AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1999.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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I.D. SYSTEMS, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 3669 22-3270799
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
90 William Street
Suite 402
New York, New York 10038
(212) 677-3800
(Address and Telephone Number of Principal Executive Offices)
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JEFFREY M. JAGID
CHIEF OPERATING OFFICER
I.D. SYSTEMS, INC.
90 WILLIAM STREET
SUITE 402
NEW YORK, NEW YORK 10038
(Name, Address and Telephone Number of Agent For Service)
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COPIES OF COMMUNICATIONS TO:
HENRY I. ROTHMAN, Esq. RUBI FINKELSTEIN, Esq.
Parker Chapin Flattau & Klimpl, LLP Orrick, Herrington & Sutcliffe LLP
1211 Avenue of the Americas 30 Rockefeller Plaza
New York, New York 10036 New York, New York 10112
Telephone: (212) 704-6000 Telephone: (212) 506-3660
Telecopier: (212) 704-6288 Telecopier: (212) 506-3730
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the
same offering. |_|_____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
|-|_____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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<PAGE>
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT TO MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE
- ------------------------------------------------------ ------------------------ ----------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock,
par value $.01 per share....... 2,300,000(2) $ 8.00 $18,400,000 $ 5,115
Representative's Warrants to
purchase Common
Stock(3)..................... 200,000 $ - $ - (3)
Common Stock, underlying the
Representative's Warrants(4)........ 200,000 $ 9.60 $ 1,920,000 $ 534
Total Registration Fee..................................................................................... $ 5,649
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended (the
"Securities Act").
(2) Includes 300,000 shares of Common Stock which the Underwriters have the
option to purchase from the Registrant to cover over-allotments, if any.
(3) No fee required pursuant to Rule 457(g) under the Securities Act.
(4) Pursuant to Rule 416 under the Securities Act this Registration Statement
also covers such additional shares as may become issuable as a result of
the anti-dilution provisions contained in the Representative's Warrants.
_________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdication where the offer or sale is not permitted.
Subject to Completion dated April 23, 1999
2,000,000 Shares
I.D. SYSTEMS, INC.
Common Stock
This is an initial public offering of shares of I.D. Systems,
Inc. I.D. Systems anticipates that the initial public offering price will be
between $7 and $9 per share.
Prior to this offering, there has been no public market for
the common stock. Application will be made for quotation of the common stock on
the Nasdaq SmallCap Market under the symbol "IDSY".
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE ___ TO READ ABOUT
CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF ANY COMMON STOCK .
-----------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------------------------------
Per Share Total
--------- -----
Initial public offering price...................... $ $
Underwriting discount.............................. $ $
Proceeds, before expenses, to I.D. $ $
Systems ...........................................
I.D. Systems granted the underwriters a 45-day option to
purchase, under certain circumstances, up to an additional 300,000 shares of
common stock at the initial public offering price less the underwriting
discount.
The underwriters expect to deliver the shares against payment
in New York, New York on or about ___________ , 1999.
GILFORD SECURITIES INCORPORATED
Prospectus dated ______________, 1999
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND I.D. SYSTEMS' FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS.
I.D. SYSTEMS, INC.
OUR BUSINESS
I.D. Systems, Inc. designs, develops, and produces a wireless monitoring
and tracking system that uses radio frequency technology. Our system can
monitor, track, analyze, and control the movement of virtually any object,
including vehicles, equipment and packages. Our products enable users to improve
operating efficiencies, reduce costs and increase profits. Our principal
customer to date has been the United States Postal Service. Federal Express
Corporation, Avis Rent A Car System, Inc., Ford Motor Corporation, Hallmark
Cards, Inc., QVC Inc. and World Color Press, Inc. have also recently placed
orders for our system. For the year ended December 31, 1998, sales were
approximately $3.3 million resulting in income from operations of approximately
$500,000.
INDUSTRY OVERVIEW
Our products are targeted to the automatic data collection market. This
market primarily refers to companies that use bar-coding equipment to
electronically identify and track objects. Radio frequency identification was
developed to address problems presented by bar-coding technology. Venture
Development Corporation estimates that global revenues for products which use
radio frequency identification systems were $540 million in 1997 and are
projected to increase to $1.6 billion by 2002.
OUR SYSTEM
The main components of our system are miniature computers that attach to
the monitored and tracked objects as well as monitoring devices that exchange
information with these miniature computers. Customers may access the data
collected by our system via the Internet. Our system provides many advantages
over conventional radio frequency systems. Since our system does not need a
central computer or mainframe, we believe our system , when compared to
conventional radio frequency systems, is:
o more flexible;
o lower in cost;
o more reliable; and
o more functional.
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OUR INITIAL TARGET MARKET
Our products may be used in a wide variety of industries. We are
currently marketing our system to:
o shipping and delivery companies;
o companies with fleets of forklift trucks and other
similar vehicles;
o rental car companies; and
o railroad and transportation companies.
OUR STRATEGY
Our objective is to become the leading provider of wireless monitoring
and tracking systems. To achieve this objective, our strategy is to:
o expand product capabilities and applications by
enhancing the features of our system;
o strengthen sales and marketing efforts, including
enhancing our website to allow perspective customers
to "test drive" our system and through, among other
things, Internet advertising; and
o continue to develop additional revenue sources by
selling software and hardware upgrades as well as
ongoing maintenance and support contracts.
OUR OFFICES
Our principal executive offices are located at 90 William Street, Suite
402, New York, NY 10038, and our telephone number is (212) 677-3800. Our
corporate website can be found at www.id-systems.com. Information contained on
our website does not constitute part of this prospectus.
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THE OFFERING
Shares offered by I.D. Systems..................... 2,000,000
Shares to be outstanding after this offering ..... 5,414,375 shares
Use of Proceeds.................................... o product development;
o sales and marketing;
o expansion of product
capabilities and
applications; and
o working capital and
general corporate
purposes
Proposed Nasdaq SmallCap Market Symbol............. "IDSY"
Unless stated otherwise, all information in this prospectus assumes:
o the underwriters' over-allotment option is not exercised; and
o a 1.25 to 1 stock split of common stock immediately prior to
the effective date of this prospectus;
and excludes:
o 1,243,750 shares of common stock issuable upon the exercise of
outstanding options; and
o 1,118,750 shares of common stock reserved for future issuance
under our stock option plans.
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SUMMARY FINANCIAL INFORMATION
The following table summarizes the financial data for our business. We
have historically been treated as an S corporation and, accordingly, have not
been subject to federal or state income taxes. Subsequent to December 31, 1998,
we filed an election to be taxed as a C corporation effective January 1, 1999.
Pro forma net income provides for federal and state income taxes which would
have been provided had we been a C corporation. Pro forma net income for 1997
includes a $468,000 pro forma income tax benefit that will not be available to
offset C corporation income in future years.
STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998
---- ----
Revenues ..................................... $733,000 $3,324,000
Gross profit.................................. 464,000 1,691,000
Income (loss) from operations................. (18,000) 544,000
Net income - historical ...................... 75,000 476,000
Pro forma net income ......................... 543,000 284,000
Pro forma net income per share- basic......... .17 .08
Pro forma net income per share-diluted........ .17 .08
Weighted average common shares
outstanding-basic............................. 3,154,000 3,414,000
Weighted average common shares 3,154,000 3,779,000
outstanding-diluted..........................
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The following table indicates a summary of our balance sheet at
December 31, 1998:
o on an actual basis; and
o on an as adjusted basis to reflect the sale of
2,000,000 shares of common stock, after deducting
underwriting discounts and commissions and estimated
offering expenses.
BALANCE SHEET DATA:
AT DECEMBER 31, 1998
-----------------------------
ACTUAL AS ADJUSTED
---------- -----------
Working capital........................... $1,098,000 $14,998,000
Total assets.............................. 2,102,000 16,002,000
Total liabilities......................... 1,094,000 1,094,000
Stockholders' Equity ..................... 1,008,000 14,908,000
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RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISKS AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN THE SHARES OF OUR COMMON STOCK.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
Although we were incorporated in August 1993, we did not initiate sales
of our initial line of products until March 1995. As a result, we have a limited
operating history upon which you may evaluate our business and prospects. Our
prospectus must be considered in light of risks, expenses, delays, problems and
difficulties frequently encountered by early stage companies.
THE LOSS OF NET SALES TO OUR MAJOR CUSTOMER WOULD LIKELY HAVE A
MATERIAL ADVERSE EFFECT ON US
Our largest customer, the U.S. Postal Service, accounted for
approximately 99% and 95% of revenues, in 1997 and 1998. Our contract with the
U.S. Postal Service expires in September 2000. The contract may be terminated,
however, at any time at the discretion of the U.S. Postal Service. The loss of
this customer would likely have a material adverse effect on our business,
financial condition and results of operations.
THE MARKET FOR OUR TECHNOLOGY IS UNCERTAIN
Our success is highly dependent on market acceptance of our wireless
monitoring and tracking system. The market for wireless monitoring and tracking
products and services is new and rapidly evolving and we are not certain that
our target customers will purchase our wireless monitoring and tracking system.
As a result, demand and market acceptance for our products is uncertain. We
cannot assure you that the market for wireless monitoring and tracking
technology will continue to emerge or become sustainable. If the market for our
products fails to grow, develops more slowly than we expect, or becomes
saturated with competing products or services, then our business, financial
condition and results of operations will be materially adversely affected.
THE DELIVERY OF OUR SYSTEM REQUIRES A LONG LEAD TIME
The design, manufacture and delivery of our system to our customers
requires a long lead time due to the amount of customization typically involved
its production. This amount of time is difficult to predict. In the event our
system takes longer to develop for particular customers than predicted, we may
lose existing customers or find it more difficult to obtain additional
customers.
THERE ARE RISKS RELATED TO DOING BUSINESS WITH FEDERAL GOVERNMENT
AGENCIES
Contracts with Federal government agencies require annual funding
approval and are terminable at the discretion of such agencies. A reduction in
spending by Federal government agencies could limit the continued funding of our
existing contracts with them and could limit our
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ability to obtain additional contracts. These limitations, if significant, could
also have a material adverse effect on our business, financial condition and
results of operations.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
Based on our current operating plan, we anticipate that the net
proceeds of this offering and cash provided by operations will allow us to meet
our cash requirements for at least 12 months following the date of this
prospectus. We may require additional funding sooner than anticipated. In
addition, unplanned acquisition and development opportunities and other
contingencies may arise, which could require us to raise additional capital. If
we raise additional capital through the sale of equity, including preferred
stock, or convertible debt securities, the percentage ownership of our then
existing stockholders will be diluted.
We currently do not have a credit facility or any commitments for
additional financing. We cannot be certain that additional financing will be
available when and to the extent required. If adequate funds are not available
on acceptable terms, we may be unable to fund our expansion, develop or enhance
our products or respond to competitive pressures. Such limitation could have a
material adverse effect on our business, financial condition and results of
operations.
OUR FAILURE TO PROTECT OUR PROPRIETARY TECHNOLOGY MAY IMPAIR OUR
COMPETITIVE POSITION
Although we seek to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, we cannot be certain
that:
o we will be able to protect our technology adequately;
o our patent and any other issued patents will not be
successfully challenged by one or more third parties,
which could result in our loss of the right to
prevent others from exploiting the technology claimed
in the patent or inventions claimed in any other
issued patents;
o competitors will not be able to develop similar
technology independently;
o intellectual property laws will protect our
intellectual property rights; and
o third parties will not assert that our products
infringe upon their patents, copyrights or trade
secrets;
If we are not sucessful in protecting our intellectual property, there
could be a material adverse effect on our businesss, financial condition and
results of operations.
PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS MAY RESULT IN COSTLY
LITIGATION
Litigation may be necessary in order to enforce our patents, copyrights
or other intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement. This type of litigation could result in
the expenditure of significant financial and managerial resources and could
result in
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injunctions preventing us from distributing certain products. Such claims could
materially adversely affect our business, financial condition and results of
operations.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE
Our market is characterized by rapid technological change and frequent
new product announcements. Significant technological changes could render our
existing technology obsolete. If we are unable to successfully respond to these
developments or do not respond in a cost-effective way, our business, financial
condition and results of operations will be materially adversely affected. To be
successful, we must adapt to our rapidly changing market by continually
improving the responsiveness, services and features of our products and by
developing new features to meet customer needs. Our success will depend, in
part, on our ability to adapt to rapidly changing technologies, to enhance our
existing services and to develop new services and technologies that address the
needs of our customers.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO RECRUIT ADDITIONAL
PERSONNEL, OUR BUSINESS MAY SUFFER
We are dependent on the continued employment and performance of our
executive officers and key employees, particularly Kenneth S. Ehrman, President,
Jeffrey Jagid, Chief Operating Officer and General Counsel, Bert Loosmore,
Executive Vice President of Engineering, and Michael Ehrman, Executive Vice
President of Software Development. We have applied for key man life insurance
policies on our key employees. The loss of the services of our executive
officers or key employees could have a material adverse effect on our business,
financial condition and results of operations. Please see "Management."
WE RELY ON SUBCONTRACTORS
In order to meet our requirements under our contracts, we rely on the
efforts and skills of subcontractors for manufacturing our products for delivery
to our customers in significant volume. The absence of qualified subcontractors
with whom we have a satisfactory relationship could adversely affect the quality
of our services and products and our ability to perform under our contracts.
REGULATORY UNCERTAINTIES COULD HARM OUR BUSINESS
Our products transmit radio frequency waves, an activity which is
governed by certain rules and regulations promulgated by the Federal
Communications Commission. Our ability to design, develop and sell our products
will continue to be affected by such rules and regulations. The implementation
of unfavorable regulations or unfavorable interpretations of existing
regulations by courts or regulatory bodies could require us to incur significant
compliance costs, cause the development of the affected markets to become
impractical and otherwise adversely affect our business, financial condition and
results of operations.
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OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO MANAGE GROWTH
Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, technical, operational and financial
resources. If we are unable to manage our growth effectively, our business,
financial condition and results of operations will be materially adversely
affected. To manage our expected growth, we will have to implement and improve
our operational and financial systems and train and manage our growing employee
base. We will also need to maintain and expand our relationships with customers,
subcontractors, and other third parties.
OUR NEW PRODUCTS MAY CONTAIN TECHNOLOGICAL FLAWS AND WE MAY INCUR
POTENTIAL PRODUCT LIABILITY FOR PRODUCTS SOLD BY US
Complex technological products like ours often contain undetected
errors or failures when first introduced or as new versions are released.
Despite testing by us, there still may be errors in new products, even after
commencement of commercial shipments. The occurrence of these errors could
result in delays or failure to achieve market acceptance of our products, which
could have a material adverse effect on our business, financial condition and
results of operations. In addition, because our products are used in
business-critical applications, any errors or failures in these products may
give rise to substantial product liability claims, which also could have a
material adverse effect on our business, financial condition and results of
operations.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR
FINANCIAL PERFORMANCE
The markets for our products and services are relatively new,
constantly evolving and intensely competitive. We expect that competition will
intensify in the future. Many of our current and potential competitors have
longer operating histories, greater name recognition and significantly greater
financial, technical and marketing resources. As a result, our competitors may
be able to develop products comparable or superior to ours or adapt more quickly
to new technologies or evolving customer requirements. In addition, we may, as a
strategic response to changes in the competitive environment, implement pricing,
service or marketing changes designed to extend our customer base. Continued
price concessions or the emergence of other pricing or distribution strategies
by competitors may have a material adverse effect on our business, financial
condition and results of operations.
YEAR 2000 RISKS MAY HARM OUR BUSINESS
Although we have developed internal proprietary software that is Year
2000 compliant, can operate on a stand-alone basis and does not rely on
technology supplied by third parties, there can be no assurance that discovered
Year 2000 problems will not occur in the hardware, software or equipment of our
customers that will require substantial revision.
In addition, there can be no assurance that governmental agencies,
utility companies, third-party service providers and others outside of our
control will be Year 2000 compliant. The failure by these entities to be Year
2000 compliant could result in a systemic failure beyond our control
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such as a transportation systems, telecommunications or electrical failure. Any
of these failures could also prevent us from delivering our system to our
customers, which would have a material adverse effect on our business, results
of operations and financial condition.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK
PRICE
If our stockholders sell substantial amounts of our common stock,
including shares issued upon the exercise of outstanding options and warrants,
in the public market following the offering, then the market price of our common
stock could fall. Restrictions under the securities laws and certain lock-up
agreements limit the number of shares of common stock available for sale in the
public market. The holders of 3,414,375 shares of common stock and options
exercisable into an aggregate of 1,243,750 shares of common stock have agreed
not to sell any such securities for 12 months after the offering without the
prior written consent of the representative. However, the representative may, in
its sole discretion, release all or any portion of the securities subject to
such lock-up agreements. Upon expiration of lock-up agreements with the
representative, 3,414,750 shares of common stock will be eligible for resale in
accordance with the provisions of Rule 144.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY RESULTS COULD ADVERSELY AFFECT
OUR STOCK PRICE
We expect that our quarterly operating results will fluctuate
significantly due to many factors, including:
o demand for our products and services;
o market acceptance of our wireless monitoring and tracking
system;
o price reductions or changes in pricing;
o competitive factors;
o development time and costs of introducing new products;
o technical difficulties with respect to the use of our
products;
o management of our growth; and
o general economic conditions.
Additionally, if our operating results in one or more quarters do not
meet the securities analysts' or your expectations, the price of our common
stock could be materially adversely affected.
ANTI-TAKEOVER PROVISIONS AFFECTING US COULD PREVENT OR DELAY A CHANGE OF CONTROL
Provisions of our certificate of incorporation and by-laws and
provisions of applicable Delaware law may discourage, delay or prevent a merger
or other change of control that a
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stockholder may consider favorable. Our board of directors has the authority to
issue up to 5,000,000 shares of preferred stock, par value $0.01 per share, and
to determine the price and the terms, including preferences and voting rights,
of those shares without stockholder approval. Although we have no current plans
to issue additional shares of our preferred stock, any such issuance could:
o have the effect of delaying, deferring or preventing a change
in control of our company;
o discourage bids for our common stock at a premium over the
market price; or
o adversely affect the market price of, and the voting and other
rights of the holders of our common stock.
We are subject to certain Delaware laws that could have the effect of
delaying, deterring or preventing a change in control of our company. One of
these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. In
addition, some provisions of our certificate of incorporation and by-laws, and
the significant amount of common stock held by our executive officers, directors
and affiliates could together have the effect of discouraging potential takeover
attempts or making it more difficult for stockholders to change the management
of I.D. Systems.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our
current expectations, assumptions, estimates and projections about I.D. Systems
and our industry. These forward-looking statements involve risks and
uncertainties. I.D. Systems' actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
as more fully described in the "Risk Factors" section and elsewhere in this
prospectus. I.D. Systems undertakes no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
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USE OF PROCEEDS
The net proceeds to us from the sale of 2,000,000 shares of common
stock offered by us are estimated to be approximately $13,900,000 after
deducting underwriting discounts and commissions and other expenses of the
offering. If the underwriters' over-allotment option is exercised in full we
estimate that net proceeds will be $16,060,000. We expect to use the net
proceeds, assuming no exercise of the underwriters' over-allotment option,
approximately as follows:
Approximate
Percentage
Approximate of Net
Dollar Amount Proceeds
------------- --------
Sales, marketing and customer support.......... $3,500,000 25.1%
Web-based customer support..................... 500,000 3.6
Custom chip development and miniaturization.... 4,000,000 28.8
Expansion of hardware lab...................... 500,000 3.6
Expansion of software lab...................... 500,000 3.6
Research and development....................... 1,000,000 7.2
Working capital, and general corporate purposes 3,900,000 28.1
---------- ======
Total........................................ $13,900,000 100.0%
=========== ======
SALES, MARKETING AND CUSTOMER SUPPORT. Represents anticipated costs
associated with marketing our system to targeted markets and advertisers,
including salaries for employees that market our system and travel expenses with
respect to marketing.
WEB-BASED CUSTOMER SUPPORT. Represents costs associated with developing
a web-based customer support service.
CUSTOM CHIP DEVELOPMENT AND MINIATURIZATION. Represents anticipated
costs associated with the development of Application Specific Integrated
Circuits for the miniaturization and optimization of our asset communicators.
EXPANSION OF HARDWARE LAB. Represents costs associated with expanding
our in-house capabilities for design and development of our products. Costs
include additional design, simulation, test equipment and the purchase of
additional prototyping tools.
EXPANSION OF SOFTWARE LAB. Represents costs associated with purchasing
to be used to enhance our software products as well as salaries for additional
software engineers.
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RESEARCH AND DEVELOPMENT. Represents costs associated with initiatives
intended to enhance the performance and increase the capability of our products.
Costs include the hiring of additional employees, construction of prototypes and
testing.
WORKING CAPITAL AND CORPORATE PURPOSES. Working capital may be used,
among other things, to pay salaries of our executive officers, rent, trade
payables, professional fees, and other operating expenses. Please see
"Management."
The allocation of the net proceeds from this offering set forth above
represents our best estimate based upon our currently proposed plans and
assumptions relating to our operations and certain assumptions regarding general
economic conditions. If any of these factors change, we may find it necessary or
advisable to reallocate some of the proceeds within the above-described
categories or to use portions for other purposes.
We anticipate that the net proceeds of this offering, together with
projected revenues from our operations, will be sufficient to fund our
operations and capital requirements for at least 12 months following this
offering. We cannot assure you, however, that such funds will not be expended
earlier due to unanticipated changes in economic conditions or other
circumstances that we cannot foresee. In the event our plans change or our
assumptions change or prove to be inaccurate, we could be required to seek
additional financing sooner than currently anticipated. We also expect that,
when the opportunity arises, we may acquire or invest in complementary
businesses, products or technologies. We have no present understandings,
commitments or agreements with respect to any material acquisition or
investment.
Pending the use of proceeds in the manner mentioned above, the net
proceeds of this offering will be invested principally in short-term,
interest-bearing investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We do not intend to declare or pay any dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business.
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DILUTION
As of December 31, 1998, our net tangible book value was $1,008,000 or
approximately $0.30 per share of common stock. Net tangible book value per share
represents the amount of our total tangible assets less total liabilities
divided by the number of shares of common stock. After giving effect to the sale
of the 2,000,000 shares of common stock offered hereby and after deducting the
underwriting discount and estimated offering expenses payable by us, the net
tangible book value, as adjusted, would have been approximately $14,908,000 or
$2.75 per share. This represents an immediate increase in net tangible book
value of $2.45 per share of common stock to existing stockholders and an
immediate dilution of $5.25 per share to new investors. The following table
illustrates this per share dilution
Initial public offering price.................................. $8.00
Net tangible book value before this offering...................$0.30
Increase per share attributable to this offering............... 2.45
----
Adjusted net tangible book value per share after this offering 2.75
-----
Dilution per share to new investors............................ $5.25
=====
Assuming the exercise in full of the over allotment option, our net
tangible book value at December 31, 1998 would have been approximately $2.99 per
share, representing an immediate increase in net tangible book value of $2.69
per share to our existing stockholders and an immediate dilution in net tangible
book value of $5.01 per share to new investors.
The following table summarizes the number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share provided by existing stockholders and by investors purchasing shares of
common stock in this offering.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
----------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 3,414,000 63.1% $1,687,000 9.5% $ 0.49
New Investors................. 2,000,000 36.9% 16,000,000 90.5% $ 8.00
---------- ----- ----------- -----
Total................... 5,414,000 100.0% $17,687,000 100.0%
========== ===== =========== =====
</TABLE>
This discussion and table assumes no exercise of other outstanding
stock options or warrants. As of the date of this prospectus, there are options
outstanding to purchase a total of 1,243,750 shares of common stock at a
weighted average exercise price of $1.09 per share. To the extent these options
are exercised, there will be further dilution to new investors.
16
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of December
31, 1998. Our as adjusted capitalization reflects the sale by us of the common
stock offered hereby at an assumed initial public offering price of $8.00 per
share less underwriting discounts and estimated offering expenses:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
ACTUAL AS ADJUSTED
------ ------------
<S> <C> <C>
Noncurrent notes payable-stockholders $156,000 $156,000
Stockholders' equity:
Preferred stock, $.01 par value: 5,000,000 shares
authorized, none issued .......................... -- --
Common stock, $.01 par value: 10,000,000 shares
authorized; 3,414,000 shares issued and
outstanding, actual; 5,414,000 shares issued and
outstanding, as adjusted.......................... 34,000 54,000
Additional paid-in capital......................... 1,653,000 15,533,000
Accumulated deficit................................ (679,000) (679,000)
--------- ----------
Total stockholders' equity .............. 1,008,000 14,908,000
--------- ----------
Total capitalization.............. $1,164,000 $15,064,000
========== ===========
</TABLE>
Our stated number of shares of common stock outstanding does not include
200,000 shares of common stock reserved for issuance upon exercise of the
representative's warrants and 1,243,750 shares of common stock issuable upon
exercise of outstanding options at a weighted average exercise price of $1.09
per share.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected statements of operations data for the years ended December 31,
1997 and December 31, 1998 and the selected balance sheet data as of December
31, 1998 have been derived from the audited financial statements included
elsewhere in this prospectus. The data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and accompanying notes
thereto appearing elsewhere in the prospectus. We have historically been treated
as an S Corporation and, accordingly, have not been subject to federal or state
income taxes. Subsequent to December 31, 1998, we filed an election to be taxed
as a C corporation effective January 1, 1999. Pro forma net income provides for
federal and state income taxes which would have been provided had we been a C
corporation and includes a $468,000 pro forma income tax benefit that will not
be available to offset C corporation income in future years.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
---------------- ---------------- --------------- ---------------- ----------------
STATEMENT OF
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues $ __ $292,000 $321,000 $733,000 $3,324,000
Cost of revenues __ 302,000 333,000 269,000 1,633,000
--------- -------- -------- --------- -----------
Gross profit __ (10,000) (12,000) 464,000 1,691,000
--------- -------- -------- --------- -----------
Operating costs and
expenses:
Selling, general
and adminis-
trative................ 129,000 312,000 574,000 460,000 1,083,000
Research and
development............ 3,000 197,000 9,000 22,000 64,000
--------- -------- -------- --------- -----------
Total operating costs
and expenses................. 132,000 509,000 583,000 482,000 1,147,000
--------- -------- -------- --------- -----------
Income
(loss) from
operations................... (132,000) (519,000) (595,000) (18,000) 544,000
Interest income
(expense), net .............. __ 6,000 10,000 (19,000) (23,000)
--------- -------- -------- --------- -----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
---------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net income (loss)
before income taxes ......... (132,000) (513,000) (585,000) (37,000) 521,000
Income tax provision
(benefit).................... __ __ __ (112,000) 45,000
--------- --------- -------- --------- ---------
Net income (loss)-
historical................... (132,000) (513,000) (585,000) 75,000 476,000
Pro forma income tax
(benefit) ................... __ __ __ (468,000) 192,000
--------- ---------- --------- --------- ---------
Pro forma net income
(loss)....................... $(132,000) $(513,000) $(585,000) $543,000 $284,000
========= ========== ========= ========= =========
Pro forma net income
(loss) per share -
-basic.............. $(.12) $(.24) $(.20) $.17 $.08
-diluted............ $(.12) $(.24) $(.20) $.17 $.08
Weighted average
common shares
outstanding
-basic.............. 1,091,000 2,103,000 2,864,000 3,154,000 3,414,000
-diluted............ 1,091,000 2,103,000 2,864,000 3,154,000 3,779,000
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
The adjusted balance sheet data as of December 31, 1998 reflects the
sale of 2,000,000 shares of common stock offered hereby after deducting
the underwriting commission and other offering expenses.
AS OF DECEMBER 31, 1998
---------------------------------------------- -------------------------------
1994 1995 1996 1997 ACTUAL AS ADJUSTED
---- ---- ---- ---- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents................. $380,000 $503,000 $154,000 $406,000 $1,130,000 $15,030,000
Working capital............. 299,000 414,000 75,000 644,000 1,098,000 14,998,000
Total assets................ 408,000 540,000 301,000 764,000 2,102,000 16,002,000
Total liabilities........... 81,000 89,000 234,000 268,000 1,094,000 1,094,000
Total stockholders'
equity...................... 328,000 451,000 67,000 496,000 1,008,000 14,908,000
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of I.D. Systems should be read in conjunction with I.D.
Systems' financial statements and notes thereto and the other financial
information included elsewhere in this prospectus. In addition to historical
information, this Management Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this prospectus contain forward-looking
information that involve risks and uncertainties. I.D. Systems' actual results
could differ materially from those anticipated by such forward-looking
information as a result of certain factors, including but not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.
We were incorporated in August 1993 and began to derive revenues from
our initial line of products in March 1995. Revenues are generated from design
and engineering fees as well as sales of our system. Our fees relate to the time
expended and expertise involved in customizing our system to the needs of each
individual customer. In the future, we intend to generate additional revenues by
selling software and hardware upgrades as well as on-going maintenance and
support contracts to our existing customers. We anticipate that a greater
portion of future revenues will be comprised of sales of our system.
Our initial contract was entered into with the U.S. Postal Service to
develop and install a pilot system in approximately 40 postal facilities in the
Washington D.C. metropolitan area. In 1997, we entered into a follow-on
agreement with the United States Postal Service which provides for the wireless
monitoring and tracking of mail in approximately 300 postal facilities. The
revenues expected from this agreement are approximately $7,000,000 of which
$3,745,000 was recognized as of December 31, 1998. In 1998, we obtained an order
from Federal Express Corporation and orders from other companies for an
integrated tracking and monitoring system for forklift trucks and other similar
vehicles. We also entered into an agreement with Avis Rent A Car System, Inc.,
which provides for the pilot sale of a system which automates the car rental and
return process.
The U.S. Postal Service accounted for approximately 99% and 95% of our
revenues in 1997 and 1998. These contracts provide for revenue relating to
labor, materials and delivery of goods. Our policy is to recognize revenues when
time and material charges are incurred, services are performed or goods are
delivered in accordance with conditions of related contracts. Amounts billed to
customers that do not meet the conditions of our revenue recognition policy are
recorded as deferred revenue until such conditions are met.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating information expressed as a percentage of revenues:
FISCAL YEAR ENDED
------------------------------------
DECEMBER DECEMBER
31, 31,
1997 1998
--------------- --------------
Revenues..................................... 100.0% 100.0%
Cost of revenues............................. 36.7 49.1
-------- ---------
Gross profit................................. 63.3 50.9
Selling, general and administrative
expenses................................... 62.8 32.6
Research and development..................... 3.0 1.9
-------- ---------
Income (loss) from
operations................................... (2.5) 16.4
Interest expense (Net)....................... (2.6) (0.7)
-------- ---------
Income before income tax provision
(benefit).................................... (5.1) 15.7
Income tax expense
(benefit)................................... (15.3) 1.4
-------- ----------
Net income................................... 10.2% 15.3%
======== ==========
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES. Revenues increased to $3,324,000 in fiscal 1998 from $733,000
in fiscal 1997. These increases were primarily attributable to a follow on
contract entered into with the United States Postal Service.
COST OF REVENUES. Cost of revenues increased to $1,633,000 in fiscal
1998 from $269,000 in fiscal 1997. As a percentage of revenues, cost of revenues
increased from 36.7% in fiscal 1997 to 49.1% in fiscal 1998. This increase was
primarily attributable to an increase in the portion of revenues attributable to
materials in fiscal 1998 as compared to fiscal 1997, which typically have lower
margins than revenues related to labor. Gross profit increased to
22
<PAGE>
$1,691,000 in fiscal 1998 from $464,000 in fiscal 1997. As a percentage of
revenues, gross profit decreased from 63.3% in fiscal 1997 to 50.9% in fiscal
1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 135% to $1,083,000 in fiscal 1998 from
$460,000 in fiscal 1997. Of this increase, $482,000 was attributable to an
increase in salaries resulting from an increase in personnel hired during the
year to accommodate our growth. As a percentage of revenues, selling, general
and administrative expenses decreased from 62.8% in fiscal 1997 to 32.6% in
fiscal 1998 due to operating efficiencies.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $64,000 in fiscal 1998 from $22,000 in fiscal 1997. This increase
was attributable to increased research and development costs related to
developing new applications for our products.
INTEREST EXPENSE (NET). Interest expense (net) increased 21.1% to
$23,000 in fiscal 1998 from $19,000 in fiscal 1997. This increase was
attributable to interest expense incurred in fiscal 1998 on larger average
balances of stockholder notes and capital lease obligations, offset by an
increase in interest income earned in fiscal 1998 on a larger
average cash balance.
INCOME TAXES. Local income tax expense was $45,000 in fiscal 1998 as
compared to a $112,000 income tax benefit in fiscal 1997. The 1997 amount
reflects the recognition of a benefit from net operating loss carry forwards
generated through December 1997.
NET INCOME. Net income increased to $476,000 in fiscal 1998 from
$75,000 in fiscal 1997. This increase was due primarily to the reasons described
above.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, we had $1,130,000 of cash and cash
equivalents. Working capital increased $454,000 from $644,000 in fiscal 1997 to
$1,098,000 at December 31, 1998.
Net cash provided by operating activities was $865,000 in 1998 as
compared to $211,000 used in operating activities in 1997. Net cash provided by
operating activities in 1998 was primarily due to net income of $476,000, a
$266,000 increase in accounts payable and accrued expenses and a $545,000
increase in deferred revenue, partially offset by a $601,000 increase in
accounts receivable. The use of cash in operating activities in 1997 was
primarily due to a $114,000 decrease in accounts payable and a $75,000 increase
in accounts receivable.
Cash used in investing activities in 1998 was $76,000 as compared to
$31,000 in 1997. The use of cash in investing activities in 1998 and 1997
reflect capital expenditures for fixed assets.
Cash provided by financing activities was $494,000 in 1998 as compared
to $56,000 used in financing activities in 1997. The cash provided by financing
activities in 1998 resulted primarily
23
<PAGE>
from $200,000 of proceeds from the issuance of common stock and promissory notes
and $274,000 of proceeds from the issuance of common stock in connection with
the exercise of warrants. Cash used in financing activities in 1997 is primarily
due to the repayment of stockholder loans in the amount of $50,000.
We believe our operations have not been and, in the foreseeable future,
will not be materially adversely affected by inflation or changing prices.
RECENTLY ISSUED FINANCIAL STANDARDS
We believe that recently issued financial standards will not have a
significant impact on our results of operations, financial position or cash
flows.
YEAR 2000 RISK
Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries in the date code field.
These systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We have made a preliminary assessment of the Year 2000 readiness of our
products and operating, financial and administrative systems, including the
hardware and software that comprise our system. The assessment plan consists of:
o assessing material hardware, software and services that are
both directly and indirectly related to the delivery of our
system to our users;
o assessing repair or replacement requirements;
o implementing repair or replacement; and
o creating contingency plans in the event of Year 2000 failures.
The software which comprises our system is Year 2000 complaint. We are
conducting testing procedures for all other software and other systems that we
believe might be affected by Year 2000 issues. Since third parties developed and
currently support many of the operating, financial and administrative systems
that we use, steps will be taken to ensure that these third-party systems are
Year 2000 compliant. We plan to confirm this compliance through a combination of
the representation by these third parties of their products' Year 2000
compliance, as well as specific testing of these systems. We plan to complete
24
<PAGE>
this process prior to the end of the third quarter of 1999. Until such testing
is completed we will not be able to completely evaluate whether our systems will
need to be revised or replaced.
COSTS
To date, we have incurred immaterial costs on Year 2000 compliance
issues. Most of our expenses are related to, and are expected to continue to be
related to, the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. Such expenses, if
higher than anticipated, could have a material adverse effect on our business,
results of operations and financial condition.
RISKS
We are not currently aware of any Year 2000 compliance problems
relating to our system that would have a material adverse effect on our
business, results of operations and financial condition. There can be no
assurance that we will not discover Year 2000 compliance problems in our system
that will require substantial revision. In addition there can be no assurance
that third-party software, hardware or services on which our system will operate
will not need to be revised or replaced, all of which could be time-consuming
and expensive. Our failure to fix or replace our internally developed propriety
software or third-party software, hardware or services on a timely basis could
result in lost revenues, increased operating costs or the loss of customers and
other business interruptions, any of which could have a material adverse effect
on our business, financial condition and results of operations. Moreover, the
failure of our customers to fix or replace their software or hardware on a
timely basis could result in an indirect adverse effect on our business,
financial condition and results of operation.
In addition, there can be no assurance that governmental agencies,
utility companies, third-party service providers and others outside of our
control will be Year 2000 compliant. The failure by such entities to be Year
2000 compliant could result in a systematic failure beyond our control such as a
transportation systems, telecommunications or electrical failure, which could
also prevent us from delivering our system to our customers or decrease the
commercial activity of our customers, which could have a material adverse effect
on our business, financial condition and results of operations.
25
<PAGE>
BUSINESS
GENERAL
We design, develop, and produce a wireless monitoring and tracking
system that uses radio frequency technology. Our system can monitor, track,
analyze, and control the movement of virtually any object, including vehicles,
equipment and packages. Our products are designed to permit users to improve
operating efficiencies, reduce costs, and increase profits. Our principal
customer to date has been the United States Postal Service. Federal Express
Corporation, Avis Rent A Car System, Inc., Ford Motor Corporation, Hallmark
Cards, Inc., QVC Inc. and World Color Press, Inc. have also recently placed
orders for our system. For the year ended December 31, 1998, sales were
approximately $3.3 million resulting in income from operations of approximately
$500,000.
INDUSTRY OVERVIEW
GROWTH OF THE AUTOMATIC DATA COLLECTION MARKET
Our products are targeted to the automatic data collection market. This
market refers to companies that use bar-coding equipment to electronically
identify and track objects. Bar-coding technology poses numerous limitations
including line-of-sight-only capability, required human intervention and
inability to monitor and control the item to which a bar-code is affixed.
CONVENTIONAL RADIO FREQUENCY IDENTIFICATION SYSTEMS
Radio frequency identification has been developed to address the
problems presented by bar-coding technology. The basic components of any radio
frequency identification system are tags and readers. Each tag contains a
miniature receiver/transmitter and an antenna, controlled by a computer chip.
The reader is a more sophisticated microprocessor controlled transmitter and
receiver. Tags typically contain information uniquely identifying the persons or
objects to which they are attached. Tags transmit data to a central computer,
which decides on a subsequent course of action, including opening a door,
sounding an alarm, debiting an account, sending routing instructions or similar
activities.
Radio frequency has many advantages over bar-coding systems, including
greater range and accuracy, reduced line-of-sight requirements, rapid
identification, and resistance to environmental influences such as dirt, rain
and extreme temperatures. Frost & Sullivan has reported that in 1985, revenues
in the United States for the radio frequency identification portion of the
automatic data collection market were $7.5 million. According to Venture
Development Corp., in 1997, total global revenues reached $540 million and are
expected to grow to $1.6 billion by 2002.
Current radio frequency identification products are typically divided
into two categories: read-only systems and read-write systems.
26
<PAGE>
o READ-ONLY SYSTEMS. Read-only products were the first wireless
automatic identification products and were designed to, in certain
circumstances, replace bar-code technology. By using wireless identification
tags, these products reduce line-of-sight reading requirements, increase the
amount of data that can be transferred and allow for accurate readings in harsh
environments and on moving objects. These systems read, store, and maintain such
information in a database in a centralized computer. We believe that read-only
systems have not gained widespread acceptance because of the large costs
associated with their use as compared to the benefits they provide.
o READ-WRITE SYSTEMS. Read-write systems were developed in order to
solve some of the limitations presented by read-only systems. Read-write
products store specific information directly on the tags, eliminating the need
to access a database in a centralized computer. However, a central controlling
computer or mainframe is needed to interpret the information received from the
tags and manage the decisions based on that information. The continued need for
central computer control results in systems that are relatively expensive.
I.D. SYSTEMS SOLUTION AND OUR BENEFITS
We have improved the conventional read-write system by providing
processing power, memory and data storage into our asset communicators, or tags,
and system monitors, or readers. As a result, our system does not require a
controlling central or mainframe computer to perform data communication and
analysis functions. This distinguishes our system from competing systems.
The benefits and advantages of our system include the following:
o INCREASED FLEXIBILITY. Our system is capable of meeting each
customer's requirements through low-cost customization. Due to our system's
flexibility, we can readily market our product to a diverse number of industries
by modifying the system software as well as the size and shape of our devices.
o LOW COST. By providing processing power and memory into our system
components, we eliminate the need for customers to purchase and install a
dedicated central or mainframe computer and associated software and required
communication links. As a result, we believe our system costs substantially less
than competitive systems.
o HIGHLY RELIABLE. Our system eliminates system-wide failures that
result from "crashing" at the mainframe central station, or broken communication
links between a network of conventional readers and the central controlling
computer.
o HIGHLY FUNCTIONAL. By providing computer capabilities into our asset
communicators and system monitors, our system can monitor and track the object
to which it is attached as well as control various peripheral devices, such as
magnetic card readers, displays, and keypads.
27
<PAGE>
STRATEGY
Our objective is to be the leading provider of wireless monitoring and
tracking systems. Key elements of our strategy are as follows:
EXPAND PRODUCT CAPABILITIES AND APPLICATIONS. We intend to continue to
expand our product's capabilities and applications. We believe that the
fundamental architecture of our products can be customized to support additional
features and functions which will broaden our customer base. As part of this
strategy, we have devoted and will continue to commit significant resources to
develop Application Specific Integrated Circuits that decrease the size of our
asset communicators as well as increase the functionality of our system.
STRENGTHEN SALES AND MARKETING EFFORTS. We intend to capitalize on the
growth in demand for automatic identification by continuing to market and
support our products and services. We also plan to strengthen our marketing,
sales and customer support efforts, including internet advertising, as the size
of our market opportunity and customer base increases. We will continue to
target large corporations and government agencies as well as develop strategic
relationships with system integrators and distributors in each of our target
markets.
DEVELOP ADDITIONAL REVENUE SOURCES. We intend to generate significant
revenues beyond the initial sale and installation of our base systems. We expect
to sell software and hardware upgrades as well as ongoing maintenance and
support contracts to our existing customers.
OUR SYSTEM
The main components of our wireless monitoring and tracking system are
miniature computers called asset communicators that attach to the objects being
tracked or monitored. Each asset communicator has its own unique identification
code. Once attached to its assigned item, an asset communicator provides for the
two-way transfer of information using radio transmissions to and from
strategically-located monitoring devices called system monitors. Such two-way
communication is accomplished without a central or controlling mainframe
computer network. Our asset communicators can be tailored to fit the dimension
and functions of various objects. This flexibility allows our system to be used
in a wide variety of applications. We have obtained a patent for our system's
architecture.
Our system includes operating system software that runs on an existing
mainframe or personal computer to allow the system user to collect, manipulate
and display data from system monitors and asset communicators. This software
also enables data to be exchanged between existing computer databases and the
system monitor network. Customers with multiple facilities can access the data
for each facility over the Internet.
We believe that one of the more significant features of our system is
that the asset communicator is a mini-computer, capable of being programmed.
Similar to a personal computer, the software can be customized for several
different applications by changing its program. For example, the United States
Postal Service may elect to use the same asset communicator and system monitor
hardware to track mail as Federal Express to track vehicles. The difference lies
in
28
<PAGE>
the software that controls when, how, what and to whom each asset communicator
communicates, including storage and analysis. Each asset communicator and system
monitor is capable of controlling other devices such as a keypads, displays,
locks, or thermometers. This flexibility will allow our products to meet the
requirements of a wide range of markets while minimizing additional hardware
design and development costs.
OUR INITIAL TARGET MARKETS
We intend to emphasize our system's ability to adapt to the individual
needs of customers in a broad range of industries and applications. By modifying
our software without modifying our core technology, we can easily and
cost-effectively customize our system for a wide variety of uses. Initially, we
will target the following market segments:
o shipping and delivery companies;
o companies with fleets of forklift trucks and other
similar vehicles;
o car rental companies; and
o railroad and transportation companies.
SHIPPING AND DELIVERY COMPANIES
Our system can be used by postal services and private sector shipping
companies to track packages as they travel through key points in distribution
centers. In these facilities, our system can be used to:
o analyze the speed and efficiency of package handling
operations;
o identify bottlenecks in package handling operations;
o indicate where packages become misrouted; and
o locate misrouted packages.
The United States Postal Service inserts our asset communicators into
standard business envelopes which are tracked by system monitors throughout the
mail collection and distribution process. The United States Postal Service uses
the data collected by our system to analyze performance and highlight problem
areas in the processing of mail.
COMPANIES WITH FLEETS OF FORKLIFTS AND OTHER SIMILAR VEHICLES
A wide variety of businesses can use our system to manage and monitor
fleet operations, such as forklift trucks and other similar vehicles in order to
become more efficient and provide security.
29
<PAGE>
During a work shift, the system continually monitors and tracks each
vehicle. The system:
o continually updates each vehicle's location;
o enables real-time, two-way communication with
individual vehicle operators;
o provides maintenance schedules;
o warns of mechanical problems;
o tracks each vehicle's use, including engine hours,
battery charge, time spent in motion and time spent
idle;
o requires an operator to enter a PIN authorization
code or swipe a security card to secure the vehicle;
and
o requires the operator to conduct an Occupational
Safety and Health Administration checklist.
Our system provides benefits after the shift has completed. The system
can provide an evaluation of vehicle condition after the trip is completed, log
the operator off the vehicle without paperwork or direct human supervision, and
shut off the vehicle automatically. A manager can evaluate data in real-time or
study historical information stored in the system's databases.
We have received orders and delivered systems to the Federal Express
Corporation to monitor certain of their forklift trucks and other similar
vehicles. We have also received orders and delivered equipment to the United
States Postal Service's New Jersey International and Bulk Mail Center and we
have received orders from the United States Postal Service's Springfield Bulk
Mail Center, to monitor and control their forklift trucks and other similar
vehicles. We have also received orders from Ford Motor Corporation, QVC, Inc.,
Hallmark Cards, Inc. and World Color Press, Inc. for systems to monitor their
forklifts trucks and other similar vehicles.
CAR RENTAL COMPANIES
Car rental companies can use our system for security, inventory
control, and value added services, as well as to improve overall operations. By
attaching asset communicators to rental cars, car rental companies can obtain
real-time information regarding all available rental cars at any site. This
information may include:
o number of available rental cars;
o vehicle identification numbers, make, model and
year;
o fuel level and mileage;
30
<PAGE>
o service and maintenance history; and
o rental history.
Our system also provides car rental companies with an automated and
efficient vehicle check-in and checkout process. We believe that car rental
companies desire to offer value added services and that our system provides
competitive advantages to rental car companies. Since our system is fully
automated, we believe that it offers a major reduction in the time and
inconvenience typically associated with the pick-up and return of a rental car.
Also, our system offers rental car companies the opportunity to reduce their
staffs because we believe that fewer service representatives will be required at
each location at which our system is installed. We have entered into an
agreement with Avis to install and test a pilot system to track their rental
vehicles.
RAILCAR AND TRANSPORTATION COMPANIES
Conventional radio frequency identification tags used in this industry
are typical tags that are "read-only." As a result, we believe that the railcar
and container industry will benefit from the advantages of a wireless monitoring
and tracking system. We believe that our system will allow users in this
industry to:
o cost-effectively locate specific railcars and
containers anywhere in the world;
o monitor a railcar and containers' environment and
pressure;
o keep an accurate inventory of containers at each
depot;
o prevent theft, misuse or accidental use of
containers as they arrive;
o ensure that railcars and containers are inspected on
schedule; and
o keep an accurate history of the use of each railcar
and container.
CURRENT CUSTOMERS
U.S. POSTAL SERVICE
The U.S. Postal Service is using our system to track the progress of
letters as they move into and out of selected postal facilities. The U.S. Postal
Service inserts our asset communicators into standard business envelopes which
are tracked by system monitors throughout the mail collection and distribution
process. The data collected provides evidence of performance and
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<PAGE>
highlights problem areas in the processing of mail. Our system also allows the
U.S. Postal Service to identify and eliminate bottlenecks within their
facilities, which can help improve the efficiency of the mail service. The
initial program lasted through the end of December 1996. In August 1997 the U.S.
Postal Service entered into an agreement with us to place our system in
approximately 300 facilities by the end of 1999. This agreement expires in
September 2000.
We have received orders and delivered equipment to the United States
Postal Service's New Jersey International and Bulk Mail Center and we have
received orders from the United States Postal Service's Springfield Bulk Mail
Center, to track and control their forklift trucks and other similar vehicles.
Our system provides information as to each lift truck's use, including the time
spent in motion and time spent idle.
FEDERAL EXPRESS CORPORATION
We have received orders from and delivered equipment to Federal Express
for the installation of our system in certain Federal Express vehicles. Federal
Express may use this equipment to provide information on the usage of such
vehicles.
AVIS RENT A CAR SYSTEM, INC.
In October 1998, we entered into an agreement with Avis Rent A Car
System, Inc. for a pilot system. Avis will test our system in a select location
to determine whether our system will effectively monitor and track their rental
cars and automate their car rental and return process. By attaching asset
communicators to rental cars, Avis will be able to obtain real-time information
on all available cars, including fuel, mileage, service and maintenance history.
Our system can also provide Avis with an automated and efficient car check-in
and check-out process. If this test is successful, Avis may purchase our system
for its entire U.S. fleet. If this occurs, we have agreed not to provide our
system to another rental car company for fifteen months.
SALES AND MARKETING
As of the date of this prospectus, our team consists of employees who
market our system directly to large corporations and government agencies and by
attending trade shows. After this offering, we will expand our national sales
and marketing team.
In April 1999 we were awarded a U.S. General Services Administration
contract. The award of this contract enables any government agency to purchase
our products on an off-the-shelf basis, without competitive bidding for a period
of five years. We believe that this contract provides significant sales
opportunities with other government agencies.
We plan to add features to our website to introduce prospective
customers to our system and its benefits. Visitors to our website will be able
to compare their vehicle performance to industry averages, "test drive" our
system, and forecast their potential return on an investment in our system. We
intend to increase traffic on our website by advertising on other related
websites.
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<PAGE>
MANUFACTURING
The software and hardware components of our products are designed,
integrated and tested at our facilities. We also manufacture initial prototypes
at our facilities. We have entered into arrangements with two subcontractors to
produce our products. We do not invest in costly production equipment, employees
and facilities that would be required if we were to manufacture our products in
high volume. We have not, however, entered into an agreement providing for a
long-term commitment with these subcontractors to manufacture our products.
RESEARCH AND DEVELOPMENT
We believe that our current products can be readily adapted for use in
a wide variety of markets. To maintain our competitive advantage in the market,
we plan to continue our research and development efforts to:
o EXPAND THE FLEXIBILITY OF OUR PRODUCTS. We intend to
concentrate our software design effort on developing
systems for each new customer's needs. We will, at
the same time, attempt to develop "off-the-shelf"
systems to allow for widespread use of our hardware
and software.
o REDUCE THE COST AND SIZE OF OUR SYSTEM. Our design
objective is to integrate the asset communicator's
electronic components into Application Specific
Integrated Circuits. This will allow us to reduce
the size of our system significantly and permit high
volume production. These two improvements will
enable us to reduce the cost of our system. To
accomplish this, we intend to expand our in-house
hardware design capability to design, test, and
support the development of this computer chip.
COMPETITION
The market for wireless monitoring and tracking systems is relatively
new, constantly evolving and intensely competitive. We expect that competition
will intensify in the near future. Many of our current and potential competitors
have longer operating histories, greater name recognition and significantly
greater financial, technical and marketing resources than us. Our principal
competitors in the development and distribution of wireless monitoring and
tracking systems include: Unova,Inc., Motorola, Inc., Texas Instruments
Incorporated, Raytheon Company, Kasten Chase Applied Research and Micron
Communications, Inc. As a result, such competitors may be able to develop
products comparable or superior to us or adapt more quickly to new technologies
or evolving customer requirements. Competitive factors in this market include:
o the ability to customize technology to a
customer's particular use;
o quality and reliability of products and
software;
o ease of use and interactive features;
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<PAGE>
o cost per system; and
o compatibility with the user's existing
network components and software systems.
INTELLECTUAL PROPERTY
We currently have one patent issued in the U.S. relating to our
product's architecture and technology and corresponding applications in selected
foreign countries. The patent and currently pending corresponding foreign
applications may not provide us with any competitive advantage. Many of our
current and potential competitors dedicate substantially greater resources to
protection and enforcement of intellectual property rights, especially patents.
If a patent is issued in the future to a competitor which covers our products,
we would need to either obtain a license or design around the patent. We may not
be able to obtain such a license on acceptable terms, if at all, nor design
around the patent.
We attempt to avoid infringing known proprietary rights of third
parties in our product development efforts. However, we have not conducted and
do not conduct comprehensive patent searches to determine whether we infringe
patents or other proprietary rights held by third parties. In addition, it is
difficult to proceed with certainty in a rapidly evolving technological
environment in which there may be numerous patent applications pending, many of
which are confidential when filed, with regard to similar technologies. If we
were to discover that our products violate third-party proprietary rights, we
may not be able to:
o obtain licenses to continue offering such
products without substantial reengineering;
o reengineer our products successfully;
o obtain licenses on commercially reasonable
terms, if at all; or
o litigate an alleged infringement
successfully or settle without substantial
expense and damage awards.
Any claims against us relating to the infringement of third-party
proprietary rights, even if without merit, could result in our spending
significant financial and managerial resources or in injunctions preventing us
from distributing certain products. Such claims could materially adversely
affect our business, financial condition and results of operations.
Our software products are susceptible to unauthorized copying and uses
that may go undetected, and policing such unauthorized use is difficult. In
general, our efforts to protect our intellectual property rights through patent,
copyright, trademark and trade secret laws may not be effective to prevent
misappropriation of our technology, or to prevent the development and design by
others of products or technologies similar to or competitive with those
developed by us. Our failure or inability to protect our proprietary rights
could materially adversely affect our business, financial condition and results
of operations.
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<PAGE>
EMPLOYEES
We currently have 22 full time employees, of which 15 are engaged in
product development and customization, three in manufacturing, three in
marketing, and one in operations and administration. We expect to hire
additional employees following this offering.
PROPERTY
We lease approximately 5,650 square feet of office space in New York,
New York pursuant to a lease that expires on March 31, 2003. The rent is
currently $9,040 per month, (excluding any commitment to contribute towards
increases in real estate taxes), and will increase annually to a maximum rental
of $10,741 per month.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are our directors and executive officers:
Name Age Position
---- --- --------
Kenneth S. Ehrman 29 President and Director
Jeffrey M. Jagid 30 Chief Operating Officer, General Counsel
and Director
N. Bert Loosmore 30 Executive Vice President of Engineering
and Director
Michael L. Ehrman 26 Executive Vice President of Software
Development
Bruce Jagid 59 Treasurer and Director
Martin G. Rosansky 60 Secretary and Director
KENNETH S. EHRMAN is a founder and has been President and Director of
I.D. Systems since inception in 1993. He graduated from Stanford University in
1991 with a Bachelor of Science in Industrial Engineering, where he studied
Management, Production and Finance. Upon his graduation, and until the inception
of I.D. Systems in 1993, Mr. Ehrman worked as a production manager with a
Silicon Valley networking company. Mr. Ehrman is the brother of Michael L.
Ehrman.
JEFFREY M. JAGID has been Chief Operating Officer and a Director of
I.D. Systems, as well as its General Counsel since he joined I.D. Systems in
1995. Mr. Jagid received a Bachelor of Business Administration from Emory
University in 1991 and a Juris Doctor degree from the Benjamin N. Cardozo School
of Law in 1994. Prior to joining I.D. Systems, Mr. Jagid was a corporate
litigation associate at the law firm of Newman Tannenbaum Helpern Syracuse &
Hirschtritt LLP, in New York City. Mr. Jagid is a member of the Bar of the
States of New York and New Jersey. Mr. Jagid is the son of Bruce Jagid.
N. BERT LOOSMORE is a founder and has served as the Executive Vice
President of Engineering and Director of I.D. Systems since inception. Mr.
Loosmore graduated from Stanford University in 1991 with a Bachelor of Science
in Electrical Engineering, where he concentrated on computer hardware and
software, including microprocessor design. From 1991 to 1992, he worked at
International Business Machines, Inc. as a Design and Test Engineer and
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<PAGE>
later as a Production Engineer. From 1992 until the inception of I.D. Systems in
1993, Mr. Loosmore was a Production Engineer at a Silicon Valley networking
company.
MICHAEL L. EHRMAN has served as the Executive Vice President of
Software Development since he joined I.D. Systems in 1995. Mr. Ehrman served as
a director of I.D. Systems from the date he joined I.D. Systems until April
1999. Mr. Ehrman graduated from Stanford University in 1994 with a Master of
Science in Engineering Economics Systems as well as a Bachelor of Science in
Computer Systems Engineering. Upon his graduation in 1994, Mr. Ehrman was
employed as a Consultant for Anderson Consulting in New York. Mr. Ehrman is the
brother of Kenneth Ehrman.
BRUCE JAGID is a founder, and has served as Treasurer and a Director of
I.D. Systems since inception. Mr. Jagid has served as Chairman of the Board of
Directors of Ultralife Batteries, Inc., a public company devoted to the
development and manufacture of primary and secondary lithium battery systems,
from March 1991 to January 1999, served as Chief Executive Officer from January
1992 to January 1999 and currently serves as director. Prior to Mr. Jagid's
involvement with Ultralife, he co-founded Power Conversion, Inc., and was its
President until January 1989. Mr. Jagid received his Bachelor of Science in
Mechanical Engineering from the City College of New York and obtained his
masters degree in Mechanical Engineering from Rensselaer Polytechnic Institute.
Mr. Jagid is the father of Jeffrey M. Jagid.
MARTIN G. ROSANSKY is a founder, and has served as Secretary of I.D.
Systems since inception. In March 1991 Mr. Rosansky co-founded and served as the
Vice Chairman of Ultralife Batteries, Inc. Prior to Ultralife, in 1970, Mr.
Rosansky co-founded Power Conversion, Inc., where he was Chairman of the Board,
Secretary and Treasurer from 1970 to January 1989. Mr. Rosansky earned a
Bachelor of Science in Mechanical Engineering from Polytechnic Institute of
Brooklyn in 1960.
All directors currently hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified. Our
executive officers serve at the discretion of the Board of Directors and until
their successors are duly elected and qualified.
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued, for
the fiscal years ended December 31, 1998, for I.D. Systems' President and three
most highly compensated executive officers other than its President, whose
salary and bonus were in excess of $100,000.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards($)
--------------------------------- --------------------------------------
Restricted Securities
Name and Principal Stock Underlying
Position Salary($) Bonus($) Award Options/SARs(#)
- ------------------ --------- -------- ----------- ------------------
<S> <C> <C> <C> <C>
Kenneth S. $80,000 $40,000 -- --
Ehrman,
President
Jeffrey M. Jagid, $80,000 $40,000 -- --
Chief Operating
Officer and General
Counsel
N. Bert Loosmore, $80,000 $40,000 -- --
Executive Vice
President of
Engineering
Michael L. Ehrman, $80,000 $40,000 -- --
Executive Vice
President of
Software
Development
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted during the year
ended December 31, 1998 to I.D. Systems' President and three most highly
compensated executive officers. No options were exercised by such persons during
fiscal 1998.
The following options:
o were granted under the I.D. Systems' 1995 Employee
Stock Option Plan;
o vest 20% on the first anniversary of the date of
grant and an additional 20% each subsequent
anniversary from the date of grant; and
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<PAGE>
o are exercisable at a price which represents the fair
market value for the common stock on the date of
grant
<TABLE>
<CAPTION>
Number of
Shares Percent of Total
Underlying Options Granted
Options to Employees Exercise Expiration
Name Granted in Fiscal Year (%) Price ($/sh) Date
---- -------- ----------------- ------------ ----
<S> <C> <C> <C> <C>
Kenneth S. Ehrman 56,250 12.9% $1.20 September
2008
Jeffrey M. Jagid 90,625 20.7% $1.20 September
2008
N. Bert Loosmore 56,250 12.9% $1.20 September
2008
Michael L. Ehrman 90,625 20.7% $1.20 September
2008
</TABLE>
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<PAGE>
EMPLOYMENT AGREEMENTS
We intend to enter into employment agreements with each of Kenneth
Ehrman, Jeffrey Jagid, N. Bert Loosmore and Michael Ehrman, the terms of which
have not been finalized.
1995 EMPLOYEE STOCK OPTION PLAN
In July 1995, the board of directors of I.D. Systems adopted a stock
option plan. This plan authorizes the granting of options to purchase up to an
aggregate of 1,250,000 shares of common stock to its key employees and
consultants. The options are non-qualified stock options. As of the date of this
prospectus, options to purchase 1,243,750 shares of common stock are outstanding
under this plan. Options to purchase 337,500 shares are exercisable at $.80 per
share and options to purchase 906,250 shares are exercisable at $1.20 per share.
