<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-20634
INFORMATION RESOURCE ENGINEERING, INC.
(Exact name of registrant as specified in its charter)
------------
Delaware 52-1287752
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8029 Corporate Drive, Baltimore, Md. 21236
------------------------------------------
(Address of principal executive offices)
(410) 931-7500
--------------
(Registrant's telephone number)
Indicate by a check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's Common Stock as of November
10, 1997 was 5,462,727.
<PAGE> 2
INFORMATION RESOURCE ENGINEERING, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Balance Sheets as of December 31, 1996 and September 3
30, 1997
Consolidated Statements of Operations for the three months and
nine months ended September 30, 1996 and 1997 4
Consolidated Statements of Stockholders' Equity for the nine
months ended September 30, 1996 and 1997 5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
PART II. OTHER INFORMATION 11
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 11
</TABLE>
2
<PAGE> 3
INFORMATION RESOURCE ENGINEERING, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
----------------- ------------
Assets (Note) (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $11,916,991 $ 3,673,637
Short-term investments 2,311,980 5,416,022
Accounts receivable 1,564,381 3,829,535
Inventories 3,543,995 3,254,950
Prepaid expenses 101,843 261,763
------------ ------------
Total current assets 19,439,190 16,435,907
Equipment and leasehold improvements, net of accumulated
depreciation of $847,747 and $1,228,228 1,842,725 1,659,640
Computer software development costs, net of accumulated
amortization of $336,525 and $427,482 1,142,352 1,349,247
Goodwill, net of accumulated amortization of $142,662 and $234,405 1,080,568 988,825
Prepaid license fee 1,000,000 982,500
Other assets 148,406 416,077
------------ -----------
$24,653,241 $21,832,196
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 18,480 $ 21,485
Accounts payable 1,288,929 964,491
Accrued expenses 1,317,389 1,703,944
Advance payments and deferred revenue 150,498 628,816
----------- -----------
Total current liabilities 2,775,296 3,318,736
Long-term debt, less current maturities 16,710 --
----------- -----------
Total liabilities 2,792,006 3,318,736
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value per share.
Authorized 500,000 shares, issued and outstanding, none -- --
Common stock, $.01 par value per share.
Authorized 15,000,000 shares, issued and outstanding 5,458,127
shares in 1996 and 5,462,727 in 1997 54,581 54,627
Additional paid-in capital 30,917,584 30,929,277
Deficit (8,597,003) (11,728,264)
Cumulative foreign currency adjustment (513,927) (742,180)
----------- -----------
Net stockholders' equity 21,861,235 18,513,460
----------- -----------
$24,653,241 $21,832,196
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
INFORMATION RESOURCE ENGINEERING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -----------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 2,673,524 $ 4,039,359 $11,069,759 $10,926,088
Cost of revenues 1,157,641 1,717,525 5,966,654 4,768,566
----------- ----------- ----------- -----------
Gross profit 1,515,883 2,321,834 5,103,105 6,157,522
Operating expenses
Research and development expenses 954,043 862,501 2,738,802 2,756,829
Sales and marketing expenses 1,347,107 1 ,649,591 3,193,030 4,932,701
General and administrative expenses 831,008 683,478 1,901,347 1,898,490
Amortization of acquired intangible assets 183,162 30,581 549,486 91,743
----------- ----------- ----------- -----------
3,315,320 3,226,151 8,382,665 9,679,763
----------- ----------- ----------- -----------
Operating loss (1,799,437) (904,317) (3,279,560) (3,522,241)
Interest income, net 213,230 115,204 544,164 390,980
----------- ----------- ---------- -----------
Loss before income taxes (1,586,207) (789,113) (2,735,396) (3,131,261)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $(1,586,207) $ (789,113) $(2,735,396) $(3,131,261)
=========== =========== =========== ===========
Loss per common share $ (.29) $ (.14) $ (.52) $ (.57)
=========== =========== =========== ===========
Weighted average number of shares outstanding 5,434,616 5,462,528 5,254,445 5,461,239
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
INFORMATION RESOURCE ENGINEERING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common stock Additional Cumulative Net
------------ paid-in foreign currency stockholders'
Shares Amount capital Deficit adjustment equity
------ --------- ----------- ------- --------------- ------------
Nine Months Ended September 30, 1996
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period 4,244,829 $42,448 $ 9,712,777 $(1,512,453) $ (26,310) $ 8,216,462
Sale of common stock,
net of offering
expenses 1,172,500 11,725 21,023,045 -- -- 21,034,770
Stock options
exercised 33,400 334 111,215 -- -- 111,549
Net loss -- -- -- (2,735,396) -- (2,735,396)
Foreign currency
translation
adjustment -- -- -- -- (282,098) (282,098)
------------- ------- ------------ ----------- ---------- ------------
Balance at end of
period 5,450,729 $54,507 $30,847,037 $(4,247,849) $ (308,408) $26,345,287
============= ======== =========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Common stock Additional Cumulative Net
------------ paid-in foreign currency stockholders'
Shares Amount capital Deficit adjustment equity
------ --------- ----------- ------- --------------- ------------
Nine Months Ended September 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period 5,458,127 $54,581 $30,917,584 $(8,597,003) $ (513,927) $21,861,235
Stock options
exercised 4,600 46 11,693 -- -- 11,739
Net loss -- -- -- (3,131,261) -- (3,131,261)
Foreign currency
translation
adjustment -- -- -- -- (228,253) (228,253)
---------- ------- ----------- ------------ ----------- -----------
Balance at end of
period 5,462,727 $54,627 $30,929,277 $(11,728,264) $ (742,180) $18,513,460
========== ======= =========== ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
INFORMATION RESOURCE ENGINEERING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
---- -----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,735,396) $(3,131,261)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation of equipment 292,921 400,868
Amortization of computer software development costs 120,732 98,457
Amortization of acquired intangible assets 549,486 91,743
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable 2,099,042 (2,315,166)
(Increase) decrease in inventories (1,603,847) 183,747
Increase in prepaid expenses ( 78,771) (159,819)
Increase (decrease) in accounts payable 899,042 (285,356)
Increase (decrease) in accrued expenses (29,093) 430,240
Increase (decrease) in advance payments
and deferred revenues (54,480) 478,318
Other (127,006) 32,329
-------- -----------
Net cash used in operating activities (667,370) (4,175,900)
-------- -----------
Cash flows from investing activities:
Purchase of short-term investments -- (6,497,042)
Sales of short-term investments -- 3,393,000
Equipment expenditures (682,338) (232,484)
Additions to computer software development costs (346,530) (297,852)
Prepaid license fee (1,000,000) --
Other -- (290,000)
----------- -----------
Net cash used in investing activities (2,028,868) (3,924,378)
----------- -----------
Cash flows from financing activities:
Payments of notes payable (4,053,416) --
Proceeds from sale of common stock, net of offering expense 21,146,319 11,739
Payments of long-term debt (76,611) (13,705)
----------- -----------
Net cash provided by (used in) financing activities 17,016,292 (1,966)
----------- -----------
Effect of exchange rate changes on cash (76,903) (141,110)
----------- -----------
Net increase (decrease) in cash and cash equivalents 14,243,151 (8,243,354)
Cash and cash equivalents at beginning of period 2,656,494 11,916,991
----------- -----------
Cash and cash equivalents at end of period $16,899,645 $ 3,673,637
=========== ===========
Cash paid for
Interest expense $ 154,052 $ 2,387
=========== ===========
Income taxes $ -- $ --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE> 7
INFORMATION RESOURCE ENGINEERING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
reporting and instructions to Form 10-Q. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation have been included.
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
(2) Revenues
One commercial client accounted for 12% of revenues in the nine month period
ended September 30, 1997. A second commercial client accounted for 34% of
revenues in the nine month period ended September 30, 1996.
