<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
---------------- ----------------
Commission file no. 0-6272
DATUM INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2512237
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9975 TOLEDO WAY, IRVINE, CA 92618-1819
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(949) 598-7500
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. YES X . NO .
--- ---
The registrant had 5,468,540 shares of common stock outstanding as of November
11, 1998.
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements......................................... 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 8
PART II. OTHER INFORMATION
Item 5. Other Information...........................................
Item 6. Exhibits and Reports on Form 8-K............................ 12
Signatures.................................................. 13
Exhibit Index............................................... 14
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
SEPTEMBER 30, December 31,
A S S E T S 1998 1997
------------- ------------
Current assets
Cash and cash equivalents $ 8,362 $ 5,819
Accounts receivable 17,395 15,043
Inventories
Purchased parts 9,275 10,523
Work-in-process 11,170 12,833
Finished products 6,543 7,863
------- -------
26,988 31,219
Prepaid expenses 621 363
Deferred income taxes 2,648 2,648
Income tax refund receivable 1,992 1,321
------- -------
Total current assets 58,006 56,413
Plant and equipment
Land 2,040 2,040
Buildings 4,735 4,564
Equipment 20,577 19,306
Leasehold improvements 1,134 1,013
------- -------
28,486 26,923
Less accumulated depreciation and amortization 12,293 10,132
------- -------
16,193 16,791
------- -------
Excess of purchase price over net assets acquired 11,455 12,126
Other assets 578 416
------- -------
$86,232 $85,746
======= =======
See Notes to Condensed Consolidated Financial Statements
-3-
<PAGE> 4
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
SEPTEMBER 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------ ------------
Current liabilities
Accounts payable $ 4,439 $ 3,343
Accrued salaries and wages 2,592 3,298
Accrued warranty 1,376 990
Other accrued expenses 1,299 1,277
Current portion of long-term debt 3,008 23
------- -------
Total current liabilities 12,714 8,931
------- -------
Long-term debt 14,521 17,418
------- -------
Postretirement benefits 764 602
------- -------
Other long-term liabilities 105 128
------- -------
Deferred income taxes 1,823 1,823
------- -------
Stockholders' equity
Preferred stock, par value $.25 per share
Authorized - 1,000,000 shares
Issued - none -- --
Common stock, par value $.25 per share
Authorized - 10,000,000 shares
Issued - 5,456,865 shares in 1998
5,332,860 shares in 1997 1,364 1,333
Additional paid-in capital 44,527 43,231
Retained earnings
Beginning of period 12,785 7,956
Net income (loss) (1,525) 4,829
------- -------
End of period 11,260 12,785
Unamortized value of restricted stock (383) --
Cumulative translation adjustment (463) (505)
------- -------
Total stockholders' equity 56,305 56,844
------- -------
$86,232 $85,746
======= =======
See Notes to Condensed Consolidated Financial Statements
-4-
<PAGE> 5
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $25,797 $30,209 $77,325 $91,984
------- ------- ------- -------
Costs and expenses
Cost of goods sold 17,149 18,125 50,574 55,135
Selling 3,600 3,976 11,611 12,245
Product development 3,249 2,529 9,091 7,450
General and administrative 2,657 2,440 7,334 7,728
Interest expense 512 513 1,548 1,567
Interest (income) (121) (110) (313) (233)
------- ------- ------- -------
27,046 27,473 79,845 83,892
------- ------- ------- -------
Income (loss) before income taxes (1,249) 2,736 (2,520) 8,092
Income tax provision (benefit) (493) 1,122 (995) 3,318
------- ------- ------- -------
Net income (loss) $ (756) $ 1,614 $(1,525) $ 4,774
======= ======= ======= =======
Net income (loss) per share:
Basic $ (.14) $ .31 $ (.28) $ .98
======= ======= ======= =======
Diluted $ (.14) $ .28 $ (.28) $ .90
======= ======= ======= =======
Shares used in per share calculation:
Basic 5,438 5,283 5,393 4,856
======= ======= ======= =======
Diluted 5,438 5,799 5,393 5,307
======= ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-5-
<PAGE> 6
DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
SEPTEMBER 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,525) $ 4,774
------- --------
Adjustments to reconcile income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,681 2,291
Amortization of goodwill 671 671
Contribution of shares of common stock to
the Company's 401(k) plan 553 477
Amortization of unvested restricted stock 29 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (2,352) 2,053
Increase in income tax refund receivable (670) --
(Increase) decrease in inventories 4,231 (10,712)
(Increase) decrease in prepaid expenses (258) 2
Increase in other assets (249) (27)
Increase (decrease) in accounts payable 1,096 (1,377)
Increase (decrease) in accrued expenses (299) 397
Decrease in income taxes payable --- (713)
Increase in postretirement benefits 162 117
Decrease in other long-term liabilities (23) (23)
------- --------
Total reconciling items 5,572 (6,844)
------- --------
Net cash provided by (used in) operating activities 4,047 (2,070)
------- --------
Cash flows from investing activities:
Book value of equipment disposals 4 32
Capital expenditures (1,895) (3,151)
Payment for acquisition, net of cash acquired -- (1,270)
Other 42 (343)
------- --------
Net cash used in investing activities (1,849) (4,732)
------- --------
Cash flows from financing activities:
Reductions to long-term debt (16) (45)
Proceeds from issuance of common stock -- 14,156
Proceeds from exercise of stock options 160 1,189
Proceeds from ESP plan 201 --
------- --------
Net cash provided by financing activities 345 15,300
------- --------
Net increase (decrease) in cash and cash equivalents 2,543 8,498
Cash and cash equivalents at beginning of period 5,819 1,389
------- --------
Cash and cash equivalents at end of period $ 8,362 $ 9,887
======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-6-
<PAGE> 7
DATUM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the requirements of Form 10-Q and, therefore, do not
include all information and footnotes which would be presented were such
financial statements prepared in accordance with generally accepted accounting
principles, and should be read in conjunction with the audited financial
statements presented in the Company's 1997 Annual Report to Stockholders. In the
opinion of management, the accompanying financial statements reflect all
adjustments which are necessary for a fair presentation of the results for the
interim period presented. The results of operations for such interim period are
not necessarily indicative of results to be expected for the full year.
NOTE B - EARNINGS PER SHARE
Effective in the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128
requires dual presentation of net income per share-basic and diluted. Net
income per share-Basic excludes dilution and is computed by dividing net income
by the weighted average number of common shares outstanding during the reporting
period. Net income per share. Diluted reflects the potential dilution that could
occur if stock options and warrants were exercised. Prior period net income per
share data has been restated to conform with the provisions of this Statement.
NOTE C - RECENT CHANGES TO ACCOUNTING STANDARDS
In 1998, the Company adopted Financial Accounting Standards No. 130 (FAS 130),
"Reporting Comprehensive Income." FAS 130 establishes standards for the
reporting and displaying of comprehensive income and its components in the
company's consolidated financial statements. Comprehensive income is defined in
FAS 130 as a change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Total
comprehensive income was $(690,000) and 1,505,000 for the three months ended
September 30, 1998 and 1997 respectively, and $(1,483,000) and $4,418,000 for
the nine months ended September 30, 1998 and 1997 respectively. The primary
difference from net income as reported is the tax affected change in cumulative
translation adjustment.
In June 1997, the Financial Accountings Standards Board issued Financial
Accounting Standards No. 131 (FAS 131), "Disclosures about Segments of an
Enterprise and Related Information, which is effective for the fiscal years
after December 15, 1997. The statement will require the Company to report about
its operating segments. The Company will adopt FAS 131 for reporting of year
ending December 31, 1998. It is not expected that the adoption of this statement
will have any material impact on the Company's financial position or results of
operations.
-7-
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" presented in the
Company's 1997 Annual Report to Stockholders.
INTRODUCTORY NOTE
All statements other than statements of historical fact included in this Report
on Form 10-Q are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Datum Inc. ("Datum"
or the "Company") intends that such forward-looking statements be subject to the
safe harbors created thereby. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable at this
time, it can give no assurance that such expectations will prove to have been
correct. The Company makes no undertaking to correct or update any such
statements in the future. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
set forth in (Management's Discussion and Analysis of Financial Condition or
Results of Operations) as well as in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
Overview
Datum designs, manufactures and markets a wide variety of high performance time
and frequency products used to synchronize the flow of information in
telecommunications networks. The Company is also a leading supplier of precise
timing products for enterprise computing networks and a wide variety of space,
scientific and industrial test and measurement applications.
The Company was formed in 1959 and has grown its operations through acquisitions
and internal product development. In 1983, the Company acquired its cesium
standards operation and, in the process, commenced its evolution from a company
primarily supplying timing equipment for military applications to a manufacturer
of a broad range of time and frequency products for telecommunications and other
applications. In 1986, the Company acquired the business that is now enterprise
computing and in 1988, it acquired its current wireline business. In March 1995,
the Company acquired Efratom Time and Frequency Products, Inc. and Efratom
Elektronik GmbH (collectively "Efratom"), the inventor and leading manufacturer
of rubidium oscillators used in cellular and Personal Communications Services
("PCS") networks. In April 1997, the Company acquired the assets of Sigma Tau
Standards Corporation, a leading manufacturer of hydrogen masers, which provide
an extremely stable frequency source over short periods of time in controlled
environments. The Company manufactures each class of time and frequency products
in wide-spread commercial use: hydrogen masers, cesium standards, rubidium
oscillators, quartz oscillators and GPS timing receivers.
The Company serves the markets for high-precision time and frequency devices in
the telecommunications industry which is rapidly expanding as a result of the
conversion of analog to digital systems. The Company also provides extremely
stable cesium standards and GPS receivers that generate and capture time and
frequency for use in wireline telecommunications networks. In addition to
providing time and frequency standards for telecommunications applications, the
Company is a growing supplier of timing products used to ensure the integrity of
information transmitted through enterprise computing networks. The Company also
manufactures frequency sources for satellites, including GPS satellites that
utilize the Company's cesium clocks to provide highly accurate timing and
navigation information throughout the world. Finally, the Company provides time
and frequency products and systems for a wide range of scientific and industrial
test and measurement applications, including missile guidance, geographic
mapping and electric utility operations.
A small number of customers account for a substantial portion of the Company's
net sales and the Company expects that a limited number of customers will
continue to represent a substantial portion of the Company's net sales for the
foreseeable future. There can be no assurance that a major customer will not
reduce, delay or eliminate its purchases from the Company. Any such reduction,
delay or loss in orders could have a material adverse effect on the Company's
business, financial condition and results of operations.
-8-
<PAGE> 9
Results of Operations
The following table sets forth, for the fiscal periods indicated, certain income
and expense items expressed as a percentage of the Company's net sales:
<TABLE>
<CAPTION>
Percentage of Net Sales
--------------------------------------------------------
Three Months Ended
September 30, Year Ended December 31,
-------------------- ------------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Costs and expenses
Cost of goods sold................ 66.5% 60.0% 59.8% 61.3% 59.5%
Selling........................... 14.0% 13.2% 13.9% 13.3% 14.6%
Product development............... 12.6% 8.4% 9.3% 8.3% 10.5%
General and administrative........ 10.3% 8.1% 8.3% 11.0% 12.6%
Interest, net..................... 1.5% 1.3% 1.5% 2.5% 2.5%
----- ----- ----- ----- -----
Income before income taxes........... (4.8%) 9.1% 7.2% 3.6% 0.3%
Income tax provision................. (1.9%) 3.7% 2.9% 1.5% 0.2%
----- ----- ----- ----- -----
Net income........................... (2.9%) 5.3% 4.2% 2.1% 0.1%
===== ===== ===== ===== ====
</TABLE>
NET SALES. The Company's net sales decreased 14.6% to $25.8 million for the
quarter ended September 30, 1998 from $30.2 million for the corresponding
quarter in 1997. For the nine months ended September 30, 1998, net sales
decreased 15.9% to $77.3 million from $92.0 million for the corresponding period
of 1997. Sales continue to be affected by decreased product usage by the
Company's larger telecommunications customers.
GROSS MARGIN. Gross margin decreased to 33.5% for the quarter ended September
30, 1998 from 40.0% for the corresponding quarter in 1997. For the nine months
ended September 30, 1998, gross margin decreased to 34.6% from 40.1% for the
corresponding period of 1997. The decrease was due to lower than planned sales
volume of wireless products combined with new pricing for Lucent, the Company's
largest customer.
