Rainbow Technologies, Inc.

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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lj5kpx9v2uk85nXadiIZ3otqE2yz6ZI1ADk3bX3Q/7+BkyXrWCcSzFeD1zNacU4M svvUEp/IM3kKoZXCnRKxew== 0000892569-03-002646.txt : 20031114 0000892569-03-002646.hdr.sgml : 20031114 20031114155643 ACCESSION NUMBER: 0000892569-03-002646 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAINBOW TECHNOLOGIES INC CENTRAL INDEX KEY: 0000819706 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 953745398 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16641 FILM NUMBER: 031004543 BUSINESS ADDRESS: STREET 1: 50 TECHNOLOGY DRIVE CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7144542100 MAIL ADDRESS: STREET 1: 50 TECHNOLOGY DRIVE CITY: IRVINE STATE: CA ZIP: 92718 10-Q 1 a94458e10vq.htm FORM 10-Q QUARTER ENDING SEPTEMBER 30, 2003 Rainbow Technologies, Inc.

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACTS OF 1934


For the Quarter ended SEPTEMBER 30, 2003		Commission file number: 0-16641

RAINBOW TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)


DELAWARE (State of incorporation)		95-3745398 (I.R.S. Employer Identification No.)

50 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA (Address of principal executive offices)		92618 (Zip Code)

Indicate by check mark whether the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes [X] No [ ]

The number of shares of common stock, $.001 par value, outstanding as of November 4, 2003, was 26,814,104.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Condensed Consolidated Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 10(U)
EXHIBIT 10(V)
EXHIBIT 10 (W)
EXHIBIT 10 (X)
EXHIBIT 10(Y)
EXHIBIT 31(A)
EXHIBIT 31(B)
EXHIBIT 32(A)

RAINBOW TECHNOLOGIES, INC.

TABLE OF CONTENTS


			Page

PART I - FINANCIAL INFORMATION
	Item 1. Condensed Consolidated Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets at September 30, 2003 and December 31, 2002		3
		Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2003 and 2002		4
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2003 and 2002		5
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002		6
		Notes to Condensed Consolidated Financial Statements		7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
	Item 3. Not applicable
	Item 4. Controls and Procedures			19
PART II - OTHER INFORMATION
	Item 1. Legal Proceedings			20
	Item 2 and 3. Not applicable
	Item 4. Submission of Matters to a Vote of Security Holders			20
	Item 5. Other Information			20
	Item 6. Exhibits and reports on Form 8-K			20
SIGNATURES				24

PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)


					September 30, 2003		December 31, 2002

ASSETS
	Current assets:
		Cash and cash equivalents			$	58,938	$	50,922
		Marketable available-for-sale and trading securities				269		301
		Accounts receivable, net of allowance for doubtful accounts of $674 and $626 in 2003 and 2002, respectively				17,554		19,221
		Inventories				12,101		9,308
		Income tax receivable				549		5,572
		Prepaid expenses and other current assets				5,403		1,765

				Total current assets		94,814		87,089
	Property, plant and equipment, at cost:
		Equipment				23,228		21,981
		Buildings				8,551		7,769
		Furniture				3,346		2,909
		Leasehold improvements				3,633		2,889

						38,758		35,548
		Less accumulated depreciation and amortization				25,002		21,628

				Net property, plant and equipment		13,756		13,920
		Software development costs, net of accumulated amortization of $4,828 and $8,156 in 2003 and 2002, respectively				3,083		3,775
		Product licenses, net of accumulated amortization of $6,764 and $5,567 in 2003 and 2002, respectively				1,803		2,944
		Intangible assets, net of accumulated amortization of $44 and $34 in 2003 and 2002, respectively				10,537		101
		Goodwill				9,843		2,680
		Other assets				674		1,080

				Total Assets	$	134,510	$	111,589

LIABILITIES AND STOCKHOLDERS’ EQUITY
	Current liabilities:
		Accounts payable			$	10,446	$	8,138
		Accrued payroll and related expenses				6,056		6,602
		Warranty reserve				1,521		1,844
		Income taxes payable				2,692		1,442
		Accrued acquisition costs				5,621		—
		Accrued litigation settlement				1,965		—
		Accrued expenses and other current liabilities				9,605		6,908

			Total current liabilities			37,906		24,934
		Long-term accrued restructuring costs				2,094		2,349
		Other liabilities				3,318		1,926
		Commitments and contingencies (see Note 12)
		Stockholders’ equity:
		Common stock, $.001 par value, 55,000,000 shares authorized, 26,916,973 and 26,268,936 shares issued and outstanding in 2003 and 2002, respectively				27		26
		Additional paid-in capital				59,356		58,313
		Accumulated other comprehensive income				3,459		348
		Retained earnings				28,350		23,693

			Total stockholders’ equity			91,192		82,380

			Total Liabilities and Stockholders’ Equity		$	134,510	$	111,589

See accompanying notes.

RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)


			Three Months Ended						Nine Months Ended

			September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002

Revenues:
	eSecurity Products		$	12,534		$	11,417		$	37,844		$	35,750
	Secure Communications Products			22,907			18,926			64,770			56,758

		Total revenues		35,441			30,343			102,614			92,508
Operating expenses:
	Cost of eSecurity Products			2,865			3,977			12,009			29,339
	Cost of Secure Communications Products			17,968			13,877			49,183			44,127
	Selling, general and administrative			8,602			7,776			24,484			23,867
	Research and development			2,015			2,365			5,956			7,095
	Litigation settlement			—			—			3,632			—

		Total operating expenses		31,450			27,995			95,264			104,428

Operating income (loss)				3,991			2,348			7,350			(11,920	)
Income (loss) on long-term investments and marketable securities				3			(18	)		(1,204	)		(108	)
Change in value for common stock to be issued				(333	)		—			(333	)		—
Other income (expense), net				(478	)		125			250			531

Income (loss) from continuing operations before income taxes				3,183			2,455			6,063			(11,497	)
Provision for income taxes				(634	)		—			(1,152	)		(13,733	)

Income (loss) from continuing operations				2,549			2,455			4,911			(25,230	)
Loss from discontinued operations, net of applicable taxes				(168	)		(639	)		(254	)		(17,307	)

Net income (loss)			$	2,381		$	1,816		$	4,657		$	(42,537	)

Basic income (loss) per share:
	Continuing operations		$	0.10		$	0.09		$	0.18		$	(0.95	)
	Discontinued operations			(0.01	)		(0.02	)		(0.01	)		(0.66	)

Net income (loss)			$	0.09		$	0.07		$	0.17		$	(1.61	)

Diluted income (loss) per share:
	Continuing operations		$	0.10		$	0.09		$	0.18		$	(0.95	)
	Discontinued operations			(0.01	)		(0.02	)		(0.01	)		(0.66	)

Net income (loss)			$	0.09		$	0.07		$	0.17		$	(1.61	)

Shares used in computing net income (loss) per share:
	Basic			26,808			26,326			26,699			26,479

	Diluted			27,869			26,532			27,478			26,479

See accompanying notes.

RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)


		Three Months Ended					Nine Months Ended

		September 30, 2003		September 30, 2002			September 30, 2003		September 30, 2002

Net income (loss)		$	2,381	$	1,816		$	4,657	$	(42,537	)
Other comprehensive income (loss):
	Foreign currency translation adjustment		605		144			2,137		1,628
	Unrealized gain (loss) on securities		92		(376	)		974		(452	)

	Other comprehensive income (loss)		697		(232	)		3,111		1,176

Comprehensive income (loss)		$	3,078	$	1,584		$	7,768	$	(41,361	)

See accompanying notes.

RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


				Nine Months Ended

				September 30, 2003			September 30, 2002

Cash flows from operating activities:
	Net income (loss)			$	4,657		$	(42,537	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Amortization				2,709			3,281
	Depreciation				2,913			2,995
	Provision (benefit) for doubtful accounts				13			(898	)
	Minority interest in subsidiary’s earnings				176			188
	Loss on long-term investments and marketable securities				1,204			108
	Provision (benefit) for excess and obsolete inventory				(250	)		10,198
	Warranty provision				33			409
	Litigation settlement				3,632			—
	Loss on change in value for common stock to be issued				333			—
	Write-off of capitalized and developed software				—			5,436
	Write-off of Spectria goodwill				—			12,840
	Provision for impairment of assets on discontinued operations				—			2,356
	Change in deferred income taxes				—			16,322
	Tax benefit of exercise of common stock options				—			295
	Write-off of long-term investment				—			260
Changes in operating assets and liabilities, net of effects from acquisitions:
		Accounts receivable			4,112			8,803
		Inventories			(1,940	)		573
		Prepaid expenses and other assets			(1,502	)		1,246
		Accounts payable			1,829			(2,489	)
		Accrued liabilities			1,081			(1,564	)
		Income taxes			6,221			(3,169	)

			Net cash provided by operating activities		25,221			14,653
Cash flows from investing activities:
	Purchases of property, plant and equipment				(1,310	)		(1,236	)
	Capitalized software development costs				(842	)		(656	)
	Product licenses and other intangible assets				(682	)		(3	)
	Purchases of marketable available-for-sale securities				(489	)		—
	Sale of marketable available-for-sale securities				599			—
	Net cash paid for acquisition of Chrysalis-ITS, Canada				(15,764	)		—
	Net cash paid for acquisition of Proteq Ltda., Brazil				(692	)		—
	Net cash paid for investments				68			5

			Net cash used in investing activities		(19,112	)		(1,890	)
Cash flows from financing activities:
	Exercise of common stock options				3,829			3,071
	Retirement of common stock				(2,785	)		—
	Purchase of treasury stock				—			(2,411	)
	Repayment of long-term debt				(160	)		(171	)
	Cash paid to minority stockholder of Rainbow Technologies K.K., Japan				—			(292	)

			Net cash provided by financing activities		884			197
Effect of exchange rate changes on cash					1,023			390

Net increase in cash and cash equivalents					8,016			13,350
Cash and cash equivalents at beginning of period					50,922			28,778

Cash and cash equivalents at end of period				$	58,938		$	42,128

Supplemental schedule of noncash investing and financing activities:

The Company purchased all of the capital stock of Chrysalis for $20.1 million (see Note 4). In conjunction with the acquisition, liabilities were assumed as follows:


Fair value of assets acquired		$	25,570
Cash paid for the capital stock			(20,096	)

	Liabilities assumed	$	5,474

See accompanying notes.

RAINBOW TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)

1. Description of the Company and Summary of Significant Accounting Policies

The Company

Rainbow Technologies, Inc. (the Company) develops, manufactures, programs and markets software and internet security products which prevent the unauthorized use of intellectual property, including software programs, provides privacy and security for network communications and develops and manufactures secure communication products for high assurance satellite communications and voice and data links.

Basis of Consolidation

The accompanying financial statements consolidate the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

In the opinion of the Company’s management, the accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the financial position at September 30, 2003 and results of operations for the three and nine months ended September 30, 2003 and 2002. The condensed consolidated financial statements do not include certain footnotes and financial information normally presented annually under accounting principles generally accepted in the United States and, therefore, should be read in conjunction with the Company’s December 31, 2002 Annual Report on Form 10-K. Results of operations for the three and nine months ended September 30, 2003 are not necessarily indicative of results to be expected for the full year.

The Company has subsidiaries in the United Kingdom, Germany, France, Netherlands, India, Australia, China, Taiwan, Japan, Mexico, Brazil, Hong Kong and Canada. Excluding Hong Kong and Canada, the Company utilizes the currencies of the countries where its foreign subsidiaries operate as the functional currency. Balance sheet accounts denominated in foreign currencies are translated at exchange rates as of the date of the balance sheet and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are accumulated as a separate component of Accumulated Other Comprehensive Income within Stockholders’ Equity. The Company has adopted local currencies as the functional currencies for these subsidiaries because their principal economic activities are most closely tied to the respective local currencies.

For its Hong Kong and Canada subsidiaries, the Company utilizes the U.S. dollar as the functional currency as the majority of its transactions are in U.S. dollars. Accordingly, monetary assets and liabilities are remeasured into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenue, expenses, gains and losses are remeasured at the average exchange rate for the period, and non-monetary assets and liabilities are remeasured at historical rates. The resultant remeasurement gains or losses are recognized in the consolidated statements of income.

Basis of Presentation

In the second quarter of 2002, the Company announced that its Spectria segment had experienced rapidly deteriorating business prospects due to a severe decline in IT services infrastructure spending. Consequently, the Company discontinued Spectria and closed its facility in Long Beach, California. In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” Spectria’s results of operations are included in the loss from discontinued operations in the consolidated statements of income for the three and nine months ended September 30, 2003 and 2002 (see Note 14). Unless otherwise indicated, the Notes to Consolidated Financial Statements relate to continuing operations.

Certain amounts previously reported have been reclassified to conform with the 2003 presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Actual results could differ from those estimates. Significant estimates made in preparing these financial statements include the allowance for doubtful accounts, the reserve for excess and obsolete inventory, goodwill realizability, accrued warranty costs, restructuring costs, the valuation allowance for deferred tax assets and total estimated contract costs associated with billed and unbilled contract revenue.

RAINBOW TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)

Marketable Securities

All investment securities are considered to be either trading or available-for-sale and are carried at fair value. Management determines the classification of its investments in marketable securities at the time of purchase and re-evaluates its appropriateness at each balance sheet date. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and carried at fair value with the unrealized gains and losses included in earnings. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of Accumulated Other Comprehensive Income within Stockholders’ Equity.

Included in Marketable Securities at September 30, 2003 and December 31, 2002 were trading securities of $42,000 and $25,000, respectively, and available-for-sale securities of $0.2 million and $0.3 million, respectively.

Stock Option Plans

The Company follows the disclosure-only provisions of SFAS 123, “Accounting for Stock-Based Compensation,” as amended, and, accordingly, accounts for its stock-based compensation plans using the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations.

For purposes of pro forma disclosures, the following table illustrates the effect on net income (loss) and income (loss) per share, had compensation expense for the employee stock-based plans been recorded based on the fair value method under SFAS 123:

(in thousands, except per share amounts)


		Three Months Ended						Nine Months Ended

		September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002

Net income (loss), as reported		$	2,381		$	1,816		$	4,657		$	(42,537	)
Deduct: total stock-based employee compensation expense determined under fair value based method, net of related tax effects			(1,030	)		(1,647	)		(3,478	)		(5,246	)

	Net income (loss), as adjusted	$	1,351		$	169		$	1,179		$	(47,783	)

	Basic income (loss) per share:
	As reported	$	0.09		$	0.07		$	0.17		$	(1.61	)
	As adjusted	$	0.05		$	0.01		$	0.04		$	(1.80	)
	Diluted income (loss) per share:
	As reported	$	0.09		$	0.07		$	0.17		$	(1.61	)
	As adjusted	$	0.05		$	0.01		$	0.04		$	(1.80	)

Accrued Litigation Settlement

The Company applies the provisions of Emerging Issues Task Force (EITF) 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” to its accrued litigation settlement balance (see Note 12) included in the accompanying condensed consolidated balance sheet. As a result, increases or decreases in the fair value of the Company’s common stock will result in an increase or a decrease in the accrued litigation settlement balance with a corresponding impact to non-operating income or expense. For the quarter ended September 30, 2003, the Company recorded non-operating expense of $333,000 to reflect the increase in the Company’s common stock fair value.

2. Earnings per share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common and common equivalent shares outstanding for the period, which includes the additional dilution related to conversion of stock options as computed under the treasury stock method.

The following table presents reconciliation of the denominator for the basic EPS computation to the denominator of the diluted EPS computation:

(in thousands)


	Three Months Ended				Nine Months Ended

	September 30, 2003		September 30, 2002		September 30, 2003		September 30, 2002

Weighted average shares used for basic EPS computation		26,808		26,326		26,699		26,479
Effect of dilutive stock options		1,061		206		779		—

Weighted average shares used for the diluted EPS computation		27,869		26,532		27,478		26,479

For the nine months ended September 30, 2002, the Company incurred losses and, therefore, all stock options were anti-dilutive and not included in the calculation of diluted earnings per share. The antidilutive shares excluded from the dilutive computation for the three months ended September 30, 2003 and 2002 were 1,062,000 and 3,753,000, respectively.

RAINBOW TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)

3. Government contracts

The Company is both a prime contractor and subcontractor under fixed-price and cost reimbursement contracts with the U.S. Government (Government). At the commencement of each contract or contract modification, the Company submits pricing proposals to the Government to establish indirect cost rates applicable to such contracts. These rates, after audit and approval by the Government, are used to settle costs on contracts completed during the previous year.

To facilitate interim billings during the performance of its contracts, the Company establishes provisional billing rates, which are used in recognizing contract revenue and contract accounts receivable. The provisional billing rates are adjusted to actual at year-end and are subject to adjustment after Government audit.

4. Acquisitions

On September 5, 2003, the Company acquired all of the outstanding shares of Chrysalis-ITS, Inc. (“Chrysalis”) for a total purchase price of $20.1 million, which consisted of $20.0 million in cash and $0.1 million in direct and incremental costs for the acquisition. The results of operations of Chrysalis have been included in the Company’s consolidated financial statements since the date of acquisition. Chrysalis, based in Ottawa, Canada, is a leading vendor of hardware security modules, servers and appliances to secure and accelerate applications including electronic financial transactions, SSL-based Web applications, smart card issuance, online credit card validation, electronic document security, digital identity and XML transactions. The Company believes that its product lines and Chrysalis’, while focused on different security needs, will make complex security easy to implement, deploy and use. The Chrysalis products are focused on the PKI and SSL-based web application markets and represent a complementary fit with the Company’s products.

In accordance with SFAS No. 141, “Business Combinations” (SFAS 141), this acquisition was accounted for using the purchase method of accounting. The total purchase price has been allocated to the acquired tangible and intangible assets, and liabilities, based on their estimated fair values with the balance allocated to goodwill. Accordingly, the Company recorded goodwill of $6.3 million, which represents the excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed. The goodwill was assigned to the eSecurity segment.

The amount allocated to the intangible assets was determined using discounted cash flows for the contract and maintenance relationships, an average of the resultant value from applying the cost and income approach for the developed technology, and the relief from royalty method for the acquired tradename/trademark. The estimated useful lives for each of the acquired intangible assets is provided below:

Developed technology 7 years

Maintenance relationships 5 years

Tradename/trademark 5 years

Existing maintenance contracts 6 months

The following table summarizes the estimated fair value of the assets and liabilities assumed at the date of the acquisition:

(in thousands)


Cash and cash equivalents		$	4,332
Accounts receivable			1,872
Inventories			486
Prepaid expenses and other current assets			2,050
Property, plant and equipment			890
Goodwill			6,290
Intangible assets, subject to amortization			9,650

	Total assets acquired		25,570

Accounts payable			(328	)
Accrued payroll and related expenses			(539	)
Accrued expenses and other current liabilities			(3,481	)
Other long-term liabilities			(1,126	)

Total liabilities assumed			(5,474	)

	Net assets acquired	$	20,096

RAINBOW TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)

The following unaudited consolidated pro forma information presents the combined results of operations as if Chrysalis acquisition had occurred at the beginning of the respective periods presented and include the estimated amortization of intangibles. The unaudited pro forma information is not necessarily indicative of the results of operations of the combined company had the acquisition occurred at the beginning of the periods presented, nor is it necessarily indicative of future results of operations of the combined entities.

(in thousands, except per share amounts)


		Three Months Ended						Nine Months Ended

		September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002

Revenues		$	36,992		$	32,269		$	108,919		$	98,349
Income (loss) from continuing operations			(515	)		1,621			1,419			(27,188	)
Net income (loss)			(683	)		982			1,165			(44,495	)
Basic income (loss) per share:
	Continuing operations	$	(0.02	)	$	0.06		$	0.05		$	(1.02	)
	Discontinued operations		(0.01	)		(0.02	)		(0.01	)		(0.66	)

Net income (loss)		$	(0.03	)	$	0.04		$	0.04		$	(1.68	)

Diluted income (loss) per share:
	Continuing operations	$	(0.02	)	$	0.06		$	0.05		$	(1.02	)
	Discontinued operations		(0.01	)		(0.02	)		(0.01	)		(0.66	)

Net income (loss)		$	(0.03	)	$	0.04		$	0.04		$	(1.68	)

On April 28, 2003, the Company acquired all products, manufacturing and distribution facilities of Proteq Ltda., Sao Paulo (“Proteq”) for an estimated purchase price of $0.9 million in cash. Proteq, based in Sao Paulo, Brazil, is a leading provider of software security tokens in Brazil and the southern cone of South America. This acquisition expands the Company’s presence in Latin America and with Proteq’s manufacturing facility. In connection with this acquisition, the Company recorded goodwill of $0.7 million that was assigned to the Company’s eSecurity segment. The results of operations of Proteq are included in the Company’s consolidated financial statements from the date of acquisition. Pro forma results of operations have not been presented for this acquisition because the effects of this acquisition were not material to the Company’s results.

5. Inventories

Inventoried costs relating to long-term contracts are stated at actual production costs, including pro-rata allocations of factory overhead and general and administrative costs incurred-to-date, reduced by amounts identified with revenue recognized on units delivered. The costs attributed to units delivered under such long-term contracts are based on the estimated average cost of all units expected to be produced.

Inventories, other than inventoried costs relating to long-term contracts, are stated at the lower of cost (first-in, first-out basis) or market.

Inventories consist of the following:
(in thousands)


	September 30, 2003			December 31, 2002

Raw materials	$	7,738		$	8,095
Work in process		814			1,662
Finished goods		2,735			3,573
Inventoried costs relating to long-term contracts, net of amounts attributed to revenues recognized to date		8,594			5,158
Reserve for excess and obsolete inventory		(7,780	)		(9,180	)

	$	12,101		$	9,308

6. Goodwill

Goodwill represents the excess of purchase price over the estimated fair value of assets acquired. Goodwill is tested for impairment annually and whenever events or circumstances occur which might indicate that goodwill is impaired. The first step of the impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the

RAINBOW TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)

amount of impairment loss. The second step of goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss will be recognized in an amount equal to that excess. The Company has completed its annual impairment testing during the quarter ended September 30, 2003 and no changes to the carrying value of goodwill were made in accordance with SFAS 142, “Goodwill and Other Intangible Assets.” The Company intends to perform its annual goodwill impairment test in subsequent years during the third quarter of each respective year.

In September 2003, the Company acquired Chrysalis, a leading vendor of hardware security modules, servers and appliances to secure and accelerate applications including electronic financial transactions, SSL-based Web applications, smart card issuance, online credit card validation, electronic document security, digital identity and XML transactions. The Chrysalis business is reported as part of the eSecurity segment.

The following table presents changes in the carrying amount of goodwill for the nine months ended September 30, 2003:

(in thousands)


			Secure
	eSecurity		Communications		Total

Balance at December 31, 2002	$	1,555	$	1,125	$	2,680
Acquisitions		7,002		—		7,002
Translation adjustment		161		—		161

Balance at September 30, 2003	$	8,718	$	1,125	$	9,843

7. Intangible assets

Intangible assets are recorded at estimated fair values and amortized using the straight-line method. It includes developed technology, trademark and customer-related intangible assets, which were mainly acquired through the acquisition of Chrysalis and IAS investment (see Notes 4 and 11). Total amortization expense for the three and nine months ended September 30, 2003 for intangible assets subject to amortization, were $0.2 million and $1.0 million, respectively. Total amortization expense for the three and nine months ended September 30, 2002 for intangible assets subject to amortization, were $0.8 million and $1.5 million, respectively.

The following table presents details of the Company’s intangible assets that are subject to amortization:

(in thousands)


		September 30, 2003							December 31, 2002

				Accumulated							Accumulated
		Gross		Amortization			Net		Gross		Amortization			Net

Product licenses		$	8,567	$	(6,764	)	$	1,803	$	8,511	$	(5,567	)	$	2,944
Intangible assets:
	Developed technology		8,300		—			8,300		—		—			—
	Maintenance relationships		1,000		—			1,000		—		—			—
	Tradename/trademark		848		(37	)		811		48		(30	)		18
	Existing maintenance contracts		350		—			350		—		—			—
	Other intangible assets		83		(7	)		76		87		(4	)		83

	Total	$	19,148	$	(6,808	)	$	12,340	$	8,646	$	(5,601	)	$	3,045

At September 30, 2003, the amortization of the remaining balance of intangible assets of $12.3 million will be $0.9 million for the remainder of 2003. The amortization for each of the fiscal years 2004, 2005, 2006, 2007, 2008 and thereafter will be $2.9 million, $1.6 million, $1.6 million, $1.5 million, $1.5 million and $2.3 million, respectively.

SFAS 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based upon the Company’s product development process, technological feasibility is established upon completion of a working model. Amortization of capitalized software development costs commences when the products are available for general release to customers and are determined using the straight-line method over the expected useful lives of the respective products. Software development costs are written-off when projects are abandoned or when the estimated cash flows from a product are not expected to be sufficient to recover the capitalized software development costs. Total amortization expense for the three and nine months ended September 30, 2003 for software development costs were $0.8 million and $1.7 million, respectively. Total amortization expense for the three and nine months ended September 30, 2002 for software development costs were $0.2 million and $1.8 million, respectively.

The following table presents details of the Company’s software development costs that are subject to amortization:

(in thousands)


	September 30, 2003							December 31, 2002

			Accumulated							Accumulated
	Gross		Amortization			Net		Gross		Amortization			Net

Software development costs	$	7,911	$	(4,828	)	$	3,083	$	11,931	$	(8,156	)	$	3,775

At September 30, 2003, the amortization of the remaining balance of software development costs of $3.1 million will be $0.4 million for the remainder of 2003. The amortization for each of the fiscal years 2004, 2005 and 2006 will be $1.7 million, $0.5 million and $0.1 million, respectively. At September 30, 2003, the Company had $0.4 million of unamortized software development costs for which amortization had not commenced. Amortization of software development costs commences when the products are available for general release to customers.

8. Income taxes

The effective tax rates from continuing operations for the three and nine months ended September 30, 2003 were 20% and 19%, respectively. The effective tax rate for 2003 was different from the statutory rate of 35% primarily due to the release of the Company’s federal valuation allowance which reduced income tax expense for the three and nine months ended September 30, 2003. During 2002, the Company recorded income tax expense from continuing operations of $13.7 million, which included a valuation allowance of $11.6 million in accordance with SFAS 109, “Accounting for Income Taxes.”

RAINBOW TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)

financial performance. As a result of recent cumulative losses and the full utilization of the Company’s loss carryback potential, the Company had concluded that a full valuation allowance against its net deferred tax assets at December 31, 2002 was appropriate.

9. Warranty

The Company warrants its products for periods of ninety days to two years. The standard warranties require the Company to repair or replace defective products returned at no cost to the customer. The Company records an estimate for warranty related costs based on amounts required to cover warranty expense on products sold and actual historical return rates at the time revenue is recognized. While warranty costs have historically been within management’s expectations and the provisions established, the Company cannot guarantee that it will continue to experience the same warranty return rates as in the past. A significant increase in product return rates could have a material adverse effect on the Company’s operating results for the period in which such returns materialize. During the third quarter ended September 30, 2003, the Company recorded $0.7 million change in estimate for its warranty accrual.

The following details the Company’s warranty reserve:
(in thousands)


								Changes in
			Additions					Estimate
	Balance at		Charged to Costs					Charged to Costs			Balance at
	January 1,		and Expenses		Payments			and Expenses			September 30,

2003	$	1,844	$	617	$	(356	)	$	(584	)	$	1,521
2002	$	2,417	$	311	$	(565	)	$	98		$	2,261

10. Industry segments

The Company has two business segments comprising continuing operations. The first segment focuses on commercial security products, including solutions for reliable identity, secure internet and wireless transaction acceleration, licensing solutions for software publishers and easy to deploy Web security solutions (eSecurity segment). The second segment provides products and services for enterprise, government and defense applications for products providing security for classified information, for products providing personal identity authentification for government and defense applications, and custom design services for enterprises, government and defense applications requiring either extraordinary performance and/or security (Secure Communications segment).

The following table presents identifiable assets and operating income (loss) for each of the Company’s operating segments:

(in thousands)


			September 30, 2003		December 31, 2002

Identifiable assets, after applicable eliminations:
	eSecurity		$	113,289	$	90,699
	Secure Communications			21,221		20,890

		Consolidated	$	134,510	$	111,589


			Three Months Ended					Nine Months Ended

			September 30, 2003		September 30, 2002			September 30, 2003			September 30, 2002

Revenues:
	eSecurity		$	12,534	$	11,417		$	37,844		$	35,750
	Secure Communications			22,907		18,926			64,770			56,758

		Consolidated revenues	$	35,441	$	30,343		$	102,614		$	92,508

Operating income (loss):
	eSecurity		$	414	$	(1,203	)	$	(1,883	)	$	(21,026	)
	Secure Communications			3,577		3,551			9,233			9,106

		Consolidated operating income (loss)	$	3,991	$	2,348		$	7,350		$	(11,920	)

There were no intercompany revenues for the three and nine months ended September 30, 2003 while intercompany revenues for the three and nine months ended September 30, 2002 were $1,000 and $18,000, respectively. Intercompany revenues are generated by the Secure Communications segment.

11. Recent accounting pronouncements

In May 2003, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) finalized revisions to EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” on which it had reached a consensus in November 2002. EITF 00-21 addresses certain aspects of the accounting for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. Under EITF 00-21, revenue arrangements with multiple deliverables should be divided into separate units of accounting if the deliverables meet certain criteria, including whether the fair value of the delivered items can be determined and whether there is evidence of fair value of the undelivered items. In addition, the consideration should be allocated among the separate units of accounting based on their fair values, and the applicable revenue recognition criteria should be considered separately for each

RAINBOW TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)

of the separate units of accounting. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 did not have a material impact on the Company’s consolidated financial condition or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS 150). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities (or an asset in some circumstances). The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period after June 15, 2003. The adoption of SFAS 150 did not have a material impact on the Company’s consolidated financial condition or results of operations.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 requires the primary beneficiary of a variable interest entity (VIE) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the equity investors do not have a controlling interest, equity investors participate in losses or residual interests of the entity on a basis that differs from its ownership interest, or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from the other parties. For arrangements entered into with VIEs created prior to January 31, 2003, the provisions of FIN 46 are required to be adopted at the beginning of the first interim or annual period beginning after December 15, 2003. For all arrangements entered into with new VIEs created after January 31, 2003, the provisions of FIN 46 were effective July 1, 2003. Pursuant to the requirements of this interpretation, the Company consolidated the following entity:

On August 1, 2003, the Company’s Secure Communications business and Trusted Ware Systems, Inc. formed a Limited Liability Corporation called IAS, L.L.C. The IAS, L.L.C. charter was created to develop emerging trusted computing technologies and products for the US Government. Since inception, the Company made cash contribution of $0.3 million for a 30% interest. Profits and losses are allocated to both companies based upon each company’s interest. At September 30, 2003, the carrying value of $0.8 million is included in intangible assets, on the accompanying condensed consolidated balance sheet of the Company.

12. Legal proceedings

In July 1998, a patent infringement claim was filed against the Company. The complaint sought unspecified monetary damages. The Company filed a motion for summary judgment of non-infringement that was decided by the District Court in favor of the Company in December 2000. That decision was appealed and on April 3, 2002, the United States Court of Appeals issued an opinion that modified the trial court’s construction of the patent claims in certain respects, revised the summary judgment and remanded the case to the trial court for further proceedings. On May 1, 2003, after remand, the District Court granted another motion for summary judgment of non-infringement brought by the Company, thereby removing half of the products at issue from litigation and granted a motion for summary judgment re: damages, thereby limiting any recovery by the plaintiff to a reasonable royalty. The patent-in-suit expired in June 30, 2003, thereby removing the threat of any injunction against the Company from the litigation. On July 15, 2003, pursuant to court order, the Company entered into a Settlement Agreement. The settlement expense of $3.6 million was included in the results of operations during the quarter ended June 30, 2003 (See Note 1).

The Company is also involved in other legal proceedings and claims arising in the ordinary course of business. The Company believes that the outcome of all current litigation will not have a material adverse effect on its business, financial condition, cash flows or results of operations.

RAINBOW TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(unaudited)

13. Restructuring

In the third quarter of 2001, the Company restructured and consolidated its Digital Rights Management and iVEA operations (eSecurity segment), resulting in a net staff reduction of 97 employees across all employee groups, primarily in the U.S. and recorded restructuring charges of $5.8 million. In the third quarter of 2003, the Company recorded additional liability of $0.2 million, as a result of revised estimates due to the amendment to a lease agreement of one of its Irvine facilities.

The following table summarizes the Company’s restructuring costs and activities in the restructuring reserves:

(in thousands)


	Facilities
	and
	Equipment			Severance			Total

Charged to costs and expenses at September 30, 2001	$	4,699		$	1,131		$	5,830
Cash payments		(538	)		(931	)		(1,469	)

Restructuring balance, December 31, 2001		4,161			200			4,361
Cash payments		(1,348	)		(200	)		(1,548	)

Restructuring balance, December 31, 2002		2,813			—			2,813
Cash payments		(446	)		—			(446	)
Additions		160			—			160

Restructuring balance, September 30, 2003	$	2,527		$	—		$	2,527

The current portion of the restructuring reserve of $0.4 million relating to office space reduction is recorded in accrued expenses and other current liabilities while the long-term portion of the reserve of $2.1 million is shown separately as long-term accrued restructuring costs, on the accompanying condensed consolidated balance sheets. The remaining balance of the restructuring liability relates to a certain lease obligation expiring in December 2005.

14. Discontinued operations

The revenues and loss from discontinued operations for the three and nine months ended September 30, 2003 and 2002 related to the disposal of Spectria are as follows:

(in thousands)


	Three Months Ended						Nine Months Ended

	September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002

Revenues	$	—		$	434		$	19		$	3,179
Loss from discontinued operations	$	(168	)	$	(639	)	$	(254	)	$	(17,307	)

The loss from discontinued operations for the three months ended September 30, 2003 was due to additional expense incurred by the Company as a result of its Long Beach facility lease buyout.

The assets and liabilities of Spectria at September 30, 2003 and December 31, 2002 consisted of the following:

(in thousands)


	September 30, 2003		December 31, 2002

Cash and accounts receivable	$	103	$	98
Other assets		4		40

Total assets of discontinued operations	$	107	$	138

Other liabilities	$	195	$	1,156
Accrued payroll and related expenses		—		2

Total liabilities of discontinued operations	$	195	$	1,158

15. Subsequent Events

On October 22, 2003, the Company and SafeNet, Inc. (“SafeNet”), issued a joint press release announcing the execution of an Agreement and Plan of Reorganization (the “Merger Agreement”). In accordance with the Merger Agreement, a wholly-owned subsidiary of SafeNet will merge with and into the Company and each issued and outstanding share of the Company’s common stock will be exchanged for 0.374 shares of SafeNet common stock, or approximately 11.1 million shares on a fully diluted basis, which will represent approximately 43% of the outstanding stock of the combined company after closing of the transaction. The consummation of the merger is subject to stockholders approval by both companies and appropriate regulatory review and approval.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

The Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Company intends that certain matters discussed in this report are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by the context of the statement which may include words such as the Company “believes,” “anticipates,” “expects,” “forecasts,” “estimates,” or other words of similar meaning and context. Similarly, statements that describe future plans, objectives, outlooks, targets, models or goals are also deemed forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those forecasted or anticipated as of the date of this report. Certain of such risks and uncertainties are described in close proximity to such statements and elsewhere in this report, including Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Stakeholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements or construe such statements to be a representation by the Company that the objectives or plans of the Company will be achieved. The forward-looking statements included in this report are made only as of the date of this report, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

The following is management’s discussion and analysis of certain significant factors, which have affected the consolidated results of operations, and the consolidated financial position of the Company during the periods included in the accompanying condensed consolidated financial statements. This discussion should be read in conjunction with the related condensed consolidated financial statements and accompanying notes.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. The Company believes that the following are some of the more critical judgment areas in the application of its accounting policies that currently affect its consolidated financial condition and results of operations.

Revenue Recognition

eSecurity recognizes revenues from product sales when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable, and collectibility is probable. Revenues from maintenance contracts are recognized ratably over the period the customer support services are provided, which is generally one year. Secure Communications recognizes revenue and profit as work progresses on long-term contracts using the percentage-of-completion method, which relies on estimates of total expected contract revenue and costs. Catalog product revenues and revenues under certain fixed-price contracts calling for delivery of a specified number of units are recognized as deliveries are made. Revenues under cost-reimbursement contracts are recognized as costs are incurred and include estimated earned fees in the proportion that costs incurred to date bear to total estimated costs. Certain contracts are awarded on a fixed-price incentive fee basis. Incentive fees on such contracts are considered when estimating revenues and profit rates and are recognized when the amounts can reasonably be determined. The costs attributed to units delivered under fixed-price contracts are based on the estimated average cost per unit at contract completion. Profits expected to be realized on long-term contracts are based on total revenues and estimated costs at completion. Revisions to contract profits are recorded in the accounting period in which the revisions are known. Estimated losses on contracts are recorded when identified. For research and development and other cost-plus-fee type contracts, the Company recognizes contract earnings using the percentage-of-completion method. The estimated contract revenues are recognized based on percentage-of-completion as determined by the cost-to-cost basis whereby revenues are recognized as contract costs are incurred.

Accounts Receivable

The Company is required to estimate the collectibility of its trade receivables and unbilled costs and fees. A considerable amount of judgment is required in assessing the ultimate realization of these receivables including the current credit-worthiness of each customer. The Company has recorded charges in required reserves in prior periods and it is possible that changes in required reserves may continue to occur in the future depending on future market conditions.

Inventory

The Company is required to state its inventories at the lower of cost or market. In assessing the ultimate realization of inventories, the Company is required to exercise judgment in its assessment of future demand requirements and compare that with the current or committed inventory levels. The Company has recorded charges for required reserves in prior periods and it is possible that changes in required inventory reserves may continue to occur in the future due to market conditions.

Deferred Taxes

The Company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including reversals of existing deferred tax liabilities, estimated future taxable income, prudent and feasible tax planning strategies, and recent financial performance. As a result of recent cumulative losses and the full utilization of the Company’s loss carryback potential, the Company had concluded that a full valuation allowance against its net deferred tax assets at December 31, 2002 was appropriate. For the quarter ended March 31, 2003, the Company realized certain deferred tax assets which resulted in a reduction in the Company’s valuation allowance and the effective tax rate for the three and nine months ended September 30, 2003.

Capitalized Software Development Costs

The Company’s policy on capitalized software costs determines the timing of recognition of certain development costs. In addition, this policy determines whether the cost is classified as development expense or cost of license fees. Management is required to use professional judgment in determining whether development costs meet the criteria for immediate expense or capitalization. SFAS 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based upon the Company’s product development process, technological feasibility is established upon completion of a working model. Amortization of capitalized software development costs commences when the products are available for general release to customers and is determined using the straight-line method over the expected useful lives of the respective products. Software development costs are written-off when projects are abandoned or when the estimated cash flows from a product are not expected to be sufficient to recover the capitalized software development costs.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2003, the EITF of the FASB finalized revisions to EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” on which it had reached a consensus in November 2002. EITF 00-21 addresses certain aspects of the accounting for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. Under EITF 00-21, revenue arrangements with multiple deliverables should be divided into separate units of accounting if the deliverables meet certain criteria, including whether the fair value of the delivered items can be determined and whether there is evidence of fair value of the undelivered items. In addition, the consideration should be allocated among the separate units of accounting based on their fair values, and the applicable revenue recognition criteria should be considered separately for each of the separate units of accounting. EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 did not have a material impact on the Company’s consolidated financial condition or results of operations.

RESULTS OF OPERATIONS
(in thousands)


			Three Months Ended					Nine Months Ended

			September 30, 2003		September 30, 2002			September 30, 2003			September 30, 2002

			(unaudited)
Revenues:
	eSecurity		$	12,534	$	11,417		$	37,844		$	35,750
	Secure Communications			22,907		18,926			64,770			56,758

		Total revenues	$	35,441	$	30,343		$	102,614		$	92,508

Operating Income (Loss):
	eSecurity		$	414	$	(1,203	)	$	(1,883	)	$	(21,026	)
	Secure Communications			3,577		3,551			9,233			9,106

		Total operating income (loss)	$	3,991	$	2,348		$	7,350		$	(11,920	)

REVENUES

On a consolidated basis, revenues from continuing operations for the three and nine months ended September 30, 2003 increased by 17% to $35.4 million and 11% to $102.6 million, respectively, as compared to the same periods in the prior year. Revenues from both segments increased for the quarter and nine months ended September 30, 2003 as compared to the same periods in 2002. Revenues from international markets for the three and nine months ended September 30, 2003 increased 20% to $6.8 million and 19% to $20.6 million, respectively, as compared to the same periods in the prior year. The increase in revenues from international markets for the three months ended September 30, 2003 was primarily due to additional revenues from the Chrysalis acquisition, which was completed during the third quarter of 2003, and increase in revenues from Europe which was partially offset by a decrease in revenues from Asia Pacific. The increase in revenues from Europe was due to improved sales of the iKey product and stronger conversion rates of euros to the US dollar experienced during the current year while the decrease in revenues from Asia Pacific was primarily due to a slowdown in the economy of Asia, as affected by the SARS disease, which had moderately affected revenues from the Company’s Hong Kong operations. Overall, revenues from international markets for the nine months ended September 30, 2003 increased for both Europe and Asia Pacific, as compared to the same period in the prior year. Revenues from domestic markets for the three and nine months ended September 30, 2003 also increased by 16% to $28.6 million and 9% to $82.0 million, respectively, as compared to the same periods in the prior year. The increase in domestic revenues was primarily due to strong increase in revenues in the Secure Communications segment slightly offset by a decrease in revenues in eSecurity North America. The decrease in revenues in eSecurity North America was primarily due to the decline in OEM markets for Cryptoswift SSL acceleration devices and the ongoing softness in IT spending.

eSecurity revenues for the three and nine months ended September 30, 2003 increased by 10% to $12.5 million and increased by 6% to $37.8 million, respectively, when compared to the same periods in 2002. The increase in revenues for the three and nine months ended September 30, 2003 was primarily due to improved sales for software protection and authentication products particularly the iKey product and revenues from Luna products sold by Chrysalis, which was acquired by the Company in September 2003. This increase was partially offset by the decline in OEM markets for Cryptoswift SSL acceleration devices.

Secure Communications revenues for the three and nine months ended September 30, 2003 increased 21% to $22.9 million and 14% to $64.8 million, respectively, when compared to the same periods in 2002. The increase in revenues was primarily attributable to continued strong demand for voice and data security solutions and link encryption products.

GROSS PROFIT

Gross profit from eSecurity products for the three months ended September 30, 2003 increased to 77% of revenues compared to 65% of revenues for the corresponding period in 2002. Gross profit for the nine months ended September 30, 2003 increased to 68% of revenues compared to 18% of revenues for the corresponding period in 2002. The increase in gross profit for the three months ended September 30, 2003 was primarily due to a $0.7 million change in estimate for warranty accruals. Cost of revenues for the nine months ended September 30, 2002 included a $10.2 million increase in the reserve for excess and obsolete products and a $5.4 million write-off of capitalized and developed software. Excluding these charges recorded in the current and prior year, gross profit increased which was primarily attributable to increased efficiencies in manufacturing operations and lower overhead costs.

Gross profit from Secure Communications for the three months ended September 30, 2003 decreased to 22% of revenues as compared to 27% of revenues for the corresponding period in 2002. Gross profit for the nine months ended September 30, 2003 increased to 24% of revenues compared to 22% of revenues for the corresponding period in 2002. The decrease in gross profit for the three months ended September 30, 2003 was primarily due to an increase in investments in new products while the increase in gross profit for the nine months ended September 30, 2003 was primarily due to a change in product mix, as higher margin products were sold during the current year.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses consist primarily of personnel-related expenses, sales commissions, promotional activities, and professional fees. Selling, general and administrative expenses from continuing operations for the three months ended September 30, 2003 were $8.6 million or 24% of revenues as compared to $7.8 million or 26% of revenues for the corresponding period in 2002. Selling, general and administrative expenses from continuing operations for the nine months ended September 30, 2003 were $24.5 million or 24% of revenues as compared to $23.9 million or 26% of revenues for the corresponding period in 2002. The increase in selling, general and administrative expenses was primarily attributable to higher legal and other professional fees and the inclusion of Chrysalis’ selling, general and administrative expenses.

RESEARCH AND DEVELOPMENT

Research and development expenses consist primarily of engineering salaries and other personnel-related expenses, costs related to engineering development tools, and subcontracting costs. Research and development expenses from continuing operations for the three months ended September 30, 2003 were $2.0 million or 6% of revenues, as compared with research and development expenses of $2.4 million or 8% of revenues for the corresponding period in 2002. Research and development expenses from continuing operations for the nine months ended September 30, 2003 were $6.0 million or 6% of revenues, as compared with research and development expenses of $7.1 million or 8% of revenues for the corresponding period in 2002. The decrease in research and development expenses was primarily due to a decrease in engineering salaries as a result of greater use of research and development personnel in India and China.

LITIGATION SETTLEMENT

Subsequent to June 30, 2003, pursuant to court order, the Company entered into a Settlement Agreement relating to a litigation matter for which it had been incurring substantial legal expenses. The settlement of $3.6 million was included in the results of operations for the quarter ended June 30, 2003 (see Note 12 to Notes to Condensed Consolidated Financial Statements).

