<PAGE>
As filed with the Securities and Exchange Commission on April 8, 1999
Registration No. 333-72151
- --------------------------------------------------------------------------------
Securities and Exchange Commission
Washington, D.C. 20549
___________________
Amendment No. 1 to
Form S-1
Registration Statement
Under
The Securities Act of 1933
__________________
Litronic Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3577 33-0757190
(State or other jurisdiction of (Primary Standard Industrial Classification Number) (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
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, PLLC Tenzer Greenblatt LLP
1050 Connecticut Avenue, N.W. 405 Lexington Avenue
Washington, D.C. 20036-5339 New York, New York 10017
Attention: Gerald P. McCartin, Esq. Attention: Robert J. Mittman, Esq.
Telephone No.: (202) 857-6090 Telephone No.: (212) 885-5000
Facsimile No.: (202) 857-6395 Facsimile No.: (212) 885-5001
___________________
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. [_]
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 April 8, 1999
LITRONIC INC.
3,000,000 shares of common stock
This is an initial public offering of 3,000,000 shares 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 14.
______________________
<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 450,000 additional shares of our common stock to cover any over-
allotments.
______________________
BLUESTONE CAPITAL PARTNERS, L.P. PACIFIC CREST SECURITIES INC.
, 1999
<PAGE>
We own or otherwise 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: ProFile
Manager, NetSign, NetSign Pro, CryptOS, CryptOS SDK, CryptOS SDK+, ARGUS,
Moniker, CryptoCard, CipherServer and Forte. We also own the trade names
Litronic, Pulsar, Pulsar Data and Pulsar Data Systems, Inc. We have applied for
the trademarks Forte PKIcard and Maestro. All other trademarks or trade names
referred to in this prospectus are the property of their respective owners.
<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, all of the stockholders of Litronic
Industries, Inc. will exchange all of the outstanding common stock of that
company 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," "our" or
"our company" 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 COMPANY
OUR BUSINESS
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. 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.
As a result, our products enable customers to integrate PKI security into their
Internet networks, existing database applications and customized software
applications.
-3-
<PAGE>
Our data security products can be used with world-wide-web browsers,
including Netscape Communicator and Microsoft Internet Explorer, to provide
secure E-mail or other data communications and facilitate secure electronic
commerce transactions. In addition, our products use digital certificate
technology to uniquely identify the sender of an electronic message. Digital
certificates can be securely contained in hardware tokens, such as PKI cards and
secure-keys, and in software tokens, such as the software security files found
in most web browsers. Our products also support numerous types of operating
systems and facilitate the process of issuing, managing and recovering digital
certificates throughout a customer's enterprise.
In addition, we are currently developing PKI cards that will be capable of
integrating multiple digital certificates, provide for greater processing power,
versatility and storage capacity than today's conventional PKI cards, and still
be credit card sized and competitively priced. Working with Atmel Corporation, a
leading semi-conductor manufacturer, we are leading the development of the Forte
microprocessor. Under a contract with the National Security Agency some of
our development efforts for this project are being reimbursed. We are designing
this 32-bit RISC microprocessor to be embeded in an advanced PKI card that we
are developing. We expect our Forte PKI card to be the fastest, most versatile
and most cryptographically advanced PKI card available.
We have also 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
. RSA Data Security, Inc. Corp.
. Atmel Corporation . SCM Microsystems, Inc.
. U.S. National Security Agency
OUR CUSTOMERS
Our data security customers come from diverse industries, such as the
finance, healthcare, telecommunications, electronic commerce and government
industries, and include:
. Bank of America . VeriSign, Inc.
. Lucent Technologies Inc. . Lockheed Martin Corporation
. Deloitte & Touche LLP . Netscape Communications Corporation
. the U.S. Army Corps of Engineers . Schlumberger Limited
. the National Security Agency . Nippon Telegraph and
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
-4-
<PAGE>
Bureau of Investigation and the Federal Communications Commission, as well as
over 40 commercial, state and local customers.
OUR MARKET AND MARKET OPPORTUNITY
The increasing proliferation of, and reliance upon, Internet communications
and transactions has caused data security to become a paramount concern. Demand
for information security products is forecast by Datamonitor, an independent
research firm, to increase from $1.6 billion in 1997 to almost $7.0 billion by
2001, an annual growth rate of 44%. In addition, Datamonitor forecasts the PKI
segment to be the fastest growing segment of the Internet security market, with
the demand for PKI-based products increasing from $75 million in 1997 to
approximately $1.9 billion by 2001, an annual growth rate of 124%.
OUR STRATEGY
We intend to leverage the direct sales force, distribution channels and
strategic partners of our new Pulsar operations to aggressively expand our data
security distribution capabilities. Pulsar's strategic partners include
electronic commerce companies, Internet service providers, value-added
resellers, systems integrators and original equipment manufacturers. In
addition, we believe that our newly acquired network integration solutions
expertise will provide us with significant competitive advantages with respect
to our Internet data security offerings, as the implementation of Internet
network security solutions and infrastructure requires specialized skills which
are typically limited in corporate information technology departments.
To capitalize on the expanding market opportunities in the information
security 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.
OUR POTENTIAL ACQUISITION OF THE ASSURE TECHNOLOGY
Subject to our due diligence review, we expect to enter into an agreement
under which we will, after the close of this offering, bid shares of our common
stock valued at $6.0 million in a foreclosure sale for the purchase of the
proprietary encryption-based information security technology for client/server
networks and related intellectual property known as the Assure technology. If
our bid is the winning bid, we will seek to complete the development of products
based on this technology in order to expand our data security product offerings.
The judgment holders in the foreclosure action hold judgments in the
aggregate amount of approximately $6.0 million. Included among these judgment
holders are
-5-
<PAGE>
affiliates of BlueStone, who hold judgments aggregating approximately $750,000,
including a judgment in the amount of approximately $150,000 held by Anthony
Giraudo, a director nominee of our company and a limited partner of BlueStone.
If our bid is the winning bid at the foreclosure sale, all of the judgment
holders, including the BlueStone affiliates, will receive their proportionate
percentage of the shares of our common stock included in the bid. See "Certain
Transactions."
---------------------------
Litronic Inc. was incorporated under the laws of the State of Delaware in
1997 but has conducted no operations to date. 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.
-6-
<PAGE>
THE OFFERING
Common stock offered by Litronic................. 3,000,000 shares
Common stock to be outstanding after
this offering............................... 9,040,631 shares, including
2,169,938 shares to be issued
in connection with the Pulsar
acquisition. This does not
include:
. 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;
. 300,000 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; and
. shares which will be
issued if our bid in the
foreclosure sale for the
Assure technology is
successful.
Use of proceeds.................................. We intend to use the net
proceeds of this offering for
reduction of debt, sales and
marketing, product development
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
-7-
<PAGE>
SUMMARY FINANCIAL INFORMATION
LITRONIC
(DOLLARS IN THOUSANDS)
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>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net product revenue...................... $7,855 $ 8,627 $ 5,214
License and service revenue.............. 1,541 1,539 1,439
-------- ------- --------
Total revenue............................ 9,396 10,166 6,653
-------- ------- --------
Product cost of revenue.................. 4,098 3,211 2,821
License and service cost of revenue...... 581 643 950
-------- ------- --------
Total cost of revenue.................... 4,679 3,854 3,771
-------- ------- --------
Gross margin............................. 4,717 6,312 2,882
Selling, general, and
administrative expenses............. 2,052 3,487 2,631
Research and development expenses........ 725 1,172 1,334
-------- ------- --------
Operating income (loss).................. 1,940 1,653 (1,083)
-------- ------- --------
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Interest expense, net..................... 19 42 418
-------- ------- --------
Earnings (loss) from continuing
operations before income taxes............ 1,921 1,611 (1,501)
Provision for (benefit from)
income taxes.......................... 29 22 (95)
-------- ------- --------
Earnings (loss) from
continuing operations................. $1,892 $ 1,589 $(1,406)
======== ======= ========
</TABLE>
BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Cash and cash equivalents................. $ 862 $ 490 $ 898
Working capital........................... 1,662 385 758
Total assets.............................. 7,409 2,347 2,791
Short-term debt........................... 545 -- 580
Long-term debt, less current installments. 4,997 3,506 5,200
Total liabilities......................... 7,510 5,148 6,998
Net stockholders'
deficiency............................. (101) (2,801) (4,207)
</TABLE>
-9-
<PAGE>
SUMMARY FINANCIAL INFORMATION
PULSAR
(DOLLARS IN THOUSANDS)
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>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
---------- --------- --------
<S> <C> <C> <C>
Service revenue........................ $ 10,253 $ 8,818 $ 3,373
Product revenue........................ 155,705 142,702 77,159
---------- --------- --------
Total revenue.......................... 165,958 151,520 80,532
---------- --------- --------
Cost of service revenue................ 4,870 4,115 1,553
Cost of product revenue................ 144,494 138,086 71,818
---------- --------- --------
Total cost of revenue.................. 149,364 142,201 73,371
---------- --------- --------
Gross margin........................... 16,594 9,319 7,161
Selling, general, and
administrative
expense............................. 13,545 17,152 12,519
---------- --------- --------
Operating income
(loss)............................. 3,049 (7,833) (5,358)
Interest income........................ 639 457 61
Interest expense....................... 3,564 3,640 2,099
---------- --------- --------
Net earnings (loss).................... $ 124 $(11,016) $(7,396)
========== ========= ========
</TABLE>
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<PAGE>
BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997 1998
-------- ------- --------
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 2,451 $ 2,236 $ 352
Working capital (deficit).................... 1,553 (2,436) (8,168)
Total assets................................. 59,785 40,871 12,187
Short-term debt.............................. 41,352 28,982 14,435
Long-term debt, less current
installments.............................. 53 4,203 3,241
Total liabilities............................ 52,077 42,681 22,681
Net stockholders' equity (deficit)........... 7,708 (1,810) (10,494)
</TABLE>
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<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 December 31,
1998, 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>
YEAR ENDED
DECEMBER 31,
1998
--------------
<S> <C>
Net product revenue..................................... 82,373
License and service revenue............................. 4,812
--------------
Total revenue........................................... 87,185
--------------
Product cost of revenue................................. 74,639
License and service cost of revenue..................... 2,503
--------------
Total cost of revenue................................... 77,142
--------------
Gross margin............................................ 10,043
Selling, general, and
administrative expenses............................ 15,150
Research and development expenses....................... 1,334
Amortization of goodwill and other
intangibles........................................ 2,146
--------------
Operating loss.......................................... (8,587)
Interest expense........................................ 1,893
Interest income......................................... 61
--------------
Loss from continuing operations before
income taxes....................................... (10,419)
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
-
Benefit from income taxes................................ --------------
Loss from continuing operations.......................... $(10,419)
==============
Loss per share from continuing operations -
basic and diluted.................................... $ (1.15)
==============
Shares used in per-share computations -
basic and diluted.................................... 9,040,631
==============
</TABLE>
PRO FORMA BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
---------------
<S> <C>
Cash and cash equivalents................................. 15,250
Working capital........................................... 9,954
Total assets.............................................. 61,171
Short-term debt........................................... 11,651
Long-term debt, less current installments................. 5
Total liabilities......................................... 17,879
Net stockholders' equity.................................. 43,292
</TABLE>
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<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 in evaluating our company and our
prospects before purchasing shares of our common stock.
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 a net loss of $1.4
million for the year ended December 31, 1998. Pulsar incurred net losses of
$7.4 million for the year ended December 31, 1998 and $11.0 million for the year
ended December 31, 1997. Our pro forma combined statement of operations
reflects a net loss of $10.4 million for the year ended December 31, 1998.
PULSAR'S INDEPENDENT AUDITORS HAVE EXPRESSED DOUBT ABOUT PULSAR'S ABILITY TO
CONTINUE AS A GOING CONCERN.
For the year ended December 31, 1998, Pulsar's independent auditors noted
in their report that as a result of Pulsar's loss, its net capital deficiency
and its default on financing agreement debt covenants, there was a substantial
doubt about Pulsar's ability to continue as a going concern. After this
offering, we will have positive working capital and be in compliance with all
financing debt agreements. We believe working capital, including proceeds from
this offering, and available borrowings under credit facilities will be
sufficient to satisfy our cash flow requirements for at least the 12 months
following this offering.
OUR INABILITY TO INTEGRATE, OR IMPLEMENT OUR PLANS FOR, THE OPERATIONS OF PULSAR
MAY ADVERSELY AFFECT OUR BUSINESS.
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;
. coordinate our marketing and sales efforts; and
. implement appropriate operational, financial and management
systems and controls.
We may not be able to successfully integrate Pulsar's operations. In addition,
we are acquiring Pulsar assuming that we can roll out our enterprise-wide 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 to commercial customers and state and local
governments. We may not be able to successfully implement any of these plans.
Our
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<PAGE>
failure to do so would significantly diminish the value of the Pulsar
acquisition and adversely affect our future operations.
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 $32.2 million, or 53%, of our pro forma combined, as
adjusted, assets as of December 31, 1998, consisted of intangible assets,
including goodwill, arising from the acquisition of Pulsar. This amount, which
will be amortized over 15 years, constitutes a non-cash expense in each
amortization period, which is not deductible for tax purposes, 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.
As of December 31, 1998, Litronic had $5.8 million and Pulsar had $13.6 million
in outstanding secured debt. We expect to enter into a new $20.0 million credit
facility following this offering which will also be secured by a pledge of all
of our assets. This means that if we default on our secured debt obligations
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
received either waivers for these violations or forbearance agreements through
the date of this prospectus. Although we expect to be in compliance with all of
our financial covenants upon the closing of this offering, if we fail to comply
with our secured debt loan covenants or otherwise default on our obligations in
the future without obtaining waivers or forbearance agreements for these
violations, our indebtedness could become immediately due and payable and the
lenders could foreclose on our assets.
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
generally 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.
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<PAGE>
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. 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. 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. We expect to continue to depend upon a limited
number of large customers for a substantial portion of our revenue.
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. Our sales to these
agencies are subject to risks, including:
. potential reduction in the federal funding available for them to
purchase our products and services;
. early termination of our contracts;
. disallowance of costs upon audit;
. changes in the government contract procurement process; and
. the necessity to participate in competitive bidding and proposal
processes.
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.
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
-16-
<PAGE>
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, as a result of the cost of
the infrastructure required to support its widespread use;
. the Internet may continue to experience significant growth both in the
number of users and the level of use, but the Internet infrastructure
may not be able to continue to support the demands placed on it by
continued growth;
. continued growth may affect the Internet's performance and
reliability;
. 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; and
. changes in, or insufficient availability of, communications services
to support electronic commerce and communication could result in poor
performance and also adversely affect usage.
THERE ARE RISKS RELATING TO OUR OFFER TO PURCHASE THE ASSURE TECHNOLOGY.
Although we expect, subject to our due diligence review, to enter into an
agreement under which we will agree to bid at least $6.0 million of our common
stock to purchase the Assure technology, we do not, at this time, know how many
shares we will have to include in our bid because we cannot be certain at what
price our common stock will be trading during the five-day measurement period
prior to the foreclosure sale. Based on the initial public offering price and
assuming an initial public offering price of $10.00 per share, our bid would
consist of at least 600,000 shares of our common stock. However, if, at the time
of our bid, the average closing price of our common stock on Nasdaq during the
measurement period is below the initial public offering price, we will have to
bid more shares. In addition, regardless of the number of shares which are
included in our bid, our bid for the Assure technology may not be the winning
bid in the foreclosure sale and, thus, we may not be able to acquire the
technology.
In addition, even if we successfully acquire the Assure technology, our
failure to upgrade the technology and complete the development of products based
on the technology would adversely affect our business. Our development efforts
will be subject to many risks, including:
. we were not involved in the initial development of the technology and
will need to devote financial and personal resources to become
familiar with the technology;
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. we may not become sufficiently familiar with the technology to upgrade
the technology or develop products based on the technology in a cost
effective or timely manner, or at all;
. we may face technical problems or other difficulties or other
significant delays; and
. in addition to the stock we would issue if our bid was the winning
bid, we have allocated $1.2 million of the net proceeds of this
offering to the development of Assure-based products and we may expend
this and significant additional resources without ever successfully
developing a commercial product.
In addition, there may be an adverse impact on our operating results due to
in-process research and development charges and/or amortization of assets
related to the purchase of the Assure technology. See "Certain Transactions."
SOME OF OUR PRODUCTS AND SERVICES HAVE LENGTHY SALES AND IMPLEMENTATION CYCLES
WHICH, IF DELAYED, COULD ADVERSELY AFFECT FORECASTED OPERATING RESULTS.
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. 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. Our quarterly and annual operating results could be
adversely affected if sales forecasted for a particular quarter from a
particular customer are delayed.
IF PKI TECHNOLOGY IS COMPROMISED, OUR BUSINESS WOULD BE ADVERSELY AFFECTED.
Many of our products are based on PKI technology, which involves the use of
a public key and a private key to encrypt and decrypt messages. 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. This integrity is based on the premise that factoring large
numbers into their prime number components is difficult. The occurrence of any
of the following could result in a decline in demand for our data security
products:
. development of an easy factoring method would reduce or eliminate
security of encryption products using PKI technology;
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. any significant advance in techniques for attacking PKI systems could
render some or all of our products based on cryptographic technology
obsolete or unmarketable;
. computer systems significantly faster and more powerful than those
presently available could theoretically solve factoring problems even
without a breakthrough in factoring or other methods of attacking PKI
systems;
. publicity of the successful decoding of cryptographic messages or the
misappropriation of private keys, as has happened in the past, could
adversely affect public perception as to the safety of PKI technology;
and
. current or future government regulation regarding the use, scope and
strength of PKI could limit our ability to develop and sell products
with encryption technology strong enough to maintain the integrity of
a user's private key against factoring by more powerful computer
systems.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS AND SERVICE
OFFERINGS COULD BECOME OBSOLETE.
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 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.
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 our 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 otherwise 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 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.
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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 our company. We have
not entered into employment agreements with any employees other than Messrs.
Shah and Davis, and even with these agreements there is a risk that these
individuals will not continue to serve for any particular period of time. While
we intend to obtain 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 otherwise service our
software and hardware systems, customers and potential customers or otherwise
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,
the costs of hiring and retaining these individuals are high and these personnel
may not remain with our company once hired. Furthermore, there is increasing
pressure to provide technical employees with stock options and other equity
interests in our company, 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 these
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 our company, 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
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products or solutions, could adversely affect the market's perception of our
company, products and solutions and therefore our business.
Furthermore, the nature of many of our professional services exposes us to
a variety of risks. Many of our professional service engagements involve
projects that are critical to the operations of our customers' businesses. 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; or
. 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, such as:
. damages caused by employee errors and omissions;
. misuse of customer proprietary information;
. misappropriation of funds;
. discrimination and harassment;
. theft of customer property;
. other criminal activity or torts; and
. other claims.
WE MAY NOT HAVE SUFFICIENT INSURANCE TO COVER POTENTIAL LIABILITIES.
Although we maintain general liability insurance coverage, that insurance
may not continue to be available to us on commercially reasonable terms or in
sufficient amounts to cover one or more large claims, or the insurer may
disclaim coverage as to any future claim. The successful assertion of one or
more large claims against us that exceed available insurance coverage, or
changes in our insurance policies, including premium increases or the imposition
of large deductibles or co-insurance requirements, could adversely affect our
business.
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. It is possible that 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 of services. We cannot predict the
extent to which we might be liable for these costs, but it is conceivable in
general that year 2000
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errors could result in substantial judgments against providers of information
technology such as our company. 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.
OUR PARTICIPATION IN COMPETITIVE BIDDING FOR CONTRACTS EXPOSES US TO THE
POTENTIAL LOSS OF FINANCIAL AND OTHER RESOURCES.
We generate a portion of our revenue from contracts and purchase orders
awarded through the competitive bidding process. Our bids may not be accepted
or, if accepted, awarded contracts may not generate sufficient revenue to result
in profitable operations. The competitive bidding process is typically lengthy
and often results in the expenditure of financial and other resources in
connection with bids that are not accepted. Additionally, inherent in the
competitive bidding process is the risk that our costs may exceed projected
costs upon which a submitted bid or contract price is based.
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.
Notwithstanding the precautions we take, third parties may copy or
otherwise 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
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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. Our business, financial condition and operating results could
be adversely affected if we are unable to protect 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. While we do not believe that our products infringe on proprietary
rights of third parties, infringement or invalidity claims may nevertheless be
asserted or prosecuted against us and our products may be found to have
infringed the rights of third parties. If any claims or actions are asserted
against us, we may be required to modify our products or may seek to obtain a
license for these intellectual property rights in a timely manner. We may not
be able to modify our products or obtain a license on commercially reasonable
terms, or at all. Our failure to do so could adversely affect our business.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY CURRENT AND POSSIBLE FUTURE
GOVERNMENT REGULATION.
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. This could adversely affect our
business. 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. Although we have obtained approval to
export our NetSign and ProFile Manager products, the federal government may
rescind this approval at any time. Additionally, we may apply for export
approval, on a specific criteria basis, for our future products. We may not
receive approval to export any future products on a timely basis, on the basis
we request or at all.
OUR OPERATIONS COULD SUBJECT US TO TAXATION IN UNFORSEEN JURISDICTIONS.
Many companies conducting electronic commerce do not collect sales or other
similar taxes with respect to shipments of goods into other states or foreign
countries. It is possible that federal, state or foreign governments may seek
to impose sales taxes on companies that engage in electronic commerce. Due to
the increasing popularity of the Internet, intranets and extranets, it is
possible that laws and regulations may be enacted covering issues such as user
privacy, pricing, content and quality of products and services. Widespread
adoption of laws and regulations of this type or the imposition of sales or
other taxes on electronic commerce could slow substantially the growth of the
Internet, intranets and extranets, which could result in decreased demand for
our products and adversely affect our business.
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OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
Our quarterly operating results may fluctuate significantly as a result of
a variety of factors, many of which are outside our control. These factors
include:
. the short-term or long-term nature of customer commitments;
. the length of the sales and implementation cycle for our products and
services;
. 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.
Accordingly, comparisons of quarterly results may not be meaningful and
should not be relied upon, nor will they necessarily reflect on future
performance. Because of the foregoing factors, it is likely that in some future
quarters our operating results will be below the expectations of public market
analysts and investors. If this were to happen, the price of our common stock
would likely be adversely affected.
OUR EFFORTS TO EXPAND INTERNATIONAL OPERATIONS ARE SUBJECT TO A NUMBER OF RISKS.
We are seeking to increase international sales which are not currently
material to our business. While we believe our current products and services
are designed to meet the regulatory standards of foreign markets, our inability
to maintain or to obtain foreign regulatory approvals on a timely basis in the
future could adversely affect our business. Additionally, our international
operations could be subject to a number of risks, any of which could adversely
affect our business, including:
. establishing or maintaining international distribution channels;
. increased collection risks;
. trade restrictions;
. export duties and tariffs; and
. uncertain political, regulatory and economic developments.
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OUR ABILITY TO PRODUCE THE FORTE PKICARD ON A TIMELY AND COST-EFFECTIVE BASIS
DEPENDS ON THE AVAILABILITY OF A COMPUTER CHIP FROM ATMEL, 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 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 66.8% of our outstanding common stock. These
stockholders, if acting together, would have the ability to elect our directors
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 $12,500,000 (48.7%) of the net proceeds of this offering
to repay outstanding indebtedness, including approximately $6.2 million of
indebtedness assumed in connection with the acquisition of Pulsar. Consequently,
these funds will not be available to fund future growth. All of this
indebtedness 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 claiming (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. While Pulsar believes these lawsuits are
without merit, if these lawsuits were resolved against Pulsar, our business and
financial condition could be materially adversely affected. See "Business --
Legal Proceedings."
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND THE OFFERING
PRICE HAS BEEN ARBITRARILY DETERMINED.
Before this offering there has been no public market for our common stock.
There may not be an active trading market for our common stock after the
offering. The initial public offering price has been determined by negotiations
between our management and the representatives of the underwriters and does not
necessarily reflect the assets, book value or potential earnings of our company
or any other recognized criteria of value. Additionally, investors may not be
able to resell their shares at or above the initial public offering price.
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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 not approved by our board of directors
or otherwise adversely affect the price of our common stock, including:
. authority of our board of directors to issue common stock and
preferred stock and to 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 existence of large amounts of authorized but unissued common stock
and preferred stock;
. staggered, three-year terms for our board of directors;
. limitations on who may call special meetings of stockholders;
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. prohibition of stockholders' action by written consent; and
. advance notice requirements for board of directors nominating and
stockholder proposals.
The rights and preferences of any series of preferred stock could include a
preference over our common stock on the distribution of the assets upon a
liquidation or sale of our company, preferential dividends, redemption rights,
the right to elect one or more directors and other voting rights. The rights of
the holders of any series of preferred stock that may be issued in the future
may adversely affect the rights of the holders of our common stock. In
addition, provisions of Delaware law may discourage, delay or prevent a change
in control or unsolicited acquisition proposals.
PURCHASERS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF
THEIR INVESTMENT.
Purchasers of common stock in this offering will pay a price per share
which substantially exceeds the per share value of our assets after subtracting
our liabilities. In addition, purchasers of common stock in this offering will
have contributed 48% of the aggregate price paid by all purchasers of our stock
but will own only 33% of the common stock outstanding after this offering.
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 existing 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.
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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, but are not limited to,
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.
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USE OF PROCEEDS
The net proceeds we will receive from the sale of common stock in this
offering are estimated to be approximately $25.7 million ($29.8 million if the
representatives' over-allotment option is exercised in full), assuming an
initial public offering price of $10.00 per share (the midpoint of the currently
anticipated range of the initial public offering price) and after deducting
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................................ $12,500,000 48.7%
Sales and marketing.............................. 6,000,000 23.3%
Product development.............................. 6,200,000 24.1%
Working capital and general corporate purposes... 1,000,000 3.9%
------------- -------
Total......................................... $25,700,000 100.0%
============= =======
</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 February 28, 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.
. $4.2 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 of our company,
and is secured by property pledged by a family member of Mr.
Davis.
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. $1.3 million to IBM Global Finance Corporation (IGFC) 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 is secured by assets pledged by Mr. Davis.
. $650,000 to pay IGFC under its forbearance agreement with Pulsar which
becomes payable upon closing of this offering. The obligation under
the forbearance agreement are guaranteed and are secured 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.
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.
Of the proceeds allocated to product development, $1.2 million represents funds
allocated to the development of Assure technology-based products. If our bid
for the Assure technology is not the winning bid in its foreclosure sale, this
$1.2 million will be added to working capital.
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES
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
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<PAGE>
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 $4.1
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, short-term certificates
of deposit or other short-term, 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 all our personal and real property as collateral.
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. 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
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<PAGE>
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 in the foreseeable future. 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 for the foreseeable future.
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 December 31, 1998, the net tangible book value (deficit) of Litronic was
$(4.2 million), or $(1.09) 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 3,000,000 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 December 31, 1998 would have been $11.1 million or
$1.23 per share. This represents an immediate increase in net tangible book
value of $2.32 per share to existing stockholders and an immediate dilution of
$8.77 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 before the offering........... $(1.09)
Increase attributable to investors in the
offering............................................. 2.32
------
Adjusted net tangible book value after the offering........ 1.23
------
Dilution to new investors.................................. $ 8.77
======
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1998, and giving retroactive effect to the Pulsar acquisition, the differences
between the number of shares of common stock purchased from us, the aggregate
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
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<PAGE>
. 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 66.8% $32,154,000 51.7% $ 5.32
New investors.... 3,000,000 33.2% 30,000,000 48.3 $ 10.00
---------- ------- ------------ ------
9,040,631 100.0% $62,154,000 100.0%
========== ======= ============ ======
</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 $34.5 million (based on an assumed offering price
of $10.00 per share) for 3,450,000 shares of common stock, representing
approximately 51.8% of the total consideration for 36.4% 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
. 300,000 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.
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<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table presents Litronic's short-term debt and capitalization,
as of December 31, 1998, 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 3,000,000 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>
DECEMBER 31, 1998
-----------------------------------
PRO FORMA
HISTORICAL PRO FORMA COMBINED,
COMBINED AS
ADJUSTED
------------ ---------- -----------
<S> <C> <C> <C>
Short-term debt:
Financing arrangement - IGFC............... $ - $ 9,403 $ 7,453
Notes payable - vendors.................... - 3,948 3,948
Current installments of debt............... 580 1,664 250
------- ------- -------
Total short-term debt..................... $ 580 $15,015 $11,651
======= ======= =======
Long-term debt:
Long-term debt............................. $ 5,200 $ 5,200 $ --
Notes payable, net of current installments. - 3,241 $ 5
------- ------- -------
Total long-term debt........................ $ 5,200 $ 8,441 $ 5
------- ------- -------
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)................................ - - -
------- ------- -------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Common stock, $.01 par value: 20,000,000
shares authorized; 3,870,693 shares issued
and outstanding (historical), 6,040,631
shares issued and outstanding (pro forma
combined), and 9,040,631 shares issued
and outstanding (pro forma combined, as
adjusted).................................. 39 61 91
Additional paid-in capital................... - 17,431 43,201
Accumulated deficit.......................... (4,246) - -
------- ------- -------
Total stockholders' equity (deficit)... (4,207) 17,492 43,292
------- ------- -------
Total capitalization................... $ 993 $25,933 $43,297
======= ======= =======
</TABLE>
THE ABOVE TABLE EXCLUDES THE FOLLOWING SHARES:
. 600,000 shares of common stock reserved for issuance upon exercise of
options available for future grant under our 1999 stock option plan;
. 281,419 shares of common stock reserved for issuance upon exercise of
options granted under our 1998 stock option plan; and
. 300,000 shares of common stock reserved for issuance upon exercise of
the representatives' warrants.
-35-
<PAGE>
SELECTED FINANCIAL DATA
LITRONIC
(DOLLARS IN THOUSANDS)
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 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>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net product revenue $1,447 $1,525 $7,855 $ 8,627 $ 5,214
License and service revenue 487 1,181 1,541 1,539 1,439
---------- ---------- ---------- ---------- ----------
Total revenue 1,934 2,706 9,396 10,166 6,653
---------- ---------- ---------- ---------- ----------
Product cost of revenue 486 793 4,098 3,211 2,821
License and service cost of revenue 169 465 581 643 950
---------- ---------- ---------- ---------- ----------
Total cost of revenue 655 1,258 4,679 3,854 3,771
---------- ---------- ---------- ---------- ----------
Gross margin 1,279 1,448 4,717 6,312 2,882
Selling, general, and administrative expenses 773 977 2,052 3,487 2,631
Research and development expenses 226 341 725 1,172 1,334
---------- ---------- ---------- ---------- ----------
Operating income (loss) 280 130 1,940 1,653 (1,083)
Interest expense, net 12 38 19 42 418
---------- ---------- ---------- ---------- ----------
</TABLE>
-36-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Earnings (loss) from continuing
operations before income taxes 268 92 1,921 1,611 (1,501)
Provision for (benefit from) income taxes 4 1 29 22 (95)
---------- ---------- ---------- ---------- ----------
Earnings (loss) from continuing operations $ 264 $ 91 $1,892 $ 1,589 ($1,406)
========== ========== ========== ========== ==========
</TABLE>
SELECTED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 6 $ 95 $ 862 $ 490 $ 898
Working capital 87 (372) 1,662 385 758
Total assets 3,827 5,476 7,409 2,347 2,791
Short-term debt 421 472 545 - 580
Long-term debt, less
current installments 3,718 4,313 4,997 3,506 5,200
Total liabilities 5,045 6,483 7,510 5,148 6,998
Net stockholders'
deficiency (1,218) (1,007) (101) (2,801) (4,207)
</TABLE>
During the year ended December 31, 1997, Litronic paid a cash dividend
of $9,534 to its shareholders. No other dividends have been paid during the
periods presented.
-37-
<PAGE>
SELECTED FINANCIAL DATA
PULSAR
(DOLLARS IN THOUSANDS)
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 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>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Service revenue $ * $ * $ 10,253 $ 8,818 $ 3,373
Product revenue * * 155,705 142,702 77,159
----------- ---------- ---------- ---------- ----------
Total revenue 118,739 163,991 165,958 151,520 80,532
----------- ---------- ---------- ---------- ----------
Cost of service revenue * * 4,870 4,115 1,553
Cost of product revenue * * 144,494 138,086 71,818
----------- ---------- ---------- ---------- ----------
Total cost of revenue 104,416 146,682 149,364 142,201 73,371
----------- ---------- ---------- ---------- ----------
Gross margin 14,323 17,309 16,594 9,319 7,161
Selling, general, and
administrative expense 8,580 10,410 13,545 17,152 12,519
----------- ---------- ---------- ---------- ----------
Operating income (loss) 5,743 6,899 3,049 (7,833) (5,358)
Other income 325 - - - -
Interest income 276 392 639 457 61
Interest expense 1,377 2,412 3,564 3,640 2,099
----------- ---------- ---------- ---------- ----------
Net earnings (loss) $ 4,967 $ 4,879 $ 124 $(11,016) $(7,396)
=========== ========== ========== ========== ==========
</TABLE>
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<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,
------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................. $ 2,895 $ 2,144 $ 2,451 $ 2,236 $ 352
Working capital (deficit)................. 8,145 8,090 1,553 (2,436) (8,168)
Total assets.............................. 60,820 82,930 59,785 40,871 12,187
Short-term debt........................... 35,139 61,970 41,352 28,982 14,435
Long-term debt, less current
installments............................ 41 84 53 4,203 3,241
Total liabilities......................... 52,070 73,862 52,077 42,681 22,681
Net stockholders' equity
(deficit)............................... 8,750 9,068 7,708 (1,810) (10,494)
</TABLE>
-39-
<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 gives 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 December 31, 1998 gives effect to the
acquisition and this offering as if these transactions had occurred as of
December 31, 1998. 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, among
others, 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 presented herein 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.
-40-
<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 12,519 15,150 15,150
Research and development
expenses 1,334 - 1,334 1,334
Amortization of goodwill and
other intangibles - - 2,146 (BB) 2,146 2,146
---------- --------- ------------ ---------- ------------ ----------
Operating loss (1,083) (5,358) (2,146) (8,587) (8,587)
Interest expense 418 2,099 2,517 (624) (CC) 1,893
Interest income - 61 61 61
---------- --------- ------------ ---------- ------------ ----------
Loss from continuing
operations before income
taxes (1,501) (7,396) (2,146) (11,043) 624 ( 10,419)
Benefit from income taxes (95) - 95 (DD) - -
---------- --------- ------------ ---------- ------------ ----------
Loss from continuing
operations $(1,406) $(7,396) $(2,241) $ (11,043) $ 624 (10,419)
========== ========= ============ ========== ============ ==========
Loss per share from
continuing operations -
Basic and diluted $ (1.83) $ (1.15)
========== ==========
Shares used in per-share
computations -
Basic and diluted 6,040,631 9,040,631
========== ==========
</TABLE>
___________________
(AA) Includes adjustments directly attributable to the Pulsar acquisition.
(BB) Reflects the amortization of goodwill and other intangibles of $32.2
million attributable to the acquisition, amortized on a straight line basis
over a 15-year period.
(CC) Reflects the reduction of interest expense which would result from the
repayment of $12.5 million of debt as set forth in "Use of Proceeds."
-41-
<PAGE>
(DD) Reflects the income tax effect of the change from an S corporation to a C
corporation.
-42-
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------------------------
Offering Pro Forma
Proceeds Combined,
Acquisition Pro Forma Adjustments As Adjusted
Litronic Pulsar Adjustments Combined (D)
---------- -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 898 $ 352 $ $ 1,250 $ 14,000 (B) $15,250
Accounts receivable, net 740 10,145 10,885 10,885
Inventories 533 775 1,308 1,308
Other current assets 385 - 385 385
---------- --------- ------------ --------- ----------- -----------
Total current assets 2,556 11,272 13,828 14,000 27,828
Property and equipment, net 235 581 816 816
Goodwill and other intangibles --- --- 32,193 (A) 32,193 32,193
Other assets --- 334 334 334
---------- --------- ------------ --------- ----------- -----------
Total assets $ 2,791 12,187 $32,193 $47,171 $14,000 $61,171
========== ========= ============ ========= =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY):
Financing arrangement - IGFC $ -- $ 9,403 $ $ 9,403 $(1,950) (C) $ 7,453
Current installments of
long-term debt 580 964 1,544 (1,414) (C) 130
Notes payable - vendors --- 3,948 3,948 3,948
Accounts payable 456 3,933 4,389 4,389
Accrued liabilities 762 1,072 1,834 1,834
Notes payable to shareholders --- 120 120 120
---------- --------- ------------ --------- ----------- -----------
Total current liabilities 1,798 19,440 21,238 (3,364) 17,874
Long-term debt 5,200 --- 5,200 (5,200) (B)(C) ---
Notes payable, net of
current maturities --- 3,241 3,241 (3,236) (C) 5
Stockholders' equity
(deficiency): 39 1 22 (A) 61 30 91
Common stock
Additional paid-in capital --- (1) (A)
21,677 (A) 17,431 25,770 43,201
--- 1,663 (1,663) (A)
(4,246) (E)
12,158 (A)
Accumulated deficit (4,246) (12,158) 4,246 (E) ---
---------- --------- ------------ --------- ----------- -----------
Net stockholders' equity
(deficiency) (4,207) (10,494) 32,193 17,492 25,800 43,292
---------- --------- ------------ --------- ----------- -----------
$ 2,791 $ 12,187 $32,193 $47,171 $14,000 $61,171
========== ========= ============ ========= =========== ===========
</TABLE>
_______________
(A) The adjustment reflects the Pulsar acquisition under the purchase method of
accounting through the issuance of 2,169,938 shares of common stock with a
fair value of $21.7 million and the assumption of net liabilities of $10.5
million. The allocation of fair value is preliminary.
(B) The adjustment reflects anticipated additional borrowings of $700,000
subsequent to December 31, 1998, as well as the repayment of debt in the
amount of $5.9 million from the use of proceeds.
(C) Reflects the repayment of debt from the proceeds of this offering.
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<PAGE>
(D) Reflects the net proceeds from the sale of 3,000,000 shares of our common
stock, at an assumed price of $10.00 per share.
(E) The adjustment gives effect to the change from an S corporation to a C
corporation.
-44-
<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.
Prior to 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 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. See Note 2 to Notes to Consolidated Financial Statements of
Litronic.
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.
-45-
<PAGE>
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, thereby 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, sales of Internet data security
products, including NetSign, Pro File Manager and CryptOS, accounted for 6% 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 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, on a pro forma combined basis,
product reselling accounted for 89% of our revenue and license and service
revenue accounted for 6% 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, one of our customers, the U.S. Immigration and
Naturalization Service, accounted for more than 10% of revenue (21%) during the
year ended December 31, 1998. Sales to U.S. government agencies accounted for
approximately 90% of our pro forma combined revenue for the year ended December
31, 1998.
-46-
<PAGE>
GROSS MARGINS
During the year ended December 31, 1998, Litronic's data security products
had gross margins of 46% and Pulsar's product reselling activities had gross
margins of 7%. Pulsar recently shifted its product reselling focus toward higher
margin computer and network security products, including intrusion detection
software and firewalls. 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 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. As a combined entity, we expect to further
decrease our rent expense through the consolidation of 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.
Our sales and marketing expenses are generally incurred in advance of
associated revenue and we expect these expenses to increase in the near term
both as a percentage of revenue as well as in amount. These measures could
adversely affect our operating income.
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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 $6.2 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 $32.2 million, or 53%, of our pro forma
combined, as adjusted, assets as of December 31, 1998, consisted of intangible
assets arising from the acquisition. This amount represents goodwill and other
intangibles, which will be amortized over 15 years 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.
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.
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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 Corp of Engineers Financial Management Services contract (the CEFMS
contract). We expect that sales of the ARGUS 300 product 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. 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 reimbursements 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.
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
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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 bonuses 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. Prior to 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 $29,000 and $22,000 for the years ended
December 31, 1996 and 1997. For the year ended December 31, 1998 Litronic had
a
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benefit of $95,000 as a result of losses from continuing operations before
income taxes of $1.5 million.
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. Backlog represents signed purchase
orders received but not filled and, in the case of the $596,000 attributable to
the National Security Agency, reimbursements for 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 is 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 General Services Administration schedule
revenue and National Institutes of Health 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 Federal Systems Integration (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
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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 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 in lieu 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.
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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 is
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.
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 $12.5 million during the year ended December 31,
1998. The increase from 1996 to 1997 was attributable primarily to bad debt
expenses associated with accounts receivables and notes receivables. 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 $5.3
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 ($3.9 million), commercial loans outside of the normal
course of business that were deemed uncollectible ($702,000), and notes
receivable and related accrued interest to related parties that were deemed
uncollectible ($682,000). Bad debt expense in 1998 was incurred from commercial
clients who did not meet their obligations ($1.8 million) and rebate receivables
that expired because they were incomplete or not collected on a timely basis
($1.6 million). 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
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. establishing a collections staff to follow-up on payments related to
rebates.
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 31
positions from January 30, 1998 to April 1, 1999; and
. relocating to less expensive office space beginning October 1, 1998,
thus decreasing monthly rent expense from $45,000 to $11,500.
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, IGFC. 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
decreases are 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 $10.0
million as of December 31, 1998.
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 all of our personal and real property as collateral; and
. a cap on our borrowings equal to 85% of our accounts receivable plus
the lesser of (a) 50% or (b) $1.0 million of our on-hand
inventory.
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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. 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 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 year ended December 31, 1998, cash used in operations for Litronic
was $1.7 million, primarily due to a net loss of $1.4 million, a decrease in
accrued liabilities of $465,000, primarily due to the payment of accrued
bonuses, and an increase in other current assets of $249,000. These were
partially offset by a decrease in accounts receivable of $256,000 due to
improved collections in the latter part of 1998.
During the year ended December 31, 1998, cash provided by financing
activities was $2.3 million, consisting primarily of borrowings of $6.5 million
under the revolving note payable to the bank and $5.2 million under the long-
term notes payable, partially offset by repayments of $3.5 million under a
related party note payable and $6.5 million under the revolving note payable to
a bank.
Litronic's capital expenditures, including computer equipment, test equipment
and furniture and fixtures, were $118,000 during the year ended December 31,
1998. Litronic's capital expenditures were funded through cash generated from
operations and through its secured revolving credit line and borrowing from its
principal shareholders.
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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
IGFC 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 IGFC
through the closing of this offering and expects to repay IGFC in full following
the closing of this offering.
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
$18.5 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 $7.4 million,
including a non-cash bad debt expense of $3.4 million.
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 IGFC, 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. Pulsar has notes receivable from related parties of approximately
$1,198,000 as of December 31, 1998 which are classified as a component of
stockholders' equity and have been fully reserved. Proceeds from loans from cash
surrender value of life insurance net of premium payments were $1.2 million.
Accounts payable of $5.9 million were converted to notes payable during 1998.
Pulsar funded its operations during the year ended December 31, 1998 through
its financing agreement with IGFC. Under this agreement, Pulsar purchases
hardware and software from authorized suppliers and finances the purchases
through IGFC. The agreement provides 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. The line
of credit allows Pulsar to finance up to 85% of its eligible accounts receivable
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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 William W.
Davis, Sr. and Lillian A. Davis.
IGFC has agreed to forbear Pulsar's violations of financial covenants in the
IGFC financing agreement in exchange for Pulsar's agreement to pay to IGFC, 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 IGFC by paying $650,000 to it upon the
closing of this offering.
Pulsar has the following additional amounts due within the next twelve
months:
. Nine promissory notes payable to various vendors, which accrue
interest ranging from 10% to 12% and have an aggregate principal
balance of $3.4 million as of March 31, 1999. Balloon payments in the
aggregate amount of $1.9 million are due in May 1999 and the balance
is due by November 1999;
. total payments of $608,000 are due in May 1999 under negotiated payout
agreements with ten accounts payable vendors.