SELLING EXPENSE. Selling expense decreased by 9.5% to $3.6 million for the
quarter ended September 30, 1998, from $4.0 million for the corresponding
quarter in 1997. For the nine months ended September 30, 1998, selling expense
decreased 5.2% to $11.6 million from $12.2 million for the nine months ending
September 30, 1997. The reduction was due to lower commission expense due to
decreased sales levels. As a percentage of net sales, selling expense increased
to 14.0% for the quarter ended September 30, 1998 from 13.2% for the
corresponding quarter in 1997. For the nine months ended September 30, 1998,
selling expense as a percentage of net sales increased to 15.0% from 13.0% for
the corresponding period of 1997. The increase is due to a smaller sales base in
1998.
PRODUCT DEVELOPMENT. Product development expense increased by 28.5% to $3.2
million for the quarter ended September 30, 1998, from $2.5 million for the
corresponding quarter in 1997. For the nine months ended September 30, 1998,
product development expense increased by 22.0% to $9.1 million from $7.5 million
for the corresponding nine months of 1997. The increase was primarily due to
increased telecommunication-related development, including a program
specifically designed to reduce manufacturing costs. As a percentage of net
sales, product development expenses increased to 12.6% for the quarter ended
September 30, 1998, from 8.4% for the corresponding quarter of 1997. For the
nine months ended September 30, 1998 product development expense, as a
percentage of sales, increased to 11.8% from 8.1% for the corresponding period
of 1997.
GENERAL AND Administrative. General and administrative expense increased 8.9% to
$2.7 million for the quarter ended September 30, 1998, from $2.4 million for the
corresponding quarter of 1997. For the nine months ended September 30, 1998,
general and administrative expense decreased 5.1% to $7.3 million from
$7.7 million for the first nine months of 1997. The increase was primarily the
result of additional corporate expenses relating to the transition of top
management.
-9-
<PAGE> 10
As a percentage of net sales, general and administrative expense increased to
10.3% for the quarter ended September 30, 1998, from 8.1% for the corresponding
quarter of 1997. For the nine months ended September 30, 1998, general and
administrative expense, as a percentage of net sales, increased to 9.5%, from
8.4% for the corresponding period of 1997. The increase was due to a smaller
sales base.
INTEREST, NET. Interest expense decreased by $12 thousand to $391 thousand for
the quarter ended September 30, 1998, from $403 thousand for the corresponding
quarter of 1997. For the nine months ended September 30, 1998, interest expense
decreased $99 thousand to $1.2 million from $1.3 million for the corresponding
period of 1997. The decrease is the result of increased interest earned on the
Company's higher cash balances and decreased interest charged on the company's
reduced debt levels in 1998.
SHARES OUTSTANDING. Shares outstanding increased for the quarter ended September
30, 1998 as a result of shares issued through the Company's 401k, Employee Stock
Purchase Plan, and Incentive Stock Option Plans. For the nine months ended
September 30, 1998, shares outstanding increased from the corresponding period
of 1997, primarily as a result of the Company's follow-on public offering of
1,035,000 shares of common stock completed April 11, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was approximately $4.0 million for the nine months
ended September 30, 1998, compared to cash used in operating activities of $2.1
million for the corresponding period of 1997. Cash flows were adversely affected
in 1997 by greater working capital needs in connection with increased production
levels associated with building inventories for sales into the cellular and PCS
markets.
Cash used in investing activities was approximately $1.8 million for the nine
months ended September 30, 1998, compared to $4.7 million for the corresponding
period of 1997. Capital expenditures decreased $1.3 million during the nine
months ending September 30, 1998, compared to the corresponding period of 1997.
Cash used in 1997 included the final payment of $1.3 million in connection with
the acquisition of Efratom. The Company currently anticipates that capital
expenditures for fiscal 1998 will be less than $3 million.
Cash provided by financing activities was approximately $345 thousand for the
nine months ended September 30, 1998, compared to $15.3 million for the
corresponding nine months of 1997. The Company completed a follow-on public
offering during the first nine months of 1997, providing approximately $14.2
million in cash.
Accounts receivable increased $2.4 million to $17.4 million at September 30,
1998, from $15.0 million at December 31, 1997, due primarily to larger shipments
in the last two months of the third quarter than in the last two months of the
year.
Inventories decreased $4.2 million to $27.0 million at September 30, 1998, from
$31.2 million at December 31, 1997. The Company continues efforts to bring
inventory in line with order flow.
Accounts payable increased $1.1 million to $4.4 million at September 30, 1998,
from $3.3 million at December 31, 1997, a result of increased inventory
purchases to support increased sales volume during the quarter ended September
30, 1998, compared to the quarter ended December 31, 1997.
At September 30, 1998, the Company had working capital of $45.3 million and a
current ratio of 4.6:1, compared to working capital of $47.5 and a current ratio
of 6.3:1 at December 31, 1997. The decrease is a result of the reclassification
of $3.0 million of Prudential long-term debt to current liabilities for payment
in two equal installments of $1.5 million due March 27 and September 27, 1999.
The Company's long-term debt is provided by The Prudential Insurance Company of
America ("Prudential").
-10-
<PAGE> 11
This credit facility consists of: (i) $6.0 million of Series A Senior Secured
Promissory Notes, maturing September 27, 2000, bearing interest at 9.07% on
unpaid principal, payable quarterly, with the principal to be re-paid in
installments of $1.5 million on March 27 and September 27 of each year,
commencing March 27, 1999; and, (ii) $12.0 million of Series B Senior Secured
Promissory Notes, maturing September 27, 2003, bearing interest at 10.25% on
unpaid principal, payable quarterly, with the principal to be re-paid in
installments of $2.0 million on March 27 and September 27 of each year,
commencing March 27, 2001. The two $1.5 million installments due in 1999 have
been classified as short-term debt. In connection with entering into this
facility, the Company issued to Prudential warrants to purchase 175,000 shares
of common stock at an exercise price per share of $11.50. As of September 30,
1998, none of the warrants had been exercised.
The Company's line of credit with Wells Fargo Bank, is a two-year, $12.0 million
revolving line of credit, extended to December 18, 1998, bearing interest at the
Bank's prime rate or at LIBOR plus 2.25%. The Company is not currently utilizing
the Wells Fargo credit line, but expects to renew the line of credit for an
additional two-year period.
The Wells Fargo credit facility and the Prudential credit facility provide the
Company with an aggregate borrowing capacity of $30 million.
Under both agreements, the Company is required to maintain certain financial
ratios, limit other indebtedness and may not pay dividends. Other restrictions
include limitations on the amount of leases and capital expenditures that may be
incurred. At September 30, 1998, the Company was not in compliance with the
fixed charge coverage ratio in the Prudential agreement. The Company has
received a waiver for the non-compliance.
Year 2000
The Company is aware that some significant portion of existing electronic
equipment, including computers, software and embedded technology, was not
designed to correctly process dates after December 31, 1999. These systems store
dates as having two digit, rather than four digit, years, which could
potentially cause erroneous data results or program failures in the year 2000.
The Company is currently assessing the impact of such Year 2000 (Y2K) issues on
the Company's internal computer systems, non-computer systems, and products as
well as on the Company's vendors, service providers, and significant customers.
Internally, the Company has developed a plan to inventory critical systems at
each of its five operating locations and develop solutions, with further
contingency plans where possible. The Company has identified two of its five
information systems locations as not Y2K compliant. While the Company could
upgrade these two locations without incurring material expense, the Company has
instead decided to implement a Company-wide enterprise information system, which
is scheduled for completion in September 1999. The new system is expected to
improve information systems operating performance and will be fully Y2K
compliant. The Company has not identified any other significant areas of
non-compliance in internal computer systems or non-computer systems, or
products. The Company has reviewed its products and does not expect to incur any
material expense related to product non-compliance. The Company believes
additional, though immaterial, revenue may be realized if customers decide to
upgrade their older products.
The Company believes the greatest risk of significant adverse effects on the
Company relates to third party failure to appropriately address their Y2K
non-compliance. Y2K failures in key suppliers' systems, or their respective
suppliers' or customers' systems, could effect their ability to supply material
or services to the Company, and therefore affect the Company's ability to
produce and ship products. Y2K failures at the Company's significant customers,
including the United States government, could effect such customers' ability to
order, accept and pay for the Company's products. External Y2K failures could
therefore have a material adverse effect on the Company's revenues and financial
condition. The Company is in the process of securing letters of compliance from
those vendors and service providers that are critical to the operations of the
Company. The Company plans to secure alternative suppliers for those who cannot
assure the Company of their Y2K readiness. The Company also plans to survey its
significant customers regarding their plans to identify and address Y2K issues.
The Company has already been assured by its two largest customers, Lucent
-11-
<PAGE> 12
and Motorola, that they expect to be Y2K compliant. External Y2K risks will be
addressed as the survey of key customers and suppliers is completed. Although
the Company expects cooperation from the suppliers and customers it is
surveying, the Company also relies on services such as telephones and utilities,
whose Y2K compliance is outside of the Company's control. Therefore, the Company
may be unable to accurately assess the Y2K readiness of third parties, and the
impact of such third party non-compliance on the Company's operations.
The Company plans to continue to identify, assess and to resolve all material
Y2K issues by the end of 1999. The Company is developing contingency plans to
address significant internal and external Y2K issues as they are identified.
These contingency plans are expected to be complete by the end of 1999. The Y2K
problem involves pervasive complex interrelationships, both internal and
external to the Company. As a result, no assurance can be given that the Company
will identify and successfully resolve all Y2K issues.
The Company has not incurred any material expense to date in addressing Y2K
issues. Although the Company has not completed its assessment of Y2K readiness,
the Company believes no material expenses will be incurred in the future.
GPS Week Rollover
All current Global Positioning system (GPS) satellites, which are operated by
the United States government, report time in the form of a GPS week number and a
time offset. The week number is accumulated in a 10 bit counter with a range of
0 to 1023. The counter began at 0 on January 6, 1980 and is schedule to roll
from 1023 back to 0 on August 21, 1999. This rollover may cause equipment to
erroneously interpret dates causing satellite positions to be miscalculated
producing inaccurate data. The Company has identified its products that are
non-compliant. The Company's liability is limited to those products considered
under warranty. The Company does not expect to incur any material expense in
upgrading these products. For products not considered under warranty, the
Company expects to realize additional revenue, although not material, in
upgrading these older non-compliant products.
Information Regarding Potential Fluctuations in Quarterly Operating Results
The Company has experienced, and expects to continue to experience, fluctuations
in sales and operating results from quarter to quarter. As a result, the Company
believes that period-to-period comparisons of its operating results are not
necessarily meaningful, and that such comparisons cannot be relied upon as
indicators of future performance. A significant component of the fluctuations
results from rescheduling of orders by the Company's major customers, in some
cases due in part to the customers' attempts to minimize inventories. Other
factors that could cause the Company's sales and operating results to vary
significantly from period to period include: contractual price reductions on
products sold to certain major customers; the timing, availability and sale of
new products; changes in the mix of products with differing gross margins;
variations in manufacturing capacities, efficiencies and costs; the availability
and cost of components; warranty expenses; and variations in product development
and other operating expenses. In addition, the sales cycles for many of the
Company's products are often lengthy and unpredictable, and can take up to 36
months. Further, there can be no assurance that the Company will be successful
in closing large transactions on a timely basis or at all. The timing of these
transactions could cause additional variability in the Company's operating
results. The Company's quarterly results of operations are also influenced by
competitive factors, including pricing and availability of the Company's and
competing companies' time and frequency products. A large portion of the
Company's expenses are fixed and difficult to reduce in a short period of time.
If net sales do not meet the Company's expectations, the Company's fixed
expenses would exacerbate the effect of such net sales shortfall. Furthermore,
announcements by the Company or its competitors regarding new products and
technologies could cause customers to defer purchases of the Company's products.
Order deferrals by the Company's customers, purchase policy changes, delays in
the Company's introduction of new products and longer than anticipated sales
cycles for the Company's products have in the past materially adversely affected
the Company's quarterly results of operations. Due to the foregoing factors, as
well as other unanticipated factors, it is likely that in some future quarter
the Company's operating results will be below the expectations of public market
analysts or investors. In such event, the price of the Company's common stock
would be materially adversely affected.
-12-
<PAGE> 13
PART II. OTHER INFORMATION
Items 1 through 4 have been omitted because the related information is either
inapplicable or has been previously reported.
Item 5 - Other Information
Any stockholder desiring to submit a proposal for action at the 1999 Annual
Meeting of Stockholders and presentation in the Company's proxy statement with
respect to such meeting should arrange for such proposal to be delivered to the
Company's offices, Attn: Secretary, Datum Inc., 9975 Toledo Way, Irvine,
California, 92618-1605, no later than December 31, 1998, in order to be
considered for inclusion in the Company's proxy statement relating to the
meeting. Matters pertaining to such proposals, including the number and length
thereof, eligibility of persons entitled to have such proposals included and
other aspects are regulated by the Securities Exchange Act of 1934, Rules and
Regulations of the Securities and Exchange Commission and other laws and
regulations to which interested persons should refer.