INCOME (LOSS) ON LONG-TERM INVESTMENTS AND MARKETABLE SECURITIES

The Company periodically reviews investments in early stage companies that are accounted for on the cost basis for other-than-temporary declines in fair value and writes down investments to their fair value when an other-than-temporary decline has occurred based on the specific identification method. The Company generally believes an other-than-temporary decline has occurred when the fair value of the investment is below the carrying value for two consecutive quarters, absent evidence to the contrary. During the nine months ended September 30, 2003, it was determined by the Company that certain of its investments had incurred an other-than-temporary decline in fair value which resulted in realized losses of $1.2 million that were recognized in the statement of income.

CHANGE IN VALUE FOR COMMON STOCK TO BE ISSUED

In the third quarter of 2003, in accordance with EITF 00-19, the Company revalued its obligation to issue common stock to fair market value. Accordingly, the Company recorded a non-cash charge of $0.3 million for the three and nine months ended September 30, 2003.

OTHER INCOME (EXPENSE), NET

Other income (expense) consists primarily of transaction gains and losses resulting from intercompany balances between foreign subsidiaries and the U.S. subsidiary.

PROVISION FOR INCOME TAXES

The effective tax rates from continuing operations for the three and nine months ended September 30, 2003 were 20% and 19%, respectively. The reduction in the Company’s effective tax rate was primarily due to the release of the Company’s federal valuation allowance, which resulted in a reduction of income tax expense for the three and nine months ended September 30, 2003. During 2002, the Company recorded income tax expense from continuing operations of $13.7 million, which included a valuation allowance of $11.6 million in accordance with SFAS 109, “Accounting for Income Taxes.”

RESULTS OF DISCONTINUED OPERATIONS

Discontinued operations for the three and nine months ended September 30, 2003 reported operating results and net losses of $0.2 million and $0.3 million, respectively. The Company recorded additional expense during the third quarter of 2003, as a result of its Long Beach facility lease buyout. Operating results and net losses for the three and nine months ended September 30, 2002 were $0.6 million and $17.3 million, respectively, which included $12.8 million of write-off of goodwill and $2.4 million provision for impairment of assets.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of operating funds have been from operations and proceeds from exercises of the Company’s common stock options. Net cash provided by operating activities for the nine months ended September 30, 2003 and 2002 were $25.2 million and $14.7 million, respectively. Operating activities in 2003 included a $1.2 million loss on long-term investments and marketable securities, $3.6 million litigation settlement and a decrease in income taxes of $6.2 million primarily due to a tax refund of $5.4 million collected during the third quarter. Operating activities in 2002 included a decrease in accounts receivable of $8.8 million, $10.2 million increase in the provision for excess and obsolete inventory, $5.4 million write-off of capitalized and developed software, $15.2 million write-off of goodwill and provisions for impairment of assets relating to discontinued operations and $16.3 million in deferred income taxes primarily due to the Company’s valuation allowance for deferred tax assets.

Net cash used in investing activities for the nine months ended September 30, 2003 and 2002 were $19.1 million and $1.9 million, respectively. Investing activities in 2003 included $15.8 million of net cash paid for acquisition of Chrysalis-ITS in Canada and $0.7 million of net cash paid for acquisition of Proteq, Ltda in Brazil.

Net cash provided by financing activities for the nine months ended September 30, 2003 and 2002 were $0.9 million and $0.2 million, respectively. Financing activities in 2003 primarily included $3.8 million proceeds from exercises of common stock options and $2.8 million in retirement of common stock. Financing activities in 2002 included $3.1 million proceeds from exercises of common stock options and $2.4 million in repurchase of the Company’s common stock.

The Company intends to use its capital resources to expand its product lines and for possible acquisitions of additional products and technologies. The Company has no significant capital commitments or requirements at this time.

At September 30, 2003, the Company’s subsidiaries in the United Kingdom, Germany, France, Netherlands, Switzerland and Japan carry approximately $1.8 million, $0.8 million, $5.7 million, $4.0 million, $3.8 million and $1.1 million, respectively, in interest earning deposits which may result in foreign exchange gains or losses due to the fact that the functional currency in those subsidiaries is not the U.S. dollar. The Company also has $6.8 million of interest earning deposits in Canada which is subject to foreign currency gains or losses, as it is denominated in Canadian dollars.

The Company had $58.9 million of cash and cash equivalents at September 30, 2003. The Company believes that its current working capital of $56.9 million and anticipated working capital to be generated by future operations will be sufficient to support the Company’s working capital requirements for at least the next twelve months and for the foreseeable future. The foregoing is a forward-looking statement.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that the information required to be disclosed in reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in Internal Control Over Financial Reporting

There have been no significant changes in internal control over financial reporting during the period covered by this quarterly report on Form 10-Q that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


Exhibit
Number		Description

2(i)		Agreement and Plan of Reorganization, dated as of January 26, 1995, among the Company, Rainbow Acquisition Inc., a California corporation and a wholly owned subsidiary of the Company, and Mykotronx, Inc., a California corporation (“Mykotronx”) (incorporated by reference to the Company’s Registration Statement on Form S-4 under the Securities Act of 1933, as amended, effective on April 20, 1995, Registration No. 33-89918).

2(ii)		Agreement and Plan of Merger, dated March 6, 1998, by and among the Company, WRS Acquisition Corp, a California corporation and wholly owned subsidiary of the Company, and Wyatt River Software, Inc. (incorporated by reference to Exhibit 2(iii) of the Company’s 1997 Annual Report on Form 10-K under the Securities Exchange Act of 1934 filed in March 1998 (the “1997 10-K”)).

2(iii)		Business Combination Agreement, dated September 5, 2003, by and among the Company, RTI Acquisition Corp., an Ontario corporation and a wholly owned subsidiary of the Company, Chrysalis-ITS, Inc. (“Chrysalis”), an Ontario corporation and Capital Alliance Ventures, Inc. (incorporated by reference to Exhibit 2(i) of the Company’s Current Report on Form 8-K, filed on September 16, 2003).

2(iv)		Agreement and Plan of Reorganization dated October 22, 2003, by and between the Company, SafeNet, Inc. and Ravens Acquisition Corp. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on October 24, 2003).

3(i)		Articles of Incorporation of Rainbow, as amended (incorporated by reference to Exhibit 3(a) to Rainbow’s Registration Statement on Form S-18 under the Securities Act of 1933, as amended, filed on July 20, 1987 — File No. 33-15956-LA (the “S-18 Registration Statement”)).

3(ii)		By-Laws of Rainbow (incorporated by reference to Exhibit 3(b) to the S-18 Registration Statement).

4(a)		See Exhibit 3(i).

4(b)		See Exhibit 3(ii).

4(c)		Rights Agreement, dated as of July 29, 1997, between the Company and U.S. Stock Transfer Corporation, as Rights Agent (incorporated by reference to Exhibit 4(c) to the Company’s 1997 10-K).


Exhibit
Number		Description

10(a)		Agreement, dated October 1996, between the Company and National Semiconductor Corporation (incorporated by reference to Exhibit 10(b) of the Company’s 1998 Annual Report on Form 10-K under the Securities Exchange Act of 1934 filed in March, 1999 (the “1998 10-K”)).

10(b)		Agreement, dated December 1998, between the Company and EM Microelectronic — Marin S.A. (incorporated by reference to Exhibit 10(c) of the 1998 10-K).

10(c)		1990 Incentive Stock Option Plan as amended (incorporated by reference to Exhibit 10(j) of the 1991 10-K).

10(d)		Employment Agreement, dated February 16, 1990, between the Company and Walter W. Straub (incorporated by reference to Exhibit 10(j) of the 1989 10-K).

10(e)		Change of Control Agreement, dated February 16, 1990, between the Company and Walter W. Straub (incorporated by reference to Exhibit 10(k) of the 1989 10-K).

10(f)		Employment Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery (incorporated by reference to Exhibit 10(l) of the 1994 10-K).

10(g)		Change of Control Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery (incorporated by reference to Exhibit 10(m) of the 1994 10-K).

10(h)		Agreement for Design and Product Purchase, dated September 4, 1997, between IBM Microelectronics and Rainbow Technologies, Inc. and Mykotronx, Inc. (incorporated by reference to Exhibit 10(w) of the 1998 10-K).

10(i)		Lease for premises at 371 Van Ness Way, Torrance, California, dated October 2, 1997, between Surf Management Associates, a California limited partnership, and Mykotronx, Inc., a California Corporation (incorporated by reference to Exhibit 10(x) of the 1999 Form 10-K).

10(j)		Lease for premises at 111 West Ocean Boulevard, Long Beach, California, between Stevens Creek Associates, a California general partnership, and the Company (incorporated by reference to Exhibit 10(y) of the 1999 Form 10-K).

10(k)		Lease for premises at 8 Hughes, Irvine, California, between Alton Irvine Partners, LLC, a California limited liability company, and the Company (incorporated by reference to Exhibit 10(z) of the 2000 Form 10-K).

10(l)		2000 Incentive Stock Option Plan (incorporated by reference to Rainbow’s Registration Statement on Form S-8 filed under the Securities Act of 1933).

10(m)		2001 Nonstatutory Stock Option Plan (incorporated by reference to Rainbow’s Registration Statement on Form S-8 filed under Securities Act of 1933).

10(n)		Lease for premises at 50 Technology Drive, Irvine, California, dated April 14, 2000, between The Irvine Company, a California Corporation, and the Company (incorporated by reference to Exhibit 10(o) of the September 2002 10-Q).

10(o)		Leases for premises at 357 and 359 Van Ness Way, Torrance, California, dated May 1, 2002, between Surf Management Associates, a California limited partnership, and Mykotronx, Inc., a California Corporation (incorporated by reference to Exhibit 10(o) of the 2002 Form 10-K).

10(p)		Employment Agreement, dated April 1, 2000, between the Company and Cheryl Baffa (incorporated by reference to Exhibit 10(p) of the 2002 Form 10-K).

10(q)		Change of Control Agreement, dated April 1, 2000, between the Company and Cheryl Baffa (incorporated by reference to Exhibit 10(q) of the 2002 Form 10-K).

10(r)		Employment Agreement, dated April 1, 2000, between the Company and James Kopycki (incorporated by reference to Exhibit 10(r) of the 2002 Form 10-K).

10(s)		Change of Control Agreement, dated April 1, 2000, between the Company and James Kopycki (incorporated by reference to Exhibit 10(s) of the 2002 Form 10-K).

10(t)		Consultant Agreement, dated January 1, 2000, between the Company and Abbott Investments (incorporated by reference to Exhibit 10(t) of the 2002 Form 10-K).

10(u)		Employment Agreement, dated December 20, 2002, between the Company and Wang Chan.

10(v)		Employment Agreement, dated July 1, 2003, between the Company and Shawn Abbott.

10(w)		Change of Control Agreement, dated July 1, 2003, between the Company and Shawn Abbott.

10(x)		Manufacturing Agreement, dated June 24, 2003, between Mykotronx, Inc. and SCI Technology, Inc.

10(y)		Manufacturing Agreement, dated October 28, 2003, between Mykotronx, Inc. and Bulova Technologies L.L.C.

31(a)		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Walter W. Straub, President and Chief Executive Officer

31(b)		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Patrick E. Fevery, Vice President and Chief Financial Officer.

(b) Reports on Form 8-K

Current report on Form 8-K, furnished July 1, 2003.

Current report on Form 8-K, furnished July 23, 2003.

Current report on Form 8-K, furnished August 15, 2003.

Current report on Form 8-K, furnished September 9, 2003.

Current report on Form 8-K, filed September 17, 2003.

Current report on Form 8-K, filed September 29, 2003.

The Company filed a current report on Form 8-K/A to correct the reporting on the original 8-K filed on September 26, 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

Dated: November 14, 2003


RAINBOW TECHNOLOGIES, INC.

By:	/s/	Patrick E. Fevery

		Vice President and
		Chief Financial Officer

EXHIBIT INDEX

Exhibit

Number Description

2(i) Agreement and Plan of Reorganization, dated as of January 26, 1995, among the Company, Rainbow Acquisition Inc., a California corporation and a wholly owned subsidiary of the Company, and Mykotronx, Inc., a California corporation (“Mykotronx”) (incorporated by reference to the Company’s Registration Statement on Form S-4 under the Securities Act of 1933, as amended, effective on April 20, 1995, Registration No. 33-89918).

2(ii) Agreement and Plan of Merger, dated March 6, 1998, by and among the Company, WRS Acquisition Corp, a California corporation and wholly owned subsidiary of the Company, and Wyatt River Software, Inc. (incorporated by reference to Exhibit 2(iii) of the Company’s 1997 Annual Report on Form 10-K under the Securities Exchange Act of 1934 filed in March 1998 (the “1997 10-K”)).

2(iii) Business Combination Agreement, dated September 5, 2003, by and among the Company, RTI Acquisition Corp., an Ontario corporation and a wholly owned subsidiary of the Company, Chrysalis-ITS, Inc. (“Chrysalis”), an Ontario corporation and Capital Alliance Ventures, Inc. (incorporated by reference to Exhibit 2(i) of the Company’s Current Report on Form 8-K, filed on September 16, 2003).

2(iv) Agreement and Plan of Reorganization, dated October 22, 2003, by and between the Company, SafeNet, Inc. and Ravens Acquisition Corp. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on October 24, 2003).

3(i) Articles of Incorporation of Rainbow, as amended (incorporated by reference to Exhibit 3(a) to Rainbow’s Registration Statement on Form S-18 under the Securities Act of 1933, as amended, filed on July 20, 1987 — File No. 33-15956-LA (the “S-18 Registration Statement”)).

3(ii) By-Laws of Rainbow (incorporated by reference to Exhibit 3(b) to the S-18 Registration Statement).

4(a) See Exhibit 3(i).

4(b) See Exhibit 3(ii).

4(c) Rights Agreement, dated as of July 29, 1997, between the Company and U.S. Stock Transfer Corporation, as Rights Agent (incorporated by reference to Exhibit 4(c) to the Company’s 1997 10-K).


Exhibit
Number		Description

10(a)		Agreement, dated October 1996, between the Company and National Semiconductor Corporation (incorporated by reference to Exhibit 10(b) of the Company’s 1998 Annual Report on Form 10-K under the Securities Exchange Act of 1934 filed in March, 1999 (the “1998 10-K”)).

10(b)		Agreement, dated December 1998, between the Company and EM Microelectronic — Marin S.A. (incorporated by reference to Exhibit 10(c) of the 1998 10-K).

10(c)		1990 Incentive Stock Option Plan as amended (incorporated by reference to Exhibit 10(j) of the 1991 10-K).

10(d)		Employment Agreement, dated February 16, 1990, between the Company and Walter W. Straub (incorporated by reference to Exhibit 10(j) of the 1989 10-K).

10(e)		Change of Control Agreement, dated February 16, 1990, between the Company and Walter W. Straub (incorporated by reference to Exhibit 10(k) of the 1989 10-K).

10(f)		Employment Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery (incorporated by reference to Exhibit 10(l) of the 1994 10-K).

10(g)		Change of Control Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery (incorporated by reference to Exhibit 10(m) of the 1994 10-K).

10(h)		Agreement for Design and Product Purchase, dated September 4, 1997, between IBM Microelectronics and Rainbow Technologies, Inc. and Mykotronx, Inc. (incorporated by reference to Exhibit 10(w) of the 1998 10-K).

10(i)		Lease for premises at 371 Van Ness Way, Torrance, California, dated October 2, 1997, between Surf Management Associates, a California limited partnership, and Mykotronx, Inc., a California Corporation (incorporated by reference to Exhibit 10(x) of the 1999 Form 10-K).

10(j)		Lease for premises at 111 West Ocean Boulevard, Long Beach, California, between Stevens Creek Associates, a California general partnership, and the Company (incorporated by reference to Exhibit 10(y) of the 1999 Form 10-K).

10(k)		Lease for premises at 8 Hughes, Irvine, California, between Alton Irvine Partners, LLC, a California limited liability company, and the Company (incorporated by reference to Exhibit 10(z) of the 2000 Form 10-K).

10(l)		2000 Incentive Stock Option Plan (incorporated by reference to Rainbow’s Registration Statement on Form S-8 filed under the Securities Act of 1933).

10(m)		2001 Nonstatutory Stock Option Plan (incorporated by reference to Rainbow’s Registration Statement on Form S-8 filed under Securities Act of 1933).

10(n)		Lease for premises at 50 Technology Drive, Irvine, California, dated April 14, 2000, between The Irvine Company, a California Corporation, and the Company (incorporated by reference to Exhibit 10(o) of the September 2002 10-Q).

10(o)		Leases for premises at 357 and 359 Van Ness Way, Torrance, California, dated May 1, 2002, between Surf Management Associates, a California limited partnership, and Mykotronx, Inc., a California Corporation (incorporated by reference to Exhibit 10(o) of the 2002 Form 10-K).

10(p)		Employment Agreement, dated April 1, 2000, between the Company and Cheryl Baffa (incorporated by reference to Exhibit 10(p) of the 2002 Form 10-K).

10(q)		Change of Control Agreement, dated April 1, 2000, between the Company and Cheryl Baffa (incorporated by reference to Exhibit 10(q) of the 2002 Form 10-K).

10(r)		Employment Agreement, dated April 1, 2000, between the Company and James Kopycki (incorporated by reference to Exhibit 10(r) of the 2002 Form 10-K).

10(s)		Change of Control Agreement, dated April 1, 2000, between the Company and James Kopycki (incorporated by reference to Exhibit 10(s) of the 2002 Form 10-K).

10(t)		Consultant Agreement, dated January 1, 2000, between the Company and Abbott Investments (incorporated by reference to Exhibit 10(t) of the 2002 Form 10-K).

10(u)		Employment Agreement, dated December 20, 2002, between the Company and Wang Chan.

10(v)		Employment Agreement, dated July 1, 2003, between the Company and Shawn Abbott.

10(w)		Change of Control Agreement, dated July 1, 2003, between the Company and Shawn Abbott.

10(x)		Manufacturing Agreement, dated June 24, 2003, between Mykotronx, Inc. and SCI Technology, Inc.

10(y)		Manufacturing Agreement, dated October 28, 2003, between Mykotronx, Inc. and Bulova Technologies L.L.C.

31(a)		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Walter W. Straub, President and Chief Executive Officer

31(b)		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Patrick E. Fevery, Vice President and Chief Financial Officer.

(b) Reports on Form 8-K

Current report on Form 8-K, furnished July 1, 2003.

Current report on Form 8-K, furnished July 23, 2003.

Current report on Form 8-K, furnished August 15, 2003.

Current report on Form 8-K, furnished September 9, 2003.

Current report on Form 8-K, filed September 17, 2003.

Current report on Form 8-K, filed September 29, 2003.