The options vest over a period of five years. This plan terminates at the close
of business on July 8, 2005.
1999 STOCK OPTION PLAN
In April 1999, the board of directors and stockholders of I.D. Systems
adopted the 1999 Stock Option Plan, pursuant to which, 812,500 shares of common
stock are reserved for issuance upon the exercise of options. This plan is
designed to serve as an incentive for retaining qualified and competent
employees, directors and consultants.
Our board of directors, or a committee administers this plan and is
authorized, in its discretion, to grant options to all eligible employees of
this plan including officers and directors of, and consultants to, I.D. Systems.
The plan provides for the granting of both incentive stock options and
non-qualified stock options. Options can be granted under this plan on terms and
at prices as determined by the board of directors, or a committee of the board
of directors, except that the exercise price of incentive options will not be
less than the fair market value of common stock on the date of grant. In the
case of an incentive stock option granted to a stockholder who owns more than
10% of the total combined voting power of all classes of stock of I.D. Systems,
the per share exercise proceeds will not be less than 110% of the fair market
value on the date of grant. The aggregate fair market value, determined on the
date of grant, of the shares covered by incentive stock options granted under
the plan that become exercisable by a grantee for the first time in any calendar
year is subject to a $100,000 limit.
As of the date of this prospectus, we have not granted any options to
purchase common stock under this plan.
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<PAGE>
1999 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the 1999 Director
Option Plan. This plan was adopted by the board of directors and approved by the
stockholders in April 1999. This plan will not become effective until the date
of this offering. This plan has a term of ten years, unless terminated sooner by
the board. A total of 300,000 shares of common stock have been reserved for
issuance under this plan.
This plan provides for the automatic grant of 25,000 shares of common
stock to each non-employee director at the time he or she is first elected to
the board of directors. He or she will automatically be granted a subsequent
option to purchase 5,000 shares on the first day of each fiscal year, if on such
date he or she has served on the board for at least six months. Each option
grant under this plan will have a term of 10 years and will vest on a cumulative
monthly basis over a four-year period. The exercise price of all options will be
equal to the fair market value of the common stock on the date of grant.
Each of the plans provides for vesting to accelerate and become fully
vested in the event of a change of control of I.D. Systems and the options are
not assumed or substituted by a successor competitor.
COMMITTEES OF THE BOARD OF DIRECTORS
We have established a compensation committee which consists of Bruce
Jagid and Martin Rosansky. We intend to establish an audit committee of the
Board of Directors prior to the consummation of this offering which will be
comprised of at least two independent directors.
DIRECTOR COMPENSATION
I.D. Systems reimburses its directors for reasonable travel expenses
incurred in connection with their activities on behalf of I.D. Systems but does
not pay its directors any fees for board participation.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation eliminates the liability of a director
of I.D. Systems for monetary damages for breach of duty as a director, subject
to certain exceptions. Our certificate of incorporation also provides for I.D.
Systems to indemnify each director of I.D. Systems to the fullest extent
permitted by the Delaware General Corporation Law. The foregoing provisions may
reduce the likelihood of derivative litigation against directors and may
discourage or deter stockholders or mange from suing directors for breaches of
their duty of care, even though such an action, if successful, might otherwise
benefit I.D. Systems and its stockholders.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information, with respect to the
beneficial ownership of shares of common stock by:
o each person or entity who is known by I.D. Systems
to beneficially owns five percent or more of the
common stock;
o each director and executive officer of I.D.
Systems; and
o all directors and executive officers of I.D.
Systems as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
-----------------------
NUMBER OF SHARES
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNERS(L) OWNED(2) OFFERING OFFERING
---------------------------- ----------------- -------- --------
<S> <C> <C> <C>
Kenneth Ehrman......................................... 531,463(3) 15.4% 9.7%
N. Bert Loosmore....................................... 548,125(4) 15.8% 10.0%
Bruce Jagid............................................ 504,700(5) 14.6% 9.3%
Martin Rosansky........................................ 550,538(6) 15.9% 10.1%
Michael Ehrman......................................... 154,025(7) 4.4% 2.8%
Jeffrey M. Jagid....................................... 199,750(8) 5.7% 3.6%
All directors and executive officers as a group (6 2,488,601(9) 66.6% 43.4%
persons) ..............................................
- -------------------
</TABLE>
(1) Unless otherwise indicated, the address for each named individual or group
is in care of I.D. Systems, Inc., 90 William Street, Suite 402, New York,
NY 10038.
(2) Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days
from the date of this prospectus upon the exercise of options, warrants or
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities
that are held by such person (but not those held by any other person) and
which are exercisable within 60 days of the date of this prospectus have
been exercised and converted.
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<PAGE>
(3) Includes 47,500 shares of common stock underlying options granted to Mr.
Ehrman pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(4) Includes 47,500 shares of common stock underlying options granted to Mr.
Loosmore pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(5) Includes 40,000 shares of common stock underlying options granted to Mr.
Jagid pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(6) Includes 40,000 shares of common stock underlying options granted to Mr.
Rosansky pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of this prospectus.
(7) Includes 72,500 shares of common stock underlying options granted to Mr.
Ehrman pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(8) Includes 72,500 shares of common stock underlying options granted to Mr.
Jagid exercisable within sixty days of this prospectus.
(9) Includes 320,000 shares of common stock underlying options granted to such
individuals pursuant to I.D. Systems" 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
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<PAGE>
CERTAIN TRANSACTIONS
In May 1998, we issued a purchase order in the amount of $390,000 to
Ultralife Batteries, Inc., a NASDAQ listed company on whose board of directors
Mr. Bruce Jagid and Mr. Rosansky serve.
We believe that this transaction was fair and reasonable to us and was
on terms no less favorable than could have been obtained from unaffiliated third
parties. We cannot assure you, however, that future transactions or arrangements
between us and affiliates will continue to be advantageous to us, that conflicts
of interest will not arise with respect thereto, or that if conflicts do arise,
they will be resolved in a manner favorable to us. Any such future transactions
will be on terms no less favorable to us than could be obtained from
unaffiliated parties and will be approved by our compensation committee.
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<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue 15,000,000 shares of common stock, par value
$.01 per share and 5,000,000 shares of preferred stock, par value $.01 per
share. As of the date of this prospectus, we have outstanding 3,414,375 shares
of common stock owned by approximately ____ holders of record.
COMMON STOCK
The holders of the common stock are entitled to one vote for each share
held of record in the election of directors of I.D. Systems and in all other
matters to be voted on by the stockholders. There is no cumulative voting with
respect to the election of directors. As a result, the holders of more than 50
percent of the shares voting for the election of directors can elect all of the
directors. Holders of common stock are entitled:
o to receive any dividends as may be declared by the
board of directors out of funds legally available for
such purpose; and
o in the event of the liquidation, dissolution, or
winding up of I.D. Systems, to share ratably in all
assets remaining after payment of liabilities and
after provision has been made for each class of
stock, if any, having preference over the common
stock. All of the outstanding shares of common stock
are, and the shares of common stock offered hereby
will be, upon issuance and sale, validly issued,
fully paid, and nonassessable. Holders of common
stock have no preemptive right to subscribe for or
purchase additional shares of any class of our
capital stock.
PREFERRED STOCK
The board of directors has the authority, within the limitations and
restrictions stated in the certificate of incorporation to provide by resolution
for the issuance of shares of preferred stock, in one or more classes or series,
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock and could
adversely affect the voting and other rights of the holders of common stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock, is American
Stock Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
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<PAGE>
REPORTS TO STOCKHOLDERS
We have agreed, subject to the sale of the shares of common stock in
this offering, that on or before the date of this prospectus, we will register
our common stock under the provisions of Section 12(g) of the Exchange Act of
1934 and we will use our best efforts to maintain registration. Such
registration will require us to comply with periodic reporting, proxy
solicitation and certain other requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, we will have 5,414,375 shares
of common stock outstanding, assuming no exercise of outstanding options and
warrants, of which the 2,000,000 shares being offered hereby will be freely
tradable without restriction or further registration under the Securities Act,
except for any shares purchased by an "affiliate" which will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act.
All of the remaining 3,414,375 shares of common stock currently
outstanding are "restricted securities" or owned by "affiliates", as those
terms are defined in Rule 144, and may not be sold publicly unless they are
registered under the Securities Act or are sold pursuant to Rule 144 or another
exemption from registration. The 3,414,375 restricted shares, will be eligible
for sale, without registration, under Rule 144 , 90 days following the date of
this prospectus.
LOCKUP AGREEMENT
Holders of all of the 3,414,375 outstanding shares of common stock have
agreed for a period of 12 months following the date of this prospectus without
the representative's prior written consent not to:
o sell or otherwise dispose of any shares of
common stock in any public market
transaction including pursuant to Rule 144.
o exercise any rights held by such holders to
cause us to register any shares of common
stock for sale pursuant to the Securities
Act, in each case, for a period of 12 months
following the date of this prospectus,
without the representative's prior written
consent.
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RULE 144
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
I.D. Systems or persons whose shares are aggregated with an affiliate who has
owned restricted shares of common stock beneficially for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
o 1% of the then outstanding shares of the issuer's common
stock; or
o the average weekly trading volume during the four calendar
weeks preceding such sale, provided that certain public
information about the issuer as required by Rule 144 is then
available and the seller complies with certain other
requirements.
RULE 144(K)
A person who is not an affiliate, has not been an affiliate within
three months prior to sale, and has beneficially owned the restricted shares for
at least two years, is entitled to sell such shares under Rule 144(k) without
regard to any of the limitations described above.
NO PRIOR MARKET
Prior to this offering, there has been no market for the common stock
and no prediction can be made as to the effect, if any, that market sales of
shares of common stock or the availability of such shares for sale will have on
the market prices of the common stock prevailing from time to time.
Nevertheless, the possibility that substantial amounts of common stock may be
sold in the public market may adversely affect prevailing market prices for the
common stock and could impair our ability to raise capital through the sale of
its equity securities.
CERTAIN CHARTER AND BYLAWS PROVISIONS
AND DELAWARE ANTI-TAKEOVER STATUE
I.D. Systems is subject to Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents Delaware
corporations from engaging under certain circumstances, in a "business
combination", which includes a merger or sale of more than 10% of the
corporation's assets, with any "interested stockholder," or a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of any such persons, for three years following the
date such stockholder became an "interested stockholder," unless:
o the transaction in which such stockholder became an
"interested stockholder" is approved by the board of
directors prior to the date the "interested
stockholder" attained such status;
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o upon consummation of the transaction that resulted in
the stockholder's becoming an interested stockholder,
the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the
time the transaction commenced, excluding those
shares owned by persons who are directors and also
officers; or
o on or after the date of the business combination is
approved by the board of directors and authorized at
an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the
interested stockholder.
I.D. Systems' certificate of incorporation eliminates the right of
stockholders to act by written consent without a meeting and I.D. Systems'
bylaws eliminate the right of stockholders to call special meetings of
stockholders. The amended and restated certificate of incorporation and bylaws
do not provide for cumulative voting in the election of directors. The
authorization of undesignated preferred stock makes it possible for the board of
directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of I.D. Systems.
These and other provisions may have the effect of deferring hostile takeovers or
delaying changes in control or management of I.D. Systems. The amendment of any
of these provisions would require approval by holders of at least 66-2/3% of the
outstanding common stock.
48
<PAGE>
UNDERWRITING
I.D. Systems and the underwriters named below have entered
into an underwriting agreement with respect to the shares being offered. Subject
to certain conditions, each underwriter has severally agreed to purchase the
number of shares of common stock indicated in the following table. Gilford
Securities Incorporated is the representative of the underwriters.
UNDERWRITERS Number of Shares
------------ ----------------
Gilford Securities Incorporated.................. 2,000,000
---------
Total............................................ 2,000,000
=========
The underwriters are committed to purchase all of the shares
of common stock offered by I.D. Systems if any shares of I.D. Systems are
purchased.
The underwriters initially will offer the common stock to the
public at the price specified on the cover pages of this prospectus. The
underwriters may allow to some dealers a concession of not more than
$___________ per share of common stock. The underwriters also may allow, and any
other dealers may reallow, a concession of not more than $___________ per share
of common stock to some other dealers. If all the shares are not sold at the
initial public offering price, the underwriters may change the offering price
and other selling terms.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy up to an
additional 300,000 shares from I.D. Systems to cover such sales at the initial
public offering price less the underwriting discounts and non-accountable
expense allowance. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth above.
I.D. Systems has agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act 1933. I.D.
Systems has agreed to pay to the representative a non-accountable expense
allowance equal to two percent of the gross proceeds derived from the sale of
the shares of common stock underwritten, $25,000 of which has been paid to date.
I.D. Systems will apply to list the common stock on the Nasdaq
SmallCap Market under the symbol IDSY.
In connection with this offering, the underwriters may
purchase and sell shares of common stock in the open market. These transactions
may include short sales, stabilizing transactions and purchases to cover
positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of shares than they are required to purchase in
this offering. Stabilizing transactions consist of certain bids or purchases
made for the purpose of
49
<PAGE>
preventing or retarding a decline in the market price of the common stock while
this offering is in progress.
The underwriters also may impose a penalty bid. This occurs
when a particular underwriter repays to the underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such underwriter in stabilizing
or short covering transactions.
These activities by the underwriters may stabilize, maintain
or otherwise affect the market price of the common stock. As a result, the price
of the common stock may be higher than the price that otherwise might exist in
the open market. If these activities are commenced, they may be discontinued by
the underwriters at any time. These transactions may be effected on the Nasdaq
SmallCap Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
I.D. Systems, its directors, officers and stockholders have
agreed with the underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable or exercisable for shares
of common stock during the period from the date of this prospectus continuing
through the date 12 months after the date of this prospectus, without the prior
written consent of the representative. The officers and directors of I.D.
Systems and the holders of all of the shares of common stock have agreed that,
for 12 months following the effective date of the registration statement, any
sales of I.D. Systems' securities shall be made through the representative in
accordance with its customary brokerage practices either on a principal or
agency basis. An appropriate legend shall be marked on the face of the
certificates representing all such securities.
I.D. Systems has agreed to issue and sell to the
representative and/or its designees, for nominal consideration, five year
warrants to purchase 200,000 shares of common stock. The representative's
warrants are exercisable for a period of four years commencing one year after
the date of this prospectus, at a price equal to 120% of the initial public
offering price of the common stock. The representative's warrants are restricted
from sale, transfer, assignment or hypothecation for a period of 12 months from
the date of this prospectus, except to officers of the representative. The
representative's warrants contain anti-dilution provisions providing for
adjustments of the number of shares of common stock issuable on exercise and the
exercise price upon the occurrence of some events, including stock dividends,
stock splits, mergers, acquisitions and recapitalization. The representative's
warrants grant to the holders of the warrants and to the holders of the
underlying securities the right to register the securities underlying the
representative's warrants.
I.D. Systems has agreed that for three years from the
effective date of the registration statement, the representative may designate
one person for election to the board of directors of I.D. Systems. In the event
that the representative elects not to designate one person for election to the
board of directors, then it may designate one person to attend all meetings of
the board of directors for a period of five years. I.D. Systems has agreed to
reimburse the
50
<PAGE>
representative's designee for all out-of-pocket expenses incurred in connection
with the designees' attendance at meetings of the board of directors.
Prior to this offering, there has been no public market for
the common stock. The initial public offering price of the common stock was
determined by negotiation between I.D. Systems and the representative. Among the
factors considered in determining such prices and terms, were the prevailing
market conditions, including the history of and the prospects for the industry
in which we compete, an assessment of our management, our prospects and our
capital structure. The offering price does not necessarily bear any relationship
to our assets, results of operations or net worth.
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered hereby will be passed upon for us by Parker Chapin Flattau & Klimpl,
LLP, New York, New York. Orrick, Herrington & Sutcliffe LLP, New York, New York
has acted as counsel for the underwriters in connection with this offering.
EXPERTS
The financial statements as of December 31, 1998 and for the years
ended December 31, 1997 and 1998 included in this prospectus have been audited
by Richard A. Eisner & Company LLP, independent auditors, as indicated in their
report with respect thereto, and are included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities Act with the Securities and Exchange Commission in Washington, D.C.
with respect to the securities offered hereby. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and the securities
offered hereby, reference is made to the registration statement and the exhibits
and schedules thereto filed as a part thereof. Statements contained in this
prospectus as to the contents of any contract or other document filed as an
exhibit to the registration statement to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference. The registration statement, including all
amendments, exhibits and schedules thereto, may be inspected without charge at
the office of the Securities and Exchange Commission at Judiciary Plaza, 450
Fifth
51
<PAGE>
Street, N.W., Washington, D.C. 20549, and the Securities and Exchange
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Securities and
Exchange Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issues that file
electronically with the Commission.
The address of site is http://www.sec.gov.
52
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER [LOGO]
PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT
CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION I.D. SYSTEMS, INC.
OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL ONLY THE SHARES OFFERED
HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND
IN JURISDICTIONS WHERE IT IS LAWFUL TO 2,000,000 SHARES OF COMMON STOCK
DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS
DATE.
-------------------------
------------------
PROSPECTUS
TABLE OF CONTENTS PAGE
-----------------
Prospectus Summary Risk Factors.
Use of Proceeds.................
Dilution........................
Dividend Policy.................
Capitalization..................
Business........................
Management......................
Principal Stockholders..........
Certain Transactions............
Description of Securities.......
Shares Eligible for Future Sale.
Underwriting....................
Legal Matters...................
Experts.........................
Additional Information..........
Index to Financial Statements...
GILFORD SECURITIES
UNTIL , 1999 (25 DAYS AFTER THE DATE INCORPORATED
OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THESE , 1999
SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO A DEALER'S OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO AN
UNSOLD ALLOTMENT OR SUBSCRIPTION.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
I.D. SYSTEMS, INC.
CONTENTS
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Independent auditors' report......................................................................................F-2
Balance sheet as of December 31, 1998.............................................................................F-3
Statements of operations for the years ended December 31, 1997 and 1998...........................................F-4
Statements of changes in stockholders' equity for the years ended December 31, 1997 and 1998......................F-5
Statements of cash flows for the years ended December 31, 1997 and 1998...........................................F-6
Notes to financial statements.....................................................................................F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
I.D. Systems, Inc.
New York, New York
Upon the consummation of the 1.25 for 1 stock split described in the second
sentence of Note B[2] and the items described in Note I we would be in a
position to issue the following auditors' report:
/s/ Richard A. Eisner & Company, LLP
New York, New York
April 20, 1999
"We have audited the accompanying balance sheet of I.D. Systems, Inc. as of
December 31, 1998 and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1997 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
"We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
"In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of I.D. Systems, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1998, in conformity with generally accepted
accounting principles."
New York, New York
April 20, 1999
With respect to Notes B[2] and I
, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
I.D. SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<S> <C>
Cash and cash equivalents $ 1,130,000
Accounts receivable 741,000
Due from stockholders 23,000
Deferred taxes 67,000
Prepaid expenses and other current assets 21,000
----------------
Total current assets 1,982,000
Fixed assets - net 117,000
Other assets 3,000
----------------
$ 2,102,000
================
LIABILITIES
Accounts payable and accrued expenses $ 329,000
Capital lease obligations 10,000
Deferred revenue 545,000
----------------
Total current liabilities 884,000
Capital lease obligations 16,000
Deferred rent 38,000
Notes payable - stockholders, less unamortized debt discount of $44,000 156,000
----------------
1,094,000
----------------
STOCKHOLDERS' EQUITY
Common stock; authorized 10,000,000 shares, $.01 par value; issued and outstanding
3,414,000 shares 34,000
Additional paid-in capital 1,653,000
Accumulated deficit (679,000)
----------------
1,008,000
----------------
$ 2,102,000
================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-3
<PAGE>
<TABLE>
<CAPTION>
I.D. SYSTEMS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
------ -----
<S> <C> <C>
Revenues $ 733,000 $ 3,324,000
Cost of revenues 269,000 1,633,000
------------ -----------------
Gross profit 464,000 1,691,000
Selling, general and administrative expenses 460,000 1,083,000
Research and development expenses 22,000 64,000
------------ -----------------
Income (loss) from operations (18,000) 544,000
Interest income 6,000 25,000
Interest expense (25,000) (48,000)
------------ -----------------
Income (loss) before taxes (37,000) 521,000
Income tax provision (benefit) (112,000) 45,000
------------ -----------------
NET INCOME - HISTORICAL 75,000 476,000
PRO FORMA INCOME TAXES (BENEFIT) (468,000) 192,000
------------ -----------------
PRO FORMA NET INCOME $ 543,000 $ 284,000
============ =================
PRO FORMA NET INCOME PER SHARE - BASIC $.17 $.08
==== ====
PRO FORMA NET INCOME PER SHARE - DILUTED $.17 $.08
==== ====
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC INCOME PER SHARE 3,154,000 3,414,000
EFFECT OF POTENTIAL COMMON SHARES FROM EXERCISE OF OPTIONS 365,000
------------ -----------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED INCOME PER SHARE 3,154,000 3,779,000
============ =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-4
<PAGE>
<TABLE>
<CAPTION>
I.D. SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL COMMON
-----------------------
NUMBER OF PAID-IN STOCK ACCUMULATED Stockholders'
SHARES AMOUNT CAPITAL SUBSCRIBED DEFICIT EQUITY
--------- ------ ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1997 3,000,000 $ 30,000 $ 1,292,000 $ (25,000) $ (1,230,000) $ 67,000
Payment of subscription
receivable 25,000 25,000
Shares issued with interim
financing 167,000 2,000 66,000 68,000
Exercise of warrants 247,000 2,000 295,000 297,000
Net income for the year ended
December 31, 1997 75,000 75,000
----------- ----------- ------------- ---------- ------------- -----------
BALANCE - DECEMBER 31, 1997 3,414,000 34,000 1,653,000 0 (1,155,000) 532,000
Net income for the year ended
December 31, 1998 476,000 476,000
----------- ----------- ------------- ---------- ------------- -----------
BALANCE - DECEMBER 31, 1998 3,414,000 $ 34,000 $ 1,653,000 $ 0 $ (679,000) $ 1,008,000
=========== =========== ============= =========== ============= ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE>
<TABLE>
<CAPTION>
I.D. SYSTEMS, INC.
STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,
----------------------
1997 1998
------ -----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 75,000 $ 476,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 24,000 39,000
Amortization of debt discount 10,000 14,000
Deferred taxes (112,000) 45,000
Deferred rent expenses 38,000
Deferred revenue 545,000
Changes in:
Accounts receivable (75,000) (601,000)
Inventory (3,000) 33,000
Prepaid expenses and other assets (16,000) 1,000
Accounts payable and accrued expenses (114,000) 266,000
------------- -------------
Net cash provided by (used in) operating activities (211,000) 856,000
------------- -------------
Cash flows from investing activities:
Purchase of fixed assets (31,000) (76,000)
------------- -------------
Cash flows from financing activities:
Proceeds from subscription receivable 25,000
Payment of lease obligations (5,000) (6,000)
Proceeds from sale of stock and promissory notes 200,000
Proceeds from exercise of warrants 274,000
Payment of stockholder loans (50,000)
------------ -------------
Net cash provided by (used in) financing activities 494,000 (56,000)
------------- -------------
Net increase in cash and cash equivalents 252,000 724,000
Cash and cash equivalents - January 1 154,000 406,000
------------ -------------
Cash and cash equivalents - December 31 $ 406,000 $ 1,130,000
============ =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,000 $ 31,000
Supplemental disclosure of noncash financing information:
Equipment acquired pursuant to capital lease obligations $ 11,000 $ 19,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A - THE COMPANY
I.D. Systems, Inc. (the "Company") develops wireless monitoring, tracking and
information collection systems. The Company customizes its wireless, intelligent
tracking and monitoring system for applications involving various types of
assets including vehicles, materials, equipment and people. The Company was
incorporated in Delaware in 1993 and commenced operations in January 1994.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[2] STOCK SPLIT:
On November 10, 1997, the Board of Directors approved a 10 for 1 stock
split. Subsequent to December 31, 1998 the Company effected a 1.25 for 1
stock split. The accompanying financial statements and notes hereto give
retroactive effect to the stock splits and accordingly, the number of
shares are stated on a post split basis.
[3] CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents.
Substantially all of the Company's cash and cash equivalents at December
31, 1998 were held at one financial institution.
[4] FIXED ASSETS AND DEPRECIATION:
Fixed assets are recorded at cost and depreciated using an accelerated
method over the estimated useful lives of the assets which range from
five to seven years. Equipment under capital leases are amortized using
an accelerated method over the terms of the respective leases, or their
estimated useful lives, whichever is shorter.
[5] RESEARCH AND DEVELOPMENT:
Research and development costs are charged to expense as incurred.
[6] PATENT COSTS:
Costs incurred in connection with acquiring patent rights are charged to
expense as incurred.
[7] REVENUE RECOGNITION:
Revenues in 1997 and 1998 were principally earned pursuant to two
contracts with the United States Postal Service in connection with the
development and sales of wireless monitoring systems and tracking
devices. Revenues are recognized when related time and material charges
are incurred, services are performed or goods are delivered in accordance
with conditions of related contracts. Amounts billed to customers that do
not meet the conditions of the Company's revenue recognition policy are
recorded as deferred revenue until such conditions are met.
F-7
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] BENEFIT PLAN:
The Company maintains a retirement plan under Section 401(k) of the
Internal Revenue Code which covers all eligible employees. The Company
contributed approximately $6,000 to the plan for the year ended December
31, 1998. The Company may decide to make additional contributions to the
plan.
[9] RENT EXPENSE:
Expense related to the Company's facility lease is recorded on a
straight-line basis over the lease term. The difference between rent
expense incurred and the amount paid is recorded as deferred rent and is
amortized over the lease term.
[10] STOCK BASED COMPENSATION:
The Company accounts for stock-based employee compensation under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. The Company has
adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation".
[11] INCOME TAXES:
The Company had elected to be treated as an S corporation for federal and
state income tax purposes. As a result of this election, the income of
the Company was taxed directly to the individual stockholders. The
Company continued to be subject to New York City income tax. Subsequent
to December 31, 1998, the Company filed an election to be taxed as a C
corporation and, effective January 1, 1999, will be subject to federal,
state and local income taxes. See Note F for pro forma information
regarding the incremental income tax provisions which would have been
recorded if the Company had been a taxable corporation, based on the tax
laws in effect during the years ended December 31, 1997 and 1998.
[12] PRO FORMA NET INCOME PER SHARE:
The Company calculates its pro forma net income per share in accordance
with the provisions of SFAS No. 128, "Earnings Per Share". SFAS No. 128
requires a dual presentation of "basic" and "diluted" income per share on
the face of the statements of operations. Basic income per share is
computed by dividing the net income by the weighted average number of
shares of common stock outstanding during each period. Diluted income per
share includes the effect, if any, from the potential exercise or
conversion of securities, such as stock options and warrants, which would
result in the issuance of incremental shares of common stock. For the
year ended December 31, 1997 the basic and diluted amounts are the same
since the effect from the potential exercise of 800,000 outstanding stock
options would have been anti-dilutive.
[13] FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, capital lease obligations and notes
payable approximate their fair values due to the short period to maturity
of these instruments.
F-8
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE C - FIXED ASSETS
Fixed assets are stated at cost and, at December 31, 1998, are summarized as
follows:
Laboratory equipment $ 24,000
Computer software 15,000
Computer hardware 60,000
Furniture and fixtures 50,000
Equipment under capital lease 39,000
------------
188,000
Accumulated depreciation and amortization 71,000
------------
$ 117,000
============
NOTE D - EQUIPMENT LEASE OBLIGATIONS
The Company leases equipment under various agreements with original terms of 36
to 60 months and accounts for these leases as capital leases. The net book value
of the equipment held under capital leases was approximately $23,000 at December
31, 1998.
Future lease payments as of December 31, 1998 are as follows:
YEAR ENDING
DECEMBER 31,
------------
1999 $ 12,000
2000 5,000
2001 5,000
2002 5,000
2003 4,000
-----------
31,000
Amount representing interest 5,000
-----------
Present value of future lease payments 26,000
Amount due within one year 10,000
-----------
$ 16,000
===========
F-9
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE E - STOCKHOLDERS' EQUITY
[1] COMMON STOCK:
Pursuant to the terms of the Company's stockholders' agreement dated
December 1993, the Company was initially capitalized by the issuance of
an aggregate of 1,250,000 shares of common stock to four individuals who
contributed an aggregate of $100,000. Upon execution of the agreement,
two stockholders each loaned the Company $37,500, bearing interest at 7
1/2%, payable on demand. The agreement also provided, among other things,
for options for each of the other two stockholders to purchase an
additional 312,500 shares for $12,500. In December 1994, both
stockholders exercised their options, financing the transaction through
notes payable to the Company which were paid in November 1997. The
agreement further provided that, in the event that the options were
exercised, each of the two stockholders who loaned the Company money
would convert $12,500 of their loans to the Company to equity and, in
January 1995, $25,000 of loans were contributed to equity and no
additional shares were issued. The remaining loans payable in the amount
of $50,000 along with accrued interest were repaid by the Company in
December 1998.
In April 1997, the Company completed a private placement whereby it sold
167,000 shares of common stock and issued $200,000 of promissory notes
maturing in April 2002 bearing interest at 8% per annum for gross
proceeds of $200,000. The common stock issued was valued at $68,000
representing debt discount which is being amortized over the five-year
term of the promissory notes. As a result, the effective annual interest
rate was approximately 15%. For the years ended December 31, 1997 and
1998, $10,000 and $14,000 was amortized, respectively, and is included in
interest expense. In February 1999, the Company repaid $105,000 of the
notes plus $28,000 of accrued interest pursuant to prepayment provisions
of the notes. Accordingly, the Company reduced debt discount and recorded
an expense of $23,000 in connection with the repayment.
In November 1997, the Company issued 247,000 shares of common stock and
received proceeds of $274,000 and a subscription receivable of $23,000
which was received by the Company subsequent to December 31, 1998 in
connection with the exercise of warrants issued in connection with an
equity financing in a prior year. All other warrants issued in connection
with such financing expired in November 1997.
[2] STOCK OPTIONS:
The Company has adopted a nonqualified stock option plan (the "1995
Plan") which authorizes the granting, to key employees and consultants,
of options to purchase up to an aggregate of 1,250,000 shares of the
Company's common stock. The 1995 Plan is administered by the Board of
Directors, which has the authority to determine the term during which an
option may be exercised (not more than 10 years), the exercise price of
an option and the rate at which options may be exercised.
F-10
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE E - STOCKHOLDERS' EQUITY (CONTINUED)
[2] STOCK OPTIONS: (CONTINUED)
A summary of the status of the Company's stock options as of December 31,
1997 and 1998 and changes during the years ending on those dates, is
presented below:
<TABLE>
<CAPTION>
1997 1998
------------------------------------ --------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 425,000 $0.88 800,000 $1.03
Granted 375,000 1.20 438,000 1.20
----------- ------------
Outstanding at end of year 800,000 1.03 1,238,000 1.09
=========== ============
Exercisable at end of year 170,000 0.88 330,000 0.95
=========== ============
</TABLE>
The following table summarizes information about stock options at December
31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -------------------------------
SHARES WEIGHTED SHARES
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1998 LIFE PRICE 1998 PRICE
- -------- ------------ ------------ --------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0.80 338,000 6.52 years $0.80 203,000 $0.80
$1.20 900,000 8.94 years 1.20 127,000 1.20
--------- --------
1,238,000 8.28 years 1.09 330,000 0.95
========= ========
</TABLE>
At December 31, 1998, 12,000 options were available for future grant
under the 1995 plan which were granted in 1999.
The Company applies APB Opinion 25 and related interpretations in
accounting for options. Accordingly, no compensation cost has been
recognized for employee stock option grants. Had compensation cost for
employee stock option grants been determined based on the fair value at
the grant dates for awards consistent with the method of SFAS No. 123,
the Company's historical net income, pro forma net income and pro forma
net income per share (basic and diluted) for the year ended December 31,
1997 would have been approximately $40,000, $508,000 and $.16,
respectively. The Company's historical net income, pro forma net income
and pro forma net income per share (basic and diluted) for the year ended
December 31, 1998 would have been approximately $409,000, $217,000 and
$.06, respectively. The fair value of each option grant on the date of
grant is estimated using the Black-Scholes option-pricing model with a
minimum value volatility of effectively 0%, expected life of options of 7
years, risk free interest rate of 6% and a dividend yield of 0%. The
weighted average fair value of options granted during the years ended
December 31, 1997 and 1998 were $.37 and $.44, respectively.
F-11
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE F - INCOME TAXES (BENEFIT) AND PRO FORMA INCOME TAXES (BENEFIT) (CONTINUED)
[1] HISTORICAL:
The Company is only subject to local income taxes. The income tax benefit
of $112,000 in 1997 reflects the recognition, at December 31, 1997, of a
deferred tax asset relating to the Company's net operating loss
carryforwards for local tax purposes. $109,000 of such benefit relates to
a reduction in the valuation allowance which had previously been provided
due to management's uncertainty regarding the Company's ability to
generate taxable income against which it could apply its net operating
loss carryforwards. The 1998 income tax provision of $45,000 reflects the
utilization of a portion of the deferred tax asset to reduce current tax
expense. As a result the Company has a deferred tax asset of $67,000 at
December 31, 1998, which reflects the Company's net operating loss
carryforwards for local income taxes of approximately $750,000 and which
expire through 2012. The Company is subject to an annual limitation on
the utilization of a portion of its net operating loss carryforwards.
Future stock issuances may subject the Company to additional limitations.
The difference between income taxes (benefits) at the statutory federal
income tax rate and income taxes (benefits) reported in the statements of
operations are attributable to the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1998
----- -----
<S> <C> <C>
Income taxes (benefit) at the federal statutory rate $ (13,000) $ 177,000
State and local income taxes (benefit), net of effect on
federal taxes (4,000) 60,000
Reduction of valuation allowance (109,000)
Effect of S corporation status 468,000 (192,000)
Reduction of pro forma valuation allowance (454,000)
---------- ----------
$ (112,000) $ 45,000
========== ==========
</TABLE>
[2] PRO FORMA:
As a result of the S corporation election, the financial statements do
not include a provision for federal and state income taxes. Subsequent to
December 31, 1998 the Company filed an election to be taxed as a C
corporation, effective January 1, 1999 and accordingly will be subject to
federal, state and local income taxes. Pro forma net income in the
accompanying statements of operations includes pro forma adjustments for
federal and state income taxes (benefits) which would have been provided
(recognized) had the S corporation election not been in effect and is
comprised of the following:
YEAR ENDED
DECEMBER 31,
--------------------
1997 1998
---- -----
Deferred:
Federal $ (354,000) $ 145,000
State (114,000) 47,000
----------- ----------
Pro forma taxes (benefit) on income $ (468,000) $ 192,000
=========== ==========
F-12
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE F - INCOME TAXES (BENEFIT) AND PRO FORMA INCOME TAXES (BENEFIT) (CONTINUED)
[2] PRO FORMA: (CONTINUED)
The pro forma tax benefit of $468,000 for 1997 reflects a pro forma
deferred tax asset relating to the Company's net operating loss carry
forwards for federal and state purposes. $454,000 of such pro forma
benefit relates to a reduction in the pro forma valuation reserve which
had previously been provided.
NOTE G - COMMITMENTS AND OTHER MATTERS
[1] OPERATING LEASES:
The Company has entered into various operating leases which provide for
minimum annual rent payments as follows:
OFFICE
FACILITIES OTHER
---------- -----
1999 $ 108,000 $ 45,000
2000 117,000 30,000
2001 126,000 10,000
2002 129,000
2003 32,000
---------- --------
$ 512,000 $ 85,000
========== ========
The office lease also provides for escalations relating to increases in
real estate taxes and certain operating expenses. Expenses relating to
operating leases aggregated approximately $48,000 and $141,000 for the
years ended December 31, 1997 and 1998, respectively.
[2] CONCENTRATION OF CUSTOMERS:
One customer accounted for approximately 99% and 95% of the Company's
revenues during the years ended December 31, 1997 and 1998, respectively.
This customer accounted for approximately 92% of the Company's accounts
receivable balance at December 31, 1998.
[3] RELATED PARTY TRANSACTIONS:
During the years ended December 31, 1997 and 1998, the Company purchased
approximately $18,000 and $33,000 of components from a company where two
of the directors are directors of the Company. Additionally, at December
31, 1998 $357,000 remained open under a purchase order issued in 1998.
NOTE H - PROPOSED PUBLIC OFFERING
The Company has signed a letter of intent with an underwriter with respect to a
proposed public offering of the Company's securities. There is no assurance that
such offering will be consummated. In connection therewith, the Company
anticipates incurring substantial costs, which, if the offering is not
consummated, will be charged to expense.
F-13
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE I - SUBSEQUENT EVENTS
Subsequent to December 31, 1998 the Company adopted the 1999 Stock Option Plan
and the 1999 Director Option Plan pursuant to which the Company may grant
options to purchase up to 812,500 and 300,000 shares of common stock,
respectively.
Subsequent to December 31, 1998 the Company authorized 5,000,000 shares of
preferred stock. The Company's board of directors has the authority to issue
shares of preferred stock and to determine the price and terms of those shares.
F-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL")
contains the provisions entitling the Registrant's directors and officers to
indemnification from judgments, fines, amounts paid in settlement, and
reasonable expenses (including attorney's fees) as the result of an action or
proceeding in which they may be involved by reason of having been a director or
officer of the Registrant.
The Certificate of Incorporation includes provisions to the effect that
(subject to certain exceptions) the Registrant shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted under
such law, as may from time to time be in effect. In addition, the By-Laws
require the Registrant to indemnify, to the full extent permitted by law, any
director, officer, employee or agent of the Registrant for acts which such
person reasonable believes are not in violation of the Registrant's corporate
purposes as set forth in the Certificate of Incorporation. At present, the DGCL
provides that, in order to be entitled to indemnification, an individual must
have acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the Registrant's best interests.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any charger provision, by-law, contract, arrangement,
statute or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. See Item 28.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling
commissions and other fees paid to the underwriter) which will be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered. With the exception of the registration fee and the NASD filing
fee, all amounts shown are estimates.
II-1
<PAGE>
Registration fee........................................................ $5,649
NASD filing fee......................................................... 2,340
Nasdaq listing expenses................................................. *
Boston Stock Exchange listing fee Blue sky fees and expenses (including
legal and filing fees).................................................. *
Printing expenses (other than stock certificates)....................... *
Printing and engraving of stock certificates............................ *
Legal fees and expenses (other than Blue Sky)........................... *
Consulting fee.......................................................... *
Accounting fees and expenses............................................ *
Transfer Agent and Registrar fees and expenses.......................... *
Miscellaneous expenses.................................................. *
-------
Total........................................................... $
=======
- -----------
* To be filed by amendment.
Item 26. Recent Sales of Unregistered Securities.
In October 1996, the Registrant issued a total of 166,675 shares of
common stock to 31 of its then existing stockholders pursuant to a private
placement, in consideration for payment by such stockholders to the Registrant
of $200,010 in cash.
In April 1997 the Registrant issued a series of promissory notes and a
total of 166,737.5 shares of common stock to 29 of its then existing
stockholders, in consideration for an aggregate payment by such stockholders to
the Registrant of $200,090 in cash.
In November 1997 the Registrant issued 247,175 shares of common stock
to 24 of its then existing stockholders upon exercise of warrants which had been
issued to such stockholders on November 15, 1995 at a price of $1.20 per share.
Registrant received $296,610 in cash as a result of the exercise of the
warrants.
In issuing securities under the exemption provided by Section 4(2) of
the Securities Act, the Registrant relied on representations made by each
purchaser that such purchaser was either an "accredited investor" as such term
is defined in Rule 501 of Regulation D promulgated under the Securities Act or
that such purchaser has such knowledge and experience in financial and business
matters that such person was capable of evaluating the merits and risks of the
investment.
II-2
<PAGE>
ITEM 27. EXHIBITS.
NUMBER Description of Exhibit
- ------ ----------------------
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.*
3.2 Amended and Restated By-Laws of the Registrant.*
4.1 Specimen Certificate of the Registrant's Common Stock.*
4.2 Form of Representative's Warrant Agreement, including Form of
Warrant Certificate.*
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.*
10.1 Agreement between the Registrant and the U.S. Postal Service: Offer
and Award Standard dated August 22, 1997, as modified on May 12,
1998, September 8, 1998 and March 5, 1999.
10.2 Federal Supply Service Information Technology Schedule Award
effective April 16, 1999 through April 15, 2004.*
10.3 Form of Employment Agreement between the Registrant and its
executive officers*
10.4 Office Lease dated September 30, 1997 between the Registrant and
Tov LLC.
10.5 1995 Non-Qualified Stock Option Plan.
10.6 1999 Stock Option Plan.
10.7 Form of Indemnification Agreement*
10.8 1999 Director Stock Option Plan*
23.1 Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in
Exhibit 5.1).*
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
- -----------
* To be filed by amendment.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing as specified in the Underwriting Agreement Common
Stock certificates in such denominations and registered in such names as
required by the Underwriting Agreement to permit prompt delivery to each
purchaser.
For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Securities and Exchange Commission declared it effective.
For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, in New York County,
State of New York, on the 21st day of April, 1999.
I.D. SYSTEMS, INC.
By: /s/ Kenneth S. Ehrman
------------------------
Kenneth S. Ehrman
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kenneth S. Ehrman and/or Jeffrey Jagid,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Kenneth S. Ehrman President (Principal Executive April 21, 1999
- ---------------------------- Officer) and Director
Kenneth S. Ehrman
/s/ Jeffrey M. Jagid Director April 21, 1999
- ----------------------------
Jeffrey M. Jagid
/s/ N. Bert Loosmore Director April 21, 1999
- ----------------------------
N. Bert Loosmore
/s/ Bruce Jagid Treasurer (Principal Accounting April 21, 1999
- ---------------------------- Officer) and Director
Bruce Jagid
/s/ Martin G. Rosansky
- ---------------------------- Director April 21, 1999
Martin G. Rosansky
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
-------------
NUMBER Description of Exhibit
- ------ ----------------------
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.*
3.2 Amended and Restated By-Laws of the Registrant.*
4.1 Specimen Certificate of the Registrant's Common Stock.*
4.2 Form of Representative's Warrant Agreement, including Form of
Warrant Certificate.*
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.*
10.1 Agreement between the Registrant and the U.S. Postal Service: Offer
and Award Standard dated August 22, 1997, as modified on May 12,
1998, September 8, 1998, and March 5, 1999.
10.2 Federal Supply Service Information Technology Schedule Award
effective April 16, 1999 through April 15, 2004.*
10.3 Form of Employment Agreement between the Registrant and its
executive officers*
10.4 Office Lease dated September 30, 1997 between the Registrant and
Tov LLC.
10.5 1995 Non-Qualified Stock Option Plan.
10.6 1999 Stock Option Plan.
10.7 Form of Indemnification Agreement*
10.8 1999 Director Stock Option Plan*
23.1 Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in
Exhibit 5.1).*
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
- -------------------
* To be filed by amendment.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
I.D. SYSTEMS, INC.
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
EXHIBIT 1.1
2,000,000 SHARES OF COMMON STOCK
I.D. SYSTEMS, INC.
UNDERWRITING AGREEMENT
----------------------
New York, New York
_____________, 1999
Gilford Securities Incorporated
As Representative of the
Several Underwriters listed
on Schedule A hereto
850 Third Avenue
New York, NY 10022
Ladies and Gentlemen:
I.D. Systems, Inc., a Delaware corporation (the "Company")
confirms its agreement with Gilford Securities Incorporated ("Gilford") and each
of the several underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 11) for whom Gilford is acting as representative
(in such capacity, Gilford shall hereinafter be referred to as "you" or the
"Representative"), with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of the respective number of
shares of the Company's common stock, $.01 par value per share ("Common Stock"),
set forth on Schedule A hereto. Such shares of Common Stock are hereinafter
referred to as the "Firm Shares."
Upon the Representative's request, as provided in Section 2(b)
of this Agreement, the Company shall also sell to the Underwriters up to an
additional 300,000 shares of Common Stock for the purpose of covering
over-allotments, if any (the "Option Shares"). The Firm Shares and the Option
Shares are sometimes hereinafter referred to as the "Shares." The Company also
proposes to issue and sell warrants to the Representative (the "Representative's
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional 200,000
shares of Common Stock. The shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter referred to as the "Representative's
Shares." The Firm Shares, the Option Shares, the Representative's Warrants and
the Representative's Shares (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
<PAGE>
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with, each of the
Underwriters as of the date hereof, and as of the Closing Date (hereinafter
defined) and the Option Closing Date (hereinafter defined), if any, as follows:
(i) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-___), including
any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Firm Shares and the Option Shares under the
Securities Act of 1933, as amended (the "Act"), which registration
statement and amendment or amendments have been prepared by the Company
in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The
Company will promptly file a further amendment to said registration
statement in the form heretofore delivered to the Underwriters and will
not, file any other amendment thereto to which the Underwriters shall
have objected in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the
registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed
as a part thereof or incorporated therein (including, but not limited
to those documents or information incorporated by reference therein)
and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430(A) of the Regulations), is
hereinafter called the "Registration Statement", and the form of
prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations
adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(ii) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of
any thereof and no proceedings for a stop order suspending the
effectiveness of the Registration Statement or any of the Company's
securities have been instituted or are pending or threatened. Each of
the Preliminary Prospectus, Registration Statement and Prospectus at
the time of filing thereof conformed with the requirements of the Act
and the Rules and Regulations, and none of the Preliminary Prospectus,
Registration Statement or Prospectus at the time of filing thereof
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein and necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, except that this representation and warranty does
not apply to statements made in reliance upon and in conformity with
written information furnished to the Company with respect to the
Underwriters by or on behalf of the Underwriters expressly for use in
such Preliminary Prospectus, Registration Statement or Prospectus.
(iii) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date and each Option Closing Date,
if any,
2
<PAGE>
and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all statements
which are required to be stated therein in accordance with the Act and
the Rules and Regulations, and will conform to the requirements of the
Act and the Rules and Regulations; and, at and through such dates,
neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriters expressly for use in the Preliminary
Prospectus, Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
(iv) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its
incorporation. The Company does not own an interest in any corporation,
partnership, trust, joint venture or other business entity. The Company
is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such
qualification or licensing. The Company has all requisite power and
authority (corporate and other), and the Company has obtained any and
all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those
having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as conducted on the date
hereof and as described in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and with all
federal, state and local laws, rules and regulations to which it is
subject; and the Company has not received any notice of proceedings
relating to the revocation or modification of any such authorization,
approval, order, license, certificate, franchise, or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value,
operation, properties, business or results of operations of the
Company. The disclosures in the Registration Statement concerning the
effects of federal, state, local and foreign laws, rules and
regulations on the Company's business as currently conducted and as
contemplated are correct in all respects and do not omit to state a
material fact required to be stated therein or necessary to make the
statement therein in light of the circumstances under which they were
made, not misleading.
(v) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, under "Capitalization"
and "Description of Securities" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option
Closing Date, if any, based upon the assumptions set forth therein, and
the Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement, the
Representative's Warrant Agreement and as described in
3
<PAGE>
the Prospectus. The Securities and all other securities issued or
issuable by the Company on or prior to the Closing Date and each Option
Closing Date, if any, conform or, when issued and paid for, will
conform, in all respects to all statements with respect to the
descriptions thereof contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and
non-assessable; and the holders thereof have no rights of rescission
with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued
in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company. The
Securities to be issued and sold by the Company hereunder and pursuant
to the Representative's Warrant Agreement are not and will not be
subject to any preemptive or other similar rights of any stockholder,
have been duly authorized and, when issued, paid for and delivered in
accordance with the terms hereof and thereof, will be validly issued,
fully paid and non-assessable and will conform to the descriptions
thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the
Securities has been duly and validly taken; and the certificates
representing the Securities will be in due and proper form. Upon the
issuance and delivery of the Securities pursuant to the terms hereof
and pursuant to the Representative's Warrant Agreement, to be sold by
the Company hereunder and thereunder to the Underwriters, the
Underwriters will acquire good and marketable title to such Securities
free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind
whatsoever.
(vi) The financial statements, including the related notes and schedules
thereto, included in the Registration Statement, each Preliminary
Prospectus and the Prospectus fairly present the financial position,
income, changes in cash flow, changes in stockholders' equity, and the
results of operations of the Company at the respective dates and for
the respective periods to which they apply and the pro forma financial
information included in the Registration Statement and Prospectus
presents fairly on a basis consistent with that of the audited
financial statements included therein, what the Company's pro forma
capitalization would have been for the respective periods and as of the
respective dates to which they apply after giving effect to the
adjustments described therein. Such financial statements have been
prepared in conformity with generally accepted accounting principles
and the Rules and Regulations, consistently applied throughout the
periods involved. There has been no adverse change or development
involving a material prospective change in the condition, financial or
otherwise, or in the earnings, position, prospects, value, operation,
properties, business, or results of operations of the Company whether
or not arising in the ordinary course of business, since the date of
the financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and
intangible, and the business of the Company conform in all material
respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information set forth in the
Prospectus under the headings "Summary Financial Information,"
"Selected Financial Data," "Capitalization," and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," fairly present, on the basis stated in the Prospectus, the
information set forth therein, and have been derived
4
<PAGE>
from or compiled on a basis consistent with that of the audited
financial statements included in the Prospectus.
(vii) The Company (i) has paid all federal, state, local, and foreign taxes
for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal
Revenue Code of 1986 (the "Code"), and has furnished all information
returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and
payable, and (iii) does not have any tax deficiency or claims
outstanding, proposed or assessed against it.
(viii) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the
Securities from the Company, (iii) the consummation by the Company of
any of its obligations under this Agreement or the Representative's
Warrant Agreement, or (iv) resales of the Securities in connection with
the distribution contemplated hereby.
(ix) The Company maintains insurance policies, including, but not limited
to, general liability and property insurance, which insures the Company
and its employees, against such losses and risks generally insured
against by comparable businesses. The Company (A) has not failed to
give notice or present any insurance claim with respect to any matter,
including but not limited to the Company's business, property or
employees, under the insurance policy or surety bond in a due and
timely manner, (B) does not have any disputes or claims against any
underwriter of such insurance policies or surety bonds or has not
failed to pay any premiums due and payable thereunder, or (C) has not
failed to comply with all conditions contained in such insurance
policies and surety bonds. There are no facts or circumstances under
any such insurance policy or surety bond which would relieve any
insurer of its obligation to satisfy in full any valid claim of the
Company.
(x) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against
(or circumstances that may give rise to the same), or involving the
properties or business of, the Company which (i) questions the validity
of the capital stock of the Company, this Agreement or the
Representative's Warrant Agreement or of any action taken or to be
taken by the Company pursuant to or in connection with this Agreement
or the Representative's Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects), or (iii) might materially and
adversely affect the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of the Company.
(xi) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, enter into this Agreement and
the
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Representative's Warrant Agreement and to consummate the transactions
provided for in such agreements; and this Agreement and the
Representative's Warrant Agreement have each been duly and properly
authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement constitutes a
legal, valid and binding agreement of the Company enforceable against
the Company in accordance with its terms, except (i) as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, (ii) as enforceability of any
indemnification or contribution provisions may be limited under
applicable laws or the public policies underlying such laws and (iii)
that the remedies of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceedings may be
brought. None of the Company's issue and sale of the Securities,
execution or delivery of this Agreement or the Representative's Warrant
Agreement, its performance hereunder and thereunder, its consummation
of the transactions contemplated herein and therein, or the conduct of
its business as described in the Registration Statement and the
Prospectus, and any amendments or supplements thereto, conflicts with
or will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of
any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Company pursuant to
the terms of, (i) the certificate of incorporation or by-laws of the
Company, (ii) any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which the Company is a party or by which it is or may be bound or to
which any of its properties or assets (tangible or intangible) is or
may be subject, or any indebtedness, or (iii) any statute, judgment,
decree, order, rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Company or any of its activities
or properties.
(xii) Except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory
body, government agency or other body, domestic or foreign, is required
for the issuance of the Securities pursuant to the Prospectus and the
Registration Statement, the issuance of the Representative's Warrants,
the performance of this Agreement and the Representative's Warrant
Agreement and the transactions contemplated hereby and thereby,
including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the
issue and/or sale of any of the Shares, or the Representative's
Warrants, except such as have been or may be obtained under the Act or
may be required under state securities or Blue Sky laws in connection
with the Representative's purchase and distribution of the Shares, and
the Representative's Warrants to be sold by the Company hereunder.
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<PAGE>
(xiii) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which
it may be bound or to which any of its assets, properties or business
may be subject have been duly and validly authorized, executed and
delivered by the Company, and constitute the legal, valid and binding
agreements of the Company, enforceable against the Company, in
accordance with their respective terms, except (i) as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, (ii) as enforceability of any
indemnification or contribution provisions may be limited under
applicable laws or the public policies underlying such laws and (iii)
that the remedies of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceedings may be
brought. The descriptions in the Registration Statement of agreements,
contracts and other documents are accurate and fairly present the
information required to be shown with respect thereto by Form SB-2, and
there are no contracts or other documents which are required by the Act
to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and
correct copies of the documents of which they purport to be copies.
(xiv) Subsequent to the respective dates as of which information is set forth
in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company
has not (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into
any transaction other than in the ordinary course of business, or (iii)
declared or paid any dividend or made any other distribution on or in
respect of its capital stock of any class, and there has not been any
change in the capital stock, or any material change in the debt (long
or short term) or liabilities or material adverse change in or
affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of the Company.
(xv) No default exists in the due performance and observance of any term,
covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material
agreement or instrument to which the Company is a party or by which the
Company may be bound or to which the property or assets (tangible or
intangible) of the Company is or may be subject or affected.
(xvi) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance with all federal,
state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages
and hours. There are no pending investigations involving the Company by
the U.S. Department of Labor, or any other governmental agency
responsible for the enforcement of such federal, state, local,
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<PAGE>
or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or threatened against or involving the
Company or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company,
and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending under any expired or existing collective
bargaining agreements of the Company. No labor dispute with the
employees of the Company exists, or is imminent.
(xvii) Except as described in the Prospectus, the Company does not maintain,
sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or
a "multiemployer plan" as such terms are defined in Sections 3(2), 3(1)
and 3(37), respectively, of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not
maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the Code,
which could subject the Company to any tax penalty on prohibited
transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA
Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the
attendant trust are qualified thereunder. The Company has never
completely or partially withdrawn from a "multiemployer plan."
(xviii) Neither the Company nor any of its employees, directors, stockholders,
partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing has taken or will take, directly
or indirectly, any action designed to or which has constituted or which
might be expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Securities or
otherwise.
(xix) Except as otherwise disclosed in the Prospectus, none of the patents,
patent applications, trademarks, service marks, service names, trade
names and copyrights and none of the licenses and rights to the
foregoing presently owned or held by the Company are in dispute or are
in any conflict with the right of any other person or entity. The
Company (i) owns or has the right to use, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or
other restrictions or equities of any kind whatsoever, all patents,
patent applications, trademarks, service marks, service names, trade
names and copyrights, technology and licenses and rights with respect
to the foregoing, used in the conduct of its business as now conducted
or proposed to be conducted without infringing upon or otherwise acting
adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is
not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or
other
8
<PAGE>
claimant to, any patent, patent application, trademark, service mark,
service names, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise. There is no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or
governmental or other proceeding, domestic or foreign, pending or
threatened (or circumstances that may give rise to the same) against
the Company which challenges the exclusive rights of the Company with
respect to any trademarks, trade names, service marks, service names,
copyrights, patents, patent applications or licenses or rights to the
foregoing used in the conduct of its business, or which challenge the
right of the Company to use any technology presently used or
contemplated to be used in the conduct of its business.
(xx) The Company owns and has the unrestricted right to use all trade
secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
inventions, technology, designs, processes, works of authorship,
computer programs and technical data and information (collectively
herein "intellectual property") that are material to the development,
manufacture, operation and sale of all products and services sold or
proposed to be sold by the Company, free and clear of and without
violating any right, lien, or claim of others, including without
limitation, former employers of its employees; provided, however, that
the possibility exists that other persons or entities, completely
independently of the Company, or its employees or agents, could have
developed trade secrets or items of technical information similar or
identical to those of the Company. The Company is not aware of any such
development of similar or identical trade secrets or technical
information by others.
(xxi) The Company has good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property stated in
the Prospectus, to be owned or leased by it free and clear of all
liens, charges, claims, encumbrances, pledges, security interests,
defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not
yet due and payable.
(xxii) Richard A. Eisner & Company, LLP ("Eisner") whose report is filed with
the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
(xxiii) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which all of the officers and
directors of the Company, all holders of the Common Stock and holders
of securities exchangeable or exercisable for or convertible into
shares of Common Stock have agreed not to, directly or indirectly,
offer to sell, sell, grant any option for the sale of, assign,
transfer, pledge, hypothecate, distribute or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144
of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than twelve (12) months
following the effective date of the Registration Statement without the
prior written consent of the Representative. During the twelve (12)
<PAGE>
month period commencing on the effective date of the Registration
Statement, the Company shall not, without the prior written consent of
the Representative, sell, contract or offer to sell, issue, transfer,
assign, pledge, distribute or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock, except up to
_________ shares of Common Stock reserved for grants of options under
the Company's stock option plan as described in the Prospectus. The
Company will cause the Transfer Agent, as defined below, to mark an
appropriate legend on the face of stock certificates representing all
of such securities and to place "stop transfer" orders on the Company's
stock ledgers.
(xxiv) Except as described in the Prospectus under "Underwriting," there are
no claims, payments, issuances, arrangements or understandings, whether
oral or written, for services in the nature of a finder's or
origination fee with respect to the sale of the Securities hereunder or
any other arrangements, agreements, understandings, payments or
issuance with respect to the Company or any of its officers, directors,
stockholders, partners, employees or affiliates that may affect the
Underwriters' compensation, as determined by the National Association
of Securities Dealers, Inc. ("NASD").
(xxv) The Common Stock has been approved for quotation on the Nasdaq SmallCap
Market ("Nasdaq").
(xxvi) Neither the Company nor any of its officers, employees, agents, or any
other person acting on behalf of the Company, has, directly or
indirectly, given or agreed to give any money, gift or similar benefit
(other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer
or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or
foreign) or other person who was, is, or may be in a position to help
or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (a) might
subject the Company, or any other such person to any damage or penalty
in any civil, criminal or governmental litigation or proceeding
(domestic or foreign), (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the
Company, or (c) if not continued in the future, might adversely affect
the assets, business, operations or prospects of the Company. The
Company's internal accounting controls are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as
amended.
(xxvii) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these
terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any of the foregoing persons or entities has, either
directly or indirectly, (i) an interest in any person or entity which
(A) furnishes or sells services or products which are furnished or sold
or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or
services, or (ii) a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or
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<PAGE>
affected. Except as set forth in the Prospectus under "Certain
Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company and any
officer, director, or Principal Stockholder (as such term is defined in
the Prospectus) of the Company or any partner, affiliate or associate
of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company, and delivered to
the Underwriters or to Underwriters' Counsel (as defined herein) shall
be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(xxix) The minute books of the Company have been made available to the
Underwriters and contain a complete summary of all meetings and actions
of the directors, stockholders, audit committee, compensation committee
and any other committee of the Board of Directors of the Company,
respectively, since the time of its incorporation, and reflects all
transactions referred to in such minutes accurately in all material
respects.
(xxx) Except and to the extent described in the Prospectus, no holders of any
securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to
include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or
to require the Company to file a registration statement under the Act
and no person or entity holds any anti-dilution rights with respect to
any securities of the Company.
(xxxi) The Company has reviewed its operations and any third parties with
which the Company has a material relationship to evaluate the extent to
which the business or operations of the Company will be affected by
Year 2000 issues. As a result of such review, the Company represents
and warrants that the disclosure in the Registration Statement relating
to Year 2000 issues is accurate and complies in all material respects
with the rules and regulations of the Act. "Year 2000 issues" as used
herein means Year 2000 issues described in or contemplated by the
Commission's Interpretation: Disclosure of Year 2000 issues and
consequences by Public Companies, Investment Advisers, Investment
Companies, and Municipal Securities Issuers (Release No. 33-7558).
(xxxii) The Company has as of the effective date of the Registration Statement
(i) entered into an employment agreement with Kenneth Ehrman, Jeffrey
Jagid, N. Bert Loosmore and Michael Ehrman, in the form filed as
Exhibits 10._, 10._, 10._ and 10._, respectively to the Registration
Statement [and (ii) purchased term key-man insurance on the life of
[_________] in the amount of $[_________], which policy names the
Company as the sole beneficiary thereof].
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<PAGE>
2. Purchase, Sale and Delivery of the Securities and Representative's
Warrants.
