<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number 0-28238
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 54-1521616
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
22570 Markey Court, Dulles, Virginia 20166
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Issuer's telephone number: 703-444-7931
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Class A Warrants
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 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____
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $1,475,577.
The aggregate market value of the voting stock held by non-affiliates as
of April 10, 1997 was approximately $1,850,000 based on the average bid and
asked prices of such stock.
The number of shares outstanding of issuer's Common Stock, $.001 par
value, as of March 31, 1997 was 3,342,483.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
Transitional Small Business Disclosure Format (check one)
Yes____ No x
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
GENERAL
Guardian Technologies International, Inc. (referred to as the Company) was
originally incorporated in 1989 in the Commonwealth of Virginia, and commenced
full production of its products in December, 1990. In 1996, the Company was
reincorporated in the State of Delaware. The Company manufactures its products
under its own label at its facility in Dulles, Virginia. The Company currently
employs 21 people.
OPERATIONS
The Company manufactures and distributes ballistic protective equipment,
including equipment commonly referred to as body armor.
The Company's product lines include four basic types of ballistic
protective vests, ballistic protective shields, K-9 ballistic protective vests,
aircraft ballistic protective equipment, and assorted other ballistic
protective devices, such as ballistic protective blankets and seat cover
liners.
The Company's four main product lines of ballistic protective vests are
manufactured in six styles, each providing varying degrees of protection and
certified under guidelines established by the National Institute of Justice
(the "NIJ"). All of the Company's body armor products are certified under the
NIJ's Standard 0101.03 for Police Armor.
PRODUCTS
The Company's life-saving products are manufactured primarily with
AlliedSignal's High Performance Materials which are Spectra(R) 1000 woven
fabric, and non-woven composite ballistic materials Spectra Shield(R), Spectra
Flex(TM), Gold Shield(TM) and Gold Flex(TM). Based on studies and testing
performed at H.P. White Laboratory, Inc., an independent testing laboratory,
tests prepared by AlliedSignal and the Company's own test experience, the
Company believes that protective vests and equipment manufactured with
AlliedSignal High Performance Materials provide, pound for pound, greater
ballistic protection and reduced blunt trauma to the wearer, at higher
projectile velocities and with longer durability than similar equipment made
with other forms of ballistic resistant materials.
The Company has been assigned rights to U.S. patents numbered 5,327,811;
5,448,938; and 5,377,577 for, respectively, a Lightweight Ballistic Protective
Device, a Removable Ballistic Resistant Armor Seat Cover and Floor Mat, and a
Ballistic Shield. These patents include related production techniques. The
Company also acquired the rights to manufacture and distribute two other
patented products: a two-panel set of thin, lightweight rigid bullet-resistant
armor for police patrol bicycles, and a prisoner restraint device for improved
security when transporting a prisoner. For the latter device, the Company was
granted the trademark MAXI-MITT(TM).
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MANUFACTURING
The Company manufactures substantially all of its products. The Company
manufactures its products under its own label at its facility in Dulles,
Virginia.
RESEARCH AND DEVELOPMENT
The Company has concluded research and development on a new line of
ballistic protective vests, now being marketed as the Thin Blue Line (TBL). The
TBL vests, made with the new AlliedSignal High Performance Materials, Gold
Flex(TM) and Gold Shield(TM), are light, flexible and cost less to produce. The
TBL products are more competitively priced than Guardian's other four lines and
should be attractive to the price conscious consumer. The Company believes that
the TBL products should broaden the customer base, generating sales to those
law enforcement agencies and military organizations which were beyond reach
because of cost.
The Company also introduced a two-panel set of thin and very lightweight
rigid armor which can be easily installed on police patrol bicycles. The
introduction of this product followed the introductions of a newly designed
ballistic-protective vest for police dogs and a restraint device used when
prisoners are being transported.
RAW MATERIALS, SOURCES AND AVAILABILITY
The Company is dependent upon a single supplier for its raw materials
which are available only from AlliedSignal, which holds the patent for the
unidirectional fiber/resin process incorporating Spectra(R) ultra high
molecular weight polyethylene fibers or aramid fibers. AlliedSignal also
controls the proprietary thermoplastic process used to manufacture its Shield
and Flex materials.
CUSTOMERS
The Company has set a goal of a 10% increase in sales over the total sales
obtained in 1996. The focus of this sales goal will be in foreign sales and in
contract work for the Department of Defense as well as overall sales to U.S.
government agencies.
In 1996, 21% of Guardian's total sales were made to foreign police and
military organizations which represented a significant increase over 1995's
foreign sales. The Company is pursuing opportunities in several nations of the
Pacific Rim, in Central and South America, in Eastern and Central Europe, and
the Middle East.
Government contract work and sales to U.S. military organizations
represented 23% of total sales in 1996. The Company intends to team with
manufacturers of compatible armor products and/or materials to obtain contracts
by bringing together expertise, production know-how and capabilities. A teaming
arrangement in 1996 resulted in a significant contract award which is
continuing into 1997.
The Company's relationship with Government Micro-Resources, Inc. (GMR), a
supplier to the General Services Administration (GSA) - the federal
government's principal procurement channel - ended in mid-1996 when GMR's
contract with GSA was terminated. The Company immediately initiated
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negotiations to establish a new contract with GSA which enables the Company to
sell all its products directly to GSA. The new four-year contract was recently
signed and becomes effective on June 1, 1997.
In 1996, the Company's planned expansion of its regional domestic law
enforcement distribution network through dealer sales did not achieve the
expected goals. Only a limited number of dealers provided the high standard of
customer service which the Company expects. Therefore, the Company modified
the sales plan in order to emphasize a larger effort in direct Company sales
backed with strong customer service while continuing to strongly support sales
generated by selected dealers. This modification eliminated some costs in
dealing with middlemen and resulted in improved sales and customer relations.
The Company's sales representatives, in the field and at the Company offices,
are making intensive efforts to make direct contact with key procurement
personnel in small and medium size law enforcement agencies as well as
responding to agency and department solicitations for bids and proposals.
The Company maintains ties to two large police fraternal organizations
which resulted in sales in 1996 and are expected to result in additional sales
in 1997.
MARKETING AND DISTRIBUTION
The Company's products are marketed directly by the Company and through
local dealers of police equipment to local, state, and federal agencies,
private security companies, and private individuals with legitimate security
needs. Marketing methods include personal sales presentations, advertising in
magazines and periodicals aimed at the law enforcement profession, direct mail
information dissemination, participation by the Company sales personnel at
selected trade shows and conferences,
The Company entered the Internet universe with its own home page
(www.guardiantech.com) and E-Mail ([email protected]) which are developing into
resources for marketing its products in the United States and around the world.
The Company also subscribes to two other marketing services: BidNet and
FACNet. BidNet tracks bids and solicitations for proposals from local and state
jurisdictions throughout the United States. FACNet provides information on
federal procurements and is a required on-line service for GSA contract
suppliers seeking to sell to the U.S. Department of Defense (DOD).
In order to respond to DOD solicitation opportunities, the Company seeks
out manufacturers of compatible products and/or materials with which the
Company can match its expertise, production know-how, and capabilities.
The Company plans to gradually expand the number of sales representatives
who will work on a commission-only basis. Generally, the Company has found that
retired law enforcement officers are suited for these positions for two primary
reasons: close relations are often maintained with former colleagues who are
still working, and their retirement annuity and benefits provide a financial
safety net.
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BACKLOG
At December 31, 1996, the Company's estimated backlog of sales was
$80,000. A year earlier, at December 31, 1995, the Company's estimated backlog
of sales was $505,934, including approximately $345,600 in an order to the U.S.
Government under a sub-contract. However, production on that order did not
commence until early June 1996 because the Company discovered design flaws in
the Government drawings and specifications which required substantial
modifications and changes.
COMPETITION
The ballistic resistant equipment business is highly competitive. In the
domestic law enforcement, federal government and military markets, the Company
has at least five major competitors. Financial information is not available on
the most important of these competitors because they are privately held
companies. The Company believes that the principal elements of competition in
the sale of ballistic protective vests are 1) materials used in construction,
2) style and design of the vest, and 3) price. In the law enforcement and
military markets, the Company frequently bids for orders in response to
invitations for bidding which set forth product performance specifications.
Although the Company's products are priced slightly higher than the
competition's products, the Company believes its higher prices are justified by
better craftsmanship, higher ballistic capability of materials, more body area
coverage, and a longer warranty. In the international market, the Company's
competition consists of several American competitors and a few international
companies. In certain international markets, the Company's ability to be
competitive is adversely affected by foreign companies which do not have to
abide by the U.S. Foreign Corrupt Practices Act.
ITEM 2 DESCRIPTION OF PROPERTY
Throughout 1996, the Company's executive offices and manufacturing
facilities were located at 45472 Holiday Drive, Sterling, Virginia. The Company
occupied approximately 12,000 square feet at this location pursuant to a seven
(7) month extension to its lease and a lease. The lease extension and lease
expired in June, 1996 had a base rent of approximately $14,000 per month. From
July through December, 1996, the Company occupied the premises on a monthly
basis at the rental rate of approximately $17,000 while the Company's new
facility was under construction. The Company left the leased premises to occupy
its new facility on January 23, 1997.
ITEM 3 LEGAL PROCEEDINGS
There are no material legal proceedings in which the Company is involved.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
last quarter of year ended December 31, 1996.
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PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is traded on the NASDAQ Stock Market under
the symbol GRDN. The prices listed below are the high and low sales for common
shares since the initial public offering on May 14, 1996.
<TABLE>
<CAPTION>
Price
--------------------
Quarter Ended Low High
------------- -------- -----------
<S> <C> <C>
6/30/96 $ 5.75 $ 12.75
9/30/96 $ 0.9375 $ 6.50
12/31/96 $ 0.40625 $ 1.46875
</TABLE>
The common stock purchase warrants of the Company are traded on the NASDAQ
Stock Market under the symbol GRDNW. The prices listed below are the high and
low sales prices for common share warrants since the initial public offering on
May 14, 1966.
<TABLE>
<CAPTION>
Price
--------------------
Quarter Ended Low High
------------- -------- ----------
<S> <C> <C>
6/30/96 $ 4.25 $ 11.50
9/30/96 $ 0.3125 $ 5.25
12/31/96 $ 0.0625 $ 0.96875
</TABLE>
There have been no dividends declared since inception.
The Company did not sell any equity securities during the year ended
December 31, 1996 without registering the securities under the Securities Act.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales for 1996 were $1,475,577 compared to $838,121 in 1995, an
increase of $637,456 or 76%. The increase in sales is attributable to an
increase in sales to foreign governments and agencies (from nil in 1995 to
$314,850 or 21% of sales in 1996), and a $345,600 sale to the US Government
under a subcontract which amounted to 23% of sales, while maintaining domestic
sales at their previous levels.
The Company's 1996 gross profit was $156,836 or 10.8% of sales compared to
$844 in 1995. The improvement in the Company's gross profit margin for the
year ended December 31, 1996 as compared to 1995 resulted from production
efficiencies achieved on large orders and volume discounts on purchases of raw
materials in bulk quantities. The Company's gross profit margin for the year
ended
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December 31, 1995 was adversely affected by the Company's inability to
purchase raw materials in bulk and decreased direct sales which have a higher
gross margin than sales through dealer/distributors. However, cost of goods
sold increased 57.5% from $837,277 in 1995 to $1,318,741 in 1996, primarily due
to increased direct labor costs as the number of employees increased during the
first nine months of the year and an increase in indirect costs.
Total operating expenses were $1,202,238 for 1996 compared to $486,326 for
1995. General and administrative costs increased $426,887 from $372,190 in
1995 to $799,077 in 1996. This increase was primarily attributable to increases
in professional fees of $93,000, fees of $26,000 related to maintenance of
public company status, insurance premiums of $11,000, consulting fees of
$146,000, and salary increases for officers in accordance with employment
agreements. Selling expenses increased from $114,136 in 1995 to $403,160 in
1996. This increase was due to reorganization of the sales function, additional
salesmen which resulted in $32,000 increase in sales salaries, $146,000 in
sales consulting fees, and $36,000 increase in commissions. Advertising costs
and conference and exhibits costs increased by $60,000. The Company has
terminated certain consulting agreements and expects advertising and other
promotional costs to decrease during 1997.
The 1996 non-operating interest income for the Company increased significantly
over the 1995 total because proceeds from the May, 1996 public offering are
invested in US Government agency debt securities. These securities serve as
collateral for a line of credit with a broker. The Company has used the line
of credit borrowings to pay off outstanding loans, finance the construction of
its production and headquarters facility and to provide for working capital
needs. Interest capitalized in connection with the construction of the new
facility amounted to $21,509 for 1996. The net loss for 1996 was $953,683
compared to $512,716 for 1995.
In addition, the Company completed development and certification of a new
ballistic vest line in 1996, which will be offered for sale in 1997. The new
line is constructed of improved ballistic materials which the Company purchased
in bulk during late 1996 at a substantial savings. At December 31, 1996, the
Company's estimated backlog of sales was $80,000. At December 31, 1995, the
Company's estimated backlog of sales was $505,934, including approximately
$345,600 in an order to the U.S. Government under a sub-contract.
Accounts receivable as of December 31, 1996 were $60,998 as compared to
$100,244 at December 31, 1995. This decrease was directly attributable to
decreased sales in the fourth quarter of 1996. Sales for the first nine months
of 1996 averaged $139,000 per month; sales for the fourth quarter averaged
$73,000 per month. The decrease in fourth quarter sales is attributed to the
early completion of the U.S. Government contract, and the normal disruption
which occurred in connection with the move to the new administrative offices
and production facility. Accounts payable as of December 31, 1996 were $867,623
as compared to $147,323 at December 31, 1995. Included in accounts payable at
December 31, 1996, were fourth quarter purchases of approximately $277,000 (or
32% of accounts payable)of raw materials from Allied-Signal, Inc., the
Company's primary supplier of ballistic materials. At December 31, 1995, the
Company owed Allied-Signal, Inc. approximately $83,000 for ballistic materials.
In addition, included in accounts payable at December 31, 1996, is
approximately $383,000 (or 44% of payables)of construction and facility related
costs for the building which was completed and occupied on January 23, 1997.
At December 31, 1996, as compared to December 31, 1995, raw materials inventory
was significantly higher because of the fourth quarter bulk purchases of
ballistic materials and higher indirect costs.
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<PAGE> 8
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 were $838,121 compared to $966,410 in 1994. The
decrease in sales is attributable to the Company cutting back its work force
and marketing efforts because of lack of working capital and lack of
international sales and international sales presence. The Company's 1995 gross
profit was $844 compared to $424 in 1994. The gross profit percentages are
comparable year-to-year. The Company's gross profit margins for the years
ended December 31, 1995 and 1994 were adversely affected by the Company's
inability to purchase raw materials in bulk and decreased direct sales which
have a higher gross margin than sales through dealer/distributors. Accounts
receivable as of December 31, 1995 were $100,244 as compared to $59,744 at
December 31, 1994. This increase was attributable to increased sales in the
fourth quarter of 1995 as compared to the fourth quarter of 1994. Accounts
payable as of December 31, 1995 were $147,323 as compared to $250,973 at
December 31, 1994. This decrease was attributable to payments made by the
Company from proceeds received in the Company's December 1995 private offering.
Total operating expenses were $486,326 for 1995 compared to $523,809 for 1994.
The decrease in expenses ($37,483) is attributable to management tightening
control over expenses. During 1995, the Company's cost of product liability
insurance decreased significantly occasioned by a statistical reexamination by
the Company's insurance carrier. This decrease was offset by a comparable
increase in leasehold expenses. Additionally, professional fees increased
significantly from 1994 to 1995. At December 31, 1995, as compared to December
31, 1994, inventory of raw materials was significantly higher based upon the
Company's purchase of such raw materials utilizing funds received in the
December 1995 private offering. At December 31, 1995, the Company's estimated
backlog of sales was $505,934. Management was able to decrease salary expenses
and related payroll taxes between 1994 and 1995 by cutting back on
administrative support personnel. The 1995 non-operating interest expense for
the Company increased significantly over 1994's total due to the significant
increase in short-term borrowings. The net loss for 1995 was $512,716 of which
$497,760 was reclassified to paid in capital upon termination of the S
corporation election on December 7, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital during 1996 were a
public offering of securities, borrowings against the Company's investment
portfolio and trade credit. In May, 1996, the Company completed a public
offering of 977,500 shares of common stock and 977,500 common stock purchase
warrants, which were sold as units consisting of one share of common stock and
one common stock purchase warrant, for $5.10 per unit. Proceeds of $3,594,613,
after deducting costs of the offering, have been used to provide working
capital, pay off $264,600 in notes and related party payables and purchase
land, while the remainder has been invested in US Government Agency bonds
pending implementation of the Company's business plan.
During 1996, the Company purchased land and entered into contracts for the
design and construction of a manufacturing and office facility in Dulles,
Virginia. Total cost of the facility is approximately $2,700,000. The
purchase of the land was paid for out of the proceeds of the public offering
and construction costs have been financed by borrowings against the Company's
portfolio of US Government Agency bonds. The total borrowed under the margin
agreement was $1,850,600 at December 31, 1996.
The Company intends to occupy approximately half of the facility while
leasing the remainder. During the first quarter of 1997, the Company signed
leases with three tenants for 3,600 square feet under seven year leases with
annual base rents totaling approximately $45,000, plus common area
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maintenance charges. A lease for 4,800 square feet is under negotiation.
Signed tenant leases provide for 3% annual increases in base rent. If the
Company is able to lease the entire portion of its facility that the Company is
not occupying, annual rental income would be approximately $125,000.
The ability of the Company to fund future operations and to implement its
expansion plan is dependent on achieving profitable operations through cost
reductions and expanded sales, the successful leasing of excess space in its
office headquarters and its ability to obtain permanent financing for the newly
constructed facility in Dulles, Virgina.
Since its inception, the Company has satisfied its capital requirements
through the sale of common stock to investors, loans from affiliated lenders
and security holders, and notes payable personally guaranteed by officers and
principal security holders of the Company. In addition, the Company has issued
common stock in lieu of cash for services rendered. At December 31, 1996, the
Company's accumulated deficit was $968,640. Cash used in operations in 1996 was
$520,716. The Company financed the loss for the year and the cash used in
operations by borrowing $1,993,804, consisting of borrowings against the
securities portfolio, draws on a line of credit, insurance premium financing
and funds obtained in the public offering.
In 1995, the Company incurred losses of $512,716 of which $497,760 was
reclassified to paid in capital in connection with termination of the S
corporation election. At December 31, 1995, the Company's accumulated losses
were $14,956 and $2,320,227 which was reclassified as paid in capital upon
termination of the S corporation election. Cash used in operations in 1995 is
$549,239. The Company financed the loss for the year and cash used in
operations through significant borrowings and/or stock transactions in 1995.
In February, 1995, the Company raised $15,000 by the private sale of stock.
The Company borrowed $580,391, including: $175,000 borrowed on October 12,
1995; $190,000 short term borrowing from a bank; $55,391 through six different
advances from stockholders and related parties; and three other short term
notes totaling $160,000 from unrelated individual lenders.
On December 12, 1995, the Company completed a private placement stock
offering. The Company issued 732,835 shares of common stock with two warrants
attached to each share. The gross proceeds from the sale totaled $1,099,252
and the Company received net proceeds of $878,729 after deducting commission
fees and other costs of the sale. Additionally, in 1995, the Company sold
304,588 shares to three investors including securities counsel. The Company
received $165,000 for services rendered by counsel for 110,000 of these shares
($1.50 per share) and $33,045 notes receivable for 194,588 of these shares
($.17) per share. Upon completion of the private placement offering, the
Company repaid the October 12, 1995 short term $175,000 note. In addition, in
1995, the Company repaid $487,342 in other short term borrowings, including the
$190,000 from the bank. After successful completion of the private placement
offering and at December 31, 1995, the Company had working capital of $289,563.
The Company's ability to generate meaningful research and development
leading to the improvement of existing products and the creation of new
products has been limited historically by the Company's lack of funds for such
purposes. Planned expanded research and development will be dependent on
availability of funds from operations.
Since the Company's major customers change from year to year, the Company
is not dependent, prospectively, on any key customer for its future sales. The
Company sells its products to its customers pursuant to purchase contracts
which include negotiated terms of payment.
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Messrs. North and Fernandez agreed to enter into four year employment
contracts with the Company commencing May 30, 1996. These agreements
established an annual base salary of $150,000 for the first year of employment.
Effective January 1, 1997, these agreements were amended to reduce the base
salary to $77,900 each for the calendar year ended December 31, 1997.
Because of the foregoing, the Company's independent auditors' report on
the financial statements as of and for the years ended December 31, 1996 and
1995 include a statement to the effect that there is substantial doubt about
the Company's ability to continue as a going concern. Management intends to
address these conditions by taking appropriate action to increase domestic and
international sales as well as the implementation of a new contract with the
General Services Administration for sales to the federal government. In
addition, the Company is also taking measures to reduce salaries, outside
consultant fees and other costs. New production facilities were occupied in
January, 1997. Reorganization of production is expected to result in improved
margins in the near future. The Company has appointed four new members to the
Board of Directors and arranged for interim financing of working capital needs
in order to pursue the goals set forth above. For these reasons, management
believes that no adjustments or reclassifications of recorded assets and
liabilities is necessary at this time. There can be no assurances, however,
that the Company will be successful in these plans.
There are no other known trends, demands, or commitments that will impact
the Company's results of operations, liquidity and/or capital resources, except
as described above.
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ITEM 7 FINANCIAL STATEMENTS
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
FINANCIAL REPORT
YEARS ENDED DECEMBER 31, 1996 AND 1995
CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT ON THE
FINANCIAL STATEMENTS 12
FINANCIAL STATEMENTS
Balance Sheets 13
Statements of Operations 15
Statements of Stockholders' Equity 16
Statements of Cash Flows 17
Notes to Financial Statements 19
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<PAGE> 12
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Guardian Technologies International, Inc.
Sterling, Virginia
We have audited the accompanying balance sheets of Guardian Technologies
International, Inc. as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Guardian Technologies
International, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered continued losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
THOMPSON, GREENSPON & CO., P.C.
Fairfax, Virginia
March 12, 1997, except for Note 15, as to which the date is April 10, 1997
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GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 119,703 $ 376,307
Trade accounts receivable 60,998 100,244
Accrued interest receivable 60,448 -
Inventories 585,582 237,023
Prepaid assets and fees 75,365 28,961
Securities available for sale 2,501,753 -
---------- ---------
Total Current Assets 3,403,849 742,535
---------- ---------
PROPERTY AND EQUIPMENT
Land 237,339 -
Construction in progress 2,306,527 -
Leasehold improvements 115,394 114,494
Manufacturing equipment 63,477 44,234
Office furniture and equipment 85,213 38,416
---------- ---------
Total Cost 2,807,950 197,144
Less accumulated depreciation (197,778) (172,148)
---------- ---------
Net Property and Equipment 2,610,172 24,996
---------- ---------
OTHER ASSETS
Deposits 26,697 4,025
Certification costs, net of amortization 27,870 10,187
Deferred offering costs - 82,948
---------- ---------
Total Other Assets 54,567 97,160
---------- ---------
TOTAL ASSETS $6,068,588 $ 864,691
========== =========
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
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<PAGE> 14
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(continued)
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit payable $1,850,554 $ -
Current portion of other notes payable 57,016 122,291
Notes payable - related parties - 101,200
Trade accounts payable 867,623 147,323
Accrued expenses 49,946 24,087
Customer deposits 3,999 58,071
---------- --------
Total Current Liabilities 2,829,138 452,972
LONG TERM PORTION OF NOTES PAYABLE 88,816 -
---------- --------
Total Liabilities 2,917,954 452,972
---------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $0.001, 15,000,000
shares authorized; 3,342,483 shares issued
and outstanding in 1996; 5,000,000 shares
authorized; 2,364,983 issued and outstanding
in 1995 3,343 2,365
Additional paid-in capital 4,138,275 457,390
Less notes receivable for purchase of common stock (33,080) (33,080)
Preferred stock, $0.20 par value, 1,000,000 shares
authorized; no shares issued and outstanding in
1996 and 1995 - -
Net unrealized gain on securities available for sale 10,736 -
Accumulated deficit since December 7, 1995
(termination of S corporation status in which a
deficit of $2,320,227 was applied against
additional paid-in capital) (968,640) (14,956)
---------- --------
Total Stockholders' Equity 3,150,634 411,719
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,068,588 $864,691
========== ========
</TABLE>
- 14 -
<PAGE> 15
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
SALES $1,475,577 $ 838,121
COST OF GOODS SOLD 1,318,743 837,277
---------- ---------
Gross Profit 156,834 844
---------- ---------
GENERAL AND ADMINISTRATIVE EXPENSES 799,077 372,190
SELLING EXPENSES 403,160 114,136
---------- ---------
1,202,237 486,326
---------- ---------
Operating Loss (1,045,403) (485,482)
FINANCING INCOME, net, including interest expense
of $16,531 in 1996 and $29,438 in 1995 91,719 (27,234)
---------- ---------
NET LOSS $ (953,684) $(512,716)
========== =========
NET LOSS PER SHARE $ (.32) $ (0.13)
========== =========
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,983,620 2,837,981
=========== =========
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
- 15 -
<PAGE> 16
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Additional
Common Paid-in
Shares Stock Capital Notes Receivable
--------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 1,188 $ 1,188 $ 1,732,718 $ -
Sale of common stock 5 5 14,995 -
Change par value of stock from $1.00
to $.001 per share - ($1,192) 1,192 -
Stock split - 300 for 1 356,707 357 (357) -
Stock split - 3.7 for 1 966,330 966 (966) -
Employee stock bonus 3,330 3 564 -
Contributed services - - 100,000 -
Notes receivable, common stock 194,588 195 32,885 (33,080)
Sale of common stock and warrants 842,835 843 896,586 -
Net loss - - - -
Capitalization of accumulated deficit upon
termination of S corporation election,
December 7, 1995 - - (2,320,227) -
---------- -------- ----------- ---------
Balance, December 31, 1995 2,364,983 2,365 457,390 (33,080)
Sale of common stock and warrants 977,500 978 3,593,635 -
Contributed services - - 37,500 -
Stock options issued in exchange for other
services - - 49,750 -
Net change in unrealized gain on securities
available for sale, net of taxes of $2,500 - - - -
Net loss - - - -
---------- -------- ----------- ---------
Balance, December 31, 1996 3,342,483 $ 3,343 $ 4,138,275 $ (33,080)
========== ======== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Net Unrealized
on Securities Accumulated
Available for Deficit Total
------------------ ------------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1994 $ - $(1,822,467) $ (88,561)
Sale of common stock - - 15,000
Change par value of stock from $1.00
to $.001 per share - - -
Stock split - 300 for 1 - - -
Stock split - 3.7 for 1 - - -
Employee stock bonus - - 567
Contributed services - - 100,000
Notes receivable, common stock - - -
Sale of common stock and warrants - - 897,429
Net loss - (512,716) (512,716)
Capitalization of accumulated deficit upon
termination of S corporation election,
December 7, 1995 - 2,320,227 -
------- ----------- ----------
Balance, December 31, 1995 - (14,956) 411,719
Sale of common stock and warrants - - 3,594,613
Contributed services - - 37,500
Stock options issued in exchange for other
services - - 49,750
Net change in unrealized gain on securities 10,736 - 10,736
available for sale, net of taxes of $2,500 - (953,684) (953,684)
Net loss ------- ----------- ----------
Balance, December 31, 1996 $10,736 $ (968,640) $3,150,634
======= =========== ==========
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
- 16 -
<PAGE> 17
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 1,460,751 $ 855,692
Cash paid to suppliers and employees (1,986,184) (1,402,303)
Interest received 47,802 2,203
Interest paid (43,085) (48,064)
Other operating cash receipts - 43,233
---------- -----------
Net Cash Used in Operating Activities (520,716) (549,239)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for construction in progress (2,285,018) -
Purchase of property and equipment (66,940) -
Purchase of land (237,339) -
Purchase of securities available for sale (2,991,771) -
Proceeds from called securities 500,754 -
Investment in certification costs (39,608) -
Increase in deposits (22,672) -
----------- -----------
Net Cash Used in Investing Activities (5,142,594) -
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on borrowings (163,459) (487,342)
Proceeds from borrowings 1,993,804 580,391
Principal payments on related party borrowings (101,200) -
Proceeds from issuance of common stock and
warrants 3,677,561 912,429
Deferred offering costs - (82,948)
----------- -----------
Net Cash Provided by Financing Activities 5,406,706 922,530
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (256,604) 373,291
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 376,307 3,016
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 119,703 $ 376,307
=========== ===========
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
- 17 -
<PAGE> 18
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(continued)
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH USED
IN OPERATING ACTIVITIES
Net loss $ (953,684) $ (512,716)
Interest capitalized in connection with construction
in progress (21,509) -
Noncash (income) expenses included in net loss
Depreciation and amortization 47,555 53,386
Contributed services 37,500 100,000
Stock options issued in exchange for consulting
services 49,750 -
Salary expense - employee stock issued - 567
Change in assets and liabilities
(Increase) decrease in accounts receivable 39,246 (40,500)
(Increase) decrease in accrued interest receivable (60,448) -
(Increase) decrease in inventories (348,559) (85,217)
(Increase) decrease in prepaid expenses (2,654) (2,044)
Increase (decrease) in accounts payable and
accrued expenses 746,159 (120,786)
Increase (decrease) customer deposits (54,072) 58,071
----------- -----------
Net Cash Used in Operating Activities $ (520,716) $ (549,239)
=========== ===========
SUPPLEMENTAL DISCLOSURE OF INVESTING AND
FINANCING ACTIVITIES
Purchase of prepaid insurance by installment
note payable $ 43,750 $ -
=========== ===========
Increase in common stock and additional
paid-in capital $ 4,986,228 $ 1,512,900
Public and private offering costs paid in cash (280,743) (27,262)
Public and private offering costs deducted from
proceeds (1,027,924) (174,562)
Noncash - stock issued to employee - (567)
Noncash - notes receivable received for stock - (33,080)
Noncash - stock issued for services rendered - (335,000)
Noncash - prepaid fees for public offering (82,948) -
----------- -----------
Net Proceeds from Issuance of
Common Stock and Warrants $ 3,594,613 $ 912,429
=========== ============
Net Unrealized Gain on Securities Available for Sale $ (10,736) $ -
=========== ============
</TABLE>
-18-
<PAGE> 19
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Guardian Technologies International, Inc. (the Company) was incorporated
in Virginia on October 30, 1989 and commenced full production in
December, 1990. The Company manufactures and distributes soft armor
products, primarily superior quality ballistic protective vests, for law
enforcement officers, armed forces personnel, and other legitimate
individuals or groups requiring protective equipment.
In February, 1996, the Company was reincorporated in the State of
Delaware under the name of Guardian Technologies International, Inc. and
authorized to issue 15,000,000 shares of common stock, $.001 par value,
and 1,000,000 shares of preferred stock, $.20 par value. Thereafter,
pursuant to approval of the Company stockholders at a special
stockholders meeting, a Plan of Agreement and Merger between Guardian
Technologies International, Inc., the Virginia corporation and Guardian
Technologies International, Inc., the Delaware corporation was executed
and filed with 2,364,983 shares of common stock of the Delaware
corporation issued in a share for share exchange for the 2,364,983 shares
of the Virginia corporation then outstanding.
METHOD OF ACCOUNTING
The financial statements are presented on the accrual basis of
accounting.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product.
FINANCIAL STATEMENT 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 disclosures of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenue and expenses during
the reporting period. Due to their prospective nature, actual results
could differ from those estimates.
- 19 -
<PAGE> 20
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS
The estimated fair value of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses and other liabilities
approximate their carrying amounts in the financial statements.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
include demand deposits and all highly liquid debt instruments with
original maturities of three months or less.
ACCOUNTS RECEIVABLE
It is the practice of management to write off receivables in the year
amounts are determined to be uncollectible. No allowance for doubtful
accounts is reflected in these financial statements since management
believes all accounts to be fully collectible. There was no bad debt
expense in 1996 or 1995.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined on a first-in, first-out basis for raw materials and work in
progress. Finished goods are stated at standard cost.
SECURITIES AVAILABLE FOR SALE
The Company utilizes Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities. The
statement establishes standards of financial accounting and reporting
for investments in equity securities that have readily determinable fair
values and for all investments in debt securities.
Securities to be held for indefinite periods of time are classified as
securities available for sale. Unrealized gains and losses are excluded
from earnings and shown as a separate component of stockholders' equity,
net of applicable income taxes. The investments are recorded at fair
value.
- 20 -
<PAGE> 21
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
DEFERRED OFFERING COSTS
Deferred offering costs represent costs incurred in connection with
raising capital. Upon completion of an offering, the amount of the
proceeds credited to additional paid-in capital is reduced by the
deferred offering costs. Should an offering be unsuccessful, these costs
are charged to expense.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated useful lives. Leasehold improvements are amortized over their
useful lives or the related lease period, whichever is shorter. The
Company uses the straight-line and accelerated methods of depreciation
for financial statement and income tax reporting purposes.
A summary of the estimated useful lives follows:
Office furniture and equipment 5 - 7 years
Manufacturing equipment 7 - 8 years
Leasehold improvements 2 - 7 years
Expenditures for maintenance and repairs which do not materially extend
the useful lives of property and equipment are charged to earnings.
When property or equipment is sold or otherwise disposed of, the cost
and related accumulated depreciation are removed from the respective
accounts with the resulting gain or loss reflected in earnings.
Depreciation expense for the years ended December 31, 1996 and 1995 was
$17,318 and $10,774, respectively. Amortization of leasehold
improvements was $8,312 for the year ended December 31, 1996 and $19,598
for 1995.
CERTIFICATION COSTS
The Company has capitalized certain costs associated with certification
of its products. Certification costs are carried at cost less
accumulated amortization. Amortization is taken on the straight-line
basis over five years. Amortization expense for the years ended
December 31, 1996 and 1995 was $21,925 and $23,013, respectively.
- 21 -
<PAGE> 22
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
CONTRIBUTED SERVICES
The Company recognizes as additional paid in capital the value of
uncompensated services provided by the President and the Chief Executive
Officer.
ADVERTISING COSTS
The Company charges advertising costs to expense as incurred.
Advertising expense was $52,199 for 1996 and $8,854 for 1995.
INCOME TAXES
The Company utilizes the liability method for accounting for income
taxes. The liability method accounts for deferred income taxes by
applying enacted statutory rates in effect at the balance sheet date to
differences between financial statement amounts and tax bases of assets
and liabilities. The resulting deferred income tax liabilities are
adjusted to reflect changes in tax laws and rates. Temporary
differences consist of the difference in financial statement and income
tax bases for property and equipment and accounting for organization
costs. Deferred income taxes related to an asset or liability are
classified as current or noncurrent based on the classification of the
related asset or liability.
Prior to December 7, 1995, the Company, with the consent of its
stockholders, had elected S corporation status under Section 1372 of the
Internal Revenue Code and similar sections of the state income tax laws.
On December 7, 1995, Guardian Technologies International, Inc.
terminated its S corporation election and is now subject to corporate
income taxes.
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common and
common equivalent shares outstanding during the period. Primary and
fully diluted earnings per share are the same amount.
- 22 -
<PAGE> 23
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
STOCK COMPENSATION
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation for non-employee plans.
SFAS 123 establishes standards of financial accounting and reporting
for stock-based compensation plans including stock option plans, stock
purchase plans and other arrangements by which employees or other
related parties receive shares of stock or other equity instruments based
on the market value of an entity's stock.