The Company filed a current report on Form 8-K/A to correct the reporting on the original 8-K filed on September 26, 2003. EX-10.(U) 3 a94458exv10wxuy.txt EXHIBIT 10(U) Exhibit 10(u) [RAINBOW TECHNOLOGIES LOGO] EMPLOYMENT AGREEMENT between Rainbow Technologies, Inc., (the "Corporation"), and Wang Chan (the "Executive"), dated this 20th day of December 2002. W I T N E S S E T H : WHEREAS, the Corporation desires to engage Executive to perform services for the Corporation, and the Executive desires to perform such services, on the terms and conditions herein set forth. NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed by and between the Corporation and the Executive as follows: 1. AT-WILL EMPLOYMENT. Executive understands that this Agreement will also constitute a written at-will contract that will govern Executive's employment with the Company. Executive specifically agrees that Executive's employment is not for a specified term and is rather at the mutual consent of Executive and the Corporation. Executive's employment is strictly at-will, and Executive may be discharged with or without cause at any time. Notwithstanding any other writing, Executive understands that Executive is not employed for any specified term. Executive may be transferred with mutual agreement by the Executive and the President of the Corporation. Executive's at-will employment status may be changed only if there is a written agreement to the contrary signed by both Executive and by the President of the Corporation. Executive understands that no oral agreement or statement of any kind can alter Executive's at-will contractual status. This at-will contract is the entire agreement between Executive and the Corporation regarding Executive's employment term. 2. POSITION AND DUTIES. The Executive shall be employed in the business of the Corporation. As of the date of this Agreement, Executive's duties include those duties Executive is currently performing as Vice President of the Corporation. Notwithstanding the duties as described above, Executive agrees that his duties may be, from time to time, revised or modified by the President of the Corporation. The Executive agrees to devote his full business time during normal business hours to the business and affairs of the Corporation and to use his best efforts to perform faithfully and efficiently the assigned responsibilities hereunder. 3. COMPENSATION AND BENEFITS. 3.1 BASE SALARY. The Corporation will pay Executive a base salary ("Base Salary"), which will be paid in accordance with the payroll practices of the Corporation. 3.2 ANNUAL BONUS. In addition to Base Salary, the Executive shall have an opportunity to earn an annual management bonus ("Annual Bonus") as established by the Corporation. 3.3 INCENTIVE, RETIREMENT AND SAVINGS PLAN. In addition to the Base Salary and Annual Bonus, the Executive shall be entitled to participate in incentive and retirement plans and programs ("Incentives"), if any, and as established by the Corporation provided Executive meets the eligibility requirements. 3.4 BENEFIT PLANS. The Executive and/or Executive's spouse and dependents, as the case may be, shall be entitled to all benefits under all medical, dental, vision, disability, executive life, group life, accidental death and travel accident insurance plans and programs ("Benefit Plans"), if any, and as established by the Corporation provided the Executive meets the eligibility requirements. 3.5 FRINGE BENEFITS. The Executive and/or Executive's spouse and dependents, as the case may be, shall be entitled to fringe benefits ("Fringe Benefits"), if any, and as established by the Corporation provided the Executive meets the eligibility requirements. 3.6 VACATION. The Executive shall be entitled to paid vacation in accordance with the policies established from time to time by the Corporation 4. EXPENSES. The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred or expended by the Executive in fulfillment of the duties hereunder. Executive shall provide documentation of such expenses in accordance with the procedures established from time to time by the Corporation. 5. TERMINATION. 5.1 DEATH. The Executive's employment shall terminate automatically upon the Executive's death ("Death"). 5.2 DISABILITY. The Corporation may terminate the Executive's employment, after having established the Executive's "Disability" (as defined below), by giving to the Executive notice of its intention to terminate Executive's employment effective on the 90th day after such notice (the "Disability Effective Date") if within such 90-day period the Executive fails to return to full-time performance of his duties. For purposes of this Agreement, "Disability" means a disability which, after the expiration of more than 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Corporation or the insurers providing disability insurance to the Company and consented to by the Executive or Executive's legal representative (such consent not to be withheld unreasonably). 5.3 CAUSE. The Corporation may terminate the Executive's employment for Cause ("Cause"). For purposes of this Agreement, "Cause" means (i) an act or acts of dishonesty on the Executive's part which result in or are intended to result in Executive's substantial personal enrichment at the expense of the Corporation or (ii) repeated violations by the Executive of Executive's obligations under Article 2 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which were intended to result in or have resulted in material injury to the Corporation. 5.4 WITHOUT CAUSE. The President or member of the Corporation's Board of Directors may terminate the Executive's employment without cause ("Without Cause") upon 30 days notice. 5.5 GOOD REASON. The Executive may terminate his/her employment for Good Reason ("Good Reason"). For purposes of this Agreement, "Good Reason" is defined as set forth in Articles 5.5.1 through 5.5.3 below. 5.5.1 ADVERSE CHANGE. Without the express written consent of the Executive, (i) the assignment to the Executive of any duties inconsistent in any substantial respect with the Executive's position, authority or responsibilities as contemplated by Article 2 of this Agreement, or (ii) any other substantial adverse change in such position including titles, authority or responsibilities. 5.5.2 FAILURE TO COMPLY. Any failure by the Corporation to comply with any of the provisions of Article 3 of this Agreement, other than an insubstantial and inadvertent failure remedied by the Corporation promptly after receipt of notice thereof given by the Executive. 5.5.3 FAILURE TO ASSUME. Any failure by the Corporation to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Article 10. 5.5.4 DETERMINATION OF GOOD REASON. For the purposes of this Agreement, any final determination of "Good Reason" shall be made solely by the Corporation's independent auditors. 5.5.5 GOOD FAITH. In the event that the Executive shall in good faith give a "Notice of Termination," as hereinafter defined in paragraph 5.8 hereof, for Good Reason and it shall thereafter be determined that Good Reason and it shall thereafter be determine that Good Reason did not exist, the employment of the Executive shall, unless the Corporation and the Executive shall otherwise mutually agree, be deemed to have terminated at the date of the giving of such purported Notice of Termination. In such event, the Executive shall be deemed to have elected Voluntary Retirement and shall be entitled to receive only those payments and benefits which he would have been entitled to receive at such date under Article 6.3 of this Agreement. 5.6 RESIGNATION. At any time after the effective date of the Agreement, the Executive may terminate his employment by electing resignation ("Voluntary Resignation"). 5.7 NOTICE OF TERMINATION. Any termination by the Corporation shall be communicated by Notice of Termination to the other party hereto given in accordance with Article 11. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement which date shall be in accordance with the specific termination provision in this Agreement relied upon. 5.8 DATE OF TERMINATION. Notwithstanding any contrary provision contained in this Agreement, (i) if the Executive is terminating this Agreement in order to elect Voluntary Resignation, the Date of Termination shall not be the date of receipt of such Notice of Termination but shall be a date specified therein, which date shall be neither less than 30 days nor greater than 90 days after giving such Notice of Termination; (ii) if the Executive's employment is terminating due to Disability, the Date of Termination shall be the Disability Effective Date; (iii) if the Executive's employment terminates due to the Executive's death, the Date of Termination shall be the date of death; and (iv) if the Executive's employment is terminated Without Cause, the Date of Termination shall not be the date of receipt of such Notice of Termination but shall be a date specified therein, which date shall be not less than 30 days after giving such Notice of Termination. 6. OBLIGATIONS OF THE CORPORATION UPON TERMINATION. 6.1 DEATH. If the Executive's employment is terminated by reason of the Executive's death, except as described in the next sentence, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the date of Executive's death. Anything in this Agreement to the contrary notwithstanding, the Executive's spouse and dependents shall be entitled to continue to receive the benefits under Benefit Plans and Fringe Benefits through the Term of this agreement. 6.2 CAUSE. If the Executive's employment shall be terminated for Cause, the Corporation shall pay the Executive his Base Salary and any other accrued obligations through the Date of Termination. The Corporation shall have no further obligations to the Executive under this Agreement. 6.3 VOLUNTARY RESIGNATION. The Corporation shall have no further obligation to the Executive under this Agreement. If the Executive elects Voluntary Resignation. The Corporation shall pay the Executive his Base Salary and any other accrued obligations through the Date of Termination. 6.4 GOOD REASON, WITHOUT CAUSE AND DISABILITY. If the Corporation shall terminate the Executive's employment either Without Cause or for Disability; 6.4.1 PAYMENTS. The Corporation shall pay to the Executive the aggregate of the amounts determined pursuant to Articles 6.4.1 (i) and 6.4.1(ii): (i) if not already paid, the Executive's Base Salary and accrued obligations through the Date of Termination, to be paid within 30 days after the Date of Termination; (ii) 100% of the Executive's "Base Amount." Base Amount is the highest three year average of the aggregate of the Executive's Annual Base Salary, Commissions (if applicable) and Annual Bonus paid or due to Executive in the last five fiscal years prior to the year in which termination occurred. Said 100% of the Base Amount shall be paid to the Executive in 12 equal monthly installments commencing within 30 days after the Date of Termination. 6.4.2 STOCK OPTIONS. All stock options and stock appreciation rights, if any, granted to the Executive, which are not exercisable at the Date of Termination, shall become fully exercisable as of the Date of Termination. Options not exercised within 90 days from Date of Termination will expire. 6.4.3 BENEFITS. For 12 months subsequent to the Date of Termination, the Corporation shall continue Benefit Plans and Fringe Benefits to the Executive and/or Executive's spouse and dependents. For COBRA purposes, the Date of Termination will be the qualifying event and the Corporation will pay 12 months of insurance premiums. 7. FULL SETTLEMENT. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation may have against the Executive or others. 8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Corporation all secret or confidential information, knowledge or data relating to the Corporation or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during his employment by the Corporation or any of its affiliated companies and which shall not be public knowledge. After termination of the Executive's employment with the Corporation, he shall not, without the prior written consent of the Corporation, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it. 9. COVENANT NOT TO COMPETE. In view of the fulfillment of Executive's obligations hereunder and (i) the unique and valuable services it is expected Executive will render to the Corporation, (ii) Executive's knowledge of the clients, trade secrets, and other proprietary information relating to the business of the Corporation and its customers and suppliers, and (iii) similar knowledge Executive has regarding the Corporation, and in consideration of the compensation to be received hereunder and as a condition to the performance by Corporation of its obligations under this Agreement, Executive agrees that if this Agreement is terminated due to Good Reason, Disability or for Without Cause that for the period through 12 months after the Date of Termination the Executive shall not directly or indirectly through any other person, firm or Corporation: (i) compete with or be engaged in the same or similar business (as determined by the Corporation) or "participate" in any other business or organization which during such period competes with or is engaged in the same or similar business as the Corporation in any geographical area in which the Corporation conducts such business. The term "participate in" shall mean: "directly or indirectly, for Executive's own benefit or for, with, or through any other person, firm, or corporation, own, manage, operate, control, loan money to, or participate in the ownership, management, operation, or control of, or be connected as a director, officer, employee, partner, consultant, agent, independent contractor, or otherwise with, or acquiesce in the use of Executive's name. Executive will not directly or indirectly reveal the name of, solicit or interfere with, or endeavor to entice away from the Corporation any of its customers or employees. Executive will not directly or indirectly employ any person who, at any time up to such cessation, was an employee of the Corporation, within a period of one year after such person leaves the employ of such Corporation. Executive agrees that the provisions of this Article 9 are necessary and reasonable to protect the Corporation in the conduct of its business. If any restriction contained in this Article 9 shall be deemed to be invalid, illegal, or unenforceable by reason of the extent, duration, or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope, or other provisions hereof, and in its reduced form such restriction shall then be enforceable in the manner contemplated hereby. 9.1 BREACH. If Executive commits a breach of any of the provisions of this Article 9, Corporation shall have the right and remedy to have such provisions specifically enforced by any court having equity jurisdiction. The foregoing right and remedy shall be in addition to any other remedy (including without limitation damages) to which Corporation may be entitled. 10. SUCCESSORS. 10.1 ASSIGNMENT BY EXECUTIVE. This Agreement is personal to the Executive and shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 10.2 ASSIGNMENT BY CORPORATION. Notwithstanding anything in this Agreement, Executive agrees that this agreement may be assigned by the Corporation. 11. MISCELLANEOUS. 11.1 MODIFICATIONS. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof. This agreement may be modified only by a written instrument duly executed by each party. 11.2 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 11.3 NOTICE. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: see attachment - ---------------------------- - ---------------------------- - ---------------------------- If to the Corporation: President Rainbow Technologies, Inc. 50 Technology Irvine, CA 92618 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressees. 11.4 EQUITABLE RELIEF. Since a breach of the provisions of this Agreement, particularly with respect to Article 9, could not adequately be compensated by money damages, the Corporation shall be entitled, in addition to any other right and remedy available to it, to an injunction restraining such breach or a threatened breach, and in either case no bond or other security shall be required in connection therewith, and Executive hereby consents to the issuance of such injunction. 11.5 RELATIONSHIP OF PARTIES. Except for authority granted to Executive by the President in order to enable Executive to fulfill the obligations set forth in this Agreement, nothing contained in this Agreement shall authorize, empower, or constitute Executive the agent of the Corporation in any manner; authorize or empower Executive to assume or create any obligation or responsibility whatsoever, express or implied, on behalf of or in the name of the Corporation. 11.6 WAIVER. Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be a waiver or deprive the party of the right hereunder to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing and signed by the waiving party. 11.7 SEPARABILITY. If any provision of this Agreement is invalid, illegal, or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. 11.8 HEADINGS. The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 11.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.10 WITHHOLDINGS. The Executive agrees that the Corporation shall withhold from any and all payments required to be made to Executive pursuant to this Agreement all federal, state, local and/or other taxes or contributions which the Corporation determines are required to be withheld in accordance with applicable statutes and/or regulations from time to time in effect provided, however, that such withholding shall be consistent with the calculations made by the Corporation. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its name on its behalf all as of the day and year first above written. /s/ Wang Chan - ------------------------------------- Wang Chan ATTEST: /s/ Walter Straub - ------------------------------------- Walter Straub Rainbow Technologies, Inc. EX-10.(V) 4 a94458exv10wxvy.txt EXHIBIT 10(V) EXHIBIT 10(v) EMPLOYMENT AGREEMENT between Rainbow Technologies, Inc., a Delaware corporation (the "Corporation"), and Shawn Abbott, (the "Executive"), dated this first day of July 2003. W I T N E S S E T H : WHEREAS, the Corporation desires to engage Executive to perform services for the Corporation, and the Executive desires to perform such services, on the terms and conditions herein set forth. NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed by and between the Corporation and the Executive as follows: 1. TERM. The Corporation agrees to employ Executive, and Executive agrees to serve, on the terms and conditions stated herein for a period commencing July 1,2003 and terminating December 31, 2003 or such shorter period as provided for herein. The period during which Executive is employed hereunder is hereinafter referred to as the "Term." The Term shall be automatically renewed for successive one-year periods thereafter, unless terminated pursuant to the provisions of this Employment Agreement (the "Agreement"). The period during which Executive is employed hereunder is hereinafter referred to as the "Term." 2. POSITION AND DUTIES. The Executive shall be employed in the business of the Corporation. As of the date of this Agreement, Executive's duties include those duties Executive is currently performing as President, eSecurity Group. Notwithstanding the duties as described above, Executive agrees that his duties may be, from time to time, revised or modified by the Chief Executive Officer and/or President of the Corporation. The Executive agrees to devote his full business time during normal business hours to the business and affairs of the Corporation and to use his best efforts to perform faithfully and efficiently the assigned responsibilities hereunder. 3. COMPENSATION AND BENEFITS. 3.1 BASE SALARY. The Corporation will pay Executive a base salary ("Base Salary") of $3433 per week, which will be paid in accordance with the payroll practices of the Corporation. 3.2 ANNUAL BONUS. In addition to Base Salary, the Executive shall have an opportunity to earn a year 2003 management bonus ("Year 2003 Management Bonus"), in cash, as established by the Board. The Year 2003 Management Bonus target is $102,000. 3.3 INCENTIVE, RETIREMENT AND SAVINGS PLAN. In addition to the Base Salary and Annual Bonus, the Executive shall be entitled to participate in all incentive, retirement and savings plans and programs ("Incentives"), if any, and as established by the Corporation provided Executive meets the eligibility requirements. 3.4 BENEFIT PLANS. The Executive and/or Executive's spouse and dependents, as the case may be, shall be entitled to all benefits under all medical, dental, vision, disability, executive life, group life, accidental death and travel accident insurance plans and programs ("Benefit Plans"), if any, and as established by the Corporation provided the Executive meets the eligibility requirements. 3.5 FRINGE BENEFITS. The Executive and/or Executive's spouse and dependents, as the case may be, shall be entitled to fringe benefits ("Fringe Benefits"), if any, and as established by the Corporation provided the Executive meets the eligibility requirements. 3.6 VACATION. The Executive shall be entitled to paid vacation in accordance with the policies established from time to time by the Corporation. 4. EXPENSES. The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred or expended by the Executive in fulfillment of the duties hereunder. Executive shall provide documentation of such expenses in accordance with the procedures established from time to time by the Corporation. 5. TERMINATION. 5.1 DEATH. The Executive's employment shall terminate automatically upon the Executive's death ("Death"). 5.2 DISABILITY. The Corporation may terminate the Executive's employment, after having established the Executive's "Disability" (as defined below), by giving to the Executive notice of its intention to terminate Executive's employment effective on the 90th day after such notice (the "Disability Effective Date") if within such 90-day period the Executive fails to return to full-time performance of his duties. For purposes of this Agreement, "Disability" means a disability which, after the expiration of more than 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Corporation or the insurers providing disability insurance to the Company and consented to by the Executive or Executive's legal representative (such consent not to be withheld unreasonably). 5.3 CAUSE. The Corporation may terminate the Executive's employment for Cause ("Cause"). For purposes of this Agreement, "Cause" means (i) an act or acts of dishonesty on the Executive's part which result in or are intended to result in Executive's substantial personal enrichment at the expense of the Corporation or (ii) repeated violations by the Executive of Executive's obligations under Article 2 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which were intended to result in or have resulted in material injury to the Corporation. 5.4 WITHOUT CAUSE. The President or the Chief Operating Officer may terminate the Executive's employment without cause ("Without Cause") upon 30-60 days notice. 5.5 RESIGNATION. At any time after the effective date of the Agreement, the Executive may terminate his employment by electing resignation ("Voluntary Resignation"). 5.6 CHANGE OF CONTROL. In the event of a Change of Control, this Agreement shall automatically terminate, and a separate Change of Control Agreement shall become effective. For purposes of this Agreement, "Change of Control" shall be deemed to have occurred if (i) a third person, including a "group" as defined in Article 13(d)(3) of the Securities Exchange Act of 1934, becomes the beneficial owner of shares of the Corporation having a 35% or more of the total number of votes that may be cast for the election of directors as the result of, or in connection with, any cash tender or exchange offer, merger of other business combination (a "Transaction") and (ii) results in the persons who were members of the Board before the Transaction ceasing to constitute a majority of the Board or of the members of the board of directors of any successor to the Corporation. 5.7 NOTICE OF TERMINATION. Notice of Termination shall communicate any termination by the Corporation to the other party hereto given in accordance with Article 11. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement which date shall be in accordance with the specific termination provision in this Agreement relied upon. 5.9 DATE OF TERMINATION. Notwithstanding any contrary provision contained in this Agreement, (i) if the Executive is terminating this Agreement in order to elect Voluntary Resignation, the Date of Termination shall not be the date of receipt of such Notice of Termination but shall be a date specified therein, which date shall be neither less than 30 days nor greater than 90 days after giving such Notice of Termination; (ii) if the Executive's employment is terminating due to Disability, the Date of Termination shall be the Disability Effective Date; (iii) if the Executive's employment terminates due to the Executive's death, the Date of Termination shall be the date of death; and (iv) if the Executive's employment is terminated Without Cause, the Date of Termination shall not be the date of receipt of such Notice of Termination but shall be a date specified therein, which date shall be not less than 30 days after giving such Notice of Termination. 6. OBLIGATIONS OF THE CORPORATION UPON TERMINATION. 6.1 DEATH. If the Executive's employment is terminated by reason of the Executive's death, except as described in the next sentence, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the date of Executive's death. Anything in this Agreement to the contrary notwithstanding, the Executive's spouse and dependents shall be entitled to continue to receive the benefits under Benefit Plans and Fringe Benefits through the Term of this agreement. 6.2 CAUSE. If the Executive's employment shall be terminated for Cause, the Corporation shall pay the Executive his Base Salary and any other accrued obligations through the Date of Termination. The Corporation shall have no further obligations to the Executive under this Agreement. 6.3 VOLUNTARY RESIGNATION. The Corporation shall have no further obligation to the Executive under this Agreement. If the Executive elects Voluntary Resignation. The Corporation shall pay the Executive his Base Salary and any other accrued obligations through the Date of Termination. 6.4 WITHOUT CAUSE AND DISABILITY. If the Corporation shall terminate the Executive's employment either Without Cause or for Disability; 6.4.1 PAYMENTS. The Corporation shall pay to the Executive the aggregate of the amounts determined pursuant to Articles 6.4.1 (i) and 6.4.1(ii): (i) if not already paid, the Executive's Base Salary and accrued obligations through the Date of Termination, to be paid within 30 days after the Date of Termination; (ii) 100% of the Executive's "Base Amount." Base Amount is the highest three year average of the aggregate of the Executive's Annual Base Salary and Annual Bonus paid or due to Executive in the last five fiscal years prior to the year in which termination occurred. Said 100% of the Base Amount shall be paid to the Executive in 12 equal monthly installments commencing within 30 days after the Date of Termination. 6.4.2 STOCK OPTIONS. All stock options and stock appreciation rights, if any, granted to the Executive, which are not exercisable at the Date of Termination, shall become fully exercisable as of the Date of Termination. 6.4.3 BENEFITS. For 12 months subsequent to the Date of Termination, the Corporation shall continue Benefit Plans and Fringe Benefits to the Executive and/or Executive's spouse and dependents. For COBRA purposes, the Date of Termination will be the qualifying event and the Corporation will pay 12 months of insurance premiums 6.5 CHANGE OF CONTROL. Notwithstanding anything in this Agreement to the contrary, if the Executive's employment shall be terminated due to a Change of Control, the Corporation shall have no further obligation to the Executive under this Agreement. 7. FULL SETTLEMENT. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation may have against the Executive or others. 8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Corporation all secret or confidential information, knowledge or data relating to the Corporation or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during his employment by the Corporation or any of its affiliated companies and which shall not be public knowledge. After termination of the Executive's employment with the Corporation, he shall not, without the prior written consent of the Corporation, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it. 9. COVENANT NOT TO COMPETE. In view of the fulfillment of Executive's obligations hereunder and (i) the unique and valuable services it is expected Executive will render to the Corporation, (ii) Executive's knowledge of the clients, trade secrets, and other proprietary information relating to the business of the Corporation and its customers and suppliers, and (iii) similar knowledge Executive has regarding the Corporation, and in consideration of the compensation to be received hereunder and as a condition to the performance by Corporation of its obligations under this Agreement, Executive agrees that if this Agreement is terminated due to Disability, a Change of Control or for Without Cause that for the period of one (1) year after the Date of Termination the Executive shall not directly or indirectly through any other person, firm or Corporation: (i) compete with or be engaged in the same business or "participate" in any other business or organization which during such period competes with or is engaged in a similar business as the Corporation in any geographical area in which the Corporation conducts such business. The term "participate in" shall mean: "directly or indirectly, for Executive's own benefit or for, with, or through any other person, firm, or corporation, own, manage, operate, control, loan money to, or participate in the ownership, management, operation, or control of, or be connected as a director, officer, employee, partner, consultant, agent, independent contractor, or otherwise with, or acquiesce in the use of Executive's name. Executive will not directly or indirectly reveal the name of, solicit or interfere with, or endeavor to entice away from the Corporation any of its customers or employees. Executive will not directly or indirectly employ any person who, at any time up to such cessation, was an employee of the Corporation, within a period of one year after such person leaves the employ of such Corporation. Executive agrees that the provisions of this Article 9 are necessary and reasonable to protect the Corporation in the conduct of its business. If any restriction contained in this Article 9 shall be deemed to be invalid, illegal, or unenforceable by reason of the extent, duration, or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope, or other provisions hereof, and in its reduced form such restriction shall then be enforceable in the manner contemplated hereby. 9.1 BREACH. If Executive commits a breach of any of the provisions of this Article 9, Corporation shall have the right and remedy to have such provisions specifically enforced by any court having equity jurisdiction. The foregoing right and remedy shall be in addition to any other remedy (including without limitation damages) to which Corporation may be entitled. 10. SUCCESSORS. 10.1 ASSIGNMENT BY EXECUTIVE. This Agreement is personal to the Executive and shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 10.2 ASSIGNMENT BY CORPORATION. Notwithstanding anything in this Agreement, Executive agrees that the Corporation may assign this Agreement. 11. MISCELLANEOUS. 11.1 MODIFICATIONS. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof. Only a written instrument duly executed by each party may modify this agreement. 11.2 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 11.3 NOTICE. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Shawn Abbott ___________________________ ___________________________ If to the Corporation: Walter Straub, President Rainbow Technologies, Inc. 50 Technology Irvine, CA 92618 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressees. 11.4 EQUITABLE RELIEF. Since a breach of the provisions of this Agreement, particularly with respect to Article 9, could not adequately be compensated by money damages, the Corporation shall be entitled, in addition to any other right and remedy available to it, to an injunction restraining such breach or a threatened breach, and in either case no bond or other security shall be required in connection therewith, and Executive hereby consents to the issuance of such injunction. 11.5 RELATIONSHIP OF PARTIES. Except for authority granted to Executive by the President and/or Chief Operating Officer in order to enable Executive to fulfill the obligations set forth in this Agreement, nothing contained in this Agreement shall authorize, empower, or constitute Executive the agent of the Corporation in any manner; authorize or empower Executive to assume or create any obligation or responsibility whatsoever, express or implied, on behalf of or in the name of the Corporation. 11.6 WAIVER. Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be a waiver or deprive the party of the right hereunder to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing and signed by the waiving party. 11.7 SEPARABILITY, If any provision of this Agreement is invalid, illegal, or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances, 11.8 HEADINGS, The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 11.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.10 WITHHOLDINGS. The Executive agrees that the Corporation shall withhold from any and all payments required to be made to Executive pursuant to this Agreement all federal, state, local and/or other taxes or contributions which the Corporation determines are required to be withheld in accordance with applicable statutes and/or regulations from time to time in effect provided, however, that such withholding shall be consistent with the calculations made by the Corporation. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its behalf all,as of the day and year first above written. /s/ Shawn Abbort - ---------------------------- July 1, 2003 Shawn Abbort ATTEST: /s/ Walter Straub - ---------------------------- Walter Straub President Rainbow Technologies, Inc. EX-10.(W) 5 a94458exv10wxwy.txt EXHIBIT 10 (W) Exhibit 10(w) CHANGE OF CONTROL AGREEMENT between Rainbow Technologies, Inc., a Delaware corporation (the "Corporation"), and Shawn Abbott (the "Executive"), dated this first day of July 2003. W I T N E S S E T H: WHEREAS, the Corporation and the Executive have entered into an Employment Agreement; and WHEREAS, the Corporation wishes to assure both itself and the Executive of continuity of management in the event of any actual or threatened "Change of Control" (as defined in Article 2) of the Corporation that occurs during the term of the Executive's Employment Agreement; NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed by and between the Corporation and the Executive as follows: 1. TERM. The Corporation agrees to employ Executive, and Executive agrees to serve, on the terms and conditions stated herein for a one year period commencing on the effective date of the Change in Control (as defined in Article 2 and hereinafter defined as the "Change Date") said period to be automatically renewed for successive one year periods thereafter and ending on termination pursuant to the provisions of this Change of Control Agreement (the "Agreement"). 2. CHANGE OF CONTROL. For purposes of this Agreement, "Change of Control" shall be deemed to have occurred if (i) a third person, including a "group" as defined in Article 13(d)(3) of the Securities Exchange Act of 1934, becomes the beneficial owner of shares of the Corporation having a 35% or more of the total number of votes that may be cast for the election of directors as the result of, or in connection with, any cash tender or exchange offer, merger of other business combination (a "Transaction") and (ii) results in the persons who were members of the Board before the Transaction ceasing to constitute a majority of the Board or of the members of the board of directors of any successor to the Corporation. 3. POSITION AND DUTIES. The Executive's position (including titles), authority and .. responsibilities shall be at least commensurate with the most significant of those held, exercised and assigned during the 90-day period immediately preceding the Change Date. The Executive shall be based and the Executive's services shall be performed at the location at which the Executive was based immediately preceding the Change Date, except for travel reasonably required in the performance of the Executive's responsibilities. It is understood that such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Corporation as contemplated by Article 11 hereof and that the Executive shall continue to have a position and authority and responsibilities with respect to such successor or affiliated company substantially corresponding to that of the Executive with respect to the Corporation prior to such acquisition. As used in this Agreement, the term "affiliated companies" means any company controlling, controlled by or under common control with the Corporation. Notwithstanding the duties as described above, Executive agrees that his duties may be, from time to time, revised or modified by the President, or other executive, of the Corporation The Executive agrees to devote his fall business time during normal business hours to the business and affairs of the Corporation and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to him hereunder. 4. COMPENSATION AND BENEFITS, 4.1 BASE SALARY. The Executive shall receive a base salary (the "Base Salary") at least equal to the Base Salary paid to the Executive by the Corporation prior to the Change Date. The Base Salary shall be reviewed at least once each year and shall be increased at any rime and from time to time by action of the President, Board or any committee thereof. The Base Salary shall be paid in accordance with the Corporation's regular practices. 4.2 ANNUAL BONUS. In addition to Base Salary, the Executive shall have an opportunity to earn or be awarded, for each fiscal year during the Term, an annual bonus ("Annual Bonus") in cash. The Annual Bonus shall be at least equal to the Annual Bonus, if any, paid or payable to the Executive prior to the Change Date. In the event of the termination of this Agreement for any reason, the Executive shall receive the Annual Bonus prorated to the date of such termination. 4.3 INCENTIVE, RETIREMENT AND SAVINGS PLAN. In addition to the Base Salary and Annual Bonus, Executive shall be entitled to participate in all incentive, retirement and savings plans and programs ("Incentives"), if any, and as established by the Corporation from time to time provided Executive meets the eligibility requirements. All Incentives, provided for the Executive shall be at least equal to those provided by the Corporation for the Executive under such plans and programs if and as in effect at any time during the 90-day period immediately preceding the Change Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to executives with comparable responsibilities. 4.4 BENEFIT PLANS. The Executive and/or Executive's spouse and dependents, as the case may be, shall be entitled to all benefits under all medical, dental, vision, disability, executive life, group life, accidental death and travel accident insurance plans and programs ("Benefit Plans") if any, and as established from time to time by the Corporation provided the Executive meets the eligibility requirements therefor. All Benefit Plans shall be at least equal to those in effect at any time during the 90-day period immediately preceding the Change Date or, if more favorable to the Executive, a sin effect at any time thereafter with respect to executives with comparable responsibilities, 4.5 FRINGE BENEFITS. The Executive and/or Executive's spouse and dependents, as the case may be, shall be entitled to fringe benefits ("Fringe Benefits"), if any, and as established from time to time by the Corporation provided the executive meets the eligibility requirements therefor. The Executive is entitled to Fringe Benefits as in effect during the 90-day period immediately preceding the Change Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to executives with comparable responsibilities. 4.6 EXPENSES. The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred or expended by the Executive in fulfillment of the duties hereunder. The Executive shall provide documentation of such expenses and be reimbursed in accordance with me policies and procedures of the Corporation as in effect during the 90-day period immediately preceding the Change Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to executives with comparable responsibilities. 4.8 VACATION. The Executive shall be entitled to paid vacation in accordance with the policies of the Corporation, if any, and as established from time to time by the Corporation. The Executive shall be entitled to vacation in accordance with the policies of the Corporation as in effect during the 90-day period immediately preceding the Change Date or, if more favorable to the Executive, as in effect at any time thereafter with respect to executives with comparable responsibilities. 4.9. BENEFIT AMENDMENTS. Nothing herein shall be construed to prevent the Corporation from amending or altering any plans or programs as long as the Executive continues to have the opportunity to receive compensation and benefits, on a before-tax basis, consistent with paragraphs 4.1 through 4.8. 5. TERMINATION. 5.1 DEATH. The Executive's employment shall terminate automatically upon the Executive's death ("Death"). 5.2 DISABILITY. The Corporation may terminate the Executive's employment, after having established the Executive's "Disability" (as defined below), by giving to the Executive notice of its intention to terminate Executive's employment effective on the 90th day after such notice (the "Disability Effective Date") if within such 90-day period the Executive fails to return to full-time performance of Executive's duties. For purposes of this Agreement, "Disability" means disability which after the expiration of more than 26 weeks after its commencement is determined to be total and permanent by a physician selected by the Corporation or its insurers providing disability insurance to the Company and consented to by the Executive or Executive's legal representative (such consent not to be withheld unreasonably). 5.3 CAUSE. The Corporation may terminate the Executive's employment for Cause("Cause"). For purposes of this Agreement, " Cause" means ( i) an act or acts of dishonesty on the Executive's part which result in or are intended to result in Executive's substantial personal enrichment at the expense of the Corporation or (ii) repeated violations by the Executive of Executive's obligations under Article 3 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which wore intended to result in or have resulted in material injury to the Corporation. 5.4 WITHOUT CAUSE. The President or the Board may terminate the Executive's employment without cause ("Without Cause") upon 30 -60 days notice. 5.5 GOOD REASON. The Executive may terminate his employment for Good Reason ("Good Reason"). For purposes of this Agreement "Good Reason" is defined as set forth in Articles 5.5.1 through 5.5.5 below: 5.5.1 ADVERSE CHANGE. Without the express written consent of the Executive, (i) the assignment to the Executive of any duties inconsistent in any substantial respect with the Executive's position, authority or responsibilities as contemplated by Article 3 of this Agreement, or (ii) any other substantial adverse change in such position including titles, authority or responsibilities. 5.5.2 FAILURE TO COMPLY. Any failure by the Corporation to comply with any of the provisions of Article 4 of this Agreement, other than an insubstantial and inadvertent failure remedied by the Corporation promptly after receipt of notice thereof given by the Executive. 5.5.3 CHANGE OF LOCATION. The Corporation's requiring the Executive to be based or to perform services at any office or location other than that at which the Executive is based immediately prior to the Change Date, except for travel reasonably required in the performance of the Executive's responsibilities. 5.5.4 UNPERMITTED TERMINATION. Any purported termination by the Corporation of the Executive's employment otherwise than as permitted by this Agreement, it being understood that any such purported termination shall not be effective for any purpose of this Agreement. 5.5.5 FAILURE TO ASSUME. Any failure by the Corporation to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Article 11. 5.5.6 DETERMINATION OF GOOD REASON. For the purposes of this Article 5.5, any determination of "Good Reason" shall be made solely by the Corporation's independent auditors. 5.5.7 GOOD FAITH. In the event that the Executive shall in good faith give a "Notice of Termination," as hereinafter defined in paragraph 5.8 hereof, for Good Reason and it shall thereafter be determined that Good Reason did not exist, the employment of the Executive shall, unless the Corporation and the Executive shall otherwise mutually agree, be deemed to have terminated, at the date of the giving of Such purported Notice of Termination. In such event the Executive shall be deemed to have elected Voluntary Retirement and shall be entitled to receive only those payments and benefits which he would have been entitled to receive at such date under Article 6.4 of this Agreement. 5.6 VOLUNTARY RETIREMENT. At any time after the effective date of the Agreement, the Executive may terminate his employment by electing voluntary retirement ("Voluntary Retirement"). 5.7 NOTICE OF TERMINATION. Any termination by the Corporation for Cause, or by the Executive for Good Reason or election of Voluntary Retirement shall be communicated by Notice of Termination to the other party hereto given in accordance with Article 12. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement which date shall be in accordance with the specific termination provision of this Agreement relied upon. 5.8 DATE OF TERMINATION. For purposes of this Agreement, the "Date of Termination" shall mean the date the President receives the Notice of Termination or any later date specified therein, as the case may be. Notwithstanding any contrary provision contained in this Agreement, (i) if the Executive is terminating this Agreement in order to elect Voluntary Retirement, the Date of Termination shall not be the date of receipt of such Notice of Termination but shall be a date specified therein, which date shall be neither less than 30 days nor greater than 90 days after giving such Notice of Termination; (ii) if the Executive's employment is terminating due to Disability, the Date of Termination shall be the Disability Effective Date; (iii) if the Executive's employment terminates due to the Executive's death, the Date of Termination shall be the date of death; and (iv) if the Executive's employment is terminated Without Cause, the Date of Termination shall not be the date of receipt of such Notice of Termination but shall be a date specified therein, which date shall be not less than 30 days after giving such Notice of Termination. 6. OBLIGATIONS OF THE CORPORATION UPON TERMINATION. 6.1 DEATH. If the Executive's employment is terminated by reason of the Executive's death, except as described in the next sentence, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the date of his death. Anything in this Agreement to the contrary notwithstanding, the Executive's spouse and dependents shall be entitled to continue to receive the benefits under Benefit Plans and Fringe Benefits for 18 months subsequent to the Date of Termination. 6.2 CAUSE. If the Executive's employment shall be terminated for Cause, the Corporation shall pay the Executive his Base Salary and any other accrued obligations through the Date of Termination. Corporation shall have no further obligations to the Executive under this Agreement. 6.3 VOLUNTARY RETIREMENT. The Corporation shall have no further obligation to the Executive under this Agreement. If the Executive elects Voluntary Retirement, the Corporation shall pay the Executive his Base Salary and any accrued obligations through the Date of Termination. 6.4 GOOD REASON, WITHOUT CAUSE, AND DISABILITY. If the Board shall terminate the Executive's employment either Without Cause or for Disability, or if the Executive shall terminate his employment for Good Reason: 6.4.1 PAYMENTS. The Corporation shall pay to the Executive the aggregate of the amounts determined pursuant to Articles 6.4.1(i) and 6.4.1(ii): (i) if not therefore paid, the Base Salary and any accrued obligations through the Date of Termination to be paid within 30 days after the Date of Termination; (ii) 100% of the Executive's "Base Amount." Base Amount is the highest three year average of the aggregate of the Executive's Annual Base Salary and Annual Bonus paid or due to Executive in the last five fiscal years prior to the year in which termination occurred. Said 100% of the Base Amount shall be paid to the Executive in 12 equal monthly installments commencing within 30 days after the Date of Termination. 6.4.2 STOCK OPTIONS. All stock options and stock appreciation rights granted to the Executive which arc not exercisable at the Date of Termination, shall become fully exercisable as of the Date of Termination, with the exercise terms per the termination of employment section of the stock option plan(s). 6.4.3 BENEFITS. For 12 months subsequent to the Date of Termination, the Corporation shall continue Benefit Plans and Fringe Benefits to the Executive and/or Executive's spouse and dependents. For COBRA purposes, the Date of Termination will be the qualifying event and the Corporation will pay 12 months of insurance premiums. 7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Corporation or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other Agreements with the Corporation or any its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Corporation or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 8. FULL SETTLEMENT. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation may have against the Executive or others. 9. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Corporation all secret or confidential information, knowledge or data relating to the Corporation or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during Executive's employment by the Corporation or any of its affiliated companies and which shall not be public knowledge. After termination of the Executive's employment with the Corporation, he shall not, without the prior written consent of the Corporation, communicate or divulge any such information, knowledge or data to anyone other than the Corporation and those designated by it. In no event shall an asserted violation of the provisions of this Article 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 10. COVENANT NOT TO COMPETE. In view of the fulfillment of Executive's obligations hereunder and (i) the unique and valuable services it is expected Executive will render to the Corporation, (ii) Executive's knowledge of the clients, trade secrets, and other proprietary information relating to the business of the Corporation and its customers and suppliers, and (iii) similar knowledge Executive has regarding the Corporation, and in consideration of the compensation to be received hereunder and as a condition to the performance by Corporation of its obligations under this Agreement, Executive agrees that if this Agreement is terminated due to Disability, Good Reason, a Change of Control or for Without Cause that for the period of one (1) year after the Date of Termination the Executive shall not directly or indirectly through any other person, firm or Corporation: (i) Compete with or be engaged in the same business or "participate in" any other business or organization which during such one year period competes with or is engaged in a similar business as the Corporation in any geographical area in which the Corporation conducts such business. The term "participate in" shall mean: "directly or indirectly, for Executive's own benefit or for, with, or through any other person, firm, or corporation, own, manage, operate, control, loan money to, or participate in the ownership, management, operation, or control of, or be connected as a director, officer, employee, partner, consultant, agent, independent contractor, or otherwise with, or acquiesce in the use of Executive's name. Executive will not directly or indirectly reveal the name of, solicit or interfere with, or endeavor to entice away from Corporation any of its customers or employees. Executive will not directly or indirectly employ any person who, at any time up to such cessation, was an employee of the Corporation, within a period of one year after such person leaves the employ of such Corporation. Executive agrees that the provisions of this Article 10 are necessary and reasonable to protect the Corporation in the conduct of its business. If any restriction contained in this Article 10 shall be deemed to be invalid, illegal, or unenforceable by reason of the extent, duration, or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope, or other provisions hereof, and in its reduced form such restriction shall then be enforceable in the manner contemplated hereby. 10.1 BREACH. If Executive commits a breach of any of the provisions of this Article 10, Corporation shall have the right and remedy to have such provisions specifically enforced by any court having equity jurisdiction. The foregoing right and remedy shall be in addition to any other remedy (including without limitation damages) to which Corporation may be entitled. 11. SUCCESSORS. 11.1 ASSIGNMENT BY EXECUTIVE. This Agreement is personal to the Executive and without the prior written consent of the Corporation shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 11.2 ASSIGNMENT BY CORPORATION. Not-withstanding anything in this Agreement, Executive agrees that the Corporation may assign this Agreement. 11.3 BINDING EFFECT. This Agreement shall inure to the benefit of and be binding upon the Corporation and its successors. The Corporation shall require any successor to all or substantially all of the business and/or assets of the Corporation, whether directly or indirectly, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in same manner and to the same extent as the Corporation would be required to perform if no such succession had taken place. 12. MISCELLANEOUS. 12.1 MODIFICATIONS. This Agreement sets forth the entire understanding of the parries with respect to the subject matter hereof, and may be modified only by a written instrument duly executed by each party. 12.2 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 12.3 NOTICE. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Shawn Abbott __________________________ __________________________ If to the Corporation: Rainbow Technologies, Inc. 50 Technology Irvine, CA 92618 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressees. 12.4 EQUITABLE RELIEF. Since a breach of the provisions of this Agreement, particularly with respect to Article 10, could not adequately be compensated by money damages, the Corporation shall be entitled, in addition to any other right and remedy available to it, to an injunction restraining such breach or a threatened breach, and in either case no bond or other security shall be required in connection therewith, and Executive hereby consents to the issuance of such injunction. 12.5 RELATIONSHIP OF PARTIES. Except for authority granted to Executive by the Board in order to enable Executive to fulfill the obligations set forth in this Agreement, nothing contained in this Agreement shall authorize, empower, or constitute Executive the agent of the Corporation in any manner; authorize or empower Executive to assume or create any obligation or responsibility whatsoever, express or implied, on behalf of or in the name of the Corporation. 12.6 WAIVER. Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be a waiver or deprive the party of the right hereunder to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing and signed by the waiving party. 12.7 SEPARABILITY. If any provision of this Agreement is invalid, illegal, or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. 12.8 HEADINGS. The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 12.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12.10 WITHHOLDINGS. The Executive agrees that the Corporation shall withhold from any and all payments required to be made to Executive pursuant to this Agreement all federal, state, local and/or other taxes or contributions which the Corporation determines a required to be withheld in accordance with applicable statutes and/or regulations from time to time in effect provided, however, that such withholding shall be consistent with the calculations made by the Corporation. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its name on its behalf as of the day and year first above written. /s/ Shawn Abbott - -------------------------------- July 1, 2003 Shawn Abbott ATTEST: /s/ Walter W. Straub - -------------------------------- Rainbow Technologies, Inc. Walter W. Straub President EX-10.(X) 6 a94458exv10wxxy.txt EXHIBIT 10 (X) EXHIBIT 10(x) MANUFACTURING AGREEMENT BETWEEN SCI TECHNOLOGY, INC. AND MYKOTRONX, INC. FOR THE KIV PRODUCTS DATED JUNE 24, 2003 KIV-7 MANUFACTURING AGREEMENT TABLE OF CONTENTS 1. Terms of Agreement: Termination 2. Manufacturing 3. License to Manufacture 4. Prohibition of Third Party Sales 5. Forecasts 6. Purchase Orders 7. Pricing 8. Changes 9. Shipments, Factory Relocation: Factory Qualification 10. Delivery Date-Liquidated Damages 11. Force Majeure 12. Inspection and Acceptance 13. Warranty 14. Limitation of Liability 15. Key Personnel/Positions 16. Support Services 17. Status Reporting 18. Products Defects or Recall 19. Relationship 20. Insolvency 21. Choice of Law 22. Resolution of Disputes 23. Assignment 24. Communications and Notice 25. Indemnification 26. Public Release of Information 27. Order of Precedence 28. Compliance with Laws 29. Independent Contractor 30. Gratuities 31. Seller Contacts with Mykotronx's Custom and Other Vendors 32. Release of Liens 33. Taxes 34. Invoices 35. Insurance/Entry on Seller's Property 36. Packing, Packaging, and Marking 37. Certification of Independent Price Determination 38. Work on Mykotronx's or Mykotronx's Customer's Premises 39. Title and Risk of Loss 40. Responsibility for Mykotronx Owned Property 41. Stop Work Order 42. Waiver 43. Failure to Comply 44. Termination for Convenience 45. Termination for Default 46. Mykotronx's Property and Information 47. Information Disclosed and/or Delivered to Mykotronx 48. Amendments 49. Waiver 50. Confidential information 51. Entire Agreement Attachments: A. KIV-7HSB Specifications and Drawings, B. Pricing Schedule C. Mykotronx, Inc. Non Disclosure Agreement D. Key Personnel E. Mykotronx QA Provisions F ID/IQ Contract Special Provisions G. ID/IQ Contract FAR Clauses H. Testing Requirements and Procedures (Pre-ESS, ESS, ATP and ATP2) KIV-7 MANUFACTURING AGREEMENT THIS MANUFACTURING AGREEMENT (the "Agreement") is entered into and effective as of the 24th DAY OF JUNE 2003, by and between SELLER, SCI Technology, Inc. a Alabama corporation, having a principal place of business at 8600 South Memorial Parkway, Huntsville, Alabama, 35802 (SCI) and Mykotronx, Inc., a California corporation, having a principal place of business at 357 Van Ness Way, Suite 200, Torrance, California 90501 ("Mykotronx"). Seller and Mykotronx may be individually referred to as a "Party" or collectively referred to as the "Parties." WHEREAS the Parties wish to enter into this Manufacturing Agreement which shall set forth the terms and conditions upon which Seller shall manufacture Products for Mykotronx and Mykotronx agrees to purchase the manufactured Products from Seller. In addition, the Seller agrees to procure the Presidio Module for the Products from Harris Corporation, RF Communications, 1680 University Avenue, Rochester, NY 14610, The attachments listed in the table of contents are hereby incorporated and are to be considered an integral portion of this Agreement. Notwithstanding the foregoing, in the event of any conflict or ambiguity between this Agreement and any Attachment, this Agreement shall take precedence. 1. TERMS OF AGREEMENT; TERMINATION A. The term of this Agreement will be from June 24,2003 through January 31,2006 __________ unless sooner terminated by mutual agreement or in accordance with this Agreement. Upon the expiration of the next term, this Agreement shall continue from year to year until one party terminates the Agreement by giving at least ninety (90) days' prior written notice to the other party. Notwithstanding the foregoing, the term of this Agreement shall automatically extend to include the term of any purchase order ("Order") issued hereunder, subject to earlier termination pursuant to the provisions of this Agreement. B. Mykotronx may, at its option, terminate this Agreement prior to the term of this Agreement, under the provisions for a Termination for Convenience, (Paragraph 44) by giving written notice to Seller of its desire to terminate this Agreement. Such notice shall include the effective date of the termination which date shall be not less than 180 days after the date of such notice. Such notice shall be given, if at all, at any time after the signing of this Agreement, but not later than six months prior to the expiration of this Agreement. C. Any provisions hereof that by their nature would be expected to survive the termination of this Agreement shall survive and not be affected by the termination or expiration of this Agreement, including, without limitation, Sections 10,13,18,19, 21, 33 and 46. 2. MANUFACTURING Seller shall manufacture KIV-7 COMSEC module for Mykotronx to the Specification 4090500-0501, drawings provided (Attachment "A"), Quality Provisions (Attachment E), and Testing Requirements and Procedures (Attachment H) hereinafter referred to as the Product. 3. LICENSE TO MANUFACTURER For the term of this Agreement, Mykotronx does hereby grant to Seller a nonexclusive, royalty-free, irrevocable right and license to make Product. 4. PROHIBITION OF THIRD PARTY SALES Seller agrees to manufacture the Product exclusively for Mykotronx and further agrees not to sell any Product to any third party unless directed to do so in Writing by Mykotronx. 5. FORECASTS Mykotronx shall submit in writing, a rolling six month forecast of Product that Mykotronx expects will be required for sale beyond the three months of firm purchase order. This forecast shall include total quantity of Product, by Part Number, and such forecast will be revised monthly. Forecast are for general planning and/or long lead procurement purposes and Mykotronx shall not be responsible for forecast that later turn out to be inaccurate other than as provided in Paragraph 25C. Any material ordered beyond Purchase Order is subject to the Seller providing Mykotronx with a priced list of all parts, components and sub-assemblies that must be ordered against the forecast due to long lead time to deliver. This listing will be updated at the time a part, component or subassembly is added or deleted from the list or quarterly, whichever occurs first. Mykotronx will approve proposed list, or revised list, in writing within 5 working days from date of issue. Any impact resulting from a disapproval or delay in approval will be considered a change under the Changes Clause. 6. PURCHASE ORDERS A. Notwithstanding the provisions set forth in the paragraph entitled FORECASTS, Mykotronx shall issue purchase orders ("Purchase Orders") for all Product ordered which shall Include the unit price, quantity, cumulative price, anticipated delivery date and reference this Agreement. Place of delivery, method of transportation and carrier will be provided monthly, but at least thirty (30) days in advance of scheduled delivery date, via "Distribution Instructions". Any provisions, requirements (including Quality Assurance) or terms and conditions contained in a Purchase Order that are in addition to or inconsistent with this Agreement shall have no force and effect unless set forth in writing executed by both Parties. Purchase Orders will be commercial and shall not contain reference to any Prime Contracts. Other additional terms and conditions shall have no force and effect. B Deliveries shall be made pursuant to reasonable manufacturing schedules based on no less than a ninety (90) day lead-time. C Mykotronx agrees to place Purchase Orders for a minimum quantity of 100 Units for delivery per month and shall not exceed a maximum quantity of 800 units for delivery per month. When Purchase Orders exceed the forecasted requirements, as defined in Section 5, Seller and Mykotronx shall negotiate a reasonable delivery schedule and Seller shall submit to Mykotronx any associated cost impact in accordance with Section 8 "Changes". D Payment for product ready for delivery shall be made by Mykotronx net thirty (30) days from the date of an acceptable invoice (reference Section 34) Invoices shall be transmitted to Mykotronx at the time the Product is deemed "accepted" as provided in Section 12. Seller reserves the right to access interest at the rate of 1.5% per month for repeated untimely payments received beyond forty-five (45) days from invoice date. Payment will be made in U.S. Dollars. In the event Mykotronx has any outstanding invoice for more than forty-five (45) days, Seller shall have the right to stop shipments of Product until Mykotronx makes a sufficient payment to bring its account within the thirty (30) day payment. E Each Party shall be entitled at all times to set-off any amount owing from the other Party to such Party against any amount payable to the other Party to such Party, arising out of this or any other transaction For purposes hereof, (i) the term "Party" shall be limited to the parties to this transaction. F When required, any notice of late payment will be provided in writing to the KIV-7 Contract Administrator at the address provided in Section 24 with the exception as provided for under Section 45. G Mykotronx and Harris have executed supply Agreements for the Presidio Module. Seller shall procure the Presidio Module from Harris. Mykotronx, as a requirement of their Agreement with Harris, must flowdown the Harris payment terms for the Presidio Module which follow. "Partial and early shipments, within fifteen days prior to the scheduled delivery date and at no time shall the quantity delivered exceed a quantity greater than 110% of the quantity scheduled for delivery, are acceptable and will result in partial invoices. Payment terms are net thirty (30) days from invoice date. In accordance with Harris standard terms and conditions, Harris reserves the light to assess interest at the rate of 1.5% per month for repeated untimely payments received by Harris beyond forty-five (45) days from invoice date." H Seller currently has Production through the month of September 2003. Mykotronx shall deliver to Seller Purchase Orders issued at the end of each month for the monthly production requirements as required to maintain a minimum of three (3) months of firm production purchase orders at all times. 7. PRICING A. Pricing for the Product (Attachment B) shall remain firm for a period of three years from the effective date of this Agreement, except that such price may be adjusted to reflect an increase in the cost of material in accordance with the formula below. In addition, in the event that any raw materials or component parts are supplied by Mykotronx or through Mykotronx's Suppliers on behalf of Mykotronx at no cost to the Seller, an appropriate decrease will be made in the price. SCI shall notify Mykotronx of a price increase or decrease in the cost of Presidio Module as covered by Attachment B. Mykotronx will adjust purchase orders to SCI accordingly. B. In the event that the aggregate cost of material increases or decreases more than five percent (5%) from the cost of such material defined in Sellers costed BOM within his proposal and as adjusted from time to time as the result of directed changes, excluding the Presidio Module, the Parties shall share the increase or decrease in the cost of the material exceeding such five percent (5%) variation on a 50/50 basis to be computed semi-annually, except as provided above in Section 7. A. C. In the event the Seller recommends design improvements resulting in labor cost savings, this savings will be shared with Mykotronx on a 50/50 basis. D. Prices specifically do not include (a) export licensing of the Product or payment of broker's fees, duties, tariffs or other similar charges; (b) taxes or charges (other than those based on net income of Seller) imposed by any taxing authority upon the manufacture, sale, shipment, storage, "value add" or use of the Product which Seller is obligated to pay or collect. This clause only applies to the exporting of product on behalf of Mykotronx. 8. CHANGES Any changes to the drawings, designs or specifications or purchase orders that exceed forecasted requirements of the Product required by Mykotronx shall be communicated to Seller in writing. The delivery date and the price of the Product shall be adjusted if any such changes agreed upon by the Parties cause a delay in delivery or increase or decrease in the costs of manufacture, including the cost of material, of the Product. 9. SHIPMENTS, FACTORY RELOCATION; FACTORY QUALIFICATION A. FOB point and carrier are to be in accordance with the instructions contained in the Sales Order Acknowledgements. The cost of insurance and freight shall be absorbed by Seller as part of the Price. Title and the risk of loss, damage and destruction shall pass to Mykotronx or Mykotronx customers) at the FOB point. Shipments shall be made directly to Mykotronx customer(s), per instructions to Seller by Mykotronx as set forth in the monthly "Distribution Instructions". Sales Order Acknowledgements and Distribution Instructions may require shipments to APOs, FPOs or Puerto Rico in accordance with the ITAR restrictions. FOB points will be either at Seller's facility or the address on the label when shipped from Seller's facility. In no event shall SCI be the "exporter of record" for any shipment requiring an Export License and/or Shipper's Export Declaration. B. In the event Seller elects to reorganize, merge, sell or otherwise change the structure of the business organization manufacturing the product, Seller without the consent of any Party, may move the factory. In such event, Seller shall notify Mykotronx one hundred twenty (120) days in advance of such move and Seller shall be responsible for any required re-qualification related to the Product. C. During the term of this Agreement, Seller, in accordance with the DD-form 254, provided through Mykotronx and as required by the flow down provisions on the DD form 254, shall maintain facility clearance, COMSEC Account and Security clearance and controls as required for the Seller's facility manufacturing the KIV-7 COMSEC Modules. 10. DELIVERY DATE-LIQUIDATED DAMAGES A Delivery will be accomplished within the time specified in the monthly Distribution Instructions but not prior to the date or greater than the quantities on the Purchase Order covering the same period. B Anything to the contrary notwithstanding, Seller shall not be liable for any reasonable delay in production or delivery, until it receives a ten (10) day advance notice ("Notice Period ") of such delinquency giving Seller twenty (20) days from the expiration of the Notice Period to cure the delinquency ("Cure Period") for a total of 30 days from the date the notice is received; provided, however, that the Notice Period and Cure Period shall not apply to delays in production or delivery that are the result of the relocation of the manufacturing operations as contemplated in Section 9 or customer caused delays. Delivery shall be deemed complete when the Products are delivered to the FOB point. In the event that the firm Purchase Order for a specific month is for a greater quantity than the last Purchase Order forecast available for that month, Seller shall not be considered delinquent if Seller is unable to meet the added demand due to a shortage of long lead material when ordered to forecast. In the event Seller fails to cure the delinquency prior to expiration of the Notice Period and Cure Period, Seller shall pay to Mykotronx as liquidated damages, a sum of five percent (5%) of the Transfer Price of the Products that were ordered by Mykotronx' customers and remain unshipped for each month (beyond the thirty (30) day Notice and Cure Period) that such Products so remain unshipped, not to exceed a total of fifty thousand dollars ($ 50,000) of liquidated damages in the aggregate. Anything to the contrary notwithstanding, no liquidated damages under this section entitled DELIVERY DATE-LIQUIDATED DAMAGES shall be due and owing if the delays in delivery are caused by the U.S. Government or any of it agencies or department (which are not attributable to the performance or nonperformance by Seller) or by force majeure events. C. In the event Seller is obligated by the terms of this Agreement to pay liquidated damages to Mykotronx, Seller shall pay such sum on a net thirty (30) basis from receipt of Mykotronx' invoice for same. 11. FORCE MAJEURE In the event a delay in production or delivery occurs which delay is occasioned by but not limited to: (a) acts of God, including fire, floods or unusually severe weather; (b) civil or military authority, war, hostility, riots, terrorism, government action in its contractual or sovereign capacity; (c) strikes or other labor actions; or (d) where such delay is occasioned by other causes beyond the control of Seller and without its fault or negligence, then the date or dates for delivery of the equipment shall be extended for a period equal to the time lost by reason of any such delay. Anything to the contrary notwithstanding, Seller shall be responsible for delays caused by subcontractors failing to make timely deliveries unless such delays are caused by force majeure events. 12. INSPECTION AND ACCEPTANCE Notwithstanding the provisions of Mykotronx Quality Assurance Requirements for Procured Items (Q Clauses), Clause 6, Buyer Source Inspection, acceptance of Products shall take place at the Seller Facility: (a) with respect to orders to be shipped to a Government customer when such customer delivers to Seller a signed form DD form 250 authorizing shipment of Product; (b) with respect to all other orders (excluding orders delivered to the account of Mykotronx), when Seller signs-off on a commercial shipper accompanied by a Certificate of Conformance, authorizing shipment of the Product, or (c) with respect to orders delivered to the account of Mykotronx, when Seller signs off on a Certificate of Conformance. Upon reasonable prior notice, during normal business hours and without unduly delaying the work, Mykotronx or its customers for the Product may inspect the Product including testing thereof, at the Seller's Facility. 13. WARRANTY A. Seller warrants to Mykotronx or its customers that the Product it delivers hereunder will be free from defects in material and workmanship at the time of acceptance. This Warranty will terminate one (1) year after the date of such acceptance. Notification of any such defect must be given by Mykotronx to Seller within the Warranty Period. Seller's obligation under this Warranty is limited to repairing or replacing any Product, which is determined by Seller to be defective. Repair or replacement will be accomplished at the Seller's Facility. Defective items returned to Seller pursuant to this Warranty will be delivered to the Seller's Facility, freight prepaid. Seller will return such items to Mykotronx or its customer at Mykotronx's option, freight prepaid. Products replaced will become the property of Seller. B. This Warranty does not cover components that are expendable in normal use and thus have an unpredictable service life, such as batteries. C. Products that have been repaired or replaced during the Warranty Period are warranted for the remainder of the original Warranty Period, If Seller does not find any defects in workmanship or material, or if the Warranty period has expired, Seller's regular charges shall apply and Mykotronx shall pay all such charges including transportation costs. D. Seller is released from all obligations under its Warranty in the event repairs or modifications are made by persons other than its own authorized personnel unless such work is authorized in writing by Seller. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHICH ARE HEREBY EXPRESSLY DISCLAIMED. SELLER'S LIABILITY UNDER THIS WARRANTY IS EXPRESSLY LIMITED TO THE REPAIR OR REPLACEMENT, AT ITS OPTION, OF ANY PRODUCT CONTAINING A DEFECT IN MATERIAL OR WORKMANSHIP AT THE TIME OF DELIVERY. 14 Limitation of Liability IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES, OR ANY DAMAGES WHATSOEVER RESULTING FROM LOSS OF USE, DATA OR PROFITS, EVEN IF SUCH OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; provided however, that this Section shall not prevent a party from incurring the liabilities set forth In Section 10 (Liquidated Damages), Section 25 (Indemnification), 44 (Termination for Convenience) or 45 (Termination for Default). IN NO EVENT SHALL A) MYKOTRONX'S LIABILITY EXCEED THE AMOUNT DUE UNDER THE CLAUSES LISTED ABOVE, B) SCI'S LIABILITY UNDER THIS AGREEMENT (WHETHER ASSERTED AS A TORT CLAIM OR CONTRACT CLAIM) EXCEED THE AMOUNTS PAID TO SCI HEREUNDER. With the exception of the provisions of 45.C. , IN NO EVENT WILL SCI BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS BY CUSTOMER. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. 15. KEY PERSONNEL Seller shall dedicate a Program Manager (Attachment D). Support personnel shall be assigned to the performance of Seller's obligations hereunder. Any personnel who, during the performance of the contract, are assigned by the Seller shall be capable of assuring satisfactory performance of work required by this agreement. Seller shall make commercially reasonable efforts to not reassign dedicated or support personnel in those key positions as defined in Attachment D, and shall provide Mykotronx notice within 2 business days of the reassignment of such personnel. Reassignment of personnel shall not relieve Seller of their obligation to assure satisfactory performance of this Agreement. 16. SUPPORT SERVICES Seller shall provide to Mykotronx at no cost office space, telephone services and access to office equipment and supplies reasonably necessary to support Mykotronx personnel at manufacturing site for the purpose of understanding the manufacturing processes of the Product for a reasonable period of time. In addition, Mykotronx will have reasonable access to Seller's employees in order to facilitate its understanding thereof. 17. STATUS REPORTING Seller shall provide production detail and status reports. These should clearly define material delivery impacts on schedule by critical item and get well dates; master production schedule and status; linearity reports: corrective action minutes or actions and warranty return data by major defect category. It is anticipated that these reports will be issued monthly. Mykotronx will requires monthly Production Review at Seller's Facility. As the contract matures, the review meeting frequency is anticipated to be decreased. 18. PRODUCT LATENT DEFECTS Seller, at its cost, shall be responsible for the correction of any latent defects caused by the Seller's manufacturing process (excluding latent defects caused by product design). Seller's cost shall be limited to the labor, material and shipping expenses associated with the repair of the product. 19. RELATIONSHIPS Seller is an independent contractor engaged by Mykotronx in the manufacture of Product. Nothing in the Agreement shall constitute Seller as an employee, agent or general representative of Mykotronx. This Agreement shall not constitute appointment of either Party as the legal representative or agent of the other, nor shall either Party have the right or authority to assume, create or incur any liability or any obligation of any kind, express or implied, against, or in the name of, or on behalf of the other party. 20. INSOLVENCY Under the provisions of a Termination for Convenience (Para. 44) and the inventory indemnification provisions of Paragraph 25, either Party may cancel this Agreement in the event of the suspension of the other Party's business, insolvency of the other Party, the institution of bankruptcy, reorganization, arrangement or liquidation proceedings involving or affecting the other Party, or any assignment for the benefit of creditors of the other Party, or receivership that the other Party places itself in or may be placed in. 21. CHOICE OF LAW This Agreement shall be governed, construed and enforced under the laws of the State of California, excluding its conflict of law provisions 22. RESOLUTION OF DISPUTES A. In the event of a dispute relating to this Agreement, the Parties shall make a good faith effort by assigning authorized representatives to settle any differences without resorting to arbitration. If settlement of the dispute is not possible either party may invoke arbitration. However, the Party wishing to initiate arbitration shall give thirty (30) days prior notice to the other party. During this thirty (30) day period selected upper management personnel shall further attempt to resolve the dispute. Any unresolved dispute arising out of or relating to this Agreement, including its interpretation, validity, scope and enforceability shall be resolved by arbitration to be held exclusively in the City of New York, New York. B. Such arbitration shall be the Parties' exclusive remedy. The arbitration shall apply the law of the State of New York to the dispute, exclusive of its conflict of laws and shall be concluded in accordance with the then existing Commercial Arbitration Rules of the American Arbitration Association. A panel of three (3) arbitrators made up of one arbiter selected by each Party with the third arbiter to be selected by the first two arbiters. The panel shall be empowered to assess compensatory damages except in areas where this Agreement exempts any party from liability or limits such damages. The judgment of the panel shall be final and binding on the Parties and either Party may enter the arbitration award as a final judgment in a court of competent jurisdiction with power to enforce the arbitration award. The Parties shall pay their own arbitration expense and shall equally share the arbitrators' costs and fees and the arbitrators shall allocate such costs and fees equally between the Parties as part of the award. 23. ASSIGNMENT This Agreement may not be assigned without the prior written consent of the other Party which consent shall not be unreasonably withheld by any party, provided, however, that without any such consent; i. Seller may assign any of its rights hereunder to Sanmina-SCI and any wholly owned Subsidiary of Sanmina-SCI or to any purchaser of substantially all of the assets of the business unit to which the Product relates subject to prior written notification, and ii Mykotronx may assign any of its rights hereunder to any wholly owned subsidiary of Rainbow or to any purchaser of substantially all of the assets of Rainbow. In addition, Seller may assign to a bank or lending institution any proceeds due under this Agreement without the consent of Mykotronx. 24. COMMUNICATIONS AND NOTICE Any notice or communication required under this Agreement shall be given in writing to the following addresses and shall be deemed received within three (3) business days after the date sent by first class, registered or certified mail: If to Seller: SELLER SCI Technology, Inc. Address P O. Box 1000 Huntsville,AL 35807 Attn: Manager, Government Contracts With Copy to: SELLER SCI Technology, Inc. Address P.O. Box 1000 Huntsville, AL 35807 Attn: Tom Freisen, Section Manager, Dept. 264 If to Mykotronx Mykotronx, Inc. 9861 Broken Land Parkway, Suite 258 Columbia MD 21046 Attn: Patricia S. Linahan, KIV-7 Contract Administrator With copy to: Mykotronx, Inc. 9861 Broken Land Parkway, Suite 258 Columbia MD 21046 Attn: Frank DUff, Mykotronx Program Manager 25. INDEMNIFICATION A. SELLER INDEMNIFICATION. i. Seller represents and warrants that the manufacturing processes employed in the assembly of Product does not infringe on any patent, trademark, trade secret, copyright or other proprietary right and that Seller is unaware of any claim of infringement, either threatened or pending. Seller agrees to indemnify, defend and hold Mykotronx harmless from and against any claim for such infringement in the event that such a claim is filed. In the event that any such process is found to so infringe, Seller shall, at its option and sole expense, either make such process non-infringing or shall procure the rights to continue to use such infringing process. The foregoing remedies are the sole and exclusive remedies of the BUYER in the event of an infringement. BUYER shall not be entitled to recover from Seller any lost profits or any other consequential damages suffered as a result of such infringement or alleged infringement. It is agreed that Seller shall undertake the defense of any such claim through counsel of its own choice and at its expense. However, the provisions of this section shall not apply with respect to any claim of patent, trademark, or copyright infringement made solely with respect to the incorporation of specific components into the Product at the express direction of BUYER including such incorporations made in express compliance with Product Specifications. ii. All work to be performed by Seller is at Seller's risk. Seller shall defend, indemnify, and hold harmless Mykotronx, its officers, employees and agents from any claim, suit, loss, cost, damage, expense (including attorney's fees), or liability by reason of property damage or personal injury (including death) to any person, including Seller's employees, of whatever nature arising out of as a result of, or in connection with such performance occasioned in whole or in part by the actions or omissions of Seller, its officers, employees, agents, Sellers, or subcontractors at any tier. Seller and its Sellers and subcontractors at any tier shall maintain public liability and property damage insurance in prudent and reasonable limits covering the obligations set forth and shall maintain, to the limits required by law, proper Workers Compensation and employer's liability insurance covering all employees performing this Order. B. MYKOTRONX INDEMNIFICATION. Mykotronx represents and warrants that (i) it owns or has the legal right to use the designs and specifications needed to manufacture Product and licensed to Seller pursuant to Section 3 hereof, (ii) such designs and specifications do not infringe on any patent, trademark, trade secret, copyright or other proprietary right and (iii) Mykotronx is unaware of any claim of infringement, either threatened or pending. Notwithstanding the language in Section 25 A. above, Mykotronx shall defend, indemnify and hold Seller harmless against any claims or liabilities for, or by reason of, any alleged infringement of any patent, trademark, trade secret, copyright or other proprietary right caused by Seller's use and reliance upon the Product Specifications and drawings providing information required in assembling the Product or arising out of the incorporation of Product into another good, Product or system which infringes upon any patent, trademark, trade secret, copyright or other proprietary right. Mykotronx agrees that it will indemnify and hold Seller harmless against and from any and all claims, damages and liability suffered by Seller resulting, from personal injury and/or property damage to third Parties, including without limitation to Seller's employees. Mykotronx will also indemnify Seller due to defects in the design of the Product, Product Specifications, drawings or in any specific component incorporated into the Product at the express direction of Mykotronx, including any such incorporation made in express compliance with Product Specifications. Mykotronx shall defend, indemnify, and hold harmless Seller, its officers, employees and agents from any claim, suit, loss, cost, damage, expense (including attorney's fees), or liability by reason of property damage or personal injury (including death) to any person, including Mykotronx's employees, of whatever nature arising out of as a result of, or in connection with such performance occasioned in whole or in part by the actions or omissions of Seller, its officers, employees, agents, Sellers, or subcontractors at any tier. C. INVENTORY INDEMNIFICATION. Seller will be required to purchase reasonable amounts of inventory to manufacture Products to fill firm Purchase Orders. The material to be purchased shall include long lead materials beyond the three (3) month firm purchase order period. Long lead material purchases shall be in accordance with Section 5 of this Agreement. Upon cancellation of a Purchase Order, or upon termination of this Agreement for any reason, Mykotronx shall be liable to Seller for all Inventories consisting of residual finished Product, Product Work in progress, inventory piece parts including all piece parts rendered excess/obsolete by Engineering Changes or changes to the Specifications, and drawings, Termination Inventory". Termination Inventory cost shall be calculated as follows (i) for parts, at Seller's purchase prices, plus a 10% markup; (ii) for Work In Process, a reasonable pro rata percentage of the finished Product purchase price; and (iii) for finished Product, at the purchase price in effect at the time of the termination/cancellation. Seller will make commercially reasonable efforts to use the Termination Inventory on other current programs and/or return the piece parts to vendors. Mykotronx shall reimburse Seller for its reasonable costs to return the piece parts to vendors and, upon mutual agreement to modify the Products for other programs. Within sixty (60) calendar days after termination or cancellation of a Purchase Order, Seller will provide Mykotronx with a detailed schedule showing the Termination Inventory, the amount owed by Mykotronx and how the amount was calculated. When calculating the Termination Inventory purchase price, Seller will give Mykotronx credit for all material returned to vendors or sold to others, including Seller, less applicable cancellation charges. Mykotronx shall purchase Termination inventory from Seller within forty-five (45) calendar days of receipt of such detailed schedule. 