(a) On the basis of the representations, warranties, covenants and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees to
purchase from the Company at a price of $____ per share [92% of the initial
public offering price] of Common Stock, that number of Firm Shares set forth in
Schedule A opposite the name of such Underwriter, subject to adjustment as the
Representative in its sole discretion shall make to eliminate any sales or
purchases of fractional shares, plus any additional number of Firm Shares which
such Underwriter may become obligated to purchase pursuant to the provisions of
Section 11 hereof.
(b) In addition, on the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Underwriters to purchase all
or any part of an additional 300,000 shares of Common Stock at a price of $___
per share of Common Stock [92% of the initial public offering price]. The option
granted hereby will expire 45 days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
Rules and Regulations, or (ii) the date of this Agreement if the Company has
elected to rely upon Rule 430A under the Rules and Regulations, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Shares upon notice by the Representative to the Company
setting forth the number of Option Shares as to which Representative is then
exercising the option and the time and date of payment and delivery for any such
Option Shares. Any such time and date of delivery (an "Option Closing Date")
shall be determined by the Representative, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Date, as hereinafter defined, unless otherwise agreed upon by the
Representative and the Company. Nothing herein contained shall obligate the
Underwriters to make any over-allotments. No Option Shares shall be delivered
unless the Firm Shares shall be simultaneously delivered or shall theretofore
have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates for, the
Firm Shares shall be made at the offices of Gilford at 850 Third Avenue, New
York, New York, 10022, or at such other place as shall be agreed upon by the
Representative and the Company. Such delivery and payment shall be made at 10:00
a.m. (New York City time) on __________, 1999 or at such other time and date as
shall be agreed upon by the Representative and the Company, but not less than
three (3) nor more than seven (7) full business days after the effective date of
the Registration Statement (such time and date of payment and delivery being
herein called "Closing Date"). In addition, in the event that any or all of the
Option Shares are purchased by the Underwriters, payment of the purchase price
for, and delivery of certificates for, such Option Shares shall be made at the
above-mentioned office of the Representative or at such other place as shall be
agreed upon by the Representative and the Company on each Option Closing Date as
specified in the notice from the Representative to the Company. Delivery of the
certificates for the Firm Shares and the Option Shares, if any, shall be made to
the Underwriters against payment by the Underwriters of the purchase price for
the Firm Shares and the Option Shares, if any, to the order of the Company for
the Firm Shares and the Option Shares, if any, by New York Clearing House funds.
Certificates for the Firm Shares and the Option Shares, if any,
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<PAGE>
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and registered in such names as the
Representative may request in writing at least two (2) business days prior to
the Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Shares and the Option Shares, if any, shall be made
available to the Representative at such office or such other place as the
Representative may designate for inspection, checking and packaging no later
than 9:30 a.m. on the last business day prior to Closing Date or the relevant
Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the Representative,
Representative's Warrants at a purchase price of $.0001 per warrant, which
warrants shall entitle the holders thereof to purchase an aggregate of 200,000
shares of Common Stock. The Representative's Warrants shall be exercisable for a
period of four years commencing one year from the effective date of the
Registration Statement at a price equaling one hundred twenty percent (120%) of
the initial public offering price of the shares of Common Stock. The
Representative's Warrant Agreement and form of Warrant Certificate shall be
substantially in the form filed as Exhibit __ to the Registration Statement.
Payment for the Representative's Warrants shall be made on the Closing Date.
3. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which qualification of the Shares is required and
has not become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
public offering price after distribution of the Shares has been completed to
such extent as the Representative, in its discretion deems advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and agrees
with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration Statement
and any amendments thereto to become effective as promptly as practicable and
will not at any time, whether before or after the effective date of the
Registration Statement, file any amendment to the Registration Statement or
supplement to the Prospectus or file any document under the Act or Exchange Act
before termination of the offering of the Shares by the Underwriters of which
the Underwriters shall not previously have been advised and furnished with a
copy, or to which the Underwriters shall have objected or which is not in
compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the Company
will advise the Underwriters and confirm the notice in writing, (i) when the
Registration Statement, as amended, becomes effective, if the provisions of Rule
430A promulgated under the Act will be relied upon, when the Prospectus has been
filed in accordance with said Rule 430A and when any post-effective amendment to
the Registration Statement becomes effective, (ii) of the issuance by the
Commission of any stop order or of the initiation, or the threatening, of any
proceeding, suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or
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<PAGE>
any amendment or supplement thereto, or the institution of proceedings for that
purpose, (iii) of the issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the qualification of any of
the Securities for offering or sale in any jurisdiction or of the initiation, or
the threatening, of any proceeding for that purpose, (iv) of the receipt of any
comments from the Commission; and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities commission authority shall enter a stop order or suspend such
qualification at any time, the Company will make every effort to obtain promptly
the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance satisfactory to
the Underwriters) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to Rule 424(b)(1) (or, if
applicable and if consented to by the Underwriters, pursuant to Rule 424(b)(4))
not later than the Commission's close of business on the earlier of (i) the
second business day following the execution and delivery of this Agreement and
(ii) the fifteenth business day after the effective date of the Registration
Statement.
(d) The Company will give the Representative notice of its intention to file or
prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Underwriters with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the Underwriters
or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel"), shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Underwriters, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriters may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Underwriters agree that such action is not at the
time necessary or advisable, use all reasonable efforts to file and make such
statements or reports at such times as are or may reasonably be required by the
laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under the Act,
the Company shall use all reasonable efforts to comply with all requirements
imposed upon it by the Act and the Exchange Act, as now and hereafter amended
and by the Rules and Regulations, as from time to time in force, so far as
necessary to permit the continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and the Prospectus, or
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any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities are required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Underwriters promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45 days after the
end of the 12-month period beginning on the day after the end of the fiscal
quarter of the Company during which the effective date of the Registration
Statement occurs (90 days in the event that the end of such fiscal quarter is
the end of the Company's fiscal year), the Company shall make generally
available to its security holders, in the manner specified in Rule 158(b) of the
Rules and Regulations, and to the Underwriters, an earnings statement which will
be in the detail required by, and will otherwise comply with, the provisions of
Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least 12 consecutive months after the effective date of the Registration
Statement.
(h) During a period of seven years after the date hereof, the Company will
furnish to its stockholders, as soon as practicable, annual reports (including
financial statements audited by independent public accountants) and unaudited
quarterly reports of earnings, and will deliver to the Underwriters:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its stockholders, a
balance sheet of the Company as at the end of the preceding fiscal
year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy
of the certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports (financial or
other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
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(v) every press release and every material news item or article of interest
to the financial community in respect of the Company, or its affairs
which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning the Company
(and any future subsidiary) or its businesses which the Underwriters
may request.
(vii) During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to
the extent that the accounts of the Company and its subsidiary are
consolidated, and will be accompanied by similar financial statements
for any significant subsidiary which is not so consolidated.
(i) The Company will maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Underwriters or on Underwriters' order,
without charge, at such place as the Underwriters may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (two of which copies will be signed and will
include all financial statements and exhibits), the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement, in each case as soon as available
and in such quantities as the Underwriters may request.
(k) On or before the effective date of the Registration Statement, the Company
shall provide the Underwriters with true copies of duly executed, legally
binding and enforceable agreements pursuant to which for a period of twelve (12)
months from the effective date of the Registration Statement, the officers and
directors of the Company, holders of all shares of Common Stock and holders of
securities exchangeable or exercisable for or convertible into shares of Common
Stock, agree that it or he or she will not directly or indirectly, issue, offer
to sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate, distribute or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior written consent of
the Underwriters and the Company (collectively, the "Lock-up Agreements"). On or
before the Closing Date, the Company shall deliver instructions to the Transfer
Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers. During the twelve
(12) month period commencing on the effective date of the Registration
Statement, and except as contemplated by this Agreement, the Company will not,
without the prior written consent of the Underwriters, sell, contract or offer
to sell, issue, transfer, assign, pledge, hypothecate, distribute, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any options,
rights or warrants with respect to any shares of Common Stock, except pursuant
to stock options issued by the Company or any other person or entity on the date
hereof or up to [______] shares
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<PAGE>
of Common Stock issuable pursuant to options which may be granted after the date
hereof, provided, however, that such options shall have an exercise price which
is at least equal to the greater of (a) the initial public offering price per
share of Common Stock and (b) the fair market value of the Common Stock on the
date of grant or (ii) file any registration statement for the offer or sale by
the Company or any other person or entity securities issued or to be issued by
the Company or any present or future subsidiaries.
(l) Neither the Company, nor any of its officers, directors, stockholders, nor
any of their respective affiliates (within the meaning of the Regulations) will
take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the Securities in
the manner, and subject to the conditions, set forth under "Use of Proceeds" in
the Prospectus. Except as described in the Prospectus, no portion of the net
proceeds will be used, directly or indirectly, to acquire any securities issued
by the Company.
(n) The Company shall timely file all such reports, forms or other documents as
may be required (including, but not limited to, a Form SR as may be required
pursuant to Rule 463 under the Act) from time to time, under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Underwriters as early as practicable prior
to each of the date hereof, the Closing Date and each Option Closing Date, if
any, but no later than two (2) full business days prior thereto, a copy of the
latest available unaudited interim financial statements of the Company (which in
no event shall be as of a date more than thirty (30) days prior to the date of
the Registration Statement) which have been read by the Company's independent
public accountants, as stated in its letter to be furnished pursuant to Section
6(j) hereof.
(p) The Company shall cause the Common Stock to be quoted on Nasdaq and for a
period of seven (7) years from the date hereof, use its best efforts to maintain
the Nasdaq quotation of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company shall
furnish to the Underwriters at the Representative's request and at the Company's
sole expense, (i) daily consolidated transfer sheets relating to the Common
Stock (ii) the list of holders of all of the Company's securities and (iii) a
Blue Sky "Trading Survey" for secondary sales of the Company's securities
prepared by counsel to the Company.
(r) For a period of five (5) years from the Closing Date, the Company shall, at
the Company's sole expense, (i) promptly provide the Underwriter, upon any and
all requests of the Underwriter, with a "blue sky trading survey" for secondary
sales of the Company's securities, prepared by counsel to the Company, and (ii)
take all necessary and appropriate actions to further qualify the Company's
securities in all jurisdictions of the United States in
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<PAGE>
order to permit secondary sales of such securities pursuant to the "blue sky"
laws of those jurisdictions, provided that such jurisdictions do not require the
Company to qualify as a foreign corporation.
(s) As soon as practicable, (i) but in no event more than 5 business days before
the effective date of the Registration Statement, file a Form 8-A with the
Commission providing for the registration under the Exchange Act of the
Securities and (ii) but in no event more than 30 days from the effective date of
the Registration Statement, take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions and Moody's OTC Manual
and to continue such inclusion for a period of not less than seven (7) years.
(t) The Company hereby agrees that it will not for a period of twelve (12)
months from the effective date of the Registration Statement, (i) adopt, propose
to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or arrangement permitting the grant, issue or
sale of any shares of Common Stock or other securities of the Company (ii) in an
amount greater than an aggregate of [_________] shares of Common Stock (iii) at
an exercise or sale price per share less than the greater of (a) the initial
public offering price of the Shares set forth herein and (b) the fair market
value of the Common Stock on the date of grant or sale, (iv) to any direct or
indirect beneficial holder on the date hereof of more than 5% of the issued and
outstanding shares of Common Stock, (v) with the payment for such securities
with any form of consideration other than cash, (vi) upon payment of less than
the full purchase or exercise price for such shares of Common Stock or other
securities of the Company on the date of grant or issuance, or (vii) permitting
the existence of stock appreciation rights, phantom options or similar
arrangements.
(u) Until the completion of the distribution of the Shares, the Company shall
not without the prior written consent of the Underwriters and Underwriters'
Counsel, issue, directly or indirectly, any press release or other communication
or hold any press conference with respect to the Company or its activities or
the offering contemplated hereby.
(v) For a period equal to the lesser of (i) five (5) years from the date hereof,
and (ii) the sale to the public of the Underwriters' Shares, the Company will
not take any action or actions which may prevent or disqualify the Company's use
of Form SB-2 (or other appropriate form) for the registration under the Act of
the Underwriters's Shares.
(w) For a period of three (3) years after the effective date of the Registration
Statement, the Underwriters shall have the right to designate for election one
(1) individual to the Company's Board of Directors (the "Board"). In the event
the Representative elects not to exercise such right, then it may designate one
(1) individual to attend meetings of the Company's Board. The Company shall
notify the Representative of each meeting of the Board and the Company shall
send to such individual all notices and other correspondence and communications
sent by the Company to members of the Board. Such individual shall be reimbursed
for all out-of-pocket expenses incurred in connection with his attendance of
meetings of the Board.
(x) For a period of twenty-four (24) months after the effective date of the
Registration Statement, the Company shall not restate, amend or alter any term
of any written employment, consulting or similar agreement entered into between
the Company and any officer, director or key employee as of the effective date
of the Registration Statement in a manner which is more favorable to such
officer,
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<PAGE>
director or key employee, without the prior written consent of the Underwriters.
(y) For a period of twelve (12) months after the effective date of the
Registration Statement, the Underwriters shall have a right of first refusal for
all sales of securities made by the Company or any of its present or future
affiliates or subsidiaries.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and the Option
Closing Date (to the extent not paid at the Closing Date) all expenses and fees
(other than fees of Underwriters' Counsel, except as provided in (iv) below)
incident to the performance of the obligations of the Company under this
Agreement and the Representative's Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Shares and the purchase by the Representative of the Representative's
Warrants from the Company, (y) the consummation by the Company of any of its
obligations under this Agreement and the Representative's Warrant Agreement, and
(z) resale of the Shares by the Underwriters in connection with the distribution
contemplated hereby, (iv) the qualification of the Securities under state or
foreign securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, (v) advertising costs and expenses,
including but not limited to costs and expenses in connection with the "road
show", information meetings and presentations, bound volumes and prospectus
memorabilia and "tomb-stone" advertisement expenses, (vi) costs and expenses in
connection with due diligence investigations, including but not limited to the
fees of any independent counsel or consultant retained, (vii) fees and expenses
of the transfer agent and registrar, (viii) applications for assignments of a
rating of the Securities by qualified rating agencies, (ix) the fees payable to
the Commission and the NASD, and (x) the fees and expenses incurred in
connection with the quotation of the Securities on Nasdaq and any other
exchange.
(b) If this Agreement is terminated by the Underwriters in accordance with the
provisions of Section 6 or Section 11, the Company shall reimburse and indemnify
the Underwriters for all of its actual out-of-pocket expenses, including the
fees and disbursements of Underwriters' Counsel, less any amounts already paid
pursuant to Section 5(c) hereof.
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<PAGE>
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to the Representative
on the Closing Date by certified or bank cashier's check or, at the election of
the Representative, by deduction from the proceeds of the offering contemplated
herein a non-accountable expense allowance equal to two percent (2%) of the
gross proceeds received by the Company from the sale of the Firm Shares, $25,000
of which has been paid to date. In the event the Representative elects to
exercise the over-allotment option described in Section 2(b) hereof, the Company
agrees to pay to the Representative on the Option Closing Date (by certified or
bank cashier's check or, at the Representative's election, by deduction from the
proceeds of the Option Shares) a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds received by the Company from the sale of the
Option Shares.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, with respect to the
Company as if it had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of the officers of the Company
made pursuant to the provisions hereof; and the performance by the Company on
and as of the Closing Date and each Option Closing Date, if any, of its
covenants and obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later than 12:00
Noon, New York time, on the date of this Agreement or such later date and time
as shall be consented to in writing by the Underwriters, and, at the Closing
Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to Closing Date the Company shall
have provided evidence satisfactory to the Underwriters of such timely filing,
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Underwriters shall not have advised the Company that the Registration
Statement, or any amendment thereto, contains an untrue statement of fact which,
in the Underwriters' opinion, is material, or omits to state a fact which, in
the Underwriters' opinion, is material and is required to be stated therein or
is necessary to make the statements therein not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Underwriters' opinion, is material, or omits to state a fact
which, in the Underwriters' opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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<PAGE>
(c) On or prior to the Closing Date, the Underwriters shall have received from
Underwriters' Counsel, such opinion or opinions with respect to the organization
of the Company, the validity of the Securities, the Representative's Warrants,
the Registration Statement, the Prospectus and other related matters as the
Underwriters may request and Underwriters' Counsel shall have received such
papers and information as they request to enable them to pass upon such matters.
(d) At Closing Date, the Underwriter shall have received the favorable opinion
of Parker Chapin Flattau & Klimpl, LLP, counsel to the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) the Company (A) has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction, (B) is
duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such
qualification or licensing, and (C) has all requisite corporate power
and authority; and the Company has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and
has been doing business in material compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises
and permits and all federal, state and local laws, rules and
regulations; the Company has not received any notice of proceedings
relating to the revocation or modification of any such authorization,
approval, order, license, certificate, franchise, or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially adversely affect the business,
operations, condition, financial or otherwise, or the earnings,
business affairs, position, prospects, value, operation, properties,
business or results of operations of the Company. The disclosures in
the Registration Statement concerning the effects of federal, state and
local laws, rules and regulations on the Company's business as
currently conducted and as contemplated are correct in all material
respects and do not omit to state a fact necessary to make the
statements contained therein not misleading in light of the
circumstances in which they were made;
(ii) the Company does not own an interest in any other corporation,
partnership, joint venture, trust or other business entity;
(iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization" and "Description of
Securities," and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue
any capital stock, rights, warrants, options or other securities,
except for this Agreement, the Representative's Warrant Agreement and
as described in the Prospectus. The Securities, and all other
securities issued or issuable by the Company conform in all material
respects to all statements with respect thereto contained in the
Registration Statement and
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<PAGE>
the Prospectus. All issued and outstanding securities of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of
the Company. The Shares, the Representative's Warrants and the
Representative's Shares to be sold by the Company hereunder and under
the Representative's Warrant Agreement are not and will not be subject
to any preemptive or other similar rights of any stockholder, have been
duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof, will be validly issued, fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Shares, the Representative's
Warrants and the Representative's Shares has been duly and validly
taken; and the certificates representing the Shares and the
Representative's Warrants are in due and proper form. The
Representative's Warrants constitute valid and binding obligations of
the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called for
thereby. Upon the issuance and delivery pursuant to this Agreement and
the Representative's Warrant Agreement of the Shares and the
Representative's Warrants, respectively, to be sold by the Company, the
Representative and the Representative, respectively, will acquire good
and marketable title to the Shares and Representative's Warrants free
and clear of any pledge, lien, charge, claim, encumbrance, pledge,
security interest, or other restriction or equity of any kind
whatsoever. No transfer tax is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the Company of the
Shares, (B) the purchase by the Underwriters of the Shares and the
Representative's Warrants, respectively, from the Company, (C) the
consummation by the Company of any of its obligations under this
Agreement or the Representative's Warrant Agreement, or (D) resales of
the Shares in connection with the distribution contemplated hereby;
(iv) the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the
use of the Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the effectiveness
of the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or, to the best of
such counsel's knowledge, threatened or contemplated under the Act;
(v) each of the Preliminary Prospectus, the Registration Statement, and the
Prospectus and any amendments or supplements thereto (other than the
financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in
all material respects with the requirements of the Act and the Rules
and Regulations;
(vi) to the best of such counsel's knowledge, (A) there are no agreements,
contracts or other documents required by the Act to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration
Statement (or required to be filed
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<PAGE>
under the Exchange Act if upon such filing they would be incorporated,
in whole or in part, by reference therein) and the Prospectus and filed
as exhibits thereto, and the exhibits which have been filed are correct
copies of the documents of which they purport to be copies; (B) the
descriptions in the Registration Statement and the Prospectus and any
supplement or amendment thereto of contracts and other documents to
which the Company is a party or by which it is bound, including any
document to which the Company is a party or by which it is bound,
incorporated by reference into the Prospectus and any supplement or
amendment thereto, are accurate in all material respects and fairly
represent the information required to be shown by Form SB-2; (C) there
is not pending or threatened against the Company any action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of the
Company which (x) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in
all material respects), (y) questions the validity of the capital stock
of the Company or this Agreement or the Representative's Warrant
Agreement, or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and (E) there
is no action, suit or proceeding pending, or threatened, against or
affecting the Company before any court or arbitrator or governmental
body, agency or official (or any basis thereof known to such counsel)
in which there is a reasonable possibility of an adverse decision which
may result in a material adverse change in the condition, financial or
otherwise, or the earnings, position, prospects, stockholders' equity,
value, operation, properties, business or results of operations of the
Company, which could adversely affect the present or prospective
ability of the Company to perform its obligations under this Agreement
or the Representative's Warrant Agreement or which in any manner draws
into question the validity or enforceability of this Agreement or the
Representative's Warrant Agreement;
(vii) the Company has full legal right, power and authority to enter into
each of this Agreement and the Representative's Warrant Agreement and
to consummate the transactions provided for herein and therein; and
each of this Agreement and the Representative's Warrant Agreement has
been duly authorized, executed and delivered by the Company. Each of
this Agreement and the Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution or
delivery of this Agreement and the Representative's Warrant Agreement,
its performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, conflicts with or
23
<PAGE>
will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute
a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the terms
of, (A) the certificate of incorporation or by-laws of the Company, (B)
any license, contract, indenture, mortgage, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement or
any other agreement or instrument to which the Company is a party or by
which it is or may be bound or to which any of its respective
properties or assets (tangible or intangible) is or may be subject, or
any indebtedness, or (C) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency
or body (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties;
(viii) except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory
body, government agency or other body (other than such as may be
required under Blue Sky laws, as to which no opinion need be rendered)
is required in connection with the issuance of the Shares pursuant to
the Prospectus, the issuance of the Representative's Warrants, and the
Registration Statement, the performance of this Agreement and the
Representative's Warrant Agreement, and the transactions contemplated
hereby and thereby;
(ix) the properties and business of the Company conform in all material
respects to the description thereof contained in the Registration
Statement and the Prospectus; and the Company has good and marketable
title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus to be owned or
leased by it, in each case free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and
payable.
(x) to the best knowledge of such counsel, the Company is not in breach of,
or in default under, any term or provision of any license, contract,
indenture, mortgage, installment sale agreement, deed of trust, lease,
voting trust agreement, stockholders' agreement, partnership agreement,
note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the Company may
be bound or to which the property or assets (tangible or intangible) of
the Company is subject or affected; and the Company is not in violation
of any term or provision of its certificate of incorporation by-laws,
or in violation of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation;
(xi) the statements in the Prospectus under "BUSINESS," "MANAGEMENT,"
"PRINCIPAL SHAREHOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION OF
SECURITIES," and "SHARES ELIGIBLE
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FOR FUTURE SALE" have been reviewed by such counsel, and insofar as
they refer to statements of law, descriptions of statutes, licenses,
rules or regulations or legal conclusions, are correct in all material
respects;
(xii) the Shares have been accepted for quotation on the Nasdaq;
(xiii) the persons listed under the caption "PRINCIPAL SHAREHOLDERS" in the
Prospectus are the respective "beneficial owners" (as such phrase is
defined in regulation 13d-3 under the Exchange Act) of the securities
set forth opposite their respective names thereunder as and to the
extent set forth therein;
(xiv) except as described in the Prospectus, no person, corporation, trust,
partnership, association or other entity has the right to include
and/or register any securities of the Company in the Registration
Statement, require the Company to file any registration statement or,
if filed, to include any security in such registration statement;
(xv) except as described in the Prospectus, there are no claims, payments,
issuances, arrangements or understandings for services in the nature of
a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangement or any other
arrangements, agreements, understandings, payments or issuances that
may affect the Underwriters' compensation, as determined by the NASD;
(xvi) assuming due execution by the parties thereto other than the Company,
the Lock-up Agreements are legal, valid and binding obligations of
parties thereto, enforceable against the party and any subsequent
holder of the securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law); and
(xvii) except as described in the Prospectus, the Company does not (A)
maintain, sponsor or contribute to any ERISA Plans, (B) maintain or
contribute, now or at any time previously, to a defined benefit plan,
as defined in Section 3(35) of ERISA, and (C) has never completely or
partially withdrawn from a "multiemployer plan".
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters were discussed and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or
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the Preliminary Prospectus or Prospectus or amendment or supplement thereto as
of the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus).
Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991), or any
comparable State bar accord.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company, and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion shall also state that the Underwriters' Counsel is entitled to rely
thereon. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and
that the Underwriters and they are justified in relying thereon.
(e) At the Closing Date, the Underwriters shall have received the favorable
opinion, satisfactory in form and substance to Underwriters' Counsel, from
Graham & James LLP, intellectual property counsel to the Company, to the effect
set forth in Exhibit A.
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Parker Chapin Flattau & Klimpl, LLP,
counsel to the Company, and Graham & James LLP, intellectual property counsel to
the Company, each dated the Option Closing Date, addressed to the Underwriters
and in form and substance satisfactory to Underwriters' Counsel confirming as of
the Option Closing Date the statements made by each of Parker Chapin Flattau &
Klimpl, LLP and Graham & James LLP in their respective opinions delivered on the
Closing Date.
(f) On or prior to each of the Closing Date and the Option Closing Date, if any,
Underwriters' Counsel shall have been furnished such documents, certificates and
opinions as they may reasonably require for the purpose of enabling them to
review or pass upon the matters referred to in subsection (c) of this Section 6,
or in order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions of the Company, or herein contained.
(g) Prior to each of the Closing Date and each Option Closing Date, if any, (i)
there shall have been no material adverse change nor development involving a
prospective
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change in the condition, financial or otherwise, prospects, stockholders' equity
or the business activities of the Company, whether or not in the ordinary course
of business, from the latest dates as of which such condition is set forth in
the Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in default under any
provision of any instrument relating to any outstanding indebtedness; (iv) the
Company shall not have issued any securities (other than the Securities); the
Company shall not have declared or paid any dividend or made any distribution in
respect of its capital stock of any class; and there has not been any change in
the capital stock of the Company, or any material change in the debt (long or
short term) or liabilities or obligations of the Company (contingent or
otherwise); (v) no material amount of the assets of the Company shall have been
pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall have
been pending or threatened (or circumstances giving rise to same) against the
Company, or affecting any of its properties or business before or by any court
or federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may adversely affect the
business, operations, prospects or financial condition or income of the Company,
except as set forth in the Registration Statement and Prospectus; and (vii) no
stop order shall have been issued under the Act and no proceedings therefor
shall have been initiated, threatened or contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this Agreement are
true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied
with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at
or prior to such Closing Date or Option Closing Date, as the case may
be;
(ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the best of
each of such person's knowledge, after due inquiry are contemplated or
threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading and neither the Preliminary Prospectus
or any supplement thereto included
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<PAGE>
any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and
(iv) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, (a) the Company has not
incurred up to and including the Closing Date or the Option Closing
Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or
contingent; (b) the Company has not paid or declared any dividends or
other distributions on its capital stock; (c) the Company has not
entered into any transactions not in the ordinary course of business;
(d) there has not been any change in the capital stock of the Company
or any material change in the debt (long or short-term) of the Company;
(e) the Company has not sustained any material loss or damage to its
property or assets, whether or not insured; (g) there is no litigation
which is pending or threatened (or circumstances giving rise to same)
against the Company, or any affiliated party of any of the foregoing
which is required to be set forth in an amended or supplemented
Prospectus which has not been set forth; and (h) there has occurred no
event required to be set forth in an amended or supplemented Prospectus
which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received clearance from the
NASD as to the amount of compensation allowable or payable to the Underwriters,
as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters shall have received
a letter, dated such date, addressed to the Underwriters in form and substance
satisfactory (including the non-material nature of the changes or decreases, if
any, referred to in clause (iii) below) in all respects to the Underwriters and
Underwriters' Counsel, from Eisner;
(i) confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) stating that it is their opinion that the financial statements and
supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations thereunder and that the Underwriters may rely upon the
opinion of Eisner with respect to such financial statements and
supporting schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which included a reading
of the latest available unaudited interim financial statements of the
Company, a reading of the latest available minutes of the stockholders
and board of directors and the various committees of the boards of
directors of the Company, consultations with officers and other
employees of the Company responsible for financial and accounting
matters
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<PAGE>
and other specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (A) the pro forma
financial information contained in the Registration Statement and
Prospectus does not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or is not fairly presented in conformity with generally
accepted accounting principles applied on a basis consistent with that
of the audited financial statements of the Company or the unaudited pro
forma financial information included in the Registration Statement, (B)
the unaudited financial statements and supporting schedules of the
Company included in the Registration Statement do not comply as to form
in all material respects with the applicable accounting requirements of
the Act and the Rules and Regulations or are not fairly presented in
conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement, or
(C) at a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has been any change
in the capital stock of the Company, any change in the long-term debt
of the Company, or any decrease in the stockholders' equity of the
Company or any decrease in the net current assets or net assets of the
Company as compared with amounts shown in the _____, 1999 balance
sheets included in the Registration Statement, other than as set forth
in or contemplated by the Registration Statement, or, if there was any
change or decrease, setting forth the amount of such change or
decrease, and (D) during the period from ______, 1999 to a specified
date not more than five (5) days prior to the effective date of the
Registration Statement, there was any decrease in net revenues or net
earnings of the Company or increase in net earnings per common share of
the Company, in each case as compared with the corresponding period
beginning _____, 1998 other than as set forth in or contemplated by the
Registration Statement, or, if there was any such decrease, setting
forth the amount of such decrease;
(iv) setting forth, at a date not later than five (5) days prior to the date
of the Registration Statement, the amount of liabilities of the Company
(including a break-down of commercial paper and notes payable to
banks);
(v) stating that they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letter and found them to be in agreement; and
(vi) statements as to such other matters incident to the transaction
contemplated hereby as the Underwriters may request.
(k) At the Closing Date and each Option Closing Date, if any, the Underwriters
shall have received from Eisner a letter, dated as of the Closing Date or the
Option
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Closing Date, as the case may be, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (j) of this
Section hereof except that the specified date referred to shall be a date not
more than five days prior to the Closing Date or the Option Closing Date, as the
case may be, and, if the Company has elected to rely on Rule 430A of the Rules
and Regulations, to the further effect that they have carried out procedures as
specified in clause (v) of subsection (j) of this Section with respect to
certain amounts, percentages and financial information as specified by the
Underwriters and deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (v).
(l) The Company shall have delivered to the Underwriters a letter from Eisner
addressed to the Company stating that they have not during the immediately
preceding two year period brought to the attention of the Company's management
any "weakness" as defined in Statement of Auditing Standards No. 60
"Communication of Internal Control Structure Related Matters Noted in an Audit,"
in any of the Company's internal controls.
(m) On each of the Closing Date and Option Closing Date, if any, there shall be
duly tendered to the Underwriters for the several Underwriters' accounts the
appropriate number of Securities.
(n) No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriters pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(o) On or before the Closing Date, the Company shall have executed and delivered
to the Underwriters, (i) the Underwriters' Warrant Agreement substantially in
the form filed as Exhibit __ to the Registration Statement in final form and
substance satisfactory to the Underwriters, and (ii) the Underwriters' Warrants
in such denominations and to such designees as shall have been provided to the
Company.
(p) On or before the Closing Date, the Shares shall have been duly approved for
quotation on Nasdaq, subject to official notice of issuance.
(q) On or before the Closing Date, there shall have been delivered to the
Underwriters all of the Lock-up Agreements, in form and substance satisfactory
to Representative's Counsel.
If any condition to the Underwriters' obligations hereunder to
be fulfilled prior to or at the Closing Date or the relevant Option Closing
Date, as the case may be, is not so fulfilled, the Underwriters may terminate
this Agreement or, if the Underwriters so elect, it may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification.
(a) The Company, agrees to indemnify and hold harmless each of the Underwriters
(for purposes of this Section 7 "Underwriters" shall include the officers,
directors, partners, employees, agents and counsel of the Underwriters,
including specifically each person
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who may be substituted for an Underwriter as provided in Section 11 hereof), and
each person, if any, who controls the Underwriter ("controlling person") within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions, proceedings, investigations, inquiries, and suits in
respect thereof), whatsoever (including but not limited to any and all costs and
expenses whatsoever reasonably incurred in investigating, preparing or defending
against such action, proceeding, investigation, inquiry or suit, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon (A) any untrue statement
or alleged untrue statement of a material fact contained (i) in any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included securities of
the Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this Section 7
collectively called "application") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
Nasdaq or any other securities exchange, (B) the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriters expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the Registration Statement, and each other person, if any, who controls
the Company within the meaning of the Act, to the same extent as the foregoing
indemnity from the Company to the Underwriter but only with respect to
statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriter expressly
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for use therein and constitute the only information furnished in writing by or
on behalf of the Underwriters for inclusion in the Prospectus.
The indemnity agreement in this subsection (b) shall be in
addition to any liability which the Underwriters may have at common law or
otherwise.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, suit or proceeding, such indemnified
party shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action, investigation, inquiry, suit or proceeding on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action, investigation,
inquiry, suit or proceeding or separate but similar or related actions,
investigations, inquiries, suits or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances. Anything in this Section 7
to the contrary notwithstanding, an indemnifying party shall not be liable for
any settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, investigation, inquiry,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party form all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
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(d) In order to provide for just and equitable contribution in any case in which
(i) an indemnified party makes a claim for indemnification pursuant to this
Section 7, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
this Section 7 provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or actions, investigations,
inquiries, suits or proceedings in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand, from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriters are the indemnified party, the relative benefits
received by the Company on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions, investigations, inquiries,
suits or proceedings in respect thereof) referred to above in this subdivision
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action, claim, investigation, inquiry, suit or proceeding. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this subparagraph (d), or to
the extent that such party or parties were not adversely affected by such
omission. The contribution agreement set
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forth above shall be in addition to any liabilities which any indemnifying party
may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall be
deemed to be representations, warranties and agreements at the Closing Date and
the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters.
9. Effective Date.
(a) This Agreement shall become effective at 10:00 a.m., New York City time, on
the next full business day following the date hereof, or at such earlier time
after the Registration Statement becomes effective as the Underwriters, in their
sole discretion, shall release the Shares for sale to the public; provided,
however, that the provisions of Sections 5, 7 and 10 of this Agreement shall at
all times be effective. For purposes of this Section 9, the Shares to be
purchased hereunder shall be deemed to have been so released upon the earlier of
dispatch by the Underwriters of telegrams to securities dealers releasing such
shares for offering or the release by the Underwriters for publication of the
first newspaper advertisement which is subsequently published relating to the
Shares.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Underwriters shall have
the right to terminate this Agreement, after the date hereof, (i) if any
domestic or international event or act or occurrence has materially disrupted,
or in the Underwriters' opinion will in the immediate future materially
adversely disrupt the financial markets; or (ii) any material adverse change in
the financial markets shall have occurred; or (iii) if trading generally shall
have been suspended or materially limited on or by, as the case may be, any of
the New York Stock Exchange, the American Stock Exchange, the National
Association of Securities Dealers, Inc., the Boston Stock Exchange, the Chicago
Board of Trade, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Commission or any other government authority having jurisdiction;
or (iv) if trading of any of the securities of the Company shall have been
suspended, or any of the securities of the Company shall have been delisted, on
any exchange or in any over-the-counter market; or (v) if the United States
shall have become involved in a war or major hostilities, or if there shall have
been an escalation in an existing war or major hostilities or a national
emergency shall have been declared in the United States; or (vi) if a banking
moratorium has been declared by a state or federal authority; or (vii) if a
moratorium in foreign exchange trading has been declared; or (viii) if the
Company shall have sustained a loss material or substantial to the Company by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Underwriters' opinion, make it inadvisable to proceed with the delivery
of the Securities; or (viii) if there shall have occurred any outbreak or
escalation of hostilities or any
34
<PAGE>
calamity or crisis or there shall have been such a material adverse change in
the conditions or prospects of the Company, or such material adverse change in
the general market, political or economic conditions, in the United States or
elsewhere as in the Underwriters' judgment would make it inadvisable to proceed
with the offering, sale and/or delivery of the Securities.
(b) If this Agreement is terminated by the Underwriters in accordance with the
provisions of Section 10(a) the Company shall promptly reimburse and indemnify
the Underwriters for all of their actual out-of-pocket expenses, including the
fees and disbursements Underwriters' Counsel (less amounts previously paid
pursuant to Section 5(c) above). Notwithstanding any contrary provision
contained in this Agreement, if this Agreement shall not be carried out within
the time specified herein, or any extension thereof granted to the Underwriters,
by reason of any failure on the part of the Company to perform any undertaking
or satisfy any condition of this Agreement by it to be performed or satisfied
(including, without limitation, pursuant to Section 6 or Section 12) then, the
Company shall promptly reimburse and indemnify the Underwriter for all of their
actual out-of-pocket expenses, including the fees and disbursements of counsel
for the Underwriter (less amounts previously paid pursuant to Section 5(c)
above). In addition, the Company shall remain liable for all Blue Sky counsel
fees and expenses and filing fees. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement (including, without limitation, pursuant to Sections 6, 10 and 12
hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters shall
fail otherwise than for a reason sufficient to justify the termination of this
Agreement (under the provisions of Section 6, Section 10 or Section 12 hereof)
to purchase the Securities which it or they are obligated to purchase on such
date under this Agreement (the "Defaulted Securities"), the Underwriters shall
have the right, within 24 hours thereafter, to make arrangement for one or more
of the non-defaulting Underwriters, or any other Underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the Underwriters
shall not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the total
number of Firm Shares to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total number of
Firm Shares, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Underwriters shall have the right to postpone the Closing
Date for a period not exceeding
35
<PAGE>
seven days in order to effect any required changes in the Registration Statement
or Prospectus or in any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing Date or at
any Option Closing Date, as applicable, to sell and deliver the number of Shares
which it is obligated to sell hereunder on such date, then this Agreement shall
terminate (or, if such default shall occur with respect to any Option Shares to
be purchased on an Option Closing Date, the Underwriters may at their option, by
notice from the Underwriters to the Company, terminate the Underwriters'
obligation to purchase Option Shares from the Company on such date) without any
liability on the part of any non-defaulting party other than pursuant to Section
5, Section 7 and Section 10 hereof. No action taken pursuant to this Section
shall relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Representative shall be directed to the
Representative at 850 Third Avenue, New York, New York 10022, Attention:
[______], with a copy to Orrick, Herrington & Sutcliffe LLP, 30 Rockefeller
Plaza, New York, New York 10112, Attention: [______]. Notices to the Company
shall be directed to the Company at 90 William Street, Suite 402, New York, New
York 10038, Attention: [__________], with a copy to Parker Chapin Flattau &
Klimpl LLP, 1211 Avenue of the Americas, New York, New York 10036, Attention:
[______]
14. Parties. This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Securities from the Underwriters shall be deemed to be a successor
by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York without giving effect to
the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which taken together
shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the Representative's
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Underwriters and the Company.
36
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
I.D. SYSTEMS, INC.
By: ____________________________
Name:
Title:
Confirmed and accepted as of
the date first above written.
GILFORD SECURITIES INCORPORATED
By:___________________________________
Name:
Title:
<PAGE>
SCHEDULE A
----------
Underwriter Number of Firm Shares
- ----------- ---------------------
Gilford Securities Incorporated
TOTAL 2,000,000
<PAGE>
Exhibit A
---------
[FORM OF INTELLECTUAL PROPERTY OPINION]
_________________, 1999
Gilford Securities Incorporated
850 Third Avenue
New York, New York 10022
Re: Public Offering of I.D. Systems, Inc.
------------------------------------
Gentlemen:
We have acted as special counsel to I.D. Systems, Inc., a
Delaware corporation (the "Company"), in connection with the entering into by
the Company of that certain Underwriting Agreement by and between Gilford
Securities Incorporated ("Gilford"), as representative of the several
underwriters named in Schedule A thereto, and the Company, dated ____________,
1999 (the "Underwriting Agreement"). This opinion is provided to you pursuant to
Section ____________ of the Underwriting Agreement.
For the purpose of rendering the opinions set forth below we
have reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Registration Statement filed _____________,
1999, together with any and all amendments thereof exhibits thereto
(collectively, the "Registration Statement");
(iii) the company's Prospectus dated _____________, 1999 (the
"Prospectus");
(iv) a search of the United States Patent and Trademark Office
records relevant to ownership of any and all:
patents and patent applications (including, without
limitation, the patents and patent applications listed on
Schedule A annexed hereto and hereby incorporated by reference
herein (collectively, the "Patents")), and trademarks,
trademark applications, service marks and service mark
applications (collectively, the "Marks") (including, without
limitation, the Marks listed on Schedule B annexed hereto and
hereby incorporated by reference herein (collectively, the
"Trademarks")),
A-1
<PAGE>
owned, purportedly owned or licensed by the Company (including, those patents,
patent applications and Marks licensed, without limitation, pursuant to the
licenses listed on Schedule C annexed hereto and hereby incorporated by
reference herein (collectively, the "Licenses")), conducted by
______________________ and certified as true and correct as of ____________,
1999 (no earlier than 5 days prior to the date of the Closing (as defined in the
Underwriting Agreement));
(v) a search of the United States Copyright Office records
relevant to ownership of any and all copyrighted material (including,
without limitation, the copyright in, or license permitting the
Company's actual use of, the material licensed or otherwise distributed
by the Company and listed on Schedule D annexed hereto and hereby
incorporated by reference herein (collectively, the "Copyrighted
Material")), owned, purportedly owned or licensed by the Company
conducted by _____________ and certified as true and correct as of
__________________, 1999 (no earlier than 5 days prior to the date of
the Closing);
(vi) an intellectual property litigation search with respect
to all Patents, Trademarks, Licenses and Copyrighted Material, listed
on Schedules A, B, C and D, respectively;
(vii) a search of the Uniform Commercial Code ("UCC")
recordation offices, in the following jurisdictions --
[______________________, ______________________ and
______________________], with respect to the following two categories
of general intangibles:
(a) the intellectual property general intangibles of
the Company, including, without limitation, the
Company's patents, patent applications, inventions,
know how, trademarks, service marks, copyrights,
service and trade names, intellectual property
licenses and other rights, and
(b) the intellectual property general intangibles
licensed to the Company, including, without
limitation, the patents, patent applications,
inventions, know how, trademarks, service marks,
copyrights, service and trade names and other
intellectual property rights licensed to the Company
pursuant to the Licenses (listed on Schedule C),
said search certified to us as complete and accurate by
_______________________ and current through ____________________, 1999
(no earlier than 5 days prior to the date of the Closing) and said
jurisdictions being the only jurisdictions in which filing of UCC
financing statements or other documents may be filed to effectively
evidence a security or other interest in said general intangibles; and
(viii) any and all records, documents, instruments and
agreements in our possession or under our control relating to the
Company.
We have also examined such corporate records, documents,
instruments and agreements, and inquired into such other matters, as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase
A-2
<PAGE>
"to the best of our knowledge" or "to the best of our knowledge, after due
inquiry," such language means that, based upon (i) our inquiries of officers of
the Company, (ii) our review of the Documents, and (iii) our review of such
other corporate records, documents, instruments and agreements described in the
first sentence of this paragraph, we believe that such opinions are factually
correct.
To the best of our knowledge, as to all matters of fact
represented to you by the Company, we advise you that nothing has come to our
attention that would cause us to believe that such facts are incorrect,
incomplete or misleading or that reliance thereon is not warranted under the
circumstances. We call to your attention that our opinion is limited to such
facts as they exist on the date hereof and do not take into account any change
of circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion
that:
1. To the best of our knowledge, after due inquiry,
except as described in the Registration Statement, the Company
owns or has the right to use, free and clear of all liens,
encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever,
(i) all patents and patent applications
(including, without limitation, the Patents),
(ii) all trademarks and service marks
(including, without limitation, the Trademarks),
(iii) all copyrights (including, without
limitation, the Copyrighted Material),
(iv) all service and trade names,
(v) all intellectual property licenses
(including, without limitation, the Licenses), and
(vi) all technology
used in, contemplated to be used in or required for, the
conduct of the Company's business.
2. To the best of our knowledge, after due inquiry,
the Company possesses all material intellectual property
licenses or rights used in, or required for, the conduct of
its business (including, the Licenses and without limitation,
any such licenses or rights described in the Registration
Statement as being owned, possessed or licensed by the
Company, as the case may be), such licenses and rights are in
full force and effect, and the Company's products, methods and
services do not infringe any unlicensed intellectual property
of any third parties.
A-3
<PAGE>
3. To the best of our knowledge, after due inquiry,
there is no claim or action, pending, threatened or potential,
which affects or could affect the rights of the Company with
respect to any trademarks, service marks, copyrights, service
names, trade names, patents, patent applications or licenses
used in, or required for, the conduct of the Company's
business and all trademarks, service marks, copyrights, trade
names, and patents owned or licensed to the Company are valid.
4. To the best of our knowledge, after due inquiry,
there is no intellectual property based claim or action,
pending, threatened or potential, which affects or could
affect the rights of the Company with respect to any products,
services, processes or licenses, including, without
limitation, the Licenses used in the conduct of the Company's
business.
5. To the best of our knowledge, after due inquiry,
except as described in the Registration Statement, the Company
is not under any obligation to pay royalties or fees to any
third party with respect to any material, technology or
intellectual properties developed, employed, licensed or used
by the Company.
6. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement under the
headings, "Risk Factors - Patents, Trademarks and Proprietary
Information" and "Business - Patents, Trademarks and
Proprietary Information", are accurate in all material
respects, fairly represent the information disclosed therein
and do not omit to state any fact necessary to make the
statements made therein complete and accurate.
7. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement and the
Prospectus do not contain any untrue statement of a material
fact with respect to the intellectual property position of the
Company, or omit to state any material fact relating to the
intellectual property position of the Company which is
required to be stated in the Registration Statement and the
Prospectus or is necessary to make the statements therein not
misleading.
We call your attention to the fact that the members of this
firm are licensed to practice law in the State of ______________ and before the
United States Patent and Trademark Office as Registered Patent Attorneys.
Accordingly, we express no opinion with respect to the laws, rules and
regulations of any jurisdictions other than the State of __________ and the
United States of America.
The opinions expressed herein are for the sole benefit of, and
may be relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe.
Very truly yours,
A-4
EXHIBIT 10.1
<TABLE>
<CAPTION>
U.S. POSTAL SERVICE: OFFER AND AWARD STANDARD
<S> <C>
1. CONTRACT NUMBER 102590-97-Z-2527 2. SOLICITATION NUMBER: 102590-97-A-0118
3. REQUEST NUMBER: 97-07697 4. SOC/EC: A 5. COMMODITY: 3610.90
- -------------------------------------------------------------------------------------------------------------------
6. a. ISSUED BY: ACO CODE: 660188 b. FOR INFORMATION CALL:
U.S. Postal Service Name: Ted E. Howard
Purchasing Room 4541 Title: Purchasing Specialist
475 L'Enfant Plaza SW Tel: (202) 268-6298
Washington DC 20260-6230 (No Collect Calls)
- -------------------------------------------------------------------------------------------------------------------
7. a. OFFEROR/CONTRACTOR
I.D. Systems, Inc. b. Contract Name: Mr. Kenneth S. Ehrman
740 Broadway, Suite 905 c. Telephone No: (212) 677-3800
New York, NY 10003-9530 d. TIN/SSN: 22-3270799
e. Parent TIN:
TIN=Taxpayer Identification Number
f. Remittance Name and/or Address: (If different from above)
- -------------------------------------------------------------------------------------------------------------------
8. DELIVERY/PERFORMANCE REQUIREMENTS:
See Section C
- -------------------------------------------------------------------------------------------------------------------
9. ITEMS & PRICES/GENERAL DESCRIPTION OF REQUIREMENT:
See Section A
- -------------------------------------------------------------------------------------------------------------------
10. DISCOUNT FOR PROMPT PAYMENT: N/A
- -------------------------------------------------------------------------------------------------------------------
11. a. ACCEPTED AS TO ITEMS NUMBERED: (Completed by USPS)
b. GRAND TOTAL: $3,836,526.00 c. NET TOTAL: $3,836,526.00
- -------------------------------------------------------------------------------------------------------------------
12. BILLING INSTRUCTIONS (Submit Invoices to):
Glenn McDonald U.S. Postal Service, Room 6631
475 L'Enfant Plaza, SW Washington, DC 20260-1602
- -------------------------------------------------------------------------------------------------------------------
13. SIGNATURES: OFFEROR/CONTRACTOR U.S. POSTAL SERVICE
/s/ Jeffrey M. Jagid 8/14/97 /s/ T.L. Eckert 8-22-97
- ------------------------------------ ------------------ ----------------------------------- ------------
Signature Date Signature Award Date
Jeffrey M. Jagid EVP T.L. Eckert
- ------------------------------------ ------------------ -----------------------------------
Name of Person Authorized to Title Name of Contracting Officer
Sign Offer
- -------------------------------------------------------------------------------------------------------------------
Distribution: Original - File Copy - Contractor
</TABLE>
Page 1 of 87
<PAGE>
<TABLE>
<CAPTION>
U.S. POSTAL SERVICE SOLICITATION: STANDARD
<S> <C>
1. SOLICITATION NUMBER: 102590-97-A-0118
2. SOLICITATION INFORMATION: f. Return to Address:
a. Issue Date: 08/07/97 U.S. Postal Service
b. Return Date: August 15, 1997 Purchasing Room 4541
c. Return Time: 4:00 p.m. EST 475 L'Enfant Plaza SW
d. Contact: Ted E. Howard Washington DC 20260-6230
e. Telephone: (202) 268-6298
- -------------------------------------------------------------------------------------------------------------------
3. OFFEROR NAME AND ADDRESS: 4. ISSUED BY: ACO CODE: 660188
I.D. Systems, Inc. U.S. Postal Service
740 Broadway, Suite 905 Purchasing Room 4541
New York, NY 10003-9530 475 L'Enfant Plaza SW
Washington DC 20260-6230
- -------------------------------------------------------------------------------------------------------------------
5. Sealed offers (in original and 3 signed copies) for furnishing the supplies
or services described in this solicitation will be received at the place
specified (and, if hand-carried, in Room 4341) until the date and time (local
time of the place specified) shown in Block 2. All offers are subject to the
provisions, representations, certifications, specifications and contract clauses
which follow or which are incorporated by reference, whether or not all of such
attached pages are returned with the offer. The Procurement Manual (USPS
Publication 41), referenced throughout this solicitation, is available to the
public through the SUPERINTENDENT OF DOCUMENTS, GOVERNMENT PRINTING OFFICE, 941
N CAPITOL STREET NE, WASHINGTON DC 20402-9371. For further information regarding
the availability of the Procurement Manual call the Government Printing Office
at (202) 783-3238.
- -------------------------------------------------------------------------------------------------------------------
6. NOTES TO OFFERORS:
ENTRIES ARE REQUIRED ON: COVER PAGE (SEC. 3), PAGE 1 (SEC. 7, 10, 13),
PAGE 2 (PARA. A.1), AND SECTION L, REPRESENTATIONS AND
CERTIFICATIONS. COPY OF THE USPS PM ISSUED JANUARY 1997 IS
AVAILABLE ON THE INTERNET.
Please note Attachment II, Special Clause 1-13, Year 2000 Warranty--
Noncommercial Items
- -------------------------------------------------------------------------------------------------------------------
7. ACCEPTANCE: In compliance with this solicitation the undersigned offers and
agrees, if this offer is accepted within _____ calendar days (30 calendar days
unless a different period is inserted by the offeror) from the solicitation
return date, to furnish any or all items upon which prices are offered at the
same price set opposite each item, delivered at the designated point(s), within
the time(s) specified in the solicitation.
- -------------------------------------------------------------------------------------------------------------------
NOTE: Offers must set forth full, accurate, and complete information as required
by this solicitation (including attachments). The penalty for making false
statements in offers is prescribed in 18. U.S.C. 1001.
</TABLE>
Page 2 of 87
<PAGE>
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----------------- ----
<S> <C>
U.S. POSTAL SERVICE SOLICITATION: STANDARD
U.S. POSTAL SERVICE: OFFER AND AWARD STANDARD....................................................................1
PART 1 - SCHEDULE.................................................................................................2
SECTION A - ITEMS AND PRICES......................................................................................2
A.1 ITEMS AND PRICES (Clause OB-89) (June 1988).........................................................2
A.2 ACKNOWLEDGMENT OF AMENDMENTS (Clause OB-199) (August 1998)..........................................2
SECTION B - SPECIFICATIONS/STATEMENT OF WORK......................................................................3
B.1 STATEMENT OF WORK/SPECIFICATIONS (Clause OB-7)......................................................3
(October 1992)
SECTION C - DELIVERY/PERFORMANCE..................................................................................4
C.1 CLAUSES INCORPORATED BY REFERENCE...................................................................4
C.2 COMPLETION DATES (Clause OB-35) (June 1988).........................................................4
C.3 PROGRESS REPORTING (Clause OB-18) (June 1988).......................................................4
C.4 FINAL TECHNICAL REPORTS (Clause OB-36) (June 1988)..................................................5
C.5 DELIVERABLE REPORTS (Clause OB-37) (June 1988)......................................................5
SECTION D - PACKAGING AND MARKING.................................................................................6
SECTION E - INSPECTION AND ACCEPTANCE.............................................................................7
E.1 CLAUSES INCORPORATED BY REFERENCE...................................................................7
E.2 CERTIFICATE OF CONFORMANCE (Clause B-5) (October 1987)..............................................7
E.3 INSPECTION--NON-FIXED-PRICE (Clause 2-2) (December 1989)............................................7
E.4 CONTRACTING OFFICER'S REPRESENTATIVE (COR)..........................................................9
(Clause OB-21) ALTERNATE I (June 1988)
E.5 DELEGATION OF INSPECTION AND ACCEPTANCE............................................................10
(Clause OB-34) (June 1988)
SECTION F - PAYMENT AND FUNDING..................................................................................11
F.1 CLAUSES INCORPORATED BY REFERENCE..................................................................11
F.2 DISALLOWANCE OF COSTS (Clause B-17) (October 1987).................................................11
F.3 INVOICES (Clause B-20) (June 1988).................................................................11
F.4 ALLOWABLE COST AND PAYMENT (Clause 5-4) (October 1987).............................................12
F.5 PAYMENT (TIME-AND-MATERIALS AND LABOR-HOUR CONTRACTS)..............................................15
(Clause 5-16) (October 1987)
F.6 WITHHOLDING PAYMENT (TECHNICAL DATA AND COMPUTER SOFTWARE).........................................16
(Clause 9-7) (October 1987)
F.7 LEVEL OF EFFORT--COST-REIMBURSEMENT CONTRACT.......................................................17
(Clause OB-1) (June 1988)
F.8 PAYMENT DUE DATE (Clause OB-22) Alternate III (June 1988)..........................................17
</TABLE>
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F.9 METHOD OF PAYMENT (Clause OB-23) (June 1988).......................................................18
F.10 DATE OF INCURRENCE OF COST (Clause OB-26) (June 1988)..............................................19
SECTION G - SPECIAL CLAUSES......................................................................................20
G.1 SPECIAL TOOLING (Clause 2-15) (October 1987).......................................................20
G.2 REQUEST FOR CHANGES, DEVIATIONS, OR WAIVERS TO A...................................................23
TECHNICAL DATA PACKAGE (Clause OB-3) (February 1992)
G.3 CONTRACT TYPE (Clause B-3) (February 1991).........................................................23
G.4 ORDER OF PRECEDENCE (Clause B-29) (February 1991)..................................................23
G.5 POSTAL SERVICE-FURNISHED PROPERTY (Clause OB-24) (June 1988).......................................23
G.6 POSTAL SERVICE-FURNISHED DATA (Clause OB-25) (June 1988)...........................................23
G.7 CONTROL OF POSTAL SERVICE-FURNISHED PROPERTY.......................................................24
(Clause OB-42) (June 1988)
PART 2 - CLAUSES AND ATTACHMENTS.................................................................................25
SECTION H - GENERAL CLAUSES......................................................................................25
H.1 CLAUSES INCORPORATED BY REFERENCE..................................................................25
H.2 TERMINATION FOR CONVENIENCE OR DEFAULT.............................................................25
(Clause B-12) (October 1987)
H.3 SUBCONTRACTS (Clause B-18) (October 1987)..........................................................29
H.4 FREQUENCY AUTHORIZATION (Clause B-24) (October 1987)...............................................30
H.5 POSTAL SERVICE PROPERTY--SHORT FORM (Clause 2-12) (October 1987)...................................31
H.6 POSTAL SERVICE PROPERTY FURNISHED "AS IS"..........................................................31
(Clause 2-14) (October 1987)
H.7 FIXED FEE (Clause 5-10) (October 1987).............................................................32
H.8 PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA.................................................32
(Clause 5-22) (July 1995)
H.9 SUBCONTRACTOR COST OR PRICING DATA (Clause 5-23) (October 1987)....................................33
H.10 PATENT INFRINGEMENT BOND REQUIREMENTS (Clause 7-1) (October 1987)..................................33
H.11 INSURANCE (Clause 7-4) (June 1988).................................................................33
H.12 ERRORS AND OMISSIONS (Clause 7-5) (October 1987)...................................................34
H.13 FEDERAL, STATE, AND LOCAL TAXES (NONCOMPETITIVE CONTRACT).........................................34
(Clause 7-8) (October 1987)
H.14 PATENT RIGHTS (Clause 9-1) (October 1987)..........................................................36
H.15 AUTHORIZATION AND CONSENT (Clause 9-2) (October 1987)..............................................40
H.16 NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT...............................................41
INFRINGEMENT (Clause 9-3) (October 1987)
H.17 PATENT INDEMNITY (Clause 9-4) (October 1987).......................................................41
H.18 RIGHTS IN TECHNICAL DATA (Clause 9-6) (December 1992)..............................................42
H.19 RIGHTS IN COMPUTER SOFTWARE (Clause 9-9) (December 1992)...........................................45
H.20 RIGHTS IN DATA--SPECIAL WORKS (Clause 9-10) (December 1992)........................................49
H.21 RIGHTS IN DATA--EXISTING WORKS (Clause 9-11) (October 1987)........................................50
H.22 INTELLECTUAL PROPERTY RIGHTS (Clause 9-13) (October 1987)..........................................51
</TABLE>
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<S> <C>
H.23 ACQUISITION OF ADDITIONAL RIGHTS IN DATA (Clause 9-14).............................................51
(October 1987)
H.24 FABRICATION OR ACQUISITION OF NONEXPENDABLE PROPERTY...............................................52
(Clause OB-28) (June 1988)
SECTION I - LIST OF ATTACHMENTS..................................................................................53
PART 3 - SOLICITATION PROVISIONS.................................................................................54
SECTION J - INSTRUCTIONS TO OFFERORS.............................................................................54
J.1 SUBMISSION OF FINANCIAL STATEMENTS (Provision OA-27)...............................................54
(July 1988)
J.2 TYPE OF CONTRACT (Provision 5-1) (October 1987)....................................................54
J.3 AMENDMENTS TO PROPOSALS (Provision OA-3) (June 1988)...............................................54
J.4 INSTRUCTIONS FOR THE PREPARATION OF TECHNICAL......................................................55
AND/OR BUSINESS PROPOSALS (Provision OA-11) Alternate III (February 1987)
SECTION K - SOLICITATION NOTICES AND PROVISIONS..................................................................56
K.1 PROVISIONS INCORPORATED BY REFERENCE...............................................................56
K.2 PREPARATION OF PROPOSALS (Provision A-1) (October 1987)............................................56
K.3 LABOR INFORMATION (Provision A-13) (October 1987)..................................................57
K.4 ALTERNATE INTELLECTUAL PROPERTY RIGHTS PROPOSALS...................................................57
(Provision 9-1) (December 1992)
K.5 USE OF LIMITED RIGHTS DATA FOR PROCUREMENT OF REPAIR PARTS.........................................58
(Provision 9-3) (October 1987)
K.6 NOTICE OF SMALL, MINORITY-OWNED, AND WOMAN-OWNED...................................................58
BUSINESS SUBCONTRACTING REQUIREMENTS (Provision 10-1) (February 1992)
K.7 PREAWARD EQUAL OPPORTUNITY COMPLIANCE REVIEW.......................................................58
(Provision 10-5) (April 1989)
K.8 ACCESS TO POSTAL BUILDING (Provision OA-12) (March 1989)...........................................58
K.9 ORAL PRESENTATIONS (Provision OA-30) (June 1988)...................................................58
K.10 NOTICE OF PREAWARD SURVEY (Provision OA-34) (June 1988)............................................59
SECTION L - REPRESENTATIONS AND CERTIFICATIONS...................................................................60
L.1 TYPE OF BUSINESS ORGANIZATION (Provision A-20) (December 1989).....................................60
L.2 PARENT COMPANY AND TAXPAYER IDENTIFICATION NUMBER..................................................61
(Provision A-21) (October 1987)
L.3 AUTHORIZED NEGOTIATORS (Provision A-22) (October 1987).............................................62
L.4 PLACE OF PERFORMANCE (Provision A-23) (October 1987)...............................................62
L.5 CERTIFICATE OF INDEPENDENT PRICE DETERMINATION.....................................................62
(Provision 1-1) (October 1987)
L.6 CONTINGENT FEE REPRESENTATION (Provision 1-2) (October 1987).......................................63
L.7 REPRESENTATION OF RIGHTS IN DATA (Provision 9-2) (October 1987)....................................63
</TABLE>
Page 5 of 87
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----
<S> <C>
L.8 CERTIFICATION OF NONSEGREGATED FACILITIES (Provision 10-3).........................................64
(October 1987)
L.9 EQUAL OPPORTUNITY AFFIRMATIVE ACTION PROGRAM.......................................................65
(Provision 10-4) (April 1989)
L.10 CLEAN AIR AND WATER CERTIFICATION (Provision 10-9) (October 1987)..................................65
L.11 GENERAL FINANCIAL AND ORGANIZATIONAL INFORMATION...................................................65
(Provision OA-2) (June 1988)
SECTION M - EVALUATION AND AWARD FACTORS.........................................................................69
M.1 CONTRACT AWARD AND PROPOSAL EVALUATION (Provision OA-16)...........................................69
(February 1992)
INSTRUCTIONS FOR QUARTERLY REPORT OF SMALL, MINORITY-OWNED,..................................................1
AND WOMAN-OWNED BUSINESS SUBCONTRACTS
QUARTERLY REPORT OF SMALL, MINORITY-OWNED AND WOMAN-OWNED....................................................2
BUSINESS SUBCONTRACTS
</TABLE>
Page 6 of 87
<PAGE>
<TABLE>
<CAPTION>
U.S. POSTAL SERVICE: OFFER AND AWARD STANDARD
<S> <C>
1. CONTRACT NUMBER: 2. SOLICITATION NUMBER: 102590-97-A-0118
3. REQUEST NUMBER: 97-07697 4. SOC/EC: A 5. COMMODITY: 3610.90
- -------------------------------------------------------------------------------------------------------------------
6. a. ISSUED BY: ACO CODE: 660188 b. FOR INFORMATION CALL:
U.S. Postal Service Name: Ted E. Howard
Purchasing Room 4541 Title: Purchasing Specialist
475 L'Enfant Plaza SW Tel: (202) 268-6298
Washington DC 20260-6230 (No Collect Calls)
- -------------------------------------------------------------------------------------------------------------------
7. a. OFFEROR/CONTRACTOR
I.D. Systems, Inc. b. Contract Name: Mr. Kenneth S. Ehrman
740 Broadway, Suite 905 c. Telephone No: (212) 677-3800
New York, NY 10003-9530 d. TIN/SSN: 22-3270799
e. Parent TIN:
TIN=Taxpayer Identification Number
f. Remittance Name and/or Address: (If different from above)
- -------------------------------------------------------------------------------------------------------------------
8. DELIVERY/PERFORMANCE REQUIREMENTS:
See Section C
- -------------------------------------------------------------------------------------------------------------------
9. ITEMS & PRICES/GENERAL DESCRIPTION OF REQUIREMENT:
See Section A
- -------------------------------------------------------------------------------------------------------------------
10. DISCOUNT FOR PROMPT PAYMENT: N/A
- -------------------------------------------------------------------------------------------------------------------
11. a. ACCEPTED AS TO ITEMS NUMBERED: (Completed by USPS)
b. GRAND TOTAL: $3,836,526.00 c. NET TOTAL: $3,836,526.00
- -------------------------------------------------------------------------------------------------------------------
12. BILLING INSTRUCTIONS (Submit Invoices to):
Glenn McDonald U.S. Postal Service, Room 6631
475 L'Enfant Plaza SW Washington DC 20260-1602
- -------------------------------------------------------------------------------------------------------------------
13. SIGNATURES: OFFEROR/CONTRACTOR U.S. POSTAL SERVICE
/s/ Jeffrey M. Jagid 8/14/97 /s/ T.L. Eckert 8-22-97
- ------------------------------------ ------------------ ----------------------------------- ------------
Signature Date Signature Award Date
Jeffrey M. Jagid EVP T.L. Eckert
- ------------------------------------ ------------------ -----------------------------------
Name of Person Authorized to Title Name of Contracting Officer
Sign Offer
- -------------------------------------------------------------------------------------------------------------------
Distribution: Original - File Copy - Contractor
</TABLE>
Page 7 of 87
<PAGE>
102590-97-A-0118 Section A
PART 1 - SCHEDULE
SECTION A - ITEMS AND PRICES
A.1 ITEMS AND PRICES (Clause OB-89) (June 1988)
The contractor shall provide the following:
RESEARCH AND DEVELOPMENT, RADIO FREQUENCY
IDENTIFICATION
ITEM SUPPLIES/SERVICES QTY UNIT UNIT EXT.
