EXHIBIT 10.12
September 5, 1997
Security Control Agreement
SECURITY CONTROL AGREEMENT
This Agreement ("this Agreement") is made this 5th day of September, 1997,
by and between MPD Technologies, Inc., a New York corporation (the
"Corporation") and the United States Department of Defense ("DoD"), both of the
above collectively, the "Parties".
RECITALS:
WHEREAS, the Corporation is duly organized and existing under the laws of
the State of New York, and is wholly-owned by Microwave Power Devices, Inc., a
Delaware corporation ("MPD"); and
WHEREAS, Charterhouse Group International, Inc. (the ("Foreign
Corporation"), is the beneficial owner of 49.54% of the common stock of MPD;
WHEREAS, the Corporation's Board of Directors currently consists of six
directors, two of whom were also officers of the Corporation, three of whom are
independent third parties, and none of whom the Foreign Corporation is entitled
to nominate;
WHEREAS, the Corporation's business consists, in part, of the research,
design, development and manufacture of defense and defense-related items for
various User Agencies1 of the United States Government, including, without
limitation, the DoD; and
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1 The Office of the Secretary of Defense (including all boards, councils,
staffs, and commands), DoD agencies, and the Departments of Army, Navy, and
Air Force (including all of their activities); the Departments of State,
Commerce, Treasury, Transportation, Interior, Agriculture, Labor, and
Justice; National Aeronautics and Space Administration; General Services
Administration; Small Business Administration; National Science Foundation;
Environmental Protection Agency; United States Arms Control and Disarmament
Agency; Federal Emergency Management Agency; Federal Reserve System; United
States Information Agency; International Trade Commission; United States
Trade Representative; and General Accounting Office (the "User Agencies").
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WHEREAS, the offices and plants of the Corporation require facility
security clearances issued under the DoD Industrial Security Program ("DISP") to
conduct the Corporation's business, and the DISP requires that a corporation
maintaining a facility security clearance be effectively insulated from foreign
ownership, control or influence ("FOCI");
WHEREAS, the purpose of this Agreement is to reasonably and effectively
insulate the Foreign Corporation (and all entities that control, are under
common control with or are controlled by the Foreign Corporation, collectively,
the "Affiliates") from unauthorized access to classified2 and controlled
unclassified information3 and from influence over the Corporation's business or
management in a manner that could result in the compromise of classified
information or could adversely affect the performance of classified contracts;
and
WHEREAS, to comply fully with the policies of DoD that require a
corporation maintaining a facility security clearance to be insulated
effectively from undue FOCI, all parties hereto have agreed that management
control of the defense and technology security affairs and classified contracts
of the Corporation should be vested in resident citizens of the United States
who have DoD personnel security clearances;(4) and
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2 For the purposes of this Agreement, the term "classified information" shall
mean any information that has been determined pursuant to Executive Order
12356 or any predecessor or successor order to require protection against
classifications TOP SECRET, SECRET, and CONFIDENTIAL are used to designate
such information.
3 For purposes of this Agreement, the term "controlled unclassified
information" shall mean information, the export of which is controlled by
the International Traffic in Arms Regulations ("ITAR") and/or the Export
Administration Regulations ("EAR").
4 For purposes of this Agreement, the term "security clearance" shall mean an
administrative determination that an individual is eligible for access to
classified information of a certain category.
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WHEREAS, in order to meet DoD's national security objectives in the matter
of the Corporation's facility security clearance and to further the
Corporation's business objectives, the Parties intent to be bound by the
provisions of this Agreement;
NOW THEREFORE, it is hereby agreed as follows:
ARTICLE I - ORGANIZATION
1.1 Composition of the Corporation's Board.
The Board of Directors of the Corporation (the "Corporation Board") shall
include at least one individual who is not and has never been employed by the
Corporation, or the Affiliates, and approved by DoD (the "Outside Director").