26. PUBLIC RELEASE OF INFORMATION Seller shall not, without the prior written consent of Mykotronx, make any news release or public announcement concerning this Agreement or any future Agreements. Seller shall extend this restriction to lower-tier subcontractors involved in the performance of this Agreement or future agreement. 27. ORDER OF PRECEDENCE Any inconsistency in a Purchase Order shall be resolved by giving precedence in the following order: (a) Provisions or requirements (including Quality Assurance) shown on the face of the Order; (b) Manufacturing Agreement; (c) specifications, (d) drawings, and (e) Test Requirements and Procedures. Seller shall bring to the immediate attention of Mykotronx any perceived conflicts or ambiguities in the Purchase Order. 28. COMPLIANCE WITH LAWS Each Party agrees to comply with all applicable local, State, and Federal laws and executive orders and regulations and agrees to defend, indemnify and hold the other Party harmless against any loss, cost, damage, expense (including attorney's fees), or liability by reason of Seller's violation. 29. INDEPENDENT CONTRACTOR It is expressly understood that the parties are, and shall remain at all times, independent contractors. 30. GRATUITIES Mykotronx may, by written notice to Seller, terminate this Agreement/Purchase Orders for default if Mykotronx has reasonable cause to believe that gratuities were offered or given by Seller, or any agent or representative of Seller, to any officer, employee or customer of Mykotronx with a view toward securing this Agreement, or securing favorable treatment with respect this Agreement. 31. SELLER CONTACTS WITH MYKOTRONX'S CUSTOMER AND OTHER VENDORS Mykotronx shall be responsible for all liaison and communications with Mykotronx's customer and Mykotronx's other vendors. Seller shall not communicate with Mykotronx's customer or Mykotronx's other vendors regarding this Agreement unless authorized to do so by Mykotronx. 32. RELEASE OF LIENS All materials or articles delivered and labor performed under this Agreement shall be free of all liens and, if Mykotronx requests, a proper release of all liens or satisfactory evidence of freedom from liens shall be delivered to Mykotronx. 33. TAXES The price of supplies/services procured under this Agreement includes all applicable Federal, State, and local taxes and duties unless otherwise stated in this Agreement. 34. INVOICES Seller's itemized invoice shall be submitted to the Accounts Payable Department, at the address shown on the face of the Purchase Order. The invoice shall contain the Purchase Order number, Mykotronx Sales Order number, description of supplies/services, part number, quantity, unit price, and total price. Payment of invoices may be delayed pending correction of any errors or omissions. Each invoice or claim from Seller shall be deemed to include a warranty by Seller that all amounts claimed by Seller are due and proper. 35. INSURANCE/ENTRY ON SELLER'S PROPERTY In the event that Mykotronx, its employees, agents, or subcontractors enter the site(s) of Seller or its sub-contractor's at any tier for any reason in connection with this Contract then Mykotronx and its subcontractors shall procure and maintain worker's compensation, comprehensive general liability, bodily injury and property damage insurance in reasonable amounts, and such other insurance as Seller may require. In addition, Mykotronx and its subcontractors shall comply with all of Seller's or its subcontractor's site requirements. Mykotronx shall indemnify and hold harmless Seller, its officers, employees, affiliates and agents from any losses, costs, claims, causes of action, damages, liabilities, and expenses, including attorneys' fees, all expenses of litigation and/or settlement, and court costs, by reason of property damage or loss or personal injury to any person caused in whole or in part by the actions or omissions of Mykotronx, its officers, employees; agents, suppliers, or subcontractors. Mykotronx shall provide Seller thirty (30) days advance written notice prior to the effective date of any cancellation or change in the term or coverage of any of Mykotronx's required insurance. If requested by Seller, Mykotronx shall send a "Certificate of Insurance" showing Mykotronx's compliance with these requirements. Insurance maintained pursuant to this clause shall be considered primary as respects the interest of Seller and is not contributory with any insurance that Seller may carry, "Subcontractor" as used in this clause shall include Mykotronx's subcontractors at any tier. 36. PACKING, PACKAGING, AND MARKING Seller shall be responsible for properly packing and packaging the supplies in suitable containers for protection during shipment in accordance with transportation regulations and good commercial practice. No additional charge will be allowed for packing and packaging unless specifically agreed to in writing; any transportation charge paid by Seller for which Seller is entitled to reimbursement shall be shown on Seller's invoice as a separate line item. Seller shall label each package with the corresponding Purchase Order number. Seller shall prepare an itemized packing list bearing the Purchase Order number, Mykotronx Sales Order number, item description, part number, and quantity shipped for each package. One copy of the packing list shall be placed in the shipping container and one copy to P. Linahan at address provided in Section 24. 37. CERTIFICATION OF INDEPENDENT PRICE DETERMINATION Seller certifies that the prices proposed in this Agreement have been arrived at independently, without, for the purpose of restricting competition, consultation, communication, or agreement with any other offeror or competitor, and that Seller has not and will not knowingly disclose the prices directly or indirectly, to any other offeror before award. 38. WORK ON MYKOTRONX'S OR MYKOTRONX'S CUSTOMER'S PREMISES If this order requires Seller to perform work on Mykotronx's or Mykotronx customers' premises, Seller shall take all necessary precautions to prevent any injury to persons or damage to property during the progress of such work. 39. TITLE AND RISK OF LOSS Title to supplies furnished under this Agreement shall pass to Mykotronx, at the FOB point regardless of when or where Mykotronx or Mykotronx's customer (s) takes physical possession, unless the Order specifically provides for earlier passage title. When this Agreement specifies that the designated delivery point is F.O.B. carrier, Seller's plant, risk of loss shall pass to Mykotronx upon delivery of items to the common carrier by Seller properly addressed, labeled and consigned in accordance with the "Distribution Instructions". When this Agreement specifies that the designated delivery point is F.O.B. destination, risk of loss shall remain with Seller until delivery of items to Mykotronx or the address provided in the "Distribution Instructions". Seller shall bear all shipment costs related to properly rejected supplies by Mykotronx. 40. RESPONSIBILITY FOR MYKOTRONX OWNED PROPERTY A. All property, including data, drawings, material, tooling and equipment, furnished to Seller by Mykotronx hereunder, shall be used only in the performance of this Agreement, and shall remain the property of Mykotronx Title to such property shall not be affected by incorporation in or attachment to any other property. B. Unless otherwise instructed by Mykotronx, all Mykotronx furnished property that is not incorporated into supplies delivered or otherwise consumed shall be returned to Mykotronx upon this Agreements completion. Property returned shall be in the same condition as received, allowing for reasonable wear and tear. Seller shall bear the risk of loss or destruction of and damage to property covered by this clause until delivered or returned to Mykotronx or Mykotronx's customer. C. Mykotronx shall have the right to enter Seller's premises at all reasonable times to inspect its property and Seller's related records. D. If Mykotronx furnishes under this Agreement Government-owned property, the special terms and conditions (Federal Acquisition Regulation and Department of Defense Federal Acquisition Regulation Supplement clauses) relating to Government-owned property, special tooling, special test equipment, and reporting shall apply in lieu of this clause. 41. STOP WORK ORDER A. Mykotronx may, at any time, by written notice to Seller, stop all or any part of work under this Agreement for up to ninety (90) days. Upon receiving a stop-work order, Seller shall immediately comply with its terms and take all reasonable steps to avoid incurring any additional cost allocable to such work. Within ninety (90) days after the effective date of the stop-work order, Mykotronx shall either cancel the stop-work order or terminate the work covered by the stop-work order. B. If a stop work is canceled, Seller shall immediately resume work. Mykotronx shall make an equitable adjustment in the Purchase Order delivery schedule and/or price if the stop-work order results in an increase in time or cost for performance. Seller must provide notice of a pending claim for equitable adjustment under this clause within thirty (30) days after the end of the work stoppage and submit the claim within ninety (90) days after the end of the work stoppage. 42. WAIVER Failure of either Party to insist on performance of any provision of this Agreement shall not be construed as a waiver of that provision or a waiver of their right to require compliance with such provision in the future. If any provision of this Agreement is found to be illegal or unenforceable under law, that provision shall be deleted; however, all other provisions in this Agreement shall not be affected thereby, and shall remain in full force and effect. 43. FAILURE TO COMPLY If, in Mykotronx's opinion, Seller fails to comply with any of the Purchase Order/ Agreement requirements, Mykotronx shall provide a written notice of the perceived infraction providing a full description and circumstances surrounding the perceived infraction and provide Seller with a ten (10) day advance notice ("Notice Period") of such perceived infraction giving Seller twenty (20) days from the expiration of the Notice Period or other such time as may be provided by Mykotronx, to cure the delinquency ("Cure Period"). If at the end of the Cure Period, Seller has not corrected the perceived infraction, Mykotronx may exercise its right to terminate the Purchase Order/Agreement for default or invoke applicable warranties for nonconformance. In lieu of this, however, Mykotronx may waive the Seller deficiency and in return, Seller agrees to negotiate an equitable reduction in the Order price. 44. TERMINATION FOR CONVENIENCE A. Mykotronx reserves the right to terminate any Purchase Order, in whole or in part, for its sole convenience. In the event of such written notice of termination, Seller shall Immediately stop all work hereunder and shall immediately cause all of its Sellers and subcontractors to cease work. Mykotronx shall have the right at its option to require the Seller to transfer title to and deliver as Mykotronx may direct, any completed or partially completed supplies (work in progress) and any materials acquired for the performance of this Agreement. In such case, Mykotronx shall pay Seller (i) the Purchase Order price associated with accepted completed supplies, (ii) a pro-rata portion of the Purchase Order price for partially completed assemblies, and (iii) manufacturing materials at cost plus a 10% fee. Packaging and shipping shall be at Mykotronx expense. B. Seller shall provide Mykotronx any supporting Information necessary to document the reasonableness of Seller's termination for convenience claim. Seller shall not be paid for any work or costs incurred which reasonably could have been avoided. C. Seller shall complete performance of the work not terminated. D. If the termination involves only services, Mykotronx shall be obligated to pay only for services performed before the termination date. E. Notice of termination shall be in accordance with Clause I of this Agreement. F. If Mykotronx terminates any Purchase Order for convenience as a result of a termination for convenience issued by the Government, the special term and condition (Federal Acquisition Regulation clause) relating to termination for convenience shall apply in lieu of this clause. 45. TERMINATION FOR DEFAULT A. Mykotronx may, without liability and in addition to any other rights or remedies provided herein or by law, terminate any Purchase Order in whole or in part by written notice of default if Seller: (a) fails to deliver the supplies or perform the services within the time specified; (b) fails to make sufficient progress with the work, thereby endangering completion of performance within the time specified; or (c) fails to comply with any other Purchase Order provision. Mykotronx's right to terminate for default may be exercised if Seller does not cure the failure in accordance with Clauses 10 and 43 of this Agreement B. In the event of such termination, Mykotronx shall have the right at its option to require the Seller to transfer title to and deliver as Buyer may direct, any completed or partially completed supplies and any materials acquired for the performance of this Agreement in accordance with Section 25. C or as agreed to by the Parties. Seller shall provide Mykotronx any supporting information necessary to document the reasonableness of Sellers termination for default claim. C. If Mykotronx terminates this Agreement in whole or in part, Mykotronx may purchase similar supplies or services from others and Seller shall be liable for any additional costs above the original price for the terminated supplies/services. Seller shall not be liable for any additional costs if failure to perform arises from causes beyond Seller's or Seller's subcontractors control and without fault or negligence of either of them; provided, however, that the supplies/services to be furnished by Seller's subcontractor (at any tier) were not obtainable from others in time for Seller to meet Purchase Order delivery or other performance requirements. D. Mykotronx may withhold from any payments due Seller any sum necessary to protect Mykotronx against any liability or expenses due to the termination for default. E. In the event of a partial termination, Seller shall continue the work not terminated. F. The rights and remedies of Mykotronx provided by this clause shall not be exclusive and are In addition to any rights and remedies provided by law or this Agreement. G. Mykotronx shall not issue a Termination for Default for a Force Majeure event. 46. BUYER'S PROPERTY AND INFORMATION A Seller shall not reproduce, use or disclose any data (such as drawings or specifications), designs, or other information, belonging to or supplied by or on behalf of Mykotronx except as necessary in the performance of this Agreement. Unless otherwise directed, such data, designs, or other Information, and any copies, shall be returned to Mykotronx upon completion of this Agreement. Where Mykotronx's data, designs drawings or other information are furnished to Seller's for use in the performance of this Order, Seller shall insert the substance of this clause in its purchase orders. B Seller shall not at any time, even after expiration or termination of this Agreement, use or disclose to any person for any purpose, other than to perform this Agreement, any information it receives from Mykotronx in accordance with the provisions of the Mykotronx, Inc. Non Disclosure Agreement (Attachment C). 47. INFORMATION DISCLOSED AND/OR DELIVERED TO MYKOTRONX Any information disclosed or delivered by Seller under this Agreement shall not be deemed confidential or proprietary unless expressly agreed upon by the parties in writing. If this Agreement requires delivery of technical data, software, or other Information that will, in turn, be furnished under a Government prime contract or subcontract, the special terms and conditions (Federal Acquisition Regulation and Department of Defense Federal Acquisition Regulation Supplement clauses) relating to technical data, software, or other information will apply. 48. AMENDMENTS No modification, termination, extension, or renewal of any provision of this Agreement shall be binding upon either party unless made in writing and signed by an authorized representative of each of the Parties. 49. WAIVER No waiver of any breach of any provision of this Agreement shall constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof. Nor shall it constitute a course of dealing and no waiver shall be effective unless made in writing. 50. CONFIDENTIAL INFORMATION Neither party shall use or disclose to a third party any confidential information of the other party which has been disclosed to it in connection with this Agreement including, without limitation, designs, plans, methods, processes or specifications, provided however, that Seller has the right to furnish confidential information of Mykotronx to third Parties if it is needed by such Parties in order to make parts for the Product, and provided further that the third Parties first agree in writing to hold such information in confidence and use it for the purpose of making such parts. 51. ENTIRE AGREEMENT This Agreement and its attachments constitute the entire agreement between the Parties regarding the contemplated transactions and supersede all prior agreements and understandings between the Parties relating thereto. IN WITNESS WHEREOF the Parties have caused this Manufacturing Agreement to be executed as of June 24,2003 SCI Technology, Inc. Mykotronx, Inc. By: /s/ James L, Vancil -------------------------------- By: /s/ [ILLEGIBLE] Print Name: James L, Vancil ----------------------------------- Title: Manager, Government Contracts Print Name: [ILLEGIBLE] Title: KIV-7 Contract Administrator ATTACHMENT B PRICING SCHEDULE Mykotronx Ancillary Pricing
Part No. Part Description PRICE 4061244-0701 Lithium Battery $ 6.38 4065536-0701 Crypto Ignition Key $ 9.14 4065537-0501 DTE RS-232 Cable $ 44.01 4065538-0501 DCE RS-232 Cable $ 45.48 4065539-0701 120 AC Power Conv $ 26.14 4065539-0702 220 AC Power Conv $ 27.91 4070531-0501 DTE RS-449 Cable $ 53.21 4070532-0501 DCE RS-449 Cable $ 54.02 4074249-0501 DTE EIA-530 Cable $ 45.32 4074250-0501 DCE EIA-530 Cable $ 45.27 4074281-0501 DTE RS-449 Cable $ 54.60
Applicable KIV-7HSB Prices are Dependent Upon the Presidio Unit Prices
Unit Price Presidio $ 2,152.80 $ 800.00 $ 2,183.03 $ 825.00 $ 2,213.25 $ 850.00 $ 2,272.73 $ 900.00 $ 2,302.95 $ 925.00 $ 2,339.03 5 955.00 $ 2,362.43 $ 975.00 $ 2,392.65 $ 1,000,00 $ 2,421.90 $ 1,025.00 $ 2,452.13 $ 1,050.00 $ 2,511.60 $ 1,100.00 $ 2,541.63 $ 1,125.00 $ 2,572.05 $ 1,150.00
ATTACHMENT C MYKOTRONX, INC. NON-DISCLOSURE AGREEMENT Under the terms of this agreement, Mykotronx is willing to provide information to SCI Technology, Inc. 8600 South Memorial Parkway, Huntsville, AL 35802 hereafter referred to as "SCI". SCI understands that Mykotronx considers its information proprietary and valuable, and Mykotronx is willing to make limited amounts of such information available upon the following terms. 1. For the purposes of this Agreement, "Proprietary Information" shall mean operational, technical, business strategy or financial information (1) originated by or otherwise peculiarly within the knowledge of Mykotronx, (2) currently protected against unrestricted disclosure to others, Such information includes but is not limited to information regarding the KIV Product line. 2. In consideration for the disclosure of Proprietary Information, SCI agrees to hold Proprietary Information in trust and confidence for a period of five (5) years from the date of receipt, will refrain from using the same for any purpose other than that for which it was provided by Mykotronx without prior approval of Mykotronx and will exercises the same degree of care (and not less than reasonable care) that SCI exercises in the protection of their own proprietary data. In addition, SCI may not use this information to compete with Mykotronx for this product line. 3. A recipient of Information hereunder will have no obligation with respect to any information (a) know to the recipient without restriction prior to receipt form the other party, (b) after substantially the same information is published or becomes available to others without restriction through no act or failure to act on the part of the recipient, (c) after substantially the same information becomes available to the recipient from a third party having no obligation to hold such Information in confidence or (d) the transmitting party subsequently designates in writing as no longer proprietary- 4. Proprietary Information made available in written form by Mykotronx, shall be marked with the legend "PROPRIETARY INFORMATION," or an equivalent conspicuous legend. No sheet or page of any written material will be so labeled which is not in good faith, believed to contain Proprietary Information. A recipient of information hereunder will have no obligation with respect to any portion of any written material which is not so labeled. 5. Any information disclosed orally or visually shall be identified as proprietary when offered and reduced to writing within thirty (30) days thereafter. The oral and/or visual information shall be protected by the recipient with the same care as outlined above for written information. 6. This Agreement shall continue in force for a term of one (1) year from the date shown below, but prior to the expiration of such term may be terminated at any time by either party giving thirty (30) days prior written notice to the other party; provided however, the obligations to protect Proprietary Information contained herein shall survive such expiration or termination. 7. No rights or obligation other than those expressly cited herein are to be implied from the Agreement No license is hereby granted, directly or indirectly, under any patent, trademark, copyright or trade secret. 8. The validity and interpretation of the Agreement shall be governed by the laws of the State of California. 9. This Agreement merges all prior discussion and is the entire understanding and agreement of the parties relating to protection of proprietary data. Neither party shall be bound by any additional nor other representation condition, or promise except as subsequently set forth in writing signed by the party to be bound. SCI TECHNOLOGY, INC SIGNATURE: ____________________________________ DATE: ____________________________________ Attachment D Key Personnel/Positions The following listed people and positions are considered to be Key as defined in Paragraph 14 of the Manufacturing Agreement. Key Personnel SCI Program Manager Russell Gentry Key Positions SCI Test Engineer SCI Process Engineer SCI Materials Planner SCI FSO SCI Administrator [RAINBOW LOGO] ATTACHMENT E SUBJECT: QUALITY ASSURANCE REQUIREMENTS FOR M-STD-17 PROCURED ITEMS (Q CLAUSES) REV.A Approved. T. Ahobell. OA Manager Date: 11 February 2003 1.0 Application, This document establishes the standard quality assurance (QA) requirements (Q Clauses) for Rainbow Mykotronx-procured deliverable items such as parts, materials, and/or processes which are applicable to the extent specified in the procurement document. Additional requirements may be defined in other specific Project documents including those that are unique only to that Project. 2.0 Q Clauses Document The attached Q Clauses document lists the various quality requirements for Rainbow Mykotronx procured items. The Q clauses are entered on the Rainbow Mykotronx procurement document to indicate applicable QA requirements to the item being procured. 3.0 Responsibility 3.1 Quality Assurance, Prepares and maintains the Q Clauses document. Coordinates changes with Project Management, Manufacturing, and Engineering as appropriate. Reviews procurement documents as necessary and coordinates with program management applicable Q clause(s) to project procurements. Ensures that applicable Q-Clauses are included in the procurement document in the performance of procurement document review. 3.2 Program Management. Ensures that Program Q-Clauses and other procurement requirements are identified. Coordinate with the Procurement and Quality other quality requirements for project/program other than that shown on the Q Clauses document. 3.4 Procurement Organization. Assures that applicable Q-Clauses are included in the procurement document. 4.0 Changes, QA controls this document Submit recommended changes to the QA Manager for review, coordination, approval and release. [RAINBOW TECHNOLOGIES MYKOTRONX LOGO] QUALITY ASSURANCE REQUIREMENTS FOR PROCURED ITEMS (Q CLAUSES) M-STD-17 Rev.A - -------------------------------------------------------------------------------- Notes: Buyer's acceptance of the procurement document denotes Buyer's agreement to the Q-Clause requirements annotated on the procurement document. I. DEFINITIONS Buyer-Rainbow Mykotronx procurement entity Vendor/supplier - The legal entity that is the contracting party with Rainbow Mykotronx with respect to the procurement document. Procurement document - The purchase order (P.O.) or subcontract between Rainbow Mykotronx and the vendor/supplier. Item - The product or service contracted for by the procurement document. II Q CLAUSES Q-1 GENERAL QUALITY REQUIREMENTS (INCLUDE PARAGRAPHS A THROUGH K AS SHOWN BELOW) Clause Q-1, General Quality Requirements, Subparagraph A, Prohibited Practices add the following to the end of the Statement; "This clause is limited to repair actions. Seller may, upon written approval of Rainbow Mykotronx, rework production items in accordance with Vendor/Supplier's Standard Repair Procedures." A) Prohibited Practices: Unauthorised repairs. Vendor/supplier shall not repair any damaged item nor any found to be faulty during manufacturing or that it fails to meet Rainbow Mykotronx specification/drawing requirements, without written Rainbow Mykotronx approval, except when the nonconformance is minor and material review board (MRB) authorization has been granted by Rainbow Mykotronx. Vendor/supplier is not authorized to perform MRB activity on nonconforming material without Rainbow Mykotronx authorization. Change in approved drawings, processes, materials, or procedures. Vendor/supplier shall not change any drawing, process, material (including subtier supplier parts) or procedure without prior Rainbow Mykotronx written approval, if such drawings, processes, materials, or procedures were previously approved by Rainbow Mykotronx as provided for in the Procurement document. Vendor/supplier shall not change any process, material or procedure from that used to qualify any item or which was used by Vendor/supplier to become a qualified source for Rainbow Mykotronx's specification/drawing, without Rainbow Mykotronx's written approval. Resubmittal of Rejected Items. Any item rejected by Rainbow Mykotronx and subsequently resubmitted to Rainbow Mykotronx shall be clearly identified as a resubmittal item, indicating procurement document number and Rainbow Mykotronx's reject document number in vendor/supplier's certificate of conformance. Notification of Facility Change. Vendor/supplier shall not use nor relocate any production, manufacturing, and/or processing facilities to differ from previous approval by Rainbow Mykotronx, during performance of word specified in the procurement document, without previously notifying Rainbow Mykotronx and according Rainbow Mykotronx an opportunity to examine such facilities for compliance with procurement quality requirements. Changing of Test Facility. Vendor/supplier shall not change a test facility nor use another test facility to meet specification/drawing requirements without prior Rainbow Mykotronx's written approval, if a specific test facility was previously approved by Rainbow Mykotronx as provided for in procurement document. Change of Management/Ownership. Vendor/supplier shall notify Rainbow Mykotronx when a significant change in management or ownership has occured. B) Responsibility for Conformance. Neither surveillance nor inspection and/or test made by Rainbow Mykotronx or its representatives or U.S. Government representatives at either Rainbow Mykotronx or vendor/supplier's facilities, nor vendor/supplier's compliance with all applicable procurement quality requirements, shall relieve vendor/supplier of the responsibility to furnish an item that conforms to the requirements of the procurement document. Vendor/supplier shall control subtier supplier to the extent necessary to ensure quality requirements specified in the procurement document is satisfied. Quality requirements shall include, but are not limited to, the following; subtier preward survey/evaluation, periodic auditing of supplier, implementing a subtier supplier rating system, ensuring adequate review of procurement documentation prior to procurements, controlling procurement of critical items for Vendor/supplier product, inspection of procured items to documented procedures, and control of nonconforming material, including corrective action. C) Rainbow Mykotronx Surveys, Surveillance, Audits and Inspection. Rainbow Mykotronx has the right to conduct surveys, audits, and surveillance of vendor/supplier facilities, and those of vendor/supplier subtier suppliers with prior coordination with vendor/supplier to determine capability to comply and to verify continuing compliance, with the requirements of the procurement document. Rainbow Mykotronx has the right to perform inspection at vendor/supplier facilities, and those of vendor/supplier subtier suppliers with prior coordination with vendor/supplier, during the period of manufacture and inspection prior to shipment. Final inspection, and acceptance, shall be performed at Rainbow Mykotronx's facility, unless otherwise specified in the procurement document. Rainbow Mykotronx reserves the right to use Mil Std 105, MiL Std 414 or other sampling process for the acceptance or rejection of items. D) Documentation. Rainbow Mykotronx may refuse to accept item if vendor/supplier fails to submit certifications, documentation, test data or reports specified by the procurement document. Documentation includes Rainbow Mykotronx source inspection if such source inspection is performed. E) Corrective Action Request. When a quality problem exists with any vendor/supplier item. Rainbow Mykotronx may forward a corrective action request to vendor/supplier, requiring timely response, that shall include the following information: analysis of the cause of the problem, statement of the action taken to prevent recurrence, and the effectivity of the action, When corrective action is required for U.S. Government source inspected items, vendor/supplier shall coordinate such action with the U.S. Government quality representative assigned to administer vendor/supplier facility. F) U.S. Government Source Inspection. For procurement made under U.S. Government contracts, the U.S. Government has the right to inspect any and all of the work included in the procurement document, at vendor/supplier facilities or at subtier supplier facilities. Vendor/supplier quality control or inspection system and manufacturing processes are subject to review, certification, and analysis by authorized U.S. Government representative. [RAINBOW TECHNOLOGIES MYKOTRONX LOGO] G) Measuring and Test Equipment. Vendor/supplier shall be responsible for validating the accuracy and stability of tools gages, and test equipment used to constrate that any item conforms to the requirements specified by the procurement document. Documented schedules shall be maintained to provide for periodic calibration to adequate standards. Objective evidence of calibration shall be recorded and made available for Rainbow Mykotronx review. H) Nonconforming Material. Any decision to accept any nonconformance (variance from Rainbow Mykotronx's drawings and specifications), detected at vendor/supplier facilities, must be made by Rainbow Mykotronx unless otherwise specified by the procurement document. Vendor/supplier shall provide for identification, control and segregation of nonconforming material detected at vendor/supplier facilities. I) Inspection Records. Vendor/supplies shall maintain records of all inspections and test performed on any item delivered to Rainbow Mykotronx. These records shall identify nonconformance and shall be made available for Rainbow Mykotronx review. J) Sample Inspection. Sample inspection plans may be used by vendor/supplier when tests are destructive, or when the records or inherent characteristics of the product indicate that a reduction in inspection/testing can be achieved without jeopardizing product quality. Sample inspection shall be in accordance with the applicable Rainbow Mykotronx specification. When not specified by Rainbow Mykotronx, military standard sampling plans (e.g. Mil-Std-105, Mil-Std-414, or Handbooks H016, H017, or H018) may be used. Other sample inspection plans shall be approved by the Rainbow Mykotronx prior to their implementation. All sample inspection plans shall provide valid confidence in specified quality levels. K) Vendor/supplier's Basic Certificate of Conformance (C of C). Vendor/supplier shall provide a certificate of conformance providing: 1) a statement that the items furnished per the Rainbow Mykotronx procurement document have been manufactured, tested, and inspected in accordance with the requirements of the applicable specifications/drawings and the results of such test and inspection meet the requirements thereof; 2) a statement that Rainbow Mykotronx-required inspections and tests have been performed utilizing calibrated equipment; and 3) a statement that all materials used in items meets the applicable specification/drawing requirements specified by the procurement document. The CofC shall include vendor/supplier name, actual address where item was manufactured/tested, item name, vendor/supplier's part number, and lot/process/batch number, etc. as applicable. The CofC shall also include the Rainbow Mykotronx's name, part number, specification/drawing number, including applicable revision designation and procurement document number/revision. The CofC shall be signed by the vendor/supplier's authorized person and shall include title of signatory and date. Any certificate not meeting the above requirements is subject to rejection upon Rainbow Mykotronx's receipt. Q-2 (A OR B) INSPECTION SYSTEM REQUIREMENTS, NHB5300.4 (1B) A. Vendor/supplier shall provide and maintain an inspection system that is in conformance with NHB5300.4 (1B), "Quality Program Provisions for Aeronautical and Space Systems Contractors." B. Vendor/supplier shall provide and maintain an inspection system that is in conformance with NHB5300.4 (1B), "Quality Program Provisions for Aeronautical and Space Systems Contractors", that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-3 (A OR B) INSPECTION SYSTEM REQUIREMENT, MIL-Q-9858A A. Vendor/supplier shall provide and maintain an inspection system that is in conformance with MIL-Q-9858A, "Quality Program Requirements". B. Vendor/supplier shall provide and maintain an inspection system that is in conformance with MIL-Q-9858A, "Quality Program Requirements", that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-4 (A OR B) INSPECTION SYSTEM REQUIREMENTS, NHB5300.4 (1C) A. Vendor/supplier shall provide and maintain an inspection system that is in conformance with NHB5300.4 (1C), "Inspection Systems Provisions for Aeronautical and Space System Material, Parts, Components, and Services." B. Vendor/supplier shall provide and maintain an inspection system that is in conformance with NHB5300.4 (1C), "Inspection Systems Provisions for Aeronautical and Space System Material, Parts, Components, and Services," that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-5 (A OR B) INSPECTION SYSTEM REQUIREMENTS (MIL-I-45208) A. Vendor/supplier shall provide and maintain an inspection system that is in conformance with MIL-I-45208, "Inspection System Requirements," and a calibration program that is in conformance with MIL-STD-45662, "Calibration Systems Requirements". B. Vendor/supplier shall provide and maintain an inspection system in accordance with requirement MIL-I-45208, "Inspection System Requirements," and a calibration program that is in accordance with MIL-STD-45662, "Calibration Systems Requirements,", that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-6 (A,B,C,D,E,F,G, OR H) BUYER SOURCE INSPECTION SCI Comment: Clause Q-6, Buyer Source Inspection, (Attachment E), Buyer waives Source Inspection for all items and relies upon Government Source Inspection for the acceptance for all items sold to the Government. Vendor/supplier conformance to Rainbow Mykotronx requirements shall be verified by Rainbow Mykotronx and shall be performed at vendor/supplier facilities prior to shipment of items being procured. Vendor/supplier shall provide reasonable facilities and a copy of Rainbow Mykotronx specification/drawing and procurement document for Rainbow Mykotronx verification of vendor/supplier conformance to procurement document and specification/drawing requirements. Rainbow Mykotronx reserves the right the audit/verify conformance to Rainbow Mykotronx requirements at Vendor/supplier facility and at vendor/supplier subtier supplier facilities for any item not manufactured/processed within vendor/supplier facilities. Rainbow Mykotronx source inspection shall include, but is not limited to, the following: - - Validation of vendor/supplier automated test programs and procedures to Rainbow Mykotronx specification/drawing requirements (when applicable). - - Witnessing vendor/supplier performance of acceptance/qualification testing and inspections to Rainbow Mykotronx specification/drawing requirements. Vendor/supplier shall perform an additional 1.0 AQL acceptance test/inspection when vendor/supplier original acceptance testing has not been witnessed by a Rainbow Mykotronx representative. - - Review of Vendor/supplier acceptance test/inspection data and reports to verify conformance with Rainbow Mykotronx specification/drawing requirements. - - Review of lot qualification test data to Rainbow Mykotronx specification/drawing requirements, if applicable. - - Verification of Vendor/supplier packaging and packing of items being procured to ensure conformance with Rainbow Mykotronx procurement document or specification/drawing requirements. [RAINBOW TECHNOLOGIES MYKOTRONX LOGO] - - Verification of item traceability and vendor/supplier certification to ensure conformance with the Rainbow Mykotronx procurement document of specification/drawing requirements. Vendor/supplier shall provide inspection/test data and reports to Rainbow Mykotronx representative indicating which characteristics, parameters, dimensions, etc., were actually tested/inspected for validation to Rainbow Mykotronx specification/drawing requirements. Vendor/supplier shall notify Rainbow Mykotronx not less than three working days prior to the time that items are ready for Rainbow Mykotronx source inspection. After Rainbow Mykotronx source inspection, any rework or test of the item(s), including any unscheduled or unauthorized entry, such as removal of a panel, cover, or enclosure shall void the Rainbow Mykotronx source inspections and vendor/supplier shall request Rainbow Mykotronx source inspection and vendor/supplier shall request Rainbow Mykotronx to repeat applicable source inspection steps(s). A. BUYER IN PROCESS INSPECTION. Vendor/supplier performance of in-process operations to Rainbow Mykotronx requirements shall be verified by Rainbow Mykotronx during item manufacture at one or more of the following, as specified by the document: 1. Prior to encapsulation/conformal coating. 2. Prior to cleaning. 3. Prior to plating. 4. Prior to assembly close-up. 5. Other points specified by the procurement document. 6. Other points specified in the Process Identification Document. B. BUYER AUDIT/PROCESS VERIFICATION. Rainbow/Mykotronx audit of vendor/supplier process operations by Rainbow Mykotronx representative shall include, but not be limited to, the following: - - Verification that vendor/supplier is maintaining a quality assurance system that has been previously approved by Rainbow Mykotronx. - - Verification that vendor/supplier flow down of requirements to subtier suppliers is adequate to meet Rainbow Mykotronx requirements. - - Verification that vendor/supplier work instructions are adequate to ensure implementation of Rainbow Mykotronx requirements. - - Verification that vendor/supplier manufacturing processes are under control, to ensure product quality, configuration control and traceability to meet Rainbow Mykotronx requirements. - - Verification that vendor/supplier is maintaining proper control of nonconforming material and taking corrective action, as required. C. BUYER PRECAP INSPECTION. Items of this procurement document require precap inspection by Rainbow Mykotronx subsequent to the 100 percent precap visual inspection performed by vendor/supplier. D. BUYER SCANNING ELECTRON MICROSCOPES ANALYSIS. Rainbow Mykotronx approval of Scanning Electron Microscope (SEM) analysis shall be required for wafer lots to be incorporated in parts supplied to Rainbow Mykotronx. The SEM analysis shall be performed by vendor/supplier and must be approved by Rainbow Mykotronx prior to the incorporation of wafers in parts. E. BUYER SOURCE SURVEILLANCE Rainbow Mykotronx shall perform surveillance at vendor/supplier facilities during the contract period. Surveillance shall be scheduled by Rainbow Mykotronx and coordination with vendor/supplier prior to implementation. Surveillance activities shall include, but not be limited to, the following: - - Auditing vendor/supplier's procurement, manufacturing test and inspection, configuration control, and nonconforming material control procedures and processes. - - Witnessing of product acceptance qualification testing. - - Review of vendor/supplier's test/inspection data and reports to verify conformance to procurement document requirements. F. BUYER SOURCE INSPECTION FOR PROCUREMENT TO ANOTHER CONTRACTOR'S PART NUMBER/SPECIFICATION. Rainbow Mykotronx source inspection shall consist of verification of another contractor's inspection data to ensure that item have met the other contractor's specification requirements when Rainbow Mykotronx procurement document specifies contractor's part number. Vendor/supplier shall provide copy of other contractor's source inspection report/data containing results of other contractor's inspection. Whenever other contractor's source inspection report/data is/are not available, the vendor/supplier inspection traveler indicating other contractor's test/inspection acceptance may be used for verification. Inspection verification review shall be performed at vendor/supplier facility prior to shipment. G. BUYER FINAL SOURCE INSPECTION. Items of this procurement require final inspection by Rainbow Mykotronx quality engineering subsequent to the 100 percent final inspection performed by vendor/supplier. H. BUYER SOFTWARE AUDITS. Rainbow Mykotronx shall perform audits, review and/or verification at vendor/supplier facilities during the development and test of software to be furnished on this procurement. Q-7. U.S. GOVERNMENT SOURCE INSPECTION (NASA) All work under the procurement document is subject to inspection and test by the U.S. Government any time and place. The U.S. Government representative who has been delegated NASA quality assurance functions for the procurement document shall be notified immediately upon receipt thereof. The U.S. Government representative shall also be notified three (3) working days in advance of the time the items are ready for inspection or test. In the event that the U.S. Government representative cannot be contacted, Rainbow Mykotronx shall be notified immediately. Vendor/supplier without additional charge to the procurement document, shall provide all reasonably required facilities and assistance for convenience and safety of the U.S. Government representatives in the performance of their duties. Q-8. U.S. GOVERNMENT SOURCE INSPECTION (DoD) U.S. Government source inspection is required prior to shipment from vendor/supplier facility. Upon receipt of this procurement document, vendor/supplier shall immediately notify and provide a copy of the procurement document to the U.S. Government representative who normally services the vendor/suppliers facility, so that appropriate planning for U.S. Government source inspection can be accomplished. If a U.S. representative does not normally service the vendor/supplier's 8 [RAINBOW TECHNOLOGIES MYKOTRONX LOGO] facility, the interest Army Navy, Air Force, or Defense Agency inspection office shall be contacted. In the event that a U.S. Government representative cannot be contracted, Rainbow Mykotronx shall be notified immediately. Vendor/supplier, without additional charge to the procurement document, shall provide all reasonably require facilities and assistance for convenience and safety of the U.S. Government representatives in the performance of their duties. Q-9 (A AND B) RAW MATERIAL DOCUMENTATION REQUIREMENTS A. Shipment of materials whether raw, semi-finished or finished, shall be accompanied by a Certificate of Conformance from vendor/supplier, stating as a minimum: - the name of location of the raw material manufacturer, as applicable. - material identification by specification number, and material condition where applicable. - a statement of raw material conformance to applicable requirements. B. All items in Q-9A plus actual chemical/physical test results which substantiate compliance with the applicable raw material and/or specification requirements. Q-10 CONTROL OF PROCESSES. A process requiring Rainbow Mykotronx approval of processor's facility is being procured for this order. This facility performing such processes, whether the supplier's or a subtier to the supplier, must be approved by Rainbow Mykotronx in advance of actual processing. Rainbow Mykotronx will make available, upon request, a list of approved process facilities specific to the applicable processes. A certificate of conformance to the process specification requirements shall be provided with the shipment. Q-11 TEST DATA When Rainbow Mykotronx specification requires test data to be recorded during performance of acceptance testing a copy of the recorded data, showing evidence of vendor/supplier inspection and verification of conformance, shall accompany shipment of items to Rainbow/Mykotronx. Data shall meet the format requirements of Rainbow Mykotronx specification and, as a minimum, be identified with: - Rainbow Mykotronx procurement document number and any change notice number. - Rainbow Mykotronx specification/drawing number and revision letter. - Rainbow Mykotronx engineering order(s). - Part number - Type of test performed. - Lot numbers, serial numbers, and/or codes of items tested. - Total quantity test, quantity accepted and quantity rejected. - Any codes, key, or other information necessary to interpret vendor/supplier data. Q-12 RADIOGRAPHIC INSPECTION Vendor/supplier must be approved by Rainbow Mykotronx to perform the radiographic inspection applicable to this procurement document or shall use a radiographic facility approved by Rainbow Mykotronx. A list of approved radiographic facilities shall be provided by Rainbow Mykotronx upon request. If vendor/supplier wishes to use an unapproved facility, prior authorization must be requested and received from Rainbow Mykotronx. Unless otherwise specified by the parts specification of procedure applicable to this procurement document, each radiograph shall, as a minimum comply with MIL-STD-453, "Inspection, Radiographic," or MIL-STD-883, "Test Methods and Procedures for Microelectronics". The radiographic film and a copy of the report shall accompany the shipment of the items to the Rainbow Mykotronx. Q-13 REQUIREMENTS FOR DISTRIBUTORS The distributor (a supplier other than the manufacturer) shall identify the manufacturer and location of manufacturer of each item finished under the procurement document. When items are identified by a Rainbow Mykotronx number, the distributor shall provide complete information as to the original manufacturer and original manufacturer's part number, lot number, serial number, and/or data code of items shipped. Such identification shall be submitted with each shipment. Q-14 SUPPLIER INSPECTION REPORTING REQUIREMENTS Vendor/supplier shall submit, with each shipment of items, one copy of an inspection report reflecting 100 percent inspection verification of all drawing characteristics. The report shall determine each drawing characteristic and specific the corresponding actual measurement results, except that a check mark will suffice for those dimensions with a total tolerance spread greater than 0.005 inch. True position dimensions of 0.007 inch or less shall be recorded in the data submitted. Inspection record traceability shall be maintained by either serializing each item (if allowed) or tag identification. The item identification is then matched with the corresponding inspection report. A single inspection documentation record sheet may be used for more than one item of the same part number. The only exception to the above procedure applies to items machined under tape-controlled or automatic conditions. In that case, the 100 percent inspection report may be limited to the first and last item procured from one continuous set-up, and the inspection report shall state that the items were machined under tape-controlled or automatic conditions. INSPECTION RECORD EXAMPLE: Dimension & Tol S/N 001 S/N 002 S/N 003 - ----------------- ------- ------- ------- ..250 -.001/+ .004 .251 .253 .254 If there are more than 25 items of the same part number and if serialization is not required, the items may be grouped and data recorded as follows: Dimension & Tol Qty Results - ---------------- ------- --------- ..250 -.001/+.004 150 .249/.253 Q-15 (A or B) SUPPLIER QUALITY ASSURANCE PROGRAM REQUIREMENTS. MIL-STD-1535A A. Vendor/supplier shall provide and maintain a supplier quality assurance program that is in conformance with MIL-STD-1535A, "Supplier Quality Assurance Program Requirement" B. Vendor/Supplier shall provide and maintain a supplier quality assurance program in accordance with requirements of MIL-STD-1535A. "Supplier Quality Assurance Program Requirement" that have been tailored as specified in the Rainbow Mykotronx procurement document. [RAINBOW TECHNOLOGIES MYKOTRONX LOGO] Q-16 (A,B,C,D,E OR F) CORRECTIVE ACTION AND DISPOSITION SYSTEM FOR NONCONFORMING MATERIAL, MIL-STD-1520. Vendor/supplier shall provide and maintain a corrective action and disposition program for nonconforming material that is in conformance or with accordance with MIL-STD-1520,"Corrective Action and Disposition System for Nonconforming Material" or with tailored requirements of MIL-STD-1520. A. MIL-STD-1520A B. MIL-STD-1520A, tailored as specified in the Rainbow Mykotronx procurement document. C. MIL-STD-1520B D. MIL-STD-1520B, tailored as specified in the Rainbow Mykotronx procurement document. E. MIL-STD-1520C F. MIL-STD-1520C, tailored as specified in the Rainbow Mykotronx procurement document. Q-17 CALIBRATION SYSTEMS REQUIREMENTS (MIL-STD-45662) Vendor/supplier shall provide and maintain a calibration program that is in conformance with Mil-Std-45662, "Calibration Systems Requirements." Q-18 CONTROL OF TEST SOFTWARE. Vendor/supplier shall provide and maintain a system for the control of software used in the qualification/acceptance testing of deliverable hardware, software and firmware to be furnished on this procurement. Vendor/supplier shall maintain procedures and test records on items delivered to Rainbow Mykotronx and these records shall be available for Rainbow Mykotronx review. Q-19 ELECTROSTATIC DISCHARGE CONTROL. Vendor/supplier shall provide and maintain a program for electrostatic discharge (ESD) control for hardware items to be furnished on this procurement. Rainbow Mykotronx requirements are as specified in the procurement document. Vendor/supplier electrostatic discharge control program is subject to review and approval by the Rainbow Mykotronx. Q-20 SUBCONTRACTOR PRODUCT ASSURANCE REQUIREMENTS. Vendor/supplier shall provide and maintain a system that assures implementation of the provisions contained in the applicable product assurance requirements document and statement of work that is referenced within the procurement document. The general quality assurance requirements of Q-1 are also applicable for this procurement. Q-21 (A OR B) DEFENSE SYSTEMS SOFTWARE DEVELOPMENT (DOD-STD-2167A) A. Vendor/supplier shall provide and maintain a software development program which is in conformance with DOD-STD-2167A, "Defense System Software Development." B. Vendor/supplier shall provide and maintain a software development program in accordance with requirements of DOD-STD-2167A, "Defense System Software Development," that have been tailored as specified in Rainbow Mykotronx's procurement documents. Q-22 (A OR B) DEFENSE SYSTEMS SOFTWARE QUALITY PROGRAM(DOD-STD-2168) A. Vendor/supplier shall provide and maintain a software quality assurance program that is in conformance with DOD-STD-2168, "Defense System Software Quality Program." B. Vendor/supplier shall provide and maintain a software quality program that is in accordance with requirements of DOD-STD-2168. "Defense System Software Quality Program," that have been tailored as specified in Rainbow Mykotronx's procurement document. Q-23 SOFTWARE DELIVERY DOCUMENTATION. Vendor/supplier shall deliver documentation of software as specified in the procurement document. Software documentation shall be sufficient to establish that: - All requirements are achieved or waivers submitted. - Configuration is correct and deliverables are properly identified and marked. - Planned level of acceptance is achieved and/or deviations/waivers are made part of the deliverable documentation package. - Operating instructions accompanying the developed software are sufficient to enable loading, initialization, and operation by Rainbow Mykotronx's personnel. Q-24. END ITEM DATA PACKAGES. The following are the minimum Rainbow Mykotronx requirements for data package contents. Special project requirements in addition to these are contained in product assurance requirements or statement of work. 1) Format. Table of contents and labeled dividers between sections. 2) Contents. a) As-built vs. as-designed report. b) acceptance test procedure and data. c) operating time record d) discrepancy documents e) waiver/deviations, f) identification sheet listings as applicable--unit name, equipment specification part number, serial number, revision level, contract number, project name, original vs. retest package, acceptance vs. qualification data, and review signatures. Q-25 (A OR B) INSPECTION SYSTEM REQUIREMENT, ISO9001 A. Vendor/supplier shall provide and maintain an inspection system that is in conformance with ISO9001 B. Vendor/supplier shall provide and maintain an inspection system that is in conformance ISO9001, that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-26 (A OR B) IN-PROCESS DATA The supplier shall collect data at the various inspection and test points and furnish monthly reports (Pareto charts, first pass yield, etc) to Rainbow Mykotronx's in regard to overall product performance. ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS SECTION D - PACKAGING AND MARKING D.1 Record Plate A modification record plate to include the serial number, modal, and any modifications Shall be affixed to each equipment as previously provided Under MDA904-98-D-C104. (End of Clause) D.2 BAR CODES Bar codes in accordance with MIL-STD-1189 and NSA-2 shall also be printed on identifying equipment nameplates. The "fail bar Code message for equipment shall contain the short title, the serial number, sad the National stock Number, Written approval from the COR is required to modify the bar code contents in any case where adequate space is not available. (End of Clause) D.3 352.247-9003 MARKING AND DOCUMENTS (SEP 1994) (a) All Contractor-generated technical reports shall bear the statement "not Realisable to the Defense Technical Information Center per DoD Directive 3200.12." (b) In addition to the above marking all unclassified technical reports, photographs drawings, schematics, design circuits and description of equipment designed and/or produced under the contract shall be marked with the legend "DISTRIBUTION LIMITED TO U.S. GOVERNMENT AGENCIES ONLY THIS DOCUMENT CONTAINS NSA INFORMATION (Applicable Date) REQUEST FOR THIS DOCUMENT MUST BE REFERRED TO THE DIRECTOR, NSA, Where SF Form 298 is required to accompany a document, the legend shall be entered in Block 12a thereof. (d) The contractor shall be responsible for inserting the appropriate application data in the aforementioned legend. This date shall be the date upon which the document was completed. (End of Clause) D.4 352.247-8004 PACKING AND SHIPPING (OCT 1998) (a) Packing (1) Material shall be packed by personnel duly cleared for the level of classification in question, to conceal it properly and to avoid suspicion as to its contents, and to reach destination in satisfactory condition. Internal markings or internal packaging will clearly indicate tile classification. No NOTATION To INDICATE THE CLASSIFICATION SHALL APPEAR, ON EXTERNAL MARKINGS. (2) Documents Shall be enclosed in two Sealed envelopes or covers. Typewritten or printed matter in the contents shall be protected by a covet sheet or by folding inward to avoid direct contact with the inner envelope or cover. The inner cover shall be addressed, return addressed, sealed and marked with the security classification on front and, back so that the sparking will be easily seen when the outer cover is removed. Receipt for, if required shall be enclosed identifying the addressor, addresses, and listing the contents by short title. The outer envelops or cover shall be of sufficient opaqueness and density as to prevent the classification marking of the inner cover from being visible rend shall be addressed, return addressed, and carefully sealed with no markings or notations. 1 ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS (b) Shipping (1) Classified material shall be shipped in accordance with the Industrial Security Manual for Safeguarding Classified Material and Security Guidelines contained in DD Form 254. (2) Unclassified material shall be shipped in accordance with the contractor's best commercial practice to insure safe arrival at destination. (End of Clause) SECTION E - INSPECTION AND ACCEPTANCE E.1. REFERENCED CLAUSES The following contract clause (a) pertinent to this section, is/are hereby incorporated
CLAUSE NO. TITLE - ---------- --------------------------------------------------- ~~52.246-02 INSPECTION OR SUPPLIES - FIXED-PRICE (Aug 1996) 52.246-16 RESPONSIBILITY FOR SUPPLIES (APR 1984)~~
E.2 PRODUCTION EQUIPMENT The equipment shall be inspected add tested in accordance with the KIV-7HSB Integration and Operations Manual and the Contract. (End of Clause) E.3 Inspection and Final Acceptance a. Hardware: inspection and final acceptance of all equipment shall be conducted at the contractor's manufacturing facility in accordance with an approved Acceptance Test Plan Defense Contract Management Agency (DCMA) will be utilized on this contract. The Government will provide a copy of the Letter of Delegation (LOD) to the contractor and the cognizant Government inspection organizations. b. Review and final acceptance of all data items will be accomplished at the destination by the Contracting officer or his authorised representative. c. The KIV-7HSB units shall meet TEMPEST requirements as stated in the item description and/or Specification. TEMPEST testing shall be conducted in accordance with an approved TEMPEST test plan. TEMPEST test reports shall be made available to the Government upon request. (End of Clause) E.6 352.248-9005 NOTICE: MATERIAL AND WORKMANSHIP (JUL 1999) All material incorporated in the work shall be new and the work shall be performed in a skillful and workman like, efficient manner. Both materials and Workmanship shall be subject to the inspection of the Contracting officer or his duly authorized representative who may require the contractor to correct defective workmanship or materials without cost to the Government unless the contract specifies otherwise. (End of Clause) 2 ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS SECTION F - DELIVERIES OR PERFORMANCE F.1 REFERENCED CLAUSES The following contract clauses pertinent to this section is/are hereby incorporated
CLAUSE NO. TITLE - ---------- ---------------------------------------- 52-211-17 DELIVERY OF EXCESS QUANTITIES 52-242-15 STOP-WORK ORDER (AUG 1989) 53-242-17 GOVERNMENT DELAY OF WORK (APR.1984) 52-247-84 F.O.B. DESTINATION (NOV. 1991)
SECTION G - CONTRACT ADMINISTRATION DATA G.4 352,220-9001 CONTRACTOR LIABILITY FOR STATE AND LOCAL TAXES (SEP 1994) Generally the contractor is liable for payment of state or local taxes on this contract to the same extant that it would be liable for such taxes on a contract with a nongovernment entity. Although it may be useful for the contractor to inform the taxing authorities that the Maryland Procurement Office (MPO) is a federal government agency, this fact alone does not in and of itself create a tax exemption for the contractor. While dome transactions undertaken by the contractor pursuant to this contract may be exempt from a state or local tax, it is the Contractor's responsibility to identify such exertion under the applicable statute, and to resolve the applicability of such with state or local taxing authorities. (End of Clause) G.5 352.232-9007 ALLOCATION of CONTRACT COSTS, FIRM FIXED PRICE WITHOUT PROGRESS PAYMENTS - AWARD (MAR 1998) Because this contract is supported by two or more fund citations, all requests for payments end invoices fitted for payment shill allocate costs taxed on the line item end Accounting Classification reference (ACR) listed on the order award document. An invoice got properly allocated shall be considered and improper invoice, under the Prompt Payment Act. (End of clause) G.10 352.242-9002 NOTICE CONTRACT ADMINISTRATION FUNCTIONS (MAR 1998) (a) The Procuring Contracting officer (PCO) will retain all administration functions under this contract except for those assigned to the cognizant Defense Contract Management Commend (DCMC) component, is accordance with part 42 of the FAR, part 242 of the DOD FAR supplement and the FCO's letter dated 3 Feb. 2003. (b) The Contractor's 5-position CAGE Code is 65598. (c) The following administration functions and hereby delegated to the cognizant DCMC component (see FAR/DFARS references below): (1) 42.302 (a) (1). Review the Contractor's compensation structure (2) 42.302 (a) (5). Negotiate forward pricing rate agreements (EAR 15.4073) 3 ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS (3) 42.302 (a) (9) Establish final indirect cost rates and billing rates for those contractors meeting the criteria for contracting officer determination in FAR Subpart 42.7, (5) 42.302 (a) (16). Monitor the Contractor's financial condition and advise the contracting officer when it jeopardizes contract performance, (6) 42.302 (a) (25). Process and execute novation and change of name agreements under FAR Subpart 42.12 (7) 42.302 (a) (33). Advise and assist contractors regarding their priorities and allocations responsibilities and assist contracting offices in processing requests for special assistance and for priority ratings for owned capital Equipment. (8) 42.302 (a) (34). Monitor Contractor industrial relations matters Under the contract; apprise the contracting officer of actual or potential labor disputes, and coordinate the remodel of urgently required material from the strikebound contractor's plant, upon instinctive from, and authorization of the contracting officer. (9) 42.302 (a) (49) - Monitor the Contractor's value engineering program. (10) 42.302(a) (50). Review, approve or disapprove, and maintain surveillance of the Contractor's purchasing system (See FAR Part 44). (15) 42. 302 (a) (66): Determine that the Contractor has a drug-free workplace program and drug-free awareness program (See FAR Subpart 23.5) (16)242.302 (a)(9). For additional contract administration functions related to IR&D/B&P projects performed by major contractors, See 242.771-3(a). (17) 242.3 02(a) (33). Also perform industrial readiness and mobilization production planning field surveys and negotiate schedules. (d) The following contract administration functions (marked (X) when, applicable) are hereby delegated in Whole or in Part to the cognizant DCMC component See FAR/DFARS references below): ( ) (1) 42.302 (a) (4). Review any evaluate contractors' proposals under FAR Subpart 25.8 and, when negotiation will be accomplished by the contracting officer, furnish comments and recommendations to that officer. ( ) (2) 42.302(a) (6). Negotiate advance agreements applicable to treatment of costs under contracts currently assigned for administration (see FAR Subpart 31.109) Subpart 32.109). (X) (3) 42.302(a) (26). Perform property administration and plant clearance (see EAR. Part 45). ( ) (4) 42.302(a) (28). Perform necessary Screening, redistribution and disposes of contractor inventory ( ) (6) 42.302(a) (31). Perform production support, surveillance, and status resorting, including timely reporting of potential and actual slippage in contract delivery schedules. ( ) (7) 42.302 (a) (37). Review and evaluate preservation, packaging and packing. 4 ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS ( ) (8) 43. 302 (a) (39), Ensure Contractor compliance with contractual safety requirements. Note; see DFARS 233.370 for safely requirements on contracts for ammunition and explosives. ( ) (10) 42.302(a) (60). Cause release of shipments from Contractor's plants according to the shining instructions. When applicable, the order of assigned priority shall be followed; Shipments within the same priority shall be determined by date of the instructions. ( ) (12) 42.302, (a) (65). Accomplish administrative closeout procedures (see FAR Subpart 4.604.5). ( ) (13) 43,302 (a). (68) Monitor the contractors compliance with the requirements of environmental laws including the Resource Conservation and Recovery Act (RCRA) (42 U.S.C. 001, et.seq.) and other environmental requirements as specified in the contract (see Part 23). Responsibilities of the contracting officer shall include (i) Verification of contractor compliance with Specification requirement the use of environmentally preferable and energy-efficient materials and, the use of materials or delivery of end items with the specified recovered material content, this shall occur as pert of the quality assurance procedure get forth in Part 46. (ii) As required in the contract, ensuring that the contractor complies with the reporting requirements relating to recovered material content utilized in contract performance. Monitor the contractors compliance with the requirements of environmental laws including the Resource Conservation and Recovery set (ECRA) (42 D.S.C. 6901, et. seq.) and other environmental requirements as specified in the contract (see Part 23). Responsibilities of the contracting officer shall include ( ) (14) 242.302 (a) (4) Also, review end evaluate (A) Contractor estimating systems (see FAR 15.407) and (B) Contractor material management and accounting systems under 242.72. ( ) (15) 243.302 lal(33) Also perform industrial readiness and production planning field survey and negotiate schedules. ( ) (17) 242.302(a) (41) The DCMC has responsibility for reviewing earned value management system (EVMS) plans and verifying initial and continuing contractor compliance with DoD EVMS criteria as required by DFARS Earned value management systems 234.005.70. (End OF Clause) SECTION H - SPECIAL CONTRACT REQUIREMENTS H.I IMPORTANT NOTICE: UNAUTHORIZED CHANGES a. The Contractor Shall not accept any instructions issued by any person other than the Procuring activity CO or COR acting within limits of their authority. CORs will be designated in writing to the contractor, and scope of their authority will be set forth therein; and (End of Clause) H.2 352.204-9001 DISCLOSURE OF INFORMATION - CONTRACT (SEP 1996) 5 ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS (a) DFARB 252.204-7000 and this clause shall govern any disclosure of information regarding this contract. In using information authorized by this clause, the contractor (i) shall not disclose any information concerning the sponsorship of this contract, or (ii) the nature of the Government's interest in and application of the subject matter of this contract unless this type of information is expressly allowed to be disclosed by paragraph (b) and/or (c) below, or by written approval of the cognizant Contracting Officer. (b) The information listed below may be disclosed in proposals to United States Government Agencies in response to requests for past performance assessments: When this information is completed at time of contract award, the document shall be marked "FOR OFFICIAL USE ONLY." If any of the information that follows changes in your disclosure, the Contracting Officer must be notified in writing of the change. CONTRACT NUMBER: MDA904-03-D0355 CONTRACT TYPE: Firm Fixed Price: ID/IQ AWARD DATE: (complete at award)________________________ GOVERNMENT CONTRACTING ACTIVITY: MARYLAND PROCUREMENT OFFICE 9800 SAVAGE ROAD FORT GEORGE G. MEADE, MD 20755-6000 ORIGINAL CONTRACT VALUE: NTE CURRENT OR COMPLETED CONTRACT VALUE: (contractor may update) _________________ PERIOD OF PERFORMANCE: COMPETITIVE/NONCOMPETITIVE/FOLLOW-ON (circle, underline or highlight appropriate description) PROGRAM TITLE: KIV-7 CONTRACT EFFORT DESCRIPTION: (unclassified - as provided in solicitation package and completed as part of the award document) PLACE OF PERFORMANCE: Torrance, CA POINT OF CONTACT/PHONE NUMBER: CONTRACTING OFFICER: PROGRAM MANAGER: (c) For additional disclosures which require specific prior approval by the Contracting Officer, once authorization to use any specific information has been approved by the Contracting Officer, the contractor is authorized to reuse such specific information without obtaining additional authorizations from the Contracting Officer. The contractor shall maintain a log of the additional uses and submit a copy of the log to the Contracting Officer when each additional disclosure is made. (End of Clause) SECTION H - SPECIAL CONTRACT REQUIREMENTS H.3 352.204-9003 CONTRACTOR PERSONNEL CLEARANCES - CONTRACT (OCT 1993) (a) It shall be the responsibility of the contractor to optimize the use of currently cleared personnel in completing the requirements of this contract. In the event that the contractor requires additional personnel clearances, any delays incurred in the contract program and/or schedule as a result of the time required to clear such personnel shall be the contractor's responsibility. Under no circumstances shall the Government recognize a claim for an equitable adjustment in the contract price and/or schedule as a result of any delay due to the failure to have properly cleared personnel. (b) It is understood that the contractor will provide personnel as suitable replacements on a best efforts basis. (End of Clause) H.4 352. 204-9008 CONTROL OF COMMUNICATIONS SECURITY (COMSEC) MATERIAL (FEB 2002) 6 ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS The accountable COMSEC material produced under the contract, or provided as Government Furnished Property, will be distributed through COMSEC distribution channels. The contractor shall establish a COMSEC account, nominate a custodian and alternate custodian and control the material in accordance with procedures specified in the "NSA Manual 90-1 (NSA Industrial COMSEC Manual)" dated October 2001. Existing COMSEC accounts established as a result of previous or other contracts may be used. (End of Provision) H.5 352.204-9009 ACQUISITION OF COMSEC EQUIPMENTS, COMPONENTS, AND PARTS OUTSIDE THE UNITED STATES (OCT 1993) (a) Definitions. (1) "COMSEC equipment", as used in this clause, means equipment designed to provide security to telecommunications by converting information to a form unintelligible to an unauthorized interceptor and by reconverting such information to its original form for authorized recipients; as well as equipment designed specifically to aid in, or as an essential element of, the conversion process. COMSEC equipment is crypto-equipment, crypto-ancillary equipment, and authentication equipment. (2) "Component", as used in this clause, means any assembly or subassembly incorporated directly into an end product. An assembly is a group of parts, elements, subassemblies and circuits assembled as a separately removable item of COMSEC equipment. A subassembly is a major subdivision of an assembly. (3) "Part", as used in this clause, means any single, unassembled element of a major or minor subassembly, accessory, or attachment which is not normally subject to disassembly without the destruction or the impairment of the design use. (4) "Contractor", as used in this clause, means the supplier of the end item and associated support items to the Government under the terms of a specific contract. (5) "Subcontractor", as used in this clause, means a person or business that contracts to provide some service or material necessary for the performance of another's contract. (6) "Vendor", as used in this clause, means all areas under the territorial sovereignty of the United States (U.S.) and the Trust Territory of the Pacific Islands. (7) "United States", as in this clause, means all areas under the territorial sovereignty of the United States (U.S.) and the Trust Territory of the Pacific Islands. (b) No subcontracts or purchase order which involve design, manufacture, production, assembly, inspection, or test in a location not in the U.S. of COMSEC equipment, components, or parts, which are not covered by a specification or standard shall be made 7 ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS under this contract, without the prior written approval of the contracting officer. The contractor further agrees to include this clause in any or all subcontracts or purchase orders he may let pursuant to this contract for COMSEC equipment, components, or parts, except those subcontracts/purchase orders for which waiver is required, i.e., non-US sources. The contractor may procure standard off-the-shelf parts from a distributor located in the United States regardless of the location of the parts design, manufacture, production, assembly inspections, or test, providing that the anonymity requirements of this clause are implemented. Parts used only in COMSEC equipment are not considered standard off-the-shelf parts. Under no circumstances shall any custom integrated circuit, hybrid, multi-chip module or the documentation associated with these devices or any likeness, thereof, be sent outside the U.S. for additional processing or assembly. In addition, all, memory devices, including field programmable gate arrays (FPGAs) with security-related functions are programmed onshore. (c) Requests for permission to deviate from the requirements of paragraph (b) will be handled on a case-by-case basis through the contracting officer. Each waiver request must provide a strong and compelling reason why the waiver should be granted in addition to the benefit the Government would gain by the granting of a waiver. Furthermore, prior to the approval of any waiver, the contractor shall demonstrate to the Government through submission of an acceptable Anonymity Plan (data item DI-MGMT-90051), that procedures are in place to ensure that the offshore vendor remains unaware of the relationship between the prime contractor and the Department of Defense and/or Maryland Procurement Office (MPO). As a minimum, the following conditions will be imposed if a waiver is granted: (1) Purchase orders and drawings provided to a subcontractor or vendor outside the United States shall not carry any identification that reveals a contractor relationship with the Department of Defense and the MPO. This restriction includes the contractor's prime contract number with the Government and 98230/ONXXXXXX parts identification numbers. (2) The prime contractor, when required to mark items with the manufacturer's code 98230 or drawing numbers ONXXXXXX, shall only mark these items at a facility located within the U.S. Marking parts with ON markings and the 98230 code specifies that the parts are for MPO use only. If parts marked with the MPO identification code (including rejects and parts not usable for MPO programs) are allocated for non-MPO programs for resale to other customers, then markings associated with the MPO identification code must be removed from the parts before the parts are sent to non-MPO programs or other customers. (3) The Government has the right to an equitable adjustment to the contract price as consideration for granting approval, to acquire COMSEC equipment, components and parts from sources outside the United States (unless the waiver was granted prior to contract award). H.6 352-204-9010 NOTICE: CONTRACT ADMINISTRATION MD CLOSEOUT GUIDANCE (JUL 2001) 8 ATTACHMENTS F and C - ID/IQ CONTRACT FLOWDOWNS The following guidance is provided for your use in administering and closing out the contract. When the contract is complete, the contractor shall initiate final accounting and disposition. This shall be done in accordance with the following instructions. If a portion of the instructions are not applicable to this contract, (a) Government Furnished Property/Documents (1) The cognizant property administration office (Defense Contract Management Command (DCMC) and/or Office of Naval Research (ONR) is designated to administer the maintenance by the contractor of official Government Property Records for all Government property/ documents. See Section G - Contract Administration Data for the cognizant office of this contract. (2) The contractor shall Sign (1) copy of the shipping or inspection document acknowledging receipt of property/ documents and forward same to the designated property administrator. (3) At the end of the contract, the contractor shall submit the Government Furnished Property/Documents Inventory Schedule, requesting disposition to the cognizant office. The cognizant property administration office shall then obtain the disposition instructions from the contracting Officer's Representative (COR), and they will forward them to the contractor. The Contractor shall provide the cognizant office with a declaration that all Government furnished property/documents have been accounted for or expended (disposition is complete) in the performance of the contract. The cognizant property administration office will provide the MPO and the COR with the appropriate releases. (b) Contractor Acquired Property. At the end of the contract, the contractor shall submit the Contractor Acquired Property list, requesting disposition, to the cognizant property administration office. This office will then obtain the disposition instructions from the COR, and then will forward them to the contractor. The contractor shall provide the cognizant office with a declaration that contractor Acquired Property has been dispositioned as requested. The cognizant property administration office will provide the MPO and the COR with the appropriate releases. (c) Plant Clearance. The cognizant property administration office is automatically delegated plant clearance procedures. (d) Classified Material/Documents (DD254 on the contract. The disposition/retention action of classified holding should be initiated pursuant to paragraphs 5.1 and 5.m of the Industrial Security Manual. The inventory shall be submitted to the Director, NSA/CSS, ATTN: _____ (the applicable COR with office designator), 9800 Savage Road, Ft. George G. Meade, Maryland 20755-6000. After compliance with the COR's disposition instructions, the contractor shall submit evidence of compliance, certified by the CSSO, to the MPO (ATTN: DA3 _____ (Contracting Officer's name), Maryland Procurement Office, 9800 Savage Road, Ft. George G. Meads, Maryland 20755-6000), with a courtesy copy to Q13 and the COR. (e) Report of Inventions and Subcontracts (Form DD882). Pursuant to the Patent Rights Clause of this contract, the contractor shall submit the DD Form 882 to the Director, NSA/CSS (the applicable COR with office designator), 9800 Savage Road, Ft. George G. Meade, Maryland 20755-6000, with a courtesy copy to the MPO (ATTN: DA3 _____ (Contracting Officer's name), Maryland Procurement Office, 9800 Savage Road, Ft. George G. Meade, Maryland 20755-6000). (End of Clause) H.7 352.211-9005 NOTICE: SPECIAL PROVISION FOR LATE DELIVERY (OCT 1993) 9 ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS If the Contractor fails to make delivery of the items called for herein on or before the contractual delivery data without proof of an excusable delay as defined in the Default provision of this contract, and the Government does not elect to terminate performance in accordance with the termination provision of this contract, then the parties shall promptly and in good faith negotiate an extended delivery schedule in exchange for adequate consideration from the contractor. Should the parties fail to reach agreement on such a modification, the Contracting Officer may unilaterally determine what constitutes a reasonable delivery schedule and the consideration therefore. Failure to agree to such schedule and consideration shall be a dispute concerning a question of fact within the meaning of the clause of this contract entitled "Disputes". The rights and remedies set forth in this clause shall not be exclusive and are in addition to any other rights and remedies provided by law or under this contract. The primary purpose of this clause is to clarify existing terms of the contract. (End of clause) H.8 352.211-9000 NOTICE: INCORPORATION OF SECTION K BY REFERENCE (AUG 1998) In accordance with the FAR 15.204-1 (b), Part IV of the Uniform Contract Format shall not be physically included in the contract, but Section K, Representations, Certifications, and Other Statements of Offerors (as completed by the Contractor) shall be deemed incorporated by reference in the contract. (End of Clause) H.9 352.227-9000 SOFTWARE REQUIREMENT (AUG 1996) The Contractor warrants that, to the best of its knowledge and belief, software provided under this contract does not contain any malicious code, program, or other internal component (e.g. computer virus) which could damage, destroy, or alter software, firmware, or hardware or which could reveal any data or other information accessed through or processed by the software. Further, the Contractor shall immediately inform the Contracting Officer upon reasonable suspicion that any software provided hereunder may cause the harm described above. (End of Clause) H.11 352.227-9005 NOTIFICATION OF FOREIGN ORIGIN SOFTWARE AND/OR FIRMWARE (OCT 1999) Officers/Contractor shall notify the contracting Officer in writing if any foreign manufactured, developed, maintained and/or modified software and/or firmware will be used or included in the deliverables under this contract. Foreign-origin software and/or firmware that is merely a possible candidate for use under this contract shall also be identified. Notification pursuant to this clause must include the identity of the foreign source and the nature of the software application, and is required as soon as there is a reason to know or suspect foreign origin. MPO reserves the right to exclude foreign-origin software and/or firmware from use under contract on a case-by-case basis. (End of Clause) H.13 352.244-9000 NOTICE: SUBCONTRACTOR WITH CANADIAN CONTRACTORS (OCT 1993) Provided the sponsoring Government Activity is not disclosed, the officer is not prohibited from subcontracting with Canadian Contractors, unless the work to be performed under any resulting contract is classified in nature. Federal Acquisition Regulation (FAR), Part 44, Subcontracting Policies and Procedures, particularly Subpart 44.2 - Consent to Subcontract, applies. 10 ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS In addition to those clauses which the prime contractor is normally required to insert in subcontracts, the following must be included, as required: FAR 52.225.13 Restrictions on Certain Foreign Purchases (AUG 1998) DFARS 252.225-7028 Reporting of Contract Performance Outside the United States (End of Clause) H. 14 352.251-9000 SINGLE-SCOPE BACKGROUND INVESTIGATION (SSBIs) FOR CONTRACTOR PERSONNEL (JAN 2002) Under the authority granted to the Agency by OASD (CSI) to outsource SBBIs for NSA applicants and contractor personnel with critical skills for the FY2002, the following contractors are under contract with MPO and are credentialed to provide the SSBI portion of the clearance process to contractor personnel endorsed by the appropriated Program Office. Contractor personnel utilizing this process must be endorsed by the appropriate Contracting Officer's Representative (COR) via a Sponsorship Letter (Form G3542). Contractors choosing to utilize this process for obtaining SSBIs are responsible for contracting for the services from either one of the Background Investigation (BI) providers listed herein. Use of the BI providers services is the responsibility of the contractor and requires a separate contractual agreement between the contractor and the BI provider. Contractors may still choose to use Defense Security Service (DSS) for background investigations, at no cost. All costs charged to any resultant Agency contract for SSBIs performed by the BI provider shall not exceed the prices provided below.
MSM Security Sve. ADC, LTD. Firm Fixed Price SSBI - 30 Day Delivery $ 1,872.43 $ 1,750.00 SSBI - 60 Day Delivery $ 1,872.43 $ 1,690.00 Labor Hour Rate Investigator $ 34.85 $ 42.35 Administration $ 44.21 $ 37.00
The Contractor Staff Security Officer (CSSO) determines the 30 or 60 day turnaround time (Based upon geography). The Labor Hour rates are for cancelled or terminated SBBIs, as determined by $4, the cost of which is not to exceed cost of a completed SBBI. MSM Security Services Inc. ADC, LTD POC: Ed Johnson/Dawn Banda POC: Art Cardova Phone # 301-507-5210 Phone #: 800-750-3181 In accordance with the contractor's certification in Section K - Representations and Certifications, the costs of the SSBI in any resultant contract shall be a(n) ___________ charge. (End of Clause) H.15 352.290-9002 TESTING OF ELECTRONIC EQUIPMENT (AUG 1994) Research, development, test and evaluation by the contractor of electronic equipment or systems which have the capability to acquire the contents of communications may be governed by the United States electronic surveillance laws, including the Foreign Intelligence Surveillance Act of 1978 (FISA), 50 U.S.C. 1801-1810 and Title III of the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. 2510-2520. The contractor shall conduct all testing of electronic equipment 11 ATTACHMENTS F and G - ID/IQ CONTRACT SLOWDOWNS pursuant to this contract which may acquire nonpublic communications in accordance with United States law, including specifically the provisions of 50 U.S.C. 1805(f)(1). (End of Clause) H.16 352.290-9002 USE OF NON-GOVERNMENT PERSONNEL BY THE MARYLAND PROCUREMENT OFFICE FOR CONTRACT CLOSEOUT (JUN 2001) Contractor personnel who have executed a non-disclosure agreement with this office may administratively handle documentation associated with this contract for closeout purposes. Your signature on this document constitutes acknowledgement and acceptance of the Maryland Procurement Office's use of contractor personnel in the administrative closeout of this contract. Documentation may include, but is not limited to, proprietary information, rate information, billing information and supporting documentation. (End of Clause) SECTION I - CONTRACT CLAUSES I-1 REFERENCED CLAUSES The following contract clause(s) pertinent to this section is/are hereby incorporated.
CLAUSE NO TITLE - --------- -------------------------------------------------------------- 52.202-01 DEFINITIONS (DEC 2001) 52-203-03 GRATUITIES (APR 1994) 52.203-05 COVENANT AGAINST CONTINGENT FEES (APR 1994) 52.203-06 RESTRICTIONS ON SUBCONTRACTOR SALES TO THE GOVERNMENT (JUL 1995) 52.203-07 ANTI-KICKBACK PROCEDURES (JUL 1995) 52.203-08 CANCELLATION, RECISSION, AND RECOVERY OF FUNDS FOR ILLEGAL OR IMPROPER ACTIVITY (JAN 1937) 52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR IMPROPER ACTIVITY (JAN 1997) 52.209-06 PROTECTING THE GOVERNMENT'S INTEREST WHEW SUBCONTRACTING WITH CONTRACTORS DEBARRED, SUSPENDED, OR PROPOSED FOR DEBARMENT (JUL 1995) 52.211.05 MATERIAL REQUIREMENTS 52.211-06 BRAND NAME OR EQUAL (AUG 1999) 52.211-15 DEFENSE PRIORITY ALLOCATION REQUIREMENTS 52.215-08 ORDER OF PRECEDENCE - UNIFORM CONTRACT FORMAT (OCT 1997) 52.219-08 UTILIZATION OF SMALL BUSINESS CONCERNS (OCT 2000) 52.222-08 CONVICT LABOR (AUG 1998) 52.222-20 WALSH-HEALY PUBLIC CONTRACTS ACT (DEC 1996) 52.222-21 PROHIBITION OF SEGREGATED FACILITIES (FEB 1999) 52.222-36 AFFIRMATIVE ACTION FOR WORKERS WITH DISABILITIES (JUN 1988) 52.223-06 DRUG-FREE WORKPLACE (MAY 2001) 52.223-07 NOTICE OF RADIOACTIVE MATERIALS (JAN 1997) 52.223-14 TOXIC CHEMICAL RELEASE REPORTING (OCT 2000) 52.225-11 BUY AMERICAN ACT-CONSTRUCTION MATERIALS UNDER TRADE AGREEMENT (MAY 2002) 52-233-01 DISPUTES 52-242-13 BANKRUPTCY (JUL 1995) 52-243-01 CHANGES - FIXED PRICE (AUG 1997 52-244-02 SUBCONTRACTS (AUG 1998]
12 ATTACHMENTS F and G - ID/IQ CONTRACT FLOWDOWNS 52-248-02 GOVERNMENT PROPERTY (FIXED-PRICE CONTRACTS) (DEC 1989) 52-248-23 LIMITATION. OF LIABILITY (FEB 1997) 52-249-01 TERMINATION FOR CONVENIENCE OF THE GOVERNMENT (FIXED-PRICE) (SHORT FORM) (APR 1984) 52-249-08 DEFAULT (FIXED PRICE SUPPLY AND SERVICE) (APR 1984) 52-253-01 COMPUTER GENERATED FORMS (JAN 1991) 252.203.7001 DISCLOSURE OF INFORMATION (DEC 1991) 252.204.7003 CONTROL OF GOVERNMENT PERSONNEL WORK PRODUCT (APR 1992) 252.204.7004 REQUIRED CENTRAL CONTRACTOR REGISTRATION (NOV 2001) 252.208.7000 ACQUISITION FROM SUBCONTRACTORS SUBJECT TO ON-SITE INSPECTION UNDER THE INTERMEDIATE-RANGE NUCLEAR FORCES (INF) TREATY (NOV 1995) 252.223.7004 DRUG-FREE WORK FORCE (SEP 1988) 252.225.7009 DUTY-FREE ENTRY - QUALIFYING COUNTRY SUPPLIES (END PRODUCTS AND COMPONENTS (AUG 2000) 252.225.7012 PREFERENCE FOR CERTAIN DOMESTIC COMMODITIES (APR 2002) 252.225.7031 SECONDARY ARAB BOYCOTT OF ISRAEL (JUN 1992) 252.227.7013 RIGHTS IN TECHNICAL DATA - NONCOMMERCIAL ITEMS (NOV 1995) 252.227.7014 RIGHTS IN NONCOMMERCIAL COMPUTER SOFTWARE AND NONCOMMERCIAL COMPUTER SOFTWARE DOCUMENTATION (JUN 1998) 252.231.7000 SUPPLEMENTAL COST PRINCIPLES (DEC 1991) 252.243.7001 PRICING OF CONTRACT MODIFICATIONS (DEC 1991) 252.243.7003 REQUESTS FOR EQUITABLE ADJUSTMENT (MAR 1998) 252.247.7028 TRANSPORTATION OF SUPPLIES BY SEA (MAY 2002) 252.251.7000 ORDERING FROM GOVERNMENT SUPPLY SOURCES (MAY 1995)