Additionally, Pulsar has approximately $1.2 million of accounts payable balances
which are more than 90 days overdue. We expect to use our newly acquired line of
credit and cash from operations to fund these obligations to the extent we are
not able to negotiate extended payment arrangements.
We have allocated $12.5 million of the net proceeds of this offering to
repay outstanding indebtedness, including $6.2 million of indebtedness assumed
in the Pulsar acquisition. All of the indebtedness being repaid is required to
be paid upon the closing of this offering, as a result of change of control
provisions or to effect the release of personal guarantees.
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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.
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
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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/or 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 short-term nature of some of our customer commitments;
. the lengthy sales and implementation cycle for some of our of our
products and projects;
. 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.
As a result of these fluctuations, comparisons of quarterly results may not be
meaningful and should not be relied upon, nor will they necessarily reflect on
future performance.
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.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed
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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 Internet Protocol 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 $7.0
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 (or impersonation) 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
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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 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 TRUSTED 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.
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. 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 Protocol 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 persons. Digital cryptography
is performed using a combination of symmetric ciphers (commonly referred to as
symmetric-key or secret-key cryptography) and asymmetric ciphers (commonly
referred to as asymmetric key or public-key cryptography), to achieve each of
the basic data security elements of identification and authentication,
confidentiality, integrity and non-repudiation.
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.
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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.
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 RISC 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
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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 long-term 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
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
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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 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 strong 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
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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 synergistic 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 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
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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 -- the security products are designed to use different
suites of algorithms depending upon the application requirements, for
example, military or banking and finance.
. platforms -- the security products may be used with many different
computer types and operating systems, for example, Windows, UNIX, and
MacIntosh.
. applications -- the security products may be used with various
software applications, for example, e-mail, e-commerce, database
systems or word processors.
. tokens -- the 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 (ISA) and
peripheral component interconnect (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 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.
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PROFILE MANAGER. ProFile Manager is a complete, stand-alone, PKI solution
for the management of token-based security systems from initialization to secure
backup 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 (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.
TOKENS
ISO SMARTCARDS. We offer a family of off-the-shelf international standard
organization (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 a 32-
bit RISC 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
(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 that interface via various ports such as SCSI
(internal and external reader/writer), ISA bus (internal reader/writer), PCI bus
(internal reader/writer), Universal Serial Bus and parallel port (external
reader/writer). 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.
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OTHER CUSTOM-DESIGNED SECURITY PRODUCTS
SECURE PCS
We 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 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
We 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.
THE ASSURE TECHNOLOGY
The Assure technology which we will seek to purchase, subject to the
satisfactory completion of our due diligence, was developed to create
information security products to protect information in a client/server network
operating system with a high level of security. The Assure technology was
designed to equip client/server networks with a proprietary encryption process
to encrypt data before it is transmitted, generate unique message authentication
codes and encode the data upon receipt by an authenticated user. Therefore, all
data transmitted through the network would be in a encrypted format, rendering
it unintelligible to recipients who do not have a proprietary decrypting key.
A product based on the Assure technology, Assure EC4.11, was evaluated by
the National Computer Security Center in connection with an early version of
Novell's 4.11 network operating system. Assure EC4.11 received a Class C2
rating as a result of this evaluation, but no product based on the technology
was ever marketed. If we successfully purchase the Assure technology, we intend
to use a portion of the proceeds of this offering
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to upgrade the technology and complete the development of products based on the
technology.
PROFESSIONAL DATA SECURITY SERVICES
We 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. We develop and implement complete
turn-key networks or enhance or expand existing networks, as the customer
requires.
Our 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.
We take a "needs analysis" approach to the design and development of our
solutions for our 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 our expertise designing and implementing systems providing for
robust security, our solutions 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;
. secured distributive applications;
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. open-systems migration of data;
. information security communication services; and
. artificial intelligence technologies.
We provide our 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. We
also provide information technology outsourcing services for our customers,
including ongoing management of network systems. We deliver our professional
services on either fixed-price delivery or time-based delivery modes through our
data security group, which provides consulting and integration services and our
enterprise information group, which provides network design, implementation and
management, legacy systems migration, and systems configuration and
evaluation.
Our 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 can
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 supports 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 can 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 can provide a complete solution that incorporates
training and implementation.
PRODUCT RESELLING
Historically, a substantial portion of our product resale revenues were
derived from sales of low-end, low-margin computer and network security
products. We are increasingly shifting our 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.
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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. We offer high-end firewall 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. We offer
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 our own
and third-party APIs, device drivers, token reader/writers and
tokens.
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 are not required to make substantial
investments in inventory.
After the offering, we will, where appropriate, 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.
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Our customers 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
. American Express Company . U.S. Army Corps of Engineers
. Bank of America, N.A. . Lockheed Martin Corporation
. National Security Agency . Booz Allen & Hamilton Inc.
. Federal Communications . Other U.S. Government
Commission departments and agencies
. Deloitte & Touche LLP
CUSTOMER SERVICE AND SUPPORT
We believe that customer service and support is critical to retaining
existing customers and attracting prospective customers. Our customer service
and support staff consists of 16 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.
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DIRECT MARKETING EFFORT
As of April 1, 1999, 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 geographic 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;
. jointly develop products and services;
. conduct joint research and development efforts;
. jointly conduct proposals and presentations for products and services
and reseller arrangements.
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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 - Keytronic and our company 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 General Service Administration schedule
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contracts, blanket purchase agreements and bidding procedures, have been
developed to access this market.
The General Services Administration, 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 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 are 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 hot 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
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our business, products and services. We are currently in the process of
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.
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
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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.
As of April 1, 1999, our research and development staff consisted of 25
employees, of whom 22 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 $6.2 million of the proceeds of this offering for research and
development activities.
COMPETITION
We compete in numerous markets, including;
. Internet and intranet electronic security;
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. 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
. 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.
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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 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.
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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.
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 April 1, 1999, Litronic employed 64 full-time and four 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 12 in finance, human resources, business
development, legal and administration. As of April 1, 1999, Pulsar employed 61
people, including four in product management, 17 in professional services, 17 in
field operations including sales, marketing and customer management, and 23 in
finance, human resources, business development, legal and administration. After
the closing of this offering, we expect to integrate Pulsar's workforce.
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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. 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, Prince George's County, Maryland has filed a lawsuit against Pulsar
to collect personal property taxes in the amount of $38,500. Aggregate amount
claimed under these lawsuits was approximately $1.6 million, exclusive of
interest and costs. Pulsar has entered into settlement agreements covering some
of the lawsuits and as of April 1, 1999 has paid in excess of $600,000 under
those agreements. As of April 1, 1999, the aggregate amount Pulsar owes on
claims that have been filed and settled is approximately $250,000. The aggregate
amount of claims that have been filed but not settled is approximately $731,000.
We intend to use our new term loan and anticipated cash flow from operations to
resolve and pay these claims and settlements. See "Management Discussion &
Analysis of Financial Condition and Results of Operation."
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
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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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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
Anthony Giraudo............. 47 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
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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.
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
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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.
Anthony Giraudo has agreed to serve as a director of our company upon the
closing of this offering. Since 1986, Mr. Giraudo has worked for Atmel
Corporation (and its predecessor, Honeywell), most recently as vice president
and general manager. Before joining Honeywell, Inc., Mr. Giraudo worked for NCR
Corporation in various positions from 1980 through 1986, his most recent
position being director of research and development. Mr. Giraudo served as
analog I.C. designer for International Business Machines from 1977 to 1980. Mr.
Giraudo received his B.S. in electrical engineering in 1972 and his M.S. in
electrical engineering in 1976, both from the University of New Mexico. He also
completed the cooperative electrical engineering program at the University of
New Mexico from 1970 to 1974.
Matthew Medeiros has agreed to serve as a director of our company upon the
closing of this offering. 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.
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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. Giraudo 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. Upon the closing of this offering,
the board of directors will establish a compensation committee and an audit
committee. The initial members of each of the committees will be independent
directors. 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.
EXECUTIVE COMPENSATION
The following table sets forth 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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY AND BONUS ALL OTHER COMPENSATION
- --------------------------- ---- -------------------- -----------------------
<S> <C> <C> <C>
</TABLE>
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<TABLE>
<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 $100,000 or more will be Messrs. Shah, Davis
and Gray.
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<TABLE>
<CAPTION>
OPTION/SARS GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ------------------------------------------------------------------------------- --------------------------
(a) (b) (c) (d) (e) (f) (g)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/ EMPLOYEES IN OR BASE EXPIRATION
NAME SARS GRANTED FISCAL YEAR PRICE ($/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 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY OPTIONS AT FISCAL
UNEXERCISED OPTIONS AT FISCAL YEAR END YEAR 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.
EMPLOYMENT AGREEMENTS
GENERAL
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<PAGE>
Kris Shah and William Davis have each entered into a 2-year employment
agreement with Litronic, effective as of the date of the offering. 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. Thereafter, 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 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 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
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. breached the terms of the employee agreement.
. Additionally, we can terminate the agreement upon the employee's:
. death;
. 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
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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 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
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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.
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 9,040,631 shares outstanding immediately after the
consummation of this offering.
The address of each person in the table below is the address of our
company.
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<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF OUTSTANDING
SHARES SHARES BENEFICIALLY OWNED
-----------------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------------ ------------ -------- -------
<S> <C> <C> <C>
Kris Shah................................. 3,220,479 53.3% 35.6%
William W. Davis, Sr...................... 1,084,969 18.0 12.0
Lillian Davis............................. 1,084,969 18.0 12.0
Ramesh R. Shah
Patricia L. Shah....................... 463,657 7.7 5.1
Robert J. Gray............................ 77,419 1.3 0.8
Anthony Giraudo........................... 0 0 0
Matthew Medeiros.......................... 0 0 0
All directors and executive
officers as a group (6 persons)........... 4,367,019 71.3 47.8
</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 of 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
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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.
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 per share. As a result of the Pulsar acquisition, Pulsar will become a
wholly-owned subsidiary of our company and William Davis and Lillian Davis will
become principal stockholders of our company.
THE POTENTIAL ASSURE TECHNOLOGY ACQUISITION
Creditors of Sistex, Inc., the current owner of the Assure technology, have
obtained judgments against Sistex aggregating approximately $6.0 million. As
a result, Sistex has turned over to a Commissioner in Chancery the Assure
technology for sale or other disposition.
We intend to enter into an agreement with the judgment holders on or before
April 16, 1999 by which:
. the judgment holders will agree to postpone the foreclosure sale until
after the closing of this offering so that we will have an opportunity
to bid on and possibly acquire the technology, and
. in return, we will agree to make a minimum bid at the foreclosure sale
of least $6.0 million, payable in unregistered shares of our common
stock
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valued at the average closing price of our common stock on Nasdaq on
the five days prior to the day of the foreclosure sale.
Our decision to enter into this agreement will be subject to our being satisfied
with the results of our due diligence investigation relating to the Assure
technology, which investigation must be completed prior to April 16, 1999.
Included among the judgment holders in the foreclosure action are
affiliates of BlueStone, who hold judgments aggregating approximately $750,000,
including a judgment in the amount of approximately $150,000 held by Anthony
Giraudo, a director nominee of our company and a limited partner of BlueStone.
If our bid is the winning bid at the foreclosure sale, all of the judgment
holders, including the BlueStone affiliates, will receive their proportionate
percentage of the shares of our common stock included in the bid.
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. These loans were
guaranteed by Pulsar and personally guaranteed by William W. Davis, Sr. and
Lillian Davis.
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
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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 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. Previously, it
was anticipated that these sales would occur in 1999; however, the transactions
have been delayed for an unspecified period of time. Consequently, Pulsar can no
longer determine the recoverability of these notes and therefore reclassified
the notes as a reduction of stockholders' equity and fully reserved for them as
of December 31, 1998. The notes are being retained by Pulsar.
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 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 $5.20 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 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 December 31, 1998, $580,000 was
outstanding under this facility. We intend to repay the outstanding
indebtedness under this credit facility out of the proceeds from this offering,
at which time Mr. Shah's guarantee will be released.
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 $1.04 million, which
was personally guaranteed by
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<PAGE>
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 1997,
we made a cash distribution of $9.5 million to our stockholders. Subsequently,
we distributed the capital stock and net assets of KRDS (discussed below) 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 IGFC which provides that Pulsar can finance purchases
of products through IGFC. 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 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, at
which time Mr. Davis' guarantee and the assets pledged by Mr. Davis will be
released.
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 ($8.5
million of cash).
In September 1998, we executed two promissory notes aggregating $5.2
million in favor of BYL Bank Group at a fixed annual rate of interest of 6.6%.
Both notes were 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 $222,000 on
January 5, 1999. These loans bear interest at the annual rate of 6% beginning
April 1, 1999.
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<PAGE>
DESCRIPTION OF SECURITIES
Upon the closing of the offering, our authorized capital stock will consist
of 25,000,000 shares of common stock, $0.01 par value per share and 5,000,000
shares of preferred stock, $0.01 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.
We have summarized below selected provisions of Delaware law applicable to
our company, and the principal provisions of our common stock, our certificate
of incorporation and our bylaws. However, our descriptions are only a summary
and you should refer to the actual provisions of Delaware law, our certificate
of incorporation and our bylaws which we included as exhibits to the
registration statement, for a more complete explanation of their
provisions.
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 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 $0.01 per share.
The board may issue the stock in one or more series and may fix the rights,
voting process and preferences of the 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
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<PAGE>
granted the representatives of the underwriters registration rights with respect
to their warrants to purchase up to 300,000 shares of our common stock.
DELAWARE LAW AND CHARTER AND BYLAW PROVISIONS LIMITING LIABILITY OF OFFICERS AND
DIRECTORS
Section 203 of the General Corporation Law of Delaware 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. 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.
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.
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 Continental Stock
Transfer & Trust Company, Two Broadway, New York, New York 10004.
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
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<PAGE>
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
9,040,631 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 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.
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<PAGE>
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 90,400 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.
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 3,000,000 shares of common stock offered by
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<PAGE>
our company. The number of shares of common stock that each underwriter has
agreed to purchase is set forth opposite its name below:
Underwriter Number of Shares
- ----------- ----------------
BlueStone Capital Partners, L.P.
Pacific Crest Securities Inc.
---------
Total 3,000,000
=========
The underwriters are committed to purchase and pay for all of the shares of
common stock offered by this prospectus (other than shares offered through the
over-allotment option) 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 set forth
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 450,000
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 total underwriting discounts and
commissions would be $ and the total proceeds, before payment of the expenses
of this offering, to our company 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 $2.2 million, or $2.3 million if the
representatives' over-allotment option is completely exercised.
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 1-1/2% 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
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<PAGE>
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 $300, warrants to purchase up to 300,000
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's warrants contain a
cashless exercise provision. We have agreed that, upon the request of the
holders of a majority of the representatives's 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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<PAGE>
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, maintain or
otherwise affect the market price of the common stock, which may be higher than
the price that might otherwise prevail in the open market, 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.
Anthony Giraudo, a director nominee of our company, is a limited partner of
BlueStone.
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. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Tenzer Greenblatt LLP, New York, New York.
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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 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 herein and in the registration statement
in reliance upon the report of Keller Bruner & Company, L.L.C., independent
certified public accountants, appearing elsewhere herein, 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
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<PAGE>
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 (EDGAR) 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.
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<PAGE>
LITRONIC INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998, and
December 31, 1998 Pro Forma (unaudited) F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 F-4
Consolidated Statements of Shareholders' Deficiency for the years ended
December 31, 1996, 1997 and 1998 F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 F-7
Notes to Consolidated Financial Statements F-10
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 DECEMBER 31,
------------------------------
1998
1997 1998 PRO FORMA
------------ ---------- ---------
ASSETS (NOTE 5) (UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents $ 490 898 898
Accounts receivable (note 8) 996 740 740
Inventories (note 3) 405 533 533
Other current assets 136 385 385
------------ ---------- ---------
Total current assets 2,027 2,556 2,556
Property and equipment, net (note 4) 320 235 235
------------ ---------- ---------
$ 2,347 2,791 2,791
============ ========== =========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current installments of long-term debt (note 5) $ -- 580 580
Accounts payable 415 456 456
Accrued liabilities (note 6) 1,227 762 762
------------ ---------- ---------
Total current liabilities 1,642 1,798 1,798
Long-term debt, less current installments
(note 5) 606 5,200 5,200
Notes payable to related parties (note 7) 2,900 -- --
------------ ---------- ---------
Total liabilities 5,148 6,998 6,998
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 20,000,000 shares; issued
and outstanding 3,870,693 shares 39 39 39
Additional paid-in capital -- -- (4,246)
Accumulated deficit (2,840) (4,246) --
------------ ---------- ---------
Net shareholders' deficiency (2,801) (4,207) (4,207)
Commitments and contingencies (note 9)
------------ ---------- ---------
$ 2,347 2,791 2,791
============ ========== =========
</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>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
-------- ------ ------
<S> <C> <C> <C>
Net product revenue (note 8) $7,855 8,627 5,214
License and service revenue (note 8) 1,541 1,539 1,439
-------- ------ ------
Total revenue 9,396 10,166 6,653
-------- ------ ------
Product cost of revenue 4,098 3,211 2,821
License and service cost of revenue 581 643 950
-------- ------ ------
Total cost of revenue 4,679 3,854 3,771
-------- ------ ------
Gross margin 4,717 6,312 2,882
Selling, general and
administrative expenses 2,052 3,487 2,631
Research and development
expenses 725 1,172 1,334
-------- ------ ------
Operating income (loss) 1,940 1,653 (1,083)
Interest expense, net (notes 5 and 7) 19 42 418
-------- ------ ------
Earnings (loss) from continuing
operations before income taxes 1,921 1,611 (1,501)
Provision for (benefit from) income taxes 29 22 (95)
-------- ------ ------
Earnings (loss) from continuing
operations 1,892 1,589 (1,406)
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)
======== ====== ======
</TABLE>
(continued)
F-4
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Consolidated Statements of Operations (continued)
(in thousands except share and per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
------------ --------- ---------
<S> <C> <C> <C>
Pro forma net earnings (loss) (unaudited):
Historical earnings (loss) from continuing
operations before income taxes $ 1,921 1,611 (1,501)
Pro forma provision for (benefit from)
income taxes 672 547 (510)
------------ --------- ---------
Pro forma earnings (loss) from
continuing operations 1,249 1,064 (991)
Discontinued operations, net of applicable
pro forma income tax effect (599) 8,377 --
------------ --------- ---------
Pro forma net earnings (loss) $ 650 9,441 (991)
============ ========= =========
Pro forma earnings (loss) from
continuing operations per share -
basic and diluted $ 0.32 0.28 (0.26)
Discontinued operations, net of
applicable pro forma income tax
effect, per share - basic and diluted (0.15) 2.16 --
------------ --------- ---------
Pro forma net earnings (loss) per share -
basic and diluted $ 0.17 2.44 (0.26)
============ ========= =========
Pro forma common shares outstanding 3,870,693 3,870,693 3,870,693
============ ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Consolidated Statements of Shareholders' Deficiency
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK NET
------------------------
ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT DEFICIENCY
<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)
======== ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 906 15,334 (1,406)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 61 129 203
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
Inventories (586) 715 (128)
Other current assets (126) 13 (249)
Accounts payable (305) (418) 41
Accrued liabilities 574 92 (465)
---------- ---------- ---------
Net cash provided by (used in)
operating activities 570 2,042 (1,748)
---------- ---------- ---------
Cash flows from investing activities:
Purchases of property and equipment (560) (4,919) (118)
Proceeds from disposal of discontinued
operations -- 20,567 --
---------- ---------- ---------
Net cash provided by (used in)
investing activities (560) 15,648 (118)
---------- ---------- ---------
Cash flows from financing activities:
Discontinued operations financing
activities -- (698) --
Proceeds from revolving note
payable to bank 11,049 18,649 6,496
Proceeds from related party
revolving line of credit 190 -- --
Proceeds from related party note payable -- 2,900 600
Proceeds from long-term debt 4,645 3,038 5,200
Principal payments on revolving
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C> <C> <C>
notes payable to bank (11,122) (18,445) --
</TABLE>
F-8
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
--------- ---------- ---------
<S> <C> <C> <C>
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)
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
--------- ---------- ---------
Net increase (decrease) in cash 767 (372) 408
--------- ---------- ---------
Cash and cash equivalents at beginning
of year 95 862 490
--------- ---------- ---------
Cash and cash equivalents at end of year $ 862 490 898
========= ========== =========
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 589 119 418
Income taxes 1 204 --
========= ========== =========
</TABLE>
(Continued)
F-9
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
------- -------- ---------
<S> <C> <C> <C>
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-10
<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.
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 plan of merger with Pulsar Data Systems, Inc. to be effected
simultaneously with the Offering. This merger 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
F-11
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
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 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 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
F-12
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
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 in 1998 is $398 related to a
contract with a branch of the Federal government, whereby the Company is
being partially reimbursed for certain research and 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.
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
F-13
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
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, 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
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.
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
F-14
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
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 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-15
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
(3) INVENTORIES
A summary of inventories follows:
DECEMBER 31,
-----------------------
1997 1998
---------- ---------
Raw materials $ 230 239
Work-in-process 45 25
Finished goods 130 269
---------- ---------
$ 405 533
========== =========
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
DECEMBER 31,
-----------------------
1997 1998
---------- ---------
Machinery and equipment $ 68 68
Furniture and fixtures 458 576
---------- ---------
526 644
Less accumulated depreciation and
amortization 206 409
---------- ---------
$ 320 235
========== =========
(5) LONG-TERM DEBT
A summary of long-term debt follows:
DECEMBER 31,
-----------------------
1997 1998
--------- ---------
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
F-16
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
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
-------- --------
606 5,780
Less current installments -- 580
-------- --------
606 5,200
======== ========
Principal maturities of long-term debt as of December 31, 1998 are as follows:
Year ending December 31:
1999 580
2000 5,200
2001 and thereafter --
--------
$5,780
========
The Revolver contains certain covenants and restrictions, including maintenance
of certain financial ratios and a restriction on future borrowings. As of
December 31, 1998, 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, the Company had available borrowings of $1,920 under
the Revolver.
F-17
<PAGE>
LITRONIC INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
(6) ACCRUED LIABILITIES
A summary of accrued liabilities follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- --------
<S> <C> <C>
Professional fees $ 395 350
Deferred revenue 165 107
Accrued vacation 145 127
Accrued compensation 346 93
Other 176 85
--------- --------
$ 1,227 762
========= ========
</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 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
F-18
<PAGE>
LITRONIC INC.
AND SUBIDIARY
Notes to Consolidated Financial Statements (continued)
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. No other customers
accounted for more than 10% of net revenues in 1996, 1997 or 1998. Trade
accounts receivable aggregated $709 and $493 from the aforementioned major
customers as of December 31, 1997 and 1998, 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:
Year ending December 31,
1999 $ 290
2000 243
2001 162
---------
F-19
<PAGE>
LITRONIC INC.
AND SUBIDIARY
Notes to Consolidated Financial Statements (continued)
$ 695
=========
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>
F-20
<PAGE>
LITRONIC INC.
AND SUBIDIARY
Notes to Consolidated Financial Statements (continued)
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 $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-21
<PAGE>
LITRONIC INC.
AND SUBIDIARY
Notes to Consolidated Financial Statements (continued)
<PAGE>
PULSAR DATA SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Reports F- 23
Balance sheets F- 25
Statements of operations F- 26
Statements of stockholders' equity (deficit) F- 27
Statements of cash flows F- 28
Notes to financial statements F- 29
Schedule II - Valuation and qualifying accounts S - 1
</TABLE>
F-23
<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 $7,396,000 in 1998 and has a net capital deficiency of $10,494,000 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 schedules do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
McLean, Virginia
March 31, 1999
F-24
<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'
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 are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 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 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 do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Keller Brunner & Company, L.L.C.
Bethesda, Maryland
April 27, 1998
F-25
<PAGE>
PULSAR DATA SYSTEMS, INC.
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
ASSETS 1997 1998
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 2,236 $ 352
Accounts receivable 31,213 10,145
Inventory 2,348 775
Other current assets 245 ---
---------- ----------
Total current assets 36,042 11,272
---------- ----------
Property and equipment, net of
accumulated depreciation of $1,748 and $1,764, respectively 1,100 581
Notes receivable-related parties 2,218 ---
Cash surrender value of life insurance, net 1,416 216
Deposits and other assets 95 118
---------- ----------
4,829 915
---------- ----------
$40,871 $ 12,187
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Financing arrangement - IBM $28,067 $ 9,403
Current installments of long-term debt 915 964
Notes payable - vendors --- 3,948
Accounts payable 7,267 3,933
Accrued liabilities 2,229 1,072
Notes payable to shareholder --- 120
---------- ----------
Total current liabilities 38,478 19,440
Notes payable, net of current maturities 4,203 3,241
---------- ----------
Total liabilities 42,681 22,681
---------- ----------
Commitments and Contingencies
Stockholders' Deficit
Common stock; par value $1; authorized, issued and outstanding
1,000 shares 1 1
Additional paid-in capital 1,663 1,663
Accumulated deficit (3,474) (12,158)
---------- ----------
Net stockholders' deficit (1,810) (10,494)
---------- ----------
$40,871 $ 12,187
========== ==========
</TABLE>
See accompanying notes to financial statements
F-26
<PAGE>
PULSAR DATA SYSTEMS, INC.
Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
----------- --------- -------
<S> <C> <C> <C>
Revenues $165,958 $151,520 $80,532
Cost of revenues 149,364 142,201 73,371
----------- -------- -------
Gross margin 16,594 9,319 7,161
Selling, general and administrative expenses 13,545 17,152 12,519
----------- -------- -------
Operating income (loss) 3,049 (7,833) (5,358)
----------- -------- -------
Other income (expense)
Interest expense (3,564) (3,640) (2,099)
Interest income 639 457 61
----------- -------- -------
(2,925) (3,183) (2,038)
----------- -------- -------
Net earnings (loss) $ 124 $(11,016) $(7,396)
=========== ======== =======
</TABLE>
See accompanying notes to financial statements
F-27
<PAGE>
PULSAR DATA SYSTEMS, INC.
Statements of Stockholders' Equity (Deficit)
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL NOTES ACCUMULATED
PAID IN RECEIVABLE EARNINGS
SHARES AMOUNT CAPITAL RELATED PARTY (DEFICIT) TOTAL
---------- ---------- ----------- ------------- ---------- ----------
<S> <C> <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 - - - - (7,396) (7,396)
Transfer of related party notes receivable - - - (1,198) (1,198)
Reserve for related party notes receivable - - - 1,198 (1,198)
Distributions to stockholders - - - - (90) (90)
---------- ---------- ----------- ----------- ---------- ----------
Balance, December 31, 1998 1 $ 1 $ 1,663 $ - $ (12,158) $ (10,494)
========== ========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
PULSAR DATA SYSTEMS, INC.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
---------- ----------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss) $ 124 $(11,016) $ (7,396)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 467 585 415
Loss on disposal of assets 63 - 162
Deferred compensation 364 - -
Provisions for doubtful accounts and notes receivable 403 5,303 3,370
Deferred rent (28) - -
Changes in assets and liabilities
Accounts receivable 11,743 10,236 17,698
Inventories 11,789 1,312 1,573
Other assets 33 (11) 222
Deferred governmental agency contract costs 1,833 817 -
Accounts payable (2,184) 2,761 2,550
Accrued liabilities 310 842 (137)
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 18,457
----------- ----------- ------------
Cash Flows from Investing Activities:
Increase in cash surrender value of life insurance (355) (65) (294)
Net collections (issuance) of notes receivable 392 (291) -
Net collections (issuance) of notes receivable - related parties (1,975) 1,175 -
Proceeds from loans on cash surrender value of life insurance - - 1,494
Purchase of equipment (942) (364) (58)
----------- ----------- ------------
Net cash provided by (used in) investing activities (2,880) 455 1,142
----------- ----------- ------------
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)
Proceeds from notes payable to stockholder - - 120
Repayments of long term borrowing (25) (163) (913)
Repayment of vendors notes payable - - (1,936)
Additional paid-in capital from stockholders - 291 -
Distributions to stockholders (1,483) (144) (90)
----------- ----------- ------------
Net cash used in financing activities (22,131) (8,074) (21,483)
----------- ----------- ------------
Net increase (decrease) in cash 307 (215) (1,884)
Cash and cash equivalents at beginning of period 2,144 2,451 2,236
----------- ----------- ------------
Cash and cash equivalents at end of period $ 2,451 $ 2,236 $ 352
=========== =========== ============
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
=========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-29
<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 in anticipation of graduation from the
8(a) program in June 1997.
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.
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 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.
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.
F-30
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
(in thousands)
-------------------
December 31,
-------------------
1997 1998
---------- --------
<S> <C> <C>
8(a) government receivables $ 2,095 $ -
GSA receivables 16,483 9,135
Commercial receivables 10,902 1,382
Recoverable costs and accrued profit on progress
completed-not billed 497 -
Other receivables 2,489 628
---------- --------
32,466 11,145
Less allowance for doubtful accounts (1,253) (1,000)
---------- --------
$31,213 $10,145
========== ========
</TABLE>
F-31
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31, 1997 and
December 31, 1998:
<TABLE>
<CAPTION>
(in thousands)
Estimated December 31,
Useful Life
(in years) 1997 1998
-------------------
<S> <C> <C> <C>
Furniture and fixtures 7 $ 628 $ 407
Office equipment 5-7 511 508
Computer equipment 5 706 756
Software 5 545 553
Vehicles 5 273 17
Leasehold improvements 7 162 78
Warehouse equipment 5-7 23 26
-------- --------
2,848 2,345
Less accumulated depreciation and
amortization (1,748) (1,764)
-------- --------
$ 1,100 $ 581
======== ========
</TABLE>
F-32
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, was
$1,416,000 and $216,000, 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 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. The face amount of these notes includes
accrued interest of $149,000 which has not been reflected within the financial
statements. Because of the relationship to the related party and the change in
the terms of the notes receivable the notes have been classified as a component
of stockholders equity as of December 31, 1998.
The Company had expected the collateral underlying the notes receivable from
related party to be liquidated. The Company has been advised that this
transaction is being delayed for an unspecified period of time. As the
recoverability of the notes is dependent upon the liquidation of the collateral,
the Company is unable to determine the recoverability of the notes receivable
F-33
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
and has established an allowance for the full amount of the notes as of December
31, 1998.
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 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)
F-34
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 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
will be 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 will be reduced to $8,000,000. The forbearance
agreement expires on the anticipated merger and initial public offering (Note
14).
F-35
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. NOTES PAYABLE
Long-term debt consists of the following notes payable as of December 31, 1997,
and 1998:
<TABLE>
<CAPTION>
(in thousands)
December 31,
1997 1998
-------------------
<S> <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
mortgages on 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 liquidated by monthly principal and
interest payments of $104,000; due to mature December 2002. 5,062 4,205
-------- -------
$ 5,118 $ 4,205
Less current maturities (915) (964)
-------- -------
$ 4,203 $ 3,241
======== =======
</TABLE>
F-36
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. NOTES PAYABLE (CONTINUED)
Maturities on the notes payable as of December 31, 1998 due in future years are
as follows:
<TABLE>
<CAPTION>
Years 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 $5,884,216. The notes
accrue interest at rates ranging from 10% to 12%, and are due in full during
1999. The balance at December 31, 1998 was approximately $3,948,000.
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.
<TABLE>
<CAPTION>
(in thousands)
--------------------------------
Years ended December 31,
--------------------------------
1996 1997 1998
--------------------------------
<S> <C> <C> <C>
Revenue:
Service revenue $ 10,253 $ 8,818 $ 3,373
Product revenue 155,705 142,702 77,159
------------ ---------- ----------
TOTAL REVENUE $165,958 $151,520 $80,532
============ ========== ==========
Cost of revenue
Cost of service revenue $ 4,870 $ 4,115 $ 1,553
Cost of product revenue 144,494 138,086 71,818
------------ ---------- ----------
TOTAL COST OF REVENUE $149,364 $142,201 $73,371
============ ========== ==========
</TABLE>
F-37
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 and $1,252,000 for the years ended
December 31, 1996, 1997 and 1998, 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>
Years 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 $28,119, respectively.
NOTE 13. MAJOR CUSTOMERS
During the years ended December 31, 1996, 1997, and 1998, 61%, 60%, and 90%,
respectively, of the Company's revenue was derived from contracts with the
Federal Government. The receivable balance for these contracts at December 31,
1997 and 1998 was $19,075,000, and $9,135,000, respectively.
F-38
<PAGE>
PULSAR DATA SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net
operating loss of $11,016,000 and $7,396,000 for the years ended December 31,
1997, and 1998, respectively, and has a net capital deficiency of $1,810,000 and
$10,494,000 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 merger 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.
F-39
<PAGE>
The Company has guaranteed the mortgages on properties owned by a related party
of approximately $5,100,000. Should the related party fail to perform under the
terms of the agreement, the Company would incur a loss for the full amount of
the guarantee.
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 provided for such penalties.
F-40
<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............................................................... 14
Forward-Looking Statements................................................. 28
Use of Proceeds............................................................ 29
Dividend Policy............................................................ 31
Dilution................................................................... 32
Capitalization............................................................. 34
Selected Financial Data - Litronic......................................... 36
Selected Financial Data - Pulsar........................................... 38
Pro Forma Financial Data................................................... 40
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................................... 45
Industry Information....................................................... 62
Business................................................................... 67
Management................................................................. 88
Principal Stockholders..................................................... 97
Certain Transactions....................................................... 99
Description of Securities.................................................. 103
Shares Eligible for Future Sale............................................ 104
Underwriting............................................................... 106
Legal Matters.............................................................. 109
Experts.................................................................... 110
Additional Information..................................................... 110
Index to Consolidated Financial Statements
- Litronic Inc.......................................................... F-1
Index to Financial Statements - Pulsar
Data Systems, Inc..................................................... F-23
</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.
3,000,000 SHARES
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. 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 ............ $ 10,550
National Association of Securities Dealers, Inc. filing fee .... 4,295
NASDAQ/NMS quotation fee ....................................... 17,500
Printing and engraving expenses ................................ *
Legal fees and expenses ........................................ *
Accounting fees and expenses ................................... *
Transfer Agent and Registrar fees and expenses ................. *
Blue Sky fees and expenses (including legal fees) .............. *
Miscellaneous .................................................. *
------------
Total ................................................. $ 1,250,000
============
</TABLE>
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended, 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 her 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, as amended,
permits a corporation to provide in its certificate of incorporation that a
director of the corporation shall not
II-1
<PAGE>
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.
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 shares 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.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
Exhibit No. Description
1 Form of Underwriting Agreement among the Registrant
and the Underwriters*
2 Stock Exchange Agreement and Plan of
Reorganization*
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*
5 Form of Opinion of Arent Fox Kintner Plotkin &
Kahn, PLLC re validity [to be filed by amendment]
10.1 Employment Agreement with Kris Shah*
10.2 Employment Agreement with William Davis*
10.3 Promissory Note from Dril-Tron, Inc. (Litronic
Industries, Inc.) To Kris Shah dated December 12,
1994 in the principal amount of $210,822*
10.4 Commercial Guaranty from Pulsar Data Systems, Inc.
to Wilmington Trust Company dated June 23, 1995+
10.5 Business Loan Agreement between Pulsar Data
Systems, Inc. and Wilmington Trust Company dated
July 24, 1995+
10.6 Commercial Security Agreement between Pulsar Data
Systems, Inc. and Wilmington Trust Company dated
July 24, 1995+
10.7 Commercial Guaranty from Pulsar Data Systems, Inc.
to Wilmington Trust Company dated October 23, 1995+
10.8 Purchase Order between Loral Federal Systems
Company and Litronic Industries, Inc. dated
November 17, 1995*
10.9 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,
II-3
<PAGE>
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+
II-4
<PAGE>
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
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 [To be filed by amendment]
99.1 Consent of Anthony Giraudo
(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-5
<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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the District of Columbia, on the 6th
day of April, 1999.
Litronic Inc.
By: /s/ Kris Shah
-----------------------
Kris Shah
Chief Executive Officer and Chairman
of the Board
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Kris Shah Director, Chairman of the Board April 6, 1999
- ---------------------------
Kris Shah and Chief Executive Officer
* Chief Financial Officer and April 6, 1999
- ---------------------------
Thomas W. Seykora principal accounting officer
* Director, President and April 6, 1999
- ---------------------------
William W. Davis, Sr. Chief Operating Officer
* By: /s/ Kris Shah
----------------------
Kris Shah
Attorney-in-Fact
II-7
<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
Classification Beginning Costs and Amounts Balance at
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 - 1,198* - 1,198
============= ================= ============= ===============
</TABLE>
_______________________
* Amount charged directly to returned earnings as related balance is
classified as an equity account.
S-1
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
1 Form of Underwriting Agreement among the Registrant
and the Underwriters*
2 Stock Exchange Agreement and Plan of
Reorganization*
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*
5 Form of Opinion of Arent Fox Kintner Plotkin &
Kahn, PLLC re validity [to be filed by amendment]
10.1 Employment Agreement with Kris Shah*
10.2 Employment Agreement with William Davis*
10.3 Promissory Note from Dril-Tron, Inc. (Litronic
Industries, Inc.) To Kris Shah dated December 12,
1994 in the principal amount of $210,822*
10.4 Commercial Guaranty from Pulsar Data Systems, Inc.
to Wilmington Trust Company dated June 23, 1995+
10.5 Business Loan Agreement between Pulsar Data
Systems, Inc. and Wilmington Trust Company dated
July 24, 1995+
10.6 Commercial Security Agreement between Pulsar Data
Systems, Inc. and Wilmington Trust Company dated
July 24, 1995+
10.7 Commercial Guaranty from Pulsar Data Systems, Inc.
to Wilmington Trust Company dated October 23, 1995+
10.8 Purchase Order between Loral Federal Systems
Company and Litronic Industries, Inc. dated
November 17, 1995*
10.9 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,
<PAGE>
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+
<PAGE>
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
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 [To be filed by amendment]
99.1 Consent of Anthony Giraudo
_________
* Previously filed.
+ Supercedes previously filed exhibit.
<PAGE>
EXHIBIT 10.4
COMMERCIAL GUARANTY
BORROWER: DAVIS HOLDING COMPANY
C/O PULSAR DATA SYSTEMS, INC. 5000 PHILADELPHIA WAY SUITE H
LANHAM, MD 20706
LENDER: WILMINGTON TRUST COMPANY
C/L W H MAJOR
RODNEY SQUARE NORTH
1100 NORTH MARKET STREET
WILMINGTON, DE 19890
GUARANTOR:
PULSAR DATA SYSTEMS, INC.
5000 PHILADELPHIA WAY SUITE H
LANHAM, MD 20706
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including without
limitation the principal Note amount of Two Million Three Hundred Sixty Thousand
& 00/100 Dollars ($2,360,000.00).
GUARANTY. For good and valuable consideration, PULSAR DATA SYSTEMS, INC.
("Guarantor") absolutely and unconditionally guarantees and promises to pay to
WILMINGTON TRUST COMPANY ("Lender") or its order, in legal tender of the United
States of America, the Indebtedness (as that term is defined below) of DAVIS
HOLDING COMPANY ("Borrower") to Lender on the terms and conditions set forth in
this Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means DAVIS HOLDING COMPANY.
GUARANTOR. The word "Guarantor" means PULSAR DATA SYSTEMS, INC.
GUARANTY. The word ''Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated JUNE 23, 1995.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and loan
charges, and (e) all collection costs and expenses relating to the Note or to
any collateral for the Note. Collection costs and expenses include without
limitation all of Lender's reasonable attorneys' fees and Lender's legal
expenses, including court costs and fifteen percent (15%) of the principal plus
accrued interest as attorneys' fees, if any sums owing under this Guaranty are
collected by or through an attorney-at-law, whether or not suit is instituted,
and reasonable attorneys' fees and legal expenses for bankruptcy
<PAGE>
PAGE 2
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
LENDER. The word "Lender" means WILMINGTON TRUST COMPANY, its successors and
assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated JUNE
23, 1995, in the original principal amount of $2,360,000.00 from Borrower to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of, and substitutions for the promissory note or
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.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this guaranty shall
not exceed at any one time the amount of the Indebtedness described above, plus
all costs and expenses of (a) enforcement of this Guaranty and (b) collection
and sale of any collateral securing this Guaranty.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. GUARANTOR AUTHORIZES LENDER, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or
<PAGE>
PAGE 3
more times the time for payment or other terms of the indebtedness or any part
of the Indebtedness, including increases and decreases of the rate of interest
on the Indebtedness; extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security for the payment of this
Guaranty or the indebtedness, and exchange, enforce, waive, fail or decide not
to perfect, and release any such security, with or without the substitution of
new collateral; (d) to release, substitute, agree not to sue, or deal with any
one or more of Borrower's sureties, endorsers, or other guarantors on any terms
or in any manner Lender may choose; (e) to determine how, when and what
application of payments and credits shall be made on the Indebtedness; (f) to
apply such security and direct the order or manner of sale thereof, including
without limitation, any nonjudicial sale permitted by the terms of the
controlling security agreement or deed of trust, as Lender in its discretion may
determine; (g) to sell, transfer, assign, or grant participations in all or any
part of the Indebtedness; and (h) to assign or transfer this Guaranty in whole
or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender has made no representation to Guarantor as to the
creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide
to Lender financial and credit information in form acceptable to Lender, and all
such financial information provided to Lender is true and correct in all
material respects and fairly presents the financial condition of Guarantor as of
the dates thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the financial statements; and (f)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition. Guarantor
agrees to keep adequately informed from such means of any facts, events, or
circumstances which might in any way affect Guarantor's risks under this
Guaranty, and Guarantor further agrees that, absent a request for information,
Lender shall have no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue extending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any
<PAGE>
PAGE 4
collateral held by Lender from Borrower, any other guarantor, or any other
person; (e) to give notice of the terms, time, and place of any public or
private sale of personal property security held by Lender from Borrower or to
comply with any other applicable provisions of the Uniform Commercial Code; (f)
to pursue any other remedy within Lender's power; or (g) to commit any act or
omission of any kind, or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. If payment is made by Borrower whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to Borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty. Guarantor
further waives and agrees not to assert or claim at any time any deductions to
the amount guaranteed under this Guaranty for any claim of setoff, counterclaim,
counter demand, recoupment or similar right, whether such claim, demand or right
may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be
<PAGE>
PAGE 5
contrary to any applicable law or public policy, such waiver shall be effective
only to the extent permitted by law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Guaranty. No alteration of or amendment to this Guaranty 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 Guaranty has been delivered to Lender and accepted by
Lender in the State of Delaware. This Guaranty shall be governed by and
construed in accordance with the laws of the State of Delaware.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of Lender's
costs and expenses, including reasonable attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty. Lender
may pay someone else to help enforce this Guaranty, and Guarantor shall pay the
costs and expenses of such enforcement. Costs and expenses include Lender's
reasonable attorneys' fees and legal expenses whether or not there is a lawsuit,
including reasonable attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Guarantor also shall pay all court costs and such additional fees as may be
directed by the court.
<PAGE>
PAGE 6
NOTICES. All notices required to be given by either party to the other under
this Guaranty shall be in writing and shall be effective when actually delivered
or when deposited with a nationally recognized overnight courier, or when
deposited 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 or to
such other addresses as either party may designate to the other in writing. If
there is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender informed
at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or Guarantor,
then all words used in this Guaranty in the singular shall be deemed to have
been used in the plural where the context and construction so require; and where
there is more than one Borrower named in this Guaranty or when this Guaranty is
executed by more than one Guarantor, the words "Borrower" and "Guarantor"
respectively shall mean all and any one or more of them. The words "Guarantor,"
"Borrower," and "Lender" include the heirs, successors, assigns, and transferees
of each of them. Caption headings in this Guaranty are for convenience purposes
only and are not to be used to interpret or define the provisions of this
Guaranty. If a court of competent jurisdiction finds any provision of this
Guaranty 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
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower or
Guarantor are corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the officers, directors,
partners, or agents acting or purporting to act on their behalf, and any
Indebtedness made or a created in reliance upon the professed exercise of such
powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this Guaranty
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
Guaranty 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
Guaranty. No prior waiver by Lender, nor any course of dealing between Lender
and Guarantor, shall constitute a waiver of any of Lender's rights or of any of
Guarantor's obligations as to any future transactions. Whenever the consent of
Lender is required under this Guaranty, 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.
