program Orientation. Within the first one hundred and eighty (180) days
-------------------
after the Effective Date, RESELLER will cause certain employees to obtain the
training outlined in Exhibit C. To the extent such training requires that
RESELLER's personnel travel, RESELLER shall bear the travel and lodging expenses
of such personnel.
3.2 Sales Collateral. LITRONIC shall provide RESELLER with a reasonable number
----------------
of copies of the sales collateral related to each Product as are specified in
Term Sheet. RESELLER will be responsible for creation of all collateral
materials relating to the TERRITORY. RESELLER shall bear the costs for all such
materials required to satisfactorily market and sell the Products, including any
translation costs.
3.3 RESELLER Efforts. During the term of this Agreement, RESELLER shall use
----------------
its best efforts to market and promote the Products to Resellers in the
Territory. Without limiting the generality of the foregoing, RESELLER shall
undertake the specific marketing activities for each Product, which are set
forth in the Term Sheet.
3.4 Competitive Products. In carrying out its obligations as a reseller in
--------------------
terms of this agreement the reseller undertakes to represent LITRONIC as the
preferred supplier of smart card solutions to its end users.
3.5 Product Resale. RESELLER shall resell the Products only to end users.
--------------
3.6 Market Area. LITRONIC shall be the sole and final arbiter of any question
-----------
whether a specific Reseller is within the Territory.
3.7 Initial Order. On the effective date of this Agreement, RESELLER shall
-------------
place an irrevocable order with LITRONIC for products with a net order value
after discount of at least the amount specified in the term sheet.
3.8 Minimum Annual Commitment. During each year of this Agreement, RESELLER
-------------------------
shall accrue and timely pay to LITRONIC the net prices for the Products
licensed, sold or otherwise distributed under this Agreement RESELLER agrees to
a volume commitment for each year of this Agreement in the amount set forth in
paragraph 8 of the Term Sheet. Progress towards the annual commitment will be
monitored quarterly and failure to achieve this a phased commitment will be
taken into account by LITRONIC when deciding about the renewal or termination of
this agreement.
3.9 RESELLER Personnel. RESELLER will train and maintain a sufficient number
------------------
of capable technical and sales personnel, minimum of one full-time employee,
having the knowledge and training necessary to: (i) inform potential Resellers
and End Users properly concerning the features and capabilities of the Products
and, if necessary, competitive products; (ii) service and support the Products
in accordance with RESELLER's obligations under this Agreement; and (iii)
otherwise carry out the obligations and responsibilities of RESELLER under this
agreement.
3.10 Technical Expertise. RESELLER warrants that its staff will be conversant
-------------------
with the technology contained in the Products and similar technologies in
general, and will develop sufficient knowledge of the industry and products
competitive with the Products (including specifications, features and benefits)
so as to be able to explain in detail to its potential Resellers and End Users
the differences between the Products and competitive products.
<PAGE>
Page 5 of 16
3.11 RESELLER Covenants. RESELLER will: (i) conduct business in a manner that
------------------
reflects favorable at all times on the Products and the good name, good will and
reputation of LITRONIC; (ii) avoid deceptive, misleading or unethical practices
that are or might be detrimental to LITRONIC, the Products and services or the
public; (iii) make no false or misleading representations with regard to
LITRONIC, or the Products; (iv) not publish or employ, or cooperate in the
publication or employment of, any misleading or deceptive advertising material
with regard to LITRONIC or the Products; and (v) make no representation,
warranties or guarantees to potential Resellers or End Users or to the trade
with respect to the specifications, features or capabilities of the Products
that are inconsistent with the literature distributed by LITRONIC.
3.12 Costs and Expenses. Except as expressly provided herein or agreed to in
------------------
writing by LITRONIC and RESELLER, RESELLER will pay all costs and expenses
incurred in the performance of RESELLER's obligations under this Agreement.
3.13 Marketing Activities. RESELLER shall develop and execute a marketing plan
--------------------
sufficient to fulfill its obligations under this Agreement. To the extent
LITRONIC offers RESELLER the opportunity to do so, RESELLER agrees to
participate with LITRONIC in joint marketing activities with respect to certain
Products.
3.14 Compliance with Laws. RESELLER will comply with all applicable
--------------------
international, national, state, regional and local laws and regulations in
performing its duties hereunder and in any of its dealings with respect to the
Products.
3.15 Governmental Approval. If any approval with respect to this Agreement, or
---------------------
the notification or registration hereof, will be required at any time during the
term of this Agreement, with respect to giving legal effect to this Agreement in
any jurisdiction in which RESELLER is operating, or with respect to compliance
with exchange regulations or other requirements so as to assure the right of
remittance from abroad of U.S. Dollars, RESELLER will immediately take whatever
steps may be necessary in this respect, and any charges incurred in connection
therewith will be for the account of RESELLER. RESELLER will keep LITRONIC
currently informed of its efforts in this connection. LITRONIC will be under no
obligation to ship any Products or other materials to RESELLER hereunder until
RESELLER has provided LITRONIC with satisfactory evidence that such approval,
notification or registration is not required or that it has been obtained.
4. TECHNICAL SUPPORT
4.1 End-User Support. RESELLER shall provide all technical support relating to
----------------
its own products and services, and to the Products as described in the TERM
SHEET, directly to its End-Users. RESELLER shall provide LITRONIC with a
telephone number for LITRONIC to contact RESELLER directly for RESELLER's
support under this Section 4. If LITRONIC receives such an inquiry, LITRONIC
shall provide the inquiring party with the telephone number of RESELLER, and
RESELLER shall be responsible for providing support to such party.
4.2 RESELLER Support. LITRONIC shall provide RESELLER with the technical
----------------
support services for each Product as set forth in the TERM SHEET.
<PAGE>
Page 6 of 16
5. PURCHASE AND PAYMENT TERMS
5.1 Forecasts, Purchase and Sale. RESELLER shall submit quarterly forecasts of
-----------------------------
its requirements for Products to LITRONIC at least forty-five (45) days in
advance of each calendar quarter. After the initial term of this agreement
ending 12/31/99 RESELLER will be required to maintain a minimum stock level of
two times the monthly forecast of its requirements for Products. LITRONIC agrees
to sell to RESELLER those Products order by RESELLER at the prices and under the
conditions specified in this Agreement and the applicable Distributor Price List
during the term of this Agreement. Product orders will be placed by RESELLER's
issuance of a purchase order. The terms and conditions of this Agreement shall
supersede the terms and conditions of any purchase order issued by RESELLER. Any
additional or conflicting purchase order terms and conditions shall be deemed
null and void and shall be of no force or effect.