I.4 52.252-02 CLAUSES INCORPORATED BY REFERENCE (FEB 1995) This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also the full text of a clause may be accessed electronically at this/these address(es) FAR: http://www.arnet.gov/far/ DFARS: http://www.acq.osd.mil/dp/dars/dfars.html (End of Clause) SECTION J - LIST OF ATTACHMENTS J.l LIST OF ATTACHMENMTS J.1.2 KIV-7HSB Integration and Operation's Manual (Mykotronx Document). J.1.2 MOA MYK-KIV-97-01, dated 18 February 1998 (previously provided under MDA904-9B- D-C104). J.1.3 Contract Security Classification Specification, DD Form 254, dated 13 May 2002, 9 pages J.1.4 Contract Data Requirements List (CDRL) for the KIV-7HSB, DATED 29 March 2002, 4 PAGES

~~(END of Clause) 13~~ EX-10.(Y) 7 a94458exv10wxyy.txt EXHIBIT 10(Y) EXHIBIT 10(y) MANUFACTURING AGREEMENT BETWEEN BULOVA TECHNOLOGIES L.L.C. AND MYKOTRONX, INC. FOR THE KIV-7 PRODUCTS 28 OCTOBER 2003 1 Buyer: ____ Seller:____ TABLE OF CONTENTS ARTICLES 1. Terms of Agreement: Termination 2. Manufacturing 3. License to Manufacture 4. Prohibition of Third Party Sales 5. Forecasts 6. Purchase Orders 7. Pricing 8. Changes 9. Shipments, Factory Relocation: Factory Qualification 10. Delivery Date-Liquidated Damages 11. Force Majeure 12. Inspection and Acceptance 13. Warranty 14. Key Personnel 15. Support Services 16. Status Reporting 17. Financial Reporting 18. Products Defects or Recall 19. Relationships 20. Insolvency 21. Choice of Law 22. Resolution of Disputes 23. Assignment 24. Communications and Notice 25. Indemnification 26. Public Release of Information 27. Order of Precedence 28. Compliance with Laws 29. Independent Contractor 30. Gratuities 31. Seller Contacts with Buyer's Custom and Other Vendors 32. Release of Liens 33. Taxes 34. Invoices 35. Packing, Packaging, and Marking 36. Price Warranty 37. Certification of Independent Price Determination 38. Work on Buyer's or Buyer's Customer's Premises 39. Title and Risk of Loss 40. Responsibility for Buyer Owned Property 41. Stop Work Order 42. Waiver 43. Failure to Comply 44. Termination for Convenience 2 Buyer: ____ Seller:____ 45. Termination for Default 46. Buyer's Property and Information 47. Information Disclosed and/or Delivered to Buyer 48. Amendments 49. Waiver 50. Confidential and Proprietary Information 51. Entire Agreement Attachments: A. Key Personnel B. Pricing Schedule C. Priced Bill of Material for KIV-HSB D Harris Presidio Warranty E KIV-7HSB Specification and Drawings F. Mykotronx, Inc. Non-Disclosure Agreement G. Mykotronx QA Provisions H. Contract FAR Clauses I. Testing Requirements and Procedures 3 Buyer: ____ Seller:____ KIV-7 MANUFACTURING AGREEMENT THIS MANUFACTURING AGREEMENT (the "Agreement") is entered into as of 28 October, by and between Bulova Technologies L.L.C., a Delaware Limited Liability Company, having a principal place of business at 101 North Queen Street, Lancaster Pennsylvania 17604 ("Bulova") and Mykotronx, Inc., a California corporation, having a principal place of business at 357 Van Ness Way, Suite 200, Torrance, California 90501 ("Mykotronx"). Bulova and Mykotronx may be individually referred to as a "Party" or collectively referred to as the "Parties." WHEREAS, the Parties wish to enter into this Manufacturing Agreement which shall set forth the terms and conditions upon which Bulova (Seller) shall manufacture Products for Mykotronx (Buyer). In addition, the Seller agrees to procure the Presidio Module for the Products from Harris Corporation, RF Communications, 1680 University Avenue, Rochester, NY 14610. The attachments listed in the table of contents are hereby incorporated and are to be considered an integral portion of this Agreement. Notwithstanding the foregoing, in the event of any conflict or ambiguity between this Agreement and any Attachment, this Agreement shall take precedence. For purposes of this Agreement the following terms are hereby defined: "Indefinite Delivery Indefinite Quantity" (ID/IQ) orders shall mean purchase orders placed by Buyer to Seller which reference the ID/IQ Government contract between the Buyer and the Government and require DCMC approval as proof of delivery. "Commercial" orders shall mean purchase orders placed by Buyer to Seller, which require a Certificate of Conformance (COC) approval as proof of delivery. "Rainbow" Rainbow Technologies Inc., a California corporation, having a principal place of business at 50 Technology Drive, Irvine California (Rainbow) is the parent company of Mykotronx, Inc. 1. TERMS OF AGREEMENT; TERMINATION A. The term of this Agreement will be for 23 months, subject to earlier termination pursuant to the provisions of this Agreement. Upon the expiration of this term , this Agreement shall continue from year to year until one party terminates the Agreement by giving at least ninety (90) days prior written notice to the other party. Notwithstanding the foregoing, the term of this Agreement shall automatically extend to include the term of any purchase order ("Order") issued hereunder, subject to earlier termination pursuant to the provisions of this Agreement. B. Buyer may, at its option, terminate this Agreement prior to the term of this Agreement, under the provisions for a Termination for Convenience, (Paragraph 44) by giving written notice to Seller of its desire to terminate this Agreement. Such notice shall include the effective date of 4 Buyer: ____ Seller:____ the termination which date shall be not less than 180 days after the date of such notice. Such notice shall be given, if at all, at any time after the signing of this Agreement, but not later than six months prior to the expiration of this Agreement. C. Any provisions hereof that by their nature would be expected to survive the termination of this Agreement shall survive and not be affected by the termination or expiration of this Agreement, including, without limitation, Sections 10, 13, , 18, 19. 20, 21, 22, 33, 46 and 50. 2. MANUFACTURING Seller shall manufacture KIV-7HSB, COMSEC module for Mykotronx to the specification 4090500-0501, drawings provided (attachment E), Quality Provisions (Attachment G), Acceptance Test Procedures and Testing Requirements and Procedures (Attachment I) hereinafter referred to as "the Product" or "Product". The contract requires that a representative sample of (3) units undergo a Production Sampling Tempest Test Plan every month per the Mykotronx/Government approved test plan. Sub-level testing of Printed Wiring Assemblies using In-Circuit Test fixtures and equipment identifies most process errors or components failures at the earliest and most re-workable point in the flow. 3. LICENSE TO MANUFACTURER For the term of this Agreement, Buyer does hereby grant to Seller a nonexclusive, royalty-free, irrevocable right and license to make Product. 4. PROHIBITION OF THIRD PARTY SALES Seller agrees to manufacture the Product exclusively for Buyer and further agrees not to sell any Product to any third party unless directed to do so in writing by Buyer. 5. FORECASTS Buyer shall submit, in writing, a rolling six month forecast of Product that Buyer expects will be required for sale beyond the three months of firm purchase orders.. This forecast shall include total quantity of Product, by Part Number, and such forecast will be revised monthly. Forecasts are for general planning and/or long lead procurement purposes and Buyer shall not be responsible for forecasts that later turn out to be inaccurate. Buyer shall be responsible for any material purchased by Seller beyond the scope of any Purchase Order issued by Buyer to Seller only if approved in writing by the Mykotronx Program Manager. 6. PURCHASE ORDERS A. Notwithstanding the provisions set forth in the paragraph entitled FORECASTS, Buyer shall issue purchase orders ("Purchase Orders") for all Product ordered which shall include the unit price, quantity, cumulative price, anticipated delivery date and reference this Agreement. Place of delivery, and method of transportation and carrier will be provided the first day of the month for that month's deliveries via "Distribution Instructions." Any terms and conditions contained in a Purchase Order that are inconsistent with the terms and conditions set forth in this Agreement shall have no force and effect unless set forth in writing executed by both Parties. Seller agrees to accept mandatory flow down clauses similar to those accepted by Mykotronx in its prime contracts and to incorporate the terms and conditions thereof in the Purchase Orders. 5 Buyer: ____ Seller:____ In addition, the Parties agree to negotiate in good faith to incorporate termination provisions similar to those accepted by Mykotronx in its prime contract(s) with its customers for the Product. Other additional terms and conditions shall have no force and effect. B. Deliveries shall be made pursuant to reasonable manufacturing schedules based on no less than a ninety (90) day lead-time. Buyer will provide purchase orders to Seller to ensure Seller has a minimum of four (4) months of Purchase Orders on-hand at all times C. Buyer agrees to place Purchase Orders for a minimum quantity of 200 Units for delivery per month and shall not exceed a maximum quantity of 500 Units for delivery per month. D. Payment for Product ready for delivery shall be made by Buyer on a net thirty (30) days basis from receipt of the correct invoice including proof of delivery with respect to deliveries under the ID/IQ and on a net forty-five (45) basis for all other deliveries (including purchase orders for Mykotronx to be shipped to its inventory). Proof of delivery shall be defined as DCMC approval for the ID/IQ deliveries and a Certificate of Conformance for Commercial deliveries. Seller will provide copies of invoices to the Government offices of Program Management, Contracts, and the Paying Office via priority mail with tracking system. Commercial invoices shall be submitted separately to the billing address indicated on commercial sales orders. Invoices shall be transmitted to Mykotronx at the time the Product is deemed "accepted" as provided in Section Twelve. When required, any notice of late payment will be provided in writing to the KIV Contract Administrator at the address provided in Article 24 herein. F. PAYMENT TERMS FOR THE PRESIDIO MODULE Mykotronx and Harris have executed a Supply Agreement for the Presidio Module. Seller shall procure the Presidio Module from Harris. As part of this Agreement Seller accepts the Harris payment terms for the Presidio Module which follow. "Partial and early shipments, as mutually agreed, and acceptable, within fifteen days prior to the scheduled delivery date and at no time shall the quantity delivered exceed a quantity greater than 110% of the quantity scheduled for delivery, are acceptable and will result in partial invoices. Payment terms are net thirty (30) days from invoice date. In accordance with Harris standard terms and conditions, Harris reserves the right to assess interest at the rate of 1.5% per month for repeated untimely payments received by Harris beyond forty-five (45) days from invoice date." 7. PRICING A. Pricing for the Product (Attachment B) shall remain firm for two years., except that such price may be adjusted to reflect an increase in the cost of material in accordance with the formula below. In addition, for all raw materials or component parts that are supplied by Mykotronx or through Mykotronx's Suppliers on behalf of Mykotronx, an appropriate decrease will be made in the price based on the cost plus the applicable burdens. The Bill of Material established as the baseline for all future changes is incorporated as Attachment C. B. FORMULA FOR SHARING MATERIAL COST INCREASES AND DECREASES In the event that the aggregate cost of material increases or decreases more than five percent (5%) from the cost of such material defined in Sellers costed BOM (Attachment C) within their proposal (BULOVA LETTER DATED 24 OCTOBER), the Parties shall share the increase or decrease in the cost of the material exceeding such five percent (5%) variation on a 50/50 basis to be computed quarterly except as provided above in Article 7. A. 6 Buyer: ____ Seller:____ C. In the event the Seller recommends design improvements resulting in cost savings, this savings will be shared with Mykotronx on a 50/50 basis. 8. CHANGES Any changes to the drawings, designs or specifications of the Product required by Buyer shall be communicated to Seller in writing. The Seller shall review the change and within thirty (30) working days communicate to Mykotronx the Seller's plan for implementing the change together with cost impact if any. The delivery date and the price of the Product shall be adjusted if any such changes agreed upon by the Parties cause a delay in delivery or increase or decrease in the costs of manufacture of the Product. 9. SHIPMENTS, FACTORY RELOCATION; FACTORY QUALIFICATION A. Method of transportation and carrier are to be in accordance with the instructions contained in the Sales Orders. All shipments shall be FOB Seller shipping dock, or such other FOB Origin point designated by Seller. Buyer shall pay for the cost of insurance and freight except for freight for shipment under the ID/IQ, which shall be absorbed by Seller as part of the Price. Title and the risk of loss, damage and destruction shall pass to Mykotronx at the FOB point. Shipments shall be made directly to Mykotronx customers, per instructions to Seller by Buyer as set forth in Sales Orders. B. In the event Seller elects to reorganize, merge, sell or otherwise change the structure of the business organization manufacturing the product, Seller without the consent of any Party, may move the factory. In such event, Seller shall notify Mykotronx one hundred twenty (120) days in advance of such move and Seller shall be responsible for any required re-qualification related to the Product. C. During the term of this Agreement, Seller, in accordance with the DD-form 254, provided through Mykotronx and as required by the flow down provisions on the DD form 254, shall maintain facility clearance, COMSEC Account and Security clearance and controls as required for the Seller's facility manufacturing the KIV-7 COMSEC Module D. When orders for KIV-7HSB units also include ancillary devices, all items are to be shipped on the same date unless directed otherwise in writing by Buyer. E. ID/IQ orders shall be shipped prior to open market orders unless directed otherwise in writing by Buyer. 10. DELIVERY DATE-LIQUIDATED DAMAGES A Delivery will be accomplished within the time specified on the face of the Purchase Order ("Due Date "), provided such date allows proper lead-time as set forth in this Agreement. Anything to the contrary notwithstanding, Seller shall not be liable for any reasonable delay in production or delivery, until it receives a fifteen (15) day advance notice ("Notice Period ") of such delinquency giving Seller forty-five (45) days from the expiration of the Notice Period to cure the delinquency ("Cure Period") for a total of 60 days from the date the notice is received; provided, however, that the Notice Period and Cure Period shall not apply to delays in production or delivery that are the result of the relocation of the manufacturing operations as contemplated in Section 9 or customer caused delays. Delivery shall be deemed complete when the Products are delivered to the FOB point. Submission of an acceptable recovery plan by Seller shall nullify need for notice. 7 Buyer: ____ Seller:____ B. In the event Seller fails to cure the delinquency prior to the expiration of the Notice Period and Cure Period, Seller shall pay to Buyer as liquidated damages, a sum of one percent (1%) of the Transfer Price of the Products that were ordered by Buyer's customers and remain unshipped for each month (beyond the sixty (60) day Notice and Cure Period) that such Products so remain unshipped, not to exceed a total of one hundred thousand dollars ($100,000) of liquidated damages in the aggregate. Anything to the contrary notwithstanding, no liquidated damages under this section entitled DELIVERY DATE-LIQUIDATED DAMAGES shall be due and owing if the delays in delivery are caused by the U.S. Government or any of it agencies or department (which are not attributable to the performance or non-performance by Seller) or by force majeure events. C. In the event Seller is obligated by the terms of this Agreement to pay liquidated damages to Mykotronx, Seller shall pay such sum on a net thirty (30) basis from receipt of Mykotronx' invoice for same. 11. FORCE MAJEURE In the event a delay in production or delivery occurs which delay is occasioned by: (a) acts of God, including but not limited to fire, floods or unusually severe weather; (b) civil or military authority, war, hostility, riots, government action in its contractual or sovereign capacity; (c) strikes or other labor actions; or (d) where such delay is occasioned by other causes beyond the control of Seller and without its fault or negligence, then the date or dates for delivery of the equipment shall be extended for a period equal to the time lost by reason of any such delay. Anything to the contrary notwithstanding, Seller shall be responsible for delays caused by subcontractors failing to make timely deliveries unless such delays are caused by force majeure events, subject to the limitations set forth in paragraph B of the section, entitled DELIVERY DATES-LIQUIDATED DAMAGES. 12. INSPECTION AND ACCEPTANCE Acceptance of Products shall take place at the Seller Facility: (a) with respect to orders to be shipped to a Government customer when such customer delivers to Seller a signed form DD250 authorizing shipment of Product; (b) with respect to all other orders (excluding orders delivered to the account of Mykotronx), when Seller signs-off on a commercial shipper accompanied by a Certificate of Conformance, authorizing shipment of the Product, or (c) with respect to orders delivered to the account of Mykotronx, when Seller signs off on a Certificate of Conformance. Upon reasonable prior notice, during normal business hours Mykotronx or its customers for the Product may inspect the Product including testing thereof, at the Seller's Facility. 13. WARRANTY A. Seller warrants to Buyer's customers that the Product it delivers hereunder will be free from defects in material and workmanship at the time of acceptance. This Warranty will terminate one (1) year after the date of such acceptance. Notification of any such defect must be given by Buyer to Seller within the Warranty Period. Seller's obligation under this Warranty is limited to repairing or replacing any Product, which is determined by Seller to be defective. Repair or replacement will be accomplished at the Seller's Facility. Defective items returned to Seller pursuant to this Warranty will be delivered to the Seller's Facility, freight prepaid. Seller will return such items to Buyer or its customer at Buyer's option, freight prepaid. Products replaced will become the property of Seller. B. This Warranty does not cover components that are expendable in normal use and thus have an unpredictable service life, such as batteries. 8 Buyer: ____ Seller:____ C. Products that have been repaired or replaced during the Warranty Period are warranted for the remainder of the original Warranty Period. If Seller does not find any defects in workmanship or material, or if the Warranty period has expired, Seller's regular charges shall apply and Buyer shall pay all such charges including transportation costs. D. Seller is released from all obligations under its Warranty in the event repairs or modifications are made by persons other than its own authorized personnel unless such work is authorized in writing by Seller. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHICH ARE HEREBY EXPRESSLY DISCLAIMED. SELLER'S LIABILITY UNDER THIS WARRANTY IS EXPRESSLY LIMITED TO THE REPAIR OR REPLACEMENT, AT ITS OPTION, OF ANY PRODUCT CONTAINING A DEFECT IN MATERIAL OR WORKMANSHIP AT THE TIME OF DELIVERY. IN NO EVENT SHALL SELLER BE LIABLE FOR DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR OTHER DAMAGES RESULTING FROM DEFECTS IN MATERIAL OR WORKMANSHIP IN THE PRODUCTS DELIVERED. THE SOLE REMEDY SHALL BE REPAIR OR REPLACEMENT FOR ANY SUCH DEFECTS UNDER THE TERMS OF THIS WARRANTY. E. HARRIS PRESIDIO MODULE WARRANTY As stated previously in Article 6.F of this Agreement the Presidio Module shall be procured by Seller from Harris. The warranty for the Presidio Module Units are incorporated herein and provided as an attachment to this Agreement. 14. KEY PERSONNEL A.Seller shall dedicate Key Personnel to the performance of Seller's obligations hereunder. Any key personnel who, during the performance of the contract, are assigned by the Seller to replace the personnel identified by the Seller in Attachment A shall possess at least the same qualifications and be capable of assuring satisfactory performance of work required by this agreement. B. All key personnel assigned to this agreement will require the approval of the Mykotronx Program Manager. To obtain the Program Manager's approval, the Seller shall submit data/resumes, which will satisfactorily demonstrate that the individual has the experience required to perform on this agreement. The Seller shall also specify the position(s) the individual will support. The approval of the Program Manager for Seller's key personnel assigned to this Agreement shall not be unreasonably withheld. 15. SUPPORT SERVICES Seller shall provide to Buyer at no cost office space, telephone services and access to office equipment and supplies reasonably necessary to support Buyer personnel at manufacturing site for the purpose of understanding the manufacturing processes of the Product. In addition, Buyer will have reasonable access to Seller's employees in order to facilitate its understanding thereof provided that all of Buyer's activities are subject to reasonable prior notice to Seller and are to be conducted on a non-interference basis. 16. STATUS REPORTING Seller shall provide production detail and status reports. These should clearly define material delivery impacts on schedule by critical item and get-well dates; master production schedule and 9 Buyer: ____ Seller:____ status; linearity reports; corrective action minutes or actions and warranty return data by major defect category. It is anticipated that these reports will be issued monthly. Buyer will require a monthly Production Review at Seller's Facility. As the contract matures, the review meeting frequency is anticipated to be decreased. 17. FINANCIAL REPORTING Seller shall provide Buyer with quarterly financial statements (i.e. Income Statement and Balance Sheet) within 30 days of their quarterly-end. Audited Financials shall be required as they become available. In addition to the notification required in Article 9.b Seller shall inform Buyer of any material internal/external actual, changes which may cause major impact to Sellers business/financials including but not limited to reorganization, acquisition/disposition, merger, significant claims, litigation or contingencies to the extent not prohibited by law or agreement. 18. PRODUCT DEFECTS OR RECALL Seller, at its cost, shall be responsible for the correction of any latent defects caused by the Seller's manufacturing process (excluding latent defects caused by product design). Seller's cost shall be limited to the labor, material and shipping expenses associated with the repair of the product. 19 RELATIONSHIPS Seller is an independent contractor engaged by Buyer in the manufacture of Product. Nothing in the Agreement shall constitute Seller as an employee, agent or general representative of Buyer. This Agreement shall not constitute appointment of either Party as the legal representative or agent of the other, nor shall either Party have the right or authority to assume, create or incur any liability or any obligation of any kind, express or implied, against, or in the name of, or on behalf of the other party. 20. INSOLVENCY Either Party may cancel this Agreement in the event of the suspension of the other Party's business, insolvency of the other Party, the institution of bankruptcy, reorganization, arrangement or liquidation proceedings involving or affecting the other Party, or any assignment for the benefit of creditors of the other Party, or receivership that the other Party places itself in or may be placed in. 21. CHOICE OF LAW This Agreement shall be governed, construed and enforced under the laws of the State of California, excluding its conflict of law provisions. 22. RESOLUTION OF DISPUTES In the event of a dispute relating to this Agreement, the Parties shall make a good faith effort by assigning authorized representatives to settle any differences without resorting to arbitration. If settlement of the dispute is not possible either party may invoke arbitration. However, the Party wishing to initiate arbitration shall give forty (40) days prior notice to the other party. During this forty (40) day period selected upper management personnel shall further attempt to resolve the dispute. Any unresolved dispute arising out of or relating to this Agreement, including its interpretation, validity, scope and enforceability shall be resolved by arbitration to be held exclusively in the City of Los Angeles, California. Such arbitration shall be the Parties' exclusive remedy. The arbitration shall apply the law of the State of California to the dispute, exclusive of its conflict of laws and shall be concluded in accordance with the then existing 10 Buyer: ____ Seller:____ Commercial Arbitration Rules of the American Arbitration Association. The arbitrator shall be empowered to assess compensatory damages except in areas where this Agreement exempts any party from liability or limits such damages. The judgment of the arbitrator shall be final and binding on the Parties and any Party may enter the arbitration award as a final judgment in a court of competent jurisdiction with power to enforce the arbitration award. The Parties shall pay their own arbitration expenses and shall equally share the arbitrator's costs and fees and the arbitrator shall allocate such costs and fees equally between the Parties as part of the award. 23. ASSIGNMENT This Agreement may not be assigned without the prior written consent of the other Party which consent shall not be unreasonably withheld by any party, provided, however, that without any such consent; A. Seller may assign any of its rights hereunder to any wholly owned subsidiary of Seller or to any purchaser of substantially all of the assets of the business unit to which the Product relates, and; B. B. Buyer may assign any of its rights hereunder to any wholly owned subsidiary of Rainbow or to any purchaser of substantially all of the assets of Rainbow. In addition, Seller may assign to a bank or lending institution any proceeds due under this Agreement without the consent of Buyer. 24. COMMUNICATIONS AND NOTICE Any notice or communication required under this Agreement shall be given in writing to the following addresses and shall be deemed received within three (3) business days after the date sent by first class, registered or certified mail: If to Seller: Bulova Technologies, L.L.C. 101 North Queen Street Lancaster, PA 17604-4787 Attn: Charles Bittner With copy to: Bulova Technologies, L.L.C. 101 North Queen Street Lancaster, PA 17604-4787 Attn: George Laubach, Bulova Program Manager If to Buyer: Mykotronx, Inc. 9861 Broken Land Parkway, Suite 258 Columbia MD 21046 Attn: Patricia S. Linahan, KIV-7 Contract Administrator With copy to: Mykotronx, Inc. 9861 Broken Land Parkway, Suite 258 Columbia MD 21046 Attn: Frank Duff, Mykotronx Program Manager 11 Buyer: ____ Seller:____ 25. INDEMNIFICATION A. BULOVA INDEMNIFICATION. Bulova represents and warrants that the manufacturing processes employed in the assembly of Product do not infringe on any patent, trademark, trade secret, copyright or other proprietary right and that Seller is unaware of any claim of infringement, either threatened or pending. Seller agrees to indemnify, defend and hold Buyer harmless from and against any claim for such infringement in the event that such a claim is filed. In the event that any such process is found to so infringe, Seller shall, at its option and sole expense, either make such process non-infringing or shall procure the rights to continue to use such infringing process. The foregoing remedies are the sole and exclusive remedies of the Buyer in the event of an infringement. Buyer shall not be entitled to recover from Seller any lost profits or any other consequential damages suffered as a result of such infringement or alleged infringement. It is agreed that Seller shall undertake the defense of any such claim through counsel of its own choice and at its expense. However, the provisions of this section shall not apply with respect to any claim of patent, trademark, or copyright infringement made solely with respect to the incorporation of specific components into the Product at the express direction of Buyer including such incorporations made in express compliance with Product Specifications. B. All work to be performed by Seller is at Seller's risk. Seller shall defend, indemnify, and hold harmless Buyer, its officers, employees and agents from any claim, suit, loss, cost, damage, expense (including attorney's fees), or liability by reason of property damage or personal injury (including death) to any person, including Seller's employees, of whatever nature arising out of as a result of, or in connection with such performance occasioned in whole or in part by the actions or omissions of Seller, its officers, employees, agents, Sellers, or subcontractors at any tier. Seller and its Sellers and subcontractors at any tier shall maintain public liability and property damage insurance in prudent and reasonable limits covering the obligations set forth and shall maintain, to in the limits required by law, proper Workers Compensation and employer's liability insurance covering all employees performing this Order. C. MYKOTRONX INDEMNIFICATION. Mykotronx represents and warrants that (i) it owns or has the legal right to use the designs and specifications needed to manufacture Product and licensed to Seller pursuant to Section 3 hereof, (ii) such designs and specifications do not infringe on any patent, trademark, trade secret, copyright or other proprietary right and (iii) Buyer is unaware of any claim of infringement, either threatened or pending. Notwithstanding the language in Section 24A. above. Buyer shall defend, indemnify and hold Seller harmless against any claims or liabilities for, or by reason of, any alleged infringement of any patent, trademark, trade secret, copyright or other proprietary right caused by Seller's use and reliance upon the Product Specifications in assembling the Product or arising out of the incorporation of Product into another good, Product or system which infringes upon any patent, trademark, trade secret, copyright or other proprietary right. Buyer agrees that it will indemnify and hold Seller harmless against and from any and all claims, damages and liability suffered by Seller resulting, from personal injury and/or property damage to third Parties, including without limitation to Seller's employees. Buyer will also indemnify Seller due to defects in the design of the Product, Product Specifications or in any specific component incorporated into the Product at the express direction of the Buyer, including any such incorporation made in express compliance with Product Specifications. 12 Buyer: ____ Seller:____ 26. PUBLIC RELEASE OF INFORMATION Seller shall not, without the prior written consent of Buyer, make any news release or public announcement concerning this Agreement or any future Agreements. Seller shall extend this restriction to lower-tier subcontractors involved in the performance of this Agreement or future Agreement. 27. ORDER OF PRECEDENCE Any inconsistency in a Purchase Order shall be resolved by giving precedence in the following order: (a) Provisions or requirements (including Quality Assurance excluding Terms and Conditions) shown on the face of the Order; (b) Manufacturing Agreement; (c) Statement of Work (excluding, specifications and drawings); (d) specifications; (e) drawings; and (f) any other attachment or exhibit. Seller shall bring to the immediate attention of Buyer any perceived conflicts or ambiguities in the Purchase Order. 28. COMPLIANCE WITH LAWS Seller agrees to comply with all applicable local, State, and Federal laws and executive orders and regulations and agrees to defend, indemnify and hold Buyer harmless against any loss, cost, damage, expense (including attorney's fees), or liability by reason of Seller's violation. 29. INDEPENDENT CONTRACTOR It is expressly understood that the parties are, and shall remain at all times, independent contractors. 30. GRATUITIES Buyer may, by written notice to Seller, terminate this Agreement/Purchase Orders for default if Buyer has reasonable cause to believe that gratuities were offered or given by Seller, or any agent or representative of Seller, to any officer, employee or customer of Buyer with a view toward securing this Agreement, or securing favorable treatment with respect this Agreement. 31. SELLER CONTACTS WITH BUYER'S CUSTOMER AND OTHER VENDORS Buyer shall be responsible for all liaison and communications with Buyer's customer and Buyer's other vendors. Seller shall not communicate with Buyer's customer or Buyer's other vendors regarding this Agreement unless authorized to do so by Buyer. 32. RELEASE OF LIENS All materials or articles delivered and labor performed under this Agreement shall be free of all liens and, if Buyer requests, a proper release of all liens or satisfactory evidence of freedom from liens shall be delivered to Buyer. 33. TAXES The price of supplies/services procured under this Agreement includes all applicable Federal, State, and local taxes and duties unless otherwise stated in this Agreement. 34. INVOICES Seller's itemized invoice shall be submitted to the Accounts Payable Department, at the address shown on the face of the Purchase Order. The invoice shall contain the Purchase Order number, Buyer Sales Order number, description of supplies/services, part number, quantity, unit price, and total price. Payment of invoices may be delayed pending correction of any errors or 13 Buyer: ____ Seller:____ omissions. Each invoice or claim from Seller shall be deemed to include a warranty by Seller that all amounts claimed by Seller are due and proper. 35. PACKING, PACKAGING, AND MARKING Seller shall be responsible for properly packing and packaging the supplies in suitable containers for protection during shipment in accordance with transportation regulations and good commercial practice. No additional charge will be allowed for packing and packaging unless specifically agreed to in writing; any transportation charge paid by Seller for which Seller is entitled to reimbursement shall be shown on Seller's invoice as a separate line item. Seller shall label each package with the corresponding Purchase Order number. Seller shall prepare an itemized packing list bearing the Purchase Order number, Mykotronx Sales Order number, item description, part number, and quantity shipped for each package. One copy of the packing list shall be placed in the shipping container and one copy to P. Linahan at address provided in Section 24. 36. PRICE WARRANTY Seller warrants that the prices for the articles/services sold to Buyer under this Agreement are no less favorable than those currently extended to any other customer buying the same or like articles in approximately equal or smaller quantities. If during the term of this Agreement, Seller reduces its prices, the Agreement prices shall be correspondingly reduced. 37. CERTIFICATION OF INDEPENDENT PRICE DETERMINATION Seller certifies that the prices proposed in this Agreement have been arrived at independently, without, for the purpose of restricting competition, consultation, communication, or agreement with any other offeror or competitor, and that Seller has not and will not knowingly disclose the prices, directly or indirectly, to any other offeror before award. 38. WORK ON BUYER'S OR BUYER'S CUSTOMER'S PREMISES If this order requires Seller to perform work on Buyer's or Buyer's customer's premises, Seller shall take all necessary precautions to prevent any injury to persons or damage to property during the progress of such work. 39. TITLE AND RISK OF LOSS Title to supplies furnished under this Agreement shall pass to Buyer upon formal acceptance, regardless of when or where Buyer takes physical possession, unless this Agreement Order specifically provides for earlier passage title. When this Agreement specifies that the designated delivery point is F.O.B. carrier, Seller's plant, risk of loss shall pass to Buyer upon delivery of items to the common carrier by Seller properly addressed, labeled and consigned. When this Agreement specifies that the designated delivery point is F.O.B. destination, risk of loss shall remain with Seller until delivery of items to Buyer. Seller shall bear all risks of loss as to properly rejected supplies by Buyer upon shipment to Seller. 40. RESPONSIBILITY FOR BUYER OWNED PROPERTY A. All property, including data, drawings, material, tooling and equipment, furnished to Seller by Buyer hereunder, shall be used only in the performance of this Agreement, and shall remain the property of Buyer. Title to such property shall not be affected by incorporation in or attachment to any other property. 14 Buyer: ____ Seller:____ B. Unless otherwise instructed by Buyer, all Buyer furnished property that is not incorporated into supplies delivered or otherwise consumed shall be returned to Buyer upon this Agreements completion. Property returned shall be in the same condition as received, allowing for reasonable wear and tear. This would include required periodic calibration of supplied tooling or equipment used in production. Seller shall bear the risk of loss or destruction of and damage to property covered by this clause until delivered or returned to Buyer or Buyer's customer. C. Buyer shall have the right to enter Seller's premises at all reasonable times to inspect its property and Seller's related records. D. If Buyer furnishes under this Agreement Government-owned property, the special terms and conditions (Federal Acquisition Regulation and Department of Defense Federal Acquisition Regulation Supplement clauses) relating to Government-owned property, special tooling, special test equipment, and reporting shall apply in lieu of this clause. 41. STOP WORK ORDER A. Buyer may, at any time, by written notice to Seller, stop all or any part of work under this Purchase Order for up to ninety (90) days. Upon receiving a stop-work order, Seller shall immediately comply with its terms and take all reasonable steps to avoid incurring any additional cost allocable to such work. Within ninety (90) days after the effective date of the stop-work order, Buyer shall either cancel the stop-work order or terminate the work covered by the stop-work order. If a stop work is canceled, Seller shall immediately resume work. B. Buyer shall make an equitable adjustment in the Purchase Order delivery schedule and/or price if the stop-work order results in an increase in time or cost for performance. Seller must assert a claim for equitable adjustment under this clause within thirty (30) days after the end of the work stoppage. 42. WAIVER Failure of Buyer to insist on performance of any provision of this Agreement shall not be construed as a waiver of that provision or a waiver of Buyer's or Seller's right to require compliance with such provision in the future. If any provision of this Agreement is found to be illegal or unenforceable under law, that provision shall be deleted; however, all other provisions in this Agreement shall not be affected thereby, and shall remain in full force and effect. 43. FAILURE TO COMPLY If Seller fails to comply with any of the Purchase Order/ Agreement requirements, Buyer may exercise its option to terminate the Purchase Order/Agreement for default or invoke applicable warranties for nonconformance. In lieu of this, however, Buyer may waive the Seller deficiency and in return, Seller agrees to negotiate an equitable reduction in the Order price. 44. TERMINATION FOR CONVENIENCE A. Buyer reserves the right to terminate any Purchase Order, in whole or in part, for its sole convenience. In the event of such written notice of termination, Seller shall immediately stop all work hereunder and shall immediately cause all of its Sellers and subcontractors to cease work. Buyer shall have the right at its option to require the Seller to transfer title to and deliver as Buyer may direct, any completed or partially completed supplies and any materials acquired for the performance of the Purchase Order. In such case, Buyer shall pay Seller the Purchase Order price associated with the accepted completed supplies so transferred and delivered; the price of partially completed supplies or manufacturing materials so transferred and delivered shall be at Seller's cost plus 10%. 15 Buyer: ____ Seller:____ B. Seller shall provide Buyer any supporting information necessary to document the reasonableness of Seller's termination for convenience claim. C. Seller shall not be paid for any work or costs incurred which reasonably could have been avoided. D. Seller shall complete performance of the work not terminated. E. If the termination involves only services, Buyer shall be obligated to pay only for services performed before the termination date. F. Notice of termination shall be in accordance with Clause 1 of this Agreement. G. If Buyer terminates any Purchase Order for convenience as a result of a termination for convenience issued by the Government, the special term and condition (Federal Acquisition Regulation clause) relating to termination for convenience shall apply in lieu of this clause. 45 TERMINATION FOR DEFAULT A. Buyer may, without liability and in addition to any other rights or remedies provided herein or by law, terminate any Purchase Order in whole or in part by written notice of default if Seller: (a) fails to deliver the supplies or perform the services within the time specified; (b) fails to make sufficient progress with the work, thereby endangering completion of performance within the time specified; or (c) fails to comply with any other Purchase Order provision. Buyer's right to terminate for default may be exercised if Seller does not cure the failure in accordance with Clauses 10 and 43 of this Agreement. B. In the event of such termination, Buyer shall have the right at its option to require the Seller to transfer title to and deliver as Buyer may direct, any completed or partially completed supplies and any materials acquired for the performance of this Agreement. In such case, Buyer shall pay Seller the Purchase Order price associated with the accepted completed supplies so transferred and delivered; the price of partially completed supplies or manufacturing materials so transferred and delivered shall be that agreed to by both parties. Seller shall provide Buyer any supporting information necessary to document the reasonableness of Seller's termination for default claim. C. If Buyer terminates this Agreement in whole or in part, Seller shall be liable to Buyer for any reasonable cover costs incurred by Buyer in re-procuring Product which was terminated. "Reasonable cover costs" shall include all direct costs incurred by Buyer to procure the Products from another supplier, including the cost of stencils and test fixtures, including all other non-recurring expenses. Seller shall also be responsible for any indirect costs incurred by Buyer in the event this Agreement is terminated in whole or in part. Seller shall not be liable for any additional costs if failure to perform arises from causes beyond Seller's or Seller's subcontractors' control and with no fault or negligence of either of them; provided, however, that the supplies/services to be furnished by Seller's subcontractor (at any tier) were not obtainable from others in time for Seller to meet Purchase Order deliveries or other performance requirements. Seller's liability under this Article shall be limited to five-hundred thousand dollars ($500,000). D. Buyer may withhold from any payments due Seller any sum necessary to protect Buyer against any liability or expenses due to the termination for default. E. In the event of a partial termination, Seller shall continue the work not terminated. F. The rights and remedies of Buyer provided by this clause shall not be exclusive and are in addition to any rights and remedies provided by law or this Agreement. 16 Buyer: ____ Seller:____ 46. BUYER'S PROPERTY AND INFORMATION A. Seller shall not reproduce, use or disclose any data (such as drawings or specifications), designs, or other information, belonging to or supplied by or on behalf of Buyer except as necessary in the performance of this Agreement. Unless otherwise directed, such data, designs, or other information, and any copies, shall be returned to Buyer upon completion of this Agreement. Where Buyer's data, designs drawings or other information is furnished to Seller's Sellers for use in the performance of this Agreement, Seller shall insert the substance of this clause in its purchase orders. B.Seller shall not at any time, even after expiration or termination of this Agreement, use or disclose to any person for any purpose, other than to perform this Agreement, any information it receives from Buyer in accordance with the provisions of the Mykotronx, Inc. 47. INFORMATION DISCLOSED AND/OR DELIVERED TO BUYER Any information disclosed or delivered by Seller under this Agreement shall not be deemed confidential or proprietary unless expressly agreed upon by the parties in writing. If this Agreement requires delivery of technical data, software, or other information that will, in turn, be furnished under a Government prime contract or subcontract, the special terms and conditions (Federal Acquisition Regulation and Department of Defense Federal Acquisition Regulation Supplement clauses) relating to technical data, software, or other information will apply. 48. AMENDMENTS No modification, termination, extension, or renewal of any provision of this Agreement shall be binding upon either party unless made in writing and signed by an authorized representative of each of the Parties. 49. WAIVER No waiver of any breach of any provision of this Agreement shall constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof. Nor shall it constitute a course of dealing and no waiver shall be effective unless made in writing. 50. CONFIDENTIAL AND PROPRIETARY INFORMATION A. Neither party shall use or disclose to a third party any confidential or proprietary information of the other party which has been disclosed to it in connection with this Agreement including, without limitation, designs, plans, methods, processes or specifications, provided however, that Seller has the right to furnish confidential information of Buyer to third Parties if it is needed by such Parties in order to make parts for the Product, and provided further that the third Parties first agree in writing to hold such information in confidence and use it for the purpose of making such parts; provided, however, neither party will be liable for disclosure or use of such information if the same is: (1) in the public domain at the time of disclosure, or is subsequently made available to the general public without restriction by the disclosing party; (2) known to receiving party at the time of disclosure without restrictions on its use or is independently developed by the receiving party; and there is adequate documentation to demonstrate either condition. (3) used or disclosed with the prior written approval of the disclosing party; 17 Buyer: ____ Seller:____ (4) becomes known to the receiving Party from a third party who had a lawful right to discloses and without breach of this Agreement. B. Each party shall protect the Confidential or Proprietary Information of the other party using the same degree of care, but no less than a reasonable degree of care, to prevent the unauthorized use, dissemination or publication of such information as that party uses to protect its own Confidential or Proprietary Information. C. The parties hereto agreed to employ reasonable efforts to keep in confidence and prevent the disclosure to any person(s) outside their respective organization or any person(s) within their organizations not having a need to know, all information received from the other which is designated in writing and appropriate stamp or legend to be of a confidential or proprietary nature and will not use such information for purposes other than the purpose stated in paragraph A above. D. In the event any governmental or judicial order requires the disclosure of Confidential or Proprietary information the recipient of such information shall promptly but in any event prior to such disclosure notify the originator of the Confidential or Proprietary Information of the requirements and provide reasonable aid and assistance if the originator decides to oppose such governmental or judicial order. E. Prior to disclosure of Confidential or Proprietary Information to any employee, each party shall fully advise such employee that he or she is required to hold in confidence all information and that such information is not be to disclosed to persons outside his or her organization or to any co-employee not directly concerned with furthering the Purpose of this Agreement. The parties shall maintain between themselves and their officers, employees and consultants duly binding agreements by such persons as may be necessary to fulfill their obligations under this Agreement. F. This Article merges all prior discussions and is the entire understanding and agreement of the parties relating to the protection of Confidential and Proprietary Information; neither party shall be bound by any additional or other representation, condition or promise except as subsequently set forth in a writing signed by the party to be bound. G. Buyer's Confidential and Proprietary information and all copies thereof shall be returned to Buyer upon termination of this Agreement or upon Buyer's written request. This Article shall survive termination of this Agreement. 51. ENTIRE AGREEMENT This Agreement and its attachments constitute the entire agreement between the Parties regarding the contemplated transactions and supersede all prior agreements and understandings between the Parties relating thereto. 18 Buyer: ____ Seller:____ IN WITNESS WHEREOF the Parties have caused this Manufacturing Agreement to be executed as of the Effective Date. BULOVA TECHNOLOGIES, L.L.C. MYKOTRONX, INC. By:____________________________ By:_______________________________ Print Name: Richard Juliano Print Name: Patricia S. Linahan Title: COO/CFO Title: KIV-7 Contract Administrator 19 Buyer: ____ Seller:____ ATTACHMENT A KEY PERSONNEL PROGRAM MANAGER GEORGE LAUBACH CONTRACTS MANAGER/ADMIN. CHARLES BITTNER FACILITY SECURITY OFFICER CHARLES BITTNER COMSEC CUSTODIAN CHARLES BITTNER RALPH RENNING TEST ENGINEER JOHN RODGERS PARTS PLANNER GREG LYTLE 20 Buyer: ____ Seller:____ ATTACHMENT B PRICING SCHEDULE
10/23/03 PROPOSAL BULOVA SALE LABOR PRESIDIO MATERIAL PRICE - ------------------------------------------------------ 302.14 800.00 1,937.86 2,240.00 302.14 825.00 1,975.70 2,277.84 302.14 850.00 2,013.46 2,315.60 302.14 900.00 2,089.00 2,391.14 302.14 925.00 2,126.77 2,428.91 302.14 955.00 2,172.09 2,474.23 302.14 975.00 2,202.31 2,504.45 302.14 1,000.00 2,240.08 2,542.22 302.14 1,025.00 2,277.85 2,579.99 302.14 1,050.00 2,315.61 2,617.75 302.14 1,100.00 2,391.15 2,693.29 302.14 1,125.00 2,428.93 2,731.07 302.14 1,150.00 2,466.69 2,768.83