NO PRICE($) PRICE($)
001 (FROM SOW) 1 EA
1 As Specified in SOW, 1 EA $3,836,526. $3,836,526.
Attached
GRAND TOTAL: $3,836,526.
A.2 ACKNOWLEDGMENT OF AMENDMENTS (Clause OB-199) (August 1988)
The offeror acknowledges receipt of amendments to the
solicitation numbered and dated as follows:
Amendment Number Date Amendment Number Date
- --------------- ------------ ------------------ ----------
- --------------- ------------ ------------------ ----------
- --------------- ------------ ------------------ ----------
Page 8 of 87
<PAGE>
<TABLE>
<CAPTION>
ROUGH ORDER OF MAGNITUDE CONTRACT PRICING BY CONTRACT TYPE
<S> <C> <C> <C>
I. COST PLUS FIXED FEE CONTRACT PORTION
REF QUANTITY UOM UNIT COST* EXT TOTAL
A. DELIVERABLE HARDWARE
III.A 1) Flextags 4,000 ea $ 262 $ 1,048,000
III.C.1 2) System Monitors 875 ea $ 990 $ 866,250
III.C.2 3) Gateways (with modem) 225 ea $ 1,310 $ 294,750
III.D 4) Flextag Programmers 40 ea $ 1,380 $ 55,200
III.E 5) SM Spares 10 ea $ 750 $ 7,500
--------------
TOTAL DELIVERABLE HARDWARE LICENSE COSTS....................................... $2,271,700
-------------
B. SOFTWARE LICENSE (12 MONTH LICENSE FOR PRE-EXISTING SOFTWARE)
1) Flextag Programming Software
License 40 licenses $ 938 $ 37,500
2) Data Collection/Upload
Software License (per Area) 10 licenses $ 7,500 $ 75,000
3) Gateway, System Monitor, and
Flextag Software License 1 lot $ 68,750
---------------
TOTAL DELIVERABLE SOFTWARE LICENSE COSTS......................... $ 181,250
---------------
TOTAL DELIVERABLE HARDWARE AND SOFTWARE LICENSE COSTS.......................... $ 2,452,950
FIXED FEE (AT 8%)S............................................................. $ 196,236
===============
TOTAL COSTS FOR DELIVERABLE HARDWARE AND SOFTWARE LICENSES INCLUDING FEE........ $ 2,649,186
===============
*Includes Direct Labor, Overhead and General Administrative Costs
===============
II. TIME AND MATERIALS PORTION
===============
REF QUANTITY UNIT COST* EXT TOTAL
III.G A. PRODUCTION SETUP
1) Functional Test Development
and Fixture Rental 3 assemblies $ 22,955 $ 68,865
2) In-Circuit Test Development 3 fixtures $ 9,925 $ 29,775
3) Board Layouts/Agency
Approvals 3 boards $ 26,580 $ 79,740
4) Process Development/Setup
charges 3 setups $ 7,865 $ 23,595
</TABLE>
Page 9 of 87
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
REF Quantity Unit Cost* Ext Total
5) GW/SM Power Supply
Development 1 ea $ 11,165 $ 11,165
6) SM/Gateway Enclosure Tooling 1 ea $ 29,100 $ 29,100
7) Potting Process Development
and Fixtures 1 ea $ 36,150 $ 36,150
-------------- ---------------
Subtotal Production Setup.................................................................... $278,390
--------------
B. SITE SURVEYS, INSTALLATION AND
DOCUMENTATION
III.H,I 1) Site Survey/City (1P&DC,
1AMC, 5AO's) 10 cities $ 7,360 $ 73,600
III.J 2) DC Area Revised Site Surveys
and Retrofit 1 area $ 14,350 $ 14,350
III.K,L, 3) SM and GW Installation and
M Training 10 cities $ 12,100 $ 121,000
III.N 4) Users Manuals 1 set $ 46,800
III.P 5) End-user Installation Instructions 1 set $ 6,600
-------------- ---------------
Subtotal Site Survey, Installation and Documentation......................................... $262,350
--------------
C. ENGINEERING TASKS
1) Full floor coverage (Morgan
I.a Real-time) $ 190,500
I.b 2) Real Time Clock $ 24,000
I.e 3) PRN (TCP/IP) Adapter Card $ 155,300
I.g 4) Modify Tag Burn Software $ 26,900
IV.a 5) User Software $ 76,900
I.c,IV.b 6) Operating System Protocols $ 69,200
7) Redundant Communications
I.d,IV.c Loop $ 53,800
-------------- ---------------
Subtotal Engineering......................................................................... $606,000
--------------
D. MAINTENANCE AND SUPPORT
1) Initial deployment $ 40,000
-------------- ---------------
Subtotal Maintenance......................................................................... $40,000
-------------- --------------
Total Time and Materials Cost..........................................................................$ 1,187,340
-------------- --------------
Total Cost Plus Fixed Fee and Time and Materials Cost..............................................................$ 3,836,526
-------------- --------------
</TABLE>
Page 10 of 87
<PAGE>
102590-97-A-0118 Section B
SECTION B - SPECIFICATIONS/STATEMENT OF WORK
---------------------------------------------
B.1 STATEMENT OF WORK/SPECIFICATIONS (Clause OB-7) (October 1992)
The contractor must furnish the necessary personnel, material,
equipment, services, and facilities (except as otherwise specified) to perform
the statement of work/specifications incorporated by reference in Section I or
as otherwise noted.
NOTE: Activities outside the Federal Government may obtain copies of the Federal
Specifications, Standards and Handbooks as outlined under General Information in
the index of Federal Specifications and Standards, at the prices indicated in
the index. The index is for sale as a publication by the Superintendent of
Documents, U.S. Government Printing Office, Washington, DC 20402-0001.
Page 11 of 87
<PAGE>
102590-97-A-0118 Section C
SECTION C - DELIVERY/PERFORMANCE
--------------------------------
C.1 CLAUSES INCORPORATED BY REFERENCE
The following clauses are incorporated by reference as if set forth in
full text. The full text versions of these clauses are available upon request.
Procurement Manual (USPS Publication 41) references are shown in parentheses.
CLAUSE
NUMBER DATE TITLE
B-15 October 1987 NOTICE OF DELAY
B-16 October 1987 SUSPENSIONS AND DELAYS (PM B.2.1)
B-19 October 1987 EXCUSABLE DELAYS (PM B.2.1)
C.2 COMPLETION DATES (Clause OB-35) (June 1988)
The completion dates for the work called for under this contract are as follows:
ITEM DATE
(SEE STATEMENT OF WORK)
C.3 PROGRESS REPORTING (Clause OB-18) (June 1988)
The contractor must submit a progress report monthly covering work
accomplished during each period of the contract performance within 05 days after
the end of each such period as well as brief, weekly adverse impact reports. The
progress report must be brief, factual, and prepared in accordance with the
following format:
a. A cover page containing--
(1) Contract number and title;
(2) Type of report, sequence number of report, and period
of performance being reported;
(3) Contractor's name and address;
(4) Author(s); and
(5) Date of report.
Page 12 of 87
<PAGE>
102590-97-A-0118 Section C
C.3 (Continued)
b. Section I-An introduction covering the purpose and scope of the
contract effort. This must be limited to one paragraph in all but the first and
final report's narrative.
c. Section II-A description of overall progress plus a separate
description for each task or other logical segment of work on which effort was
expended during the report period. This description must include pertinent data
and/or graphs in sufficient detail to explain any significant results achieved.
d. Section III-A description of current technical or substantive
performance and any problem(s) that may impede performance, along with proposed
corrective action.
e. Section IV-A planning schedule must be included with the first
progress report for all assigned tasks required under the contract, along with
the estimated starting and completion dates for each task. The planning schedule
must be updated and submitted with each subsequent technical progress report. An
explanation of any difference between actual progress and planned progress, why
the differences have occurred, and-if behind planned progress-what corrective
steps are planned should be included.
f. Section V-If applicable, financial information must be submitted for
each major task or line item cost. Data must include-
(1) The total estimated cost budgeted (fee excluded);
(2) The estimated cost expended during the current reporting
period;
(3) Identification of direct labor hours of prime
contractor and subcontractor(s) and/or consultant(s),
if applicable;
(4) Total project to-date expenditures; and
(5) Total remaining funds.
C.4 FINAL TECHNICAL REPORTS (Clause OB-36) (June 1988)
The draft manuscript of the final report must be submitted in 3 copies.
After approval of the draft, the contractor must perform the recommended
adjustments and deliver one reproducible master and 3 copies in final form. In
addition, the contractor must send one copy of the final report to the USPS
Library, U.S. Postal Service Headquarters, 475 L'Enfant Plaza West, SW,
Washington, DC 20260-6201.
Page 13 of 87
<PAGE>
102590-97-A-0118 Section C
C.5 DELIVERABLE REPORTS (Clause OB-37) (June 1988)
Reports called for under this contract must be delivered in accordance
with the following schedule:
REPORT TITLE DATE
(SEE SOW) 10 DAYS AFTER AWARD
Page 14 of 87
<PAGE>
102590-97-A-0118 Section D
SECTION D - PACKAGING AND MARKING
---------------------------------
Page 15 of 87
<PAGE>
102590-97-A-0118 Section E
SECTION E - INSPECTION AND ACCEPTANCE
-------------------------------------
E.1 CLAUSES INCORPORATED BY REFERENCE
The following clauses are incorporated by reference as if set forth in
full text. The full text versions of these clauses are available upon request.
Procurement Manual (USPS Publication 41) references are shown in parentheses.
CLAUSE
NUMBER DATE TITLE
2-1 January 1991 INSPECTION-FIXED-PRICE
E.2 CERTIFICATE OF CONFORMANCE (Clause B-5) (October 1987)
a. When authorized in writing by the contracting officer, t e
contractor may use a Certificate of Conformance for supplies or services that
would otherwise require inspection. The right of inspection under the inspection
provisions of this contract is not prejudiced by this procedure.
b. The contractor's signed certificate must be attached to the
inspection or receiving report.
c. The Postal Service has the right to reject defective supplies or
services within a reasonable time after delivery, by written notification to the
contractor. The contractor must promptly replace, correct, or repair the
rejected supplies or services at the contractor's expense.
d. The certificate must read as follows:
"I certify that on [Contractor insert date], the [Insert
- ------------------------ ---------------------------- contractor's name]
furnished the supplies or services called for by Contract No. ____ via
______________ [Carrier] on ___________ [Identify the bill of lading or shipping
document] in accordance with all applicable requirements. I further certify that
the supplies or services are of the quality specified and conform in all
respects with the contract requirements, including specifications, drawings,
preservation, packaging, packing, marking requirements, and physical item
identification (part number), and are in the quantity shown on this or on the
attached acceptance document."
Page 16 of 87
<PAGE>
102590-97-A-0118 Section E
E.2 (Continued)
Date of
Execution:
- ---------------------------------------------------------------------
Signature:
- ---------------------------------------------------------------------
Title:
- ---------------------------------------------------------------------
E.3 INSPECTION-NON-FIXED-PRICE (Clause 2-2) (December 1989)
a. The Postal Service may inspect the supplies or services provided
under this contract at any stage of contract performance and at any place,
including the contractor's facility. If requested by the Postal Service, the
contractor must provide all reasonable facilities and assistance to the Postal
Service inspectors. Acceptance will be made as promptly as practicable after
delivery and will be deemed to have been made no later than 60 days after
delivery if not made earlier.
b. At any time during contract performance, and for six months after
acceptance, the Postal Service may require the contractor to correct or replace
any supplies or services that fail to comply with the requirements of this
contract. Except as otherwise provided in paragraphs c and d below,
reimbursement for the cost of replacement or correction will be determined by
the Payments clause of this contract, but the hourly rate for labor hours
incurred in replacement or correction will be reduced so as to exclude the
portion of this rate attributable to profit. Corrected or replacement supplies
or services may not be tendered again unless the former tender and the
requirement for correction or replacement are disclosed. If the contractor fails
to proceed with reasonable promptness to perform replacement or correction, and
if it can be performed within the ceiling price, or the ceiling price as
increased by the Postal Service, the Postal Service may-
1. By contract or otherwise perform the replacement or
correction, and deduct the increased cost from any amounts due the contractor
under this contract (or require repayment of any payments already made); or
2. Terminate this contract for default as provided in the
Termination clause of this contract.
c. The Postal Service may at any time require the contractor to remedy,
by correction or replacement, without cost to the Postal Service, any failure by
the contractor to comply with the requirements of this contract, if this failure
is due to fraud, lack of good faith, or willful
Page 17 of 87
<PAGE>
102590-97-A-0118 Section E
E.3 (Continued)
misconduct on the part of any of the contractor's directors or officers or on
the part of any of the contractor's managers, superintendents, or other
equivalent representatives who have supervision or direction of-
1. All or substantially all of the contractor's business;
2. All or substantially all of the contractor's operation at
any one plant or separate location at which this contract is being performed;
3. A separate and complete major industrial operation in
connection with the performance of this contract; or
4. All or substantially all of the contractor's operations
under this contract.
d. The Postal Service may at any time also require the contractor to
remedy by correction or replacement, without cost to the Postal Service, any
such failure caused by one or more individual employees selected or retained by
the contractor after any supervisory person described in paragraph c above has
reasonable grounds to believe that the employee is habitually careless or
otherwise unqualified.
e. The provisions of this clause apply to any corrected or replacement
supplies or services.
f. The contractor must use a written inspection/quality control system
acceptable to the Postal Service. Records of inspections by the contractor must
be maintained and available to the Postal Service at all reasonable times during
performance of this contract and for at least three years after acceptance. As a
minimum, the contractor's inspection/quality control system must reflect
controls and record keeping in the following functional areas:
1. Receiving Inspection
2. In-Process Inspection
3. Final Inspection and Test (including packaging)
4. Calibration of Inspection/Test Equipment
5. Control or Disposition of Nonconforming Material
Page 18 of 87
<PAGE>
102590-97-A-0118 Section E
g. Notwithstanding requirements for any Postal Service inspection and
test in specifications applicable to this contract, except when specialized
inspections or tests are specified to be performed solely by the Postal Service,
or by a third party on its behalf, the contractor must perform or have performed
the inspections and tests required to substantiate that the supplies and
services provided under the contract conform to the drawings, specifications,
and requirements listed in the contract, including, if applicable, the technical
requirements for the manufacturer's part number specified in the contract.
E.4 CONTRACTING OFFICER'S REPRESENTATIVE (COR) (Clause OB-21)
ALTERNATE I (June 1988)
Glenn McDonald is hereby designated the contracting officer's
representative (COR). The COR may be changed at any time by the Postal Service
without prior notice to the contractor, but notification of the change,
including the name and address of the successor COR, will be promptly provided
to the contractor by the contracting officer in writing.
The COR is located at: U.S. Postal Service, Room 6631
475 L'Enfant Plaza, SW
Washington, DC 20260-1602
The COR's telephone number is: 202/268-2300
The responsibilities and limitations of the COR are as follows:
1. The COR is responsible for the technical aspects of the
project and technical liaison with the contractor. The COR is also responsible
for the final inspection and acceptance of all reports and has such other
responsibilities as may be specified in the contract.
2. The COR is not authorized to make any commitments or
otherwise obligate the Postal Service or authorize any changes that affect the
contract price, terms, or conditions. Any contractor request for changes must be
referred to the contracting officer directly or through the COR. No such changes
shall be made without the express prior authorization of the contracting
officer. The COR may designate assistant CORs to act for the COR by naming them
in writing and transmitting a copy of the designation through the contracting
officer to the contractor.
E.5 DELEGATION OF INSPECTION AND ACCEPTANCE (Clause OB-34) (June 1988)
The contracting officer's representative is hereby delegated the
responsibility and authority to conduct inspection and acceptance duties for
this contract.
Page 19 of 87
<PAGE>
102590-97-A-0118 Section F
SECTION F - PAYMENT AND FUNDING
-------------------------------
F.1 CLAUSES INCORPORATED BY REFERENCE
The following clauses are incorporated by reference as if set forth in
full text. The full text versions of these clauses are available upon request.
Procurement Manual (USPS Publication 41) references are shown in parentheses.
CLAUSE
NUMBER DATE TITLE
B-22 December 1989 INTEREST (PM B.2.1)
5-1 October 1987 PAYMENT-FIXED-PRICE
F.2 DISALLOWANCE OF COSTS (Clause B-17) (October 1987)
a. The contracting officer may at any time issue the contractor a
written notice of intent to disallow specified costs under this contract that
have been determined not to be allowable under the contract terms.
b. The contractor may, after receiving a notice of intent to disallow
costs, submit a written response to the contracting officer, with justification
for allowance of the costs. If the contractor does respond within 60 days, the
contracting officer will, within 60 days of receiving the response, either make
a written withdrawal of the notice or issue a written decision.
F.3 INVOICES (Clause B-20) (June 1988)
a. The contractor's invoices must be submitted before payment can be
made.
b. The contractor agrees that submission of an invoice to the Postal
Service for payment is a certification that:
1. Any services being billed for have been performed in
accordance with the contract requirements; and
2. Any supplies for which the Postal Service is being billed
have been shipped or delivered in accordance with shipping instructions issued
by the contracting officer in the quantities shown on the invoice, and that the
supplies are in the quantity and of the quality designated in the contract.
Page 20 of 87
<PAGE>
102590-97-A-0118 Section F
F.3 (Continued)
c. To ensure prompt payment, an invoice must be submitted for each
destination and each shipment. Each invoice must contain:
1. The contractor's name and address;
2. The contract number;
3. Any applicable task or delivery order number;
4. A description of the supplies or services and the
dates delivered or performed;
5. The point of shipment or delivery;
6. Any applicable unit prices and extensions;
7. Shipping and payment terms; and
8. Any additional information required by the contract.
F.4 ALLOWABLE COST AND PAYMENT (Clause 5-4) (October 1987)
a. Invoicing. The Postal Service will make payments to the contractor
when requested as work progresses, but not more often than monthly, in amounts
determined to be allowable by the contracting officer in accordance with chapter
5 of the USPS Procurement Manual in effect on the date of this contract, and the
terms of this contract. The contractor must submit an invoice or voucher to the
address specified in the Schedule, supported by a statement of claimed allowable
costs of performing this contract, in such form and detail as the contracting
officer may require.
b. Reimbursement
1. For the purpose of reimbursing allowable costs, the term
"costs" includes only-
(a) Those recorded costs that, at the time of the
request for reimbursement, the contractor has paid by cash, check, or other form
of actual payment for items or services purchased directly for the contract;
Page 21 of 87
<PAGE>
102590-97-A-0118 Section F
F.4 (Continued)
(b) When the contractor is not delinquent in paying
costs of contract performance in the ordinary course of business, costs
incurred, but not necessarily paid, for-
(1) Materials issued from the contractor's inventory
and placed in the production process for use on the contract;
(2) Direct labor;
(3) Direct travel;
(4) Other direct in-house costs; and
(5) Properly allocable and allowable indirect costs,
as shown in the records maintained by the contractor for purposes of obtaining
reimbursement under Postal Service contracts; and
(c) The amount of progress payments that have been
paid to the contractor's subcontractors under similar cost standards.
2. Notwithstanding the audit and adjustment of invoices or
vouchers under paragraph e below, allowable indirect costs under this contract
will be obtained by applying indirect cost rates established in accordance with
paragraph c below.
3. Any statements in specifications or other documents
incorporated by reference in this contract that designate performance of
services or furnishing of materials at the contractor's expense or at no cost to
the Postal Service will be disregarded for purposes of cost reimbursement under
this clause.
c. Final Indirect Cost Rates
1. Final annual indirect cost rates and the appropriate bases
will be established in accordance with chapter 5 of the USPS Procurement Manual
in effect for the period covered by the indirect cost rate proposal.
2. The contractor must, within 90 days after the end of each
of its fiscal years, or by a later date approved by the contracting officer,
submit to the contracting officer or contracting officer's representative
proposed final indirect cost rates for that period and supporting cost data
specifying the contract and/or subcontract to which the rates apply. The
proposed rates must be based on the contractor's actual cost experience for that
period. The
Page 22 of 87
<PAGE>
102590-97-A-0118 Section F
F.4 (Continued)
contracting officer or contracting officer's representative and the contractor
must establish the final indirect cost rates as promptly as practical after
receipt of the contractor's proposal.
3. Agreement on final indirect cost rates must be set forth in
a written understanding. The understanding may not change any monetary ceiling,
contract obligation, or specific cost allowance or disallowance provided for in
this contract. The understanding is incorporated into this contract upon
execution. The understanding must specify-
(a) The agreed-upon final annual indirect cost rates;
(b) The bases to which the rates apply;
(c) The periods for which the rates apply;
(d) Any specific indirect cost items treated as
direct costs in the settlement; and
(e) The affected contract and/or subcontract,
identifying any with advance agreements or special terms and the applicable
rates.
4. Failure by the parties to agree on a final annual indirect
cost rate will be a dispute within the meaning of the Claims and Disputes clause
of this contract.
d. Billing Rates. Until final annual indirect cost rates are
established for any period, the Postal Service will reimburse the contractor at
billing rates established by the contracting officer or the contracting
officer's representative, subject to adjustment when the final rates are
established. These billing rates-
1. Must be the anticipated final rates; and
2. May be prospectively or retroactively revised by mutual
agreement, at either party's request, to prevent substantial overpayment or
underpayment.
e. Audit. At any time or times before final payment, the contracting
officer may have the contractor's invoices or vouchers and statements of cost
audited. Any payment may be-
1. Reduced by amounts found by the contracting officer not to
constitute allowable costs; or
Page 23 of 87
<PAGE>
102590-97-A-0118 Section F
F.4 (Continued)
2. Adjusted for prior overpayments or underpayments.
f. Final Payment
1. The contractor must submit a completion invoice or voucher,
designated as such, promptly upon completion of the work, but no later than one
year (or longer, as the contracting officer may approve in writing) from the
completion date. Upon approval of that invoice or voucher, and upon the
contractor's compliance with all terms of this contract, the Postal Service will
promptly pay any balance of allowable costs and that part of the fee (if any)
not previously paid.
2. The contractor must pay to the Postal Service any refunds,
rebates, credits, or other amounts (including interest, if any) accruing to or
received by the contractor or any assignee under this Contract, to the extent
that those amounts are properly allocable to costs for which the contractor has
been reimbursed by the Postal Service. Reasonable expenses incurred by the
contractor for securing refunds, rebates, credits, or other amounts are
allowable costs if approved by the contracting officer. Before final payment
under this contract, the contractor and each assignee whose assignment is in
effect at the time of final payment must execute and deliver-
(a) An assignment to the Postal Service, in form and
substance satisfactory to the contracting officer, of refunds, rebates, credits,
or other amounts (including any interest) properly allocable to costs for which
the contractor has been reimbursed by the Postal Service under this contract;
and
(b) A release discharging the Postal Service and its
officers, agents, and employees from all liabilities, obligations, and claims
arising out of or under this contract, except-
(1) Specified claims stated in exact
amounts, or in estimated amounts when the exact amounts are not known;
(2) Claims (including reasonable incidental
expenses) based upon liabilities of the contractor to third parties arising out
of the performance of this contract, but only if the claims are not known to the
contractor on the date of the execution of the release, and only if the
contractor gives notice of the claims in writing to the contracting officer
within six years following the release date or notice of final payment date,
whichever is earlier; and
(3) Claims for reimbursement of costs,
including reasonable incidental expenses, incurred by the contractor under the
patent clauses of this contract,
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<PAGE>
102590-97-A-0118 Section F
excluding, however, any expenses arising from the contractor's indemnification
of the Postal Service against patent liability.
F.5 PAYMENT (TIME-AND-MATERIALS AND LABOR-HOUR CONTRACTS) (Clause
5-16) (October 1987)
The Postal Service will pay the contractor as follows upon submission
of invoices or vouchers approved by the contracting officer:
a. Hourly Rate
1. The amounts will be computed by multiplying the appropriate
hourly rates prescribed in the Schedule by the number of direct labor hours
performed. The rates will include wages, indirect costs, general and
administrative expenses, and profit. Fractional parts of an hour will be payable
on a prorated basis. Vouchers may be submitted once each month (or at more
frequent intervals if approved by the contracting officer). The contractor will
substantiate vouchers by evidence of actual payment and by individual daily job
timecards, or other substantiation approved by the contracting officer. Promptly
after receipt of each substantiated voucher, the Postal Service will, except as
otherwise provided in this contract, and subject to the terms of paragraph e
below, pay the voucher as approved by the contracting officer.
2. Unless otherwise prescribed in the Schedule, the
contracting officer will withhold five percent of the amounts due under this
paragraph a, but the total amount withheld may not exceed $50,000. The amounts
withheld will be retained until the execution and delivery of any required
release by the contractor.
3. Unless the Schedule prescribes otherwise, the hourly rates
in the Schedule must not be varied by virtue of the contractor having performed
work on an overtime basis. If no overtime rates are provided in the Schedule and
overtime work is approved in advance by the contracting officer, overtime rates
may be negotiated. If the Schedule provides rates for overtime, the premium
portion of those rates will be reimbursable only to the extent the overtime is
approved by the contracting officer.
b. Materials and Subcontracts
1. Allowable costs of direct materials will be determined by
the contracting officer in accordance with chapter 5 of the USPS Procurement
Manual in effect on the date of this contract. Reasonable and allocable material
handling costs may be included in the charge for material to the extent they are
clearly excluded from the hourly rate.
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<PAGE>
102590-97-A-0118 Section F
F.5 (Continued)
2. The actual costs of subcontracts that are authorized under
the Subcontracts clause of this contract are reimbursable; provided, however,
they are consistent with subparagraph 3 following.
3. To the extent possible, the contractor must-
(a) Obtain materials at the most advantageous prices
available, with due regard to securing prompt delivery of satisfactory
materials; and
(b) Take all available cash and trade discounts,
rebates, allowances, credits, salvage, commissions, and other benefits. When
unable to take advantage of the benefits, the contractor will promptly notify
the contracting officer and give the reasons. Credit will be given to the Postal
Service for cash and trade discounts, rebates, allowances, credits, salvage, the
value of any appreciable scrap, commissions, and other amounts that have accrued
to the benefit of the contractor, or would have accrued except for the fault or
neglect of the contractor. The benefits lost without fault or neglect on the
part of the contractor, or lost through no fault of the contracting officer,
will not be deducted from gross costs.
c. Total Cost. It is estimated that the total cost for performing this
contract will not exceed the ceiling price set forth in the Schedule, and the
contractor agrees to use its best efforts to perform the work within this
ceiling price. Whenever the contractor has reason to believe that the hourly
rate payments and material costs that will accrue in performing the contract in
the next 30 days, if added to all other payments and costs previously accrued,
will exceed 85 percent of the ceiling price, the contractor must notify the
contracting officer, giving any revised estimate of the total price for
performing this contract, with supporting reasons and documentation. Whenever
the contractor has reason to believe that the total price for this contract will
be greater than or substantially less than the then-stated ceiling price, the
contractor must notify the contracting officer, giving a revised estimate of the
total price for performing this contract, with supporting reasons and
documentation. Whenever the Postal Service has reason to believe that the work
required will be greater than or substantially less than the then-stated ceiling
price, the contracting officer will advise the contractor, giving a revised
estimate of the total amount of effort to be required under the contract.
d. Ceiling Price. The Postal Service is not obligated to pay the
contractor any amount in excess of the ceiling price in the Schedule, and the
contractor is not obligated to continue performance if to do so would exceed the
ceiling price, until the contracting officer notifies the contractor in writing
that the ceiling price has been increased, specifying a revised ceiling price
for performance under the contract. When the ceiling price is increased, any
hours
Page 26 of 87
<PAGE>
102590-97-A-0118 Section F
F.5 (Continued)
expended or material costs incurred in excess of the ceiling price before the
increase will be allowable to the same extent as if expended or incurred
afterwards.
e. Audit. At any time or times before final payment, the contracting
officer may request an audit of the invoices or vouchers and substantiating
material. Each payment previously made will be subject to reduction to the
extent of amounts, on preceding invoices or vouchers, that are found by the
contracting officer not to have been properly payable and will also be subject
to reduction for overpayments or to increase for underpayments. Upon receipt and
approval of the voucher or invoice designated by the contractor as the
"completion voucher" or "completion invoice" and substantiating material, and
upon compliance by the contractor with any required release and all other terms
of this contract, the Postal Service will promptly pay any balance due. The
completion invoice or voucher, and substantiating material, must be submitted by
the contractor as promptly as practicable following completion of the work under
this contract, but in no event later than one year (or such longer period as the
contracting officer may approve in writing) from the date of completion.
F.6 WITHHOLDING PAYMENT (TECHNICAL DATA AND COMPUTER SOFTWARE)
(Clause 9-7) (October 1987)
a. Final payment under this contract will not be made until the
contractor delivers all data (technical data and computer software) required by
the contract.
b. If the contracting officer determines at any time that the
contractor is not in full compliance with contract requirements for the delivery
of, and rights in, any technical data or computer software, the contracting
officer may withhold from payment up to $50,000 as security for the contractor's
performance. Withholding may not be made if the failure to make timely delivery
or the deficiencies relating to delivered data arise out of causes beyond the
control of the contractor and without fault or negligence of the contractor.
c. Any amount withheld under this clause not finally paid to the
contractor is in mitigation of damages and in no way affects the right of the
Postal Service to collect actual damages for breach of this contract, including
profits from exploitation of any rights in data.
d. Nonperformance by a subcontractor does not excuse any failure to
comply with this clause.
Page 27 of 87
<PAGE>
102590-97-A-0118 Section F
F.7 LEVEL OF EFFORT-COST-REIMBURSEMENT CONTRACT (Clause OB-1) (June
1988)
a. The contractor must perform all work and provide all required
reports within the specified level of effort. The Postal Service will order the
direct labor hours specified in the Schedule for the base period, which
represents the Postal Service's best estimate of the level of effort required to
fulfill these requirements.
b. For determining level-of-effort hours, direct labor includes
personnel such as engineers, scientists, draftsmen, technicians, statisticians,
and programmers. Support personnel such as company management, typists, and data
entry personnel should be charged directly to the contract if it is the
contractor's practice to do so.
c. If the contractor provides less than 90 percent of the level of
effort specified for the base period or any optional period ordered, an
equitable downward adjustment of the fixed fee for that period will be made. The
Postal Service may require the contractor to provide effort up to 110 percent of
the level of effort for any period until the estimated cost for that period has
been reached. However, the additional effort must not result in any increase in
the fixed fee.
d. If the level of effort specified to be ordered during a given base
or option period is not ordered during that period, that level of effort may not
be accumulated and ordered during a subsequent period.
e. These terms and conditions do not supersede the requirements of the
Limitation of Cost clause or the Limitation of Funds clause.
F.8 PAYMENT DUE DATE (Clause OB-22) Alternate III (June 1988)
a. Payments under this contract will be due on the 30th calendar
day after-
1. The date of actual receipt of a proper invoice in the
office designated to receive the invoice; or
2. The date the deliverable are accepted by the Postal
Service, whichever occurs later.
b. The date of the check issued in payment or the date of payment by
wire transfer, when available, will be considered to be the date payment is
made.
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<PAGE>
102590-97-A-0118 Section F
F.9 METHOD OF PAYMENT (Clause OB-23) (June 1988)
a. Payments under this contract will be made either by check to the
contractor or by wire transfer, when available, to an account in the
contractor's name in a bank designated by the contractor at the option of the
Postal Service.
b. The contractor must forward the information called for in this
paragraph (b) in writing to the address indicated in the "Billing Instructions"
on the Offer and Award page of this document not later than seven calendar days
after receipt of notice of award.
1. Full name (if practicable), title, phone number, and
complete mailing address of responsible official(s)-
(a) To whom check payments are to be sent; and
(b) Who may be contacted concerning the bank account
information requested below.
2. The following bank account information for accomplishing
wire transfers:
(a) Name, address, and telegraphic abbreviation of
the receiving financial institution.
(b) Receiving financial institution's nine-digit
American Bankers Association (ABA) identifying number for routing transfer of
funds. Provide this number only if the receiving financial institution has
access to the Federal Reserve Communications System (FRCS).
(c) Recipient's name and account number at the
receiving financial institution to be credited with the funds.
(d) If the receiving financial institution does not
have access to the FRCS, provide the name of the correspondent financial
institution through which the receiving financial institution receives
electronic funds transfer messages. If a correspondent financial institution is
specified, also provide-
(1) Address and telegraphic abbreviation of
the correspondent financial institution; and
(2) The correspondent financial
institution's nine-digit ABA identifying number for routing transfer of funds.
Page 29 of 87
<PAGE>
102590-97-A-0118 Section F
F.9 (Continued)
c. Any changes to the information furnished under paragraph b above of
this clause must be furnished in writing at least 30 calendar days before the
effective date of the change. It is the contractor's responsibility to furnish
these changes 30 calendar days before submitting invoices to avoid payments to
erroneous addresses or bank accounts.
d. The document furnishing the information required in paragraphs (b)
and (c) above must be dated and contain the signature, title, and telephone
number of the contractor official authorized to provide it, as well as the
contractor's name and contract number.
F.10 DATE OF INCURRENCE OF COST (Clause OB-26) (June 1988)
The contractor is entitled to reimbursement for allowable and costs
incurred during the period between 8/22/97 and the award date of this contract,
in an amount not to exceed $182,000. All terms and conditions of the contract
are in effect from .
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<PAGE>
102590-97-A-0118 Section G
SECTION G - SPECIAL CLAUSES
G.1 SPECIAL TOOLING (Clause 2-15) (October 1987)
a. Definition
1. "Special tooling" means jigs, dies, fixtures, molds,
patterns, taps, gauges, other equipment and manufacturing aids, and replacements
so specialized that, without substantial modification or alteration, their use
is limited to developing or producing particular supplies or performing
particular services. The term includes all components of such items, but does
not include-
(a) Consumable property;
(b) Special test equipment; or
(c) Buildings, nonseverable structures (except
foundations and similar improvements necessary for the installation of special
tooling), general or special machine tools, or similar capital items.
2. For the purposes of this clause, "special tooling" does not
include-
(a) Items acquired by the contractor before the
effective date of this contract, or replacements of such items, whether or not
altered or adapted for use in the performance of this contract; or
(b) Items specifically excluded by the Schedule.
b. Use of Special Tooling. The contractor agrees not to use any items
of special tooling purchased or manufactured by the contractor for the
performance of this contract except in performing it, or as approved by the
contracting officer.
c. List of Special Tooling. Within 60 days after delivery of the first
production end items under this contract, or such later date as the contracting
officer may prescribe, the contractor must (if the contracting officer so
requests) furnish the contracting officer a list of all special tooling acquired
or manufactured by the contractor for use in the performance of this contract.
The list will specify the nomenclature, tool number, and related product part
number or service, and unit or group cost of the special tooling. Upon
completion or termination of all or a substantial part of the work under this
contract, the contractor must furnish a final list in the same form covering all
items not previously reported under this paragraph c; provided, however, that
the contracting officer may, by written notice, waive this requirement or extend
it until the
Page 31 of 87
<PAGE>
102590-97-A-0118 Section G
G.1 (Continued)
completion of this contract and other contracts and subcontracts for which
approval has been obtained under paragraph b above. Special tooling that has
become obsolete as a result of changes in design or specification need not be
reported, except as provided for in paragraph d below.
d. Changes in Design. If any changes in design or specifications affect
interchangeability of parts, the contractor will, unless otherwise agreed to by
the contracting officer, give the contracting officer notice of any part that is
not interchangeable with the new or superseding part; and the usable special
tooling for each part covered in this notice will be retained by the contractor,
subject to the provisions of paragraph i below, pending disposition under
paragraph f below.
e. Contractor's Offer to Retain Special Tooling. When the contractor
furnishes a list or notice under paragraph c or d above, the contractor may
designate the items of special tooling (either specifically or by listing the
particular products, parts, or services for which they were used or designed)
the contractor desires to retain, together with a written offer to retain them -
1. Free and clear of any Postal Service interest, for an
amount designated in the offer that should ordinarily not be less than the fair
value of the items, which fair value takes into account, among other things,
their value to the contractor for use in further work; or
2. For a period of time and under terms and conditions agreed
to by the parties, subject to ultimate retention or disposition of these items
in accordance with paragraph f below.
f. Disposition of Special Tooling
1. Within 90 days after receipt of any list or notice under
paragraph c or d above, or such further period as may be agreed upon by the
parties, the contracting officer will furnish to the contractor -
(a) A list specifying the particular products, parts,
or services for which the Postal Service may require special tooling, together
with a request that the contractor transfer title (to the extent not previously
transferred under any other clause of this contract) and deliver to the Postal
Service all usable items of special tooling used or designed for the manufacture
or performance of any designated portion of those products, parts, or services
and on hand when production of the products or parts, or performance of the
services, ceased;
(b) An acceptance or rejection of any offer made by
the contractor under paragraph e above, or a request for further negotiation
with respect to it;
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<PAGE>
102590-97-A-0118 Section G
G.1 (Continued)
(c) A direction to the contractor to sell, or to
dispose of as scrap, for the account of the Postal Service, any or all of the
special tooling covered by the list;
(d) A statement with respect to any or all of the
special tooling covered by the list specifying that the Postal Service has no
further interest in it and waives its rights in it; or
(e) Any combination of the foregoing, as the
circumstances warrant.
2. The contractor will promptly comply with any request by the
contracting officer under subparagraph f.1 preceding to transfer title to any
items of special tooling, and will -
(a) Immediately prepare them for shipment by proper
packaging, packing, and marking, in accordance with any instruction issued by
the contracting officer, promptly delivering them to the Postal Service as
directed by the contracting officer; or
(b) If a storage agreement has been entered into,
prepare them for - storage in accordance with that agreement, as directed by the
contracting officer.
3. To the extent that compliance with direction to ship or
store under subparagraph f.2 preceding may occasion cost to the contractor for
which the contractor will not otherwise be compensated, the contract price will
be equitably adjusted in accordance with the Changes clause. Any items of
special tooling delivered or stored must be accompanied by any operation sheets
or other appropriate data necessary to show the manufacturing operations or
processes for which the items were used or designed.
4. If the contracting officer has requested further
negotiations under f.1(b) above, the contractor agrees to enter into them in
good faith with the contracting officer. Any items of special tooling not
disposed of b transfer of title and delivery to the Postal Service, or by
acceptance of an offer of the contractor made under paragraph e above, or of
such offer as modified in the course of negotiations, must be disposed of in the
manner set forth in f.1(c) or (d) above. Any failure of the contracting officer
to give the required direction within the specified period will be construed as
a direction pursuant to f.1(c) above.
g. Proceeds of Retention or Disposition of Special Tooling. If the
contracting officer accepts an offer of the contractor to retain any items of
special tooling, or if any such items are sold to third parties or disposed of
as scrap, the net proceeds will be -
1. Deducted from the amounts due to the contractor under this
contract and the contract amended accordingly; or
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<PAGE>
102590-97-A-0118 Section G
G.1 (Continued)
2. Otherwise paid as the contracting officer may direct.
h. Property Control. The contractor agrees to follow normal industrial
practice in maintaining property-control records on special tooling and to make
them available for inspection by the Postal Service at all reasonable times. The
contractor further agrees that, to the extent practicable, the contractor will
identify by appropriate stamp, tag, or other mark all special tooling subject to
this clause.
i. Maintenance Pending Disposition. The contractor agrees that, between
the date any usable items of special tooling are no longer needed by the
contractor, within the meaning of this clause, and the date of their final
disposition under this clause, the contractor will take all reasonable steps
necessary to maintain their identity and existing condition, unless the
contracting officer has directed that they be disposed of as scrap or has given
notice under f.1(d) above. The contractor shall not be required to keep any such
items in place.
j. Special Tooling Provisions for Subcontracts. The contractor agrees,
in placing any subcontracts or purchase orders under this contract that involve
the use of special tooling whose full cost is charged to the subcontract or
purchase order, to include therein appropriate provisions to obtain rights
comparable to those granted to the Postal Service by this clause, unless the
contracting officer determines, upon the contractor's request, that with respect
to any subcontract, purchase order, or class thereof, such rights are not of
substantial interest to the Postal Services. The contractor further agrees to
exercise any rights for the benefit of the Postal Service as the contracting
officer may direct.
G.2 REQUEST FOR CHANGES, DEVIATIONS, OR WAIVERS TO A TECHNICAL
DATA PACKAGE (Clause OB-3) (February 1992)
The offeror/contractor must submit all requests for changes,
deviations, or waivers to a Technical Data Package (TDP) on the format,
CONTRACTOR REQUEST FOR CHANGE, DEVIATION, OR WAIVER TO A TECHNICAL DATA PACKAGE
(TDP), as referenced in Section I of this document.
G.3 CONTRACT TYPE (Clause B-3) (February 1991)
This is a combination contract.
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102590-97-A-0118 Section G
G.4 ORDER OF PRECEDENCE (Clause B-29) (February 1991)
Any inconsistency in the provisions of this solicitation, the contract
awarded under this solicitation, or a contract awarded without the issuance of a
written solicitation will be resolved by giving precedence in the following
order:
a. The Schedule.
b. The solicitation provisions and instructions.
c. Special clauses and general clauses.
d. Provisions contained in attachments or incorporated by reference.
G.5 POSTAL SERVICE-FURNISHED PROPERTY (Clause OB-24) (June 1988)
The Postal Service will provide item(s) of Postal Service property to
the contractor for use in the performance of this contract. This property is
incorporated by reference in Section I. This property must be used and
maintained by the contractor in accordance with the Postal Service Property
clause of this contract.
G.6 POSTAL SERVICE-FURNISHED DATA (Clause OB-25) (June 1988)
a. The Postal Service will deliver to the contractor the Postal
Service-furnished data described in this contract. If the data, suitable for
their intended use, are not delivered to the contractor, the contracting officer
will equitably adjust affected provisions of the contract in accordance with the
Changes clause.
b. Title to Postal Service-furnished data remains with the Postal
Service.
c. The contractor must use the Postal Service-furnished data only in
connection with this contract.
d. The data to be furnished to the contractor are incorporated by
reference in Section I.
G.7 CONTROL OF POSTAL SERVICE-FURNISHED PROPERTY (Clause OB-42) (June
1988)
Control of Postal Service-furnished property must be accomplished in
accordance with the Postal Service Property clause of this contract. The
designated property administrator for this contract is:
Glenn-McDonald
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<PAGE>
102590-97-A-0118 Section H
PART 2 - CLAUSES AND ATTACHMENTS
SECTION H - GENERAL CLAUSES
---------------------------
H.1 CLAUSES INCORPORATED BY REFERENCE
The following clauses are incorporated by reference as if set forth in
full text. The full text versions of these clauses are available upon request.
Procurement Manual (USPS Publication 41) references are shown in parentheses.
CLAUSE
NUMBER DATE TITLE
B-1 June 1988 DEFINITIONS (PM B.2.1)
B-2 October 1987 CHANGES (PM B.2.1)
B-8 October 1987 ASSIGNMENT OF CLAIMS (PM B.2.1)
B-9 June 1988 CLAIMS AND DISPUTES (PM B.2.1)
B-10 October 1987 PRICING OF ADJUSTMENTS (PM B.2.1)
B-11 October 1987 TERMINATION FOR CONVENIENCE (PM
B.2.1)
B-13 October 1987 TERMINATION FOR DEFAULT (PM B.2.1)
B-14 October 1987 EXAMINATION OF RECORDS (PM B.2.1)
B-21 October 1987 CHANGE-ORDER ACCOUNTING (PM B.2.1)
B-25 June 1988 ADVERTISING OF CONTRACT AWARDS (PM
B.2.1)
1-5 April 1993 GRATUITIES OR GIFTS (PM 1.7.8)
1-6 October 1987 CONTINGENT FEES
6-1 January 1991 BANKRUPTCY (PM 6.2.7)
10-1 December 1989 PARTICIPATION OF SMALL, MINORITY-
OWNED, AND WOMAN-OWNED BUSINESSES
(PM 10.1.5)
10-2 February 1992 SMALL, MINORITY-OWNED, AND WOMAN-
OWNED BUSINESS SUBCONTRACTING
REQUIREMENTS (PM 10.1.5)
10-3 October 1987 CONVICT LABOR (PM 10.2.2)
10-9 October 1987 EQUAL OPPORTUNITY (PM 10.2.7)
10-11 October 1987 EQUAL OPPORTUNITY PREAWARD
CLEARANCE OF SUBCONTRACTS
10-15 October 1987 AFFIRMATIVE ACTION FOR HANDICAPPED
WORKERS (PM 10.2.11)
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<PAGE>
102590-97-A-0118 Section H
H.1 (Continued)
10-16 July 1995 AFFIRMATIVE ACTION FOR DISABLED
VETERANS AND VETERANS OF THE
VIETNAM ERA (PM 10.2.12)
10-19 October 1987 CLEAN AIR AND WATER (PM 10.4.2)
10-20 December 1989 DRUG-FREE WORKPLACE (PM 10.5.4)
H.2 TERMINATION FOR CONVENIENCE OR DEFAULT
(Clause B-12) (October 1987)
a. Performance under this contract may be terminated by the
Postal Service in whole or in part whenever-
1. The contractor defaults in performing this contract
(including in the term "default" any refusal or failure to prosecute the work
diligently enough to ensure its completion within the time specified or any
extension), and fails to cure the default within ten days (or for a longer
period as the contracting officer may allow) after receipt from the contracting
officer of a notice specifying the default; or
2. The contracting officer determines that termination is in
the best interests of the Postal Service. A termination may be effected by
delivery to the contractor of a notice of termination specifying whether the
termination is for default or for the convenience of the Postal Service, the
extent of work terminated, and the effective date of the termination. If, after
notice of termination for default under subparagraph a.1 above, it is determined
that the contractor was not in default or that the delay was excusable, the
notice of termination will be deemed to have been issued for the convenience of
the Postal Service.
b. Upon receipt of a notice of termination, unless otherwise directed
by the contracting officer, the contractor must take the following actions:
1. Stop work under the contract to the extent specified in the
notice.
2. Place no further orders or subcontracts for materials,
services, or facilities except as necessary for completion of the unterminated
work.
3. Terminate all orders and subcontracts to the extent that
they relate to the work terminated.
4. Assign to the Postal Service, as directed by the
contracting officer, all right, title, and interest of the contractor under the
orders and subcontracts terminated. The
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<PAGE>
102590-97-A-0118 Section H
H.2 (Continued)
Postal Service has the right, in its discretion, to settle or pay claims arising
out of these terminations.
5. Settle all outstanding liabilities and all claims arising
out of the termination of orders and subcontracts, with the approval or
ratification of the contracting officer. The contracting officer's decision is
final for the purposes of this clause.
6. Transfer title to the Postal Service and deliver as
directed by the contracting officer -
(a) Work in process, completed work, and other
material produced as a part of or acquired for the work terminated; and
(b) The completed or partially completed plans,
drawings, information, and other property that, if the contract had been
completed, would have been furnished to the Postal Service.
7. Use its best efforts to sell as directed by the contracting
officer any property of the types referred to in subparagraph b.6 above,
provided that the contractor may acquire property under the conditions
prescribed and at prices approved by the contracting officer, and the proceeds
of any such transfer will be applied in reduction of any payments to be made by
the Postal Service to the contractor, or be credited to the price or cost of the
work covered by this contract or paid in any manner directed by the contracting
officer.
8. Complete performance of the work not terminated.
9. Take any action that may be necessary, or that the
contracting officer may direct, for protecting and preserving any property
related to this contract that is in the possession of this contractor and in
which the Postal Service has or may acquire an interest.
c. At any time, the contractor may submit to the contracting officer a
list, certified as to quantity and quality, of termination inventory not
disposed of and may request the Postal Service to remove inventory items or
enter into a storage agreement covering them. Not later than 15 days after
receiving this request, the Postal Service will accept title to the items and
remove them or enter into a storage agreement. The list will be subject to
verification by the contracting officer upon removal of the items or, if the
items are stored, within 45 days after submission of the list.
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<PAGE>
102590-97-A-0118 Section H
H.2 (Continued)
d. After termination, the contractor must submit to the contracting
officer a termination claim in the form and with the certification prescribed by
the contracting officer. The claim must be submitted promptly, but in no event
more than 180 days after the effective date of termination, unless an extension
in writing is granted by the contracting officer. However, if the contracting
officer determines that the facts justify such action, any termination claim may
be received and acted upon at any time after the 180-day period. Upon failure of
the contractor to submit a termination claim within the time allowed, the
contracting officer may determine, on the basis of information available, the
amount, if any, due the contractor by reason of the termination and will pay
that amount.
e. Subject to the provisions of paragraph d above, the contractor and
the contracting officer may agree upon the whole or any part of the amount to be
paid (including an allowance for the fee) to the contractor by reason of the
termination.
f. If the contractor and the contracting officer fail to agree on the
amount with respect to cost or fee, the contracting officer will determine, on
the basis of information available, the amount, if any, due the contractor and
pay the contractor as follows:
1. If the settlement includes cost and fee -
(a) All costs and expenses reimbursable in accordance
with this contract, not previously paid to the contractor and such as may
continue for a reasonable time after termination;
(b) The cost of settling and paying claims arising
out of the termination of work under subcontracts or orders;
(c) The reasonable costs of settlement, including
accounting, legal, clerical, and other expenses reasonably necessary for the
preparation of settlement claims, together with reasonable storage,
transportation, and other costs incurred in connection with protecting or
disposing of the termination inventory (however, if the termination is for
default, there must not be included any amount for the preparation of the
contractor's settlement proposal); and
(d) A portion of the fee payable under the contract,
determined as follows:
1. In the event of termination for
convenience, a percentage of the fee equivalent to the percentage of the
completion of work contemplated by the contract, but
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102590-97-A-0118 Section H
H.2 (Continued)
exclusive of subcontract effort included in subcontractors' termination claims,
less fee payments previously made; or
2. In the event of termination for default,
that proportionate part of the fee (or, if this contract calls for articles of
different types, of such part of the fee as is reasonably allocable to the type
of article under consideration) as the total number of articles accepted bears
to the total number of articles of a like kind called for by this contract. If
the amount determined under this subparagraph (2) is less than the total payment
already made to the contractor, the contractor must repay to the Postal Service
the excess.
2. If the settlement includes only the fee, its amount will be
determined in accordance with f.l(d) above.
g. Costs claimed, agreed to, or determined pursuant to paragraphs c, d,
and e above must be in accordance with chapter 5 of the USPS Procurement Manual
in effect on the effective date of termination. The final settlement is limited
as provided in the Limitation of Cost clause of this contract.
h. The contractor has the right of review, under the Claims and
Disputes clause, of any determination made by the contracting officer under
paragraph d or f above, except that if the contractor fails to request an
extension of time, the contractor will have no right of review. In any case
where the contracting officer determines the amount due under paragraph d or f
above, the Postal Service must pay to the contractor the following:
1. If there is no right of review under this clause
or if no timely review has been taken, the amount determined by the contracting
officer; or
2. If a review has been taken, the amount finally
determined.
i. There will be deducted -
1. All unliquidated advance or other payments made to
the contractor applicable to the terminated portion of this contract;
2. Any claim the Postal Service may have against the
contractor; and
3. The agreed price for, or the proceeds of sale of,
any materials, supplies, or other things acquired by the contractor or sold in
accordance with this clause.
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102590-97-A-0118 Section H
H.2 (Continued)
j. If the termination is partial, the portion of the fee payable for
the continued portion of the contract must be equitably adjusted by agreement
between the contractor and the contracting officer.
k. The Postal Service may, under the terms and conditions it may
prescribe, make partial payments against costs incurred by the contractor in
connection with the terminated portion of the contract whenever, in the opinion
of the contracting officer, the aggregate of the partial payments is within the
amount to which the contractor will be entitled. If the total of these payments
exceeds the amount finally determined to be due under this clause, the excess
must be repaid to the Postal Service upon demand, together with interest
calculated in accordance with the Interest clause of this contract, for the
period from the date the excess payment is received by the contractor to the
date on which the excess is repaid to the Postal Service. However, no interest
will be charged with respect to an excess payment attributable to a reduction in
the contractor's claim by reason of retention or other disposition of
termination inventory, until ten days after the date of the retention or
disposition.
H.3 SUBCONTRACTS (Clause B-18) (October 1987)
a. "Subcontract," as used in this clause, includes, but is not limited
to, purchase orders and changes and modifications to purchase orders. The
contractor must notify the contracting officer reasonably in advance of entering
into any subcontract if the contractor does not have a purchasing system
approved by a Federal Government agency and if the subcontract -
1. Is to be a cost-reimbursement, time-and-materials, or
labor-hour contract estimated to exceed $25,000 including any fee;
2. Is proposed to exceed $100,000; or
3. Is one of a number of subcontracts with a single
subcontractor, under this contract, for the same or related supplies or services
that in the aggregate is expected to exceed $100,000.
b. The advance notification required by paragraph a above must include
- -
1. A description of the supplies or services to be
subcontracted;
2. Identification of the type of subcontract to be used;
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102590-97-A-0118 Section H
H.3 (Continued)
3. Identification of the proposed subcontractor and an
explanation of why and how the proposed subcontractor was selected, including
the competition obtained;
4. The proposed subcontract price and the contractor's cost or
price analysis;
5. The subcontractor's current, complete, and accurate cost or
pricing data if required by other contract provisions; and
6. A negotiation memorandum reflecting -
(a) The principal elements of the subcontract price
negotiations;
(b) The most significant considerations controlling
establishment of initial or revised prices;
(c) The reason cost or pricing data were or were not
required;
(d) The extent, if any, to which the contractor did
not rely on the subcontractor's cost or pricing data in determining the price
objective and in negotiating the final price;
(e) The extent, if any, to which it was recognized in
the negotiation that the subcontractor's cost or pricing data were not accurate,
complete, or current; the action taken by the contractor and subcontractor; and
the effect of any such defective data on the total price negotiated;
(f) The reasons for any significant difference
between the contractor's price objective and the price negotiated; and
(g) A complete explanation of the incentive fee or
profit plan when incentives are used. The explanation must identify each
critical performance element, management decisions used to quantify each
incentive element, reasons for the incentives, and a summary of all trade-off
possibilities considered.
c. The contractor agrees to select subcontractors (including suppliers)
on a competitive basis to the maximum practical extent consistent with the
objectives. and requirements of the contract.
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102590-97-A-0118 Section H
H.3 (Continued)
d. The contracting officer may disapprove any subcontract in writing
for which advance notification is required under paragraph a above.
e. Even if the contractor's purchasing system has been approved, the
contractor must obtain the contracting officer's written consent before placing
subcontracts that have been selected for special surveillance and so identified
in the Schedule of the contract.
f. The lack of disapproval does not constitute a determination -
1. Of the acceptability of any subcontract terms or
conditions;
2. Of the acceptability of any subcontract price or of any
amount paid under any subcontract; or
3. To relieve the contractor of any responsibility for
performing this contract.
g. No subcontract under this contract may provide for payment on a
cost-plus-a- percentage-of-cost basis.
H.4 FREQUENCY AUTHORIZATION (Clause B-24) (October 1987)
a. Authorization of radio frequencies required in support of this
contract must be obtained through the contracting officer by the contractor or
subcontractor in need thereof. Frequency-management procedures prescribed in the
schedule of this contract must be followed in obtaining radio-frequency
authorization.
b. For any experimental, developmental, or operational equipment for
which the appropriate frequency allocation has not been made, the contractor or
subcontractor must provide the technical operating characteristics of the
proposed electromagnetic radiating device to the contracting officer during the
initial planning, experimental, or developmental phases of contractual
performance.
c. This clause, including this paragraph c, must be included in all
subcontracts that call for developing, producing, testing, or operating a device
for which a radio-frequency authorization is required.