On May 21, 1998 the Commission adopted an amendment to Rule 14a-4, as
promulgated under the Securities and Exchange Act of 1934, as amended. The
amendment to Rule 14a-4(c)(1) governs the Company's use of its discretionary
proxy voting authority with respect to a stockholder proposal which is not
addressed in the Company's proxy statement. The new amendment provides that if a
proponent of a proposal fails to notify the Company at least 45 days prior to
the current year's anniversary of the date of mailing of the prior year's proxy
statement, then the Company will be allowed to use its discretionary voting
authority when the proposal is raised at the meeting, without any discussion of
the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of Stockholders, if the
Company is not provided notice of a stockholder proposal, which the stockholder
has not previously sought to include in the Company's proxy statement, by March
17, 1999, the Company will be allowed to use its voting authority as outlined.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
10.45 Agreement with Lucent Technologies Inc., signed July 2,
1998. (Portions of this Exhibit are omitted and were filed
separately with the Secretary of the Commission pursuant
to the Company's application for confidential treatment
under Rule 24b-2 of the Exchange Act.)
27.3 Financial Data Schedule
(b) No current reports on Form 8-K were filed during the quarter covered by
this report.
-13-
<PAGE> 14
Pursuant to the requirements of the Exchange Act, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
DATUM INC.
/s/ Erik H. van der Kaay Date November 13, 1998
- ------------------------------------- ---------------------
Erik H. van der Kaay,
President and Chief Executive Officer
/s/ David A. Young Date November 13, 1998
- ----------------------------- ---------------------
David A. Young,
Chief Financial and Chief
Accounting Officer
-14-
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- ------------ ----------- -----------
<S> <C> <C>
10.45 Agreement with Lucent Technologies Inc., signed
July 2, 1998. (Portions of this Exhibit are omitted and
were filed separately with the Secretary of the Commission
pursuant to the Company's application for confidential
treatment under Rule 24b-2 of the Exchange Act.)
27.3 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.45
H011980069
1 20
DATUM INC
EFRATOM TIMING AND FREQUENCY PRODUCTS
3 PARKER
IRVINE, CA 92718
LUCENT TECHNOLOGIES INC.
DATUM, INC.
MATERIAL
Such quantities of Reference Frequency and Timing Generators of Supplier's
manufacture, identified in the PRICE Clause, as may be ordered by Company during
the period of May 1, 1998 through April 30, 2001.
PRICE
As set forth in Attachment A to this Agreement
PAYMENT TERMS
Non Dock-to-Shop Orders
NET 30 Days
NET 45 Days - Effective 7/1/1999
NET 60 Days - Effective 7/1/2000
Dock-to-Shop Orders
For Dock-To-Shop items shown in Attachment A and beginning on the date
indicated, payment terms from consumption will be net average of 15 days.
Supplier shall not invoice Company. Supplier shall be ERS (Evaluated Receipts
Settlement) compliant.
<PAGE> 2
BLANKET PURCHASE ORDERS AND SPOT PURCHASE ORDERS
This clause applies to orders other than for consigned material or dock-to-shop
material. Company's orders under this Agreement shall be either:
A) Blanket Purchase Orders which will cover a specific period of time as
identified on the purchase order. The quantity of material specified in such
orders is Company's forecasted usage for the specified period. The forecast is
not a commitment. Company's commitment is for the number of units ordered by
Company by releases (the "Release") defined as Company's required dock date with
specific quantity, subject to the clause "Termination of Blanket Purchase Orders
and Spot Purchase Orders". Each release shall specify the number of units to be
shipped by Supplier and the shipment schedule (the "Release Schedule"). Supplier
agrees to ship in accordance with the Release schedule; or
B) Spot Purchase Orders which will require a one time shipment of a specified
number of units of the material. Supplier agrees to ship in accordance with such
Spot Purchase Orders.
BANKRUPTCY AND TERMINATION FOR FINANCIAL INSECURITY - Either party may terminate
this Agreement by notice in writing:
1) if the other party makes an assignment for the benefit of creditors (other
than solely an assignment of moneys due); or
2) if the other party evidences an inability to pay debts as they become due,
unless adequate assurance of such ability to pay is provided within thirty (30)
days of such notice.
If a proceeding is commenced under any provision of the United States Bankruptcy
Code, voluntary or involuntary, by or against either party, and this Agreement
has not been terminated, the non-debtor party may file a request with the
bankruptcy court to have the court set a date within sixty (60) days after the
commencement of the case, by which the debtor party will assume or reject this
Agreement, and the debtor party shall cooperate and take whatever steps
necessary to assume or reject the Agreement by such date.
BAR CODE SHIPPING AND RECEIVING LABELS - Supplier shall at its sole expense
place Company's specified bar code labels on all shipping packages and
containers for the material shipped under this Agreement. Such bar code labels
and the placement thereof shall meet the "Shipping & Receiving Bar Code Label
Standard AT&T 801-001-105," Issue 3 (a copy of which Supplier has in its
possession). Company may change such specification upon written notice to
Supplier and Supplier shall comply with such changes at a reasonably and
mutually agreed upon schedule.
BEST PRICE - If, at any time during the term of this Agreement, Supplier should
sell to any customer other than to affiliates or subsidiaries of Supplier,
services at least equal or similar in quality at a price lower than that in
effect hereunder, Company shall pay the lower price on all services which are
performed during the period when such lower price is in effect. Upon ten (10)
days written notice, Company, or Company's authorized representatives, may audit
Suppliers' applicable books and records for the purpose of verifying Supplier's
compliance with this provision.
<PAGE> 3
BUFFER STOCK - DOCK TO SHOP
Supplier agrees to keep, at Supplier's expense, buffer stock for each DTS item
listed Attachment A, within fifty (50) miles of Columbus, Ohio; and with 24 hour
accessibility for Company, until such time that: (a) Supplier's service
performance meet's Company's service performance as defined in the clause
"SERVICE" for a period of six (6) months; or (b) until such time as Supplier
locates within one hundred-fifty (150) miles of Columbus, Ohio. Buffer Stock
equals two (2) times the delivery interval as mutually agreed upon by Supplier
and Company. If Supplier fails to meet the required service performance for a
period of two (2) consecutive months; or more than four (4) non-consecutive
months within a twelve (12) month period, Company reserves the right to
re-institute Buffer Stock requirement. Company also reserves the right to audit
the buffer stock.
CONTINUING AVAILABILITY - Supplier agrees to offer for sale to Company, during
the term of this Agreement and for at least one year after the expiration of
this Agreement, MATERIAL conforming to the Technical Specifications set forth in
this Agreement. Supplier further agrees to offer for sale to Company, during the
term of this Agreement and until five (5) years after the expiration of this
Agreement, functionally equivalent maintenance, replacement, and repair parts
("Parts") for the material covered by this Agreement at the price set forth in
Supplier's then current agreement with Company for said Parts or, if no such
agreement exists, at a price agreed upon by Company and Supplier. If the parties
fail to agree on a price, the price shall be a reasonably competitive price for
said Parts at the time for delivery. These Parts shall be warranted as set forth
in the WARRANTY clause.
In the event Supplier fails to supply such Parts or Supplier is unable to obtain
another source of supply for Company, then such failure or inability shall be
considered noncompliance with this clause and Supplier shall, without obligation
of or charge to Company, provide Company with the technical information or any
other rights required so that Company can manufacture, have manufactured, or
obtain such Parts from other sources.
The technical information includes, by example, and not by way of limitation:
(a) manufacturing drawings and specifications of raw materials and components
comprising such Parts, (b) manufacturing drawings and specifications covering
special tooling and the operation thereof, (c) a detailed list of all
commercially available Parts and components purchased by Supplier on the open
market disclosing the Part number, name and location of the supplier and price
lists for the purchase thereof, and (d) one complete copy of the source code
used in the preparation of any software licensed or otherwise acquired by
Company from Supplier under this Agreement. Company shall use such technical
information only to supply its customers with "Parts" and shall have no other
right to use the technical information.
CONSIGNMENT - For Consignment items mutually agreed upon between Company and
Supplier, and designated as such on Attachment A, and when a Company order
states that the order is for consignment and states reasonable quantities and
reasonable delivery dates for shipment of material to one or more specified
Company destinations ("Consignment Sites"), Supplier shall deliver such material
on consignment to Company. Such material shall be known as "Consigned Material."
(1) Consigned Material - Per Company's Specifications as listed in the clause
SPECIFICATIONS OR DRAWINGS, copies of which Supplier has in his possession, as
it may be amended from time to time with Supplier's written approval.
(2) Consignment Site - 6200 E. Broad St, Columbus, Ohio, 43213; and 450 Clark
Dr. Mt Olive, N.J. 07828. If this site is not controlled by Company,
arrangements for such storage shall be made between Company and the entity which
controls this site.
<PAGE> 4
(3) Identification - Consigned Material shall be shipped in segregated lots of
segregated lots as agreed to and listed on Attachment A, each such lot to bear a
Lot Identification Number serially numbered by Supplier continuously beginning
with the first shipment and ending with the last shipment made under this
Agreement. The Lot Identification Number for each lot shall be associated with
all documentation regarding shipping, withdrawal from consignment, and
invoicing.
(4) Consigned Material Storage - Upon receipt of each shipment of Consigned
Material, Company shall cause it to be placed in segregated storage ("Consigned
Material Storage") at the Consignment Site in unbroken lots partitioned or
marked in such a way that the Consigned Material may be readily distinguished
from other inventory by physical inspection. Supplier may physically inspect
Consigned Material in Consigned Material Storage at mutually agreeable times not
more often than six (6) times per year during normal business hours.
(5) Blanket Consignment Order and Weekly Demand Report - A consignment order
will cover a twelve month period (the "Blanket Consignment Order"). The quantity
of material specified in this Blanket Consignment Order is Company's annual
forecasted usage. Each week Company shall also furnish to Supplier a Weekly
Demand Report which sets forth a fifty-two (52) week rolling forecast, the
number of units received the previous week, the number of units withdrawn by
Company the previous week, and the balance of Consigned Material in Consigned
Material Storage. The forecasts are not commitments. Company's commitment is for
the number of units withdrawn by Company from Consigned Material Storage plus
the authorized stock set forth in the subsection entitled "Authorized Stock",
subject to the subsection below entitled "Termination".
(6) Authorized Stock - Supplier shall review the Weekly Demand Report and adjust
Consigned Material Storage stocks and Supplier's work in process as set forth
herein. Supplier shall manufacture and ship enough material into Consigned
Material Storage so that Consigned Material Storage contains between a minimum
of the first two (2) weeks forecast and a maximum of the first four (4) weeks
forecast for such part numbers based on the most current Weekly Demand Report.
(7) Title and Risk of Loss - Upon receipt at the Consignment Site of a
particular lot of Consigned Material for Consigned Material Storage risk of loss
of such lot shall pass to Company. Upon withdrawal of such lot by Company from
Consigned Material Storage, title to such lot shall pass to Company and sale of
that lot shall be deemed to occur.
(8) Withdrawal from Consigned Material Storage - Company may withdraw or cause
to be withdrawn Consigned Material from Consigned Material Storage in whole lots
only, at any time and from time to time, breaking a lot only after its
withdrawal. Company shall keep or cause to be kept records and report to
Supplier the quantities withdrawn by Lot Identification Number, and the balance
of Consigned Material in Consigned Material Storage. Supplier's invoices for the
Consigned Material shall be based upon such withdrawal reports. All invoices for
material withdrawn from consignment shall be dated as of the first day of the
week following withdrawal. Supplier shall regularly replace quantities withdrawn
to maintain mutually agreed stock support levels as indicated on the applicable
orders.
(9) Shipping Information - Promptly after each shipment of Consigned Material
under this Agreement, Supplier shall furnish to Company and, if Company so
requests, to a designated party at the Consignment Site, a written report
setting forth at least the following: (a) Company's Order Number; (b)
Consignment Destination; (c) Origin Location; (d) Name of Carrier and Truck
Number or Railcar Number; (e) Lot Identification Number of each lot; (f) Net
weight of each lot; and (g) Description and Quantity of Material in each lot.
(10) Personal Property Taxes - Supplier shall be responsible for the reporting
and payment of personal property taxes, if any, on such Consigned Material
Storage by Company.