LIMITATION ON GUARANTY. Notwithstanding any other provision of this Guaranty,
- -----------------------
the liability of Guarantor under this Guaranty shall not exceed the amount which
would render this Guaranty unenforceable, void or voidable under (s)548 of the
Bankruptcy Code or by application of any Fraudulent Transfer or Fraudulent
Conveyance statute. In the event that the Guarantor shall claim that the amount
of its liability hereunder is less
<PAGE>
PAGE 7
than the amount of the indebtedness, the burden of proof with respect to the
amount of such liability shall rest with Guarantor in light of the fact that the
information concerning and circumstances of the financial condition of such
Guarantor are more readily available to and under the control of such Guarantor.
Waiver of Right to Trial by Jury. IN RECOGNITION OF THE HIGHER COSTS AND DELAY
- ---------------------------------
WHICH MAY RESULT FROM A JURY TRIAL, GUARANTOR AND LENDER WAIVE ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING
HEREUNDER, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO WITH RESPECT HERETO OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Waiver and Subordination. Guarantor irrevocably waives, disclaims and
- -------------------------
relinquishes all claims against Borrower which Guarantor otherwise has or would
have by virtue of having executed this Guaranty, specifically including but not
limited to all rights of indemnity, contribution or exoneration. In the event of
the payment by Guarantor to Lender of any amount whatsoever and the resultant
subrogation of Guarantor to the rights of Lender by reason of such payment, the
amount of the remaining Indebtedness of Borrower to Lender after the payments by
Guarantor pursuant to this Guaranty shall have priority over any claim that
Guarantor may have against Borrower, whether or not Borrower is at such time or
thereafter becomes insolvent. Guarantor further expressly subordinates any claim
against Borrower upon any account whatsoever to any claim that Lender may have
against Borrower at any time and for any reason.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF
<PAGE>
PAGE 8
GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY
EFFECTIVE. THIS GUARANTY IS DATED JUNE 23, 1995.
GUARANTOR:
PULSAR DATA SYSTEMS, INC.
BY: /s/ William W. Davis President/CEO (SEAL)
-------------------------------------------------------
WILLIAM W. DAVIS, SR., PRESIDENT
BY: /s/ LILLIAN A. DAVIS (SEAL)
-----------------------------------------------
LILLIAN A. DAVIS, EXECUTIVE VICE PRESIDENT
====================================================================
<PAGE>
EXHIBIT 10.05
WILMINGTON TRUST
BUSINESS LOAN AGREEMENT
<TABLE>
<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.
- --------------------------------------------------------------------------------------------------------------------------------
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
=========================================================================================
</TABLE>
THIS BUSINESS LOAN AGREEMENT between PULSAR DATA SYSTEMS, INC. ("Borrower")
and WILMINGTON TRUST COMPANY ("Lender") is made and executed on the
following terms and conditions. Borrower has received prior commercial
loans from Lender or has applied to Lender for a commercial loan or loans
and other financial accommodations, including those which may be described
on any exhibit or schedule attached to this Agreement. All such loans and
financial accommodations, together with all future loans and financial
accommodations from Lender to Borrower, are referred to in this Agreement
individually as the "Loan" and collectively as the "Loans." Borrower
understands and agrees that: (a) in granting, renewing, or extending any
Loan, Lender is relying upon Borrower's representations, warranties, and
agreements, as set forth in this Agreement; (b) the granting, renewing, or
extending of any Loan by Lender at all times shall be subject to Lender's
sole judgment and discretion; and (c) all such Loans shall be and shall
remain subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of July 24, 1995, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
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 Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.
BORROWER. The word "Borrower" means PULSAR DATA SYSTEMS, INC.. The
word "Borrower" also includes, as applicable, all subsidiaries and
affiliates of Borrower as provided below in the paragraph titled
"Subsidiaries and Affiliates."
<PAGE>
BUSINESS LOAN AGREEMENT Page 2
(continued)
===============================================================================
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
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 and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
LENDER. The word "Lender" means WILMINGTON TRUST COMPANY, its successors
and assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
<PAGE>
BUSINESS LOAN AGREEMENT Page 3
(continued)
===============================================================================
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or refinancing
note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing indebtedness owned by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and security obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
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.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
<PAGE>
BUSINESS LOAN AGREEMENT Page 4
(continued)
===============================================================================
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note; (b) Security
Agreements granting to Lender security interests in the Collateral; (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel, including without limitation
any guaranties described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware and
is validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument
<PAGE>
BUSINESS LOAN AGREEMENT Page 5
(continued)
===============================================================================
binding upon Borrower or (b) any law, governmental regulation, court
decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The term "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "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. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has
been no use, generation, manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the properties
by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of the properties shall use,
generate, manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, about or from any of the properties; and any such
activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above. Borrower
authorizes Lender and its agents to
<PAGE>
BUSINESS LOAN AGREEMENT Page 6
(continued)
===============================================================================
enter upon the properties to make such inspections and tests as Lender may
deem appropriate to determine compliance of the properties with this
section of the Agreement. Any inspections or tests made by Lender shall be
at Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower 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, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release occurring prior to Borrower's ownership or interest
in the properties, whether or not the same was or should have been known to
Borrower. The provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the indebtedness and
the termination or expiration of this Agreement and shall not be affected
by Lender's acquisition of any interest in any of the properties, whether
by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
<PAGE>
BUSINESS LOAN AGREEMENT Page 7
(continued)
===============================================================================
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect
to any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated plan or initiated steps to do so, and (iii) no steps have been
taken to terminate any such plan.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 5000 PHILADELPHIA WAY SUITE H, LANHAM, MD 20706.
Unless Borrower has designated otherwise in writing this location is also
the office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which would
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
<PAGE>
BUSINESS LOAN AGREEMENT Page 8
(continued)
===============================================================================
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited
by a certified public accountant satisfactory to Lender. All financial
reports required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, 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. 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 Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and in the
amounts and by the guarantors named below:
<PAGE>
BUSINESS LOAN AGREEMENT Page 9
(continued)
===============================================================================
Guarantors Amounts
---------- -------
WILLIAM W. DAVIS, SR. $22,000,000.00
LILLIAN A. DAVIS $22,000,000.00
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act
and will all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
<PAGE>
BUSINESS LOAN AGREEMENT Page 10
(continued)
===============================================================================
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this
<PAGE>
BUSINESS LOAN AGREEMENT Page 11
(continued)
===============================================================================
Agreement or the Related Documents, or (c) reduce the rate of return on Lender's
capital as a consequence of Lender's obligations with respect to the credit
facilities to which this Agreement relates, then Borrower agrees to pay Lender
such additional amounts as will compensate Lender therefor, within five (5) days
after Lender's written demand for such payment, which demand shall be
accompanied by an explanation of such imposition or charge and a calculation in
reasonable detail of the additional amounts payable by Borrower, which
explanation and calculations shall be conclusive in the absence of manifest
error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has
<PAGE>
BUSINESS LOAN AGREEMENT Page 12
(continued)
===============================================================================
with Lender; (b) Borrower or any guarantor becomes insolvent, files a petition
in bankruptcy or similar proceedings, or is adjudicated a bankrupt; (c) there
occurs a material adverse change in Borrower's financial condition, in the
financial condition of any Guarantor, or in the value of any Collateral securing
any Loan; or (d) any Guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such Guarantor's guaranty of the Loan or any other loan with
Lender.
EVENT OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time or for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against
Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by
<PAGE>
BUSINESS LOAN AGREEMENT Page 13
(continued)
===============================================================================
any creditor of Borrower, any creditor of any Grantor against any
collateral securing the indebtedness, or by any governmental agency. This
includes a garnishment, attachment, or levy on or of any of Borrower's
deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies 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 Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and 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 has been delivered to Lender and accepted
by Lender in the State of Delaware. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of NEW
CASTLE County, the State of Delaware. Lender and Borrower hereby waive the
right to any jury trial in any action, proceeding, or
<PAGE>
BUSINESS LOAN AGREEMENT Page 14
(continued)
===============================================================================
counterclaim brought by either Lender or Borrower against the other. This
Agreement shall be governed by and construed in accordance with the laws of
the State of Delaware.
CAPTION HEADINGS. Caption headings in this Agreement are 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 Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the Borrowers
signing below is responsible for all obligations of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and will
have all the rights granted under the participation agreement or agreements
governing the sale of such participation interests. Borrower further
waives all rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation interest
and unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may enforce
its interests irrespective of any personal claims or defenses that Borrower
may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation reasonable attorneys' fees, incurred
in connection with the preparation, execution, enforcement, modification
and collection of this Agreement or in connection with the Loans made
pursuant to this Agreement. Lender may pay someone else to help collect
the Loans and to enforce this Agreement, and Borrower will pay that amount.
This includes, subject to any limits under applicable law, Lender's
reasonable attorneys' fees and Lender's legal expenses, whether or not
there is a lawsuit, including reasonable attorneys' fees for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other
sums provided by law.
<PAGE>
BUSINESS LOAN AGREEMENT Page 15
(continued)
===============================================================================
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited 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
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower agrees to keep Lender informed at all times
of Borrower's current address(es).
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 persons 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.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
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
<PAGE>
BUSINESS LOAN AGREEMENT Page 16
(continued)
===============================================================================
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 Borrower, or
between Lender and any Grantor, shall constitute a waiver of any of
Lender's rights or of any obligations of Borrower or of any Grantor as to
any future transactions. Whenever the consent of Lender is required under
this Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent in subsequent instances where such
consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
<PAGE>
BUSINESS LOAN AGREEMENT Page 17
(continued)
===============================================================================
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JULY
24, 1995.
BORROWER:
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>
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>
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>
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.
[PARAGRAPH ILLEGIBLE]
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-
help,[illegible] or any other method by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
[illegible] Indebtedness. This includes a garnishment of any of Grantor's
deposit accounts with Lender.
[illegible] INDEBTEDNESS. Any of the [illegible] events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
[illegible].
[illegible] CHANGE. A material adverse change occurs in [illegible]
financial condition or Lender believes the prospect of payment or
[illegible] 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:
[illegible] INDEBTEDNESS. Lender may Declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay
[illegible] and payable, without notice.
[illegible] 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 [illegible] at the time
of repossession, grantor agrees Lender may take such other goods, provided
that Lender [illegible] after repossession.
Sell THE COLLATERAL. Lender shall have full power to sell, [illegible]
with the Collateral or proceeds thereof in its own name or that of Grantor.
Lender may sell the Collateral at public [illegible]. Unless the Collateral
threatens to decline speedily in value or is of a type customarily sold on
a [illegible] after which any private sale or any other [illegible] 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 [illegible] in action, or similar property,
Lender may [illegible] receipt for, settle, compromise, adjust, sue for,
foreclose, or [illegible] on the Collateral as Lender may determine, whether or
not [illegible] 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, [illegible], 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:
AMENDMENT. 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
[illegible] or bound by the [illegible].
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 [illegible] 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.
[ILLEGIBLE]; CORPORATE AUTHORITY. All obligations of Grantor under this
Agreement shall be joint and several, and all references to Grantor [illegible]
below is responsible for all obligations in this Agreement.
[ILLEGIBLE]. All notices required to be given [illegible] in writing, may be
sent by facsimile, and shall be effective when actually delivered if hand
delivered or when deposited [illegible] recognized overnight courier or
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, [illegible] formal written notice to the other
parties, specifying that the purpose of the notice is to change the party's
address. To the extent [illegible] 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 [illegible] or other property which may now
or hereafter become [illegible] all claims, instruments, receipts, checks,
drafts or warrants [illegible] under the Collateral, and, in the place and stead
of Grantor, to [illegible] claims or to take any action or institute or take
part in any proceedings, either in its own [illegible] of Grantor, or otherwise,
which in the discretion of Lender may seem to be [illegible] 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>
EXHIBIT 10.07
COMMERCIAL GUARANTY
(CONTINUED)
================================================================================
COMMERCIAL GUARANTY
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 5100 2405008 938
================================================================================================================================
</TABLE>
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.
- --------------------------------------------------------------------------------
BORROWER: DAVIS HOLDING COMPANY, INC. LENDER: WILMINGTON TRUST COMPANY
5000 PHILADELPHIA WAY, SUITE H C/L W H MAJOR
LANHAM, DE 20706 RODNEY SQUARE NORTH
1100 NORTH MARKET STREET
WILMINGTON, DE 19890
GUARANTOR: PULSAR DATA SYSTEMS, INC.
5000 PHILADELPHIA WAY, SUITE H
LAHNHAM MD 20706
================================================================================
AMOUNT OF GUARANTY. THIS IS GUARANTY OF PAYMENT OF THE NOTE, INCLUDING WITHOUT
LIMITATION THE PRINCIPAL NOTE AMOUNT OF TWO MILLION EIGHT HUNDRED THOUSAND &
00/100 DOLLARS ($2,800,000.00)
GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, PULSAR DATA SYSTEMS,
INC."GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY
TO WILMINGTON TRUST COMPANY ("LENDER") OR ITS ORDER, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
DAVIS HOLDING COMPANY, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS
SET FORTH IN THIS GUARANTY.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means DAVIS HOLDING COMPANY, INC.
GUARANTOR. The word "Guarantor" means PULSAR DATA SYSTEMS, INC.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated October 23, 1995.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
charges, and (e) all collection costs and expenses relating to the Note or
to any collateral for the Note or to any collateral for the Note.
Collection costs and expenses include without limitation all of Lender's
reasonable attorneys' fees and Lender's legal expenses, whether or not suit
is instituted, and reasonable attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services.
LENDER. The word "Lender" means WILMINGTON TRUST COMPANY, its successors
and assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated
October 23, 1995, IN THE ORIGINAL PRINCIPAL AMOUNT OF $2,800,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancing of, consolidations of , and substitutions
for the promissory note or agreement.
RELATED DOCUMENTS. The word "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, documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
<PAGE>
2
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE AMOUNT OF THE INDEBTEDNESS DESCRIBED ABOVE, PLUS
ALL COSTS AND EXPENSES OF (A) ENFORCEMENT OF THIS GUARANTY AND (B) COLLECTION
AND SALE OF ANY COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other guaranties. The
liability of Guarantor will be the aggregate liability of Guarantor under the
terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. GUARANTOR AUTHORIZES LENDER, WITHOUT
NOTICE OR DEMAND AND WITHOUT LESSENING GUARANTOR'S LIABILITY UNDER THIS
GUARANTY, FROM TIME TO TIME: (A) TO MAKE ONE OR MORE ADDITIONAL SECURED OR
UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR
OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE,
RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR
PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS,
INCLUDING INCREASES AND DECREASES OF THE RATE OF INTEREST ON THE INDEBTEDNESS;
EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER THAN THE ORIGINAL LOAN TERM;
(C) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF THIS GUARANTY OR THE
INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, SUBORDINATE, FAIL OR DECIDE NOT
TO PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT THE SUBSTITUTION
OF NEW COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE NOT TO SUE, OR DEAL
WITH ANY ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR OTHER GUARANTORS ON
ANY TERMS OF IN ANY MANNER LENDER MAY CHOOSE; (E) TO DETERMINE HOW, WHEN AND
WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE ON THE INDEBTEDNESS; (F)
TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR MANNER OF SALE THEREOF, INCLUDING
WITHOUT LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY THE TERMS OF THE
CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST, AS LENDER IN ITS DISCRETION MAY
DETERMINE; (G) TO SELL, TRANSFER, ASSIGN, OR GRANT PARTICIPATIONS IN ALL OR ANY
PART OF THE INDEBTEDNESS; AND (H) TO ASSIGN OR TRANSFER THIS GUARANTY IN WHOLE
OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or quality in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (d) Lender has made no representation to Guarantor as to the
creditworthiness of Borrower; (e) upon Lender's request, Guarantor will provide
to Lender financial and credit information in form acceptable to Lender, and all
such financial information provided to Lender is true and correct in all
material respects and fairly presents the financial condition of Guarantor
as of the dates thereof, and no material adverse change has occurred in the
financial condition of Guarantor since the date of the financial statements; and
(f) Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events, or circumstances which might in any way affect Guarantor's risks under
this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) continue lending money or to extend other credit
to Borrower; (b) to make any presentment, protest, demand, or notice of any
kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of the Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection
<PAGE>
3
with the creation of new or additional loans or obligations; (c) to resort for
payment or to proceed directly or at once against any person, including Borrower
or any other guarantor; (d) to proceed directly against or exhaust any
collateral held by Lender from Borrower, any other guarantor, or any other
person; (e) to give notice of the terms, time, and place of any public or
private sale of personal property security held by Lender from Borrower or to
comply with any other applicable provisions of the Uniform Commercial Code; (f)
to pursue any other remedy within Lender's power; or (g) to commit any act or
omission of any kind, or at any time, with respect to any matter
whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquires against Borrower,
by subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any "one action" or "anti-deficiency" law or any other law which may prevent
Lender from bringing any action, including a claim for deficiency, against
Guarantor, before or after Lender's commencement or completion of any
foreclosure action, either judicially or by exercise of a power of sale; (b) any
election of remedies by Lender with destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (c) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (d) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Lender
against Guarantor is commenced there is outstanding Indebtedness of Borrower to
Lender which is not barred by any applicable statute of limitations; or (f) any
defenses given to guarantors at law or in equity other than actual payment and
performance of the Indebtedness. It payment is made by Borrower, whether
voluntarily or otherwise, or by any third party, on the Indebtedness and
thereafter Lender is forced to remit the amount of that payment to borrower's
trustee in bankruptcy or to any similar person under any federal or state
bankruptcy law or law for the relief of debtors, the Indebtedness shall be
considered unpaid for the purpose of enforcement of this Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor s full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public
policy.
SUBORDINATION OF BORROWERS DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets
of Borrower, through bankruptcy, by an assignment for the benefit of creditors,
by voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
<PAGE>
4
CONFESSION OF JUDGMENT. Guarantor hereby irrevocably authorizes and empowers any
attorney-at-law to appear in any court of record and to confess judgment
against Guarantor for the unpaid amount of this Guaranty as evidenced by an
affidavit signed by an officer of Lender setting forth the amount then due, plus
attorneys' fees as provided in this Guaranty, plus costs of suit, and to
release all errors, and waive all rights of appeal. If a copy of this
Guaranty, verified by an affidavit, shall have been filed in the proceeding, it
will not be necessary to file the original as a warrant of attorney. Guarantor
waives the right to any say of execution and the benefit of all exemption laws
now or hereafter in effect. No single exercise of the foregoing warrant and
power to confess judgment will be deemed to exhaust the power whether or not any
such exercise shall be held by any court to be invalid voidable or void; but the
power will continue undiminished and may be exercised from time to time as
Lender may elect until all amounts owing on this Guaranty have been paid in
full.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty
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 Guaranty has been delivered to Lender and accepted by
Lender in the state of Delaware. If there is a lawsuit, Guarantor agrees
upon lender's request to submit to the jurisdiction of the courts of NEW
CASTLE County State of Delaware. Lender and Guarantor hereby waive the
right to any jury trial in any action, proceeding, or counterclaim brought
by either Lender or Guarantor against the other. This Guaranty shall be
governed by and construed in accordance with the laws of the State of
Delaware.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses including reasonable attorneys' fees and
Lenders legal expenses incurred in connection with the enforcement of this
Guaranty. Lender may pay someone else to help enforce this Guaranty, and
Guarantor shall pay the costs and expenses of such enforcement. Costs and
expenses include Lender's reasonable attorneys' Fees and legal expenses
whether or not there is a lawsuit including reasonable attorneys' fees and
legal expenses for bankruptcy proceedings (and including efforts to modify
or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Guarantor also shall pay all court costs
and such additional lees as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited 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 or lo such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor" respectively shall mean all and any one or
more of them. The words "Guarantor," "Borrower," and "Lender" include the
heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty 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
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of Borrower
or Guarantor are corporations or partnerships, it is not necessary for
Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this
Guaranty.
<PAGE>
5
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty 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 Guaranty 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 Guaranty. No prior waiver by Lender, nor
any course of dealing between Lender and Guarantor, shall constitute a
waiver of any of Lender's rights or of any of Guarantor's obligations as to
any future transactions. Whenever the consent of Lender is required under
this Guaranty, 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.
LIMITATION ON GUARANTY. Notwithstanding any other provision of this Guaranty,
the liability of Guarantor under this Guaranty shall not exceed the amount which
would render this Guaranty unenforceable, void or voidable under 548 of the
Bankruptcy Code or by application of any Fraudulent Transfer or Fraudulent
Conveyance statue. In the event that Guarantor shall claim that the amount of
its liability hereunder is less than the amount of the Indebtedness, the burden
of proof with respect to the amount of such liability shall rest with
guarantor in light of the fact that the information concerning and circumstances
of the financial condition of such Guarantor are more readily available to and
under the control of such Guarantor.
WAIVER OF RIGHT TO TRIAL BY JURY. In recognition of the higher costs and delay
which may result from a jury trial, guarantor and lender waive any right to
trial by jury of any claim, demand, action or cause of action (1) arising
hereunder, or (2) in any way connected with or related or incidental to the
dealings of the parties hereto with respect hereto or any other instrument,
document or agreement executed or delivered in connection herewith, in each case
whether now existing or hereafter arising, and whether sounding in contract or
tort or otherwise; and each party hereby agrees and consents that any such
claim, demand, action or cause of action shall be decided by court trial
without a jury, and that any party hereto may file an original counterpart or a
copy of this section with any court as written evidence of the consent of the
parties hereto to the waiver of their right to trial by jury.
WAIVER AND SUBORDINATION. Guarantor irrevocably waives, disclaims and
relinquishes all claims against Borrower which Guarantor otherwise has or would
have by virtue of having executed this Guaranty, specifically including but not
limited to all rights of indemnity, contribution or exoneration. In the event
of the payment by Guarantor to Lender of any amount whatsoever and the resultant
subrogation of Guarantor to the rights of Lender by reason of such payment, the
amount of the remaining Indebtedness of Borrower to Lender after the payments by
Guarantor pursuant to this Guaranty shall have priority over any claim that
Guarantor may have against Borrower, whether or not Borrower is at such time or
thereafter becomes insolvent. Guarantor further expressly subordinates any
claim against Borrower upon any account whatsoever to any claim that Lender may
have against Borrower at any time and for any reason.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED OCTOBER 23, 1995.
GUARANTOR:
PULSAR DATA SYSTEMS, INC.
BY: /s/ WILLIAM H. DAVIS, SR.
--------------------------------
WILLIAM H. DAVIS, SR., PRESIDENT
<PAGE>
EXHIBIT 10.09
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement"), dated as of June
27, 1996, is entered into by and between Litronic Industries, Inc., a California
corporation (the "Company"), and Fidelity Funding of California, Inc., a
California corporation ("Fidelity"). In consideration of the mutual covenants
and agreements contained herein, the Company and Fidelity hereby agree as
follows:
Section 1. Definitions and Construction.
1.1. When used herein, the following terms shall have the following
meanings:
"Account" means the right of the Company to payment for goods sold or
leased or for services rendered which is not evidenced by an instrument or
chattel paper, whether or not earned by performance.
"Account Debtor" means the Person obligated to make payment on an
Account.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, or is controlled by or under common control
with, such Person.
"Applicable Rate" means, as applicable, the Revolving Loan Rate, the
Fixed Asset Loan Rate, the Standby Facility Rate or the Real Estate Contract
Rate.
"Borrowing Base" means an amount equal to the sum, determined by
Fidelity from time to time in its sole discretion, of (a) 85% of the face amount
of Eligible Accounts, plus at Fidelity's option, (b) the lesser of (i) $600,000
or (ii) 50 % of the value of Eligible Inventory.
"Borrowing Base Certificate" means a certificate in the form attached
hereto as Exhibit A, duly executed by an authorized officer of the company.
"Cash Collateral" has the meaning given to it in Section 10.
"Collateral" means all Personal Property Collateral and all Real
Property.
"Concentration Limit" means, as of any date, an amount equal to 20% of
the face amount of Accounts outstanding on such date; provided that with respect
to Accounts owed by the United States or any department or instrumentality
thereof, "Concentration Limits" means, as of any date, an amount equal to 50% of
the face amount of such Accounts outstanding on such date.
"Current Assets" means, as of any date, only those assets of the
Company that may, in the ordinary course of business, be converted into cash
within a period of one year from such date, but excluding (a) amounts due from
employees, officers, shareholders or directors of the
<PAGE>
Company, (b) prepaid expenses for services or for supplies that are not
purchased for resale, and (c) amounts due from Affiliates of the Company.
"Current Liabilities" means, as of any date, all obligations of the
Company that are due within one year from such date.
"Debt" means, with respect to any Person, all indebtedness, obligations
and liabilities of such Person, including without limitation: (a) all
liabilities which would be reflected on a balance sheet of such Person prepared
in accordance with GAAP, (b) all obligations of such Person in respect of any
guaranty of a Debt or another Person, or (c) all obligations, indebtedness and
liabilities secured by any lien on or security interest in any property or
assets of such Person.
"Debt Coverage Ratio" means, for any period of three consecutive
calendar months, the ratio of EBITDA for such period to the sum of Interest
Expense for such period plus the Principal Repayment. For purposes of this
definition, the term "Principal Repayment" means, as of any date, the Current
Liabilities as of such date divided by four.
"EBITDA" means, for any period, the sum (determined without
duplication, on a consolidated basis and in accordance with GAAP) of (a) the
Company's net income (or net loss) for such period (including gains and losses
from sales of assets in the ordinary course of business) before provision for
income taxes, (b) the Interest Expense of the Company for such period, and (c)
depreciation, amortization and all other non-cash charges of the Company during
such period to the extent deducted in determining such net income.
"Eligible Accounts" means, at the time of determination thereof, all
Accounts other than (i) any Account which is payable more than 30 days from
invoice date, (ii) any Account which has been outstanding for more than 90 days
from invoice date, (iii) any Account as to which Fidelity does not have a valid
and perfected, first priority security interest, (iv) to the extent that the
aggregate outstanding Accounts owed by any single Account Debtor exceeds the
Concentration Limit, any Account owed by such Account Debtor, (v) any Account
that is owed by an Account Debtor that is an Affiliate of the Company or an
officer or employee of the Company, (vi) any Account that arises out of a sale
made or services performed outside of the Untied States or that is owed by an
Account Debtor located outside the United States, (vii) any Account that is owed
by a creditor or supplier of the Company or with respect to which any defense,
counterclaim or right of set off has been asserted, (viii) any Account owed by
an Account Debtor if more than 25% (in dollar amount) of such Account Debtor's
Accounts are 90 or more days past due, (ix) any Account that is owed by the
United States or any department, agency or instrumentality thereof, unless the
right to payment under such Account is assigned to Fidelity as Collateral in
full compliance with the Assignment of Claims Act of 1940, as amended (31 U.S.C.
3727) and (x) any Account that has not been approved by Fidelity, in its sole
and absolute discretion, for including in the Borrowing Base.
2
<PAGE>
"Eligible Inventory" means, at the time of determination, all raw
materials and finished goods that are part of the Company's Inventory, valued at
the lower of cost or market value, that (i) are owned by the Company, are
located in the United States of America and, if located on leased or mortgaged
premises, are subject to the terms of a lien waiver letter executed by the
landlord or mortgagee of such premises if deemed necessary by Fidelity in its
sole discretion, (ii) are ready for sale, and are not, in the opinion of
Fidelity,damaged, obsolete or otherwise not readily salable at full value,
(iii) have been held in Inventory for not more than 120 days, (iv) are not on
lease or consignment or furnished under any contract of service from or to any
Person, (v) are subject to an enforceable, first priority, perfected security
interest in favor of Fidelity, (vi) are not the subject of an invoice giving
rise to an Eligible Account, and (vii) have been approved by Fidelity, in its
sole and absolute discretion for inclusion in the Borrowing Base.
"Eligible Machinery and Equipment" means, at the time of
determination, all machinery and equipment, valued at the lower of cost or
liquidation value, that (i) are owned by the Company, are located in the United
States of America and, if located on leased or mortgaged premises, are subject
to the terms of a lien waiver letter executed by the landlord or mortgagee of
such premises if deemed necessary by Fidelity in its sole discretion, (ii) are
not on lease or consignment to any Person, (iii) are subject to an enforceable,
first priority, perfected security interest in favor of Fidelity, (iv) are not,
in the opinion of Fidelity, damaged or obsolete, (v) are not fixtures, and (vi)
have been approved by Fidelity, in its sole and absolute discretion for
inclusion in the Borrowing Base.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, rules, orders, licenses, agreements or
other governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants or industrial, toxic or hazardous
substances into the environment, or otherwise relating to the manufacture,
processing, treatment, transport or handling of pollutants or industrial, toxic
or hazardous substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Plan" means any pension benefit plan subject to Title IV of
ERISA maintained by the Company or any Affiliate thereof with respect to which
the Company has a fixed or contingent liability.
"Event of Default" has the meaning given it in Section 12.
"Fixed Asset Loan" has the meaning given to it in Section 3.
"Fixed Asset Loan Amount" means the lesser of (a) $1,000,000 or (ii)
85% of the forced liquidation value of the Eligible Machinery and Equipment as
determined by an appraisal satisfactory to Fidelity.
3
<PAGE>
"Fixed Asset Loan Maturity Date" means the earlier to occur of (a) the
Fixed Asset Loan Term Date or (b) the last day of the Term.
"Fixed Asset Loan Rate" means a rate of interest equal to the lesser of
(a) the Prime Rate in effect from time to time plus three percent (3%) per annum
and (b) the maximum rate permitted by applicable law. The Fixed Asset Loan shall
be automatically increased or decreased, as the case may be, without notice to
the Company from time to time as of the effective date of each change in the
Prime Rate.
"Fixed Asset Loan Term Date" means the date which is five years from
the date hereof.
"GAAP" means generally accepted accounting principles and practices as
promulgated by the American Institute of Certified Public Accountants, applied
on a basis consistent with past practices.
"Indemnified Claims" means any and all claims, demands, actions, causes
of action, judgments, liabilities, damages and consequential damages, penalties,
fines, costs, fees, expenses and disbursements (including, without limitation,
fees and expenses of attorneys and other professional consultants and experts in
connection with any investigation or defense) of every kind, known or unknown,
existing or hereafter arising, foreseeable or unforeseeable, which may be
imposed upon, threatened or asserted against or incurred or paid by any
Indemnified Person at any time and from time to time, because of, resulting from
, in connection with or arising out of any transaction, act, omission, event or
circumstance in any way connected with the Collateral or the Transaction
Documents (including but not limited to enforcement of Fidelity's rights
thereunder or the defense of Fidelity's actions thereunder), excluding with
respect to any Indemnified Persons, any of the foregoing resulting from such
Indemnified Person's gross negligence or willful misconduct.
"Indemnified Persons" means Fidelity and its officers, directors,
shareholders, employees, attorneys, representatives and Affiliates.
"Intangible Assets" means such of the Company's assets as are treated
as intangible pursuant to GAAP, including without limitation: (a) obligations
owing by officers, directors, shareholders, employees, subsidiaries, Affiliates
or any Person in which any such officer, director, shareholder, employee,
subsidiary, or Affiliate owns any interest and (b) any asset which is intangible
or lacks intrinsic or marketable value or collectibility, including but not
limited to; goodwill, noncompetition agreements, patents, copyrights,
trademarks, franchises, organization or research and development costs.
"Interest Expense" means, for any period, all interest charges paid or
accrued by the Company during such period.
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"Inventory" means all goods, now owned or hereafter acquired by the
Company, wherever located, that are held for sale or lease or are to be
furnished under any contract of service (including, but not limited to raw
materials, work in process, finished goods and materials used or consumed in the
manufacture or production thereof, goods in which the Company has an interest in
mass or a joint or other interest or rights of any kind, and goods which have
been returned to or repossessed or stopped in transit by the Company).
"Late Payment Rate " means a per annum rate of interest equal to the
lesser of (a) the Applicable Rate plus four percent (4%) and (b) the maximum
rate permitted by applicable law.
"Mortgage" means the Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing dated of even date herewith by and among the
Company, First American Title Insurance Company, as trustee, and Fidelity, as
beneficiary.
"Obligations" means all indebtedness, obligations and liabilities of
the Company to Fidelity arising under the Transaction Documents, and all other
indebtedness, obligations and liabilities of the Company to Fidelity, whether
presently existing or hereafter arising, direct or indirect, primary or
secondary, joint or several, fixed or contingent, and whether originally payable
to Fidelity or to a third party and subsequently acquired by Fidelity.
"Person" means any individual, corporation, joint venture, partnership,
trust, unincorporated organization or governmental entity or agency.
"Personal Property Collateral" has the meaning given it in Section 9.
"Prime Rate" means the rate per annum published from time to time by
The Wall Street Journal as the base rate for corporate loans at large commercial
banks (or, if more than one such rate is published, the higher or highest of the
rates so published). If such rate is no longer published by The Wall Street
Journal, then Fidelity shall, in its sole discretion substitute the base or
prime rate for corporate loans at a large commercial bank for the base rate
published in The Wall Street Journal. Such rate may not necessarily be the
lowest or best rate actually charged to any customer of such commercial bank.
"Real Estate Loan" has the meaning given to it in Section 4.
"Real Estate Loan Amount" means the lesser of (a) $2,200,000 or (ii)
75% of the appraised value of the Real Property as determined by an appraisal
performed in accordance with the provisions of Section 6.1.
"Real Estate Loan Maturity Date" means the earlier to occur of (a) the
Real Estate Term Date or (b) the last day of the Term.
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"Real Estate Loan Rate" means a rate of interest equal to the lesser of
(a) the Prime Rate in effect from time to time plus three and one-half percent
(3.5%) per annum and (b) the maximum rate permitted by applicable law. The Real
Estate Loan Rate shall be automatically increased or decreased, as the case may
be, without notice to the Company from time to time as of the effective date of
each change in the Prime Rate.
"Real Estate Term Date" means the date which is seven years from the
date hereof.
"Real Property" means the Company's administrative office,
manufacturing, research and development facility located at 2950 Redhill Avenue,
Costa Mesa, California.
"Remittance Address" means the address designated in writing by
Fidelity.
"Revolver Advance" has the meaning given to it in Section 2.1.
"Revolver Commitment" means $2,500,000.
"Revolving Loan Rate" means a rate of interest equal to the lesser of
(a) the Prime Rate in effect from time to time plus two percent (2%) per annum
and (b) the maximum rate permitted by applicable law. The Revolving Loan Rate
shall be automatically increased or decreased, as the case may be, without
notice to the Company from time to time as of the effective date of each change
in the Prime Rate.
"Shareholders Equity" means, as of any date, the shareholders' equity
of the Company as of such date determined in accordance with GAAP.
"Standby Facility" has the meaning given it in Section 3A.1.
"Standby Facility Amount" means $250,000.
"Standby Facility Maturity Date" means the earlier to occur of (a) the
Standby Facility Term Date or (b) the last day of the Term.
"Standby Facility Rate" means a rate of interest equal to the lesser of
(a) the Prime Rate in effect from time to time plus three percent (3%) per annum
and (b) the maximum rate permitted by applicable law. The Standby Facility Rate
shall be automatically increased or decreased, as the case may be, without
notice to the Company from time to time as of the effective date of each change
in the Prime Rate.
"Standby Facility Term Date" means the date which is five years from
the date hereof.
"Tangible Net Worth" means, as of any date, the amount obtained by
subtracting the Company's Intangible Assets as of such date from the sum of (i)
the Company's Shareholders'
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Equity as of such date plus (ii) all obligations for borrowed money owed by the
Company to its shareholders, provided that such obligations have been
subordinated to the Obligations on terms satisfactory to Fidelity in its sole
discretion.
"Term" has the meaning given to it in Section 14.4.
"Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) of ERISA or (ii)
any other reportable event described in Section 4043(b) of ERISA other than a
reportable event not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation pursuant to a waiver by such corporation under
Section 4043(a) of ERISA or (b) the withdrawal of the Company or any Affiliate
of the Company from any ERISA Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) any
event or condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any ERISA
Plan.
"Transactions Documents" means this Agreement, the Mortgage, and all
other documents and instruments executed and delivered in connection therewith.
"UCC" means the Uniform Commercial Code as in effect in the applicable
jurisdiction.
"Working Capital" means, as of any date, the excess of Current Assets
over Current Liabilities as of such date, provided that any Revolver Advances
outstanding as of such date shall, for purposes of the calculation of Working
Capital be treated as Current Liabilities regardless of their characterization
under GAAP.
1.2. Terms defined in the UCC and used but not defined herein shall
have the meanings ascribed to them in the UCC.
1.3. References herein to a particular agreement, instrument or
document also shall be deemed to refer to and include all renewals, extensions
and modifications of such agreement, instrument or document. All addenda,
exhibits and schedules attached to this Agreement are a part hereof for all
purposes. Words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires.
1.4. All interest accruing on the outstanding Revolver Advances shall
be calculated on the basis of actual days elapsed (including the first but
excluding the last day) plus three (3) business days and a year of 360 days. All
interest otherwise accruing hereunder shall be calculated on the basis of actual
days elapsed (including the first but excluding the last day) and a year of 360
days. Unless otherwise expressly provided herein or unless Fidelity otherwise
consents, all financial statements and reports furnished to Fidelity hereunder
shall be prepared, and all financial computations and determinations pursuant
hereto shall be made, in accordance with GAAP. All payments received by Fidelity
after its internally established time for closing
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business on any business day shall be applied as of the next succeeding business
day. Any payment which is due on a day which is not a business day shall instead
be deemed to be due on the next succeeding business day, and interest thereon
shall accrue and be payable at the then applicable rate during the time of such
extension. Fidelity's records in respect of loans advanced, accrued interest,
payments received and applied and other matters in respect of calculation of the
amount of the Obligations shall be deemed conclusive absent demonstration of
error. All statements of account rendered by Fidelity to the Company relating to
principal, accrued interest or costs owing by the Company under this Agreement
shall be presumed to be correct and accurate unless, within 30 days after
receipt thereof, the Company shall notify Fidelity in writing of any claimed
error therein.
Section 2. Revolver Advances.
2.1. Subject to the terms of this Agreement, including, without
limitation, Section 6, Fidelity shall make advances to the Company (each a
"Revolver Advance and collectively the "Revolver Advances") from time to time
during the Term; provided, however, that the aggregate principal amount of
Revolver Advances outstanding at any time shall not exceed the lesser of (i)
Borrowing Base determined by Fidelity from time to time and (ii) the Revolver
Commitment. Ech Revolver Advance must be greater than or equal to $5,000 or must
equal the unadvanced portion of the Borrowing Base. The Company hereby agrees to
repay to Fidelity all Revolver Advances made to the Company hereunder, together
with interest thereon, in the manner provided herein. The principal owing
hereunder in respect of the Revolver Advances at any given time shall equal the
aggregate amount of Revolver Advances made hereunder minus all principal
payments on the Revolver Advances received by Fidelity hereunder. Subject to the
terms and conditions hereof, the Company may borrow, repay and reborrow Revolver
Advances under this Agreement.
2.2 Each request by the Company to Fidelity for a Revolver Advance
hereunder must be in writing or promptly confirmed in writing. Each such written
request or confirmation shall be accompanied by a "Borrowing Base Certificate"
in the form attached hereto as Exhibit "A," together with (i) one copy of an
invoice for each Account described in such Borrowing Base Certificate and
evidence of shipment of the sale of goods or services covered thereby, (ii) any
necessary waivers and releases for labor, services, equipment or material of the
Company or any other Person on Fidelity's form, and (iii) a schedule of Eligible
Inventory, setting forth the location of all such Inventory, including Eligible
Inventory not in the possession of the Company and the name of the Person in
possession thereof.
2.3. Promptly after receiving each Borrowing Base Certificate, Fidelity
shall, based upon such Borrowing Base Certificate and such other information
available to Fidelity, redetermine the Borrowing Base, which redetermination
shall take effect immediately and remain in effect until the next such
redetermination. If all conditions precedent to any Revolver Advance requested
have been met, Fidelity will on the date requested make such Revolver Advance
available to the Company by wire transfer to the account designated in writing
by the
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Company. In the event Fidelity does not receive an appropriately completed
Borrowing Base Certificate, Fidelity shall have no obligation to redetermine the
Borrowing Base or make any additional Revolver Advances hereunder.
2.4. If the aggregate unpaid principal balance of the Revolver Advances
exceeds the Borrowing Base at any time, the Company shall, upon receipt of
notice thereof from Fidelity, immediately repay the principal of the Revolver
Advances in an amount at least equal to such excess. Any principal repaid
pursuant to this Section 2.4. shall be in addition to, and not in lieu of, all
payments otherwise required to be paid under the Transaction Documents.
2.5. The aggregate unpaid principal balance of the Revolver Advances
shall bear interest at the Revolving Loan Rate in effect from time to time. All
accrued and unpaid interest on the Revolver Advances shall be due and payable by
the Company to Fidelity on the last day of each calendar month.
2.6. The aggregate unpaid principal balance of the Revolver Advances
plus all accrued but unpaid interest thereon shall be payable by the Company to
Fidelity on the last day of the Term.
Section 3. Fixed Asset Loan.
3.1. Subject to the terms and conditions hereof, including, without
limitation, Section 6, Fidelity agrees to make a loan to the Company in an
amount equal to the Fixed Asset Loan Amount. The Company hereby agrees to repay
to Fidelity the Fixed Asset Loan, together with interest thereon, in the manner
provided herein. The principal owing hereunder in respect of the Fixed Asset
Loan at any given time shall equal the Fixed Asset Loan Amount minus all
principal payments on the Fixed Asset Loan received by Fidelity hereunder.
3.2. If upon receipt of any appraisal of the Eligible Machinery and
Equipment (or upon such other information then available to Fidelity) Fidelity
determines that the liquidation value of the Eligible Machinery and Equipment is
less than the outstanding principal balance of the Fixed Asset Loan, the Company
shall, upon receipt of notice thereof from Fidelity, immediately repay the
principal of the Fixed Asset Loan in an amount at least equal to such excess.
Any principal repaid pursuant to this Section 3.2 shall be in addition to, and
not in lieu of, all payments otherwise required to be paid under the Transaction
Documents.
3.3. The aggregate unpaid principal balance of the Fixed Asset Loan
shall bear interest at the Fixed Asset Loan Rate in effect from time to time.
All accrued and unpaid interest on the Fixed Asset Loan shall be due and payable
by the Company to Fidelity on the last day of each calendar month.
3.4. Prior to the Fixed Asset Loan Maturity Date, principal of the
Fixed Asset Loan shall be payable in monthly installments, due and payable on
the last day of each calendar month,
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in an amount which would amortize the principal of the Fixed Asset Loan in full
on the Fixed Asset Loan Term Date, which amounts shall be set forth in a
schedule prepared by Fidelity and provided to the Company. The aggregate
principal balance of the Fixed Asset Loan plus all accrued but unpaid interest
thereon shall be due and payable by the Company to Fidelity on the Fixed Asset
Loan Maturity Date.
Section 3A. Standby Facility.
3A.1. Subject to the terms and conditions hereof, including, without
limitation, Section 6, Fidelity agrees to make a loan to the Company in an
amount equal to the Standby Facility Amount. The Company hereby agrees to repay
to Fidelity the Standby Facility, together with interest thereon, in the manner
provided herein. The principal owing hereunder in respect of the Standby
Facility at any given time shall equal the Standby Facility Amount minus all
principal payments on the Standby Facility received by Fidelity hereunder.
3A.2. The aggregate unpaid principal balance of the Standby Facility
shall bear interest at the Standby Facility Rate in effect from time to time.