Except as specifically provided herein, each member of the Corporation Board,
however characterized by this Section 1.1, shall have all of the rights, powers,
and responsibilities conferred or imposed upon directors of the Corporation by
applicable statutes and regulations, and by the Corporation's Certificate of
Incorporation and by-laws. The Chairman of the Corporation Board shall be a
resident citizen of the United States and shall have had no prior involvement
through either contract or employment with the Affiliates.
1.2 Qualifications, Appointment, and Removal of Directors
1.2.1 During the period that this Agreement is in force, the
Corporation Board shall be composed as provided in Section 1.1 hereof, and
its members shall meet the following additional requirements:
a. The Outside Director shall be a resident citizen of the United
States, shall have a DoD personnel security clearance for at least the
level of the Corporation's
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facility security clearance, and shall have been approved by the
Defense Investigative Service ("DIS") as satisfying the appropriate
DoD personnel security requirements and the applicable provisions of
this Agreement.
b. In the event that the Foreign Corporation becomes entitled to
nominate a Director pursuant to the applicable provisions of an
agreement between the Corporation and the Foreign Corporation (the
"Foreign Director"), the Foreign Director shall not have a DoD
personnel security clearance for the Corporation, regardless of
citizenship, and shall be formally excluded from access to classified
information by resolution of the Corporation Board.
1.2.2 The Shareholders may remove any member of the Corporation Board
for any reason permitted by the provisions of applicable state law or the
Corporation's Certificate of Incorporation or by-laws, provided that to the
extent feasible, the Corporation shall notify DIS in advance of the removal
of the Outside Director, and provided further that any replacement for the
Outside Director shall meet the qualifications set forth in the Agreement.
1.2.3 Except as provided by this section, the obligation of a director
to abide by and enforce this Agreement shall terminate when the director
leaves office, but nothing herein shall relieve the departing director of
any responsibility that the director may have, pursuant to the laws and
regulations of the United States, not to disclose classified information or
controlled unclassified information obtained during the course of the
director's service on the Corporation Board, and such responsibility shall
not terminate by virtue of the director leaving office. The Corporation
shall advise the departing director of such responsibility when the
director leaves
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office, but the failure of the Corporation to so advise the director shall
not relieve the director of any such responsibility.
1.3 Indemnification of Outside Director
1.3.1 The Outside Director in his or her capacity as director of the
Corporation shall fulfill his or her duties in accordance with applicable
law including the New York Business Corporation Law.
1.3.2 The Corporation shall indemnify and hold harmless the Outside
Director in accordance with the terms and conditions specified in its
Certificate of Incorporation, By-laws and any indemnification agreement
that may be executed between the Corporation and the Outside Director.
ARTICLE II - OPERATION
2.1 Operation of this Agreement
The Corporation shall at all times maintain policies and practices to
ensure the safeguarding of classified information and controlled unclassified
information entrusted to it and the performance of classified contracts and
participation in classified programs for the User Agencies in accordance with
the DoD Agreement (DoD Form 441), this Agreement, appropriate contract
provisions regarding security, United States export control laws, and the DISP.
Such policies and practices shall provide that the Corporation shall exclude the
Affiliates and all members of their Boards of Directors and all officers,
employees, agents and other representatives of each of the Affiliates, as such,
from access to classified information and controlled unclassified information
entrusted to the Corporation. Such policies and practices
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with respect to the Affiliate shall be established and approved by the
Corporation Board, and shall not be repealed or amended without prior written
notice to DIS.
2.2 Defense Security Committee Compliance Programs
2.2.1 There shall be established a permanent committee of the
Corporation Board, the Defense Security Committee ("DSC"), consisting of
the Outside Director and no less than two other directors who are officers
of the Corporation and have personal security clearances. The member of the
DSC shall endeavor to ensure that the Corporation complies with the terms
and conditions of the policies and practices with respect to the Affiliates
established pursuant to Section 2.1 and shall establish such policies and
procedures, including appropriate oversight and monitoring of the
Corporation's operations, towards such end.
2.2.2 The Chairman of the DSC who shall be the Outside Director shall
designate a director to serve as Secretary of the DSC. The Secretary's
responsibility shall include ensuring that all records, journals and
minutes of DSC meetings and other documents sent to or received by the DSC
are prepared and retained for inspection by DIS.