5.2 Payments for LITRONIC Products. RESELLER shall be responsible for
------------------------------
invoicing End-Users and collecting invoiced amounts from End-Users for all
Products licensed, sold or otherwise distributed on the basis of orders
solicited by RESELLER. For the Products licensed, sold or otherwise distributed
based upon orders solicited by RESELLER, RESELLER will pay LITRONIC the amounts
set forth in the applicable Distributor/Reseller Price List, (the invoiced
amount will be grossed-up to cover any withholding taxes to the applicable
jurisdiction or country) in the manner and at the time set forth therein. Such
amounts may be set forth as a percentage discount from LITRONIC's prices for the
applicable Products. RESELLER's payments shall not be affected by Resellers
payments or non- payment for the Products ordered.
5.3 Price Changes. LITRONIC's prices for the Products as of the date of this
-------------
Agreement are set forth in the applicable Reseller/Distributor Price List.
LITRONIC reserves the right to change the prices for any LITRONIC Product or any
other product or service at any time. Price decreases shall take effect
immediately upon announcement. In the event of a price increase, LITRONIC shall
provide RESELLER with sixty (60) days' advance notice. Such changes shall not
require RESELLER's approval. RESELLER shall determine its own market prices for
the Products and for other products and services it sells, licenses or otherwise
distributes or makes available.
5.4 Terms of Payment. Amounts due LITRONIC hereunder shall be paid by RESELLER
----------------
to LITRONIC at the address set forth in paragraph 1 of this Agreement. Invoices
shall be due and payable on or before the sixtieth (60th) day after the date
issued. A late payment penalty on any amounts not paid when due shall be
assessed at the rate of one and one-half percent (1 1/2%) per thirty (30) days
or the maximum rate permitted by law, whichever is less. Such late payment
penalty shall accrue beginning on the sixty-first (61st) day after the day the
invoice was issued. All payments to LITRONIC shall be made directly to the bank
nominated by LITRONIC in United States Dollars, free of any currency control or
other restrictions to LITRONIC and with all transfer charges paid by the
RESELLER.
5.5 Taxes. RESELLER shall pay, indemnify and hold LITRONIC harmless from (i)
-----
any sales, use, excise, import or export, value-added, or similar tax or duty,
and any other tax or duty not based on LITRONIC's income, and (ii) all
government permit fees, customs fees and similar fees which LITRONIC may incur
with respect to this Agreement. Such taxes, fees and duties paid by RESELLER
shall not be considered a part of, a deduction from, or an offset against,
payments due to LITRONIC hereunder.
5.6 Audit Rights. LITRONIC shall have the right, at its sole cost and expense,
to have an independent certified public accountant conduct during normal
business hours and not more frequently than annually, an audit of the
appropriate records of RESELLER to verify the volume of Products licensed or
otherwise distributed by RESELLER and RESELLER's calculation of amounts payable
to LITRONIC therefor in the case where the applicable Distributor Price List
specifies that RESELLER is required to report amounts payable with respect to
the Products. If the amounts accrued are different than those reported, RESELLER
will be invoiced or credited for the difference, as applicable. Any additional
amounts, along with the late payment penalty assessed in accordance with Section
5.4, shall be payable within thirty (30) days of such invoice. If the deficiency
in the amounts paid by RESELLER is greater than five percent (5%) of the
<PAGE>
Page 7 of 16
amounts reported by RESELLER for any reporting period, RESELLER will pay the
reasonable expenses associated with such audit, in addition to the deficiency.
6. CONFIDENTIALITY
6.1 Confidential Information. The parties acknowledge that in their
------------------------
performance of their duties hereunder either party may communicate to the other
(or its designees) certain confidential and proprietary information, including
without limitation information concerning RESELLER's products and services,
LITRONIC's products and services, and the know-how, technology, techniques, or
business or marketing plans related thereto (collectively, the "Confidential
Information") all of which are confidential and proprietary to, and trade
secrets of, the disclosing party. Confidential Information does not include
information that: (i) is public knowledge at the time of disclosure by the
disclosing party; (ii) becomes public knowledge or known to the receiving party
after disclosure by the disclosing party other than by breach of the receiving
party's obligations under this Section 6 or by breach of a third party's
confidentiality obligations; (iii) was known by the receiving party prior to
disclosure by the disclosing party other than by breach of a third party's
confidentiality obligations; or (iv) is independently developed by the receiving
party.
6.2 Protection of Confidential Information. As a condition to the receipt of
--------------------------------------
the Confidential Information from the disclosing party, the receiving party
shall: (i) not disclose in any manner, directly or indirectly, to any third
party any portion of the disclosing party's Confidential Information; (ii) not
use the disclosing party's Confidential Information in any fashion except to
perform its duties hereunder or with the disclosing party's express prior
written consent; (iii) disclose the disclosing party's Confidential Information,
in whole or in part, only to employees and agents who need to have access
thereto for the receiving party's internal business purposes; (iv) take all
necessary steps to ensure that its employees and agents are informed of and
comply with the confidentiality restrictions contained in this Agreement; and
(v) take all necessary precautions to protect the confidentiality of the
Confidential Information received hereunder and exercise at least the same
degree of care in safeguarding the Confidential Information as it would with its
own confidential information, and in no event shall apply less than a reasonable
standard of care to prevent disclosure. The receiving party shall promptly
notify the disclosing party of any unauthorized disclosure or use of the
Confidential Information arising under this Agreement. The receiving party shall
cooperate and assist the disclosing party in preventing or remedying any such
unauthorized use or disclosure.
6.3 Injunctive Relief. Both parties acknowledge that the restrictions
-----------------
contained in this Section 6 are reasonable and necessary to protect their
legitimate interests and that any violation of these restrictions will cause
irreparable damage to the other party. Each party agrees that damages are not
an adequate remedy for any such violation and that the other party will be
entitled to injunctive relief against each violation.
7. TRADEMARK RIGHTS
7.1 License. LITRONIC grants RESELLER the nonexclusive right and license to
-------
use LITRONIC's trademarks during the term of this Agreement solely in
conjunction with the marketing, promotion and resale of the Products. LITRONIC
grants no rights in the Trademarks or in any other trademark, trade name,
service mark, business name or goodwill of LITRONIC except as licensed hereunder
or by separate written agreement of the parties. RESELLER agrees that it will
not at any time during or after this Agreement assert or claim any interest in
or do anything that may adversely affect the validity of any Trademark or any
other trademark, trade name or product designation belonging to or licensed to
LITRONIC (including, without limitation registering or attempting to register
any Trademark or any such other trademark, trade name or product designation).