All accrued and unpaid interest on the Standby Facility shall be due and payable
by the Company to Fidelity on the last day of each calendar month.
3A.3. Prior to the Standby Facility Maturity Date, principal of the
Standby Facility shall be payable in monthly installments, due and payable on
the last day of each calendar month, in an amount which would amortize the
principal of the Standby Facility in full on the Standby Facility Term Date,
which amounts shall be set forth in a schedule prepared by Fidelity and provided
to the Company. The aggregate principal balance of the Standby Facility plus all
accrued but unpaid interest thereon shall be due and payable by the Company to
Fidelity on the Standby Facility Maturity Date.
Section 4. Real Estate Loan.
4.1. Subject to the terms and conditions hereof, including, without
limitation, Section 6, Fidelity agrees to make a loan to the Company in an
amount equal to the Real Estate Loan Amount. The Company hereby agrees to repay
to Fidelity the Real Estate Loan, together with interest thereon, in the manner
provided herein. The principal owing hereunder in respect of the Real Estate
Loan at any given time shall equal the Real Estate Loan Amount minus all
principal payments on the Real Estate Loan received by Fidelity hereunder.
4.2. The aggregate unpaid principal balance of the Real Estate Loan
shall bear interest at the Real Estate Loan Rate in effect from time to time.
All accrued and unpaid interest on the Real Estate Loan shall be due and payable
by the Company to Fidelity on the last day of each calendar month.
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4.3. Beginning one year after the date hereof and prior to the Real
Estate Loan Maturity Date, principal shall be payable in monthly installments,
due and payable on the last day of each calendar month, in an amount which would
amortize the principal of the Real Estate Loan in full on the Real Estate Loan
Term Date, which amounts shall be set forth in a schedule prepared by Fidelity
and provided to the Company. The aggregate principal balance of the Real Estate
Loan plus all accrued but unpaid interest thereon shall be due and payable by
the Company to Fidelity on the Real Estate Loan Maturity Date.
Section 5. Fees.
5.1. The Company shall pay to Fidelity an annual commitment fee in the
amount of $44,000, payable on the date hereof and on each anniversary of the
date hereof during the Term; provided that when the Real Estate Loan has been
repaid in full, the commitment fee shall be reduced to 1% of sum of (i) the
Revolver Commitment and (ii) the then outstanding principal balance of the Fixed
Asset Loan (prorated during the year in which such reduction occurs). The
Company hereby authorizes Fidelity, at its sole discretion, to deduct the
commitment fee from any Advance hereunder.
5.2. As consideration for Fidelity's commitment to advance funds
hereunder the Company shall pay to Fidelity a minimum usage fee (in this section
called the "Minimum Usage Fee") of not less than $15,000 for each calendar month
(or fraction thereof, on a prorated basis) during the Term. In the event that
the income earned by Fidelity during any calendar month (or fraction thereof on
a prorated basis) pursuant to Sections 2.5 and 5.3 is less than the Minimum
Usage Fee, the Company shall pay to Fidelity the difference between the amount
so earned by Fidelity and the Minimum Usage Fee, regardless of Fidelity's prior
compensation. The Minimum Usage Fee for each calendar month shall be due and
payable on the first day of the next calendar month.
5.3. The Company shall pay to Fidelity a monthly servicing fee in an
amount equal to .13% of the average monthly outstanding balance of the Revolver
Advances for each calendar month. The monthly servicing fee for each calendar
month shall be due and payable on the first day of the next calendar month.
5.4. In addition to, and not in lieu of, any termination fee required
by Section 14.4, the Company shall pay to Fidelity a liquidation fee (in this
section called the "Liquidation Fee") in the amount of two percent (2%) of the
face amount of each Eligible Account included in the Borrowing Base that is
outstanding at any time during the Liquidation Period (as defined below) and
that Fidelity collects following collection efforts by Fidelity and excluding
collections in the ordinary course of business (i.e. paid within 30 days). The
Liquidation Fee shall be payable on the date on which Fidelity collects the
applicable Eligible Account. For purposes of this section, the term "Liquidation
Period" means a period beginning on the earliest of (i) the date of commencement
against or by the Company of any voluntary or involuntary case under the federal
Bankruptcy Code, (ii) the date of any general assignment by the Company for the
benefit of its
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creditors; (iii) the date of any appointment or taking possession by a receiver,
liquidator, assignee, custodian or similar official of all or a substantial part
of the Company's assets, or (iv) the date of the cessation of business of the
Company and ending on the date on which Fidelity has actually received all fees,
costs, expenses and other amounts owing to it hereunder.
5.5. Contemporaneously with the execution and delivery hereof, the
Company shall pay to Fidelity (i) a fee of $12,000 to cover the costs of the
negotiation, preparation, execution and delivery of the Transaction Documents,
including the fees, if any, of outside legal counsel, and (ii) costs of
preparation of mortgage on the Real Property and a review of the title
commitment and title insurance policy on the Real Property. In addition, the
Company shall pay or reimburse Fidelity upon demand for all other costs and
expenses incurred by Fidelity in connection with its due diligence review of the
Company and the closing of the transactions contemplated hereby and all
reasonable attorney's fees, court costs and other expenses incurred by Fidelity
(whether or not litigation is commenced or judgment issued, and if litigation is
commenced whether at trial or any appellate level) in connection with the
enforcement by Fidelity of this Agreement or any other Transaction Document, the
protection or enforcement of Fidelity's interest in the Collateral, the
collection by Fidelity of the Collateral, or the representation of Fidelity in
connection with any bankruptcy case or insolvency proceeding involving the
Company, the Collateral, or any Account Debtor, including, without limitation,
any representation involving relief rom a stay motion, a cash collateral
dispute, an assumption or rejection motion or a dispute concerning any proposed
disclosure statement and plan proposed in any such proceeding.
5.6. Fidelity shall be entitled to collect upon demand its normal and
customary charges for the following routine services provided or obtained in the
course of performing its functions with respect to the Collateral: lock box
charges and wire transfers.
5.7. All interest, fees and other amounts due to Fidelity pursuant to
this Section 5 shall be payable on demand, and may, in Fidelity's sole
discretion, be deducted from Revolver Advances or paid from the Cash Collateral.
All past due amounts owed hereunder, including but not limited to, past due
interest, fees and other amounts, that are not paid when due shall bear interest
from the date due until paid at the Late Payment Rate.
Section 6. Conditions Precedent to the Loans.
6.1. Fidelity shall not be obligated to make the Fixed Asset Loan, the
Real Estate Loan, the Standby Facility or any Revolver Advance hereunder
(including the first) until it shall have received the following documents, duly
executed in form and substance satisfactory to Fidelity and its counsel:
(a) continuing unconditional and absolute guaranty by Kris Shah of all
Obligations;
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(b) a certificate executed by the President and the Secretary of the
Company certifying (i) the names and signatures of the officers of the Company
authorized to execute Transaction Documents, (ii) the resolutions duly adopted
by the Board of Directors of the Company authorizing the execution of this
Agreement and the other Transaction Documents, and (iii) correctness and
completeness of the copy of the bylaws of the Company attached thereto;
(c) a certificate executed by the President and the Chief Financial
Officer of the Company certifying the satisfaction of the conditions set forth
in Section 7;
(d) certificates regarding the due formation, valid existence and good
standing of the Company in the state of its organization issued by the
appropriate governmental authorities in such jurisdiction;
(e) a release executed by the Bank of Yorba Linda releasing all liens
and security interests of the Bank of Yorba Linda in the Collateral;
(f) a release executed by Finova releasing all liens and security
interests of Finova in the Collateral;
(g) endorsements naming Fidelity as an additional insured or loss
payee, as appropriate, on all liability insurance and all property insurance
policies of the Company;
(h) a satisfactory appraisal of the Real Property by an appraiser
acceptable to Fidelity;
(i) a satisfactory appraisal of the eligible Machinery and Equipment
dated within one month of the date hereof by an appraiser acceptable to
Fidelity;
(j) a commitment for title insurance on the Real Property, acceptable
to Fidelity;
(k) the Mortgage;
(l) a Subordination Agreement executed by Kris Shah (the "Subordination
Agreement").
6.2. Fidelity shall not be obligated to make the Fixed Asset Loan, the
Real Estate Loan, the Standby Facility or any Revolver Advance hereunder
(including the first), unless (i) all representations and warranties made by the
Company in the Transaction Documents are true on and as of the date of the
making of the Fixed Asset Loan, the Real Estate Loan, the Standby Facility or
such Revolver Advance as if such representations and warranties had been made as
of the date thereof, (ii) the Company has performed and complied with all
agreements and conditions required in the Transactions Documents to be performed
or complied with by it on or prior to such date, (iii) no Event of Default or
any event or circumstance that, with the passage of time, the giving of notice
or both, would become an Event of Default shall have occurred, (iv)
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the making of the Fixed Asset Loan, the Real Estate Loan, the Standby Facility
or such Revolver Advance shall not be prohibited by any law or any regulation or
any order of any court or governmental agency or authority, (v) the Company
shall have not repudiated or made any anticipatory breach of any of its
obligations under any Transaction Document, and (vi) Fidelity shall have
approved the Fixed Asset Loan, the Real Estate Loan, the Standby Facility or
such Revolver Advance in its sole discretion.
Section 7. The Company's Representations and Warranties. The Company
represents and warrants to Fidelity on the date hereof, and shall be deemed to
represent and warrant to Fidelity on the date on which the Fixed Asset Loan, the
Real Estate Loan, the Standby Facility or any Revolver Advance is made to the
Company hereunder, that:
7.1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation, with all
requisite power and authority to execute, deliver and perform its obligations
under this Agreement and the other Transaction Documents to which it is a party
and to conduct its business as presently conducted. The Company is duly
qualified and authorized to do business as a foreign corporation and is in good
standing in all states in which such qualification and good standing are
necessary for the conduct by the Company of its business or the performance by
the Company of its obligations hereunder. The execution, delivery and
performance by the Company of this Agreement and the other Transaction Documents
to which it is a party do not and will not constitute (a) a violation of any
applicable law or the Company's articles or certificate of incorporation or
bylaws or (b) a material breach of any other document, agreement or instrument
to which the Company is a party or by which the Company is bound. This Agreement
and the other Transactions Documents to which the Company is a party have been
duly authorized, executed and delivered by the Company, and are legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms. No consent of, approval by, registration or filing with or
authorization from any governmental authority or agency is required in
connection with the execution, delivery or performance by the Company of this
Agreement or the other Transaction Documents to which it is a party.
7.2. None of the Eligible Accounts, the Eligible Inventory, the
Eligible Machinery and Equipment, the Real Property or any other Collateral is
subject to any lien, encumbrance, security interest or other claim of any kind
or nature, except for those liens that will be released upon the funding of the
first advance hereunder. The Company has not transferred, sold, pledged or given
a security interest in any of its Accounts, Inventory, machinery or equipment to
anyone other than Fidelity. There are no financing statements on file in any
public office governing any property of the Company of any kind, real or
personal, in which the Company is named in or has signed as the debtor, except
the financing statement or statements filed or to be filed in respect of this
Agreement or those statements on file that were disclosed in writing by the
Company to Fidelity prior to the execution and delivery of this Agreement.
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7.3. The Company is the sole owner and holder of, and has good and
defensible title to, all Collateral.
7.4. The amount of each Eligible Account is due and owing to the
Company and represents an accurate statement of a bona fide sale, delivery and
acceptance of Inventory or performance of service by the Company to or for an
Account Debtor. The terms for payment of the Eligible Accounts are 30 days from
date of invoice and the payment of the Eligible Accounts is not contingent upon
the fulfillment by the Company of any further performance of any nature
whatsoever. There are no set-offs, allowances, discounts, deductions,
counterclaims against the Eligible Accounts or any claims by Account Debtors, of
any kind whatsoever, valid or invalid, that have been or may be asserted as a
basis for refusing to pay an Eligible Account, in whole or in part, either at
the time it is accepted by Fidelity for inclusion in the Borrowing Base or prior
to the date it is to be paid. To the best of the Company's knowledge, each
Account Debtor's business is solvent. The Company has served or caused to be
served any and all preliminary notices required by law to perfect or enforce any
mechanic's lien or stop notice or bonded stop notice for the Eligible Accounts
and the information contained in those notices is true and correct to the best
of the Company's knowledge.
7.5. The address set forth below the Company's signature hereon is, and
for at least the last six months has been, the Company's mailing address, its
chief executive office, its principal place of business, the office where all of
the books and records concerning the Eligible Accounts are maintained and the
location of all Collateral. Prior to January 4, 1995, the Company's legal name
was Dril-Tron, Inc. The Company does not transact business, and has not
transacted business during the past five years, under any trade, fictitious or
assumed name, other than Dril-Tron, Inc. and those set forth under the Company's
signature hereon. During the past five years, the Company has not been a party
to a merger or consolidation and has not acquired all or substantially all of
the assets of any Person.
7.6. The Company has filed all tax reports and returns required to be
filed by it and has paid, when due and payable, all federal, state and local
taxes and governmental charges imposed upon the Company.
7.7. The Company is in compliance with ERISA, and is not required to
contribute to any "multiemployer plan" as defined in Section 4001 of ERISA. The
Company has conducted its business in material compliance with all applicable
laws, including but not limited to, applicable Environmental Laws, and maintains
and is in compliance with all licenses and permits required under any such laws
to conduct its business and perform its obligations hereunder. The Company does
not have any known material contingent liability under any Environmental
Law.
7.8. The application made by the Company to Fidelity in connection with
this Agreement and the statements made therein and in any materials furnished in
connection therewith are true and correct as of the date hereof. All financial
statements furnished by the
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Company to Fidelity in connection with such application were prepared in
accordance with GAAP and fairly present the financial condition and results of
operations of the Company as of the dates and for the periods indicated therein.
7.9. There is no fact which the Company has not disclosed to Fidelity
in writing which could materially adversely affect the properties, business or
financial condition of the Company, or any of the Collateral, or which it is
necessary to disclose in order to keep the foregoing representations and
warranties from being misleading.
Section 8. Covenants of the Company. From the date hereof and until the
payment and performance is full of all of the Obligations, the Company covenants
with Fidelity that:
8.1. The Company shall preserve and maintain its corporate existence,
good standing and authority to transact business in all jurisdiction where
necessary for the proper conduct of its business, and shall maintain all of its
properties, rights, privileges and franchises necessary in the normal conduct of
its business.
8.2. The Company shall permit Fidelity and its representatives,
including any appraisers, auditors and accountants selected by Fidelity, to
inspect any of the Collateral at any time during normal business hours. In
addition, Fidelity shall have the right, from time to time, to audit the
Company's books and records upon reasonable notice to the Company; provided that
so long as no Event of Default has occurred and is continuing, Fidelity shall
not conduct more than one audit per calendar quarter. The Company shall pay all
costs associated with any such audits at the rate of $700 per day per auditor
plus reasonable out-of-pocket expenses.
8.3. The Company shall maintain its books and records in accordance
with GAAP. The Company shall furnish Fidelity, upon request, such information
and statements as Fidelity shall request from time to time regarding the
Company's business affairs, financial condition and results of its operations.
Without limiting the generality of the foregoing, the Company shall provide
Fidelity, on or prior to the last day of each month, unaudited consolidated and
consolidating financial statements with respect to the prior month and, within
90 days after the end of each of the Company's fiscal years, audited annual
consolidated financial statements and such certificates relating to the
foregoing as Fidelity may request including, without limitation, a monthly
certificate from the president and chief financial officer of the Company
stating whether any events of Defaults have occurred and stating in detail the
nature thereof. The Company shall provide Fidelity a Borrowing Base Certificate,
appropriately completed and with all attachments, at any time that Fidelity
shall request and on or before the last day of any calendar week in which the
company does not request a Revolver Advance. In addition, the Company shall
furnish to Fidelity upon request a current listing of all open and unpaid
accounts payable and accounts receivable, names, addresses and contact persons
for Account Debtors, and such other items of information that Fidelity may deem
necessary or appropriate from time to time. The Company immediately shall notify
Fidelity in writing upon becoming aware of the existence of any condition or
circumstance that constitutes an Event of Default or that would, with the giving
of
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notice, the passage of time or both, constitute an Event of Default. Any such
written notice shall specify the nature of such condition or circumstance, the
period of the existence thereof and the action that the Company proposes to take
with respect thereto.
8.4. The Company promptly shall notify Fidelity of any attachment or
any other legal process levied against the Company and any action, suit,
proceeding or other similar claim of $25,000 or more initiated against the
Company.
8.5. The Company shall keep and maintain adequate insurance by insurers
acceptable to Fidelity with respect to its business and all Collateral, provided
that in no event shall such insurance coverage be less than the coverage set
forth on Exhibit "B." Fidelity agrees that as to the Collateral in existence as
of the date hereof, the coverage set forth on Exhibit "B" is satisfactory. Such
insurance shall cover loss, damages and liability of amounts not less than
reasonably requested by Fidelity and shall include, at a minimum, business
interruption insurance, insurance for workers compensation, general premises
liability, fire, casualty, theft and all risk. The Company shall cause Fidelity
to be an additional insured and loss payee under all policies of insurance
covering any of the Collateral, to the extent of Fidelity's interest. The
Company shall deliver copies of each insurance policy to Fidelity upon request.
8.6. The Company shall file all tax reports and returns required to be
filed by it in the manner and at the times required by applicable law, and shall
pay all federal, state and local taxes and charges imposed upon the Company when
due.
8.7. The Company shall comply with ERISA and shall not become required
to contribute to any "multiemployee plan" as defined in Section 4001 of ERISA.
The Company shall conduct its business in material compliance with all
applicable laws, and shall maintain and comply with all licenses and permits
required under any such laws to conduct its business and perform its obligations
hereunder. Without limiting the generality of the foregoing, the Company shall
comply in all material respects with all Environmental Laws now or hereafter
applicable to the Company and shall obtain, at or prior to the time required by
applicable Environmental Laws, all environmental, health and safety permits,
licenses and other authorizations necessary for its operations. The Company
promptly shall furnish to Fidelity all written notices of violation, complaints,
penalty assessments, suits or other proceedings received by the Company with
respect to any alleged violation of or non-compliance with any Environmental
Laws.
8.8. The Company shall maintain a Tangible Net Worth of not less than
(i) a negative $100,000 at any time after the date hereof, and (ii) the sum of a
negative $100,000 plus the greater of (A) $750,000 or (B) the net income of the
Company for its fiscal year 1996 at any time after December 30, 1996.
8.9. The Company shall maintain an Debt Coverage Ratio (determined as
of the last day of each calendar month) of not less than 1.5 to 1.0.
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<PAGE>
8.10. The Company shall at all times maintain Working Capital of not
less than (i) a negative $750,000 at any time after the date of the first
funding hereunder and (ii) a negative $250,000 at any time after December 30,
1996.
8.11. The Company shall not grant, create or allow to exist any
security interest, lien or other encumbrance on any of the collateral other than
(i) the lien and security interest granted to Fidelity herein, (ii) the existing
security interest of Phoenixcor on equipment of the Company, and (iii) purchase
money security interests in equipment of the Company at to which the Company has
given Fidelity written notice. The Company shall not execute any financing
statement in favor of any Person other than Fidelity, except a continuation
statement in favor of Phoenixcor or the holder of such a purchase money security
interest. The Company shall not change its mailing address, chief executive
office, principal place of business or place where such records are maintained,
open any new place of business, close any existing place of business or change
the location of any of the Collateral or transact business under any trade,
fictitious or assumed name other than those set forth under the company's
signature hereon without providing at least 30 days' prior written notice
thereof to Fidelity.
8.12. The Company shall not accept any returns or grant any allowance
or credit (other than those returns, allowances and credits accepted or granted
in the ordinary course of the Company's business) to any Account Debtor without
notice to and the prior written approval of Fidelity. The Company shall provide
to Fidelity for each Account Debtor on Eligible Accounts a weekly report, in for
and substance satisfactory to Fidelity, itemizing all such returns and
allowances made during the previous week with respect to such Eligible Accounts.
8.13. The Company shall not incur, directly, or indirectly, any
obligations for borrowed money or otherwise under any promissory note, bond,
indenture or similar instrument, or in connection with the obligations of any
Person (whether by guaranty, suretyship, purchase or repurchase agreement or
agreement to make investments or otherwise), other than in favor of Fidelity or
Kris Shah, provided that, pursuant to the Subordination Agreement, any
obligations for borrowed money owed by the Company to Kris Shah shall be
expressly subordinated to the Obligations, in the normal and ordinary course of
the Company's business.
8.14. The Company shall not use any of the funds paid to the Company
hereunder directly or indirectly for personal, family, household or agricultural
purposes.
8.15. The Company shall not directly or indirectly become liable in
connection with the obligations of any Person, whether by guarantee, surety,
endorsement (other than endorsement of negotiable instruments for collection in
the ordinary course of business), agreement to purchase or repurchase, agreement
to make investments, agreement to provide funds or maintain working capital, or
any agreement to assure a creditor against loss, other than in favor of
Fidelity.
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8.16. The Company shall not discontinue, or make any material change
in, its business as currently established, or enter any new or different line of
business not directly related to the Company's existing line of business.
8.17. The Company shall not make any loans or advances to or for the
benefit of any officer, director or shareholder of the Company except advances
for routine expense allowances in the ordinary course of business. The Company
shall not make any loans or advances to or for the benefit of any Affiliate of
the Company. The Company shall not make any payment on any obligation owing to
any officer, director, shareholder or Affiliate of the Company other than
payments to Kris Shah that are permitted under the Subordination Agreement.
8.18. The Company shall not purchase or otherwise acquire assets from
any Person outside the ordinary course of business of the Company.
8.19. The Company shall not invest in or otherwise purchase or acquire
the securities of any Person.
8.20. The Company shall not sell or dispose of any of its assets other
than the sale of Inventory in the ordinary course of business, and the Company
shall not dissolve or liquidate or become a party to any merger or consolidation
with any Person.
Section 9. Personal Property Collateral. In order to secure the payment
of all Obligations, the Company hereby grants to Fidelity a security interest in
and lien upon all of the Company's right, title and interest in and to (a) all
Accounts, contract rights and general intangibles, receivables and claims
whether now or hereafter arising, all guaranties and security therefor and all
of the Company's right title and interest in the goods purchased and represented
thereby including all of the Company's rights in and to returned goods and
rights of stoppage in transit, replevin and reclamation as unpaid vendor; (b)
all Inventory and all accessions thereto and products thereof and documents
therefor; (c) all equipment and machinery, wherever located and whether now or
hereafter existing, and all parts thereof, accessions thereto, and replacements
therefor and all documents and general intangibles covering or relating thereto;
(d) except to the extent prohibited by law or contract, all books and records
pertaining to the foregoing, including but not limited to computer programs,
data, certificates, records, circulation lists, subscriber lists, advertiser
lists, supplier lists, customer lists, customer and supplier contracts, sales
orders, and purchasing records; and (e) all proceeds of the foregoing
(collectively, the "Personal Property Collateral"). The Company agrees to comply
with all appropriate laws in order and to take all actions necessary or
desirable in Fidelity's judgment to perfect Fidelity's security interest in and
to the Personal Property Collateral, to execute any financing statement or
additional documents as Fidelity may request and to deliver to Fidelity a list
of all locations of its Inventory, equipment and machinery and landlord and or
mortgagee lien waivers with respect to each site where Inventory, equipment or
machinery is located and which is either leased by the Company or has been
mortgaged by the Company, upon request by Fidelity.
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<PAGE>
Section 10. Collection. Each invoice representing an Account shall
state on its face that amounts payable thereunder are payable only at the
Remittance Address. Fidelity shall have the right at any time, either before or
after the occurrence of an Event of Default and without notice to the Company,
to notify any or all Account Debtors on the Personal Property Collateral of the
assignment of the Personal Property Collateral to Fidelity and to direct such
Account Debtors to make payment of all amounts due or to become due to the
Company directly to Fidelity, and to the extent permitted by law, to enforce
collection of any Personal Property Collateral and to adjust, settle or
compromise the amount or payment thereof. So long as no Event of Default or
event that, with the passage of time, the giving of notice or both, would become
an Event of Default has occurred and is continuing, all collections of Personal
Property Collateral or any other evidences of payment received by Fidelity shall
be applied by Fidelity to the payment of the Obligations of the Company to
Fidelity whether or not then due and any remaining funds shall be delivered to
the Company. Upon the occurrence of an Event of Default or an event that, with
the passage of time, the giving of notice or both, would become an Event of
Default, any such remaining funds may be held by Fidelity as cash collateral
("Cash Collateral") until all Obligations have been paid in full and Fidelity
has no further obligation to advance funds to the Company. All amounts and
proceeds (including instruments and writings) received by the Company in respect
of the Personal Property Collateral shall be received in trust for the benefit
of Fidelity hereunder, shall be segregated from other funds of the Company and
shall be promptly paid over to Fidelity in the same form as received (with any
necessary endorsement) to be applied in the same manner as payments received
directly by Fidelity.
Section 11. Power of Attorney. The Company grants to Fidelity an
irrevocable power of attorney coupled with an interest authorizing and
permitting Fidelity, at its option, with or without notice to the Company, to do
any or all of the following: (a) endorse the name of the Company on any checks
or other evidences of payment whatsoever that may come into the possession of
Fidelity regarding Personal Property Collateral, including checks received by
Fidelity pursuant to Section 10 hereof; (b) receive, open and forward any mail
addressed to the Company and put Fidelity's address on any statements mailed to
Account Debtors; (c) upon the occurrence of an Event of Default, pay, settle,
compromise, prosecute or defend any action, claim, conditional waiver and
release, or proceeding relating to Personal Property Collateral; (d) upon the
occurrence of an Event of Default, notify, in the name of the Company, the U.S.
Post Office to change the address for delivery of mail addressed to the Company
to such address as Fidelity may designate (provided that Fidelity shall turn
over to the Company all such mail not relating to Personal Property Collateral);
(e) upon the occurrence of an Event of Default, verify, sign, acknowledge,
record, file for recording, serve as required by law, any claim of mechanic's
lien, stop notice or bonded stop notice in the sole and absolute discretion of
Fidelity relating to any Personal Property Collateral; (f) upon the occurrence
of an Event of Default, insert all recording or service information in any
mechanic's lien or assignment of rights under stop notice/bonded stop notice
which the Company has signed in connection with this Agreement, recorded or
served to enforce payment of the Personal Property Collateral; (g) execute and
file on behalf of the Company any financing statement, amendment thereto or
continuation thereof (i) deemed necessary or appropriate by Fidelity to protect
Fidelity's interest in and to the Personal
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<PAGE>
Property Collateral or (ii) required or permitted under any provision of this
Agreement; and (h) upon the occurrence of an Event of Default, do all other
things necessary and proper in order to carry out this Agreement. The authority
granted to Fidelity herein is irrevocable until this Agreement is terminated and
all amounts due to Fidelity hereunder have been paid in full.
Section 12. Default. An event of default ("Event of Default") shall be
deemed to have occurred hereunder, Fidelity shall have no further obligation to
make any further Revolver Advances and may immediately exercise its rights and
remedies with respect to the Collateral under this Agreement, the Uniform
Commercial Code and applicable law, upon the happening of one or more of the
following:
(a) The Company shall fail to pay as and when due any amount owed by
the Company to Fidelity, whether hereunder or otherwise.
(b) The Company shall breach any covenant or agreement made herein or
in any other Transaction Document or any warranty or representation made herein
or in any other Transaction Document shall be untrue when made, and in either
case, the same shall not be cured to Fidelity's satisfaction within ten days
after such covenant or agreement is breached or such representation or warranty
is made; provided that if any such breach is impossible to remedy within ten
days, so long as the Company has undertaken (within the initial ten day cure
period) the steps necessary to remedy such breach and the Company diligently
continues to take all steps necessary to cure such failure, the ten day cure
period will be extended, but in no event shall the cure period exceed sixty
days.
(c) Any report, certificate, schedule, financial statement, profit and
loss statement or other statement furnished by the Company, or by any other
person on behalf of the Company, to Fidelity is not true and correct in any
material respect.
(d) There shall be commenced by the Company or any guarantor of the
Obligations any voluntary case under the federal Bankruptcy Code, or the Company
or any guarantor of the Obligations shall make an assignment for the benefit of
its creditors, or of a receiver or custodian shall be appointed for the Company
or any guarantor of the Obligations for a substantial portion of its assets.
(e) There shall be commenced against the Company or any guarantor of
the Obligations any involuntary case under the federal Bankruptcy Code, which
remains undismissed for a period of sixty days.
(f) The Company shall become insolvent in that its debts are greater
than the fair value of its assets, or the Company is generally not paying its
debts as they become due.
(g) Any involuntary lien, garnishment, attachment or the like shall be
issued against or shall attach to the Collateral and the same is not released
within ten days.
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<PAGE>
(h) An event or circumstance shall have occurred which has or may
result in a material adverse change in the Company's financial condition,
business or operations.
(i) The Company shall have a federal or state tax lien filed against
any of its properties, or shall fail to pay any federal or state tax when due,
or shall fail to file any federal or state tax form or report as and when due.
(j) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$25,000 exists with respect to any ERISA Plan, or (ii) any Termination Event
occurs with respect to any ERISA Plan and the then current value of such ERISA
Plan's benefit liabilities exceeds the then current value of such ERISA Plan's
assets available for the payment of such benefit liabilities by more than
$25,000.
(k) The Company suffers the entry against it a final judgment for the
payment of money in excess of $35,000.
(l) Fidelity believes that the prospect for payment or performance of
the Obligations has become impaired.
(m) Any guarantor of the Obligations shall repudiate his, her or its
obligations in respect of such guaranty.
(n) Kris Shah, his spouse, the blood relatives of Kris Shah and any
trusts for the exclusive benefit of any blood relatives of Kris Shah, Kris Shah,
his spouse or lineal descendants cease to own or control in the aggregate at
least 51% of the outstanding capital stock of the Company.
Upon the occurrence of an Event of Default described in subsections (d) or (e)
of this section, all of the Obligations owing by the Company to Fidelity under
any of the Transaction Documents shall thereupon be immediately due and payable,
without demand, presentment, notice of demand or of dishonor and nonpayment, or
any other notice or declaration of any kind, all of which are hereby expressly
waived by the Company. During the continuation of any other Event of Default,
Fidelity, at any time and from to time to time, may declare any or
22
<PAGE>
all of the Obligations owing by the Company to Fidelity under any of the
Transaction Documents immediately due and payable, all without notice, demand,
presentment, notice of demand or of dishonor and nonpayment, or any notice or
declaration of any kind, all of which are hereby expressly waived by the
Company. After any such acceleration (whether automatic or due to declaration by
Fidelity), any obligation of Fidelity to make any further Revolver Advances or
loans of any kind under this Agreement or any other agreement with the Company
shall terminate. All Revolver Advances hereunder are subject to approval by
Fidelity in its sole discretion, and may be declined in whole or in part,
without prior notice to the Company, whether or not an Event of Default may then
be in existence.
Section 13. Remedies and Application of Proceeds.
13.1. In addition to, and with limitation of, the foregoing provisions
of this Agreement, if an Event of Default shall have occurred and be continuing,
Fidelity may from time to time in its discretion, without limitation and without
notice except as expressly set forth herein: (A) exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein, under
the other Transaction Documents or otherwise available to it, all the rights and
remedies of a secured party on default under the UCC (whether or not the UCC
applies to the affected Collateral); (b) require the Company to, and the Company
hereby agrees that it will at its expense, assemble all or part of the
Collateral as directed by Fidelity and make it available to Fidelity at a place
to be designated by Fidelity that is reasonably convenient to both parties; (c)
reduce its claim to judgment or foreclose or otherwise enforce, in whole or in
part, the security interest created hereby by any available judicial procedure;
(d) dispose of, at its office, on the premises or the Company or elsewhere, all
or any part of the Collateral, as a unit or in parcels, by public or private
proceedings; (e) buy the Collateral, or any part thereof, at any public sale, or
at any private sale if the Collateral is of a type customarily sold in a
recognized market or is of a type that is the subject to widely distributed
standard price quotations; (f) apply by appropriate judicial proceedings for
appointment of a receiver for the Collateral, or any part thereof, and the
Company hereby consents to any such appointment; and (g) at its discretion,
retain the Collateral in satisfaction of the Obligations whenever the
circumstances are such that Fidelity is entitled to do so under the UCC or
otherwise. The Company agrees that, to the extent notice of sale shall be
required by law, unless a longer period of notice is prescribed by law, at least
five days' notice to the Company of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notification. Fidelity shall not be obligated to make any sale of Collateral
regardless of whether any notice of sale has been given. Fidelity may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.
13.2. If any Event of Default shall have occurred and be continuing,
Fidelity may in its discretion apply any Cash Collateral, and any cash proceeds
received by Fidelity in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral, to any or all of the
following in such order as Fidelity may elect: (a) the repayment of all or any
portion of the
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<PAGE>
Obligations; (b) the repayment of reasonable costs and expenses, including
reasonable attorneys' fees and legal expenses, incurred by Fidelity in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral, (iii) the exercise or enforcement of any of
the rights of Fidelity hereunder, or (iv) the failure of the Company to perform
or observe any of the provisions hereof; (c) the payment or other satisfaction
of any liens and other encumbrances upon any of the Collateral; (d) the
reimbursement of Fidelity for the amount of any obligations of the Company paid
or discharged by Fidelity, and of any expenses of Fidelity payable by the
Company hereunder or under the other Transaction Documents; (e) by holding the
same as Collateral; (f) the payment of any other amounts required by applicable
law (including, without limitation, Part 5 of Article 9 of the UCC or any
successor or similar applicable statutory provision); and (g) by delivery to the
Company or to whomsoever shall be lawfully entitled to receive the same or as a
court of competent jurisdiction shall direct.
Section 14. Miscellaneous.
14.1. In the event that the Company commits any act or omission that
prevents or unreasonably interferes with (a) Fidelity's exercise of the rights
and privileges arising under the power of attorney granted in Section 11 of this
Agreement or (b) Fidelity's perfection of or levy upon the security interest
granted in the Collateral, including any seizure of any Collateral, the Company
acknowledges that such conduct will cause immediate, severe, incalculable and
irreparable harm and injury, and agrees that such conduct shall constitute
sufficient grounds to entitle Fidelity to an injunction, writ of possession, or
other applicable relief in equity, and to make such application for such relief
in any court of competent jurisdiction, without any prior notice to the
Company.
14.2. All rights, remedies and powers granted to Fidelity in this
Agreement, or in any other instrument or agreement given by the Company to
Fidelity or otherwise available to Fidelity in equity or at law, are cumulative
and may be exercised singularly or concurrently with such other rights as
Fidelity may have. These rights may be exercised from time to time as to all or
any part of the Collateral as Fidelity in its discretion may determine. In the
event that Fidelity elects to purchase the Eligible Accounts hereunder, such
transaction shall constitute a purchase of Accounts under the UCC, and the
Company shall be deemed to have sold, assigned, transferred, conveyed and
delivered to Fidelity, as absolute owner, all of the rights, title and interest
of the Company in and to all Eligible Accounts. No waiver by Fidelity of its
rights and remedies shall be effective unless the waiver is in writing and
signed by Fidelity. A waiver by Fidelity of a right or remedy under this
Agreement or any other Transaction Document on one occasion shall not be deemed
to be a waiver of such right or remedy on any subsequent occasion. A Revolver
Advance by Fidelity during the-continuation of an Event of Default shall not
obligate Fidelity to make any further Revolver Advances during the continuation
of such Event of Default.
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<PAGE>
14.3. Any notice or communication with respect to this Agreement or any
other Transaction Document shall be given in writing, sent by (i) personal
delivery, (ii) expedited delivery service with proof of delivery, (iii) United
States mail, postage prepaid, registered or certified mail, or (iv) prepaid
telegram, telex or telecopy, addressed to each party hereto at its address set
forth below its signature hereon or to such other address or to the attention of
such other Person as hereafter shall be designated in writing by the applicable
party sent in accordance herewith. Any such notice or communication shall be
deemed to have been given either at the time of personal delivery or, in the
case of delivery service or mail, as of the date of first attempted delivery at
the address and in the manner provided herein, or in the case of telegram, telex
or telecopy, upon receipt The Company hereby agrees that Fidelity may publicize
the transaction contemplated by this Agreement in newspapers, trade and similar
publications including, without limitation, the publication of a
"tombstone".
14.4. The term of this Agreement shall be for one year from the date
hereof (the original term, and any extension thereof made by Fidelity pursuant
to this section, are herein called the "Term"); provided, however, that Fidelity
may extend the term hereof for additional one-year periods, if Fidelity elects
to do so in its sole discretion, by notifying the Company in writing at least 30
days before the end of the term then in effect; and provided further that
Fidelity may terminate this Agreement at any time effective immediately upon the
occurrence of an Event of Default. The Company acknowledges that it shall have
no right to terminate this Agreement prior to the end of the Term, that
termination of this Agreement at any time prior to the end of the Term would
result in the loss by Fidelity of benefits under this Agreement and that the
damages incurred by Fidelity as a result of such termination would be difficult
and impractical to ascertain. Therefore, in the event this Agreement is
terminated prior to the end of the Term for any reason or the Fixed Asset Loan
is repaid in full (no termination fee shall be due solely as a result of the
prepayment of the Real Estate Loan), the Company shall pay to Fidelity an early
termination fee in an amount equal to (x) the average monthly accrued interest
and fees earned by Fidelity hereunder prior to the date of termination
multiplied by (y) the number of months remaining in the Term as of the date of
termination, but in no event shall such early termination fee exceed the maximum
amount permitted by applicable law. Any termination of this Agreement shall not
affect Fidelity's security interest in the Collateral, and this Agreement shall
continue to be effective, until all Obligations have been paid in full.
14.5. Fidelity agrees that, so long as no Event of Default has occurred
and is continuing, upon receipt by Fidelity of payment in full of the
outstanding principal balance of the Real Estate Loan, together with interest
thereon, Fidelity shall at the expense of the Company execute and deliver such
instruments and documents as the Company may reasonably request to release the
Mortgage.
14.6. Each and every provision, condition, covenant and representation
contained in this Agreement is, and shall be construed, to be a separate and
independent covenant and agreement. If any term or provision of this Agreement
shall to any extent be invalid or unenforceable, the remainder of the Agreement
shall not be affected thereby.
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14 7. The Company hereby indemnifies and agrees to hold harmless and
defend all Indemnified Persons from and against any and all Indemnified Claims.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH INDEMNIFIED CLAIMS
ARE IN ANY WAY OR TO ANY EXTENT OWNED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR
THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN-PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY INDEMNIFIED PERSON.
If any Indemnified Claim is asserted against any Indemnified Person,
such Indemnified Person shall promptly notify the Company (but the failure to so
promptly notify the Company shall not affect the Company's obligations under
this section unless such failure materially prejudices the Company's right to
participate in the contest of such Indemnified Claim). The Company shall have
the obligation to assume the defense thereof, including the employment of
Advisors to take the lead role in asserting claims and defenses common to both
the Company and the various Indemnified Persons ("Lead Advisors"), provided that
all Persons chosen to be Lead Advisors must be consented to by Fidelity, which
consent will not be unreasonably withheld. If Lead Advisors are employed and
consented to in accordance with the preceding sentence, each Indemnified Person
shall nonetheless have the right to employ its own Advisors and to determine its
own defense of such action in any case, but the fees and expenses of such
Advisors shall be at the expense of such Indemnified Person except to the extent
that: (i) the employment of such Advisors shall have been authorized in writing
by the Company, or (ii) such Indemnified Person's counsel shall have reasonably
concluded that there appear to be claims or defenses available to it which are
not shared by the Company and such Advisors are engaged in reasonable efforts to
assert such claims and defense, in either of which events the reasonable fees
and expenses of such Indemnified Person shall be born by the Company. No
Indemnified Person shall settle or compromise any Indemnified Claim for which
the Company may be liable for payment hereunder nor shall the Company settle or
compromise any Indemnified Claim for which any Indemnified Person may be liable
for payments in addition to those actually and concurrently made by the Company,
without the consent of the other, which consent shall not be unreasonably
withheld. As used herein the term "Advisors" means attorneys, accountants,
experts, and other advisors.
Except as specifically provided in this section, the Company waives all
notices from any Indemnified Person. The provisions of this Section 14.7 shall
survive the termination of this Agreement.
14.8. All grants, covenants and agreements contained in this Agreement
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Company may not delegate or
assign any of its duties or obligations under this agreement without the prior
written consent of Fidelity. FIDELITY RESERVES THE RIGHT TO ASSIGN ITS RIGHTS
AND OBLIGATIONS UNDER THIS AGREEMENT IN WHOLE OR IN PART TO ANY PERSON OR
ENTITY. Without limiting the generality of the foregoing, Fidelity may from time
to time grant participations in all or any part
26
<PAGE>
of the Obligations to any Person on such terms and conditions as may be
determined by Fidelity in its sole and absolute discretion, provided that the
grant of such participation shall not relieve Fidelity of its obligations
hereunder nor create any additional obligation of the Company.
14.9. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE
RULES THEREFORE RELATING TO CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY
SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN CALIFORNIA AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE
MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT, ANY BORROWING
HEREUNDER OR ANY OTHER RELATIONSHIP BETWEEN FIDELITY AND THE COMPANY BY ANY
MEANS ALLOWED UNDER STATE AND FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF
OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY BORROWING HEREUNDER OR ANY OTHER
RELATIONSHIP BETWEEN FIDELITY AND THE COMPANY SHALL BE BROUGHT AND LITIGATED
EXCLUSIVELY IN ANY ONE OF THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF
CALIFORNIA HAVING JURISDICTION. THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER.
14.10. EACH OF THE COMPANY AND FIDELITY HEREBY (A) IRREVOCABLY WAIVES,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY OR ASSOCIATED HEREWITH; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFIES TEAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK-TO ENFORCE THE FOREGOING WAIVERS, AND (D)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS PARAGRAPH.
14.11. THIS AGREEMENT, THE SECURITY DOCUMENTS DESCRIBED HEREBY AND THE
ACKNOWLEDGMENT DELIVERED IN CONNECTION
27
<PAGE>
HEREWITH SET FORTH THE ENTIRE UNDERSTANDING AND AGREEMENT OF THE PARTIES HERETO
WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. NO MODIFICATION OR AMENDMENT OF OR SUPPLEMENT TO THIS AGREEMENT OR TO
SUCH ACKNOWLEDGMENT SELL BE VALID OR EFFECTIVE UNLESS THE SAME IS IN WRITING AND
SIGNED BY THE PARTY AGAINST WHOM IT IS SOUGHT TO BE ENFORCED.
14.12. Fidelity hereby acknowledges that the Company is considering
incorporating the Company's divisions, INTERCON and INFOSEC, into separate
corporations and filing registration statements with the Securities and Exchange
Commission or other similar governmental authority. In the event the Company
proceeds with its plans to so incorporate and publicly register its divisions,
the Company and Fidelity shall enter into discussions concerning any waivers or
consents that may be required to effect such incorporation and public
registration.
28
<PAGE>
The undersigned have entered into this Agreement as of the date first
written above.
FIDELITY FUNDING OF
CALIFORNIA, INC. LITRONIC INDUSTRIES, INC.
a California corporation a California corporation
By: [AUTHORIZED SIGNATORY] By: /S/ KRIS SHAH
--------------------------
Name: James E. [illegible] Kris Shah
Title: Senior Vice President President
Mailing Address:
275 East Baker Street, Suite A 2950 Redhill Avenue
Costa Mesa, California 92626 Costa Mesa, California 92626
Street Address:
Same Same
Trade, Fictitious and Assumed Names
Used by the Company
___________________________________
29
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
LITRONIC INDUSTRIES, INC.