(11) Transportation Loss and Damage or Hidden Manufacturing Defects. As to loss
of or damage to Consigned Material which is reasonably apparent upon delivery
from a carrier, Company shall cause the following to be done:
<PAGE> 5
(a) at time of the delivery, mark delivery receipt with appropriate exceptions
describing the damage before signing; and
(b) at the time of delivery, request the carrier to either inspect the loss or
damage and forward to Supplier a signed exception report outlining the extent of
loss or damage, or issue a written waiver of inspection and forward it to
Supplier; and
(c) within ten days after delivery, inspect the damaged material and notify
Supplier whether Company will (i) accept it at a mutually agreed lower price
reflecting the transportation damage (if Supplier had the risk of loss) or the
manufacturing defect, or (ii) reject it. Rejected lots shall be set aside by
Company pending disposition by Supplier as soon as reasonably possible but no
later than sixty days following delivery, after which time any such damaged
Consigned Material remaining undisposed of shall be deemed to be abandoned and
Company may dispose of it as it sees fit without any obligation to Supplier.
As to concealed transportation damage or hidden manufacturing defects in
material, if after withdrawal of Consigned Material from Consigned Material
Storage, Company discovers concealed transportation damage or defective
material, Company shall notify Supplier within five days of such discovery, take
reasonable steps to preserve evidence of how such damage occurred and take all
actions provided for in subparagraph (c) above. Where Consigned Material Storage
is located on premises other than Company premises, Company shall direct the
owner of such other premises to comply with the procedure set forth in this
clause.
(12) Termination - Company may at any time, and without cause terminate any or
all Blanket Consignment Orders, in whole or in part, upon written notice to
Supplier. Upon receipt of such notice, Supplier shall immediately stop work as
specified in the notice to Supplier. Company's liability to Supplier with
respect to such termination shall be limited to: (1) the purchase price for all
material withdrawn by Company from Consigned Material Storage through the
termination date; (2) the purchase price for finished material not to exceed the
maximum stock level for the eight (8) most recent Weekly Demand Reports issued
just prior to the effective date of termination (such finished material shall
include material in transit to Company and units already in Consigned Material
Storage as Authorized Stock); (3) Supplier's manufacturing costs for work in
process not to exceed the next eight (8) weeks beyond the maximum Authorized
Stock based on the highest demand shown in the last eight (8) Weekly Demand
Report; and(4) Supplier's purchase price of raw material as specified in
Attachment A (and not usable in Supplier's other operations or salable to
Supplier's other customers). If requested, Supplier agrees to substantiate the
manufacturing costs for work in process and the purchase price of the raw
material with proof satisfactory to Company. Upon such termination, the parties
shall meet promptly to determine the finished material, work in process and raw
material for which Company is responsible as set forth above. Supplier shall
ship the finished material (to the extent not already in transit or in Consigned
Material Storage) and raw materials to Company pursuant to shipping schedules
agreed upon by the parties. Raw materials as defined here may reside at
Supplier's facility or with Supplier's subcontractors. As to work in process,
Supplier shall, at Company's option, ship it to Company pursuant to shipping
schedules agreed upon by the parties or scrap it.
DEFAULT - In the event Supplier shall be in breach or default of any of the
terms, conditions, or covenants of this Agreement or any purchase order and such
breach or default shall continue for a period of thirty (30) days after the
giving of written notice to Supplier thereof by Company, then in addition to all
other rights and remedies which Company may have at law or equity or otherwise,
Company shall have the
<PAGE> 6
right to cancel this Agreement and/or purchase orders placed by Company without
any charge to or obligation or liability of Company.
DEMAND PULL PROCEDURES -
(A) For Demand Pull items mutually agreed upon between Company and Supplier,
Company shall issue an annual order during the term of this Agreement which will
state Company's estimated annual usage for such material (the "EAU order"). Each
week Company shall provide Supplier with a fifty-two (52) week forecast for each
such item of Demand Pull material (the "Forecast"). Such Forecast may also
contain Company's authorization to Supplier to ship, within twenty-four hours of
Supplier's receipt of the Forecast, the quantity designated in the column
entitled "Supplier Action." Supplier shall reference the EAU order number on its
shipping and invoicing documents. Said EAU order and Forecast shall be for
planning purposes only and, except to the extent set forth in paragraph D below,
shall not be deemed a commitment to purchase the amount set forth in the EAU
order or Forecast.
(B) Supplier shall maintain (1) an inventory of Supplier inspected finished
Demand Pull material equivalent to the amount specified on Attachment A of the
then current Forecast and (2) Demand Pull work in process and raw materials in
the aggregate sufficient to manufacture such Demand Pull material equivalent to
the amount specified on Attachment A of the then current Forecast.
(C) Supplier shall review the weekly Forecast and make adjustments to Supplier's
inspected inventory, work in process and raw materials and components based upon
increases/decreases in the Forecast.
(D) Company's commitment for the Demand Pull material shall be limited to: (1)
the quantities set forth in the "Supplier Action" column of the Forecast and (2)
the inspected inventory, work in process and raw materials as set forth in
paragraph B above. Company's liability for the items in this Paragraph D(2)
shall be limited to:
(a) For inspected inventory (not usable in Supplier's other operations or
salable to Supplier's other customers): the unit prices set forth in this
Agreement;
(b) For raw materials: Supplier's purchase price of such raw materials (that
cannot be returned or are not usable in Supplier's other operations or salable
to Supplier's other customers);
(c) For work in process: the actual costs incurred by Supplier in procuring and
manufacturing Demand Pull material (not usable in Supplier's other operations or
salable to Supplier's other customers); less
(d) Any salvage value thereof.
If requested, Supplier agrees to substantiate such costs with proof satisfactory
to Company.
(E) Termination - Company may at any time, and without cause, terminate any or
all EAU orders, in whole or in part, upon written notification to Supplier. Upon
receipt of such notice, Supplier shall immediately stop work as specified in the
notice to Supplier.
Company's liability to Supplier with respect to such termination shall be
limited to the commitments set forth in paragraph D above. Upon such
termination, the parties shall meet promptly to determine the inspected,
finished Demand Pull material, work in process and raw material for which
Company is responsible as set forth above. Supplier shall ship the inspected
finished Demand Pull material (to the extent not already in transit) and raw
materials to Company pursuant to shipping schedules agreed upon by the parties.
As to the work in process, Supplier shall, at Company's option, ship it to
Company pursuant to shipping schedules agreed upon by the parties or scrap it.
<PAGE> 7
DISTRIBUTION RIGHTS - Supplier agrees that it will not sell or offer for sale
anywhere in the world products which are the same or essentially the same in
external appearance and/or placement of external controls as products described
in the clause MATERIAL of this Agreement. Nothing in this clause shall restrict
Supplier from selling or offering for sale any assembly, subassembly, or
component of the product which Supplier has manufactured pursuant to its own
design specifications or at its own expense. Nothing in this clause shall be
deemed to be in contradiction with the rights of Company as stated in the clause
NONEXCLUSIVE MARKET RIGHTS.
DOCK-TO-SHOP WITH PAY-ON-CONSUMPTION (DTS-POC)
For Dock-to-Shop with Pay-On-Consumption (DTS) items mutually agreed upon
between Company and Supplier, and as designated in Attachment A; Company shall
issue an annual order during the term of this Agreement which will state
Company's estimated annual usage for such Material (the "EAU order"). Such EAU
order will include the statement "DTS" which indicates these items are covered
by the clause dock-to-shop with pay-on-consumption in the referenced governing
contract.
A) Forecast
Each week, Company shall provide Supplier with a fifty-two (52) week forecast
for each such item of DTS-POC material (the "Forecast"). Said EAU order and
forecast shall be for planning purposes only and except to the extent set forth
in paragraph E below, shall not be deemed a commitment to purchase the amount
set forth in the EAU order or forecast. Supplier shall review the weekly
forecast and make adjustments to Supplier's inspected inventory, work in process
and raw material and components based upon increases/decreases in the forecast.
B) Replenishment Request/Delivery Request
Company will send replenishment requests for dock-to-shop material to Supplier
on pre-determined days and times at the frequency shown in Attachment A. Company
will work with Supplier to determine specific schedule for transmitting
replenishment requests to Supplier, which will be documented in writing by
Company and provided to Supplier.
This replenishment request will be transmitted electronically or in writing and
will include the following: Comcode Number, Part Description, Purchase Order
Number, Quantity Requested, Due Date and Time, Deliver-to address, Shop Floor
Delivery Location, and Request ID (unique # specific to a comcode, shop location
and due date). There may be more than one Request ID for a specific comcode
number on the replenishment request to Supplier.
Supplier must provide a single point-of-contact and a back-up person to
coordinate the dock-to-shop replenishment requests. This person is required to
verify that replenishment requests are received at processed on the
pre-determined days and times. If replenishment request is not received in a
timely manner, Supplier must notify Company contact to determine requirements.
C) Supplier Pack and Ship
Company's replenishment request shall be authorization for Supplier to ship the
quantities of Material designated.
Supplier must label each requested lot with a 3S Barcode label meeting the
specification "Shipping and Receiving Barcode Label Standard", Lucent
Technologies 801-001-105 and containing the Dock-to-Shop Request ID and the Shop
Floor Delivery Location. In addition, a hot pink "DTS" (Supplier's design) label
must be applied to each lot next to the 3S Barcode label.
<PAGE> 8
Supplier shall ship the quantity of Material designated in replenishment request
via the transportation arrangement specified by Company in writing prior to
DTS-POC start date. This transportation arrangement will include the carrier(s)
to be used as well as the material pick-up schedule at the Supplier's dock and
the delivery schedule to Company's dock.
Supplier must include a packing slip with each lot. The words "Packing Slip"
followed by the packing slip number should be clearly printed on each slip.
Company shall notify Supplier in writing if it is determined at a later date
that including a packing slip with each lot is no longer a requirement. Supplier
must transmit an EDI Advance Ship Notice, which must include the PRO (freight
bill) number to Company at the time of shipping.
D) Payment Process
At the end of the consumption consolidation interval (the last Friday of
Company's fiscal month) Company will transmit a summary of the usage information
in writing or electronically to Supplier detailing the lots for each DTS-POC
item that have been consumed over that interval. Company will then transmit
payment to Supplier net 15 days.
Supplier shall not invoice Company.
E) Purchase Commitment
Company's commitment for dock-to-shop with pay-on-consumption material shall be
limited to: 1)those quantities consumed by the Company and 2)Supplier inspected
finished DTS-POC material, DTS-POC work in process and raw material as
identified in Attachment A.
Company's liability for the items this paragraph E shall be limited to:
(a) For inspected inventory (not usable in Supplier's other operations or
salable to Supplier's other customers): the unit prices set forth in this
Agreement;
(b) For raw materials: Supplier's purchase price of such raw materials
(that cannot be returned or are not usable in Supplier's other operations or
salable to Supplier's other customers);
(c) For work in process: the actual costs incurred by Supplier in procuring
and manufacturing DTS material (not usable in Supplier's other operations or
salable to Supplier's other customers); less
(d) Any salvage value thereof
If requested, Supplier agrees to substantiate such costs with proof satisfactory
to Company.
F) Title and Risk of Loss
If an order is issued pursuant to this Agreement and specified as Dock-to-Shop
with Pay-On-Consumption; Supplier shall retain title until such time as Company
commences to consume material on Company's premises. Risk of loss passes at
Supplier's dock, provided Supplier uses Company designated carrier.
G) Termination of Replenishment Requests
Company may at any time terminate without cause any or all commodity part
Replenishment Requests placed by it hereunder at no charge prior to title
passing.
<PAGE> 9
H) Termination
Company may at any time, and without cause, terminate any or all EAU orders, in
whole or in part, upon written notification to Supplier. Upon receipt of such
notice, Supplier shall immediately stop work as specified in the notice to
Supplier.
Company's liability to Supplier with respect to such termination shall be
limited to: The commitments set forth in paragraph E above. Upon such
termination, the parties shall meet promptly to determine the inspected,
finished DTS-POC Pull material, work in process and raw material for which
Company is responsible as set forth above. Supplier shall ship the inspected
finished DTS-POC material (to the extent not already in transit) and raw
materials to Company pursuant to shipping schedules agreed upon by the parties.
As to the work in process, Supplier shall, at Company's option, ship it to
Company pursuant to shipping schedules agreed upon by the parties or scrap it.
I) Personal Property Taxes
Supplier shall be responsible for the reporting and payment of personal property
taxes, if any, on such Dock-to-Shop material storage by Company.
Supplier agrees to provide material specified as DTS-POC according to the terms
specified in this clause beginning on the date specified in Attachment or upon a
mutually agreed upon date by both Supplier and Company.
DUTY DRAWBACK - Company reserves the right to claim duty drawback on all
purchases from Supplier and Supplier shall cooperate by providing the necessary
Certificates of Delivery or, in instances where the imported merchandise
received further processing, shall furnish Certificates of Manufacture and
Delivery on all articles and merchandise which may be subject to drawback.
