Flory B. Ellis, Sector Manager, Export/Import Management, Northrop Grumman Corporation

2. Hot Topics in Export Management and Contracts Flory B. Ellis, Sector Manager, Export/Import Management, Northrop Grumman Corporation August 5, 2008 1:50-2:50

3. Contracts/Subcontracts and Export Management – Working Together • Contracts is the first line of defense • Awareness of New Activities • Contractual Language • Drive Compliance • Protect the Company • Facilitate Timely Exports

4. Agenda • Contracts • Foreign Contracts • Foreign Company as a Team-Mate • Foreign entity as a Customer • USG Contracts • USG Customer • Foreign Military Sales (FMS) • Subcontracts • Foreign • Domestic • Best Practices/Take-Aways

5. Foreign Contracts Foreign Company as a Teammate

6. Non-Disclosure and Teaming Agreements • Should contain language that limits the exchanges of information in accordance with Export Compliance regulations • Protective Clauses: • Party becomes “ineligible” • Country becomes “debarred” or “embargoed”

7. Technical Assistance Agreements • With whom are we teaming? • What do we plan to exchange? • Do we plan to jointly market? To Whom? • Do they utilize subs with whom we will need to interact? • Will they be marketing our products on our behalf? Vice Versa?

8. Foreign Contracts Foreign Entity as a Customer

9. Contractual Terms • Should indicate that re-transfer/re-export of articles exported to them must be in accordance with U.S. Government regulations • Return/Repair language • Protective Clauses: • Party becomes “ineligible” • Country becomes “debarred” or “embargoed”

10. Technical Assistance Agreements • Does the Customer use any on-site Contractors with whom we will be technically exchanging? • What do we plan to exchange? • What is the duration of the Contract? • What is the VALUE of the Contract?

11. USG Contracts USG Customer

12. Interim DFAR rule • Published Jul-21-08 • Requires contractors to comply with export control laws • Requires reporting when access to export controlled information/hardware is accessed

13. Support of U.S. Customer The ONLY office authorized to approve Defense Article exports is the Directorate of Defense Trade Controls, U.S. Department of State!

14. What does this Mean? • Foreign Exchanges on behalf of out U.S. Government customer IS an Export and DOES require approval under the International Traffic in Arms Regulations (ITAR) • Foreign Disclosure Approval IS NOT Export Approval • Government-to-Government Agreements ARE NOT Export Approvals

15. How Can I Export in Support of my USG Customer? • Via Technical Assistance Agreement • Must be signed by the foreign party • Export much be within the confines of the Scope of Work and the Provisos • Via Exemption • Contract allows self certification under the ITAR • Exemption Letter is issued by the Agency/Service

16. For Example: • If your company is asked interact with a foreign party the following should be addressed: • “Are we conducting an export?” • See definitions of “export”, “technical data” and “defense services” • If the answer is “yes” then ask, “Do we have approval for this export?” • Does the Contract allow for self-certification of an ITAR Exemption? • Is there an active agreement? • Is it valid (scope, etc.)? • Are the provisos ok? • Is there an exemption letter? • Is the scope valid? • Are the limitations acceptable?

17. How can Contracts Help? • Review the RFP to Determine if there will be any foreign interaction. If YES, BEST way to address is with a specific clause in the Contract (for example): • Contractor will be required to travel outside the United States, and will be responsible for temporary imports and exports of defense articles, including technical data (loaded via hard drive, CD, etc.) and the performance of defense services in support of [Insert the name of the operation, cooperative project or sales program (e.g., Operation Iraqi Freedom, USCENTCOM CDI, JWFC]and pursuant to 22 CFR 126.4(a).  Contractor will be prepared to perform defense services and temporarily import and export to the following foreign persons: [insert all the foreign persons (e,g, UK MoD (UK), BAE (UK), Thales (France), Alenia Marconi (Italy), with the country in parenthesis]. [Or, to foreign persons within the USCENTCOM Area of Responsibility, at the express direction of and under the supervision of the USCENTCOM.]

18. How can Contracts Help? • If the Customer will NOT Accept the clause, discuss a Technical Assistance Agreement, or other options with your Empowered Official • Regulations require that a TAA identify: • All Foreign Parties who will have access to USG technical information • What (specifically) will be transferred • The duration

19. How can Contracts Help? • If there is neither a Contracts clause OR a TAA, and exemption from the Service/Agency must be obtained: • Once a determination has been made that an exemption is required: • Provide pertinent information regarding the event to SEIM • Event title, scope, location, and date (s) • Subs involved • Foreign countries / organizations involved • Will event be limited to foreign government personnel or will foreign contractors participate? • What data will be provided • Foreign disclosure required? • Classification • Will there be direct contact w/foreigners or will interface be thru USG personnel only? • Identify what will be shipped / emailed / hand-carried abroad

20. USG Contracts Foreign Military Sales

21. FMS Requirements • Sales Agreement between Governments • USG is your customer. • Consolidates international requirements for greaterproduction economy. • Assures standardization, interoperability. • Generally 120 days from Letter of Request (LOR) to Letterof Offer and Acceptance (LOA) for 80% of LOR’s. • Exports typically controlled/implemented via ITARArticle 126.6 Exemptions. • LOA and Contract must be consistently structured. • May be instances where ITAR 126.6 not applicable and a separate TAA/MLA is required. • License plan would include a schedule based on need date.