The fair value of the Company's stock options used is the estimated
present value at grant date using the Black Scholes pricing model with
the following assumptions for 1996: a risk free interest rate of 5.58
percent, no estimated dividend yield, an expected volatility of 24
percent and an expected holding period of three years.
On November 14, 1996, the Company granted an option to purchase 100,000
shares at an exercise price of $.44 per share, to a consultant providing
advisory services to the Company. At that date, the market price was
$.9375. The option is exercisable at any time after January 2, 1997 and
on or before January 2, 2000. Consulting expense of $49,750 has been
recognized in the year ending December 31, 1996.
2. GOING CONCERN CONSIDERATIONS
The Company has incurred losses of approximately $3,290,000 since
inception. These continuing losses, a decline in sales during the
fourth quarter of 1996, and unanticipated increases in general and
administrative costs raise doubt about the Company's ability to continue
as a going concern. Its continued existence is dependent upon its
ability to achieve profitable operations by increasing sales while
controlling production and other costs. In May, 1996, the Company
completed a successful public offering which yielded approximately
$3,595,000 in new capital. These funds have been used to provide
working capital, purchase raw materials at reduced prices, reorganize
sales efforts, expand product lines and, temporarily, to fund
construction of new facilities.
- 23 -
<PAGE> 24
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
2. GOING CONCERN CONSIDERATIONS (continued)
During 1996, the Company's business plan was implemented and revised to
meet changing conditions. An increase of 76 percent in sales was
achieved through sales efforts in foreign markets, completion of a
subcontract for product for the US Government, and maintenance of
domestic market share. Gross profit margin increased from nil in 1995
to 10 percent sales in 1996. In addition, the Company completed
development and certification of a new ballistic vest line in 1996,
which will be offered for sale in 1997. The new line is constructed of
improved ballistic materials which the Company purchased in bulk during
late 1996 at a substantial savings. Sales of this line are expected to
result in improved profit margin. In 1997, the Company has instituted
a cost reduction program to reduce salaries, outside consultant fees and
other costs. New production facilities were occupied in January, 1997.
Reorganization of production is expected to result in improved margins
in the near future.
The new facility was completed in January, 1997, with the Company
occupying approximately half the available 34,000 square feet. The
Company has leased out 3,600 square feet under seven year leases to
three tenants with annual base rents totaling about $45,000, plus common
area maintenance charges. A lease for 4,800 square feet is under
negotiation. Signed tenant leases provide for 3 percent increases in
base rent. When fully leased, annual rental income is expected to be
approximately $125,000.
As explained further in Note 15, the Company has appointed four new
members to the Board of Directors and arranged for interim financing of
working capital needs in order to achieve the goals set forth above.
For these reasons, management believes that no adjustments or
reclassifications of recorded assets and liabilities is necessary at this
time.
3. SECURITIES AVAILABLE FOR SALE
Securities available for sale as shown in the balance sheet at
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Government and
agency securities $2,491,017 $10,736 $ - $2,501,753
========== ======= ====== ==========
</TABLE>
- 24 -
<PAGE> 25
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
3. SECURITIES AVAILABLE FOR SALE (continued)
The following is the scheduled maturities of securities available for
sale at December 31, 1996:
<TABLE>
<CAPTION>
Approximate
Market
Cost Value
---------- ----------
<S> <C> <C>
Due in one year or less $ 496,878 $ 499,580
Due from one year to five years 1,492,885 1,497,350
Due in over five years 501,254 504,823
---------- ----------
$2,491,017 $2,501,753
========== ==========
</TABLE>
Securities available for sale with carrying amount of $2,501,753 at
December 31, 1996, are pledged as collateral on a line of credit payable
(Note 6).
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Raw materials $ 266,925 $ 176,530
Work in process 7,695 35,972
Finished goods 140,984 24,521
Raw materials in transit 169,978 -
--------- ---------
$ 585,582 $ 237,023
========= =========
</TABLE>
5. CONSTRUCTION IN PROGRESS
During 1996, the Company entered into various contracts for the design
and construction of a manufacturing and office facility on a parcel of
unimproved land that was purchased in May, 1996 for $237,339. The total
anticipated cost of the building is approximately $2.5 million.
Interest incurred during construction has been capitalized as part of the
construction in progress. The capitalized interest was $21,509 for
1996.
The Company commenced occupancy of the facility on January 31, 1997.
See Note 15 for subsequent events.
- 25 -
<PAGE> 26
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
6. LINES OF CREDIT
The Company has a $100,000 line of credit arrangement with a bank,
through June 30, 1997. Interest is at 2 percent in excess of the bank's
base lending rate. No principal was outstanding as of December 31, 1996
and 1995. The line of credit is guaranteed by Oliver L. North,
stockholder. Borrowings and repayments in 1996 were $75,000 and $190,000
in 1995.
In 1996, the Company entered into a line of credit agreement with a
securities broker which allowed it to borrow against U.S. Government and
agency securities (Note 3). The borrowings are charged interest at the
broker's interest rate and are payable on demand. At December 31, 1996,
a total of $1,850,554 has been drawn against the securities. The
interest rate at December 31, 1996 was 7.5 percent and is payable
monthly.
See Note 15 for subsequent events.
7. NOTES PAYABLE
NOTES PAYABLE - OTHER
<TABLE>
<CAPTION>
Interest Original Balance
Rate Amount 12/31/96 12/31/95
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Various insurance premium
finance agreements, thirty-four
monthly principal and interest
payments of $5,539 until
May, 1999. 7.87% $168,300 $145,832 $12,291
Note payable, due on demand,
secured by receivables and
company assets, personally
guaranteed by Oliver L North,
stockholder 18.00% $ 60,000 - 60,000
</TABLE>
- 26 -
<PAGE> 27
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
7. NOTES PAYABLE (continued)
<TABLE>
<S> <C> <C> <C> <C>
Note payable, due on demand,
secured by receivables and
inventories, personally
guaranteed by Oliver L North,
stockholder 10.00% $50,000 - 50,000
-------- ---------
Totals 145,832 122,291
Current maturities (57,016) -
-------- ---------
Long-term maturities $ 88,816 $ 122,291
======== =========
</TABLE>
<TABLE>
<CAPTION>
The following is a schedule of future principal payments as of December 31, 1996:
Year ending December 31,
------------------------
<S> <C>
1997 $ 57,016
1998 61,669
1999 27,147
---------
$ 145,832
=========
</TABLE>
NOTES PAYABLE - RELATED PARTIES
The Company was indebted to certain stockholders and related parties as follows:
<TABLE>
<CAPTION>
Interest Original Balance
Rate Amount 12/31/96 12/31/95
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Edwin Shufelt, stockholder,
due on demand Prime + 1% $100,000 $ - $100,000
Oliver L. North, stockholder,
due on demand 9.00% $ 1,200 - 1,200
- ------ --------
$ - $101,200
====== ========
</TABLE>
During 1996, the principal plus interest was repaid. During 1995, the Company
borrowed $40,281 from its president and $3,910 from the chief executive
officer. The amounts were repaid with interest.
- 27 -
<PAGE> 28
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
8. LEASE COMMITMENTS
The Company leases office and warehouse space under two agreements. One
agreement expired November 1995 and was extended through July, 1996.
Thereafter, it was renewed on a month to month basis. The other lease
expired June, 1996 and is on a month to month basis at December 31,
1996.
The Company sub-leases office space to other parties on a month-to-month
basis. Office rental expense of $136,299 and $131,685 for the years
ended December 31, 1996 and 1995, respectively, are net of sublease
rental income of $36,162 and $28,233, respectively.
9. INCOME TAXES
There was no provision for income taxes for the years ended December 31,
1996 or 1995 due to net operating losses, the Company's termination of
its election to be taxed as an S corporation on December 7, 1995 and
because deferred tax assets were offset by a valuation allowance. The
deferred tax asset for the years ended December 31, are comprised of the
following items:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $(352,000) $(8,000)
Property and equipment (25,000) (4,500)
Accrued expenses (6,000) (500)
--------- -------
Gross deferred tax assets (383,000) (13,000)
Deferred tax liability:
Net unrealized gain on securities
available for sale 5,000 -
Less: deferred tax asset valuation
allowance 378,000 13,000
--------- --------
Net deferred tax asset $ - $ -
========= ========
</TABLE>
- 28 -
<PAGE> 29
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
9. INCOME TAXES (continued)
A reconciliation between the amount of reported Federal income tax
benefit and the amount computed by multiplying the applicable statutory
Federal income tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- --------------------------
<S> <C> <C> <C> <C>
Computed expected tax benefit $(324,250) (34.00)% $ (174,325) (34.00)%
(Increase) decrease in tax
benefit resulting from:
Adjustments resulting from
S corporation election - 0.00 161,325 31.45
State tax benefit (57,250) (6.00) - 0.00
Other 16,500 1.45 - 0.00
--------- ------- ---------- -------
(365,000) (38.55) (13,000) (2.55)
--------- ------- ---------- -------
Allowance to reduce tax benefit
to net realizable value:
Beginning of year $ (13,000) (1.40) $ - 0.00
End of year 378,000 39.95 13,000 2.55
--------- -------- ---------- -------
365,000 38.55 13,000 2.55
--------- -------- ---------- -------
Income tax benefit $ - 0.00% $ - 0.00%
======== ======== ========== =======
</TABLE>
At December 31, 1996, the Company has a net operating loss carryforward
of approximately $925,000 available under provisions of the Internal
Revenue Code to be applied against future taxable income. This
carryforward expires December 31, 2011.
10. MAJOR CUSTOMERS
The Company sells its products primarily to authorized dealers for resale
to municipal, county and state law enforcement agencies throughout the
United States. Approximately 21 percent of sales in 1996 were to
foreign governments and agencies. There were no material sales to
foreign governments and agencies in 1995.
Percentage of sales to major domestic customers at December 31, are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
U.S. Government subcontract 23% -
Municipal law enforcement agency 9% 14%
Domestic dealer 2% 15%
</TABLE>
-29-
<PAGE> 30
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
11. MAJOR SUPPLIER CONCENTRATION
The ballistic resistant products of the Company are primarily
manufactured with the raw materials Spectra 1000 woven fabric and
Spectra Shield. These two products are only manufactured and
distributed by Allied-Signal, Inc. As of December 31, 1996 and 1995,
Guardian Technologies International, Inc., owed $276,765 and $83,352,
respectively, to Allied-Signal, Inc.
12. FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of trade accounts receivable and
cash. The Company grants credit terms in the normal course of business
to its customers, who are primarily dealers or municipal, state and
Federal law enforcement agencies, and who are located throughout the
United States. As part of its ongoing procedures, the Company monitors
the credit worthiness of its customers.
The Company maintains cash in commercial banks in accounts which are
insured by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000 per customer and in uninsured accounts. The Company has
amounts on deposit with banks which at times exceed the $100,000 insured
threshold. The cash amount presented on the balance sheet reflects the
actual amounts on deposit with banks reduced for outstanding checks and
increased for deposits in transit. At December 31, 1995, the Company had
uninsured cash bank balances of $428,332. There were no uninsured bank
balances at December 31, 1996.
13. CONTRIBUTED CAPITAL
In May, 1996, the Company completed an initial public offering of 977,500
shares of common stock at $5.10 per share with 977,500 common stock
purchase warrants. The warrant entitles the holder to purchase one
share of common stock at an exercise price of $5.00 during the five year
period following the effective date of the offering. At December 31,
1996, no warrants had been exercised. The offering also registered
732,835 additional shares of common stock, 1,465,670 warrants and
1,465,670 shares of common stock underlying the warrants by existing
stockholders. No proceeds from the resale of these shares will be
received by the Company. Total net proceeds from the offering were
$3,594,613 after deducting commission fees and other costs of the sale.
- 30 -
<PAGE> 31
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
13. CONTRIBUTED CAPITAL (continued)
There were 2,443,170 warrants, with an exercise price of $5.00 per share,
outstanding at December 31, 1996 and 1,465,670 warrants, with an
exercise price of $5.00 per share, outstanding at December 31, 1995.
On February 20, 1995, the stockholders of the Company approved an
amendment of the articles of incorporation to increase the authorized
shares of common stock to 5,000,000 shares and to authorize 1,000,000
shares of preferred stock. The amendment was filed on March 22, 1996
with the State Corporation Commission of Virginia.
On February 21, 1995, the Company declared a 300 for 1 stock split in
which the number of shares was increased from 1,193 to 357,900 shares of
common stock outstanding. Par value of common stock was changed from
$1.00 to $0.01.
During October, 1995, the Company borrowed $175,000 from principals of
the investment banker for the private placement offering. The loan was
repaid with proceeds from the private placement offering.
On November 15, 1995, the Company effected a 3.7 for 1 forward stock
split pursuant to which the number of shares were increased from 357,900
to 1,324,230 shares of Common Stock outstanding.
In December, 1995, the Company completed an offering of its Securities
under an exemption pursuant to Rule 506, Regulation D promulgated under
the Securities Act. This offering closed with the sale of 732,835 units
at an offering price of $1.50 per unit which offering raised an
aggregate of $1,099,252 for the Company. Each unit sold in this offering
consisted of one share of common stock and two warrants each to purchase
one share of common stock at an exercise price of $5.00 per share. The
Company received net proceeds of $878,729 after deducting commission
fees and other costs of the sale, including 110,000 shares issued to the
securities counsel in exchange for services rendered in connection with
the offering.
- 31 -
<PAGE> 32
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
13. CONTRIBUTED CAPITAL (continued)
Additionally, in 1995, the Company sold 194,588 shares to investors
including the securities counsel for $.17 per share. The notes
receivable of $33,080 as of December 31, 1996 and 1995, represent
amounts due from two stockholders for purchase of 194,588 shares of
common stock. The notes were due April 16, 1996, with interest at the
rate of 9 percent. Common stock was issued to employees in recognition
of services rendered of 3,330 shares at an issued price of $567 for the
year ended December 31, 1995. Uncompensated services provided by the
President and Chief Executive Officer totaled $37,500 and $100,000 for
1996 and 1995, respectively.
14. STOCK PRICES SINCE INITIAL PUBLIC OFFERING
The common stock of the Company is traded on the NASDAQ Stock Market
under the symbol GRDN. The prices listed below are the high and low
sales prices for common shares since the initial public offering on May
14, 1996.
<TABLE>
<CAPTION>
Price
------------------
Quarter Ended Low High
------------ --------- --------
<S> <C> <C>
6/30/96 $ 5.75 $ 12.75
9/30/96 $ 0.9375 $ 6.50
12/31/96 $0.40625 $1.46875
</TABLE>
The common stock purchase warrants of the Company are traded on the
NASDAQ Stock Market under the symbol GRDNW. The prices listed below are
the high and low sales prices for common share warrants since the
initial public offering on May 14, 1996.
<TABLE>
<CAPTION>
Price
-------------------
Quarter Ended Low High
------------- --------- --------
<S> <C> <C>
6/30/96 $ 4.25 $ 11.50
9/30/96 $0.3125 $ 5.25
12/31/96 $0.0625 $0.96875
</TABLE>
- 32 -
<PAGE> 33
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
15. SUBSEQUENT EVENTS
BOARD OF DIRECTORS
On February 27, 1997, at a special meeting of the Board of Directors, the
Company appointed Herbert M. Jacobi, Attorney, and Hugh E. Sawyer,
President of National Linen Services, to the Board of Directors for one
year terms, or until the next annual shareholders' meeting, whichever is
earlier. On March 4, 1997, at a special meeting of the Board of
Directors, the Company appointed John C. Power, President of Redwood
MicroCap Fund, Inc., and Stephen G. Calandrella, President of the
Rockies Fund, to the Board of Directors for one year terms, or until the
next annual shareholders' meeting, whichever is earlier.
In March, 1997, Redwood MicroCap Fund, Inc., a company registered under
the Investment Company Act of 1940, purchased 309,300 shares of common
stock of the Company. During February and March, 1997, the Rockies Fund,
a company registered under the Investment Company Act of 1940 as a
business development company, purchased 311,600 shares of common stock
and 411,000 common stock purchase warrants of the Company.
EMPLOYMENT AGREEMENTS
Effective January 1, 1997, the employment agreements of the President and
Vice President were amended to reduce the base salaries payable to each
to $77,900 for 1997, only. The agreements permit the Board to increase,
but not decrease, the base salaries of the officers during the remaining
four year terms of the contracts. The Board or Compensation Committee,
in their sole discretion, may award bonuses to the officers. The amended
agreements include provisions for additional compensation payable to the
officers in the event of termination of employment without cause, or
upon change of control of the Company.
ADDITIONAL BORROWINGS
In January, 1997, the Company drew an additional $290,000 under the line
of credit agreement with the securities broker. These funds were used
to make the final payment on the new office and manufacturing
facilities, located in Sterling, Virginia. Also, in January and
February, 1997, the Company drew a total of $40,000 under the bank line
of credit agreement.
- 33 -
<PAGE> 34
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
15. SUBSEQUENT EVENTS (continued)
ADDITIONAL BORROWINGS (continued)
On February 7, 1997, the Company executed a one year note for $900,000
with a commercial entity. Interest at 15 percent, annual rate, is due
monthly. After payment of three months interest, there are no further
prepayment penalties. The principal balance is due at maturity. The
note is secured by a first deed of trust on the office and manufacturing
facility in Sterling, Virginia. On April 10, 1997, the lender and the
Company executed a commitment letter to extend additional credit
facilities under the above agreement. The commitment letter, which is
valid for thirty days, modifies the original agreement to include the
following terms and conditions. Total additional funds available under
the credit facility are $900,000. The Company may borrow up to
$650,000 with current tenants' leases in place and up to a maximum of
$900,000 when the building is fully leased. Borrowings under the credit
facility will bear interest at 15 percent annual rate, payable monthly.
The original principal amount of $900,000, plus any borrowings under the
credit facility will be due and payable on February 7, 1999. The
Company agrees to pay a minimum of three months interest on additional
borrowings during the remainder of the term of the agreement.
TENANT LEASES
During March, 1997, the Company executed lease agreements with three
tenants, including one entity affiliated with the President, effective
February 1, 1997, for approximately 3,600 square feet of office space in
the facility located in Sterling, Virginia. The leases are for seven
years, call for monthly payments of base rent and operating expenses, and
a 3 percent increase in base rent annually. The Company is negotiating
lease terms with a fourth tenant.
Minimum lease payments by year are as follows:
1997 $ 41,560
1998 46,584
1999 47,982
2000 49,421
2001 50,904
2002 52,431
2003 54,004
2004 4,511
--------
$347,397
========
- 34 -
<PAGE> 35
ITEM 8 CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS
The executive officer and directors of the Company are listed in the table
below and brief summaries of their business experience and certain other
information with respect to them are set forth thereafter.
NAME AGE POSITION
Oliver L. North........... 53 Chairman of the Board, President and Secretary
Joseph F. Fernandez....... 60 Director, Vice President and Treasurer
Travis Y Green............ 41 Director
Herbert M. Jacobi......... 52 Director
Hugh Sawyer............... 45 Director
John C. Power............. 34 Director
Stephen G. Calandrella.... 37 Director
The Company's Articles of Incorporation authorize three (3) classes of
Directors which classes serve for varying terms. The Articles also grant to
the sitting Directors the authority to fill any vacancies on the Board and/or
to appoint members to the Board to fill any vacancies resulting from an
increase in the authorized number of Directors. As at the date hereof, there
are seven (7) directors, four (4) of whom have been appointed by the original
Directors. Messrs. North and Fernandez' terms as Directors are for a three (3)
year period, Mr. Green for a two (2) year period and the appointees for a one
(1) year period.
Oliver L. North has served as Chairman of the Board, President and
Secretary from inception. He graduated from the United States Naval Academy in
June 1968 and served in the United States Marine Corps for twenty-two years.
His service included a tour of duty in Vietnam where he earned a Silver Star
for heroism, a Bronze Star with a "V" for valor, and two Purple Hearts for
wounds in action. From 1981 through 1986, he served as a member of President
Ronald Reagan's National Security Council staff and became Deputy Director of
Political-Military Affairs. In this capacity, he helped plan the liberation of
Grenada, the capture of terrorists who hijacked the cruise ship Achille Lauro,
and the U.S. raid on Quaddafi's terrorist training camps in Libya. He retired
from the Marine Corps in 1988.
In March, 1988, Mr. North was indicted on charges arising out of the
so-called Iran-Contra affair. Four of the charges were dismissed prior to
trial. On May 4, 1989 Mr. North was acquitted on nine counts and convicted on
three in the United States District Court in Washington, D.C. The convictions
were appealed to the United States Court of Appeals for the District of
Columbia Circuit. On July 20, 1990, the Court of Appeals vacated all the
convictions, reversed one conviction outright, and sent the case back to the
District Court. The Independent Counsel who had brought
- 35 -
<PAGE> 36
the case then declined to continue further prosecution and all remaining charges
were dismissed. There are no outstanding criminal charges or convictions
against Mr. North today.
Joseph F. Fernandez has served as Vice President, Treasurer and Director
since inception. Mr. Fernandez began his career as a Police Officer with
Miami/Dade County Police Department and served in this position for eight
years. In 1967, he was employed by the U.S. Central Intelligence Agency. In
this capacity, he served in both foreign and domestic posts dealing with
highly sensitive national security issues and intelligence operations. As a
Senior Operations Officer in the Clandestine Services, he directly supervised
CIA units of up to 35 persons in day-to-day operational assignments and
planned, distributed and accounted for budgets in excess of $8 million.
On June 22, 1988, Mr. Fernandez was indicted on five criminal counts
arising out of the so-called Iran-Contra Affair. These indictments were
dismissed without prejudice on October 13, 1988. On April 4, 1989, Mr.
Fernandez was re-indicted in a different venue on four criminal counts arising
out of the Iran-Contra Affair. This indictment was dismissed with prejudice on
November 24, 1989. The Independent Counsel lodged an appeal in the U.S. Court
of Appeals. In September, 1990, that Court upheld the dismissal of the
indictment, and on October 5, 1990, the mandate of the Court of Appeals was
issued thereby making final the dismissal of all charges against Mr.
Fernandez. There are no outstanding criminal charges or convictions against Mr.
Fernandez today.
Travis Y Green has been a Director since inception. He holds a Masters in
International Business Studies from the University of South Carolina, and he
graduated with a Bachelors Degree in Business Administration from Emory
University. Mr. Green was an Account Executive at Dresdner Bank AG, in New
York in 1978, and continued his financial career a the Wall Street firm of
Brown Brothers Harriman & Co. for 10 years from 1982 through 1992. In 1993, he
established the investment banking firm of Green, Morris & Associates in
Atlanta, Georgia where he serves as President.
Herbert M. Jacobi has been an attorney in private practice in New York,
New York since 1967.
Hugh Sawyer has served as President of National Linen Service, a $500
million in sales subsidiary of National Service Industry, based in Atlanta,
Georgia since early 1996. He was formerly president of Wells Fargo Armored
Services Division of Borg Warner.
John C. Power has served as President and Chief Executive Officer of
Redwood MicroCap Fund, Inc. ("MicroCap") since February, 1992. MicroCap is
registered as an Investment Company under the Investment Company Act of 1940,
as amended (the "40 Act"), but is attempting to de-register from the 40 Act.
MicroCap has majority and/or wholly-owned subsidiaries engaged in oil and gas
exploration, production and management and radio broadcasting. Since November
1996, Mr. Power has been the Managing Member of Northern Lights Broadcasting,
L.L.C., a limited liability company engaged in the acquisition and development
of radio stations in Montana and North Dakota. Since November 1996, Mr. Power
has also been President of Power Surge, Inc. Mr. Power has also served as
president of Power Curve, Inc., a private investment and consulting firm since
1986, and as an officer and director of Signature Wines of Napa Valley, Inc.
from September, 1995 to June 1996. From March, 1994 to September, 1995, Mr.
Power served as a general partner of Signature Wines, a California general
partnership, a predecessor entity of Signature Wines of Napa
- 36 -
<PAGE> 37
Valley, Inc. Mr. Power served as a director of BioSource International, Inc.
(NASDAQ:BIOI) from August, 1993 to December, 1994, of Optimax Industries, Inc.
(NASDAQ:OPMX) from April 1993 to March 1995, and of AirSoft Corporation, a
manufacturer of network communications software and systems, from 1993 to June
1996. Mr. Power received his formal education at Occidental College and at the
University of California at Davis.
Stephen G. Calandrella has been President and a Director of The Rockies
Fund, Inc. since February, 1991, and Chief Executive Officer since January 30,
1994. Mr. Calandrella has previously served as a Director of Kelly Motors,
Ltd., Good Times Restaurants, Inc., Southshore Corp., and Cogenco
International, Inc. Mr. Calandrella also served as a Director for Combined
Penny Stock Fund, Inc. and Redwood MicroCap Fund, Inc., both of which are
closed-end investment companies registered under the Investment Fund Act of
1940. Mr. Calandrella currently serves as a member of the Board of Directors
of several publicly held companies. Mr. Calandrella has also engaged in
financing and consulting activities for development stage companies which
consist of advising public and private companies on capital formation methods,
enhancing shareholder valuations, mergers, acquisitions and corporate
restructurings as well as arranging for bridge loans and equity purchases.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16 (a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and persons who own more
than ten percent of the Common Stock (collectively, "Reporting Persons") to
file initial reports of ownership and changes of ownership of the Common Stock
with the SEC and the NASDAQ Stock Market. Reporting Persons are required to
furnish the Company with copies of all forms that they file under Section
16(a). The Company is not aware of any failure on the part of any Reporting
Persons to timely file reports required pursuant to Section 16(a).
ITEM 10 EXECUTIVE COMPENSATION
The following table sets forth the executive compensation and distribution
paid to each executive officer of the Company during the years ended December
31.
EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
--------------------------- ----------------------------------
Name Year Restricted Restricted
Principal Ended Other Stock Options LTIF All other
Other Position December Salary Bonus Compensation Awards SARA Payouts Compensations
- ----------------------- -------- ------- ----- ------------ ------ ---- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oliver L. North 1996 $113,740 -- -- -- -- -- (1)
President and
Secretary 1995 -- -- -- -- -- -- (1)
Joseph F. Fernandez 1996 $117,074 -- -- -- -- -- (1)
Vice President 1995 $40,000 -- -- -- -- -- (1)
and Treasurer
</TABLE>
(1) Contributed services for Oliver L. North and Joseph F. Fernandez for 1996
and 1995 that were recorded as additional paid-in capital were $37,500 and
$70,000, respectively, for both years. No shares were issued in exchange
for the contributed services.
-37-
<PAGE> 38
EMPLOYMENT CONTRACTS
Oliver L. North and Joseph F. Fernandez executed employment contracts with
the Company effective May 31, 1996. The contracts are for a four (4) year
term with compensation at a rate of $150,000 for the first year of the term,
subject to increases as determined by the Board of Directors, plus fringe
benefits including health insurance.
Effective January 1, 1997, the employment agreements of the President and Vice
President were amended to reduce the base salaries payable to each to $77,900
for 1997, only. The agreements permit the Board to increase, but not
decrease, the base salaries of the officers during the remaining terms of the
contracts. The Board or Compensation Committee, in their sole discretion, may
award bonuses to the officers. The amended agreements include provisions for
additional compensation payable to the officers in the event of termination of
employment without cause, or upon change of control of the Company.
Oliver L. North, President, devotes approximately three (3) hours per day
to a radio program of which he is the host during which program Mr. North is
not at the Company's offices. Nonetheless, the Company believes that Mr.
North devotes a full business day to the Company's affairs.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 1997
with respect to the beneficial ownership of shares of Common Stock by (i) each
stockholder known by the Company to be the beneficial owner of more than five
percent (5%) of the outstanding shares of Common Stock; (ii) each director of
the Company; (iii) each executive officer named in the Summary Compensation
Table appearing below under "Executive Compensation", and (iv) all executive
officers and directors as a group. Except as indicated in the footnotes to
the table, persons named in the table have sole voting and investment power
with respect to all shares of Common Stock which they respectively own
beneficially.
<TABLE>
<CAPTION>
Name and Address Numer of Shares Percent
of Beneficial Owner Beneficially Owned* of Class*
--------------------------------------------------- ---------
<S> <C> <C>
Oliver L. North 473,970 14.2%
Rt. 1, Box 560
Bluemont, VA 20135
Joseph F. Fernandez 283,050 8.5%
542 Whitecedar Court
Vienna, VA 22180
Travis Y. Green 11,100 .3%
One Ravinia Drive
Atlanta, GA 30346
Redwood MicroCap Fund(1) 309,600 9.3%
2055 Angle Drive, Suite 105
Colorado Springs, CO 80918
Rockies Fund (2) 722,600 19.3%
4465 Northpark Drive, Suite 400
Colorado Springs, CO 80907
</TABLE>
- 38 -
<PAGE> 39
<TABLE>
<CAPTION>
Name and Address Numer of Shares Percent
of Beneficial Owner Beneficially Owned* of Class*
------------------- -------------------- -----------
<S> <C> <C>
All Events Consulting Inc.(3) 450,000 13.5%
7 Hampton Street
Hauppauge, NY 11787
Helmsley Finance Ltd.(4) 300,000 9.0%
39 Dan St. Jersey
Channel Island
JFU 8 UA
Michael Iovino(5) 180,000 5.2%
2530 4th Avenue
East Meadow, NY 11554
John Magliocco (6) 225,000 6.4%
14 Applegreen Drive
Westbury, NY 11568
M.D. Iabbah (7) 225,000 6.4%
708 Greenwich St
Apt 5C, New York
NY 10014
All Officers and Directors
as a Group (5 persons) 1,800,320 48.0%
</TABLE>
* Under applicable rules of the Securities and Exchange
Commission (the "SEC"), a person is deemed to be the beneficial owner
of share of Common Stock if, among other things, he or she directly
or indirectly has or shares voting power or investment power with
respect to such shares. A person is also considered to beneficially
own shares of Common Stock which he or she does not actually own but
has the right to acquire presently or within the next sixty (60)
days, by exercise of warrants or otherwise. The percentage of
ownership was determined by assuming that all Warrants held by this
securityholder have been exercised and that Warrants held by other
securityholders have not been exercised.
(1) Redwood MicroCap Fund, Inc. a company registered under the Investment
Company Act of 1940 purchased 309,600 shares of Common Stock in March,
1997. John C. Power, President of the Fund, was appointed to the Board
of Directors of the Company on March 4, 1997.
(2) The Rockies Fund, Inc., a company registered under the Investment Company
Act of 1940, purchased in a series of transactions in February and March,
1997, 311,600 shares of Common Stock and 411,000 Common Stock purchase
Warrants. Stephen G. Calandrella, President of the Fund, was appointed
to the Board of Directors of the Company on March 4, 1997.
(3) All Events Consulting, Inc. ("All Events") is a company engaged in the
promotion of events. Vincent Caruso is the principal beneficial owner of
the Company. All Events is the beneficial owner of 150,000 shares of
Common Stock and 300,000 Warrants, each to purchase one share of Common
Stock.
- 39 -
<PAGE> 40
(4) Helmsley Finance Limited ("Helmsley") is a four year old British Virgin
Island company engaged in providing financial investment services.
Charles HNE Wilson is the principal beneficial owner of Helmsley.
Helmsley is the beneficial owner of 100,000 shares of Common Stock and
200,000 Warrants, each to purchase one share of Common Stock.
(5) Michael Iovino is the beneficial owner of 60,000 shares of Common Stock
and 120,000 Warrants, each to purchase one share of Common Stock.
(6) John Magliocco is the beneficial owner of 75,000 shares of Common Stock
and 150,000 Warrants, each to purchase one share of Common Stock.
(7) M.D. Iabba is the beneficial owner of 75,000 shares of Common Stock and
150,000 Warrants, each to purchase one share of Common Stock.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ---------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Form of Common Stock Certificate.*
4.2 Form of Warrant.*
10.1 Employment Agreement between the Company and
Oliver L. North.
10.2 Employment Agreement between the Company and
Joseph F. Fernandez.
10.3 Revolving Line of Credit Agreement dated
December 7, 1995 among the Company, Creditanstalt
Corporate Finance, Inc., and Oliver L. North, as
Guarantor.
10.4 Promissory Note dated December 7, 1995 from the Company
to Creditanstalt Corporate Finance, Inc.
10.5 Guaranty dated December 7, 1995 from Oliver L. North to
Creditanstalt Corporate Finance, Inc.
</TABLE>
- 40 -
<PAGE> 41
10.6 Amendment dated November 26, 1996 relating to Revolving Loan of Credit
Agreement among the Company, Creditanstalt Corporate Finance, Inc. and
Oliver L. North, as Guarantor.
10.7 Margin Agreement dated June 24, 1996 between the Company and Pershing,
Division of Donaldson, Lufkin & Jenrette Securities Corporation.
10.8 Promissory Note dated February 7, 1997 from the Company to Dashco, Inc.
10.9 Deed of Trust between the Company and Marc A. Busman and Rosalyn R.
Busman, Trustees.
10.10 Deed of Lease dated January 23, 1997 between the Company, as Landlord,
and Freedom Alliance, as Tenant.
10.11 Letter re: Line of Credit facility between the Company and Adler
Financial Group.
11 Statement re: Computation of Per Share Earnings.
23 Consent of Thompson, Greenspon & Co., P.C.
27 Financial Data Schedule
________________________________
* Filed as an Exhibit to the Company's Registration Statement on Form SB-2
dated March 22, 1996 (Reg. No. 333-2712-NY) and incorporated herein by
reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
- 41 -
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
(Registrant)
Date: April 15, 1997 By: /s/ Joseph F. Fernandez
---------------------------
Joseph F. Fernandez
Vice President
In accordance with the Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ Oliver L. North Date: April 15, 1997
---------------------------------------
Oliver L. North
President (Principal Executive
Officer) and Director
By: /s/ Joseph F. Fernandez Date: April 15, 1997
---------------------------------------
Joseph F. Fernandez
Vice President and Treasurer
(Principal Accounting and Financial
Officer) and Director
By: /s/ Travis Y. Green Date: April 14, 1997
---------------------------------------
Travis Y. Green
Director
By: /s/ Herbert M. Jacobi Date: April 15, 1997
---------------------------------------
Herbert M. Jacobi
Director
By: Date: April 15, 1997
--------------------------------------
Hugh E. Sawyer
Director
By: /s/ John C. Power Date: April 15, 1997
---------------------------------------
John C. Power
Director
By: Date: April 15, 1997
--------------------------------------
Stephen G. Calandrella
Director
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ---------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Form of Common Stock Certificate.*
4.2 Form of Warrant.*
10.1 Employment Agreement between the Company and
Oliver L. North.
10.2 Employment Agreement between the Company and of
Joseph F. Fernandez.
10.3 Revolving Line of Credit Agreement dated December 7, 1995
among the Company, Creditanstalt Corporate Finance, Inc.,
and Oliver L. North, as Guarantor.
10.4 Promissory Note dated December 7, 1995 from the Company
to Creditanstalt Corporate Finance, Inc.
10.5 Guaranty dated December 7, 1995 from Oliver L. North to
Creditanstalt Corporate Finance, Inc.
10.6 Amendment dated November 26, 1996 relating to Revolving
Loan of Credit Agreement among the Company,
Creditanstalt Corporate Finance, Inc. and
Oliver L. North, as Guarantor.
10.7 Margin Agreement dated June 24, 1996 between the Company
and Pershing, Division of Donaldson, Lufkin & Jenrette
Securities Corporation.
10.8 Promissory Note dated February 7, 1997 from the Company
to Dashco, Inc.