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<PAGE>
102590-97-A-0118 Section H
H.5 POSTAL SERVICE PROPERTY--SHORT FORM (Clause 2-12) (October 1987)
a. The Postal Service will deliver to the contractor, at the time and
locations stated in the contract, the Postal Service property described in the
Schedule or specifications. If that property, suitable for its intended use, is
not delivered timely to the contractor, the contracting officer must equitably
adjust affected provisions of this contract in accordance with the Changes
clause when:
1. The contractor submits a timely written request for an
equitable adjustment; and
2. The facts warrant an equitable adjustment.
b. Title to Postal Service property remains in the Postal Service. The
contractor may use the Postal Service property only in connection with this
contract. The contractor must maintain adequate property control records in
accordance with sound industrial practice and must make them available for
Postal Service inspection at all reasonable times.
c. Upon delivery of Postal Service property to the contractor, the
contractor assumes the risk and responsibility for its loss or damage, except -
1. For reasonable wear and tear;
2. To the extent property is consumed in performing the
contract; or
3. As otherwise provided in the contract.
d. Upon completing this contract, the contractor must follow the
contracting officer's instructions regarding the disposition of all Postal
Service property not consumed in performing this contract or previously
delivered to the Postal Service. The contractor must prepare for shipment,
deliver f.o.b. origin, or dispose of the Postal Service property, as directed or
authorized by the contracting officer. The net proceeds of any such disposal
will be credited to the contract price or will be paid to the Postal Service as
directed by the contracting officer.
H.6 POSTAL SERVICE PROPERTY FURNISHED "AS IS"
(Clause 2-14) (October 1987)
a. The Postal Service makes no warranty whatsoever with respect to
Postal Service property furnished "as is" except that the property is in the
same condition when placed at the f.o.b. point specified in the solicitation as
when inspected by the contractor pursuant to the
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<PAGE>
102590-97-A-0118 Section H
H.6 (Continued)
solicitation or (if not inspected by the contractor) as when last available for
inspection under the solicitation.
b. The contractor may repair any property made available to the
contractor "as is." Repair will be at the contractor's expense except as
otherwise provided in this clause. Such property may be modified at the
contractor's expense, but only with the written permission of the contracting
officer. Any repair or modification of property furnished "as is" does not
affect the title of the Postal Service.
c. If there is any change (between the time inspected or last available
for inspection under the solicitation to the time placed on board at the
location specified in the solicitation) in the condition of Postal Service
property furnished "as is" that will adversely affect the contractor, the
contractor must, upon receipt of the property, notify the contracting officer of
that fact, and (as directed by the contracting officer) either (1) return the
property at the expense of the Postal Service or otherwise dispose of it, or (2)
effect repairs to return it to the condition it was in when inspected under the
solicitation, or (if not inspected) as it was when last available for inspection
under the solicitation. Upon completion of (1) or (2) above, the contracting
officer, upon written request from the contractor, will equitably adjust any
contractual provisions affected by the return, disposition, or repair, in
accordance with the Changes clause. The foregoing provisions for adjustment are
exclusive, and the Postal Service is not liable for any delivery of Postal
Service property furnished "as is" in a condition other than that in which it
was originally offered.
d. Except as otherwise provided in this clause, Postal Service property
furnished "as is" is governed by the Postal Service Property clause of this
contract.
H.7 FIXED FEE (Clause 5-10) (October 1987)
a. The Postal Service will pay the contractor for performing this
contract the fixed fee specified in the Schedule.
b. Payment of the fixed fee will be made as specified in the Schedule.
After payment of 85 percent of the fixed fee, the contracting officer may
withhold further payment of fee until a reserve is set aside in an amount that
the contracting officer considers necessary to protect the Postal Service's
interest. This reserve may not exceed 15 percent of the total fixed fee or
$100,000, whichever is less.
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<PAGE>
102590-97-A-0118 Section H
H.8 PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA
(Clause 5-22) (July 1995)
a. If any price, including profit or fee, negotiated in connection with
this contract, or modification to this contract, or any cost reimbursable under
this contract, was increased by any significant amount because:
1. The contractor or subcontractor furnished cost or pricing
data that were not complete, accurate, and current as of the date of final
agreement on price;
2. A subcontractor or prospective subcontractor furnished the
contractor cost or pricing data that were not complete, accurate, and current as
of the date of final agreement on price; or
3. Any of these parties furnished data of any description that
were not accurate - then the price or cost will be reduced accordingly and the
contract will be modified to reflect the reduction.-
b. Any reduction in the contract price under paragraph a above due to
defective data from a prospective subcontractor that was not awarded the
subcontract will be limited to the amount, plus applicable overhead and profit
markup, by which the actual subcontract, or the actual cost to the contractor if
there was no subcontract, was less than the prospective subcontract cost
estimate submitted by the contractor (provided that the actual subcontract price
was not itself affected by defective cost or pricing data).
H.9 SUBCONTRACTOR COST OR PRICING DATA (Clause 5-23)
(October 1987)
a. Before awarding any subcontract or pricing any subcontract
modification, the contractor must require the subcontractor to submit cost or
pricing data whenever cost or pricing data are required by chapter 5 of the USPS
Procurement Manual.
b. If the subcontractor is required to submit cost or pricing data
under paragraph a above, then the contractor must insert the substance of this
clause, including this paragraph by, in the subcontract.
H.10 PATENT INFRINGEMENT BOND REQUIREMENTS (Clause 7-1) (October 1987)
The contractor may be required to submit a patent infringement bond in
a penal amount set by the contracting officer and in a form acceptable to the
Postal Service. Failure to submit an acceptable bond may be cause for
termination of the contract for default.
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<PAGE>
102590-97-A-0118 Section H
H.11 INSURANCE (Clause 7-4) (June 1988)
a. During the term of this contract and any extension, the contractor
must maintain at its own expense the insurance required by this clause.
Insurance companies must be acceptable to the Postal Service. Policies must
include all terms and provisions required by the Postal Service.
b. The contractor must maintain and furnish evidence of workers'
compensation, employers' liability insurance, and the following general public
liability and automobile liability insurance:
Bodily Injury Property Damage
General $100,000.00 per person $10,000.00 per occurrence
Liability $500,000.00 per accident $10,000.00 aggregate
Automobile $100,000.00 per person $10,000.00 per occurrence
Liability $500,000.00 per accident $10,000.00 aggregate
c. Each policy must include substantially the following provision:
"It is a condition of this policy that the company furnish written
notice to the U.S. Postal Service 30 days in advance of the effective date of
any reduction in or cancellation of this policy".
d. The contractor must furnish a certificate of insurance or, if
required by the contracting officer, true copies of liability policies and
manually countersigned endorsements of any changes. Insurance must be effective,
and evidence of acceptable insurance furnished, before beginning performance
under this contract. Evidence of renewal must be furnished not later than five
days before a policy expires.
e. The maintenance of insurance coverage as required by this clause is
a continuing obligation, and the lapse or termination of insurance coverage
without replacement coverage being obtained will be grounds for termination for
default.
H.12 ERRORS AND OMISSIONS (Clause 7-5) (October 1987)
a. The contractor warrants that it is insured for $200,000 (unless a
larger amount is set forth in the Schedule) for errors and omissions per claim
in an amount in excess of the minimum set forth in the Schedule in the
performance of this contract.
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<PAGE>
102590-97-A-0118 Section H
H.12 (Continued)
b. Unless the contractor's policy is prepaid, noncancelable, and issued
for a period at least equal to the term of this contract on an occurrence basis,
the contractor must have the policy amended to include substantially the
following provision:
"It is a condition of this policy that the company furnish written
notice to the U.S. Postal Service 30 days in advance of the effective date of
any reduction in or cancellation of this policy".
c. The contractor must furnish a certificate of insurance or, if
required by the contracting officer, true copies of liability policies and
manually countersigned endorsements of any changes. Insurance must be effective,
and evidence of acceptable insurance furnished, before beginning performance
under this contract. Evidence of renewal must be furnished not later than five
days before a policy expires.
H.13 FEDERAL, STATE, AND LOCAL TAXES (NONCOMPETITIVE CONTRACT)
(Clause 7-8) (October 1987)
a. Definitions
1. "Contract date" means the effective date of this contract
or modification.
2. "All applicable Federal, State, and local taxes and duties"
means all taxes and duties, in effect on the contract date, that the taxing
authority is imposing and collecting on the transactions or property covered by
this contract.
3. "After-imposed tax" means any new or increased Federal,
State, or local tax or duty, or tax that was excluded on the contract date but
whose exclusion was later revoked or amount of exemption reduced during the
contract period, other than an excepted tax, on the transactions or property
covered by this contract that the contractor is required to pay or bear as the
result of legislative, judicial, or administrative action taking effect after
the contract date.
4. "After-relieved tax" means any amount of Federal, State, or
local tax or duty, other than an excepted tax, that would otherwise have been
payable on the transactions or property covered by this contract, but which the
contractor is not required to pay or bear, or for which the contractor obtains a
refund or drawback, as the result of legislative, judicial, or administrative
action taking effect after the contract date.
5. "Excepted tax" means social security or other employment
taxes, net income and franchise taxes, excess profits taxes, capital stock
taxes, transportation taxes, unemployment compensation taxes, and property
taxes. "Excepted tax" does not include gross
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<PAGE>
102590-97-A-0118 Section H
H.13 (Continued)
income taxes levied on or measured by sales or receipts from sales, property
taxes assessed on completed supplies covered by this contract, or any tax
assessed on the contractor's possession of, interest in, or use of property to
which the Postal Service has title.
6. "Local taxes" includes taxes imposed by a possession of the
United States or by Puerto Rico.
b. Unless otherwise provided in this contract, the contract price
includes all applicable Federal, State, and local taxes and duties.
c. The contract price will be increased by the amount of any
after-imposed tax, or of any tax or duty specifically excluded from the contract
price by a term or condition of this contract, that the contractor is required
to pay or bear, including any interest or penalty, if the contractor states in
writing that the contract price does not include any contingency for such tax
and if liability for such tax, interest, or penalty was not incurred through the
contractor's fault, negligence, or failure to follow instructions of the
contracting officer.
d. The contract price will be decreased by the amount of any
after-relieved tax. The Postal Service will be entitled to interest received by
the contractor incident to a refund of taxes, to the extent that such interest
was earned after the contractor was paid by the Postal Service for such taxes.
The Postal Service will be entitled to repayment of any penalty refunded to the
contractor, to the extent that the penalty was paid by the Postal Service.
e. The contract price will be decreased by the amount of any Federal,
State, or local tax, other than an excepted tax, that was included in the
contract price and that the contractor is required to pay or bear, or does not
obtain a refund of, through the contractor's fault, negligence, or failure to
follow instructions of the contracting officer.
f. No adjustment will be made in the contract price under this clause
unless the amount of the adjustment exceeds $100.
g. The contractor must promptly notify the contracting officer of all
matters relating to Federal, State, and local taxes and duties that reasonably
may be expected to result in either an increase or a decrease in the contract
price, and the contractor must take appropriate action as the contracting
officer directs. The contract price will be equitably adjusted to cover the
costs of action taken by the contractor at the direction of the contracting
officer, including any interest, penalty, and reasonable attorney's fees.
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102590-97-A-0118 b Section H
H.13 (Continued)
h. The Postal Service will furnish evidence appropriate to establish
exemption from any Federal, State, or local tax when the contractor requests an
exemption and states in writing that it applies to a tax excluded from the
contract price, and a reasonable basis for the exemption exists.
H.14 PATENT RIGHTS (Clause 9-1) (October 1987)
a. Definitions Used in This Clause
1. Subject invention. Any invention or discovery, whether or
not patentable, conceived or first actually reduced to practice in the course of
or under this contract. The term includes, but is not limited to, any art,
method, process, machine, manufacture, design, or composition of matter, or any
new and useful improvement thereof, or any variety of plant, that is or may be
patentable under the patent laws of the United States of America or any foreign
country.
2. Postal Service purposes. The right of the Postal Service to
practice and have practiced (make or have made, use or have used, sell or have
sold) any subject invention throughout the world by or on behalf of the U.S.
Postal Service.
3. Contract. Any contract, agreement, or other arrangement or
subcontract entered into, with, or for the benefit of the Postal Service.
4. Subcontract and subcontractor. Any subcontract or
subcontractor of the contractor under this contract and any lower-tier
subcontract or subcontractor under the contract.
5. To bring the invention to the point of practical
application. To manufacture (in the case of a composition or product), practice
(in the case of a process), or operate (in the case of a machine or system)
under such conditions as to establish that the invention works and that its
benefits are reasonably accessible to the public.
b. Rights Granted to the Postal Service. The contractor agrees to grant
the Postal Service title in and to each subject invention. Nothing contained in
this Patent Rights clause grants any rights with respect to any invention other
than a subject invention.
c. Subject Invention Disclosure and Reports
1. With respect to subject inventions, the contractor must
furnish the contracting officer the items described in (a) through (e) below:
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102590-97-A-0118 Section H
H.14 (Continued)
(a) A written disclosure of each invention promptly
after conception or first actual reduction to practice, whichever occurs first
under this contract, sufficiently complete in technical detail to convey to one
skilled in the art to which the invention pertains a clear understanding of the
nature, purpose, operation, and (to the extent known) the physical, chemical, or
electrical characteristics of the invention. When unable to submit a complete
disclosure, the contractor must, within three months, submit a disclosure that
includes all such technical detail then known; and unless the contracting
officer authorizes a different period, submit all other technical detail
necessary to complete the disclosure within three additional months.
(b) Before final settlement of this contract, a final
report listing each invention, including all those previously listed, or
certifying that there are no unreported inventions. (This final report and any
interim report under (a) above must be submitted on Form 7398, Report of
Inventions and Subcontracts, or other format acceptable to the contracting
officer.)
(c) Information in writing, as soon as practicable,
of the date and identity of any (1) public use, sale, or publication of the
invention made by or known to the contractor or (2) contemplated publication by
the contractor.
(d) Upon request, any duly executed instruments and
other papers (prepared by the Postal Service) necessary to (1) vest in the
Postal Service the rights granted it under this clause and (2) enable the Postal
Service to apply for and prosecute any patent application, in any country,
covering the invention, where the Postal Service has the right under this clause
to file such an application.
(e) Upon request, an irrevocable power of attorney to
inspect and make copies of each United States patent application filed by, or on
behalf of, the contractor covering the invention.
2. With respect to each subject invention in which the
contractor has been granted rights, under license or otherwise, the contractor
agrees to provide written reports at reasonable intervals, when requested by the
Postal Service, as to:
(a) The commercial use being or intended to be made
of the invention;
(b) Royalties payable to the Postal Service; and
(c) The steps taken by the contractor to bring the
invention to the point of practical application, or to make the invention
available for licensing.
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102590-97-A-0118 Section H
H.14 (Continued)
d. Subcontracts
1. The contractor must, unless otherwise authorized or
directed by the contracting officer, include a patent rights clause containing
all the provisions of this Patent Rights clause except paragraph g below in any
subcontract where a purpose of the subcontract is the conduct of experimental,
developmental, research, or engineering work. If a subcontractor refuses to
accept this clause, the contractor:
(a) Must promptly submit a written report to the
contracting officer setting forth the subcontractor's reasons for the refusal
and any other pertinent information that may expedite disposition of the matter;
and
(b) May not proceed with the subcontract without the
written authorization of the contracting officer. The contractor may not, in any
subcontract, or by using a subcontract as consideration thereof, acquire any
rights to subject inventions for its own use (as distinguished from rights
required to fulfill its contract obligations to the Postal Service in the
performance of this contract). Reports, instruments, and other information
required to be furnished by a subcontractor to the contracting officer under a
patent rights clause in a subcontract may, upon mutual consent of the contractor
and the subcontractor (or by direction of the contracting officer), be furnished
to the contractor for transmission to the contracting officer.
2. The contractor, at the earliest practicable date, must
notify the contracting officer in writing of any subcontract containing a patent
rights clause, furnish to the contracting officer a copy of the subcontract, and
notify the contracting officer when the subcontract is completed. The Postal
Service is a third-party beneficiary of any subcontract granting rights to the
Postal Service in subject inventions, and the contractor hereby assigns to the
Postal Service all the rights that the contractor would have to enforce the
subcontractor's obligations for the benefit of the Postal Service with respect
to subject inventions. The contractor is not obligated to enforce the agreements
of any subcontractor relating to the obligation of the subcontractor to the
Postal Service regarding subject inventions.
e. Domestic Filing of Patent Applications by Contractor
1. If, pursuant to paragraph h below, greater rights are
granted in a subject invention to the extent that the contractor may claim the
invention, the contractor must file in due form and within six months of the
granting of these rights a United States Patent application claiming the
invention and furnish, as soon as practicable, the serial number and filing date
of the application and the patent number of any resulting patent. As to each
invention in which the contractor has been given greater rights, the contractor
must notify the contracting officer at the
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<PAGE>
102590-97-A-0118 Section H
H.14 (Continued)
end of the six-month period if it has failed to file or cause to be filed a
patent application covering the invention. If the contractor, has filed or
caused to be filed such an application within the six-month period, but elects
not to continue prosecution of the application, it must notify the contracting
officer not less than 60 days before the expiration of the response period. In
either of these situations, the contractor forfeits all rights previously
granted.
2. The following statement must be included in the first
paragraph of any patent application filed or patent issued on an invention made
under a Postal Service contract or a subcontract under a Postal Service
contract: "The invention herein described was made in the course of or under a
contract or subcontract thereunder with the United States Postal Service."
f. Foreign Filing of Patent Applications
1. If the contractor acquires greater rights in a subject
invention and has filed a United States patent application claiming the
invention, the contractor, or any party other than the Postal Service deriving
rights from the contractor, has the exclusive rights, subject to the rights of
the Postal Service, to file applications on the inventions in each foreign
country within:
(a) Six months from the date a corresponding United
States patent application is filed; or
(b) Such longer period as the contracting officer may
approve.
2. The contractor must notify the contracting officer of each
foreign application filed and, upon written request of the contracting officer,
furnish an English translation of the application and convey to the Postal
Service the entire right, title, and interest in the invention in each foreign
country in which an application has not been filed within the time specified in
subparagraph f.1 preceding.
g. Withholding Payment
1. Final payment under this contract will not be made until
the contractor delivers to the contracting officer the reports required by
paragraph c above and all information as to subcontracts required by paragraph d
above.
2. If action is deemed warranted because of the contractor's
performance under the Patent Rights clause of this contract or of other Postal
Service contracts, the contracting officer may withhold from payment such sum as
considered appropriate, not exceeding $50,000 or ten percent of the amount of
this contract, whichever is less, to be held as a
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<PAGE>
102590-97-A-0118 Section H
H.14 (Continued)
reserve until the contractor delivers all the reports, disclosures, and
information specified in paragraph c above.
h. Contractor's Request for Greater Rights. The contractor, at the time
of first disclosing a subject invention pursuant to paragraph c.l(a) above, but
not later than three months thereafter, may submit in writing to the contracting
officer a request for rights by license or otherwise in any invention. The
contracting officer will review the contractor's request for rights and will
notify the contractor whether it is granted in whole or in part. Any rights
granted the contractor will be subject to, but not necessarily limited to, the
provisions of paragraph i following.
i. Reservation of Rights to the Postal Service
1. If rights in any subject invention are vested in or granted
to the contractor, such rights will, as a minimum, be subject to an irrevocable,
nonexclusive, and royalty-free license to practice and have practiced the
invention throughout the world for Postal Service purposes, including its
practice:
(a) In the manufacture, use, and disposition of any
article or material;
(b) In the use of any method; or
(c) In the performance of any service, acquired by or
for the Postal Service or with funds otherwise derived through the Postal
Service.
2. If rights are vested in the contractor, the contractor
agrees to, and grants to the Postal Service the right to, require the granting
of a license to an applicant under any such invention:
(a) On a nonexclusive basis, unless the contractor, a
licensee, or an assignee demonstrates to the Postal Service, at its request,
that (1) effective steps have been taken within three years after a patent
issues on the invention to bring the invention to the point of practical
application or (2) the invention has been made available for licensing on terms
that are reasonable in the circumstances, or can show cause why the title should
be retained for a further period of time; or
(b) On terms that are reasonable in the circumstances
to the extent that the invention is required for public use by Postal Service
regulations or as may be necessary to fulfill health needs, or for other public
purposes stipulated in the Schedule of this contract.
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<PAGE>
102590-97-A-0118 Section H
H.14 (Continued)
j. Right to Disclose Subject Inventions. The Postal Service may
duplicate and disclose reports and disclosures of subject inventions required to
be furnished by the contractor pursuant to this Patent Rights clause.
k. Forfeiture of Rights in Unreported Subject Inventions. The
contractor forfeits to the Postal Service all rights in any subject invention
that it fails to report to the contracting officer when or before it:
1. Files or causes to be filed a United States or foreign
application thereon; or
2. Submits the final report required by c.l(b) above,
whichever occurs later, provided, that the contractor will not forfeit rights in
a subject invention if:
(a) Contending that the invention is not a subject
invention, it nevertheless reports the invention and all the facts pertinent to
its contention to the contracting officer within the time specified in k.1 or
k.2 above; or
(b) It establishes that failure to report was due
entirely to causes beyond its control and without its fault or negligence. The
contractor is deemed to hold any such forfeited subject invention, and the
patent applications and patents pertaining to it, in trust for the Postal
Service pending written assignment of the invention. The rights accruing to the
Postal Service under this paragraph k are in addition to, and do not supersede,
any other rights the Postal Service may have in relation to unreported subject
inventions. Nothing contained in this clause may be construed to require the
contractor to report any invention that is not in fact a subject invention.
l. Examination of Records Relating to Inventions. The contracting
officer, or an authorized representative, until the expiration of three years
after final payment under this contract, has the right to examine any books,
records, documents, and other supporting data of the contractor that the
contracting officer or authorized representative reasonably deems directly
pertinent to the discovery or identification of subject inventions or to
compliance by the contractor with the requirements of this clause.
H.15 AUTHORIZATION AND CONSENT (Clause 9-2) (October 1987)
a. Research and Development Work. The Postal Service authorizes and
consents to all use and manufacture of any invention covered by a U.S. patent in
the performance of research, development, or experimental work called for, or
performed as a necessary activity, in the performance of this contract or any
subcontract, at any tier.
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<PAGE>
102590-97-A-0118 Section H
H.15 (Continued)
b. Supplies and Construction. The Postal Service authorizes and
consents to all use and manufacture of any invention covered by a U.S. patent in
performing this contract or subcontract, at any tier, that is:
1. Embodied in the structure or composition of any article,
the delivery of which is accepted by the Postal Service under this contract; or
2. Used in machinery, tools, or methods whose use necessarily
results from compliance by the contractor or subcontractor with (a)
specifications or written provisions forming a part of this contract or (b)
specific written instructions given by the contracting officer directing the
manner of performance.
c. Determination of Liability. The liability of the Postal Service for
patent infringement or for the unauthorized use of any patent will be determined
by the provisions of any patent indemnity clause included in this contract or in
any subcontract under this contract (at any tier) and by any indemnification or
warranty (express or implied) otherwise provided by the contractor or
subcontractor for similar products or services when supplied to commercial
buyers.
d. Flowdown. The contractor must include, and require inclusion of,
this clause, suitably modified to identify the parties, in all subcontracts
under this contract at any tier that are expected to exceed $50,000.
H.16 NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT
INFRINGEMENT (Clause 9-3) (October 1987)
a. The contractor must report to the contracting officer, in writing,
promptly and in reasonable detail, any notice, claim, or suit regarding patent
or copyright infringement (or unauthorized use of a patent or copyright) based
on performance of this contract.
b. At the contracting officer's request, the contractor must furnish
all evidence and information in its possession pertaining to the suit or claim.
The evidence and information will be furnished at the expense of the Postal
Service except when the contractor has agreed to indemnify the Postal Service.
c. This clause must be included in all subcontracts under this
contract, at any tier, over $50,000.
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<PAGE>
102590-97-A-0118 Section H
H.17 PATENT INDEMNITY (Clause 9-4) (October 1987)
a. Except as provided in paragraph d below, the contractor indemnities
the Postal Service, its employees, and its agents against liability, including
costs and fees, for patent infringement (or unauthorized use) arising from the
manufacture, use, or delivery of supplies, the performance of services, the
construction or alteration of real property, or the disposal of property by or
for the Postal Service, if the supplies, services, or property (with or without
relatively minor modifications) have been or are being offered for sale or use
in the commercial marketplace by the contractor.
b. The Postal Service must promptly notify the contractor of any claim
or suit subject to the indemnity of paragraph a above alleging patent
infringement or unauthorized use of a patent.
c. To the extent allowed by law, the contractor may participate in the
defense of any suit to which this clause applies.
d. This indemnification does not apply to:
1. Infringements for the unauthorized use of a private patent
covered by this indemnity resulting from the contracting officer's specific
written directions, compliance with which requires an infringement; or
2. Infringement or unauthorized use claims that are
unreasonably settled without the contractor's consent before litigation.
e. This clause must be included in all subcontracts under this
contract, at any tier, over $50,000.
H.18 RIGHTS IN TECHNICAL DATA (Clause 9-6) (December 1992)
a. Definitions
1. Data. Recorded information, regardless of the form or the
medium on which it may be recorded. The term includes technical data and
computer software. The term does not include information incidental to contract
administration, such as financial, administrative, cost or pricing, or
management information.
2. Form, fit, and function data. Data relating to an item or
process that are sufficient to enable physical and functional
interchangeability, as well as data identifying source, size, configuration,
mating and attachment characteristics, functional characteristics, and
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<PAGE>
102590-97-A-0118 Section H
H.18 (Continued)
performance requirements; except that for computer software, it means data
identifying origin, functional characteristics, and performance requirements but
specifically excludes the source code, algorithm, process, formulas, and
machine-level flow charts of the computer software.
3. Limited rights data. Data other than computer software
developed at private expense, including minor modifications of these data.
4. Technical data. Data other than computer software, of a
scientific or technical nature.
5. Unlimited rights. The rights of the Postal Service in
technical data and computer software to use, disclose, reproduce, prepare
derivative works, distribute copies to the public, and perform and display
publicly, in any manner and for any purpose, and to have or permit others to do
so.
b. Allocation of Rights.
1. Except as provided in paragraph c below regarding
copyright, the Postal Service has unlimited rights in:
(a) Technical data first produced in the performance
of this contract (except to the extent that they constitute minor modifications
of data that are limited rights data);
(b) Form, fit, and function data delivered under this
contract; except that all form, fit, and function data describing limited rights
must be delivered with unlimited rights;
(c) Technical data delivered under this contract that
constitute manuals or instructional and training material for installation,
operation, or routine maintenance and repair of items, components, or processes
delivered or furnished for use under this contract; and
(d) All other technical data delivered under this
contract, unless provided otherwise in paragraph g below.
2. The allocation of rights in any computer programs, data
bases, and documentation will be determined by the Rights in Computer Software
clause, except that limited rights data formatted as computer data bases for
delivery to the Postal Service are to be treated as limited rights data under
this Rights in Technical Data clause.
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<PAGE>
102590-97-A-0118 Section H
H.18 (Continued)
c. Copyright.
1. Unless provided otherwise in paragraph d below, the
contractor may establish, without prior approval of the contracting officer,
claim to copyright in scientific and technical articles based on, or containing,
technical data first produced in the performance of this contract and published
in academic, technical, or professional journals, symposia proceedings, or
similar works. The prior, express written permission of the contracting officer
is required to establish claim to copyright in all other technical data first
produced in the performance of this contract. When making claim to copyright,
the contractor must affix the applicable copyright notice of 17 U.S.C. 401 or
402. The contractor grants to the Postal Service and others acting on its behalf
a paid up, nonexclusive irrevocable worldwide license in such copyright data to
reproduce, prepare derivative works, distribute copies to the public, and
perform and display the data publicly.
2. The contractor may not, without prior written permission of
the contracting officer, incorporate in technical data delivered under this
contract any data not first produced in the performance of this contract
containing the copyright notice of 176 U.S.C. 401 or 402, unless the contractor
identifies the data and grants to the Postal Service, or acquires on its behalf
at no cost to the Postal Service, a license of the same scope as set forth in
subparagraph c.1 above.
3. The Postal Service agrees not to remove any copyright
notices placed on data pursuant to this paragraph c, and to include such notices
on all reproductions of the data.
d. Release, Publication, and Use of Technical Data.
1. The contractor has the right to use, release to others,
reproduce, distribute, or publish any technical data first produced by the
contractor in the performance of this contract, except to the extent these data
may be subject to the Federal export control or national security laws or
regulations, or unless otherwise provided below in this paragraph d.2 following
or expressly set forth in this contract.
2. The contractor agrees that if it receives or is given
access to data necessary for the performance of this contract that contain
restrictive markings, the contractor will treat the data in accordance with the
markings unless otherwise specifically authorized in writing by the contracting
officer.
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<PAGE>
102590-97-A-0118 Section H
H.18 (Continued)
e. Unauthorized Marking of Data.
1. If any technical data delivered under this contract are
marked with the notice specified in paragraph g below and the use of such a
notice is not authorized by this clause, or if the data bear any other
unauthorized restrictive markings, the contracting officer may at any time
either return the data or cancel the markings. The contracting officer must
afford the contractor at least 30 days to provide a written justification to
substantiate the propriety of the markings. Failure of the contractor to timely
respond, or to provide written justification, may result in the cancellation of
the markings. The contracting officer must consider any written justification by
the contractor and notify the contractor if the markings are determined to be
authorized.
2. The foregoing procedures may be modified in accordance with
Postal Service regulations implementing the Freedom of Information Act (5 U.S.C.
552) if necessary to respond to a request thereunder. In addition, the
contractor is not precluded from bringing a claim in connection with any dispute
that may arise as the result of a final disposition of the matter by a court or
competent jurisdiction.
f. Omitted or Incorrect Markings.
1. Technical data delivered to the Postal Service without the
limited rights notice authorized by paragraph g below, or the copyright notice
required by paragraph c above, will be deemed to have been furnished with
unlimited rights, and the Postal Service assumes no liability for the disclosure
outside the Postal Service, the contractor may request within six months (or a
longer time approved by the contracting officer) after delivery of the data,
permission to have notices placed on qualifying technical data at the
contractor's expense, and the contracting officer may agree to do so if the
contractor:
(a) Identifies the technical data to which the
omitted notice is to be applied;
(b) Demonstrates that the omission of the notice
was inadvertent;
(c) Establishes that the use of the proposed
notice is authorized; and
(d) Acknowledges that the Postal Service has
no liability with respect to the disclosure, use, or reproduction of any such
data made before the addition of the notice or resulting from the omission of
the notice.
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<PAGE>
102590-97-A-0118 Section H
H.18 (Continued)
2. The contracting officer may also (a) permit correction at
the contractor's expense of incorrect notices if the contractor identifies the
technical data on which correction of the notice is to be made and demonstrates
that the correct notice is authorized, or (b) correct any incorrect notices.
g. Protection of Limited Rights Data. When technical data other than
data listed in b.l(a), (b), and (c) above are specified to be delivered under
this contract and qualify as limited rights data, if the contractor desires to
continue protection of such data, the contractor must affix the following
"Limited Rights Notice" to the data, and the Postal Service will thereafter
treat the data, subject to paragraphs e and f above, in accordance with the
Notice:
"LIMITED RIGHTS NOTICE
These technical data are submitted with limited rights under Postal
Service Contract No. _________________ and subcontract _____________________, if
appropriate). These data may be reproduced and used by the Postal Service with
the express limitation that they will not, without written permission of the
contractor, be used for purposes of manufacture or disclosed outside the Postal
Service; except that the Postal Service may disclose these data outside the
Postal Service for the following purposes, provided that the Postal Service
makes such disclosure subject to prohibition against further use and disclosure:
1. Use (except for manufacture) by support service
contractors.
2. Evaluation by Postal Service evaluators.
3. Use (except for manufacture) by other contractors
participating in the Postal Service's program of which the specific contract is
a part, for information and use in connection with the work performed under each
contract.
4. Emergency repair or overhaul work.
This Notice must be marked on any reproduction of these data, in whole or in
part."
h. Subcontracting. The contractor has the responsibility to obtain from
its subcontractor all data and rights therein necessary to fulfill the
contractor's obligations under this contract. If a subcontractor refuses to
accept terms affording the Postal Service such rights, the contractor must
promptly bring such refusal to the attention of the contracting officer and may
not proceed with subcontract award without further authorization.
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<PAGE>
102590-97-A-0118 Section H
H.18 (Continued)
i. Relationship to Patents. Nothing contained in this clause implies a
license to the Postal Service under any patent or may be construed as affecting
the scope of any license or other right otherwise granted to the Postal Service.
H.19 RIGHTS IN COMPUTER SOFTWARE (Clause 9-9) (December 1992)
a. Definitions
1. Computer Software. Computer programs, computer databases,
and their documentation.
2. Form, fit, and function data. Data identifying origin,
functional characteristics, and performance requirements but specifically
excludes the source code, algorithm, process, formulas, and machine-level flow
charts of the computer software.
3. Restricted computer software. Computer software developed
at private expense that is a trade secret, is commercial or financial and
confidential or privileged, or is published copyrighted computer software,
including minor modifications of this computer software.
4. Restricted rights. The rights of the Postal Service in
restricted computer software, as set forth in a Restricted Rights Notice as
provided in paragraph g below, or as otherwise may be provided in a collateral
agreement incorporated in and made part of this contract.
5. Unlimited rights. The rights of the Postal Service in
computer software to use, disclose, reproduce, prepare derivative works,
distribute copies to the public, and perform and display publicly, in any manner
and for any purpose, and to have or permit others to do so.
b. Allocation of Rights. Except as provided in paragraph c below
regarding copyright the Postal Service has unlimited rights in:
1. Computer software first produced in the performance of this
contract (except to the extent that it constitutes minor modifications of
computer software that is restricted computer software);
2. Form, fit, and function data delivered under this contract;
except that all form, fit, and function data describing limited rights data must
be delivered with unlimited rights.
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<PAGE>
102590-97-A-0118 Section H
H.19 (Continued)
3. All other computer software delivered under this contract,
except for restricted computer software provided in accordance with paragraph g
below.
c. Copyright.
1. The prior, express written permission of the contracting
officer is required to establish claim to, copyright in all computer software or
other data first produced in the performance of this contract. When making claim
to copyright, the contractor must affix the applicable copyright notice of 17
U.S.C. 401. The contractor grants to the Postal Service and others acting on its
behalf a paid-up, nonexclusive, irrevocable worldwide license in such
copyrighted computer software to reproduce, prepare derivative works, and
perform and display the computer software and other data publicly.
2. If the Postal Service desires to obtain copyright in the
computer software first produced in the performance of the contract and
permission has not been granted pursuant to c.1 above, the contracting officer
may direct the contractor to establish, or authorize the establishment of, claim
to copyright in the computer software and to assign, or obtain the written
assignment of, the copyright to the Postal Service or its designated assignee.
3. The contractor may not, without prior written permission of
the contracting officer, incorporate in computer software delivered under this
contract any computer software not first produced in the performance of this
contract containing the copyright notice of 17 U.S.C. 401, unless the contractor
identifies the computer software and grants to the Postal Service, or acquires
on its behalf at no cost to the Postal Service, a license of the same scope as
set forth in c.1 above or as otherwise may be provided in a collateral agreement
incorporated in and made part of this contract.
4. The Postal Service agrees not to remove the contractor's
copyright notice placed on computer software pursuant to this paragraph c, and
to include such notices on all reproduction of the computer software.
d. Release, Publication, and Use of Computer Software.
1. Unless prior written permission is obtained from the
contracting officer or to the extent expressly set forth in this contract, the
contractor will not use, release to others, reproduce, distribute, or publish
any computer software first produced by the contractor in the performance of the
contract.
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<PAGE>
102590-97-A-0118 Section H
H.19 (Continued)
2. The contractor agrees that to the extent it receives or is
given access to computer software necessary for the performance of this contract
that contains restrictive markings, the contractor will treat the computer
software in accordance with these markings unless otherwise specifically
authorized in writing by the contracting officer.
e. Unauthorized Marking of Computer Software.
1. If any computer software delivered under this contract is
marked with the notice specified in paragraph g below and the use of such a
notice is not authorized by this clause, or if the computer software bears any
other unauthorized restrictive markings, the contracting officer may at any time
either return the computer software or cancel the markings. The contracting
officer must afford the contractor at least 30 days to provide a written
justification to substantiate the propriety of the markings. Failure of the
contractor to timely respond, or to provide written justification, may result in
the cancellation of the markings. The contracting officer must consider any
written justification by the contractor and notify the contractor if the
markings are determined to be authorized.
2. The foregoing procedures may be modified in accordance with
Postal Service regulations implementing the Freedom of Information Act (5 U.S.C.
552) if necessary to respond to a request thereunder. In addition, the
contractor is not precluded from bringing claim in connection with any dispute
that may arise as the result of the Postal Service's action to remove any
markings on computer software, unless this action occurs as a result of a final
disposition of the matter by a court of competent jurisdiction.
f. Omitted or Incorrect Markings.
1. Computer software delivered to the Postal Service without
the restricted rights notice authorized by paragraph g below, or the copyright
notice required by paragraph c above, will be deemed to have been furnished with
unlimited rights, and the Postal Service assumes no liability for the
disclosure, use or reproduction of such computer software. However, the extent
the computer software has not been disclosed outside the Postal Service, the
contractor may request, within six months (or a longer time approved by the
contracting officer) after delivery of the computer software, permission to have
notices placed on qualifying computer software at the contractor's expense, and
the contracting officer may agree to do so if the contractor:
(a) Identifies the computer software involved;
(b) Demonstrates that the omission of the notice
was inadvertent;
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<PAGE>
102590-97-A-0118 Section H
H.19 (Continued)
(c) Establishes that the use of the proposed
notice is authorized; and
(d) Acknowledges that the Postal Service has no
liability with respect to the disclosure, use, or reproduction of any such
computer software made before the addition of the notice or resulting from the
omission of the notice.
2. The contracting officer may also (a) permit correction, at
the contractor's expense, of incorrect notices if the contractor identifies the
computer software on which correction of the notice is to be made and
demonstrates that the correct notice is authorized, or (b) correct any incorrect
notices.
g. Protection of Restricted Computer Software.
1. When computer software other than that listed in
subparagraphs b.1 and b.2 above is specified to be delivered under this contract
and qualifies as restricted computer software, if the contractor desires to
continue protection of such computer software, the contractor must affix the
following "Restricted Rights Notice" to the computer software, subject to
paragraphs e and f above, in accordance with the Notice:
"RESTRICTED RIGHTS NOTICE
a. This computer software is submitted with restricted rights under
Postal Service Contract No. ________________ (and subcontract _______________,
if appropriate). It may not be used, reproduced, or disclosed by the Postal
Service except as provided below or as otherwise stated in the contract.
b. This computer software may be:
1. Used or copied for use in or with the computer or computers
for which it was acquired, including use at any Postal Service installation to
which the computer or computers may be transferred;
2. Used or copied for use in a backup computer if any computer
for which it was acquired is inoperative;
3. Reproduced for safekeeping (archives) or backup purposes;
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102590-97-A-0118 Section H
H.19 (Continued)
4. Modified, adapted, or combined with other computer
software, provided that the modified, adapted, or combined portions of any
derivative software incorporating restricted computer software are made subject
to the same restricted rights;
5. Disclosed to and reproduced for use by support service
contractors in accordance with 1 through 4 above, provided the Postal Service
makes such disclosure or reproduction subject to these restricted rights; and
6. Used or copied for use in or transferred to a replacement
computer.
c. Notwithstanding the foregoing, if this computer software is
published copyrighted computer software, it is licensed to the Postal Service,
without disclosure prohibitions, with the minimum rights set forth in the
preceding paragraph.
d. Any other rights or limitations regarding the use, duplication, or
disclosure of this computer software are to be expressly stated in, or
incorporated in, the contract.
e. This Notice must be marked on any reproduction of this computer
software, in whole or in part."
2. When it is impracticable to include the above Notice on
restricted computer software, the following short-form Notice may be used
instead, on condition that the Postal Service's rights with respect to such
computer software will be as specified in the above Notice unless otherwise
expressly stated in the contract.
"RESTRICTED RIGHTS NOTICE (SHORT FORM)
Use, reproduction, or disclosure is subject to restrictions set forth
in Contract No. _____________ (and subcontract ________________ if appropriate)
with _________ (name of contractor and subcontractor)."
h. Subcontracting. The contractor has the responsibility to obtain from
its subcontractors all computer software and rights in it necessary to fulfill
the contractor's obligations under this contract. If a subcontractor refuses to
accept terms affording the Postal Service such rights, the contractor must
promptly bring such refusal to the attention of the contracting officer and may
not proceed with subcontract award without further authorization.
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<PAGE>
102590-97-A-0118 Section H
H.19 (Continued)
i. Standard Commercial License or Lease Agreements. The contractor
unconditionally accepts the terms and conditions of this clause unless expressly
provided otherwise in this contract or in a collateral agreement incorporated in
and made part of this contract. Thus the contractor agrees that, notwithstanding
any provisions to the contrary contained in the contractor's standard commercial
license or lease agreement pertaining to any restricted computer software
delivered under this contract, and irrespective of whether any such agreement
has been proposed before or after issuance of this contract or of the fact that
such agreement may be affixed to or accompany the restricted computer software
upon delivery, the Postal Service has the rights set forth in this clause to
use, duplicate, or disclose any restricted computer software delivered under
this contract.
H.20 RIGHTS IN DATA--SPECIAL WORKS (Clause 9-10) (December 1992)
a. Definition. Works means literary works, including technical reports,
studies, and similar documents; musical and dramatic works; and recorded
information, regardless of the form or the medium on which it may be recorded.
It does not include information incidental to contract administration, such as
financial, administrative, cost or pricing, or management information.
b. Rights.
1. All works first produced in the performance of this
contract are the sole property of the Postal Service. The contractor agrees not
to assert or authorize others to assert any rights or establish any claim of
copyright in these works.
2. The contractor assigns all right, title, and interest to
the Postal Service in all works first produced in performance of this contract
that are not otherwise "works for hire" for the Postal Service under Section
201(b) of Title 17, United States Code. The contractor, unless directed
otherwise by the contracting officer, must place on all such works delivered
under this contract the following notice:
"Copyright (year of delivery) United States Postal Service"
3. The contractor grants to the Postal Service a royalty-free,
nonexclusive, irrevocable license throughout the world to publish, translate,
deliver, perform, use, and dispose of in any manner any portion of a work that
is not first produced in the performance of this contract but in which copyright
is owned by the contractor and that is incorporated in the work finished under
this contract, and to authorize others to do so for Postal Service purposes.
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102590-97-A-0118 Section H
H.20 (Continued)
4. Unless the contracting officer's written approval is
obtained, the contractor may not include in any works prepared for or delivered
to the Postal Service under this contract any works of authorship in which
copyright is not owned by the contractor or the Postal Service without acquiring
for the Postal Service any rights necessary to perfect a license of the scope
set forth in subparagraph b.3 above.
5. Except as otherwise specifically provided for in this
contract, the contractor may not use for purposes other than the performance of
this contract, or release, reproduce, distribute, or publish, any work first
produced in the performance of this contract, or authorize others to do so.
c. Indemnity. The contractor indemnities the Postal Service (and its
officers, agents, and employees acting for the Postal Service) against any
liability, including costs and expenses, (1) for violation of proprietary
rights, copyrights, or rights of privacy or publicity, arising out of the
creation, delivery, or use of any works furnished under this contract, or (2)
based upon any libelous or other unlawful matter contained in these works. These
provisions do not apply to material furnished by the Postal Service and
incorporated in the works to which this clause applies.
H.21 RIGHTS IN DATA--EXISTING WORKS (Clause 9-11) (October 1987)
a. Except as otherwise provided in this contract, the contractor grants
to the Postal Service, and others acting on its behalf, a paid-up, nonexclusive,
irrevocable worldwide license to reproduce, prepare derivative works, and
perform and display publicly all the material or subject matter called for under
this contract, or for which this clause is specifically made applicable.
b. The contractor indemnifies the Postal Service, its employees, and
its agents against any liability, including costs and fees, incurred as the
result of the violation of trade secrets, copyrights, or right of privacy or
publicity, arising out of the creation, delivery, publication, or use of any
data furnished under this contract; or any libelous or other unlawful matter
contained in such data. This paragraph b does not apply unless the Postal
Service notifies the contractor as soon as practicable of any claim or suit,
affords the contractor an opportunity under applicable laws or regulations to
participate in the defense of it, and obtains the contractor's consent to its
settlement (which consent may not be unreasonably withheld). These provisions do
not apply to material furnished to the contractor by the Postal Service and
incorporated in data to which this clause applies.
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<PAGE>
102590-97-A-0118 Section H
H.22 INTELLECTUAL PROPERTY RIGHTS (Clause 9-13) (October 1987)
All intellectual property rights evolving from studies, reports, or
other data delivered under this contract are the sole property of the Postal
Service. The contractor agrees to make, execute, and deliver to the Postal
Service any papers or other instruments in such terms and contents as may be
required for the filing of any required instrument necessary for preserving an
intellectual property right and does hereby assign and transfer to the Postal
Service the entire right, title, and interest in and to the intellectual
property rights. Before final settlement of this contract, a final report must
be submitted on Form 7398, Report of Inventions and Subcontracts, or other
format acceptable to the contracting officer.
H.23 ACQUISITION OF ADDITIONAL RIGHTS IN DATA (Clause 9-14) (October 1987)
a. Unlimited Rights. The contractor grants the Postal Service unlimited
rights in all data (technical data and computer software) listed in the Schedule
as falling within this clause's unlimited rights provisions. The rights of the
parties to these data are governed by the Rights in Technical Data clause of
this contract with regard to technical data, and the Rights in Computer Software
clause of this contract with regard to computer software.
b. Directed License Rights.
1. At the contracting officer's direction, the contractor must
license other firms or organizations to use all data (technical data and
computer software) listed in the Schedule as falling within this clause's
directed license rights provisions, for the purpose of performing Postal Service
contracts. If necessary, the contractor will provide a reasonable amount of
technical assistance to these firms or organizations to enable them to use the
data to perform Postal Service contracts. The contracting officer will direct
that licenses and technical assistance agreements be given under this clause
only to firms and organizations competent to perform the specific Postal Service
contracts to which the direction applies.
2. Upon entering into licenses under this clause, the
contractor may restrict the use of the data for all other purposes, and may
include any other provisions for trade secret or copyrighted material
restrictions that are normally found in commercial licenses. Subject to the
contracting officer's approval, the license may provide for payment of
reasonable amounts for use of the data, in the form of a lump-sum payment,
royalties, or both. The contracting officer will withhold approval of the
payment only if it is at variance with normal commercial practice.
3. Subject to the contracting officer's approval, any
technical assistance agreement under this clause will provide for full
compensation of the contractor's costs of providing the assistance, plus a
reasonable profit. The contracting officer will withhold approval of the profit
only if it is at variance with normal commercial practice.
Page 69 of 87
<PAGE>
102590-97-A-0118 Section H
H.23 (Continued)
c. Other Rights. Any specific rights other than the unlimited rights or
directed license rights treated in paragraphs a and b above are as set forth in
the Schedule.
H.24 FABRICATION OR ACQUISITION OF NONEXPENDABLE PROPERTY (Clause
OB-28) (June 1988)
The contractor must not fabricate or acquire under this contract,
either directly or indirectly through a subcontract, any item of nonexpendable
property without the contracting officer's written approval.
Page 70 of 87
<PAGE>
102590-97-A-0118 Section I
SECTION I LIST OF ATTACHMENTS
------------------------------
ATTACHMENT TITLE NO OF
NO. PAGES
1 Statement of Work (SOW) 26
II Clause 1-13, Year 2000 Warranty 1
III Maintenance, Support, T&M Rates 1
Page 71 of 87
<PAGE>
102590-97-A-0118 Section J
PART 3 - SOLICITATION PROVISIONS
--------------------------------
SECTION J - INSTRUCTIONS TO OFFERORS
------------------------------------
J.1 SUBMISSION OF FINANCIAL STATEMENTS (Provision OA-27) (July 1988)
Specific reference is made to Section K, Provision A-1, Preparation of
Proposals.
For the purpose of this requirement, the term "current financial
statement" is defined as the data (including both the Balance Sheet and Income
Statement covering each of the offeror's immediate past two fiscal years
(normally the most Annual Reports), together with an interim report to as near
the submission date as possible. These guidelines are to be observed:
a. Statements shall be prepared in accordance with Generally Accepted
Accounting Principles.
b. Statements shall include all required notes to the Financial
Statements.
c. Statements must be certified by either a company executive as to the
accuracy and veracity of the statements, or by an opinion statement on the
fairness of the presentation after review by independent auditors.
d. The Income Statements must incorporate or have attached "Schedule of
Cost and Goods Sold." This schedule must reflect Direct Materials, Direct Labor,
and Overhead used to compute the cost of goods sold amount.
It may become necessary for the offeror to submit additional financial
information prior to award.
Financial information received will be treated as confidential and will
not be used for purposes other than evaluation of financial responsibility.
J.2 TYPE OF CONTRACT (Provision 5-1) (October 1987)
The Postal Service plans to award a combination type of contract under
this solicitation, and all proposals must be submitted on this basis. Alternate
proposals based on other contract types [__] will [X] will not be considered.
Page 72 of 87
<PAGE>
102590-97-A-0118 Section J
J.3 AMENDMENTS TO PROPOSALS (Provision OA-3) (June 1988)
Any changes to a proposal made by the offer or after its initial
submittal must be accomplished by replacement pages. Changes from the original
page must be indicated on the outside margin by vertical lines adjacent to the
change. The offeror must include the date of the amendment on the lower right
corner of the changed pages.
J.4 INSTRUCTIONS FOR THE PREPARATION OF TECHNICAL AND/OR BUSINESS
PROPOSALS (Provision OA-11) Alternate III (February 1987)
The following instructions establish the acceptable minimum
requirements for the format and the content of proposals:
a. Technical Proposal. The technical section must contain a detailed
technical discussion and description of the offeror's methodology to be used in
accomplishing the effort, including the rationale for the approach proposed it
must be precise, factual, and complete and must contain the information listed
in subparagraphs 1 through 7 below:
1. Resumes-The offeror must provide resumes listing
qualifications and details relating to professional or technical personnel
expected to be assigned to the proposed contract.
2. Efforts-The offeror must state the percentage of time,
based on the offeror's regular workweek, such personnel are expected to devote
to the contract.
3. Subcontracting-The offeror must describe and explain that
portion of the work intended to be subcontracted, identifying probable sources.
4. Ability to Perform-Each offeror must submit, with its
proposal, evidence of ability to perform the effort. Such evidence must be in
reference to Postal Service contracts, contracts with other Government agencies,
or commercial contracts for similar efforts successfully completed. Contract
numbers, a brief description of work performed, and the name and location of the
contracting officer or other official, cognizant agency, or company must be
included.
5. Organization-The offeror must outline the relationship
between this project and the offeror's organization.
6. Related Experience-The offeror must describe in detail its
experience and familiarity related to the subject of this effort.
Page 73 of 87
<PAGE>
102590-97-A-0118 Section J
J.4 (Continued)
7. Related Facilities-The offeror must describe special
facilities it may have that have specific application to this work.
b. Price Proposal
1. All costs must be defined in the contract pricing proposal,
supported in accordance with the USPS Procurement Manual. Subcontract costs must
be defined and accompanied by their respective contract pricing cover sheets and
supporting data.
2. The offeror must indicate its fiscal accounting period and
the name, address, and telephone number of its cognizant Government audit
agency, if applicable.
3. If the offeror has no cognizant Government audit agency,
the details supporting the fringe benefit, labor overhead, and general and
administration rates must be provided as part of the cost proposal. All rates
must be those anticipated to be in effect during the period of performance of
the contract.
Page 74 of 87
<PAGE>
102590-97-A-0118 Section K
SECTION K - SOLICITATION NOTICES AND PROVISIONS
-----------------------------------------------
K.1 PROVISIONS INCORPORATED BY REFERENCE
The following provisions are incorporated by reference as if set forth
in full text. The full text of these provisions is available from the
contracting officer upon request. Procurement Manual (USPS Publication 41)
references are shown in parentheses.
PROVISION
NUMBER DATE TITLE
A-2 October 1987 SUBMISSION OF PROPOSALS (PM A.2.3)
A-3 October 1987 MODIFICATION OR WITHDRAWAL OF
PROPOSALS (PM A.2.3)
A-4 October 1987 LATE SUBMISSIONS AND MODIFICATIONS
OF PROPOSALS (PM A.2.3)
A-5 October 1987 ACKNOWLEDGMENT OF SOLICITATION
AMENDMENTS (PM A.2.3)
A-6 October 1987 EXPLANATION TO PROSPECTIVE OFFERORS
(PM A.2.3)
A-7 June 1988 RESTRICTION AND USE OF DATA (PM A.2.3)
A-8 February 1992 CONTRACT AWARD (PM A.2.3)
A-9 October 1987 AWARD WITHOUT DISCUSSIONS (PM A.2.3)
A-10 October 1987 DISCOUNTS (PM A.2.3)
A-12 October 1987 POSTAL-FURNISHED PROPERTY OR
SERVICES (PM A.2-3)
A-14 October 1987 FAILURE TO SUBMIT PROPOSAL (PM A.2.3)
A-15 October 1987 PROTESTS (PM A.2.3)
K.2 PREPARATION OF PROPOSALS (Provision A-1) (October 1987)
a. Offerors are expected to examine the drawings, specifications, and
all provisions and instructions. Failure to do so will be at the offeror's risk.
b. Each offeror must furnish the information required by the
solicitation. The offeror must sign the proposal and print or type its name on
the proposal and each continuation sheet on which it makes an entry. Erasures or
other changes must be initialed by the person signing the proposal.
Page 75 of 87
<PAGE>
102590-97-A-0118 Section K
K.2 (Continued)
c. For each item included in the proposal, the offeror must-
1. Show the unit price/cost, including, unless otherwise
specified, packaging, packing, and preservation; and
2. Enter the extended price/cost for the total quantity of the
item.
d. In case of discrepancy between a unit price/cost and an extended
price/cost, the unit price/cost will be presumed to be correct, subject,
however, to correction to the same extent and in the same manner as any other
mistake.
e. Proposals for supplies or services other than those specified will
not be considered unless authorized by the solicitation.
f. Offerors must state a definite time for delivery of supplies or for
performance of services, unless otherwise specified in the solicitation.
g. Time, if stated as a number of days, will include Saturdays,
Sundays, and Federal holidays.
h. If the proposal exceeds $100,000, the offeror must either include a
copy of its current financial statements (most recent balance sheet and profit
and loss statement, updated) or, alternatively, be prepared to submit such data
immediately upon request. Submitted data must be certified by a company officer
as to accuracy and veracity.
K.3 LABOR INFORMATION (Provision A-13) (October 1987)
General information regarding the requirements of the Walsh-Healey
Public Contracts Act (41 U.S.C. 35-45), the Contract Work Hours and Safety
Standards Act (40 U.S.C. 327-333), and the Service Contract Act of 1965 (41
U.S.C. 351 et seq.) may be obtained from the Department of Labor, 200
Constitution Avenue, N.W., Washington, DC 20210-0999, or from any regional
office of that agency.
K.4 ALTERNATE INTELLECTUAL PROPERTY RIGHTS PROPOSALS (Provision 9-1)
(December 1992)
a. The Postal Service intends to award a contract that ma provide for
Postal Service acquisition of one or more of the following:
Page 76 of 87
<PAGE>
102590-97-A-0118 Section K
K.4 (Continued)
1. Title to any patents resulting from contract performance.
2. Unlimited rights in certain data (technical data and
computer software) delivered to the Postal Service during contract
performance.
3. Use and disclosure rights in data, that may be copyrighted
or may embody trade secrets or confidential commercial or financial information.
b. Offeror may propose alternate intellectual property rights
arrangements (including licensing arrangements for commercial exploitation of
intellectual property developed under the contract); provided (a) the
arrangements apply only to intellectual property developed solely at contractor
private expense and not first produced in performance of this requirement, (b)
such arrangements are necessary to protect the offerors trade secrets and
commercial market competitiveness, and (c) the Postal Service; including its
support service contractors and their subcontractors, subject to the same
disclosure restrictions as the Postal Service shall have the right to utilize
such intellectual property for its internal purposes. The following must be
included in any alternate proposal.
1. Suggested allocation of rights between the parties.
2. Description of benefits (including royalties to the Postal
Service) to each party if the alternate is selected.
3. Costs to each party if alternate is selected.
4. Supporting documentation for calculating benefits and
costs.
5. A statement indicating willingness to accept the standard
clauses (Patent Rights, Rights in Technical Data, and Rights in Computer
Software) if the alternate is rejected.
c. The contracting officer will consider alternate intellectual
property rights proposals in determining which offeror's proposal is most
favorable to the Postal Service, in accordance with the solicitation's
evaluation and award section.
K.5 USE OF LIMITED RIGHTS DATA FOR PROCUREMENT OF REPAIR PARTS
(Provision 9-3) (October 1987)
The Postal Service has determined that it may use competitive
procedures to procure repair parts and assemblies for the equipment or supply
items being developed or manufactured
Page 77 of 87
<PAGE>
102590-97-A-0118 Section K
K.5 (Continued)
under this contract. The Rights in Technical Data clause in this solicitation is
modified to provide that limited rights data furnished under any contract
resulting from this solicitation may be used for the purpose of competitive
procurement.
K.6 NOTICE OF SMALL, MINORITY-OWNED, AND WOMAN-OWNED BUSINESS
SUBCONTRACTING REQUIREMENTS (Provision 10-1) (February 1992)
All offerors, except small businesses, must submit with their proposals
the subcontracting plan required by the clause entitled Small, Minority-Owned,
and Woman-Owned Business Subcontracting Requirements.
K.7 PREAWARD EQUAL OPPORTUNITY COMPLIANCE REVIEW (Provision 10-5)
(April 1989)
If the contract award will be $1,000,000, or more, the prospective
contractor and its known first-tier subcontractors with subcontracts of
$1,000,000 or more will be subject to a preaward compliance review. In order to
qualify for award, the prospective contractor and first-tier subcontractors must
be found in compliance pursuant to 41 CFR 60-1.20.
K.8 ACCESS TO POSTAL BUILDING (Provision OA-12) (March 1989)
If the location specified on this coversheet for receipt of proposals
is within a controlled access building and if it is intended to handcarry the
proposal, prior arrangements for access should be made by contacting the
individual specified on the cover sheet of this solicitation at least one work
day prior to the date that access is required. If prior arrangements are not
made, the offeror must allow at least 30 minutes to process through a security
check point it is the offeror's responsibility to ensure that proposals are
delivered by the due date and time specified in the solicitation.
K.9 ORAL PRESENTATIONS (Provision OA-30) (June 1988)
Oral presentations may be required. If requested, these presentations
will provide an opportunity for the offerors to clarify significant elements of
the proposal to ensure understanding. Subsequent to the receipt of proposals,
the Postal Service may schedule a time for oral presentations to be held.
Page 78 of 87
<PAGE>
102590-97-A-0118 Section K
K.10 NOTICE OF PREAWARD SURVEY (Provision OA-34) (June 1988)
a. Offerors are advised that the Postal-Service may contact prospective
contractors to determine their capabilities to perform the work specified in
this solicitation. In addition to financial statement and credit rating checks,
the Postal Service may visit a prospective contractor's facilities to perform
reviews or may ask for additional written information. Areas of interest in this
regard may include-
1. Performance plans;
2. Quality control plans;
3. Personnel recruitment and training plans;
4. Workload factors for manpower utilization;
5. Management plan for handling peak workloads;
6. Production capability, including:
(a) Plant facilities and equipment;
(b) Purchasing and subcontracting;
(c) Labor resources;
(d) Performance record; and
(e) Ability to meet delivery schedules;
7. Environmental/energy considerations;
8. Plant safety;
9. Technical and professional abilities;
10. Accounting systems; and
11. Postal Service property controls.
b. Offerors are also advised that accomplishment of this survey is a
part of the evaluation process and is not an indication that an offeror will
receive an award.
Page 79 of 87
<PAGE>
102590-97-A-0118 Section L
SECTION L - REPRESENTATIONS AND CERTIFICATIONS
----------------------------------------------
L.1 TYPE OF BUSINESS ORGANIZATION (Provision A-20) (December 1989)
The offeror, by checking the applicable blocks, represents that it:
a. Operates as [X] a corporation incorporated under the laws of the
State of Delaware, [__] an individual, [__] a partnership, [__] a joint venture,
[__] a nonprofit organization, [__] or an educational institution; and
b. Is a [X] small business concern, [__] minority-owned business, [__]
woman-owned business, [__] labor surplus area concern, [__] educational or other
non-profit organization, or [__] none of the above entities.
c. SMALL BUSINESS CONCERN. A small business concern for the purposes of
Postal Service procurement means a business, including an affiliate, that is
independently owned and operated, is not dominant in producing or performing the
supplies or services being purchased, and has no more than 500 employees, unless
a different, size standard has been established by the Small Business
Administration (see 13 CFR 121, particularly for different size standards for
airline, railroad, and construction companies). For subcontracts of $50,000 or
less, a subcontractor having no more than 500 employees qualifies as a small
business without regard to other factors.
d. MINORITY-OWNED BUSINESS. A minority-owned business is a concern that
is at least 51 percent owned by, and whose management and daily business
operations are controlled by, one or more members of a socially and economically
disadvantaged minority group, namely U.S. citizens who are Black Americans,
Hispanic Americans, Native Americans, Asian- Pacific Americans, or Asian-Indian
Americans. (Native Americans are American Indians, Eskimos, Aleuts, and Native
Hawaiians. Asian-Pacific Americans are U.S. citizens whose origins are Japanese,
Chinese, Filipino, Vietnamese, Korean, Samoan, Laotian, Cambodian, Taiwanese or
in the U.S. Trust Territories of the Pacific Islands. Asian-Indian Americans are
U.S. citizens whose origins are in the Indian subcontinent.)
e. WOMAN-OWNED BUSINESS. A woman-owned business is a concern at least
51 percent of which is owned by a woman (or women) who is a U.S. citizen,
controls the firm by exercising the power to make policy decisions, and operates
the business by being actively involved in day-to-day management.