DATE: JUNE 27, 1996
REPORT #: 1
<TABLE>
<CAPTION>
FINISHED RAW STANDBY
COLLATERAL ACCOUNTS GOODS MATERIALS FACILITY
RECEIVABLE INVENTORY INVENTORY AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 GROSS COLLATERAL AS OF LAST REPORT #:
INITIAL DATA REPORT DATE: JUNE 25,
1996 INITIAL DATA LINE 6 PRIOR REPORT 1,261,829 16,127 438,088 250,000
2 ADD SALES ASSIGNED AND INVENTORY N/A
ADDITIONS
3 ADD DEBIT MEMOS AND OTHER ADJUSTMENTS N/A
4 LESS CASH COLLECTIONS AND INVENTORY N/A
REDUCTIONS
5 LESS DISCOUNTS, CREDIT MEMOS AND N/A
ADJUSTMENTS
6 GROSS COLLATERAL PER THIS REPORT 1,261,829 16,127 438,088 250,000
7 INELIGIBLE COLLATERAL
ACCOUNTS RECEIVABLE INVENTORY
- ----------------------------------------------------------
A PAST DUE OVER 90 DAYS OBSOLETE 24,317 0 0 N/A
B CREDITS OVER 90 DAYS SLOW MOVE 0 0 0 N/A
C CROSS AGING CONSIGNED 0 0 0 N/A
D COD SALES LESS THAN 4 MONTHS 0 0 99,341 N/A
E FOREIGN RECEIVABLES PACKAGING 19,332 0 0 N/A
F CONTRA ACCOUNTS OTHER 0 0 0 N/A
G UNRECONCILED A/R OVERAGE 0 N/A
H OTHER 0 N/A
-------------------------------------------------------
8 TOTAL INELIGIBLE PER THIS REPORT (SUM
7A THROUGH 7H) 43,649 0 99,341 N/A
-------------------------------------------------------
9 NET ELIGIBLE PER COLLATERAL (6-8) 1,218,180 16,127 338,747 N/A
10 ADVANCE RATE 85% 50% 50% N/A
-------------------------------------------------------
11 COLLATERAL AVAILABILITY TOTAL
---------
1,462,890 1,035,453 8,064 169,374 250,000
12 BORROWING BASE
LESSER OF 11 OR REVOLVER COMMITMENT
TOTAL OF: $2,750,000 1,462,890
13 LESS SPECIAL RESERVE N/A N/A N/A N/A N/A
-----------------------------------------------------------------------
14 NET AVAILABILITY BEFORE LOAN BALANCE
(12-13) 1,462,890 1,035,453 8,064 169,374 250,000
-----------------------------------------------------------------------
LOAN
- -----------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINISHED RAW STANDBY
COLLATERAL ACCOUNTS GOODS MATERIALS FACILITY
RECEIVABLE INVENTORY INVENTORY AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15 LOAN BALANCE - LAST REPORT LINE 22 0 0 0 0 0
16 LESS PAYMENTS FROM COLLECTIONS
-----------------------------------------------------------------------
17 BALANCE PER FIDELITY FUNDING OF
CALIFORNIA REPORT PRIOR TO NEW ACTIVITY 0 0 0 0 0
18 LESS NON-COLLECTION PAYMENTS
19 ADD LOAN ADJUSTMENTS:
INTEREST
MONTHLY SERVICE FEE - .13% OF AVERAGE
MONTHLY REVOLVER
WIRE TRANSFER FEES
OTHER - SPECIFY:
-----------------------------------------------------------------------
0 0 0 0 0
10 ADD LINE MAINTENANCE FEE N/A N/A N/A N/A N/A
21 ADD ADVANCE REQUEST THIS REPORT 500,000 500,000 0 0 0
-----------------------------------------------------------------------
22 NEW LOAN BALANCE 500,000 500,000 0 0 0
-----------------------------------------------------------------------
23 EXCESS AVAILABILITY 962,890 535,453 8,064 169,374 250,000
-----------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
LITRONIC INDUSTRIES, INC.
DATE: JUNE 27, 1996
REPORT#: 1
THE UNDERSIGNED HEREBY CERTIFIES TO FIDELITY FUNDING OF CALIFORNIA, INC.
("FIDELITY") THAT:
1 HE IS THE DULY ELECTED AND QUALIFIED CHIEF FINANCIAL OFFICER OF LITRONIC,
INDUSTRIES, INC. (THE "COMPANY"), IS FAMILIAR WITH THE FACTS HEREIN
CERTIFIED AND IS DULY AUTHORIZED TO CERTIFY SUCH FACTS AND MAE AND DELIVER
THIS BORROWING BASE CERTIFICATE FOR AN ON BEHALF OF THE COMPANY, PURSUANT TO
THAT CERTAIN LOAN AND SECURITY AGREEMENT, (THE "AGREEMENT"), DATED AS OF
JUNE ____, 1996 BETWEEN THE COMPANY AND FIDELITY.
2 ALL REPRESENTATIONS AND WARRANTIES MADE BY THE COMPANY IN THE AGREEMENT OR
ANY OTHER INSTRUMENT DOCUMENT, CERTIFICATE OR OTHER AGREEMENT EXECUTED IN
CONNECTION THEREWITH (COLLECTIVELY, THE "TRANSACTION DOCUMENTS") DELIVERED
ON OR BEFORE THE DATE HEREOF ARE TRUE ON AND AS OF THE DATE HEREOF AS IF
SUCH REPRESENTATIONS AND WARRANTIES HAD BEEN MADE AS OF THE DATE HEREOF.
3 NO EVENTS OF DEFAULT OR ANY EVENT, THAT WITH THE GIVING OF NOTICE, THE
PASSAGE OF TIME OR BOTH, WOULD CONSTITUTE AN EVENT OF DEFAULT HAS OCCURRED
AND IS EXISTING.
4 THE COMPANY HAS PERFORMED AND COMPLIED WITH ALL AGREEMENTS AND CONDITIONS
REQUIRED IN THE TRANSACTION DOCUMENTS TO BE PERFORMED OR COMPLIED WITH BY IT
ON OR PRIOR TO THE FUNDING OF THE ADVANCE REQUESTED HEREBY.
5 AFTER FIDELITY MAKES THE ADVANCE REQUESTED HEREBY, THE AGGREGATE AMOUNT OF
ALL OUTSTANDING ADVANCES WILL NOT EXCEED THE LESSER OF (i) THE COMMITMENT
AND (ii) THE BORROWING BASE.
6 ALL INFORMATION CONTAINED IN THIS BORROWING BASE CERTIFICATE IS TRUE,
CORRECT AND COMPLETE.
TERMS USED AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANING ASSIGNED TO
THEM IN THE AGREEMENT, IF SO DEFINED UNDER SECTION 1. "DEFINITIONS AND
CONSTRUCTION" OF THE AGREEMENT.
IN WITNESS WHEREOF, THIS INSTRUMENT IS EXECUTED BY THE UNDERSIGNED AS OF JUNE
27, 1996:
LITRONIC INDUSTRIES, INC.
---------------------------
THOMAS W. SEYKORA
<PAGE>
CHIEF FINANCIAL OFFICER
33
<PAGE>
EXHIBIT B
- -------------------------------------------------------------------------------
ACORD CERTIFICATE OF LIABILITY INSURANCE DATE: 6/25/96
- ------------------------------------------------------------------------------
PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER
WIGMORE INSURANCE AGENCY, INC. OF INFORMATION ONLY AND CONFERS NO
2970 HARBOR BLVD. #215 RIGHTS UPON THE CERTIFICATE HOLDER, THIS
COSTA MESA, CA 92626 CERTIFICATE DOES NOT AMEND, EXTEND OR
ALTER THE COVERAGE AFFORDED BY THE
POLICIES BELOW.
- ------------------------------------------------------------------------------
COMPANIES AFFORDING COVERAGE
- ------------------------------------------------------------------------------
COMPANY
A ZURICH AMERICAN
- ------------------------------------------------------------------------------
INSURED COMPANY
DRIL-TRON, INC., DBA: LITRONICS B SCOTTSDALE
2950 REDHILL AVE. ---------------------------------------
COSTA MESA, CA 92627 COMPANY
C PACIFIC NATIONAL
---------------------------------------
COMPANY
D
- ------------------------------------------------------------------------------
COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN
ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED,
NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER
DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN,
THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE
TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN
REDUCED BY PAID CLAIMS.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CO POLICY POLICY
LTR TYPE OF INSURANCE POLICY NUMBER EFFECTIVE EXPIRATION LIMITS
DATE DATE
(MM/DD/YY) (MM/DD/YY)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A GENERAL LIABILITY
# COMMERCIAL GENERAL LIABILITY CPO134189807 04/28/96 04/28/97 GENERAL AGGREGATE $ 2,000,000
-----------------------------------
CLAIMS MADE # OCCUR PRODUCTS - COMP/OP $
OWNER'S & CONTRACTORS PROT AGG
-----------------------------------
PERSONAL & ADV $ 1,000,000
INJURY
-----------------------------------
EACH OCCURRENCE $ 1,000,000
------------------------------------
FIRE DAMAGE (any $ 50,000
one fire)
-----------------------------------
MED EXP (any one $ 5,000
person)
- -----------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE LIABILITY COMBINED SINGLE $
ANY AUTO LIMIT
-----------------------------------
ALL OWNED AUTOS BODILY INJURY (per $
SCHEDULED AUTOS person)
HIRED AUTOS -----------------------------------
NON-OWNED AUTOS BODILY INJURY (per $
accident)
-----------------------------------
PROPERTY DAMAGE $
- -----------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY - EA $
ANY AUTO ACCIDENT
-----------------------------------
OTHER THAN AUTO
ONLY:
-----------------------------------
EACH ACCIDENT $
-----------------------------------
AGGREGATE $
- -----------------------------------------------------------------------------------------------------------------------------------
A EXCESS LIABILITY EACH OCCURRENCE $ 2,000,000
-----------------------------------
UMBRELLA FORM CC13419007 04/28/96 04/28/97 AGGREGATE $ 2,000,000
-----------------------------------
# OTHER THAN U
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------
$
- -----------------------------------------------------------------------------------------------------------------------------------
C WORKERS COMPENSATION AND WC STATUTORY LIMITS OTHER
EMPLOYERS= LIABILITY LIMITS OTHER
-----------------------------------
THE PROPRIETOR/ INC WC2386063 10/01/95 10/01/96 EL EACH ACCIDENT $ 1,000,000
-----------------------------------
PARTNERS/EXECUTIVES EL DISEASE - POLICY $ 1,000,000
OFFICERS ARE # EXCL LIMIT
-----------------------------------
EL DISEASE - EA $ 1,000,000
EMPLOYEE
- -----------------------------------------------------------------------------------------------------------------------------------
B OTHER
EARTHQUAKE BLDG CS029449 02/03/96 02/03/97 3,500,000
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
ZURICH POLICY: BLDG COVERAGE $3,500,000 CONTENTS $5,500,000
CERTIFICATE HOLDER IS NAMED ADDITIONAL INSURED
- ----------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
FIDELITY FUNDING OF CAL. SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELED BEFORE
275 E. BAKER SUITE A EXPIRATION DATE THEREOF,THE ISSUING COMPANY WILL ENDEAVOR TO
COSTA MESA, CA 92626 MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO
ATTN: JIM ALDREDGE THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO
OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS
OR REPRESENTATIVES.
--------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.11
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
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
(x) SEC. DESCRIPTION PAGE(S)
Part I - The Schedule
X A Solicitation/Contract Form 1-2
X B Supplies or Services and Prices/Costs 3
X C Description/Specs./Work Statement 4
X D Packaging and Marking 4
X E Inspection and Acceptance 5
X F Delivers or Performance 6-7
X G Contract Administration Data
8-11
X H Special Contract Requirements
11-21
<PAGE>
Part II - Contract Clauses
X I Contract Clauses 22-33
Part III - List of Documents, Exhibits and Other Attachments
X J List of Attachments 34
Part IV - Representations and Instructions
K Representations, Certifications
L Instrs., Cond., and Notices to Offerors
M Evaluation Factors for Award
Contracting Officer will complete item 17 or 18 as applicable
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>
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, 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>
MDA904-97-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
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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
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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
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G.7 352.229-9001 MD TAX EXEMPTION NUMBER (APR 1989)
Certain transactions which occur pursuant to this contract, for examples,
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.ll 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>
MDA904-97-C-0424
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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 ad ministration 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>
MDA904-97-C-0424
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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>
MDA904-97-C-0424
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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 Con tractor 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>
MDA904-97-C-0424
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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 contract. 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,
crypto-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 mat erials 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 Anonymity 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.
<PAGE>
(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 markings as-
<PAGE>
MDA904-97-C-0424
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sociated 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. he 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.
* greater than
<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 (I October 1997 - 30 September 1998)
<TABLE>
<CAPTION>
CLIN SUPPLIES/SERVICES UNIT QTY UNIT PRICE
TOTAL
<S> <C> <C> <C>
0001 The contractor shall furnish the HRS 11,400 XXX
$1,071,465.00
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 $1,071,465.00
</TABLE>
<PAGE>
MDA904-97-C-0424
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<TABLE>
<S> <C> <C> <C>
0002 Award Fee Pool, to be determined in accordance For the Period $l07,147.00
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 $ 50,000.00
(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> <C>
0001 The contractor shall furnish the necessary HRS 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
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 $645,526.00
</TABLE>
<PAGE>
MDA904-97-C-0424
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0002 Award Fee Pool, to be determined in For the Period $64,553.00
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 Contact For The Lot Not-Separately Priced
Data Item Requirements List (CDRL)
Dated 13 February 1997.
</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>
MDA904-97-C-0424
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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)
IF:
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%
CALCULATION:
[(5.5% / 360) X 60] X (225,000 - 125,000) = 916.67
(End of Clause)
<PAGE>
MDA904-97-C-0424
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SECTION I - CONTRACT CLAUSES
l.l REFERENCED CLAUSES. The following contract clauses pertinent to this
section are hereby incorporated by reference:
CLAUSE NO. TITLE
FAR CLAUSES
<TABLE>
<CAPTION>
<S> <C>
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)
<CAPTION>
DFARS CLAUSES
<S> <C>
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)
</TABLE>
<PAGE>
MDA904-97-C-0424
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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) If 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. If 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
<PAGE>
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;
<PAGE>
MDA904-97-C-0424
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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>
(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)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
( ) 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 199
7) Modifications (JAN 1997) - Alternate II (OCT 1995)
( ) 52.215-42 Requirements for Cost or Pricing Data or Information
Other Than Cost or Pricing Data
( ) 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>
<PAGE>
MDA904-97-C-0424
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<TABLE>
<S> <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
(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
( ) 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 for
(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
( ) 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)
</TABLE>
<PAGE>
( ) 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)
( ) 52.23224 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)
<PAGE>
MDA904-97-C-0424
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<TABLE>
<S> <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
( ) 252.219-7001 Notice of Partial Small Business Set-Aside with
Preferential Consideration for Small
( ) 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)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
( ) 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
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( ) 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)
( ) 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)
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:
CLAUSE NO. TITLE
FAR CLAUSES
( ) 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)
<PAGE>
( ) 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)
(X) 52.215-42 Requirements for Cost or Pricing Data or Information Other
Than Cost or Pricing Data Modifications (JAN 1997) -
Alternative 1 (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)
<PAGE>
MDA904-97-C-0424
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( ) 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)
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
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[_] 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). Disrep resentation 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
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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>
MDA904.97-C-0424
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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)
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
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
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
$519,934.00
in accordance with the Award Fee
Determination Plan for Multi
Level Information System
Security Initiative Crypto Card
System Analysis and Library and
Driver Architecture and
Development, dated 10 June
1997 (Rev. 2). There shall be one
evaluation for the period, date of
contract modification - 30
September 1998. The contractor
is authorized to bill for up to 50%
of the available award fee ($), on
a monthly basis in equal amounts.
ACR: AC
03 Travel For the Job Not-To-Exceed
(Inclusive of Burdens) Government's Share $8,37l.00
<PAGE>
ACR: AC Contractor's Share $6,849.00
MDA904-97-C-0424
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<TABLE>
<CAPTION>
CLIN ITEM DESCRIPTION UNIT QTY UNIT 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 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.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
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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: I6-97-9093-0003) $ 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
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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)
<PAGE>
(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 once 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 21 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
FROM BY TO
Total Contract Price $1,722,307.00 $794,000.00 $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>
LITRONIC INDUSTRIES
PURCHASE ORDER WORKSHEET
PO Number:MDA904-97-C-0424, P00008 Customer Number:
Date: June 12, 1998 Customer: NSA
Maryland Procurement Office
Address: 9800 Savage Road
FANX III
Fort George G. Meade, MD 20755-
6000
Buyer: M. Quansy
REMARKS SECTION
1. ADDITIONAL FUNDING FOR FY98. TOTAL CONTRACT AMOUNT IS
$1,239,000.00.
2. PROVIDE COPY TO BOB GRAY.
ITEM PART NUMBER QUANTITY UNIT PRICE DUE DATE TOTAL
0001 See Page 3 of Contract for 184,000.00 N/A $184,000.00
Appropriate Labor Categories
Total Price $184,000.00
Taxable NO
Initiated by: Prohaska
Rep: Prohaska
<PAGE>
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:
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
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.
NOTE: The above stated amounts reflect the following revisions:
<TABLE>
<CAPTION>
FROM BY TO
<S> <C> <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
000lAD 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
</TABLE>
(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)
<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 ($ 21,43l.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 $ 2l ,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)
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.: 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 $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)
<PAGE>
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:
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.
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)
15.A NAME AND TITLE OF SIGNER (type or print)
James S. Prohaska
Director, Business Development
15B CONTRACTING OFFICER
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 03 Oct. 1997
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
Gregory A. Fream
16B UNITED STATES OF AMERICA
BY /S/ GREGORY A. FREAM
--------------------
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 I
OPTION I - FISCAL YEAR 1998 (1 OCTOBER 1997 - 30 SEPTEMBER 1998) is hereby
restated as follows.
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
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
NOTE: The above stated amounts reflect the following revisions:
<TABLE>
<CAPTION>
FROM BY TO
<S> <C> <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
<TABLE>
<S> <C> <C>
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
NOTE: The above stated amounts reflect the following revisions:
FROM BY TO
$ 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
$ 550,000.00 ($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 staled amounts reflect the following revisions:
FROM BY TO
$ 12,500.00 ($0.00) $ 25,150.00
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> <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
Card System Analysis and
Library and Driver Architecture
and Development, dated 10
January 1997.
0001AA Program Manager X XX $ 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>
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.
ACR: AB Obligate
978/90400.4500 584E51 999-2520 S18119 04700400 IX 0000 X22 I25D
PR I69720930003
<TABLE>
<S> <C>
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> <C> <C> <C> <C>
0001 The contractor shall furnish HRS 3,536 XXX $332,965.00
the necessary materials,
facilities, equipment, supplies,
and services or 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
0001AD Systems Analyst X XXX $ 75.38 XXXX
0001AE Sr. Software Engineer X XXX $ 98.38
0001AF Software Engineer X XXX $ 62.60 XXXX
Total Amount CLIN 0001 Not-To-Exceed $332,965.00
0002 Award Fee Pool, to be For the Period $ 33,297.00
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 $ 24,850.00
(Inclusive of Burdens)
0004 Other Direct Costs For the Job Not-To-Exceed $ 0.00
(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)
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.: 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, 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).
A. The purpose of this modification is to:
<PAGE>
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.
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 CONTRACTING OFFICER
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 12 SEP 1997
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
GREGORY A. FREAM
16B UNITED STATES OF AMERICA
BY /S/ GREGORY A. FREAM
--------------------
16C. DATE SIGNED 15 Sept. 199_
<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>
0001 The Contractor shall furnish the HRS From 3873 XXX From $353,616.00
necessary materials, facilities, By 709 By $ 67,500.00
equipment, supplies and services 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 determined in For the Period From $ 35,362.00
accordance with the Award Fee Plan By $ 7,500.00
for Multi-Level Information System To $ 42,862.00
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 ($21,431.00), on a
monthly basis in equal amounts of $5,357.75.
</TABLE>
<PAGE>
SECTION G - CONTRACT ADMINISTRATION DATA
G1 ACCOUNTING AND APPROPRIATION DATA is revised as follows:
<TABLE>
<CAPTION>
ACR: AA Obligate
977/780400.4500 574E l 999-2520 S18119 03200106 IX 0000
X22 I20B
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)
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.: 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, 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 provide additional funds to
increase the level of effort.
<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.
15.A NAME AND TITLE OF SIGNER (type or print)
James S. Prohaska
Director, Business Development
15B CONTRACTING OFFICER
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 03 SEP 1997
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
Gregory A. Fream
16B UNITED STATES OF AMERICA
BY /S/ GREGORY A. FREAMA
---------------------
16C. DATE SIGNED 04 SEP 1997
<PAGE>
page 2
MDA904-97-C-0424 / P00003
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> <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 To 3873 To $353,616.00
services of skilled professional,
technical and support personnel to
fulfill the requirements set forth in
the Statement or 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 $343,616.00
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:
ACR: AA Obligate
977/780400.4500 574E51 999-2520 S18119 03200106 IX 0000
X22 120B
PR: I6-97-2093-0001 From By To
<PAGE>
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
<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 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)
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 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.
<PAGE>
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
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 CONTRACTING OFFICER
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of personal authorized to sign this form)
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 practices 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. USERS SPECIFICATION IS FOR: (x and complete as applicable)
X a. PRIME CONTRACT NUMBER: MDA904-97-C-0424
b. SUBCONTRACT NUMBER
c. SOLITATION 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
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)
<PAGE>
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 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
-------
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
<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.
Equipment, devices, techniques and services required for securing or protecting
contractor telecommunications will be acquired only from
<PAGE>
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____
-
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.) X YES ____ 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>
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 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. USERS SPECIFICATION IS FOR: (x and complete as applicable)
X a. PRIME CONTRACT NUMBER: MDA904-97-C-0424
b. SUBCONTRACT NUMBER
c. SOLITATION 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
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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:
</TABLE>
(1) Sensitive Compartmented Information (SCI) X
<TABLE>
<CAPTION>
(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
<S> <C> <C> <C>
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
</TABLE>
SERVICE X
l. OTHER (Specify)
<PAGE>
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 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 nonDoD 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
-------
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. Item 13 if
additional space is needed.) Provide a copy of the requirements to the
cognizant security office. Use YES NO X-------------------
<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>
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, 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:
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 CONTRACTING OFFICER
(Signature of personal authorized to sign this form)
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>
MDA904-97-C-0424
P00007
Page 3 of 11
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
NOTE: The above stated amounts reflect the following revisions:
<TABLE>
<CAPTION>
FROM BY TO
<S> <C> <C> <C> <C>
$ 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>
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 (703-950-9700)
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 $205,000.000
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, 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.
<PAGE>
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.
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 CONTRACTING OFFICER
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 5/27/98
16A. NAME AND TITLE OF CONTRACTING OFFICER (type or print)
MARGARET M. QUASNY
Contracting Officer
16B UNITED STATES OF AMERICA
BY Margaret M. Quasny
(Signature of Contracting Officer)
16C. DATE SIGNED 5/28/98
<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:
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
0001 The Contractor shall furnish the HRS 9,004 XXX $845,591.00
<TABLE>
<CAPTION>
necessary materials, facilities,
<S> <C> <C> <C> <C> <C>
equipment, supplies and services
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 Eng. 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 $84,559.00
0002 Award Fee Pool, to be determined For the Period $84,559.00
in accordance with the Award
</TABLE>
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
<PAGE>
<TABLE>
<CAPTION>
MDA904-97-C-0424
P00008
<S> <C> <C> <C> <C> <C>
Page 3 of 4
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
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
SECTION G - CONTRACT ADMINISTRATION DATA
G1 ACCOUNTING AND APPROPRIATION DATA is revised to include the following:
ACR: AB Obligate
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>
LITRONIC INDUSTRIES
PURCHASE ORDER WORKSHEET
PO NUMBER: MDA904-97-C-0424, P00007 Customer Number:
Date: May 28, 1998 Customer: NSA
Maryland Procurement Office
Address: 9800 Savage Road
FANX III
Fort George G. Meade, MD 20755-6000
Buyer: M. Quansy
REMARKS SECTION
1. ADDITIONAL FUNDING FOR FY98. TOTAL CONTRACT AMOUNT IS $1,055,000.00
2. PROVIDE COPY TO BOB GRAY.
Item Part Number Quantity Unit Price Due Date Total
0001 See Page 4 of Contract for 205,000.00 N/A $205,000.0-0
Appropriate Labor Categories
Total Price: $ 205,000.00
Taxable: NO
Initiated by: Prohaska
Rep: Prohaska
<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)
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, appropriate date,
etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b)
<PAGE>
(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 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 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)
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 CONTRACTING OFFICER
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of personal authorized to sign this form)
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>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
PAGE 1 OF 4 PAGES
2. AMENDMENT MODIFICATION NO. P00008
3. EFFECTIVE DATE: 07 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, 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.
<PAGE>
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.
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 CONTRACTING OFFICER
BY /S/ JAMES S. PROHASKA
---------------------
(Signature of personal authorized to sign this form)
15C. DATE SIGNED 03 Oct. 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 6/8/98
<PAGE>
MDA904-97-C-0424
P00008
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:
CLIN ITEM DESCRIPTION UNIT QTY UNIT PRICE TOTAL
<TABLE>
<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
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 4 of 11
PART II - Exercise the option under H.13 paragraph (b) OPTION 3
SECTION B - SUPPLIES/SERVICES AND PRICES
<TABLE>
<CAPTION>
B.2 SUPPLIES/SERVICES (Fiscal Year 1998 - 1 October 1997 - 30 September 1998) Option 3 is hereby added to
section as follows: this
UNIT
CLIN ITEM DESCRIPTION UNIT QTY PRICE TOTAL
<S> <C> <C> <C> <C> <C> <C>
0001 The contractor shall furnish the HRS From: 7,864 XXX From: $738,500.00
necessary
materials,
facilities, By: 1,140 By: $107,091.00
equipment,
supplies and
services To: 9,004 To: $845,591.00
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 From: $ 73,850.00
in accordance with the Award Fee By: $10,709.00
Determination Plan for Multi To: $84,559.00
Level Information System
</TABLE>
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
<PAGE>
MDA904-97-C-0424
P00007
Page 5 of 11
<TABLE>
<CAPTION>
UNIT
- ---- ----------------------------------- ----------- --- --------------------- -----------------
CLIN UNIT QTY PRICE TOTAL
- ---- ITEM DESCRIPTION ----------- --- --------------------- -----------------
-----------------------------------
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
0003 Travel For the Job Not-To-Exeed 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-Exeed 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
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>
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 for special assistance and for priority ratings for privately
owned capital equipment.
<PAGE>
(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):
( ) (1) 42.302(a)(3). Conduct post-award orientation conferences.
<PAGE>
( ) (2) 42.302(a)(4). Review and evaluate contractor's 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.
( ) (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.
<PAGE>
( ) (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 contract, 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.
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.
<PAGE>
(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 the 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)
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 PFAF 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 PFAF Amount $ 850,000.00 $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>
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 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.
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"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
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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.
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"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.
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"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.
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"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
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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
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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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<PAGE>
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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<PAGE>
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,
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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:____________________________
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<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)
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<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
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<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: _______________________________________________________________
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<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.
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<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.
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<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.
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<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.
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<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 8 of 21
<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 21
<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 21
<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 21
<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 13 of 21
<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 14 of 21
<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 15 of 21
<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 16 of 21
<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 17 of 21
<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 18 of 21
<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 19 of 21
<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 20 of 21
<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 21 of 21
<PAGE>
IN WITNESS WHEREOF, I have signed this certificate this __________ day of
________________, 19___.
___________________________________
Name: _____________________________
<PAGE>
ATTACHMENT J
IBM Credit and Customer agree that this Agreement shall govern the financing
facility between them, except to the extent that the Customer is in default of
paragraphs 9.1, 9.2, 9.3, 9.4 and 10.1 herein as of the date hereof (the
"Specified Defaults") and that such Specified Defaults are addressed in the
Forbearance Agreement dated October 15, 1997, then said Forbearance Agreement
shall govern the rights and remedies of both Customer and IBM Credit regarding
such Specified Defaults.
<PAGE>
EXHIBIT 10.16
[LOGO]
ALLIANCE
- --------
Business Centers LEASE AND SERVICE AGREEMENT
- ----------------
This Agreement is made this 6th day of January, 1999, by and between ALLIANCE
8150 Leesburg, Inc., d/b/a ALLIANCE Business Centers ("Lessor") having offices
known and numbered as Suite 600/700 (the "Facility") in the building located at
8150 Leesburg Pike, Vienna, Virginia 22182 (the "Building") and Litronic, Inc.
("Lessee") a Corporation with an address of 2030 Main Street Suite 1250, Irvine,
CA 92614. The parties for themselves, their heirs, legal representatives,
successors and assigns. agree as follows:
1. Demise and Description of Property.
----------------------------------
a. Lessor leases to Lessee and Lessee leases from Lessor, the "Premises"
(defined below), being a subpart of Lessor's total leased Facility space, for
the term and subject to the conditions and covenants hereinafter set forth and
to all encumbrances, restrictions, zoning laws, regulations or statutes
affecting the Building, Facility or Premises.
b. The Premises consists of Facility office space number(s) 713 as shown
in the floor plan annexed hereto. Lessor hereby grants Lessee the privilege to
use in common with other lessees and parties that Lessor may designate certain
office amenities located in the Facility; the use of all of which are subject to
such reasonable rules and regulations as Lessor currently has in place and may
adopt from time to time. The amenities are more particularly described in
attached Exhibit "A." The "Operating Standards" as presently in place and
governing the use of the Premises and the Facility are attached in Exhibit "B".
2. Use.
----
a. The Premises shall be used by Lessee solely for general office
activity and such other normally incident uses and for no other purpose, in
strict accordance with the Operation Standards. Additionally, Lessee shall not
offer at the Premises any services which Lessor provides to its lessees,
including, but not limited to those amenities or services described in attached
Exhibit "A". In the event Lessee breaches any provision of this paragraph,
Lessor shall be entitled to exercise any rights or remedies available to the
Lessor pursuant to this Agreement together with such other rights and remedies
as the Lessor may otherwise have and choose to exercise.
b. Lessee shall not make nor permit to be made any use of the Premises
which would violate any of the terms of this Agreement or which, directly or
indirectly, is forbidden by statute, ordinance or government regulations, which
may be dangerous to life, limb or property, which may invalidate or increase the
premium of any policy of insurance carried on the Building or on the
1
<PAGE>
Facility, which will suffer or permit the Premises to be used in any manner or
anything to be brought into or kept there which, in the sole judgment of Lessor,
shall in any way impair or tend to impair the high quality character, reputation
or appearance of the Building or the Facility, or which may or tend to impair or
interfere with any services performed by Lessor for Lessee or for others.
3. Term.
-----
a. The term of this Agreement shall be for a period of 6 months,
commencing 9:00 a.m. on the 1st day of February 1999, and ending 5:00 p.m. on
the 31st day of July, 1999, unless renewed as provided in paragraph "3(b)"
herein.
b. Upon the ending term date set forth herein or any extension thereof,
the Agreement shall be extended for the same period of time as the initial term
and upon the same terms and conditions as herein contained except for the amount
of base rental charges, which shall each be increased by at least ten percent
(10%), unless either party notifies the other in writing by certified or
registered mail, return receipt requested, or delivered by hand that the
Agreement shall not be extended within the period hereinafter specified or
automatically renewed. If Lessee has less than three offices, such notice shall
be given at least 60 days prior to the expiration date of this Agreement. If
Lessee has three or more offices, such notice shall be given at least 90 days
prior to the expiration date of this Agreement.
c. In the event the entire Premises or the Facility are damaged,
destroyed or taken by eminent domain or acquired by private purchase in lieu of
eminent domain so as to render the Premises fully untenantable and unrestorable
in Lessor's sole judgment, then within 90 days thereafter by written notice to
the other party, either party shall be able to terminate this Agreement, which
will terminate as of the date thereof.
4. Rent.
-----
a. For and during the term of this Agreement, Lessee shall pay Lessor as
rent for the Premises a total rental of $ 33,738, payable in 6 equal monthly
installments of $ 5623 (unless otherwise indicated on Rebate Rider attached),
each payable in advance of the first day of each calendar month after the
commencement of the term, or a daily prorated amount for any partial calendar
month during the term. If any payment of rent or other charges due under this
Agreement is not received within five (5) calendar days after its due date, the
Lessee will also pay, as additional rent, a late payment charge which shall be
an amount equal to 10% of any amount owed to Lessor or $50 whichever is greater.
b. It is additionally specifically covenanted and agreed that the
financial terms of this Agreement are strictly confidential and Lessee agrees
not to knowingly or willfully divulge this information to or any other Lessee or
potential Lessee of Lessor. Any such disclosure by the Lessee
2
<PAGE>
of the financial terms of this Agreement as set forth herein above, shall
constitute a material breach of this Lease.
c. The first such payment of rental as well as the payment of the Deposit
as set forth in below shall be billed by Lessor simultaneously with execution of
this Agreement. Should the Lessee fail to make such payment prior to the
commencement of the term of this Agreement, then, at Lessor's sole option, the
Agreement shall be null and void and of no further effect.
d. The rental payable during the term of this Agreement shall be
increased on the first day of the month following notification of any rental
increase (however designated) which the Lessor might receive form the Lessor's
over-landlord ("Building"). The term "direct expenses" as used herein shall
refer to the same items and costs as are used by the Building in its
determination of expenses and costs passed on to Lessor. Lessor shall
immediately notify Lessee in writing of any such increase, and shall bill Lessee
for its pro rata share thereof, which bill Lessee shall pay promptly upon such
notification for each and every month thereafter for the balance of the term.
e. Rent charges are based on the value of the rental Premises and
services to be used by no more than five (5) person(s) only. If more than said
number of person(s) habitually use the Premises or services, the Fixed Monthly
Rental Charges will be increased by a factor of $100 (not included furnishings)
for each additional person who habitually uses the Premises.
f. If a Lessee check is returned for any reason, Lessee will pay an
additional charge of $100.00 per returned check and, for the purpose of
considering default and/or late charges, it will be as if the payment
represented by the returned check had never been made.
5. Security Deposit.
-----------------
a. Lessee has deposited with Lessor $5623; $3300 already on hand; $2323
due on February 1, 1999 or the equivalent of one month's rent, in good or
certified funds with a domestic bank, as a non-interest bearing security
deposit. Lessor may use the security deposit to cure any default of Lessee under
this Agreement, restore the Premises including any and all furniture, fixtures
and equipment provided by Lessor and vendors at the Premises to their original
condition and configuration, reasonable wear and tear excepted, to pay for
repairs to any damage to the Premises, Executive Suite or Building, caused by
Lessee or Lessee's guests, to pay any rent or other charges which Lessee owes
Lessor at or prior to the expiration of this Agreement, and to reimburse Lessor
for costs or expenses arising from any other obligation of Lessee which Lessee
has failed to perform. If Lessor transfers control or ownership of the Premises
and Lessor transfers the security deposit to such purchaser, Lessee will look
solely to the new Lessor for the return of the security deposit, and the Lessor
named in this Agreement shall be released from all liability for the return of
the security deposit.
b. The security deposit (less any sums used by Lessor in accordance with
the terms and conditions of this Agreement) will be returned within sixty (60)
days after the termination of any services rendered or expiration of the term
hereof. The security deposit shall not under any
3
<PAGE>
circumstance be applied in lieu of be the final payment(s) of Fixed Monthly
Rental charges or service charges under this Agreement.
c. In the event that, by reason of the Lessee's default in its
obligations pursuant to this Agreement or otherwise, including but not limited
to the payment of the Fixed Monthly Rental Charge, any amounts due by reason of
the Lessee's use of additional services hereto and/or by reason of the Lessee's
use of telephone services as supplied pursuant to this Agreement, Lessor shall
be entitled to apply any of the security deposited pursuant to this Agreement to
any outstanding sums due or owing to the Lessor, and Lessor shall have the right
to charge the Lessee, as additional rent, such sums as are necessary to
replenish any and all amounts applied so as to cause the security to be returned
to its entire amount. The failure to pay such amounts as are necessary to
replenish the security shall be considered a breach of this Agreement and shall
entitle the Lessor to exercise any of its rights pursuant to this Agreement or
otherwise.
6. Delivery of Possession.
-----------------------
If, for any reason whatsoever, Lessor cannot deliver possession of the
Premises to Lessee at the commencement of the term, this Agreement shall not be
void nor voidable nor shall Lessor be liable to Lessee for any loss or damage
resulting therefrom; but there shall be an abatement of rent for the period
between the stated term commencement and the time when Lessor does deliver
possession of the Premises.
7. Services.
---------
a. So long as Lessee is not in default hereunder, Lessor shall make
available certain amenities to Lessee as more particularly described in Exhibit
"A". Such services shall be offered to Lessee, in conjunction with such services
being offered by Lessor to its other lessees, without charge for the reasonable
use of the same.
b. In addition, provided Lessee is not in default hereunder and provided
the cost thereof does not exceed the Security Deposit, Lessor shall make
available to Lessee certain other services the cost of which shall be billed to
the Lessee as additional rent and the payment of which shall be subject to the
same terms and conditions as those governing the payment of the Fixed Monthly
Rental Charge herein regardless of when such charges are billed to the Lessee.
c. There will be a Client Service Charge of $100/month per office.
8. Telephone Services.
-------------------
a. Provided Lessee is not in default of any of the terms, covenants,
conditions or provisions of this Agreement, Lessor will make available to
Lessee, a telecommunications package which will consist of some combination of
telephone equipment, numbers, lines, conference calling, voice mail, local, long
distance and international service, and directory listing. All components of the
telecommunications package including any telephone numbers used by Lessee will
remain
4
<PAGE>
at all times the property of Lessor and Lessee will acquire no rights in the
components beyond the term specified by Lessor.
b. Upon Lessee's written request, Lessee shall be entitled to appoint
Lessor as its exclusive agent for the sole purpose of procuring and arranging
Lessee's local "white pages" listings. Lessor shall have no involvement nor
responsibility for any "yellow pages" listings desired by Lessee.
c. Lessor shall not be liable for any interruption or error in the
performance of its services to Lessee under this Section. Lessee waives any
recourse as against the Lessor for any claimed liability arising from the
provision of telecommunication services including, but not limited to; injuries
to persons or property arising out of mistakes, omissions, interruptions,
delays, errors or defects in transmissions occurring in the course of furnishing
telecommunications services provided same are not caused by the willful acts of
the Lessor, as well any claim for business interruption and for consequential
damages.
d. Lessor shall use reasonable efforts to provide Telephone Services to
Lessee in a first-class, professional manner. Telephone service charges shall be
as per Lessor's then scheduled rates for the same, or as the same may be amended
by Lessor from time to time.
e. In the event that any toll fraud is traceable to telecommunications
services employed by Lessee, such toll fraud shall be deemed to be a material
default in the Lessee's obligations hereunder. Lessee further hereby agrees to
indemnify, hold harmless and to reimburse Lessor for all charges associated with
any such toll fraud including, but not limited to, unauthorized use of calling
cards or telephone lines.
f. It is expressly acknowledged and agreed that Lessor shall be the sole
and exclusive provider of telecommunication services to Lessee. Lessee hereby
agrees and covenants that it will not use any other telephone service or
telephone carrier to provide it service in the Premises. In the event that
Lessee uses or acquires any other telephone service at the Premises, such use
and/or installation shall constitute a material default in the Lessee's
obligations hereunder.
9. Furniture and Fixtures.
-----------------------
At its own cost and expense, Lessor shall furnish and install furniture,
fixtures and equipment as are in Lessor's sole opinion necessary to provide
suitable office accommodations for Lessee, upon such terms and conditions
routinely applicable to the Facility. All such furniture, fixtures and equipment
shall remain Lessor's property.
10. Insurance: Waiver of Claims.
----------------------------
a. Lessor has no obligation to and will not carry insurance for Lessee's
benefit. Lessor will not be liable to Lessee or to any other person for damages
on account of loss, damage or theft,
5
<PAGE>
to any business or personal property of Lessee. Lessee hereby waives any claims
against Lessor from any loss, cost, liability or expense (including reasonable
attorneys' fees) arising from Lessee's use of the Premises or any common areas
made available to Lessee by Lessor or from the conduct of Lessee's business, or
from any activity, work, or thing done in the Premises or common areas by Lessee
or Lessee's agents, contractors, visitors or employees. To the extent that
Lessor has any liability for any of the forgoing pursuant to any law, ordinance
or statute, Lessee shall seek recovery for such loss(es)/or damage(s) from its
own insurance company as provided for in subparagraph (c) herein prior to making
any claims against Lessor.
b. The Lessor shall not be liable or responsible to the Lessee for any
injury or damage resulting from the acts or omissions of Lessor, its employees,
persons leasing office space or obtaining services from the Lessor, or other
persons occupying any part of the Premises or Building, or for any failure of
services provided such as water, gas or electricity, HVAC or for any injury or
damage to person or property caused by any person except for such loss or damage
arising from the willful or grossly negligent misconduct of the Lessor, its
agents, servants, or employees or from the Lessor's failure to make repairs
which it is obligated to make hereunder. Neither Lessor or any of its agents,
employees, officers or directors shall be responsible for damages resulting from
any error, omission or defect in any work performed or provided as part of the
services rendered, whether uncompensated services or compensated services.
c. Lessee shall provide Lessor with a certificate of insurance evidencing
General/Public Liability coverage with liability limits of not less than One
Million Dollars ($1,000,000) per occurrence for Bodily Injury and/or Property
Damage Liability and One Hundred Thousand Dollars ($100,000) per occurrence for
Fire/Legal Liability. Said insurance coverage shall remain in force during the
term of this Agreement and renewals thereof. The Lessor, Alliance National,
Inc., and Alliance Business Centers, Inc. shall be named as an additional named
insured on each of these policies. Lessee's failure to provide or maintain such
insurance shall not reduce or otherwise alter Lessee's liability or
responsibility to pay any judgment rendered against Lessee for such Liability
and Damages Failure to maintain such insurance and/or to name the Lessor and its
designees, as set forth above, shall constitute a material breach of this
Agreement.
d. Both parties hereby agree to defend, indemnify and hold the other
harmless from and against any and all claims, damages, injury, loss and expenses
to or of any person or property resulting from the acts or negligence of their
agents, employees, invitees and/or licensees while in the Building, Executive
Suite and/or Premises.
e. Any fire and extended risk casualty insurance that Lessee maintains
shall include a waiver of subrogation in favor of Lessor and Building Landlord,
and any fire and extended risk insurance carried on the Facility by Lessor shall
likewise contain a waiver of subrogation in favor of Lessee.
11. Waiver of Breach.
-----------------
Should Lessor not insist upon the strict performance of any term or
condition of this Agreement or to exercise any right or remedy available for a
breach thereof, and no acceptance of
6
<PAGE>
full or partial payment during the continuance of any such breach shall
constitute a waiver of any such breach or any such term or condition. No term or
condition of this Agreement required to be performed by Lessee and no breach
thereof, shall be waived, altered or modified, except by a written instrument
executed by Lessor. No waiver of any breach shall affect or alter any term or
condition in this Agreement, and each term or condition shall continue in full
force and effect with respect to any other then existing or subsequent breach
thereof.
12. Operating Standards.
--------------------
The Operating Standards attached to this Agreement as Exhibit "B" are
hereby made an integral part of this Agreement. Lessee, its employees, agents,
guests, invitees, visitors and/or any other persons caused to be present in and
around the Premises by the Lessee shall perform and abide by the rules and
regulations and any amendments or additions to said rules and regulations as
Lessor may make. In addition, Lessee, its employees and agents shall abide by
all applicable governmental rules, regulations, statutes and ordinances relating
in any way to the Premises or the Facility or Lessee's use or occupancy of the
Premises or the Facility; failing which Lessee shall be in default hereunder and
shall pay any fines or penalties imposed for such violation(s) directly to the
appropriate governmental authority or to Lessor, if Lessor has paid such amount
on behalf of Lessee. Such remedy shall not be exclusive. It is hereby further
explicitly agreed and understood that full compliance with the Operating
Standards as set forth constitutes a material obligation of this Agreement, and
that the failure to so comply shall constitute a violation of this Agreement
entitling the Lessor to exercise any of its remedies pursuant to this Agreement
or otherwise.