2.2.3 A Facility Security Officer ("FSO") shall be appointed by the
Corporation and shall be the principal advisor to the DSC concerning the
safeguarding of classified information. The FSO's responsibility shall
include the operational oversight of the Corporation's compliance with the
requirements of the DISP.
2.2.4 The Corporation shall develop and implement a Technology Control
Plan ("TCP"), which shall be subject to review by DIS, and shall prescribe
measures to prevent unauthorized disclosure or export of controlled
unclassified information consistent with applicable United States laws.
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2.2.5 Upon taking office, the DSC members and the FSO shall be briefed
by a DIS representative on their responsibilities under the DISP, United
States Government export control laws, and the Agreement.
2.2.6 Each member of the DSC shall exercise all reasonable efforts to
advise as soon as possible if a member of the DSC reasonably believes a
violation of, or an attempt to violate, any provision of this Agreement,
appropriate contract provisions regarding security, United States
Government export control laws, or the DISP has occurred.
2.2.7 Each member of the DSC shall execute, for delivery to DIS, upon
accepting his or her appointment and thereafter at each annual meeting of
the Corporation with DIS as established by Section 2.4.1 of this Agreement,
a certificate acknowledging the protective measures and obligations imposed
on the Corporation by this Agreement and his or her obligations set forth
herein to enforce such measures and obligations.
2.3 Obligations and Certifications of Foreign Officers and Directors
2.3.1 The Foreign Director shall:
(a) not have access to classified information or controlled
unclassified information entrusted to the Corporation except as
permissible under the DISP and applicable United States Government
laws and regulations;
(b) neither seek nor accept classified information or controlled
unclassified information entrusted to the Corporation, except as
permissible under the DISP and applicable United States Government
laws and regulations; and
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(c) advise the DSC promptly if he or she reasonably believes (i)
any violations or attempted violations of this Agreement, appropriate
contract provisions regarding security, or United States export
control laws, or (ii) actions inconsistent with the DISP or applicable
United States Government laws or regulations, have occurred.
2.3.2 Upon accepting appointment and annually thereafter, the Foreign
Director shall execute, for delivery to DIS, a certificate affirming his or
her agreement to be bound by, and acceptance of the responsibilities
imposed by, this Agreement, and further acknowledging and affirming the
obligations set forth in 2.3.1.
2.4 Annual Review and Certification
2.4.1 Representatives of DIS, the DSC, and the FSO shall meet annually
to review the effectiveness of this Agreement and to establish a common
understanding of the operating requirements and how they will be
implemented. These meetings shall include a discussion of the following:
a. whether the Agreement is working in a manner satisfactory to
the Parties;
b. compliance or acts of noncompliance with the Agreement, DISP
rules, or other applicable laws and regulations;
c. necessary guidance or assistance regarding problems or
impediments associated with the practical application or utility of
this Agreement.
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2.4.2 The Chairman of the DSC shall submit to DIS one year from the
effective date of this Agreement and annually thereafter an implementation
and compliance report. Such reports shall include the following
information:
a. a detailed description of the manner in which the Corporation
is carrying out its obligation under the Agreement;
b. a detailed description of changes to security procedures,
implemented or proposed, relating to the Affiliates and the reasons
for those changes;
c. a detailed description of any acts of noncompliance with the
terms of this Agreement, whether inadvertent or intentional, with a
discussion of steps taken by the Corporation to prevent such acts from
occurring in the future;
d. a detailed chronological summary of all transfers of
classified or controlled unclassified information, if any, from the
Corporation to the Affiliates, complete with an explanation of the
United States Governmental authorization relied upon to effect such
transfers. Copies of approved export licenses covering the reporting
period shall be appended to the report; and
e. a discussion of any other issues that could have a bearing on
the effectiveness or implementation of this Agreement.
2.5 Visitation Policy
2.5.1 All visits to the Corporation or its U.S. subsidiaries by any
director or executive officer of the Affiliates, except the Foreign
Director, shall be reported to the FSO.