EDI (ELECTRONIC DATA INTERCHANGE)
Upon execution of this Agreement, Supplier shall submit an action plan detailing
their plans to become fully functional on EDI, ERS, ASN (Advance Ship Notice),
and ASN with Barcoding within three (3) months. The Supplier is also required to
become fully functional to the EDI and Barcoding specifications for DTS within
this three (3) month period. The Supplier's action plan should follow Company's
"How to Get Started on Electronic Procurement Communications with Lucent" for
basic EDI; "Barcoding with Lucent Technologies - How to Get Started" for basic
barcoding; and the specifications for DTS EDI transactions and outlined in
"Lucent Technologies, Inc. - Electronic Data Interchange Planning Guide". The
above referenced manuals have been provided previously to Supplier. The
Supplier's action plan should contain a point of contact for EDI related
matters.
EPIDEMIC CONDITION - If during the term of this Agreement and for one year after
the last shipment date of material under this Agreement Company notifies
Supplier that material shows evidence of an Epidemic Condition as defined below,
Supplier shall prepare and propose a Corrective Action Plan ("CAP") with respect
to such material within five (5) working days of such notification, addressing
implementation and procedure milestones for remedying such Epidemic
Condition(s). An extension of this time-frame is permissible upon mutual written
agreement of the parties.
Upon notification of the Epidemic Condition to Supplier, Company shall have the
right to postpone all or part of the shipments of unshipped material, by giving
written notice of such postponement to Supplier, pending correction of the
Epidemic Condition. Such postponement shall temporarily relieve Supplier of its
shipment liability and Company of its shipment acceptance liability. Should
Supplier not agree to the existence of an Epidemic Condition or should Company
not agree to the CAP, then Company shall have the right to suspend all or part
of its unshipped orders without liability to Company until such time as a
mutually acceptable solution is reached.
<PAGE> 10
An Epidemic Condition will be considered to exist when one or more of the
following conditions occur:
(1) Failure reports or statistical samplings show that four (4) percent or more
of material installed or four (4) percent or more of material shipped during any
two consecutive months, or four (4) percent or more of the material tracked by
Company's quality engineering organization contain a potential safety hazard
(such as personal injury or death, fire, explosion, toxic emissions, etc.), or
exhibit a highly objectionable symptom (such as emissions of smoke, loud noises,
deformation of housing) or other disconcerting symptoms of this type.
(2) Reliability plots of relevant data indicate that the material has actual
Mean Time Between Failures (MTBF) of less than 80% of the MTBF stipulated in the
Technical Specification. The MTBF parameter of material is defined as the total
operating or power-on time of any population under observation ("T"), in hours,
divided by the total number of critical failures ("n") that have occurred during
the observed period. A critical failure is defined as a failure to operate per
the requirements of the Technical Specification. The total operating time of a
population is the summation of operating time of individual units in that
population. MTBF is expressed as MTBF = T/n. An Epidemic Condition shall exist
when data derived from populations being tracked confirms the condition with 80%
confidence.
(3) Material Dead on Arrival (DOA) failures exceed the Epidemic DOA failure rate
which is defined as 1.2 x DOA specified in the article of this Agreement
entitled PRODUCT CONFORMANCE REVIEW.
Only major functional and visual/mechanical/appearance defects are considered
for determining an Epidemic Condition. Material may be either sampled or, at
Company's option, 100% audited at Company warehouses, factories or Company's
customers' locations. If material is sampled, the data must have 80% or better
statistical confidence.
For the purpose of this Agreement, functional DOA shall be defined as any
material that during the test, installation or upon its first use fails to
operate as expected or specified. Visual/mechanical/appearance DOA is defined as
any material containing one or more major defects that would make the material
unfit for use or installation. An Epidemic Condition shall not include failures
due to customer misapplication, utilization of parts not approved by Supplier,
or chain failures induced by internally or externally integrated subassemblies.
In the event that Supplier develops a remedy for the defect(s) that caused the
Epidemic Condition and Company agrees in writing that the remedy is acceptable,
Supplier shall:
(a) incorporate the remedy in the affected material in accordance with Company's
instructions;
(b) ship all subsequent material incorporating the required modification
correcting the defect(s) at no additional charge to Company; and
(c) repair and/or replace material that caused the Epidemic Condition. In the
event that Company incurs costs due to such repair and/or replacement, including
but not limited to labor and shipping costs, Supplier shall reimburse Company
for such costs. Supplier shall bear risk of in-transit loss and damage for such
repaired and/or replaced material.
Supplier and Company shall mutually agree in writing as to the remedy's
implementation schedule. Supplier shall use its best efforts to implement the
remedy in accordance with the agreed-upon schedule.
If Supplier is unable to develop a mutually agreeable remedy, or does not
adequately take into account the business interests of Company, as reasonably
agreed by the parties, Company may (1) develop and implement such remedy and, in
such case, implementation costs and risk of in- transit loss and damage shall be
allocated between the parties as set forth in this clause, and/or (2) cancel
postponed orders without liability and return all material affected by such
Epidemic Condition for full refund, payable by Supplier within thirty (30) days
after receipt of returned material (with risk of loss or in-transit damage borne
by Supplier) and/or (3) terminate this Agreement without further liability.
<PAGE> 11
FREIGHT ON BOARD
Freight Collect-Irvine, CA.
FREIGHT CLASSIFICATION - Material purchased under this Agreement shall be
shipped to Company or Company's customers subject to freight charges appropriate
for goods classified as 77.5.
ISO 9000 - Supplier recognizes that Company's Wireless Business Unit is an ISO
9000 registered Supplier of goods and services, and that in order for Company to
be so registered, Supplier must comply with and hereby agrees to comply with the
provisions of this clause. Therefore, under this Agreement, Supplier shall have
the portion of Supplier's quality system that applies to the material and
services covered under this Agreement registered to the then current and
applicable ISO 9000 series.
Supplier shall, prior to or upon execution of this Agreement, provide Company a
copy of the appropriate certificate(s) of registration issued by such third
party accredited registrar(s). Since Supplier is currently an ISO 9000
registered manufacturer, Supplier agrees to maintain the standards necessary for
re-qualification; and to notify Company immediately if registration is not
maintained.
LATE DELIVERY *DTS*
In addition to any other remedies Company may have for Supplier's late delivery,
if Supplier fails to deliver fully conforming material within the Supplier
Interval specified in this Agreement, or by the acknowledged earlier delivery
date in an order placed pursuant to this Agreement, Company may, at its option,
establish a new delivery date for Supplier or cancel this Agreement or order. If
Company establishes a revised delivery date and Supplier fails to deliver fully
conforming material by that date, Company may cancel this Agreement or order.
Cancellations made pursuant to this clause shall be negotiated.
LATE DELIVERY - In addition to any other remedies Company may have for
Supplier's late delivery, if Supplier fails to deliver fully conforming material
within the supplier interval specified in this Agreement, or by the acknowledged
earlier delivery date in an order placed pursuant to this Agreement, Company
may, at its option, establish a new delivery date for Supplier or cancel this
Agreement or order. If Company establishes a revised delivery date and Supplier
fails to deliver fully conforming material by that date, Company may cancel this
Agreement or order. Cancellations pursuant to this clause shall be negotiated.
LIMITED AVAILABILITY MATERIAL - Supplier shall provide Company at least one
year's prior written notice that any material covered by this Agreement is
recommended as a candidate to be limited availability material. Company shall,
within thirty (30) days after receipt of Supplier's written notice, provide
Supplier a written response indicating Company's approval or disapproval of the
limited availability status of such material based on such material's impact on
Company's business, including but not limited to Company's obligations to its
customers.
If Company does not approve of the material being placed on limited availability
status, the parties shall negotiate in good faith to determine the final
disposition for such material.
If the parties agree that a type of material will become a limited availability
material (a "Limited Availability Material"), Supplier shall accept Company's
orders for such Limited Availability Material ( the "Limited Availability Date")
under the terms and conditions of this Agreement, including but not limited to
the price and Lead Time set forth in this Agreement. For orders placed after the
Limited Availability Date, the parties shall negotiate price and Lead Time for
such Limited Availability Material at the time Company
<PAGE> 12
places an order for such material. Other than price and Lead Time, the other
terms and conditions of this Agreement shall apply to such material. The limited
availability of a material does not mean that the material will not be available
for purchase by company, rather it means only that prices and lead times are
subject to negotiation by the parties, as set forth above.
If the parties are unable to agree on a price or lead time for the Limited
Availability Material, Company shall have the right to do any or all of the
following: (a) for any Limited Availability Material which Company has committed
to purchase under this Agreement, purchase comparable products to such Limited
Availability Material from a third party supplier or manufacture it internally;
(b) license the Technology (at a reasonable royalty and such other reasonable
terms to be agreed to by the parties) and use any other information it possesses
or controls which is required to manufacture or to have manufactured the Limited
Availability material (such license or use shall be limited to the manufacture
of such Limited Availability Material); or (c) reacquire any or all tooling or
equipment which is dedicated exclusively to the production of the Limited
Availability Material free of any encumbrances or subordination. Such
reacquisition of tooling or equipment shall be for its then fair market value.
Supplier will cooperate fully in such reacquisition.
MANUFACTURED DISCONTINUED MATERIAL - Supplier shall provide Company at least one
year's written notice that any material covered by this Agreement is to be
manufactured discontinued and Supplier shall accept Company's orders for such
material during the term of this Agreement or for twelve (12) months following
Supplier's notice, whichever is longer. Prices and delivery intervals for such
material shall be those set forth in this Agreement.
MARKING - All material furnished under this Agreement shall be marked for
identification purposes in accordance with the specifications set forth in this
Agreement and as follows:
(a) with Supplier model/serial number; and
(b) with month and year of manufacture.
In addition, Supplier agrees to add any other identification which might be
requested by Company such as but not limited to distinctive marks conforming to
Company's Serialization Plan. Charges, if any, for such additional
identification marking shall be as agreed upon by Supplier and Company. This
clause does not reduce or modify Supplier's obligations under the clause
IDENTIFICATION.
NEW AND CHANGED METHODS, PROCESSES, AND EQUIPMENT - Supplier agrees to keep
abreast of major developments in Supplier's industry and to promptly advise
Company of any developments which might affect the production of any material
under this Agreement.
If during the term of this Agreement Supplier's costs are reduced by using
improvements from the: (1) adoption of new production methods, processes,
techniques, or materials, or
(2) use of additional, new, or different equipment or facilities,
Prices shall be reduced by agreement of the parties to fairly reflect such
reduction.
NONEXCLUSIVE MARKET RIGHTS - It is expressly understood and agreed that this
Agreement neither grants to Supplier an exclusive right or privilege to sell to
Company any or all material or services of the type described in this Agreement
which Company may require, nor requires the purchase of any material or services
from Supplier by Company. It is, therefore, understood that Company may contract
with other manufacturers and suppliers for the procurement of comparable
material or services. In addition, Company shall at its sole discretion, decide
the extent to which Company will market, advertise,
<PAGE> 13
promote, support, or otherwise assist in further offerings of the material or
services.
OPTION TO EXTEND - Company shall have the right to extend the period specified
in the clause MATERIAL for up to twenty four (24) months by giving Supplier at
least thirty (30) days prior written notice. Within ten (10) days of the date of
Company's notice to extend the period, Supplier shall notify Company in writing
whether Supplier proposes to revise the price(s) under this Agreement. If the
parties fail to agree on the revised price(s) within twenty (20) days after the
date of Supplier's notice, Company's notice of extension shall be considered
withdrawn and prices for outstanding orders or orders placed during the term of
this Agreement shall not be revised.
OZONE DEPLETING CHEMICALS - Supplier hereby warrants that it is aware of
international agreements and pending legislation in several nations, including
the United States, which would limit, ban and/or tax importation of any product
containing, or produced using ozone depleting chemicals ("ODCs"), including
chloroflurocarbons, halons and certain chlorinated solvents. Supplier hereby
warrants that the material furnished to Company will conform to all applicable
requirements established pursuant to such agreements, legislation and
regulations, and the material furnished to Company will be able to be imported
and used lawfully (and without additional taxes associated with ODCs not
reported to Company by Supplier as set forth in this clause) under all such
agreements, legislation and requirements. Supplier also warrants that it is
currently reducing, or if Supplier is not the manufacturer of the material, is
currently causing the manufacturing vendor to reduce and will, in an expeditious
manner, eliminate, or, as applicable, have its manufacturing vendor eliminate
the use of ODCs in the manufacture of the material.
If the material furnished by Supplier under this Agreement is manufactured
outside the United States, Supplier shall, upon execution of this Agreement, and
at any time that new products are added to this Agreement or changes are made to
the material furnished under this Agreement, complete, sign and return to
Company the attached ODC Content Certification. The ODC Content Certification
must be signed by Supplier's facility manager, corporate officer or his
delegate.