13. Employment of Lessor's Employees.
--------------------------------
a. Lessee agrees that it will not, during the term of this Agreement and
any renewals thereof, or for a period of one year after the expiration or sooner
termination of this Agreement, hire or issue an offer to employ any person who
is an employee of Lessor or Lessor's agent without prior consent from Lessor. If
Lessee either hires an employee of Lessor or Lessor's agent; or hires any person
who has been an employee of Lessor or its agent within six months prior to the
time they are hired by Lessee, Lessee will, at Lessors sole option, be liable to
Lessor for liquidated damages equal to six months wages of the employee, at the
rate last paid that employee by Lessor.
b. If Lessor assists in hiring an employee for Lessee. Lessee shall pay
to the Lessor a commission equal to 20% of that employee's annual salary. The
provisions hereof shall survive the expiration or sooner termination of the term
thereof.
14. Alteration.
-----------
If Lessee requires any special wiring or office alterations for
extraordinary business machines or other purposes not consistent with the
current wiring, extraordinary telephone equipment or computer equipment. Such
alteration shall be done (i) only with the express written permission of
7
<PAGE>
the Lessor, and if said permission is granted, then (ii) by an agent designated
by Lessor at Lessee's cost. The electrical current shall be used for ordinary
lighting purposes only, unless written permission to do otherwise shall first
have been obtained from Lessor at an agreed cost to Lessee. Lessor further
reserves the sole and exclusive right to limit the number and type of lines and
telephone equipment Lessee can install in the leased Premises.
15. Re-Entry.
---------
Lessor and its agents shall have the right to enter the Premises at any
time for the purpose of making any repairs, alterations, inspections which it
shall deem necessary for the preservation, safety or improvements of said
Premises, without in any way being deemed or held to have committed an eviction
(constructive or otherwise) of or trespass against Lessee.
16. Relocation.
-----------
a. Lessee agrees that the Lessor may, in its sole discretion, relocate
the lessee from its present Premises to a like or similar office space within
the same facility upon ten (10) days notice to the Lessee. In the event that the
Lessor requires the Lessee to relocate, the Lessor hereby agrees to bear the
reasonable cost of any such relocation, which cost shall be limited to the cost
associated with the physical transfer of the Lessee's property to any different
office, which the Lessor may designate.
b. In the event that any such relocation is effected, the Lessee hereby
acknowledges that, unless otherwise agreed in writing, that all of the terms and
conditions of this Agreement shall remain in full force and effect.
17. Assignment and Subletting.
--------------------------
No assignment or subletting of the Premises, this Agreement or any part
thereof shall be made by Lessee without Lessor's prior written consent, which
consent may be withheld for any or no reason in Lessor's sole discretion.
Neither all nor any part of Lessee's interest in the Premises or this Agreement
shall be encumbered, assigned or transferred, in whole or in part, either by act
of the Lessee or by operation of law.
18. Surrender.
----------
a. On expiration of the term, any extended term, or sooner termination of
this Agreement, Lessee shall promptly surrender and deliver the Premises to
Lessor, without demand. and in as good condition as when let, ordinary wear and
tear excepted.
b. Upon Lessee serving a notice of cancellation as provided in 3b herein
Lessor shall have the right to show Lessee's Premises during the 60 day period
(for one or two offices) or 90 day period (for three or more offices) as the
case may be.
8
<PAGE>
c. Without prior written approval of Lessor, Lessee shall not remove any
of Lessors property from the Premises upon termination of this Agreement or at
any other time, except during Lessor's normal business hours. In the event
Lessor consents to Lessee's removing property before or after normal business
hours, any expenses incurred by Lessor as a result, including but not limited to
expenses for personnel, security, elevator, utilities and the like shall be paid
by Lessee in advance, to the extent determinable by Lessor, by certified and/or
bank check.
d. If Lessee vacates the Premises and leaves behind any property,
whatsoever, same will be deemed abandoned by Lessee and may be disposed of by
Lessor at Lessee's expense. If Lessee defaults in the payment of sums due to
Lessor, and Lessor changes the locks, removes Lessee's property, or otherwise
denies access to Lessee, Lessor shall not be liable for conversion or partial,
actual and/or constructive eviction.
19. Holding Over.
-------------
a. In the event that Lessee, should not renew this Agreement in
accordance with the terms and conditions hereof, and/or fail to surrender the
Premises upon the expiration of the term of the Agreement as provided herein,
Lessee agrees to pay Lessor, as liquidated damages, a sum equal to twice the
monthly rent and all additional charges for services provided by Lessor to
Lessee, for each month that Lessee retains possession of the Premises or any
part thereof; provided, however, that the acceptance of such sums, representing
liquidated damages shall not be deemed to be permission to Lessee to continue in
possession of the Premises.
20. Default and Remedies.
---------------------
a. If the Lessee shall default in fulfilling any of its terms,
conditions, covenants or provisions of this Agreement, including but not limited
to:
1. Payment of fixed Monthly Rental Charges and/or any other charges
hereunder within ten days of the date such charges become due,
2. Becomes comes insolvent, makes an assignment for benefit of creditors,
or files a voluntary petition under any bankruptcy or insolvency law, or has
filed against it an involuntary petition under any such law;
3. Defaults in fulfilling any of the terms, conditions, covenants or
provisions of this Agreement including but not limited to the breach of any of
the terms and conditions set forth in the exhibits attached hereto;
4. The abandonment and/or vacatur of the Premises by the Lessee; then,
after five days notice of any such default(s), the Lessor may, at its sole
discretion, terminate this Agreement upon five days notice to the Lessee, and
upon the expiration of such notice
9
<PAGE>
period, the Lessee shall quit and surrender the Premises to the Lessor. In the
event that the Lessee fails to quit and surrender the Premises, the Lessor may
re-enter and take possession of the Premises and remove all persons and property
therefrom, as well as disconnect any telephone lines installed for the benefit
of Lessee, without any liability whatsoever to Lessee. In addition, Lessor may
elect concurrently or alternately to accelerate all of Lessee's obligations
hereunder including without limitation the rental, direct expenses, Schedule B
Costs, and Telephone Services costs, and/or the re-letting of the Premises or
any part thereof, for all or any part of the remainder of said term, to a party
satisfactory to Lessor, at any monthly rental rate. Lessor, in its sole
discretion, may accept notwithstanding the foregoing, Lessor shall have no
obligation, implied or otherwise, to mitigate its damage(s) under such
circumstances.
b. Should Lessor be unable to re-let the Premises, or should each monthly
re-rental be less than the rental, Lessee is obligated to pay under this
Agreement or any renewal thereof, at Lessor's option Lessee shall pay the amount
of such deficiency, plus the expenses of reletting, immediately in one lump sum
(if allowable under law) to Lessor upon demand and/or as such obligations
accrue.
c. If Lessee shall default in the observance or performance of any term
or covenant on Lessee's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, then, unless
otherwise provided elsewhere in this lease, Lessor may immediately or at any
time thereafter and with notice perform the obligation of Lessee thereunder, and
if Lessor, in connection therewith or in connection with any default by Lessee
in the covenant to pay rent hereunder, makes any expenditures or incurs any
obligations for the payment of money, including but not limited to attorney's
fees, in instituting, prosecuting or defending any actions or proceeding, such
sums so paid or obligations incurred with interest and costs shall be deemed to
be additional rent hereunder and shall be paid by Lessee to Lessor rendition of
any bill or statement to Lessee therefor, and if Lessee's lease term shall have
expired at the time of making of such expenditures or incurring of such
obligations, such sums shall be recoverable by Lessor as damages.
21. Mail & Telephone Forwarding.
---------------------------
a. After termination or expiration of the term of this Agreement, Lessee
hereby agrees that it will take all reasonable steps to notify all parties of
Lessee's new address and phone numbers. Lessor shall have no obligation, to
notify any person or entity of Lessee's new address and/or phone numbers, except
as expressly provided herein.
b. Lessor will, unless otherwise instructed by Lessee in writing, forward
mail to Lessee at its new address and give out new telephone number via a voice
mail message for a period of three (3) months at the rate of $150.00 per month,
which sums shall be deducted from any amounts deposited with the Lessor as
security hereunder and paid to the Lessor in advance. In the event that there is
not sufficient security remaining on deposit to pay for the charges set forth
herein,
10
<PAGE>
unless the Lessee shall pay the charges set forth herein to the Lessor in
advance, Lessor shall have no obligation to provide the services set forth
herein.
22. Notices.
--------
Any notice under this Agreement shall be in writing and shall be either
delivered by hand or by first class mail to the party at the address set forth
below. Lessor hereby designates its address as:
ALLIANCE Business Centers
8150 Leesburg Pike, Suite 600/700
Vienna, Virginia 22182
Attn: Sales Management
with a copy by regular first class mail to:
ALLIANCE National, Inc.
122 East 42nd Street. Suite 2707
New York, NY 10168
Attn: Legal Department
Lessee hereby designates its address (which address must be an address within
the United States), as
Litronic, Inc.
Attn: Charlie Scruggs
8150 Leesburg Pike, Suite 700
Vienna, VA 22182
Litronic, Inc.
Attn: Tom Seykora
2030 Main Street Suite 1250
Irvine, CA 92614
If such mail is properly addressed and mailed, as above, it shall be deemed
notice for all purposes, given when sent or delivered, even if returned as
undelivered.
23. Landlord's Election Under This Agreement.
----------------------------------------
Upon early termination of the main Building lease, this Agreement shall
terminate unless the Building Landlord under the main lease elects to have this
Agreement assigned to the Building Landlord or another entity as provided in the
main lease. Upon notice to Lessor of the termination of the main lease and such
election, (i) the Agreement shall be deemed to have been assigned by
11
<PAGE>
Lessor to the Building Landlord or to such other entity as is designated in such
notice by the Building Landlord, (ii) the Building Landlord shall be deemed to
be the Lessor under this Agreement and shall assume all rights and
responsibilities of Lessor under this Agreement, and (iii) Lessee shall be
deemed to have attorned to the Building Landlord as Lessor under this
Agreement.
24. Time of Essence.
----------------
Time is of the essence as to the performance by Lessee of all covenants,
terms and provisions of this Agreement.
25. Severability.
------------
The invalidity of any one or more of the sections, subsections, sentences,
clauses or words contained in this Agreement or the application thereof to any
particular set of circumstances, shall not affect the validity of the remaining
portions of this Agreement or of their valid application to any other set of
circumstances. All of said sections, subsections, sentences, clauses and words
are inserted conditionally on being valid in law; and in the event that one or
more of the sections, subsections, sentences, clauses or words contained herein
shall be deemed invalid, this Agreement shall be construed as if such invalid
sections, subsections, sentences, clauses or words had not been inserted. In the
event that any part of this Agreement shall be held to be unenforceable or
invalid, the remaining parts of this Agreement shall nevertheless continue to be
valid and enforceable as though the invalid portions had not been a part hereof.
In addition, the parties acknowledge (i) that this Agreement has been fully
negotiated by and between the parties in good faith and is the result of the
joint efforts of both parties, (ii) that both parties have been provided with
the opportunity to consult with legal counsel regarding its terms, conditions
and provisions and (iii) that regardless of whether or not either party has
elected to consult with legal counsel, it is the intent of the parties that in
no event shall the terms, conditions or provisions of this Agreement be
construed against either party as the drafter of this Agreement.
26. Execution by Lessee.
--------------------
The party or parties executing this Agreement on behalf of the Lessee
warrant(s) and represent(s): (i) that such executing party (or parties) has (or
have) complete and full authority to execute this Agreement on behalf of Lessee;
(ii) that Lessee shall fully perform its obligations hereunder.
27. Assumption Agreements and Covenants.
-----------------------------------
This Agreement is subject and subordinate to the main Building lease
governing the Facility, under which Lessor is bound as tenant; and the
provisions of the main lease, other than as to the payment of rent or other
monies, are incorporated into this Agreement as if completely herein
12
<PAGE>
rewritten. Lessee shall comply with and be bound by all provisions of the main
lease except that the payment of rent shall be governed by the provisions of
this Agreement, and Lessee shall indemnify and hold Lessor harmless from and
against any claim or liability under the main lease of Lessor arising from
Lessee's breach of the Main Lease or this Agreement. Lessor covenants and
warrants that the use of the Premises as a business office is consistent with
and does not violate the terms of the main lease.
28. Covenant and Conditions.
------------------------
Each term, provision and obligation of this Agreement to be performed by
Lessee shall be construed as both a covenant and condition.
29. Entire Agreement.
-----------------
This Agreement embodies the entire understandings between the parties
relative to its subject matter, and shall not be modified, changed or altered in
any respect except in writing signed by all parties.
30. Counterparts.
-------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement as of
the date first above written.
ALLIANCE Business Centers
ALLIANCE 8150 Leesburg, Inc.
By: /s/ CHERI REID
-----------------------------------------------
Cheri Reid - Area General Manager
LESSEE: Litronic, Inc.
(If a corporation)
By: /s/ AUTHORIZED SIGNATORY
-----------------------------------
13
<PAGE>
Title: Vice President
[Corporate Seal]
LESSEE:
(If an individual or partnership)
By: _____________________________________
By: _____________________________________
EXHIBIT "A"
. Furnished Private Office
. Furnished, Decorated Reception Room with Professional Receptionist
. Personalized Telephone Answering During Office Hours
. 24 hour Voicemail
. 12 hours of Conference Room or private furnished offices, subject to prior
scheduling and use by other lessees
. Corporate Identity on Lobby Directory where Available
. Complete Mail Room Facility
. Receipt of Mail and Packages
. Complete Kitchen Facilities with Coffee Machine
. Utilities and Maintenance
. HVAC During Normal Business Hours
. Janitorial Services
14
<PAGE>
. 8 hours per month courtesy use of other ALLIANCE Business Centers
affiliated facilities. Locations subject to current affiliation and
availability.
. 24 hour Access/7 days per week
15
<PAGE>
EXHIBIT "B" OPERATING STANDARDS
1. Lessees and their guests will conduct themselves in a businesslike manner;
proper attire will be worn at all times; and the noise level will be kept
to a level so as not to interfere with or annoy other Lessees.
2. Lessee shall not provide or offer to provide any services to Lessor's
customers if such services are available from Lessor.
3. Lessee will not affix anything to the walls of the Premises without the
prior written consent of the Lessor.
4. Lessee will not prop open any corridor doors, exit doors or doors
connecting corridors during or after business hours.
5. Lessees using public areas may only do so with the consent of the Lessor,
and those areas must be kept neat and attractive at all times.
6. Lessee will not conduct any activity within the Premises, Executive Suite
or Building, which in the sole judgment of the Landlord will create
excessive traffic or is inappropriate to the executive office suite
environment.
7. Lessee may not conduct business in the corridors or any other areas except
in its designated offices or conference rooms without the written consent
of Lessor.
8. All corridors, halls, elevators and stairways shall not be obstructed by
Lessee or used for any purpose other than normal egress and ingress.
9. No advertisement, identifying signs or other notices shall be inscribed,
painted or affixed on any part of the corridors, doors, or public areas.
10. Without Lessor's specific prior written permission, Lessee is not permitted
to place "mass market", direct mail or advertising (i.e. newspaper,
classified advertisements, yellow pages, billboards) using Lessor's
assigned telephone number or take any such action that would generate a
excessive of incoming calls.
11. Lessee shall not solicit clients of Lessor or and their employees in the
Building without first obtaining Lessor's prior written approval.
12. Immediately following Lessee's use of conference room space and/or
audio/visual equipment, Lessee shall clean up and return the space and
equipment to the state
16
<PAGE>
and condition it was in prior to Lessee's use. If not, Lessor may charge
Lessee for any other expenses required to restore the conference space
and/or equipment to its original condition.
13. Lessor must be notified in writing if Lessee desires to utilize the
conference room or other common areas of the Executive Suite during evening
or weekend hours. Lessor may deny the Lessee access if the desired usage
is inappropriate and may disrupt normal operations.
14. Lessee shall not, without Lessor's written consent, store or operate any
computer (except a desktop/laptop computer or fax machine) or any other
large business machines, reproduction equipment, heating equipment, stove,
speaker phones, radios, stereo equipment or other mechanical amplification
equipment, refrigerator or coffee equipment, or conduct a mechanical
business, do any cooking, or ally to be used on the Premises oil, burning
fluids, gasoline, kerosene for heating, warming or lighting. No article
deemed extra hazardous on account of fire or any explosives shall be
brought into said Premises or Facility. No offensive gases, odors on
liquids shall be permitted.
15. Lessee will bring no animals into the Premises or Facility except for those
assisting disabled individuals.
16. Lessor shall not remove furniture fixtures or decorative material from
offices or common areas without the written consent of Lessor.
17. Lessee shall not make any additional copies of any Lessor issued keys. All
keys and security cards are the property of Lessor and must be returned
upon request or by the close of business on the expiration or sooner
termination of the Agreement term. Any lost or unreturned keys or cards
shall incur a $25.00 per item charge and the cost to re-key the office.
18. Lessee shall not smoke nor allow smoking in any area of the Facility,
including the Premises, and shall comply with all governmental regulations
and ordinances concerning smoking.
19. Lessee shall not allow more than three visitors in the reception lobby of
the Premises at any one time.
20. Lessee's parking rights (if any) are defined by Lessor's Agreement with the
owner of the Building. Landlord reserves the right to modify parking
arrangements if required to do so by Building management.
17
<PAGE>
21. Lessee shall cooperate and be courteous with all other occupants of the
Facility and Lessor's staff and personnel. Lessor reserves the right to
make such other reasonable rules and regulations as in its judgment may
from time to time be needed for the safety, care, appropriate operation and
cleanliness of the Facility.
18
<PAGE>
EXHIBIT 10.17
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
2
<PAGE>
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.
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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;
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(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
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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
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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
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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
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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 ________
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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 ________
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Exhibit A-1 - THE PROJECT
[P L A T M A P]
AIRPORT INDUSTRIAL COMPLEX
INITIAL
Landlord (initials)
Tenant _______
KOLL
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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
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Julie A. Groot, Senior Manager
TENANT: Litronic Industries, Inc., a California Corporation
By: /S/ KRIS SHAH
Kris Shah, Chief Executive Officer
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Exhibit 10.26
General Services Administration
Federal Supply Service
Washington, DC 20406
February 3. 1999
Pulsar Data Systems
4390 Parliament Place
Suite R
Lanham, MD 20706
Subject: Transmittal of Contract Extension Modification
Contract Number GS-35F-4232D
Extended Contract Period
Dear Mr. Morris:
This is to advise you that a modification (copy enclosed) to extend the subject
contract has been executed. The period of performance will now continue through
April 30, 2002.
You are requested to send two complete copies of the approved pricelist,
including updated terms and conditions and pricing, to the undersigned and two
copies to the following address:
GSA/FSS/FML
Crystal Mall #4, Room L-104
1941 Jefferson Davis Highway
Arlington, VA 22202
We look forward to continuing working with your firm to make the FSS IT
Schedules Program am mutually successful endeavor. Should you have any
questions regarding your contract award, please feel free to contact the
undersigned at 703/305/5492.
Sincerely,
/Deboray Lague/
Deborah Lague
Contracting Officer
IT Acquisition Center
<PAGE>
AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT
1. CONTRACT ID CODE
2. AMENDMENT/MODIFICATION NO. PAGE OF PAGES
MODIFICATION # 86 1 53
3. EFFECTIVE DATE
4. REQUISITION/PURCHASE REQ NO.
5. PROJECT NO.
6. GSA/FSS/FCI
CRYSTAL MALL #4, ROOM 1017
1941 JEFFERSON DAVIS HIGHWAY
ARLINGTON, VA 22202
7. ADMINISTERED BY (if other than Item 5) CODE ___________
8. NAME AND ADDRESS OF CONTRACTOR (No., street, country, state and ZIP Code)
Pulsar Data Systems, Inc.
4390 Parliament Place, Suite R
Lanham, MD 20706
() 9A. AMENDMENT OF SOLICITATION NO.
9B. DATED (SEE ITEM 11)
10A. MODIFICATION OF CONTRACT/ORDER NO.
GS-35F-4232D
10B DATED (SEE ITEM 13)
96122
FACILITY CODE
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS
The above numbered solicitation is amended as set forth in Item 14. The hour
and date specified for receipt of Offers ____ is extended ______ is
not extended.
Offers must acknowledge receipt of this amendment prior to the hour and date
specified in the solicitation or as amended, by one of the following methods:
(a) By completing items 8 and 15. and returning ___ copies of the amendment;
(b) By acknowledging receipt of this amendment on each copy of the of 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 this amendment you
desire to change an offer already submitted, such change may be made by telegram
or letter, provided each telegram or letter makes reference to the solicitation
and this amendment, and is received prior to the opening hour and date
specified.
12. ACCOUNTING AND APPROPRIATION DATA (if required))
13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS, IT MODIFIES
THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.
() A.THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE 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:
D. OTHER (Specify type of modification and authority) PER SECTION G.1
X IMPORTANT: Contractor __ is not, X is required to sign and return 2
-----
copies of the issuing office.
14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings,
including solicitation/contract subject matter where feasible.)
The above referenced contract under FSC Group 70, Information Technology
Multiple Award Schedule, is hereby modified as follows:
Pulsar letter dated 1/11/99
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
15A. NAME AND TITLE OF SIGNER (Type of print)
Roderick K. Morris
Contracts Manager
15B. CONTRACTOR/OFFICER
/S/
------------------------
(Signature of person authorized to sign)
15C. DATE SIGNED
1/11/99
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
16B. UNITED STATES OF AMERICA
BY: /DEBORAH LAGUE/
----------------------------
(signature of Contracting Officer)
16C. DATE SIGNED
2/3/99
STANDARD FORM 30 (REV. 10-83)
Prescribed by GSA
<PAGE>
Modification Page 2 of 53 pages
1. Change in Contract Period.
The original contract period was April 1, 1996 or Date of Award, whichever is
later, through March 31, 1999.
The new contract period is April 1, 1996 or Date of Award, whichever is later,
through five (5) years from the contract begin date, with a minimum period of
three years from April 1, 1999. For example.
<TABLE>
<CAPTION>
Contract New Contract
Begin Date End Data
<S> <C>
April 1, 1996 March 31, 2002
July 4, 1997 July 3, 2002
February 24, 1998 February 23, 2003
</TABLE>
2. ADD/REPLACE the following FSC/FPDS Classes to list of products and/or
services being solicited in Section B.2.
SIN 132-8 PURCHASE OF EQUIPMENT
FSC CLASS 7042 - MINI AND MICRO COMPUTER CONTROL DEVICES
___ Microcomputer Control Devices
___ Telephone Answering and Voice Messaging Systems
FSC CLASS 6020 - FIBER OPTIC CABLE ASSEMBLIES AND HARNESSES
___ Fiber Optic Cable Assemblies and Harnesses
FSC CLASS 5805 - TELEPHONE AND TELEGRAPH EQUIPMENT
___ Telephone Equipment
___ Audio and Video Teleconferencing Equipment
FSC CLASS 5820 - RADIO AND TELEVISION COMMUNICATION EQUIPMENT, EXCEPT AIRBORNE
___ Two-Way Radio Transmission/Receivers/Antennas
___ Broadcast Band Radio Transmitters/Receivers/Antennas
<PAGE>
Modification Page 3 of 53 Pages
___ Microwave Radio Equipment/Antennas and waveguides
___ Satellite Communications Equipment
FSC CLASS 5826 - RADIO NAVIGATION EQUIPMENT, AIRBORNE
Airborne Radio Navigation Equipment
FSC CLASS 5830 - INTERCOMMUNICATION AND PUBLIC ADDRESS
SYSTEMS, EXCEPT AIRBORNE
Pagers and Public Address Systems (wired and wireless
transmission, including background music systems)
(NOTE: Pager, Transmissions Services are excluded from this
solicitation.)
FSC CLASS 5841 - RADAR EQUIPMENT, AIRBORNE
___ Airborne Radar Equipment
FSC CLASS 5895 - MISCELLANEOUS COMMUNICATION EQUIPMENT
___ Miscellaneous Communications Equipment
Indicate if the following is being offered in support of SIN
132-8 PURCHASE OF EQUIPMENT
___ Installation for equipment offered under SIN 132-8
(FPDS Code N070)
___ Deinstallation for equipment offered under SIN 132-8
(FPDS Code N070):
___ Reinstallation for equipment offered under SIN 132-8 FPDS Code N070)
NOTE: Installation must be incidental to, in conjunction with and in direct
support of, the products sold under SIN 132-8 on this contract and cannot be
purchased separately.
<PAGE>
Modification Page 4 of 53 Pages
SPECIAL ITEM NO. 132-51 INFORMATION TECHNOLOGY PROFESSIONAL SERVICES
___ IT Facility Operation and Maintenance (FPDS CODE D301)
X IT Systems Development Services (PDS CODE D302)
---
X IT Systems Analysis Services (FPDS Code D306)
---
X Automated Information Systems Design and Integration
---
Services (FPDS Code D307)
___ Programming Services (FPDS Code D308)
___ Millennium Conversion Services (Y2K)
___ IT Backup and Security Services (FPDS Code D310)
___ IT Data Conversion Services (FPDS Code D311)
___ Computer Aided Design/Computer Aided Manufacturing (CAD/CAM) Services (FPDS
Code D313)
X IT Network Management Services (FPDS Code D316))
---
___ Automated News Services, Data Services, or Other Information
Services (FPDS Code D317)
___ Other Information Technology Services, Not Elsewhere Classified (FPDS Code
D399)
Note: All non-professional labor categories must be incidental to and used
solely to support hardware, software and/or professional services, and cannot be
purchased separately.
SIN 132-52 ELECTRONIC COMMERCE SERVICES
___ Navigation Services
3. DELETE from Section C.1 the list of EXCLUDED ITEMS and REPLACE with the
following:
NOTE: The following ARE EXCLUDED from the Information Technology
Schedule:- )
<PAGE>
Modification Page 5 of 53 Pages
i. Radar Equipment (except airborne radar equipment).
Offers for radar equipment (other than airborne radar equipment) must be made to
the GSA Federal Supply Service under FSC Group 58, Part IX. Contact Mr. William
Glacken on (215) 656-3835.
ii. Electrical Equipment - e.g., Uninterruptible Power Supplies, Computer Back-
Up Power Systems, Surge Suppressers, Power Line Conditioners, Surge Absorbers,
etc. may be offered under this solicitation only in conjunction with the IT
equipment these devices support. Offers which are limited to the electrical
equipment cited above should be made to the GSA Federal Supply Service under FSC
Group 61, Part V, Section B. Contact Mr. Dwight Young on (817) 978-8372.
iii. Training Courses for products which are outside the scope of this Schedule.
iv. Diskettes, Disk Cartridges, Disk Packs, Tape Cartridges, Tapes, and Optical
Disks, may be offered only in conjunction with the hardware devices which
utilize these supply items. Offers which do not include the hardware devices
may be made under Federal Supply Schedule FSC Group 58, Part V. Contact (212)
264-2692.
v. Carrying cases, except one per portable CPU purchase.
vi. Financial Management Software that specifically covers complete primary-
accounting systems that meet-Joint Financial Management Improvement Program
(JFMIP) Core Financial System Requirements. Contact Ms. Kathy Wood, GSA, Federal
Technology Service, on (703) 756-4214.
vii. Subscription services for databases on magnetic media and/or on optical
disk. Contact Ms. Mary Ann DeFeo on (212) 264-2306.
viii. Any products which are not U.S. Made End Products, Designated Country End
Products, Caribbean Basin Country End Products, Canadian End Products, or
Mexican End Products in accordance with FAR 25.402(c) and General Services
Administration Acquisition Regulation (GSAR) 525.402(a).
ix. Any products or services that are not "commercial" as defined in accordance
with FAR 52.202-l(c).
<PAGE>
Modification Page 6 of 53 Pages
4. ADD the following new paragraph to the end of Section F:
F.5 DELIVERY PRICES (F-FCI-202-G) (DEC 1997)
(a) Prices offered must cover delivery as provided below to destinations located
within the 48 contiguous States and the District of Columbia.
(b) The Offeror is requested to indicate below whether or not prices submitted
cover delivery f.o.b. destination in Alaska, Hawaii, the Commonwealth of Puerto
Rico, and such overseas locations as specified:
(Yes) (No)
Alaska X
Hawaii | X
Puerto Rico X
Overseas Locations X
Specify: ____________________________________________
_____________________________________________________
_____________________________________________________
(c) When deliveries are made to destinations outside the 48 contiguous States;
i.e., Alaska, Hawaii, the Commonwealth of Puerto Rico, and such overseas
locations as specified, and are not covered by paragraph (b), above, the
following conditions will apply:
(1) Delivery will be f.o.b. inland carrier, point of exportation (FAR 52.247-
38), with the transportation charges to be paid by the Government from point of
exportation to destination in Alaska, Hawaii, the Commonwealth of Puerto Rico,
and such overseas locations specified, as designated by the ordering office.
The Contractor shall add the actual cost of transportation to destination from
the point of exportation in the 48 contiguous States nearest to the designated
destination. Such costs will, in all cases, be based upon the lowest regularly
established rates on file with the Interstate Commerce Commission, the U.S.
Maritime Commission (if shipped by water), or any State regulatory body, or
those published by the U.S. Postal Service; and must be supported by paid
freight or express receipt or by a statement of parcel post charges including
weight of shipment.
(2) The right is reserved to ordering agencies to furnish Government bills of
lading.
(d) Ordering offices will be required to pay differential) between freight
charges and express charges where express deliveries are desired by the
Government.
<PAGE>
Modification Page 7 of 53 Pages
5. DELETE Section G.1 MODIFICATIONS in its entirety and REPLACE with the
following:
G.1.A MODIFICATIONS (MULTIPLE AWARD SCHEDULE)(GSAR 552.243-72) (AUG 1997) (FCI
DEVIATION-DEC 1997)
(a) General. The Contractor may request a contract modification by submitting a
request to the Contracting Officer for approval, except as noted in paragraph
(d) of this clause. At a minimum, every request shall describe the proposed
change(s) and provide the rationale for the requested change(s).
(b) Types of Modifications.
(1) Additional items/additional SINs. When requesting additions, the following
information must be submitted:
(i) Information requested in paragraphs (1) and (2) of the Commercial Sales
Practice Format to add SINs.
(ii) Discount information for the new items(s) or new SIN(s). Specifically,
submit the information requested in paragraphs 3 through 5 of the Commercial
Sales Practice Format. If this information is the same as the initial award, a
statement to that effect may be submitted instead.
NOTE: Tho format for the Commercial Sales Practices is found in item G.1.B.
(iii) Information about the new item(s) or new SIN(s) as described in 552.212-
70, Preparation of Offer (Multiple Award Schedule) is required.
NOTE: Preparations of Offer (Multiple Award Schedules) paragraph is item G.1.C.
(iv) Delivery time(s) for the new item(s) or the item(s) under the new SIN(s)
must be submitted in accordance with 552.211-78, Commercial Delivery Schedule
(Multiple Award Schedules).
NOTE: The Commercial Delivery Schedule (Multiple Award Schedules) reference is
F-FSS-265, April 1995 for this contract.
<PAGE>
Modification Page 8 of 53 Pages
(v) Production point(s) for the new item(s) or the item(s) under the new SIN(s)
must be submitted if required by 52.215-6, Place of Performance.
NOTE: The Place of Performance reference is 52.215-20 for this
contract.
(vi) Any information requested by 52.212-3(f), Offerors Representations and
Certifications - Commercial Items, that may be necessary to assure compliance
with 552.225-9, Trade Agreements Act (I.2).
(2) Deletions. The Contractors shall provide an explanation for the deletion.
The Government reserves the right to reject any subsequent offer of the same
item or a substantially equal item at a higher price during the same contract
period, if the Contracting Officer finds the higher price to be unreasonable
when compared with the deleted item.
(3) Price Reduction. The Contractor shall indicate whether the price reduction
falls under the item (i), (ii), or (iii) of subparagraph (c)(l) of the Price
Reductions clause at 552.238-76 (I.14). If the price reduction falls under item
(i), the Contractor shall submit a copy of the dated commercial pricelist(s). If
the price reduction falls under item (ii) or (iii), the Contractor shall submit
a copy of the applicable pricelist(s), bulletins or letters or customer
agreements which outline the effective date, duration, terms and conditions of
the price reduction.
(c) Effective dates. The effective date of any modification is the date
specified in the modification, except as otherwise provided ln the Price
Reductions clause at 552.238-76 (I.14).
(d) Electronic file updates. The Contractor shall update electronic file
submissions to reflect all modifications. Except for price reductions and
corrections, the Contractor shall obtain the Contracting Officer's approval
before transmitting changes. Price reductions and correction may be transmitted
without prior approval. However, the Contracting Officer shall be notified as
set forth in the Price Reductions clause at 552.238-76 (I.14).
(e) Amendments to paper Federal Supply Schedule Price lists. The Contractor
shall distribute a supplemental paper Federal Supply Schedule Pricelist
reflecting accepted changes within 15 days after the effective date of the
modification. At a minimum, distribution shall be made to these ordering
activities that previously received the basic document. In addition, two copies
of the supplemental pricelist shall be submitted to the contracting officer, and
two copies shall be submitted to the FSS Schedule Information Center.
<PAGE>
Modification Page 9 of 53 Pages
G.1.B COMMERCIAL SALES PRACTICES FORMAT (CSP-1)
Name of Offeror: Pulsar Data Systems, Inc.
SIN(s): 132-8, 132-51, 132-33d, 132-12
NOTE: Please refer to clause 552.212-70, PREPARATION OF OFFER (MULTIPLE AWARD
SCHEDULE), for additional information concerning your offer. Provide the
following information for each SIN (or group of SINs or SubSIN) for which
information is the same.
(1) Provide the dollar value of sales to the general public at or based on an
established catalog or market price during the previous 12 month period or the
Offeror's last fiscal year. $150M. State beginning and ending of the 12 month
period. Beginning $70M Ending $80M. In the event that a dollar value is not an
appropriate measure of the sales, provide and describe your own measure of the
sales of the item(s).
(2) Show your total projected annual sales to the Government under this contract
for the contract term, excluding options, for each SIN offered. If you
currently hold a Federal Supply Schedule contract for the SIN the total
projected annual sales should be based on your most recent 12 months of sales
under that contract. SIN 132-8 $ 89M; SIN 132-51 $12M; SIN 132-33 $7M
(3) Based on your written discounting policies (standard commercial sales-
practices in the event you do not have written discounting policies), are the
discounts and any concessions which you offer the Government equal-to or better
than your best price (discount and concessions in any combination) offered to
any customer acquiring the same items regardless of quantity or terms and
conditions? YES X NO . (See definition of "concession" and "discount" in
--- ---
552.212-70.)
(4) (a) Based on your written discounting policies (standard commercial sales
practices in the event you do not have written discounting policies), provide
information as requested for each SIN (or group of SINs for which the
information is the same) in accordance with the instructions at Table 515-1
which is provided in this solicitation for your convenience. The information
should be provided in the chart below or in an equivalent format developed by
the Offeror. Rows should be added to accommodate as many customers as required.
See definition of "concession" and "discount" in 552.212-70.
<PAGE>
Modification Page 10 of 53 Pages
Column 1 Column 2 Column 3 Column 4 Column 5
Customer Discount Quantity/Volume FOB Term Concessions
(b) Do any deviations from your written policies or standard commercial sales
practices disclosed in the above chart ever result in better discounts (lower
prices) or concessions than indicated? YES NO X . If YES, explain
------ ------
deviations in accordance with the instructions at Table 515-1 which is provided
in this solicitation for your convenience.
(5) If you are a dealer/reseller without significant sales to the general
public, you should provide manufacturers information required by paragraphs (1)
through (4) above for each item/SIN offered, if the manufacturer's sales under
any resulting contract are expected to exceed $500,000. You must also obtain
written authorization from the manufacturer(s) for Government access, at any
time before award or before agreeing to a modification, to the manufacturer's
sales records for the purpose of verifying the information submitted by the
manufacturer. The information is required in order to enable the Government to
make a determination that the offered price is fair and reasonable. To expedite
the review and processing of offers, you should advise the manufacturer(s) of
this requirement. The Contracting Officer may require the information be
submitted on electronic media with commercially available spreadsheet(s). The
information may be provided by the manufacturer directly to the Government. If
the manufacturer's item(s) is being offered by multiple dealers/resellers, only
one copy of the requested information should be submitted to the Government. In
addition, you must submit the following information along with a listing of
contact
information regarding each of the manufacturers whose products
and/or services are included in the offer (include the
manufacturers name, address, the manufacturers contact point,
telephone number, and FAX number) for each model offered by SIN:
(a) Manufacturer's Name
(b) Manufacturer's Part Number
(c) Dealer's/Reseller's Part Number
(d) Product Description,
(e) Manufacturer's List Price.
(f) Dealer's/Resellers percentage discount from List Price or net prices
<PAGE>
Modification Page 11 of 53 Pages
TABLE 515-1
INSTRUCTIONS FOR COMMERCIAL SALES PRACTICES FORMAT
If you responded "YES" to question (3), on the COMMERCIAL SALES PRACTICES
FORMAT, complete the chart in question (4)(a) for the customer(s) who receive
your best discount. If you responded "NO" complete the chart in question (4)(a)
showing your written policies or standard sales practices for all customers or
customer categories to whom you sell at a price (discounts and concessions in
combination) that is equal to or better than the price(s) offered to the
Government under this solicitation or with which the Offeror has a current
agreement to sell at a discount which equals or exceeds the discount(s) offered
under this solicitation. Such agreement shall be in effect on the date the offer
is submitted or contain an effective date during the proposed multiple award
schedule contract period. If your offer is lower than your price to other
customers or customer categories you will be aligned with the customer or
category of customer that receives your best price for purposes of the Price
Reductions clause at 552.238-76. The Government expects you to provide
information required by the format in accordance with these instructions that
is, to the best of your knowledge and belief, current, accurate, and complete as
of 14 calendar days prior to its submission. You must also disclose any changes
in your pricelist(s), discounts and/or discounting policies which occur after
the offer is submitted, but before the close of negotiations. If your discount
practices vary by model or product line, the discount information should be by
model or product line as appropriate. You may limit the number of models or
product lines reported to those which exceed 75% of actual historical Government
sales (commercial sales may be substituted if Government sales are unavailable)
value of the special item number (SIN).
Column 1-Identify the applicable customer or category of customer. A "customer"
is any entity, except the Federal Government, which acquires supplies or
services from the Offeror. The term customer includes, but is not limited to
original equipment manufacturers, value added resellers, state and local
governments, distributors, educational institutions (an elementary, junior high,
or degree granting school which maintains a regular facility and established
curriculum and an organized body of students), dealers, national accounts, and
end users. In any instance where the Offeror is asked to disclose information
for a customer, the Offeror may disclose information by category of customer if
the Offeror's discount policies or practices are the same for all customers in
the category. (Use a separate line for each customer or category of customer.)
<PAGE>
Modification Page 12 of 53 Pages
Column 2-Identify the discount. The term "discount" is as defined in
solicitation clause 552.212-70 Preparation of Offer (Multiple Award Schedule).
Indicate the best discount (based on your written discounting policies or
standard commercial discounting practices if you do not have written discounting
policies) at which you sell to the customer or category of customer identified
in column 1, without regard to quantity; terms and conditions of the agreements
under which the discounts are given; and whether the agreements are written or
oral. Net prices or discounts off of other pricelists should be expressed as
percentage discounts from the pricelist which is the basis for your offer. If
the discount disclosed is a combination of various discounts (prompt payment,
quantity, etc.), the percentage should be broken out for each type of discount.
If the pricelists which are the basis of the discounts given to the customers
identified in the chart are different than the pricelist submitted upon which
your offer is based, identify the type or title and date of each pricelist. The
Contracting Officer may require submission of these pricelists. To expedite
evaluation, Offerors may provide these pricelists at the time of submission.
Column 3-Identify tho quantity or volume of sales. Insert the minimum quantity
or sales volume which the identified customer or category of customer must
either purchase/order, per order or within a specified period, to earn the
discount. When purchases/orders must be placed within a specified period to earn
a discount indicate the time period.
Column 4-Indicate tho FOB delivery term for each identified customer. (See FAR
47.3 for an explanation of FOB delivery terms.)
Column 5-Indicate concession regardless of quantity granted to the identified
customer or category of customer. Concessions are defined in solicitation clause
552.212-70 Preparation of Offers (Multiple Award Schedule). If the space
provided is inadequate, the disclosure should be made on a separate sheet by
reference. If you respond "YES" to question 4(b) in the Commercial Sales
Practices Format, provide an explanation of the circumstances under which you
deviate from your written policies or standard commercial sales practices
disclosed in the chart on the Commercial Sales Practices Format and explain how
often they occur. Your explanation should include a discussion of situations
that lead to deviations from standard practice, an explanation of how often they
occur, and the controls you employ to assure the integrity of your pricing.
Examples of typical
<PAGE>
Modification Page 13 of 53 Pages,
deviations may include, but are not limited to, one time goodwill discounts to
charity organizations or to compensate an otherwise disgruntled customer; a
limited sale of obsolete or damaged goods; the sale of sample goods to a new
customer; or the sales of prototype goods for testing purposes.
If deviations from your written policies or standard commercial sales practices
disclosed in the chart on the Commercial Sales Practices Format are so
significant and/or frequent that the Contracting Officer cannot establish
whether the price(s) offered is fair and reasonable, then you may be asked to
provide additional information. The Contracting Officer may ask for information
to demonstrate that you have made substantial sales of the item(s) in the
commercial market consistent with the information reflected on the chart on the
Commercial Sales Practices Format, a description of the conditions surrounding
those sales deviations, or other information that may be necessary in order for
the Contracting Officer to determine whether your offered price(s) is fair and
reasonable. In cases where additional information is-requested, the Contracting
Officer will target the request in order to limit the submission of data to that
needed to establish the reasonableness of the offered price.
G.1.C PREPARATION OF OFFER (MULTIPLE AWARD SCHEDULE)
(GSAR 552.212-70) (AVG 1997)
(a) Definitions. Concession, as used in this solicitation, means a benefit,
enhancement or privilege (other than a discount), which either reduces the
overall cost of a customer's acquisition or encourages a customer to consummate
a purchase. Concessions include, but are not limited to, freight allowance,
extended warranty, extended price guarantees, free installation and bonus goods.
Discount, as used in this solicitation, means a reduction to catalog prices
(published or unpublished). Discounts include, but are not limited to, rebates,
quantity discounts, purchase option credits, and any other terms or conditions
other than concessions which reduce the amount of money .a customer ultimately
pays for goods or services ordered or received. Any net price lower than the
list price is considered a "discount" by the percentage difference from the list
price to the net price.
(b) For each Special Item Number (SIN) included in an offer, the Offeror shall
provide the information outlined in paragraph (c). Offerors may provide a single
response covering more than one SIN, if the information disclosed is the same
for all products
<PAGE>
Modification Page 14 of 53 Pages
under each SIN. If discounts and concessions vary by model or product line,
Offerors shall ensure that information is clearly annotated as to item or items
referenced.
(c) Provide information described below for each SIN:
(l) Two copies of the Offeror's current published (dated or otherwise
identified) commercial descriptive catalogs and/or pricelists from which
discounts are offered. If special catalogs or pricelists are printed for the
purpose of this offer, such descriptive catalogs or pricelists shall include a
statement indicating the special catalogs or pricelists represent a verbatim
extract from the Offeror's commercial catalogs and/or pricelists and identify
the descriptive catalogs and/or pricelists from which the information has been
extracted.
(2) Next to each offered item in the commercial catalog and/or pricelist, the
Offeror shall write the special item number (SIN) under which the item is being
offered. Unless a special catalog or pricelist is submitted, all other items
shall be marked "excluded," lined out, and initialed by the Offeror.