10.9 Deed of Trust between the Company and Marc A. Busman and
Rosalyn R. Busman, Trustees
10.10 Deed of Lease dated January 23, 1997 between the Company,
as Landlord, and Freedom Alliance, as Tenant.
10.11 Letter re: Line of Credit facility between the Company
and Adler Financial Group.
</TABLE>
- 43 -
<PAGE> 44
<TABLE>
<S> <C>
11 Statement re: Computation of Per Share Earnings.
23 Consent of Thompson, Greenspon & Co., P.C.
27 Financial Data Schedule
</TABLE>
________________________________
* Filed as an Exhibit to the Company's Registration Statement on Form SB-2
dated March 22, 1996 (Reg. No. 333-2712-NY) and incorporated herein by
reference.
- 44 -
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 1st day of January, 1997, by and between GUARDIAN TECHNOLOGIES
INTERNATIONAL, INC., a Delaware corporation (the "Employer") and OLIVER L.
NORTH, residing at Rt. 1, Box 560, Bluemont, Virginia 20135 (the "Employee").
RECITALS
WHEREAS, the Employer desires to employ the Employee as the President of
the Employer; and
WHEREAS, the Employee desires to be employed by the Employer for the
compensation and on the terms provided herein; and
WHEREAS, the Employee acknowledges and understands that during the course
of his employment, the Employee will become familiar with certain confidential
information of the Employer which is exceptionally valuable to the Employer and
vital to the success of the Employer's business; and
WHEREAS, the Employer and the Employee desire to protect such confidential
information from disclosure to third parties or use of such information to the
detriment of the Employer; and
WHEREAS, the Employer desires to diminish the distractions the Employee
may suffer by virtue of the personal uncertainties and risks created by a
pending or threatened Change of Control (as defined below).
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto acknowledge
and agree as follows:
TERMS
PART ONE
NATURE AND TERM OF EMPLOYMENT
1.01 Employment. The Employer hereby agrees to employ the Employee, and
the Employee hereby accepts such employment, as the President of the Employer.
1.02 Term of Employment. The term of the Employee's employment hereunder
shall be for a period of 48 months beginning on the date of this Agreement (the
"Term").
1.03 Duties. The duties of the Employee shall be as determined by the
Board of Directors of the Employer (the "Board") from time to time. Without
limiting the generality of the foregoing, the Employee shall be the chief
executive officer of the Employer. Employee shall be required to
<PAGE> 2
undertake such travel, including international travel, as shall be necessary or
appropriate. The Employee agrees to devote his full business time and
attention to and shall exert his best efforts in, the diligent performance of
his duties hereunder and will not, during the Term hereof (a) engage in any
activity which shall have an adverse effect on the Employer's reputation,
goodwill or business relationships or which results in economic harm to the
Employer, or (b) engage in, accept employment from or provide services to any
other person, firm, corporation, governmental agency or other entity that
engages in, any activities which, in the reasonable opinion of the Board, would
conflict with or detract from the Employee's performance of such duties.
PART TWO
COMPENSATION AND BENEFITS
2.01 Base Salary. During the Term of this Agreement, the Employee shall
receive base compensation at the rate of $150,000 per each twelve month period,
payable in equal bi-weekly installments (the "Base Salary"); provided that for
the periods set forth below, the Base Salary shall be payable at the rates set
forth opposite such respective periods:
Period Rate
January 1, 1997 to February 13, 1997 $100,000
February 14, 1997 to December 31, 1997 $ 75,000
The Base Salary may be increased, but not decreased, by the Board in its
discretion during the Term of this Agreement.
2.02 Bonus. During the Term of this Agreement, the Employee shall be
eligible to receive an annual bonus award at a target bonus level of not less
than 50% of the Base Salary (the "Bonus"). Except as otherwise provided in
this Agreement, the actual annual Bonus paid to the Employee, if any, shall be
determined by the Board or the Compensation Committee of the Board in its sole
discretion, based on such factors as it deems appropriate.
2.03 Benefits. During the Term of this Agreement, the Employer agrees to
provide to the Employee such benefits as are provided generally to other
comparable employees of the Employer from time to time, including but not
limited to, any health, disability, vacation, severance benefits, insurance,
deferred compensation, profit-sharing, pension, or other employee benefit
policies, programs or plans, including restricted stock plans or stock option
plans, which the Employer offers to such employees generally (collectively
referred to herein as the "Employee Benefits").
2.04 Expenses. During the Term of this Agreement, the Employee shall be
reimbursed by the Employer for all ordinary and necessary out-of-pocket
expenses for travel, lodging, meals, entertainment expenses, or any other
similar expenses incurred by the Employee in performing services for the
Employer, in accordance with policies established by the Employer.
2.05 Vacations. The Employee shall be entitled to a vacation of 20
business days during each 12 month period during the Term of this Agreement,
provided, however, that the Employee's
- 2 -
<PAGE> 3
vacation shall be scheduled at such times as shall not unduly interfere with the
Employer's business. Unused vacation time may be carried over from one 12 month
period to the next 12 month period, but not to any succeeding periods.
Attendance at seminars, professional meetings and holidays observed by the
Employer shall not be applied against the Employee's vacation time.
PART THREE
CONFIDENTIAL INFORMATION AND COMPETITION
3.01 Definition of Confidential Information. For the purposes of this
Agreement, the term "Confidential Information" shall mean, but shall not be
limited to, any technical or non-technical data, formulae, patterns,
compilations, programs, devices, methods, techniques, drawings, designs,
processes, procedures, improvements, models, manuals, financial data, lists of
actual or potential customers or suppliers of the Employer, and any information
regarding the Employer's marketing, sales or dealer network, which is not
generally known to the public through legitimate origins. The Employer and the
Employee acknowledge and agree that such Confidential Information is extremely
valuable to the Employer and shall be deemed to be a "Trade Secret" pursuant to
the Virginia Trade Secrets Act, Code of Virginia, 59.1-336 et seq. (the "Act").
For the purposes of this Section 3.01, such information is "not generally
known to the public through legitimate origins" if it is not generally known to
third parties who can obtain economic value from its disclosure and use and is
the subject of efforts that are reasonable under the circumstances to maintain
its secrecy or confidentiality. In the event that any part of the Confidential
Information becomes generally known to the public through legitimate origins
(other than by the breach of this Agreement by the Employee or by
"Misappropriation" as that term is defined in the Act), that part of the
Confidential Information shall no longer be deemed Confidential Information for
the purposes of this Agreement, but the Employee shall continue to be bound by
the terms of this Agreement as to all other Confidential Information.
3.02 Non-Disclosure of Confidential Information. The Employee will not
during, or after termination of, the Employee's employment by the Employer, in
any form or manner, directly or indirectly, divulge, disclose or communicate to
any person, entity, firm, corporation or any other third party, or utilize for
the Employee's personal benefit or for the benefit of any competitor of the
Employer, any Confidential Information.
3.03 Delivery Upon Termination. Upon termination of the Employee's
employment with the Employer for any reason, the Employee will promptly deliver
to the Employer all correspondence, drawings, blueprints, manuals, letters,
notes, notebooks, reports, programs, plans, proposals, financial documents, or
any other documents concerning the Employer's customers, dealer network,
marketing strategies, products or processes and/or which contains Confidential
Information.
3.04 Covenant-Not-To-Compete. The Employee will not during, or for a
period of two years after termination of, the Employee's employment with the
Employer, in any form or manner, directly or indirectly, on his own behalf or
in combination with others, engage in, become interested in (as an individual,
partner, stockholder, director, officer, principal, agent, independent
contractor, employee, trustee, lender of money or in any other relation or
capacity whatsoever, except as a holder of securities of a corporation whose
securities are publicly traded and which is
- 3 -
<PAGE> 4
subject to the reporting requirements of the Securities Exchange Act of 1934,
and then only to the extent of owning not more than two percent (2%) of the
issued and outstanding securities of such corporation), or solicit for, any
business which renders services or sells products, or proposes to render
services or sell products, to any customers or accounts of the Employer that
compete with services or products which were provided or sold by the Employer to
any customer or account of the Employer during the period the Employee was
employed by the Employer.
3.05 Injunctive Relief. In the event that the Employee breaches any of
the terms of Part Three of this Agreement, the Employee stipulates that said
breach will result in immediate and irreparable harm to the business and
goodwill of the Employer and that damages, if any, and remedies at law for such
breach would be inadequate. The Employer shall therefore be entitled to apply
for and receive from any court of competent jurisdiction an injunction to
restrain any violation of Part Three of this Agreement and for such further
relief as the court may deem just and proper, and the Employee shall, in
addition, pay to the Employer the Employer's costs and expenses in enforcing
the terms of Part Three of this Agreement (including court costs and reasonable
attorneys' fees).
3.06 Continuing Obligations. The obligations, duties and liabilities of
the Employee pursuant to Part Three of this Agreement are continuing, absolute
and unconditional and shall remain in full force and effect as provided therein
despite any termination of the Employee's employment with the Employer for any
reason whatsoever, including, but not limited to, the expiration of the Term of
this Agreement.
PART FOUR
TERMINATION
4.01 Termination of Employment. If the Employer shall terminate the
Employee's employment pursuant to Section 4.02 or 4.03 below or if the
Employee's employment shall terminate pursuant to Section 4.04 below, the
Employer shall be obligated to pay to the Employee the Annual Salary then in
effect and the Employee Benefits payable to the Employee pursuant to this
Agreement, in each case accrued up to and including the date on which the
Employee's employment is so terminated. Thereafter, the Employer shall have no
further obligation whatsoever to the Employee.
4.02 Termination of Employee for Cause. The Employer shall have the right
to terminate the Employee's employment immediately at any time for "cause."
For purposes hereof, "cause" shall mean a good faith determination by the Board
that the Employee has:
(a) Committed a material breach of any covenant, provision, term,
condition, understanding or undertaking set forth in this Agreement, including,
without limitation, the provisions contained in Part Three herein; or
(b) Committed a felony or any crime involving moral turpitude; or
(c) Committed any breach of fiduciary duty or act of theft, fraud or
defalcation; or
- 4 -
<PAGE> 5
(d) In carrying out his duties under this Agreement, been guilty of gross
negligence or willful misconduct.
4.03 Termination of Employee Because of Employee's Disability, Injury or
Illness. The Employer shall have the right to terminate the Employee's
employment if the Employee is unable to perform the duties assigned to him by
the Employer because of the Employee's disability, injury or illness, provided
however, that in the event of such disability, injury or illness, the
Employee's inability to perform such duties must have existed for a total of
six months in any consecutive 12 month period before such termination can be
made effective.
4.04 Termination as a Result of Employee's Death. The obligations of the
Employer to the Employee pursuant to Part Two herein shall automatically
terminate upon the Employee's death. In the event of the Employee's death, any
payments due to the Employee as provided in Section 4.01 above shall be paid to
the Employee's estate.
4.05 Termination of Employment for Any Other Reason. Employee's
employment under this Agreement may be terminated by the Employer at any time,
with or without cause, upon 60 days prior written notice to Employee. If the
Employer shall terminate the employment of Employee prior to the end of the
Term, other than as permitted by Sections 4.02, 4.03 or 4.04, Employee shall be
entitled to receive, and the Employer shall be obligated to pay, the amounts
set forth below in this Section 4.05 as Base Salary and Bonus for the remainder
of the Term. The amount of Base Salary payable with respect to each fiscal
year during the Term shall be equal to the Base Salary in effect at the time of
termination of Employee's employment (without giving effect to the reduction
set forth in the proviso of Section 2.01), increased by 5% for each subsequent
year of the Term. The amount of Bonus payable with respect to each year during
the Term shall be 35% of the Base Salary paid to Employee for such year as
determined pursuant to the preceding sentence. Employer shall also pay to
Employee a lump sum amount equal to the sum of (i) the difference between the
Base Salary received by Employee pursuant to Section 2.01 hereof and the amount
of Base Salary that the Employer would have been obligated to pay to Employee
under said Section 2.01 if the reduction set forth in the proviso to Section
2.01 did not apply; and (ii) the difference between the Annual Salary paid to
Employee by Employer under the Employment Agreement dated as of May 30, 1996
and the amount of Annual Salary the Employer would have been obligated to pay
to Employee under such Employment Agreement if any reduction thereto agreed to
by Employee did not apply (the "Make-Whole Payment"). The Make-Whole Payment
shall be paid by Employer to Employee within five business days after
termination of Employee's employment. Employee shall also continue to
participate in all Employee Benefits to the extent that such continued
participation is possible under the general terms and provisions of the plans
or programs relating thereto. In the event that Employee's continued
participation in any such Employee Benefits is barred, in lieu thereof,
Employee shall be entitled to receive, and Employer shall be obligated to pay,
annually for the remainder of the Term, an amount equal to the sum of the
average annual contributions, payments, credits or allocations made by the
Employer to Employee, to his account, or on his behalf over the three fiscal
years of the Employer preceding the termination of his employment under such
Employee Benefits from which his continued participation is barred.
4.06 Termination by Employee Following Demotion or Relocation. Employee
shall be considered to have been terminated by the Employer without cause and
shall be entitled to the
- 5 -
<PAGE> 6
payments and other benefits described in Section 4.05 above, if Employee
voluntarily terminates his employment with the Employer within 90 days after the
occurrence of any of the following events without Employee's consent:
(a) the Board shall fail to re-elect Employee as President of the Employer
or shall remove him from such office;
(b) Employee shall fail to be vested with the power and authority of the
chief executive officer of the Employer;
(c) Employee is assigned on a regular basis any duties or responsibilities
that are inconsistent with his authority, duties and responsibilities as chief
executive officer of the Employer and that are normally assigned to an officer
of lesser rank than a chief executive officer, regardless of whether such
assignment is accompanied by a change in title or reporting responsibility;
(d) Employee is not elected a director of the Employer; or
(e) Employee is transferred to a location which is more than 25 miles from
his current principal work location.
4.07 Excess Parachute Payment. As a material part of the consideration
which has induced Employee to remain in the employ of the Employer, the
Employer agrees that, if any part of the payments being made to Employee under
the terms of this Agreement or any other agreement is determined to be an
"Excess Parachute Payment," as that term is defined in Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), the Employer shall pay
to Employee an amount equal to the amount of the tax imposed against Employee
under Code Section 4999, together with the required amount of additional cash,
so that Employee receives from the Employer the tax imposed against Employee
under Code Section 4999 "Tax Free on a Grossed-Up Basis." For the purposes of
this Agreement, the phrase "Tax-Free on a Grossed-Up Basis" means that the
Employer will not only pay to Employee an amount equal to the amount of tax
imposed against Employee under Code Section 4999 but also the necessary amount
of additional cash, so that Employee shall have the exact amount of cash
required to pay the additional liabilities for Federal, state and local income
taxes arising by reason of (a) the payment by the Employer to Employee of the
amount needed to pay the tax under Code Section 4999 and (b) the payment by the
Employer to Employee of the additional amount of cash needed to pay the
additional Federal, state and local tax liabilities.
4.08 Termination by Employee. The Employee may resign and terminate his
employment by the Employer for any reason whatsoever upon 60 days prior written
notice to the Employer. If the Employee's employment is so terminated, except
as provided in Sections 4.06 or 4.09 hereof, the Employer shall be obligated to
continue to pay to the Employee the Annual Salary then in effect and the
Employee Benefits payable to the Employee pursuant to this Agreement, in each
case accrued up to and including the date on which the Employee's employment is
so terminated. Thereafter, the Employer shall have no further obligation
whatsoever to the Employee.
4.09 Change of Control Payment. If a "Change in Control," as defined in
Section 4.10 shall have occurred and within three years after the occurrence
thereof, Employee shall be entitled
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<PAGE> 7
to payment from the Employer under Section 4.05 or 4.06 hereof on account of
termination of employment, Employee may elect to receive, in lieu of the
payments provided for under said Section 4.05 or 4.06, a lump-sum payment equal
to 150% of the Base Salary in effect at the time of termination of Employee's
employment (without giving effect to the reduction set forth in the proviso of
Section 2.01), multiplied by three. The Employee shall also pay to Employee the
Make-Whole Payment. Such payments shall be made by the Employer to the Employee
within five business days after termination of Employee's employment. Employee
shall also be entitled to participate in all Employee Benefits referred to in
Section 2.03 hereof for the remainder of the Term, or to receive an annual
payment in lieu thereof, as provided in Section 4.05 hereof. Section 4.07 shall
be applicable to any payments made under this Section 4.09. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Employee's employment with the Employer is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Employee that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement, such Change in Control shall be deemed
to have occurred on the date immediately preceding Employee's termination of
employment.
4.10 Definition of Change of Control. For the purpose of this Agreement,
a Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Employer (the
"Outstanding Employer Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Employer entitled to vote generally
in the election of directors (the "Outstanding Employer Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Employer, (ii) any acquisition by the Employer, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Employer or any corporation controlled by the Employer, (iv)
any acquisition by Oliver L. North or Joseph F. Fernandez or (v) any
acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 4.10; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Employer's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Employer (a
"Business Combination"), in
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<PAGE> 8
each case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Employer Common Stock and Outstanding
Employer Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Employer or all or substantially all of the Employer's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Employer Common Stock and Outstanding Employer
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Employer or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the stockholders of the Employer of a complete liquidation
or dissolution of the Employer.
PART FIVE
MISCELLANEOUS
5.01 Assignment. The Employee and Employer acknowledge and agree that the
covenants, terms and provisions contained in this Agreement constitute a
personal employment contract and the rights of the parties thereunder cannot be
transferred, sold, assigned, pledged or hypothecated, excepting that (a) the
Employee's rights pursuant to Part Four of this Agreement may be transferred by
will or operation of law and the Employee's Employee Benefits may be assigned
or transferred in accordance with such policies, programs, plans or Employer
practices; and (b) the rights and obligations of the Employer under this
Agreement may be assigned or transferred by operation of law pursuant to a
merger, consolidation, share exchange, sale of substantially all of the
Employer's assets, or other reorganization described in Section 368 of the
Internal Revenue Code of 1986, as amended, or through liquidation, dissolution
or otherwise, whether or not the Employer is the continuing entity, provided
that the assignee or transferee is the successor to all or substantially all of
the assets of the Employer and such assignee or transferee assumes the rights
and duties of the Employer, if any, as contained in this Agreement, either
contractually or as a matter of law.
5.02 Capacity. The Employee hereby represents and warrants that, in
entering into this Agreement, he is not in violation of any contract or
agreement, whether written or oral, with any other person, firm, partnership,
-8-
<PAGE> 9
corporation or other entity to which he is a party or by which he is bound and
will not violate or interfere with the rights of any other person, firm,
partnership, corporation or other entity. In the event that such a violation
or interference does occur, or is alleged to occur, notwithstanding the
representation and warranty made hereunder, the Employee shall indemnify the
Employer from and against any and all manner of expenses and liabilities
incurred by the Employer or any affiliated company of the Employer in
connection with such violation or interference or alleged violation or
interference.
5.03 Entire Agreement. This Agreement contains the entire agreement
between the parties and shall not be modified except in writing by the parties
hereto. Furthermore, the parties hereto specifically agree that all prior
agreements, whether written or oral, relating to the Employee's employment by
the Employer shall be of no further force or effect from and after the date
hereof.
5.04 Severability. If any phrase, clause or provision of this Agreement
is declared invalid or unenforceable by a court or arbitrator of competent
jurisdiction, such phrase, clause or provision shall be deemed severed from
this Agreement, but will not affect any other provisions of this Agreement,
which shall otherwise remain in full force and effect. If any restriction or
limitation in this Agreement is deemed to be unreasonable, onerous and unduly
restrictive by a court or arbitrator of competent jurisdiction, it shall not be
stricken in its entirety and held totally void and unenforceable, but shall
remain effective to the maximum extent permissible within reasonable bounds.
5.05 Notices. Any notice, request or other communication required to be
given pursuant to the provisions hereof shall be in writing and shall be deemed
to have been given when delivered in person or five days after being deposited
in the United States mail, certified or registered, postage prepaid, return
receipt requested and addressed to the party at its or his last known address.
The address of any party may be changed by notice in writing to the other
parties duly served in accordance herewith.
5.06 Waiver. The waiver by the Employer or the Employee of any breach of
any term or condition of this Agreement shall not be deemed to constitute the
waiver of any other breach of the same or any other term or condition hereof.
5.07 Governing Law. This Agreement and the enforcement thereof shall be
governed and controlled in all respects by the laws of the Commonwealth of
Virginia.
5.08 Arbitration. Except as otherwise provided in Section 3.05 above, any
controversy or claim arising out of, or relating to, this Agreement or the
breach thereof shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect in the Commonwealth of Virginia and judgment upon any arbitration award
may be entered into in any court having jurisdiction thereof. The arbitration
shall be held in Dulles, Virginia. The cost of the arbitration shall be borne
among the parties as determined by the arbitrator(s).
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first hereinabove written.
EMPLOYER:
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ Joseph L. Fernandez
-----------------------------
Title: Vice President
--------------------------
EMPLOYEE:
/s/ Oliver L. North
---------------------------------
OLIVER L. NORTH
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 1st day of January, 1997, by and between GUARDIAN TECHNOLOGIES
INTERNATIONAL, INC., a Delaware corporation (the "Employer") and JOSEPH F.
FERNANDEZ, residing at 542 Whitecedar Court, Vienna, Virginia 22180 (the
"Employee").
RECITALS
WHEREAS, the Employer desires to employ the Employee as the Vice President
of the Employer; and
WHEREAS, the Employee desires to be employed by the Employer for the
compensation and on the terms provided herein; and
WHEREAS, the Employee acknowledges and understands that during the course
of his employment, the Employee will become familiar with certain confidential
information of the Employer which is exceptionally valuable to the Employer and
vital to the success of the Employer's business; and
WHEREAS, the Employer and the Employee desire to protect such confidential
information from disclosure to third parties or use of such information to the
detriment of the Employer; and
WHEREAS, the Employer desires to diminish the distractions the Employee
may suffer by virtue of the personal uncertainties and risks created by a
pending or threatened Change of Control (as defined below).
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto acknowledge
and agree as follows:
TERMS
PART ONE
NATURE AND TERM OF EMPLOYMENT
1.01 Employment. The Employer hereby agrees to employ the Employee, and
the Employee hereby accepts such employment, as the Vice President of the
Employer.
1.02 Term of Employment. The term of the Employee's employment hereunder
shall be for a period of 48 months beginning on the date of this Agreement (the
"Term").
1.03 Duties. The duties of the Employee shall be as determined by the
Board of Directors of the Employer (the "Board") from time to time. Without
limiting the generality of the foregoing,
<PAGE> 2
the Employee shall be the chief operating officer of the Employer. Employee
shall be required to undertake such travel, including international travel, as
shall be necessary or appropriate. The Employee agrees to devote his full
business time and attention to and shall exert his best efforts in, the diligent
performance of his duties hereunder and will not, during the Term hereof (a)
engage in any activity which shall have an adverse effect on the Employer's
reputation, goodwill or business relationships or which results in economic harm
to the Employer, or (b) engage in, accept employment from or provide services to
any other person, firm, corporation, governmental agency or other entity that
engages in, any activities which, in the reasonable opinion of the Board, would
conflict with or detract from the Employee's performance of such duties.
PART TWO
COMPENSATION AND BENEFITS
2.01 Base Salary. During the Term of this Agreement, the Employee shall
receive base compensation at the rate of $150,000 per each twelve month period,
payable in equal bi-weekly installments (the "Base Salary"); provided that for
the periods set forth below, the Base Salary shall be payable at the rates set
forth opposite such respective periods:
Period Rate
January 1, 1997 to February 13, 1997 $100,000
February 14, 1997 to December 31, 1997 $ 75,000
The Base Salary may be increased, but not decreased, by the Board in its
discretion during the Term of this Agreement.
2.02 Bonus. During the Term of this Agreement, the Employee shall be
eligible to receive an annual bonus award at a target bonus level of not less
than 50% of the Base Salary (the "Bonus"). Except as otherwise provided in
this Agreement, the actual annual Bonus paid to the Employee, if any, shall be
determined by the Board or the Compensation Committee of the Board in its sole
discretion, based on such factors as it deems appropriate.
2.03 Benefits. During the Term of this Agreement, the Employer agrees to
provide to the Employee such benefits as are provided generally to other
comparable employees of the Employer from time to time, including but not
limited to, any health, disability, vacation, severance benefits, insurance,
deferred compensation, profit-sharing, pension, or other employee benefit
policies, programs or plans, including restricted stock plans or stock option
plans, which the Employer offers to such employees generally (collectively
referred to herein as the "Employee Benefits").
2.04 Expenses. During the Term of this Agreement, the Employee shall be
reimbursed by the Employer for all ordinary and necessary out-of-pocket
expenses for travel, lodging, meals, entertainment expenses, or any other
similar expenses incurred by the Employee in performing services for the
Employer, in accordance with policies established by the Employer.
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2.05 Vacations. The Employee shall be entitled to a vacation of 20
business days during each 12 month period during the Term of this Agreement,
provided, however, that the Employee's vacation shall be scheduled at such
times as shall not unduly interfere with the Employer's business. Unused
vacation time may be carried over from one 12 month period to the next 12 month
period, but not to any succeeding periods. Attendance at seminars,
professional meetings and holidays observed by the Employer shall not be
applied against the Employee's vacation time.
PART THREE
CONFIDENTIAL INFORMATION AND COMPETITION
3.01 Definition of Confidential Information. For the purposes of this
Agreement, the term "Confidential Information" shall mean, but shall not be
limited to, any technical or non-technical data, formulae, patterns,
compilations, programs, devices, methods, techniques, drawings, designs,
processes, procedures, improvements, models, manuals, financial data, lists of
actual or potential customers or suppliers of the Employer, and any information
regarding the Employer's marketing, sales or dealer network, which is not
generally known to the public through legitimate origins. The Employer and the
Employee acknowledge and agree that such Confidential Information is extremely
valuable to the Employer and shall be deemed to be a "Trade Secret" pursuant to
the Virginia Trade Secrets Act, Code of Virginia, 59.1-336 et seq. (the "Act").
For the purposes of this Section 3.01, such information is "not generally
known to the public through legitimate origins" if it is not generally known to
third parties who can obtain economic value from its disclosure and use and is
the subject of efforts that are reasonable under the circumstances to maintain
its secrecy or confidentiality. In the event that any part of the Confidential
Information becomes generally known to the public through legitimate origins
(other than by the breach of this Agreement by the Employee or by
"Misappropriation" as that term is defined in the Act), that part of the
Confidential Information shall no longer be deemed Confidential Information for
the purposes of this Agreement, but the Employee shall continue to be bound by
the terms of this Agreement as to all other Confidential Information.
3.02 Non-Disclosure of Confidential Information. The Employee will not
during, or after termination of, the Employee's employment by the Employer, in
any form or manner, directly or indirectly, divulge, disclose or communicate to
any person, entity, firm, corporation or any other third party, or utilize for
the Employee's personal benefit or for the benefit of any competitor of the
Employer, any Confidential Information.
3.03 Delivery Upon Termination. Upon termination of the Employee's
employment with the Employer for any reason, the Employee will promptly deliver
to the Employer all correspondence, drawings, blueprints, manuals, letters,
notes, notebooks, reports, programs, plans, proposals, financial documents, or
any other documents concerning the Employer's customers, dealer network,
marketing strategies, products or processes and/or which contains Confidential
Information.
3.04 Covenant-Not-To-Compete. The Employee will not during, or for a
period of two years after termination of, the Employee's employment with the
Employer, in any form or manner, directly or indirectly, on his own behalf or
in combination with others, engage in, become interested in (as an individual,
partner, stockholder, director, officer, principal, agent, independent
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contractor, employee, trustee, lender of money or in any other relation or
capacity whatsoever, except as a holder of securities of a corporation whose
securities are publicly traded and which is subject to the reporting
requirements of the Securities Exchange Act of 1934, and then only to the
extent of owning not more than two percent (2%) of the issued and outstanding
securities of such corporation), or solicit for, any business which renders
services or sells products, or proposes to render services or sell products, to
any customers or accounts of the Employer that compete with services or
products which were provided or sold by the Employer to any customer or account
of the Employer during the period the Employee was employed by the Employer.
3.05 Injunctive Relief. In the event that the Employee breaches any of
the terms of Part Three of this Agreement, the Employee stipulates that said
breach will result in immediate and irreparable harm to the business and
goodwill of the Employer and that damages, if any, and remedies at law for such
breach would be inadequate. The Employer shall therefore be entitled to apply
for and receive from any court of competent jurisdiction an injunction to
restrain any violation of Part Three of this Agreement and for such further
relief as the court may deem just and proper, and the Employee shall, in
addition, pay to the Employer the Employer's costs and expenses in enforcing
the terms of Part Three of this Agreement (including court costs and reasonable
attorneys' fees).
3.06 Continuing Obligations. The obligations, duties and liabilities of
the Employee pursuant to Part Three of this Agreement are continuing, absolute
and unconditional and shall remain in full force and effect as provided therein
despite any termination of the Employee's employment with the Employer for any
reason whatsoever, including, but not limited to, the expiration of the Term of
this Agreement.
PART FOUR
TERMINATION
4.01 Termination of Employment. If the Employer shall terminate the
Employee's employment pursuant to Section 4.02 or 4.03 below or if the
Employee's employment shall terminate pursuant to Section 4.04 below, the
Employer shall be obligated to pay to the Employee the Annual Salary then in
effect and the Employee Benefits payable to the Employee pursuant to this
Agreement, in each case accrued up to and including the date on which the
Employee's employment is so terminated. Thereafter, the Employer shall have no
further obligation whatsoever to the Employee.
4.02 Termination of Employee for Cause. The Employer shall have the right
to terminate the Employee's employment immediately at any time for "cause."
For purposes hereof, "cause" shall mean a good faith determination by the Board
that the Employee has:
(a) Committed a material breach of any covenant, provision, term,
condition, understanding or undertaking set forth in this Agreement, including,
without limitation, the provisions contained in Part Three herein; or
(b) Committed a felony or any crime involving moral turpitude; or
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(c) Committed any breach of fiduciary duty or act of theft, fraud or
defalcation; or
(d) In carrying out his duties under this Agreement, been guilty of gross
negligence or willful misconduct.
4.03 Termination of Employee Because of Employee's Disability, Injury or
Illness. The Employer shall have the right to terminate the Employee's
employment if the Employee is unable to perform the duties assigned to him by
the Employer because of the Employee's disability, injury or illness, provided
however, that in the event of such disability, injury or illness, the
Employee's inability to perform such duties must have existed for a total of
six months in any consecutive 12 month period before such termination can be
made effective.
4.04 Termination as a Result of Employee's Death. The obligations of the
Employer to the Employee pursuant to Part Two herein shall automatically
terminate upon the Employee's death. In the event of the Employee's death, any
payments due to the Employee as provided in Section 4.01 above shall be paid to
the Employee's estate.
4.05 Termination of Employment for Any Other Reason. Employee's
employment under this Agreement may be terminated by the Employer at any time,
with or without cause, upon 60 days prior written notice to Employee. If the
Employer shall terminate the employment of Employee prior to the end of the
Term, other than as permitted by Sections 4.02, 4.03 or 4.04, Employee shall be
entitled to receive, and the Employer shall be obligated to pay, the amounts
set forth below in this Section 4.05 as Base Salary and Bonus for the remainder
of the Term. The amount of Base Salary payable with respect to each fiscal
year during the Term shall be equal to the Base Salary in effect at the time of
termination of Employee's employment (without giving effect to the reduction
set forth in the proviso of Section 2.01), increased by 5% for each subsequent
year of the Term. The amount of Bonus payable with respect to each year during
the Term shall be 35% of the Base Salary paid to Employee for such year as
determined pursuant to the preceding sentence. Employer shall also pay to
Employee a lump sum amount equal to the sum of (i) the difference between the
Base Salary received by Employee pursuant to Section 2.01 hereof and the amount
of Base Salary that the Employer would have been obligated to pay to Employee
under said Section 2.01 if the reduction set forth in the proviso to Section
2.01 did not apply; and (ii) the difference between the Annual Salary paid to
Employee by Employer under the Employment Agreement dated as of May 30, 1996
and the amount of Annual Salary the Employer would have been obligated to pay
to Employee under such Employment Agreement if any reduction thereto agreed to
by Employee did not apply (the "Make-Whole Payment"). The Make-Whole Payment
shall be paid by Employer to Employee within five business days after
termination of Employee's employment. Employee shall also continue to
participate in all Employee Benefits to the extent that such continued
participation is possible under the general terms and provisions of the plans
or programs relating thereto. In the event that Employee's continued
participation in any such Employee Benefits is barred, in lieu thereof,
Employee shall be entitled to receive, and Employer shall be obligated to pay,
annually for the remainder of the Term, an amount equal to the sum of the
average annual contributions, payments, credits or allocations made by the
Employer to Employee, to his account, or on his behalf over the three fiscal
years of the Employer preceding the termination of his employment under such
Employee Benefits from which his continued participation is barred.
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4.06 Termination by Employee Following Demotion or Relocation. Employee
shall be considered to have been terminated by the Employer without cause and
shall be entitled to the payments and other benefits described in Section 4.05
above, if Employee voluntarily terminates his employment with the Employer
within 90 days after the occurrence of any of the following events without
Employee's consent:
(a) the Board shall fail to re-elect Employee as Vice President of the
Employer or shall remove him from such office;
(b) Employee shall fail to be vested with the power and authority of the
chief operating officer of the Employer;
(c) Employee is assigned on a regular basis any duties or responsibilities
that are inconsistent with his authority, duties and responsibilities as chief
operating officer of the Employer and that are normally assigned to an officer
of lesser rank than a chief operating officer, regardless of whether such
assignment is accompanied by a change in title or reporting responsibility;
(d) Employee is not elected a director of the Employer; or
(e) Employee is transferred to a location which is more than 25 miles from
his current principal work location.
4.07 Excess Parachute Payment. As a material part of the consideration
which has induced Employee to remain in the employ of the Employer, the
Employer agrees that, if any part of the payments being made to Employee under
the terms of this Agreement or any other agreement is determined to be an
"Excess Parachute Payment," as that term is defined in Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), the Employer shall pay
to Employee an amount equal to the amount of the tax imposed against Employee
under Code Section 4999, together with the required amount of additional cash,
so that Employee receives from the Employer the tax imposed against Employee
under Code Section 4999 "Tax Free on a Grossed-Up Basis." For the purposes of
this Agreement, the phrase "Tax-Free on a Grossed-Up Basis" means that the
Employer will not only pay to Employee an amount equal to the amount of tax
imposed against Employee under Code Section 4999 but also the necessary amount
of additional cash, so that Employee shall have the exact amount of cash
required to pay the additional liabilities for Federal, state and local income
taxes arising by reason of (a) the payment by the Employer to Employee of the
amount needed to pay the tax under Code Section 4999 and (b) the payment by the
Employer to Employee of the additional amount of cash needed to pay the
additional Federal, state and local tax liabilities.
4.08 Termination by Employee. The Employee may resign and terminate his
employment by the Employer for any reason whatsoever upon 60 days prior written
notice to the Employer. If the Employee's employment is so terminated, except
as provided in Sections 4.06 or 4.09 hereof, the Employer shall be obligated to
continue to pay to the Employee the Annual Salary then in effect and the
Employee Benefits payable to the Employee pursuant to this Agreement, in each
case accrued up to and including the date on which the Employee's employment is
so terminated. Thereafter, the Employer shall have no further obligation
whatsoever to the Employee.