Revenues from foreign clients were 43% and 46% in the nine month periods ended
September 30, 1996 and 1997, respectively. The majority of these revenues were
derived from sales to unaffiliated customers of the Company by its Swiss
subsidiary.
(3) Inventories
Inventories consists of the following at September 30, 1997:
<TABLE>
<S> <C>
Raw materials $1,363,741
Finished goods 1,891,209
----------
Total $3,254,950
==========
</TABLE>
(4) Accrued Expenses
Accrued expenses consists of the following at September 30, 1997:
<TABLE>
<S> <C>
Accrued salaries and commissions $1,162,767
Other 541,177
-----------
Total $1,703,944
===========
</TABLE>
(5) Income Taxes
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which temporary differences become deductible and net operating
losses are allowable. Based on consideration of the above factors, management
determined an increase in the valuation allowance of $952,500 and $1,155,000
was required at September 30, 1996 and 1997, respectively. This is an increase
of $580,000 and $284,000 for the three months ended September 30, 1996 and
1997, respectively. The cumulative valuation allowance at September 30, 1997
was $3,575,000.
(6) Loss per Common Share
The loss per common share for the three month and nine month periods ended
September 30, 1996 and 1997 was computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during each period
and common stock equivalents, to the extent they result in additional per share
dilution, arising from the assumed exercise of outstanding stock options and
warrants under the treasury stock method.
7
<PAGE> 8
INFORMATION RESOURCE ENGINEERING, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(UNAUDITED) (Continued)
(6) Continued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share, was issued in February 1997 and, effective for financial statements
issued for periods ending after December 15, 1997, establishes standards for
computing and presenting earnings per share ("EPS"). SFAS No. 128 replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the consolidated
statement of operations and requires reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Earlier application is not permitted, however,
adoption will not have a material effect on EPS.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained herein, the statements in this
Item are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecasted results. Those risks include, among others, risks
associated with the receipt and timing of future customer orders, price
pressures and other competitive factors leading to a decrease in anticipated
revenues and gross profit margins.
Overview
The Company designs, manufactures and markets enterprise network security
solutions using encryption technology. The Company's products are used in
electronic commerce applications by financial institutions, government agencies
and large corporations to secure data transmissions on private and public
computer networks, such as the Internet. The Company's Swiss subsidiary,
GRETACODER Data Systems AG ("GDS"), designs, manufactures and markets
cryptographic equipment primarily in Switzerland and Europe.
The Company's historical operating results have been dependent on a variety
of factors including, but not limited to, the length of the sales cycle, the
timing of orders from and shipments to clients, product development expenses and
the timing of development and introduction of new products. The Company's
expense levels are based, in part, on expectations of future revenues. The size
and timing of the Company's historical revenues have varied substantially from
quarter to quarter and year to year. Accordingly, the results of a particular
period, or period to period comparisons of recorded sales and profits may not be
indicative of future operating results.
While Management is committed to the long-term profitability of the Company,
the recent growth of the computer security industry has made it important that
market share be obtained. The Company has undertaken various strategies in order
to increase its revenues and improve its future operating results, including
new product offerings such as its SafeNet/Enterprise(TM) products for the
Internet and the SafeNet/Security Center(TM), a high performance workstation
which automatically manages SafeNet/Enterprise(TM) products. Management
believes that growth in the market for products that provide secure remote
access to computer networks requires the Company to continue its investment in
development, sales and marketing activities to allow the Company to take
advantage of this market opportunity and to achieve long-term profitability
thereby maximizing shareholder value. However, there can be no assurance that
these strategies will be successful.
8
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations of the Company
The following table sets forth certain Consolidated Statement of
Operations data of the Company as a percentage of revenues for the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1996 1997 1996 1997
-------- --------- ------- ------
<S> <C> <C> <C> <C>
Revenues 100 % 100 % 100 % 100 %
Cost of revenues 43 43 54 44
--- --- --- ---
Gross profit 57 57 46 56
Operating expenses
Research and development expenses 36 21 25 25
Sales and marketing expenses 50 41 29 45
General and administrative expenses 31 17 17 17
Amortization of acquired intangible assets 7 1 5 1
--- ---- ---- ----
124 80 76 88
--- --- ---- ---
Operating loss (67) (23) (30) (32)
Interest income, net 8 3 5 3
---- ---- ---- ----
Loss before income taxes (59) (20) (25) (29)
Income taxes -- -- -- --
--- --- --- ---
Net loss (59) % (20) % (25) % (29) %
== == == ==
</TABLE>
Nine Months ended September 30, 1997 Compared to Nine Months ended September
30, 1996
Revenues decreased by 1% to $10,926,088 for the nine months ended
September 30, 1997, from $11,069,759 for the same period in 1996. During 1997
the Company was able to generate revenues from new and existing clients that
nearly offset the loss of revenue due to the termination of the product
agreement with MCI Telecommunications Corporation ("MCI")and lower revenues
from GDS. Revenues from MCI were $3,795,000 in 1996. While the Swiss franc
revenue of GDS decreased 5% (equivalent to $243,000), the exchange rate decline
resulted in an additional period to period decrease in revenues of $688,000.
Revenues from product development increased by $2,268,000 as a result of two
contracts.
Cost of revenues decreased to 44% for the nine months ended September 30,
1997 compared to 54% for the same period in 1996. The 1996 cost of revenues
included $236,000 for amortization of a purchase accounting adjustment to the
carrying value of GDS inventory. Without this charge, the cost of revenues was
52% in 1996. During 1996, the Company realized a lower gross profit on the
SafeNet dial access products sold to MCI in order to obtain increased market
share. SafeNet/Trusted Services ("Services"), a provider of virtual private
network security management, started generating revenue in 1997. On a pro forma
basis with revenues and cost of revenues from product development and Services
removed, cost of revenues was 42% for the current period.
Sales and marketing expenses increased by 54% to $4,932,701 compared to
$3,193,030 for the same period in 1996. The increase is primarily related to
increased personnel related costs associated with the expansion of the sales and
marketing staffs ($1,352,000) and with the increased sales and marketing
activities ($387,000).
During the fourth quarter of 1996, the Company took a one-time charge
related to the write-off of the unamortized acquired intangible assets from the
acquisition of Connective Strategies, Inc. As a result, the amortization of
acquired intangible assets has now been reduced.
The Company had no income tax benefit in either period. A valuation
allowance has been established since the Company's ability to use the net
operating loss is dependent upon future taxable income.
The Company had a net loss of $3,131,261 for the nine months ended September
30, 1997 compared to a net loss of $2,735,396 for the same period in 1996. The
loss per common share was $.57 in 1997 compared to $.52 in 1996.
9
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Three Months ended September 30, 1997 Compared to Three Months ended September
30, 1996
Revenues increased 51% to $4,039,359 for the three months ended September
30, 1997, from $2,673,524 for the same period in 1996. It should be noted that
the 1996 quarterly revenues were significantly lower due in a large part to the
termination of the MCI agreement in the quarter. While the Swiss franc revenues
of GDS decreased 2% (equivalent to $30,000), the exchange rate decline resulted
in an additional period to period decrease in revenues of $328,000. Revenues
from product development increased $1,034,552 in 1997.
Cost of revenues was 43% for both periods. On a pro forma basis with
revenues and cost of revenues from product development and Services removed,
cost of revenues was 44% for the current quarter.
Sales and marketing expenses increased by 22% to $1,649,591 compared to
$1,347,107 for the same period in 1996. The 1997 quarterly expense is consistent
with the total expense for each of the first two quarters of this year.
General and administrative expenses decreased by 18% to $683,478 compared to
$831,008 for the same period in 1996 which included start up expenses for
Services.
As previously explained, the quarterly amortization of acquired intangible
assets has been reduced.
The Company had no income tax benefit in either period. A valuation
allowance has been established since the Company's ability to use the net
operating loss is dependent upon future taxable income.
The Company had a net loss of $789,113 for the three months ended September
30, 1997 compared to a net loss of $1,586,207 for the same period in 1996. The
loss per common share was $.14 in 1997 compared to $.29 in 1996.