7.2 No Confusing Use. During the term of this Agreement, RESELLER agrees not
----------------
to use any trademark, trade name or product name confusingly similar to a
trademark, trade name or product name of LITRONIC, as expressly licensed in
Section 7.1.
<PAGE>
Page 8 of 16
7.3 Marking Requirements. RESELLER agrees to (i) use the appropriate
--------------------
trademark, logo, product descriptor and trademark symbol (either "TM" or "(R)"
or local equivalents), (ii) clearly indicate LITRONIC's ownership of the
Trademarks whenever the Trademarks are first mentioned in any document, and
(iii) comply with the other usage requirements set forth in LITRONIC's Trademark
and Logo Usage Guide provided to RESELLER from time to time.
7.4 No Continuing Rights. Upon expiration or termination of this Agreement,
--------------------
RESELLER will immediately cease all display, advertising and use of all of the
Trademarks and will not thereafter use, advertise or display any trademark,
trade name or product designation which is, or any part of which is, similar to
or confusing with any Trademark or with any trademark, trade name or product
designation associated with LITRONIC or any Product.
8. INTELLECTUAL PROPERTY RIGHTS
8.1 Ownership. Other than the express licenses granted by this Agreement,
---------
LITRONIC grants no right or license to RESELLER by implication, estoppel or
otherwise to the Products or any Intellectual Property Rights of LITRONIC. Each
party shall retain all ownership rights, title, and interest in and to its own
products and services (including in the case of LITRONIC, in the Products) and
all intellectual property rights therein, subject only to the rights and
licenses specifically granted herein. To the extent that RESELLER translates, or
causes to be translated, any of LITRONIC's marketing materials, user manuals or
other documentation, RESELLER agrees to assign all copyrights in such
translations to LITRONIC at the time of termination or expiration of this
Agreement.
8.2 Obtaining Rights. LITRONIC (and not RESELLER) shall have the sole right,
----------------
but not the obligation, to pursue copyright, patent and trademark protection, in
its sole discretion, for the Products and any Intellectual Property Rights
incorporated therein. RESELLER will cooperate with LITRONIC in pursuing such
protection, including without limitation executing and delivering to LITRONIC
such instruments as may be required to register or perfect LITRONIC's interests
in any Intellectual Property Rights and any assignments thereof.
8.3 Pursuit of Infringers. RESELLER shall notify LITRONIC of infringements of
---------------------
LITRONIC's Intellectual Property Rights of which RESELLER becomes aware.
RESELLER shall reasonably assist LITRONIC, at no cost to RESELLER, in pursuing
LITRONIC's legal rights against any such infringers. LITRONIC, at its sole
discretion, shall determine whether to pursue any particular case of
infringement.
8.4 Proprietary Markings and Copyright Notices. RESELLER shall not remove or
------------------------------------------
destroy any proprietary, confidentiality, trademark, service mark, or copyright
markings or notices placed upon or contained in any materials or documentation
received from LITRONIC in connection with this Agreement.
9. INDEMNITIES
9.1 RESELLER Indemnity. RESELLER's indemnity obligations under Section 9.3
------------------
shall apply to any claim, suit or proceeding by a third party against LITRONIC
and any of its directors, officers, agents, employees, contractors, parent
companies, affiliates, and/or subsidiaries (collectively, the "LITRONIC
Parties") based on or arising out of (i) the acts or omissions of RESELLER in
connection with (A) its performance or failure to perform any other obligations
in this Agreement or any agreement with an Reseller or Subscriber, and (B) any
other product or service provided by RESELLER to Resellers or Subscribers; and
(ii) any unauthorized representation or any misrepresentation of fact to any
third party with respect to one or more of the LITRONIC Parties or the LITRONIC
Products made by RESELLER or any director, officer, agent, or employee of
RESELLER.
9.2 LITRONIC Indemnity. LITRONIC's indemnity obligations under Section 9.3
------------------
shall apply to any claim, suit or proceeding by a third party against RESELLER
and any of its directors, officers, agents, employees, contractors, parent
companies, affiliates, and/or subsidiaries (collectively, the "RESELLER
Parties") based on or arising out of (i) the acts or omissions of LITRONIC in
connection with (A) its
<PAGE>
Page 9 of 16
performance or failure to perform the obligations in this Agreement, and (B) any
Products provided to RESELLER under this agreement; (ii) any unauthorized
representation or any misrepresentation of fact to any third party with respect
to one or more of RESELLER Parties made by LITRONIC or any director, officer,
agent, or employee of LITRONIC, or (iii) any third party claims of copyright
infringement or trade secret misappropriation to the extent such claims arise
directly from the LITRONIC proprietary components of the Product.
9.3 Notices and Indemnities. Subject to the limitations set forth herein, each
-----------------------
party (the "Indemnifying Party"), at its own expense, shall (a) defend, or at
its option settle, any claim, suit, or proceeding against the other party (the
"Indemnified Party") for which it has an indemnification obligation under this
Agreement and (b) pay any final judgment entered or settlement against the
Indemnified Party in any such suit or proceeding defended by the Indemnifying
Party. An Indemnifying Party shall not take any action to settle or defend any
such claim, suit, or proceeding that would in any manner impose obligations
(monetary or otherwise) on an Indemnified Party without the Indemnified Party's
written consent. An Indemnified Party shall have the right to participate in the
defense of any claim with its own counsel and shall be responsible for all costs
associated therewith. An Indemnifying Party shall have the right to control and
direct the investigation, preparation, defense, and settlement of the claim, and
the Indemnified Party shall reasonably cooperate with the Indemnifying Party in
the defense of such claim at the Indemnifying Party's expense. In addition, an
Indemnified Party shall give the Indemnifying Party prompt written notice of any
claim, suit, or proceeding for which the Indemnifying Party has an
indemnification obligation under this Agreement. In the event such notice is not
promptly given, the Indemnifying Party's obligation hereunder shall not include
any additional expenses or damages to the extent attributable to such failure or
delay of notice.
10. LIMITED WARRANTY
10.1 Limited Warranty. LITRONIC warrants to the original purchaser of a Product
----------------
that the hardware is free from defects in materials and workmanship for a period
of fifteen (15) months from the date of shipment from Litronic to the RESELLER
OR one (1) year from the date of purchase from the RESELLER ("the Warranty
Period") to the RESELLER'S customer, whichever comes first. Should a Product
fail to comply with this Limited Warranty at any time during the Warranty
Period, the purchaser's sole and exclusive remedy is for LITRONIC, at its
option, to either repair or replace the product as described below, provided
that in LITRONIC's sole determination the part or Product has not been abused,
misused, repaired or modified. All products will be serviced and returned via
ground or sea at no charge to the purchaser. In the event LITRONIC is unable to
repair or replace the product within a reasonable period of time, the
purchaser's sole and exclusive remedy is to receive reimbursement of the amount
the purchaser actually paid for the product.