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4.09 Change of Control Payment. If a "Change in Control," as defined in
Section 4.10 shall have occurred and within three years after the occurrence
thereof, Employee shall be entitled to payment from the Employer under Section
4.05 or 4.06 hereof on account of termination of employment, Employee may elect
to receive, in lieu of the payments provided for under said Section 4.05 or
4.06, a lump-sum payment equal to 150% of the Base Salary in effect at the time
of termination of Employee's employment (without giving effect to the reduction
set forth in the proviso of Section 2.01), multiplied by three. The Employee
shall also pay to Employee the Make-Whole Payment. Such payments shall be made
by the Employer to the Employee within five business days after termination of
Employee's employment. Employee shall also be entitled to participate in all
Employee Benefits referred to in Section 2.03 hereof for the remainder of the
Term, or to receive an annual payment in lieu thereof, as provided in Section
4.05 hereof. Section 4.07 shall be applicable to any payments made under this
Section 4.09. Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Employee's employment with the Employer is
terminated prior to the date on which the Change of Control occurs, and if it
is reasonably demonstrated by the Employee that such termination of employment
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change of Control or (ii) otherwise arose in connection
with or anticipation of a Change of Control, then for all purposes of this
Agreement, such Change in Control shall be deemed to have occurred on the date
immediately preceding Employee's termination of employment.
4.10 Definition of Change of Control. For the purpose of this Agreement,
a Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Employer (the
"Outstanding Employer Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Employer entitled to vote generally
in the election of directors (the "Outstanding Employer Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Employer, (ii) any acquisition by the Employer, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Employer or any corporation controlled by the Employer, (iv)
any acquisition by Oliver L. North or Joseph F. Fernandez or (v) any
acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 4.10; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Employer's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
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(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Employer (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Employer Common
Stock and Outstanding Employer Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Employer or all or
substantially all of the Employer's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Employer
Common Stock and Outstanding Employer Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Employer or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the stockholders of the Employer of a complete liquidation
or dissolution of the Employer.
PART FIVE
MISCELLANEOUS
5.01 Assignment. The Employee and Employer acknowledge and agree that the
covenants, terms and provisions contained in this Agreement constitute a
personal employment contract and the rights of the parties thereunder cannot be
transferred, sold, assigned, pledged or hypothecated, excepting that (a) the
Employee's rights pursuant to Part Four of this Agreement may be transferred by
will or operation of law and the Employee's Employee Benefits may be assigned
or transferred in accordance with such policies, programs, plans or Employer
practices; and (b) the rights and obligations of the Employer under this
Agreement may be assigned or transferred by operation of law pursuant to a
merger, consolidation, share exchange, sale of substantially all of the
Employer's assets, or other reorganization described in Section 368 of the
Internal Revenue Code of 1986, as amended, or through liquidation, dissolution
or otherwise, whether or not the Employer is the continuing entity, provided
that the assignee or transferee is the successor to all or substantially all of
the assets of the Employer and such assignee or transferee assumes the rights
and duties of the Employer, if any, as contained in this Agreement, either
contractually or as a matter of law.
5.02 Capacity. The Employee hereby represents and warrants that, in
entering into this Agreement, he is not in violation of any contract or
agreement, whether written or oral, with any
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other person, firm, partnership, corporation or other entity to which he is a
party or by which he is bound and will not violate or interfere with the rights
of any other person, firm, partnership, corporation or other entity. In the
event that such a violation or interference does occur, or is alleged to occur,
notwithstanding the representation and warranty made hereunder, the Employee
shall indemnify the Employer from and against any and all manner of expenses and
liabilities incurred by the Employer or any affiliated company of the Employer
in connection with such violation or interference or alleged violation or
interference.
5.03 Entire Agreement. This Agreement contains the entire agreement
between the parties and shall not be modified except in writing by the parties
hereto. Furthermore, the parties hereto specifically agree that all prior
agreements, whether written or oral, relating to the Employee's employment by
the Employer shall be of no further force or effect from and after the date
hereof.
5.04 Severability. If any phrase, clause or provision of this Agreement
is declared invalid or unenforceable by a court or arbitrator of competent
jurisdiction, such phrase, clause or provision shall be deemed severed from
this Agreement, but will not affect any other provisions of this Agreement,
which shall otherwise remain in full force and effect. If any restriction or
limitation in this Agreement is deemed to be unreasonable, onerous and unduly
restrictive by a court or arbitrator of competent jurisdiction, it shall not be
stricken in its entirety and held totally void and unenforceable, but shall
remain effective to the maximum extent permissible within reasonable bounds.
5.05 Notices. Any notice, request or other communication required to be
given pursuant to the provisions hereof shall be in writing and shall be deemed
to have been given when delivered in person or five days after being deposited
in the United States mail, certified or registered, postage prepaid, return
receipt requested and addressed to the party at its or his last known address.
The address of any party may be changed by notice in writing to the other
parties duly served in accordance herewith.
5.06 Waiver. The waiver by the Employer or the Employee of any breach of
any term or condition of this Agreement shall not be deemed to constitute the
waiver of any other breach of the same or any other term or condition hereof.
5.07 Governing Law. This Agreement and the enforcement thereof shall be
governed and controlled in all respects by the laws of the Commonwealth of
Virginia.
5.08 Arbitration. Except as otherwise provided in Section 3.05 above, any
controversy or claim arising out of, or relating to, this Agreement or the
breach thereof shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect in the Commonwealth of Virginia and judgment upon any arbitration award
may be entered into in any court having jurisdiction thereof. The arbitration
shall be held in Dulles, Virginia. The cost of the arbitration shall be borne
among the parties as determined by the arbitrator(s).
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first hereinabove written.
EMPLOYER:
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ Oliver L. North
---------------------------
Title: President
------------------------
EMPLOYEE:
/s/ Joseph F. Fernandez
---------------------------
JOSEPH F. FERNANDEZ
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Exhibit 10.3
Guardian Technologies International, Inc.
45472 Holiday Drive
Sterling, Virginia 20166
Attention: Oliver L. North
Re: Revolving Line of Credit
Dear Mr. North:
We are pleased to advise you that, pursuant to your request and subject to
your acceptance, Creditanstalt Corporate Finance, Inc., a Delaware corporation,
having an office at Two Greenwich Plaza, Greenwich, Connecticut 06830 ("CCFI")
and a wholly-owned indirect subsidiary of Creditanstalt-Bankverein, a bank
organized under the laws of the Republic of Austria, is prepared to establish
in favor of Guardian Technologies International, Inc., a Virginia corporation
(the "Borrower"), a revolving line of credit (the "Facility") in the principal
amount not to exceed One Hundred Thousand U.S. Dollars (U.S. $100,000.00) (the
"Limit"), subject to the terms and conditions set forth in this letter (the
"Agreement").
1. Extensions of Credit. Extension of credit under the Facility (each, an
"Extension of Credit", and collectively, "Extensions of Credit") shall be
subject to the discretionary approval of CCFI in each instance and shall be in
the form of loans (each a "Loan" and collectively, the "Loans"), which shall be
evidenced by a promissory note of the Borrower in substantially the form of
Exhibit A hereto (the "Note"). In no event may the aggregate of the
outstanding principal amount of all Loans exceed at any time the Limit.
2. Termination Date. The Facility shall terminate on December 7, 1996 or
such later date as may be agreed upon between the parties hereto (December 7,
1996 or such later date being hereinafter referred to as the "Termination
Date"). In the event that the Borrower shall desire to extend the Termination
Date, the Borrower shall send a written notice substantially in the form
attached hereto as Exhibit B (each an "Extension Notice") to CCFI not later
than 45 calendar days prior to the then applicable Termination Date, and unless
CCFI shall notify the Borrower in writing no later than ten calendar days prior
to the then effective Termination Date that it shall not so extend the
Termination Date, the Termination Date shall be automatically deemed extended
to the date set forth in the Extension Notice. However, nothing herein, or any
extension at anytime granted, shall constitute a commitment on the part of CCFI
to extend (or further extend) any Termination Date, the decision with respect
thereto remaining entirely within the discretion of CCFI.
3. Notice of Borrowing: Disbursement. CCFI may, at its option in each
instance, making Loans to the Borrower upon receipt of written or telexed
notice no later than 10:00 o'clock a.m. New York time on the same Business Day
(as hereinafter defined) with respect to any Base Rate Loan. Each such notice
shall be irrevocable.
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4. Interest.
(a) Interest Rate. The Borrower shall pay interest on the unpaid
principal if each Loan from the date such Loan is made by CCFI, until paid (at
maturity, whether by acceleration or otherwise) at a rate per annum equal to 2%
in excess of the Base Lending Rate, as hereinafter defined, from time to time
in effect, provided that, the Borrower shall pay interest on any overdue amount
hereunder (before as well as after judgment) with respect to the Loan at a rate
per annum equal to 4% in excess of the Base Lending Rate from time to time in
effect.
The term "Base Lending Rate" means, for any day, the higher of (i) the rate
announced by CCFI from time to time at its office in New York, New York as its
prime rate for domestic (United States) commercial loans in effect on such day
and (ii) the Federal Funds Rate in effect on such day plus one half of one
percent (1/2%). (Such Base Lending Rate is not necessarily intended to be the
lowest rate of interest charged by CCFI in connection with extensions of
credit.) Each change in the Base Lending Rate shall result in a corresponding
change in the interest rate and such change shall be effective on the effective
date of such change in the Base Lending Rate.
The term "Federal Funds Rate" means, for any day, the overnight federal funds
rate in New York City, as published for such day (or, if such day is not a
Business Day, for the preceding Business Day) in the Federal Reserve
Statistical Release H.15 (519) or any successor publication, or if such rate is
not so published for any day which is a Business Day, the average of the
quotations for such day on overnight federal funds transactions in New York
City received by CCFI from three federal funds brokers or recognized standing
selected by CCFI.
(b) Interest Payments. Interest on each Loan shall be payable in arrears
on the first Business Day of each calendar month until maturity thereof (by
demand or otherwise), on maturity, on repayment (to the extent accrued on the
amount repaid) and after maturity on demand.
4. Method of Payment. All payments to CCFI shall be made in U.S. Dollars
and in immediately available funds prior to 1:00 p.m., New York time, on the
date due, and shall be made without set-off or counterclaim to CCFI at its New
York office presently located at 245 Park Avenue, New York, New York 10167, or
as CCFI may otherwise direct, and in such amounts as may be necessary in order
that all such payments (after withholding for or on account of any present or
future taxes, levies, imposts, duties or other similar charges of whatsoever
nature imposed by any government or any political subdivision or taxing
authority thereof, other than any tax on or measured by the net income of CCFI
pursuant to the income tax laws of the jurisdiction where CCFI's principal or
lending office is located) shall not be less than the amounts otherwise
specified to be paid hereunder or under the Note. If the date for any payment
due hereunder would otherwise fall on a day which is not a Business Day, such
payment shall be extended to the next following Business Day, with additional
interest on the principal, payable at the applicable rate specified herein
during such extension.
(b) Computation. All interest and fees hereunder shall be computed on the
basis of actual days elapsed on a year of 360 days.
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(c) "Business Day" shall mean any day other than Saturday, Sunday or
other day on which commercial banks are required or permitted to close under the
law of the States of New York or Connecticut.
5. Loan Payments.
All Loans shall mature and be payable on the Termination Date or such
earlier date as the Facility is terminated in accordance herewith. Prior
thereto, the Borrower shall have the right to repay or prepay all or any
portion of any Loan without penalty on any day and from time to time by giving
CCFI irrevocable written or telexed notice not later than 11:00 a.m. New York
time the same Business Day of such a prepayment. The Borrower may not prepay
the Loan on the same day it is made by CCFI.
6. Representations and Warranties. In order to induce CCFI to extend
credit to the Borrower hereunder, the Borrower hereby represents and warrants
to CCFI that (a) the Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and is duly qualified and in good standing as a foreign corporation wherever
required by law; (b) the Borrower has the corporate power and authority to own
its assets and conduct its business as now conducted and to execute, deliver
and perform this Agreement, the Note and all other documents and instruments to
be delivered to CCFI by the Borrower pursuant hereto; (c) this Agreement and
the Note when executed and delivered to CCFI by the Borrower and such other
documents or instruments, and the receipt of the Loan hereunder shall have been
duly authorized by all requisite corporate action, and shall be the Borrower's
legal, valid and binding obligations, enforceable against the Borrower in
accordance with its terms; (d) the Borrower's execution, delivery and
performance of this Agreement, the Note and such other documents or instruments
and the receipt of the Loan hereunder does not contravene any provision of any
law, rule, regulation, judgment, injunction or order applicable to the Borrower
or its assets, nor does it contravene its certificate of incorporation or
by-laws, or any agreement to which it is a party or which is binding upon it or
upon its assets; (e) in no event shall the proceeds of any Loan be used to
"purchase" or "carry" "margin stock", as such terms are used in Regulation U,
G, T or X of the Board of Governors of the Federal Reserve System; (f) the most
recent financial statements of the Borrower delivered to CCFI prior to the date
of this Agreement are true and correct and represent fairly its financial
position as of the date thereof and the results of its operations for the
period indicated and show all known liabilities, direct or contingent, of the
Borrower as of the date thereof in accordance with generally accepted
accounting principles, consistently applied; (g) since the date of such
financial statements, there has been no material adverse change in the
condition, financial or otherwise, of the Borrower or in the business,
operations or properties of the Borrower and, since such date, the Borrower has
not incurred, other than in the ordinary course of business, any indebtedness,
liabilities, obligations or commitments, contingent or otherwise; (h) the
projected cash flow statement, balance sheet and operating budget for the
Borrower (the "Projections"), if any, delivered to CCFI (x) disclose all
assumptions made with respect to costs, general economic conditions, and
financial and market conditions in formulating the Projections, (y) are based
on reasonable estimates and assumptions, and (z) reflected, as of the date
prepared, and continue to reflect, as of the date of this Agreement, the
reasonable estimate of the Borrower of the results of operations and other
information projected therein; and (i) as of the date of this Agreement ( and
subsequently as of the date of the Loans), and after giving effect to the
transactions contemplated under this Agreement, (x) the present fair saleable
value of the assets of the Borrower exceeds the
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<PAGE> 4
total liabilities of the Borrower, (y) the Borrower is able to pay its debts as
they become due, and (z) the Borrower does not have unreasonably small capital
to carry on its business as previously operated and in which it is about to
engage.
7. Conditions to Extensions of Credit.
(a) The Initial Extension of Credit. CCFI shall not, in any event make
the initial Extension of Credit hereunder until CCFI shall have received, (i) a
copy of the resolutions of the Board of Directors of the Borrower authorizing
the Borrower to enter into and perform its obligations under this Agreement and
the Note, certified by the Secretary or Assistant Secretary of the Borrower as
in effect as of the date of such initial Extension of Credit; (ii) a
certificate, dated the date of the initial Extension of Credit, as to the
incumbency and specimen signatures of officers and representatives authorized
by such resolutions to execute all documents and certificates in connection
herewith and the Extensions of Credit, duly executed; (iii) copies of the
charter and by-laws of Borrower, as amended to the date of the initial
Extension of Credit, certified, as of such date, by its Secretary or an
Assistant Secretary; and (iv) delivery of a Guaranty by Oliver L. North (the
"Guarantor"). In addition, CCFI shall not make the initial Extension of Credit
unless all representations and warranties made herein shall be true and correct
as of the date such initial Extension of Credit is made, and there shall not
have occurred and be continuing on the date of such initial Extension of Credit
any Event of Mandatory Repayment (as hereinafter defined) or an event which,
with lapse of time or the giving of notice, or both, would become and Event of
Mandatory Repayment (any requests by the Borrower to CCFI for a Loan shall be
deemed to be a representation and warranty by the Borrower as to the matters
set forth in this subsection of the Agreement); and the Borrower shall have
performed all of its agreements contained herein.
(b) All Extensions of Credit. CCFI shall not make any Extension of
Credit hereunder unless: (i) all representations and warranties made herein and
in the Guaranty shall be true and correct as of the date such Extension of
Credit is made, as if made on such date, and there shall not have occurred and
be continuing on the date of such Extension of Credit an Event of Mandatory
Repayment (as hereinafter defined) or an event which, with lapse of time or the
giving of notice, or both, would become an Event of Mandatory Repayment (any
requests by the Borrower to CCFI for any Loan shall be deemed to be a
representation and warranty by the Borrower as to the matters set forth in this
subsection of this Agreement); and (ii) the Borrower and the Guarantor shall
have performed all of its agreements contained herein and in the Guaranty.
(c) No CCFI Obligation. Notwithstanding fulfillment by the Borrower of
all the aforementioned conditions, CCFI shall in no event be obligated to make
any Extension of Credit, the decision with respect thereto remaining, entirely
within the discretion of CCFI.
8. Covenants. The Borrower agrees that so long as this Agreement shall be
in effect and until all obligations hereunder and under the Note are satisfied
in full to CCFI's satisfaction, the Borrower will promptly notify CCFI of the
occurrence of any Event of Mandatory Repayment and will deliver to CCFI, as
soon as practicable, but in no event later than 90 days after the end of each
of the Borrower's fiscal years, audited financial statements including a
balance sheet, statement of changes in financial position and statements of
income and earnings for the fiscal year ending on such date, all in reasonable
detail, certified by independent public accountants selected
- 4 -
<PAGE> 5
by the Borrower and reasonably satisfactory to CCFI, and such other financial
information with respect to the Borrower as CCFI may reasonably request.
9. Events of Mandatory Repayment. Upon the occurrence of any of the
following specified events (each an "Event of Mandatory Repayment"): (a) any
representation or warranty made by the Borrower herein or in connection with
any Extensions of Credit or by the Guarantor in the Guaranty shall be breached
or shall be untrue at any time in any material respect; or (b) the Borrower
shall default in the payment of any amounts due hereunder or under the Note; or
(c) the Borrower or the Guarantor shall fail to perform any other obligation
required to be performed by it hereunder or under the Guaranty; or (d) the
Borrower shall suspend or discontinue its business, or the Borrower or the
Guarantor shall make any assignment for the benefit of creditors, or shall
become insolvent or be unable or generally fail to pay its debts when due, or
the Borrower or the Guarantor shall become in any jurisdiction a party or
subject to (voluntarily or involuntarily) and liquidation or dissolution action
or proceeding with respect to itself, or to any bankruptcy, reorganization,
insolvency r other proceeding for the relief of financially distressed debtors,
or a receiver, liquidator, custodian or trustee shall be appointed for the
Borrower or the Guarantor or a substantial part of their respective assets; or
the Borrower or the Guarantor shall take any action to effect, or which
indicates their acquiescence in, any of the foregoing; then and in any such
event, and at any time thereafter if any such Event of Mandatory Repayment
shall then be continuing, CCFI may, by written or telexed notice to the
Borrower and the Guarantor, at its option (i) declare the Facility terminated,
and/or (ii) declare all obligations of the Borrower immediately due and payable
without presentment, demand, protest or notice of any kind, provided that if
any Event of Mandatory Repayment described in 9 (d) shall occur, each of the
results described in (i) and (ii) above which would otherwise occur only upon
the giving of written notice by CCFI to the Borrower and the Guarantor as
herein described shall occur automatically, without the giving of any such
notice.
10. Increased Costs to CCFI. (a) the Borrower agrees to pay or cause to
be paid and to hold CCFI harmless against liability for the payment of (i) all
reasonable out-of-pocket expenses, including but not limited to fees and
expenses of counsel incurred by CCFI from time to time arising in connection
with the enforcement of this Agreement, the Note, the Guaranty and any
documents, instruments or transactions pursuant hereto or in connection
herewith and (ii) all stamp, document, transfer, recording or filing taxes or
fees and similar impositions now or hereafter determined by CCFI to be payable
in connection with this Agreement, the Note, the Guaranty or any other
documents, instruments or transactions pursuant hereto or in connection
herewith. In addition, the Borrower agrees to indemnify and hold CCFI harmless
from all loss, cost (including reasonable counsel fees), liability and damage
whatsoever incurred by CCFI, by reason of any action or claim brought or
threatened against CCFI by any person or entity arising out of this Agreement,
the Note, the Guaranty or any other agreement, instrument or document executed
in connection with this Agreement, or out of CCFI's actions or omissions in
connection with this Agreement, the Note, the Guaranty or any such other
agreement, instrument or document; provided, however, that (1) the Borrower's
indemnification hereunder shall not apply, and CCFI shall return or otherwise
apply any payments previously received on such indemnification, if and to the
extent it is finally determined by a court of competent jurisdiction that such
action or claim against CCFI was the result of CCFI's gross negligence or
willful misconduct, and (2) nothing herein shall prevent the Borrower from
raising its own direct claims against CCFI, or from raising its own defenses to
claims brought by CCFI against the Borrower.
- 5 -
<PAGE> 6
11. Right of Set-Off. In addition to any rights now or hereafter granted
under applicable law including, but not limited to, Section 151 of the New York
Debtor and Creditor Law and not by way of limitation of any such right, upon
the occurrence of any Event of Mandatory Repayment of any condition, event or
act which, with the giving of notice or lapse of time, or both, would
constitute such an Event of Mandatory Repayment, CCFI is hereby authorized at
any time and from time to time, without notice to the Borrower or any other
person, any such notice being hereby expressly waived, to set off and to
appropriate and apply any and all deposits (general and special) and any other
indebtedness at any time held or owing by CCFI to or for the credit or the
account of the Borrower against and on account of the obligations and
liabilities of the Borrower to CCFI under this Agreement, the Note or any other
document in connection herewith, including (without limitation) all claims of a
nature or description arising out of or connected with this Agreement and/or
the Note and the Guaranty.
12. Miscellaneous.
(a) Domicile of Extensions of Credit. CCFI may make, transfer or carry
any Loan at, or for the account of, any branch, office, agency, subsidiary or
affiliate of CCFI.
(b) No Waiver; Remedies Cumulative. No failure or delay on the part of
CCFI or of the holder of the Note in exercising any right, power or privilege
hereunder and no course of dealing between the Borrower and CCFI or the holder
of the Note shall operate as a Waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
future exercise thereof or the exercise of any rights or remedies which CCFI or
any subsequent holder of the Note would otherwise have. No notice to or demand
on the Borrower in any case shall entitle the Borrower to any other or future
notice or demand in similar or other circumstances or constitute the waiver of
the rights of CCFI of the holder of the Notice to any other or future action in
any circumstances without notice or demand.
(c) Descriptive Headings. The descriptive headings of the several
sections and subsections of the Agreement are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
(d) Governing Law. This Agreement and the rights and obligations of
the parties hereunder and under the Note, the Guaranty and all other documents
entered into in connection herewith, shall be construed in accordance with and
be governed by the law of the State of New York, without regard to its conflict
of law principles.
(e) Benefit of Agreement. This Agreement shall be binding on and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, and, in particular, shall inure to the benefit of
CCFI and its successors and assigns provided, however that the Borrower may not
assign or transfer its rights or obligations hereunder without the prior written
consent of CCFI.
(f) Assignment of Agreement. CCFI shall be entitled at any time to
assign, or to grant participation (which may be evidenced by one or more
certificates of participation) in, any or all of its rights and/or obligations
under this Agreement, the Note and the Guaranty to any person, partnership,
corporation or other entity, each of which shall have all the benefits afforded
- 6 -
<PAGE> 7
to CCFI hereunder. The Borrower may not transfer or assign any or all of its
rights or obligations hereunder without the prior written consent of CCFI.
(g) Jurisdiction; Waiver or Jury Trial. (i) Each of the Borrower and the
Guarantor hereby agrees that any LEGAL ACTION OR PROCEEDING AGAINST BORROWER
WITH RESPECT TO THIS AGREEMENT, THE NOTE, THE GUARANTY OR ANY OF THE
AGREEMENTS, DOCUMENTS OR INSTRUMENTS DELIVERED IN CONNECTION HEREWITH OR
THEREWITH MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK as CCFI may
elect, and, by execution and delivery hereof, each of the Borrower and the
Guarantor accepts and consents to, for itself and in respect to its property,
generally and unconditionally, the jurisdiction of the aforesaid courts and
agrees that such jurisdiction shall be exclusive, unless waived by CCFI in
writing, with respect to any action or proceeding brought by it against CCFI
and any questions relating to usury. Each of the Borrower and the Guarantor
hereby further irrevocably consents to the service of process in any suit,
action or proceeding in said courts by the mailing thereof by CCFI by
registered or certified mail, postage prepaid, to the Borrower and the
Guarantor at their respective addresses specified below, such service to become
effective five days after such mailing. In addition, each of the Borrower and
the Guarantor hereby irrevocably waives, to the fullest extent permitted by
law, any objection which they may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this Agreement,
the Note or the Guaranty brought in the courts of the State of New York, and
hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
(ii) AFTER REVIEWING THIS PROVISION SPECIFICALLY WITH ITS RESPECTIVE
COUNSEL, EACH OF BORROWER, GUARANTOR AND CCFI HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION
WITH, THIS AGREEMENT, THE NOTE, THE GUARANTY, OR ANY OTHER DOCUMENTS AND
INSTRUMENTS EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF BORROWER,
GUARANTOR OR CCFI. THIS PROVISION IS A MATERIAL INDUCEMENT FOR CCFI MAKING THE
LOAN TO BORROWER.
(h) Amendments and Waivers. Neither this Agreement, the Note, the
Guaranty nor any agreement, entered into by the parties hereto in connection
herewith, nor any terms hereof or thereof may be amended, supplemented,
modified or waived except by writing, signed by the parties hereto.
(i) Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing including by telegraph,
telex or telecopy, and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or 5 days after
being deposited in the mail, postage prepaid, or, in the case of telegraphic
notice, when delivered to the telegraph company, or, in the case of telex
notice, when answerback received or, in the case of notice by telecopier, when
sent (receipt confirmed), as
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<PAGE> 8
follows, or to such other address or number as may be hereunder notified by the
respective parties hereto and any further holders the Note:
The Borrower: Guardian Technologies International, Inc.
45472 Holiday Drive
Sterling, Virginia 20166
Attention: Oliver L. North
Telephone: (703) 709-6635
Telecopy: (703) 709-7904
The Guarantor: Oliver L. North
Narnia Farm, Route 1
Box 560
Bluemont, Virginia 22012
Telephone: (703) 709-6635
Telecopy: (703) 709-7904
with a copy to: Nicole Seligman, Esq.
(not constituting Williams & Connolly
notice) 725 12th Street, N.W.
Washington, D.C. 20005
Telephone: (202) 434-5000
Telecopy: (202) 434-5029
CCFI: CREDITANSTALT CORPORATE FINANCE, INC.
Two Greenwich Plaza
Greenwich, Connecticut 06830
Attention: Dennis C. O'Dowd
Telephone: (203) 861-6593
Telecopy: (203) 861-6594/6595
with a copy to: CREDITANSTALT CORPORATE FINANCE, INC.
245 Park Avenue
New York, New York 10167
Attention: Martin Mittag
Telephone: (212) 856-1060
Telecopy: (212) 856-1699
provided that any notice, request or demand to or upon CCFI, Borrower or
Guarantor shall not be effective until received by such party.
(j) Maximum Interest Rate. Nothing contained in this Agreement shall be
deemed to establish or require the payment of a rate of interest in excess of
the maximum rate permitted by applicable law (the "Maximum Rate"). If the
amount of interest payable for any interest payment period ending on any
interest payment date calculated in accordance with the provisions of this
Agreement (said amount, the "Calculated Interest") exceeds the amount of
interest that would be payable for such interest payment period had interest
for such interest payment period
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<PAGE> 9
been calculated on the basis of the Maximum Rate for such interest payment
period, there shall be paid on such interest payment date an amount of interest
calculated on the basis of the Maximum Rate for such interest payment period. If
on any subsequent interest payment date, (i) the Calculated Interest for the
interest payment period ending on such subsequent interest payment date (the
"Current Interest Period")) is less than the amount of interest that would be
payable for such Current Interest Period had interest for such Current Interest
period been calculated on the basis of the Maximum Rate and (ii) any portion of
the excess (if any) of Calculated Interest for any prior interest payment period
over interest calculated at the Maximum Rate for such prior interest payment
period (the "Outstanding Interest Amount") remains unpaid, then on such
subsequent interest payment date there shall be paid, as provided herein,
additional interest for such Current Interest Period in an amount equal to the
less or of (i) the theretofore unpaid outstanding Interest Amounts for all prior
interest payment periods or (ii) an amount that, when added to the amount of
Calculated Interest payable for such current Interest Period, results in the
payment of interest for such Current Interest Period at the Maximum Rate.
(k) Borrower's and Guarantor's Acceptance. If you are in agreement
with the terms and conditions set forth above, please indicate your acceptance
thereof by executing both copies hereof in the space provided below and
returning one copy to CCFI.
Very truly yours,
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Dennis C. O'Dowd
----------------------------------
Dennis C. O'Dowd
Co Chief Executive USA
By: /s/ Martin Mittag
----------------------------------
Martin Mittag
Deputy Chief Executive
ACCEPTED AND AGREED TO AS OF
THE ___ DAY OF DECEMBER, 1995
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ Oliver L. North
--------------------------------------
Oliver L. North
Chief Executive Officer
By: /s/ Joseph F. Fernandez
--------------------------------------
Joseph F. Fernandez
President
/s/ Oliver L. North
--------------------------------------
Oliver L. North, as Guarantor
- 9 -
<PAGE> 1
Exhibit 10.4
PROMISSORY NOTE
$100,000.00 New York, New York
December 7, 1995
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC., a Virginia corporation (the
"Borrower"), for value received, hereby promises to pay to the order of
Creditanstalt Corporate Finance, Inc. ("CCFI"), at its office located at 245
Park Avenue, New York, New York 10167 or such other office as CCFI may
otherwise direct on the earlier of (i) the Termination Date, or (ii) such
earlier date when the amounts outstanding hereunder shall become due and
payable pursuant to the terms hereof, the aggregate unpaid principal amount of
all loans (each, a "Loan") made to the Borrower pursuant to the Agreement
referred to below. Each such payment shall be made prior to 1:00 P.M. (New
York City time) on the date due, and shall be made without set-off or
counterclaim in lawful money of the United States of America and in same day
funds.
Unless otherwise specifically defined herein, all capitalized terms used herein
shall be used with the meaning ascribed to them in the Agreement dated December
7, 1995 of CCFI and the Borrower (the "Agreement").
The Borrower promises also to pay interest on the unpaid principal amount of
each Loan In U.S. Dollars and same day funds at said office, or such other
office as CCFI may otherwise direct, at the rates and on the dates set forth in
the Agreement.
Interest shall be computed on the number of days actually elapsed on the basis
of a 360-day year.
If the date for any payment due hereunder would otherwise fall on a day which
is not a Business Day, such payment date shall be extended to the next
following Business Day with additional interest on the principal payable at the
applicable rate specified herein during such extension.
The Borrower shall not use the proceeds of any Loan to "purchase" or "carry"
any "Margin Stock" as such terms are used in Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System.
The Borrower (i) waives presentment, demand, protest or notice of any kind in
connection with this Note and (ii) agrees to pay to the holder hereof, on
demand, all costs and expenses (including reasonable legal fees) incurred in
connection with the execution, delivery, administration, modification,
enforcement and collection of this Note.
On the date of each Loan, the Borrower represents and warrants that (i) all
acts, filings, conditions and things required to be done and performed and to
have happened (including, without limitation, the obtaining of necessary
governmental approvals) precedent to the issuance of this note to constitute
this Note the duly authorized, legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms have been done, performed
and have happened in due and strict compliance with all applicable laws, (ii)
the issuance and performance of this Note will not
<PAGE> 2
violate any law, rule, regulation, order, decree, permit, agreement or
instrument to which the Borrower is a party or is subject, or result in the
imposition of any lien upon any of the Borrower's assets, (iii) all
Representation and Warranties contained in the Agreement are true and correct on
the date of each Loan as if made on such date, and (iv) the Conditions to each
Extension of Credit set forth in Section 7 of the Agreement shall have been
satisfied to CCFI's satisfaction in its reasonable discretion.
This promissory note is the Note referred to in the Agreement and is entitled
to the benefits thereof.
CCFI is hereby authorized to endorse on the schedule attached hereto the dates
and amounts of the Loan, of repayments thereof, provided however, that failure
by CCFI to make such recordation shall not affect the Borrower's obligations
hereunder and under the Agreement, CCFI is authorized to debit the account of
the Borrower with CCFI for all amounts payable hereunder.
Any Loan may be voluntarily repaid or prepaid on any day without penalty
provided that written notice of such prepayment shall have delivered to CCFI on
or prior to such date, and shall become payable on any date upon written demand
by CCFI or automatically as a result of the occurrence and continuance of an
Event of Mandatory Repayment, all as provided in the Agreement.
Any suit, action or proceeding against the Borrower with respect to this
promissory note or any judgment entered by any court in respect thereof may be
brought in the Courts of the State of New York sitting in New York City or in
the U.S. District Court for the Southern District of New York as CCFI in its
sole discretion may elect, and, by execution and delivery hereof, the Borrower
accepts and consents to, for itself and in respect to its property, generally
and unconditionally, the jurisdiction of the aforesaid courts and agrees that
such jurisdiction shall be exclusive, unless waived by CCFI in writing, with
respect to any action or proceeding brought by it against CCFI and any
questions relating to usury. The Borrower hereby further irrevocably consents
to the service of process in any suit, action or proceeding in said courts by
the mailing thereof by CCFI by registered or certified mail, postage prepaid,
to the Borrower at its address specified below, such service to become
effective five days after such mailing. In addition, the Borrower hereby
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Note brought in the courts of the
State of New York, or the U.S. District Court for the Southern District of New
York, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.
AFTER REVIEWING THIS PROVISION SPECIFICALLY WITH THEIR RESPECTIVE COUNSEL THE
BORROWER AND CCFI HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY
RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER
DOCUMENT DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF CCFI OR THE
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<PAGE> 3
BORROWER RELATING HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR CCFI'S
MAKING THE LOAN.
This Note shall be construed in accordance with and governed by the laws of the
State of New York, without regard to its conflict of law principles.
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
By /s/ Oliver L. North
-------------------------------
Name: Oliver L. North
Title: Chief Executive Officer
By /s/ Joseph F. Fernandez
-------------------------------
Name: Joseph F. Fernandez
Title: President
- 3 -
<PAGE> 1
Exhibit 10.5
GUARANTY
GUARANTY, dated as of December 7, 1995, made by Oliver L. North, an
individual resident of the State of Virginia, having a principal residence at
Narnia Farm, Route 1, Box 560, Bluemont, Virginia 22012 (the "Guarantor"), in
favor of Creditanstalt Corporate Finance, Inc. having an office at Two
Greenwich Plaza, Greenwich, Connecticut 06830 ("CCFI");
At the Guarantor's request, CCFI has agreed to make a revolving line of
credit (the "Loans") to Guardian Technologies International, Inc., a Virginia
corporation (the "Borrower"), under that certain Agreement dated as of December
7, 1995 among the Borrower, the Guarantor and CCFI (the "Agreement"); and
It is a condition to the making of the Loans that the Guarantor execute
and deliver this Guaranty to CCFI;
NOW, THEREFORE, in consideration of the foregoing, it is hereby agreed as
follows:
1. Agreement of Guaranty. The Guarantor hereby irrevocably and
unconditionally guarantees to CCFI the payment, when due, of all of the
obligations and liabilities of the Borrower to CCFI for principal, interest,
fees or otherwise under and in connection with the Loans, regardless of their
amounts, the Agreement, the Note referred to therein, and each of the other
documents or instruments entered into or delivered in connection therewith (the
"Documents"), and any other payment or indemnification to be made by the
Borrower pursuant to or in connection with the Loans (all of the foregoing
being hereinafter referred to as the "Guaranteed Obligations"). All such
payments with respect to all Guaranteed Obligations shall be made to CCFI at
its office at 245 Park Avenue, New York, New York 10167 or such other place as
may be notified in writing to the Guarantor by CCFI, in U.S. Dollars and in
immediately available funds.