Bulova Proposal Part No. Part Description 9/23/03 - ----------------------------------------------------- 4061244-0701 Lithium Battery $5.13 4065536-0701 Crypto Ignition Key $8.54 4065537-0501 DTE RS-232 Cable $42.33 4065538-0501 DCE RS-232 Cable $40.68 4065539-0701 120 AC Power Conv $27.83 4065539-0702 220 AC Power Conv $24.68 4070531-0501 DTE RS-449 Cable $52.46 4070532-0501 DCE RS-449 Cable $52.46 4074249-0501 DTE EIA-530 Cable $43.69 4074250-0501 DCE EIA-530 Cable $43.69 4074281-0501 DTE RS-449 Cable $51.07
21 Buyer: ____ Seller:____ ATTACHMENT C PRICED BILL OF MATERIAL FOR KIV-HSB 22 Buyer: ____ Seller:____ MYKOTRONX BD39155 FOLLOW-ON CONTRACT-RE-BID
QTY PER COMPONENT DESCRIPTION ASSLY S/UNIT - ------------ ------------------------------ ------ ----------- 4044525-0703 ADHV,SEALANT SILCONE , 3145 RT 0.0090 $ 0.4603 4046041-0001 DAMPER, SHIMMY 0.125 THK 1 $ 0.4060 404810 ADHV,PRIMER N LOCTITE 7649 0.0002 $ 0.0016 404840 SCRW,PHMS 4-40 X .250 SS 5 $ 0.0500 404860 WASH,FLAT 0.125X0.25. 022SS 1 $ 0.0060 404870 SCRW,PFM 4-40 X .250SS 2 $ 0.0180 404880 SCRW,PFM 4-40X.312SS 7 $ 0.0630 404890 SCRW,PHMS,4-40 X.188,SS 36 $ 0.2880 404900 SCRW,PHMS,4-40X.312,SS 3 $ 0.0300 404910 SCRW,PHMS 2.56 X.312 SS 2 $ 0.0200 404920 ASSY,BATTERY CONNECTOR 1 $ 0.9200 404940 LABL,25x 75VINYL,WHITE 3 $ 0.0142 4061227-0001 SHIELD,POWER 1 $ 1.0200 4061228-0001 SHIELD,RF 1 $ 3.7200 4061229-0001 BLOCK,CONNECTING BLOCK 8 $ 9.2000 4061232-0701 CON, RECEPTACLE, 1 $ 1.2800 4061233-0701 KEYCEPTACLE 1 $ 19.7500 4061235-0001 COVER,PLATE,FILL 1 $ 0.3900 4061236-0001 LENS, DISPLAY 1 $ 1.1000 4061240-0701 SCRW LOCK, CONNECTOR FEMALE 8 $ 3.2360 4061241-0001 BATTERY COVER 1 $ 3.9200 4061244-0701 BAT,LITH THIONYL CHLORIDE 1 $ 3.4600 4061254-0701 CON, 9-PIN D-PLUG FILTER 1 $ 19.1300 4061257-0701 IC, SWITCH REGULATOR 2 $ 5.6000 4061258-0701 XFR,FLYBACK CONVERTER 2 $ 3.4600 4061264-0701 MOSFET,POWER 5 $ 0.0930 4061265-0701 CAP, MULTI-LAYER CERAMIC 1 $ 0.0950 4061266-0702 CAP, TANTALUM 1 $ 1.6700 4061269-0001 FLEX CIRCUIT, FRONT PANEL 1 $ 9.7500 4063850-0702 CAP, CERAMIC CHIP,120PF 30 $ 0.1740 4063850-0705 CAP, CERAMIC CHIP,220PF 2 $ 0.0142 4063850-0713 CAP, CERAMIC CHIP,1000PF 1 $ 0.0063 4063850-0716 CAP, CERAMIC CH1P,1800PF 4 $ 0.0228 4063850-0724 CAP, CERAMIC CHIP,8200PF 1 $ 0.0058 4063850-0725 CAP, CERAMIC CHIP,010 UF 18 $ 0.1350 4063850-0726 CAP, CERAMIC CHIP,012UF 4 $ 0.0276 4063851-0713 CAP,CER,CHIP,01UF,24V, 2 $ 0.0220 4063851-0725 CAP, CERAMIC CHIP 100UF 91 $ 0.7280 4063852-0705 CAP. TANTALUM CHIP,3.3UF,16V 7 $ 0.3430 4063852-0706 CAP, TANTALUM CHIP,22UF,20V 2 $ 0.0960 4063852-0710 CAP ,TANTALUM CHIP,1.UF,35V 1 $ 0.0480 4063853-0701 DIO,CHIP LL4150-7 27 $ 0.3078 4063854-0701 SEMICONDUCTOR,DIO, SURF MOUNT 1 $ 0.0150 4063855-0701 SEMICONDUCTOR, DIO, SCHOTTKY 5 $ 9.4750
23 Buyer:_______ Seller:______ 4063856-0716 INDUCTOR,4.7UH,70MA 1 $ 0.0788 4063856-0734 INDUCTOR,150UH,20MA 2 $ 0.1576 4063856-0742 INDUCTOR,10UH,300MA 12 $ 0.6120 4063857-0701 INDUCTOR,100UH 2 $ 18.5000 4063858-0701 TRANSDUCER, AUDIO 1 $ 0.6000 4063859-0701 CON, RA 50 POSITION 2 $ 5.6800 4063861-0701 CON, 9-PIN D-RECEPTACLE FILTER 1 $ 18.2500 4063862-0702 CON, PLUG, PIN CONTACTS 1 $ 18.2500 4063863-0701 TRN, PNP LOW PWR SIL SM OUTLIN 2 $ 0.0188 4063864-0701 TRN, PNP LOW PWR SIL SM OUTLIN 4 $ 0.0280 4063865-0701 RESISTOR, CHIP,100 OHM 7 $ 0.0133 4063865-0702 RES, CHIP,180 OHM 2 $ 0.0038 4063865-0703 RES, CHIP,270 OHM 1 $ 0.0019 4063865-0704 RES, CHIP,430 OHM 2 $ 0.0060 4063865-0705 RES, CHIP,470 OHM 5 $ 0.0095 4063865-0710 RES, CHIP,1000OHM 11 $ 0.0209 4063865-0711 RES, CHIP,1200OHM 1 $ 0.0019 4063865-0712 RES, CHIP,1500 OHM 4 $ 0.0076 4063865-0713 RES, CHIP,1800 OHM 5 $ 0.0095 4063865-0714 RES, CHIP,3300 OHM 2 $ 0.0060 4063865-0715 RES. CHIP, 2000 OHM 2 $ 0.0038 4063865-0716 RES, CHIP, 6200 OHM 1 $ 0.0030 4063865-0717 RES, CHIP,6800 OHMS 22 $ 0.0418 4063865-0718 RES, CHIP, 2490 OHM 2 $ 0.0038 4063865-0719 RES, CHIP, 4700 OHM 1 $ 0.0019 4063865-0720 RES, CHIP ,10K OHM 12 $ 0.0228 4063865-0722 RES, CHIP,13K OHM 2 $ 0.0038 4063865-0727 RES, CHIP, 75K OHM 1 $ 0.0019 4063865-0730 RES, CHIP, 100 KOHM 40 $ 0.0760 4063865-0734 RES, CHIP,390 KOHM 2 $ 0.0038 4063865-0735 RES, CHIP, 470 KOHM 4 $ 0.0080 4063865-0736 RES, CHIP, 560 KOHM 2 $ 0.0040 4063865-0737 RES, CHIP, 620 KOHM 2 $ 0.0040 4063865-0740 RES, CHIP,1.0M OHM 8 $ 0.0152 4063865-0750 RES, CHIP,68 OHMS 2 $ 0.0040 4063865-0751 RES, CHIP,120 OHM 1 $ 0.0019 4063865-0752 RES, CHIP,150 OHM 12 $ 0.0228 4063865-0753 RES, CHIP,330 OHM 1 $ 0.0019 4063865-0754 RES, CHIP,390 OHM 1 $ 0.0019 4063865-0757 RES, CHIP,28K OHM 20 $ 0.0380 4063865-0766 RES, CHP, 93.1 KOHM 1 $ 0.0020 4063865-0767 RES, CHIP, 162 KOHM 1 $ 0.0019 4063866-0701 SWT SPDT 1 $ 4.6200 4063866-0702 ACTUATOR, LEVER 1 $ 1.7800 4063868-0701 IC, HIGHSPEED CMOS HEX INVERTE 3 $ 0.1140 4063870-0701 IC, QUAD 2-INPUT POS NOR GATES 1 $ 0.0380 4063871-0701 IC, MICROCONTROLLER 2 $ 9.4800 4063873-0701 IC, OCTAL BFFRS & LINE DRVRS 2 $ 0.1060 4063874-0701 IC, QUAD 2-IN POS - OR GATES 2 $ 0.0750 4063875-0701 IC, OCTAL D-TYPE TRNSPRNT LATC 1 $ 0.0530 4063876-0701 IC, OCTAL BUS TRNCVRS,3 STATE 2 $ 0.1060 4063878-0701 IC, 8K X 8 CMOS RAM 1 $ 1.1900

24 Buyer:_______ Seller:______
4063879-0701 IC, 64 K EEPROM 1 $ 1.5000 4063881-0701 IC, PROGRMBLE PERIPH INTERFACE 1 $ 2.0700 4063884-0701 IC, QUAD 2-INPUT POS. NAND GAT 2 $ 0.0750 4063885-0701 RLY, SLD STATE (8 PIN GULLWING 1 $ 2.5100 4063886-0701 IC, TRANSCEIVER 2 $ 1.5000 4063887-0701 IC, HEX SCHMITT TRIG. INV 1 $ 0.0380 4063888-0702 IC, 8-BIT SHIFT RGSTR, O/P RGS 2 $ 0.2070 4063891-0701 IC, LINE DRIVER 6 $ 12.6000 4063892-0701 IC, QUAD DIFF LINE DRIVER (TTL 3 $ 1.0200 4063893-0701 IC, OP AMP 2 $ 0.0720 4063896-0701 CON, VERT HEADER, SURF MOUNT 2 $ 4.5000 4063897-0729 CAP,.22UF,25V SURF MOUNT CERAM 2 $ 0.1000 4063899-0711 CAP,22UF,16V SURF MOUNT TANT 4 $ 0.5040 4063900-0701 LED (RED) 2 $ 0.4700 4063901-0701 KEY SWITCH W/LED 2 $ 3.5600 4063901-0702 KEY SWITCH W/LED 2 $ 3.5600 4063902-0701 SWT, PUSH BUTTON 4 $ 1.4000 4063903-0701 DISPLAY, 8-DIGIT, LED 1 $ 11.6700 4063904-0701 RES,39M SURFACE MOUNT FILM 4 $ 2.0120 4063905-0719 CAP,39PF SURFACE MOUNT 2 $ 0.0234 4063906-0701 JUMPER 4 $ 0.1640 4063907-0701 I.C.C. QUAD BUFFERS 1 $ 0.0450 4063908-0701 TERM, 3 POSITION 4 $ 0.1400 4063909-0702 FUSE, SUBMINIATURE 1 $ 0.1450 4063910-0701 CON, 50 PIN 2 $ 2.9240 4063911-0702 IC, DPST ANALOG SWITCH 1 $ 0.7300 4063912-0702 IC, SPDT ANALOG SWITCH 1 $ 0.5000 4063913-0701 IND, POWER 1 $ 9.1000 4063917-0701 IC, QUAD BUFFERS 1 $ 0.0790 4063919-0701 SHIPPING CONTAINER 1 $ 0.7200 4063926-0001 PWB FRONT PANEL 1 $ 0.6100 4063934-0701 IC, OCTAL BUFFER 2 $ 0.1060 4065536-0701 CRYPTO IGNITION KEY 1 $ 5.8000 4065543-0701 RAIL MOUNTING PAIR 1 $ 0.5400 4065564-0701 IC, DUAL 0/U VOLTAGE DETECTOR 1 $ 0.7500 4065567-0701 CON, RIGHT ANGLE 37 PIN 1 $ 8.8000 4065569-0701 SOCKET SIP 14 POSITION 2 $ 0.5520 4067250-0501 CABLE ASSY FLEXIBLE 1 $ 4.5500 4067250-0502 CABLE ASSY FLEXIBLE 1 $ 4.9400 4067258-0701 IC, OCTAL BUFFER 1 $ 0.0910 4067259-0701 CRY, SURF MOUNT 1 $ 4.4200 4067260-0001 PWB INTRFACE CNVRSN MOD (U-AVM 1 $ 0.4800 4067262-0701 IC, SERIAL COMM CONTROLLER 1 $ 3.1500 4067263-0701 MICROCIRC CMOS 8-BIT MICROCNTR 1 $ 3.5761 4067264-0004 LABEL, MARKING (4067375-0501) 1 $ 0.0770 4067264-0014 LABEL,MARKING (ON674710-0801) 1 $ 0.0770 4067264-0015 LABEL, MARKING (ON674711-0801) 1 $ 0.0770 4067266-0701 CON, INTERCONNECT STRIP 2 $ 1.2800 4067267-0701 IC, DUAL 4-STAGE COUNTER 1 $ 0.1000 4067289-0701 FOAM PACKAGE KIV-7HSB (BOTTOM) 1 $ 2.0600 4067289-0702 FOAM PACKAGE KIV-7HSB (TOP) 1 $ 0.6700 4067292-0001 BRACKET, MOUNTING CIK SWITCH 1 $ 1.9500
25 Buyer:______ Seller:_____ 4067332-0001 CHASSIS, DIE CASTING 1 $ 32.6200 4067333-0001 BOTTOM COVER DIE CASTING ASSY 1 $ 19.5500 4067334-0003 PANEL, FRONT DIE CASTING 1 $ 13.9200 4067335-0701 CON, HEADER 1 $ 0.6400 4067337-0701 CON, 50 PIN CUSTOM 1 $ 3.3300 4067338-0702 RES, DIP SOIC 14 PIN 1 $ 0.1720 4067345-0701 BAG, STATIC SHIELDING 1 $ 0.2184 4067346-0701 BAG, POLYETHYLENE 1 $ 0.0270 4074891-0701 INDUCT, PWR, AXIAL LEADED 1 $ 0.9500 4075774-0701 MICROCIRC QUAD DIFF LINE RECVR 4 $ 0,9200 4075775-0802 DTE CNTRLR PROGRAMMED ASSY 1 $ 19.7000 4075782-0001 PLATE 1 $ 7.0000 4075797-0701 OSCILLATOR, HYBRID CLOCK 1 $ 19.0000 4075803-0001 PWB SYSTEM CONTROLLER i $ 15.7500 4075804-0001 PWB,SYSTEM CONTROLLER 1 $ 15.7500 4077216-0705 CAP, TANT, CHIP, LOW ESR 6 $ 2.5440 4077216-0708 CAP, TANT,CHIP, LOW ESR 4 $ 1.0640 4090501-0201 USER MANUAL KIV-7HSB 1 $ 1.7500 4090510-0701 CARTON, FOLDING 1 $ 0.8900 4090512-0701 LABEL. SET KIV-7HSB 1 $ 0.3300 4090515-0701 IC,POWER MONITOR 9 $ 7.3860 4090518-0701 BATTERY, INSTL/REPLC LABEL 1 $ 0.1100 MS16535-63N RIVET, TUBULAR 1 $ 0.0510 ON 190164 SPRING, CONTACT 1 $ 0.7100 0N190165 SPACER, CONTACT 1 $ 0.1350 ON241775 -2 CON,RCPT,AUDIO 6 CONTACT 1 $ 9.4000 ON278503 -1 CONTACT, SPRING 0208033400 1 $ 1.4100 OM278503-2 CONTACT, SPRING 0208033500 1 $ 1.3500 ON278504 SUPPORT, BACK 1 $ 0.3100 ON278507-1 TERMINAL, INSULATED 2 $ 0.9000 ON278553 SUPPORT, BACK 1 $ 0.3100 ON655710-0702 PRESIDIO E-HQH 1 $ 800.0000 ON674712-0801 EPROM, PROGRAMMED ASSY 1 $ 0.6900 ON674713-0801 DCE, CNTRLR, FPGA 1 PRGRMD ASS 1 $ 40.2500 ON674714-0801 DCE, CNTRLR, FPGA 2 PRGRMO ASS 1 $ 19.7000 4090516-0701 HEADER, RIGHT ANGLE 1 $ 0.1200 4067272-0701 LABEL, WARNING 1 $ 0.2500 4067275-0801 SCREW, CAPTIVE 1 $ 0.7500 ADVH-0008 ADVH, Loctite 242 0.0100 $ 0.1984 4067342-0201 Paint Specification, KIV 7 0.0010 $ 0.0620 090022 Tape, Gummed, 3" Wide (TY 1. CL 2) 1 $ 0.0170 PACK-0034 PACK, BOX 20X13X4 COR 200 A/R $ 0.0744 PACK-0035 PACK, BOX 20X13X8 COR 200 A/R $ 0.0776 PACK-0036 PACK, BOX 20X26X8 COR 200 A/R $ 0.0955 PACK-0037 PACK,BOX, 13.75x17.5x20.COR 201 A/R $ 0.0843 PACK-0038 PACK.BOX,17,5x27 5x20.COR 275 A/R $ 0.0981 4067264-0019 label 0.0086 $ 0.0007 4067264-0020 label 0.0086 $ 0.0007 4067264 0021 label 0.0086 $ 0.0007 4075789-0701 Microcircuit, EPROM 0.0086 $ 0.0086 Tempest Test Secure Systems test 0.0086 $ 13.2171 ------------ Totals $ 1,343.1442 ============