10.2 Returns. All returns under this Limited Warranty require a Return
-------
Merchandise Authorization number (RMA #) provided by LITRONIC Customer Service.
Products which require Limited Warranty service during the Warranty Period must
be delivered to LITRONIC at the address listed below. The RMA # should be
prominently displayed on the outside of the shipping container. Replacement
parts or complete products will be furnished on an exchange basis only.
Replaced parts or products become the property of LITRONIC.
Returns Department, Litronic, Inc.
17895 Sky Park Circle, Suite A, Irvine, CA 92614
Tel (949) 851-1085, E-mail: [email protected]
10.3 Shipping. RESELLER agrees to pay shipping charges to LITRONIC or directly
--------
to the carrier, insure the product or assume the risk of loss or damage which
may occur in transit, and to use a shipping container equivalent to the original
packaging. If any labor, repair or parts replacement is required because of
accident, negligence, misuse, theft, vandalism, fire, water or other peril, or
because of conditions outside of specifications, including, but not limited to,
electric power, temperature, humidity, or dust; or by moving, repair,
relocation, or alteration not performed by LITRONIC, or by any other cause other
than normal use, this Limited Warranty shall be void and shall not apply.
<PAGE>
Page 10 of 16
10.4 Duty and Sales Tax. RESELLER agrees to pay any applicable duties sales
------------------
taxes or similar charges. LITRONIC products are supplied to the RESELLER FOB,
Irvine, California, USA.
10.5 Applicability. This Limited Warranty shall not be applicable to the
-------------
extent that any provision of this Limited Warranty is prohibited by or contrary
to, any international, federal, state or local law or regulation which cannot be
preempted. This Limited Warranty gives the purchaser specific legal rights, but
the purchaser may have different or additional legal rights, depending on the
jurisdiction in which the purchaser is located.
11. DISCLAIMER OF WARRANTIES; LIMITATION OF LIABILITY
11.1 Disclaimer. EXCEPT FOR THE EXPRESS LIMITED WARRANTY PROVIDED IN THIS
----------
AGREEMENT, LITRONIC'S PRODUCTS AND SERVICES ARE PROVIDED "AS IS" WITHOUT ANY
WARRANTY WHATSOEVER. LITRONIC DISCLAIMS ALL WARRANTIES, EXPRESS, IMPLIED, OR
STATUTORY, TO RESELLER AS TO ANY MATTER WHATSOEVER, INCLUDING ALL IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-
INFRINGEMENT OF THIRD PARTY RIGHTS. NO ORAL OR WRITTEN INFORMATION OR ADVICE
GIVEN BY LITRONIC OR ITS EMPLOYEES OR REPRESENTATIVES SHALL CREATE A WARRANTY OR
IN ANY WAY INCREASE THE SCOPE OF LITRONIC'S OBLIGATIONS.
11.2 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY
-----------------------
OR TO ANY OTHER THIRD PARTY FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL,
INCIDENTAL, RELIANCE, OR EXEMPLARY DAMAGES ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE LITRONIC PRODUCTS, WHETHER FORESEEABLE OR UNFORESEEABLE, AND
WHETHER BASED ON BREACH OF ANY EXPRESS OR IMPLIED WARRANTY, BREACH OF CONTRACT,
MISREPRESENTATION, NEGLIGENCE, STRICT LIABILITY IN TORT, OR OTHER CAUSE OF
ACTION (INCLUDING, BUT NOT LIMITED TO, DAMAGES FOR LOSS OF DATA, GOODWILL,
PROFITS, INVESTMENTS, USE OF MONEY, OR USE OF FACILITIES; INTERRUPTION IN USE OR
AVAILABILITY OF DATA; STOPPAGE OF OTHER WORK OR IMPAIRMENT OF OTHER ASSETS; OR
LABOR CLAIMS), EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. UNDER NO CIRCUMSTANCES SHALL LITRONIC'S TOTAL LIABILITY TO RESELLER OR
ANY THIRD PARTY ARISING OUT OF OR RELATED TO THIS AGREEMENT EXCEED THE AMOUNT
PAID BY RESELLER UNDER THIS AGREEMENT TO A MAXIMUM OF ONE MILLION DOLLARS
($1,000,000.00), REGARDLESS OF WHETHER AN ACTION OR CLAIM IS BASED ON WARRANTY,
CONTRACT, TORT OR OTHERWISE.
12. FORCE MAJEURE
In no event shall either party be responsible for delays in delivery or
performance when the same are the result of any cause beyond such party's
control.
13. TERM AND TERMINATION
13.1 Term and Termination. The term of this Agreement shall commence on the
--------------------
Start Date and, unless earlier terminated pursuant to the terms of this
Agreement, will continue until the termination date as set forth in the attached
"Term Sheet." Upon mutual agreement, this contract may be extended for a Renewal
Period as set forth in an updated "Term Sheet." If RESELLER has met its minimum
volume commitment as set forth in paragraph 3.7 of this Agreement the Agreement
can be renew for an additional one (1)-year period, unless either party notifies
the other in writing of its intention not to renew at least sixty (60) days
prior to the end of the term or the applicable renewal term. The parties agree
that the Limitation of Liability provision of Section 11.2 shall apply to any
termination of this Agreement by either party. RESELLER waives any right it may
have to receive any compensation or reparations on termination or
<PAGE>
Page 11 of 16
expiration of this Agreement or any rights hereunder under the law of any
jurisdiction, other than as expressly provided in this Agreement.
13.2 Termination for Default. Either party may terminate this Agreement at any
-----------------------
time on written notice to the other in the event of a material default by the
other party and a failure to cure such default within a period of thirty (30)
days following receipt of written notice specifying that a default has occurred.
13.3 Insolvency. Either party may terminate this Agreement at any time upon
----------
(i) the institution of any proceedings by or against the other party seeking
relief, reorganization or arrangement under any laws relating to insolvency,
which proceedings are not dismissed within sixty (60) days; (ii) the assignment
for the benefit of creditors, or the appointment of a receiver, liquidator or
trustee, of the other party's property or assets; or (iii) the liquidation,
dissolution or winding up of the other party's business.
13.4 Effect of Termination. Upon the expiration or termination of this
---------------------
Agreement, RESELLER shall cease using, marketing, promoting and soliciting
orders for the Products. RESELLER will discontinue the use of all Trademarks.