This net loss is an improvement of 14% from the net loss of $918,003 for the
three months ended June 30, 1997. Increased revenues combined with an improved
gross margin and tight control of operating expenses are the reasons for the
lower loss. Total operating expenses were $3,226,151 for the three months ended
September 30, 1997 compared to $3,201,497 for the three months ended June 30,
1997.
Liquidity and Financial Position of the Company
The Company believes that its current cash resources, together with cash
flows from operations, will be sufficient to meet its needs for the next year.
As of September 30, 1997, the Company had cash, short-term investments and
accounts receivable totaling $12,919,000 and a backlog of $4,222,000.
Significant uses of the Company's cash balances during the first nine months
of 1997 included the purchase net of sales of short-term investments
($3,104,000), other investment activities ($820,000) and the funding of
operating activities ($4,176,000). Accounts receivable increased by $2,315,000
due to a large volume of shipments in the last month of the period.
In August 1996, the Company signed a Joint Development and Marketing
Agreement with CyberGuard Corporation ("CyberGuard"). The companies have
developed and are marketing a product that combines the Company's
SafeNet/Enterprise products and CyberGuard's Firewall product. In connection
therewith, the Company has prepaid a refundable $1.0 million license fee to
CyberGuard which it believes will be recovered through purchases of Firewall
products.
During 1996, the Company experienced an increase in its finished goods
inventory as a result of the cancellation of the MCI contract. These internet
security products were produced in anticipation of being shipped to MCI. While
the Company believes that it will sell these products during the next twelve
months, there can be no assurance that they will be sold during this period.
INFLATION AND SEASONALITY
The Company does not believe that inflation will significantly impact its
business, The Company does not believe its business is seasonal, however,
because the Company revenues upon shipment of finished products, such
recognition may be irregular and uneven, thereby disparately impacting quarterly
operating results and balance sheet comparisons.
10
<PAGE> 11
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting Of Shareholders was held on July 17, 1997.
b) The following five directors were elected for a term of one year
or until their respective successors have duly elected or
appointed: Anthony A. Caputo, Ira A. Hunt, Jr., Douglas E. Kozlay,
Jill Leukhardt and Bruce R. Thaw.
c) The shareholders approved the amendment of the Company's Stock
Option Plan to increase the number of common shares issuable under
the Plan from 996,000 to 1,496,000. There were 2,783,631 votes
cast in favor of, and 386,063 votes were cast against, the
resolution. There were 59,961 votes abstaining and 1,910,923 broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-B.
10.A. Agreement between the Registrant and Lockheed Martin
Corporation Information Systems & Technologies
10.B. Agreement between IRE Secure solutions, Inc. (wholly-owned
subsidiary of the Registrant) and Analog Devices, Inc.
11 Statement re computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INFORMATION RESOURCE ENGINEERING, INC.
November 13, 1997
By:/s/Anthony A. Caputo
--------------------
ANTHONY A. CAPUTO,
Chairman, President and Chief Executive Officer
November 13, 1997
By:/s/Richard G. Tennant
----------------------
RICHARD G. TENNANT,
Senior Vice President,
Chief Financial Officer
11
<PAGE> 1
Agreement between Lockheed Martin Corporation Information Systems &
Technologies ("Lockheed"), a Maryland Corporation, with offices at 640 Freedom
Business Center, King of Prussia, PA 19406 and Information Resource Engineering
Incorporated ("IRE"), a Delaware Corporation with offices at 8029 Corporate
Drive, Baltimore, MD 21236, is made and effective on the date of the second
signature affixed hereto.
W I T N E S S E T H:
WHEREAS, IRE designs, manufactures and markets enterprise network
security products, including encrypting modem-related hardware, software and
documentation, and key management services through its SafeNet/ Security Center;
WHEREAS, Lockheed provides to its clients full service system
integration services, program management, business reengineering, needs
assessment, operational requirements, definition, design, development,
installation, test, training, operations, client-server systems, distributed
database and image management and open system planning and implementation;
WHEREAS, Lockheed and IRE intend to cooperate in order to provide
full service systems integration, hardware and software to serve the secure
network solutions market for the financial services, insurance or systems
integration markets.
WHEREAS, Lockheed and IRE desire to initially establish terms to
govern a joint marketing and selling program (the "Program") under which
Lockheed and IRE may jointly market certain existing IRE/SafeNet Products and
services to third parties ("Customers").
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises and commitments set forth below the parties agree as follows:
1.0 DEFINITIONS
As used herein, the following words or phrases have the following
meanings:
a. "Intellectual Property" means any and all inventions,
improvements, enhancements, methods, designs, know-how,
trade secrets, software, hardware, circuits, products,
documentation, mask works, layouts, ornamental designs,
trademarks, service marks, trade dress, company names,
brand names, logos, and fictitious names, together with
any and all worldwide vested and/or inchoate rights in and
to any or all of the foregoing under any issued, pending
and/or later filed applications for patent or copyright
registration, trademark and/or service mark registration,
utility models and/or any other form of protection of
various forms of intellectual and/or industrial property
recognized anywhere in the world including any and all
rights of domestic and/or foreign priority, the right to
sue and recover damages for infringements including,
without limitation, any past infringements.
b. "IRE Property" means any and all Intellectual Property
owned by IRE as of the Effective Date or developed
thereafter solely by or on behalf of IRE, and expressly
excludes any Lockheed Property.
c. "IRE/SafeNet Products" shall consist of the SafeNet/Dial,
SafeNet/LAN, SafeNet/Security Center and SafeNet/Security
Services.
<PAGE> 2
d. "Proprietary Information" means proprietary rights in, and
to, all computer programs, source code, algorithms,
software routines, microcode and other similar data
pertaining to IRE/SafeNet Products.
e. "Term" means the period from the Effective Date through
the Termination Date.
f. "Termination Date" means any date upon which this
Agreement shall terminate in accordance with the terms
hereof, or two years from the Effective Date, whichever is
earlier.
2.0 SCHEDULES
This Agreement contemplates the possible future execution by the
parties of one or more Schedules. Each Schedule shall automatically be deemed to
include all the terms and provisions of this Agreement, provided, however, that:
(a) The parties hereto may otherwise agree in writing; and
(b) Whenever the provisions of a Schedule conflict with the
provisions of this Agreement, the conflicting provisions
of the Schedule shall control and take precedence over the
conflicting provisions of this Agreement, but only for
purposes of such Schedule and, except for such conflicting
provisions of the Schedule, the terms and conditions of
this Agreement shall not be deemed amended, modified,
canceled, waived or released.
(c) Each Schedule hereafter entered into by the parties
pursuant to this Agreement shall incorporate this
Agreement by reference.
3.0 PROGRAMS, PRODUCTS AND SERVICES
3.1 Schedule A will govern sales and marketing activity under the
Program. Schedule A identifies the IRE/SafeNet Products, technical consulting
and other services that are included initially in the Program as well as the
sales and marketing responsibilities of Lockheed. Lockheed and IRE may by joint
agreement modify the pricing discounts or the list of its products or services
included in the Program. For IRE products sold under the Program, IRE will
provide its products and services to all qualified Customers (as defined in
Schedule A) at the pricing discounts identified therein.
3.2 The parties agree to promote, market, and advertise the existence
and use of the Program to their respective sales forces.
3.3 Subject to the terms and conditions of this Agreement, Lockheed
agrees to purchase and, and IRE agrees to sell, the IRE/SafeNet Products,
technical consulting and other services specified on Schedule A to this
Agreement, and IRE hereby grants Lockheed the non-transferable, non-exclusive
right to use the IRE/SafeNet Products to be sold, leased, rented, licensed or
otherwise transferred by Lockheed to its Customers, including the right to
sublicense software programs included in the IRE/SafeNet Products.