The term "ODC content" on the ODC Content Certification means the total pounds
of ODC used directly in the manufacture of each unit of material. This includes
all ODCs used in the manufacturing and assembly operations for the material plus
all ODCs used by Supplier's vendors and any other vendors in producing
components or other products incorporated into the material sold to Company.
Supplier is responsible to obtain information on the ODC content of all
components and other products acquired to manufacture the material and to
incorporate such information into the total ODC content reported to Company;
provided however, that Supplier should not include in the ODC content those
components or other products which are manufactured in the United States.
Supplier hereby warrants to Company that all information furnished by Supplier
on the ODC Content Certification is complete and accurate and that Company may
rely on such information for any purpose, including but not limited to providing
reports to government agencies or otherwise complying with applicable laws.
Supplier shall cooperate with Company in responding to any inquiry concerning
the use of ODCs to manufacture the material or components thereof and to execute
without additional charge any documents reasonably required to certify the
absence or quantity of ODCs used to manufacture the material or components
thereof.
PACKING
Material purchased, repaired, replaced or refurbished under this Agreement shall
be packed by Supplier at no additional charge in containers which meet the
specifications set forth in PKG-91NJ1045 Issue 5 and any other individual
product packaging specifications and as may be changed from time to time by
company, attached hereto and incorporated herein as Attachment A.
<PAGE> 14
PACKAGING SPECIFICATION-INCOMING DTS ITEMS
A) Company will specify the package quantities (lot sizes) to be delivered by
the Supplier.
B) All disposable packaging provided by the Supplier is to be readily
recyclable.
C) Company reserves the right to specify a request in the mode of transportation
or packaging if Company experiences continued receipt of damaged material.
D) Company reserves the right to request a change in the packaging format during
the term of the Agreement.
PROCESS CERTIFICATION
Company has the right to review, inspect, and evaluate Supplier's parts and
supplies and Supplier's sources for parts and supplies. Company has the right to
specify types of parts used in manufacture and/or repair of Material and/or
Suppliers of these parts. If this impacts previously agreed to unit prices, such
prices shall be negotiated and mutually agreed to. All changes to parts,
supplies, and sources must be approved in writing by Company, which approval
shall not be unreasonably delayed or withheld.
In regard to Supplier's manufacturing processes, Company also reserves the right
to perform periodic quality surveys, evaluations, and approvals, including, but
not limited to, analysis of each manufacturing or assembly position for
acceptability of procedures, equipment calibration, and operator performance, as
well as evaluation of quality control/quality assurance and data collection and
analysis procedures. Supplier shall conduct appropriate incoming inspection of
components in accordance with its standard practices approved by Company and any
specific requirements of Company. Such practices may be modified from time to
time to address specific conditions as requested by Company. Any increases or
decreases to price resulting from such modifications shall be mutually agreed
upon.
PRODUCT CONFORMANCE REVIEW/SUPPLIER QUALITY ISSUES (SQI)
All material is subject to Product Conformance Review ("Review") prior to
shipment. Supplier may ship material without a Review but Company may perform
such Review prior to shipment by giving Supplier notice to that effect, in which
event Supplier shall notify Company's Quality Organization when material is
ready for such Review. Supplier will provide, without charge, any production
testing facilities and personnel required to perform or assist in the Review.
Delivery of nonconforming material to Company shall result in the issuance of an
SQI (Supplier Quality Issue) to the Supplier. Upon receipt of an SQI, Supplier
may be required to 100% inspect the next one, two or three shipments (number of
shipments to be inspected is based upon the Supplier rating and is stipulated in
the SQI notification letter) for the defect specified in the SQI. The Supplier
shall notify Company of each inspection, by including a Certificate of
Inspection (COI)stating the product has been 100% inspected against the
specifications. The Certificate of Inspection shall be attached or typed on the
packing slip. A written response outlining the corrective action to an SQI is
required within twenty (20) days of receipt.
If the defect as stated on the SQI is found in a certified inspected shipment,
Supplier will be required, at Company's option, to pay Company or agent to 100%
inspect the next three (3) lots.
Within thirty (30) of signing of this Agreement, Supplier shall identify to
Company, a single point of contact for resolution of SQIs, including telephone
number, fax number and address.
<PAGE> 15
PRICE REVISION - Either party may initiate a revision of prices under this
Agreement by giving written notice to the other at least ninety (90) days prior
to the proposed effective date thereof. Such revision shall be based on changes
in Supplier's costs and shall be determined by mutual agreement of the parties.
Supplier shall substantiate such changes in cost with documentation satisfactory
to Company, including, but not limited to, a list of purchased material and
purchased services showing quantities and cost each, and direct labor hours for
each operation. If the parties fail to agree upon revised prices by the proposed
effective date, Company shall have the right to terminate outstanding orders
with respect to all unshipped material other than quantities theretofore
manufactured, which quantities shall not be affected by the proposed price
revision, and no further orders will be placed against this Agreement.
REGISTRATION AND RADIATION STANDARDS - When material furnished under this
Agreement is subject to Part 68, Part 15 or any part of the Federal
Communications Commission's Rules and Regulations, as may be amended from time
to time, (hereinafter "FCC Rules"), Supplier warrants that such material
complies with the registration, certification, type acceptance and/or
verification standards of the FCC Rules including, but not limited to, all
labeling, customer instruction requirements, and the suppression of radiation to
specified levels. Supplier shall also establish periodic ongoing compliance
retesting and follow a Quality Control program, submitted to Company, to assure
that material shipped complies with the applicable FCC Rules.
In addition, should material which is subject to Part 15 of the FCC Rules,
during use generate harmful interference to radio communications, Supplier shall
provide to Company information relating to methods of suppressing such
interference and pay the cost of suppressing such interference or, at the option
of Company, accept return of the material and refund to Company the price paid
for the material less a reasonable amount for depreciation, if applicable.
Nothing in this clause shall be deemed to diminish or otherwise limit Supplier's
obligations under the WARRANTY clause or any other clause of this Agreement.
REPAIR PROCEDURES - Company or Distributor shall furnish the following
information on the Repair Order which will accompany material returned to
Supplier for repair: (a) Company's name and complete address; (b) name(s) and
telephone number(s) of the Company's employee(s) or its customer ("Customer") to
contact in case of questions about the material to be repaired; (c) Company or
Customer ship-to address for return of repaired material if different from (a);
(d) a complete list of material returned; (e) the nature of the defect or
failure if known; and (f) whether or not returned material is in warranty.
Supplier shall promptly provide a written notice to Company with the name(s) and
telephone number(s) of the individual(s) to be contacted concerning any
questions that may arise concerning repair, and if required, specify any special
packing of material which might be necessary to provide adequate in-transit
protection from transportation damage. A Customer shall be instructed to furnish
the following information to Supplier which should accompany material returned
to Supplier for repair: (a) Customer name and complete address; (b) Customer
telephone number; (c) sales receipt; and (d) the nature of the defect or
failure, if known. In the event a sales receipt does not accompany the material
returned by a Customer, then the date of manufacture will be used to determine
the warranty effective period.
Material repaired by Supplier shall have the repair completion date stenciled on
the bottom of the base of the material or otherwise identified in a permanent
manner at a readily visible location on the material as mutually agreed upon.
Repaired material returned to Supplier by Company shall be returned to Company,
unless otherwise specified, with the Repair Order describing the repairs which
have been made. When repaired or replaced material is returned by Supplier
directly to a Customer and such material was originally returned to Supplier by
Company, then Supplier shall at the time of shipment provide to Company, a copy
of the Repair Order form describing the repairs which have been made.
<PAGE> 16
All invoices to Company originated by Supplier for repair services must be
clearly identified as such, and must contain: (1) a reference to Customer's
request for repair service; (2) a detailed description of repairs made by
Supplier and the need therefore; and (3) an itemized listing of parts and labor
charges, if any. The provisions of the SHIPPING clause, other than provisions
relating to transportation charges with respect to material repaired under
warranty, shall apply to Supplier's return to Company of repaired material.
All invoices to Customer originated by Supplier for repair services must be
clearly identified as such, and must contain: (1) a reference to Customer's
request for repair service; (2) a detailed description of repairs made by
Supplier and the need therefore; and (3) an itemized listing of parts and labor
charges, if any.
REPAIRS NOT COVERED UNDER WARRANTY - In addition to repairs provided for in the
WARRANTY clause, Supplier agrees to provide repair service to Company or its
customers ("Customer") on all material ordered under this Agreement during the
term of this Agreement and until five (5) years after the expiration of this
Agreement. In the absence of an agreement, Supplier shall maintain the repair
interval as close to the Thirty (30) days repair interval currently provided
under this Agreement. Further, Supplier will maintain repair charges close to
the current repair prices provided in this Agreement.
In the absence of an agreement, Company retains the right to negotiate repair
intervals and repair charges should the need arise.
Material to be repaired under this clause must be returned to a location
designated by Supplier. Unless otherwise mutually agreed upon, Supplier shall
ship the repaired material which meets the specifications set forth in this
Agreement to the appropriate Company or Customer location as shown on the Repair
Order form within thirty (30) days of receipt of the material. If at any time
Supplier is unable to meet the meet the thirty (30) day repair interval,
Supplier shall immediately notify Company or Customer and establish a mutually
agreed upon shipment date for the repaired material.
If material is returned to Supplier for repair as provided for in this clause,
and is determined to be beyond repair, Supplier shall so notify Company or the
Customer. When Company is involved and if requested by Company, Supplier will
sell to Company a replacement at the current contract price, or, if no such
contract exists, at Supplier's then current price for the material.
Replacement and repaired material shall be warranted as set forth in the
WARRANTY clause.
It is expressly understood and agreed that this Agreement does not grant
Supplier an exclusive privilege to repair any or all of the material purchased
under this Agreement for which Company may require repair, and Company may
perform the repairs or contract with others for these services. In addition,
Supplier authorizes Company and any qualified repairer with whom Company may
contract to perform repairs on all material purchased under this Agreement.
All transportation costs of an in-transit risk of loss and damage to material
returned to Supplier for repair under this clause will be borne by Company or
Customer and all transportation costs and risk of in-transit loss and damage
associated with the return of such repaired material will be borne by Supplier.
Supplier agrees to notify Company or Customer and obtain their approval, if
repair services will exceed fifty (50) % of replacement cost of new material,
prior to performing any repair services. Supplier will invoice all Customers for
repair services hereunder Cash on Delivery (COD) unless other arrangements are
mutually agreed upon. Invoices to Company for repair services hereunder will be
paid in accordance with the TERMS OF PAYMENT clause.
RETURN GOODS MATERIAL
Company may return Material that was either (1) never shipped by Company; or (2)
never installed by Company (hereafter referred to as RGM). Such RGM will be
returned to Supplier for repair, upgrade or
<PAGE> 17
refurbishment. Supplier shall, within seven (7) days receipt of any such
Material, evaluate the extent of reconditioning required to upgrade and
re-warrant Material and provide a written cost estimate for such RGM services to
Company. If Company accepts Supplier's cost estimate then Company shall issue a
purchase order for the completion by Supplier of RGN services. RGM MATERIAL
returned by Supplier shall be warranted as set forth in the WARRANTY CLAUSE.
Any invoice originated by Supplier for RGM repair services must by clearly
identified as such, and must contain: (1) a reference to Company's purchase
order for these (RGM) services, and (2) a description of repairs made by
Supplier. Further, the provisions of the INVOICING and SHIPPING clauses, other
than provisions relating to transportation charges with respect to MATERIAL
repaired under warranty, shall apply to Supplier's return to Company of repaired
MATERIAL.
SPECIFICATIONS OR DRAWINGS - Technical Specification No. WP-92066 Iss. 2.3 dated
4/22/98, and KS-24019 Iss. 2.1 dated 10/14/96; copies of which are in Suppliers
possession, and as may be changed from time to time with Supplier's written
approval; are hereby made a part of this Agreement.
Any proposed changes to the Technical Specifications shall require written
approval of Company. Supplier shall provide Company with at least sixty (60)
days prior written notice of any change proposed to be made by Supplier in the
MATERIAL furnished pursuant to Technical Specifications.
If Company, in its sole discretion, does not agree to the change proposed by
Supplier, then in addition to all other rights and remedies at law or equity or
otherwise, and without any cost to or liability or obligation of Company,
Company shall have the right to terminate this Agreement and to terminate any or
all purchase orders for MATERIAL affected by such change.
Supplier agrees to continue to Supply MATERIAL to Company pursuant to the
Technical Specifications for the term of the Agreement. If Supplier is unable to
continue to thus supply or discontinues manufacture of MATERIAL, Company shall
be entitled to one (1) years advance notice.