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2.5.2 A chronological record of all visit notifications made pursuant
to Section 2.5.1, including information concerning completed visits, such
as the date, place, and personnel involved, shall be maintained by the FSO
for inspection by DIS and periodically reviewed by the DSC.
ARTICLE III - DoD Remedies
3.1 DoD Rights
Nothing contained in the Agreement shall limit or affect the authority of
the head of a United States Government agency5 to deny, limit or revoke in
accordance with agency procedures and laws the Corporation's access to
classified and controlled unclassified information under its jurisdiction.
3.2 Criminal Sanctions
Nothing in this Agreement limits the right of the United States Government
to pursue criminal sanctions against the Corporation or any Affiliates, or any
director, officer, employee, representative, or agent of any of these companies,
for violations of the criminal laws of the United States in connection with
their performance of any of the obligations imposed by this Agreement, including
but not limited to any violations of the False Statements Act 18 U.S.C. 1001, or
the False Claims Act 18 U.S.C. 287.
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5 For purposes of this Agreement the term "agency" has the meaning provided
at 5 United States Code 552(f).
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ARTICLE IV - TERMINATION
4.1 Automatic Termination. This Agreement shall automatically terminate
when the Affiliates in the aggregate own less than 5% of all issued and
outstanding voting securities, determined on an aggregate basis and not as
separate classes, of the Corporation.
4.2 Other Terminations. Except as specified in Section 13.01, this
Agreement may only be terminated by DIS as follows:
a. in the event of a sale of the business or all of the Shares or a
substantially similar transaction to a company or person not under FOCI;
b. when DIS determines that existence of this Agreement is no longer
necessary to maintain a facility security clearance for the Corporation;
c. when DIS determines that continuation of a facility security
clearance for the Corporation is no longer necessary;
d. when DIS determines that there has been a material breach of this
Agreement that requires it to be terminated;
e. when DIS otherwise determines that termination is in the national
interest;
f. five (5) days from the effective date of this Agreement if, at
least ninety (90) days before that date, the Corporation petitions DIS to
terminate this Agreement; and
g. when the Corporation for any reason and at any time, petitions DIS
to terminate this Agreement. However, DIS has the right to receive
disclosure of the reason or reasons therefor, and has the right to
determine, in its sole discretion based on a determination of the national
security interests of the United States, whether such petition should be
granted.
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4.3 Notice of Other Terminations. If DIS determines that this Agreement
should be terminated for any reason, DIS shall provide the Corporation with
thirty (30) days written advance notice of its intent and reasons therefor.
4.4 Standard for Other Terminations. DIS is expressly prohibited from
causing a continuation of this Agreement for any reason other than the national
security of the United States.
ARTICLE V- MISCELLANEOUS
5.1 All notices required or permitted to be given to the Parties to this
Agreement shall be in writing and shall be deemed given three business days
after being mailed in a postpaid envelope, via registered or certified mail,
upon receipt if given by hand delivery or facsimile, (answerback received) or
one business day after being given a reputable overnight courier, addresses
shown below, or to such other addresses as the Parties may designate from time
to time pursuant to this Section:
For the Corporation: MPD Technologies, Inc.
00 Xxxxxxxx Xxxx.
Xxxxxxxxx, XX 00000
For Dis: Defense Investigative Service
0000 Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxx 00000-0000
5.2 Order of Precedence. In the event that any resolution or by-law of any
of the Parties is found to be inconsistent with any provision hereof, the terms
of this Agreement shall control, to the extent the applicable law permits such
substitution by contract.
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5.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States laws, and to the extent not
inconsistent with the laws of the State of New York.
5.4 Location of Agreement. Until the termination of this Agreement, one
original counterpart shall be kept at the principal office of the Corporation.
5.5 Execution in Counterpart. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and all of such
counterparts shall together constitute but one and the same instrument.
5.6 Amendment of Agreement. This Agreement may be amended by an agreement
in writing executed by all Parties.
IN WITNESS WHEREOF, the Parties hereto have fully executed this Agreement
as of the date and year first above written.