Upon the expiration or termination of this Agreement, LITRONIC will provide
support to End Users and Subscribers referred by RESELLER. Any expiration or
termination shall not discharge any obligation to make payments which have
accrued or are owing as of the effective date of such expiration or termination
or which accrue after expiration or termination for LITRONIC Products shipped or
invoiced upon orders placed before such expiration or termination. Expiration or
termination of this Agreement for any reason shall not affect any other LITRONIC
Agreements with Resellers or end-users.
13.5 Return of Confidential Information. Upon expiration or termination of
----------------------------------
this Agreement for any reason, each party shall return the other party's
Confidential Information to it, or, with the prior written consent of the other
party, shall destroy the other party's Confidential Information. Each party
shall certify to the other in writing within thirty (30) days of expiration or
termination that such party has returned or destroyed all of such Confidential
Information.
13.6 Survival of Terms. Expiration or termination of this Agreement shall not
-----------------
relieve either party of any obligations that accrue prior to the date of such
expiration or termination. The provisions of Sections 3.11, 3.14, 5, 6, 7, 8, 9,
10, 11, 13.1, 13.4, 13.5, 13.6, 14.1, 14.6, 14.8, and 14.9 of these Standard
Terms and Conditions shall survive the expiration or termination of this
Agreement for any reason.
14. MISCELLANEOUS PROVISIONS
14.1 Governing Law; Venue; Waiver of Jury Trial. This Agreement shall be
------------------------------------------
governed by and construed in accordance with the laws of the State of
California, U.S.A. (irrespective of its choice of law principles). The parties
agree that the United Nations Convention on Contracts for the International Sale
of Goods shall not apply to this Agreement. The parties hereby agree that any
suit to enforce any provision of this Agreement or arising out of or based upon
this Agreement or the business relationship between the parties hereto shall be
brought in the United States District Court for the Central District of
California, U.S.A., or the Superior or Municipal Court in and for the County of
Orange, California, U.S.A. Each party hereby agrees that such courts shall have
exclusive personal jurisdiction and venue with respect to such party, and each
party hereby submits to the exclusive personal jurisdiction and venue of such
courts. The parties hereby waive any right to jury trial with respect to any
action brought in connection with this Agreement.
14.2 Binding upon Successors and Assigns. Except as otherwise provided herein,
-----------------------------------
this Agreement shall be binding upon, and inure to the benefit of, the
successors, representatives and assigns of the parties hereto. This Agreement
shall not be assignable by RESELLER by operation of law (including as a result
of a merger or a transfer of a controlling interest in RESELLER's voting
securities) or otherwise without the prior written authorization of LITRONIC,
which shall not be unreasonably withheld. Any such purported assignment shall be
void and of no effect and shall permit LITRONIC to terminate this Agreement.
<PAGE>
Page 12 of 16
14.3 Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable, the remainder of this Agreement shall be interpreted so as best
to reasonably effect the intent of the parties hereto. IT IS EXPRESSLY
UNDERSTOOD AND AGREED THAT EACH AND EVERY PROVISION OF THIS AGREEMENT WHICH
PROVIDES FOR A LIMITATION OF LIABILITY, DISCLAIMER OF WARRANTIES OR EXCLUSION OF
DAMAGES IS INTENDED BY THE PARTIES TO BE SEVERABLE AND INDEPENDENT OF ANY OTHER
PROVISION AND TO BE ENFORCED AS SUCH.
14.4 Entire Agreement. This Agreement, and the Exhibits and Distributor Price
----------------
Lists attached hereto constitute the entire understanding and agreement of the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements or understandings between the parties.
14.5 Amendment and Waivers. Except as otherwise expressly provided in this
---------------------
Agreement, any term or provision of this Agreement may be amended, and the
observance of any term of this Agreement may be waived, only by a writing signed
by the party to be bound.
14.6 Attorneys' Fees. Should suit be brought to enforce or interpret any part
---------------
of this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and costs.
14.7 Notices. Any notice, demand, or request with respect to this Agreement
-------
shall be in writing and shall be effective only if it is delivered by a courier
service that confirms delivery in writing, or mailed, certified or registered
mail, postage prepaid, return receipt requested, and in each case addressed to
the parties at the addresses set forth in paragraph 1, and in the case of
LITRONIC, to the attention of the President and Chief Executive Officer, and in
the case of RESELLER to the Contact Person as identified on the Term Sheet. Such
communications shall be effective when they are received. Any party may change
its address for such communications by giving notice thereof to the other party
in conformity with this Section.
14.8 Foreign Reshipment Liability. THIS AGREEMENT IS EXPRESSLY MADE SUBJECT TO
----------------------------
ANY LAWS, REGULATIONS, ORDERS OR OTHER RESTRICTIONS ON THE EXPORT FROM THE
UNITED STATES OF AMERICA OF TECHNICAL INFORMATION, SOFTWARE OR INFORMATION ABOUT
SUCH SOFTWARE WHICH MAY BE IMPOSED FROM TIME TO TIME BY THE U.S. GOVERNMENT.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, RESELLER
AGREES THAT IT WILL NOT EXPORT OR RE-EXPORT, DIRECTLY OR INDIRECTLY, ANY
TECHNICAL INFORMATION, SOFTWARE OR INFORMATION ABOUT SUCH SOFTWARE TO ANY
COUNTRY FOR WHICH SUCH GOVERNMENT OR ANY AGENCY THEREOF REQUIRES AN EXPORT
LICENSE OR OTHER GOVERNMENTAL APPROVAL AT THE TIME OF EXPORT OR RE-EXPORT
WITHOUT FIRST OBTAINING SUCH LICENSE OR APPROVAL.
14.9 Publicity. Neither party will disclose to third parties, other than its
---------
agents and representatives on a need-to-know basis, the terms of this Agreement
or any exhibits hereto without the prior written consent of the other party,
except (i) either party may disclose such terms to the extent required by law;
(ii) either party may disclose the existence of this Agreement, (iii) either
party may disclose such terms to the extent necessary in connection with the due
diligence review of such party by potential business partners, investors or
acquirers, or investment bankers, to such persons and to their employees,
agents, attorneys and auditors; and (iv) either party shall have the right to
disclose that RESELLER is a participant in the Program and a RESELLER of the
Products.
14.10 No Waiver. Failure by either party to enforce any provision of this
---------
Agreement will not be deemed a waiver of future enforcement of that or any other
provision.
14.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed an original, but which collectively
will constitute one and the same instrument.
<PAGE>
Page 13 of 16
14.12 Due Authorization. RESELLER hereby represents and warrants to LITRONIC
-----------------
that the individual executing this Agreement on behalf of RESELLER is duly
authorized to execute this Agreement on behalf of RESELLER and to bind RESELLER
hereby.