Page 80 of 87
<PAGE>
102590-97-A-0118 Section L
L.1 (Continued)
f. LABOR SURPLUS AREA. A geographical area which at the time of award
is either a section of concentrated unemployment or underemployment, a
persistent labor surplus area, or a substantial labor surplus area, as defined
in this paragraph.
1. Section of concentrated unemployment or underemployment
means appropriate sections of States or labor areas so classified by the
Secretary of Labor.
2. Persistent labor surplus area means an area which is
classified by the Department of Labor as an area of substantial and persistent
labor surplus (also called Area of Substantial and Persistent Unemployment) and
is listed as such by that Department in conjunction with its publication, Area
Trends in Employment and Unemployment.
3. Substantial labor surplus area means an area which is
classified by the Department of Labor as an area of substantial labor surplus
(also called Area of Substantial Unemployment) and which is listed as such by
that Department in conjunction with its publication Area Trends in Employment
and Unemployment.
g. LABOR SURPLUS AREA CONCERN. A firm which will perform or cause to be
performed a substantial proportion of a contract in a labor surplus area.
h. EDUCATIONAL OR OTHER NON-PROFIT ORGANIZATION. Any
corporation, foundation, trust, or other institution operated for scientific or
educational purposes, not organized for profit, no part of the net earnings of
which inures to the profits of any private shareholder or individual.
L.2 PARENT COMPANY AND TAXPAYER IDENTIFICATION NUMBER
(Provision A-21) (October 1987)
a. A parent company is one that owns or controls the basic business
policies of an offeror. To own means to own more than 50 percent of the voting
rights in the offeror. To control means to be able to formulate, determine, or
veto basic business policy decisions of the offeror. A parent company need not
own the offeror to control it; it may exercise control through the use of
dominant minority voting rights, proxy voting, contractual arrangements, or
otherwise.
b. Enter the offeror's Taxpayer Identification Number (TIN) in the
space provided. The TIN is the offeror's Social Security Number or other
Employee Identification Number used on the offeror's Quarterly Federal Tax
Return, U.S. Treasury Form 941.
Offeror's TIN: 22-3270799
Page 81 of 87
<PAGE>
102590-97-A-0118 Section L
L.2 (Continued)
c. [__] Check this block if the offeror is owned or controlled by a
parent company.
d. If the block above is checked, provide the following information
about the parent company:
Parent Company's Name:________________________________________________
Parent Company's Main Office Address:_________________________________
No. and Street:_______________________________________________________
City:_______________________ State:____________ Zip Code:_______
Parent Company's TIN:_________________________________________________
e. If the offeror is a member of an affiliated group that files its
federal income tax return on a consolidated basis (whether or not the offeror is
owned or controlled by a parent company, as provided above) provided the name
and TIN of the common parent of the affiliated group:
Name of Common Parent:______________________________________________
Common Parent's TIN:________________________________________________
L.3 AUTHORIZED NEGOTIATORS (Provision A-22) (October 1987)
The offeror represents that the following persons are authorized to
negotiate on its behalf with the Postal Service in connection with this
solicitation [Offeror list names, titles, and telephone numbers of the
authorized negotiators].
Kenneth Ehrman, President (212) 677-3800
Jeffrey M. Jagid, EVP Operations (212) 677-3800
L.4 PLACE OF PERFORMANCE (Provision A-23) (October 1987)
If the offeror intends, in the performance of any contract resulting
from this solicitation, to use one or more facilities located at
addresses different from the offeror's address as indicated in this
proposal, the offeror must include in its proposal a statement
referencing this provision and identifying those facilities by street
address, city, county, state, and ZIP
Page 82 of 87
<PAGE>
102590-97-A-0118 Section L
L.4 (Continued)
Code, and the name and address of the operators of those facilities if
other than the offeror.
L.5 CERTIFICATE OF INDEPENDENT PRICE DETERMINATION (Provision 1-1)
(October 1987)
a. By submitting this proposal, the offeror certifies, and in the case
of a joint proposal each party to it certifies as to its own organization, that
in connection with this solicitation:
1. The prices proposed have been arrived at independently,
without consultation, communication, or agreement, for the purpose of
restricting competition, as to any matter relating to the prices with any other
offeror or with any competitor;
2. Unless otherwise required by law, the prices proposed have
not been and will not be knowingly disclosed by the offeror before award of a
contract, directly or indirectly to any other offeror or to any competitor; and
3. No attempt has been made or will be made by the offeror to
induce any other person or firm to submit or not submit a proposal for the
purpose of restricting competition.
b. Each person signing this proposal certifies that:
1. He or she is the person in the offeror's organization
responsible for the decision as to the prices being offered herein and that he
or she has not participated, and will not participate, in any action contrary to
paragraph a above; or
2. He or she is not the person in the offeror's organization
responsible for the decision as to the prices being offered but that he or she
has been authorized in writing to act as agent for the persons responsible in
certifying that they have not participated, and will not participate, in any
action contrary to paragraph a above, and as their agent does hereby so certify;
and he or she has not participated, and will not participate, in any action
contrary to paragraph (a) above.
c. Modification or deletion of any provision in this certificate may
result in the disregarding of the proposal as unacceptable. Any modification or
deletion should be accompanied by a signed statement explaining the reasons and
describing in detail any disclosure or communication.
Page 83 of 87
<PAGE>
102590-97-A-0118 Section L
L.6 CONTINGENT FEE REPRESENTATION (Provision 1-2) (October 1987)
a. The offeror must complete the following representations:
1. The offeror [__] has [X] has not employed or retained any
company or person (other than a full-time bona fide employee working solely for
the offeror) to solicit or secure this contract.
2. The offeror [__] has [X] has not paid or agreed to pay any
company or person (other than a full-time bona fide employee working solely for
the offeror) any fee, commission, percentage, or brokerage fee, contingent upon
or resulting from the award of this contract.
b. If either representation is in the affirmative, or upon request of
the contracting officer, the offeror must furnish, in duplicate, a completed
Form 7319, "Contractor's Statement of Contingent or Other Fees", and any other
information requested by the contracting officer. If the offeror has previously
furnished a completed Form 7319 to the office issuing this solicitation, it may
accompany its proposal with a signed statement-
1. Indicating when the completed form was previously
furnished;
2. Identifying the number of the previous solicitation or
contract, if any, in connection with which the form was submitted; and
3. Representing that the statement on the form is applicable
to this proposal.
L.7 REPRESENTATION OF RIGHTS IN DATA (Provision 9-2) (October 1987)
a. By completion of the representation below, the offeror must identify
in its proposal the data (including subcontractor-furnished data) it intends to
identify as "limited rights data" or "restricted computer software," or that it
does not intend to provide as required. Any identification of limited rights
data or restricted rights computer software is not determinative of the status
of such data, should a contract be awarded to the offeror.
Representation Concerning Data Rights
Offeror has reviewed the requirements for the delivery of technical
data or computer software and states [Offeror check appropriate block]-
[__] None of the data proposed for fulfilling the requirements
qualifies as limited rights data or restricted computer software.
Page 84 of 87
<PAGE>
102590-97-A-0118 Section L
L.7 (Continued)
[X] Data proposed for fulfilling the requirements qualify as limited
rights data or restricted computer software and are identified as follows:
See Statement of Work, Section V.
b. "Limited rights data" and "restricted computer software" are defined
in the contract clauses entitled Rights in Technical Data and Rights in Computer
Software.
L.8 CERTIFICATION OF NONSEGREGATED FACILITIES (Provision 10-3) (October
1987)
a. By submitting this proposal, the offeror certifies that it does not
and will not maintain or provide for its employees any segregated facilities at
any of its establishments, and that it does not and will not permit its
employees to perform services at any location under its control where segregated
facilities are maintained. The offeror agrees that a breach of this
certification is a violation of the Equal Opportunity clause in this contract.
b. As used in this certification, "segregated facilities" means any
waiting rooms, work areas, rest rooms or wash rooms, restaurants or other eating
areas, time clocks, locker rooms or other storage or dressing areas, parking
lots, drinking fountains, recreation or entertainment areas, transportation, or
housing facilities provided for employees that are segregated by explicit
directive or are in fact segregated on the basis of race, color, religion, or
national origin, because of habit, local custom, or otherwise.
c. The offeror further agrees that (unless it has obtained identical
certifications from proposed subcontractors for specific time periods) it will
obtain identical certifications from proposed subcontractors before awarding
subcontracts exceeding $10,000 that are not exempt from the provisions of the
Equal Opportunity clause; that it will retain these certifications in its files;
and that it will forward the following notice to these proposed subcontractors
(except when they have submitted identical certifications for specific time
periods):
Page 85 of 87
<PAGE>
102590-97-A-0118 Section L
L.8 (Continued)
NOTICE
A certification of nonsegregated facilities must be submitted before
the award of a subcontract exceeding $10,000 that is not exempt from the Equal
Opportunity clause. The certification may be submitted either for each
subcontract or for all subcontracts during a period (quarterly, semiannually, or
annually).
L.9 EQUAL OPPORTUNITY AFFIRMATIVE ACTION PROGRAM (Provision 10-4)
(April 1989)
The offeror, by checking the applicable block or blocks, represents
that it (1) [__] has developed and has on file, [__] has not developed and does
not have on file, at each establishment, affirmative action programs as required
by the rules and regulations of the Secretary of Labor (41 CFR 60-1 and 60-2)
and [__] has, [__] has not filed the required reports with the Joint Reporting
Committee, or (2) [X] has not previously had contracts subject to the written
affirmative action program requirement of the rules and regulations of the
Secretary of Labor.
L.10 CLEAN AIR AND WATER CERTIFICATION (Provision 10-9) (October 1987)
a. This certification applies only if (1) the offer exceeds $100,000,
(2) the offer is for an indefinite-quantity and indicates that orders for
estimating quantities will exceed $100,000 in any year, (3) a facility to be
used is listed on the EPA List of Violating Facilities because of a criminal
conviction, or (4) the contract is not otherwise exempt.
b. The offeror (1) certifies, by checking the applicable box, that any
facility to be utilized in the performance of the proposed contract [__] is, [X]
is not, listed on the Environmental Protection Agency List of Violating
Facilities as of the date of this proposal, and (2) agrees to notify the
contracting officer promptly if any communication is received from the
Environmental Protection Agency before contract award indicating that any such
facility is under consideration for inclusion on the List.
Page 86 of 87
<PAGE>
102590-97-A-0118 Section M
SECTION M - EVALUATION AND AWARD FACTORS
----------------------------------------
M.1 CONTRACT AWARD AND PROPOSAL EVALUATION (Provision OA-16) (February
1992)
a. Award will be made to the responsible offeror whose proposal offers
the best value to the Postal Service, (i.e. a combination of price,
price-related factors, and/or other factors). The primary areas to be used in
determining which proposal offers the best value to the Postal Service are
listed below in descending order of importance:
(SEE SOW)
b. Cost/price will be considered in the award decision, although the
award may not necessarily be made to that offeror submitting the lowest price.
c. Subcontracting plans, if required, will be reviewed for
acceptability in the types and amounts of subcontracts to small, minority-owned,
and woman-owned business concerns, if this solicitation results in a contract
for more than $1 million ($500,000 for construction), the otherwise successful
offeror must have an acceptable Small, Minority-owned, and Woman-owned Business
Subcontracting Plan to receive award of the contract. (See Clause 10-2, Small,
Minority-owned and Woman-owned Business Subcontracting Requirements.)
Page 87 of 87
<PAGE>
INSTRUCTIONS FOR QUARTERLY REPORT OF SMALL, MINORITY-OWNED,
AND WOMAN-OWNED BUSINESS SUBCONTRACTS
1. Statistics should be reported in all categories which are applicable to the
business. Small non-minority firms should be reported in the Small Business
section. Minority firms of small business size should be reported in the
Minority Business section and the Small Business section. Minority woman-owned
firms of small business size should be reported in the Small (Minority) and
Woman-Owned Business sections. Non-minority woman-owned firms of a small
business size should be reported in the Small (Non-Minority) and Woman-Owned
Business section.
2. You must report both the total number of firms in each category to which you
issued subcontracts or purchase orders and the total number of subcontracts and
purchase orders issued.
Report all subcontracts and purchase orders regardless of amount.
3. Submit this report to the contracting officer at the end of each calendar
quarter until the contract is entirely completed. A final report after contract
completion is required.
4. Definitions:
A. Minority-owned business. A business concern at least 51 percent of
which is owned by, and whose management and daily business operations are
controlled by, one or more members of a socially and economically disadvantaged
minority group, namely, U.S. citizens who are Black Americans, Hispanic
Americans, Native Americans, Asian-Pacific Americans, or Asian- Indian
Americans. ("Native Americans" means American Indians, Eskimos, Aleuts, and
Native Hawaiians. "Asian-Pacific Americans" means U.S. citizens whose origins
are Japanese, Chinese, Filipino, Vietnamese, Korean, Samoan, Laotian,
Kampuchean, Taiwanese or in the U.S. Trust Territories of the Pacific Islands.
"Asian Indian Americans" means U.S. citizens whose origins are in the Indian
Subcontinent.)
B. Number of employees. Average employment (including domestic and
foreign affiliates), based on the number of people employed (whether full-time,
part-time, or temporary), during each pay period of the preceding 12 months, or,
if the business has been in existence less than 12 months, during each pay
period of its existence.
C. Small business. A business, including affiliates, that is
independently owned and operated, is not dominant in producing or performing the
Supplies or services being purchased, and has no more than 500 employees, unless
a different size standard has been established by the Small Business
Administration (see 13 CFR 121, particularly for different size standards for
airline, railroad, and construction companies). For subcontracts of $50,000 or
less, a subcontractor having no more than 500 employees qualifies as a small
business without regard to other factors.
Page 1 of 4
<PAGE>
D. Woman-owned business. A business at least 51 percent of which is
owned by a woman (or women) who is a U.S. Citizen, controls the firm by
executing the power to make policy decisions and operates the business by being
actively involved in day-to-day management.
E. Subcontract. Any agreement (other than one involving an employer-
employee relationship) entered into by a Postal Service contractor or
subcontractor calling for supplies or services required for performance of the
contract or subcontract.
Page 2 of 4
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY REPORT OF SMALL, MINORITY-OWNED
AND WOMAN-OWNED BUSINESS SUBCONTRACTS
Totals for the period __________________ to _________________
<S> <C> <C> <C>
Type of Dollar Value
Firm Period Number of Subcontracts of Subcontracts
- ------------------------------------ ---------------------- ----------------------------- -----------------------------
1. Total Current
Subcontracts Quarter _____________ $_____________
Previously
Reported _____________ $_____________
Totals _____________ $_____________
2. Small Business Current
(Minority) Quarter _____________ $_____________
Previously
Reported _____________ $_____________
Totals _____________ $_____________
3. Small Business Current
(Non-Minority) Quarter _____________ $_____________
Previously
Reported _____________ $_____________
Totals _____________ $_____________
4. Minority Business Current
Quarter _____________ $_____________
Previously
Reported _____________ $_____________
Totals _____________ $_____________
5. Woman-Owned Current
Business Quarter _____________ $_____________
Previously
Reported _____________ $_____________
Totals _____________ $_____________
</TABLE>
This report is due 10 calendar days after the end of each quarter. An attachment
containing the names and addresses of minority business subcontractors must be
submitted with this report.
Contractor: ____________________________________________
Address: ____________________________________________
City-State-Zip: ____________________________________________
Page 3 of 4
<PAGE>
ATTACHMENT -- INSTRUCTIONS AND FORMAT FOR CONTRACTOR
REQUEST FOR CHANGE, DEVIATION, OR WAIVER, TO
TECHNICAL DATA PACKAGE (TDP)
Page 4 of 4
<PAGE>
U.S. Postal Service
INSTRUCTIONS FOR COMPLETING CONTRACTOR REQUEST FOR CHANGE,
DEVIATION, OR WAIVER TO A TECHNICAL DATA PACKAGE (TDP)
PART A - Contractor Request Section: Completed by Offeror/Contractor
Solicitation/Contract No.: The Postal Service solicitation or contract number
against which the request is made.
Request No.: A sequential number beginning with 1, incremented for each request
submitted.
1. To: Insert name and address of the Postal Service contracting officer who
issued the solicitation/contract, or, if assigned, the contracting officer's
representative (COR).
2. Item: Refers to the nomenclature of the net item against which the request is
issued. DL/Spec No. is followed by the Data List, specification, or purchase
description number. Rev. Level is followed by the revision level of the Data
List, specification number, or purchase description. If no revision number is
shown, the date of the Data List, specification, or purchase description is
inserted.
3. Type of Request: Insert the type of request, i.e., change, deviation, or
waiver. Class 1 changes are those that affect form, fit, function, cost,
delivery schedule, manufacturing process, or equipment performance. Class 2
changes are all other changes. USPS Cost/(Savings), if costs or savings are
applicable, the amounts are shown in whole dollars. Savings are indicated by
enclosing the amounts in parentheses. For any VALUE ENGINEERING change, the
amount by which the contract price will be reduced must be inserted. Any costs
or savings shown are to be full value of the cost or savings for the duration of
the contract.
4. Drawings/Specifications Impacted (Include Rev Levels,): Insert the list of
all of the drawings and specifications impacted by the change, deviation, or
waiver requested. The revision level of each must be indicated. Marked-up prints
or print segments of the affected drawings or pages of the specification must be
attached.
5. S/N of Affected Equip: The serial number(s) of the equipment affected, if the
deliverables are serial numbered.
6. Justification: Insert the reason for the requested change, deviation, or
waiver. The Justification must provide specific zones on impacted drawings and
pages and parts of specifications and purchase descriptions impacted. If
marked-up prints or pages are provided, these documents may be referred to in
lieu of identifying zones and pages. All attachments must be listed in the
Justification.
Page 1 of 2
<PAGE>
7. Signature of Requestor: Sign, date and type in the name, title and telephone
number of the requester.
PART B - USPS Evaluation Section: To be completed by the assigned USPS Project
Engineer of the Design Responsible Organization.
1. Evaluation: Check whether or not the request was accepted in full, accepted
in part, or rejected. Also check whether the request will result in a
modification to the Technical Data Package (TDP).
2. Treat As: Check whether or not the request is a change (and if so, what type
of change), a deviation, or a waiver. USPS Cost/(Savings), insert your estimate
of costs or savings, as applicable. Show amounts in whole dollars. Savings are
indicated by enclosing the amount in parentheses. For any Value Engineer change,
insert the amount by which the contract price will be reduced. Any costs or
savings shown must be for the full value of the costs or savings for the
duration of the contract
3. Comments: Include applicable comments, as required.
4. Signature of Project Engineer: To be signed and dated by the assigned Project
Engineer. The project engineer will perform the appropriate coordination with
the requirements activity, as required. Type in the name, title, and
organization of the project engineer. Insert the project engineer's telephone
number.
Page 2 of 2
<PAGE>
<TABLE>
<CAPTION>
U.S. Postal Service
CONTRACTOR REQUEST FOR CHANGE, DEVIATION OR WAIVER
TO A TECHNICAL DATA PACKAGE (TDP)#
<S> <C>
PART A - Contractor Request Section
Solicitation/Contract No. Request No.
1. To:
2. Item: DL/Spec No. & Rev Level:
3. Type Type of Change:
of
Request
( ) Class 1 ( ) Class 2 ( ) Val Eng USPS Cost/(Savings)
( ) Deviation ( ) Waiver $
4. Drawings/Specifications Impacted (Include Rev Levels):
(Attach marked-up drawings or spec/purchase description pages affected)
5. S/N of Affected Equip:
6. Justification:
7. Signature of Requestor: Page ___ of ___
(Printed Name/Title/Date)
Telephone:
PART B - USPS Evaluation Section
1. Evaluation: ( ) Accept ( ) Accept in Part ( ) Reject Modify TDP ( ) yes ( ) no
2. Treat As ( ) Class 1 ( ) Class 2 ( ) Val Eng USPS Cost/(Savings)
( ) Deviation ( ) Waiver $
6. Comments:
7. Signature of Project Engineer:: Page __ of __
(Printed Name/Title/Organization/Date)
- -------------------------------------------------------------------------------
Telephone:
---------------------------
</TABLE>
#NOTE: This document is neither a contractor claim nor a contract modification.
Page 1 of 2
<PAGE>
U.S. Postal Service
CONTRACTOR REQUEST FOR CHANGE, DEVIATION OR WAIVER
TO A TECHNICAL DATA PACKAGE (TDP)#
PART A - Contractor Request Section (Continued)
- --------------------------------------------------------------------------------
Solicitation/Contract No. Request No.
- --------------------------------------------------------------------------------
6. Justification (Continued):
Page __ of __
- --------------------------------------------------------------------------------
PART B - USPS Evaluation Section (Continued)
6. Comments (Continued)
Page __ of __
Page 2 of 2
<PAGE>
TABLE OF CONTENTS
Page
ATTACHMENT -- INSTRUCTIONS AND FORMAT FOR CONTRACTOR
REQUEST FOR CHANGE, DEVIATION, OR
WAIVER, TO TECHNICAL DATA PACKAGE (TDP)
<PAGE>
Solicitation No. 102590-97-F-0018
Attachment I
STATEMENT OF WORK
EXPANDING RADIO FREQUENCY IDENTIFICATION (RFI) INTO TEN USPS AREAS
I. INTRODUCTION. The USPS has determined that radio frequency identification
(RFI) can be matured into a real time application which will support customers'
requirements for accurate, timely delivery.
The USPS desires to expand the existing RFI program into demonstration sites in
each of the ten areas, and to use these sites to investigate two possibilities
for maturing the technology:
1. To determine whether the existing ID tag reading equipment is
capable of being developed into a unified network diagnostic supporting
first-class and Priority Mail, including air transportation, and
2. To determine whether the existing system software can be modified to
provide a workable real time process management tool for local supervisors and
managers.
The USPS desires a system to effect the following
improvements:
a. Begin to expand the capabilities of the system
purchased from perimeter and portal coverage to full
floor coverage in a real time environment. Full floor
coverage requirements do not extend into restricted
access areas such as registry cages and maintenance
supply storage areas.
b. Develop a real-time clock for the next-generation tag
reader, hereafter the SM2 version.
c. Provide self-installing software to establish local
radio LAN protocols.
d. Provide alpha test version of bi-directional radio
LAN protocols to establish a redundant communications
loop which is capable of detecting and compensating
for hardware failures' impact upon moving data
through a facility to the gateway.
e. Design a hardware interface into multiple networks.
Specifically, provide an interface into the Postal
Routed Network (PRN), which will be extended to the
7000 largest local delivery unit programs under the
aegis of the Associate
<PAGE>
Office Interface (AOI) program. Develop and test all
software required to make gateways fully compatible
with all USPS network protocols.
f. Improve battery life to a minimum of forty five (45)
days.
g. Change the tag burn software to add additional fields
for mail class and shape to the basic data record.
1.1 REFERENCES.
All tag readers delivered to the USPS must conform to all relevant sections of
the following industry standards:
o Federal Communications Commission Part 15, (47 CFR 15).
o IEEE Standard for Safety Levels with Respect to Human Exposure
to Radio Frequency Electromagnetic Fields, 3 kHz to 300 GHz
(IEEE C95.5-1991)
o Radio Technology Commission for Aviation (RTCA) Standard
DO-160C.
Reference section 20, Category T, Radio Frequency
Susceptibility (Radiated), and Reference Section 21,
Category Z, Emission of Radio Frequency (Radiated).
The vendor will submit certification that submitted ID tag designs meet the
specification requirements of RTCA/DO-l 60C, or DO-160D, whichever is most
current at the time this statement of work is submitted. Specific requirements
are given in Section 7, Safety.
II. SCOPE.
This statement of work (SOW) is intended to incorporate the technology and
software lessons learned from the Phase I pilot test in the DC metro area.
The USPS expects that the work will be conducted in five stages:
1. Site surveys, leading to estimates of ID tag readers required to
provide:
a. perimeter wall coverage in each site listed in
Attachment 1.
b. full floor coverage for each Attachment I Processing
and Distribution Center (P&DC) and Airport Mall
Center (AMC), incorporating the tag readers deployed
in II.l.a, above. The USPS stipulates that the final
number of tag readers required for full floor
coverage requirement is dependent upon the
-2-
<PAGE>
completion of the real-time full floor coverage
requirement specified in item 11.5, below.
c. Perimeter wall coverage in the two Priority Mail
Processing Centers listed in Attachment IV.
2. Installation of full perimeter coverage systems in the sites listed
in Attachment 1.
3. Retrofitting the six DC Metro area P&DCs listed in Attachment III
for full perimeter coverage. The USPS will provide 150 SM2s for this
and for Item 11.5, below.
4. Concurrent development of a working real-time prototype system.
5. Develop a prototype real time full floor coverage system at Morgan
P&DC.
Items ll.l.a and ll.l.b are separately deliverable items.
A. PERFORMANCE PERIODS.
The performance period for contract shall be one year with notification to COR
for accelerated delivery(s).
Once perimeter coverage is established in a location, the USPS desires that
existing tag readers be transparently (or nearly so) integratable into a real
time full floor coverage scheme.
B. DEVELOPMENTAL WORK.
The USPS Morgan P&DC (Processing and Distribution Center), 341 Ninth AVE, NYC is
the designated test bed facility at which the full floor coverage concept will
be developed. Initially, this may include surplus Phase 1 tag readers, and may
provide coverage for less than one entire floor. The USPS desires to use the
Morgan P&DC installation as representative installation of I.D. Systems hardware
in a very large multistory facility. All developmental programming work is
expected to be done concurrent to hardware development.
C. MATERIALS PROVIDED.
The USPS will provide the following materials to the contractor without charge:
o Floor plans for each facility, either on electronic media
(Autocad compatible) or as hard copy.
o Current (less than three years old) surveys of the ambient
electromagnetic environments of all P&DCs for which such
surveys exist.
-3-
<PAGE>
o The USPS will provide all required electrical and telephone
line installation at all locations at its own expense. Where
LAN connections are not available, the USPS will provide
dedicated analog telephone lines.
o The USPS will provide all computer equipment necessary for
local on-site Flextag programming, data uploading and data
retrieval, and the local data collection data base.
o The USPS will provide all technical documentation and other
material required to ensure that all contractor products will
function within all internal USPS telecommunications and
Internet protocols, particularly as may be required to move
data from place to place using the Postal Routed Network (PRN)
and Associate Office Infrastructure (AOI).
o The USPS will provide two postal-owned digital cameras to
facilitate production of digitized site surveys required in
111.1 below, not to exceed $500.00 each.
III. HARDWARE DELIVERABLES.
A. Five thousand (5000) of the latest production version ID tags.
B. Ten thousand (10,000) battery packs.
C. One thousand one hundred (1100) of the latest production version tag
readers, SM2, configured as follows:
1. Eight hundred seventy five (875) tag readers, SM2.
2. Two hundred twenty five (225) gateways.
Tag reader enclosures must be fitted with keyed locks. These keyed locks must be
unikeyed for each P&DC and its associated AMC and delivery units, or the key
locks may be unikeyed for the entire production run. Unikeyed means that one key
will open all tag readers in a designated area. The vendor will supply each
P&DC's designated RFI coordinator with four (4) keys for each different lock
installed in each location, and will supply the USPS Project Manager with two
(2) keys for each different lock installed in each location.
D. Forty (40) ID tag programmers
E. Ten (10) spare SM PC board sets, without enclosures, as emergency
spares.
F. Seventy five (75) SM to Gateway conversion kits.
-4-
<PAGE>
The USPS desires a separate unit cost estimate to provide kits containing the
three extra PC boards needed to convert tag readers into gateways in incremental
units of one hundred. If the price estimate is accepted, the USPS will place
orders for these kits in time for the scheduled contract PC board run.
G. Production jigs and fixtures as may be required to facilitate SM
fabrication and FT fabrication.
H. Two (2) hard copy and one (1) digitized site reports for each
Attachment I facility which contains the following information:
1. Separate line items which detail the estimated number and placement
of the latest production version (SM2) tag readers required to provide:
a. full perimeter coverage and
b. full floor coverage for each P&DC and AMC.
Full perimeter coverage means that the tag readers will be positioned in
locations around all four perimeter walls in such a fashion that a continuous
communication link can be established between the several readers and do the
following:
a. Receive live data records from an ID tag and pass the
records bi- directionally from one tag reader to
another completely around the perimeter walls.
b. Demonstrate that the communications protocols can
recognize a malfunctioning or nonfunctioning tag
reader and pass data to the Gateway in such a manner
as to bypass the nonfunctioning reader.
c. Send a diagnostic message to a designated local
user's work station informing the user of the
malfunction, and advising the user of whether the
malfunction is locally correctable, or requires a
service call.
Full floor coverage means that contractor shall extend tag reader (SM) antenna
coverage to every mail processing and staging area on the work room floor where
live First-Class or Priority mail may be situated in the normal conduct of mail
processing operations. Full floor coverage does not extend to limited access
locations such as registry cages, accountable paper and maintenance
storage/staging areas, unless such coverage is or can be provided coincidental
to coverage of the rest of the work room floor.
The deliverable requirement for provision of a digitized site report may be
satisfied by posting a copy of the site report to an encrypted Internet home
page.
-5-
<PAGE>
For local delivery units which require more than one tag reader, a digitized
site report which details the exact number and placement of the latest
production version (SM2) tag readers is required to provide entry and exit
coverage.
I. In locations which require more than one (1) SM, the contractor will provide
a detailed narrative which describes the exact location at which each tag reader
will be installed. This should be supplemented with location specific digitized
photographs. If local management assents, the locations where the readers will
be mounted may be permanently marked on the walls, columns, or lookout
galleries.
The USPS intends to. use postal electricians to mount and install power to tag
reader enclosures wherever such assets exist.
J. Install and test the SM2 printed circuit boards into each previously
installed tag reader box in the DC Metro area. These locations are given in
Attachment 111.
K. Install and test the modem and telephone communications to and from each
gateway installed in each P&DC and AMC. The USPS will perform single unit A/O
installations.
L. Establish the local radio LAN protocols and test the communications links
between each tag reader. Contractor will provide the Contracting Officers
Representative (COR) with one complete copy of the tag reader communications
test data sheets for each location at which more than the tag reader is
installed.
M. At each R&DC, set up one end user node and train each site's designated
user(s) to access the local systems, program ID tags and download local records;
not to exceed four hours per P&DC.
N. Provide two sets of system documentation for every installed site. This
documentation may be in hard copy or in the format of a Windows 95 help
function. This documentation shall contain end user instructions for start up,
to include local facility file creation and maintenance, ID tag programming ,
telecommunications and trouble shooting.
O. Within ninety (90) days from the execution of this contract, contractor shall
provide the COR with written confirmation showing that all required components
have been ordered and acknowledged. The confirmation shall list the suppliers'
delivery dates for all components and subassemblies for which lead times of more
than sixty (60) days are projected.
P. End user installation instructions for single unit tag reader in associate
offices. These instructions will include a step-by-step installation narrative
and line drawings showing all user settable jumper and switch locations. There
must also be instructions whereby an end user can confirm that individual tag
readers have been correctly installed.
-6-
<PAGE>
Q. Copies of letters of agreement, or similar instruments, made with third party
subcontractors showing the following:
- Deliverable dates for all required printed circuit boards.
- The actual dates on which production or surface mount lines
have been reserved to produce:
a. the 5000 flexible ID tags
b. the 1150 mother boards for the tag readers
c. all required daughter boards for the 1150 tag
readers and gateways.
- The projected date on which the production test bed fixtures
will be ready for volume testing and adjustment of newly
assembled ID tag and tag reader PC boards.
- Any other agreements into which contractor has entered to
ensure that subcontractors' production schedules will be met.
R. Options to buy additional quantities of the following hardware items, in job
lot (minimum economic order) quantities, which the contractor shall specify, and
price accordingly:
- ID tags
- Battery packs
- ID tag programmers
- SM to Gateway conversion kits
- Hand-held devices
IV. SOFTWARE DELIVERABLES.
A. User Software. The USPS desires make three changes to the present local user
software. At this time the Headquarters system administrator can delete local
user records as a normal part of the Headquarters upload process. As RFI
proliferates into the areas, we can see the possibility that HQ uploads will
delete local records before local uploads. The first required software change
shall create and set an uploaded/not uploaded indicator bit on each record to
reflect one of four possible conditions before a data upload. The RFI software
will periodically monitor the flagged records and designate records for backup.
not uploaded (0) uploaded (1)
Headquarters (0) 00 01
Local users (1) 10 11
-7-
<PAGE>
The upload actions desired are:
00 => HQ uploads, local user has not uploaded, set the HQ backup bit to '1'
01 => HQ uploads, local user has uploaded, set the HQ backup bit to '1'
10 => HQ does not upload, local user uploads, set the local backup bit to '1'
11 => Both users have uploaded. Do not upload again.
Once in each twenty four hour period, the local operating system will prompt the
local user to create a backup file on the system hard drive, and optionally on a
floppy diskette. The naming convention for backing up data should ZIP where the
year, month and day are supplied by the system clock. The requirement for
prompted backups is for local user systems only, and will not be included in the
HQ administrator's software.
When the backup routines are completed, set the indicator bits to a value (XX)
which the HQ system administrator checks as part of the HQ upload. When the HQ
administrator's software detects a 'XX' backup condition during the upload
routine, it should delete the record as previously uploaded and backed up. Local
users should not be allowed to delete local data backup files.
For manual and automatic data upload modes:
Provide a visual indicator to allow the end user to immediately determine which
local delivery units have already been uploaded during the data upload session
in progress. This may be accomplished by changing the uploaded delivery unit
name's color, or by displaying a check mark next to the local delivery unit's
name, or by any other manner immediately recognizable to an end user.
B. Operating System Protocols. The USPS desires to simplify the process by which
the internal communication protocols are established when the radio LAN is
defined. The present system required field engineers to be present and to
perform the actual work of providing individual tag reader identities and
defining communications paths. The USPS would like to automate the establishment
of the local bi-directional protocols so that is essentially self-installing and
can be performed by postal personnel.
C. Redundant Communications Loop. The original concept envisioned radio coverage
for door ways, and did not extend to long runs of blank wall space. The present
hardware configuration is linear, so that reader 01 communicates with 02, and 02
with 03, and 03 with 04 and so on. This became problematic when one tag reader
fails while down stream subordinate readers continued to function normally.
The existing protocol provides no back up communication route to ensure that
data could continue to flow if one node failed. The USPS will provide sufficient
tag readers to establish a closed bi- directional loop in P&DC and AMC
installations, and desires that contractor rework the communications protocols
to detect individual tag reader failures and automatically redirect
communications to the gateways in the event of individual reader failures.
-8-
<PAGE>
V. INTELLECTUAL PROPERTY.
A. INTELLECTUAL PROPERTY RIGHTS.
1. The USPS desires to secure certain specified rights in data
developed with USPS funds. Clauses addressing this/these issues are included in
the solicitation document and describe various rights (the "specified rights")
to be granted to the USPS, including the right to use, disclose, reproduce,
prepare derivative works, distribute copies to the public, and perform and
display publicly, such data. Clauses incorporated in the solicitation document
and the contract, by negotiation, shall be limited and modified by the specific
provisions contained in this section. The foregoing rights do not apply to
pre-existing I.D. Systems, Inc. proprietary software. Pre-existing software
includes all software which has been previously developed by I.D. Systems which
is currently protected by copyright or patent. Said software includes the
following, plus any other software not herein described, but to which I.D.
Systems and the USPS shall stipulate in the future.
Current software to which stipulations do not apply are as follows:
System Monitor, Flextag, and Gateway Software:
SM/Gateway Data Collection Capability - Tag Detection Scheme
Battery savings techniques Gateway/Modem link-Gateway dial out
capability Wake-up scheme - Tag battery life conservation
approach Tag battery level analysis/indicator Signal Strength
measurement capability Adjustable distance capability RF Data
communications protocol (tag-to-reader, tag-to-tag,
reader-to-reader) Hard-wired communication protocol
(reader-to-reader, gateway-to-modem) Tag/SW/GW diagnostics and
facility network diagnostics Facility installation and setup
software Test software - testing communication links and other
SM/GW diagnostics Ability to reprogram tags/readers/gateways
remotely using extant software Existing SM/Flextag data
redundancy capability and scheme Simple 'real time' system and
techniques shown in the Norman OK demo in October 1996. Alpha
version Self-installation Software Repeater Software (Media
Independent) Alpha Version Redundant Software
Data Retrieval Software:
Data Upload/Data Storage/Data Deletion
Round robin Dial-up technique
-9-
<PAGE>
Gateway-to-PC communications protocol
Facility diagnostics display and analysis
Simple real-time system and techniques as shown in the Norman
OK demo in October 1996
Graphical user interfaces as they exist fit the time this
contract is signed PC, Unix Driver Software (PC: DOS/.WINDOWS,
16132 BH)
Tag Programming Software:
Tag selection (all in room or by button pressing)
PC displayed battery level indicator using the existing
software, covered in the System Monitor, Flextag and Gateway
section above. Tag programming technique as it exists when
this contract is signed. Tag Programming methodology as it
exists when this contract is signed. Graphical user interfaces
as they exist when this contract is signed.
2. Subject to the license described below and the royalty payments
described below, the USPS hereby grants to I.D. Systems all title to all
hardware and software relating to this contract, whether developed independently
by I.D. Systems or jointly developed with USPS funding, including, without
limitation, the unlimited and exclusive rights to the sale and licensing of
jointly developed software and hardware to others.
3. Contractor hereby grants to the USPS an irrevocable royalty free
nonexclusive license to the USPS to utilize the specified rights, but only in
connection with the hardware and software delivered to the USPS by I.D. Systems
pursuant to this contract and any amendment of extension of this contract.
Further, the USPS shall be granted a royalty free license to use any jointly
funded changes to the operating system and/or data base software in the same
scope described above. Notwithstanding the foregoing, the USPS shall have no
right to sell or license any of the specified rights to any third party.
4. In consideration for the above grant, contractor shall make the
following royalty payments to the USPS in connection with the sale of software
and hardware, and any derivative works and products originally developed with
USPS funds:
- For the sale of software or hardware to a domestic state,
federal or local government agency, I.D. Systems shall pay a
royalty of zero percent (0%) to the USPS.
- For the sale of software or hardware to any entity, domestic
or foreign, which is a direct competitor of the USPS within
five years of this contract, I.D. Systems shall pay to the
USPS a royalty of five percent (5%) of the dollar value of the
total invoices, less taxes, returns and allowances.
-10-
<PAGE>
- For the sale of software or hardware to any commercial entity,
domestic or foreign, which is not a direct competitor of the
USPS within five years after the date of this contract, I.D.
Systems shall pay to the USPS a royalty one & half percent
(1.5%) of the total invoiced sale price, less taxes, returns
and allowances.
For the purposes of determining royalty payments, the term direct
competitor shall mean: Any person or firm engaged in the commercial delivery of
letters and/or parcels to residential and/or commercial street addresses in the
United States of America, its commonwealths, territories and possessions. The
term direct competitor shall also extend to foreign postal administrations which
maintain sales offices in the United States, with the intention of diverting
international mail matter from the USPS, and into that postal administration's
mail stream.
The USPS shall make a determination that a foreign postal administration is
maintaining a sales office in the United States d it advertises for customers
and/or accepts matter for mailing in the United States of America, its
commonwealths, territories and possessions.
B. EXISTING PROPERTY RIGHTS.
The test system will include all existing system software to which the
USPS has current usage rights. As described herein, USPS shall be granted a
royalty free license to use, in connection with the hardware and software
provided by contractor, any jointly funded changes to the operating and/or data
base software. All existing licenses to use existing systems hardware and
software are conveyed directly to the USPS in perpetuity for use in connection
with hardware and software provided by contractor, whether or not contractor
ceases to operate, voluntarily, or involuntarily, by merger, acquisition,
bankruptcy, or through other means.
C. SUCCESSOR ORGANIZATIONS.
All rights in data secured under this contract which are reserved or
granted to the USPS shall continue in perpetuity, and shall not pass to
successor organizations in the event that contractor shall cease to exist
through merger, acquisition, bankruptcy, or voluntary liquidation. All rights
reserved by or granted to contractor shall inure to the benefit of the
successors and assigns of contractor.
D. DERIVATIVE COMMERCIAL PRODUCTS.
Subject to the consideration of the grant described in Section V.A.2,
above, the USPS desires to secure its rights to commercially profit from any
derivative commercial products which may be developed wholly, or in part, from
the RFI products in which it shall have shared intellectual property rights.
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Contractor shall make flat rate royalty payments to the USPS in connection with
the sale of software and hardware, and new commercially saleable derivative
works and products originally developed with USPS funds:
- For the sale of derivative commercial software or hardware to
any entity, domestic or foreign, contractor shall pay to the
USPS within 5 years a royalty of one & one-half percent
(1-1/2%) of the total dollar value of the invoiced sale price,
less taxes, returns and allowances.
Notwithstanding the foregoing, the USPS shall have no right to independently
sell or license any of the specified rights to any derivative product to any
third party.
VI. WARRANTEES.
Contractor will warrant the fitness of the proposed hardware and software for
the uses herein described for a period of one year from the date of delivery of
each article. The USPS recognizes that it has little control over the physical
stress and possibly abusive handling if the ID tags imposed by automated letter
mail processing equipment.
The Postal Service will require technical support and/or replacement of
vendor-supplied hardware which may be defective or become inoperable during
warranty period. Following the warranty period, the USPS will fund repair
activities, on a time and materials basis, for hardware which is determined by
contractor, or its designated agent, to be economically repairable.
The Postal Service recognizes that it may not be possible to adequately
determine the cause of an operational problem at the outset, and desires that
the contractor provide general technical support to the USPS on a time and
materials chargeback basis to identify problems which are not covered under
warrantee.
VII. SAFETY.
A. Requirements. The equipment I.D. Systems supplies shall operate
within safe power levels for human exposure as defined in IEEE C95.5-1991, and
shall operate within those levels for the duration of their service lives
B. Safety Standards Compliance. Each respondent must supply proof of
compliance with IEEE C95-1991 standards for exposure to radiated energy. This
proof shall be required through testing and certification by a third-party
standards laboratory which is certified to perform such testing for industry.
C. Airline Safety Compliance. It is likely that an ID tag or tags
procured will travel in commercial airlines as cargo. The upper tolerance for
extraneous radio interference from emitters
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carried onto aircraft is specified in Radio Technology Commission for Aviation
(RTCA) RTCA/DO 160C specification: Environmental Conditions and Test Procedures
for Airborne Equipment, Section 21.2, Category Z. ID tags shall be certified in
writing as being compliant with testing requirements specified in DO-160C, and
free from unintended activation across the spectrum as defined in section
VIII.C. I.D. Systems will provide a true copy of the laboratory certification to
the COR within ten (10) days of its issuance. This certification must be from a
laboratory certified by the Radio Technology Commission for Aviation (RTCA) to
perform DO-160C testing and certification.
In the event that DO-160C is supplanted by the now pending specification
DO-160D, certification will be made to DO-160D standards.
There are two acceptable approaches for ID tags:
1. ID tags can be certifiable as non-emitters by an RTCA certified testing
laboratory, or
2. Emissions from the ID tags fall under the allowable power levels specified in
DO-160C, Section 21 for category Z equipment.
Option 1 is preferred, but in either case, vendors should employ a fail safe
mechanism like a cyclic redundancy check, to preclude ID tags' emitting
unintended signals across the entire electromagnetic spectrum.
Fail safe means that by analysis, or design, that there is no possibility of
spurious transmission from the ID tag on or off the specification excitation
frequency. Fail safe requires a no transmit on the excitation frequency, unless
the fail safe is passed, effectively turning the ID tag into a non-emitter.
The preferred method of ensuring a fail safe condition is to require a cyclic
redundancy sequence be received at the excitation frequency before the digital
and transmission aspects of the ID tag become active.
VIII. ACCEPTANCE TESTING.
It is contractor's responsibility to ensure that its hardware will function
reliably with the commercially provided electric service at each location. The
USPS requires that I.D. Systems meet the requirements given listed below:
A. The current mechanical survivability goal is 1000 passes through letter mail
automation. The results of the development program will finalize the required
number of passes through Electrocom automated letter mail sorting equipment for
any, subsequent procurement.
B. ID tags must be individually detectable by tag readers in line of sight
distances of at least one hundred (100) feet from tag readers permanently
installed on the interior walls of postal facilities.
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The USPS will, upon demonstration of the capability, stipulate that the
activation LED located on an ID tag can be used to determine that an individual
ID tag has been activated. Such determination will be made by querying an
individual ID tag, and manually recording the PIN, and actual date and time of
the event. The individuals conducting the demonstration will wait at least five
minutes from the initial query event before using a hand held device to display
the actual ID tag record(s) created by the aforementioned query. If the ID tag
record's PIN, query date and time correspond, is will constitute evidence that
the ID tag's LED lights upon query by a tag reader. This LED event will be used
in all distance related activation tests which require ID tag activation. The
method by which distance is measured will be mutually agreed upon by all parties
at the time testing is conducted.
C. The ID tags must be capable of monitoring their available power, and of
signaling the condition "battery low" to the development system and tag readers.
The preferred venue for low battery testing is at the station where the ID tags
are programmed.
D. ID tags must be identifiable as returnable USPS property if found loose in
the mails. One side of each ID tag must bear the following permanent endorsement
in 12 point letters"
"POSTMASTER: Return postage is guaranteed.
If this tag is found loose in the mails, please return it to:
Glenn McDonald
475 L'Enfant PL SW
Washington DC 20260-1602"
E. Battery-powered ID tags must have a method to detect that they are being
continuously queried (by ID number) by the same tag reader and have the ability
to shut themselves down to conserve battery life. This may be demonstrated by
test or design which shows a functional power conservation circuit.
F. ID tags must not be susceptible to static electricity build-up in normal
automated letter mail processing activities to the point where the on-board
memory contents are erased, altered, or otherwise damaged.
G. ID tags and Tag readers must be individually identifiable within a facilities
radio LAN protocols. This is demonstrable in Section VIII.H testing below.
H. I.D. Systems shall certify, in writing, compliance with all required Federal
Communications Commission (FCC) Part 15 requirements for the hardware supplied.
I. Tag readers must detect and correctly read single and multiple (as many as
twelve (12) ID tags placed randomly into letter mail pouches and/or corrugated
cardboard or plastic Managed Mail trays which are then placed into larger pieces
of mail transport equipment. This capability will be demonstrated as follows:
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1. Twelve production ID tags will be randomly selected from a lot
of one hundred.
2. The unique ID numbers of the selected tags, and other
specifics will be recorded on a log sheet described below.
3. The twelve selected ID tags will be randomly inserted into a
previously selected plastic or corrugated cardboard letter
mail tray full of letters. At least one ID tag shall be placed
on the bottom of the tray, and at least one ID tag shall be
placed on top of the letters before the tray is sleeved. ID
tags will not be placed adjacent to each other in trays. These
preparations will be conducted outside the normal excitation
range of any tag reader being tested.
4. At the start of the test, the contractor's representative will
use a portable tag reader, hereafter called a hand-held
device, to query each tag reader being tested. The
contractor's representative will read and synchronize the tag
reader's system clock time to the time displayed on the USPS
representative's time keeping device. This time will be
recorded on the log sheet.
NOTE: Upon demonstration that the hand held device can communicate
directly with a tag reader and download current ID tag records, the
USPS will stipulate that the hand held device may be used to verify
that the ID tags have established contact with the tag readers while
they are located on letter mail trays during the hamper and OTR tests.
Detect times retrieved from tag readers by hand held devices may be
used as the recordable ingress and egress detect times wherever such
times are required in acceptance testing.
5.a. HAMPER TEST. The tray will be placed centrally on top of
at least six inches of loose packed letters or flats in a wire framed
canvas hamper. The tray will then be covered by three feet more feet of
loose packed letters or flats and transported through the tag reader's
excitation field at a speed of at least two and not greater than three
meters per second.
- - Immediately prior to moving the hamper containing the selected ID tags into
the excitation field of the tag reader being tested, the persons conducting the
test will, refer to the hand held device to determine the time at which the ID
tag(s) enter the excitation field.
- - The USPS representative will record the PIN and detect time as indicated by
the hand held device as the time at which the hamper moved into the excitation
field of the reader being tested.
- - The hamper containing the ID tags will be moved through and out of the
excitation field, and the USPS representative will record the clock time of the
departure, as indicated by the hand held device.
- - The tag reader must be separately identify and store the ID tags' PINs, with
the correct ingress and egress dates and times in a file named usps.out. When
the test is concluded, the
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participants will use a personal computer to dial up the system gateway and
download the usps.out file containing all the records for all tag readers which
were tested.
- - The USPS requires the time stamps on the records to be plus or minus
one minute of the ingress and egress times noted on the test log sheet.
- - The USPS recognizes that live ID tags moving in and through multiple
excitation fields on the work room floor will create extraneous records
during acceptance testing. The only records which will be considered
for acceptance purposes are those deliberately created and recorded for
the test.
5.b. OTR TEST. The tray containing the test pieces will be placed
directly on the aluminum floor of a piece of mail transport equipment
commonly known as an 'over the road' container, or OTR. The subject
tray will then be covered by three feet of loose packed letters or
flats, or a combination of the two, and transported through the tag
readers excitation field at a speed of at least two and not greater
than three meters per second.
- Immediately prior to moving the OTR containing the selected ID
tags into the excitation field of the tag reader being tested,
the persons conducting the test will refer to the hand held
device to determine the time at which the ID tag(s) enter the
excitation field.
- The USPS representative will record the PIN and detect time as
indicated by the hand held device as the time at which the OTR
moved into the excitation field of the reader being tested.
- The OTR containing the ID tags will be moved through and out
of the excitation field, and the USPS representative will
record the clock time of the departure, as indicated by the
hand held device.
- The tag reader must separately identify and store the ID tags'
PINS, with the correct ingress and egress dates and times in a
file named usps.out. When the test is concluded, the
participants will use a personal computer to dial up the
system gateway and download the usps.out file containing all
the records for all tag readers which were tested.
- The USPS requires the time stamps on the records to be plus
or minus one minute of the ingress and egress times noted on
the test log sheet.
All twelve ID tags must be separately identified and stored in a file named
usps.out.- The USPS recognizes that live ID tags moving in and through multiple
excitation fields on the work room floor will create extraneous records during
acceptance testing. The only records which will be considered for acceptance
purposes are those deliberately created and recorded for the test.
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A successful download of reader acceptance test records from each of a
facilities installed tag readers will demonstrate that all tag readers are
properly installed, the radio LAN is established and the protocols are correctly
set, and that the tag readers are detecting and storing records.
6. DEMONSTRATING THE REDUNDANT COMMUNICATIONS LOOP.
After all the tag readers have been tested and accepted, and prior to deleting
any of the test records, the contractor will initiate a normal program upload.
The end of upload report will be displayed, and the number of records uploaded
by each reader will be summed and displayed at the end of the upload report. If
all readers are functioning normally, there will be no exception reports, which
can be identified by the system message "No communication with xx" appended to
the end of a given reader's upload record. The indicator "xx" is the identity
number of a tag reader in the facility being tested. If communication exceptions
are detected at this test level, those exceptions must be corrected before
proceeding onto the demonstration of the redundant communications loop.
Following the successful demonstration upload, one tag reader will be turned
off, its identity number, xx, separately noted, and the total number of records
uploaded in the first test will be noted. Following this, the contractor will
initiate a normal upload to a PC. The end of upload report will again be
examined, and the total number of records in the second upload will be summed
and compared to the total number of records contained in the first upload.
Proof of establishment of a redundant communications loop will be demonstrated
in the following manner:
1. The end of upload transaction report will name the reader which had
been turned off, and the following message will be displayed:
"No communication with: "xx" Where xx equals the identity number of
the reader which was turned off in order to conduct the test.
2. The total number of records uploaded on the second attempt will be
equal to the number of records uploaded in the first case minus the number of
records contained in the tag reader which had been turned off.
IX. REQUIRED RECORD KEEPING.
The participants will maintain a record of acceptance testing in the form of a
log sheet. The original will be retained in custody of the USPS. The test
document need not be standardized, but mu s t contain the following information
for each location:
1. Location:
2. Date:
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3. Test type: (hamper or OTR)
4. Tag's permanent identification number (PIN)
5. Tag reader's identification number.
6. Ingress time (hh:mm) at which the ID tag is powered on within, or moved
into a tested reader's excitation field.
7. Egress time (hh:mm) at which the ID tag moves out of the tested reader's
excitation field.
8. Distance from reader when powered on. This may be done by using al LED which
turns on at the time a wake-up signal is received. The distance may be
approximated by any mutually agreed upon method, such as by pacing off the
distance, or by using a tape measure.
9. Indicator for motion or static condition. If moving, provide a narrative
description of motion, that is, a brisk walk, towed by a powered vehicle,
and giving the approximate speed in feet per second.
Following the hamper and OTR tests, the file usps.out will be examined, and the
observations will be compared to the ID numbers on test log sheet.
If the PIN numbers, ingress times and egress times for eleven or twelve of the
records on the log sheets match the same data elements recorded in the usps.out
file, the test is successfully passed, and the production ID tags will be
accepted for payment.
If eight or nine or ten of the twelve records on the log sheet completely and
correctly match the same data elements in the file usps.out, the test is deemed
inconclusive and will be retaken. Twelve new ID tags will be randomly selected
in the manner described above. The retest requires that on the second attempt,
all twelve records' PIN numbers, ingress and egress times be separately detected
and recorded into usps.out, and that each of the data elements (PIN, ingress
time and egress time) matches the data elements recorded on the test log sheets,
subject to the plus or minus one minute rule given above.
If, on the retest, fewer than eight of the ID tag records are stored on
usps.out, I.D. Systems will be given the opportunity to recalibrate the tag
reader(s) prior to a final retest. If the tag reader, or a component circuit
board fails during the acceptance test, it may be replaced with a fully
functional board at I.D. Systems expense. If the tag reader is fully functional,
and on retesting, subsequently fails to read all twelve out of twelve records,
the acceptance test will be failed, and the entire lot of 100 ID tags from which
the sample of twelve pieces was drawn will be rejected.
IX.A REQUIRED CERTIFICATION OF INSTALLATION.
Upon completion of acceptance testing for each tag reader, the contractor shall
certify that the installation has been completed, acceptance testing has been
performed, and the tag reader is functioning according to specifications. If the
facility is a multi-reader facility, the contractor, or his designated
representative will also test and certify that the radio LAN is fully functional
to original
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specifications. The contractor will furnish the original acceptance testing
certification documents to the USPS representative.
The USPS will not conduct acceptance testing or certify installation. Conduct of
acceptance testing is the contractors responsibility.
X. BASIC DATA RECORD.
This section consolidates and incorporates all previously made software changes
and provides for creation of two additional data elements during IO tag
programming, and the modification of one existing data element. The changes
desired are:
1. The field named Origin_SCF will be renamed to ORIG_ZIP, and shall be
redefined from three alphanumeric characters in length to five alphanumeric
characters in length. Leading zeroes are required to be displayed.
2. Add a new data field, named MAIL_CLASS, one alphanumeric character in length.
This data element must be user selectable from a pull down menu during
the tag burn process, and the chosen field value must remain as the
default value until it is changed. At the beginning of any new tag burn
session, the software must display the current default mail piece
demographic values on the screen in the form of a notice which says:
THESE ARE THE CURRENT MAIL PIECE VALUES: ORIG_ZIP: __
DEST_ZIP: __
MAIL_ CLASS __
SHAPE:
INDUCTION DATE: __
SERVICE COMMITMENT: __
Where pull down menus are required, they will be accessible by clicking in the
data element value. The selectable values for the new fields are:
Field Name Value Extended name
Mail-Class: 1 FCM (default)
2 Priority Mail
3 Express Mail
4 Parcel Post
5 Standard Mail
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3. Add a new data field, named SHAPE, one alphanumeric character in
length, with selectable values given below.
Field Name Value Extended name
Shape 1 Letter (default)
2 Flat
3 Parcel
4 Small Parcel (jiffy bag)
5 Identified Letter
6 Identified Flat
7 Identified Parcel
Notation is made here of the Year 2000 requirements included
in the solicitation document.
XI. CONTRACTING OFFICER'S REPRESENTATIVE.
Glenn McDonald is hereby designated as the Contracting Officer's Representative
(COR). The COR may be changed at any time by the Postal Service without prior
notice to the contractor, but notification of the change, including the name and
address of the successor COR, will be promptly provided to I.D. Systems by the
contracting officer in writing.
The COR is located at: 475 L'Enfant Plaza SW, Room 6631
Washington DC 20260-1602
The COR's telephone number is: (202) 268-2300.
The responsibilities and limitations of the COR are as follows:
A. The COR is responsible for the technical aspects of the project and
technical liaison with the contractor. The COR is also responsible for the final
inspection and acceptance of all reports and has such other responsibilities as
may be specified in the contract.
B. Deliverable articles. Payment for deliverable articles will be made
upon completion of acceptance testing for the articles as they are delivered.
There are two classes of deliverable articles:
1. Off the shelf goods and services for which payment can be made upon
delivery. This category also includes license fees, third party electrical
subcontractors' charges for wiring installations performed and accepted, and
preparation of installation plans for particular sites.
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2. Installed hardware which requires acceptance testing and
certification prior to payment.
Invoices for off the shelf hardware and services should be submitted separately
from acceptance tested hardware. All invoices will reference the CLINs for which
payment is requested. I.D. Systems shall submit monthly invoices for costs
incurred and work performed in the prior month before the fifteenth day of the
subsequent month.
I.D. Systems will send invoice(s) to the following address for payment:
Glenn McDonald
Room 6631
475 UEnfant Plaza SW
Washington DC 20260-2209
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ATTACHMENT I
FACILITIES AND LOCATIONS.
Tag reader installation locations for which site surveys and installation plans
are required.
1. Allegheny Area.
South Jersey P&DC Philadelphia AMC
421 Benigno BLVD. 1000 Tinicum Island RD
Bellmawr NJ 08099 Philadelphia PA 19153
2. Great Lakes Area
Royal Oak P&DC Detroit AMC
1600 E Big Beaver RD Metropolitan Airport
Royal Oak MI 48083 Building 515
Detroit MI 48242
3. Mid-Atlantic Area
Richmond P&DC Richmond AMC
1801 Brook RD 5251 Air Express RD
Richmond VA 23232 Richmond VA 23250
4. Midwest Area
St Paul P&DC Twin Cities AMC
100 S First ST 5000 Green Lane
St Paul MN 55401 St. Paul, MN 55111
5. New York Metro Area
Morgan P&DC Kennedy AMC
341 Ninth AV Building 250, JFK Int'l Airport
New York NY 10199 Jamaica NY 11430
6. Northeast Area
Providence P&DC Logan AMC
24 Corliss ST 139 E. Harborside DR
Providence RI 02904 East Boston MA 02128
7. Pacific Area
San Francisco P&DC San Francisco AMC 1300
Evans AV 660 Road 6
San Francisco CA 94128 San Francisco CA 94188
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8. Southeast Area
Tampa P&DC Tampa has no separate AMC.
5201 W Spruce ST
Tampa FL 33630
9. Southwest Area
Houston P&DC Houston AMC
401 Franklin ST 3225 Will Clayton PKWY
Houston TX 77201 Houston TX 77032
10. Western Area
Portland P&DC Portland AMF
715 NW Hoyt ST 7640 NE Airport Way
Portland OR 97208 Portland OR 97238
11. Indianapolis HASP
Indianapolis HASP
2475 S. Hoffman Road
Indianapolis In 46142-3737
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ATTACHMENT II.
DO-160C CERTIFIED TESTING LABORATORIES.
1. Dayton T. Brown
Church Street
Bohemia NY 11716
Contact: Rick Gainor, 516-589-6300
2. R & B Enterprises
20 Clipper RD
West Conshohocken PA
Contact: Jim Press, 610-825-1960 x 228
3. Radio Metrics
55 W 22nd St.
Lombard IL 60148
Contact: Dennis Rollinger, 630-932-7262
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Attachment III
Existing Phase I sites.