(3) The discount(s) offered under this solicitation. The description of
discounts offered shall include all discounts, such as prompt payment discounts,
quantity/dollar volume discounts (indicate whether models/products can be
combined within the SIN or whether SINs can be combined to earn discounts),
blanket purchase agreement discounts, or purchase option credits. If the terms
of sale appearing in the commercial catalogs or pricelist on which an offer is
based are in conflict with the terms of this solicitation, the latter shall
govern.
(4) A description of concessions offered under this solicitation which are not
granted to other customers. Such concessions may include,-but are not limited
to, an extended warranty, a return/exchange goods policy, or enhanced or
additional services.
(5) If the Offeror is a dealer/reseller or the Offeror will use dealers to
perform any aspect of contract awarded under this solicitation, describe the
functions, if any, that the dealer/reseller will perform.
<PAGE>
Modification Page 15 of 53 Pages
G.1.D REQUIREMENTS FOR COST OR PRICING DATA OR INFORMATION OTHER THAN COST OR
PRICING DATA-MODIFICATIONS (FAR 52.215-21) (OCT 1997) (ALTERNATE IV-OCT 1997)
(VARIATION I-AUG 1997)
(a) Submission of cost or pricing data is not required.
(b) Provide information described below.
(1) Information required by the clause at 552.243-72, Modifications (Multiple
Award Schedule);
(2) Any additional supporting information requested by the Contracting Officer.
The Contracting Officer may require additional supporting information, but only
to the extent necessary to determine whether the price(s) offered is fair and
reasonable.
(3) By submitting a request for modification, the Contractor grants the
Contracting Officer or an authorized representative the right to examine, at any
time before agreeing to a modification, books, records, documents, papers, and
other directly pertinent records to verify the pricing, sales and other data
related to the supplies or services proposed in order to determine the
reasonableness of price(s). Access does not extend to Contractor's cost or
profit information or other data relevant solely to the Contractor's
determination of the prices to be offered in the catalog or marketplace.
6. DELETE Section G.3 CONTRACTOR'S REPORT OF SALES in its entirety and REPLACE
with the following:
G.3 CONTRACTOR'S REPORT OF SALES (GSAR 552.238-72) (FEB 1998)
(FCI DEVIATION--DEC 1997)
(a) The Contractor must report the quarterly dollar value (in U.S. dollars and
rounded to the nearest whole dollar) of sales under the contract by calendar
quarter (i.e., January-March, April-June, July-September, and October-December).
The dollar value of a sale is the price paid by the schedule user for products
and services on a schedule contract delivery order, as recorded by the
Contractor. The reported contract sales value must include the Industrial
Funding Fee (see Clause 552.238-77).
<PAGE>
Modification Page 16 of 53 Pages
(b) The Contractor must report the quarterly dollar value of sales on electronic
GSA Form 72A, Contractor's Report of Sales, to the FSS Vendor Support Center
(VSC) Website at Internet, http://VSC.gsa.gov. Sales shall be reported
separately for each National Stock Number (NSN), Special Item Number (SIN), or
subitem. If no sales occur, the Contractor shall show zero on the report for
each separate National Stock Number (NSN), Special Item Number (SIN), or
subitem.
(c) The Contractor must register with the FSS Vendor Support Center (VSC) before
using the automated reporting system. To register, the Contractor (or his
authorized representative) must call the VSC at (703) 305-6235 and provide the
necessary information regarding the company, contact name(s), and telephone
number(s). The VSC will then issue a 72A specific password and provide other
information needed to access the reporting system. Instructions for electronic
reporting are available at the VSC Website or by calling the above phone number.
(d) The Contractor must convert the total value of any sales made in foreign
currency to U.S. dollars using the "Treasury Reporting Rates of Exchange,"
issued by the U.S. Department of Treasury, Financial Management Service. The
contractor must use the issue of the Treasury report in effect on the last day
of the reporting quarter. The report is available from:
Department of the Treasury
Financial Management Service
International Funds Branch
3700 East-West Highway
PGCII, Room 5Al9
Hyattsville, MD 20782
Telephone: (202) 874-7994
Internet:
http://www.ustreas.gov/treasury/bureaus/finman/intn.html
(e) The report is due 30 days following the completion cf the reporting period.
The Contractor must provide a close-out report within 120 days after the
expiration date of the contract. This close-out report must cover all sales not
shown in the final quarterly report and reconcile all errors and credits. If all
contract sales are reported and all errors and credits on the final quarterly
report are reconciled, then the Contractor shall show zero sales in the close-
out report.
(f) The Government reserves the right to inspect without further notice, such
records of the Contractor as pertain to sales under this contract. Willful
failure or refusal to submit the required
<PAGE>
Modification Page 17 of 53 Pages
reports, or falsification thereof, constitutes sufficient cause for terminating
the contract for cause under the termination provisions of this contract.
7. DELETE Section H.1 OPTION TO EXTEND in its entirety and REPLACE with the
following:
F.1.A OPTION TO EXTEND THE TERM OF THE CONTRACT
(I-FSS-164-A) (AUG 1995)
The Government may require continued performance of this contract for an
additional 5 year period. The option clause may not be exercised more than one
time. When the option to extend the term of this contract is exercised the
following conditions are applicable:
(a) The Contracting Officer may exercise the option by providing a written
notice to the Contractor ten (10) months before expiration of the contract.
(b) When the Government exercises its option to extend the term of this
contract, prices in effect at the time the option is exercised will remain in
effect during the option period, unless an adjustment is made in accordance with
another contract clause (e.g., Economic Price Adjustment Clause or Price
Reductions Clause).
H.1.B NOTICE REGARDING OPTION(S) (GSAR 552.217-71) (NOV 1992)
The General Services Administration (GSA) has included an option to extend the
term of the contract in order to demonstrate the value it places on quality
performance by providing a mechanism for continuing a contractual relationship
with a successful Offeror that performs at a level which meets or exceeds GSA's
quality performance expectations as communicated to the Contractor, in writing,
by the Contracting Officer or designated representative. When deciding whether
to exercise the option, the Contracting Officer will consider the quality of the
Contractor's past performance under this contract in accordance with 48 CFR
517.207.
<PAGE>
Modification Page 18 of 53 Pages
8. DELETE Section H.9 YEAR 2000 WARRANTY COMMERCIAL SUPPLY ITEMS in its entirety
and REPLACE with the following:
H.9 YEAR 2000 WARRANTY COMMERCIAL SUPPLY ITEMS (I-FSS-550-A)(AUG 1997)
As used in this clause, "Year 2000 compliant" means information technology that
accurately processes date/time data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the twentieth and twenty-
first centuries, and the years 1999 and 2000 and leap year calculations.
Furthermore, Year 2000 compliant information technology, when used in
combination with other information technology, shall accurately process
date/time if the other information technology properly exchanges date/time data
with it.
(a) All currently awarded products that are not Year 2000 compliant must be
deleted from this contract no later than December 31, 1999.
(b) Any contract modifications, adding new items under clause 552.243-72,
Modifications (Multiple Award Schedule), must meet the warranty requirement in
paragraph c, below.
(c) The Contractor warrants that each hardware, software, and firmware product
delivered under this contract 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. 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, provided that notwithstanding any provision to the
contrary in such commercial warranty or warranties, the remedies available to
the Government under this warranty shall include repair or replacement of any
listed product whose non-compliance is discovered and made known to the
Contractor in writing within ninety (90) days after acceptance. Nothing in this
warranty shall be construed to limit
<PAGE>
Modification Page 19 of 53 Pages
any rights or remedies the Government may otherwise have under this contract
with respect to defects other than Year 2000 performance.
9. DELETE Section 1.4 EXAMINATION OF RECORDS BY GSA in its entirety and REPLACE
with the following:
I.4 EXAMINATION OF RECORDS BY GSA (MULTIPLE AWARD SCHEDULE) (GSAR 552.215-71)
(AUG 1997)
The Contractor agrees that the Administrator of General Services or any duly
authorized representative shall have access to and the right to examine any
books, documents, papers and records of the Contractor involving transactions
related to this contract for overbillings, billing errors, compliance with the
Price Reductions clause and--compliance with the Industrial Funding Fee clause
of this contract. This authority shall expire 3 years after final payment. The
basic contract and each option shall be treated as separate contracts for
purposes of applying this clause.
10. DELETE Section 1.6 PAYMENTS BY ELECTRONIC FUNDS TRANSFER in its entirety and
REPLACE with the following:
I.6 INVOICE PAYMENTS (GSAR 552.232-70).(MAR 1998)
(a) The due date for making invoice payments by the designated payment office
is:
(1) For orders placed electronically by the General Services Administration
(GSA) Federal Supply Service(FSS), and to be paid by GSA through electronic
funds transfer (EFT), the later of the following two events:
(i) The 10th day after the designated billing office receives a proper invoice
from the contractor. If the designated billing office fails to annotate the
invoice with the date of receipt at the time of receipt, the invoice payment due
date shall be the 10th day after the date of the Contractor's invoice; provided
the Contractor submitted a proper invoice and no disagreements exists over
quantity, quality, or Contractor compliance with contract requirements.
(ii) The 10th day after Government acceptance of supplies delivered or services
performed by the Contractor.
<PAGE>
Modification Page 20 of 53 Pages
(2) For all other orders, the later of the following two events:
(i) The 30th day after the designated billing office receives a proper invoice
from the Contractor. If the designated billing office fails to annotate the
invoice with the date of receipt at the time of receipt, the invoice payment due
date shall be the 30th day after the date of the Contractor's invoice; provided
the Contractor submitted a proper invoice and no disagreement exists over
quantity, quality, or Contractor compliance with contract requirements.
(ii) The 30th day after Government acceptance of supplies delivered or services
performed by the Contractor.
(3) On a final invoice, if the payment amount is subject to contract settlement
actions, acceptance occurs on the effective date of the contract settlement.
(b) The General Services Administration will issue payment on the due date in
(a)(1) above if the Contractor complies with full cycle electronic commerce.
Full cycle electronic commerce includes all the following elements:
(1) The Contractor must receive and fulfill electronic data interchange (EDI)
purchase orders (transaction set 850).
(2) The Contractor must generate and submit to the Government valid EDI invoices
(transaction set 810).
(3) The Contractor's financial institution must receive and process, on behalf
of the Contractor, EFT payments through the Automated Clearing House (ACH)
system.
(4) The EDI transaction sets in (b)(1) through (b)(3) above must adhere to
implementation conventions provided by GSA.
(c) If any of the conditions in (b) above do not occur, the 10 day payment due
dates in (a)(1) become 30 day payment due dates.
(d) All other provisions of the Prompt Payment Act (31 U.S.C. 3901 et seq.) and
Office of Management and Budget (OMB) Circular A-125, Prompt Payment, apply.
<PAGE>
Modification Page 21 of 53 Pages
11. DELETE Section 1.7 PAYMENT BY CREDIT CARD in its entirety and REPLACE with
the following:
I.7 PAYMENT BY PURCHASE CARD (GSAR 552.232-80) (DEC 1989) (VARIATION I) (MAR
1998)
(a) Definitions: "Government purchase card" means the uniquely numbered credit
card issued to named individual Government employees or entities to pay for
official Government purchases. "Oral delivery order" means an order placed
orally either in person or by telephone, which is paid for by Government
purchase card.
(b) Contractors are required to accept the Government purchase card for payments
equal to or less than the micro-purchase threshold for oral or written delivery
orders. This is not intended to limit the acceptance of the Government purchase
card under this contract for dollar amounts that exceed this threshold if
otherwise agreeable between the Contractor and the customer; therefore,
Contractors are encouraged to accept payment by the Government purchase card for
all orders. If the Contractor is unwilling to accept payment by the Government
purchase card for a delivery order, the Contractor must so advise the ordering
agency within 24 hours of receipt of order.
(c) The Contractor shall not process a transaction for payment through the
credit card clearinghouse until the purchased supplies have been shipped or
services performed. Unless the cardholder requests correction or replacement of
a defective or faulty item in accordance with other contract requirements, the
Contractor shall immediately credit a cardholder's account for items returned as
defective or faulty.
12. DELETE Section 1.13 INVOICE REQUIREMENTS in its entirety and REPLACE with
the following:
I.13 INVOICE
The Contractor shall submit an original invoice and three copies (or electronic
invoice, if authorized,) to the address designated 141 the delivery or task
order to receive invoices. An invoice must include-
(1) Name and address of the Contractor;
(2) Invoice date;
(3) Contract number, contract line item number and, if applicable, the order
number;
<PAGE>
Modification Page 22 of 53 Pages
(4) Description, quantity, unit of measure, unit price and extended price of the
items delivered;
(5) Shipping number and date of shipment including the bill of lading number and
weight of shipment if shipped on Government bill of lading;
(6) Terms of any prompt payment discount offered;
(7) Name and address of official to whom payment is to be sent; and
(8) Name, title, and phone number of person to be notified in event of defective
invoice.
Invoices will be handled in accordance with the Prompt Payment Act (31 U.S.C.
3903) and Office of Management and Budget (OMB) Circular A-125, Prompt Payment.
Contractors are encouraged to assign an identification number to each invoice.
13. DELETE Section 1.25 INDUSTRIAL FUNDING FEE in its entirety and REPLACE with
the following:
I.25 INDUSTRIAL FUNDING FEE (G5AR 552.238-77) {FEB 1998)
(FC: DEVIATION--DEC 1997))
(a) The Contractor must pay the Federal Supply Service, GSA, an Industrial
Funding Fee (IFF). The Contractor must remit the IFF in U.S. dollars within 30
days after the end of each quarterly reporting period as established in clause
552.238-72, Contractor's Report of Sales. The IFF equals one percent (1%) of
the total quarterly sales reported. The IFF reimburses the GSA Federal Supply
Service for the costs of operating the Federal Supply Schedules Program.
Offerors should include the IFF in the prices submitted with their offer. The
fee is included in the award price(s) and reflected in the total amount charged
to ordering activities; consequently, GSA's costs are recouped from these
ordering activities.
(b) The Contractor must remit any monies due as a result of the close out report
required by Clause 552.238-72 at the time the close out report is submitted to
GSA.
(c) The IFF amount due must be paid by check, or electronic funds transfer
through the Automated Clearing House (ACH), to the "General Services
Administration." If the payment involves multiple special item numbers or
contracts, the Contractor may consolidate the IFFs into one payment. To ensure
that the payment is credited properly, the Contractor shall identify the check
or electronic transmission as an "Industrial Funding Fee" and include the
following information: contract number(s);
<PAGE>
Modification Page 23 of 53 Pages
report amount(s); and report period(s). If the Contractor makes payment by
check, provide this information on either the check, check stub, or other
remittance material.
(1) If the payment is made by check, it shall be forwarded to the following
address:
General Services Administration
Accounts Receivable Branch (6BCR)
P.O. Box 70500
Chicago, IL 60673-0500
(2) If the IFF payment is made by electronic funds transfer through ACH, the
Contractor must call GSA, Financial Information Control Branch, Receivables,
Collections and Sales Section (6BCDR) at (contracting officer to insert phone
number) to make arrangements.
(d) If the full amount of the IFF is not paid within 30 calendar days after the
end of the applicable reporting period, it shall constitute a contract debt to
the United States Government under the terms of FAR 32.6. The Government may
exercise all rights under the Debt Collection Act of 1982, including withholding
or setting off payments and interest on the debt (see FAR 52.232-17, Interest).
(e) Failure to submit sales reports, falsification of sales reports, and/or
failure to pay the IFF in a timely manner may result in termination or
cancellation of this contract. Willful failure or refusal to furnish the
required reports, falsification of sales reports, or failure to make timely
payment of the IFF constitutes sufficient cause for terminating the contract for
cause under the termination provisions of this contract.
14. ADD to the end of Section I - CONTRACT CLAUSES the following clauses:
I.28 PLACEMENT OF ORDERS (GSAR 552.216-73) (JUN 1994) (ALTERNATE II-JUN 1994)
(DEVIATION)
(a) Delivery orders under this contract may be placed by entities authorized to
do so by the Scope of Contract clause (see C.2).
(b) Orders may be placed through Electronic Data Interchange (EDI) or mailed in
paper form. EDI orders shall be placed using the American National Standards
Institute (ANSI) X12 Standard for Electronic Data Interchange (EDI) format.
<PAGE>
Modification Page 24 of 53 Pages
(c) If the Contractor agrees, GSA's Federal Supply Service (FSS) will place all
orders by EDI using computer-to-computer EDI. If computer-to-computer EDI is not
possible, FSS will use an alternative EDI method allowing the Contractor to
receive orders by facsimile transmission. Subject to the Contractor's agreement,
other agencies may place orders by EDI.
(d) When computer-to-computer EDI procedures will be used to place orders, the
Contractor shall enter into one or more Trading Partner Agreements (TPA) with
each Federal agency placing orders electronically in order to ensure mutual
understanding by the parties of certain electronic transaction conventions and
to recognize the rights and responsibilities of the parties as they apply to
this method of placing orders. The TPA must identify, among other things, the
third party provider(s) through which electronic orders are placed, the
transaction sets used, security procedures, and guidelines for implementation.
Federal agencies may obtain a sample format to customize as needed from the
office specified in (g) below.
(e) The Contractor shall be responsible for providing its own hardware and
software necessary to transmit and receive data electronically. Additionally,
each party to the TPA shall be responsible for the costs associated with its use
of third party provider services.
(f) Nothing in the TPA will invalidate any part of this contract between the
Contractor and the General Services Administration. All terms and conditions of
this contract that otherwise would be applicable to a mailed order shall apply
to the electronic order.
(g) The basic content and format of the TPA will be provided by:
General Services Administration
Systems Inventory and Operations Management Center (FCS)
Washington, DC 20406
Telephone: (703) 305-7741
FAX: (703) 305-7720
I.29 CONTRACT SALES CRITERIA (I-FSS-639) (MAR 1998)
A contract will not be awarded unless anticipated sales are expected to exceed
$25,000 for a 1-year period. Resultant contracts will be canceled in accordance
with the cancellation clause unless reported sales are $25,000 for each 12 month
period from date of award and every 12 month period thereafter.
<PAGE>
Modification Page 25 of 53 Pages
15. DELETE Section K.16 COST ACCOUNTING STANDARDS NOTICES AND CERTIFICATION and
REPLACE with the following:
R.16 RESERVED
16. DELETE Section L.10 SIC CODES AND SMALL BUSINESS SIZE STANDARD in its
entirety and REPLACE with the following:
L.10 STANDARD INDUSTRIAL CLASSIFICATION (SIC) CODE AND SMALL BUSINESS SIZE
STANDARD (BLOCK 10, STANDARD FORM 1449)
(a) The standard industrial classification (SIC) codes for this acquisition and
the small business size standards per FAR 19.102, are as follows:
SIC DESCRIPTION SIZE
DIVISION D - MANUFACTURING
MAJOR GROUP 27 - PRINTING, PUBLISHING, AND ALLIED INDUSTRIES
2741 MISCELLANEOUS PUBLISHING 500
MAJOR GROUP 35 - INDUSTRIAL AND COMMERCIAL MACHINERY AND COMPUTER EQUIPMENT
3571 ELECTRONIC COMPUTERS 1,000
3572 COMPUTER STORAGE DEVICES 1,000
3575 COMPUTER TERMINALS 1,000
3577 COMPUTER PERIPHERAL EQUIPMENT, N.E.C. 1,000
MAJOR GROUP 36 - ELECTRONIC AND OTHER ELECTRICAL EQUIPMENT AND COMPONENTS
3643 CURRENT-CARRYING WIRING DEVICES 500
3644 NONCURRENT-CARRYING WIRING DEVICES 500
3651 HOUSEHOLD AUDIO AND VIDEO EQUIPMENT 750
3661 TELEPHONE AND TELEGRAPH APPARATUS 1,000
3663 RADIO AND TELEVISION BROADCASTING AND
COMMUNICATIONS EQUIPMENT - 750
3669 OTHER COMMUNICATIONS EQUIPMENT, N.E.C. 750
<PAGE>
Modification Page 26 of 53 Pages
DIVISION E - TRANSPORTATION, COMMUNICATIONS, ELECTRIC, GAS, AND SANITARY
SERVICES
MAJOR GROUP 48 - COMMUNICATIONS
4812RADIOTELEPHONE COMMUNICATIONS 1,500
4813TELEPHONE COMMUNICATIONS, EXCEPT
RADIOTELEPHONE 1,500
4822TELEGRAPH AND OTHER MESSAGE COMMUNICATIONS $ 5.0
4899COMMUNICATIONS SERVICES, N.E.C. $11.0
DIVISION F - WHOLESALE TRADE
MAJOR GROUP 50 - DURABLE GOODS
5045 COMPUTERS AND COMPUTER PERIPHERAL
EQUIPMENT AND SOFTWARE $ 500
DIVISION I - SERVICES
MAJOR GROUP 73 - BUSINESS SERVICES
7359 EQUIPMENT RENTAL AND LEASING, N.E.C. $ 5.0
7371 COMPUTER PROGRAMS $ 18.0
7372 PREPACKAGED SOFTWARE $ 18.0
7373 COMPUTER INTEGRATED SYSTEMS DESIGN $ 18.0
7374 COMPUTER PROCESSING AND DATA PREPARATION
AND PROCESSING SERVICES $ 18.0
7375 INFORMATION RETRIEVAL SERVICES $ 18.0
7376 COMPUTER FACILITIES MANAGEMENT SERVICES 18.0
7377 COMPUTER RENTAL AND LEASING $ 18.0
7378 COMPUTER MAINTENANCE AND REPAIR $ 18.0
7379 COMPUTER RELATED SERVICES, N.E.C. $ 18.0
7389 BUSINESS SERVICES, N.E.C. $ 5.0
NOTES: SIZE STANDARDS PRECEDED BY A DOLLAR SIGN ($) ARE IN MILLIONS OF DOLLARS.
ALL OTHERS ARE IN NUMBER OF EMPLOYEES UNLESS SPECIFIED OTHERWISE. N.E.C.: NOT
ELSEWHERE CLASSIFIED.
(b) 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.
(c) If the Offeror represents different business sizes than indicated in
paragraph G.l(c) for any proposed SIN, indicate
below the SIC code and the business size.
<PAGE>
Modification Page 27 of 53 Pages->
Special Item Number Standard Industry Business
(SIN) Classification (SIC) Size
132-3 Leasing of
Equipment
132-8 Purchase of
Equipment
132-12 Maintenance of
Equipment, Repair
Service and/or
Repair/Spare Parts
132-32 Term Software
License
132-33 Perpetual
Software License
132-34 Maintenance of
Software
132-50 Training Courses
132-51 Professional
Information Technology
Services.
132-52 Electronic
Commerce Services
17. DELETE from ATTACHMENT I the section entitled INFORMATION FOR ORDERING
OFFICES and REPLACE with the following:
INFORMATION FOR ORDERING OFFICES
SPECIAL NOTICE TO AGENCIES:
Small Business Participation
SBA strongly supports the participation of small business concerns in the
Federal Supply Schedules Program. To enhance Small Business Participation SBA
policy allows agencies to include in their procurement base and goals, the
dollar value of orders expected to be placed against the Federal Supply
schedules, and to report accomplishments against these goals.
For orders exceeding the micropurchase threshold, FAR 8.404 requires agencies to
consider the catalogs/pricelists of at least three schedule contractors or
consider reasonably available
<PAGE>
Modification Page 28 of 53 Pages
information by using the GSA Advantage!TM on-line shopping service
(www.fss.gsa.gov). The catalogs/pricelists, GSA Advantage!TM and the Federal
Supply Service Home Page (www.fss.gsa.gov) contain information on a broad array
of products and services offered by small business concerns.
This information should be used as a tool to assist ordering activities in
meeting or exceeding established small business goals. It should also be used as
a tool to assist in including small, small disadvantaged, and women-owned small
businesses among those considered when selecting pricelists for a best value
determination.
For orders exceeding the micropurchase threshold, customers are to give
preference to small business concerns when two or more items at the same
delivered price will satisfy their requirement.
1. Geographic Scope of Contract:
**The minimum acceptable geographic scope of contract is the 48 contiguous
states and the District of Columbia. If the scope includes Alaska, Hawaii, or
the Commonwealth of Puerto Rico, identify these locations. Any overseas
locations must also be specifically identified.**
2. Contractor's Ordering Address and Payment Information:
**The Contractor should insert the complete address(es) for ordering (see
paragraph G.8) and payment (see paragraph G.10.**
Contractors are required to accept the Government purchase card for payments
equal to or less than the micro-purchase threshold for oral or written delivery
orders. Government purchase cards will/will not be acceptable for payment above
----
the micro-purchase threshold. In addition, bank account information for wire
transfer payments will be shown on the invoice.
**Choose the appropriate language "will" or "will not" in the second sentence.
Copy the first and third sentence.**
The following telephone number(s) can be used by ordering agencies to obtain
technical and/or ordering assistance:
**Insert the telephone numbers.**
(301) 459-2650
<PAGE>
Modification Page 29 of 53 Pages
3. LIABILITY FOR INJURY OR DAMAGE
The Contractor shall not be liable for any injury to Government personnel or
damage to Government property arising from the use of equipment maintained by
the Contractor, unless such injury or damage is due to the fault or negligence
of the Contractor.
4. Statistical Data for Government Ordering Office Completion of Standard Form
279:
Block 9: G. Order/Modification Under Federal Schedule
Block 16: Data Universal Numbering System (DUNS)
Number: 11-807-6561
Block 30: Type of Contractor - A
**Copy the applicable letter and corresponding language from the following
list**
A. Small Disadvantaged Business
8. Other Small Business
C. Large Business
G. Other Nonprofit Organization
L. Foreign Contractor
Block 31: Woman-Owned Small Business - NO
**Yes or No**
Block 36: Contractors Taxpayer Identification Number (TIN)
51-275037
4a. CAGE Code: OMOC7
**CAGE Codes are assigned by the Defense Logistics Agency. If you do not
currently have a CAGE Code, GSA will supply you with the form necessary to
obtain a CAGE Code at a later date.**
5. FOB Destination
6. DELIVERY SCHEDULE
a. TIME OF DELIVERY: The Contractor shall deliver to destination within the
number of calendar days after receipt of order (ARO), as set forth below:
SPECIAL ITEM NUMBER DELIVERY TIME (Days ARO)
132-8 90 or as negotiated
132-33 90 or as negotiated
<PAGE>
Modification Page 30 of 53 Pages
**NOTE: The Time of Delivery stated should be identical to that shown under
paragraph B.2, PRODUCTS AND SERVICES OFFERED/SCHEDULE OF ITEMS. If Expedited
Delivery and/or Overnight and 2-Day Delivery are offered under paragraph C.12,
COMMERCIAL DELIVERY SCHEDULE (MULTIPLE AWARD SCHEDULE), provide information in
this section of the pricelist.**
N/A
b. URGENT REQUIREMENTS: When the Federal Supply Schedule contract delivery
period does not meet the bona fide urgent delivery requirements of an ordering
agency, agencies are encouraged, if time permits, to contact the Contractor for
the purpose of obtaining accelerated delivery. The Contractor shall replay to
the inquiry within 3 workdays after receipt. (Telephonic replies shall be
confirmed by the Contractor in writing.) If the Contractor offers an accelerated
delivery time acceptable to the ordering agency, any order(s) placed pursuant to
the agreed upon accelerated delivery time frame shall be delivered within this
shorter delivery time and in accordance with all other terms and conditions of
the contract .
7. Discounts: Prices shown are NET Prices; Basic Discounts have been deducted.
a. Prompt Payment: 0% - n/a Net 30 days from receipt of invoice or date of
acceptance, whichever is later.
b. Quantity
c. Dollar Volume
d. Government Educational Institutions
**If Government Educational Institutions as offered special discounts, which are
greater than the discounts offered to other Government customers, specify such
discounts. Otherwise, state that Government Educational Institutions are
offered the same discounts as all other Government customers.**
e. Other
**Provide complete information to explain all of the discounts offered. Copy
the language in paragraphs "a" through "f" as applicable to your proposal.**
<PAGE>
Modification Page 31 of 53 Pages
8. Trade Agreements Act of 1979, as amended:
All items are U.S. made end products, designated country end products, Caribbean
Basin country end products, Canadian end products, or Mexican end products as
defined in the Trade Agreements Act of 1979, as amended.
9. Statement Concerning Availability of Export Packing:
NONE
10. Sma11 Requirements: The minimum dollar value of orders to be issued is
$100.
**See C.9, ORDER LIMITATIONS, paragraph (a) Minimum Order.**
11. Maximum Order: (All dollar amounts are exclusive of any discount for prompt
payment.)
a. Special Item-Number 132-3 - Leasing of Equipment
The maximum dollar value per order for all leased equipment will be $500,000.
b. Special Item Number 132-8 - Purchase of Equipment
The maximum dollar value per order for all purchased equipment will be $500,000.
c. Special Item Number 132-12 - Repair Parts/Spare Parts
The maximum dollar value per order for all repair parts/spare parts will be
$10,000.
d. Special Item Number 132-32 - Term Software Licenses
The maximum dollar value per order for all term software licenses will be
$50,000 or $500,000.
e. Special Item Number 132-33 - Perpetual Software Licenses
The maximum dollar value per order for all perpetual software licenses will be
$50,000 or $500,000.
f. Special Item Number 132-50 - Training Courses
The maximum dollar value per order for all training courses will be S25,000.
<PAGE>
Modification Page 32 of 53 Pages
g. Special Item Number 132-51 - Information Technology (IT) Professional
Services
The maximum dollar value per order for all IT Professional services will be
$500,000.
h. Special Item Number 132-52 - Electronic Commerce (EC) Services
The maximum dollar value per order for all EC services will be $500,000.
Note: Maximum Orders do not apply to Special Item Numbers 132-12 Maintenance
and Repair Service (except for Repair Parts/Spare Parts) or 132-34 Maintenance
of Software.
12. USE OF FEDERAL SUPPLY SERVICE INFORMATION TECHNOLOGY SCHEDULE CONTRACTS. In
accordance with FAR 8.404:
[NOTE: Special ordering procedures have been established for Special Item
Numbers (SINs) 132-51 IT Professional Services and 132-52 EC Services; refer to
the terms and conditions for those SINs.]
Orders placed pursuant to a Multiple Award Schedule (MAS), using the procedures
in FAR 8.404, are considered to be issued pursuant to full and open competition.
Therefore, when placing orders under Federal Supply Schedules, ordering offices
need not seek further competition, synopsize the requirement, make a separate
determination of fair and reasonable pricing, or consider small business set-
asides in accordance with subpart 19.5. GSA has already determined the prices
of items under schedule contracts to be fair and reasonable. By placing an
order against a schedule using the procedures outlined below, the ordering
office has concluded that the order represents the best value and results in the
lowest overall cost alternative (considering price, special features,
administrative costs, etc.) to meet the Government's needs.
a. Orders placed at or below the micro-purchase threshold. Ordering offices can
place orders at or below the micro-purchase threshold with any Federal Supply
Schedule Contractor.
b. Orders excluding the micro-purchase threshold but not exceeding the maximum
order threshold. Orders should be placed with the Schedule Contractor that can
provide the supply or service that represents the best value. Before placing an
order, ordering offices should consider reasonably available information
<PAGE>
Modification Page 33 of 53 Pages
about the supply or service offered under MAS contracts by using the "GSA
Advantage!" on-line shopping service, or by reviewing the catalogs/pricelists of
at least three Schedule Contractors and selecting the delivery and other options
available under the schedule that meets the agency's needs. In selecting the
supply or service representing the best value, the ordering office may
consider--
(1) Special features of the supply or service that are required in effective
program performance and that are not provided by a comparable supply or service;
(2) Trade-in considerations;
(3) Probable life of the item selected as compared with that of a comparable
item;
(4) Warranty considerations;
(5) Maintenance availability;
(6) Past performance; and
(7) Environmental and energy efficiency considerations.
c. Orders exceeding the maximum order threshold. Each schedule contract has an
established maximum order threshold. This threshold represents the point where
it is advantageous for the ordering office to seek a price reduction. In
addition to following the procedures in paragraph b, above, and before placing
an order that exceeds the maximum order threshold, ordering offices shall--
(1) Review additional Schedule Contractors' catalog pricelists or use the "GSA
Advantage!" on-line shopping service;
(2) Based upon the initial evaluation, generally seek price reductions from the
Schedule Contractor(s) appearing to provide the best value (considering price
and other factors); and
(3) After price reductions have been sought, place the order with the Schedule
Contractor that provides the best value and results in the lowest overall cost
alternative. If further price reductions are not offered, an order may still be
placed, 8 if the ordering office determines that it is appropriate.
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NOTE: For orders exceeding the maximum order threshold, the Contractor may:
(1) Offer a new lower price for this requirement (the Price Reductions clause is
not applicable to orders placed over the maximum order in FAR 52.216-19 Order
Limitations);
(2) Offer the lowest price available under the contract; or
(3) Decline the order (orders must be returned in accordance with
FAR 52.216-19).
d. Blanket purchase agreements (BPAs). The establishment of Federal Supply
Schedule BPAs is permitted when following the ordering procedures in FAR 8.404.
All schedule contracts contain BPA provisions. Ordering offices may use BPAs to
establish accounts with Contractors to fill recurring requirements. BPAs should
address the frequency of ordering and invoicing, discounts, and delivery
locations and times.
e. Price reductions. In addition to the circumstances outlined in paragraph c,
above, there may be instances when ordering offices will find it advantageous to
request a price reduction. For example, when the ordering office finds a
schedule supply or service elsewhere at a lower price or when a BPA is being
established to fill recurring requirements, requesting a price reduction could
be advantageous. The potential volume of orders under these agreements,
regardless of the size of the individual order, may offer the ordering office
the opportunity to secure greater discounts. Schedule Contractors are not
required to pass on to all schedule users a price reduction extended only to an
individual agency for a specific order.
f. Small business. For orders exceeding the micro-purchase threshold, ordering
offices should give preference to the items of small business concerns when two
or more items at the same delivered price will satisfy the requirement.
g. Documentation. Orders should be documented, at a minimum, by identifying the
Contractor the item was purchased from, the item purchased, and the amount paid.
If an agency requirement in excess of the micro-purchase threshold is defined so
as to require a particular brand name, product, or feature of a product peculiar
to one manufacturer, thereby precluding consideration of a product manufactured
by another company, the
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ordering office shall include an explanation in the file as to why the
particular brand name, product, or feature is essential to satisfy the agency's
needs.
13. FEDERAL INFORMATION TECHNOLOGY/TELECOMMUNICATIONS STANDARDS REQUIREMENTS:
Federal departments and agencies acquiring products from this Schedule must
comply with the provisions of the Federal Standards Program, as appropriate
(reference: NIST Federal Standards Index). Inquiries to determine whether or
not specific products listed herein comply with Federal Information Processing
Standards (FIPS) or Federal telecommunication Standards (FED-STDS), which are
cited by ordering offices, shall be responded to promptly by the Contractor.
13.1 FEDERAL INFORMATION PROCESSING STANDARDS PUBLICATIONS (FIPS PUBS):
Information Technology products under this Schedule that do not conform to
Federal Information Processing Standards (FIPS) should not be acquired unless a
waiver has been granted in accordance with the applicable "FIPS Publication."
Federal Information Processing Standards Publications (FIPS PUBS) are issued by
the U.S. Department of Commerce, National Institute of Standards and Technology
(NIST), pursuant to National Security Act. Information concerning their
availability and applicability should be obtained from the National
Technical Information Service (NTIS), 5285 Port Royal Road, Springfield,
Virginia 22161. FIPS PUBS include voluntary standards when these are adopted for
Federal use. Individual orders for FIPS PUBS should be referred to the NTIS
Sales Office, and orders for subscription service should be referred to the
NTIS Subscription Officer, both at the above address, or telephone number (703)
487-4650.
13.2 FEDERAL TELECOMMUNICATION STANDARDS (FED STDS): Telecommunication products
under this Schedule that do not conform to Federal Telecommunication Standards
(FED-STDS) should not be acquired unless a waiver has been granted in accordance
with the applicable "FED-STD." Federal telecommunication Standards are issued by
the U.S. Department of Commerce, National Institute of Standards and Technology
(NIST), pursuant to National Security Act. Ordering information and information
concerning the availability of FED-STDS should be obtained from the GSA, Federal
Supply Service, Specification Section, 470 East L'Enfant-Plaza, Suite 8100,
SW, Washington, DC 20407, telephone number (202)619-8925. Please include a
self-addressed mailing label when requesting information by mail. Information
concerning their applicability can be obtained by writing or calling the U.S.
Department of Commerce, National Institute of Standards and Technology,
Gaithersburg, MD 20899, telephone number (301) 975-2833.
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14. SECURITY REQUIREMENTS. In the event security requirements are necessary,
the ordering activities may incorporate, in their delivery orders, a security
clause in accordance with current laws, regulations, and individual agency
policy; however, the burden of administering the security requirements shall be
with the ordering agency. If any costs are incurred as a result of the
inclusion of security requirements, such costs will not exceed ten percent (10%)
or $100,000, of the total dollar value of the order, whichever is lessor.
15. CONTRACT ADMINISTRATION FOR ORDERING OFFICES: Any ordering office, with
respect to any one or more delivery orders placed by it under this contract, may
exercise the same rights of termination as might the GSA Contracting Officer
under provisions of FAR 52.212-4, paragraphs (1) Termination for the
Government's convenience, and (m) Termination for Cause (See C.1.)
16. GSA Advantage!
GSA Advantage! is an on-line, interactive electronic information and ordering
system that provides on-line access to vendors' schedule prices with ordering
information. GSA Advantage! will allow the user to perform various searches
across all contracts including, but not limited to:
(1) Manufacturer;
(2) Manufacturer's Part Number; and
(3) Product categories.
Agencies can browse GSA Advantage! by accessing the Internet Worldwide Web
utilizing a browser (ex.: NetScape). The Internet address is
http://www.fss.gsa.gov/.
17. PURCHASE OF INCIDENTAL, NON-SCHEDULE ITEMS
For administrative convenience, open market (non-contract) items may be added to
a Federal Supply Schedule Blanket Purchase Agreement (BPA) or an individual
order, provided that the items are clearly labeled as such on the order, all
applicable regulations have been followed, and price reasonableness has been
determined by the ordering activity for the open market (non-contract) items.
18. CONTRACTOR COMMITMENTS, WARRANTIES AND REPRESENTATIONS
a. For the purpose of this contract, commitments, warranties and representations
include, in addition to those agreed to for the entire schedule contract:
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Modification Page 37 of 53 Pages
(1) Time of delivery/installation quotations for individual orders;
(2) Technical representations and/or warranties of products concerning
performance, total system performance and/or configuration, physical, design
and/or functional characteristics and capabilities of a
product/equipment/service/software package submitted in response to requirements
which result in orders under this schedule contract.
(3) Any representations and/or warranties concerning the products made in any
literature, description, drawings and/or specifications furnished by the
Contractor.
b. The above is not intended to encompass items not currently covered by the GSA
Schedule contract.
19. OVERSEAS ACTIVITIES
The terms and conditions of this contract shall apply to all orders for
installation, maintenance and repair of equipment in areas listed in the
pricelist outside the 48 contiguous states and the District of Columbia, except
as indicated below:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Upon request of the Contractor, the Government may provide the Contractor with
logistics support, as available, in accordance with all applicable Government
regulations. Such Government support will be provided on a reimbursable basis,
and will only be provided to the Contractor's technical personnel whose services
are exclusively required for the fulfillment of the terms and conditions of this
contract.
20. YEAR 2000 WARRANTY - COMMERCIAL SUPPLY ITEMS (I-FSS-550-A)(AUG 1997)
As used in this clause, "Year 2000 compliant" means information technology
that accurately processes date/time data (including, but not limited to,
calculating, comparing, and sequencing) from, into, and between the twentieth
and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations. Furthermore, Year 2000 compliant information technology, when used
in combination with other information technology, shall accurately process date
time if the other information technology properly exchanges date/time data with
it.
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Modification Page 38 of 53 Pages.
(a) All currently awarded products that are not Year 2000 compliant must
be deleted from this contract no later than December 31, 1999.
(b) Any contract modifications, adding new items under clause 552.243-72,
Modifications (Multiple Award Schedule), must meet the warranty requirement in
paragraph c, below.
(c) The Contractor warrants that each hardware, software, and firmware product
delivered under this contract 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. 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, provided that notwithstanding any provision to the
contrary in such commercial warranty or warranties, the remedies available to
the Government under this warranty shall include repair or replacement of any
listed product whose non-compliance is discovered and made known to the
Contractor in writing within ninety (90) days after acceptance. 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.
21. BLANKET PURCHASE AGREEMENTS (BPAs)
Federal Acquisition Regulation (FAR) 13.201(a) defines Blanket Purchase
Agreements (BPAs) as "...a simplified method of filling anticipated repetitive
needs for supplies or services by establishing 'charge accounts' with qualified
sources of supply." The use of Blanket Purchase Agreements under the Federal
Supply Schedule Program is authorized in accordance with FAR 13.202(c)(3), which
reads, in part, as follows:
"BPAs may be established with Federal Supply Schedule Contractors, ( if not
inconsistent with the terms of the applicable schedule contract."
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Modification Page 39 of 53 Pages
Federal Supply Schedule contracts contain BPA provisions to enable schedule
users to maximize their administrative and purchasing savings. This feature
permits schedule users to set up "accounts" with Schedule Contractors to fill
recurring requirements. These accounts establish a period for the BPA, and
generally address issues such as the frequency of ordering and invoicing,
authorized callers, discounts, delivery locations and times. Agencies may
qualify for the best quantity/volume discounts available under the contract,
based on the potential volume of business that may be generated through such an
agreement, regardless of the size of the individual orders. In addition,
agencies may be able to secure a discount higher than that available in the
contract based on the aggregate volume of business possible under a BPA.
Finally, Contractors may be open to a progressive type of discounting where the
discount would increase once the sales accumulated under the BPA reach certain
prescribed levels. Use of a BPA may be particularly useful with the new Maximum
Order feature. See the Suggested Format, contained in this Schedule Pricelist,
for customers to consider when using this purchasing tool.
22. CONTRACTOR TEAM ARRANGEMENTS
Federal Supply Schedule Contractors may use "Contractor Team Arrangements"
(see FAR 9.6) to provide solutions when responding to a customer agency
requirements. The policy and procedures outlined in this part will provide
more flexibility and allow innovative acquisition methods when using the
Federal Supply Schedules. See the additional information regarding
Contractor Team Arrangements in this Schedule Pricelist.
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18. DELETE from ATTACHMENT I the section entitled TERMS AND CONDITIONS
APPLICABLE TO INFORMATION TECHNOLOGY PROFESSIONAL SERVICES (SPECIAL ITEM 132-51)
AND ELECTRONIC COMMERCE SERVICES (SPECIAL ITEM 132-52) FOR GENERAL PURPOSE
INFORMATION TECHNOLOGY SERVICES and REPLACE with the following:
TERMS AND CONDITIONS APPLICABLE TO INFORMATION TECHNOLOGY (IT) PROFESSIONAL
SERVICES (SPECIAL ITEM NUMBER 132-51) AND ELECTRONIC COMMERCE (EC) SERVICES
(SPECIAL ITEM NUMBER 132-52)
**The phrase, "Information Technology (IT) Professional Services/Electronic
Commerce (EC) Services" in the following; paragraphs may need to be revised in
order to be consistent with the Offeror's proposal; e.g., if only IT
Professional Services are offered, all references to EC Services should be
deleted.**
1. SCOPE
a. The prices, terms and conditions stated under Special Item Number 132-51
Information Technology Professional Services and Special Item Number 132-52
Electronic Commerce Services apply exclusively to IT/EC Services within the
scope of this Information Technology Schedule.
b. The Contractor shall provide services at the Contractor's facility and/or at
the Government location, as agreed to by the Contractor and the ordering office.
**NOTE: Include paragraph 2, only if hourly rates for IT Professional Services
are offered.**
2. ORDERING PROCEDURES
a. Procedures for IT professional services priced on GSA schedule at hourly
rates.