3.4 Lockheed agrees to purchase from IRE during the term of this
Agreement the minimum number of units and/or dollar amount of IRE/SafeNet
Products and/or technical consulting and other services as specified
- 2 -
<PAGE> 3
on Schedule B hereto (the "Minimum Purchase Commitment"). Schedule B also sets
forth an Additional Purchase Target which Lockheed, in good faith, intends to
purchase from IRE. Lockheed's obligation to purchase IRE/SafeNet Products and/or
technical consulting and other services characterized as an Additional Purchase
Target will be dependent upon Lockheed's internal budgetary and program
approvals.
3.5 IRE shall make available to Lockheed those items of the following
services, as are reasonably necessary, to support Lockheed's sales activities:
(i) technical engineering and sales assistance; (ii) assistance in outlining
attainable markets and providing marketing direction; and (iii) IRE shall use
its best efforts to convey to Lockheed the release dates for all of its products
as set forth on its Schedule B as well as new and revised product versions.
4.0 Opportunities. For each opportunity, a baseline agreement will be developed
between the parties and used as a guideline for the work to be performed by each
party on behalf of the Customer. The parties shall mutually determine which
party will take the lead or prime role, depending upon the circumstances and the
skills necessary to satisfy the Customer's needs. Once the prime role is
established, the prime party's sales representative will be responsible for
interfacing with the prospective Customer on contract issues and for securing a
signed contract document. Where a proposal from the parties results in an award,
the prime contractor as designated in the proposal shall award a subcontract to
the other party for the work outlined in the proposal unless directed otherwise
by the prospective Customer. Reasonable efforts to retain the subcontractor
party will be made by the prime contractor party.
5.0 Customer Relationships Each party shall act independently of the other party
regarding Customer contacts, Customer accounts, and sales territories, Neither
party shall represent the other party in any sales effort, unless otherwise
agreed. All Customer lists and account information are considered the exclusive
property of each party and will not normally be shared or released to the other
party, however, in those instances where it is shared between the parties it
will be handled as confidential information pursuant to the Nondisclosure
Agreement set forth as Schedule C hereto. Post-sale Customers, unless otherwise
agreed on an individual case basis, will have a direct relationship with
Lockheed and IRE, for their respective services and goods. Unless otherwise
agreed by the parties IRE will provide order entry capability for the IRE
products and services offered in the Program.
6.0 IRE Products and Service Standards IRE will make its products available to
Customers under the Program in accordance with Schedule A unless otherwise
agreed with the Customer or Lockheed. IRE shall be exclusively responsible for
establishing all terms and conditions, consistent with this Agreement,
applicable to the sale of its products or services to Customers, including but
not limited to all applicable warranty, maintenance, support, service and return
policy requirements associated therewith. IRE agrees and warrants that all
products and services under this Program will comply with any and all applicable
laws and regulations of all applicable jurisdictions.
7.0 Program Management The parties will each appoint a Program Manager. The
Program Managers will meet regularly during initial implementation of the
Program. After initial implementation, the Program Managers will meet quarterly
to update forecasts, improve Program management, and review strategy and Program
performance.
8.0 Training The parties will provide sales training at no charge for their
respective management, support, sales, and engineering personnel. In order to
assist IRE marketing or sales personnel to target the best opportunities, a one
day planning session will be conducted by Lockheed for select market areas in
North
- 3 -
<PAGE> 4
America. IRE will provide Lockheed with a similar one day seminar to convey
appropriate product knowledge of the IRE/SafeNet Products and services.
Additional future training will be provided as business conditions warrant. Each
party will provide the requisite support to the other party in the pursuit of
market of interest opportunities when such support is required.
9.0 Compliance With Laws and Business Practices. It is expressly
understood and agreed that this Agreement, and any exports, sales, transfers,
or any other disposition of IRE/SafeNet Products, to the extent incorporated in
Lockheed Products, are subject to the laws and regulations of the United
States. Specifically, contracts and orders placed for the Product may require
advance U.S. Government Export approval or licensing, and, therefore all such
contracts and orders are subject to the receipt of any necessary approvals and
licenses. The parties hereto agree to solicit orders, and IRE agrees to process
and ship orders, in accordance with all applicable laws and regulations.
10.0 Ownership of Intellectual Property.
10.1 IRE Property. The parties acknowledge and agree that all IRE
Property is and shall remain at all times the exclusive property of IRE, its
successors and assigns. All rights and ownership of data, patents, patent
applications, techniques, trade secrets, know-how, and other Intellectual
Property developed in the course of or arising out of this Agreement shall be
owned exclusively by IRE.
10.2 Defense of Intellectual Property. IRE shall indemnify Lockheed and
its customers and shall be solely responsible for defending any and all claims
of third parties against IRE/SafeNet Products for infringement.
11.0 Warranties of the Parties to the Other.
11.1 Ownership of IRE Products. IRE warrants to Lockheed and its
customers that it owns or otherwise holds all rights necessary to make, use,
sell, offer for sale, advertise and distribute the IRE/SafeNet Products free and
clear from all claims, liens and encumbrances of third parties.
11.2 Warranty. IRE hereby warrants to Lockheed that under normal use
and service, IRE Products are free from defects in design and workmanship. Each
party warrants to the other that the products and services delivered by such
party for use in connection with the Project will be complete and in conformity
with the products and or services regularly supplied by each to purchasers and
lessees of its products.
11.3 Product Warranty. IRE/SafeNet Products shall be sold with a
warranty to be agreed upon between the parties hereto, essentially to the effect
that such product will be free from defects in design, workmanship and material,
with a time period (not to exceed one year) and on such other terms and
conditions as are to be agreed upon between the parties. Subject to the
limitations on warranty contained in this Agreement, IRE agrees to assume all
liability for breach of such warranty to the extent that a breach of warranty
relates solely to IRE Products. Subject to the limitations on warranty contained
in this Agreement, Lockheed agrees to assume all liability for breach of such
warranty to the extent that such breach relates to the assembly or configuration
of other products or services sold by Lockheed.
11.4 Limitation on Warranty. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH
HEREIN AND EXCEPT FOR WARRANTY OF TITLE, NEITHER PARTY MAKES ANY OTHER
WARRANTIES, EXPRESS OR IMPLIED TO THE OTHER WITH RESPECT TO ITS PRODUCTS.
- 4 -
<PAGE> 5
EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, THERE ARE NO WARRANTIES OR ANY
AFFIRMATIONS OF FACT OR PROMISES BY EITHER PARTY HERETO AS TO MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. USE OF SUCH PRODUCTS CONSTITUTES THE CONSENT
OF THE OTHER PARTY HERETO TO ASSUME ALL RISKS OF SUCH USE AND TO HOLD THE OTHER
HARMLESS FOR ANY DAMAGES OR CLAIM OF DAMAGES ARISING IN ANY MANNER FROM SUCH
USE. THE EMPLOYEES OR AGENTS OF NEITHER PARTY HAVE ANY AUTHORITY TO MAKE ANY
WARRANTY OR REPRESENTATION REGARDING THE MANNER OR BENEFITS OF USE OF ANY
PRODUCT OTHER THAN THOSE EXPRESSLY SET FORTH IN THE SPECIFICATION FOR SUCH
PRODUCT.
12.0 Term and Termination
This Agreement shall commence on the effective date and shall terminate
on its first anniversary, unless earlier terminated as provided below or
extended by mutual agreement. Either party may terminate this Agreement on one
hundred eighty (180) day's written notice to the other party. Termination shall
have the effect of terminating the parties' obligations to continue any joint
marketing activity hereunder. Customer contracts for provision of products and
services that are in effect prior to the date of this Agreement's termination
will be unaffected by a termination. Prior to the effective date of this
Agreement's expiration and pursuant to notice, the parties will in good faith
attempt to negotiate an appropriate transition for any joint sales activities
underway prior the termination. Neither party shall have any obligation or
liability to the other or to any third party by reason of the rightful or
expiration of this Agreement.