14.13 Choice of Language. The original of this Agreement has been written in
------------------
English. RESELLER waives any right it may have under the law of any jurisdiction
to have this Agreement written in the language of such jurisdiction or any other
language.
## END OF TERMS AND CONDITIONS ##
<PAGE>
Page 14 of 16
EXHIBIT A
RESELLER/DISTRIBUTOR PRICE LIST
THE FOLLOWING PRICE LIST IS ATTACHED:
RESELLER/DISTRIBUTOR PRICE LIST (JANUARY 1, 1999
<PAGE>
Page 15 of 16
EXHIBIT B
LITRONIC TRADEMARKS
The (TM) and (R) symbols should be printed on all major headings and the first
time the product is mentioned on any web page text or document. Thereafter, the
product does not need to contain the symbols.
Pending USA, Canada, European Community, Switzerland, Japan, Singapore
. NetSign(TM)
. ProFile Manager(TM)
Pending USA
. Active Cryptos(TM)
. NetSigner(TM)
. NetSign PRO(TM)
. Because Your Business Is No One Else's(TM)
. California Crypto Cafe(TM)
. SecureDial(TM)
. SecureStart(TM)
. Forte(TM)
. JCryptOS(TM)
. Security BusWare(TM)
. Maestro(TM)
. SpyGuy (design)(TM)
. NetSignee(TM)
Registered USA
. Advanced CryptOS(R)
. CipherServer(R)
. SecureSmart(R)
. CryptOS(R)
. SpyGuy(R)
<PAGE>
Page 16 of 16
EXHIBIT C
TRAINING REQUIREMENT
<PAGE>
RESELLER/DISTRIBUTOR
[LOGO] LITRONIC
PRICE LIST (January 1, 1999
<TABLE>
<CAPTION>
1. SMARTCARDS
- --------------------------------------------------------------------------------
PRODUCT PART NUMBER REQUIRES UNIT PRICE
EXPORT
LICENSE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ME2000 SMARTCARD $ 15
* MUST SPECIFY
. DOS Logo 050-1100-DOS
. Litronic Logo 050-1100-LIT
. Army Corp of Engineers Logo 050-1100-AC
- --------------------------------------------------------------------------------
8K MULTIFLEX SMARTCARD $ 23
* MUST SPECIFY
. NO LOGO 010-1107
. Litronic Logo 050-1107-LIT
. NetSign Logo 050-1107-NS2.0
* DEFAULT is Litronic Logo
- --------------------------------------------------------------------------------
4K CRYPTOFLEX SMARTCARD $ 24
* MUST SPECIFY
. NO Logo 010-1103
. Litronic Logo 050-1103-LIT
. NetSign Logo 050-1103-NS2.0
* DEFAULT is Litronic Logo
- --------------------------------------------------------------------------------
8K CRYPTOFLEX SMARTCARD $ 31
Available 3/99
* MUST SPECIFY
. NO Logo 010-1110
. Litronic Logo 050-1110-LIT
. NetSign Logo 050-1110-NS2.0
* DEFAULT is Litronic Logo
- --------------------------------------------------------------------------------
1000 MONIKER FORTEZZA CRYPTO CARD 050-1042 YES $153
. PC-CARD Type II
. Windows, DOS, Mac or UNIX
compatible
. Fortezza certified
. FIPS 140-1 Level 2
compliance
- --------------------------------------------------------------------------------
</TABLE>
Prices are FOB Irvine, CA; do not include shipping or insurance and are subject
to change without notice.
Page 1 of 10(04/12/99)
<PAGE>
2. READERS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRODUCT PART NUMBER REQUIRES UNIT PRICE
EXPORT
LICENSE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
210 READER (FOR MAC & UNIX) $ 79
. Includes
. Serial connector
. Power supply
* MUST SPECIFY
. For MAC or 050-1014-M
. UNIX or 050-1014-U
- --------------------------------------------------------------------------------
210 READER (FOR WINDOWS) $ 59
. Includes
. Serial connector
. DIN through-keyboard power
* MUST SPECIFY
. PC mini DIN (PS/2) or 050-1014-N
. PC maxi DIN AT 050-1014-X
. PC export (mini & maxi DIN) 050-1014
* DEFAULT is PC, mini DIN
- --------------------------------------------------------------------------------
215 READER (FOR WINDOWS) $ 85
. Plug and play for Windows
. Includes
. Serial connector
. DIN through-keyboard power
* MUST SPECIFY
. PC mini DIN (PS/2) or 050-0215-N
. PC maxi DIN AT 050-0215-X
. PC export (mini & maxi DIN) 050-0215
* DEFAULT is PC, mini DIN
- --------------------------------------------------------------------------------
300 SECURITY ADAPTER WITH READER 050-1038 Yes $395
. Requires
. ISA PC Interface
. FIPS 140-1 Level 3 compliance
- --------------------------------------------------------------------------------
410 READER 050-1011-1 $107
. PC-CARD Type II
. Requires
. DOS or Windows 9X/NT
- --------------------------------------------------------------------------------
</TABLE>
Prices are FOB Irvine, CA; do not include shipping or insurance and are subject
to change without notice.
Page 2 of 10 (04/12/99)
<PAGE>
2. READERS - CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRODUCT PART NUMBER REQUIRES UNIT PRICE
EXPORT
LICENSE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ARGUS 2000 READER 050-1012-1 $ 99
. Requires
. ISA PC Interface
. Supports two (2) Type I/II or one
Type III PC Card(s)
. Mounted internally (3.5" or 5.25"
bay)
- --------------------------------------------------------------------------------
ARGUS 2102 READER 050-1020-2 $ 330
. Requires
. SCSI PC Interface
. Supports two (2) Type I/II or one
Type III PC Card(s)
- --------------------------------------------------------------------------------
ARGUS 2108 CIPHERSERVER 050-2108 $2,650
. Desktop or 19" RETMA rack mount
SCSI
. Supports eight (8) Type I/II PC Cards
- --------------------------------------------------------------------------------
</TABLE>
Prices are FOB Irvine, CA; do not include shipping or insurance and are subject
to change without notice.