26 Buyer:_________ Seller:________ ATTACHMENT D HARRIS PRESIDIO WARRANTY Harris warrants new equipment manufactured by Harris against defects in material or workmanship at the time of delivery for a period of twelve (12) months from the date of shipment, provided Mykotronx gives Harris prompt written notice. Other manufacturer's equipment, if any, including electron tubes shall carry only such manufacturer's standard warranty. Harris's sole responsibility with respect to any equipment or parts is, at its option, (a) to repair or replace such equipment or parts upon the return FOB Harris's factory within the stated warranty period, or (b) to accept the return FOB Mykotronx's point of installation, whereupon Harris shall (1) issue a credit to Mykotronx's account in an amount equal to an equitable portion of the total Delivery order price, without interest, or (b) if the total Delivery order price has been paid, refund to Mykotronx an equitable portion, without interest. Harris assumes no responsibility for design characteristics of special equipment manufactured to specifications supplied by or on behalf of Purchaser. Harris shall not be liable for any expense whether for repairs, material, service or otherwise, incurred by Mykotronx or modification made by Mykotronx to the equipment without prior written consent of Harris. EXCEPT AS SET FORTH HEREIN, AND EXECEPT AS TO TITLE, THERE ARE NO WARRANTIES OR ANY AFFIRMATIONS OF ACT OR PROMISES BY SELLER WITH REFERENCE TO THE EQUIPMENT OR TO MERCHANTABILITY, FITNESS FOR PURPOSE, INFRINGEMENT, OPERATIONAL EFFICIENT, AND COMMUNICATIONS RANGE OR OTHERWISE, WHICH EXTEND BEYOND THE DECRIPTION OF THE EQUIPMENT ON THE FACE HEREOF. In no event shall Harris be liable for any special or consequential damages including, but not limited to, loss of anticipated profits or revenue, cost of substitutive equipment, downtime costs, facilities or services, or claims of customers of Mykotronx. 27 Buyer: ____ Seller:____ ATTACHMENT E KIV-7HSB SPECIFICATIONS & DRAWINGS (UNDER SEPARATE COVER)
CIIN PRODUCT SIZE DRAWING NO. DESCRIPTION ECR# REV. DATE REL. - ------------------------------------------------------------------------------------------------------------ KI106 KIV-7HSB B 4044525 ADHESIVE-SEALANT SILICONE, RTV G 9/15/2001 KI106 KIV-7HSB A 4046041 DAMPER, SHIMMY C 9/4/2001 KI106 KIV-7HSB A 4061227 SHIELD, POWER C 9/18/2001 KI106 KIV-7HSB B 4061228 SHIELD, RF A 9/15/2001 KI106 KIV-7HSB B 4061229 BLOCK, CONNECTOR MOUNTING E 2/25/2003 KI106 KIV-7HSB A 4061232 CONNECTOR, RECEPTACLE B 11/15/2001 KI106 KIV-7HSB A 4061233 KEYCEPTACLE B 11/26/2001 KI106 KIV-7HSB A 4061235 COVER PLATE, FILL A 8/15/2001 KI106 KIV-7HSB B 4061236 LENS, DISPLAY A 8/17/2001 KI106 KIV-7HSB B 4061237 ELECTRONIC ASSY-FRONT PANEL E 8/8/2001 KI106 KIV-7HSB B 4061238 BOTTOM COVER ASSEMBLY D 7/2/2001 KI106 KIV-7HSB A 4061240 SCREW LOCK, CONNECTOR FEMALE A 9/19/2001 KI106 KIV-7HSB A 4061241 COVER, BATTERY B 6/19/2001 KI106 KIV-7HSB A 4061243 CONNECTOR, BATTERY A 9/25/2001 KI106 KIV-7HSB A 4061244 BATTERY, LITHIUM THIONYL CHLORIDE, B 9/26/2001 3.5 V KI106 KIV-7HSB A 4061249 TERMINAL, BATTERY A 9/25/2001 KI106 KIV-7HSB A 4061252 SOCKET, PLCC 44 POSITION - 6/19/1992 KI106 KIV-7HSB A 4061254 CONNECTOR 9-PIN D-PLUG FILTER E 11/15/2001 KI106 KIV-7HSB A 4061257 I.C., SWITCHING REGULATOR A 7/2/2001 KI106 KIV-7HSB A 4061258 TRANSFORMER, FLYBACK CONVERTER B 11/15/2001 KI106 KIV-7HSB A 4061259 HEADER, RIGHT ANGLE A 11/15/2001 KI106 KIV-7HSB A 4061264 MOSFET, POWER B 2/4/2002
28 Buyer: ____ Seller:____ KI106 KIV-7HSB A 4061265 CAPACITOR, MULTI-LAYER CERAMIC B 11/15/2001 KI106 KIV-7HSB A 4061266 CAPACITOR, TANTALUM B 11/15/2001 KI106 KIV-7HSB B 4061269 FLEX CIRCUIT, FRONT PANEL E 8/20/2001 KI106 KIV-7HSB B 4061270 FLEX CIRCUIT ASSY A1W1 D 9/19/2001 KI106 KIV-7HSB A 4063850 CAPACITOR, CERAMIC CHIP F 9/18/2003 KI106 KIV-7HSB A 4063851 CAPACITOR, CERAMIC CHIP B 11/15/2001 KI106 KIV-7HSB A 4063852 CAPACITOR, TANTALUM CHIP C 7/2/2001 KI106 KIV-7HSB A 4063853 DIODE, CHIP C 12/4/2002 KI106 KIV-7HSB A 4063854 SEMICONDUCTOR, DIODE, ZENER, D 9/23/2003 SURFACE MOUNT KI106 KIV-7HSB A 4063855 SEMICONDUCTOR, DIODE, SCHOTTKY, C 2/1/2002 SURFACE MOUNT KI106 KIV-7HSB A 4063856 INDUCTOR A 2/4/2002 KI106 KIV-7HSB A 4063857 INDUCTOR D 11/22/2002 KI106 KIV-7HSB A 4063858 TRANSDUCER AUDIO A 11/15/2001 KI106 KIV-7HSB A 4063859 CONNECTOR RA 50 POSITION A 11/15/2001 KI106 KIV-7HSB A 4063861 CONNECTOR, 9-PIN D-RECEPTACLE D 11/15/2001 FILTER KI106 KIV-7HSB A 4063862 CONNECTOR, PLUG, RIGHT ANGLE, E 11/15/2001 SUBMINIATURE D, FILTERED, 37 POSITIONS, PIN CONTACTS KI106 KIV-7HSB A 4063863 TRANSISTOR, PNP LOW POWER SILICON A 11/15/2001 SMALL OUTLINE KI106 KIV-7HSB A 4063864 TRANSISTOR, PNP LOW POWER SILICON A 11/15/2001 SMALL OUTLINE KI106 KIV-7HSB A 4063865 RESISTOR, CHIP D 9/15/2003 KI106 KIV-7HSB A 4063866 SWITCH SPDT A 11/26/2001 KI106 KIV-7HSB A 4063868 I.C., HIGHSPEED CMOS HEX INVERTER A 11/15/2001 KI106 KIV-7HSB A 4063870 I.C., QUAD 2-INPUT POS NOR GATES A 2/4/2002 KI106 KIV-7HSB A 4063871 I.C., MICROCONTROLLER 140 D 7/12/2002

29 Buyer: ____ Seller:____ KI106 KIV-7HSB A 4063873 I.C., OCTAL BUFFERS & LINE DRIVERS A 11/15/2001 WITH 3 STATE OUTPUTS (HIGHSPEED CMOS) KI106 KIV-7HSB A 4063874 I.C., QUAD 2-IN POS-OR GATES A 11/15/2001 KI106 KIV-7HSB A 4063875 I.C., OCTAL D-TYPE TRANSPARENT A 11/26/2001 LATCHES WITH 3 STATE OUTPUTS (HIGHSPEED CMOS) KI106 KIV-7HSB A 4063876 I.C., OCTAL BUS TRANSCEIVERS WITH A 11/26/2001 3 STATE OUTPUTS (HIGHSPEED CMOS) KI106 KIV-7HSB A 4063878 I.C., 8K x 8 CMOS RAM C 9/18/2003 KI106 KIV-7HSB A 4063879 I.C., 64K EEPROM B 11/26/2001 KI106 KIV-7HSB A 4063881 I.C., PROGRAMMABLE PERIPHERAL A 2/4/2002 INTERFACE KI106 KIV-7HSB A 4063882 I.C., VOLTAGE REGULATOR A 2/4/2002 KI106 KIV-7HSB A 4063884 I.C., QUAD 2-INPUT POSITIVE NAND B 11/26/2001 GATES (HIGH-SPEED CMOS) KI106 KIV-7HSB A 4063885 RELAY, SOLID-STATE (8 PIN B 10/12/2001 GULL WING) KI106 KIV-7HSB A 4063886 I.C., TRANSCEIVER A 11/26/2001 KI106 KIV-7HSB A 4063887 I.C., HEX SCHMITT TRIG. INVERTER A 11/26/2001 (HIGHSPEED CMOS) KI106 KIV-7HSB A 4063888 I.C., B-BIT SHIFT REGISTERS WITH 3 B 11/26/2001 STATE OUTPUT REGISTERS KI106 KIV-7HSB A 4063891 I.C., LINE DRIVER B 11/26/2001 KI106 KIV-7HSB A 4063892 I.C., QUAD DIFFERENTIAL LINE A 11/26/2001 DRIVER (TTL) KI106 KIV-7HSB A 4063893 I.C., OP AMP A 11/26/2001 KI106 KIV-7HSB A 4063896 CONNECTOR, VERTICAL HEADER, B 9/19/2003 SURFACE MOUNT KI106 KIV-7HSB A 4063897 CAPACITOR, SURFACE MOUNT CERAMIC - 7/21/1992 KI106 KIV-7HSB A 4063899 CAPACITOR, SURFACE MOUNT TANTALUM A 2/4/2002 KI106 KIV-7HSB A 4063900 LED B 11/26/2001 KI106 KIV-7HSB A 4063901 KEY SWITCH WITH LED A 11/26/2001 KI106 KIV-7HSB A 4063902 SWITCH, PUSH BUTTON A 11/26/2001

30 Buyer: ____ Seller:____ KI106 KIV-7HSB A 4063903 DISPLAY, EIGHT DIGIT, LED A 11/26/2001 KI106 KIV-7HSB A 4063904 RESISTOR, SURFACE MOUNT FILM A 2/4/2002 KI106 KIV-7HSB A 4063905 CAPACITOR, SURFACE MOUNT CERAMIC - 6/12/1992 KI106 KIV-7HSB A 4063906 JUMPER A 7/2/2001 KI106 KIV-7HSB A 4063907 I.C., QUAD BUFFERS A 2/4/2002 KI106 KIV-7HSB A 4063908 TERMINAL 3 POSITION B 11/26/2001 KI106 KIV-7HSB A 4063909 FUSE, SUBMINIATURE A 2/4/2002 KI106 KIV-7HSB A 4063910 CONNECTOR, 50 PIN B 11/26/2001 KI106 KIV-7HSB A 4063911 I.C., DPST ANALOG SWITCH C 2/4/2002 KI106 KIV-7HSB A 4063912 I.C., SPDT ANALOG SWITCH D 9/22/2003 KI106 KIV-7HSB A 4063913 INDUCTOR, POWER E 7/10/2003 KI106 KIV-7HSB A 4063917 I.C., QUAD BUFFERS A 2/4/2002 KI106 KIV-7HSB B 4063919 CONTAINER, SHIPPING C 8/21/2001 KI106 KIV-7HSB B 4063925 CIRCUIT CARD ASSEMBLY FRONT PANEL K 10/5/2001 KI106 KIV-7HSB A,C 4063926 PRINTED WIRING BOARD FRONT PANEL G 10/5/2001 KI106 KIV-7HSB A 4063934 I.C., OCTAL BUFFER A 11/26/2001 KI106 KIV-7HSB A 4063940 CONDUCTOR, FLAT FLEXIBLE B 11/26/2001 KI106 KIV-7HSB A 4063941 CONNECTOR B 11/26/2001 KI106 KIV-7HSB A 4065536 CRYPTO IGNITION KEY (CIK) B 11/26/2001 KI106 KIV-7HSB A 4065543 RAIL MOUNTING, PAIR E 11/14/2001 KI106 KIV-7HSB A 4065564 I.C., DUAL OVER/UNDER VOLTAGE A 2/4/2002 DETECTOR KI106 KIV-7HSB A 4065567 CONNECTOR, RIGHT ANGLE 37 PIN D 2/4/2002 KI106 KIV-7HSB A 4065569 SOCKET SIP 14 POSITION A 2/4/2002 KI106 KIV-7HSB B 4067250 CABLE ASSEMBLY FLEXIBLE A 8/15/2001 KI106 KIV-7HSB A 4067258 I.C., OCTAL BUFFER A 2/4/2002 KI106 KIV-7HSB A 4067259 CRYSTAL, SURFACE MOUNT A 2/4/2002

31 Buyer: ____ Seller:____ KI106 KIV-7HSB B 4067260 PRINTED WIRING BOARD INTERFACE 097 H 7/17/2001 CONVERSION MODULE (U-AVM) KI106 KIV-7HSB A 4067262 I.C., SERIAL COMMUNICATIONS B 2/4/2002 CONTROLLER KI106 KIV-7HSB A 4067263 MICROCIRCUIT CMOS, 8-BIT C 12/5/2002 MICROCONTROLLER (44PLCC) KI106 KIV-7HSB A,C 4067264 LABEL, MARKING F 9/18/2001 KI106 KIV-7HSB A 4067266 CONNECTOR, INTERCONNECT STRIP C 2/4/2002 KI106 KIV-7HSB A 4067267 I.C., DUAL 4-STAGE COUNTER A 2/4/2002 KI106 KIV-7HSB A 4067272 LABEL, WARNING A 9/25/2001 KI106 KIV-7HSB B 4067275 SCREW, CAPTIVE B 8/15/2001 KI106 KIV-7HSB A 4067283 TRANSISTOR MOSFET P-CHANNEL A 2/4/2002 KI106 KIV-7HSB B 4067289 FOAM PACKAGE KIV-7 D 9/1/2001 KI106 KIV-7HSB B 4067292 BRACKET, MOUNTING CIK SWITCH C 7/8/2002 KI106 KIV-7HSB B 4067298 SCHEMATIC DIAGRAM FRONT PANEL B 11/14/2001 KI106 KIV-7HSB B 4067332 CHASSIS, DIE CASTING J 7/2/2001 KI106 KIV-7HSB B 4067333 BOTTOM COVER DIE CASTING ASSY J 1/7/2002 KI106 KIV-7HSB B 4067334 PANEL, FRONT DIE CASTING M 7/10/2001 KI106 KIV-7HSB A 4067335 CONNECTOR, HEADER B 2/4/2002 KI106 KIV-7HSB A 4067336 TO/FROM CONNECTION LIST FLEX A 8/15/2001 CIRCUIT KI106 KIV-7HSB A 4067337 CONNECTOR 50 PIN CUSTOM D 2/4/2002 KI106 KIV-7HSB A 4067338 RESISTOR DIP SOIC 14 PIN B 2/4/2002 KI106 KIV-7HSB A 4067345 BAG STATIC SHIELDING A 9/25/2001 KI106 KIV-7HSB A 4067346 BAG POLYETHYLENE A 9/25/2001 KI106 KIV-7HSB B 4067375 MICROCIRCUIT ASSEMBLY C 7/2/2001 MICROCONTROLLER (PROGRAMMED) KI106 KIV-7HSB A 4070512 ICM MASTER PARTS C 2/4/2002 KI106 KIV-7HSB 4070513 NRL ICM SOFTWARE

32 Buyer: ____ Seller:____ KI106 KIV-7HSB A 4074891 INDUCTOR, POWER, AXIAL LEADED B 9/25/2001 KI106 KIV-7HSB A 4075770 BUILD DOCUMENT FOR KIV-7HSA DCE A 7/6/2001 AND DTE CONTROLLER FPGA'S KI106 KIV-7HSB A 4075771 SOFTWARE VERSION - 9/23/1999 DESCRIPTION FOR THE KIV- 7HSA DCE AND DTE CONTROLLER KI106 KIV-7HSB A 4075774 MICROCIRCUIT, QUADRUPLE A 2/4/2002 DIFFERENTIAL LINE RECEIVER (PACKAGE: 16 DIP) KI106 KIV-7HSB B 4075775 DTE CONTROLLER PROGRAMMED ASSY B 8/13/2001 KI106 KIV-7HSB A 4075781 MICROCIRCUIT, FPGA (208 PLASTIC B 8/13/2001 QUAD FLAT PACK) KI106 KIV-7HSB B 4075782 PLATE C 11/26/2001 KI106 KIV-7HSB A 4075785 MICROCIRCUIT, FPGA (160 PLASTIC B 9/18/2001 FLAT PACK KI106 KIV-7HSB A 4075789 MICROCIRCUIT, EPROM (32 LEAD A 8/7/2001 PLASTIC J-LEAD PLCC) KI106 KIV-7HSB A 4075797 OSCILLATOR, HYBRID CLOCK (HCMOS) C 9/16/2003 (PACKAGE: 14/4 DIP) KI106 KIV-7HSB B 4075803 PWB, SYSTEM CONTROLLER E 10/7/2003 KI106 KIV-7HSB B 4075804 PRINTED WIRING BOARD KG SUBSYSTEM D 8/12/2003 KI106 KIV-7HSB B 4075805 SCHEMATIC DIAGRAM SYSTEM B 9/21/2002 CONTROLLER (E-HMV) KI106 KIV-7HSB B 4075806 SCHEMATIC DIAGRAM H.S. KG SUBSYSTEM B 4/25/2002 KI106 KIV-7HSB A 4077216 CAPACITOR, TANTALUM, CHIP, LOW ESR B 7/2/2001 KI106 KIV-7HSB A 4080512 SOCKET PLCC 32 POSITION - 7/2/2001 KI106 KIV-7HSB B 4090500 KIV-7HSB PACKING ASSY B 2/19/2002 KI106 KIV-7HSB B 4090510 CARTON FOLDING - 3/16/2001 KI106 KIV-7HSB B 4090511 ARTWORK PACKAGING KIV-7HSB B 8/30/2003 KI106 KIV-7HSB B 4090512 ARTWORK PACKAGING KIV-7HSB B 8/13/2001 KI106 KIV-7HSB B 4090513 KIV-7HSB FRONT PANEL ARTWORK B 6/21/2001 KI106 KIV-7HSB A 4090515 IC, POWER MONITOR - 4/24/2002 KI106 KIV-7HSB A 4090516 RIGHT ANGLE CONNECTOR - 9/3/2003 KI106 KIV-7HSB A 4090517 BATTERY CONNECTOR - 9/3/2003

33 Buyer: ____ Seller:____ KI106 KIV-7HSB B 4090518 ARTWORK BATTERY WARNING LABEL - 9/23/2003 KI106 KIV-7HSB A 4090519 BATTERY CONNECTOR TERMINAL - 7/28/2003 KI106 KIV-7HSB B 0N190164 SPRING, CONTACT D 6/27/2001 KI106 KIV-7HSB A 0N190165 SPACER, CONTACT A 11/7/1983 KI106 KIV-7HSB A 0N241775 CONN, RCPT, AUDIO 6 CONTACT U 10/5/1989 KI106 KIV-7HSB A,B 0N278501 CONTACT ASSY POSITIVE A 6/24/1980 KI106 KIV-7HSB A 0N278502 CONTACT ASSY, NEGATIVE - 3/13/1980 KI106 KIV-7HSB A 0N278503 CONTACT, SPRING E 9/18/2001 KI106 KIV-7HSB A 0N278504 SUPPORT, BACK A 1/2/1987 KI106 KIV-7HSB B 0N278507 TERMINAL, INSULATED - 3/12/1980 KI106 KIV-7HSB A 0N278553 SUPPORT, BACK A 1/2/1987 KI106 KIV-7HSB B 0N606375 CIRCUIT CARD ASSEMBLY INTERFACE F 7/15/2002 CONVERSION MODULE (U-AVM) KI106 KIV-7HSB B 0N606376 SCHEMATIC DIAGRAM ICM (U-AVM) A 11/14/2001 KI106 KIV-7HSB B 0N655701 ASSEMBLY SYSTEM CONTROLLER G 8/3/2001 KI106 KIV-7HSB B 0N655702 CCA, KG SUB SYSTEM (E-HMU) G 4/26/2002 KI106 KIV-7HSB A 0N655710 PRESIDO, E-HIW B 7/6/2001 KI106 KIV-7HSB B 0N674702 KIV-7HSB UNIT ASSY - 3/12/2001 KI106 KIV-7HSB B 0N674703 KIV-7HSB ACCEPTANCE TEST A 4/30/2001 SPECIFICATION KI106 KIV-7HSB B 0N674710 MICROCONTROLLER PROGRAMMED U-UBB - 4/27/2001 KI106 KIV-7HSB B 0N674711 MICROCONTROLLER PROGRAMMED U-UBC - 4/27/2001 KI106 KIV-7HSB B 0N674712 EXTERNAL EPROM - 4/27/2001 KI106 KIV-7HSB B 0N674713 DCE CONTROLLER FPGA 1 PROGRAMMED - 4/27/2001 ASSY KI106 KIV-7HSB B 0N674714 DCE CONTROLLER FPGA 2 PROGRAMMED - 4/27/2001 ASSY KI106 KIV-7HSB B 0N674715 MICROCONTROLLER PROGRAMMED U-UBB S1 - 5/24/2001 KI106 KIV-7HSB B 0N674716 MICROCONTROLLER PROGRAMMED U-UBC S2 - 5/24/2001

34 Buyer: ____ Seller:____ KI106 KIV-7HSB B 0N674717 EPROM PROGRAMMED ASSY - 5/24/2001 KI106 KIV-7HSB B 4090500-DT KIV-7HSB DRAWING TREE E 10/7/2003 KI106 KIV-7HSB A 4090500-IDL KIV-7HSB INDENTURED DRAWING LIST B 10/7/2003 KI106 KIV-7HSB A 4090501-0201 KIV-7HSB USER'S MANUAL A 5/14/2002 KI106 KIV-7HSB B PL0N278501 CONTACT ASSY POSITIVE B KI106 KIV-7HSB B PL0N278502 CONTACT ASSY NEGATIVE A 9/10/1992 KI106 KIV-7HSB A PL0N606375- INTERFACE CONVERSION MODULE D 8/28/2002 0501 KI106 KIV-7HSB A PL0N655701 ASSEMBLY SYSTEM CONTROLLER C 2/4/2002 KI106 KIV-7HSB A PL0N655702 CCA, KG SUB SYSTEM F 8/28/2002 KI106 KIV-7HSB PL0N674702- PARTS LIST KIV-7HSB UNIT ASSY A 9/18/2001 0501 KI106 KIV-7HSB A PL0N674710- MICROCONTROLLER PROGRAMMED U-UBB A 8/6/2001 0801 KI106 KIV-7HSB A PL0N674711- MICROCONTROLLER PROGRAMMED U-UBC A 8/6/2001 0801 KI106 KIV-7HSB A PL0N674712- EXTERNAL EPROM A 9/4/2001 0801 KI106 KIV-7HSB A PL0N674713- DCE CONTROLLER FPGA 1 A 7/2/2001 0801 PROGRAMMED ASSY KI106 KIV-7HSB A PL0N674714- DCE CONTROLLER FPGA 2 A 7/2/2001 0801 PROGRAMMED ASSY KI106 KIV-7HSB A PL4061237- FRONT PANEL ASSEMBLY A 8/21/2001 0504 KI106 KIV-7HSB A PL4061238- BOTTOM COVER ASSEMBLY B 10/6/2003 0503 KI106 KIV-7HSB B PL4061270- FLEX CIRCUIT ASSEMBLY B 1/8/1998 0501 KI106 KIV-7HSB A PL4063925- CIRCUIT CARD ASSEMBLY FRONT PANEL F 10/8/2001 0501 KI106 KIV-7HSB A PL4067375- MICROCIRCUIT ASSY B 10/8/2001 0501 PL4075775- A 0801 KI106 KIV-7HSB A PL4075775- DTE CONTROLLER PROGRAMMED ASSY B 8/13/2001 0802 KI106 KIV-7HSB A PL4090500- PARTS LIST KIV-7HSB PACKING ASSY A 9/18/2001 0501 KI106 KIV-7HSB A PLON674715- MICROCONTROLLER PROGRAMMED - 5/23/2001 0801 U-UBB-S1 TEMPEST TEST ONLY KI106 KIV-7HSB A PLON674716- MICROCONTROLLER PROGRAMMED - 5/23/2001 0801 U-UBB-S1 TEMPEST TEST ONLY

35 Buyer: ____ Seller:____ KI106 KIV-7HSB A PLON674717- EPROM, PROGRAMMED ASSY TEMPEST - 5/23/2001 0801 TEST ONLY KI106 KIV-7HSB A TP-5298 ACCEPTANCE TEST PROCEDURE FOR THE - 5/21/2001 KIV-7HSB KI106 KIV-7HSB A TP-5306 KIV-7HSB Tempest Test Procedure - 5/31/2001