Baltimore Plant
900 East Fayefte ST
Baltimore MD 21233
Govans Station
4904 York RD
Baltimore MD 21212
Mt Washington Station
5730 Cottonworth RD
Baltimore MD 21209
Waverly Station
3000 Homewood AVE
Baltimore MD 21218
Main Post Office
7596 Ritchie HWY
Glen Burnie MD
Main Post Office
55 Mayo RD
Edgewater MD 21037
Southern Maryland Plant
9201 Edgeworth DR
Capitol Heights MD 20790
Main Post Office
14100 Brandywine RD
Brandywine MD 20613
Main Post Office
4325 Gallatin ST
Hyattsville MD 20780
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Main Post Office
150 Post Office RD
Waldorf MD 20601
Main Post Office
11301 Rhode Island AVE
Beltsville MD 20705
Main Post Office
6316 Oxon Hill RD
Oxon Hill MD 20745
Suburban Maryland Plant
16501 Shady Grove RD
Gaithersburg MD 20898
Main Office
12774 Wisteria DR
Germantown MD 20874
Diamond Farms Station
23 First Field RD
Germantown MD 20878
West Bethesda Station
9601 Seven Locks RD
West Bethesda MD 20817
Main Post Office
7400 Wisconsin AVE
Bethesda, MD 20814
Main Post Office
3570 Olney-Laytonsville RD
Olney MD 20832
Washington DC Plant
900 Brentwood RD NE
Washington DC 20066
Ward Place Station
2121 Ward Place NW
Washington DC 20006
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Southwest Station
45 L ST SW
Washington DC 20024 (202)
Friendship Station
4005 Wisconsin AVE NW
Washington DC 20016
Twentieth St Station
2001 M ST NW
Washington DC 20036
V Street Station
3300 V ST NE
Washington DC 20008
Northern Virginia Plant
8409 Lee HWY
Merrifield VA 22081
Park Fairfax Station
3682 King ST
Alexandria VA 22302
Main Post Office
3951 Chain Bridge RD
Faidax, VA 22030
Trade Center Station
340 S Pickett ST
Alexandria VA 22314
Main Post Office
301 W Broad St
Falls Church VA 22043
Eads St Station
1720 S Eads ST
Arlington VA 22202
Dulles P&DC
44715 Prentice DR
Dulles VA 20101
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Washington Dulles AMF San Francisco AMC
Bldg 660 RD 6 19 West Service RD
Dulles VA 20102 Francisco CA 94128
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ATTACHMENT IV
PRIORITY MAIL PROCESSING CENTERS
Orlando Priority Mail Processing Center
2000 E. Landstreet Road
Orlando FL 32809
Newark Priority Mail Processing
1200 Harrison
Kearny NJ 07032
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ATTACHMENT II -- SOLICITATION 102590-97-A-0118
CLAUSE 1-13, YEARWARRANTY - NONCOMMERCIAL ITEMS
The supplier warrants that each noncommercial item of
hardware, software, and firmware delivered or developed under
this contract and listed below ("listed below" refers to items
that the supplier has identified as being Year 2000 compliant
in response to the solicitation) will be able to accurately
process date data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the
twentieth and twenty-first centuries, including leap year
calculations, when used in accordance with the item
documentation provided by the supplier, provided that all
listed or unlisted items (e.g., hardware, software, firmware)
used in combination with such listed items properly exchange
date data with it. If the contract requires that specific
listed items must perform as a system in accordance with the
foregoing warranty, then that warranty will apply to those
listed items as a system. The duration of this warranty and
the remedies available to the Postal Service for breach of
this warranty will be as defined in, and subject to, the terms
and limitations of any general warranty provisions of this
contract, provided that notwithstanding any provisions to the
contrary in such warranty provision(s), or the absence of any
such warranty provision(s), the remedies available to the
Postal Service under this warranty will include repair or
replacement of any listed whose noncompliance is discovered
and made known to the supplier in writing within 90 days after
acceptance. Nothing in this warranty will be construed to
limit any rights or remedies the Postal Service may otherwise
have under this contract with respect to defects other than
Year 2000 performance.
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ATTACHMENT III
CONTRACT NO.
Maintenance and Support
Shall be provided Monday through Friday, general business hours. Includes both
telephone land on- site support to be billed and invoiced in accordance with the
Payment and Funding Section of the solicitation/contract at I.D. Systems, Inc.
standard hourly rates.
Time and Material Rates
Vice President, Software Engineering $200.00
Software Engineering Manager $175.00
Vice President, Hardware Engineering $200.00
Senior Digital Engineer $150.00
Senior RF. Engineer $150.00
Customer Support $100.00
Test/Production Engineer $ 75.00
Associate Engineer/Engineer Coordinator $ 75.00
Site Survey/Installation/Maintenance Technician $ 60.00
Test Technician $ 60.00
Quality Inspector $ 55.00
Assembler/Operator $ 50.00
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<TABLE>
<CAPTION>
U.S. POSTAL SERVICE: CONTRACT/ORDER MODIFICATION
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<S> <C> <C> <C>
1. MODIFICATION NO.: M01 TO CONTACT/ORDER NO: 102590-97-Z-2527
2. a. DATE ISSUED: 05/12/98 b. REQUEST NO.: 9806182
c. FINANCE NO.: 66-0188
---------------------------------------------------------------------------------------------------------------------------
3. CONTRACTOR: 4. ISSUED BY:
ID SYSTEMS INC U.S. Postal Service
ONE SILICON ALLEY Purchasing Room 4541
90 WILLIAM STREET 475 L'Enfant Plaza SW
NEW YORK 10038 NY 10003-9518 Washington DC 20260-6239
ATTENTION: FOR INFORMATION CALL:
(212) 677-3800 Ted E. Howard
(202) 268-6298
ACO CODE: 52106
</TABLE>
5. The above numbered contract/order is modified as set forth in Block 6, by
modification issued pursuant to authority of MUTUAL AGREEMENT.
The contractor is required to sign and return 3 copy/copies of this
modification to the Issuing Office (See (Block 4).
-------------------------------------------------------------------------
6. DESCRIPTION OF MODIFICATION:
GENERAL INTENT:
THE PURPOSE OF THIS MODIFICATION IS TO RESTORE FUNDING DUE TO
BUDGETARY CONSTRAINTS AND TO ADD BATTERIES TO THE CONTRACT.
ADDITIONALLY, CLINS AND DESCRIPTIONS ARE ADDED TO CLARIFY
TASKS AND OTHER DELIVERABLES.
(SEE ATTACHMENT BEGINNING ON PAGE 2)
Except as provided herein, all terms and conditions of the document referenced
in Block 1, as heretofore changed,
-------------------------------------------------------------------------
7. ACCOUNTS PAYABLE DATA is changed, see BELOW.
Previous Grand Total : $3,836,526.00
Value of Modification : $ 976,160.00
New Grand Total : $4,812,686.00
New Net Total (less discounts) : $4,812,686.00
-------------------------------------------------------------------------
8. SIGNATURES: CONTRACTOR U.S. POSTAL SERVICE
/s/ Jeffrey Jagid 5/12/98 /s/ T.L. Eckert 05/12/98
-------------------- --------- ---------------- --------
Signature Date Signature Date
Jeffrey Jagid Exec VP T.L. Eckert
------------------------- ------- ---------------------------
Name of Person Authorized Title Name of Contracting Officer
to Sign
<PAGE>
PART 1 - SCHEDULE
SECTION A - ITEMS AND PRICES
IN SECTION A.1, ITEMS AND PRICES
- --------------------------------
<TABLE>
<CAPTION>
ADD the following in its entirety:
The contractor shall provide the following products and deliverables at
the following prices:
<S> <C> <C> <C> <C> <C> <C>
UNIT
ITEM IDSYS PRICE
NO. NO. SUPPLIES/SERVICE QUALITY UNIT ($) TOTAL
001 IA1 Flextags, IIIA* 5000 EA 262. 1,310,000.
01A Batteries 60000 EA 8. 480,000.
002 IA3 System Monitors, II.C.1 875 EA 990. 866,250.
003 IA4 Flextag Programmers, III.D 225 EA 1,310. 294,750.
004 IA5 Gateways w/Modem, III.C.2 40 EA 1,380. 55,200.
005 IA6 SM Spares, III.E 10 EA 750. 7,500.
05A SM to Gateway Conversion Kits 75 EA 395. 29,625.
006 IA7 Flextag Programming Software License 40 EA 938. 37,500.
007 IA8 Data Collection/Upload Software License per Area 10 EA 7,500. 75,000.
008 IA9 Gateway, System Monitor & Flextag Software License 1 LOT 68,750.
SUBTOTAL 3,224,595.
009 IA10 FIXED FEE, 8% 257,968.
010 IIA1 Functional Test Development & Fixture Rental 3 EA 22,956. 68,868.
Assemblies, III.G
011 IIA2 In-Circuit Test Development Fixtures, III.G 3 EA 9,925. 29,775.
012 IIA3 Board Layouts/Agency Approvals, III.G 3 EA 26,580. 79,740.
013 IIA4 Process Development/Setups, III.G 3 EA 7,865. 23,595.
014 IIA5 GW/SW Power Supply Development, III.G 1 EA 11,165. 11,165.
015 IIA6 SM/Gateway Enclosure Tooling, III.G 1 EA 29,100. 29,100.
016 IIA7 Potting Process Development & Fixtures, III.G 1 EA 36,150. 36,150.
017 IIB2 Site Survey/City, III.H,I 10 EA 7,360. 73,600.
018 IIB2 DC Area Revised Site Survey & Retrofit 1 EA 14,350. 14,350.
019 IIB3 SM &GW Install & Training/City, III.K, L, M 10 EA 12,100. 121,000.
020 IIB4 Users Manuals, III.N 1 SET 46,800.
021 IIB5 End User Install Instructions 1 SET 6,600.
022 IIC1 Full Floor Coverage, Morgan Real Time, I.a 1 TASK 190,500.
023 IIC2 Real Time Clock, I.b 1 TASK 24,000.
024 IIC3 PRN (TCP/IP) Adapter Card, I.e 1 TASK 165,300.
24A 45 Day Battery Life Development 1 TASK 64,100.
<PAGE>
UNIT
ITEM IDSYS PRICE
NO. NO. SUPPLIES/SERVICE QUALITY UNIT ($) TOTAL
025 IIC5 Modify Tag Burn Software, I.g 1 TASK 26,900.
026 IIC6 User Software, IV.a 1 TASK 76,900.
027 IIC7 Operating System Protocols, 1.c,IV.b 1 TASK 69,200.
028 IIC8 Redundant Communications Loop, I.d. 1 TASK 53,800.
029 IID Maintenance & Support 1 TASK 118,680.
SUBTOTAL, T&M 1,330,123.
TOTAL FIXED COST PLUS FIXED FEE & T&M 4,812,686.
</TABLE>
NOTES:
1. All unit prices shall be FOB Origin.
2. All unit prices shall include warranties as described in Sec. VI of the SOW.
3. The period of performance shall be one (1) year from award date with option
to extend.
4. Unit Cost of items 001-008 includes direct labor, overhead, general and
administrative costs.
5. Contract prices do not include any contingency for after-imposed Federal,
State or Local taxes.
6. Batteries to be delivered as specified by COR and also to be included at part
of Flextag deliveries.
<PAGE>
<TABLE>
<CAPTION>
U.S. POSTAL SERVICE: CONTRACT/ORDER MODIFICATION
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. MODIFICATION NO.: M02 TO CONTACT/ORDER NO.: 102590-97-Z-2527
2. a. DATE ISSUED: 09/08/98 b. REQUEST NO.: 98-08877
c. FINANCE NO.: 660188
---------------------------------------------------------------------------------------------------------------------------
3. CONTRACTOR: 4. ISSUED BY:
ID SYSTEMS INC U.S. Postal Service
ONE SILICON ALLEY Purchasing Room 4541
90 WILLIAM STREET 475 L'Enfant Plaza SW
NEW YORK 10038 NY 10003-9518 Washington DC 20260-6239
ATTENTION: FOR INFORMATION CALL:
(212) 677-3800 Ted E. Howard
(202) 268-6298
ACO CODE: 660188
</TABLE>
- --------------------------------------------------------------------------------
5. The above numbered contract/order is modified as set forth in Block 6, by
modification issued pursuant to authority of MUTUAL AGREEMENT. The
contractor is required to sign and return 3 copy/copies of this
modification to the Issuing Office (See (Block 4).
- --------------------------------------------------------------------------------
6. DESCRIPTION OF MODIFICATION:
GENERAL INTENT:
THE PURPOSE OF THIS MODIFICATION IS TO ACQUIRE ADDITIONAL
HARDWARE, ADD FUNDING FOR FY 1999 FOR SELECTED ACTIVITIES, AND
TO FUND PRE-PRODUCTION MODELS OF IMPROVED ANTENNA DESIGN AND
THE ADDITION OF LED'S (LIGHT EMITTING DIODES) TO SYSTEM
MONITORS.
(SEE ATTACHMENT BEGINNING ON PAGE 2)
Except as provided herein, all terms and conditions of the document referenced
in Block 1, as heretofore changed,
- --------------------------------------------------------------------------------
remain unchanged and in full force and effect.
7. ACCOUNTS PAYABLE DATE is changed, see BELOW.
Previous Grand Total : $4,812,686.00
Value of Modification : $1,919,060.00
New Grand Total : $6,731,746.00
New Net Total (less discount) : $6,731,746.00
-----------------------------------------------------------------------
8. SIGNATURES: CONTRACTOR U.S. POSTAL SERVICE
/s/ Jeffrey M. Jagid 9/9/98 /s/ Mark E. Bacon 09/9/98
Signature Date Signature Date
Jeffrey M. Jagid COO/Gen. Counsel Mark E. Bacon
Name of Person Authorized Title Name of Contracting Officer
to Sign
<PAGE>
U.S. POSTAL SERVICE: CONTRACT/ORDER MODIFICATION
- --------------------------------------------------------------------------------
1. MODIFICATION.: M03 TO CONTRACT/ORDER NO.: 102590-97-Z2527
2. a. DATE ISSUED: February 8, 1999 b. REQUEST NO.:
c. FINANCE NO:
- --------------------------------------------------------------------------------
3. CONTRACTOR: 4. ISSUED BY:
ID Systems Inc. OPERATIONAL EQUIPMENT
90 William Street HEADQUARTERS PURCHASING
New York NY 10003-9518 U S POSTAL SERVICE
475 LENFANT PLZ SW STE 4541
WASHINGTON DC 20260-6239
ATTENTION: Jeffrey Jagid FOR INFORMATION CALL:
Susan Coelus
(202) 268-7919 FAX (202) 268-3888
ACO CODE: 102594
- --------------------------------------------------------------------------------
5. The above numbered contract/order is modified as set forth in Block 6. by
supplemental agreement entered pursuant to the authority of Changes Clause. The
contractor is required to sign and return three copies of this modification to
the issuing office (See Block 4).
- --------------------------------------------------------------------------------
6. DESCRIPTION OF MODIFICATION:
The purpose of this modification is to: change various tag reader
installation sites and incorporate four additional tag reader sites and
extend the period of performance through September 30, 2000.
See Pages 2 and 3.
Except as provided herein, all terms and conditions of the document referenced
in Block 1, as heretofore changed, remain unchanged and in full force and
effect.
- --------------------------------------------------------------------------------
7. ACCOUNTS PAYABLE DATA is changed, see below.
Previous Grand Total : $6,731,746.00
Value of Modification : N/A
New Grand Total : N/A
New Net Total (less discounts) : N/A
- --------------------------------------------------------------------------------
8. SIGNATURES CONTRACTOR U.S. POSTAL SERVICE
/s/Jeffrey Jagid 3/5/99
---------------- ------ ------------- ----
Signature Date Signature Date
MARK E. BACON
Jeffrey Jagid COO
- --------------------------------- ---- ----------------------------
Name of Person Authorized to Sign Title Name of Contracting Officer
<PAGE>
Contract No. 102590-97-Z-2527,M03
Page 2 of 3
A. The following Contract Line Items (CLINs) are incorporated and are
included in the NTE contract cost:
CLIN LOCATION COST
- --------------------------------------------------------------------------------
8032 Ft. Myers P & DC $7,360.00
14080 Jetport Loop
Ft. Myers Fl 33913
8033 Orlando P & DC $7,360.00
10401 Post Office Blvd.
Orlando FL 32862
8034 Lakeland P & DC $7,360.00
2800 Lakeland Hills Blvd.
Lakeland FL 33805
9420 Beaumont P & DC $7,360.00
5815 Walden Rd.
Beaumont TX 77707
B. Providence, RI locations are deleted and replaced with Boston, MA locations
as follows.
CLIN LOCATION
- -----------------------------------------------------------
6000 Boston P & DC
25 Dorchester Ave.
Boston MA 02205-9750
6001 Northwestern Boston P & DC
200 Smith St.
Waltham MA 02451-0002
6002 Northern Incoming Mail Center (IMC)
307 Beachman St.
Chelsea MA 02150
6003 Lexington Branch
1661 Massachusetts Ave.
Lexington MA 02420
6004 Malden Branch
109 Mountain Ave.
Malden MA 02148
6005 Newtonville Branch
897 Washington St.
Newtonville MA 02460
6006 Quincy Branch
47 Washington St.
Quinicy MA 02169
6007 Roxbury DMU
55 Roxbury St.
Roxbury MA 02119
6008 Waltham Branch
200 Smith St.
Waltham MA 02451
<PAGE>
Contract No. 102590-97-Z-2527,M03
Page 3 of 3
CLIN LOCATION
- ---------------------------------------------------
6009 Allston Station
47 Harvard Ave.
Allston MA 02154
6010 Black Bay Station
390 Stuart St.
Boston MA 02117
6011 Braintree DMU
333 Commerce Park Dr.
Braintree MA 02184
6012 Brighton Station
424 Washington St.
Brighton MA 02135
6013 Brookline Branch
1295 Beacon St.
Brookline MA 02446
6014 Chestnut Hill Branch
12 Middlesex Rd.
Chestnut Hill MA 02467
C. The following administrative changes/corrections are incorporated in the
Tag Reader Installation Sites listing provided at Modification M02:
1. CLIN 3025: not used.
2. CLIN 5128: not used.
3. CLIN 5129: not used.
4. CLIN 9412 Klein Station is hereby changed to CLIN 9500.
5. CLIN 9415 First Colony Station is hereby changed to CLIN 9501.
6. CLIN 11003 Centreville Main Office is hereby changed to CLIN 11010.
7. CLIN 10010 Sterling Main Office, is hereby changed to CLIN 110011.
8. CLIN 10011 Alexandria Main Office, is hereby changed to CLIN 110012.
9. CLIN 10012 Burke Station, is hereby changed to CLIN 110013.
10. CLIN 10013 Preston King Station, is hereby changed to CLIN 110014.
11. CLIN 10014 Woodbridge DDU, is hereby changed to CLIN 110015.
12. CLIN 10015 Community Branch, is hereby changed to CLIN 110016.
13. CLIN 10016 Alexandria Annex, is hereby changed to CLIN 110017.
D. The period of performance of the contract is hereby extended to September 30,
2000 for maintenance and support requirements in accordance with the statement
of work. Line Item 032 is hereby incorporated to Schedule A to cover further
installation and support requirements. Funding will be issued on delivery orders
written against Line Item 32.
EXHIBIT 10.4
STANDARD FORM OF OFFICE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
AGREEMENT OF LEASE,
made as of this 30th day of September, 1997, between Tov LLC party of the first
part, hereinafter referred to as OWNER, and I.D. Systems, Inc. (a Delaware
corporation currently located at 740 Broadway, New York, NY) party of the second
part, hereinafter referred to as TENANT.
WITNESSETH:
Owner hereby leases to Tenant and Tenant hereby hires from Owner part
of the fourth floor designated as Suite 402 and 403 in the building known as 90
William Street in the Borough of Manhattan, City of New York (the "Building"),
for the term of five (5) years three (3) months and seventeen (17) days (or
until such term shall sooner cease and expire as hereinafter provided) to
commence on the fifteenth (15th) day of December, 1997 and to end on the
thirty-first (31st) day of March, 2003 (the "Expiration Date"), both dates
inclusive, at an annual rate of (see Article 60) which Tenant agrees to pay in
lawful money of the United States which shall be legal tender in payment of all
debts and dues, public and private, at the time of payment, in equal monthly
installments in advance on debts and dues, public and private, at the time of
payment, in equal monthly installments in advance on the first day of each month
during said term, at the office of the Owner or such other place as the Owner
may designate, without any set off or deduction whatsoever, except that Tenant
shall pay the first one (1) monthly installment(s) on the execution hereof
(unless this lease be renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
1. Rent: Tenant shall pay the rent as above and as hereinafter
provided (see Article 60).
2. Occupancy: Tenant shall use and occupy demised premises for
(see Article 64).
3. Tenant Alterations:
Tenant shall make no changes in or to the demised premises of
any nature without Owner's prior written consent. Subject to the prior written
consent of Owner (1), and to the
<PAGE>
provisions of this article, Tenant, at Tenant's expense, may make alterations,
installations, additions or improvements which are non-structural and which do
not affect utility services or plumbing and electrical lines, in or to the
interior of the demised premises by using contractors or mechanics first
approved in each instance by Owner (2). Tenant shall, before making any
alterations, additions, installations or improvements, at its expense, obtain
all permits, approvals and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner and Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's compensations, general
liability, personal and property damage insurance as Owner may (3) require. If
any mechanic's lien is filed against the demised premises, or the building of
which the same forms a part, for work claimed to have been done for, or
materials furnished to, Tenant, whether or not done pursuant to this article,
the same shall be discharged by Tenant within thirty days thereafter, at
Tenant's expense, by payment or filing the bond required by law. All fixtures
and all paneling, partitions, railings and like installations, installed in the
premises at any time, either by Tenant or by Owner on Tenant's behalf, shall,
upon installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises. Nothing in this Article shall be
construed to give Owner title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be required by
Owner, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the building due to such removal. All property
permitted or required to be removed, by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed from
the premises by Owner, at Tenant's expense.
4. Maintenance and Repairs:
Tenant shall, throughout the term of this lease, take good
care of the demised premises and the fixtures and appurtenances therein. Tenant
shall be responsible for all damage or injury to the demised premises or any
other part of the building and the systems and equipment thereof, whether
requiring structural or nonstructural repairs caused by or resulting from
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
subtenants, agents, employees, invitees or licensees, or which arise out of any
work, labor, service or equipment done for or supplied to Tenant of any
subtenant or arising out of installation, use or operation of the property or
equipment of Tenant or any subtenant. Tenant shall also repair all damage to the
building and the demised premises caused by the moving of Tenant's fixtures,
furniture and equipment. Tenant shall promptly make, at Tenant's expense, all
repairs in and to the demised premises for which Tenant is responsible, using
only the contractor for the trade or trades in question, selected from a list of
at least two contractors per trade permitted by Owner. Any other repairs in or
to the building or the facilities and systems thereof for which Tenant is
responsible shall be performed by Owner at the Tenant's expense. Owner shall
maintain in good working order and repair the exterior and the structural
portions of the building, including the structural portions of its demised
premises, and the public portions of the building interior and the building
plumbing, electrical, heating and ventilating systems (to the extent
-2-
<PAGE>
such systems presently exist) serving the demised premises.(4) Tenant agrees to
give prompt notice of any defective condition in the premises for which Owner
may be responsible hereunder. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner or others
making repairs, alterations, additions or improvements in or to any portion of
the building or the demised premises or in and to the fixtures, appurtenances or
equipment thereof.(5) It is specifically agreed that Tenant shall not be
entitled to any setoff or reduction of rent by reason of any failure of Owner to
comply with the covenants of this or any other article of this Lease. Tenant
agrees that Tenant's sole remedy at law in such instance will be by way of an
action for damages for breach of contract. The provisions of this Article 4
shall not apply in the case of fire or other casualty which are dealt with in
Article 9 hereof.
5. Window Cleaning:
Tenant will not clean nor require, permit, suffer or allow any
window in the demised premises to be cleaned from the outside in violation of
Section 202 of the Labor Law or any other applicable law or of the Rules of the
Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
6. Requirements of Law, Fire Insurance, Floor Loads:
Prior to the commencement of the lease term, if Tenant is then
in possession, and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments, departments,
commissions and boards and any direction of any public officer pursuant to law,
and all orders, rules and regulations of the New York Board of Fire
Underwriters, Insurance Services Office, or any similar body which shall impose
any premises, arising out of Tenant's manner of use thereof, (including Tenant's
(6) permitted use) or, with respect to the building if arising out of Tenant's
manner of use of the premises or the building (including the (6) use permitted
under the lease). Nothing herein shall require Tenant to make structural repairs
or alterations unless Tenant has, by its manner of use of the demised premises
or method of operation therein, violated any such laws, ordinances, orders,
rules, regulations or requirements with respect thereto. Tenant may, after
securing Owner to Owner's (7) satisfaction against all damages, interest,
penalties and expenses, including, but not limited to, reasonable attorney's
fees, by cash deposit or by surety bond in an amount and in a company (8)
satisfactory to Owner, contest and appeal any such laws, ordinances, orders,
rules, regulations or requirements provided same is done with all reasonable
promptness and provided such appeal shall not subject Owner to prosecution for a
criminal offense or constitute a default under any lease or mortgage under which
Owner may be obligated, or cause the demised premises or any part thereof to be
condemned or vacated. Tenant shall not do or permit any act or thing to be done
in or to the demised premises which is contrary to law, or which will invalidate
or be in conflict with public liability, fire or other policies of insurance at
any time carried by or for the benefit of Owner with respect to the demised
premises or the building of which the demised premises form a part, or which
shall or might subject Owner to any liability or responsibility to any person
for
-3-
<PAGE>
property damage. Tenant shall not keep anything in the demised premises except
as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. Tenant shall pay all costs, expenses, fines, penalties, or
damages, which may be imposed upon Owner by reason of Tenant's failure to comply
with the provisions of this article and if by reason of such failure to the fire
insurance rate shall, at the beginning of this lease or at any time thereafter,
be higher than it the beginning of this lease or at any time thereafter, be
higher than it otherwise would be, then Tenant shall reimburse Owner, as
additional rent hereunder, for that portion of all fire insurance premiums
thereafter paid by Owner which shall have been charged because of such failure
by Tenant. In any action or proceeding wherein Owner and Tenant are parties, a
schedule or"make-up" of rate for the building or demised premises issued by the
New York Fire Insurance Exchange, or other body making fire insurance rates
applicable to said premises shall be conclusive evidence of the facts therein
stated and of the several items and charges in the fire insurance rates then
applicable to said premises. Tenant shall not place a load upon any floor of the
demised premises exceeding the floor load per square foot area which it was
designed to carry and which is allowed by law. Owner reserves the right to
prescribe the weight and position of all safes, business machines and mechanical
equipment. Such installations shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Owner's (9) judgement, to absorb
and prevent vibration, noise and annoyance.
7. Subordination:
This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
8. Property Loss, Damage:
Owner or its agents shall not be liable for any damage to
property of Tenant or of others entrusted to employees of the building, nor for
loss of or damage to any property of Tenant by theft or otherwise, nor for any
injury or damage to persons or property resulting from any cause of whatsoever
nature, unless caused by or due to the negligence (10) of Owner, its agents,
servants or employees. Owner or its agents will not be liable for any such
damage caused by other tenants or persons in, upon or about said building or
caused by operations in construction of any private, public or quasi public
work. If at any time any windows of the demised premises are temporarily closed,
darkened or bricked up (or permanently closed, darkened or bricked up, if
required by law) for any
-4-
<PAGE>
reason whatsoever including, but not limited to Owner's own acts, Owner shall
not be liable for any damage Tenant may sustain thereby and Tenant shall not be
entitled to any compensation therefor nor abatement or diminution of rent nor
shall the same release Tenant from its obligations hereunder nor constitute an
eviction. Tenant shall indemnify and save harmless Owner against and from all
liabilities, obligations, damages, penalties, claims, costs and expenses for
which Owner shall not be reimbursed by insurance, including reasonable attorneys
fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's
agents, contractors, employees, invitees, or licensees, of any covenant or
condition of this lease or the carelessness, negligence or improper conduct of
the Tenant, Tenant's agents, contractors, employees, invitees or licensees.
Tenant's liability under this lease extends to the acts and omissions of any
sub-tenant, and any agent, contractor, employee, invitee or licensee of any
sub-tenant. In case any action or proceeding is brought against Owner by reason
of any such claim, Tenant, upon written notice from Owner, will, at Tenant's
expense, resist or defend such action or proceeding by counsel approved by Owner
in writing, such approval not to be unreasonably withheld.
9. Destruction Fire and Other Casualty:
(a) If the demised premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give immediate notice thereof to
Owner and this lease shall continue in full force and effect except as
hereinafter set forth.
(b) If the demised premises are partially damaged or rendered
partially unusable (11) by fire or other casualty, the damages thereto shall be
repaired by and at the expense of Owner and the rent and other items of
additional rent, until such repair shall be substantially completed, shall be
apportioned form the day following the casualty according to the part of the
premises which is usable.
(c) If the demised premises are totally damaged or rendered
wholly unusable (11) by fire or other casualty, then the rent and other items of
additional rent as hereinafter expressly provided shall be proportionately paid
up to the time of the casualty and thenceforth shall cease until the date when
the premises shall have been repaired and restored by Owner (or sooner
reoccupied in part by Tenant then rent shall be apportioned as provided in
subsection (b) above), subject to Owner's right to elect not to restore the same
as hereinafter provided.
(d) If the demised premises are rendered wholly unusable or
(whether or not the demised premises are damaged in whole in part) if the
building shall be so damaged that Owner shall decide to demolish it or to
rebuild it, then, in any of such events, Owner may elect to terminate this lease
by written notice to Tenant, given within 90 days after such fire or casualty,
or 30 days after adjustment of the insurance claim for such fire or casualty,
whichever is sooner, specifying a date for the expiration of the lease, which
date shall not be more than 60 days after the giving of such notice, and upon
the date specified in such notice the term of this lease shall expire as fully
and completely as if such date were the date set forth above for the termination
of this lease and Tenant shall forthwith quit, surrender and vacate the premises
without prejudice however, to Landlord's rights and
-5-
<PAGE>
remedies against Tenant under the lease provisions in effect prior to such
termination, any rent owning shall be paid up to such date and any payments of
rent made by Tenant which were on account of any period subsequent to such date
shall be returned to Tenant. Unless Owner shall serve a termination notice as
provided for herein, Owner shall make the repairs and restorations under the
conditions of (b) and (c) hereof, with all reasonable expedition, subject to
delay s due to adjustment of insurance claims, labor troubles and causes beyond
Owner's control.(12) After any such casualty, Tenant shall cooperate with
Owner's restoration by removing from the premises as promptly as reasonably
possible, all of Tenant's salvageable inventory and moveable equipment,
furniture, and other property. Tenant's liability for rent shall resume five (5)
days after written notice form Owner that the premises are substantially ready
for Tenant's occupancy.
(e) Nothing contained hereinabove shall relieve Tenant from
liability that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, including Owner's obligation to restore under
subparagraph (b) above, each party shall look first to any insurance in its
favor before making any claim against the other party for recovery for loss or
damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery with respect to
subparagraphs (b), (d), and (e) above, against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The release
and waiver herein referred to shall be deemed to include any loss or damage to
the demised premises and/or to any personal property, equipment, trade fixtures,
goods and merchandise located therein. The foregoing release and waiver shall be
in force only if both releasors' insurance policies contain a clause providing
that such a release or waiver shall not invalidate the insurance. If, and to the
extent, that such waiver can be obtained only by the payment of additional
premiums, then the party benefiting form the waiver shall pay such premium
within ten days after written demand or shall be deemed to have agreed that the
party obtaining insurance coverage shall be free of any further obligation under
the provisions hereof with respect to waiver of subrogation. Tenant acknowledges
that Owner will not carry insurance on Tenant's furniture and/or furnishings or
any fixtures or equipment, improvements, or appurtenances removable by Tenant
and agrees that Owner will not be obligated to repair any damage thereto or
replace the same.
(f) Tenant hereby waives the provisions of Section 227 of the
Real Property Law and agrees that the provisions of this article shall govern
and control in lieu thereof.
10. Eminent Domain:
If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease and assigns to
Owner, Tenant's entire interest in any such award. Tenant shall have the right
to make an independent claim to the condemning authority for the value of
Tenant's moving expenses and personal property, trade fixtures and equipment,
provided Tenant is entitled pursuant to the terms of the lease to remove such
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property, trade fixture and equipment at the end of the term and provided
further such claim does not reduce Owner's award (13).
11. Assignment, Mortgage, Etc.:
Tenant, for itself, its heirs, distributees, executors,
administrators, legal representative, successor and assigns, expressly covenants
that it shall not assign, mortgage or encumber this agreement, nor underlet, or
suffer or permit the demised premises or any part hereof to be used by others,
without the prior written consent of Owner in each instance. Transfer of the
majority of the stock of a corporate Tenant or the majority partnership interest
of a partnership Tenant shall be deemed an assignment. If this lease be
assigned, or if the demised premises or any part thereof be underlet or occupied
by anybody other than Tenant, Owner may, after default by Tenant, collect rent
from the assignee, under-tenant or occupant, and apply the net amount collected
to the rent herein reserved, but not such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
12. Electric Current:
Rate and conditions in respect to submetering or rent
inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants a agrees that at all times its use of electric current shall not
exceed the capacity of existing feeders to the building or the risers or wiring
installations and Tenant may not use any electorial equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
13. Access to Premises:
Owners or Owner's agents shall have the right (but shall not
be obligated) to enter the demised premises in any emergency at any time, and,
at other reasonable times, to examine the same and make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to the demised premises or to any other portion of the building or
which Owner may elect to perform.(14) Tenant shall permit Owner to use and
maintain and replace pipes and conduits in and through the demised premises and
to erect new pipes and conduits therein provided they are concealed within the
walls, floor, or ceiling. Owner may, during the progress of any work in the
demised premises, take all necessary materials and equipment into said premises
without the same constituting an eviction nor shall the Tenant be entitled to
any abatement of rent while such work is in progress nor to any damages by
reason of loss or interruption of business or otherwise. Throughout the term
hereof Owner shall have the right to enter the demised premises at reasonable
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hours for the purpose of showing the same to prospective purchasers or
mortgagees of the building, and during the last six months of the term for the
purpose of showing the same to prospective tenants. If Tenants is not present to
open and permit an entry into the demised premises, Owner or Owner's agents may
enter the same whenever such entry may be necessary or permissible by master key
or forcibly (15) and provided reasonable care is exercised to safeguard Tenant's
property, such entry shall not render Owner or its agents liable therefor, nor
in any event shall the obligations of Tenant hereunder be affected. If during
the last month of the term Tenant shall have removed all or substantially of
Tenant's property therefrom Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligations hereunder.
14. Vault, Vault Space, Area:
No Vaults, vault space or area, whether or not enclosed or
covered, not within the property line or the building is leased hereunder,
anything contained in or indicated on any sketch, blue print or plan, or
anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or requisition be deemed constructive or actual eviction. Any tax,
fee or charge of municipal authorities for such vault or area shall be paid by
Tenant.
15. Occupancy:
Tenant will not at any time use or occupy the demised premises
in violation of the certificate of occupancy issued for the building of which
the demised premises are a part. Tenant has inspected the premises and accepts
them as is, subject to the riders annexed hereto with respect to Owner's work,
if any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record.
16. Bankruptcy:
(a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by the sending of a
written notice to Tenant within a reasonable time after the happening of any one
or more of the following events: (1) the commencement of a case in bankruptcy or
under the laws of any state naming Tenant as the debtor; or (2) the making by
Tenant of an assignment or any other arrangement for the benefit of creditors
under any state statute. Neither Tenant nor any person claiming through or under
Tenant, or by reason of any statute or order of court, shall thereafter be
entitled to possession of the premises demised but shall forthwith quit and
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surrender the premises. If this lease shall be assigned in accordance with its
terms, the provisions of this Article 16 shall be applicable only to the party
then owning Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall
forthwith,notwithstanding any other provisions of this lease to the contrary, be
entitled to recover from Tenant as and for liquidated damages an amount equal to
the difference between the rent reserved hereunder for the unexpired portion of
the term demised and the fair and reasonable rental value of the demised
premises for the same period. In the computation of such damages the difference
between any installment of rent becoming due hereunder after the date of
termination and the fair and reasonable rental value of the demised premises for
the period for which such installment was payable shall be discounted to the
date of termination at the rate of four percent (4%) per annum. If such premises
or any part thereof be re-let by the Owner for the unexpired term of said lease,
or any part thereof, before presentation of proof of such liquidated damages to
any court, commission or tribunal, the amount of rent reserved upon such
re-letting shall be deemed to be the fair and reasonable rental value for the
part or the whole of the premises so re-let during the term of the re-letting.
Nothing herein contained shall limit or prejudice the right of the Owner to
prove for and obtain as liquidated damages by reason of such termination, an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount be greater, equal to, or less than the amount
of the difference referred to above.
17. Default:
(1) If Tenant defaults in fulfilling any of the covenants of
this lease including the covenants for the payment of rent or additional rent;
or if the demised premises become vacant or deserted; or if any execution or
attachment shall be issued against Tenant or nay of Tenant's property whereupon
the demised premises shall be taken or occupied by someone other than Tenant; or
if this lease be rejected under ss.235 of Title 11 of the U.S. Code (bankruptcy
code); or if Tenant shall fail to move into or take possession of the premises
within thirty (30) days after the commencement of the term of this lease, then,
in any one or more of such events, upon Owner serving a written fifteen (15)
days notice upon Tenant specifying the nature of said default and upon the
expiration of said fifteen (15) days, if Tenant shall have failed to comply with
or remedy such default, or if the said default or omission complained of shall
be of a nature that the same cannot be completely cured or remedied within said
fifteen (15) day period, and if Tenant shall not have diligently commenced
curing such default within such fifteen (15) day period, and shall not
thereafter with reasonable diligence and in good faith, proceed to remedy or
cure such default, then Owner may serve a written five (5) days' notice of
cancellation of this lease upon Tenant, and upon the expiration of said five (5)
days this lease and the term thereunder shall end and expire as fully and
completely as if the expiration of such five (5) day period were the day herein
definitely fixed for the end and expiration of this lease and the term thereof
and Tenant shall then quit and surrender the demised premises to Owner but
Tenant shall remain liable as hereinafter provided.
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(2) If the notice provided for in (1) hereof shall have been
given, and the term shall expire as aforesaid; or if Tenant shall make default
in the payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension of this lease, Owner may cancel and terminate such
renewal or extension agreement by written notice.
18. Remedies of Owner and Waiver of Redemption:
In case of any such default, re-entry, expiration and/or
dispossess by summary proceedings or otherwise, (a) the rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess and/or
expiration, (b) Owner may re-let the premises or any part or parts thereof,
either in the name of Owner or otherwise, for a term or terms, which may at
Owner's option be less than or exceed the period which would otherwise have
constituted the balance of the term of this lease and may grant concessions or
free rent or charge a higher rental than that in this lease, and/or (c) Tenant
or the legal representatives of Tenant shall also pay Owner as liquidated
damages for the failure of Tenant to observe and perform said Tenant's covenants
herein contained, any deficiency between the rent hereby reserved and/or
covenanted to be paid and the net amount, if any, of the rents collected on
account of the lease or leases of the demised premises for each month of the
period which would otherwise have constituted the balance of the term of this
lease. The failure of Owner to re-let the premises or any part or parts thereof
shall not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner may incur in connection with re-letting, such as legal expenses,
reasonable attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or preparing the same for re-rental may, at owner's
option, make such alterations, repairs, replacements, and/or decorations in the
demised premises in good order or for preparing the same for re-letting. Any
such liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease and any suit brought to collect the amount of
the deficiency for any month shall not prejudice in any way the rights of Owner
to collect the deficiency for any subsequent month by a similar proceeding.
Owner, in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgement,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall
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have the right of injunction and the right to invoke any remedy allowed at law
or in equity as if re-entry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present or future laws in the event of Tenant being evicted or dispossessed for
any cause, or in the event of Owner obtaining possession of demised premises, by
reason of the violation by Tenant of any of the covenants and conditions of this
lease, or otherwise.
19. Fees and Expenses:
If Tenant shall default in the observance or performance of
any term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease after
notice if required and upon expiration of any applicable grace period if any,
(except in an emergency), then, unless otherwise provided elsewhere in this
lease, Owner may immediately or at any time thereafter and without notice
perform the obligation of Tenant thereunder. If Owner, in connection with the
foregoing or in connection with any default by Tenant in the covenant to pay
rent hereunder, makes any expenditures or incurs any obligations for the payment
of money, including but not limited to reasonable attorneys' fees, in
instituting, prosecuting or defending any action or proceeding, and prevails in
any such action or proceeding then Tenant will reimburse Owner for such sums so
paid or obligations incurred with interest and costs. The foregoing expenses
incurred by reason of Tenant's default shall be deemed to be additional rent
hereunder and shall be paid by Tenant to Owner within ten (10) days of rendition
of any bill or statement to Tenant therefore. If Tenant's lease term shall have
expired at the time of making of such expenditures or incurring of such
obligations, such sums shall be recoverable by Owner, as damages.
20. Building Alterations and Management:
Owner shall have the right at any time without the same
constituting an eviction and without incurring liability to Tenant therefore to
change the arrangement and/or location of public entrances, passageways, doors,
doorways, corridors, elevators, stairs, toilets or other public parts of the
building and to change the name, number or designation by which the building may
be known. There shall be no allowance to Tenant for diminution of rental value
and no liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner or other tenants making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
such controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
21. No Representations by Owner:
Neither Owner nor Owner's agents have made any representations
or promises with respect to the physical condition of the building, the land
upon which it is erected or demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to
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the premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition and
agrees to take the same "as is" and acknowledges that the taking of possession
of the demised premises by Tenant shall be conclusive evidence that the said
premises and the building of which the same form a part were in good and
satisfactory condition at the time such possession was so taken, except as to
latent defects. All understandings and agreements heretofore made between the
parties hereto are merged in this contract, which alone fully and completely
expresses the agreement between Owner and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
22. End of Term:
Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property. Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If the
last day of the term of this Lease or any renewal thereof, falls on Sunday, this
lease shall expire at noon on the preceding Saturday unless it be a legal
holiday in which case it shall expire at noon on the preceding business day.
23. Quiet Enjoyment:
Owner covenants and agrees with Tenant that upon Tenant paying
the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 31 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
24. Failure to Give Possession:
If Owner is unable to give possession of the demised premises
on the date of the commencement of the term hereof, because of the holding-over
or retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or for any other reason, Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the lease shall
not be impaired under such circumstances, nor shall the same be construed in any
wise to extend the term of this lease, but the rent payable hereunder shall be
abated (provided Tenant is not responsible for Owner's inability to obtain
possession or complete
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construction) until after Owner shall have given Tenant written notice that the
Owner is able to deliver possession in condition required by this lease. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the date
specified as the commencement of the term of this lease, Tenant covenants and
agrees that such possession and/or occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this lease except the obligation
to pay the fixed annual rent set forth in the preamble to this lease. The
provisions of this article are intended to constitute "an express provision to
the contrary" within the meaning of Section 223-a of the New York Real Property
Law.
25. No Waiver:
The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease or
of any of the Rules or Regulations, set forth or hereafter adopted by Owner,
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Owner of rent and/or additional rent with knowledge of the breach of
any covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner
of a lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance of such rent
or pursue any other remedy in this lease provided. No act or thing done by Owner
or Owner's agents during the term hereby demised shall be deemed an acceptance
of a surrender of said premises, and no agreement to accept such surrender shall
be valid unless in writing signed by Owner. No employee of Owner or Owner's
agent shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
26. Waiver of Trial by Jury:
It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any proceeding or action for
possession including a summary proceeding for possession of the premises, Tenant
will not interpose any counterclaim of whatever nature or description in any
such proceeding including a counterclaim under Article 4 except for statutory
mandatory counterclaims.
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27. Inability to Perform:
This Lease and the obligation of Tenant to pay rent hereunder
and perform all of the other covenants and agreements hereunder on part of
Tenant to be performed shall in no wise be affected, impaired or excused because
Owner is unable to fulfill any of its obligations under this lease or to supply
or is delayed in supplying any service expressly or impliedly to be supplied or
is unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures, or other materials if Owner is prevented or delayed from so doing by
reason of strike or labor troubles or any cause whatsoever including, but not
limited to, government preemption or restrictions or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions which have been or are affected, either
directly or indirectly, by war or other emergency.
28. Bills and Notices:
Except as otherwise in this lease provided, a bill, statement,
notice or communication which Owner may desire or be required to give to Tenant,
shall be deemed sufficiently given or rendered if, in writing, delivered to
Tenant personally or sent by registered or certified mail addressed to Tenant at
the building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
29. Services Provided by Owners:
As long as Tenant is not in default under any of the covenants
of this lease beyond the applicable grace period provided in this lease for the
curing of such defaults, Owner shall provide: (a) necessary elevator facilities
on business days from 8 a.m. to 6 p.m. and have one elevator subject to call at
all other times; (b) heat to the demised premises when and as required by law,
on business days from 8 a.m. to 6 p.m.; (c) water for ordinary lavatory
purposes, but if Tenant uses or consumes water for any other purposes or in
unusual quantities (of which fact Owner shall be the sole judge), Owner may
install a water meter at Tenant's expense which Tenant shall thereafter maintain
at Tenant's expense in good working order and repair to register such water
consumption and Tenant shall pay for water consumed as shown on said meter as
additional rent as and when bills are rendered; (d) cleaning service for the
demised premises on business days at Owner's expense provided that the same are
kept in order by Tenant. If, however, said premises are to be kept clean by
Tenant, it shall be done at Tenant's sole expense, in a manner reasonably
satisfactory to Owner and no one r than persons approved by Owner shall be
permitted to enter said premises or the building of which they are a part for
such purpose. Tenant shall pay Owner the cost of removal of any of Tenant's
refuse and rubbish from the building; (e) If the demised premises are serviced
by Owner's air
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conditioning/cooling and ventilating system, air conditioning/cooling will be
furnished to Tenant from May 15th through September 30th on business days
(Mondays through Fridays, holidays excepted) from 8:00 a.m. to 6:00 p.m., and
ventilation will be furnished on business days during the aforesaid hours except
when air conditioning/cooling is being furnished as aforesaid. If Tenant
requires air conditioning/cooling or ventilation for more extended hours or on
Saturdays, Sundays or on holidays, as defined under Owner's contract with
Operating Engineers Local 94-94A, Owner will furnish the same at Tenant's
expense. RIDER to be added in respect to rates and conditions for such
additional service; (f) Owner reserves the right to stop services of the
heating, elevators, plumbing, air-conditioning, electric, power systems or
cleaning or other services, if any, when necessary by reason of accident or for
repairs, alterations, replacements or improvements necessary or desirable in the
judgment of Owner for as long as may be reasonably required by reason thereof.
If the building of which the demised premises are a part supplies manually
operated elevator service, Owner at any time may substitute automatic control
elevator service and proceed diligently with alterations necessary therefor
without in any wise affecting this lease or the obligation of Tenant hereunder.
30. Captions:
The Captions are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this lease
nor the intent of any provisions thereof.
31. Definitions:
The term "office", or "offices", wherever used in this lease,
shall not be construed to mean premises used as a store or stores, for the sale
or display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Owner" means a landlord or
lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays,
Sundays and all days as observed by the State or Federal Government as legal
holidays and those designated as holidays by the applicable building service
union employees service contract or by the applicable Operating Engineers
contract with respect to HVAC service. Wherever it is expressly provided in this
lease that consent shall not be unreasonably withheld, such consent shall not be
unreasonably delayed.
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32. Adjacent Excavation-Shoring:
If an excavation shall be made upon land adjacent to the
demised premises, or shall be authorized to be made, Tenant shall afford to the
person causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Owner, or diminution or abatement of
rent.
33. Rules and Regulations:
Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as Owner
or Owner's agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manner as Owner may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision to the
New York office of the American Arbitration Association, whose determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within fifteen (15) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
34. Security:
Tenant has deposited with Owner the sum of $_________ as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this lease; it is agreed that in the event Tenant
defaults in respect of any of the terms, provisions and conditions of this
lease, including, but not limited to, the payment of rent and additional rent,
Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Owner may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency in the re-letting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to Owner.
In the event of a sale of the land and building or leasing of the building, of
which the demised premises form a part, Owner shall have the right to transfer
the security to the vendee or lessee and Owner shall thereupon be released by
Tenant from
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all liability for the return of such security; and Tenant agrees to look to the
new Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
35. Estoppel Certificate:
Tenant, at any time, and from time to time, upon at least 10
days' prior notice by Owner, shall execute, acknowledge and deliver to Owner,
and/or to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
36. Successors and Assigns:
The covenants, conditions and agreements contained in this
lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns. Tenant shall look
only to Owner's estate and interest in the land and building, for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) against Owner in the event of any default by Owner in the
event of any default by Owner hereunder, and no other property or assets of such
Owner (or any partner, member, officer of director thereof, disclosed or
undisclosed), shall be subject to levy, execution or other enforcement procedure
for the satisfaction of Tenant's remedies under or with respect to this lease,
the relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of
the demised premises.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed
and sealed this lease as of the day and year first above written.
Tov, LLC
Witness for Owner: By:
-------------------------------------
- ------------------------------
Witness for Tenant: I.D. Systems, Inc.
/s/ Patrick J. Curry By: /s/ Jeffrey M. Jagid 10-28-97
-------------------------------------
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ACKNOWLEDGMENTS
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of New York
On this 28th day of October 28, 1997, before me personally
came Jeffrey M. Jagid, to me know, who being by me duly sworn, did depose and
say that he resides in 250 Mercer Street, NY, NY; that he is the Executive V.P.
of I.D. Systems, Inc. the corporation described in and which executed the
foregoing instrument as OWNER; that he knows the seal of said corporation; the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the Board of Directors of said corporation, and that he signed his
name thereto by like order.
/s/ Romy J. Jagid
-----------------------
INDIVIDUAL OWNER
STATE OF NEW YORK, ss.:
County of
On this _________ day of ___ Commission expires May 22, 1999
before me personally came _______________________________ to be known and known
to me to be the individual described in and who, as OWNER, executed the
foregoing instrument and acknowledged to me that __________________ he executed
same.
-----------------------
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this _________ day of ___, 19__, before me personally came
_____________ to me known, who being by me duly sworn, did depose and say that
he resides in ____________ that he is the ___________________ of
___________________ the corporation described in and which executed the
foregoing instrument, as TENANT; that he knows the seal of said corporation; the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the Board of Directors of said corporation, and that he signed his
name thereto by like order.
-----------------------
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<PAGE>
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of
On this _________ day of ___, 19__, before me personally came
_____________ to me known to me to be the individual described in and who, as
TENANT, executed the foregoing instrument and acknowledged to me that
_________________ he executed the same.
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GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an
inducement to Owner making the within lease with Tenant, the undersigned
guarantees to Owner, Owner's successors and assigns, the full performance and
observance of all the covenants, conditions and agreements, therein provided to
be performed and observed by Tenant, including the "Rules and Regulations" as
therein provided, without requiring any notice of non-payment, non-performance,
or non-observance, or proof, or notice, or demand, whereby to charge the
undersigned therefor, all of which the undersigned hereby expressly waives and
expressly agrees that the validity of this agreement and the obligations of the
guarantor hereunder shall in no wise be terminated, affected or impaired by
reason of the assertion by Owner against Tenant of any of the rights or remedies
reserved to Owner pursuant to the provisions of the within lease. The
undersigned further covenants and agrees that this guaranty shall remain and
continue in full force and effect as to any renewal, modification or extension
of this lease and during any period when Tenant is occupying the premises as a
"statutory tenant." As a further inducement to Owner to make this lease and in
consideration thereof, Owner and the undersigned covenant and agree that in any
action or proceeding brought by either Owner or the undersigned against the
other on any matters whatsoever arising out of, under, or by virtue of the terms
of this lease or of this guarantee that Owner and the undersigned shall and do
hereby waive trial by jury.
Dated:
Guarantor
Witness
Guarantor's Residence
Business Address
Firm Name
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<PAGE>
STATE OF NEW YORK ) SS.:
COUNTY OF )
On this __ day of _____________, 19 __, before me personally
came _________ to me known and known to me to be the individual described in,
and who executed the foregoing Guaranty and acknowledged to me that he executed
the same.
--------------------------
Notary
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IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used
for any purposes other than those for which they were designed or constructed
and no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside
walls of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any Tenant on any part of the
outside of the demised premises or the building or on the inside of the demised
premise if the same is visible from the outside of the premises without the
prior written consent of Owner, except that the name of Tenant may appear
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on the entrance door of the premises. In the event of the violation of the
foregoing by any Tenant, Owner may remove same without any liability, and may
charge the expense incurred by such removal to Tenant or Tenants violating this
rule. Interior signs on doors and directory tablet shall be inscribed, painted
or affixed for each Tenant by Owner at the expense of such Tenant and shall be
of a size, color and style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any
part of the demised premises or the building of which they form a part. No
boring, cutting or stringing of wires shall be permitted, except with the prior
written consent of Owner, and as Owner may direct. No Tenant shall lay linoleum,
or other similar floor covering, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the premises only on
the freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited
and each Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building all persons
who do not present a pass to the building signed by Owner. Owner will furnish
passes to persons for whom any Tenant requests same in writing. Each Tenant
shall be responsible for all persons for whom he requests such pass and shall be
liable to Owner for all acts of such persons. Tenant shall not have a claim
against Owner by reason of Owner excluding from the building any person who does
not present such pass.
11. Owner shall have the right to prohibit any advertising by any
Tenant which in Owner's opinion, tends to impair the reputation of the building
or its desirability as a building for offices, and upon written notice from
Owner, Tenant shall refrain from or discontinue such advertising.
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<PAGE>
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, explosive, or hazardous fluid,
material, chemical or substance, or cause or permit any odors of cooking or
other processes, or any unusual or other objectionable odors to permeate in or
emanate from the demised premises.
13. If the building contains central air conditioning and ventilation,
Tenant agrees to keep all windows closed at all times and to abide by all rules
and regulations issued by Owner with respect to such services. If Tenant
requires air conditioning or ventilation after the usual hours, Tenant shall
give notice in writing to the building superintendent prior to 3:00 p.m. in the
case of services required on week days, and prior to 3:00 p.m. on the day prior
in case of after hours service required on weekends or on holidays. Tenant shall
cooperate with Owner in obtaining maximum effectiveness of the cooling system by
lowering and closing venetian blinds and/or drapes and curtains when the sun's
rays fall directly on the windows of the demised premises.
14. Tenant shall not move any safe, heavy machinery, heavy equipment,
bulky matter, or fixtures into or out of the building without Owner's prior
written consent. If such safe, machinery, equipment, bulky matter or fixtures
requires special handling, all work in connection therewith shall comply with
the Administrative Code of the City of New York and all other laws and
regulations applicable thereto and shall be done during such hours as Owner may
designate.
15. Refuse and Trash. (1) Compliance by Tenant. Tenant covenants and
agrees, at its sole cost and expense, to comply with all present and future
laws, orders, and regulations of all state, federal, municipal, and local
governments, departments, commissions and boards regarding the collection,
sorting, separation and recycling of waste products, garbage, refuse and trash.
Tenant shall sort and separate such waste products, garbage, refuse and trash
into such categories as provided by law. Each separately sorted category of
waste products, garbage, refuse and trash shall be placed in separate
receptacles reasonably approved by Owner. Such separate receptacles may, at
Owner's option, be removed from the demised premises in accordance with a
collection schedule prescribed by law. Tenant shall remove, or cause to be
removed by a contractor acceptable to Owner, at Owner's sole discretion, such
items as Owner may expressly designate. (2) Owner's Rights in Event of
Noncompliance. Owner has the option to refuse to collect or accept from Tenant
waste products, garbage, refuse or trash (a) that is not separated and sorted as
required by law or (b) which consists of such items as Owner may expressly
designate for Tenant's removal, and to require Tenant to arrange for such
collection at Tenant's sole cost and expense, utilizing a contractor
satisfactory to Owner. Tenant shall pay all costs, expenses, fines, penalties,
or damages that may be imposed on Owner or Tenant by reason of Tenant's failure
to comply with the provisions of this Building Rule 15, and, at Tenant's sole
cost and expense, shall indemnify, defend and hold Owner harmless (including
reasonable legal fees and expenses) from and against any actions, claims and
suits arising from such noncompliance, utilizing counsel reasonably satisfactory
to Owner.
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<PAGE>
RIDER TO LEASE, DATED AS OF SEPTEMBER 30, 1997 BETWEEN TOV, LLC,
OWNER AND I.D. SYSTEMS, INC. TENANT FOR A TERM OF FIVE (5) YEARS,
THREE (3) MONTHS AND SEVENTEEN (17) DAYS COMMENCING DECEMBER 15,
1997 AND TERMINATING ON MARCH 31, 2003.
37. CONFLICTING LANGUAGE
If any conflict shall arise between any of the provisions of this Rider
and any of the terms, printed or typewritten, of the printed portion of the
Lease to which this Rider is attached, all such conflicts shall be resolved in
favor of the provisions of this Rider.
38. INTENTIONALLY OMITTED
39. REAL ESTATE TAX ESCALATION
(a) For the purposes of this Lease, the following terms shall
have the following meanings:
i. "Real Estate Taxes" shall mean all taxes,
assessments, and special assessments levied, assessed
or imposed at any time by the City of New York or by
any other governmental authority or any business
improvement district upon or against the land and/or
building of which the demised premises form a part
and any rights or interests appurtenant thereto,
including air rights (hereinafter referred to as the
"real property"), and also all taxes and assessments
levied, assessed or imposed at any time by any
governmental authority in connection with the receipt
of income or rents from the real property only to the
extent that same shall be in lieu of, as a substitute
for, or as a substitute for any increase in, all or a
portion of any of the aforesaid taxes or assessments
upon or against the real property but shall not
include capital gains, transfer, transfer gains,
inheritance, estate, succession and give taxes. If,
due to a future change in the method of taxation or
in the taxing authority, a franchise, license,
income, transit, profit or other tax, fee, or
governmental imposition, however designated, shall be
levied, assessed or imposed against Owner in lie of,
as a substitute for, or as a substitute for any
increase in, all or any part of said real estate
taxes then such franchise, license, income, transit,
profit, or other tax, fee, or governmental imposition
shall be deemed to be included within the definition
of Real Estate Taxes for the purposes hereof.
ii. "Tax Year" shall mean each 12-month fiscal period
commencing July 1 and ending June 30 (or any other
such period as may be adopted by the City of
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New York as its fiscal year for computing taxes), any
portion of which occurs during the term of the Lease.
iii. "Base Tax Amount" shall mean one half of the sum of
the Real Estate Taxes due with respect to (A) the Tax
Year commencing July 1, 1997 and (B) the Tax Year
commencing July 1, 1998.
iv. "Subsequent Year" shall mean each Tax Year commencing
within the term of this Lease which shall be
subsequent to the Base Tax Year.
v. "Tenant's Proportionate Share" shall mean 3.62%. If
the total floor area of the building shall be
increased or decreased, Tenant's Proportionate Share
shall be adjusted accordingly. Solely for the
purposes of this clause (v) and of Article 52 of this
Lease, the floor area of the demised premises is
deemed to be 5,650 square feet and the total floor
area of the building containing the demised premises
is deemed to be 156,026 feet.
(b) (1) If, in any Subsequent Year, Real Estate Taxes shall be
greater than the Base Tax Amount, then Tenant shall pay, in addition to the
annual rent set forth in Article 60 of this Lease (the "fixed minimum rent") and
as additional rent for such Subsequent Year, an amount (hereinafter called
"Tenant's Tax Payment") equal to Tenant's Proportionate Share of such increase.
Such tax payment shall be paid by Tenant notwithstanding the fact that Tenant
may be exempt, in whole or in part, from the payment of any Real Estate Taxes by
reason of Tenant's diplomatic, charitable, or otherwise tax exempt status, or
for any other reason whatsoever.
(2) At any time during or after any Subsequent Year, Owner may
furnish Tenant with a statement setting forth the amount of Real Estate Taxes
and Tenant's Tax Payment for such Subsequent Year. Tenant shall pay Tenant's Tax
Payment within fifteen (15) days of presentation by Owner of such statement
calculating Tenant's Proportionate Share of the charge for the entire Tax Year.
Owner shall furnish Tenant with a copy of any relevant bill for Real Estate
Taxes within fifteen (15) days of Tenant's request therefor.
(3) In the event this Lease shall expire or be terminated on a
day other than the last day of a Subsequent Year, Tenant's Tax Payment for such
subsequent Year shall be prorated as of the date of such expiration or
termination, so that Tenant shall be required to pay only such proportion
thereof as the portion of such Subsequent Year prior to such expiration or
termination bears to the entire Subsequent Year.