(1) FAR 8.402 contemplates that GSA may occasionally find it necessary to
establish special ordering procedures for individual Federal Supply Schedules or
for some Special Item Numbers (SINs) within a Schedule. GSA has established
special ordering procedures for IT professional services (SIN 132-51)
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Modification Page 41 of 53 Pages
that are priced on schedule at hourly rates. These special ordering procedures
which are outlined herein take precedence over the procedures in FAR 8.404.
(2) The GSA has determined that the rates for IT professional services contained
in this pricelist are fair and reasonable. However, the ordering office using
this contract is responsible for considering the level of effort and mix of
labor proposed to perform a specific task being ordered and for making a
determination that the total firm-fixed price or ceiling price is fair and
reasonable.
(3) When ordering IT professional services ordering offices shall
(i) Prepare a Request for quotation:
(A) A performance-based statement of work that outlines, at a minimum, the work
to be performed, location of work, period of performance, deliverable schedule,
applicable standards, acceptance criteria, and any special requirements (i.e.,
security clearances, travel, special knowledge, etc.) should be prepared.
(B) A request for quotation should be prepared which includes the performance-
based statement of work and requests the contractors submit either a firm-fixed
price or a ceiling price to provide the services outlined in the statement of
work. A firm-fixed price order shall be requested, unless the ordering office
makes a determination that it is not possible at the time of placing the order
to estimate accurately the extent or duration of the work or to anticipate cost
with any reasonable degree of confidence. When such a determination is made, a
labor hour or time-and-materials-proposal may be requested. The firm fixed
price shall be based on the hourly rates in the schedule contract and shall
consider the mix of labor categories and level of effort required to perform the
services described in the statement of work. The firm-fixed price of the order
should also include any travel costs or other incidental costs related to
performance of the services ordered, unless the order provides for reimbursement
of travel costs at the rates provided in the Federal Travel or Joint Travel
Regulations. A ceiling price must be established for labor; hour and time and
material orders.
(C) The request for quotation may request the contractors, if necessary or
appropriate, submit a project plan for performing the task and information on
the contractor's experience and/or past performance performing similar tasks.
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Modification Page 42 of 53 Pages
(D) The request for quotation shall notify the contractors what basis will be
used for selecting the contractor to receive the order. The notice shall
include the basis for determining whether the contractors are technically
qualified and provide an explanation regarding the intended use of any
experience and/or past performance information in determining technical
acceptability of responses. If consideration will be limited to schedule
contractors who are small business concerns as permitted by paragraph (ii)(A)
below, the request for quotations shall notify the contractors that will be the
case.
(ii) Transmit the Request for quotation to Contractors:
(A) Based upon an initial evaluation of catalogs and pricelists, the ordering
office should identify the contractors that appear to offer the best value
(considering the scope of services offered, hourly rates and other factors such
as contractors' locations, as appropriate). When buying IT professional services
under SIN 132-51 ONLY, the ordering office, at its discretion, may limit
consideration to those schedule contractors that are small business concerns.
This limitation is not applicable when buying supplies and/or services under
other SINs as well as SIN 132-51. The limitations may only be used when at least
three (3) small businesses that appear to offer services that will meet the
agency's needs are available, if the order is estimated to exceed the micro-
purchase threshold.
(B)- The request for quotation-should be to three (3) contractors if the
proposed order is estimated to exceed the micro-purchase threshold, but not to
exceed the maximum order threshold. For proposed orders exceeding the maximum
order threshold, the request for quotation should be provided to additional
contractors that offer services that will meet the agency's needs. Ordering
offices should strive to minimize the contractors' costs associated with
responding to requests for proposals for specific orders. Requests should be
tailored to the minimum level necessary for adequate evaluation and selection
for order placement.
(iii) Evaluate Proposals and select the contractor to receive the order:
After responses have been evaluated against the factors identified in the
request for quotation, the order should be placed with the schedule contractor
that represents the best value and results in the lowest overall cost
alternative (considering price, special qualifications, administrative costs,
etc.) to meet the Government's needs.
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(4) The establishment of Federal Supply Schedule Blanket Purchase Agreements
(BPAs) for recurring services is permitted when the procedures outlined herein
are followed. All BPAs for services must define the services that may be
ordered under the BPA, along with delivery or performance time frames, billing
procedures, etc. The potential volume of orders under BPAs, regardless of the
size of individual orders, may offer the ordering office the opportunity to
secure volume discounts. When establishing BPAs ordering offices shall
(i) Inform contractors in the request for quotation (based on the agency's
requirement) if a single BPA or multiple BPAs will be established, and indicate
the basis that will be used for selecting the contractors to be awarded the
BPAs.
(A) SINGLE BPA: Generally, a single BPA should be established when the ordering
office can define the tasks to be ordered under the BPA and establish a
firm-fixed price or ceiling price for individual tasks or services to be
ordered. When this occurs, authorized users may place the order directly under
the established BPA when the need for service arises. The schedule contractor
that represents the best value and results in the lowest overall cost
alternative to meet the agency's needs should be awarded the BPA.
(B) MULTIPLE BPAs: When the ordering office determines multiple BPAs are needed
to meet its requirements, the ordering office should determine which contractors
can meet any technical qualifications before establishing the BPAs. When
multiple BPAs are established, the authorized users must follow the procedure in
(3)(ii)(B) above, and then place the order with the schedule contractor that
represents the best value and results in the lowest overall cost alternative to
meet the agency's needs.
(ii) Review BPAs periodically. Such reviews shall be conducted at least
annually. The purpose of the review is to determine whether the BPA still
represents the best value (considering price, special qualifications, etc.) and
results in the lowest overall cost alternative to meet the agency's needs.
(5) The ordering office should give preference to small business concerns when
two or more contractors can provide the services at the same firm-fixed price or
ceiling price.
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Modification Page 44 of 53 Pages
(6) When the ordering office's requirement involves both products as well as IT
professional services, the ordering office should total the prices for the
products and the firm-fixed price for the services and select the contractor
that represents the greatest value in terms of meeting the agency's total needs.
(7) The ordering office, at a minimum, should document orders by identifying the
contractor the services were purchased from, the services purchased, and the
amount paid. If other than a firm-fixed price order is placed, such
documentation should include the basis for the determination to use a labor-hour
or time-and-materials order. For agency requirements in excess of the
micro-purchase threshold, the order file should document the evaluation of
schedule contractors' proposals that formed the basis for the selection of the
contractor that received the order and the rationale for any trade-offs made in
making the selection.
b. Ordering Procedures for other services available on schedule at fixed prices
for specifically defined services or tasks.
Orders placed pursuant to a Multiple Award Schedule (MAS), using the procedures
in FAR 8.404, are considered to be issued pursuant to full and open competition.
Therefore, when placing orders under Federal Supply Schedules, ordering offices
need not seek further competition, synopsize the requirement, make a separate
determination of fair and reasonable pricing, or consider small business set-
asides in accordance with subpart 19.5. GSA has already determined the prices of
items under schedule contracts to be fair and reasonable. By placing an order
against a schedule using the procedures outlined below, the ordering office has
concluded that the order represents the best value and results in the lowest
overall cost alternative (considering price, special features, administrative
costs, etc.) to meet the Government's needs.
(1) Orders placed at or below the micro-purchase threshold. Ordering offices can
place orders at or below the micro-purchase threshold with any Federal Supply
Schedule Contractor.
(2) Orders excluding the micro-purchase threshold but not exceeding the maximum
order threshold. Orders should be placed with the Schedule Contractor that can
provide the supply or service that represents the best value. Before placing an
order, ordering offices should consider reasonably available information
about the service offered under MAS contracts by using the "GSA Advantage!"
on-line shopping service, or by reviewing the, catalogs/pricelists of at
least three Schedule Contractors and selecting the delivery and other options
available under the
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Modification Page 45 of 53 Pages
schedule that meets the agency's needs. In selecting the service representing
the best value, the ordering office may consider--(i) special features of the
service that are required in effective program performance and that are not
provided by a comparable service; and (ii) past performance.
(3) Orders exceeding the maximum order threshold. Each schedule contract has an
established maximum order threshold. This threshold represents the point where
it is advantageous for the ordering office to seek a price reduction. In
addition to following the procedures in paragraph b, above, and before placing
an order that exceeds the maximum order threshold, ordering offices shall
(i) Review additional Schedule Contractors' catalogs/pricelists or use the "GSA
Advantage!" on-line shopping service;
(ii) Based upon the initial evaluation, generally seek price reductions from the
Schedule Contractor(s) appearing to provide the best value (considering price
and other factors); and
(iii) After price reductions have been sought, place
the order with the Schedule Contractor that provides the best value and results
in the lowest overall cost alternative. If further price reductions are not
offered, an order may still be placed, if the ordering office determines that it
is appropriate.
NOTE: For orders exceeding the maximum order threshold, the Contractor may:
(A) Offer a new lower price for this requirement (the Price Reductions clause is
not applicable to orders placed over the maximum order in FAR 52.216-19 Order
Limitations);
(B) Offer the lowest price available under the contract; or
(C) Decline the order (orders must be returned in accordance with
FAR 52.216-19).
(4) Blanket purchase agreements (BPAs). The establishment of Federal Supply
Schedule BPAs is permitted when following the ordering procedures in FAR 8.404.
All schedule contracts contain BPA provisions. Ordering offices may use BPAs to
establish accounts with Contractors to fill recurring requirements. BPAs should
address the frequency of ordering and invoicing, discounts, and delivery
locations and times.
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Modification Page 46 of 53 Pages
(5) Price reductions. In addition to the circumstances outlined in paragraph
(3), above, there may be instances when ordering offices will find it
advantageous to request a price reduction. For example, when the ordering office
finds a schedule service elsewhere at a lower price or when a BPA is being
established to fill recurring requirements, requesting a price reduction could
be advantageous. The potential volume of orders under these agreements,
regardless of the size of the individual order, may offer the ordering office
the opportunity to secure greater discounts. Schedule Contractors are not
required to pass on to all schedule users a price reduction extended only to an
individual agency for a specific order.
(6) Small business. For orders exceeding the micro purchase threshold, ordering
offices should give preference to the items of small business concerns when two
or more items at the same delivered price will satisfy the requirement.
(7) Documentation. Orders should be documented, at all, minimum, by identifying
the Contractor the item was purchased from, the item purchased, and the amount
paid. If an agency requirement in excess of the micro-purchase threshold is
defined so as to require a particular brand name, product, or feature of a
product peculiar to one manufacturer, thereby precluding consideration of a
product manufactured by another company, the ordering office shall include an
explanation in the file as to why the particular brand name, product, or feature
is essential to satisfy the agency's needs.
3. ORDER
a. Agencies may use written orders, EDI orders, blanket purchase agreements,
individual purchase orders, or task orders for ordering services under this
contract. Blanket Purchase Agreements shall not extend beyond the end of the
contract period; all services and delivery shall be made and the contract terms
and conditions shall continue in effect until the completion of the order.
Orders for tasks which extend beyond the fiscal year for which funds are
available shall include FAR 52.232-19 Availability of Funds for the Next Fiscal
Year. The purchase order shall specify the availability of funds and the period
for which funds are available.
b. All task orders are subject to the terms and conditions of the contract. In
the event of conflict between a task order and the contract, the contract will
take precedence.
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4. PERFORMANCE OF SERVICES
a. The Contractor shall commence performance of services on the date agreed to
by the Contractor and the ordering office.
b. The Contractor agrees to render services only during normal working hours,
unless otherwise agreed to by the Contractor and the ordering office.
c. The Contractor guarantees the satisfactory completion of the IT/EC Services
performed under the task order and that all contract personnel utilized in the
performance of IT/EC services under the task order shall have the education,
experience, and expertise as stated in the task order.
d. Any Contractor travel required in the performance of IT/EC Services must
comply with the Federal Travel Regulation or Joint Travel Regulations, as
applicable, in effect on the date(s) the travel is performed. Established
Federal Government per diem rates will apply to all Contractor travel.
Contractors cannot use GSA city pair contracts.
5. INSPECTION OF SERVICE
The Inspection of Services-Fixed Price (AUG 1996) clause at FAR 52.246-4
applies to firm-fixed price orders placed under this contract. The
Inspection-Time-and-Materials and Labor-Hour (JAN 1986) clause at FAR 52.246-6
applies to time and materials and labor-hour orders placed under this contract.
6. RESPONSIBILITIES OF THE CONTRACTOR
The Contractor shall comply with all laws, ordinances, and regulations (Federal,
State, City, or otherwise) covering work of this character.
7. RESPONSIBILITIES OF THE GOVERNMENT
Subject to security regulations, the ordering office shall permit Contractor
access to all facilities necessary to perform the requisite IT/EC Services.
8. INDEPENDENT CONTRACTOR
All IT/EC Services performed by the Contractor under the terms of this contract
shall be as an independent Contractor, and not as an agent or employee of the
Government.
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9. ORGANIZATIONAL CONFLICTS OF INTEREST
a. Definitions.
"Contractor" means the person, firm, unincorporated association, joint venture,
partnership, or corporation that is a party to this contract.
"Contractor and its affiliates" and "Contractor or its affiliates" refers to the
Contractor, its chief executives, directors, officers, subsidiaries, affiliates,
subcontractors at any tier, and consultants and any joint venture involving the
Contractor, any entity into or with which the Contractor subsequently merges or
affiliates, or any other successor or assignee of the Contractor.
An "Organizational conflict of interest" exists when the nature of the work to
be performed under a proposed Government contract, without some restriction on
activities by the Contractor and its affiliates, may either (i) result in an
unfair competitive advantage to the Contractor or its affiliates or (ii) impair
the Contractor's or its affiliates' objectivity in performing contract work.
b. To avoid an organizational or financial conflict of interest and to avoid
prejudicing the best interests of the Government, ordering offices may place
restrictions on the Contractors, its affiliates, chief executives, directors,
subsidiaries and subcontractors at any tier when placing orders against schedule
contracts. Such restrictions shall be consistent with FAR 9.505 and shall be
designed to avoid, neutralize, or mitigate organizational conflicts of interest
that might otherwise exist in situations related to individual orders placed
against the schedule contract. Examples of situations, which may require
restrictions, are provided at FAR 9.508.
10. INVOICES
The Contractor, upon completion of the work ordered, shall submit invoices for
IT/EC services. Progress payments may be authorized by the ordering office on
individual orders if appropriate. Progress payments shall be based upon
completion of defined milestones or interim products. Invoices shall be
submitted monthly for recurring services performed during the preceding month.
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11. PAYMENTS
For firm-fixed price orders the Government shall pay the Contractor, upon
submission of proper invoices or vouchers, the prices stipulated in this
contract for service rendered and accepted. Progress payments shall be made
only when authorized by the order. For time-and-materials orders, the Payments
under Time-and-Materials and Labor-Hour Contracts (Alternate I (APR 1984)) at
FAR 52.232-7 applies to time-and-materials orders placed under this contract.
For labor-hour orders, the Payment under Time-and-Materials and Labor-Hour
Contracts (FEB 1997) (Alternate II (JAN 1986)) at FAR 52.232-7 applies to
labor-hour orders placed under this contract.
12. RESUMES
Resumes shall be provided to the GSA Contracting Officer or the user agency upon
request.
13. INCIDENTAL SUPPORT COSTS
Incidental support costs are available outside the scope of this contract. The
costs will be negotiated separately with the ordering agency in accordance with
the guidelines set forth in the FAR.
14. APPROVAL OF SUBCONTRACTS
The ordering activity may require that the Contractor receive, from the ordering
activity's Contracting Officer, written consent before placing any subcontract
for furnishing any of the work called for in a task order.
15. DESCRIPTION OF IT/EC SERVICES AND PRICING
**NOTE TO CONTRACTORS: The information provided below is designed to assist
Contractors in providing complete descriptions and pricing information for the
IT/EC Services offered. This language should NOT be printed as part of the
Information Technology Schedule Pricelist; instead, Contractors should
provide the same type of information as it relates to the IT/EC Services offered
under the contract.**
a. The Contractor shall provide a description of each type of IT/EC Service
offered under Special Item Numbers 132-51 and 132-52. IT/EC Services should be
presented in the same manner as the Contractor sells to its commercial and other
Government
<PAGE>
Modification Page 50 of 53 Pages
customers. If the Contractor is proposing hourly rates, a description of all
corresponding commercial job titles (labor categories) for those individuals who
will perform the service should be provided.
b. Pricing for all IT/EC Services shall be in accordance with the Contractor's
customary commercial practices; e.g., hourly rates, monthly rates, term rates,
and/or fixed prices. The following is an Example of the manner in which the
description of a commercial job title should be presented:
EXAMPLE:
Commercial Job Title: System Engineer
Minimum General Experience: Three (3) years of technical experience which
applies to systems analysis and design techniques for complex computer systems.
Requires competence in all phases of systems analysis techniques, concepts and
methods; also requires knowledge of available hardware, system software,
input/output devices, structure and management practices.
Functional Responsibility: Guides users in formulating requirements, advises
alternative approaches, conducts feasibility studies.
Minimum Education: Bachelor's Degree in Computer Science
19. ADD the following to the end of the Terms and Conditions and prior to the
prices of the FEDERAL SUPPLY SERVICE AUTHORIZED INFORMATION TECHNOLOGY SCHEDULE
PRICELIST (formerly known as Attachment I of the solicitation).
**Include the following in the proposed FSS IT Schedule Price-list.**
USA COMMITMENT TO PROMOTE
SMALL BUSINESS PARTICIPATION
PROCUREMENT PROGRAMS
PREAMBLE
(Name of Company) provides commercial products and services to the Federal
Government. We are committed to promoting participation of small, small
disadvantaged and women-owned small businesses in our contracts. We pledge to
provide opportunities to the small business community through reselling
opportunities, mentor-protege programs, joint ventures, teaming arrangements,
and subcontracting.
<PAGE>
Modification Page 51 of 53 Pages
COMMITMENT
To actively seek and partner with small businesses.
To identify, qualify, mentor and develop small, small disadvantaged and women-
owned small businesses by purchasing from these businesses whenever practical.
To develop and promote company policy initiatives that demonstrate our support
for awarding contracts and subcontracts to small business concerns.
To undertake significant efforts to determine the potential of small, small
disadvantaged and women-owned small business to supply products and services to
our company.
To insure procurement opportunities are designed to permit the maximum possible
participation of small, small disadvantaged, and women-owned small businesses.
To attend business opportunity workshops, minority business enterprise seminars,
trade fairs, procurement conferences, etc., to identify and increase small
businesses with whom to partner.
To publicize in our marketing publications our interest in meeting small
businesses that may be interested in subcontracting opportunities.
We signify our commitment to work in partnership with small, small disadvantaged
and women-owned small businesses to promote and increase their participation in
Federal Government contracts. To accelerate potential opportunities please
contact (Insert Company Point of contact, phone number, e-mail address, fax
number).
<PAGE>
Modification Page 52 of 53 Pages
20. In order to assist GSA/FSS in updating our database, please,
PROVIDE/UP DATE the following information:
(a) Offerors are to insert the ordering information below:
ORDERING ADDRESS: 4390 Parliament Place, Suite R
Lanham, MD ZIP CODE: 20706
ORDERING FACSIMILE: 301-459-9210
(b) Offerors are required to designate a person to be contacted for prompt
contract administration.
NAME: Roderick K. Morris
TITLE: GSA Contracts Manager
ADDRESS: 4390 Parliament Place, Suite R
Lanham, MD ZIP CODE: 20706
TELEPHONE NO.: ( 301 ) 459-2650 x4509 FAX NO.:( 301 ) 459-9210
E-MAIL ADDRESS [email protected]
(c) Contractor compliance with the GSA Form 72A reporting requirements and the
Industrial Funding Fee will be delegated to a GSA Administrative Contracting
Officer. The Contract Management Zone will be determined based upon the location
of the individual designated by the Contractor for administration of the
contract's GSA Form 72A reporting. The name of this individual, along with the
person responsible for questions concerning the Industrial Funding Fee, must be
provided by the Contractor prior to the award of a contract.
GSA FORM 72A:
NAME: Roderick K. Morris
ADDRESS: 4390 Parliament Place, Suite R
Lanham, MD ZIP CODE: 20706
TELEPHONE NO.: (301)459-2560 x4509 FAX NO.: (301 )459-9210
E-MAIL ADDRESS: [email protected]
<PAGE>
Modification Page 53 of 53 Pages
INDUSTRIAL FUNDING FEE:
NAME: Roderick K. Morris
ADDRESS: 4390 Parliament Place, Suite R
Lanham, MD ZIP CODE: 20706
TELEPHONE NO.: ( 301) 459-2650 Ext. 4509 FAX NO.: ( 301) 459-9210
E-MAIL ADDRESS: [email protected]
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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
-1-
<PAGE>
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
-2-
<PAGE>
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
-3-
<PAGE>
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.
-4-
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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
-10-
<PAGE>
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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<PAGE>
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.
-12-
<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
-13-
<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)
-16-
<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
-17-
<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.
-18-
<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
-20-
<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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<PAGE>
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.
-22-
<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
[SITE PLAN]
-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
-40-
<PAGE>
----------------COMPARISON OF FOOTNOTES--------------
- -FOOTNOTE 1-
any extension thereof
- -FOOTNOTE 2-
hundred fifty percent (150%) for the first three (3) months and two hundred
percent (200%)
- -FOOTNOTE 3-
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.
- -FOOTNOTE 4-
thirty (30) days
- -FOOTNOTE 5-
Blank Footnote
- -FOOTNOTE 6-
which approval shall not be unreasonably withheld, conditioned or delayed
- -FOOTNOTE 7-
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 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
-41-
<PAGE>
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.
- -FOOTNOTE 9-
within thirty (30) days after Tenant's receipt of invoice.
- -FOOTNOTE 10-
percent (12%)
- -FOOTNOTE 11-
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.
- -FOOTNOTE 12-
(30) days
- -FOOTNOTE 13-
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.
-42-
<PAGE>
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.
- -FOOTNOTE 14-
its sole cost and expense
- -FOOTNOTE 15-
during the last six (6) months of the Term)
- -FOOTNOTE 16-
hundred eighty (180)
- -FOOTNOTE 17-
hundred eighty (180)
- -FOOTNOTE 18-
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.
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.
-43-
<PAGE>
- -FOOTNOTE 19-
percent (50%) of
- -FOOTNOTE 20-
for the Transfers to subsidiaries or other affiliates of Tenant,
- -FOOTNOTE 21-
Blank Footnote
- -FOOTNOTE 22-
(30)
- -FOOTNOTE 23-
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.
- -FOOTNOTE 24-
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.
- -FOOTNOTE 25-
Blank Footnote
- -FOOTNOTE 26-
percent (12%)
- -FOOTNOTE 27-
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.
- -FOOTNOTE 28-
delivery by Landlord to Tenant
----------------COMPARISON OF FOOTNOTES--------------
- -HEADER 1-
- ----------
EXHIBIT C
- ----------
-44-
<PAGE>
CURRENT RULES AND REGULATIONS (CONTINUED)
- -----------------------------------------
-45-
<PAGE>
EXHIBIT 10.29
BUSINESS LOAN AGREEMENT
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$3,800,000.00 09-29-1998 02-28-2000 0221440309 RCC4a CBL31 SG
- ------------------------------------------------------------------------------------------------------------------------------------
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: Litronic Industries, Inc. Lender: BYL BANK GROUP
2030 Main Street #1250 Costa Mesa Office
Irvine, CA 92614 1700 Adams Ave. Ste. 100
Costa Mesa, CA 92626
================================================================================
THIS BUSINESS LOAN AGREEMENT between Litronic Industries, Inc. ("Borrower") and
BYL BANK GROUP ("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of September 29, 1998, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
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 Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means Litronic Industries, Inc.. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
<PAGE>
BUSINESS LOAN AGREEMENT Page 2
(Continued)
================================================================================
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
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 and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
LENDER. The word "Lender" means BYL BANK GROUP, its successors and
assigns.
<PAGE>
BUSINESS LOAN AGREEMENT Page 3
(Continued)
================================================================================
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, in any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing indebtedness owned by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and security obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
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.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
<PAGE>
BUSINESS LOAN AGREEMENT Page 4
(Continued)
================================================================================
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1996 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note; (b) Security
Agreements granting to Lender security interests in the Collateral; (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Borrower's
incorporation and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in which it
is presently engaged or presently proposes to engage. Borrower also is
duly qualified as a foreign corporation and is in good standing in all
states
<PAGE>
BUSINESS LOAN AGREEMENT Page 5
(Continued)
================================================================================
in which the failure to so qualify would have a material adverse effect on
its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled tin Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The term "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "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., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et. seq., or other applicable state or Federal
laws, rules or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal,
<PAGE>
BUSINESS LOAN AGREEMENT Page 6
(Continued)
================================================================================
release, or threatened release of any hazardous waste or substance by or
on, under, about or from any of the properties. (b) Borrower has no
knowledge of, or reason to believe that there has been (i) any use,
generation, manufacture storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about or
from the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of any
kind by any person relating to such matters. (c) Neither Borrower nor any
tenant, contractor, agent or other authorized user of any of the properties
shall use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with all
applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower 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, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release of a hazardous waste or substance on the properties.
The provisions of this section of the Agreement, including the obligation
to indemnify, shall survive the payment of the indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
<PAGE>
BUSINESS LOAN AGREEMENT Page 7
(Continued)
================================================================================
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect
to any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated plan or initiated steps to do so, (iii) no steps have bene taken
to terminate any such plan, and (iv) there are not unfunded liabilities
other than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 2030 Main Street #1250, Irvine, CA 92614.
Unless Borrower has designated otherwise in writing this location is also
the office or offices where Borrower keeps its records concerning the
Collateral.
YEAR 2000. Borrower warrants and represents that all software utilized in
the conduct of Borrower's business will have appropriate capabilities and
compatibility for operation to handle calendar dates falling on or after
January 1, 2000, and all information pertaining to such calendar dates, in
the same manner and with the same functionality as the software does
respecting calendar dates falling on or before December 31, 1999. Further,
Borrower warrants and represents that the data-related user interface
functions, data-fields, and data-related program instructions and functions
of the software include the indication of the century.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be
<PAGE>
BUSINESS LOAN AGREEMENT Page 8
(Continued)
================================================================================
incomplete by omitting to state any material fact necessary to make such
information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, 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 ten (10) days' prior written notice to Lender. 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
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including
<PAGE>
BUSINESS LOAN AGREEMENT Page 9
(Continued)
================================================================================
without limitation the following: (a) the name of the insurer; (b) the
risks insured; (c) the amount of the policy; (d) the properties insured;
(e) the then current property values on the basis of which insurance has
been obtained, and the manner of determining those values; and (f) the
expiration date of the policy. In addition, upon request of Lender (however
not more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be
paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the
<PAGE>
BUSINESS LOAN AGREEMENT Page 10
(Continued)
================================================================================
American With Disabilities Act and will all minimum funding standards and
other requirements of ERISA and other laws applicable to Borrower's
employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part or
on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
<PAGE>
BUSINESS LOAN AGREEMENT Page 11
(Continued)
================================================================================
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1966, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than int he ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower
<PAGE>
BUSINESS LOAN AGREEMENT Page 12
(Continued)
================================================================================
may open in the future, excluding however all IRA and Keogh accounts, and all
trust accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against
Borrower.
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 Borrower, any creditor
of any Grantor against any collateral securing the indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or
<PAGE>
BUSINESS LOAN AGREEMENT Page 13
(Continued)
================================================================================
levy on or of any of Borrower's deposit accounts with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by
Borrower or Grantor, as the case may be, as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding, and if Borrower or Grantor gives Lender written
notice of the creditor or forfeiture proceeding and furnishes reserves or a
surety bond for the creditor or forfeiture proceeding satisfactory to
Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the indebtedness. Lender, at its option,
may, but shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in so doing, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
EVENTS AFFECTING GUARANTOR. Any of the proceeding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of,
or liability under, any Guaranty of the indebtedness.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
<PAGE>
BUSINESS LOAN AGREEMENT Page 14
(Continued)
================================================================================
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate, and, at Lender's
option, all indebtedness immediately will become due and payable, all without
notice of any kind to Borrower, except that in the case of an Event of Default
of the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies 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 Borrower or of any Grantor shall not affect
Lender's right to declare a default and to exercise its rights and
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 has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts of
Orange County, the State of California. This Agreement shall be governed
by and construed in accordance with the laws of the State of California.
CAPTION HEADINGS. Caption headings in this Agreement are 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 Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the Borrowers
signing below is responsible for all obligations of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with
<PAGE>
BUSINESS LOAN AGREEMENT Page 15
(Continued)
================================================================================
respect to such matters. Borrower additionally waives any and all notices
of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation reasonable attorneys' fees, incurred
in connection with the preparation, execution, enforcement, modification
and collection of this Agreement or in connection with the Loans made
pursuant to this Agreement. Lender may pay someone else to help collect
the Loans and to enforce this Agreement, and Borrower will pay that amount.
This includes, subject to any limits under applicable law, Lender's
reasonable attorneys' fees and Lender's legal expenses, whether or not
there is a lawsuit, including reasonable attorneys' fees for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other
sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimille (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited 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 Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower agrees to keep
Lender informed at all times of Borrower's current address(es).
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 persons 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.
<PAGE>
BUSINESS LOAN AGREEMENT Page 16
(Continued)
================================================================================
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
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 provisions of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Borrower, or between Lender and
any Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
<PAGE>
BUSINESS LOAN AGREEMENT Page 17
(Continued)
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BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
SEPTEMBER 29, 1998.
BORROWER:
Litronic Industries, Inc.
By: /S/ KRIS SHAH
-----------------------
Kris Shah, President
LENDER:
BYL BANK GROUP
By: [AUTHORIZED SIGNATORY]
-----------------------
Authorized Officer
================================================================================
<PAGE>
EXHIBIT 10.32
AMENDMENT TO FORBEARANCE AGREEMENT
This AMENDMENT ("Amendment") TO FORBEARANCE AGREEMENT is made as of October
8, 1998 by and between PULSAR DATA SYSTEMS, INCORPORATED ("Pulsar") and IBM
CREDIT CORPORATION ("IBM Credit").
RECITALS:
WHEREAS, Pulsar and IBM Credit have entered into that certain Forbearance
Agreement dated as of August 31, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Agreement") and that certain Inventory And
Working Capital Financing Agreement dated as of October 30, 1997 ("IWCF");
and;
WHEREAS, Pulsar has requested that IBM Credit make certain changes its
Credit Line and Borrowing Base as more fully set forth on Attachment A as of
this date to the IWCF; and
WHEREAS, IBM Credit is willing to consent to the requested changes subject
to the conditions set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises set forth herein, and for
other good and valuable consideration, the value and sufficiency of which is
hereby acknowledged, the parties hereto agree that the Agreement is amended as
follows:
SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Agreement.
SECTION 2. AMENDMENTS.
A. The Attachment A to the IWCF is hereby amended as follows:
For the period October 8, 1998 through and including January 6, 1999 the
Credit Line shall be $18,000,000.00 and thereafter the Credit Line shall be
$15,000,000.00.
B. Section 10(b) of the Agreement is hereby amended by adding to the
conclusion thereof the following:
"provided, however that Pulsar demonstrate compliance to the foregoing Financial
Covenant on a monthly basis for each calendar month from September 1998 through
December 1998 for Pulsar's fiscal year ending December 31, 1998 and for each and
every reporting period thereafter."
Page 1 of 1
<PAGE>
SECTION 3. ADDITIONAL REQUIREMENTS.
A. The Agreement is hereby amended by inserting therein the following new
section:
"IBM Credit has earned stock representing a four percent (4%) ownership interest
in Pulsar (the "IBM Credit Interest") on a fully diluted basis. At the option
William W. Davis Sr. in lieu of a distribution of such Pulsar stock to IBM
Credit, Pulsar shall pay to IBM Credit the lesser of (i) four percent (4%) of
the sale price upon the sale of all or substantially all of Pulsar's asset; or
(ii) $650,000.00 or (iii) a pro-rata share of $650,000.00 upon sale of less than
all or substantially all of Pulsar's assets. For the purpose of example only
should Pulsar sell twenty-five percent (25%) of its assets, pursuant to
provision (iii) above, Pulsar would pay IBM Credit $162,500.00, it being an
amount equal to twenty-five percent of $650,000.00."
B. IBM Credit's consent to the amendment set forth in Section 2 A of this
Amendment shall immediately cease upon the occurrence of an Event of Default and
all obligations of Pulsar to IBM Credit under the IWCF, the Agreement and
otherwise shall, without notice or demand, become immediately due and payable.
SECTION 4. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
subject to the receipt by IBM Credit, on or before the close of business on
October 15, 1998, of the following conditions precedent:
A. Copies of all Merrill Lynch Stock Account Statements for those stock
accounts assigned to IBM Credit through and including statements for the month
of August 1998; and
B. Copies of all payment workout agreement letters with unsecured creditors;
and
C. A list of all suppliers currently providing open account terms to Pulsar;
and
D. This Amendment, executed and delivered by Pulsar.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Pulsar makes to IBM Credit the
following representations and warranties all of which are material and are made
to induce IBM Credit to enter into this Amendment.
SECTION 5.1 ACCURACY AND COMPLETENESS OF WARRANTIES AND REPRESENTATIONS. All
representations made by Pulsar in the Agreement were true and accurate and
complete in every respect as of the date made, and, as amended by this
Amendment, all representations made by Pulsar in the Agreement are true,
accurate and complete in every material respect as of the date hereof, and do
not fail to disclose any material fact necessary to make such warranties and
representations not misleading.
Page 2 of 2
<PAGE>
SECTION 5.2 VIOLATION OF OTHER AGREEMENTS. The execution and delivery of
this Amendment and the performance and observance of the covenants to be
performed and observed hereunder do not violate or cause Pulsar not to be in
compliance with the terms of any agreement to which Pulsar is a party.
SECTION 5.3 LITIGATION. Except as has been disclosed by Pulsar to IBM Credit
in writing, there is no litigation, proceeding, investigation or labor dispute
pending or threatened against Pulsar, which if adversely determined, would
materially adversely affect Pulsar's ability to perform Pulsar's obligations
under the Agreement and the other documents, instruments and agreements executed
in connection therewith or pursuant hereto.
SECTION 5.4 ENFORCEABILITY OF AMENDMENT. This Amendment has been duly
authorized, executed and delivered by Pulsar and is enforceable against Pulsar
in accordance with its terms.
SECTION 6. RAMIFICATION OF AGREEMENT. Except as specifically amended
hereby, all of the provisions of the Agreement shall remain unamended and in
full force and effect. Pulsar hereby ratifies, confirms and agrees that the
Agreement, as amended hereby, represents a valid and enforceable obligation of
Pulsar's and is not subject to any claims, offsets or defense.
SECTION 7. GOVERNING LAW. This Amendment shall be governed by and
interpreted in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
Page 3 of 3
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed by the authorized
officers of the undersigned as of the day and year first above written.
IBM CREDIT CORPORATION PULSAR DATA SYSTEMS, INCORPORATED
By: /S/ JOHN L. ANDERSON By: /S/ WILLIAM W. DAVIS, SR.
-------------------------------- ----------------------------------
Print Name: John L. Anderson Print Name: William W. Davis, Sr.
------------------------
Title: Remarketer Loan Manager Title: President/CEO
-----------------------------
Date: 10/15/98 Date: 10/14/98
------------------------------
<PAGE>
EXHIBIT 10.33
PROMISSORY NOTE
$804,342.08 LANHAM, MARYLAND January 1, 1999
FOR VALUE RECEIVED, DAVIS HOLDING COMPANY, a Delaware corporation,
------------------
(hereinafter referred to as "Borrower") hereby promise to pay to the order of
PULSAR DATA SYSTEM, INC., a Delaware corporation, (hereinafter referred to as
"Lender") the principal sum of $804,342.08, to be paid monthly on the first day
of each month, beginning with April 1, 1999, with interest only at the rate of
seven and one-half percent (7 1/2%) per annum, principal due on the sale of the
property known as 3039 Peachtree Road, Atlanta, GA. Prepayment may be made in
whole or in part without penalty.
If the installments payable monthly are not received by the 15/th/ day of
the month in which same are due, the maker shall be liable to the holder for the
late payment penalty of 5% of the installment then due, which amount shall be
deemed part of the principal balance due.
This Note shall be deemed in default if the installment due under the terms
herein is more than THIRTY (30) days past due. The undersigned does hereby
authorize and empower any Justice of the Peace, any Clerk, Prothonotary, or
Attorney of any Court of Record in the State of Maryland, or elsewhere, without
process, to enter judgment on the above Obligation, with legal interest,
together with 5% of the amount of the debt and interest as counsel fees, without
process against him, his successors or assigns, at the suit of the holder of
this Note, its successors or assigns, at any time, with stay of execution until
the date of payment; and he does waive the benefit of any and all exemption laws
of the State of Maryland, or elsewhere. AND the maker hereby waives demand,
protest and notice of nonpayment hereof.
This Agreement supersedes all other agreements or representations and all
prior agreements or representations and all prior agreements made by Borrower
and Lender. This Agreement constitutes the entire agreement between the parties
hereto and the parties are not bound by any agreements, understandings, or
conditions otherwise than are expressly set forth and stipulated herein.
These presents shall be binding, both jointly and severally, upon the
heirs, executors, administrators, successors and assigns of the undersigned.
WITNESS the execution of this Note effective the day and year aforesaid.
SIGNED, SEALED AND DELIVERED
IN THE PRESENCE OF: DAVIS HOLDING COMPANY
[AUTHORIZED SIGNATORY] BY: [AUTHORIZED SIGNATORY]
- ---------------------- ----------------------
WITNESS President
ATTEST: /S/ LORNA MARIE MITCHELL
------------------------
Secretary
<PAGE>
EXHIBIT 10.36
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
This Third Amendment to Loan and Security Agreement (this "Amendment") is
made and entered into effective as of March 31, 1999, by and among Litronic
Industries, Inc., a California corporation (the "Company"), and Fidelity
Funding, Inc., a Texas corporation ("Fidelity").
The Company and Fidelity Funding of California, Inc. ("FFOC") have entered
into that certain Loan and Security Agreement (as previously amended or
modified, the "Original Agreement"), dated as of June 27, 1996, and FFOC has
assigned all of its right, title and interest in, to and under the Agreement to
Fidelity. The Original Agreement as amended by this Amendment is referred to
herein as the "Agreement." Capitalized terms used but not defined in this
Amendment shall have the meanings given to them in the Original Agreement. The
Company and Fidelity desire to amend the Original Agreement and, in connection
therewith, hereby agree as follows:
1. The definition of "TANGIBLE NET WORTH REQUIREMENT" in Section 8.8 of
the Original Agreement hereby is amended to read in its entirety as follows:
"TANGIBLE NET WORTH REQUIREMENT" means negative $6,200,000 plus the
net proceeds received by the Company from any such sale of its equity securities
after the date hereof.
2. The definition of "WORKING CAPITAL REQUIREMENT" in Section 8.10 of the
Original agreement hereby is amended to read in its entirety as follows:
"WORKING CAPITAL REQUIREMENT" means negative $1,000,000 plus the net
proceeds received by the Company from any sale of its equity securities after
the date hereof.
3. Section 8.9 of the Original Agreement hereby is deleted in its
entirety and shall be of no further force or effect:
4. A new clause (o) reading in its entirety as follows hereby is added to
Section 12 of the Original Agreement.
(o) The Company shall fail to consummate and complete the offering
and sale of its equity securities on or prior to May 31, 1999 resulting in net
proceeds to the Company of at least $20,000,000.
5. In order to induce Fidelity to enter into this Amendment, the Company
represents and warrants to Fidelity that:
(a) The representations and warranties contained in Section 7 of the
Original Agreement are true and correct at and as of the time of the
effectiveness hereof.
<PAGE>
(b) The Company is duly authorized to execute, deliver and perform
its obligations under this Amendment and is and will continue to be duly
authorized to perform its obligations under the Original Agreement as amended
hereby. The Company has duly taken all corporate action necessary to authorize
the execution and delivery of this Amemdment and to authorize the performance of
the obligations of the Company hereunder.
(c) The execution and delivery by the Company of this Amemdment, the
performance by the Company of its obligations hereunder and the consummation of
the transactions contemplated hereby do not and will not conflict with any
provision of law, statute, rule or regulation or of the articles of
incorporation and bylaws of the Company, or of any material agreement, judgment,
license, order or permit applicable to or binding upon the Company, or result in
the creation of any lien, charge or encumbrance upon any assets or properties of
the Company. Except for those which have been duly obtained, no consent,
approval, authorization or order of any court or governmental authority or third
party is required in connection with the execution and delivery by the Company
of this Amendment or to consummate the transactions contemplated hereby.
(d) The Agreement (including this Amendment) has been duly executed
and delivered by the Company and is a legal and binding instrument and agreement
of the Company, enforceable against the Company in accordance with its terms,
except as limited by bankruptcy, insolvency and similar laws and by general
principles of equity.
(e) No Event of Default or any event that, with the giving of notice,
the passage of time or both, would constitute an Event of Default has occurred
or is continuing.
6. (a) The Agreement is hereby ratified and confirmed in all respects.
The execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
Fidelity under the Agreement nor constitute a waiver of any provision thereof.
(b) All representations, warranties, covenants and agreements of the
Company herein shall survive the execution and delivery of this Amendment and
the performance hereof and shall further survive until the Agreement is
terminated.
(c) This Amendment may be separately executed in counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed shall be deemed to constitute one and same Amendment.
(d) The Company shall pay to Fidelity a documentation fee of $1,000
in connection with the execution and delivery thereof.
2
<PAGE>
(e) Fidelity has proposed a $20 million line of credit for the
Company, Litronic Industries, Inc. and Pulsar Data Systems, Inc. (collectively,
the "Prospects"), pursuant to a proposal letter (the "Letter"), dated March 31,
1999, from Fidelity to the Prospects, a copy of which is attached hereto. If
Fidelity finally approves a line of credit for the Prospects on substantially
the same terms and conditions outlined in the Letter and the Prospects do not
accept and close such line of credit within 60 days after Fidelity's approval
thereof, the Company shall pay to Fidelity a fee of $100,000 on such 60/th/
day. The Company may not terminate this Agreement prior to such 60/th/ day
without paying such fee unless this Agreement is terminated in connection with
the closing with Fidelity of the line of credit outlined in the Letter.
IN WITNESS WHEREOF, the Company and Fidelity have executed this Amendment
as of the date first written above.
FIDELITY: THE COMPANY:
FIDELITY FUNDING, INC., LITRONIC INDUSTRIES, INC.,
a Texas corporation a California corporation
By: /s/ Michael D. Haddad By: /s/ Kris Shah
------------------------- ------------------------------
Michael D. Haddad Name: KRIS SHAH
-------------------------
President Title: President
------------------------
3
<PAGE>
CONSENT AND AGREEMENT
---------------------
The undersigned hereby consents to the provisions of this Amendment and the
transactions contemplated therein and hereby ratifies and confirms the general
continuing guaranty and the subordination agreement, each dated as of June 27,
1996, made by him for the benefit of Fidelity relating to the Company, and
agrees that his obligations and covenants thereunder are unimpaired hereby and
shall remain in full force and effect.
/s/ Kris Shah
-----------------------------
Kris Shah
CONSENTED TO BY:
/s/ Geraldine M. Shah
-----------------------------
Geraldine Shah
Spouse of Kris Shah
4
<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
April 7, 1999
<PAGE>
EXHIBIT 23.2
The Board of Directors
Pulsar Data Systems, Inc.
Our report dated March 31, 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
April 7, 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 Brunner & Company, L.L.C.
Bethesda, Maryland
April 7, 1999
<PAGE>
EXHIBIT 99.1
CONSENT OF ANTHONY GIRAUDO
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/ Anthony Giraudo
------------------------------
Anthony Giraudo
April 6, 1999
Colorado Springs, Colorado