/s/ Xxxxxxxx X. Xxxxxx By /s/ Xxxx X. Xxxxxxxx
---------------------------- ----------------------------------
Signature of Witness Name: Xxxx X. Xxxxxxxx
Title: V.P. Finance/CFO
FOR THE CORPORATION
/s/ Xxxxxx X. Xxxxx By /s/ Xxxxxx X. Xxxxx
---------------------------- ----------------------------------
Signature of Witness Name: Xxxxxx X. Xxxxx
Title: Xxxxx Xxxxxx Xxxxx, XXX, X00XX
Mid-Atlantic Operating Location
FOR THE DEPARTMENT OF DEFENSE
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SECURITY CONTROL AGREEMENT CERTIFICATE
I acknowledge that in my capacity as a representative of Charterhouse Group
International, Inc., I, Xxxxxx X. Xxxxxxx, have been excluded from access to
classified information and export-controlled technical data in the possession of
MPD Technologies, Inc. in accordance with the terms of a resolution by the Board
of Directors of Microwave Power Devices, Inc. & Subsidiary (MPD Technologies,
Inc.) dated 9/5/97 and the Security Control Agreement entered into between MPD
Technologies, Inc. and the United States Department of Defense, dated 9/5/97 .
I certify that:
1. I have waived any right to have access to classified information and
export-controlled technical data held by MPD Technologies, Inc. except as
permissible under the DoD Industrial Security Manual, DoD 5220.22M, the National
Industrial Security Program Operating Manual ("NISPOM") and any successor
regulation and applicable United States laws and regulations;
2. I will not adversely influence MPD Technologies, Inc. classified contracts or
programs or corporate policies regarding the security of classified information
and export-controlled technical data;
3. I will not seek and have not obtained classified information or
export-controlled technical data in the possession of MPD Technologies, Inc.
except as permissible under the DoD Industrial Security Manual, DoD 5220.22M,
NISPOM and any successor regulation and applicable United States laws and
regulations;
4. If I become aware of any violations of the Security Control Agreement or
contract provisions regarding industrial security or actions inconsistent with
the DoD Industrial Security Manual, NISPOM or applicable United States laws or
regulations, I will promptly notify the MPD Technologies, Inc. Defense Security
Committee established by subsection 2.2 of the Security Control Agreement.
Dated: 9/5/97
/s/ Xxxxxx X. Xxxxxxx
------------------------------------------
Xxxxxx X. Xxxxxxx, Chairman
Witness: Charterhouse Group International, Inc.
/s/ Xxxxxxxxx X. Xxxxxx
------------------------------
Xxxxxxxxx X. Xxxxxx
(Named Typed or Printed)
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SECURITY CONTROL AGREEMENT CERTIFICATE
I acknowledge that in my capacity as a representative of Charterhouse Group
International, Inc., I, A. Xxxxxxxx Xxxxx, have been excluded from access to
classified information and export-controlled technical data in the possession of
MPD Technologies, Inc. in accordance with the terms of a resolution by the Board
of Directors of Microwave Power Devices, Inc. & Subsidiary (MPD Technologies,
Inc.) dated 9/5/97 and the Security Control Agreement entered into between MPD
Technologies, Inc. and the United States Department of Defense, dated 9/5/97 .
I certify that:
1. I have waived any right to have access to classified information and
export-controlled technical data held by MPD Technologies, Inc. except as
permissible under the DoD Industrial Security Manual, DoD 5220.22M, the National
Industrial Security Program Operating Manual ("NISPOM") and any successor
regulation and applicable United States laws and regulations;
2. I will not adversely influence MPD Technologies, Inc. classified contracts or
programs or corporate policies regarding the security of classified information
and export-controlled technical data;
3. I will not seek and have not obtained classified information or
export-controlled technical data in the possession of MPD Technologies, Inc.
except as permissible under the DoD Industrial Security Manual, DoD 5220.22M,
NISPOM and any successor regulation and applicable United States laws and
regulations;
4. If I become aware of any violations of the Security Control Agreement or
contract provisions regarding industrial security or actions inconsistent with
the DoD Industrial Security Manual, NISPOM or applicable United States laws or
regulations, I will promptly notify the MPD Technologies, Inc. Defense Security
Committee established by subsection 2.2 of the Security Control Agreement.