SECTION HEADINGS
The headings of the clauses in this Agreement are inserted for convenience only
and are not intended to affect the meaning or interpretation of this Agreement.
SERVICE
Company intends to monitor the delivery performance of each Supplier via special
performance reports. It should be noted that Company shall interpret delivery to
the carrier at the designated time as outlined in DTS-POC; or arrival at the
final destination at the specified time to Company's dock in the event premium
transportation is utilized. Company's requirement is that Supplier will maintain
an average percent received to required date of 100% all DTS and Consignment
items; and 95% for all other parts; as shown in the monthly rating provided to
Supplier by Company.
Supplier is expected to make every reasonable effort to deliver material in
accordance with Company's required delivery schedule as contained in Company's
orders, and as the delivery schedule may be subsequently modified by Company.
Supplier is also expected to communicate to Company any foreseeable change to
Supplier's acknowledged delivery schedule. Supplier's compliance with the
foregoing expectations will not relieve Supplier of the minimum service
requirements established in the preceding paragraph.
<PAGE> 18
If Supplier advises Company that it will be unable to meet acknowledged delivery
dates, and Company elects to call for expedited shipments, Supplier is
responsible for any premium transportation costs required to deliver the
requested material to Company by the Due Date indicated on the replenishment
request.
SUPPLIER COMMITMENT DOCK TO SHOP
Supplier shall maintain an inventory of finished Dock-to-Shop Material
equivalent to weeks specified in Attachment A for the then current forecast. A
minimum amount of finished goods shall be kept on Company premises. This minimum
amount will be specified by the Supply Line Engineer for each comcode and will
not exceed the Supplier's finished goods inventory requirement as stated above.
Supplier shall also maintain work in process and/or raw material and components
in the aggregate sufficient to manufacture such Dock-to-Shop Material equivalent
to the weeks specified in Attachment A, for the current forecast. Supplier shall
provide status reports to Company of current inventory levels at Company's
request.
In addition to the above obligations, in a given four (4) week period, Supplier
commits to providing an additional amount of material, if necessary, equal to
25% of the total of weeks 1-4 of the then current forecast. Also, given a four
(4) week notice, Supplier shall deliver a sustained increase of up to 25% of the
average weekly demand of the then current forecast. Supplier shall deliver any
additional amount of material over and above the then current forecast provided
that Supplier is given at least eight (8) weeks notice up to the capacity of
1000 Rubidium Oscillators per week; that includes the ability to produce 750
RFTG & RFTGm products in any combination. Capacity increase above these amounts
requires a minimum of four (4) months notification.
TERMINATION
Company may terminate this Agreement in whole or part by giving Supplier at
least sixty (60) days prior written notice. Prices for any work remaining with
Supplier under this Agreement terminated in part may be adjusted to fairly
reflect Supplier's costs resulting from work withdrawn. Upon termination,
Company shall pay Supplier all amounts due for services and material provided by
Supplier to Company under this Agreement up to and including the effective date
of termination. Such payment shall constitute a full and complete discharge of
Company's obligations under this Agreement.
TERMINATION OF PURCHASE ORDER - Company may at any time terminate any or all
purchase orders placed by Company under this Agreement. Unless otherwise
specified in this Agreement, Company's liability to Supplier with respect to
such terminated purchase order or orders shall be limited to: (1) Supplier's
purchase price of all components for the material (not usable in Supplier's
other operations or salable to Supplier's other customers), plus (2) the actual
costs incurred by Supplier in procuring and manufacturing material (not usable
in Supplier's other operations or salable to Supplier's other customers) in
process at the date of the notice of termination; less (3) any salvage value
thereof. However, no such termination charges shall be payable if within sixty
(60) days after notice of termination material equivalent in kind to that being
terminated is ordered by Company from Supplier. If requested, Supplier agrees to
substantiate such costs with proof satisfactory to Company.
TRAINING - If requested by Company, Supplier will, without charge to Company:
(a) provide instructors and the necessary instructional material of Supplier's
standard format to train Company's personnel in the installation, planning and
practices, operation, maintenance, and repair of material furnished under this
Agreement with these classes to be conducted at reasonable intervals at
locations
<PAGE> 19
agreed upon by Supplier and Company; or, at the option of Company (b) provide to
Company training modules or manuals and any necessary assistance, covering those
areas of interest outlined in (a) of this clause, sufficient in detail, format,
and quantity to allow Company to develop and conduct a training program.
YEAR 2000 WARRANTY - With respect to all Material, Equipment, Services and
Software provided to Company under this Agreement, Supplier warrants to Company
and its customers that: (i) the operation of such deliverables on or after
January 1, 2000, without limitation as to date, shall in no way be different
from their operation prior to that date; and (ii) such deliverables will be able
to process, store, record and present data containing dates in the Year 2000,
and thereafter without limitation as to date, in the same manner as data
containing dates prior to the Year 2000. Supplier further warrants that to the
extent its internal systems impact its relationship with Company, such systems
also comply with the foregoing warranties. Upon request by Company, Supplier
agrees to: (i) provide written certification of the foregoing warranties to
Company and its customers; and (ii) allow Company to reasonably verify
compliance with these warranties subject to the terms of the "Audits" provision
of this Agreement.
WARRANTY-EXTENDED
In addition to the warranty in this Agreement, Supplier warrants to Company and
Company's customers that the material furnished will perform properly for a
period of three (3) years following acceptance by Company. Additionally, Part
407658269 will be warranted four (4) years from the date of manufacture.
WORK DONE BY OTHERS
If any part of the Work is dependent upon work done by others, Supplier shall
inspect, and promptly report to Company's Representative any defect that renders
such other work unsuitable for Supplier's proper performance. Supplier's silence
shall constitute approval of such other work as fit, proper and suitable for
Supplier's performance of the Work
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
AGREED:
Datum Inc. Lucent Technologies Inc.
By: [SIG] By: [SIG]
------------------------- -------------------------
Title: President and CEO Title: GPO VP
------------------------- -------------------------
Date: July 2, 1998 Date: June 24, 1998
------------------------- -------------------------
<PAGE> 20
Contract H011980069
ATTACHMENT "A"
<TABLE>
<CAPTION>
Comcode Description Price/Ea. Consignment/ Finished Work in
[*] Demand-Pull/ Goods Process (A)
Dock-to-Shop (Weeks) (Weeks)
- ------- ------------ --------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
407575638 WP-92066 L13 [*] Consignment 2 Through 5 6 Through 12
407575646 WP-92066 L14 [*] Consignment 2 Through 5 6 Through 12
407575653 WP-92066 L15 [*] Consignment 2 Through 5 6 Through 12
407549724 WP-92066 L11 [*] Demand Pull 2 Through 5 6 Through 12
407549732 WP-92066 L12 [*] Demand Pull 2 Through 5 6 Through 12
407232156 WP-92066 L9 [*] Consignment 2 Through 5 6 Through 12
407232164 WP-92066 L10 [*] Consignment 2 Through 5 6 Through 12
407658269[*] KS-24019 L1B [*] Consignment 2 Through 5 6 Through 12
407530039 KS-24019 L102A [*] Demand Pull 2 Through 5 6 Through 12
407658244 KS-24019 L104B [*] Demand Pull 2 Through 5 6 Through 12
407530021 KS-24019 L4A [*] Consignment 2 Through 5 6 Through 12
407530062 KS-24019 L105A [*] Consignment 2 Through 5 6 Through 12
407530088 KS-24019 L106A [*] Consignment 2 Through 5 6 Through 12
407870005 KS-24019 L5 [*] Consignment 2 Through 5 6 Through 12
407921386 KS-24019 L6 [*] Consignment 2 Through 5 6 Through 12
RFTGmill
407575638 WP-92066 L13 [*] Consignment 2 Through 5 6 Through 12
407575646 WP-92066 L14 [*] Consignment 2 Through 5 6 Through 12
407575653 WP-92066 L15 [*] Consignment 2 Through 5 6 Through 12
407549724 WP-92066 L11 [*] Demand Pull 2 Through 5 6 Through 12
407549732 WP-92066 L12 [*] Demand Pull 2 Through 5 6 Through 12
407232156 WP-92066 L9 [*] Consignment 2 Through 5 6 Through 12
407232164 WP-92066 L10 [*] Consignment 2 Through 5 6 Through 12
407658269 KS-24019 L1B [*] Consignment 2 Through 5 6 Through 12
407530039 KS-24019 L102A [*] Demand Pull 2 Through 5 6 Through 12
407658244 KS-24019 L104B [*] Demand Pull 2 Through 5 6 Through 12
407530021 KS-24019 L4A [*] Consignment 2 Through 5 6 Through 12
407530062 KS-24019 L105A [*] Consignment 2 Through 5 6 Through 12
407530088 KS-24019 L106A [*] Consignment 2 Through 5 6 Through 12
407870005 KS-24019 L5 [*] Consignment 2 Through 5 6 Through 12
407921386 KS-24019 L6 [*] Consignment 2 Through 5 6 Through 12
RFTGmill
407575638 WP-92066 L13 [*] Consignment 2 Through 5 6 Through 12
407575646 WP-92066 L14 [*] Consignment 2 Through 5 6 Through 12
407575653 WP-92066 L15 [*] Consignment 2 Through 5 6 Through 12
407549724 WP-92066 L11 [*] Demand Pull 2 Through 5 6 Through 12
407549732 WP-92066 L12 [*] Demand Pull 2 Through 5 6 Through 12
407232156 WP-92066 L9 [*] Consignment 2 Through 5 6 Through 12
407232164 WP-92066 L10 [*] Consignment 2 Through 5 6 Through 12
407658269 KS-24019 L1B [*] Consignment 2 Through 5 6 Through 12
407530039 KS-24019 L102A [*] Demand Pull 2 Through 5 6 Through 12
407658244 KS-24019 L104B [*] Demand Pull 2 Through 5 6 Through 12
407530021 KS-24019 L4A [*] Consignment 2 Through 5 6 Through 12
407530062 KS-24019 L105A [*] Consignment 2 Through 5 6 Through 12
407530088 KS-24019 L106A [*] Consignment 2 Through 5 6 Through 12
407870005 KS-24019 L5 [*] Consignment 2 Through 5 6 Through 12
407921386 KS-24019 L6 [*] Consignment 2 Through 5 6 Through 12
RFTGmill
</TABLE>
- ------------------
(A) Raw Material - In addition to Finished Goods and Work in Process; Company
will Commit to purchase a total of 1000 Rubidium Physics packages in the
event of Termination
[*] Omitted pursuant to Rule 24b-2.
<PAGE> 21
Contract H011980069
ATTACHMENT B
Current Replacement Datum Next Datum
Comcode Product Engineering Replacement Engineering
* Prototypes Product Prototypes
Complete by Complete by
- ------- ----------- --------------- ----------- -----------
407575646 [*] October 1, 1998 None Scheduled Not Applicable
407575653 [*] October 1, 1998 None Scheduled Not Applicable
407575638 [*] October 1, 1998 None Scheduled Not Applicable
407549724 [*] October 1, 1998 None Scheduled Not Applicable
407549732 [*] October 1, 1998 None Scheduled Not Applicable
407232156 [*] Complete 1997 RFG-m-X October 1, 1998
407232164 [*] Complete 1997 RFG-m-X October 1, 1998
407530039 [*] May 1, 1998 RFTG-m-XX February 1, 1999
407658244 [*] May 1, 1998 RFTG-m-XX February 1, 1999
407530021 [*] August 1, 1998 RFTG-m-XX February 1, 1999
407530062 [*] August 1, 1998 RFTG-m-XX February 1, 1999
407530088 [*] August 1, 1998 RFTG-m-XX February 1, 1999
407870005 [*] August 1, 1998 RFTG-m-XX February 1, 1999
- ------------------
[*] Column data omitted pursuant to Rule 24b-2.
<PAGE> 22
ASSIGNMENT - Supplier shall not assign any right or interest under this
Agreement (excepting solely for moneys due or to become due) without the prior
written consent of Company. Supplier shall be responsible to Company for all
Work performed by Supplier's subcontractor(s) at any tier.
CHOICE OF LAW - This Agreement and all transactions under it shall be governed
by the laws of the State of New Jersey excluding its choice of laws rules and
excluding the Convention for the International Sale of Goods. Supplier agrees to
submit to the jurisdiction of any court wherein an action is commenced against
Company based on a claim for which Supplier has agreed to indemnify Company
under this Agreement.
COMPLIANCE WITH LAWS - Supplier and all persons furnished by Supplier shall
comply at their own expense with all applicable laws, ordinances, regulations
and codes, including the identification and procurement of required permits,
certificates, licenses, insurance, approvals and inspections in performance
under this Agreement.