(4) In the event that, as a result of a tax appeal, the Base
Tax Amount shall be reduced, the Tenant's Tax Payment shall be computed by using
the Real Estate Taxes levied according to such reduced Base Tax Amount.
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40. INTENTIONALLY OMITTED
41. INTENTIONALLY OMITTED
42. ADDITIONAL RENT
(a) Any statement sent to Tenant with respect to Real Estate
Taxes shall be binding upon Tenant, unless, within sixty (60) days after such
statement is sent, Tenant shall send a written notice to Owner objecting to such
statement and specifying the respects in which such statement is claimed to be
incorrect. Pending the determination of such dispute, Tenant shall pay all
additional rent shown on such statement, and such payment and acceptance shall
be without prejudice to Tenant's position. If such dispute is resolved in
Tenant's favor, any overpayment to Owner will be refunded by Owner to Tenant
within 15 days after such dispute is resolved.
(b) Additional rent payable by reason of increases in Real
Estate Taxes shall be computed separately and shall not be aggregated.
(c) The expiration or termination of this Lease during any
Subsequent Year for any part or all of which there is additional rent payable
under this Lease shall not affect the rights or obligations of the parties
thereto respecting such increase, and any statement relating to such increase
may be sent to Tenant subsequent to, and all such rights and obligations shall
survive, any such expiration or termination.
(d) Any additional rent due under this Lease shall be
collectible by Owner in the same manner as the fixed minimum rent, and Owner
shall have all rights with respect thereto as he has with respect to the fixed
minimum rent, including all the remedies available under Article 17 with respect
to rent.
(e) Anything in this Lease to the contrary, under no
circumstances shall any rent adjustment hereunder result in a decrease in the
annual rent below the fixed minimum rent set forth in this Lease.
43. PERSONAL LIABILITY
Anything in this Lease to the contrary notwithstanding, Owner shall
have no personal liability with respect to any of the terms and obligations of
this Lease or Tenant's occupancy of the demised premises, and Tenant shall look
solely to Owner's interest in the real property for the satisfaction of each and
every one of the Tenant's remedies in the event of any default or breach by
Owner of any of the terms, covenants and conditions of this Lease and no other
property or assets of Owner shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies.
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44. SIGNS
Tenant shall not install or affix or permit the installation or
affixation of any signs, temporary or permanent, to the exterior of the demised
premises or of the building, or which are visible from the outside of the
demised premises, without Owner's prior written consent which consent shall not
be unreasonably withheld or delayed. Tenant may place a sign on the exterior of
the door to the demised premises bearing Tenant's name and logo. In the event
that Owner elects to place signs in any elevator lobby or elevator of the
Building referring to any tenant, Owner shall at its expense install a similar
sign referring to Tenant in the 4th floor elevator lobby and/or the elevators
stopping at the 4th floor, as the case may be.
45. TENANT'S REMEDY
If Owner has agreed with respect to any provision of this Lease not to
unreasonably withhold or delay Owner's consent or approval and it shall be
determined by appropriate judicial proceedings that Owner has violated such
provisions, Tenant's sole remedy shall be an action or proceeding to enforce any
such provision, or for specific performance, injunction or declaratory judgment
and Tenant hereby waives any claim for money damages for such violation,
including any claim by way of set-off, counterclaim or defense except that
Tenant shall be entitled to recover its reasonable legal fees in any judicial
proceeding which determines that Owner unreasonably withheld its consent or
approval with respect to such provision provided Owner does not successfully
appeal such judgment. Notwithstanding anything herein to the contrary, in the
event that Tenant obtains a judgment against Owner in a judicial proceeding
which is not successfully appealed determining that Owner engaged in willful
misconduct in any breach of its obligations under this lease, Tenant may recover
actual damages (but not consequential or punitive damages) resulting from such
breach.
46. INSURANCE
(a) Tenant shall provide on or before the commencement date of
the term hereof, for the benefit of Tenant a policy of Comprehensive General
Liability Insurance with a Bodily Injury limit of One Million Dollars
($1,000,000.00) per individual, Two Million Dollars ($2,000,000.00) per
occurrence and a property damage limit of One Hundred Thousand Dollars
($100,000.00), protecting Tenant against claims for bodily injury, or death, and
property damage, including water damage, occurring in, upon, or about the
demised premises or any appurtenances thereto. Such policy is to be written by
good and solvent insurance companies satisfactory to Owner. Such insurance may
be carried under a blanket policy covering the demised premises and other
locations of Tenant, if any. Prior to the time much insurance is first required
to be carried by Tenant, and thereafter at least fifteen (15) days prior to the
expiration of any such policy, Tenant agrees to deliver to Owner either a
duplicate original of the aforesaid policy or a certificate evidencing such
insurance, together with evidence of payment for the policy.
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<PAGE>
(b) All of the aforesaid insurance shall be in the name of
Tenant and shall name Owner as additional insured, and shall contain
endorsements that: (i) such insurance may not be canceled or amended with
respect to Owner, except upon twenty (20) days' written notice by certified mail
to Owner by the insurance company; and (ii) Tenant shall be solely responsible
for payment of premiums and that Owner shall not be required to pay any premiums
for such insurance. The minimum limits of the comprehensive general liability
policy of insurance shall in no way limit or diminish Tenant's liability under
other provisions of this Lease.
(c) Tenant's failure to provide and keep in force the
aforementioned insurance shall be regarded as a material default hereunder,
entitling Owner to exercise any or all of the remedies provided in this Lease in
the event of Tenant's default.
(d) Owner shall have the right to reasonably require Tenant to
increase the amount of coverage under such policy or policies.
(e) Any delay by Owner in exercising, or failing to exercise,
any right hereunder shall not be deemed a waiver of such right or of any future
obligation of Tenant under this Article.
(f) Owner shall cause the Building to be insured for an amount
and in a manner similar to the insurance carried by owners of similar office
building in downtown Manhattan. Any insurance policies of Owner shall, if
offered by Owner's insurer at no additional cost, contain a waiver of
subrogation against Tenant.
47. INTENTIONALLY OMITTED
48. NOISE, ODOR, NUISANCE
(a) Tenant shall, within ten (10) days after written notice
from Owner, at its own cost and expense, install control devices or adopt
procedures to eliminate any unreasonable noise, odor and vibrations emanating
from the demised premises.
(b) If such condition is not remedied within ten (10) days,
Owner may, at its sole discretion, either (1) cure such condition and add the
reasonable cost and expense incurred by Owner to the next monthly rental to
become due as additional rent or (2) treat such failure on the part of Tenant as
a material default hereunder entitling Owner to all of its remedies under this
Lease and at law. In the event Owner requires Tenant to install such control
devices or to adopt such procedures, the material, size and location of such
installations and the procedures adopted shall be subject to the Owner's prior
written consent.
(c) In addition to the above, Tenant agrees to install
sufficient rubber matting, or any other material or padding approved by Owner,
underneath any machinery operated by
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Tenant on the premises to prevent any noise and vibration from affecting any
other tenant or tenants in the building.
49. OWNER'S EXPENSES
Any costs or expenses incurred by Owner which arise out of any
violation by Tenant of any of the provisions of this Lease, including reasonable
legal fees and court costs, shall be added to the next installment of rent due
hereunder and shall be treated in all respects as rent. Any default by Tenant in
the payment of such damages, costs or expenses shall be treated as a default in
the payment of rent, and Owner shall have the same remedies with respect thereto
as it has with respect to any default in payment of rent.
50. LATE CHARGE
(a) It is clearly understood and an essential element of this
lease that the installments of fixed minimum rent and/or any additional rent
must be paid on or before the first day of each month. Accordingly, if Tenant
shall fail to pay all or any part of any installment of fixed minimum rent or
additional rent by the tenth day of the month (except with respect to the first
such failure during the term of the Lease for which payment is made no later
than the last day of the calendar month in which the payment which was not
timely paid shall have been due), Tenant shall pay to Owner, as additional rent,
a late charge in an amount equal to six percent (6%) of the total amount of
fixed minimum rent and/or additional rent owed.
(b) The late charge payable pursuant to paragraph (a) above
shall be (i) payable on demand and (ii) without prejudice to any of Owner's
rights and remedies hereunder, at law or in equity, for non-payment or late
payment of rent or other sums, but shall be in addition to any such rights and
remedies, available to Owner. No failure by Owner to insist upon the strict
performance by Tenant of Tenant's obligations to pay late charges as provided in
this Article shall constitute a waiver by Owner of its right to enforce the
provisions of this Article in any such instance or in any instance thereafter
occurring. The provisions of this Article shall not be construed in any way to
extend the grace periods or notice period provided for in Article 17 of this
Lease.
51. BROKER
Tenant covenants, represents and warrants that Tenant has had no
dealings with any broker or agent in connection with negotiations or
consummation of this Lease other than Newmark & Co. Real Estate, Inc. and Tenant
covenants and agrees to hold harmless and indemnify Owner from and against any
and all costs, expenses (including without limitation, attorneys' fees and
expenses) or liabilities arising in connection with any claim for compensation,
commissions or charges claimed by any other broker or agent with respect to this
Lease or the negotiation thereof.
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52. ELECTRIC
It is agreed and understood that Owner shall provide the electric
current for the subject premises. The charge for the electric current is
included in the fixed minimum rent at an annual rate of $15,537.50, said amount
being computed on the basis of $2.75 per square foot. It is, however, agreed and
understood that, in the event that there is an increase in the electric usage in
the demised premises (determined by survey conducted by Owner at Owner's
expense) or the Owner's cost in obtaining electric service for the premises, the
aforesaid $2.75 per square foot rate for computing electric charge shall be
adjusted commensurate with the percentage increase in the usage or cost for
electricity. The Tenant acknowledges that the current electrical service
provided to the demised premises, including the risers and feeders, is adequate
to meet the Tenant's needs. If Tenant disputes Owner's adjustment, Tenant shall
pay the adjusted electric charge reflected in Owner's adjustment pending its own
audit of its electricity use which it shall have the right to conduct within 180
days of such adjustment. Tenant shall furnish Owner with its auditor's report
within such 180-day period. If the electrical consultants of Owner and Tenant
cannot agree on the adjustment within 30 days of the submission of such report,
said consultants shall, within such 30-day period, choose a mutually acceptable
consultant whose decision as to the adjustment shall be binding on both parties.
Owner represents that the electrical service to the demised premises is 5 watts
per square foot.
53. FAILURE TO SURRENDER POSSESSION
Should Tenant remain in possession of the demised premises after the
expiration of the term of this Lease or any extended term thereof, such
possession shall not be deemed to extend the term of or to renew the Lease. In
the event that Owner, at its option, permits Tenant to continue to occupy the
demised premises as a month-to-month Tenant, Tenant shall continue in possession
subject to the covenants and conditions set forth in this Lease. During any such
month-to-month tenancy, or in the event of a holdover, the charge for use and
occupancy of the demised premises in each calendar month or any part thereof
shall be one and one-half (1.5) times the monthly rent payable by Tenant at the
end of the term or any extended or modified term of the Lease, including all
items of additional rent and increases in the fixed minimum rent payable
pursuant to this Lease.
54. SUBLET, ASSIGNMENT, CONVEYANCE OF STOCK
Supplementing Article 11 hereof, it is understood and agreed as
follows:
(a) Subject to Owner's right to cancel and terminate the Lease
as set forth in subparagraph (e) of this Article, Owner covenants and agrees
that it will not unreasonably withhold or delay its consent to Tenant's
assignment of this Lease or subletting of all or any portion of the demised
premises to any other person, firm, or corporation, provided all of the
following requirements are met:
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i. Such assignee or subtenant shall use and occupy the
demised premises for the purposes set forth in
Article 64 hereof and provided said use shall not
lower the value or dignity of the building.
ii. Tenant submits a written request to Owner for Owner's
consent to such assignment or subletting prior to the
assignment or sublet. The request shall set out (a)
the name and address of the proposed subtenant or
assignee, (b) the terms and conditions of the
proposed assignment or sublease, (c) the nature and
character of the business of the proposed subtenant
or assignee, and (d) current financial information on
the proposed subtenant or assignee.
iii. Tenant supplies Owner with such additional
information as Owner may reasonably request.
iv. Tenant shall not assign or sublet to anyone who at
the time is a tenant, subtenant, or assignee in
possession of premises in the Building or who is then
negotiating with Owner for space in the Building
unless there is no comparable space available at such
time or anticipated to be available within the next
ensuing six (6) months.
v. In the event of an assignment or sublet, Tenant shall
remain liable for the performance of all the terms,
covenants and conditions of this Lease, including the
payment of fixed minimum rent and additional rent.
vi. In the event of an assignment, the assignee shall
assume, by written instrument, in form and content
reasonably satisfactory to Owner, the due performance
of all of Tenant's obligations under the Lease,
including any accrued obligations at the time of the
assignment. In the event of a sublet, the subtenant
shall execute a sublease, in form and content
reasonably satisfactory to Owner, which shall provide
that the subtenant shall be bound by the terms,
covenants and conditions of this Lease (except with
respect to the amount of rent payable under such
sublease.)
vii. At the time of such assignment and/or sublet, this
Lease must be in full force and effect without any
breach or default thereunder beyond the expiration of
all applicable grace and notice periods on the part
of the Tenant.
viii. A copy of the assignment or sublease and the original
assumption agreement (both in form and content
reasonably satisfactory to Owner), fully executed and
acknowledged by the assignee and/or sublease,
together with, where appropriate a certified copy of
a properly executed corporate
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resolution authorizing such agreement, shall be
mailed to Owner within ten (10) days from the date of
execution of such assignment or sublease.
ix. The rental (for a sublet) and/or consideration (for
an assignment) payable by such subtenant or assignee
shall not be less than the fair rental value of the
demised premises (in the case of a sublet) and/or the
fair market value of the leasehold (in the case of an
assignment) at the time of such sublease or
assignment.
x. Tenant shall reimburse Owner on demand for any
reasonable costs that may have been incurred by Owner
in connection with said assignment or sublease
including the costs of investigating the proposed
assignee or subtenant and Owner's reasonable legal
costs.
(b) Notwithstanding anything contained in this Lease to the
contrary and notwithstanding any consent by Owner to any assignment or sublease
of the demised premises, no assignee or subtenant shall further assign this
Lease or further sublet all or part of the demised premises without the prior
written consent of Owner in each such case, which consent Owner shall not
unreasonably withhold or delay.
(c) Tenant's failure to comply with all of the provisions and
conditions of the Article shall, at Owner's option, render any purported
assignment or subletting null and void and of no force and effect.
(d) Consent by Owner to any assignment or sublease shall not
be deemed a waiver or relinquishment for the future of the covenant against
assignment and subletting, nor shall the acceptance of any assignee as tenant be
construed as releasing Tenant from the full performance of the provisions of
this Lease.
(e) Notwithstanding anything to the contrary set forth in this
Article, or elsewhere in the Lease, in the event Tenant exercises its right to
assign its interest in this Lease or to sublease all or part of the demised
premises as set forth in this Article, then upon receipt by Owner by certified
mail, return receipt requested, of Tenant's request for Owner's consent to such
assignment or sublet, together with a copy of the proposed assignment or
sublease and assumption agreement as set forth in this Article, Owner shall have
the following rights:
i. To notify Tenant within fifteen (15) days of such
receipt, of Owner's (1) consent to such assignment or
subletting, or (2) denial of consent, or (3) exercise
of its right, herein granted, to cancel and terminate
the Lease; except that if Owner requests additional
information with respect to the subtenant or assignee
Owner shall have fifteen (15) days from receipt of
such information to make such election.
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ii. If Tenant exercises its right to request Owner to
consent to an assignment or sublet, Owner shall have
the unilateral right to cancel this Lease in
accordance with the provisions of this paragraph.
Owner shall have the right to terminate this Lease,
as of a date chosen by Owner, no earlier than two (2)
months and no later than four (4) months after the
date of Tenant's notification to Owner of Tenant's
election to sublease or assign. If Owner exercises
its option to terminate this Lease, then this Lease
shall cease and terminate on the date set forth by
Owner in its notice without any further liability on
the part of either party to the other, except for
accrued obligations to the date of termination.
(f) If Owner shall reasonably withhold its consent to any
assignment or sublet, or exercise any of its option under this Article, Tenant
shall indemnify, defend and hold Owner harmless from and against any and all
loss, liability, damages, costs and expenses (including reasonable attorneys'
fees) resulting from any claims that may be made against Owner by the proposed
assignee or sublessee, or by any brokers or other persons claiming compensation
or commissions in connection with the proposed assignment or sublease.
(g) Any transfer, by operation of law or otherwise, of
Tenant's (or any subtenant's or assignee's) interest in this Lease (in whole or
in part) or of a fifty percent (50%) or greater interest in Tenant (whether
stock, partnership interest, or otherwise) shall be deemed an assignment of this
Lease and subject to the provisions of Article 11 hereof. It is understood and
agreed that if Tenant is a corporation, a transfer by the corporation or any
shareholder(s) thereof of a majority of the issued or outstanding capital stock
of Tenant, however accomplished (including a transfer accomplished by the
corporation's issuance of shares in an amount greater than 50% of the
outstanding shares), and whether or not in a single transaction, shall be deemed
an assignment of this Lease requiring Owner's consent.
(h) Notwithstanding anything in the foregoing to the contrary,
upon ten (10) days' notice and a copy of any relevant assignment and assumption
agreement or sublease, as the case may be, Owner will consent to the assignment
of this Lease or the subletting of all or any demisable part of the demised
premises to any "subsidiary", "affiliate" or "successor" of Tenant provided that
such subsidiary, affiliate or successor together with Tenant shall have as their
combined net worth as certified by a certified public accountant in accordance
with generally accepted accounting principles, consistently applied, of not less
than an amount equal to the net worth of Tenant (a) at the time of execution of
this Lease or (b) immediately prior to such assignment of subletting (whichever
is greater). A "successor" entity shall mean any entity which succeeds by
merger, consolidation or otherwise at law to all or substantially all of
Tenant's business and assets. A "subsidiary" shall mean any entity 51% or more
of which is owned, directly or indirectly, by Tenant. An "affiliate" shall mean
any entity or group of entities which controls, is controlled by or is under
common control with Tenant, control being defined for the purposes of this
sentence as ownership of 51% or more of the beneficial interest in an entity or
group of entities. The sale or transfer by public offering of the common stock
of tenant shall not
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constitute an assignment under the terms of this Lease nor shall the sale of all
or substantially all of the issued and outstanding voting stock constitute such
an assignment.
55. CORPORATE AUTHORITY
In the event that Tenant is a corporation, Tenant represents that the
individual who is executing this Lease on behalf of Tenant is an officer of said
corporation and is duly authorized by the other officers and/or the Board of
Directors of the corporation to execute this Lease on behalf of the corporation
and, upon execution, is authorized to bind the corporation to the terms and
conditions set forth in this Lease.
56. ACCEPTANCE OF PREMISES
Owner is not required to perform any work on the demised premises, and
Tenant accepts the demised premises in their "as is" condition (except for the
separate work letter annexed hereto).
(A) POSSESSION
The "Commencement Date" shall be the earlier of the following: A) the
date upon which Tenant or any subtenant takes occupancy of the demised premises
or any portion thereof for the conduct of its business; or B) December 15, 1997.
(B) CONDITION OF THE DEMISED PREMISES
Tenant has examined the demised premises and agrees to accept
possession of the demised premises in the condition which shall exist on the
date hereof "as is", and further agrees that Owner shall have no obligation to
perform any work, supply any materials, incur any expenses or make any
installations, in order to prepare the demised premises for Tenant's occupancy,
other than work performed by Owner as described in the separate work letter
annexed hereto ("Owner's Work"). The taking of possession of the demised
premises by Tenant shall be conclusive evidence as against Tenant, that, at the
time such possession was so taken, the demised premises and the building were in
good and satisfactory condition, and that substantial completion of Owner's
Work, if any has occurred subject to "punch list" items and latent defects.
Owner's Work shall be substantially completed prior to the Commencement Date.
57. CONTINUATION OF DEFAULT PROVISIONS
Those provisions on the front page of this Lease and otherwise in this
Lease concerning defaults by Tenant under any other Lease between Tenant and
Owner shall apply to any and all other leases between Owners and Tenant, whether
or not such leases are subsidiary to this Lease or for space adjacent to the
premises.
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58. AIR CONDITIONING
Prior to installing any new or additional mechanical air conditioning
unit or units in the premises, Tenant shall first obtain Owner's written consent
which shall not be unreasonably withheld or delayed. Under penalty of damages
and forfeiture, the Tenant herein shall not install any mechanical air
conditioning plant or individual or collective units using water unless the unit
or units are equipped with a water conserving device, such as an evaporative
condenser, water colling tower, or other similar apparatus. Tenants shall also
warrant and ensure that the air conditioner and any connections thereto, will be
free of leaks and will be maintained solely by Tenant.
59. SIGNATURE OF OWNER
It is specifically understood and agreed that this Lease is offered to
the Tenant for signature by the managing agent of the building, solely in its
capacity as such agent and subject to the Owner's acceptance and approval, and
that the Tenant has hereunto affixed its signature with the understanding that
the said Lease shall not in any way bind the Owner or its agent until such time
as the same had been approved and executedb by the Owner and delivered to the
Tenant.
60. MINIMUM RENTAL
The basic minimum rental for the subject premises shall be throughout
the entire term of the Lease:
i. $4,826.04 per month from the Commencement Date
through and including June 14, 1998;
ii. $8,357.29 per month from June 15, 1998 thought and
including December 31, 1998;
iii. $108,480.00 per annum ($9,040.00 per month) from
January 1, 1999 (the "First Change Date") through and
including the day preceding the first anniversary of
the First Change Date;
iv. $116,898.50 per annum ($9,741.54 per month) from the
first anniversary of the First Change Date through
and including the day preceding the second
anniversary of the First Change Date;
v. $125,599.50 per annum ($10,466.63 per month) from the
second anniversary of the First Change Date through
and including the day preceding the third anniversary
of the First Change Date;
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vi. $128,901.36 per annum ($10,741.74 per month) from the
third anniversary of the First Change Date through
and including the Expiration Date;
all of which shall be paid in equal monthly installments due on the first (1st)
day of each month in advance. Said annual rate includes the charge for electric
service at the subject premises at an annual rate of $15,537.50. Owner
represents that Tenant shall not be obligated to pay its proportionate share of
any operating expenses of Owner as part of any escalation provision pursuant to
this lease.
61. INTENTIONALLY OMITTED
62. ADVANCE RENT
Tenant shall pay to Owner, on or before the execution of this lease (a)
the sum of $4,826.04, being the first monthly installment of basic minimum
rental hereunder, and (b) the sum of $21,483.48 which shall, barring any default
in any respect by Tenant, be applied to the basic monthly rental for the last
two months of the term of this lease. If Tenant defaults under this lease, then
Owner may opt to otherwise apply the aforesaid sum of $21,483.48, in whole or in
part, to losses or expenses incurred by Owner as a result of Tenant's default,
and, in such case, Owner shall preserve its right to collect the fixed minimum
rent for the last two months of the term in addition to all other losses or
expenses incurred by Owner.
Notwithstanding the foregoing, in lieu of paying Owner $21,483.48 upon
execution of this lease, Tenant may furnish Owner with an unconditional, clean,
irrevocable "evergreen" letter of credit, payable on sight, in form and
substance satisfactory to Owner issued by a bank which is a member of the New
York City Clearing House Association and delivered to Owner. Owner may present
such letter of credit for payment on the occurrence of any default by Tenant
hereunder after notice and the expiration of any cure period herein set forth
(except if such default shall be due to Tenant's failure to deposit a subsequent
or extension letter of credit in accordance with the terms of this Article in
which case no notice need be given and no cure or grace period need be allowed).
Such letter of credit shall have an expiration date that is not earlier than
forty-five (45) days after the expiration of this lease. If, notwithstanding
that the letter of credit on deposit with Owner is to be an "evergreen" letter
of credit, same shall for any reason whatsoever expire or have an expiration
date earlier than forty-five (45) days after the expiration date to this lease,
then a subsequent or extension letter of credit in the amount of the then
existing letter of credit and otherwise in form and substance reasonably
acceptable to Owners shall be delivered by Tenant to Owner at least thirty (30)
days prior to the expiration date of the letter of credit it is replacing (time
being of the essence). The failure to deliver any subsequent or extension letter
of credit shall constitute a material default hereunder for which no notice need
be given, and for which no grace or cure period be allowed (notwithstanding
anything herein to the contrary) and the letter of credit then in effect may be
presented for payment and negotiated notwithstanding that no other default may
then exist under this lease and upon such presentment and negotiation the
default for
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Tenant's failure to so deliver shall have been cured. The proceeds of the letter
of credit that is so negotiated shall be held by Owner in accordance with
Article 34 hereof.
63. DISHONORED PAYMENTS
(a) If any payment of fixed minimum rent, additional rent or
any other payment payable hereunder by Tenant is tendered by check and said
check is dishonored for any reason whatsoever, Tenant shall pay to Owner, upon
demand, the sum of $150.00 representing the administrative charge for processing
the check.
(b) If during any 12-month period three (3) checks for any
payment of rent, additional rent or any other payment payable hereunder tare
dishonored for any reason whatsoever, then, in addition to any and all other
remedies set forth in this Lease, Owner may demand that Tenant pay, as
additional advance rent, an amount equal to one month's fixed minimum rent at
the time of the dishonoring of the check on each occasion that a check is
dishonored during the 12-month period commencing on the day the first such check
is dishonored. If, upon demand, said additional advance rent is not paid, same
shall constitute a serious and substantial default under this Lease permitting
Owner to pursue any appropriate default remedies as set forth herein or as
otherwise may be permissible under law.
64. USE
It is expressingly agreed and understood that Tenant shall use the
demised premises only as executive and administrative offices, for an
engineering laboratory and for conduct of Tenant's business and for no other
purpose. Particularly, under no circumstances shall the demised premises be
used, at any time, for residential purposes.
65. CLEANING AND RUBBISH REMOVAL
Tenant agrees to be responsible for the cleaning and removal of rubbish
from the demised premises to the place on the floor containing the same
designated by Owner. Owner shall cause such rubbish to be regularly removed from
such designated place to the outside of the building.
66. INTENTIONALLY OMITTED
67. PRE-WIRING
Tenant acknowledges that the pre-wiring of Tenant's space for all
services including Telecom, LAN and electricity was done by Owner for
convenience purposes only. Owner does not warrant that the wiring systems will
work with Tenant's systems nor does the Owner take responsibility for any repair
that may become necessary during Tenant's occupancy. In addition, Owner takes no
responsibility for loss or damage to Tenant's business, services or systems due
to the non-functioning of errors caused by the wiring systems in the space or
the Building.
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68. TAX INCENTIVE PROGRAM
Owner shall reasonably cooperate with Tenant in the event that Tenant
seeks to apply for a real property tax abatement or other tax or expense
reduciton pursuant to the Lower Manhattan Plan (1995 NY A.B. 8028) provided,
however, that Owner shall not be required to incur any costs in connection
therewith. Tenant agrees that it shall pay all reasonable fees and expenses
incurred or to be in connection with such application including, without
limitation, any application fees and/or filing fees and all fees and
disbursements for professional services utilized by Owner in connection
therewith including, without limitation, legal, accountant's and clerical fees.
69. DIRECTORY LISTINGS
Tenant shall be entitled to ten (10)) line directory listings on any
tenants' directory in the lobby of the building.
70. OVERTIME A/C
Tenant shall be entitled to the use of after hours air conditioning.
Tenant must advise Owner at least four (4) hours in advance of the time it shall
be required. Tenant agrees to pay Owner's established charge for providing such
after hours air conditioning. Owner represents that its current charges for such
air conditioning is $40 per hour.
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WORK LETTER ANNEXED TO LEASE, DATED AS OF SEPTEMBER 30, 1997 BETWEEN TOV,
LLC, OWNER AND I.D. SYSTEMS, INC. TENANT FOR A TERM OF FIVE (5) YEARS, THREE
(3) MONTHS AND SEVENTEEN (17) DAYS COMMENCING DECEMBER 145, 1997 AND
TERMINATING ON MARCH 31, 2003
IT IS AGREED AND UNDERSTOOD that the following work will be
provided by the Owner in a workman-like and building standard manner in
connection with the annexed Lease:
1. Install doors (including closet doors) throughout the demised
premises.
2. Remove wall between rooms 9 and 10 to create conference room.
All existing, small and angled walls in this new conference
room shall be removed.
3. Install a door below room 4 and install a glass panel next to
door. This glass panel may be one of the glass panels that is
existing in the premises.
4. Install main entry double doors and second entry double doors.
5. Install a new counter top and new sink in room 8 and remove
all old cabinets in this room.
6. Remove cabinets and shelves in room 12. Tenant will reuse
shelves and brackets from this room in another location in
premises.
7. Salvage all existing wood doors and install matching wood
doors to offices that do not have doors.
8 Remove all built-in cabinets in rear of space.
9. In room 11, install door where the closet would have been, as
per plan.
10. Install clear glass windows looking into LAB in rooms 1,2, 11
& 12 as per spaces on the fifth floor of building.
11. Install a coat closet in main reception as per plan.
12. Repair and paint and existing ceiling tiles white.
13. Install new parabolic lighting throughout the entire premises.
14. Paint the entire premises with building standard paint in
Owner's standard colors (as selected by Tenant).
15. Carpet the entire premises except for LAB area labeled on plan
using building standard carpet in Owner's standard colors (as
selected by Tenant). In this uncarpeted LAB area, Landlord
shall clean cement floor and apply a clear laminate. (Shared
area on plan represents uncarpeted area.)
16. Remove the extended angled wall outside room 12.
17. Install building standard blinds through the premises.
18. Pre-wire the entire space for LAN for phones and computers
(exact locations to be determined by Tenant).
19. Upgrade common hallway consistent in appearance and quality
with work on the 5th floor of building.
IT IS AGREED AND UNDERSTOOD that Owner shall provide not other
work in connection with the annexed Lease unless otherwise agreed to by and
between the parties in writing.
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SECOND RIDER TO LEASE, as of September 30, 1997
BETWEEN Tov, L.L.C. Owner and
I.D. Systems, Tenant
INSERTS TO PRINTED FORM
The following language is hereby inserted where indicated by letters in
the printed form;
1. , which consent shall not be unreasonably withheld or delayed,
2. , which approval shall not be unreasonably withheld or
delayed. The foregoing notwithstanding, Owner's consent shall
not be required with respect to painting, wall coverings,
floor coverings and similar type decorations.
3. reasonably
4. Owner shall comply with all laws, orders and regulations or
governmental entities in effect on the Commencement Date
affecting buildings generally and the Unit specifically which
require structural repairs or alterations to the Unit or the
demised premised.
5. Owner shall use commercially reasonably efforts to minimize
interference with Tenant's business operations by reason of
such repairs, alterations, additions or improvements performed
by Owner.
6. manner of
7. reasonable
8. reasonably
9. reasonable
10. (or with respect to injury or damage to persons or property,
the willful misconduct of Owner)
11. or inaccessible
12. notwithstanding the foregoing, if, any time, 50% or more of
the demised premises is damaged or destroyed by such casualty
and if the demised premises are not substantially repaired
prior to the date that is 180 days after the date of such
casualty (the "Substantial Completion Date"), Tenant may, upon
thirty (30) days' prior notice to Owner given within 30 days
after the Substantial Completion Date, terminate this lease,
in which event this lease shall terminate 30 days after the
giving of such notice if the demised premises are not
substantially repaired within such thirty (30) day notice
period.
13. , but Tenant may make a separate claim for moving expenses and
its trade fixtures and personal property provided that same
does not reduce Owner's recovery
14. Except in the event of emergency or where entry is required by
law, Owner shall give Tenant reasonable advance notice which
may, without limitation, be by fax or delivery to the
premises. Owner agrees that while exercising said right of
entry it will use reasonable efforts not to unreasonably
interfere with Tenant's use of the premises.
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15. (but Owner shall only use force in an emergency or if Tenant
shall refuse entry (and if such use of force shall be lawful)
or if Tenant shall have vacated the premises)
16. reasonable
17. beyond the expiration of all applicable notice and grace
periods
18. , except to the extent expressly provided herein. Owner shall
use commercially reasonable efforts to minimize interference
with Tenant's business operations by reason of such repairs,
alterations, additions or improvements (but Owner shall have
no obligation to employ labor at premium overtime rates in
connection therewith).
19. subject to the completion and Tenant's inspection of the work
to be performed by Owner pursuant to the Work Letter attached
hereto
20. or Tenant
21. Owner represents that the Building and the demised premises
will be accessible (and that the Building will be manned by
security personnel) 24 hours per day, 7 days per week.
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EXHIBIT 10.5
I.D. SYSTEMS, INC.
1995 NON-QUALIFIED STOCK OPTION PLAN
SECTION 1 - OBJECTIVE
The objective of the I.D. Systems, Inc. Non-Qualified Stock Option Plan
(the "Plan") is to attract and retain the best available executive personnel and
other key employees to be responsible for the management, growth and success of
the business, and to provide an incentive for such employees to exert their best
efforts on behalf of the Company and its shareholders and to authorize the grant
of Options to such other consultants or other individuals or entities as may be
deemed in the best interest of the Company.
SECTION 2 - DEFINITIONS
2.1 General Definitions. The following words and phrases, when
used herein, shall have the following meanings:
(a) "Act" - The Securities and Exchange Act of 1934, as
amended.
(b) "Agreement" - The document which evidences the grant of
any Award under the Plan and which sets forth the terms,
conditions, and limitations relating to such Award.
(c) "Award" - The grant of any stock option.
(d) "Board" - The Board of Directors of I.D. Systems, Inc.
(e) "Code" - The Internal Revenue Code of 1986, as amended,
and including the regulations promulgated pursuant
thereto.
<PAGE>
(f) "Committee" - The Stock Option Committee shall
consist of two members of the Board.
(g) "Common Stock" - The present shares of Common Stock
of the Company, and any shares into which such shares
are converted, changed or reclassified.
(h) "Company" - I.D. Systems, Inc., a Delaware
corporation, and its groups, divisions and
subsidiaries.
(i) "Employee" - Any person employed by the Company as an
employee.
(j) "Fair Market Value" or "FMV" - The fair market value of
Common Stock as of a specified date shall mean the
closing price of a share on the principal securities
exchange on which such shares are traded on the day
immediately preceding the date as of which the Fair
Market Value is being determined, or on the next
preceding date in which such shares are traded if no
shares were traded on such immediately preceding day, or
if the shares are not traded on a securities exchange,
Fair Market Value shall be deemed to be the average of
the high bid and low asked prices of the shares in the
over-the-counter market on the day immediately preceding
the date as of which the Fair Market Value is being
determined or on the next preceding date on which such
high bid and low asked prices were recorded. If the
shares are not publicly traded, Fair Market Value shall
be determined
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<PAGE>
by the Board. In no case shall the Fair Market Value be
less than the par value of a share of Common Stock.
(k) "Option" - The right to purchase Common Stock of the
Company at a stated price for a specified period of
time. For purposes of the Plan, the option is a
Non-Qualified Stock Option.
(l) "Participant" - Any employee or other consultant,
individual or entity designated by the Committee to
participate in the Plan.
(m) "Shares" - Shares of Common Stock.
2.2 Other Definitions. In addition to the above definitions, certain
words and phrases used in the Plan and any Agreement may be defined elsewhere in
the Plan or in such Agreement.
SECTION 3 - COMMON STOCK
3.1 Number of Shares. Subject to the provisions of Section 3.3, the
number of Shares which may be issued for Options granted under the Plan may not
exceed 1,000,000 Shares.
3.2 Re-Usage. If an Option expires or is terminated, surrendered, or
canceled without having been fully exercised, or if any other grant results in
Shares not being issued, the Shares covered by such Option shall again be
immediately available for Awards under the Plan.
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<PAGE>
3.3 Adjustments. In the event in any change in the outstanding Common
Stock by reason of a stock split, stock dividend, combination, reclassification
or exchange of Shares, recapitalization, merger, consolidation or other similar
event, the number of Shares available for Options, and the number of Shares
subject to outstanding Options, and the price thereof, and the Fair Market
Value, as applicable, shall be proportionately adjusted by the Committee in its
sole discretion and any such adjustment shall be binding and conclusive on all
parties. Any fractional Shares resulting from any such adjustment shall be
disregarded.
SECTION 4 - ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be those key employees, consultants or
other individuals or entities selected by the Committee to participate in the
Plan whose participation in the Plan the Committee determines to be in the best
interests of the Company.
SECTION 5 - ADMINISTRATION
5.1 Committee. The Plan shall be administered by the Committee, which
shall consist of two members of the Board of Directors.
5.2 Authority. The Committee shall have the sole and complete authority
to:
(a) determine the individuals to whom Awards are granted,
the amounts of the Awards to be granted and the time of
all such grants;
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(b) determine the terms, conditions and provisions of, and
restrictions relating to, each Award granted;
(c) interpret and construe the Plan and all Agreements;
(d) prescribe, amend and rescind rules and regulations
relating to the Plan;
(e) determine the content and form of all Agreements;
(f) determine all questions relating to Awards under the
Plan;
(g) maintain accounts, records and ledgers relating to
Awards;
(h) maintain records concerning its decisions and
proceedings;
(i) employ agents, attorneys, accountants or other persons
for such purposes as the Committee considers necessary
or desirable;
(j) do and perform all acts which it may deem necessary and
appropriate for the administration of the Plan.
5.3 Determination. All determinations, interpretations, or other
actions made or taken by the Committee pursuant to the provisions of the Plan
shall be final, binding and conclusive for all purposes and upon all persons.
SECTION 6 - STOCK OPTIONS
6.1 Type of Option. It is intended that only non-qualified stock
options may be granted by the Committee under the Plan.
6.2 Grant of Option. An Option may be granted to Participants as such
time or times as shall be determined by the Committee. Each Option shall be
evidenced by an
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<PAGE>
Option Agreement that shall specify the exercise price, the duration of the
Option, the number of Shares to which the Option applies, and such other terms
and conditions not inconsistent with the Plan as the Committee shall determine.
6.3 Option Price. The per share Option price shall be determined by the
Committee at the time the Option is granted.
6.4 Exercise of Options. Options awarded under the Plan shall be
exercisable at such times and shall be subject to such restrictions and
conditions, including the performance of a minimum period of service after the
grant, as the Committee may impose, which need not be uniform for all
participants; provided, however, that no Option shall be exercisable more than
10 years after the date on which it is granted.
6.5 Payment. The Committee shall determine the procedures governing the
exercise of Options, and shall require that the per share Option price be paid
in full at the time of the exercise. The Committee may, in its discretion,
pennit a Participant to make payment in cash, in Shares already owned by the
Participant, valued at the Fair Market Value thereof, as partial or full payment
of the exercise price or through a "Cashless Exercise".
If a Participant elects to utilize a Cashless Exercise, he shall be
entitled to a credit equal to the amount of that equity by which the current
Fair Market Value exceeds the Option price on that number of Options surrendered
and to utilize that credit to exercise additional Options held by him that such
equity could purchase. There shall be canceled that number of Options utilized
for the credit and for the Options exercised for such credit. For example, if
the Participant has Options to acquire 10,000 shares which are exercisable,
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<PAGE>
the Fair Market Value is $4.15 per share, the exercise price is $3.15 per share,
and the Participant elects to utilize for a credit 5,000 options ($5,000), then
upon a Cashless Exercise in connection therewith he shall be entitled to acquire
1,587 shares of Common Stock in exchange for the options for 5,000 shares for
which a credit has been received and option for 1,587 shares have been
exercised. The Participant will still have exercisable options to acquire 3,413
shares of Common Stock.
As soon as practical after full payment of the exercise price, the
Company shall deliver to the Participant a certificate or certificates
representing the acquired shares.
6.6 Rights of a Shareholder. Until the exercise of an Option and the
issuance of the Shares in respect thereof, a Participant shall have no rights as
a Shareholder with respect to the Shares covered by such Option.
SECTION 7 - AMENDMENT, MODIFICATION AND TERMINATION OF PLAN
The Board of Directors at any time may terminate or suspend the Plan,
and from time to time may amend or modify the Plan or modify any option granted
under the Plan. No amendment, modification, or termination of the Plan shall in
any manner adversely affect any Award theretofore granted under the Plan without
the consent of the Participant.
SECTION 8 - MISCELLANEOUS PROVISIONS
8.1 No Guarantee of Employment by Participation. Nothing in the Plan
shall interfere with or limit in any way the right of the Company to terminate
any Participant's
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relationship with the Company at any time, nor confer upon any Participant any
right to continue in the employment of the Company. No employee shall have a
right to be selected as a Participant, or, having been so selected, to receive
any future Awards.
8.2 Tax Withholding. The Company shall have the authority to withhold,
or require a Participant to remit to the Company, an amount sufficient to
satisfy federal, state and local withholding tax requirements on any Award under
the Plan, and the Company may defer payment of cash or issuance of Shares until
such requirements are satisfied. The Committee may, in its discretion, permit a
Participant to elect, subject to such conditions as the Committee shall require,
to have Shares otherwise issuable under the Plan withheld by the Company and
having a Fair Market Value sufficient to satisfy all or part of the
Participant's estimated total federal, state and local tax obligation associated
with the transaction.
8.3 Governing Law. The Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the Code or Act,
shall be governed by the laws of the State of New York and construed in
accordance therewith.
8.4 Effective Date. This Plan is effective upon its adoption by the
Board on July 8, 1995. This Plan shall terminate at the close of business on
July 8, 2005, and no Option may be granted under the Plan thereafter, but such
termination shall not affect any Option theretofore granted.
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EXHIBIT 10.6
1999 STOCK OPTION PLAN
of
I.D. SYSTEMS INC.
1. PURPOSES OF THE PLAN. This stock incentive plan (the "Plan") is
designed to provide an incentive to key employees (including directors and
officers who are key employees) and to consultants and directors who are not
employees of I.D. Systems Inc., a Delaware corporation (the "Company"), and to
offer an additional inducement in obtaining the services of such persons. The
Plan provides for the grant of "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and nonqualified stock options which do not qualify as ISOs ("NQSOs").
The Company makes no representation or warranty, express or implied, as to the
qualification of any option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of Common Stock, $.01 par value per
share, of the Company ("Common Stock") for which options may be granted under
the Plan shall not exceed 812,500. Such shares of Common Stock may, in the
discretion of the Board of Directors of the Company (the "Board of Directors"),
consist either in whole or in part of authorized but unissued shares of Common
Stock or shares of Common Stock held in the treasury of the Company. Subject to
the provisions of Paragraph 13, any shares of Common Stock subject to an option
which for any reason expires, is canceled or is terminated unexercised or which
ceases for any reason to be exercisable, shall again become available for the
granting of options under the Plan. The Company shall at all times during the
term of the Plan reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Board of Directors or a committee of the Board of Directors (collectively,
the "Committee"). A majority of the members of the Committee shall constitute a
quorum, and the acts of a majority of the members present at any meeting at
which a quorum is present, and any acts approved in writing by all members
without a meeting, shall be the acts of the Committee.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion, to make all determinations
relating to the Plan, including, but not limited to, the right to determine: the
key employees, consultants and Non-Employee Directors (as defined in Paragraph
19) who shall be granted options; the type of option to be granted to a key
employee; the times when an option shall be granted; the number of shares of
Common Stock to be subject to each option; the term of each option; the date
each option shall become exercisable; whether an option shall be exercisable in
whole, in part or in installments and, if in installments, the number of shares
of Common Stock to be subject to each installment, whether
<PAGE>
the installments shall be cumulative, the date each installment shall become
exercisable and the term of each installment; whether to accelerate the date of
exercise of any option or installment; whether shares of Common Stock may be
issued upon the exercise of an option as partly paid and, if so, the dates when
future installments of the exercise price shall become due and the amounts of
such installments; the exercise price of each option; the form of payment of the
exercise price; whether to require the optionee to enter into a stockholder's
agreement with the Company as a condition to exercising any option; whether to
restrict the sale or other disposition of the shares of Common Stock acquired
upon the exercise of an option and, if so, whether and under what conditions to
waive any such restriction; whether and under what conditions to subject all or
a portion of the grant or exercise of an option or the shares acquired pursuant
to the exercise of an option to the fulfillment of certain restrictions or
contingencies as specified in the contract referred to in Paragraph 11 hereof
(the "Contract"), including without limitation, restrictions or contingencies
relating to entering into a covenant not to compete with the Company, to
financial objectives for the Company or a division of any of the foregoing, a
product line or other category, and/or to the period of continued employment of
the optionee with the Company, and to determine whether such restrictions or
contingencies have been met; whether an optionee is Disabled (as defined in
Paragraph 19); the amount, if any, necessary to satisfy the obligation of the
Company, to withhold taxes or other amounts; the fair market value of a share of
Common Stock; to construe the respective Contracts and the Plan; with the
consent of the optionee, to cancel or modify an option, provided, that the
modified provision is permitted to be included in an option granted under the
Plan on the date of the modification, and further, provided, that in the case of
a modification (within the meaning of Section 424(h) of the Code) of an ISO,
such option as modified would be permitted to be granted on the date of such
modification under the terms of the Plan; to prescribe, amend and rescind rules
and regulations relating to the Plan; and to make all other determinations
necessary or advisable for administering the Plan. Any controversy or claim
arising out of or relating to the Plan, any option granted under the Plan or any
Contract shall be determined unilaterally by the Committee in its sole
discretion. The determinations of the Committee on the matters referred to in
this Paragraph 3 shall be conclusive and binding on the parties. No member or
former member of the Committee shall be liable for any action, failure to act or
determination made in good faith with respect to the Plan, any Contract or any
option hereunder.
4. ELIGIBILITY. The Committee may from time to time, in its sole
discretion, consistent with the purposes of the Plan, grant options to (a) key
employees (including officers and directors who are key employees) of the
Company or any of its Subsidiaries, (b) consultants to the Company or any of its
Subsidiaries and (c) Non-Employee Directors. Such options granted shall cover
such number of shares of Common Stock as the Committee may determine, in its
sole discretion, as set forth in the applicable Contract; provided, however,
that the aggregate market value (determined at the time the option is granted in
accordance with Paragraph 5) of the shares of Common Stock for which any
eligible employee may be granted ISOs under the Plan or any other plan of the
Company which are exercisable for the first time by such optionee during any
calendar year shall not exceed $100,000; provided further, that the maximum
number of shares with respect to which ISOs may be granted under the Plan to any
eligible employee in any fiscal
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<PAGE>
year shall be 300,000. Such ISO limitation shall be applied by taking ISOs into
account in the order in which they were granted. Any option granted in excess of
such ISO limitation amount shall be treated as a NQSO to the extent of such
excess.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Committee, in its sole discretion,
as set forth in the applicable Contract; provided, however, that the exercise
price of an ISO shall not be less than the fair market value of the Common Stock
subject to such option on the date of grant; and further, provided, that if, at
the time an ISO is granted, the optionee owns (or is deemed to own under Section
424(d) of the Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, the exercise price of such ISO
shall not be less than 110% of the fair market value of the Common Stock subject
to such ISO on the date of grant.
The fair market value of a share of Common Stock on any day
shall be (a) if the principal market for the Common Stock is a national
securities exchange, the average of the highest and lowest sales prices per
share of Common Stock on such day as reported by such exchange or on a composite
tape reflecting transactions on such exchange, (b) if the principal market for
the Common Stock is not a national securities exchange and the Common Stock is
quoted on The Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price
information is available with respect to the Common Stock, the average of the
highest and lowest sales prices per share of Common Stock on such day on Nasdaq,
or (ii) if such information is not available, the average of the highest bid and
lowest asked prices per share of Common Stock on such day on Nasdaq, or (c) if
the principal market for the Common Stock is not a national securities exchange
and the Common Stock is not quoted on Nasdaq, the average of the highest bid and
lowest asked prices per share of Common Stock on such day as reported on the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; provided, however, that if clauses (a), (b) and (c) of this
Paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the fair market value of the Common Stock shall be
determined by the Board of Directors or the Committee by any method consistent
with applicable regulations adopted by the Treasury Department relating to stock
options.
6. TERM. The term of each option granted pursuant to the Plan shall
be such term as is established by the Committee, in its sole discretion, as set
forth in the applicable Contract; provided, however, that the term of each ISO
granted pursuant to the Plan shall be for a period not exceeding 10 years from
the date of grant thereof; and further, provided, that if, at the time an ISO is
granted, the optionee owns (or is deemed to own under Section 424(d) of the
Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company the term of the ISO shall be for a period not
exceeding five years from the date of grant. Options shall be subject to earlier
termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to
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<PAGE>
which such option is being exercised and accompanied by payment in full of the
aggregate exercise price therefor (or the amount due on exercise if the
applicable Contract permits installment payments) (a) in cash or by certified
check or (b) if the applicable Contract permits, with previously acquired shares
of Common Stock having an aggregate fair market value on the date of exercise
(determined in accordance with Paragraph 5) equal to the aggregate exercise
price of all options being exercised, or with any combination of cash, certified
check or shares of Common Stock having such value. The Company shall not be
required to issue any shares of Common Stock pursuant to any such option until
all required payments, including any required withholding, have been made.
A person entitled to receive Common Stock upon the exercise of
an option shall not have the rights of a stockholder with respect to such shares
of Common Stock until the date of issuance of a stock certificate for such
shares or in the case of uncertificated shares, an entry is made on the books of
the Company's transfer agent representing such shares; provided, however, that
until such stock certificate is issued or book entry is made, any optionee using
previously acquired shares of Common Stock in payment of an option exercise
price shall continue to have the rights of a stockholder with respect to such
previously acquired shares.
In no case may a fraction of a share of Common Stock be
purchased or issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be
expressly provided in the applicable Contract, an optionee whose relationship
with the Company, as an employee or a consultant has terminated for any reason
(other than as a result of the death or Disability of the optionee) may exercise
his options, to the extent exercisable on the date of such termination, at any
time within three months after the date of termination, but not thereafter and
in no event after the date the option would otherwise have expired; provided,
however, that if such relationship is terminated either (a) for Cause (as
defined in Paragraph 19), or (b) without the consent of the Company, such option
shall terminate immediately. Except as may otherwise be expressly provided in
the applicable Contract, options granted under the Plan to an employee or
consultant shall not be affected by any change in the status of the optionee so
long as the optionee continues to be an employee of, or a consultant to, the
Company.
For the purposes of the Plan, an employment relationship shall
be deemed to exist between an individual and the Company. If at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company, is guaranteed either by statute or by contract.
If the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.
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Except as may otherwise be expressly provided in the
applicable Contract, an optionee whose relationship with the Company as a
Non-Employee Director ceases for any reason (other than as a result of his death
or Disability) may exercise his options, to the extent exercisable on the date
of such termination, at any time within three months after the date of
termination, but not thereafter and in no event after the date the option would
otherwise have expired; provided, however, that if such relationship is
terminated for Cause, such option shall terminate immediately. Except as may
otherwise be expressly provided in the applicable Contract, options granted to a
Non-Employee Director shall not be affected by the optionee becoming an employee
of the Company.
Nothing in the Plan or in any option granted under the Plan
shall confer on any optionee any right to continue in the employ of, or as a
consultant to, the Company or as a director of the Company, or interfere in any
way with any right of the Company to terminate the optionee's relationship at
any time for any reason whatsoever without liability to the Company.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an optionee dies (a) while he
is an employee of, or consultant to, the Company, (b) within three months after
the termination of such relationship (unless such termination was for Cause or
without the consent of the Company) or (c) within one year following the
termination of such relationship by reason of his Disability, the options that
were granted to him as an employee or consultant may be exercised, to the extent
exercisable on the date of his death, by his Legal Representative (as defined in
Paragraph 19) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the
applicable Contract, any optionee whose relationship as an employee of, or
consultant to, the Company, has terminated by reason of such optionee's
Disability may exercise the options that were granted to him as an employee or
consultant, to the extent exercisable upon the effective date of such
termination, at any time within one year after such date, but not thereafter and
in no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the
applicable Contract, any optionee whose relationship as a Non-Employee Director
ceases as a result of his death or Disability may exercise the options that were
granted to him as a Non-Employee Director, to the extent exercisable on the date
of such termination, at any time within one year after the date of termination,
but not thereafter and in no event after the date the option would otherwise
have expired. In the case of the death of the Non-Employee Director, the option
may be exercised by his Legal Representative.
10. COMPLIANCE WITH SECURITIES LAWS. The Committee may require, in
its sole discretion, as a condition to the exercise of any option that either
(a) a Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of
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Common Stock to be issued upon such exercise shall be effective and current at
the time of exercise, or (b) there is an exemption from registration under the
Securities Act for the issuance of the shares of Common Stock upon such
exercise. Nothing herein shall be construed as requiring the Company to register
shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
The Committee may require, in its sole discretion, as a
condition to the receipt of an option or the exercise of any option that the
optionee execute and deliver to the Company his representations and warranties,
in form, substance and scope satisfactory to the Committee, which the Committee
determines are necessary or convenient to facilitate the perfection of an
exemption from the registration requirements of the Securities Act, applicable
state securities laws or other legal requirement, including without limitation
that (a) the shares of Common Stock to be issued upon the exercise of the option
are being acquired by the optionee for his own account, for investment only and
not with a view to the resale or distribution thereof, and (b) any subsequent
resale or distribution of shares of Common Stock by such optionee will be made
only pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior to any offer of
sale or sale of such shares of Common Stock provide the Company with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in
its sole discretion, that the listing or qualification of the shares of Common
Stock subject to any option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental agency or
regulatory body, is necessary or desirable as a condition to, or in connection
with, the granting of an option or the issuing of shares of Common Stock
thereunder, such option may not be granted and such option may not be exercised
in whole or in part unless such listing, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
11. CONTRACTS. Each option shall be evidenced by an appropriate
Contract which shall be duly executed by the Company and the optionee, and shall
contain such terms, provisions and conditions not inconsistent herewith as may
be determined by the Committee. The terms of each option and Contract need not
be identical.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Except as may be
specifically provided in the applicable Contract, notwithstanding any other
provision of the Plan, in the event of:
(a) a stock dividend, recapitalization, or a spin-off,
split-up, combination or exchange of shares or the like which results in a
change in the number or kind of shares of Common Stock which is outstanding
immediately prior to such event, the Committee shall
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appropriately adjust the aggregate number and kind of shares subject to the
Plan, the aggregate number and kind of shares subject to each outstanding option
and the exercise price thereof. Such adjustments shall be conclusive and binding
on all parties and may provide for the elimination of fractional shares which
might otherwise be subject to options without payment therefor.
(b) a merger, consolidation, or sale by the Company of all or
substantially all of its assets, in which the Company is not the surviving
corporation, except as set forth below, the options granted hereunder as of the
date of such event shall continue to be outstanding and the optionee shall be
entitled to receive in exchange therefor an option in the surviving corporation
for the same number of shares as he would have been entitled to receive if he
had exercised the options granted hereunder immediately prior to the transaction
and actually owned the shares of common stock subject to such option. The
exercise price of the option in the surviving corporation shall be such that the
aggregate consideration for the shares of stock subject to the option in the
surviving corporation shall be equal to the aggregate consideration payable with
respect to the option granted under the Plan.
Notwithstanding the foregoing, the Company shall have the
right, by written notice, provided to an optionee sent no later than 15 days
prior to the proposed sale of assets, merger or consolidation (as determined by
the Board of Directors in its sole discretion), to advise the optionee that upon
consummation of the transaction all options granted to any optionee under the
Plan shall terminate and be void, in which event, the optionee shall have right
to exercise all options then currently exercisable in accordance with the terms
of the applicable option Contract within 10 days after the date of the notice
from the Company.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by
the Board of Directors on April , 1999. No ISO may be granted under the Plan
after April , 2009. The Board of Directors, without further approval of the
Company's stockholders, may at any time suspend or terminate the Plan, in whole
or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with any change in applicable law, regulations, rulings or interpretations of
any administrative agency; provided, however, that no amendment shall be
effective without the requisite prior or subsequent stockholder approval which
would (a) except as contemplated in Paragraph 12, increase the maximum number of
shares of Common Stock for which options may be granted under the Plan, (b)
change the eligibility requirements to receive options hereunder or (c) make any
other change for which applicable law requires stockholder approval. No
termination, suspension or amendment of the Plan shall, without the consent of
the optionee, adversely affect his rights under any option granted under the
Plan. The power of the Committee to construe and administer any option granted
under the Plan prior to the termination or suspension of the Plan nevertheless
shall continue after such termination or during such suspension.
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14. NON-TRANSFERABILITY. No option granted under the Plan shall be
transferable otherwise than by will or the laws of descent and distribution, and
options may be exercised, during the lifetime of the optionee, only by the
optionee or his Legal Representatives. Except to the extent provided above,
options may not be assigned, transferred, pledged, hypothecated or disposed of
in any way (whether by operation of law or otherwise) and shall not be subject
to execution, attachment or similar process, and any such attempted assignment,
transfer, pledge, hypothecation or disposition shall be null and void ab initio
and of no force or effect.
15. WITHHOLDING TAXES. The Company, may withhold (a) cash, (b)
shares of Common Stock to be issued upon exercise of an option having an
aggregate fair market value on the relevant date (determined in accordance with
Paragraph 5), or (c) any combination thereof, in an amount equal to the amount
which the Committee determines is necessary to satisfy the obligation of the
Company, to withhold Federal, state and local income taxes or other amounts
incurred by reason of the grant, vesting, exercise or disposition of an option,
or the disposition of the underlying shares of Common Stock. Alternatively, the
Company may require the holder to pay to the Company such amount, in cash,
promptly upon demand.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws, (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock, including any stockholder's agreement, or (c)
permit the Company to determine the occurrence of a "disqualifying disposition,"
as described in Section 421(b) of the Code, of the shares of Common Stock issued
or transferred upon the exercise of an ISO granted under the Plan. Each optionee
may, in the Committee's discretion, be required to execute a stockholders'
agreement as a condition to receiving a grant of options hereunder.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds received upon the exercise
of an option under the Plan shall be added to the general funds of the Company
and used for such corporate purposes as the Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.
-8-
<PAGE>
19. DEFINITIONS. For purposes of the Plan, the following terms
shall be defined as set forth below:
(a) "Cause" shall mean (i) in the case of an employee or
consultant, if there is a written employment or consulting agreement between the
optionee and the Company, any of its Subsidiaries or a Parent which defines
termination of such relationship for cause, cause as defined in such agreement,
and (ii) in all other cases, cause as defined by applicable state law.
(b) "Constituent Corporation" shall mean any corporation which
engages with the Company, any of its Subsidiaries or a Parent in a transaction
to which Section 424(a) of the Code applies (or would apply if the option
assumed or substituted were an ISO), or any Parent or any Subsidiary of such
corporation.
(c) "Disability" shall mean a permanent and total disability
within the meaning of Section 22(e)(3) of the Code.
(d) "Legal Representative" shall mean the executor,
administrator or other person who at the time is entitled by law to exercise the
rights of a deceased or incapacitated optionee with respect to an option granted
under the Plan.
(e) "Non-Employee Director" shall mean a person who is a
director of the Company, but is not an employee of the Company, any of its
Subsidiaries or a Parent.
(f) "Parent" shall have the same definition as "parent
corporation" in Section 424(e) of the Code.
(g) "Subsidiary" shall have the same definition as "subsidiary
corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, the options and
Contracts hereunder and all related matters shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without regard to
conflict of law provisions.
Neither the Plan nor any Contract shall be construed or
interpreted with any presumption against the Company by reason of the Company
causing the Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan, any option or Contract shall not
affect the validity, legality or enforceability of any other provision, all of
which shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
-9-
<PAGE>
22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by
the Company's stockholders.
-10-
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on
Form SB-2 of our report dated April 20, 1999 on the financial statements of I.D.
Systems, Inc. as of December 31, 1998 and for the years ended December 31, 1997
and December 31, 1998. We also consent to the reference to our firm under the
caption Experts in the Prospectus.
/s/ Richard A. Eisner & Company, LLP
New York, New York
April 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000049615
<NAME> I.D. SYSTEMS INC.
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 1,130,000
<SECURITIES> 0
<RECEIVABLES> 741,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,982,000
<PP&E> 188,000
<DEPRECIATION> 71,000
<TOTAL-ASSETS> 2,102,000
<CURRENT-LIABILITIES> 884,000
<BONDS> 0
0
0
<COMMON> 34,000
<OTHER-SE> 974,000
<TOTAL-LIABILITY-AND-EQUITY> 2,102,000
<SALES> 0
<TOTAL-REVENUES> 3,324,000
<CGS> 0
<TOTAL-COSTS> 1,633,000
<OTHER-EXPENSES> 1,147,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,000
<INCOME-PRETAX> 521,000
<INCOME-TAX> 45,000
<INCOME-CONTINUING> 476,000
<DISCONTINUED> 0
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