13.0 Confidentiality
The parties use and disclosure of proprietary information shall be
subject to the terms of a Nondisclosure Agreement, executed by the parties and
attached hereto as Schedule C. Information which is disclosed orally and
identified as proprietary or confidential at the time of its disclosure shall be
so identified in writing within 5 days of first disclosure. The terms of this
provision shall survive termination of this Agreement.
14.0 Trademarks
All IRE products offered for commercial sale in accordance with the
Project shall be marked with the SafeNet mark on the package and otherwise in
accordance with 35 U.S.C. Sec. 287, if applicable. Nothing in this Agreement
shall be construed to grant either party any rights or license in or to the
other party's trademarks, service marks, logos and other proprietary marks
("Trademarks") other than as set forth hereinabove. Neither party shall use the
name, trademarks, trade names or service marks of the other party in any
advertisement, promotional statement, sales literature or any other form of
publicity or marketing without the prior written approval of the other party.
The terms of this provision shall survive termination of this Agreement.
Lockheed hereby acknowledges that it retains no right in or to the SafeNet
trademark and IRE hereby acknowledges that it retains no right in or to any
Lockheed trademarks.
15.0 Indemnification
15.1 Subject to the limitations contained in Sec. 18, Lockheed shall
indemnify, protect and save harmless IRE, its affiliates and subsidiaries from
and against any and all loss, liability, damage and expense, including
reasonable attorneys' fees arising out of and to the extent any third party
demand, claim, or suit for
- 5 -
<PAGE> 6
personal injury, including death, or damage to tangible property arising or
related solely to the Lockheed's negligent acts or omissions in performing its
obligations under this agreement. IRE shall give Lockheed prompt notice of any
such claim and Lockheed shall have the sole authority to defend or settle any
and all claims arising under this section. Lockheed shall not be liable for any
settlements or compromises unless Lockheed has approved such settlements or
compromises in advance or the defense of the claims has been tendered to
Lockheed and it failed to promptly undertake the defense.
15.2 Subject to the limitations contained in Sec. 18, IRE shall
indemnify, protect and save harmless Lockheed, its affiliates and subsidiaries
from and against any and all loss, liability, damage and expense, including
reasonable attorney's fees arising out of and to the extent any third party
demand, claim, or suit for personal injury, including death, or damage to
tangible property arising or related solely to IRE's negligent acts or omissions
in performing its obligations under this agreement. Lockheed shall give IRE
prompt notice of any such claim and IRE shall have the sole authority to defend
or settle any and all claims arising under this section. IRE shall not be liable
for any settlements or compromises unless IRE has approved such settlements or
compromises in advance or the defense of the claims has been tendered to IRE and
it failed to promptly undertake the defense.
16.0 Relationship of the Parties
This Agreement is not intended to be, nor shall it be construed as, a
joint venture, association, partnership, franchise or other form of business
relationship. Neither party shall have nor hold itself out as having any right
or power or authority to assume, create, or incur any expense, liability or
obligation, expressed or implied, on behalf of the other party, except as
expressly provided herein. Nothing in this Agreement shall prevent either
Lockheed or IRE from entering into another agreement with a third party or any
other joint marketing programs with a third party. Except as expressly agreed,
each party shall bear its own costs and expenses incurred under or in
conjunction with its performance of obligation contained in this Agreement.
17.0 Notices
All notices, demands or consents required or permitted hereunder
shall be in writing and shall be delivered, sent by facsimile (with confirmation
copy by mail) or telex, or mailed to IRE at the address first set forth in the
first paragraph of this Agreement and to Lockheed at 8201 Greensboro Drive,
McLean, VA 22102 or at such other address as shall have been given to the other
party in writing for the purposes of this clause. Such notices and other
communications shall be deemed effective upon the earliest to occur of (i)
actual delivery, (ii) five (5) days after mailing, addressed and postage
prepaid, returned receipt requested, as aforesaid, or (iii) one (1) business day
after transmission by telex, telegram or facsimile where receipt has been
confirmed by the same type of transmission or in writing received by the sender.
18.0 Limitation on Liability
Neither party shall be liable to the other for indirect, incidental,
consequential, reliance, punitive, exemplary or special damages, including
without limitation lost profits, regardless of the form of action. Terms of this
provision shall survive termination of this Agreement.
- 6 -
<PAGE> 7
19.0. Arbitration
Any dispute or disagreement arising between the parties in connection
with this Agreement, which is not settled to the mutual satisfaction of the
parties within thirty (30) days (or such longer period as may be mutually agreed
upon) from the date that either party informs the other in writing that such
dispute or disagreement exists and that arbitration is desired by that party,
shall be settled by arbitration in accordance with the J.A.M.S./ENDISPUTE
Arbitration Rules and Procedures, as amended by this Agreement. The cost of the
arbitration, including the fees and expenses of the arbitrator(s), will be
shared equally by the parties unless the award otherwise provides. Each party
shall bear the cost of preparing and presenting its case. The parties agree that
this provisions and the arbitrator's authority to grant relief shall be subject
to the United States Arbitration Act, 9 U. S.C. 1-16 et seq. ("USAA"), the
provisions of this Agreement, and the ABA AAA Code of Ethics for Arbitrators in
Commercial Disputes. The parties agree that the arbitrator(s)) shall have no
power or authority to make awards or issue orders of any kind except as
expressly permitted by this Agreement, and in no event shall the arbitrator(s)
have the authority to make any award that provides for punitive or exemplary
damages. The decision of the arbitrator(s) shall follow the plain meaning of the
relevant documents, and shall be final and binding upon the parties. The award
may be confirmed and enforced in any court of competent jurisdiction. All
post-award proceedings shall be governed by the USAA.
20.0 Assignment
Neither this Agreement nor any of the rights or obligations hereunder
may be assigned, delegated, sublicensed or otherwise transferred by either party
without the written consent of the other party except either party may at its
sole discretion assign, delegate or subcontract performance of its obligations
under this agreement to any other division, subsidiary, affiliate or successor
entity of said party, notwithstanding any such assignment, the assigning party
shall continue to be responsible for performance of this Agreement in accordance
with the terms of this Agreement unless its responsibility is expressly excused
by the other party.
21.0 Applicable Laws
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York without reference to its choice of law principles.
22.0 Publicity
The parties agree to release the press announcement attached hereto
as Schedule D upon execution by both parties of this Agreement. The parties
agree that no other news releases, media statements, or other public
announcements concerning the existence of this Agreement or any of its terms and
conditions or performance obligations of the parties shall be made without the
prior written approval of the other party.
23.0 Miscellaneous
23.1 No modification, amendment, supplement to, or waiver of the
Agreement or any of its provisions shall be binding upon the parties hereto
unless made in writing and duly signed by an authorized representative of the
party against whom enforcement thereof is sought. A failure or delay of either
party to this Agreement to enforce any of the provisions thereof, to exercise
any option which is herein provided, or to require performance of any provision
hereof shall in no way be construed be a waiver of such provisions.
- 7 -
<PAGE> 8
23.2 If any provision of this Agreement shall be declared invalid,
illegal, or unenforceable as a matter of law, then that provision shall be
deemed void and of no effect and the remainder of the Agreement
shall survive such event.
23.3 The headings in this Agreement are for the purpose of reference
only and shall not in any way limit or otherwise affect the meaning or
interpretation of any of the terms hereof.