Page 3 of 10 (04/12/99)
<PAGE>
3. NETSIGN FOR MAC & UNIX
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRODUCT PART NUMBER REQUIRES UNIT PRICE
EXPORT
The 210 reader is available with other connectors LICENSE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NETSIGN FOR MAC (REL 1) 050-1014-3M No, but the US $59
. Includes browser does
. 1024 bitCryptoflex smart card
. Verisign Digital ID (class 1)
. Requires
. MAC OS 8
. Netscape Communicator (US Version)
* MUST ADD
. 210 Reader for MAC (050-1014-1M)
- ------------------------------------------------------------------------------------------------------------------
NETSIGN FOR UNIX (REL 1) 050-1014-3U No, but the US $59
. Includes browser does
. 1024 bitCryptoflex smart card
. Verisign Digital ID (class 1)
. Requires
. 210 Reader for UNIX (050-1014-1U)
. Solaris 2.4 or above on SPARC
. Netscape Communicator (US Version)
* MUST ADD
. 210 Reader for UNIX (050-1014-1U)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Prices are FOB Irvine, CA; do not include shipping or insurance and are subject
to change without notice.
Page 4 of 10 (04/12/99)
<PAGE>
3. NETSIGN FOR WINDOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRODUCT PART NUMBER REQUIRES UNIT PRICE
EXPORT
/1/The 210/215 reader is available with other connectors LICENSE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NETSIGN FOR WINDOWS (REL 2.0) 050-1310-D No, but the US $59
. Includes browsers do
. 1024 bit Cryptoflex smart card
. Verisign Digital ID (class 1)
. Requires
. Windows 95/NT
. Netscape Communicator (US Version) OR
. Microsoft Internet Explorer (US Version)
* MUST ADD
. 210 Reader (050-1014-N)/1/ OR
. 215 Reader (050-1215-N)/1/ OR
. 410 Reader (050-1011-1)
- ------------------------------------------------------------------------------------------------------------------
NETSIGN FOR WINDOWS (REL 2.0) - EXPORT $59
. Includes
. 512 bit Multiflex smart card (Netscape)
OR
. Cryptoflex smart card (Microsoft)
. Verisign Digital ID (class 1)
. Requires
. Windows 95/NT
. Netscape Communicator OR
. Microsoft Internet Explorer
* MUST SPECIFY
. For Netscape Communicator OR 050-1310-NE
. Microsoft IE 050-1310-IE
DEFAULT is Netscape Communicator
* MUST ADD
. 210 Reader (050-1014-N)/1/ OR
. 215 Reader (050-0215-N)/1/ OR
. 410 Reader (050-1011-1)
- ------------------------------------------------------------------------------------------------------------------
NETSIGN REL 1 TO 2.0 UPDATE 050-1310-DU No, but the US $20
. Additional smart card(s) NOT included. browsers do
- ------------------------------------------------------------------------------------------------------------------
NETSIGN REL 1 TO 2.0 UPDATE - EXPORT 050-1310-EU $44
. Includes
. Cryptoflex smart card for Microsoft IE
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Prices are FOB Irvine, CA; do not include shipping or insurance and are subject
to change without notice.
Page 5 of 10 (04/12/99)
<PAGE>
5. NETSIGN PRO FOR WINDOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRODUCT PART NUMBER REQUIRES UNIT PRICE
EXPORT
LICENSE
/1/The 210 reader is available with other connectors
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NETSIGN PRO FOR WINDOWS (REL 2.0) 050-1310-P Yes $79
Available 2/99
. Includes
. 1024-bit Cryptoflex smart card
. Point 'n Crypt
. SecureDial
. SecureStart (NT Only)
. Requires
. Windows 9X/NT
. Netscape Communicator (US Version)
OR
. Microsoft Internet Explorer (US Version)
* MUST ADD
. 210 Reader (050-1014-N) /1/ OR
. 215 Reader (050-0215-N) /1/ OR
. 410 Reader (050-1011-1)
- ----------------------------------------------------------------------------------------------------------------------
NETSIGN PRO FOR WINDOWS (REL 2.0)- $79
EXPORT
Available 2/99
. Includes
. 512 bit Multiflex smart card (Netscape) or
. Cryptoflex smart card (Microsoft)
. Point 'n Crypt
. SecureDial
. SecureStart (NT only)
. Requires
. Windows 9X/NT
. Netscape Communicator OR
. Microsoft Internet Explorer
* MUST SPECIFY
. For Netscape Communicator OR 050-1310-NEP
. Microsoft IE 050-1310-IEP
DEFAULT is Netscape Communicator
* MUST ADD
. 210 Reader (050-1014-N) /1/ OR
. 215 Reader (050-0215-N) /1/ OR
. 410 Reader (050-1011-1)
- ----------------------------------------------------------------------------------------------------------------------
NETSIGN PRO REL 1 TO 2.0 UPDATE 050-1310-DPU No, but the US $20
Available 2/99 browsers do
. Additional smart card(s) NOT included
- ----------------------------------------------------------------------------------------------------------------------
NETSIGN PRO REL 1 TO 2.0 UPDATE - EXPORT 050-1310-EPU $44
Available 2/99
. Includes
. Cryptoflex smart card for Microsoft IE
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Prices are FOB Irvine, CA; do not include shipping or insurance and are subject
to change without notice.
Page 6 of 10 (04/12/99)
<PAGE>
6. PROFILE MANAGER
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRODUCT PART NUMBER REQUIRES UNIT PRICE
EXPORT
LICENSE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROFILE MANAGER - 500 USERS 050-1304-500 Yes $ 10,000
. ProFile Manager software
. 2*210 Readers
. Argus 2000 PCMCIA reader
. Chrysalis Luna2 PCMCIA token
. 13*1024-bit Cryptoflex smartcard
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER - 1,000 USERS 050-1304-1000 Yes $ 15,000
. As for 500 Users
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER - 2,500 USERS 050-1304-2500 Yes $ 26,500
. As for 500 Users
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER - 5,000 USERS 050-1304-5000 Yes $ 39,500
. As for 500 Users
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER - 10,000 USERS 050-1304-10000 Yes $ 59,500
. As for 500 Users
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER - 25,000 USERS 050-1304-25000 Yes $ 102,000
. As for 500 Users
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER - 50,000 USERS 050-1304-50000 Yes $ 153,000
. As for 500 Users
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER - 100,000 USERS 050-1304-100000 Yes $ 230,000
. As for 500 Users
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER - UPGRADE 050-1304-1UG Yes Price
difference
plus 15%
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER - MAINTENANCE 050-1304-M Yes 17.5% per
. Includes annum
. New product releases
. Expert to expert technical support
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER EVALUATION 050-1304-E Yes $ 500
. Includes
. ProFile Manager evaluation software
. 50 precalulated keys instead of the luna
token
. 2*210 Reader
. 13*1024-bit Cryptoflex smartcard
. 30 days expert to expert support
- ------------------------------------------------------------------------------------------------------------------
PROFILE MANAGER EVALUATION - UPGRADE 050-1304-EUG Yes List price
(ORDERED WITHIN 90 DAYS OF START OF EVALUATION) less $500
. Includes
. Latest release of Profile Manager
. Argus 2000 PCMCIA reader
. Chrysalis Luna2 PCMCIA
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Prices are FOB Irvine, CA; do not include shipping or insurance and are subject
to change without notice.