Dated: 9/5/97
/s/ A. Xxxxxxxx Xxxxx
--------------------------------------
A. Xxxxxxxx Xxxxx, President
Witness: Charterhouse Group International, Inc.
/s/ Xxxxx X. Xxxxxxx
------------------------------
Xxxxx X. Xxxxxxx
(Named Typed or Printed)
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DEFENSE SECURITY COMMITTEE MEMBER CERTIFICATE
By execution of this Certificate, I acknowledge the protective security
measures that have been taken by MPD Technologies, Inc. through resolutions
dated 9/5/97 to implement the Security Control Agreement (the "Agreement"),
copies of which are attached.
I further acknowledge that the United States Government has placed its
reliance on me as a United States citizen and as a holder of a personnel
security clearance to exercise all appropriate aspects of the Agreement; to
assure that members of the MPD Technologies, Inc. Board of Directors, MPD
Technologies, Inc. officers, and MPD Technologies, Inc. employees comply with
the provisions of the Agreement; and to assure that the Defense Investigative
Service is advised of any violation of, or attempt to violate, any undertaking
in the Agreement, appropriate contract provisions regarding security, the DoD
Industrial Security Manual, DoD 5220.22-M, or the National Industrial Security
Program or any successor regulation, of which I am aware.
Dated: 9/5/97
/s/ Xxxxxx X. Xxxxxxxx
----------------------------
Signature
Xxxxxx X. Xxxxxxxx, Chairman
Name Printed or Typed
MPD Technologies, Inc.
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DEFENSE SECURITY COMMITTEE MEMBER CERTIFICATE
By execution of this Certificate, I acknowledge the protective security
measures that have been taken by MPD Technologies, Inc. through resolutions
dated 9/5/97 to implement the Security Control Agreement (the "Agreement"),
copies of which are attached.
I further acknowledge that the United States Government has placed its
reliance on me as a United States citizen and as a holder of a personnel
security clearance to exercise all appropriate aspects of the Agreement; to
assure that members of the MPD Technologies, Inc. Board of Directors, MPD
Technologies, Inc. officers, and MPD Technologies, Inc. employees comply with
the provisions of the Agreement; and to assure that the Defense Investigative
Service is advised of any violation of, or attempt to violate, any undertaking
in the Agreement, appropriate contract provisions regarding security, the DoD
Industrial Security Manual, DoD 5220.22-M, or the National Industrial Security
Program or any successor regulation, of which I am aware.
Dated: 9/5/97
/s/ Xxxxxx X. Xxxxxx
-------------------------------
Signature
Xxxxxx X. Xxxxxx, President/CEO
Name Printed or Typed
MPD Technologies, Inc.
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DEFENSE SECURITY COMMITTEE MEMBER CERTIFICATE
By execution of this Certificate, I acknowledge the protective security
measures that have been taken by MPD Technologies, Inc. through resolutions
dated 9/5/97 to implement the Security Control Agreement (the "Agreement"),
copies of which are attached.
I further acknowledge that the United States Government has placed its
reliance on me as a United States citizen and as a holder of a personnel
security clearance to exercise all appropriate aspects of the Agreement; to
assure that members of the MPD Technologies, Inc. Board of Directors, MPD
Technologies, Inc. officers, and MPD Technologies, Inc. employees comply with
the provisions of the Agreement; and to assure that the Defense Investigative
Service is advised of any violation of, or attempt to violate, any undertaking
in the Agreement, appropriate contract provisions regarding security, the DoD
Industrial Security Manual, DoD 5220.22-M, or the National Industrial Security
Program or any successor regulation, of which I am aware.
Dated: 9/5/97
/s/ Xxxxxx Xxxxx
----------------------------
Signature
Xxxxxx Xxxxx, Director
Name Printed or Typed
MPD Technologies, Inc.
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