The obligations of the Guarantor under this Guaranty are direct and
primary obligations and shall not be discharged for any reason until CCFI has
been indefeasibly paid in full. Without limiting the generality of the
foregoing, the obligations of the Guarantor shall remain in force
notwithstanding: (a) any invalidity, illegality or unenforceability of, or any
defect in, any of the Documents or any defense which the Borrower or any
successor thereof may have with respect thereto or with respect to any
collateral therefor, if any, (b) the existence or absence of any legal action
to enforce the Guaranteed Obligations or the Documents or any security thereof,
or (c) any other circumstance which might otherwise constitute a defense
available to, or discharge of, a guarantor or surety of any type.
This Guaranty is several and independent of, and may be enforced
regardless of any other obligation (direct or contingent) of the Guarantor or
any other Person (such term to include any person, partnership, corporation,
association or other legal or governmental entity, agency or instrumentality)
with respect to the Guaranteed Obligations.
<PAGE> 2
2. Subordination. If and to the extent that the Guarantor makes any
payment hereunder, any claim which the Guarantor may have by reason thereof
shall be subject and subordinate to the prior payment in full of all of the
Guaranteed Obligations. The Guarantor shall not, after a claim has been made
pursuant to this Guaranty, claim from the Borrower or any other guarantor of
the Guaranteed Obligations or with respect to any of their respective
properties, any sums which may be owing to the Guarantor or have the benefit of
any setoff, counterclaim, composition or payment by the Borrower until all
Guaranteed Obligations and all other obligations of the Guarantor hereunder
shall have been paid in full. Should any payment, distribution, security or
the benefit of proceeds thereof be received by the Guarantor upon or with
respect to amounts due to it from the Borrower or any other guarantor of the
Guaranteed Obligations after a claim has been made pursuant to this Guaranty
and prior to the payment in full of the amounts due to CCFI, the Guarantor will
forthwith deliver the same to CCFI in precisely the form received (except for
endorsement or assignment where necessary), for application in or towards
repayment of the Guaranteed Obligations to CCFI and, until so delivered, the
same shall be held in trust as the property of CCFI. In the event of the
failure of the Guarantor to make any such endorsement or assignment, CCFI or
any of its officers or employees are hereby irrevocably authorized to make the
same on behalf of the Guarantor.
3. Waivers, etc. (a) The Guarantor hereby waives notice of acceptance of
this Guaranty and notice of any liability to which it may apply, and waives
diligence, presentment, demand of payment, protest, notice of dishonor of any
such liabilities, suit or taking other action or making any demand by CCFI
against, and any other notice to, any party liable thereon (including the
Guarantor). The Guarantor agrees that CCFI may at any time and from time to
time without the consent of, or notice to, the Guarantor, without incurring
responsibility to the Guarantor, without impairing or releasing the obligations
of the Guarantor hereunder, upon or without any terms or conditions and in
whole or in part: (i) change the manner, place or terms of, and/or change or
extend the time of payment of, renew or alter, any of the Guaranteed
Obligations, any security therefor, or any liability incurred directly or
indirectly in respect thereof, and this Guaranty shall apply to the Guaranteed
Obligations so changed, extended, renewed or altered; (ii) exercise or refrain
from exercising any rights against the Borrower or any other person or entity
(including the Guarantor) or otherwise act or refrain from acting; (iii) settle
or compromise any of the Guaranteed Obligations, any security therefor or any
liability (including any of those hereunder) incurred directly or indirectly in
respect thereof or hereof, and may subordinate the payment of all or any part
thereof to the payment of any liability (whether due or not) of the Borrower to
the creditors of the Borrower (including CCFI); (iv) apply any sums by third
parties in respect of any liability or liabilities of the Borrower to CCFI
regardless of what liability or liabilities of the Borrower remain unpaid;
and/or (v) consent to or waive any breach of, or any act, omission or default
under or modify or amend any provision of, the Documents so long as the
principal amount of the Loans is not increased without the written consent of
the Guarantor. The Guarantor further acknowledges that the Guarantor has not
relied on any collateral security which may be granted to CCFI by the Borrower
in order to issue this Guaranty, and agrees that this Guaranty shall at all
times remain in effect with respect to the Guaranteed Obligations whether the
Guaranteed Obligations are secured or unsecured. Nothing herein shall be
deemed to be a modification of the terms of the Agreement.
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<PAGE> 3
(b) The Guarantor hereby waives any right of subrogation which it may have
with respect to any payment it may have made to CCFI in respect of the Loans or
the Documents.
4. Agreement. Without the prior written consent of CCFI, the Guarantor
will not, until the Agreement is terminated and all Guaranteed Obligations and
all other obligations of the Guarantor hereunder are paid in full, hold
directly or indirectly less than 22% of the capital stock of the Borrower
having voting power for the election of the directors of the Borrower (other
than as a result of the private placement of such capital stock as approved by
CCFI).
5. Representation. (a) The Guarantor is an individual resident of the
State of Virginia.
(b) The Guarantor has the power to own his assets, to conduct his business
as now conducted, and to enter into and perform the provisions of this
Guaranty.
(c) The entering into and performance by the Guarantor of the Guaranty
does not contravene any existing law or any legal order applicable to, or
license or permit granted to, the Guarantor, or any agreement or instrument to
which the Guarantor is a party or to which he or any of his assets is subject.
(d) No consent or authorization by any governmental or monetary authority
in the jurisdiction where the Guarantor is conducting his business is required
in connection with the execution delivery or enforcement of this Guaranty.
(e) This Guaranty is the legal, valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its terms.
(f) The Guarantor owns, directly or indirectly, no less than 22% of the
issued and outstanding capital stock of the Borrower having voting power for
the election of the members of the Board of Directors of the Borrower, and
shall continue to own at least such percentage so long as any of the Guaranteed
Obligations shall be outstanding (other than as a result of the private
placement of such capital stock as approved by CCFI).
(g) The Guarantor hereby acknowledges that the Guarantor has not relied on
any representation of CCFI with respect to the Borrower or the existence,
perfection or priority of any security interest which CCFI may now or in the
future have in any property of the Borrower, and the Guarantor agrees that its
obligations hereunder shall be independent of any such security interest, if
any.
(h) The financial statements of the Guarantor which have been furnished to
CCFI and fairly present the financial condition and the results of operations
of the Guarantor as at the end of and for the reporting period covered thereby.
There are no material liabilities or any material unrealized or anticipated
losses from unfavorable commitments which are not disclosed in such financial
statement. There has been no material adverse change in the financial
condition
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<PAGE> 4
of the Guarantor from that set forth in such financial statements.
There are no legal proceedings pending or, to the knowledge of the Guarantor,
threatened against or affecting the Guarantor or his obligations hereunder, and
no defaults by the Guarantor with respect to any agreement or instrument to
which he is a party or to which he or his assets are subject, which might
result in such a material adverse change.
6. Payment of Expenses, etc. The Guarantor hereby agrees to pay for all
out-of-pocket costs and expenses of CCFI arising in connection with the
enforcement of this Guaranty (including, without limitation, the reasonable
fees and expenses of counsel for CCFI), and all stamp taxes (including interest
and penalties, if any) which may be payable in respect of this Guaranty or of
any modification or enforcement of this Guaranty. This Section 6 shall survive
the repayment of the Guaranteed Obligations and the termination of this
Guaranty.
7. Modification. This Guaranty may be modified only by an instrument in
writing signed by the parties hereto.
8. Governing Law. This Guaranty and the rights and obligations of the
parties hereunder shall be construed in accordance with, and be governed by,
the laws of the State of New York, without regard to its conflict of law
principles.
9. Notices. Communications given to any party in connection with this
Guaranty shall be effective when delivered at its address set forth immediately
below, as the same may be changed by written notice to the other party. No
other method of giving notice is hereby precluded. Written communications may
be in any form of writing howsoever transmitted.
Guardian Technologies International, Inc.
45472 Holiday Drive
Sterling, VA 20166
Attention: Oliver L. North
Telephone: (703) 709-6635
Telecopy: (703) 709-7904
Oliver L. North
Narnia Farm, Route 1
Box 560
Bluemont, Virginia 22012
Telephone: (703) 709-6635
Telecopy: (703) 709-7904
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<PAGE> 5
Copy to: (not constituting notice)
Nicole Seligman, Esq.
Williams & Connolly
725 12th Street, N.W.
Washington, D.C. 20005
Telephone: (202) 434-5000
Telecopy: (202) 434-5029
Creditanstalt Corporate Finance, Inc.
2 Greenwich Plaza
Greenwich, CT 06830
Attention: Dennis C. O'Dowd
Telephone: (203) 861-6593
Telecopy: (203) 861-6594/6595
Copy to:
Creditanstalt Corporate Finance, Inc.
245 Park Avenue - 27th Floor
New York, NY 10167
Attention: Martin Mittag
Telephone: (212) 856-1060
Telecopy: (212) 856-1699
10. Waiver. CCFI's rights, powers, privileges and remedies under or in
connection with this Guaranty are cumulative and not exclusive and shall not be
waived, precluded or limited by, any failure or delay in the exercise thereof,
or by any course of dealing between the Guarantor and CCFI. No notice to or
demand on the Guarantor in any case shall entitle the Guarantor to any other or
further notice or demand in similar or other circumstances, or constitute a
waiver of the right of CCFI to any other or further action in any circumstances
without notice or demand.
11. Benefit of Guaranty. This Guaranty shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns, except that the Guarantor may not transfer or assign any
or all of his rights or obligations hereunder without the prior written consent
of CCFI.
12. Consent to Jurisdiction. The Guarantor agrees that any legal
action or proceeding against the Guarantor with respect to this Guaranty may be
brought in the courts of the State of New York or of the U.S. District Court for
the Southern District of New York, as CCFI in its sole discretion may elect, and
by execution and delivery of this Guaranty, the Guarantor accepts, for himself
and in respect of his property, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts.
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<PAGE> 6
The Guarantor hereby irrevocably consents to the service of process in any
such suit, action or proceeding brought in New York by the mailing thereof, by
CCFI, by United States registered or certified mail, postage prepaid, to the
Guarantor at his address set forth below, such service to become effective five
days after such mailing. Nothing herein shall affect the right of CCFI to
bring legal action or proceedings in any other court of competent jurisdiction.
In addition, the Guarantor hereby irrevocably waives, to the fullest extent
permitted by law, any objection which he may now or hereafter have to the
laying of venue of any such suit, action or proceeding brought in the State of
New York or the U.S. District Court for the Southern District of New York, and
hereby further irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
AFTER REVIEWING THIS PROVISION SPECIFICALLY WITH ITS COUNSEL THE GUARANTOR
HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS HE MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT
OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR ANY OTHER DOCUMENT DELIVERED
IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF CCFI, THE BORROWER OR THE GUARANTOR
RELATING HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR CCFI'S MAKING THE
LOAN.
IN WITNESS WHEREOF, the Guarantor has duly executed and delivered this
Guaranty as of the date first above written.
By /s/ Oliver L. North
------------------------------------
Oliver L. North
CREDITANSTALT CORPORATE FINANCE, INC.
By /s/ Dennis C. O'Dowd
----------------------------------
Name: Dennis C. O'Dowd
Title: Co-Chief Executive USA
By /s/ Martin Mittag
----------------------------------
Name: Martin Mittag
Title: Deputy Chief Executive USA
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<PAGE> 1
EXHIBIT 10.6
CREDITANSTALT CORPORATE FINANCE, INC.
November 26, 1996
VIA OVERNIGHT COURIER
Mr. Oliver L. North
President and Secretary
Mr. Joseph F. Fernandez
Vice President and Treasurer
Guardian Technologies International, Inc.
45472 Holiday Drive
Sterling, Virginia 20166
Dear Mr. North and Mr. Fernandez:
Please be advised that your November 19, 1996 request (see attached) to
extend the Termination Date of the $100,000 Revolving Line of Credit Agreement
dated December 7, 1995 among Guardian Technologies International, Inc.,
Creditanstalt Corporate Finance, Inc. and Oliver L. North, as Guarantor (the
"Agreement') has been approved. All other terms and conditions of the
Agreement and related documentation remain in full force and effect, including
the Guaranty dated as of December 7, 1995 made by Mr. North in favor of
Creditanstalt Corporate Finance, Inc. (the "Guaranty").
We kindly request that Mr. North acknowledge the Guaranty by signing below
and returning the copy of this letter to Peter Halter in the enclosed
self-addressed, stamped envelope.
If you should have any questions, please feel free to call Peter Halter at
(203)861-6582.
Sincerely,
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Peter A. Halter
-----------------------------
Peter A. Halter
Vice President
By: /s/ Warren Seidel
-----------------------------
Warren Seidel
Vice President
OLIVER L. NORTH PERSONAL GUARANTY ACKNOWLEDGMENT AND CONFIRMATION
I hereby acknowledge and confirm that my personal guaranty under the
above-defined Guaranty remains in full force and effect.
By: /s/ Oliver L. North
------------------------------
Oliver L. North
Date: November 30, 1996
enclosure
<PAGE> 2
GUARDIAN TECHNOLOGIES
INTERNATIONAL
November 19, 1996
Creditanstalt Corporate Finance, Inc.
2 Greenwich Plaza
Greenwich, CT 06830
Attention: Dennis C. O'Dowd/Martin Mittag
Gentlemen:
We hereby refer to that certain Agreement between us dated December 7,
1995, establishing a $100,000 Revolving Line of Credit in our favor (the
"Agreement").
We hereby request that the Termination Date set forth therein be postponed
to June 30, 1997.
Unless you shall inform us no later than ten days prior to the Termination
Date that you refuse to grant such postponement, the Termination Date shall be
deemed to be such new date.
Very truly yours,
Guardian Technologies International, Inc.
By: /s/ Joseph F. Fernandez
-------------------------------
Joseph F. Fernandez
Vice President
<PAGE> 1
Exhibit 10.7
PERSHING
MARGIN AGREEMENT
To: Pershing, Division of Donaldson, Lufkin & Jenrette Securities Corporation:
In consideration of your accepting and carrying for the undersigned one or more
accounts introduced to you by my broker, bank or other introducing firm
("Introducing Firm"), the undersigned agrees as follows:
ROLE OF PERSHING
1. You are carrying the accounts of the undersigned as clearing broker pursuant
to a cleaning agreement with introducing Firm. Until receipt from the
undersigned of written notice to the contrary, you may accept from Introducing
Firm, without inquiry or investigation, (i) orders for the purchase or sale of
securities and other property on margin or otherwise, and (ii) any other
instructions concerning said accounts. Notices to the undersigned concerning
margin requirements or other matters related to the undersigned's accounts
usually will go through undersigned's Introducing Firm although direct notice
to the undersigned with duplicate notice to undersigned's introducing Firm may
occur if market conditions, time constraints or other circumstances require it.
You shall not be responsible or liable for any acts or omissions of
Introducing Firm or its employees. I understand that Pershing provides no
investment advice nor do you give advice or offer any opinion with respect to
the suitability of any transaction or order. I understand that my Introducing
Firm is not acting as the agent of Pershing and I agree that I will in no way
hold Pershing, Donaldson, Lufkin & Jenrette Securities Corporation, its other
Divisions, and its Officers, Directors and Agents liable for any trading losses
incurred by me.
APPLICABLE RULES AND REGULATIONS
2. All transactions for the undersigned shall be subject to the constitution,
rules, regulations, customs and usages of the exchange or market and its
clearing house, if any, where executed by you or your agents, including your
subsidiaries and affiliates.
DEFINITIONS
3. For purposes of this agreement "securities, commodities and other property,"
as used herein shall include, but not be limited to money, securities, and
commodities of every kind and nature and all contracts and options relating
thereto, whether for present or future delivery.
LIEN
4. All securities, commodities and other property of the undersigned which you
may at any time be carrying for the undersigned, or which may at any time be in
your possession or under your control, shall be subject to a general lien and
security interest in your favor for the discharge of all the undersigned's
indebtedness and other obligations to you, without regard to your having
<PAGE> 2
made any advances in connection with such securities and other property and
without regard to the number of accounts the undersigned may have with you. In
enforcing your lien, you shall have the discretion to determine when securities
and property are to be sold and which contracts are to be closed.
LIQUIDATION
5. If, in your discretion you consider it necessary for your protection to
require additional collateral or in the event that a petition in bankruptcy, or
for an appointment of a receive is filed by or against the undersigned, or an
attachment is levied against the accounts of the undersigned, or in the event
of the death of the undersigned, you shall have the right to sell any or all
securities, commodities and other property in the accounts of the undersigned
with you, whether carried individually or jointly with others, to buy any or
all securities, commodities and other property which may be short in such
accounts, to cancel any open orders and to close any or all outstanding
contracts, all without demand for margin or additional margin, notice of sale
or purchase or other notice or advertisement. Any such sales or purchases may
be made at your discretion on any exchange or other market where such business
is usually transacted, or at public auction or private sale, and you may be the
purchasers for your own account. It being understood that a prior demand, or
call, or prior notice of the time and place of such sale or purchase shall not
be considered a waiver of your right to sell or buy without demand or notice.
PAYMENT OF INDEBTEDNESS UPON DEMAND AND LIABILITY FOR COSTS OF COLLECTION
6. The undersigned shall at all times be liable for the payment upon demand of
any debit balance or other obligations owing in any of the accounts of the
undersigned with you and the undersigned shall e liable to you for any
deficiency remaining in any such accounts in the event of the liquidation
thereof, in whole or in part, by you or by the undersigned; and, the
undersigned shall make payments of such obligations and indebtedness upon
demand. The reasonable costs and expense of collection of the debit balance,
recovery of securities, and any unpaid deficiency in the accounts of the
undersigned with you, including, but not limited to, attorney's fees, incurred
and payable or paid by you shall be payable to you by the undersigned.
PLEDGE OF SECURITIES
7. All securities, commodities and other property now or hereafter held,
carried or maintained by you in your possession in any of the accounts of the
undersigned may be pledged and repledged by you from time to time, without
notice to the undersigned, either separately or in common with other such
securities, commodities and other property for any amount due in the accounts
of the undersigned, or for any greater amount, and you may do so without
retaining to your possession or control for delivery a like amount of similar
securities, commodities or their property.
MARGIN REQUIREMENTS, CREDIT CHARGES AND CREDIT INVESTIGATION
8. The undersigned will at all times maintain such securities, commodities and
other property in the accounts of the undersigned for margin purposes as you
shall require from time to time and the monthly debit balances or adjusted
balances in the accounts of the undersigned with you shall be charged, in
accordance with your practice, with interest at a rate permitted by the laws of
the
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<PAGE> 3
State of New York. It is understood that the interest charge made to the
undersigned's account at the close of a charge period will be added to the
opening balance for the next charge period unless paid.
I acknowledge receipt from my introducing Firm of the disclosure statement
which explains the conditions under which interest can be charged to my
account, the annual rate of interest, how debit balances are determined and the
methods of computing interest.
You may exchange credit information about the undersigned with others.
You may request a credit report on the undersigned and upon request, you will
state the name and address of the consumer reporting agency that furnished it.
If you extend, update or renew the undersigned's credit, you may request a new
credit report without telling the undersigned.
COMMUNICATIONS
9. Communications may be sent to the undersigned at the current address of the
undersigned, which is on file at your office, or at such other address as the
undersigned may hereafter give you in writing, or through my Introducing Firm,
and all communications, so sent, whether by mail, telegraph, messenger or
otherwise, shall be deemed given to the undersigned personally, whether
actually received or not.
SCOPE AND TRANSFERABILITY
10. This agreement shall cover individually and collectively all accounts which
the undersigned may open or reopen with you, and shall inure to the benefit of
their successors whether by merger, consolidation or otherwise, and assigns,
and you may transfer the accounts of the undersigned to your successors and
assigns, and this agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of the undersigned.
NON-INVESTMENT ADVICE
11. The undersigned acknowledges that you will not provide the undersigned with
any legal, tax or accounting advice, that your employees are not authorized to
give any such advice and that the undersigned will not solicit or rely upon any
such advice from you or your employees whether in connection with transactions
in or for any of the accounts of the undersigned or otherwise. In making
legal, tax or accounting decisions with respect to transactions in or for the
accounts of the undersigned or any other matter, the undersigned will consult
with an rely upon its own advisors and not you, and you shall have no liability
therefor.
EXTRAORDINARY EVENTS
12. You shall not be liable for loss caused directly or indirectly by
government restrictions, exchange or market rulings, suspension of trading,
ware, strikes or other conditions beyond your control.
REPRESENTATIONS AS TO CAPACITY TO ENTER INTO AGREEMENT
13. The undersigned, if an individual, represents that the undersigned is of
full age, that unless otherwise disclosed to you in writing, the undersigned is
not an employee of any exchange, or of
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<PAGE> 4
any corporation of which any exchange owns a majority of the capital stock, or
of a member firm or member corporation registered on any exchange or of a bank,
trust company, insurance company, or of any corporations, firm or individual
engaged in the business of dealing either as broker or as principal in
securities, bills of exchange, acceptances or other forms of commercial paper.
The undersigned further represents that no one except the undersigned has an
interest in the account or accounts of the undersigned with you.
JOINT AND SEVERAL LIABILITY
14. If the undersigned shall consist of more than one individual, their
obligations under this agreement shall be joint and several. The undersigned
have executed the Joint Account Agreement and made the election required
therein.
OPTION TRANSACTIONS
15. If at any time the undersigned shall enter into any transaction for the
purchase or sale of an option contract, the undersigned hereby agrees to first
obtain from the Introducing Firm the then current disclosure statements of the
Options Clearing Corporation and further agrees to abide by the rules of any
national securities association, registered securities exchange or clearing
organization applicable to the trading of option contracts and, acting alone or
in concert, will not violate the position or exercise limitation rules of any
such association or exchange or of the Options Clearing Corporation or other
clearing organization.
SEPARABILITY
16. If any provision or condition of this agreement shall be held to be invalid
or unenforceable by any court, or regulatory or self-regulatory agency or body,
such invalidity or unenforceability shall attach only to such provision or
condition. The validity of the remaining provisions and conditions shall not
be affected thereby and this agreement shall be carried out as if any such
invalid or unenforceable provision or condition were not contained herein.
HEADINGS ARE DESCRIPTIVE
17. The heading of each provision hereof is for descriptive purposes only and
shall not be deemed to modify or qualify any of the rights or obligations set
forth in each such provision.
ASSIGNMENT OF PERSHING'S RIGHTS UNDER THIS AGREEMENT TO INTRODUCING FIRM
18. The undersigned agrees that any rights that Pershing has under this
agreement, including but not limited to the right, to collect any debit balance
or other obligations owing in any of the accounts of the undersigned may be
assigned to the Introducing Firm of the undersigned so that the undersigned's
Introducing Firm may collect from the undersigned independently or joined with
Pershing or enforce any other rights granted to Pershing under this agreement.
ARBITRATION DISCLOSURES
19. - ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
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<PAGE> 5
- PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS.
- THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO
SEEK MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
- THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
AGREEMENT TO ARBITRATE CONTROVERSIES
20. IT IS AGREED THAT ANY CONTROVERSY BETWEEN OR AMONG THE UNDERSIGNED,
PERSHING AND INTRODUCING FIRM OR ANY OF THEM ARISING OUT OF PERSHING'S OR
INTRODUCING FIRM'S BUSINESS OR THIS AGREEMENT, SHALL BE SUBMITTED TO
ARBITRATION BEFORE THE NEW YORK STOCK EXCHANGE, INC. OR ANY OTHER NATIONAL
SECURITIES EXCHANGE ON WHICH A TRANSACTION GIVING RISE TO THE CLAIM TOOK PLACE
(AND ONLY BEFORE SUCH EXCHANGE) OR THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC., AS THE UNDERSIGNED MAY ELECT AND IN ACCORDANCE WITH THE RULES
OBTAINING OF THE SELECTED ORGANIZATION. ARBITRATION MUST BE COMMENCED BY
SERVICE UPON THE OTHER PARTY OF A WRITTEN DEMAND FOR ARBITRATION OR A WRITTEN
NOTICE OF INTENTION TO ARBITRATE, THEREIN ELECTING THE ARBITRATION TRIBUNAL.
IN THE EVENT THE UNDERSIGNED DOES NOT MAKE SUCH ELECTION WITHIN FIVE (5) DAYS
OF SUCH DEMAND OR NOTICE, THEN THE UNDERSIGNED AUTHORIZES YOU TO DO SO ON
BEHALF OF THE UNDERSIGNED.
NO PERSON SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO ARBITRATION, NOR
SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT AGAINST ANY PERSON WHO
HAS INITIATED IN COURT A PUTATIVE CLASS ACTION; AND WHO IS A MEMBER OF A
PUTATIVE CLASS AND WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY
CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL: (I) THE CLASS
CERTIFICATION IS DENIED; (II) THE CLASS IS DECERTIFIED; OR (III) THE CUSTOMER
IS EXCLUDED WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT
STATED HEREIN.
THE LAWS OF THE STATE OF NEW YORK GOVERN
21. THIS AGREEMENT AND ITS ENFORCEMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
LOAN CONSENT
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<PAGE> 6
22. BY SIGNING THIS AGREEMENT, THE UNDERSIGNED ACKNOWLEDGES THAT SECURITIES NOT
FULLY PAID FOR BY THE UNDERSIGNED MAY BE LOANED TO YOU OR LOANED OUT TO OTHERS.
THIS AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE IN PARAGRAPH 20 ON
THIS PAGE. I ACKNOWLEDGE RECEIVING A COPY OF THIS AGREEMENT.
SIGNATURES
(If a Corporation, Partnership or Other Entity) (If Individual)
GUARDIAN TECHNOLOGIES INTERNATIONAL,
INC.
- ------------------------------------------ -------------------------------
(Name of Entity)
-------------------------------
(Second Party if Joint Account)
By /s/ Oliver L. North
--------------------------------------
Title President
------------------------------------
DATED 24 June 1996 ACCOUNT NO.
-------------------------------------------- ----------------
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<PAGE> 1
Exhibit 10.8
PROMISSORY NOTE
$900,000.00 Fairfax, Virginia
February __, 1997
For value received, the undersigned, Guardian Technologies International,
Inc., a Delaware corporation, (the "Borrower") promises to pay to the order of
Dashco, Inc. (the "Holder") the sum of $900,000.00 together with interest
thereon at the rate of Fifteen Percent (15%) per annum"), and payable at 11350
Random Hills Road, Suite 720, Fairfax, Virginia 22030, or at such other place
as the Holder may designate in writing, said Note to be payable as follows:
Payable in monthly installments of interest only commencing on the 10th day of
March, 1997 and continuing monthly thereafter until the principal and interest
are fully paid, except that the entire indebtedness evidenced hereby, if not
sooner pay, shall be due and payable on the 10th day of February, 1998.
Each installment shall first be applied to interest and the balance of
each installment, if any, shall then be applied to principal. Prepayment in
any amount may be made at any time prior to maturity date without penalty;
excepting, however, it is understood and agreed that Holder shall be entitled
to minimum interest of $33,750.00 (the "Minimum Return"), regardless of the
maximum amount advanced hereunder or the date of repayment(s) prior to the
maturity date. The monthly installments of interest, when paid, shall be
credited against the Minimum Return.
In the event any payment under this Note is not paid within five days from
the due date of such payment, Borrower agrees to pay a late charge in an amount
equal to five percent (5%) of any amount so overdue. The imposition of such
late payment charge shall in no way limit or impair the right of the Holder
hereof to exercise its right to declare a default hereunder in accordance with
the terms and conditions of this Note, or to accelerate the maturity hereof, or
to exercise any other right provided for under this Note and the Deed of Trust.
Any such late charges shall not be credited against the Minimum Return.
Unpaid principal after default or the maturity date shall accrue interest at
the rate of 24.00 percent per annum until paid.
In the event of default hereunder or the breach of any covenant contained
in the Deed of Trust securing this Note, after five (5) days written notice in
the event of a monetary default and fifteen (15) days written notice in the
event of any other breach or default, then the unpaid principal balance, any
portion of the unpaid Minimum Return and any unpaid accrued interest due in
addition to the Minimum Return may, at the option of the Holder, and without
further notice, be declared and become at once due and payable. Failure by the
Holder to exercise such option shall be not be deemed a waiver of the right to
exercise the same in the event of any subsequent default or breach.
In the event the title to the property securing this indebtedness becomes
vested in anyone holder other than the Maker hereof, the entire balance hereof,
shall, at the option of the Holder, immediately become due and payable, and the
Holder hereof reserves the right to approve any such
<PAGE> 2
new owner(s), to require endorsement hereof by any such new owner(s), to
modify the terms hereof, and to make charge for any assumption hereof.
The Borrower acknowledges that this Note is made for business or
commercial purposes.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the
legal currency of the United States. Borrower waives notice of maturity,
demand, presentment for payment, protest, and notice of protest and nonpayment
of this Note.
No renewal or extension of this Note, delay in enforcing any right of the
Holder under this Note, or assignment by Holder of this Note shall affect the
liability of the Borrower. All rights of the Holder under this Note are
cumulative and may be exercised concurrently or conservatively at the Holder's
option.
This Note shall be construed in accordance with the laws of the
Commonwealth of Virginia. In the event Holder files suit for enforcement under
the terms of this Note, the Borrowers hereof, their successors and assigns,
acknowledge, agree and consent to the jurisdiction of the Circuit Court of
Fairfax County, Commonwealth of Virginia and agree to pay all costs of
collection, court costs and reasonable attorneys' fees, which may be incurred
in the collection of this Note or any part hereof.
WITNESS the following signature and seal this 7th day of February, 1997.
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
(A Delaware Corporation)
By /s/ Joseph F. Fernandez (SEAL)
-----------------------------
Name: Joseph F. Fernandez
Title: Vice-President
Address: 22570 Markey Court
Dulles, VA 20166-6901
Tax Identification No. 54-1521616
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<PAGE> 3
This is to certify that this is the Promissory Note described in a certain
Deed of Trust of even date herewith to Dashco, Inc. and ____________________,
Trustees, and that the Deed of Trust and the Note secured thereby were signed
in my presence this 7th day of February, 1997.
/s/ Marsha A. Fishbaugh
------------------------------------------------
Notary Public
My commission expires: 30 November 2000
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<PAGE> 1
EXHIBIT 10.9
NOTICE: THE DEBT SECURED HEREBY IS SUBJECT TO ALL IN FULL OR THE TERMS THEREOF
BEING MODIFIED IN THE EVENT OF SALE OR CONVEYANCE OF THE PROPERTY CONVEYED.
DEED OF TRUST
THIS DEED OF TRUST made this 10th day of February, 1997, by and between
Guardian Technologies International, Inc., a Delaware corporation, herein
referred to as "Grantor," and Marc A. Busman, a resident of Fairfax County,
Virginia, and Rosalyn R. Busman, a resident of Fairfax County, Virginia,
TRUSTEES, either of whom may act, herein referred to as "Trustee."
W I T N E S S E T H:
That for and in consideration of Ten Dollars ($10.00) cash in hand paid,
and other good and valuable consideration, the receipt of which is hereby
acknowledged, Grantor does hereby grant, bargain, sell and convey to Trustee,
with GENERAL WARRANTY of title, all that certain parcel or lot of land,
together with all the buildings and improvements now or hereafter thereon, and
all other rights, privileges and appurtenances belonging or in any way
appertaining thereto, situate, lying and being in Loudoun County, Virginia, and
more particularly described as follows (all of such property being herein
sometimes referred to as the "Real Estate"):
Lot FOUR (4), LOUDOUN BUSINESS PARK, as the same appears
duly dedicated, platted and recorded in Deed Book 968 at
Page 779 among the land records of Loudoun County,
Virginia.
AND BEING the same property conveyed to Grantor by Deed
recorded in Deed Book 1432 at Page 1753 among the said
land records.
IN TRUST, NEVERTHELESS, to secure the payment of a certain negotiable
promissory note of even date herewith, made by Guardian Technologies
International, Inc., a Delaware corporation, to the order of Dashco, Inc., a
Virginia corporation, in the principal sum of Nine Hundred Thousand and No/100
DOLLARS ($900,000.00) with interest from date at rate of fifteen percent
DOLLARS ($11,250.00) commencing on the 10th day of March, 1997, and on the 10th
day of each month thereafter until the principal and interest are fully paid,
except that the entire indebtedness evidenced hereby, if not sooner paid, shall
be due and payable on the 10th day of February, 1998. Each installment shall
first be applied to interest and the balance of each such installment shall
then be applied to principal.
Grantor covenants that during the continuation of this trust he will not
sell or convey the real estate, or any part thereof, securing the indebtedness
herein described, without prior written consent of the holder of the
indebtedness, and upon failure to obtain such written consent, the entire
indebtedness secured hereby shall become immediately due and payable at the
option of the holder of the note secured hereby.
<PAGE> 2
This deed of trust, except to the extent inconsistent, with the specific
and express provisions contained herein, shall in all other respects be read
and construed with, and to such extent be deemed to incorporate by reference,
the provisions of Sections 55-50 et seq. of the Code of Virginia 1950, as in
force and effect on the date of acknowledgment hereof, including the following
provisions:
Deferred purchase money
Exemptions waived
Subject to all upon default
Renewal or extension permitted
Right of anticipation reserved
Insurance required $ _________ Dollars ** Replacement Value of
Improvements
Substitution of trustee permitted
Advertisement required: two weeks
The parties hereto do further covenant and agree as follows:
(1) Grantor hereby covenants that Grantor owns the real estate in fee
simple and has the right to convey it; that Grantor will execute such further
assurances of title as may be requisite; that Grantor will pay punctually and
promptly all of the said indebtedness.
(2) So long as any part of the indebtedness secured hereby remains unpaid,
Grantor agrees (a) to pay all taxes, assessments, levies and charges upon the
real estate by the time they become due, and to deliver evidence of the payment
of said taxes, assessments and levies to the holder of the note within ten (10)
days after their respective due days, and (b) to keep the improvements on the
real estate constantly insured, by a reputable insurance company, acceptable to
the holder of the note, in such amount as specified above, against loss by fire
or the hazards usually covered by an extended coverage policy, with loss
payable clauses in favor and in form acceptable to the holder of the note,
without contribution, and to deliver the policies and all renewals thereof to
the holder of the note, and Grantor shall promptly furnish to the holder of the
note all renewal notices and all receipts of paid premiums. If the premises
covered hereby, or any part thereof, shall be damaged by fire or other hazard
against which insurance is held as hereinbefore provided, or shall suffer any
other loss, the Grantor will immediately give notice by mail to the holder of
the note, who may make proof of loss if not made promptly by the Grantor and if
restoration or repair of the property damaged is economically feasible and the
security of this deed of trust is not thereby impaired, the insurance proceeds
shall be applied to sch restoration and repair. If such restoration or repair
is not economically feasible or if the security of this deed of trust would be
impaired, the insurance proceeds shall be applied to the sums then remaining
unpaid, secured by this deed of trust, with the excess, if any, paid to
Grantor. If Grantor fails to respond to the holder of the note within thirty
(30) days from the date notice is mailed by the holder of the note to Grantor
that the insurance carrier offers to settle a claim for insurance benefits, the
holder of the note is authorized to collect and apply the insurance proceeds at
the holder of the note's option either to restoration or repair of the property
or to the sums secured by this deed of trust.