23.4 This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
24.0 Entirety of Agreement
This Agreement, together with its Schedules, constitutes the entire
Agreement and supersedes all previous agreements, promises, representations,
understandings, and negotiations between the parties, whether written or oral,
with respect to the subject matter hereof
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
INFORMATION RESOURCE ENGINEERING, INC. LOCKHEED MARTIN CORPORATION
INFORMATION SYSTEMS & TECHNOLOGIES
/s/ A. A. CAPUTO [SIG]
- ------------------------- ------------------------
Signature Signature
Printed or Typed Name A. A. CAPUTO Printed or Typed Name
Title C.E.O. Title VICE PRESIDENT
Date 6/30/97 Date 6/30/97
- 8 -
<PAGE> 1
ASIC AGREEMENT
THIS AGREEMENT is made the 31st day of ___________January___________ 1997
("Effective Date") by and between _____ IRE Secure Solutions, Inc.____ having a
principal place of business is at ___100 Conifer Hill Drive, Suite 513,
Danvers, Massachusetts 01923___ (hereinafter referred to as the "BUYER"), and
Analog Devices, Inc. having a principal place of business at Three Technology
Way, Norwood, Massachusetts 02062-1906 (hereinafter referred to as the
"SELLER").
WHEREAS
A. The BUYER (has designed/or requires to be designed) an application or
series of applications for a custom integrated circuit.
B. The BUYER wishes the applications (or part thereof) to be incorporated
by SELLER into a custom integrated circuit.
C. The BUYER and the SELLER desire to mutually cooperate in a program to
develop a custom integrated circuit in accordance with the terms and provisions
of this Agreement.
1. DEFINITIONS
The terms below shall have the following meanings:
(a) The term "Custom Product" shall mean a custom integrated
circuit manufactured, assembled or otherwise fabricated or obtained by SELLER.
Custom Products are either "Prototypes" or "Production Units" as defined below.
(b) The term "Prototype" shall mean a Custom Product fabricated
and delivered to BUYER by SELLER pursuant to Paragraph 2. Statement of Work.
(c) The term "Production Unit" shall mean a Custom Product other
than a Prototype produced by SELLER during the Production Period.
2. STATEMENT OF WORK
SELLER shall develop a Prototype in accordance with Schedule 1 incorporating
the design specifications set forth in Schedule 2 (the "Work").
3. TERM OF AGREEMENT
This Agreement shall have a term consisting of a Development Period followed by
a Production Period.
(a) Development Period - The Development Period shall commence on
the Effective Date and end on the Development Completion Date as defined in
Paragraph 7.
(b) Production Period - The Production Period shall commence on
the Development Completion Date and continue as long as the SELLER manufactures
the product for sale.
4. TIMETABLE
The parties acknowledge that design problems associated with a custom
integrated circuit and other delays may affect the timetable of delivery of a
Prototype as set forth in Schedule 1. In such event, changes to the timetable
in Schedule 1 shall be mutually agreed by both parties.
5. BUYER AND SELLER COOPERATION
The BUYER and SELLER, without cost to the other, shall each provide the other
upon request, such assistance as is reasonable and necessary for the completion
of the Work.
6. DEVELOPMENT CHARGES
BUYER shall pay SELLER'S nonrecurring engineering expenses ("NRE") set forth as
the development charges in Schedule 3.
7. PROTOTYPE ACCEPTANCE
(a) The parties shall mutually agree to a Prototype Acceptance
Specification and Test Procedure which shall be reduced to writing and
incorporated herein as Schedule 4. In the event the parties do not or cannot
agree to such Specification and Test Procedure, then the design specifications
set forth in Schedule 2 shall be deemed the criteria for Prototype acceptance
under this Paragraph 7.
(b) Within forty-five (45) days of delivery of the Prototypes to
BUYER, BUYER shall inspect and test such Prototypes. Representatives of SELLER
may be present at BUYER'S facility to observe such inspection and test
procedure. If any Prototype is nonconforming, BUYER shall advise the SELLER in
writing, specifying the nonconformance and return to SELLER the nonconforming
Prototype. Prototypes not otherwise identified as nonconforming within
forty-five (45) days after delivery to BUYER shall be deemed accepted by BUYER
and the Work will be deemed completed by SELLER.
(c) SELLER shall use reasonable efforts to replace all
nonconforming Prototypes within one hundred eighty (180) days of SELLER'S
receipt of such Prototypes. If SELLER, using reasonable efforts, is unable to
supply the BUYER with at least 10 Prototypes which are acceptable or deemed to
be acceptable, this Agreement shall forthwith terminate and SELLER shall refund
to BUYER all sums paid to SELLER hereunder for the remaining uncompleted Work.
(d) The Development Completion Date will be the date on which ten
(10) Prototypes in the aggregate are accepted or deemed to be accepted by
BUYER.
8. DEVELOPMENT WARRANTY EXCLUSION
The BUYER agrees that it will not sell or otherwise make available the
Prototypes to any third party without the consent of the SELLER which shall not
be unreasonably withheld. SELLER GIVES OR MAKES NO WARRANTY, REPRESENTATIONS
OR UNDERTAKING, EXPRESS OR IMPLIED, WITH
1/30/97 1
<PAGE> 2
RESPECT TO THE PROTOTYPES, SELLER HEREBY DISCLAIMS THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE. ALL STATUTORY OR
IMPLIED WARRANTIES ARE HEREBY EXCLUDED SO FAR AS IS POSSIBLE BY LAW.
9. CHANCES TO DESIGN SPECIFICATION
During the term of this Agreement, either party may request a change to the
design specifications set forth in Schedule 2 provided such change is agreed to
in writing between the parties and the Schedules are amended to reflect any
changes in the cost or time schedule of the Work and/or Custom Product. If the
parties cannot agree, this Agreement shall continue unless either party
terminates this Agreement for convenience by giving notice to the other party.
10. SALE OF PRODUCTION UNITS
(a) SELLER'S or SELLER'S assignee's standard terms of sale in
effect on the date SELLER or its assignee accepts BUYER'S purchase order shall
be the exclusive terms of purchase and sale of the Production Units, as
supplemented by this Agreement. In the event of a conflict between a term
of this Agreement and SELLER'S or its assignee's terms of sale then the terms
of this Agreement shall prevail notwithstanding any conflicting term. SELLER'S
(or its assignee's) standard terms of sale are attached hereto as Schedule 5.
(b) All orders for Production Units require a minimum lead time of
ninety (90) days.
(c) BUYER'S FOB price and firm/fixed quantity commitment to
purchase Production Units shall be in accordance with Schedule 6.
11. PRODUCT WITHDRAWAL
SELLER reserves the right to discontinue the manufacture of any Custom Product
or of any process related thereto. In such event, SELLER shall notify the
BUYER in writing giving a minimum of two (2) year's notice for the last
delivery of such Custom Product. BUYER shall have the right to place a final
order within one (1) year of SELLER'S notification of SELLER'S election to
discontinue the Custom Product. In the event SELLER discontinues manufacture
of the Custom Product, SELLER shall give BUYER the right to use the current
mask set to contract with the existing foundry to purchase the Custom Product
directly, subject to mutually agreeable terms.
12. PRODUCTION UNIT TEST SPECIFICATION
Within thirty (30) days after the Development Completion Date the parties shall
agree upon and reduce to writing a Production Test Specification to be
incorporated in this Agreement as Schedule 7. Such specification shall be the
testing criteria performed by SELLER for Custom Products during the Production
Period. In the event the parties fail to reach agreement upon a Production
Unit Test Specification, such failure shall not be deemed a breach of this
Agreement and the design specification set forth in Schedule 2 shall be deemed
the criteria for Production Unit acceptance under this Paragraph 12.
13. WARRANTY OF PRODUCTION UNITS
SELLER warrants that each Production Unit will be free of defects in materials
and workmanship and perform according to the design specification set forth in
Schedule 2 for a period of one (1) year from the date the Production Unit is
first shipped by SELLER to BUYER. SELLER shall have no further warranty or
service obligation. SELLER'S sole liability and responsibility under the
warranty is to repair, replace, or at its option, to refund the purchase price
of any Production Unit which is returned by BUYER and which SELLER determines
does not conform to the warranty. Production Units returned to SELLER for
warranty service will be shipped to SELLER at BUYER'S expense and will be
returned to BUYER at SELLER'S expense. In no event shall SELLER be responsible
under its warranty for any defect which is caused by BUYER'S negligence, misuse
or mistreatment of a Production Unit or for any Unit which has been altered or
modified in any way. The warranty of replacement products shall terminate with
the warranty of the original product. EXCEPT AS PROVIDED IN THIS PARAGRAPH 13,
SELLER MAKES NO OTHER REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE
PRODUCTION UNITS. SELLER HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES Of MERCHANTABILITY
AND FITNESS FOR ANY PARTICULAR PURPOSE. ALL STATUTORY OR IMPLIED WARRANTIES
ARE HEREBY EXCLUDED SO FAR AS IS POSSIBLE BY LAW.