ENTIRE AGREEMENT - This Agreement shall incorporate the typed or written
provisions on Company's orders issued pursuant to this Agreement and shall
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and the order(s) and shall not be modified or
rescinded, except by a writing signed by Supplier and Company. Printed
provisions on the reverse side of Company's orders (except as specified
otherwise in this Agreement) and all provisions on Supplier's forms shall be
deemed deleted. Estimates or forecasts furnished by Company shall not constitute
commitments. The provisions of this Agreement supersede all contemporaneous oral
agreements and all prior oral and written communications and understandings of
the parties with respect to the subject matter of this Agreement.
FORCE MAJEURE - Neither party shall be held responsible for any delay or failure
in performance of any part of this Agreement to the extent such delay or failure
is caused by fire, flood, strike, civil, governmental or military authority, act
of God, or other similar causes beyond its control and without the fault or
negligence of the delayed or nonperforming party or its subcontractors.
Supplier's liability for loss or damage to Company's material in Supplier's
possession or control shall not be modified by this clause. When a party's delay
or non-performance continues for a period of at least fifteen (15) days, the
other party may terminate, at no charge, this Agreement or an order under the
Agreement.
HEAVY METALS AND/OR CFC IN PACKAGING - Supplier warrants to Company that no
lead, cadmium, mercury or hexavalent chromium have been intentionally added to
any packaging or packaging component (as defined under applicable laws) to be
provided to Company under this Agreement and that packaging materials were not
manufactured using and do not contain chlorofluorocarbons. Supplier further
warrants to Company that the sum of the concentration levels of lead, cadmium,
mercury and hexavalent chromium in the package or packaging component provided
to Company under this Agreement does not exceed 100 parts per million. Upon
request, Supplier shall provide to Company Certificates of Compliance certifying
that the packaging and/or packaging components provided under this Agreement are
in compliance with the requirements set forth above in this clause.
IDENTIFICATION - Supplier shall not, without Company's prior written consent,
engage in publicity related to this Agreement, or make public use of any
Identification in any circumstances related to this Agreement. "Identification"
means any semblance of any trade name, trademark, service mark, insignia,
symbol, logo, or any other designation or drawing of Lucent Technologies, AT&T
Corp., or their affiliates. Supplier shall remove or obliterate any
Identification prior to any use or disposition of any material rejected or not
purchased by Company.
IMPLEADER - Supplier shall not implead or bring an action against Company based
on any claim by any person for personal injury or death to an employee of
Company for which Company has previously paid or is obligated to pay worker's
compensation benefits to such employee or claimant and for which such employee
or claimant could not otherwise bring legal action against Company.
INDEMNITY - At Company's request, Supplier agrees to indemnify, defend and hold
harmless Company, its affiliates, customers, employees, successors and assigns
(all referred to as "Company") from and against any losses, damages, claims,
fines, penalties and expenses (including reasonable attorney's fees) that arise
out of or result from: (1) injuries or death to persons or damage to property,
including theft, in any way arising out of or caused or alleged to have been
caused by the Work or services performed by, or material provided by Supplier or
persons furnished by Supplier; (2) assertions under Workers' Compensation or
similar acts made by persons furnished by Supplier; or (3) any failure of
Supplier to perform its obligations under this Agreement.
<PAGE> 23
INFRINGEMENT - Supplier shall indemnify and save harmless Company, its
affiliates and their customers, officers, directors, and employees (all referred
to in this clause as "Company") from and against any losses, damages,
liabilities, fines, penalties, and expenses (including reasonable attorneys'
fees) that arise out of or result from any and all claims (1) of infringement of
any patent, copyright, trademark or trade secret right, or other intellectual
property right, private right, or any other proprietary or personal interest,
and (2) related by circumstances to the existence of this Agreement or
performance under or in contemplation of it (an Infringement Claim). If the
Infringement Claim arises solely from Supplier's adherence to Company's written
instructions regarding services or tangible or intangible goods provided by
Supplier (items) and if the Items are not (1) commercial items available on the
open market or the same as such items, or (2) items of Supplier's designated
origin, design or selection, Company shall indemnify Supplier. Company or
Supplier (at Company's request) shall defend or settle, at its own expense any
demand, action or suit on any Infringement Claim for which it is indemnitor
under the preceding provisions and each shall timely notify the other of any
assertion against it of any Infringement Claim and shall cooperate in good faith
with the other to facilitate the defense of any such Claim
INSURANCE - Supplier shall maintain and cause Supplier's subcontractors to
maintain during the term of this Agreement: (1) Workers' Compensation insurance
as prescribed by the law of the state or nation in which the Work is performed;
(2) employer's liability insurance with limits of at least $500,000 for each
occurrence; (3) automobile liability insurance if the use of motor vehicles is
required, with limits of at least $1,000,000 combined single limit for bodily
injury and property damage per occurrence; (4) Commercial General Liability
("CGL") insurance, ISO 1988 or later occurrence form of insurance, including
Blanket Contractual Liability and Broad Form Property Damage, with limits of at
least $1,000,000 combined single limit for bodily injury and property damage per
occurrence; and (5) if the furnishing to Company (by sale or otherwise) or
material or construction services is involved, CGL insurance endorsed to include
products liability and completed operations coverage in the amount of $5,000,000
per occurrence. All CGL and automobile liability insurance shall designate
Lucent Technologies Inc., its affiliates, and its directors, officers and
employees (all referred to as "Company") as additional insured. All such
insurance must be primary and non-contributory and required to respond and pay
prior to any other insurance or self-insurance available. Any other coverage
available to Company shall apply on an excess basis. Supplier agrees that
Supplier, Supplier's insurer(s) and anyone claiming by, through, under or in
Supplier's behalf shall have no claim, right of action or right of subrogation
against Company and its customers based on any loss or liability insured against
under the foregoing insurance. Supplier and Supplier's subcontractors shall
furnish prior to the start of Work certificates or adequate proof of the
foregoing insurance, including if specifically requested by Company,
endorsements and policies. Company shall be notified in writing at least thirty
(30) days prior to cancellation of or any change in the policy. Insurance
companies providing coverage under this Agreement must be rated by A-M Best with
at least an A-rating.
INVOICING FOR GOODS - Supplier shall: (1) render original invoice, or as
otherwise specified in this Agreement, showing Agreement and order number,
through routing and weight; (2) render separate invoices for each shipment
within twenty-four (24) hours after shipment; and (3) mail invoices with copies
of bills of lading and shipping notices to the address shown on this Agreement
or order. If prepayment of transportation charges is authorized, Supplier shall
include the transportation charges from the FOB point to the destination as a
separate item on the invoice stating the name of the carrier used.
MEDIATION - If a dispute relates to this Agreement, or its breach, and the
parties have not been successful in resolving such dispute through negotiation,
the parties agree to attempt to resolve the dispute through mediation by
submitting the dispute to a sole mediator selected by the parties or, at any
time at the option of a party, to mediation by the American Arbitration
Association ("AAA"). Each party shall bear its own expenses and an equal share
of the expenses of the mediator and the fees of the AAA. All defenses based on
passage of time shall be suspended pending the termination of the mediation.
Nothing in this clause shall be construed to preclude any party from seeking
injunctive relief in order to protect its rights pending mediation.
PAYMENT TERMS - Invoices shall be paid in accordance with the terms in this
Agreement, and due dates for payment shall be computed form the date of receipt
of invoices by the Company.
RIGHT OF ENTRY - Each party shall have the right to enter the premises of the
other party during normal business hours with respect to the performance of this
Agreement including an inspection or a Quality Review, subject to all plant
rules and regulations, clearances, security regulations and procedures as
applicable. Each party shall provide safe and proper facilities for such
purposes.
<PAGE> 24
SHIPPING - Supplier shall: (1) ship the material covered by this Agreement or
order complete unless instructed otherwise; (2) ship to the destination
designated in the Agreement or order; (3) ship according to routing instructions
given by Company; (4) place the Agreement and order number on all subordinate
documents; (5) enclose a packing memorandum with each shipment and, when more
than one package is shipped, identify the package containing the memorandum; and
(6) mark the Agreement and order number on all packages and shipping papers.
Adequate protective packing shall be furnished at no additional charge. Shipping
and routing instructions may be furnished or altered by Company without a
writing. If Supplier does not comply with the terms of the FOB clause of this
Agreement or order or with Company's shipping or routing instructions, Supplier
authorizes Company to deduct from any invoice of Supplier (or to charge back to
Supplier), any increased costs incurred by Company as a result of Supplier's
noncompliance.
SOFTWARE LICENSE GRANT - Except as stated otherwise in this order, Company shall
have a world-wide, non-exclusive, royalty-free, perpetual, transferable license
to use, reproduce and sublicense all software furnished to Company by Supplier
under this Agreement. Company will not reverse compile or disassemble the
software, nor will Company reproduce the software for the purpose of furnishing
it to others.
SUPPLIER'S INFORMATION - Supplier shall not provide under, or have provided in
contemplation of, this Agreement any idea, data, program, technical, business or
other intangible information, however conveyed, or any document, print, tape,
disc, semiconductor memory or other information-conveying tangible article,
unless Supplier has the right to do so, and Supplier shall not view any of the
foregoing as confidential or proprietary.
SURVIVAL OF OBLIGATIONS - The obligations of the parties under this Agreement,
which by their nature would continue beyond the termination, cancellation or
expiration of this Agreement, shall survive termination, cancellation or
expiration of this Agreement.
TAXES - Company shall reimburse Supplier only for the following tax payments
with respect to transactions under this Agreement unless Company advises
Supplier that an exemption applies: state and local sales and use taxes, as
applicable. Taxes payable by Company shall be billed as separate items on
Supplier's invoices and shall not be included in Supplier's prices. Company
shall have the right to have Supplier contest any such taxes that Company deems
improperly levied at Company's expense and subject to Company's direction and
control.
TITLE AND RISK OF LOSS - Title and risk of loss and damage to material purchased
by Company under this Agreement shall vest in Company when the material has been
delivered at the FOB point. If this Agreement or an order issued pursuant to
this Agreement calls for additional services to be performed after delivery,
Supplier shall retain title and risk of loss and damage to the material until
the additional services have been performed. If Supplier is authorized to
invoice Company for material upon shipment or prior to the performance of
additional services, title to material shall vest in Company upon payment of the
invoice, but risk of loss and damage shall pass to Company when the additional
services have been performed.
USE OF INFORMATION - Supplier shall view as Company's property any idea, data,
program, technical, business or other intangible information, however conveyed,
and any document, print, tape, disc, tool, or other tangible
information-conveying or performance-aiding article owned or controlled by
Company, and provided to, or acquired by, Supplier under or in contemplation of
this Agreement (Information). Supplier shall, at no charge to Company, and as
Company directs, destroy or surrender to Company promptly as its request any
such article or any copy of such Information. Supplier shall keep Information
confidential and use it only in performing under this Agreement and obligate its
employees, subcontractors and others working for it to do so, provided that the
foregoing shall not apply to information previously known to Supplier free of
obligation, or made public through no fault imputable to Supplier.
WARRANTY - Supplier warrants to Company and its customers that material
furnished will be new, merchantable, free from defects in design, material and
workmanship and will conform to and perform in accordance with the
specifications, drawings and samples. These warranties extend to the future
performance of the material and shall continue for the longer of (a) the
warranty period applicable to Company's sales to its customers of the material
or of products which incorporate the material, (b) one year after the material
is accepted by Company or (c) such greater period as may be specified elsewhere
in this Agreement. Supplier also warrants to Company and its customers that
services will be performed in a first class, workmanlike manner. If material
furnished contains manufacturers' warranties, Supplier hereby assigns such
warranties to Company and its customers. All warranties shall survive
inspection, acceptance and payment. Material or services not meeting the
warranties will be, at Company's option, returned for or subject to refund,
repaired, replaced or reperformed by Supplier at no cost to Company or its
customers and with transportation costs and risk of loss and damage in transit
borne by Supplier. Repaired and replacement material shall be warranted as set
forth above in this clause.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,362
<SECURITIES> 0
<RECEIVABLES> 17,395
<ALLOWANCES> 184
<INVENTORY> 26,988
<CURRENT-ASSETS> 58,006
<PP&E> 28,486
<DEPRECIATION> 12,293
<TOTAL-ASSETS> 86,232
<CURRENT-LIABILITIES> 12,714
<BONDS> 17,529
0
0
<COMMON> 1,364
<OTHER-SE> 54,941
<TOTAL-LIABILITY-AND-EQUITY> 86,232
<SALES> 77,325
<TOTAL-REVENUES> 77,325
<CGS> 50,574
<TOTAL-COSTS> 78,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,235
<INCOME-PRETAX> (2,520)
<INCOME-TAX> (995)
<INCOME-CONTINUING> (1,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,525)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