- 2 -
<PAGE> 3
(3) Grantor will not remove, demolish or alter the design or structural
character of any building now or hereafter erected on the real estate unless
Trustee shall first consent thereto in writing; will maintain the real estate
in good condition and repair; will not commit or suffer waste thereof; and will
comply with all laws, ordinances, regulations, covenants, conditions and
restrictions affecting the real estate.
(4) Grantor agrees to pay all expenses incurred in the collection of the
indebtedness hereby secured, including reasonable attorneys' fees, plus
interest on principal amounts in default at the same rate as then being charged
in the note secured hereby.
(5) In the event this deed of trust is inferior to any other deed of trust
on the above described real estate the Grantor covenants to pay the instrument
secured thereby, and in default thereof, the noteholder secured by this deed of
trust may treat such default as a default under this trust and proceed with
foreclosure as herein set forth, and any sums of money paid by the noteholder
to prevent foreclosure on a prior deed of trust, shall be deemed to be fully
secured by this instrument, plus interest at the rate provided for in the note
secured hereby from date of payment.
(6) Grantor agrees that if default be made in the payment of any of the
indebtedness hereby secured, or any part thereof, the Trustee (i) may take
possession of the real estate, or any part thereof, and lease it in the name of
and for the account of Grantor, or in the name of and for the account of its
then owner; or (ii) may give notice of such default to the lessee of the real
estate in the event it shall have been leased by Grantor, and thereafter
collect the rents therefrom from the lessee. In either of such events, the
Trustee shall deduct from such rents all costs of collection and administration
and apply the net proceeds on the secured indebtedness. The Trustee is hereby
empowered to bring in his name, or in the name of the owner of the premises,
any suit or action he may deem advisable for the enforcement of the provisions
of this clause to the same extent as if the Trustee were then lessor of the
real estate, but the Trustee shall be in no way personally liable under any of
the provisions of such lease or of this clause, and shall not be personally
liable to any person by virtue of his possession of the real estate or by
virtue of his acting under any provisions of this clause, except to the extent
of accounting for rents actually received by him hereunder. The rights and
remedies given under this clause are in addition to and not in lieu of those
given by law or by other clauses of this deed, and may be exercised without
prejudice to such other rights and remedies.
(7) Grantor further agrees that if default shall be made in the payment of
the secured indebtedness or of any monthly installment of principal and/or
interest thereon, or under the terms of or in the payment of any installment of
principal or interest on any senior encumbrance, or in the payment of any of
the monthly sums for taxes or assessments, or fire/hazard and other insurance,
all as herein provided; or upon any default in payment on demand of any money
advanced by the holder of the note secured hereby on account of any proper
costs, charge, commission, or expense in and about the same, or on account of
any tax or assessment or insurance, or expense of litigation, or attorneys'
fees, with interest thereon at the rate set forth in the note or notes secured
hereby from date of such advance (it being hereby agreed that on default
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<PAGE> 4
in the payment of any tax or assessment or insurance premium or any payment on
account thereof, or in the payment of any of said costs, expense of litigation
or attorneys' fees, or any amount of principal or interest falling due on any
senior encumbrance, as aforesaid, the holder of the note secured hereby may pay
the same, and all sums so advanced, with interest as aforesaid, shall
immediately attach as a lien hereunder and be payable on demand), or upon
failure or iability faithfullyand fully to keep and perform any of the other
conditions or covenants hereinprovided; upon any and every such default so made
as aforesaid, it is expressly covenanted and agreed by Grantor that the holder
of the note secured hereby may treat the whole prinipal debt or sum and interest
thereon until paid, have the right then or thereafter at any tme to sue thereon
at law or in equity, or to enforce payment thereof by means of any remdies or
provision in this instrument contained; and these rights shall exist
notwithstanding that, by the terms of the note or notes hereby secured, they may
not on their face be due.
(8) In the event of default occurring as described in the precedin
paragraph, (incuding nonpayment of the entire indebtedness when accelerated)
then the Trustee, his successors or assigns, on being requested to do by the
holder the note secued hereby, shall sell the real estate at public auction
upon the premises, or at the front door of the courthouse of the county or city
wherein the property is located, or at some other place in the said county or
city selected by the Trustee (and a bidder's deposit of as much as ten percent
(10%) of any bid may be required), after first advertising the time, terms and
place of sale once a week for two consecutive weeks in a newspaper having a
general circulation in the county or city wherein the real estate lies. The
Trustee or arty secured shall give written notice of such proposed sale by
personal delivery, or by certified or registered mail to the present owner of
the property at his last known address, assuch owner and address appear on the
records of the party secured. Mailing a copyh of the advertisement or a notice
containing the same information fourteen (14) days prior to such sale shall be
a sufficient compliance with the requirement of notice. Failure to comply with
the requirements of notice shall not affect the validity of the sale under the
deed of trust, and the purchaser shall be under no duty to ascertain whether
such notice was validly given. The Trustee shall convey the same to, and at
the cost of, the purchaser thereof, by Special Warranty, and the Trustee shall
apply the proceeds of said sale: first, to discharge the expeses of
executingthe trust, includig a commission to the Trustee of five per centum of
the gross proceeds of sale; secondly, to ischarge all taxes, levies, and
assessment, with costs and inerest if they have priority over the lien of the
deed of trust, including the due pro rata thereof for the current year;
thirdly, to discharge in the order of their priority, if any, the
remainingdebts and obligations secured by the deed, and liens of record
inferior to the deed of trust under which sale is made, with lawful interest;
and fourthly, the residue of the proceeds shall be paid to the Grantor or his
assigns; provided, however, that the Trustee as to such residue shall not be
bound by any inheritance, devise, conveyance, assignment or lien of or upon the
Grantor's equity, without actual notice thereof prior to distribution.
(9) If at the time of the sale the said Trustee, orthe one acting, shall
deem it best for any reason to postpone or continue said sale for one or ore
days, they or he may do so,if which event, notice of such postponement or
continuance sall be made in such manner as the Trustee, or the one acting, may
deem sufficient. It is furthr agreed that if the said property shall be
advertised for sale
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<PAGE> 5
as herein provided and not sold, the Trustee, o the one acting, shall be
entitled to one-half the commission above provided, to be computed on the amount
of principal then unpaid.
(10) Upon payment and discharge of all the obligtions secured heeby and
the discharge of all covenants herein, the Trustee will, at Granor's request,
at he cost of Grantor (including a reasonable fee to the Trustee for executing
thedeed of release) execute a proper deed of release unto Grantor or otherwise
properly release the lien of this deed of trust.
(11) Grantor further covenants that the Trustee may rely upon the written
or oral representations of the holder of the note secured hereby that this deed
of trust is in default,and all action taken pursuant to notice of default an
request for foreclosure shall be binding upon Grantor, the Trustee and those
claiming through or under the.
(12) Until default in the payment of the indebtednss hereby secured, or
the breach of one or more of the covenants of the note(s) evidencing the said
indebtedness, or of this deed of trust, or the happening of any event which
would constitute a default under the terms hereof, Grantor shall remain in
quiet use, possession and mnagement of the real estate, and in the enjoyment of
the income, revenue and profits therefrm.
(13) The covenants contained herein shall bind, and the benefits and
advantages shall inure to, the respective heirs, executors, administrators,
sucessors and assigns of the parties hereto. Whenever used, the singular
number or noun shall include the plural and the plural the singular.
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<PAGE> 6
WITNESS the following signatures and seals.
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
(a Delaware corporation)
By /s/ Joseph F. Fernandez (SEAL)
------------------------------
Name: Joseph F. Fernandez
Title: Vice-President
------------------------------ (SEAL)
------------------------------ (SEAL)
------------------------------ (SEAL)
COMMONWEALTH OF VIRGINIA,
COUNTY OF LOUDOUN, to wit:
I, the undersigned, a Notary Public in and for the jurisdiction aforesaid,
do hereby certify that Joseph F. Fernandez, whose name is signed to the
foregoing and hereunto annexed Deed of Trust bearing date of the 10th day of
February, 1997, appeared before me in my jurisdiction aforesaid and
acknowledged the same before me.
Given under my hand and seal this 7th day of February, 1997.
/s/ Marsha A. Fishbaugh
-----------------------------------
Notary Public
My Commission Expires:
30 November 2000
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<PAGE> 1
EXHIBIT 10.10
********************************************************************************
DEED OF LEASE
between
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC
(as Landlord)
and
FREEDOM ALLIANCE
(as Tenant)
Dated: January 23, 1997
********************************************************************************
<PAGE> 2
TABLE OF CONTENTS
PAGE
BASIC LEASE DEFINITIONS .......................... (iii)
GENERAL DEFINITIONS .............................. (iii)
1. BASIC LEASE DEFINITIONS .......................... 1
2. COMPLETION OF BASE BUILDING AND LEASED PREMISES .. 1
3. RENT AND ADDITIONAL CHARGES ...................... 1
4. COMMON AREAS ..................................... 2
5. SERVICES AND UTILITIES ........................... 2
6. USE OF LEASED PREMISES ........................... 3
7. CARE OF LEASED PREMISES .......................... 4
8. RULES AND REGULATIONS . .......................... 4
9. TENANT'S ALTERATIONS ............................. 4
10. NAME OF BUILDING: TENANT'S SIGNS ................. 5
11. TENANT'S INSURANCE ............................... 5
12. INDEMNIFICATION AND WAIVER OF SUBROGATION ........ 6
13. DAMAGE BY FIRE OR OTHER CASUALTY ................. 6
14. CONDEMNATION ..................................... 7
15. ASSIGNMENT AND SUBLETTING ........................ 7
16. DEFAULT PROVISIONS ............................... 8
17. SECURITY DEPOSIT ................................. 10
18. LANDLORD MAY PERFORM TENANT'S OBLIGATIONS ........ 10
19. SUBORDINATION .................................... 10
20. ATTORNMENT ....................................... 11
21. QUIET ENJOYMENT .................................. 11
22. LANDLORD'S RIGHT OF ACCESS TO LEASED PREMISES .... 11
23. LIMITATION ON LANDLORD'S LIABILITY ............... 12
24. ESTOPPEL CERTIFICATES ............................ 12
25. SURRENDER OF LEASED PREMISES ..................... 13
26. RELOCATION OF TENANT ............................. 13
27. HOLDING OVER ..................................... 13
28. ARBITRATION ...................................... 13
29. PARKING .......................................... 13
30. TRANSFER OF LANDLORD'S INTEREST .................. 13
31. LEASING COMMISSIONS .............................. 14
32. FINANCIAL INFORMATION ............................ 14
33. MODIFICATION OF LEASE ............................ 14
34. GENERAL PROVISIONS ............................... 14
EXHIBITS
FLOOR PLAN OF LEASED PREMISES ......................... A
DESCRIPTION OF LAND ................................... B
RULES AND REGULATIONS ................................. C
DETERMINATION OF GROSS RENTABLE AREA .................. D
CERTIFICATE ........................................... E
- ii -
<PAGE> 3
BASIC LEASE DEFINITIONS
As used in this Lease the following words and phrases shall have the
meanings indicated:
ADVANCE RENT: $ 0 , representing the estimated Basic Rent for the
first full month of the Term after the Lease Commencement date, which Tenant
shall pay to Landlord upon execution of this Lease and which Landlord shall
credit against the corresponding monthly installment of Basic Rent.
BROKER: N/A
INITIAL AFTER-HOURS HVAC RATE: $ 0 per hour per floor.
LANDLORD'S NOTICE ADDRESS:
Guardian Technologies International. Inc.
22570 Markey Court
Dulles, VA 20166
(703) 444-7931
LEASE COMMENCEMENT DATE: February 1, 1997 , except as otherwise
provided in Exhibit B to this Lease.
LEASED PREMISES: The area located on the 2nd floor of the Building,
and designated as Suite 240 . The Leased Premises are outlined on the floor
plan attached as Exhibit A to this Lease.
OPERATING EXPENSE BASE: Estimated at $2.00 per square foot.
PARKING SPACES: Tenant's proportionate share of the parking spaces in the
parking area on the Land.
RENTABLE AREA: The gross rentable area of the Leased Premises, as
determined by Landlord's architect from the architectural plans for the
Building, without field measurement, in accordance with the provisions of
Exhibit D to the Lease, which is agreed to be approximately 2,954 square
feet.
RENT COMMENCEMENT DATE: The Lease Commencement Date.
RENT PER SQUARE FOOT: $ 12.68 during the first Lease Year. For each
Lease Year (or part of a Lease Year) thereafter during the Term, the Rent per
Square Foot shall increase by an amount equal to 3% of the Rent per Square Foot
for the immediately preceding Lease Year.
SECURITY DEPOSIT: $0
TENANT'S BILLING ADDRESS: Freedom Alliance, 22570 Markey Court, Suite
240, Dulles, VA 20166.
TENANT'S NOTICE ADDRESS: Freedom Alliance, 22570 Markey Court, Suite
240, Dulles, VA 20166 , (before the Lease Commencement Date), or the Leased
Premises (after the Lease Commencement Date).
TENANT'S PROPORTIONATE SHARE: 8.75 %, representing the percentage
(rounded off to two decimal points) from time to time which the Rentable Area
is of the Building Rentable Area.
<PAGE> 4
TERM: The period commencing on the Lease Commencement Date and ending
on the last day of the calendar month which completes Seven (7) full years
after the Lease Commencement Date, but in any event the Term shall end on any
date when this Lease is sooner terminated.
GENERAL DEFINITIONS
As used in this Lease the following words and phrases shall have the
meanings indicated:
ABOVE BUILDING STANDARD WORK: N/A Work completed on Rent Commencement
Date.
ADDITIONAL CHARGES: All amounts payable by Tenant to Landlord under
this Lease other than Basic Rent. All Additional Charges shall be deemed to be
additional rent and all remedies applicable to the non-payment of Basic Rent
shall be applicable thereto.
ALTERATIONS: Above Building Standard Work and any other alterations,
installations, improvements, additions, renovations or physical changes to the
Leased Premises.
BASIC RENT: For each Lease Year, an amount equal to the product
obtained by multiplying the Rentable Area leased by Landlord to Tenant during
such Lease Year by the Rent per Square Foot for such Lease Year.
BUILDING: The office building to be constructed on the Land.
BUILDING RENTABLE AREA: The total gross rentable area in the
Building, as determined by Landlord's architect from the architectural plans for
the Building, without field measurement, in accordance with the provisions of
Exhibit E to this Lease, which is agreed to be approximately 33740.96 square
feet.
BUILDING STANDARD WORK: N/A Tenant accepts the Premises "as is" on
the Rent Commencement Date.
BUSINESS DAYS: All days except Saturdays, Sundays and Legal Holidays.
COMMON AREAS: All areas, spaces and improvements within the Building
and on the Land which are provided by Landlord, without a separate charge, for
the non-exclusive convenience and use of the tenants of the Building and their
agents, employees and invitees, including public elevators, lobbies, corridors,
escalators, stairways and stairwells, public restrooms and comfort stations,
truck loading areas and entrances and exits designated by Landlord for ingress
and egress.
DEFAULT INTEREST RATE: A rate per annum equal to the lesser of (i)
the sum of the base rate of interest from time to time established and publicly
announced by The Wall Street Journal's prime rate, or its successor by merger or
consolidation (the "Bank"), in its sole discretion, as its then applicable base
rate of interest to be used in determining actual interest rates to be charged
to certain of its borrowers, said base rate to change from time to time as and
when the change is announced as being effective, and three percent (3%) but in
no case to exceed 11%, or (ii) the maximum rate of interest chargeable under
applicable law, if any, with respect to the applicable payment. If the Bank
ceases publicly to announce its base rate of interest Landlord shall have the
right to substitute the base rate of interest publicly announced by another
commercial bank.
EVENT OF DEFAULT: Any of the events set forth in Section 16(a) as an
event of default.
INITIAL CALENDAR YEAR: The calendar year in which the Lease
Commencement Date occurs.
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<PAGE> 5
LAND: The parcel of real property described in Exhibit F to this Lease.
LANDLORD: The landlord named herein and any subsequent owner or lessee,
from time to time, of Landlord's interest in the Land and/or the Building
during the period of such owner's or lessee's ownership.
LANDLORD'S WORK: N/A Work completed on Rent Commencement Date.
LEASE: This Lease Agreement, as amended from time to time, and all
Exhibits, Riders and Addenda attached hereto.
LEASE YEAR: The period commencing on the Lease Commencement Date and
ending on the last day of the month which completes 12 full calendar months
after the Lease Commencement Date, and each 12 month period thereafter
commencing on the first day after the end of the immediately preceding Lease
Year, except that the last Lease Year shall end on the last day of the Term.
LEGAL HOLIDAYS: New Years Day, Martin Luther King's Birthday, President's
Day (Washington's Birthday), Memorial Day, Fourth of July, Labor Day, Columbus
Day, Veterans Day, Thanksgiving Day, Christmas Day, and those holidays
designated by an Executive Order of the President of the United States or by
Act of Congress.
LEGAL REQUIREMENTS: All laws, statutes, ordinances, orders, rules,
regulations and requirements, of all federal, state and municipal governments,
whether now or hereafter in force, applicable to the Land, the Building, the
Parking Lot and the Leased Premises, or any part thereof; including all
applicable local, State and Federal laws and regulations relating to the use
on, storage in, and the removal from, the Land and/or the Building of hazardous
or toxic material, petro-chemical products or asbestos or products containing
asbestos; and all covenants, conditions and restrictions of record affecting
the use or occupancy of the Building.
MORTGAGE: Any mortgage, deed of trust or other security instrument of
record creating an interest in or affecting title to the Land or the Building,
or both, or any part thereof, including a leasehold mortgage or subleasehold
mortgage, and any and all renewals, modifications, consolidations or extensions
of any such instrument; Mortgagee shall mean the holder or beneficiary of any
Mortgage.
OPERATING EXPENSES: The aggregate of all reasonable and customary costs
and expenses incurred on an accrual basis by Landlord in connection with the
management, operation, maintenance, repair, cleaning, safety and administration
of the Leased Premises, the Building, the Land and the Parking Lot, including
employees' wages, salaries, welfare and pension benefits and other fringe
benefits; payroll taxes; Real Estate Taxes; telephone service; painting of
Common Areas; exterminating service; detection and security services; sewer
rents and charges; premiums for fire and casualty, liability, rent, workmen's
compensation, sprinkler, water damage and other insurance; repairs and other
maintenance; building supplies; uniforms and dry cleaning; snow removal; the
cost of electricity for the Common Areas; the cost of water and other public
utilities; trash removal; cleaning and janitorial services for the common area;
landscaping maintenance; window cleaning; service contracts for the maintenance
of boilers, HVAC and other mechanical, plumbing and electrical equipment; fees
for all licenses and permits required for the ownership and operation of the
Land, the Building and the Parking Lot; business license fees and taxes,
including those based on Landlord's rental income from the Building; sales and
use taxes payable in connection with tangible personal property and services
purchased for the management, operation, maintenance, repair, cleaning, safety
and administration of the Land, the Building and the Parking Lot; legal fees;
accounting fees relating to the determination of Operating Expenses and
Operating Expense Increases and the preparation of statements required by
tenants' leases; management fees, whether or not paid to any Person having an
interest in or under common ownership with Landlord; purchase and installation
of indoor plants in
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<PAGE> 6
the Common Areas; purchase and installation of additional landscaping not
included in the original landscaping plan for the Building and replacement or
substitute landscaping; and all other expenses now or hereafter reasonably and
customarily incurred in connection with the operation, maintenance, and
management of comparable office buildings in the Northern Virginia metropolitan
area. If Landlord makes an expenditure for a capital improvement to the Land,
the Building or the Parking Lot, whether by installing energy conservation or
labor-saving devices to reduce Operating Expenses, to comply with Legal
Requirements or otherwise, and if, under generally accepted accounting
principles, such expenditure is not a current expense, the cost thereof shall be
amortized over a period equal to the useful life of such improvement, determined
in accordance with generally accepted accounting principles, and the amortized
cost allocated to each calendar year during the Term, together with an imputed
interest amount calculated on the unamortized portion thereof using an interest
rate which is two percent (2%) below the Default Interest Rate at the time of
the expenditure, shall be treated as an Operating Expense. Except as provided
in the preceding sentence, capital expenditures shall not be included in
Operating Expenses. Operating Expenses are subject to adjustment as provided in
Section 3(b).
OPERATING EXPENSE INCREASES: For the Initial Calendar Year and each
calendar year thereafter ending within the Term and for the calendar year which
includes the last day of the Term, an amount equal to Tenant's Proportionate
Share of the excess of (x) the Operating Expenses for such calendar year, over
(y) the product obtained by multiplying the Operating Expense Base for such
calendar year by the Building Rentable Area.
PARKING LOT: The parking areas on the Land.
PERSON: A natural person, a partnership, a corporation and any other form
of business or legal association or entity.
REAL ESTATE TAXES: All taxes, assessments, vault rentals, and other
charges, if any, general, special or otherwise, including all assessments for
schools, public betterments and general or local improvements, levied or
assessed upon or with respect to the ownership of and/or all other taxable
interests in the Building, the Land and the Parking Lot imposed by any public
or quasi-public authority having jurisdiction and personal property taxes
levied or assessed on Landlord's personal property used in connection with the
management, operation, maintenance, repair, cleaning, safety and administration
of the Land, the Building and the Parking Lot. If at any time during the Term
the methods of taxation shall be altered so that in addition to or in lieu of
or as a substitute for the whole or any part of any Real Estate Taxes levied,
assessed or imposed there shall be levied, assessed or imposed (i) a tax,
license fee, excise or other charge on the rents received by Landlord, or (ii)
any other type of tax or other imposition in lieu of, or as a substitute for,
or in addition to, the whole or any portion of any Real Estate Taxes, then the
same shall be included as Real Estate Taxes. If any real property tax or
assessment levied against the land, buildings or improvements covered thereby
or the rents reserved therefrom shall be evidenced by improvement or other
bonds, or in other form, which may be paid in annual installments only the
amount paid or payable in any calendar year, including the interest, if any,
thereon, shall be included as Real Estate Taxes for that calendar year.
SUBSTANTIALLY COMPLETED: The completion of the construction or
installation, or both, of the improvement in question to the extent that (i)
only minor items remain unfinished, and (ii) such minor items do not prevent
Tenant from occupying the Leased Premises for the use specified in Section
6(a).
TAKING: A taking of property, or any interest therein or right
appurtenant or accruing thereto, by condemnation or eminent domain or by action
or proceedings, or agreement in lieu thereof, pursuant to governmental
authority.
TENANT: The tenant named herein and any permitted assignee under
Section 15.
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TENANT'S ASSOCIATES: Tenant's subtenants, agents, employees, invitees,
licensees, customers and clients, and guests or contractors of any of the
foregoing.
TENANT'S PERSONAL PROPERTY: All furniture, furnishings, business
machines, equipment and other moveable property installed in the Leased
Premises by, or at the expense of, Tenant.
UNAVOIDABLE DELAYS: Delays caused by strikes, acts of God, lockouts,
labor difficulties, riots, explosions, sabotage, accidents, shortages or
inability to obtain labor or materials, Legal Requirements, governmental
restrictions, enemy action, civil commotion, fire or other casualty or similar
causes beyond the reasonable control of Landlord.
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DEED OF LEASE
THIS DEED OF LEASE (hereinafter referred to as "Lease") is made this 23rd
day of January, 1997, between (i) GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.,
Delaware Corporation (hereinafter referred to as "Landlord"), and (ii) FREEDOM
ALLIANCE, a District of Columbia nonprofit corporation (hereinafter referred to
as "Tenant").
WITNESSETH: Subject to the terms of this Lease, Landlord hereby leases to
Tenant, and Tenant hereby leases from Landlord, the Leased Premises, for the
Term.
1. BASIC LEASE DEFINITIONS. The foregoing Basic Lease Definitions are
hereby incorporated into and made part of this Lease. Capitalized terms used
in this Lease which are defined in the Basic Lease Definitions shall have the
respective meanings set forth therein.
2. COMPLETION OF BASE BUILDING AND LEASED PREMISES. The construction of
the Base Building and the Leased Premises has been completed and is acceptable
to the Tenant.
3. RENT AND ADDITIONAL CHARGES.
(a) PAYMENT OF RENT AND ADDITIONAL CHARGES. Tenant shall pay the Basic
Rent for each Lease Year in equal monthly installments in advance on the Rent
Commencement Date and thereafter on the first day of each month (or part of a
month) during the Term. If the Rent Commencement Date is not the first day of
a month, Basic Rent for the month in which the Rent Commencement Date occurs
shall be pro-rated on the basis of the number of days in the month before and
after the Rent Commencement Date. Landlord shall credit the Advance Rent
against the first due monthly installment of Basic Rent. The Basic Rent and
all Additional Charges shall be paid promptly when due, in lawful money of the
United States, without notice or demand and without deduction, diminution,
abatement, counterclaim or set off of any amount or for any reason whatsoever
to Landlord at Landlord's Notice Address or at such other address or to such
other Person (including a successor to Landlord's interest in the Building) as
Landlord may from time to time designate. The rent reserved under this Lease
shall be the total of all Basic Rent and Additional Charges, increased and
adjusted as elsewhere herein provided, payable during the entire Term and,
accordingly, the methods of payment provided for herein, namely, annual and
monthly rental payments, are for convenience only and are made on account of
the total rent reserved hereunder.
(b) PAYMENT OF OPERATING EXPENSE INCREASES. Tenant shall pay as
additional rent Operating Expense Increases for each calendar year, commencing
with the Initial Calendar Year. Landlord shall make a reasonable estimate of
Operating Expense Increases for the Initial Calendar Year and each calendar
year thereafter Tenant shall pay to Landlord a properly prorated share of the
estimated amount of Operating Expense Increases for each calendar year on the
first day of each month in advance, beginning on the first day of the Initial
Calendar Year. If Landlord's estimate of Operating Expense Increases for any
calendar year is not received by Tenant on or before January 1 of the calendar
year, Tenant shall continue to pay the monthly installments of Operating
Expense Increases at the rate established for the immediately preceding
calendar year (if any) until Tenant receives a new estimate for the calendar
year. Within 15 days after receipt of a new estimate of Operating Expense
Increases for the calendar year, Tenant shall pay to Landlord in a lump sum the
arrearages in the monthly estimates for each month in the calendar year before
receipt of the estimate, if any, and shall pay the remaining monthly
installments for the calendar year on the first day of each month in advance
during the balance of the calendar year. After the end of each calendar year,
including the Initial Calendar Year, Landlord shall submit to Tenant a
statement (the "Annual Operating Expense Statement") setting forth in
reasonable detail the
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Operating Expenses for such calendar year and the amount
(if any) of Operating Expense Increases for such calendar year. The difference
between the Operating Expense Increase so stated and the amount (if any)
theretofore paid by Tenant for Operating Expense Increases based on Landlord's
estimate shall be adjusted by (i) payment from Tenant to Landlord of any
deficiency or (ii) credit against the next monthly installment of Basic Rent.
Operating Expense Increases for the calendar years in which the first Lease
Year and the final Lease Year occur shall be prorated based on the number of
days in the calendar years in which the Lease is in effect.
(c) AUDIT OF OPERATING EXPENSE INCREASES. Unless Tenant timely audits
pursuant to the provisions hereinafter set forth, the Annual Operating Expense
Statement shall constitute a final determination between Landlord and Tenant
with a period represented thereby. Within six (6) months after receipt of the
Operating Expense Statement from Landlord, Tenant shall have the right, at its
expense, and at reasonable times, to initiate an audit of Landlord's books and
records relating to the additional rental due under this Section, subject to
the following. Before conducting any audit, Tenant must pay the full amount of
Operating Expense Increases billed and must not be in monetary default of any
other Lease provisions. Tenant may review only those records of Landlord that
are specifically related to Operating Expense Increase costs. Without limiting
the foregoing, Tenant may not review any other leases or Landlord's tax returns
or financial statements, in conducting an audit, but otherwise Tenant shall be
provided all reasonably necessary documentation to conduct an accurate audit.
Tenant must utilize an individual experienced in auditing commercial office
building records. Subject to landlord's reasonable prior approval, the audit
shall be conducted in a local location determined by Landlord, which shall be
the site of other audits (if any) conducted by other tenants of the Building.
Upon receipt thereof, Tenant will deliver to Landlord a copy of the audit
report and all accompanying data. Tenant will keep confidential all agreements
involving the right provided in this Section and the results of any audits
conducted hereunder. Notwithstanding the foregoing, Tenant shall be permitted
to furnish the foregoing information to its attorneys, accountants, auditors,
and governmental clients to the extent necessary to perform their respective
services for Tenant. The audit shall be conducted in accordance with generally
accepted rules of accounting principles. Any overpayment or underpayment will
be promptly credited or paid as the case may be. The Tenant, at the
commencement of any Audit shall pay to the Landlord the sum of Five Hundred and
00/100 Dollars ($500.00) representing the Landlord's reasonable estimate of the
cost to the Landlord in connection with any such Audit.
(d) GROSS UP OF OPERATING EXPENSES. If the average occupancy level of the
Building for any calendar year is less than 95%, the Operating Expenses for
such calendar year shall be increased by the additional Operating Expenses, as
reasonably estimated by Landlord, that would have been incurred by Landlord in
providing the same services provided to Tenant (and included in Operating
Expenses) if the average occupancy level of the Building for the calendar year
had been 95%. For purposes of the preceding sentence, the "average occupancy
level of the Building" for any calendar year shall be the arithmetic average of
the Building Rentable Area occupied by tenants on the first day of each month
during the calendar year.
(e) INTEREST If Tenant fails to make any payment of Basic Rent or
Additional Charges within five days after the due date thereof, interest shall
accrue on the unpaid portion thereof from the due date at the Default Interest
Rate, and shall be payable on demand.
(f) ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord
of any lesser amount than the amount stipulated to be paid hereunder shall be
deemed other than on account of the earliest stipulated Basic Rent or
Additional Charges nor shall any endorsement or statement on any check or
letter be deemed an accord and satisfaction, and Landlord may accept any check
or payment without prejudice to Landlord's right to recover the balance due or
to pursue any other remedy available to Landlord.
(g) LATE PAYMENT CHARGE. If Tenant fails to pay any Basic Rent or
Additional Charges within five days after the same become due and payable,
Tenant shall also pay to Landlord on demand a late
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payment service charge (to cover Landlord's administrative and overhead expenses
of processing late payments) equal to the greater of $100.00 or 5% of such
unpaid sum for each and every calendar month or part thereof after the due date
that such sum has not been paid to Landlord. Such payment shall not excuse the
untimely payment of rent.
4. COMMON AREAS.
Throughout the Term, Tenant and Tenant's Associates shall have the
non-exclusive right, in common with others, to use Common Areas and the Land.
Landlord shall have the right at any time, without Tenant's consent to
construct, subdivide, lease, or make any physical changes upon or to the
Building, Common Areas and Land, provided such actions do not unreasonably
obstruct Tenant's access to the Leased Premises or the Parking Lot.
5. SERVICES AND UTILITIES.
(a) BUILDING SERVICES. Throughout the Term, Landlord agrees that the
Building will be maintained in the same manner as other comparable office
buildings in Loudoun County, Virginia, and that, subject to Unavoidable Delays
and Legal Requirements, it will furnish, or cause to be furnished, the
following services: Hot and cold running water in the toilet rooms located in
the Common Areas and at valved outlets at the locations in the Leased Premises
(if any) shown on Tenant's Space Layout. Tenant, at Tenant's sole cost and
expense, shall be responsible for and shall provide its own cleaning and
janitorial services for the Leased Premises and shall use a cleaning and
janitorial company which is acceptable to the Landlord.
(b) ELECTRICITY. Landlord shall not be liable in any way to Tenant
for any failure or defect in the supply or character of electrical energy
furnished to the Leased Premises by reason of any requirement, act or omission
of the public utility serving the Building with electricity. Tenant's use of
electrical energy in the Leased Premises shall not at any time exceed the
capacity of any of the electrical conductors and equipment in or otherwise
serving the Leased Premises. Tenant shall pay directly to the applicable
public utility company all charges for electricity and gas used or consumed in
the Leased Premises as measured by the separate meters for the Leased Premises.
(c) HVAC SERVICES. Landlord shall not be responsible if the normal
operation of the air-conditioning and heating system for the Leased Premises
shall fail to provide conditioned air within comfortable temperature levels due
to excessive electrical load, arrangement of partitioning or other Alterations
or failure to keep blinds closed in areas exposed to direct sunlight.
(d) FAILURE TO PROVIDE BUILDING SERVICES. If Landlord shall fail to
supply, or be delayed in supplying, any service expressly or impliedly to be
supplied by Landlord under this Lease, or shall be unable to provide the
Parking Spaces, or shall fail to perform any other obligation under this Lease,
and such failure is caused by an accident, Unavoidable Delay or the need to
perform a repair, alteration, replacement, addition or improvement, such
failure or delay shall result from Unavoidable Delays, such failure, delay or
inability shall not constitute an actual or constructive eviction, in whole or
in part, or relieve Tenant from any of its obligations under this Lease, or
impose any liability upon Landlord or its agents by reason of inconvenience to
Tenant, or injury to, or interruption of, Tenant's business, or otherwise, or
entitle Tenant to any abatement or diminution of rent.
6. USE OF LEASED PREMISES.
(a) PERMITTED USE. Tenant shall use and occupy the Lease Premises
solely for office purposes in accordance with the applicable zoning
regulations and other Legal Requirements consistent with the
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character and dignity of the Building. Tenant shall not permit or suffer the
Leased Premises to be occupied by anyone other than Tenant except as provided by
Section 15. Landlord may regulate and restrict access to the Building and the
Parking Lot at times other than normal business hours on Business Days for
security purposes so long as Tenant's employees, agents and business invitees
have reasonable access to the Leased Premises and the Parking Lot without
unreasonable inconvenience.
(b) PAYMENT OF TAXES. Throughout the Term, Tenant covenants and
agrees to pay ten (10) days before delinquency any and all taxes, assessments
and public charges levied, assessed or imposed upon Tenant's business conducted
in the Leased Premises, upon the leasehold estate created by this Lease or upon
Tenant's Personal Property.
(c) RESTRICTIONS ON USE. Throughout the Term, Tenant shall not,
without obtaining Landlord's prior consent in each instance: (i) place a load on
any floor exceeding the floor load per square foot which such floor was designed
to carry in accordance with the plans and specifications of the Building; (ii)
install, operate or maintain in the Leased Premises any heavy item of equipment
except in such manner as to achieve a proper distribution of weight; (iii)
strip, overload, damage or deface the Leased Premises, the Common Areas or the
Parking Lot, or the fixtures therein or used therewith; (iv) move any bulky
furniture or equipment into or out of the Leased Premises except at such times
as Landlord may from time to time designate; or (v) use any floor adhesive in
the installation of any carpeting.
(d) COMPLIANCE WITH INSURANCE REQUIREMENTS. Tenant shall not use or
occupy the Leased Premises, the Building or the Parking Lot, or permit the
Leased Premises to be used or occupied, in violation of requirements of
Landlord's or Tenant's insurers. Tenant shall not do, or permit anything to be
done, in or upon the Leased Premises, the Building or Parking Lot, or bring or
keep anything therein, which shall increase the premiums payable for casualty
and property damage insurance for the Land, the Building or the Parking Lot or
on any property located therein, unless Tenant pays on demand the amount of the
increase.
(e) NO FLAMMABLE SUBSTANCES. Tenant shall not bring or permit to be
brought or kept in or on the Leased Premises any flammable, combustible or
explosive substance except standard cleaning fluid, standard equipment and
materials (including magnetic tape) customarily used in conjunction with
business machines and equipment of the type used from time to time by Tenant in
reasonable quantities.