14. TERMINATION FOR CONVENIENCE
Subject to Paragraph 16, BUYER may at any time terminate this Agreement, or any
order hereunder, for its convenience upon giving one hundred twenty (120) days
written notice to SELLER.
15. TERMINATION FOR CAUSE
This Agreement may be terminated by either party in the event the other party
breaches a material term of this Agreement and fails to cure such breach within
thirty (30) days after written notice thereof from the non-breaching party, or
if such breach cannot reasonably be cured within said thirty (30) days, fails
to commence to cure such breach within thirty (30) days after written notice
and diligently pursues such
1/30/97 2
<PAGE> 3
cure to completion within ninety (90) days of the date of such notice.
16. TERMINATION CHARGES
(a) Termination During Development Period.
(i) If the BUYER terminates for convenience or if the SELLER
terminates for BUYER'S breach under Paragraph 15 then BUYER shall pay SELLER
the total amount of NRE in Schedule 3, less costs not incurred at the date of
notice.
(ii) If the BUYER terminates for SELLER'S breach under Paragraph
15 then SELLER shall refund to BUYER all sums paid to SELLER by BUYER hereunder
for the remaining uncompleted Work.
(b) Termination During Production Period.
(i) If the BUYER terminates for convenience or if the SELLER
terminates for BUYER'S breach under Paragraph 15 then BUYER shall pay SELLER
the termination charge specified in Schedule 8.
(ii) BUYER may cancel without liability if BUYER terminates for
SELLER'S breach under Paragraph 15.
17. DEVELOPMENT TECHNOLOGY AT TERMINATION
In the event of termination, SELLER shall deliver to BUYER the following
information: (a) all BUYER documentation provided by BUYER to SELLER, (b) all
test results generated by SELLER during the Work, (c) all net lists, test
vectors and bonding diagrams generated by SELLER during the Work. Both BUYER
and SELLER shall have the unrestricted right to use such information except for
the confidential information of the other.
18. LIMITATION ON CLAIMS
(a) IN NO EVENT SHALL SELLER BE LIABLE FOR INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES FOR ANY CLAIMS ARISING OUT OF THIS
AGREEMENT. No suit or action shall be brought against SELLER more than one (1)
year after the related cause of action has occurred.
(b) The maximum liabilities of SELLER shall be as follows:
(i) Warranty and Patent Indemnity liabilities shall be in
accordance with Paragraphs 13 and 23.
(ii) In no event shall the accrued total liability of SELLER
from any claim, lawsuit, warranty, or indemnity related to this Agreement
exceed the aggregate NRE paid to SELLER by BUYER under this Agreement.
19. REJECTION BY BUYER
All Production Units delivered under this Agreement may be rejected by the
BUYER within thirty (30) days after receipt by BUYER if they do not conform to
the Prototype specifications. If Production Units are not rejected within such
thirty (30) days, they shall be deemed to have been accepted, subject only
thereafter to claims arising under the Warranty of Production Units, set forth
in Paragraph 13.
20. NO EXCLUSIVITY
(a) SELLER may deliver the Custom Product to any third party
subject to the provisions of Paragraph 21(c).
(b) BUYER acknowledges that SELLER'S business is developing
integrated circuits and, therefore, BUYER further acknowledges that SELLER is
the exclusive owner of and reserves the right to use the technology owned
and/or developed by SELLER including, but not limited to, all cell based
architecture methodology, standard cells, mixed signals simulation tools,
process technology for mixed signals and other design process and CAD tools to
develop layouts, layout designs and other requirements for making integrated
circuits. SELLER may develop other integrated circuits for sale to third
parties at any time during the term of this Agreement.
(c) BUYER warrants to SELLER that the Custom Product will not be
resold as a discrete IC device.
21. LICENSES AND PROPRIETARY INFORMATION
(a) All information relating to the design and fabrication of the
Custom Product shall be included under this Section 21, including but not
limited to mask sets, design tapes, and information relating to circuits,
layout, testing and processing.
(b) Except as expressly provided herein, this Agreement does not
grant to either party by implication, estoppel, or otherwise, a license to any
patents or know how owned or controller by the other party.
(c) In consideration of the license granted hereunder with respect
to the Custom Product of BUYER, SELLER shall pay BUYER a royalty per Product
delivered, sold or otherwise desposed of by SELLER (except for sales to BUYER)
which incorporates one or more material elements of BUYER'S Custom Product.
BUYER and SELLER agree that the royalty will be specified in a separate
agreement. Within thirty (30) days after the close of each calendar quarter
following the initial shipment of products incorporating BUYER's Custom
Product, an officer of SELLER shall certify, for that quarter, in a written
report to BUYER and shall make royalty payments to BUYER on the net sales of
any such Products incorporating BUYER'S Custom Product (except those Products
sold to BUYER and/or its Affiliates). Royalty payments shall be made by wire
transfer to BUYER'S designated account, with notice of payments to BUYER, Attn:
Treasurer. SELLER shall keep full, clear and accurate records with respect to
such Products. Such records shall be
1/30/97 3
<PAGE> 4
retained for a period of three (3) years from the date of reporting and
payment. BUYER shall have the right through its independent auditors and at
its expense, to examine and audit, not more than once a year, all such records.
Prompt adjustment shall be made by SELLER to compensate for any errors. If the
amount of any such error exceeds 5% of the royalties due, SELLER shall
reimburse BUYER for the costs of the audit.
(d) BUYER hereby grants and SELLER hereby accepts a non-exclusive,
fully-paid, worldwide, nontransferable right and license (without rights of
sublicense) for the term of this Agreement to BUYER'S intellectual property
rights, (not including any host or DSP source or object code) including but not
limited to the ASIC Design, patents, copyrights and trade secrets only to the
extent that it is incorporated in the Custom Product, so as to permit SELLER to
make, have made, distribute and sell the Custom Product, or any derivative
thereof, to BUYER and any other customers of SELLER.
(e) All discoveries, developments, improvements, and inventions
conceived or first reduced to practice in the performance of this Agreement by
BUYER'S employees shall be the sole and exclusive property of BUYER, and BUYER
shall retain any and all rights to file any patent application thereon. All
discoveries, developments, improvements, and inventions conceived or first
reduced to practice in the performance of this Agreement by SELLER'S employees
shall be the sole and exclusive property of SELLER, and SELLER shall retain any
and all rights to file any patent application thereon.
(f) In the event that the employees of SELLER and BUYER jointly
invent devices, circuits, processes, apparatus, systems or any other technology
relating to the subject matter of this Agreement, then the joint invention
shall be jointly owned by both parties without accounting to either party. In
the event of a joint invention which is patentable, the patent expenses shall
be divided equally between the parties, unless one party states in writing that
it does not wish to join in the patent application in which case the
non-joining party shall assign its rights therein to the other party and shall
receive a nonexclusive, royalty-free, personal, worldwide license under such
patent (without the right to sublicense) the subject matter of the patent.