36 Buyer: ____ Seller:____ ATTACHMENT F MYKOTRONX, INC. NON-DISCLOSURE AGREEMENT (UNDER SEPARATE COVER) 37 Buyer: ____ Seller:____ ATTACHMENT G MYKOTRONX QA PROVISIONS SUBJECT: QUALITY ASSURANCE REQUIREMENTS FOR M-STD-17 PROCURED ITEMS (Q CLAUSES) REV. A Approved. T. Altobelli, QA Manager Date: 11 February 2003 1.0 Application. This document establishes the standard quality assurance (QA) requirements (Q Clauses) for Rainbow Mykotronx-procured deliverable items such as parts, materials, and/or processes which are applicable to the extent specified in the procurement document. Additional requirements may be defined in other specific Project documents including those that are unique only to that Project. 2.0 Q Clauses Document. The attached Q Clauses document lists the various quality requirements for Rainbow Mykotronx procured items. The Q clauses are entered on the Rainbow Mykotronx procurement document to indicate applicable QA requirements to the item being procured. 3.0 Responsibility 3.1 Quality Assurance. Prepares and maintains the Q Clauses document. Coordinates changes with Project Management, Manufacturing, and Engineering as appropriate. Reviews procurement documents as necessary and coordinates with program management applicable Q clause(s) to project procurements. Ensures that applicable Q-Clauses are included in the procurement document in the performance of procurement document review. 3.2 Program Management. Ensures that Program Q-Clauses and other procurement requirements are identified. Coordinate with the Procurement and Quality other quality requirements for project/program other than that shown on the Q Clauses document. 3.4 Procurement Organization. Assures that applicable Q-Clauses are included in the procurement document. 4.0 Changes. QA controls this document. Submit recommended changes to the QA Manager for review, coordination, approval and release. 38 Buyer: ____ Seller:____ QUALITY ASSURANCE REQUIREMENTS FOR PROCURED ITEMS (Q CLAUSES) M-STD-17 REV. A Notes: Buyer's acceptance of the procurement document denotes Buyer's agreement to the Q-Clause requirements annotated on the procurement document. I. DEFINITIONS Buyer- Rainbow Mykotronx procurement entity Vendor/supplier - The legal entity that is the contracting party with Rainbow Mykotronx with respect to the procurement document. Procurement document - The purchase order (P.O.) or subcontract between Rainbow Mykotronx and the vendor/supplier. Item - The product or service contracted for by the procurement document. II. Q CLAUSES Q-1 GENERAL QUALITY REQUIREMENTS (INCLUDE PARAGRAPHS A THROUGH K AS SHOWN BELOW) A) Prohibited Practices: Unauthorized repairs. Vendor/supplier shall not repair any damaged item nor any found to be faulty during manufacturing or that it fails to meet Rainbow Mykotronx specification/drawing requirements, without written Rainbow Mykotronx approval, except when the nonconformance is minor and material review board (MRB) authorization has been granted by Rainbow Mykotronx. Vendor/supplier is not authorized to perform MRB activity on nonconforming material without Rainbow Mykotronx authorization. Change in approved drawings, processes, materials, or procedures. Vendor/supplier shall not change any drawing, process, material (including subtier supplier parts) or procedure without prior Rainbow Mykotronx written approval, if such drawings, processes, materials, or procedures was previously approved by Rainbow Mykotronx as provided for in the Procurement document. Vendor/supplier shall not change any process, material or procedure from that used to qualify any item or which was used by Vendor/supplier to become a qualified source for Rainbow Mykotronx's specification/drawing, without Rainbow Mykotronx's written approval. Resubmittal of Rejected Items. Any item rejected by Rainbow Mykotronx and subsequently resubmitted to Rainbow Mykotronx shall be clearly identified as a resubmittal item, indicating procurement document number and Rainbow Mykotronx's reject document number in vendor/supplier's certificate of conformance. Notification of Facility Change. Vendor/supplier shall not use nor relocate any production , manufacturing, and/or processing facilities to differ from previous approval by Rainbow Mykotronx, during performance of work specified in the procurement document, without previously notifying Rainbow Mykotronx and according Rainbow Mykotronx an opportunity to examine such facilities for compliance with procurement quality requirements. Changing of Test Facility. Vendor/supplier shall not change a test facility nor use another test facility to meet specification /drawing requirements without prior Rainbow Mykotronx's written approval, if a specific test facility was previously approved by Rainbow Mykotronx as provided for in procurement document. Change of Management/Ownership. Vendor/supplier shall notify Rainbow Mykotronx when a significant change in management or ownership has occurred. B) Responsibility for Conformance. Neither surveillance nor inspection and/or test made by Rainbow Mykotronx or its representatives or U.S. Government representatives at either Rainbow Mykotronx or vendor/supplier's facilities, nor vendor/supplier's compliance with all applicable procurement quality requirements, shall relieve vendor/supplier of the responsibility to furnish an item that conforms to the requirements of the procurement document. Vendor/supplier shall control subtier supplier to the extent necessary to ensure quality requirements specified in the procurement document is satisfied. Quality requirements shall include, but are not limited to, the following: subtier preaward survey/evaluation, periodic auditing of supplier, implementing a subtier supplier rating system, ensuring adequate review of procurement documentation prior to procurements, controlling procurement of critical items for Vendor/supplier product, inspection of procured items to documented procedures, and control of nonconforming material, including corrective action. C) Rainbow Mykotronx Surveys, Surveillance, Audits and Inspection. Rainbow Mykotronx has the right to conduct surveys, audits, and surveillance of vendor/supplier facilities, and those of vendor/supplier subtier suppliers with prior coordination with vendor/supplier, to determine capability to comply and to verify continuing compliance, with the requirements of the procurement document. Rainbow Mykotronx has the right to perform inspection at vendor/supplier facilities, and those of vendor/supplier subtier suppliers with prior coordination with vendor/supplier, during the period of manufacture and inspection prior to shipment. Final inspection, and acceptance, shall be performed at Rainbow Mykotronx's facility, unless otherwise specified in the procurement document. Rainbow Mykotronx reserves the right to use Mil Std 105, MiL Std 414 or other sampling process for the acceptance or rejection of items. D) Documentation. Rainbow Mykotronx may refuse to accept item if vendor/supplier fails to submit certifications, documentation, test data or reports specified by the procurement document. Documentation includes Rainbow Mykotronx source inspection if such source inspection is performed. E) Corrective Action Request. When a quality problem exists with any vendor/supplier item, Rainbow Mykotronx may forward a corrective action request to vendor/supplier, requiring timely response, that shall include the following information: analysis of the cause of the problem, statement of the action taken to prevent recurrence, and the effectivity of the action,. When corrective action is required for U.S. Government source inspected items, vendor/supplier shall coordinate such action with the U.S. Government quality representative assigned to administer vendor/supplier facility. 39 Buyer: ____ Seller:____ F) U.S. Government Source Inspection. For procurement made under U.S. Government contracts, the U.S. Government has the right to inspect any and all of the work included in the procurement document, at vendor/supplier facilities or at subtier supplier facilities. Vendor/supplier quality control or inspection system and manufacturing processes are subject to review, certification, and analysis by authorized U.S. Government representatives. G) Measuring and Test Equipment. Vendor/supplier shall be responsible for validating the accuracy and stability of tools, gages, and test equipment used to eonstarte that any item conforms to the requirements specified by the procurement document. Documented schedules shall be maintained to provide for periodic calibration to adequate standards. Objective evidence of calibrations shall be recorded and made available for Rainbow Mykotronx review. H) Nonconforming Material. Any decision to accept any nonconformance (variance from Rainbow Mykotronx's drawings and specifications), detected at vendor/supplier facilities, must be made by Rainbow Mykotronx unless otherwise specified by the procurement document. Vendor/supplier shall provide for identification, control and segregation of nonconforming material detected at vendor/supplier facilities. I) Inspection Records. Vendor/supplier shall maintain records of all inspections and tests performed on any item delivered to Rainbow Mykotronx. These records shall identify nonconformance and shall be made available for Rainbow Mykotronx review. J) Sample Inspection. Sample inspection plans may be used by vendor/supplier when tests are destructive , or when the records or inherent characteristics of the product indicate that a reduction in inspection/testing can be achieved without jeopardizing product quality. Sample inspection shall be in accordance with the applicable Rainbow Mykotronx specification. When not specified by Rainbow Mykotronx, military standard sampling plans (e.g. Mil-Std-105, Mil-Std-414, or Handbooks H016, H017, or H018) may be used. Other sample inspection plans shall be approved by the Rainbow Mykotronx prior to their implementation. All sample inspection plans shall provide valid confidence in specified quality levels. K) Vendor/supplier's Basic Certificate of Conformance (C of C). Vendor/supplier shall provide a certificate of conformance providing: 1) a statement that the items furnished per the Rainbow Mykotronx procurement document have been manufactured, tested, and inspected in accordance with the requirements of the applicable specifications/drawings and the results of such test and inspection meet the requirements thereof; 2) a statement that Rainbow Mykotronx-required inspections and tests have been performed utilizing calibrated equipment; and 3) a statement that all materials used in items meets the applicable specification/drawing requirements specified by the procurement document. The CofC shall include vendor/supplier name, actual address where item was manufactured/tested, item name, vendor/supplier's part number, and lot/process/batch number, etc. as applicable. The CofC shall also include the Rainbow Mykotronx's name, part number, specification/drawing number, including applicable revision designation and procurement document number/revision. The CofC shall be signed by the vendor/supplier's authorized person and shall include title of signatory and date. Any certificate not meeting the above requirements is subject to rejection upon Rainbow Mykotronx's receipt. Q-2 (A OR B) INSPECTION SYSTEM REQUIREMENTS, NHB5300.4 (1B) A. Vendor/supplier shall provide and maintain an inspection system that is in conformance with NHB5300.4 (1B), "Quality Program Provisions for Aeronautical and Space Systems Contractors." B. Vendor/supplier shall provide and maintain an inspection system that is in conformance with NHB5300.4 (1B), "Quality Program Provisions for Aeronautical and Space Systems Contractors", that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-3 (A OR B) INSPECTION SYSTEM REQUIREMENT, MIL-Q-9858A A. Vendor/supplier shall provide and maintain an inspection system that is in conformance with MIL-Q-9858A, "Quality Program Requirements". B. Vendor/supplier shall provide and maintain an inspection system that is in conformance with MIL-Q-9858A, "Quality Program Requirements", that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-4 (A OR B) INSPECTION SYSTEM REQUIREMENTS, NHB5300.4 (1C) A. Vendor/supplier shall provide and maintain an inspection system that is in conformance with NHB5300.4 (1C), "Inspection Systems Provisions for Aeronautical and Space System Material, Parts, Components, and Services." B. Vendor/supplier shall provide and maintain an inspection system that is in conformance with NHB5300.4 (1C), "Inspection Systems Provisions for Aeronautical and Space System Material, Parts, Components, and Services," that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-5 (A OR B) INSPECTION SYSTEM REQUIREMENTS (MIL-I-45208) A. Vendor/supplier shall provide and maintain an inspection system that is in conformance with MIL-l-45208, ":Inspection System Requirements, " and a calibration program that is in conformance with MIL-STD-45662, "Calibration Systems Requirements". B. Vendor/supplier shall provide and maintain an inspection system in accordance with requirements of MIL-I-45208,"Inspection Systems Requirements,"and a calibration program that is in accordance with MIL-STD-45662, "Calibration Systems Requirements", that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-6 (A,B,C,D,E,F,G, OR H) BUYER SOURCE INSPECTION Vendor/supplier conformance to Rainbow Mykotronx requirements shall be verified by Rainbow Mykotronx and shall be performed at vendor/supplier facilities prior to shipment of items being procured. Vendor/supplier shall provide reasonable facilities and a copy of Rainbow Mykotronx specification/drawing and procurement document for Rainbow Mykotronx verification of vendor/supplier conformance to procurement document and specification/drawing requirements. Rainbow Mykotronx reserves the right the audit/verify conformance to Rainbow Mykotronx requirements at Vendor/supplier facility and at vendor/supplier subtier supplier facilities for any item not manufactured/processed within vendor/supplier facilities. Rainbow Mykotronx source inspection shall include, but is not limited to, the following: - - Validation of vendor/supplier automated test programs and procedures to Rainbow Mykotronx specification/drawing requirements (when applicable). - - Witnessing vendor/supplier performance of acceptance/qualification testing and inspections to Rainbow Mykotronx specification/drawing requirements. Vendor/supplier shall perform an additional 1.0 AQL acceptance test/inspection when vendor/supplier original acceptance testing has not been witnessed by a Rainbow Mykotronx representative. 40 Buyer: ____ Seller:____ - - Review of vendor/supplier acceptance test/inspection data and reports to verify conformance with Rainbow Mykotronx specification/drawing requirements. - - Review of lot qualification test data to Rainbow Mykotronx specification/drawing requirements, if applicable. - - Verification of vendor/supplier packaging and packing of items being procured to ensure conformance with Rainbow Mykotronx procurement document or specification/ drawing requirements. - - Verification of item traceability and vendor/supplier certification to ensure conformance with the Rainbow Mykotronx procurement document of specification/drawing requirements. Vendor/supplier shall provide inspection/test data and reports to Rainbow Mykotronx representative indicating which characteristics, parameters, dimensions, etc., were actually tested/inspected for validation to Rainbow Mykotronx specification/drawing requirements. Vendor/supplier shall notify Rainbow Mykotronx not less than three working days prior to the time that items are ready for Rainbow Mykotronx source inspection. After Rainbow Mykotronx source inspection, any rework or test of the items(s), including any unscheduled or unauthorized entry, such as removal of a panel, cover, or enclosure shall void the Rainbow Mykotronx source inspection and vendor/supplier shall request Rainbow Mykotronx source inspection and vendor/supplier shall request Rainbow Mykotronx to repeat applicable source inspection steps(s). A. BUYER IN-PROCESS INSPECTION. Vendor/supplier performance of in-process operations to Rainbow Mykotronx requirements shall be verified by Rainbow Mykotronx during item manufacture at one or more of the following, as specified by the document: 1. Prior to encapsulation/conformal coating. 2. Prior to cleaning. 3. Prior to plating. 4. Prior to assembly close-up. 5. Other points specified by the procurement document. 6. Other points specified in the Process Identification Document. B. BUYER AUDIT/PROCESS VERIFICATION. Rainbow Mykotronx audit of vendor/supplier process operations by Rainbow Mykotronx representative shall include, but not be limited to, the following: - - Verification that vendor/supplier is maintaining a quality assurance system that has been previously approved by Rainbow Mykotronx. - - Verification that vendor/supplier flow down of requirements to subtier suppliers is adequate to meet Rainbow Mykotronx requirements. - - Verification that vendor/supplier work instructions are adequate to ensure implementation of Rainbow Mykotronx requirements. - - Verification that vendor/supplier manufacturing processes are under control, to ensure product quality, configuration control and traceability to meet Rainbow Mykotronx requirements. - - Verification that vendor/supplier is maintaining proper control of nonconforming material and taking corrective action, as required. C. BUYER PRECAP INSPECTION. Items of this procurement document require precap inspection by Rainbow Mykotronx subsequent to the 100 percent precap visual inspection performed by vendor/supplier. D. BUYER SCANNING ELECTRON MICROSCOPE ANALYSIS. Rainbow Mykotronx approval of Scanning Electron Microscope (SEM) analysis shall be required for wafer lots to be incorporated in parts supplied to Rainbow Mykotronx. The SEM analysis shall be performed by vendor/supplier and must be approved by Rainbow Mykotronx prior to the incorporation of wafers in parts. E. BUYER SOURCE SURVEILLANCE Rainbow Mykotronx shall perform surveillance at vendor/supplier facilities during the contract period. Surveillance shall be scheduled by Rainbow Mykotronx and coordination with vendor/supplier prior to implementation. Surveillance activities shall include, but not be limited to, the following: - - Auditing vendor/supplier's procurement, manufacturing, test and inspection, configuration control, and nonconforming material control procedures and processes. - - Witnessing of product acceptance/ qualification testing. - - Review of vendor/supplier's test/inspection data and reports to verify conformance to procurement document requirements. F. BUYER SOURCE INSPECTION FOR PROCUREMENT TO ANOTHER CONTRACTOR'S PART NUMBER/SPECIFICATION. Rainbow Mykotronx source inspection shall consist of verification of another contractor's inspection data to ensure that items have met the other contractor's specification requirements when Rainbow Mykotronx procurement document specifies contractor's part number. Vendor/supplier shall provide copy of other contractor's source inspection report/data containing results of other contractor's inspection. Whenever other contractor's source inspection report/data is/are not available, the vendor/supplier inspection traveler indicating other contractor's test/inspection acceptance may be used for verification. Inspection verification review shall be performed at vendor/supplier facility prior to shipment. G. BUYER FINAL SOURCE INSPECTION. Items of this procurement require final inspection by Rainbow Mykotronx quality engineering subsequent to the 100 percent final inspection performed by vendor/supplier. H. BUYER SOFTWARE AUDITS. Rainbow Mykotronx shall perform audits, review and/or verification at vendor/supplier facilities during the development and test of software to be furnished on this procurement. Q-7 U.S. GOVERNMENT SOURCE INSPECTION (NASA) All work under the procurement document is subject to inspection and test by the U.S. Government any time and place. The U.S. Government representative who has been delegated NASA quality assurance functions for the procurement document shall be notified immediately upon receipt thereof. The U.S. Government representative shall also be notified three (3) working days in advance of the time the items are ready for inspection or test. In the event that the U.S. Government representative cannot be contacted, Rainbow Mykotronx shall be notified immediately. 41 Buyer: ____ Seller:____ Vendor/supplier, without additional charge to the procurement document, shall provide all reasonably required facilities and assistance for convenience and safety of the U.S. Government representatives in the performance of their duties. Q-8 U.S. GOVERNMENT SOURCE INSPECTION (DOD) U.S. Government source inspection is required prior to shipment from vendor/supplier facility. Upon receipt of this procurement document, vendor/supplier shall immediately notify and provide a copy of the procurement document to the U.S. Government representative who normally services the Vendor/suppliers facility, so that appropriate planning for U.S. Government source inspection can be accomplished. If a U.S. representative does not normally service the vendor/supplier's facility, the nearest Army, Navy, Air Force, or Defense Agency inspection office shall be contacted. In the event that a U.S. Government representative cannot be contracted, Rainbow Mykotronx shall be notified immediately. Vendor/supplier, without additional charge to the procurement document, shall provide all reasonably require facilities and assistance for convenience and safety of the U.S. Government representatives in the performance of their duties. Q-9 (A AND B) RAW MATERIAL DOCUMENTATION REQUIREMENTS A. Shipment of materials whether raw, semi-finished or finished, shall be accompanied by a Certificate of Conformance from vendor/supplier, stating as a minimum: - the name of location of the raw material manufacturer, as applicable, - material identification by specification number, and material condition where applicable. - a statement of raw material conformance to applicable requirements. B. All items in Q-9A plus actual chemical/physical test results which substantiate compliance with the applicable raw material and/or specification requirements. Q-10 CONTROL OF PROCESSES A process requiring Rainbow Mykotronx approval of processor's facility is being procured for this order. The facility performing such processes, whether the supplier's or a subtier to the supplier, must be approved by Rainbow Mykotronx in advance of actual processing. Rainbow Mykotronx will make available, upon request, a list of approved process facilities specific to the applicable processes. A certificate of conformance to the process specification requirements shall be provided with the shipment. Q-11 TEST DATA When Rainbow Mykotronx specification requires test data to be recorded during performance of acceptance testing, a copy of the recorded data, showing evidence of vendor/supplier inspection and verification of conformance, shall accompany shipment of items to Rainbow Mykotronx. Data shall meet the format requirements of Rainbow Mykotronx specification and, as a minimum, be identified with: - Rainbow Mykotronx procurement document number and any change notice number. - Rainbow Mykotronx specification/drawing number and revision letter. - Rainbow Mykotronx engineering order(s). - Part number - Type of test performed. - Lot numbers, serial numbers, and/or codes of items tested. - Total quantity tested, quantity accepted and quantity rejected. - Any codes, keys, or other information necessary to interpret vendor/supplier data. Q-12 RADIOGRAPHIC INSPECTION Vendor/supplier must be approved by Rainbow Mykotronx to perform the radiographic inspection applicable to this procurement document or shall use a radiographic facility approved by Rainbow Mykotronx. A list of approved radiographic facilities shall be provided by Rainbow Mykotronx upon request. If vendor/supplier wishes to use an unapproved facility, prior authorization must be requested and received from Rainbow Mykotronx. Unless otherwise specified by the parts specification or procedure applicable to this procurement document, each radiograph shall, as a minimum comply with MIL-STD-453, "Inspection, Radiographic," or MIL-STD-883, "Test Methods and Procedures for Microelectronics". The radiographic film and a copy of the report shall accompany the shipment of the items to the Rainbow Mykotronx. Q-13 REQUIREMENTS FOR DISTRIBUTORS The distributor (a supplier other than the manufacturer) shall identify the manufacturer and location of manufacturer of each item furnished under the procurement document. When items are identified by a Rainbow Mykotronx number, the distributor shall provide complete information as to the original manufacturer and original manufacturer's part number, lot number, serial number, and/or data code of items shipped. Such identification shall be submitted with each shipment. Q-14 SUPPLIER INSPECTION REPORTING REQUIREMENTS Vendor/supplier shall submit, with each shipment of items, one copy of an inspection report reflecting 100 percent inspection verification of all drawing characteristics. The report shall delineate each drawing characteristic and specific the corresponding actual measurement results, except that a check mark will suffice for those dimensions with a total tolerance spread greater than 0.005 inch. True position dimensions of 0.007 inch or less shall be recorded in the data submitted. Inspection record traceability shall be maintained by either serializing each item (if allowed) or tag identification. The item identification is then matched with the corresponding inspection report. A single inspection documentation record sheet may be used for more than one item of the same part number. The only exception to the above procedure applies to items machined under tape-controlled or automatic conditions. In that case, the 100 percent inspection report may be limited to the first and last item procured from one continuous set-up, and the inspection report shall state that the items were machined under tape-controlled or automatic conditions. INSPECTION RECORD EXAMPLE:
Dimension &Tol. S/N 001 S/N 002 S/N 003 - ----------------------- ------- ------- ------- ~~..250 -.001/+.004 .251 .253 .254~~
If there are more than 25 items of the same part number and if serialization is not required, the items may be grouped and data recorded as follows: 42 Buyer: ____ Seller:____
Dimension&Tol. Qty Results - ------------------ --- --------- ~~..250 -.001/ +.004 150 .249/.253~~
Q-15 (A OR B) SUPPLIER QUALITY ASSURANCE PROGRAM REQUIREMENTS, MIL-STD-1535A A.Vendor/supplier shall provide and maintain a supplier quality assurance program that is in conformance with MIL-STD-1535A, "Supplier Quality Assurance Program Requirements." B. Vendor/supplier shall provide and maintain a supplier quality assurance program in accordance with requirements of MIL-STD-1535A, "Supplier Quality Assurance Program Requirements," that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-16 (A,B,C,D,E OR F) CORRECTIVE ACTION AND DISPOSITION SYSTEM FOR NONCONFORMING MATERIAL, MIL-STD-1520. Vendor/supplier shall provide and maintain a corrective action and disposition program for nonconforming material that is in conformance or with accordance with MIL-STD-1520, "Corrective Action and Disposition System for Nonconforming Material" or with tailored requirements of MIL-STD-1520. A. MIL-STD-1520A B. MIL-STD-1520A, tailored as specified in the Rainbow Mykotronx procurement document. C. MIL-STD-1520B D. MIL-STD-1520B, tailored as specified in the Rainbow Mykotronx procurement document. E. MIL-STD-1520C F. MIL-STD-1520C, tailored as specified in the Rainbow Mykotronx procurement document. Q-17 CALIBRATION SYSTEMS REQUIREMENTS (MIL-STD-45662) Vendor/supplier shall provide and maintain a calibration program that is in conformance with Mil-Std-45662, "Calibration Systems Requirements." Q-18 CONTROL OF TEST SOFTWARE. Vendor/supplier shall provide and maintain a system for the control of software used in the qualification/acceptance testing of deliverable hardware, software and firmware to be furnished on this procurement. Vendor/supplier shall maintain procedures and test records on items delivered to Rainbow Mykotronx and these records shall be available for Rainbow Mykotronx review. Q-19 ELECTROSTATIC DISCHARGE CONTROL. Vendor/supplier shall provide and maintain a program for electrostatic discharge (ESD) control for hardware items to be furnished on this procurement. Rainbow Mykotronx requirements are as specified in the procurement document. Vendor/supplier electrostatic discharge control program is subject to review and approval by the Rainbow Mykotronx. Q-20 SUBCONTRACTOR PRODUCT ASSURANCE REQUIREMENTS. Vendor/supplier shall provide and maintain a system that assures implementation of the provisions contained in the applicable product assurance requirements document and statement of work that is referenced within the procurement document. The general quality assurance requirements of Q-1 are also applicable for this procurement. Q-21 (A OR B) DEFENSE SYSTEMS SOFTWARE DEVELOPMENT (DOD-STD-2167A) A. Vendor/supplier shall provide and maintain a software development program which is in conformance with DOD-STD-2167A, "Defense System Software Development." B. Vendor/supplier shall provide and maintain a software development program in accordance with requirements of DOD-STD-2167A, "Defense System Software Development," that have been tailored as specified in Rainbow Mykotronx's procurement documents. Q-22 (A OR B) DEFENSE SYSTEMS SOFTWARE QUALITY PROGRAM (DOD-STD-2168) A. Vendor/supplier shall provide and maintain a software quality assurance program that is in conformance with DOD-STD-2168, "Defense System Software Quality Program." B. Vendor/supplier shall provide and maintain a software quality program that is in accordance with requirements of DOD-STD-2168, "Defense System Software Quality Program," that have been tailored as specified in Rainbow Mykotronx's procurement document. Q-23 SOFTWARE DELIVERY DOCUMENTATION. Vendor/supplier shall deliver documentation of software as specified in the procurement document. Software documentation shall be sufficient to establish that: - All requirements are achieved or waivers submitted. - Configuration is correct and deliverables are properly identified and marked. - Planned level of acceptance is achieved and/or deviations/waivers are made part of the deliverable documentation package. - Operating instructions accompanying the developed software are sufficient to enable loading, initialization, and operation by Rainbow Mykotronx's personnel. Q-24 END ITEM DATA PACKAGES. The following are the minimum Rainbow Mykotronx requirements for data package contents. Special project requirements in addition to these are contained in product assurance requirements or statement of work. 1) Format. Table of contents and labeled dividers between sections. 2) Contents. a) As-built vs. as-designed report. b) acceptance test procedure and data. c) operating time record d) discrepancy documents e) waiver/deviations, f) identification sheet listing: as applicable--- unit name, equipment specification part number, serial number, revision level, contract number, project name, original vs. retest package, acceptance vs. qualification data, and review signatures. Q-25 (A OR B) INSPECTION SYSTEM REQUIREMENT, ISO9001 A. Vendor/supplier shall provide and maintain an inspection system that is in conformance with ISO9001 43 Buyer: ____ Seller:____ B. Vendor/supplier shall provide and maintain an inspection system that is in conformance ISO9001, that have been tailored as specified in the Rainbow Mykotronx procurement document. Q-26 (A OR B) IN-PROCESS DATA The supplier shall collect data at the various inspection and test points and furnish monthly reports (pareto charts, first pass yield, etc) to Rainbow Mykotronx's in regard to overall product performance. 44 Buyer: ____ Seller:____ ATTACHMENT H. CONTRACT FAR CLAUSES SECTION D - PACKAGING AND MARKING D.1 Record Plate A modification record plate to include the serial number, modal, and any modifications shall be affixed to each equipment as previously provided Under MDA904-98-D-C104. (End of Clause) D.2 BAR CODES Bar codes in accordance with MIL-STD-1189 and NSA-2 shall also be printed on identifying equipment nameplates. The "fail bar Code message for equipment shall contain the short title, the serial number, sad the National stock Number. Written approval from the COR is required to modify the bar code contents in any case where adequate space is not available. (End of Clause) D.3 352.247-9003 MARKING AND DOCUMENTS (SEP 1994) (a) All Contractor-generated technical reports shall bear the statement "Not Releasable to the Defense Technical Information Center per DoD Directive 3200.12." (b) In addition to the above marking all unclassified technical reports, photographs, drawings, schematics, design circuits and description of equipment designed and/or produced under the contract shall be marked with the legend "DISTRIBUTION LIMITED TO U.S.GOVERNMENT AGENCIES ONLY THIS DOCUMENT CONTAINS NSA INFORMATION (Applicable Date) REQUEST FOR THIS DOCUMENT MUST BE REFERRED TO THE DIRECTOR, NSA, Where SF Form 298 is required to accompany a document, the legend shall be entered in Block 12a thereof. (d) The contractor shall be responsible for inserting the appropriate application data in the aforementioned legend. This date shall be the date upon which the document was completed. (End of Clause) D.4 352.247-8004 PACKING AND SHIPPING (OCT 1998) (a) Packing (1) Material shall be packed by personnel duly cleared for the level of classification in question, to conceal it properly and to avoid suspicion as to its contents, and to reach destination in satisfactory condition. Internal markings or internal packaging will clearly indicate the classification. No NOTATION To INDICATE THE CLASSIFICATION SHALL APPEAR, ON EXTERNAL MARKINGS. (2) Documents shall be enclosed in two sealed envelopes or covers. Typewritten or printed matter in the contents shall be protected by a covet sheet or by folding inward to avoid direct contact with the inner envelope or cover. The inner cover shall be addressed, return addressed, sealed and marked with the security classification on front and back so that the sparking will be easily seen when the outer cover is removed. Receipt for, if required, shall be enclosed identifying the addressor, addresses, and listing the contents by short title. The outer envelope or cover shall be of sufficient opaqueness and density as to prevent the classification marking of the inner cover from being visible rend shall be addressed, return addressed, and carefully sealed with no markings or notations. 45 Buyer: _____ Seller: _____ (b) Shipping (1) Classified material shall be shipped in accordance with the Industrial Security Manual for Safeguarding Classified Material and Security Guidelines contained in DD Form 254. (2) Unclassified material shall be shipped in accordance with the contractor's best commercial practice to insure safe arrival at destination. (End of Clause) SECTION E - INSPECTION AND ACCEPTANCE E.1 REFERENCED CLAUSES The following contract clause(s) pertinent to this section is/are hereby incorporated
CLAUSE NO. TITLE - ---------- ----------------------------------------------- ~~52.246-02 INSPECTION or SUPPLIES - FIXED-PRICE (Aug 1996) 52.246-16 RESPONSIBILITY FOR SUPPLIES (APR 1984)~~
E.2 PRODUCTION EQUIPMENT The equipment shall be inspected and tested in accordance with the KIV-7HSB Integration and Operations Manual and the Contract. (End of Clause) E.3 Inspection and Final Acceptance a. Hardware: inspection and final acceptance of all equipment shall be conducted at the contractor's manufacturing facility in accordance with an approved Acceptance Test Plan Defense Contract Management Agency (DCMA) will be utilized on this contract. The Government will provide a copy of the Letter of Delegation (LOD) to the contractor and the cognizant Government inspection organizations. b. Review and final acceptance of all data items will be accomplished at the destination by the Contracting officer or his authorized representative. c. The KIV-7HSB units shall meet TEMPEST requirements as stated in the item description and/or Specification. TEMPEST testing shall be conducted in accordance with an approved TEMPEST test plan. TEMPEST test reports shall be made available to the Government upon request. (End of Clause) E.6 352.248-9005 NOTICE: MATERIAL AND WORKMANSHIP (JUL 1999) All material incorporated in the work shall be new and the work shall be performed in a skillful and workman like, efficient manner. Both materials and Workmanship shall be subject to the inspection of the Contracting Officer or his duly authorized representative who may require the Contractor to correct defective workmanship or materials without cost to the Government unless the contract specifies otherwise. (End of Clause) 46 Buyer: _____ Seller: _____ SECTION F - DELIVERIES OR PERFORMANCE F.1 REFERENCED CLAUSES The following contract clauses pertinent to this section is/are hereby incorporated
CLAUSE NO. TITLE - ---------- ---------------------------------------- 52-211-17 DELIVERY OF EXCESS QUANTITIES 52.242-15 STOP-WORK ORDER (AUG 1989) 53.242-17 GOVERNMENT DELAY OF WORK (APR.1984) 52.247-84 F.O.B. DESTINATION (NOV. 1991)
SECTION G - CONTRACT ADMINISTRATION DATA G.4 352,220-9001 CONTRACTOR LIABILITY FOR STATE AND LOCAL TAXES (SEP 1994) Generally, the contractor is liable for payment of state or local taxes on this contract to the same extent that it would be liable for such taxes on a contract with a nongovernment entity. Although it may be useful for the contractor to inform the taxing authorities that the Maryland Procurement Office (MPO) is a federal government agency, this fact alone does not in and of itself create a tax exemption for the contractor. While dome transactions undertaken by the contractor pursuant to this contract may be exempt from a state or local tax, it is the Contractor's responsibility to identify such exertion under the applicable statute, and to resolve the applicability of such with state or local taxing authorities. (End of Clause) G.5 352.232-9007 ALLOCATION of CONTRACT COSTS, FIRM FIXED PRICE WITHOUT PROGRESS PAYMENTS - AWARD (MAR 1998) Because this contract is supported by two or more fund citations, all requests for payments end invoices fitted for payment shill allocate costs taxed on the line item end Accounting Classification reference (ACR) listed on the order award document. An invoice sot properly allocated shall be considered and improper invoice, under the Prompt Payment Act. (End of clause) G.10 352.242-9002 NOTICE CONTRACT ADMINISTRATION FUNCTIONS (MAR 1998) (a) The Procuring Contracting officer (PCO) will retain all administration functions under this contract except for those assigned to the cognizant Defense Contract Management Commend (DCMC) component, is accordance with part 42 of the FAR, part 242 of the DOD FAR supplement and the FCO's letter dated 3 Feb. 2003. (b) The Contractor's 5-position CAGE Code is 65598. (c) The following administration functions ors hereby delegated to the cognizant DCMC component (see FAR/DFARS references below): (1) 42.3O2 (a) (1). Review the Contractor's compensation structure (2) 42.302(a)(5). Negotiate forward pricing rate agreements (FAR 15.4073) (3) 42.302(a)(9) Establish final indirect cost rates and billing rates for those contractors meeting the criteria for contracting officer determination in FAR Subpart 42.7, 47 Buyer: _____ Seller: _____ (5) 42.302(a)(16). Monitor the Contractor 's financial condition and advise the contracting officer when it jeopardizes contract performance. (6) 42.302(a)(25). Process and execute novation and change of name agreements under FAR Subpart 42.12 (7) 42.302(a)(33). Advise and assist contractors regarding their priorities and allocations responsibilities and assist contracting offices in processing requests for special assistance and for priority ratings for privately owned capital equipment. (8) 42.302 (a)(34). Monitor Contractor industrial relations matters under the contract; apprise the contracting officer of actual or potential labor disputes, and coordinate the remodel of urgently required material from the strikebound contractor's plant, upon instructive from, and authorization of the contracting officer. (9) 42.302(a)(49). Monitor the Contractor's value engineering program. (10) 42.302(a)(50). Review, approve or disapprove, and maintain surveillance of the Contractor's purchasing system (gee FAR Part 44). (15) 42.302(a)(66). Determine that the Contractor has a drug-free workplace program and drug-free awareness program (See FAR Subpart 23.5) (16) 242.302(a)(9). For additional contract administration functions related to IR&D/B&P projects performed by major contractors, See 242.771-3(a). (17) 242.3 02(a) (33). Also perform industrial readiness and mobilization production planning field surveys and negotiate schedules. (d) The following contract administration functions (marked (X) when, applicable) are hereby delegated in Whole or in Part to the cognizant DCMC component (see FAR/DFARS references below): () (1) 42.302(a) (4). Review any evaluate contractors' proposals under FAR Subpart 25.8 and, when negotiation will be accomplished by the contracting officer, furnish comments and recommendations to that officer. ( ) (2) 42.302(a) (6). Negotiate advance agreements applicable to treatment of costs under contracts currently assigned for administration (see FAR Subpart 31.109) Subpart 32.109). (X) (3) 42.302(a) (26). Perform property administration and plant clearance (see FAR Part 45). ( ) (4) 42.302(a) (28). Perform necessary Screening, redistribution and disposes of contractor inventory () (6) 42,302(a) (31). Perform production support, surveillance, and status resorting, including timely reporting of potential and actual slippage in contract delivery schedules. () (7) 42.302 (a)(37). Review and evaluate preservation, packaging and packing. ( ) (8) 43.302(a)(39), Ensure Contractor compliance with contractual safety requirements. Note: see DFARS 233.370 for safely requirements on contracts for ammunition and explosives. ( ) (10) 42.302(a) (60). Cause release of shipments from Contractor's plants according to the shining instructions. When applicable, the order of assigned priority shall be followed; shipments within the same priority shall be determined by date of the instructions. 48 Buyer: _____ Seller: _____ ( ) (12) 42.302,(a) (65). Accomplish administrative closeout procedures (see FAR Subpart 4.804.5). ( ) (13) 43.302 (a) (68) Monitor the contractors compliance with the requirements of environmental laws including the Resource Conservation and Recovery Act (RCRA) (42 U.S.C. 001, et.seq.) and other environmental requirements as specified in the contract (see Part 23). Responsibilities of the contracting officer shall include (i) Verification of contractor compliance with specification requirement the use of environmentally preferable and energy-efficient materials and, the use of materials or delivery of end items with the specified recovered material content, this shall occur as pert of the quality assurance procedure get forth in Part 46. (ii) As required in the contract, ensuring that the contractor complies with the reporting requirements relating to recovered material content utilized in contract performance. Monitor the contractors compliance with the requirements of environmental laws including the Resource Conservation and Recovery set (RCRA) (42 U.S.C. 6901, et.seq.) and other environmental requirements as specified in the contract (see Part 23). Responsibilities of the contracting officer shall include ( ) (14) 242.302 (a) (4) Also, review end evaluate (A) Contractor estimating systems (see FAR 15.407) and (B) Contractor material management and accounting systems under Subpart 242.72. ( ) (15) 243.302 1a1(33) Also perform industrial readiness and mobilization production planning field survey and negotiate schedules. ( ) (17) 242.302(a) (41) The DCMC has responsibility for reviewing earned value management system (EVMS) plans and verifying initial and continuing contractor compliance with DoD EVMS criteria as required by DFARS Earned value management systems 234.005.70. (End of Clause) SECTION H - SPECIAL CONTRACT REQUIREMENTS H.1 IMPORTANT NOTICE: UNAUTHORIZED CHANGES a. The Contractor shall not accept any instructions issued by any person other than the Procuring activity CO or COR acting within limits of their authority. CORs will be designated in writing to the contractor, and scope of their authority will be set forth therein; and (End of Clause) H.2 352.204-9001 DISCLOSURE OF INFORMATION - CONTRACT (SEP 1996) (a) DFARB 252.204-7000 and this clause shall govern any disclosure of information regarding this contract. In using information authorized by this clause, the contractor (1) shall not disclose any information concerning the sponsorship of this contract, or (ii) the nature of the Government's interest in and application of the subject matter of this contract unless this type of information is expressly allowed to be disclosed by paragraph (b) and/or (c) below, or by written approval of the cognizant Contracting Officer. (b) The information listed below may be disclosed in proposals to United States Government Agencies in response to requests for past performance assessments: When this information is completed at time of contract award, the document shall be 49 Buyer: _____ Seller: _____ marked "FOR OFFICIAL USE ONLY." If any of the information that follows changes in your disclosure, the Contracting Officer must be notified in writing of the change. CONTRACT NUMBER: MDA904-03-D0355 CONTRACT TYPE: Firm Fixed Price: ID/IQ AWARD DATE: (complete at award)______________ GOVERNMENT CONTRACTING ACTIVITY: MARYLAND PROCUREMENT OFFICE 9800 SAVAGE ROAD FORT GEORGE G. MEADE, MD 20755-6000 ORIGINAL CONTRACT VALUE: NTE CURRENT OR COMPLETED CONTRACT VALUE: (contractor may update) _________________________ PERIOD OF PERFORMANCE: COMPETITIVE/NONCOMPETITIVE/FOLLOW-ON (circle, underline or highlight appropriate description) PROGRAM TITLE: KIV-7 CONTRACT EFFORT DESCRIPTION: (unclassified - as provided in solicitation package and completed as part of the award document) PLACE OF PERFORMANCE: Torrance, CA POINT OF CONTACT/PHONE NUMBER: CONTRACTING OFFICER: PROGRAM MANAGER: (c) For additional disclosures which require specific prior approval by the Contracting Officer, once authorization to use any specific information has been approved by the Contracting Officer, the contractor is authorized to reuse such specific information without obtaining additional authorizations from the Contracting Officer. The contractor shall maintain a log of the additional uses and submit a copy of the log to the Contracting Officer when each additional disclosure is made. (End of Clause) SECTIION H - SPECIAL CONTRACT REQUIREMENTS H.3 352.204-9003 CONTRACTOR PERSONNEL CLEARANCES - CONTRACT (OCT 1993) (a) It shall be the responsibility of the contractor to optimize the use of currently cleared personnel in completing the requirements of this contract. In the event that the contractor requires additional personnel clearances, any delays incurred in the contract program and/or schedule as a result of the time required to clear such personnel shall be the contractor's responsibility. Under no circumstances shall the Government recognize a claim for an equitable adjustment in the contract price and/or schedule as a result of any delay due to the failure to have properly cleared personnel. (b) It is understood that the contractor will provide personnel as suitable replacements on a best efforts basis. (End of Clause) H.4 352.204-9008 CONTROL OF COMMUNICATIONS SECURITY (COMSEC) MATERIAL (FEB 2002) The accountable COMSEC material produced under the contract, or provided as Government Furnished Property, will be distributed through COMSEC distribution channels. The contractor shall establish a COMSEC account, nominate a custodian and alternate custodian and control the material in accordance with procedures specified in the "NSA Manual 90-1 (NSA Industrial COMSEC Manual)" dated October 2001. Existing COMSEC accounts established as a result of previous or other contracts may be used. (End of Provision) 50 Buyer: _____ Seller: _____ H.5 352.204-9009 ACQUISITION OF COMSEC EQUIPMENTS, COMPONENTS, AND PARTS OUTSIDE THE UNITED STATES (OCT 1993) (a) Definitions. (1) "COMSEC equipment", as used in this clause, means equipment designed to provide security to telecommunications by converting information to a form unintelligible to an unauthorized interceptor and by reconverting such information to its original form for authorized recipients; as well as equipment designed specifically to aid in, or as an essential element of, the conversion process. COMSEC equipment is crypto-equipment, crypto-ancillary equipment, and authentication equipment. (2) "Component", as used in this clause, means any assembly or subassembly incorporated directly into an end product. An assembly is a group of parts, elements, subassemblies and circuits assembled as a separately removable item of COMSEC equipment. A subassembly is a major subdivision of an assembly. (3) "Part", as used in this clause, means any single, unassembled element of a major or minor subassembly, accessory, or attachment which is not normally subject to disassembly without the destruction or the impairment of the design use. (4) "Contractor", as used in this clause, means the supplier of the end item and associated support items to the Government under the terms of a specific contract. (5) "Subcontractor", as used in this clause, means a person or business that contracts to provide some service or material necessary for the performance of another's contract. (6) "Vendor", as used in this clause, means a person or agency that sells supplies or materials to a contractor or subcontractor. (7) "United States", as in this clause, means all areas under the territorial sovereignty of the United States (U.S.) and the Trust Territory of the Pacific Islands. (b) No subcontracts or purchase order which involve design, manufacture, production, assembly, inspection, or test in a location not in the U.S. of COMSEC equipment, components, or parts, which are not covered by a specification or standard shall be made under this contract, without the prior written approval of the contracting officer. The contractor further agrees to include this clause in any or all subcontracts or purchase orders he may let pursuant to this contract for COMSEC equipment, components, or parts, except those subcontracts/purchase orders for which waiver is required, i.e., non-US sources. The contractor may procure standard off-the-shelf parts from a distributor located in the United States regardless of the location of the parts design, manufacture, 51 Buyer: _____ Seller: _____ production, assembly inspections, or test, providing that the anonymity requirements of this clause are implemented. Parts used only in COMSEC equipment are not considered standard off-the-shelf parts. Under no circumstances shall any custom integrated circuit, hybrid, multi-chip module or the documentation associated with these devices or any likeness, thereof, be sent outside the U.S. for additional processing or assembly. In addition, all memory devices, including field programmable gate arrays (FPGAs) with security-related functions are programmed onshore. (c) Requests for permission to deviate from the requirements of paragraph (b) will be handled on a case-by-case basis through the contracting officer. Each waiver request must provide a strong and compelling reason why the waiver should be granted in addition to the benefit the Government would gain by the granting of a waiver. Furthermore, prior to the approval of any waiver, the contractor shall demonstrate to the Government through submission of an acceptable Anonymity Plan (data item DI-MGMT-90051), that procedures are in place to ensure that the offshore vendor remains unaware of the relationship between the prime contractor and the Department of Defense and/or Maryland Procurement Office (MPO). As a minimum, the following conditions will be imposed if a waiver is granted: (1) Purchase orders and drawings provided to a subcontractor or vendor outside the United States shall not carry any identification that reveals a contractor relationship with the Department of Defense and the MPO. This restriction includes the contractor's prime contract number with the Government and 98230/ONXXXXXX parts identification numbers. (2) The prime contractor, when required to mark items with the manufacturer's code 98230 or drawing numbers ONXXXXXX, shall only mark these items at a facility located within the U.S. Marking parts with ON markings and the 98230 code specifies that the parts are for MPO use only. If parts marked with the MPO identification code (including rejects and parts not usable for MPO programs) are allocated for non-MPO programs for resale to other customers, then markings associated with the MPO identification code must be removed from the parts before the parts are sent to non-MPO programs or other customers. (3) The Government has the right to an equitable adjustment to the contract price as consideration for granting approval to acquire COMSEC equipment, components and parts from sources outside the United States (unless the waiver was granted prior to contract award). H.6 352-204-9010 NOTICE: CONTRACT ADMINISTRATION AND CLOSEOUT GUIDANCE (JUL 2001) The following guidance is provided for your use in administering and closing out the contract. When the contract is complete, the contractor shall initiate final accounting and disposition. This shall be done in accordance with the following instructions. If a portion of the instructions are not applicable to this contract, then disregard that portion. 52 Buyer: _____ Seller: _____ (a) Government Furnished Property/Documents (1) The cognizant property administration office (Defense Contract Management Command (DCMC) and/or Office of Naval Research (ONR) is designated to administer the maintenance by the contractor of official Government Property Records for all Government property/documents. See Section G - Contract Administration Data for the cognizant office of this contract. (2) The contractor shall sign (1) copy of the shipping or inspection document acknowledging receipt of property/documents and forward same to the designated property administrator. (3) At the end of the contract, the contractor shall submit the Government Furnished Property/Documents Inventory Schedule, requesting disposition, to the cognizant office. The cognizant property administration office shall then obtain the disposition instructions from the contracting Officer's Representative (COR), and they will forward them to the contractor. The contractor shall provide the cognizant office with a declaration that all Government furnished property/documents have been accounted for or expended (disposition is complete) in the performance of the contract. The cognizant property administration office will provide the MPO and the COR with the appropriate releases. (b) Contractor Acquired Property. At the end of the contract, the contractor shall submit the Contractor Acquired Property list, requesting disposition, to the cognizant property administration office. This office will then obtain the disposition instructions from the COR, and then will forward them to the contractor. The contractor shall provide the cognizant office with a declaration that Contractor Acquired Property has been dispositioned as requested. The cognizant property administration office will provide the MPO and the COR with the appropriate releases. (c) Plant Clearance. The cognizant property administration office is automatically delegated plant clearance procedures. (d) Classified Material/Documents (DD254 on the contract. The disposition/retention action of classified holding should be initiated pursuant to paragraphs 5.l and 5.m of the Industrial Security Manual. The inventory shall be submitted to the Director, NSA/CSS, ATTN: (the applicable COR with office designator), 9800 Savage Road, Ft. George G. Meade, Maryland 20755-6000. After compliance with the COR's disposition instructions, the contractor shall submit evidence of compliance, certified by the CSSO, to the MPO (ATTN: DA3 (Contracting Officer's nane), Maryland Procurement Office, 9800 Savage Road, Ft. George G. Meade, Maryland 20755-6000), with a courtesy copy to Q13 and the COR. (e) Report of Inventions and Subcontracts (Form DD882). Pursuant to the Patent Rights Clause of this contract, the contractor shall submit the DD Form 882 to the Director, NSA/CSS (the applicable COR with office designator), 9800 Savage Road, Ft. George G. Meade, Maryland 20755-6000, with a courtesy copy to the MPO (ATTN: DA3 (Contracting Officer's name), Maryland Procurement Office, 9800 Savage Road, Ft. George G. Meade, Maryland 20755-6000). (End of Clause) H.7 352.211-9005 NOTICE: SPECIAL PROVISION FOR LATE DELIVERY (OCT 1993) If the Contractor fails to make delivery of the items called for herein on or before the contractual delivery date without proof of an excusable delay as defined in the Default provision of this contract, and the Government does not elect to terminate performance in accordance with the termination provisions of this contract, then the parties shall promptly and in good faith negotiate an extended delivery schedule in exchange for adequate consideration from the Contractor. Should the parties fail to reach agreement on such a modification, the Contracting Officer may unilaterally determine what constitutes a reasonable delivery schedule and the consideration therefore. Failure to agree to such schedule and consideration shall be a dispute concerning a question of fact within the meaning of the clause of this contract 53 Buyer: _____ Seller: _____ entitled "Disputes". The rights and remedies set forth in this clause shall not be exclusive and are in addition to any other rights and remedies provided by law or under this contract. The primary purpose of this clause is to clarify existing terms of the contract. (End of Clause) H.8 352.211-9000 NOTICE: INCORPORATION OF SECTIION K BY REFERENCE (AUG 1998) In accordance with the FAR 15.204-1 (b), Part IV of the Uniform Contract Format shall not be physically included in the contract, but Section K, Representations, Certifications, and Other Statements of Offerors (as completed by the Contractor) shall be deemed incorporated by reference in the contract. (End of Clause) H.9 352.227-9000 SOFTWARE REQUIREMENT (AUG 1996) The Contractor warrants that, to the best of its knowledge and belief, software provided under this contract does not contain any malicious code, program, or other internal component (e.g. computer virus) which could damage, destroy, or alter software, firmware, or hardware or which could reveal any data or other information accessed through or processed by the software. Further, the Contractor shall immediately inform the Contracting Officer upon reasonable suspicion that any software provided hereunder may cause the harm described above. (End of Clause) H.11 352.227-9005 NOTIFICATION OF FOREIGN ORIGIN SOFTWARE AND/OR FIRMWARE (OCT 1999) Officers/Contractor shall notify the Contracting Officer in writing if any foreign manufactured, developed, maintained and/or modified software and/or firmware will be used or included in the deliverables under this contract. Foreign-origin software and/or firmware that is merely a possible candidate for use under this contract shall also be identified. Notification pursuant to this clause must include the identity of the foreign source and the nature of the software application, and is required as soon as there is a reason to know or suspect foreign origin. MPO reserves the right to exclude foreign-origin software and/or firmware from use under contract on a case-by-case basis. (End of Clause) H.13 352.244-9000 NOTICE: SOBCONTRACTOR WITH CANADIAN CONTRACTORS (OCT 1993) Provided the sponsoring Government Activity is not disclosed, the officer is not prohibited from subcontracting with Canadian Contractors, unless the work to be performed under any resulting contract is classified in nature. Federal Acquisition Regulation (FAR), Part 44, Subcontracting Policies and Procedures, particularly Subpart 44.2 - Consent to Subcontract, applies. In addition to those clauses which the prime contractor is normally required to insert in subcontracts, the following must be included, as required: FAR 52.225.13 Restrictions on Certain Foreign Purchases (AUG 1998) DFARS 252.225-7028 Reporting of Contract Performance Outside the United States (End of Clause) 54 Buyer: _____ Seller: _____ H.14 352.251-9000 SINGLE-SCOPE BACKGROUND INVESTIGATION (SSBIs) FOR CONTRACTOR PERSONNEL (JAN 2002) Under the authority granted to the Agency by OASD (CSI) to outsource SBBIs for NSA applicants and contractor personnel with critical skills for the FY2002, the following contractors are under contract with MPO and are credentialed to provide the SSBI portion of the clearance process to contractor personnel endorsed by the appropriated Program Office. Contractor personnel utilizing this process must be endorsed by the appropriate Contracting Officer's Representative (COR) via a Sponsorship Letter (Form G3542). Contractors choosing to utilize this process for obtaining SSBIs are responsible for contracting for the services from either one of the Background Investigation (BI) providers listed herein. Use of the BI providers services is the responsibility of the contractor and requires a separate contractual agreement between the contractor and the BI provider. Contractors may still choose to use Defense Security Service (DSS) for background investigations, at no cost. All costs charged to any resultant Agency contract for SSBIs performed by the BI provider shall not exceed the prices provided below. MSM Security Svc. ADC, LTD. Firm Fixed Price SSBI - 30 Day Delivery $ 1,872.43 $ 1,750.00 SSBI - 60 Day Delivery $ 1,872.43 $ 1,690.00 Labor Hour Rate Investigator $ 34.85 $ 42.35 Administration $ 44.21 $ 37.00

The Contractor Staff Security Officer (CSSO) determines the 30 or 60 day turnaround time (based upon geography). The Labor Hour rates are for cancelled or terminated SBBIs, as determined by S4, the cost of which is not to exceed cost of a completed SBBI. MSM Security Services Inc. ADC, LTD POC: Ed Johnson/Dawn Banda POC: Art Cardova Phone # 301-507-5210 Phone #: 800-750-3181 In accordance with the contractor's certification in Section K - Representations and Certifications, the costs of the SSBI in any resultant contract shall be a(n) charge. (End of Clause) H.15 352.290-9002 TESTING OF ELECTRONIC EQUIPMENT (AUG 1994) Research, development, test and evaluation by the contractor of electronic equipment or systems which have the capability to acquire the contents of communications may be governed by the United States electronic surveillance laws, including the Foreign Intelligence Surveillance Act of 1978 (FISA), 50 U.S.C. 1801-1810 and Title III of the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. 2510-2520. The contractor shall conduct all testing of electronic equipment pursuant to this contract which may acquire nonpublic communications in accordance with United States law, including specifically the provisions of 50 U.S.C. 1805(f) (1). (End of Clause) H.16 352.290-9002 USE OF NON-GOVERNMENT PERSONNEL BY THE MARYLAND PROCUREMENT OFFICE FOR CONTRACT CLOSEOUT (JUN 2001) Contractor personnel who have executed a non-disclosure agreement with this office may administratively handle documentation associated with this contract for 55 Buyer: _____ Seller: _____ closeout purposes. Your signature on this document constitutes acknowledgement and acceptance of the Maryland Procurement Office's use of contractor personnel in the administrative closeout of this contract. Documentation may include, but is not limited to, proprietary information, rate information, billing information and supporting documentation. (End of Clause) SECTION I - CONTRACT CLAUSES I.1 REFERENCED CLAUSES The following contract clause(s) pertinent to this section is/are hereby incorporated.
CLAUSE NO. TITLE - ---------- --------------------------------------------------------------- 52.202-01 DEFINITIONS (DEC 2001) 52-203-03 GRATUITIES (APR 1994) 52.203-05 COVENANT AGAINST CONTINGENT FEES (APR 1994) 52.203-06 RESTRICTIONS ON SUBCONTRACTOR SALES TO THE GOVERNMENT (JUL 1995) 52.203-07 ANTI-KICKBACK PROCEDURES (JUL 1995) 52.203-08 CANCELLATION, RECISSIION, AND RECOVERY OF FUNDS FOR ILLEGAL OR IMPROPER ACTIVITY (JAN 1997) 52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR IMPROPER ACTIVITY (JAN 1997) 52.209-06 PROTECTING THE GOVERNMENT'S INTEREST WHEN SUBCONTRACTING WITH CONTRACTORS DEBARRED, SUSPENDED, OR PROPOSED FOR DEBARMENT (JUL 1995) 52.211.05 MATERIAL REQUIREMENTS 52.211-06 BRAND NAME OR EQUAL (AUG 1999) 52.211-15 DEFENSE PRIORITY ALLOCATION REQUIREMENTS 52.215-08 ORDER OF PRECEDENCE - UNIFORM CONTRACT FORMAT (OCT 1997) 52.219-08 UTILIZATION OF SMALL BUSINESS CONCERNS (OCT 2000) 52.222-03 CONVICT LABOR (AUG 1998) 52.222-20 WALSH-HEALY PUBLIC CONTRACTS ACT (DEC 1996) 52.222-21 PROHIBITION OF SEGREGATED FACILITIES (FEB 1999) 52.222-36 AFFIRMITIVE ACTION FOR WORKERS WITH DISABILITIES (JUN 1998) 52.223-06 DRUG-FREE WORKPLACE (MAY 2001) 52.223-07 NOTICE OF RADIOACTIVE MATERIALS (JAN 1997) 52.223-14 TOXIC CHEMICAL RELEASE REPORTING (OCT 2000) 52.225-11 BUY AMERICAN ACT -- CONSTRUCTION MATERIALS UNDER TRADE AGREEMENT (MAY 2002) ) 52-233-01 DISPUTES 52-242-13 BANKRUPTCY (JUL 1995) 52-243-01 CHANGES - FIXED PRICE (AUG 1987) 52-244-02 SUBCONTRACTS (AUG 1998) 52-248-02 GOVERNMENT PROPERTY (FIXED-PRICE CONTRACTS) (DEC 1989) 52-248-23 LIMITATION OF LIABILITY (FEB 1997) 52-249-01 TERMINATION FOR CONVENIENCE OF THE GOVERNMENT (FIXED-PRICE) (SHORT FORM) (APR 1984) 52-249-08 DEFAULT (FIXED PRICE SUPPLY AND SERVICE) (APR 1984) 52-253-01 COMPUTER GENERATED FORMS (JAN 1991) 252.203.7001 DISCLOSURE OF INFORMATION (DEC 1991) 252.204.7003 CONTROL OF GOVERNMENT PERSONNEL WORK PRODUCT (APR 1992) 252.204.7004 REQUIRED CENTRAL CONTRACTOR REGISTRATION (NOV 2001) 252.208.7000 ACQUISITION FROM SUBCONTRACTORS SUBJECT TO ON-SITE INSPECTION UNDER THE INTERMEDIATE-RANGE NUCLEAR FORCES (INF) TREATY (NOV 1995) 252.223.7004 DRUG-FREE WORK FORCE (SEP 1988) 252.225.7009 DUTY-FREE ENTRY - QUALIFYING COUNTRY SUPPLIES (END PRODUCTS AND COMPONENTS) (AUG 2000) 252.225.7012 PREFERENCE FOR CERTAIN DOMESTIC COMMODITIES (APR 2002)
56 Buyer: _____ Seller: _____ 252.225.7031 SECONDARY ARAB BOYCOTT OF ISRAEL (JUN 1992) 252.227.7013 RIGHTS IN TECHNICAL DATA - NONCOMMERCIAL ITEMS (NOV 1995) 252.227.7014 RIGHTS IN NONCOMMERCIAL COMPUTER SOFTWARE AND NONCOMMERCIAL COMPUTER SOFTWARE DOCUMENTATION (JUN 1998) 252.231.7000 SUPPLEMENTAL COST PRINCIPLES (DEC 1991) 252.243.7001 PRICING OF CONTRACT MODIFICATIONS (DEC 1991) 252.243.7003 REQUESTS FOR EQUITABLE ADJUSTMENT (MAR 1998) 252.247.7028 TRANSPORTATION OF SUPPLIES BY SEA (MAY 2002) 252.251.7000 ORDERING FROM GOVERNMENT SUPPLY SOURCES (MAY 1995)

I.4 52.252-02 CLAUSES INCORPORATED BY REFERENCE (FEB 1995) This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at this/these address(es) FAR: http://www.arnet.gov/far/ DFARS: http://www.acq.osd.mil/dp/dars/dfars.html (End of Clause) SECTION J - LIST OF ATTACHMENTS J.1 LIST OF ATTACHMENTS J.1.2 KIV-7HSB Integration and Operation's Manual (Mykotronx Document). J.1.2 MOA MYK-KIV-97-01, dated 18 February 1998 (previously provided under MDA904-9B-D-C104). J.1.3 Contract Security Classification Specification, DD Form 254, dated 13 May 2002, 9 pages J.1.4 Contract Data Requirements List (CDRL) for the KIV-7HSB, DATED 29 March 2002, 4 PAGES

(End of Clause) 57 Buyer: _____ Seller: _____ ATTACHMENT I TESTING REQUIREMENTS AND PROCEDURES 1. KIV-7HSB BENCH TEST PROCEDURE (BTP-02-01) 2. KIV-7HSB BURN-IN TEST PROCEDURES (BTP-02-02) 3. KIV-7HSB FUNCTION TEST PROCEDURES (BTP-02-03) 4. KIV-7HSB REWORK TEST PROCEDURES (BTP-02-04) 58 Buyer: _____ Seller: _____ EX-31.(A) 8 a94458exv31wxay.txt EXHIBIT 31(A) Exhibit 31(a) CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Walter W. Straub, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Rainbow Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 14, 2003 RAINBOW TECHNOLOGIES, INC. By: /s/ Walter W. Straub ------------------------------ President and Chief Executive Officer EX-31.(B) 9 a94458exv31wxby.txt EXHIBIT 31(B) Exhibit 31(b) CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Patrick E. Fevery, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Rainbow Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: November 14, 2003 RAINBOW TECHNOLOGIES, INC. By: /s/ Patrick E. Fevery ----------------------------- Vice President and Chief Financial Officer EX-32.(A) 10 a94458exv32wxay.txt EXHIBIT 32(A) Exhibit 32(a) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), each of the undersigned officers of Rainbow Technologies, Inc. (the "Company"), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2003 as filed with the Securities and Exchange Commission (the "10-Q Report") that to their knowledge: (1) the 10-Q Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ WALTER W. STRAUB - ------------------------------------------- Walter W. Straub President and Chief Executive Officer November 14, 2003 /s/ PATRICK E. FEVERY - ------------------------------------------- Patrick E. Fevery Vice President and Chief Financial Officer November 14, 2003 This certification accompanies this 10-Q Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----

Exhibit

Number

Description

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Walter W. Straub, President and Chief Executive Officer and Patrick E. Fevery, Vice President and Chief Financial Officer.


Developed technology	7 years
Maintenance relationships	5 years
Tradename/trademark	5 years
Existing maintenance contracts	6 months