(f) HAZARDOUS MATERIALS. Tenant shall not (either with or without
negligence) cause or permit the escape, disposal or release of any biologically
or chemically active or other hazardous substances or materials. Tenant shall
not allow the storage or use of such substances or materials in any manner not
sanctioned by law or by the highest standards prevailing in the industry for the
storage and use of such substances or materials, nor allow to be brought into
the Building or Project any such materials or substances except those which are
customarily used in the ordinary course of Tenant's business, and then only
after written notice is given to Landlord of the identity of such substances or
materials. Without limitation, hazardous substances and materials shall include
those described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., any
applicable state or local laws and the regulations adopted under these acts. If
any lender or governmental agency shall ever require testing to ascertain
whether or not there has been any release of hazardous materials, then the
reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand
as additional charges if such requirement applies to the Leased Premises. In
addition, Tenant shall execute affidavits, representations and the like from
time to time at Landlord's request concerning Tenant's best knowledge and belief
regarding the presence of hazardous substances or materials on the Leased
Premises. In all events, Tenant shall indemnify Landlord in the manner
elsewhere provided in this Lease from any release of hazardous materials on the
Leased Premises occurring while Tenant is in possession, or elsewhere
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if caused by Tenant or persons acting under Tenant.
The within covenants shall survive the expiration or earlier termination of
the Term.
7. CARE OF LEASED PREMISES.
(a) MAINTENANCE AND REPAIRS BY TENANT. Tenant shall act with care in its
use and occupancy of the Leased Premises and the fixtures therein and, at
Tenant's sole cost and expense, shall make all repairs and replacements to the
Leased Premises which are necessary to maintain the Leased Premises in
first-class condition. Tenant shall also make any repairs to the Building or
any other improvement necessitated or caused by the willful or negligent acts
of Tenant, Tenant's Associates or any business invitee.
(b) LANDLORD'S RESPONSIBILITY FOR MAINTENANCE AND REPAIRS. Except as
otherwise provided in subsection (a), Landlord shall make or cause to be made
the following repairs as and when necessary: (i) structural repairs to the
Building; (ii) repairs required in order to provide plumbing, electrical, HVAC
and other services to be furnished by Landlord pursuant to this Lease; (iii)
maintenance and repairs to exterior portions of the Building, including the
windows and roof; and (iv) repairs to the Common Areas.
8. RULES AND REGULATIONS.
Tenant shall, and shall cause Tenant's Associates to, comply with and
observe all reasonable rules and regulations concerning the use, management,
operation, safety and good order of the Leased Premises, the Common Areas, the
Parking Lot and the Building which may from time to time be promulgated by
Landlord. Initial rules and regulations, which shall be effective until
amended by Landlord, are attached as Exhibit C to this Lease. Landlord shall
not be responsible to Tenant for any violation of the Rules and Regulations, or
the covenants or agreements contained in any other lease, by any other tenant
of the Building, or such tenant's subtenants, agents, employees, invitees,
licensees, customers and clients, or guests or contractors of any of the
foregoing, and Landlord may waive in writing, or otherwise, any or all of the
Rules and Regulations with respect to any one or more tenants.
9. TENANT'S ALTERATIONS.
(a) TENANT'S ALTERATIONS. Tenant shall not make or perform, or permit the
making or performance of, any Alterations without Landlord's prior consent.
Notwithstanding the foregoing provisions of this subsection or Landlord's
consent to any Alterations, all Alterations made during the Term shall be made
and performed in conformity with and subject to the following provisions: (i)
all Alterations shall be made and performed at Tenant's sole cost and expense
and at such time and in such manner as Landlord may reasonably designate; (ii)
all Alterations shall be made only by contractors or mechanics approved by
Landlord, such approval not to be unreasonably withheld or delayed; (iii) no
Alteration shall affect any part of the Building other than the Leased Premises
or adversely affect any service required to be furnished by Landlord to Tenant
or to any other tenant or occupant of the Building; (iv) Tenant shall submit to
Landlord reasonably detailed plans and specifications for each proposed
Alteration and shall not commence any such Alteration without first obtaining
Landlord's approval of such plans and specifications, which approval will not
be unreasonably withheld or delayed, but Landlord shall have the right to
withhold its consent to Alterations involving structural changes or changes
affecting the Common Areas or the exterior of the Building for any reason
whatsoever; (v) notwithstanding Landlord's approval of plans and specifications
for any Alteration, all Alterations shall be made and performed in full
compliance with all Legal Requirements and Insurance Requirements and in
accordance with the Rules and Regulations; and (vi) Tenant shall require any
contractor performing Alterations to carry and maintain at all times during the
performance of the Alterations, at no expense to Landlord, such insurance as
Landlord in its sole discretion may require. In the event of any dispute
between the parties as to whether or not Landlord has acted reasonably in any
case with respect to which Landlord is required, pursuant to the provisions
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of this subsection (a) to do so, Tenant's sole remedy shall be to submit such
dispute to arbitration pursuant to Section 28. If the determination in any such
arbitration shall be adverse to Landlord, Landlord nevertheless shall not be
liable to Tenant for breach of Landlord's covenant to act reasonably, and
Tenant's sole remedy in such event shall be to proceed with the proposed
Alterations.
(b) TITLE TO, AND REMOVAL OF, ALTERATIONS AND TENANT'S PERSONAL
PROPERTY. Title to all Alterations made by Tenant, at its expense to the Leased
Premises shall be and remain in Tenant throughout the Term, but on the
expiration or earlier termination of this Lease Tenant hereby covenants and
agrees that title to all Alterations, and the right to possess and use the same,
shall automatically pass to and be vested in Landlord without payment or
consideration of any kind; provided at the time of approval of any such
alterations, the Landlord may, as a condition of such approval, require that the
Tenant agree, upon termination of the Lease, to remove the said alterations at
the Tenant's expense, and to restore the Leased Premises to the condition it was
in before the installation of the alteration. All of Tenant's Personal Property
shall remain the property of Tenant and may, at its expense, be removed from the
Leased Premises at any time during the Term. Tenant shall, at its expense,
remove all of Tenant's Personal Property at the expiration of the Term. Tenant
shall repair all damage to the Leased Premises caused by the removal of Tenant's
Personal Property to the condition it was in before the installation of the item
removed. Any of Tenant's Personal Property which is not removed from the Leased
Premises at the expiration of the Term shall be deemed to have been abandoned by
Tenant and may be disposed of by Landlord without thereby incurring liability to
Tenant.
(c) MECHANIC'S LIENS. Whenever and as often as any mechanic's lien
or materialman's lien shall have been filed against the Leased Premises, the
Building or the Land based upon any act or interest of Tenant or of anyone
claiming through or under Tenant, or if any lien with respect thereto shall have
been filed affecting any materials, machinery or fixtures used in the
construction, repair or operation thereof or annexed thereto by Tenant or anyone
claiming through or under Tenant, Tenant shall, at its expense, immediately take
such action by bonding, deposit or payment as will remove or satisfy the lien or
other security interest. If Tenant fails to remove or discharge the lien or
other security interest within 20 days after receipt of demand therefor by
Landlord, Landlord, in addition to any other remedy under this Lease and without
waiving or releasing Tenant's default in not timely discharging the lien or
security interest, may pay the amount secured by such lien or security interest
or discharge the same by deposit and the amount so paid or deposited shall be
collectible as additional rent.
10. NAME OF BUILDING; TENANT'S SIGNS.
(a) NAME. Landlord expressly reserves the right to have the
Building designated by a street number or numbers and to affix to the Building,
at locations designated by Landlord, signs indicating any such number or numbers
and the name of the Building as selected from time to time by Landlord.
(b) EXTERIOR SIGNS. Landlord has not granted to Tenant any rights
in or to the roof or the exterior surfaces of the perimeter walls of the
Building, control of which is hereby reserved to Landlord. Tenant shall not
display or erect any lettering, signs, advertisements, awnings or other
projections on the exterior of the Leased Premises or in the interior of the
Leased Premises if visible from outside of the Building. Landlord shall provide
customary suite entry door lettering identifying Tenant in the style and color
selected by Landlord for the Building. The number, size, color, style and
configuration of such lettering shall be determined by Landlord.
(c) BUILDING DIRECTORY. Landlord shall provide a directory in the
main lobby of the Building upon which Landlord, at Landlord's expense, will
affix Tenant's name and a reasonable and customary number of names of its
officers, partners or employees as designated by Tenant. The size, color and
style of such directory and names affixed thereto shall be selected by Landlord.
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11. TENANT'S INSURANCE.
(a) INSURANCE REQUIREMENT. Tenant, at Tenant's sole cost and
expense, shall obtain and maintain in effect at all times during the Term a
policy of Commercial General Liability Insurance, naming Landlord and (at
Landlord's request) any Mortgagee, ground lessor and management agent (the
"Additional Insureds") as additional insureds protecting Landlord, Tenant and
the Additional Insureds against any liability for bodily injury, death or
property damage occurring upon or in the Leased Premises, with such policy
having a deductible no greater than $1,000.00 for any one occurrence and
affording protection to the limit of not less then $1,000,000 with respect to
bodily injury or death or damage to property arising from any one occurrence,
and $2,000,000 from the aggregate of all occurrences within each policy year. If
such policy also covers locations other than the Leased Premises, the policy
shall include a provision to the effect that the aggregate limit of $2,000,000
shall apply separately at the Leased Premises and that the insurer will provide
notice to Landlord if the aggregate is reduced either by payment of claims or
the establishment of reserves for claims if the payments or reserves exceed
$250,000. If the aggregate limit of $2,000,000 is reduced by the payment of a
claim or the establishment of a reserve, Tenant agrees to take immediate steps
to have the aggregate limit restored by endorsement to the existing policy or
the purchase of an additional insurance policy which complies with this
subsection.
(b) PROPERTY DAMAGE INSURANCE. Tenant shall, throughout the Term at
its expense keep Tenant's Alterations and Tenant's Personal Property insured
against loss or damage by fire with extended coverage in an amount sufficient to
prevent Tenant from becoming a co-insurer.
(c) POLICY REQUIREMENTS. The insurance policies required to be
obtained by Tenant under this Section: (i) shall be issued by an insurance
company approved by Landlord, and (ii) in the case of liability insurance, shall
be written as primary policy coverage. With respect to each insurance policy
required to be obtained by Tenant under this Section, on or before the Lease
Commencement Date, and at least 30 days before the expiration of the expiring
certificate previously furnished, Tenant shall deliver to Landlord a certificate
of insurance therefor, together with evidence of payment of all applicable
premiums for a period of one year. Each insurance policy required to be carried
hereunder by or on behalf of Tenant shall provide (and any certificate
evidencing the existence of each such insurance policy shall certify) that such
insurance policy shall not be canceled or amended (other than to increase the
amount of coverage) unless Landlord shall have received 20 days' prior written
notice of such cancellation or amendment. Landlord reserves the right from time
to time to require Tenant to obtain an increase in the minimum amounts of
insurance to such amounts as Landlord deems commercially reasonable.
12. INDEMNIFICATION AND WAIVER OF SUBROGATION.
(a) LANDLORD'S INDEMNIFICATION. Except for the willful or
intentional negligent acts or omissions (where applicable law imposes a duty to
act) of Landlord or its agents, employees or contractors, Tenant hereby agrees
to indemnify and hold harmless Landlord from and against any and all claims,
losses, actions, damages, liabilities and expenses (including reasonable
attorneys' fees and disbursements) that (i) arise from or are in connection with
Tenant's possession, use, occupancy, management, repair, maintenance or control
of the Leased Premises, or any portion thereof, the making or removal of
Alterations and the performance of all related construction work, or in any
other manner that relate to the business conducted by Tenant in the Leased
Premises, or (ii) arise from or are in connection with any willful or negligent
act or omission of Tenant or Tenant's Associates, or (iii) result from any
default, breach, violation or nonperformance of this Lease or any provision
therein by Tenant or (iv) arise from injury or death to individuals or damage to
property sustained on or about the Leased Premises. Tenant shall, at its own
cost and expense, defend any and all actions, suits and proceedings which may be
brought against Landlord with respect to the foregoing or in which Landlord may
be
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impleaded. Tenant shall pay, satisfy and discharge any and all
money judgments which may be recovered against Landlord in connection with the
foregoing.
(b) WAIVER OF SUBROGATION. Tenant shall each include in each of its
policies insuring against loss, damage or destruction by fire or other insured
casualty a waiver of the insurer's right of subrogation against the Landlord and
the Additional Insureds. Landlord agrees to obtain parallel waivers of
subrogation in its insurance policy for the building as against the Tenant.
13. DAMAGE BY FIRE OR OTHER CASUALTY.
In the event of loss of, or damage to, the Leased Premises or the Building
by fire or other casualty, the rights and obligations of Landlord and Tenant
shall be as follows:
(a) REPAIR OF DAMAGE. If the Leased Premises or the Common Areas or
any part thereof shall be damaged by fire or other casualty, Landlord shall
proceed promptly and with reasonable diligence, subject to Unavoidable Delays,
to repair, or cause to be repaired, such damage, including all of Landlord's
Work as defined in Exhibit B, but not damage to Alterations or Tenant's Personal
Property within 120 days after the adjustment of the insurance loss. Landlord
shall not be required to repair or replace any Alterations or any of Tenant's
Personal Property, but Landlord's only obligation under this subsection shall be
to repair or replace the portions of the Base Building, as defined in Exhibit B,
and the Landlord's Work to the condition necessary to enable Tenant, in
accordance with accepted construction practices, to begin the performance of the
repair or replacement of Above Building Standard Work. Landlord shall not be
obligated to make any payment to Tenant for damages or compensation for
inconvenience, loss of business or annoyance arising from any damage to or
repair or restoration of any portion of the Leased Premises or of the Building.
(b) ABATEMENT OF BASIC RENT AND ADDITIONAL CHARGES. If the Leased
Premises or any part thereof shall be rendered untenantable by reason of such
damage and shall not in fact be used by Tenant, the Basic Rent and Additional
Charges shall be abated for the proportion of the Leased Premises rendered
untenantable for the period from the date of such damage to the date when the
damage which Landlord is obligated to repair shall have been repaired or the
date on which this Lease is terminated pursuant to subsection (c), whichever
occurs first. If, by some reason of some action or inaction on the part of
Tenant or Tenant's Associates after the occurrence of a fire or other casualty,
Landlord or the Additional Insureds shall be unable to collect all of the
insurance proceeds applicable to the damage or destruction of the Leased
Premises or the Building by fire or other casualty, then, without prejudice to
any other remedy which may be available to Landlord against Tenant, the
abatement of rent provided for in this subsection shall not be effective to the
extent of uncollectible insurance proceeds.
(c) TERMINATION OF LEASE BY LANDLORD OR TENANT. If as a result or
fire or other casualty more than one-half (1/2) of the Building Rentable Area is
rendered untenantable, Landlord, within 60 days from the date of such fire or
casualty, may terminate this Lease by notice to Tenant, specifying a date, not
less than 20 nor more than 40 days after the giving of such notice, on which the
Term shall expire. If the Leased Premises are damaged as a result of fire or
other casualty and if Landlord reasonably determines that the damage to the
Leased Premises (but not the damage to Alterations or Tenant's Personal
Property) is so extensive that such damage cannot be substantially repaired
within 210 days from the date of the fire or other casualty (except for
Unavoidable Delays), Landlord shall notify Tenant of that fact. Within 15 days
after receipt of Landlord's notice, Tenant may terminate this Lease by notice to
Landlord, specifying a date, not less than 20 nor more than 40 days after the
giving of such notice, on which the Term shall expire, except that Tenant shall
not have the right to terminate this Lease if the fire or other casualty was
caused by the willful or negligent act or omission of Tenant or Tenant's
Associates.
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(d) INSURANCE PROCEEDS. The proceeds payable under all fire and
other hazard insurance policies maintained by Landlord on the Building shall
belong to and be the property of Landlord, and Tenant shall not have any
interest in such proceeds. Tenant agrees to look to its own fire and hazard
insurance policies in the event of damage to Alterations or Tenant's Personal
Property.
(e) LANDLORD RELEASED FROM LIABILITY. Tenant, hereby waives (and
agrees to cause all other occupants of the Leased Premises to execute and
deliver to Landlord instruments waiving) any right of recovery against Landlord,
the Additional Insureds and any of their respective agents, employees,
contractors or invitees, for any loss or damage to Alterations or Tenant's
Personal Property caused by fire or other insured casualty.
14. CONDEMNATION.
(a) EFFECT OF TAKING. In the event of a Taking of the whole of the
Leased Premises, this Lease shall terminate as of the date of such Taking. If
only a part of the Leased Premises shall be so taken then, except as otherwise
provided in this subsection, this Lease shall continue in force and effect, but,
from and after the date of the Taking, the Basic Rent and Additional Charges
shall be equitably reduced on the basis of the Rentable Area so taken. If a part
of the Building shall be taken, and if either (i) the part of the Building so
taken contains more than twenty-five percent (25%) of the Rentable Area
immediately before such Taking, or (ii) in Landlord's reasonable opinion, it
shall be impracticable to continue to operate the Building, then Landlord, at
Landlord's option, may give to Tenant within 60 days after the date upon which
Landlord shall have received notice of the Taking, a thirty (30) days notice of
termination of this Lease.
(b) AWARD. Landlord shall have the exclusive right to receive any
and all awards made with respect to the Leased Premises, the Building and the
Land accruing by reason of a Taking or by reason of anything lawfully done in
pursuant of public or other authority. Tenant hereby releases and assigns to
Landlord all of Tenant's right to such awards and covenants to deliver such
further assignments and assurances thereof as Landlord may from time to time
request, hereby irrevocably designating and appointing Landlord as its
attorney-in-fact coupled with an interest to execute and deliver in Tenant's
name and behalf all such further assignments.
15. ASSIGNMENT AND SUBLETTING.
(a) ASSIGNMENT AND SUBLETTING PROHIBITED. The parties acknowledge
that the Landlord has entered into this Lease because of the Tenant's financial
strength, good will, ability and expertise and that accordingly this Lease is
one which is personal to the Tenant. Tenant shall not, directly or indirectly,
mortgage, pledge, encumber, sell, assign or transfer this Lease, in whole or in
part, by operation of law or otherwise, or sublease all or any part of the
Leased Premises, without Landlord's prior consent, which consent shall not be
unreasonably withheld. In connection with any request by Tenant for such
consent to assign or sublet, Tenant shall submit to Landlord at least 45 days
before the proposed effective date, a written statement containing the name of
the proposed assignee or subtenant, such information as to its financial
responsibility and standing as Landlord may require, and all of the terms and
provisions upon which the proposed assignment or subletting is to be made, and,
unless the proposed sublet area shall constitute the entire Leased Premises,
such statement shall be accompanied by a floor plan delineating the proposed
sublet area. Any attempted transfer, assignment, subletting, mortgaging or
encumbering of this Lease in violation of the provisions of this Section shall
be void and confer no rights upon any Person.
(b) CHANGE OF CONTROL. If Tenant is a corporation, any transfer of
any of Tenant's issued and outstanding capital stock or any issuance of
additional capital stock, as a result of which the majority of the issued and
outstanding capital stock of Tenant is held by a Person or Persons who do not
hold a majority of the issued and outstanding capital stock of Tenant on the
date of this Lease, in the case of the original Tenant, or on
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the date on which Tenant acquire the leasehold estate under this Lease, in the
case of a direct or indirect assignee of the original Tenant, shall be deemed an
assignment under this Section 15. If Tenant is a partnership or a limited
liability company, any transfer of any interest in the partnership or any other
change in the composition of the partnership which results in a change in the
control of Tenant from the Person or Persons controlling the partnership on the
date of this Lease, in the case of the original Tenant, or on the date on which
Tenant acquires the leasehold estate under this Lease, in the case of a direct
or indirect assignee of the original Tenant, shall be deemed an assignment under
this Section 15.
(c) LANDLORD'S RIGHT TO COLLECT RENT. If Tenant's interest in this
Lease is assigned, whether or not in violation of the provisions of this
Section, Landlord may collect rent from the assignee. If the Leased Premises or
any part thereof are sublet to, or occupied, or used by, any Person other than
Tenant, whether or not in violation of this Section, Landlord, after an Event of
Default has occurred and while such Event of Default is continuing, may collect
rent from the subtenant, user or occupant. In either case, Landlord shall apply
the amount collected to the Basic Rent and Additional Charges payable under this
Lease, but neither any such assignment, subletting, occupancy or use, whether
with or without Landlord's prior consent, nor any such collection or application
shall be deemed to be a waiver of any term, covenant or condition of this Lease
or the acceptance by Landlord of such assignee, subtenant, occupant or user as
Tenant. The consent by Landlord to any assignment or subletting shall not
relieve Tenant from its obligation to obtain the express prior consent of
Landlord to any further assignment or subletting. The listing of any name other
than that of Tenant on any door of the Leased Premises or on any directory in
the Building, or otherwise, shall not operate to vest in the Person so named any
right or interest in this Lease or in the Leased Premises or be deemed to
constitute, or serve as a substitute for, any prior consent of Landlord required
under this Section, and it is understood that any such listing shall constitute
a privilege extended by Landlord which shall be revocable at Landlord's will by
notice to Tenant. Neither an assignment of Tenant's interest in this Lease nor a
subletting, occupancy or use of the Leased Premises or any part thereof by any
Person other than Tenant, nor the collection of rent by Landlord from any Person
other than Tenant as provided in this subsection, nor the application of any
such rent as provided in this subsection shall, in any circumstances, relieve
Tenant from its obligations fully to observe and perform the terms, covenants
and conditions of this Lease on Tenant's part to be observed and performed.
(d) EXPENSES AND ASSIGNMENT - SUBLETTING PROFIT. As additional
rent, Tenant shall promptly reimburse Landlord for all reasonable legal and
other expenses incurred by Landlord in connection with any request by Tenant for
consent to assignment or subletting. In the event that any assignee or
subtenant pays to Tenant any amounts in excess of the Basic Rent and Additional
Rent then payable hereunder or pro rata portion thereof of the rent per square
foot for any portion of the Leased Premises, Tenant shall promptly pay Fifty
Percent (50%) of said excess to the Landlord as and when received by Tenant.
16. DEFAULT PROVISIONS.
(a) EVENTS OF DEFAULT. Each of the following events shall be deemed
to be, and is referred to in this Lease as an "Event of Default":
(1) A default by Tenant in making any payment of Basic Rent
or Additional Charges on the day such payment is due and payable which continues
for more than five days after Landlord shall have given Tenant a written notice
specifying such default; or
(2) If, within any period of 12 consecutive months, Landlord
shall have given two written notices of default to Tenant pursuant to paragraph
(1), a further default by Tenant, within the 12-month period after the giving of
the second such notice, in making any payment of Basic Rent or Additional
Charges on the date such payment is due and payable which continues for more
than five days; or
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(3) The neglect or failure of Tenant to perform or observe
any of the terms, covenants or conditions contained in this Lease on Tenant's
part to be performed or observed (other than those referred to in paragraphs (1)
above and (4) and (5) below) which is not remedied by Tenant within fifteen (15)
days after Landlord shall have given to Tenant notice specifying such neglect or
failure; or
(4) The assignment, transfer, mortgaging or encumbering of
this Lease or the subletting of the Leased Premises in a manner not permitted by
Section 15; or
(5) The taking of this Lease or the Leased Premises, or any
part thereof, upon execution or by other process of law directed against Tenant,
or upon or subject to any attachment at the instance of any creditor of or
claimant against Tenant, which execution or attachment shall not be discharged
or disposed of within thirty (30) days after the levy thereof; or
(6) The vacating or abandonment of the Leased Premises by
Tenant.
(b) LANDLORD'S RIGHTS UPON EVENT OF DEFAULT. Upon the occurrence of
an Event of Default, Landlord shall have the right, at its election, then or at
any time thereafter, either:
(1) To give notice to Tenant that this Lease will terminate
on a date to be specified in such notice, which date shall not be less than
three days after such notice, and on the date specified in such notice Tenant's
right to possession of the Leased Premises shall cease and this Lease shall
thereupon be terminated, but Tenant shall remain liable as provided in
subsection (c); or
(2) Without demand or notice, to re-enter and take
possession of the Leased Premises, or any part thereof, and repossess the same
as Landlord's former estate and expel Tenant and those claiming through or under
Tenant and remove the effects of both or either, either by summary proceedings,
or by action at law or in equity, or by force (if necessary) or otherwise,
without being deemed guilty of any manner of trespass and without prejudice to
any remedies for arrears of rent or preceding breach of covenant.
If Landlord elects to reenter under paragraph (2), Landlord may terminate this
Lease, or, from time to time, without terminating this Lease, may relet the
Leased Premises, or any part thereof, as agent for Tenant for such term or
terms and at such rental or rentals and upon such other terms and conditions as
Landlord may deem advisable, with the right to make alterations and repairs to
the Leased Premises. No such reentry or taking of possession of the Leased
Premises by Landlord shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention is given to
Tenant under paragraph 16(b)(1) or unless the termination thereof is decreed by
a court of competent jurisdiction. Tenant waives any right to the service of
any notice of Landlord's intention to reenter provided for by any present or
future law.
(c) TENANT'S LIABILITY FOR DAMAGES. If Landlord terminates this
Lease pursuant to subsection (b), Tenant shall remain liable (in addition to
accrued liabilities) to the extent legally permissible for (i) the sum of (A)
all Basic Rent and Additional Charges provided for in this Lease until the date
this Lease would have expired had such termination not occurred, and (B) any and
all reasonable expenses incurred by Landlord in reentering the Leased Premises,
repossessing the same, making good any default of Tenant, painting, altering or
dividing the Leased Premises, combining the same with any adjacent space for any
new tenants, putting the same in proper repair, reletting the same (including
any and all reasonable attorneys' fees and disbursements and reasonable
brokerage fees incurred in so doing), and any and all expenses which Landlord
may incur during the occupancy of any new tenant (other than expenses of a type
that are Landlord's responsibility under the terms of this Lease); less (ii) the
net proceeds of any reletting actually received by Landlord. Tenant agrees to
pay to Landlord the difference between items (i) and (ii) above with respect to
each month during the Term, at the end of such month. Any suit brought by
Landlord to enforce collection of such difference for any one month shall
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not prejudice Landlord's right to enforce the collection of any
difference for any subsequent month. In addition to the foregoing, Tenant
shall pay to Landlord such sums as the court which has jurisdiction thereover
may adjudge reasonable as attorneys' fees with respect to any successful legal
proceeding or action instituted by Landlord to enforce the provisions of this
Lease. Landlord shall have the right, at its sole option, to relet the whole
or any part of the Leased Premises for the whole of the unexpired Term, or
longer, or from time to time for shorter periods, for any rental then
obtainable, giving such concessions of rent and making such special repairs,
alterations, decorations and paintings for any new tenant as Landlord, in its
sole and absolute discretion, may deem advisable. Tenant's liability under
this subsection shall survive the institution of summary proceedings and the
issuance of any warrant thereunder.
(d) LIQUIDATED DAMAGES. If Landlord terminates this Lease pursuant to
subsection (b), Landlord shall have the right, at any time, at its option, to
require Tenant to pay to Landlord, on demand, as liquidated and agreed final
damages in lieu of Tenant's liability under subsection (c), an amount equal to
the difference, discounted to the date of such demand at an annual rate of
interest equal to the then-current yield on actively traded U.S. Treasury bonds
with 10-year maturities, as published in the Federal Reserve Statistical
Release for the week before the date of such termination, between (i) the Basic
Rent and Additional Charges, computed on the basis of the then-current annual
rate of Basic Rent and Additional Charges and all fixed and determinable
increases in Basic Rent, which would have been payable from the date of such
demand to the date when this Lease would have expired, if it had not been
terminated, and (ii) the then fair rental value of the Leased Premises for the
same period. Upon payment of such liquidated and agreed final damages, Tenant
shall be released from all further liability under this Lease with respect to
the period after the date of such demand. If, after the Event of Default
giving rise to the termination of this Lease, but before presentation of proof
of such liquidated damages, the Leased Premises, or any part thereof, shall be
relet by Landlord for a term of one year or more, the amount of rent reserved
upon such reletting shall be deemed to be the fair rental value for the part of
the Leased Premises so relet during the term of such reletting.
(e) ACCELERATION. If (i) Tenant fails to pay Basic Rent or Additional
Charges within five days after the date on which such Basic Rent or Additional
Charges are due, and (ii) such failure to pay occurs either for three
consecutive months or three times within any period of six consecutive months,
Landlord may, in addition to its other remedies under this Lease, by notice to
Tenant, declare the Basic Rent payable under this Lease for the next six months
(or, at Landlord's option, for a lesser period) to be due and payable within
ten days after the date of such notice.
(f) BANKRUPTCY TERMINATION PROVISION. This Lease shall, at Landlord's
option, terminate and expire, without the performance of any act or the giving
of any notice by Landlord, upon the occurrence of any of the following events:
(1) Tenant's admitting in writing its inability to pay its debts generally as
they become due, or (2) the commencement by Tenant of a voluntary case under
the federal bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or (3) the entry of a decree or order for relief by a court having jurisdiction
in the Leased Premises in respect of Tenant in an involuntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law, and
the continuance of any such decree or order unstayed and in effect for a period
of 30 consecutive days, or (4) Tenant's making an assignment of all or a
substantial part of its property for the benefit of its creditors, or (5)
Tenant's seeking or consenting to or acquiescing in the appointment of, or the
taking of possession by, a receiver, trustee or custodian for all or a
substantial part of its property, or (6) the entry of a court order without
Tenant's consent, which order shall not be vacated, set aside or stayed within
30 days from the date of entry, appointing a receiver, trustee or custodian for
all or a substantial part of its property. The provisions of this Section
16(f) shall be construed with due recognition for the provisions of the federal
bankruptcy laws, where applicable, but shall be interpreted in a manner which
results in a termination of this Lease in each and every instance, and to the
fullest extent and at the earliest moment, that such termination is permitted
under the federal bankruptcy laws, it being
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of prime importance to the Landlord to deal only with Tenants who have, and
continue to have, a strong degree of financial strength and financial stability.
17. SECURITY DEPOSIT.
Tenant, upon execution of the Lease, deposits with Landlord the Security
Deposit, as security for the prompt, full and faithful performance by Tenant of
each and every obligation of Tenant hereunder. If an Event of Default occurs,
Landlord without prejudice to any other remedy, may use, apply or retain the
whole or any part of the Security Deposit for the payment of any amounts due
under this Lease, provided in the event of such application, the Tenant shall
promptly restore the security deposit to the full amount. The Landlord shall
have the right to commingle the security deposit with its other funds. If
Tenant shall fully comply with all of the provisions of this Lease and is not
in default, the Security Deposit, or any balance thereof, shall be returned to
Tenant after the expiration of the Term, without interest. In the event of a
transfer of Landlord's interest in the Leased Premises, Landlord shall have the
right to transfer the Security Deposit to the transferee thereof. In such
event, upon notice to Tenant of such transfer, Landlord shall be released from
all liability or obligation for the return of the Security Deposit to Tenant,
and Tenant agrees to look solely to such transferee for the return of the
Security Deposit and the transferee shall be bound by all provisions of this
Lease relating to the return of the Security Deposit. Tenant acknowledges that
a Mortgagee shall not be liable for the return of the Security Deposit unless
the Mortgagee actually receives the Security Deposit. The Security Deposit
shall not be mortgaged, assigned or encumbered in any manner whatsoever by
Tenant.
18. LANDLORD MAY PERFORM TENANT'S OBLIGATIONS.
If Tenant shall fail to keep or perform any of its obligations as provided
in this Lease then Landlord may (but shall not be obligated to do so) upon the
continuance of such failure on Tenant's part for ten days after notice to
Tenant, or without notice in the case of an emergency, and without waiving or
releasing Tenant from any obligation, and as an additional but not exclusive
remedy, make any such payment or perform any such obligation. All sums so paid
by Landlord and all necessary incidental costs and expenses, including
attorneys' fees and disbursements, incurred by Landlord in making such payment
or performing such obligation, together with interest thereon from the date of
payment at the Default Interest Rate, shall be deemed additional rent and shall
be paid to Landlord on demand.
19. SUBORDINATION.
(a) MORTGAGES. This Lease and Tenant's interest hereunder shall be
subordinate to the lien of any Mortgage made by Landlord prior to the date of
this Lease. This Lease and Tenant's interest hereunder shall have priority
over, and be senior to, the lien of any Mortgage made by Landlord after the date
of this Lease. However, if at any time or from time to time during the Term, a
Mortgagee or prospective Mortgagee requests that this Lease be subject and
subordinate to its Mortgage, and if Landlord consents to such subordination,
this Lease and Tenant's interest hereunder shall be subject and subordinate to
the lien of such Mortgage and to all renewals, modifications, replacements,
consolidations and extensions thereof and to any and all advances made
thereunder and interest thereon. Tenant agrees that, within ten days after
receipt of a request therefor from Landlord, it will, from time to time, execute
and deliver any instrument or other document required by any such Mortgagee to
subordinate this Lease and its interest in the Leased Premises to the lien of
such Mortgage. If, at any time or from time to time during the Term, a
Mortgagee of a Mortgage made prior to the date of this Lease shall request that
this Lease have priority over the lien of such Mortgage, and if Landlord
consents thereto, this Lease shall have priority over the lien of such Mortgage
and all renewals, modifications, replacements, consolidations and extensions
thereof and all advances made thereunder and interest thereon, and Tenant shall,
within ten (10) days after receipt of a request therefor from Landlord, execute,
acknowledge and deliver any and all documents and instruments confirming the
priority of this Lease. In any event, however, if this Lease shall
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have priority over the lien of a first Mortgage, this Lease
shall not become subject or subordinate to the lien of any subordinate
Mortgage, and Tenant shall not execute any subordination documents or
instruments for any subordinate Mortgagee, without the written consent of the
first Mortgagee.
(b) GROUND LEASE. This Lease and Tenant's interest hereunder shall
be subject and subordinate to each and every ground or underlying lease
hereafter made of the Building or the Land, or both, and to all renewals,
modifications, replacements and extensions thereof. Tenant agrees that, within
ten (10) days after receipt of request therefor from Landlord, it will, from
time to time, execute, acknowledge and deliver any instrument or other document
required by any such lessor to subordinate this Lease and its interest in the
Leased Premises to such ground or underlying lease.
(c) MORTGAGEE'S RIGHT TO CURE. If (i) the Building or the Land, or
both, or Landlord's leasehold estate in the Building or the Land, or both, is at
any time subject to a Mortgage, and (ii) this Lease, or the Basic Rent and
Additional Charges payable under this Lease, is assigned to the Mortgagee, and
(iii) the Tenant is given notice of such assignment, including the name and
address of the assignee, then, in that event, Tenant shall not terminate this
Lease or make any abatement in the Basic Rent or Additional Charges payable
hereunder for any default on the part of the Landlord without first giving
notice, in the manner provided elsewhere in this Lease for the giving of
notices, to such Mortgagee, specifying the default in reasonable detail, and
affording such Mortgagee a reasonable opportunity to make performance, at its
election, for and on behalf of the Landlord. If more than one Mortgagee makes a
written request to Landlord to cure the default, the Mortgagee making the
request whose lien is the most senior shall have such right.