22. CONFIDENTIALITY
The BUYER and SELLER agree that any information, technical data or know how,
which is furnished to the other in written or tangible form by either party
under or in connection with this Agreement and marked as "Proprietary
Information" or "Confidential", will be maintained by the receiving party in
confidence during the term of this Agreement and for a period of five (5) years
thereafter and will not be used by the receiving party except to fulfill the
receiving party's obligations under this Agreement. Oral disclosure will be
covered by this Agreement only if such disclosures are reduced to writing and
transmitted by the disclosing party to the other within thirty (30) days of the
original disclosure and marked as provided above. Neither party shall be under
any obligation to maintain in confidence any portion of the received
information which is: (i) already in the possession of the receiving party or
its subsidiaries; (ii) independently developed by the receiving party or its
subsidiaries; (iii) publicly disclosed by the disclosing party; (iv) rightfully
received by the receiving party or its subsidiaries from a third party that is
not under an obligation to keep such information confidential; (v) approved for
release by written agreement with the disclosing party; (vi) available by the
inspection of products marketed or offered for sale by either party hereto or
others in the ordinary course of business; or (vii) disclosed pursuant to the
requirement or request of a governmental agency or third party to the extent
such disclosure is required by operation of law, regulation or court order,
provided that prompt notice of such request is given to the disclosing party
and the disclosing party is given the opportunity, if possible, to challenge
such request.
23. PATENT INDEMNITY
(a) SELLER agrees to indemnify and defend BUYER against any claim
that a Production Unit, as delivered by SELLER, infringes a patent, copyright,
trademark, or other intellectual property right, provided SELLER is promptly
advised of any such claim or action and has sole control of the defense of any
such action and all negotiations for its settlement or compromise. If, at any
time, the use of the Production Units is enjoined or is discontinued because of
a settlement, SELLER shall have the right, but not the obligation, at its sole
option and expense, to either procure for BUYER the right to continue using the
Units, replace or modify the Units so that they become non-infringing or refund
the purchase price for the Units as depreciated, and accept their return on a
five year straight line basis. SELLER shall not have any liability to BUYER
under this paragraph if the infringement or other violation of a third party
right is based in any way upon (i) the use of a Production Unit in combination
with other components, equipment or software not furnished by SELLER, (ii) use
of a Production Unit in practicing any process; (iii) any Production Unit which
has been modified or altered; (iv) the manner in which the Production Unit is
used even if SELLER has been advised of such use; or (v) infringement which is
based primarily on the result of SELLER'S compliance with BUYER'S designs,
specifications, or instructions.
1/30/97 4
<PAGE> 5
(b) The provisions of this Paragraph shall survive termination or
cancellation of this Agreement.
24. SUBCONTRACTING
SELLER may, with the consent of BUYER, which shall not be unreasonably
withheld, subcontract all or any of its obligations hereunder relating to the
design or manufacture of the Production Units to any company which is a fully
qualified subcontractor of SELLER. SELLER remains solely responsible to BUYER.
25. NOTICES
Written notices hereunder are deemed to be given when telexed, faxed or mailed
first class, postage prepaid, to the addresses of the parties as set forth
herein, or such other addresses as shall be furnished in writing, by either
party. Such notices shall be effective upon receipt.
26. NON-ASSIGNABILITY
Except as provided herein, this Agreement is not assignable by either party
without the prior written consent of the other party. Any attempt to assign
this Agreement without the prior written consent of the other party shall be
void. SELLER may assign this Agreement to an affiliate of SELLER provided that
SELLER shall remain primarily responsible to BUYER for SELLER'S obligations
under this Agreement. BUYER may assign this Agreement to an affiliate of BUYER
provided that BUYER shall remain primarily responsible to SELLER for BUYER'S
obligations under this Agreement.
27. OTHER AGREEMENTS
This Agreement contains the entire understanding of the parties with respect to
the subject matter hereof and supersedes all prior agreements relating thereto,
written or oral, between the parties. Amendments to this Agreement must be in
writing, signed by the duly authorized officers of the parties. Except as
provided herein, the parties agree that the terms and conditions of this
Agreement shall prevail, notwithstanding contrary or additional terms, in any
purchase order, sales acknowledgment, confirmation or any other document issued
by either party. Preprinted terms on any such documents shall not have effect
on any party to this Agreement.
28. FORCE MAJEURE
Neither party shall be liable for delay in performance or failure to perform
in whole or in part the terms of this Agreement due to strike, labor dispute,
act of war, labor shortage, riot or civil commotion, act of public enemy, fire,
flood or act of God or other cause beyond the control of such party.
29. USE IN LIFE SUPPORT APPLICATIONS
Custom Products sold by SELLER are not designed for use in life support
equipment where malfunction of such Custom Product can reasonably be expected
to result in personal injury or death. BUYER uses or sells such Custom Product
for use in life support equipment at BUYER'S own risk and agrees to fully
indemnify SELLER from any and all damages resulting from such use or sale.
30. SET-OFF
Amounts owed by the BUYER with respect to which there is not a dispute shall be
paid without set-off for any amounts which the BUYER may claim are owed by
SELLER and regardless of any other controversies which may exist.
31. PROPER LAW AND JURISDICTION
The construction validity and the performance of this Agreement shall be
governed by the law of the place where SELLER has its principal office as set
forth herein.
IN WITNESS WHEREOF the duly authorized representatives of the parties have
executed this Agreement as of the Effective Date.
Analog Devices Inc.
By /s/ DAVID FRENCH
------------------------
David French
Title:_Vice President and General Manager
Date 1/31/97
------------------------
Notice Address:
Attention: Corporate Counsel
Analog Devices
One Technology Way
Norwood, MA 02062
Fax No.__617-461-3491__
Buyer:
By: /s/ [SIG]
-------------------------
Title PRESIDENT
-----------------------
Date 1/31/97
----------------------
Notice Address IRE Secure Solutions, Inc.
-------------------------
100 Conifer Hill Dr-, Suite 513
- ------------------------------------------
Danvers, MA 01923
- ------------------------------------------
Fax No. 508-739-5698
-----------------------------------
1/30/97 5
<PAGE> 1
EXHIBIT 11
INFORMATION RESOURCE ENGINEERING, INC.
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
- --------
Net loss $(1,586,207) $ (789,113) $(2,735,396) $(3,131,261)
========== ========== ========== ==========
Average number of common shares outstanding 5,434,616 5,462,528 5,254,445 5,461,239
Dilutive effect of stock options and warrants -- -- -- --
---------- ---------- ---------- ----------
Weighted average number of common shares outstanding 5,434,616 5,462,528 5,254,445 5,461,239
========== ========== ========== =========
Loss per common share $ (.29) $ (.14) $ (.52) $ (.57)
========== ========== ========= =========
Assuming full dilution
- ----------------------
Net loss $(1,586,207) $ (789,113) $(2,735,396) $(3,131,261)
========== ========= ========= =========
Weighted average number of common shares outstanding 5,434,616 5,462,528 5,254,445 5,461,239
Additional dilutive effect of stock options and warrants -- -- -- --
----------- ---------- ---------- -----------
Weighted average number of common shares outstanding 5,434,616 5,462,528 5,254,445 5,461,239
=========== ========== ========== ===========
Loss per common share assuming full dilution $ (.29) $ (.14) $ (.52) $ (.57)
=========== ========== ========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 FOR INFORMATION
RESOURCE ENGINEERING, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,673,637
<SECURITIES> 5,416,022
<RECEIVABLES> 3,829,535
<ALLOWANCES> 0
<INVENTORY> 3,254,950
<CURRENT-ASSETS> 16,435,907
<PP&E> 2,887,868
<DEPRECIATION> 1,228,228
<TOTAL-ASSETS> 21,832,196
<CURRENT-LIABILITIES> 3,318,736
<BONDS> 0
0
0
<COMMON> 54,627
<OTHER-SE> 18,458,833
<TOTAL-LIABILITY-AND-EQUITY> 21,832,196
<SALES> 10,926,088
<TOTAL-REVENUES> 10,926,088
<CGS> 4,768,566
<TOTAL-COSTS> 4,768,566
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,035
<INCOME-PRETAX> (3,131,261)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,131,261)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,131,261)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> (.57)
</TABLE>