Page 7 of 10 (04/12/99)
<PAGE>
7. PROFILE MANAGER EXTENSION DEVELOPERS KITS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PRODUCT PART NUMBER REQUIRES UNIT PRICE
EXPORT
/1/ If a different 210 reader is required it must be specified LICENSE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PROFILE MANAGER EXTENSION 050-1014-5W $1250
DEVELOPERS KIT
. Supports
. C and C++ programming interfaces
. Windows 3.1, 95, NT and MAC platforms
. UNIX (Solaris)
. Includes
. 2* 210 Reader (050-1014-IN)
. 2* 4K Cryptoflex Smartcard (050-1103-LIT)
. 2* 8K Multiflex Smartcard (050-1107-LIT)
. 90 days expert to expert support
. Requires
. Profile Manager (Full Product)
- -----------------------------------------------------------------------------------------------------------
PROFILE MANAGER EXTENSION 050-1014-5PW $3,995
DEVELOPERS KIT PLUS (WITH TEMPLATES)
. Supports
. C, C++, Java and Active X programming
interfaces
. Windows 3.1, 95, NT and MAC platforms
. UNIX (Solaris)
. Includes
. 2* 210 Reader (050-1014-1N)
. 2* 410 Reader (050-1011-1)
. 5* 4K Cryptoflex Smartcard (050-1103-LIT)
. 5* 8K Multiflex Smartcard (050-1107-LIT)
. Java template for secure client/server application
. Source code for communication protocols
. 90 days expert to expert support
. Requires
. Profile Manager (Full Product)
- -----------------------------------------------------------------------------------------------------------
PROFILE MANAGER EXTENSION 050-1015-5WM $1000 per
DEVELOPERS KIT OR DEVELOPERS KIT annum
PLUS - MAINTENANCE
. Includes
. New product releases
. Expert to expert technical support
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Prices are FOB Irvine, CA; do not include shipping or insurance and are subject
to change without notice.
Page 8 of 10 (04/12/99)
<PAGE>
8. PROFESSIONAL SERVICES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PRODUCT PART NUMBER REQUIRES UNIT PRICE
EXPORT
/3/ Working day is a maximum of 8 hours LICENSE
Minimum of one day
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENGINEER ON-SITE $2,000 PER
* TRAVEL, ACCOMMODATION AND EXPENSES ARE DAY/2/
ADDITIONAL CHARGES.
- ------------------------------------------------------------------------------------------------
ENGINEER AT LITRONIC $135 PER
HOUR
- ------------------------------------------------------------------------------------------------
</TABLE>
Prices are FOB Irvine, CA; do not include shipping or insurance and are subject
to change without notice.
Page 9 of 10 (04/12/99)
<PAGE>
RESELLER DISCOUNT - REFER TO TERM SHEET IN RESELLER AGREEMENT
Prices are FOB Irvine, CA; do not include shipping or insurance and are subject
to change without notice.
Page 10 of 10 (04/12/99)
<PAGE>
THE SOUTH AFRICAN CERTIFICATION AGENCY
(PROPRIETARY) LIMITED
("the Company")
RESOLUTION OF THE DIRECTORS OF THE SOUTH AFRICAN
CERTIFICATION AGENCY (PROPRIETARY) LIMITED PASSED ON 19
MARCH 1999.
RESOLVED:
THAT the Company signs the Non-exclusive Resellers Agreement with Litronic
Inc., substantially upon the terms and conditions of the said Agreement as
disclosed to the board of directors; and
THAT Mr T Ellis acting in his capacity as a Director of the Company be and is
hereby authorised and empowered to sign all documents necessary to give effect
to this resolution.
/s/ [Signature Illegible]^^ /s/ [Signature Illegible]^^
- ------------------------------ -------------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
(When the Reorganization as described in note 1 of the consolidated financial
statements referenced below has been consummated, we will be in a position to
provide the following consent)
/s/ KPMG LLP
The Board of Directors
Litronic Inc.:
We consent to the use of our report February 26, 1999, related to the
consolidated balance sheets of Litronic Inc. and subsidiary as of December 31,
1997 and 1998 and the consolidated statements of operations, shareholders'
deficiency and cash flows for each of the years in the three year period ended
December 31, 1998 and to the reference to our firm under the headings "Selected
Financial Data Litronic" and "Experts" in the prospectus.
Orange County, California
May 6, 1999
<PAGE>
EXHIBIT 23.2
The Board of Directors
Pulsar Data Systems, Inc.
Our report dated March 31, 1999, except for Note 5 which is as of May 5, 1999,
contains an explanatory paragraph that states that the Company has suffered
losses from operations and has a net working capital deficit, which raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
We consent to the use of our report included herein and to the reference to our
firm under the headings "Selected Financial Data Pulsar" and "Experts" in the
prospectus.
/s/ KPMG LLP
McLean, Virginia
May 5, 1999
<PAGE>
EXHIBIT 23.3
To The Board of Directors
Pulsar Data Systems, Inc.
Lanham, Maryland
The audits referred to in our report dated April 27, 1998, which contains an
explanatory paragraph that states that the Company incurred a loss, has a net
capital deficiency and was in violation of certain debt convenants, among
other factors, raise substantial doubt about the Company's ability to continue
as a going concern.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule II, Valuation
and Qualifying Accounts and Reserves is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ Keller Bruner & Company, L.L.C.
Bethesda, Maryland
May 6, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
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<PAGE>
CONSENT OF MARK GEMBICKI
I consent to the reference to me as a person to be appointed a Director of
Litronic Inc. under the captions "Prospectus Summary," "Management" and
"Principal Stockholders" in the Prospectus included in the Registration
Statement on Form S-1 of Litronic Inc.
/s/ Mark Gembicki
-----------------
Mark Gembicki
May 3, 1999
Annapolis, Maryland
[City and State of Execution]
<PAGE>
EXHIBIT 99.2
CONSENT OF MATTHEW MEDEIROS
I consent to the reference to me as a person to be appointed a Director of
Litronic Inc. under the captions "Management" and "Principal Stockholders" in
the Prospectus included in the Registration Statement on Form S-1 of Litronic
Inc.
/s/ Matthew Medeiros
--------------------
Matthew Medeiros
April 6, 1999
San Jose, California