(d) NONDISTURBANCE. With respect to each Mortgage that may encumber
the Leased Premises at or after the commencement of the Term, Landlord agrees
that promptly following its receipt of written request by Tenant, Landlord will
ask the holder of the Mortgage once to grant Tenant a nondisturbance agreement
("Nondisturbance Agreement") in the usual form of such holder. The term
Nondisturbance Agreement as used herein means, in general, an agreement that as
long as Tenant is not in default under this Lease, this Lease will not be
terminated if such holder acquires title to the Leased Premises by reason of
foreclosure proceedings or acceptance of a deed in lieu of foreclosure, provided
that Tenant attorns to such holder in accordance with its requirements. Except
for making such written request, Landlord will be under no duty or obligation
hereunder, nor will the failure or refusal of such holder to grant a
nondisturbance agreement render Landlord liable to Tenant, or affect this Lease,
in any manner. Tenant will bear all costs and expenses (including attorneys'
fees) of such holder and Landlord in connection with a nondisturbance agreement.
20. ATTORNMENT.
In the event of (a) a transfer of Landlord's interest in the Building,
(b) the termination of any ground or underlying lease of the Building or the
Land, or both, or (c) the purchase or other acquisition of the Building or
Landlord's interest therein in a foreclosure sale or by deed in lieu of
foreclosure under any Mortgage or pursuant to a power of sale contained in any
Mortgage, then in any of such events Tenant shall, at the request of Landlord
or Landlord's successor in interest, attorn to and recognize the transferee or
purchaser of Landlord's interest or the lessor under the terminated ground or
underlying lease, as the case may be, as Landlord under this Lease for the
balance then remaining of the Term, and thereafter this Lease shall continue as
a direct lease between such Person, as "Landlord," and Tenant, as "Tenant,"
except that such lessor, transferee or purchaser shall not be liable for any
act or omission of Landlord before such lease termination or before such
Person's succession to title, nor be subject to any offset, defense or
counterclaim accruing before such lease termination or before such Person's
succession to title, nor be bound by any payment of Basic Rent or Additional
Charges before such lease termination or before such Person's succession to
title for more than one month in advance. Tenant shall, within ten days after
request by Landlord or the transferee or purchaser of Landlord's interest or
the lessor under the terminated ground or underlying lease, as the case may be,
execute and deliver an instrument
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or instruments confirming the foregoing provisions of
this Section. Tenant hereby waives the provisions of any present or future law
or regulation which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease, or the obligations of Tenant hereunder,
upon or as a result of the termination of any such ground or underlying lease
or the completion of any such foreclosure and sale.
21. QUIET ENJOYMENT.
Landlord covenants that Tenant, upon paying the Basic Rent and the
Additional Charges provided for in this Lease, and upon performing and
observing all of the terms, covenants, conditions and provisions of this Lease
on Tenant's part to be kept, observed and performed, shall quietly hold, occupy
and enjoy the Leased Premises during the Term without hindrance, ejection or
molestation by Landlord or any Person lawfully claiming through or under
Landlord.
22. LANDLORD'S RIGHT OF ACCESS TO LEASED PREMISES.
Landlord and its agents, employees and contractors shall have the
following rights in and about the Leased Premises: (i) to enter the Leased
Premises at all reasonable times to examine the Leased Premises or for any of
the purposes set forth in this Section or for the purpose of performing any
obligation of Landlord under this Lease or exercising any right or remedy
reserved to Landlord in this Lease, and if, in the case of an emergency, Tenant
or its officers, partners, agents or employees shall not be personally present
or shall not open and permit an entry into the Leased Premises at any time when
such entry shall be necessary, forcibly to enter the Leased Premises; (ii) to
exhibit the Leased Premises to others at reasonable times and for reasonable
purposes; (iii) to make such repairs, alterations, improvements or additions,
or to perform such maintenance, including the maintenance of all plumbing,
electrical and other mechanical facilities installed by Landlord, as Landlord
may deem necessary or desirable; and (iv) to make such repairs, alterations or
improvements, or to perform maintenance of all HVAC, plumbing, electrical and
other mechanical facilities installed by Landlord, as may be required from time
to time by this Lease to be made or performed by Landlord. Landlord agrees to
give prior notice before it exercises its rights under this subsection, except
that Landlord may enter the Leased Premises without notice in the case of an
emergency.
23. LIMITATION ON LANDLORD'S LIABILITY.
(a) ACCIDENTS, ETC. Except for damages resulting from the willful or
intentional negligent act or omission (where applicable law imposes a duty to
act) of Landlord, its agents and employees, Landlord shall not be liable to
Tenant or Tenant's Associates for any damage or loss to the property of Tenant
or others located in or on the Leased Premises, the Building or the Land, or
for any accident or injury to Persons or for any loss, compensation or claim,
including claims for interruption or loss of Tenant's business, based on,
arising out of or resulting from the necessity of maintaining or repairing any
portion of the Building or the Parking Lot; the use or operation (by Tenant or
any other Person or Persons whatsoever) of any elevators, or heating, cooling,
electrical, plumbing or other equipment or apparatus; the termination of this
Lease by reason of, or the occurrence of, damage or destruction of the Building
or the Leased Premises; any fire, robbery, theft, and/or any other casualty;
any leaking in any part or portion of the Leased Premises or the Building; any
water, wind, rain, or snow that may leak into, or flow from, any part of the
Leased Premises or the Building; any acts or omissions of any occupant of any
space in the Building; any water, gas, steam, fire, explosion, electricity or
falling plaster; the bursting, stoppage or leakage of any pipes, sewer pipes,
drains, conduits, appliances, sprinkler system, plumbing or other works; or any
other cause whatsoever whether similar or dissimilar to the foregoing.
(b) PARKING LOT. Except for damages resulting from the willful or
intentional negligent act or omission (where applicable law imposes a duty to
act) of Landlord, its agents and employees, Landlord shall not be liable for
any damage or loss to any automobile (or any personal property therein) parked
in or on the
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Parking Lot or any other part of the Land, or for any injury
sustained by any individual in, on or about the Parking Lot or any other part
of the Land.
(c) LIABILITY LIMITED TO LANDLORD'S ESTATE. Notwithstanding any
provision to the contrary, Tenant agrees that (i) the liability of Landlord and
Landlord's Partners for the satisfaction of any Claim shall be limited to
Landlord's Estate, (ii) no other properties or assets of Landlord, Landlord's
Partners or the officers, directors, agents or employees of Landlord or any of
Landlord's Partners shall be subject to levy, execution or other enforcement
procedures for the satisfaction of any Claim or any judgment based on a Claim,
and (iii) if Tenant shall acquire a lien on or interest in any other properties
or assets of Landlord, any of Landlord's Partners or any of the officers,
directors, agents or employees of Landlord or any of Landlord's Partners by
judgment or otherwise, Tenant shall promptly release such lien on or interest in
such other properties and assets by executing, acknowledging and delivering to
Landlord an instrument to that effect prepared by Landlord's attorneys. For
purposes of this subsection, (x) the terms "Landlord's Estate" shall mean the
estate and property of Landlord in and to the Building and the Land (and, if
Tenant makes a claim against Landlord within six months after a sale of the Land
or the Building, or both, but not otherwise, the proceeds received by Landlord
from a sale of such estate and property, but not the proceeds of any financing
or refinancing thereof), (y) the term "Claim" shall mean any claim which Tenant
may have against Landlord arising out of or in connection with this Lease, the
relationship of landlord and tenant or Tenant's use of the Leased Premises, and
(z) the term "Landlord's Partners" shall mean, in the case of a Landlord which
is a partnership, the Persons who are partners in such partnership.
24. ESTOPPEL CERTIFICATES.
Tenant agrees from time to time, within ten days after request therefor by
Landlord, to execute, acknowledge and deliver to Landlord a statement in
writing certifying to Landlord, any Mortgagee, any assignee of a Mortgagee, or
any purchaser, of the Building or the Land, or both, or any other Person
designated by Landlord, as of the date of such statement, (i) that Tenant is in
possession of the Leased Premises; (ii) that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that this Lease is
in full force and effect as modified and setting forth such modifications);
(iii) whether or not there are then existing any set-offs or defenses against
the enforcement of any right or remedy of Landlord, or any duty or obligation
of Tenant, hereunder (and, if so, specifying the same in detail); (iv) the
dates, if any, to which any Basic Rent or Additional Charges have been paid in
advance; (v) whether there are any uncured defaults on the part of Landlord
under this Lease (or, if Tenant has knowledge of any such uncured defaults,
specifying the same in detail); (vi) the amount of any Security Deposit held by
Landlord; and (vii) any additional facts reasonably requested by Landlord or
any such Mortgagee, assignee of a Mortgagee or purchaser. Tenant shall also
from time to time, within ten days after request therefor by Landlord, deliver
to Landlord a statement of financial position of Tenant, as of the most
currently available date, prepared by a certified public accountant or if
Tenant does not have a certified public accountant, a statement certified by
the chief financial officer of the Tenant.
Landlord agrees from time to time within ten (10) days after request
thereof by Tenant, but not more than once in any twelve month period, to
execute, acknowledge and deliver to Tenant a statement in writing certifying to
Tenant and any Lender the same information Tenant is required to provide to
Landlord as above set forth in subsections (i) through (vii).
25. SURRENDER OF LEASED PREMISES.
Tenant shall, on or before the last day of the Term, except as otherwise
expressly provided elsewhere in this Lease, remove all of its property and
peaceably and quietly leave, surrender and yield up to the Landlord the Leased
Premises, free of subtenancies, broom clean and in good order and condition
except for reasonable wear and tear, damage by fire or other casualty, or
conditions requiring repair by Landlord hereunder at Landlord's expense. At
the time Tenant surrenders the Leased Premises at the end of the Term, or
within
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<PAGE> 24
three days thereafter, Landlord and Tenant, or their respective agents,
shall make an inspection of the Leased Premises and shall prepare and sign an
inspection form to describe the condition of the Leased Premises at the time of
surrender.
26. RELOCATION OF TENANT.
The Landlord shall have the right from time to time during the Term, at
the Landlord's expense, to relocate the Tenant from its present location within
the Building to another location within the Building having at least the same
floor area as that of the Leased Premises as shown on Exhibit A, provided that
the Landlord gives the Tenant written notice of the Landlord's intention to do
so at least thirty (30) days before undertaking such relocation. The Landlord
shall, in such event, at the Landlord's expense, install within the Leased
Premises as so relocated improvements of the same quality and quantity as those
theretofore made by the Tenant or the Landlord to the Leased Premises before
such relocation, and on the completion of such installation shall cause the
Tenant's machinery, furniture, fixtures and equipment within the Leased
Premises to be moved to the Leased Premises as so relocated. Upon the
completion of such relocation, this Lease shall automatically cease to cover
the space constituting the Leased Premises immediately before such relocation,
and shall automatically thereafter cover the space to which the Leased Premises
have been relocated as aforesaid, all on the same terms and subject to the same
conditions as those set forth in the provisions of this Lease as in effect
immediately before such relocation, and all without the necessity of further
action by either party hereto; provided, that each party hereto shall, promptly
upon its receipt of a written request therefor from the other, enter into such
amendment of this Lease as the requesting party considers reasonably necessary
to confirm such relocation.
27. HOLDING OVER.
If Tenant shall hold over possession of the Leased Premises after the end
of the Term, Tenant shall be deemed to be occupying the Leased Premises as a
Tenant from month to month, at 150% of the Basic Rent, adjusted to a monthly
basis, and subject to all the other conditions, provisions and obligations of
this Lease, including the obligation to pay Additional Charges, insofar as the
same are applicable, or as the same shall be adjusted, to a month-to-month
tenancy.
28. ARBITRATION.
In any case in which it is provided by the terms of this Lease that any
matter shall be determined by arbitration, then such arbitration shall be in
accordance with the Commercial Arbitration Rules then in effect of the American
Arbitration Association. The arbitration proceeding shall be conducted in
Northern Virginia, by one arbitrator selected in accordance with the Commercial
Arbitration Rules. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. All direct and reasonable
costs of the arbitration proceeding, including compensation of the arbitrator
but excluding any compensation paid to counsel, agents, employees, and
witnesses of either party, shall be borne equally by the parties or as the
arbitrator shall determine.
29. PARKING.
Throughout the Term, Tenant and its employees shall have the non-exclusive
right in common with others to use the Parking Lot without additional charge.
Tenant agrees to use the Parking Lot for the parking of passenger automobiles,
small trucks and vans and for no other purposes. The Landlord reserves the
right to designate parking spaces, including those for invitees.
30. TRANSFER OF LANDLORD'S INTEREST.
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<PAGE> 25
If the original Landlord named in this Lease, or any successor to the
original Landlord's interest in the Building, conveys or otherwise disposes of
its interest in the Land and/or the Building, then upon such conveyance or
other disposition all liabilities and obligations on the part of the original
Landlord, or such successor Landlord, as Landlord under this Lease, which
accrue after such conveyance or disposition shall cease and terminate and each
successor Landlord shall, without further agreement, be bound by Landlord's
covenants and obligations under this Lease, but only during the period of such
successor Landlord's ownership of the Building. A copy of the recorded deed
conveying the interest in the Building shall be satisfactory evidence of a
successor Landlord's interest.
31. LEASING COMMISSIONS.
Landlord and Tenant each represent and warrant to the other that, except
for N/A , neither of them has employed or dealt with any broker or
finder in carrying on the negotiations relative to this Lease. Landlord and
Tenant shall each indemnify and hold harmless the other from and against any
claim or claims for brokerage or other commission arising from or out of any
breach of the foregoing representation and warranty. Landlord recognizes that
N/A is entitled to the payment of a commission for services rendered in
the negotiation and obtaining of this Lease, and Landlord has agreed to pay
such commission pursuant to a separate agreement.
32. FINANCIAL INFORMATION
The Tenant agrees from time to time upon request of the Landlord to
promptly provide to Landlord, its present or prospective Mortgagees or any
prospective purchaser of the Building, with current updated financial
statements of the Tenant prepared by the Tenant's certified public accountant
or in the event Tenant does not have a certified public accountant normally
prepare its financial statements, the financial statements shall be prepared by
the Tenant, but in any event the said financial statements shall be certified
by the Tenant.
33. MODIFICATION OF LEASE
It is understood and agreed that the terms of this Lease shall be
modified, if so required, for the purpose of complying with and fulfilling any
requirements of any Mortgagee secured by a mortgage that may now be or
hereafter become a lien on the Building, provided however any such modification
shall not be in substantial derogation or diminution of any of the rights of
the parties hereunder nor increase any of the financial obligations and
reliabilities of the parties hereunder.
34. GENERAL PROVISIONS.
(a) BINDING EFFECT. The terms contained in this Lease shall be
binding upon, and shall inure to the benefit of, the parties hereto and, subject
to the provisions of Section 15, each of their respective legal representatives,
successors and assigns.
(b) GOVERNING LAW AND CONSTRUCTION. It is the intention of the
parties hereto that this Lease shall be construed and enforced in accordance
with the laws of the Commonwealth of Virginia. Should any provision of this
Lease require judicial interpretation, it is agreed that the court interpreting
or considering the same shall not apply the presumption that the terms hereof
shall be more strictly construed against a party by reason of the rule or
conclusion that a document should be construed more strictly against the party
who itself or through its agents prepared the same, it being agreed that all
parties hereto have participated in the preparation of this Lease and that each
party had full opportunity to consult with legal counsel of its choice before
the execution of this Lease.
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<PAGE> 26
(c) WAIVERS. No failure by Landlord to insist upon the strict performance
of any term of this Lease or to exercise any right or remedy consequent upon a
breach thereof, and no acceptance by Landlord of full or partial rent during
the continuance of any such breach, shall constitute a waiver of any such
breach or of any such term. No term of this Lease to be kept, observed or
performed by Landlord or by Tenant, and no breach thereof, shall be waived,
altered or modified except by a written instrument executed by Landlord or by
Tenant, as the case may be. No waiver of any breach shall affect or alter this
Lease, but each and every term of this Lease shall continue in full force and
effect with respect to any other then existing or subsequent breach thereof.
(d) NOTICES. Every notice, request, consent, approval or other
communication (hereafter in this subsection collectively referred to as
"notices" and singularly referred to as a "notice") which Landlord or Tenant
is required or permitted to give to the other pursuant to this Lease shall be
in writing and shall be delivered personally or by overnight courier service or
shall be sent by certified or registered mail, return receipt requested,
first-class postage prepaid, if to Landlord, at Landlord's Notice Address, or
if to Tenant, at Tenant's Notice Address, or at any other address designated by
either party by notice to the other party pursuant to this subsection. Any
notice delivered to a party's designated address by (a) personal delivery, (b)
recognized overnight national courier service, or (c) registered or certified
mail, return receipt requested, shall be deemed to have been received by such
party at the time the notice is delivered to such party's designated address.
Confirmation by the courier delivering any notice given pursuant to this
subsection shall be conclusive evidence of receipt of such notice. Landlord
and Tenant each agrees that it will not refuse or reject delivery of any notice
given hereunder, that it will acknowledge, in writing, receipt of the same upon
request by the other party and that any notice rejected or refused by it shall
be deemed for all purposes of this Lease to have been received by the rejecting
party on the date so refused or rejected, as conclusively established by the
records of the U.S. Postal Service or the courier service. Any notice required
to be given within a stated period of time which is sent by certified or
registered mail shall be considered timely if postmarked before midnight of the
last day of such period.
(e) ENTIRE AGREEMENT. This Lease contains the final and entire agreement
between said parties, and they shall not be bound by any terms, statements,
conditions or representations, oral or written, express or implied, not
contained in this Lease. However, the terms of this Lease shall be modified,
if so required, for the purpose of complying with or fulfilling the
requirements of any Mortgagee secured by a first Mortgage that may now be or
hereafter become a lien on the Building, provided, however, that such
modification shall not be in substantial derogation or diminution of any of the
rights of the parties hereunder, nor increase any of the obligations or
liabilities of the parties hereunder.
(f) JURY TRIAL. LANDLORD AND TENANT EACH HEREBY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY CLAIM, ACTION, PROCEEDING OR COUNTERCLAIM BY EITHER LANDLORD OR
TENANT AGAINST THE OTHER ON ANY MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT AND/OR TENANT'S USE OR
OCCUPANCY OF THE LEASED PREMISES.
(g) VENUE. Tenant hereby waives any objection to the venue of any action
filed by Landlord against Tenant in any state or federal court in the
Commonwealth of Virginia, and Tenant further waives any right, claim or power,
under the doctrine of forum non convenient or otherwise, to transfer any such
action filed by Landlord to any other court.
(h) AUTHORITY. If Tenant is a corporation, concurrently with the signing
of this Lease, Tenant shall furnish to Landlord certified copies of the
resolutions of its Board of Directors (or of the executive committee of its
Board of Directors) authorizing Tenant to enter into this Lease; and it shall
furnish to Landlord evidence (reasonably satisfactory to Landlord and its
counsel) that Tenant is a duly organized corporation in good
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<PAGE> 27
standing under the laws of the jurisdiction of its incorporation, is qualified
to do business in good standing in the jurisdiction in which the Building is
located, has the power and authority to enter into this Lease, and that all
corporate action requisite to authorize Tenant to enter into this Lease has been
duly taken. If Tenant is a partnership, limited liability company or any other
legal form of entity, it shall comply with the above set forth provisions.
(i) TIME OF THE ESSENCE. Time is of the essence in the performance of all
Tenant's obligations under this Lease.
(j) INVALIDITY. If any provision of this Lease shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not be affected thereby.
(k) CAPTIONS. The captions in this Lease are for convenience only and
shall not affect the interpretation of the provisions hereof.
(l) NO PARTNERSHIP. This Lease is not intended to create a partnership or
joint venture between Landlord and Tenant in the conduct of their respective
businesses.
(m) COUNTERPARTS. This Lease may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
(n) AUTHORITY. If Tenant is a corporation, partnership or other legal
entity, the individual who executes and delivers this Lease on behalf of Tenant
represents and warrants to Landlord that he or she is duly authorized to do so.
(o) NO OFFER. The submission of an unsigned counterpart of this Lease to
Tenant shall not constitute an offer or option to lease the Leased Premises.
This Lease shall become effective and binding only upon the execution and
delivery by Landlord and Tenant.
(p) SURVIVAL. Tenant's obligations under Sections 3(b), 3(d), 3(f), 9(b),
9(c), 11(c), 12(a), 14(b), 16(c), 23(c) and 25 shall survive the expiration of
the Term or the earlier termination of this Lease.
(q) RECORDATION. This Lease may not be recorded among the Land Records
of the said County or among any other public records without the Landlord's
prior express, written consent thereto, and any attempt by the Tenant to do so
without having obtained the Landlord's consent thereto shall constitute an
Event of Default hereunder, and Tenant at its sole cost and expense shall
promptly release the same from the said Land Records. If this Lease is
recorded by either party hereto, such party shall bear the full expense of any
transfer, documentary stamp or other tax, and any recording fee, assessed in
connection with such recordation; provided, that if under applicable law
recordation of this Lease hereafter becomes necessary in order for this Lease
to be or remain effective, the Tenant shall bear the full expense of any and
all taxes and fees incurred in connection therewith.
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<PAGE> 28
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
signed by their duly authorized partners or officers as of the day and year
first above written.
LANDLORD:
GUARDIAN TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ Joseph F. Fernadez
-------------------------
Name: Joseph F. Fernadez
Title: Vice President
TENANT:
FREEDOM ALLIANCE
By: /s/ Marc T. Short
---------------------------
Name: Marc T. Short
Title: Executive Director
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<PAGE> 29
EXHIBIT C
RULES AND REGULATIONS
The following rules and regulations have been formulated for the safety
and well-being of all the Tenants of the Building. Adherence to these rules
and regulations insures that each and every Tenant will enjoy a safe and
unannoyed occupancy in the Building. Any violation of these rules and
regulations by any Tenant which continues after notice from Landlord, subject
to Section 16(a) of the Lease, shall be sufficient cause for termination, at
the option of Landlord, of the Tenant's lease.
Landlord shall have the continuing right to amend or eliminate any of
these rules and regulations, and also to adopt additional reasonable rules and
regulations of like force and effect. Any change whatsoever or any nature shall
be effective thirty (30) days after delivery of written notice thereof to the
demised premises.
a. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairway corridors or halls or other parts of the Building not occupied by any
Tenant (hereinafter "Common Areas") shall not be obstructed or encumbered by any
Tenant or used for any purpose other than ingress and egress to and from the
Tenant's premises. Landlord shall have the right to control and operate the
Common Areas, and the facilities furnished for the common use of the Tenants, in
such manner as Landlord deems best of the benefit of the Tenants generally. No
Tenant shall permit the visit to its premises of persons in such numbers under
such conditions as to interfere with the use and enjoyment by other Tenants of
the Common Areas.
b. No awning or other projections shall be attached to the outside walls
of the Building without the prior written consent of Landlord. No drapes,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of a Tenant's premises, without the prior written
consent of Landlord. Such awnings, projections, curtains, blinds, screens or
other fixtures must be of a quality, type, design and color, and attached in the
manner approved by Landlord.
c. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside or inside
of the Tenant's premises or the Building without the prior written consent of
Landlord. In the event of the violation of the foregoing by any Tenant,
Landlord may remove same without any liability, and may charge the expense
incurred by such removal to the Tenant or Tenants violating this rule. All
interior signs on doors and directory tablet shall be inscribed, painted or
affixed for each Tenant by Landlord at the expense of such Tenant, and shall be
of a size, color and style reasonably acceptable to Landlord.
d. No show cases or other articles shall be put in front or affixed to any
part of the exterior of the Building, nor placed in the Common Areas without the
prior written consent of Landlord.
e. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by Tenant, who,
or whose employees, agents, visitors or licensees, shall have caused the same.
f. There shall be no marking, painting, drilling into or other form of
defacing or damage of any part of a Tenant's premises or the Building. No
Tenant shall construct, maintain, use or operate within its premises or
elsewhere within or on the outside of the Building, any electrical devise,
wiring or apparatus in connection with a loud speaker system or other sound
system, Landlord will, however, permit a Tenant to
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<PAGE> 30
install music or other internal music system within the Tenant's premises if the
music system cannot be heard outside of the premises.
g. No Tenant shall make or permit to be made, any disturbing noises or
disturb or interfere with occupants of the Building or neighboring buildings or
premises or those having business with them, whether by the use of any musical
instrument, radio, tape recorder, whistling, singing, or any other way. No
Tenant shall throw anything out of the doors or windows or down the corridors or
stairs.
h. No bicycles, vehicles or animals, birds or pets of any kind shall be
brought into the Building or kept in or about a Tenant's premises. No cooking
shall be done or permitted by any Tenant on its premises, except that, with
Landlord's prior approval, a Tenant may install and operate for the convenience
of its employees, a lounge or coffee room with microwave, sink and refrigerator.
No Tenant shall cause or permit any unusual or objectionable odors to originate
from its premises.
i. No space in or about the Building, including balconies, shall be used
for the manufacture, storage, or sale at auctions, or merchandise, goods or
property of any kind, except in the ordinary course of business.
j. No inflammable, combustible or explosive fluid, chemical or substance
shall be brought or kept upon a Tenant's premises (including Christmas trees and
ornaments).
k. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall changes be made in existing locks
or the mechanism thereof. The doors leading to the corridors or main halls
shall be kept closed during business hours except as they may be used for
ingress or egress. Each Tenant shall, upon the termination of its tenancy,
return to Landlord all keys used in connection with its premises, including any
keys to the premises, to rooms and office within the premises, to storage rooms
and closets, to cabinets and other built-in furniture, and to toilet rooms,
whether or not such keys were furnished by Landlord or procured by Tenant, and
in the event of loss of any such keys, such Tenant shall pay to Landlord the
cost of replacing the locks. On termination of a Tenant's lease, the Tenant
shall disclose to Landlord the combination of all locks for safes, safe
cabinets, and vault doors, if any, remaining in the premises.
l. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place in such manner and
during such hours as Landlord may reasonably require. Landlord 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.
m. Any person employed by any Tenant to do janitorial work within the
Tenant's premises must obtain Landlord's consent prior to commencing such work,
and such person shall, while in the Building and outside of said premises,
comply with all instructions issued by the superintendent of the Building.
n. No Tenant shall purchase spring water, ice, coffee, soft drinks,
towels, or other like merchandise or service from any company or person whose
repeated violations of building regulations have caused, in Landlord's
reasonable opinion, a hazard or nuisance to the Building and/or its occupants.
o. Landlord shall have the right to prohibit any advertising by any Tenant
which, in Landlord's reasonable opinion, tends to impair the reputation of the
Building or its desirability as a building for offices, and upon written notice
from Landlord, such Tenant shall refrain from or discontinue such advertising.
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<PAGE> 31
p. Landlord reserves the right to exclude from the building at all times any
person who is not known or does not properly identify himself to the building
management or its agents. Landlord may at its option require all persons
admitted to or leaving the Building to register. Landlord shall also have the
right to install an electronic security system for the Building requiring the
use of identification card, passwords, confidential codes and the like as a
prerequisite to admission of any person excluding Tenant's customers during
normal business hours into the Building, and Tenant agrees to faithfully abide
by the rules of any such security system. If identification cards are used in
any such system, Tenant shall be issued a reasonable number of cards without
charge, but each additional or replacement card requested shall be issued only
upon payment of a service fee of not less than Six Dollars ($6.00) per card.
q. Each Tenant, before closing and leaving its premises at any time, shall
see that all lights, electrical appliances and mechanical equipment are turned
off.
r. The requirements of Tenants will be attended to only upon application at
the office of the Building. Building employees shall not perform any work or
do anything outside of their regular duties unless under special instruction
from the management of the Building.
s. Canvassing, soliciting and peddling in the Building is prohibited and
each Tenant shall cooperate to prevent the same, including notifying Landlord
when and if such activity occurs.
t. No water cooler, plumbing or electrical fixture shall be installed by the
Tenant without Landlord's prior written consent, which consent shall not be
unreasonably withheld.
u. Access plates to underfloor conduits shall be left exposed. Where carpet
is installed, carpet shall be cut around access plates.
v. Mats, trash, boxes, crates or other objects shall not be placed in public
corridors. When Tenant must dispose of trash, boxes, crates, etc., it will be
the responsibility of Tenant to dispose of same prior to or after normal
business hours so as to avoid having such debris visible in the public areas
during such hours.
w. Drapes installed by Landlord for the use of any Tenant or drapes
installed by Tenant which are visible from the exterior of the Building must
be clean by such Tenant at least once a year, without notice, at such Tenant's
own expense.
x. All office equipment of any electrical or mechanical nature shall be
place by Tenant in the demised premises in approved settings to absorb or
prevent any vibration, noise or annoyance. Further, Landlord shall have the
power to prescribe the weight and position of heavy equipment or objects which
may over stress any portion of the floor. All damage done to the Building by
the improper placing of such heavy items will be repaired at the sole expense of
the responsible Tenant.
y. Tenant shall not permit or cause to be used in the demised premises any
devise or instrument such as sound reproduction system, or excessively bright,
changing, flashing, flickering, moving lights or lighting devices or any
similar devices, the effect of which shall be audible or visible beyond the
confines of the demised premises, nor shall Tenant permit any act or thing upon
the demised premises disturbing to normal sensibilities of other Tenants.
z. All deliveries must be made via the service entrance designated by
Landlord for service, if any, during normal business hours. Landlord's written
approval must be obtained for any delivery after normal working hours.
- 3 -
<PAGE> 32
aa. All moving of safes, freight, furniture or bulky matter of any
description, to or from the demised premises shall only take place on specified
elevators and during the hours designated by the Landlord. Hand trucks may be
used only if they are equipped with rubber tires and side guards.
bb. The demised premises shall never at any time be used for any
immoral or illegal purposes.
cc. Landlord shall have the right, from time to time, to designate
specific parking spaces in the parking areas for the Building as being reserved
for specific Tenants or for members of the general public, and each Tenant
agrees to honor such reservations and to permit parking for officers and
employees only in those parking spaces available for such purposes. Landlord
shall have the further right, during holiday seasons or at other times when
parking spaces may be in short supply, to temporarily change or restrict
established areas in order to provide additional public parking, and Tenant
agrees to honor such temporary changes and restrictions. Tenant agrees to
comply with all rules and regulations established for the parking operation.
- 4 -
<PAGE> 33
EXHIBIT D
Determination of Gross Rentable Area
<PAGE> 34
EXHIBIT E
FORM OF CERTIFICATE
"CERTIFICATE"
This Certificate is being provided on this 3rd day of February , 1997,
pursuant to the terms and provisions of that certain Deed of Lease dated as
of January 23, 1997 (the "Lease"), by and between GUARDIAN TECHNOLOGIES
INTERNATIONAL, INC. as Landlord and FREEDOM ALLIANCE as TENANT. The parties to
the Lease desire to confirm that the following terms which are defined in the
Lease shall have the meanings set forth below for all purposes in the Lease:
1. The Rentable Area of the Leased Premises is 2,954 square feet.
2. The Basic Rent payable during the first Lease Year is
$37,456.68, payable in equal monthly installments of $3,121.39
each.
3. The Lease Commencement Date is February 1, 1997.
4. The Term of the Lease shall expire on January 31, 2004.
5. Tenant has taken possession of the Leased Premises and has no
claims, defenses, offsets or counterclaims against Landlord.
6. Attached to this Certificate are certificates of insurance and
is evidence of payment of premiums for all insurance required
pursuant to Section 11 of the Lease.
LANDLORD:
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ Joseph F. Fernandez
------------------------------
Name: Joseph F. Fernandez
Title: Vice President
TENANT:
FREEDOM ALLIANCE
By: /s/ Marc T. Short
-----------------------------
Name: Marc T. Short
Title: Executive Director
<PAGE> 1
EXHIBIT 10.11
GUARDIAN TECHNOLOGIES
INTERNATIONAL
April 10, 1997
Mr. Len Adler
Adler Financial Group
11350 Random Hills Road, Suite 720
Fairfax, VA 22030
Dear Mr. Adler:
Thank you for your offer of March 25 to loan Guardian Technologies
International, Inc. $1,800,000 secured by a first deed of trust on our property
at 22570 Markey Court, Dulles, VA.
After consultation with Guardian's Board of Directors, one of the
directors offered to extend Guardian a line of credit in the amount of $900,000
under terms and conditions which closely match those outlined in the March 25
offer we received from you. Therefore, we would appreciate your consideration
of the following modifications to your offer.
Adler Financial Group wold establish, by modifying existing loan documents
with Guardian, a Line of Credit facility. Total additional funds available
will be $900,000. Guardian may draw up to $650,000 with current tenants'
leases in place and up to a maximum of $900,000 when the building is fully
leased. Funds will be advanced on an as needed basis subject to a minimum
draw of $50,000 and no more than two (2) draws per month. The credit
facility will bear interest at 15% per annum, interest only payable
monthly. The term of this arrangement will be for a period of 2 years from
the date of the original agreement, or February 7, 1999 when the original
principal plus any draws on the credit facility will be due and payable.
Guardian will pay all costs relating to closing. Guardian agrees to pay a
minimum of 3 months of interest on the additional borrowings during the
remainder of the term.
Guardian's attorney, Odin, Feldman & Pittleman, P.C., will also certify
that your trust is a valid first trust lien subject only to the usual and
customary covenants, easements and rights-of-way of record and provide
evidence of property insurance naming Adler Financial Group as an
additional named insured.
Adler Financial Group would hold this offer for a Line of Credit facility
open for 30 days. There shall be a review of leases and approval of
closing documents by the Adler Financial Group, approval of which shall not
be unreasonably withheld.
<PAGE> 2
If you are amenable to this alternative proposal, please so indicate by
signature below and I will forward the appropriate documents forthwith.
Sincerely,
/s/ Joseph F. Fernandez
-----------------------------
Joseph F. Fernandez
Vice President
APPROVED:
/s/ Joan M. Smith
- ----------------------------
Joan M. Smith
Vice President
2
<PAGE> 1
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Primary Earnings Per Share
Net Income ($953,684) ($512,716)
Shares:
Weighted Average Common
Shares Outstanding 2,983,620 2,364,983
Effect of Shares Issuable Upon Exercise
of Warrants 0 16,998
Effect of Shares Issuable Upon Exercise
of Options 0 456,000
Adjusted Common Shares and Equivalents 2,983,620 2,837,981
Earnings Per Share - Primary ($0.32) ($0.13)
Fully Diluted Earnings per Share:
Net Income ($953,684) ($512,716)
Shares:
Weighted Average Common
Shares Outstanding 2,983,620 2,364,983
Effect of Shares Issuable Upon
Exercise of Warrants 0 16,998
Effect of Shares Issuable Upon Exercise
of Options 0 456,000
Adjusted Common Shares and Equivalents 2,983,620 2,837,981
Earnings Per Share - Fully Diluted ($0.32) ($0.13)
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Guardian Technologies International, Inc.
Sterling, Virginia
We hereby consent to the use in the Annual Report Form 10 KSB of Guardian
Technologies International, inc., of our report, dated March 12, 1997, except
for Note 15 as to which the date is April 10, 1997.
THOMPSON, GREENSPON & CO., P.C.
Fairfax, Virginia
April 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 119,703
<SECURITIES> 2,499,491
<RECEIVABLES> 60,998
<ALLOWANCES> 0
<INVENTORY> 585,582
<CURRENT-ASSETS> 3,403,849
<PP&E> 2,807,950
<DEPRECIATION> 197,126
<TOTAL-ASSETS> 6,068,588
<CURRENT-LIABILITIES> 2,829,138
<BONDS> 0
0
0
<COMMON> 3,343
<OTHER-SE> 3,150,634
<TOTAL-LIABILITY-AND-EQUITY> 6,068,588
<SALES> 1,475,577
<TOTAL-REVENUES> 1,475,577
<CGS> 1,318,743
<TOTAL-COSTS> 2,520,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (91,719)
<INCOME-PRETAX> (953,684)
<INCOME-TAX> 0
<INCOME-CONTINUING> (953,684)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (953,684)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