22. Subcontracts Foreign

23. Establishing the Relationship • Screening or Vetting the Supplier • Screen the Company against the USG Denied Lists especially the State Department’s Debarred List • Cannot participate with a debarred company • Non-Disclosure Agreement • Foreign source of supply, the NDA should include: • Re-Export/Re-Transfer language

24. Moving Forward with the Relationship • Strategies • Export • Import • PO or Subcontract • Export • Re-export/re-transfer language • Sales Reports Responsibility and Other Reporting Requirements • Protection against debarment/proscription • Import • INCOTERMS • Special instructions for importing

25. Subcontracts Domestic

26. Establishing the Relationship • Screening or Vetting the Supplier • Screen the Company against the USG Denied Lists especially the State Department’s Debarred List • Cannot participate with a debarred company • Non-Disclosure Agreement • Domestic source of supply, the NDA should include: • Notice of the Jurisdiction of the items to be received

27. Moving Forward with the Relationship • PO or Subcontract • Export • Registration Requirement of the Party • Information on the Jurisdiction of the items • Responsibility to comply with ALL US Export laws • If an FMS case, ensure that the appropriate FMS language is flowed down to the sub, if required • If actual exports are to take place • Responsible party for the export approvals • Protection language against debarment/proscription • Import • If actual imports are to take place: • INCOTERMSImporter of Record

28. Best Practices and Take Aways

29. Managing Contract Deliverables • Licenses and Agreements can take 1-6 months or longer depending on: • Product maturity (State-of-the-Art vs. 30 Year-Old Technology) • Previous Licensing History (Repeat vs. First Time) • Level of Data to be Provided (Operators Manual vs. Manufacturing Information) • Country of Ultimate Destination (NATO vs. Non-NATO) • Complexity of Transaction(Hardware Export vs. Software Design) • Parties to the Transaction (Military, Government, or Private) • End Use (Military vs. Civil Application) • Congressional Notification Implications

30. Other Contracting Pitfalls • Timing – the earlier Export Management is made aware of a Contract, the more able we are to assist • Do NOT assume that a U.S. Government contract does NOT have exports! • Just because your Customer said it is OK, does NOT mean that it is! • Exports can occur in the United States! • Exports can be totally intangible

31. Subcontracts • Clearly apportion compliance risks & responsibilities • Subcontracts Clauses and P.O. language • Export/Import plans • Don’t get boxed in by a supplier compliance problem • Communicate early and often regarding issues • Work together to resolve problems expeditiously • Be prepared to modify or terminate relationships • QUALIFY Second Source Suppliers!

32. Other Best Practices • Screen all parties • Periodically self-audit/assess compliance documentation • Consider whether the relationship has evolved Export Management and Contracts/Subcontracts can work together as a team to strengthen the compliance and competitiveness of their companies!

33. Back-up

34. Department of State vs. Department of Commerce State Dept Commerce Dept Commodity Jurisdiction Defense Articles, Services, and Data Commercial or Dual UseEquipment and Technology Dual Use Items

35. Definitions – Defense Article • Any item on the USML • 21 Categories • Rule of thumb – if it has been DESIGNED, MODIFIED, CONFIGURED OR RETROFITTED FOR MILITARY END-USE, it is a defense article • Examples • Seats on Light Armored Vehicles • Bathroom installations on Destroyers • Exceptions • Commercial Communications Satellites • Personal Protective Wear

36. Definitions – Export • Sending or taking a defense article out of the United States • Transferring registration, control or ownership to a foreign person of any aircraft, vessel, or satellite covered by the USML, whether in the United States or abroad • Disclosing (including oral or visual disclosure) or transferring in the United States any defense article to an embassy, any agency or subdivision of a foreign government; or • Disclosing (including oral or visual disclosure) or transferring technical data to a foreign person, whether in the United States or abroad; or • Performing a defense service on behalf of, or for the benefit of, a foreign person, whether in the United States or abroad

37. Definitions – Technical Data • Information which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles. This includes information in the form of blueprints, drawings, photographs, plans, instructions and documentation • Classified information relating to defense articles and defense services • Information covered by an invention secrecy order • Software directly related to defense articles NOTE: Does NOT include information in the public domain

38. Definitions – Public Domain • Information which is published and is generally accessible or available to the public: • Through sales at newsstands or bookstores • Through subscriptions which are available without restriction to any individual who desires to obtain or purchase the published information • Through second call mailing privileges granted by the USG • Libraries • Patent information • Through unlimited distribution at conferences, meetings, seminars, trade shows or exhibitions, generally accessible by the public • OFOISR/Public Release • Fundamental research

39. Definitions – Defense Service • The furnishing of assistance (including training) to foreign persons, whether in the United States or abroad in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles; • The furnishing to foreign persons technical data • Military training of foreign units and forces, regular and irregular, including formal or informal instructions of foreign persons in the United States or abroad or by correspondence courses, technical, educational, or information publications and media of all kinds, training aid, orientation, training exercise, and military advice

40. Definitions – US Person • A lawful permanent resident (i.e. green card holder or US citizen) • Protected individual (i.e. refugee) • Also covers corporations, business associations, partnerships, societies, trusts, or any other entity, organization or group that is incorporated to do business in the United States. • Includes USG entities

41. Definitions – Foreign Person • Any natural person who is NOT alawful permanent resident of the United States • Any person who is NOT designated a protected individual by the United States • Any foreign corporation, business association, partnership, trust, society or any other entity or group that is not incorporated or organized to do business in the United States. • Also includes international organizations, foreign governments and any agency or subdivision of foreign governments

42. Definitions – Empowered Official • A US Person who: • Is directly employed by the applicant (Northrop Grumman) or a subsidiary in a position of having authority for policy or management within the applicants organization; and • Is legally empowered in writing by the applicant to sign license applications or other requests for approval on behalf of the applicant; and • Understands the provisions and requirements of various export control statutes and regulations, and the criminal liability; civil liability and administrative penalties for violating the AECA and ITAR; and • Has the independent authority to: • Inquire into any aspect of a proposed export or temporary import by the applicant, and • Verify the legality of the transaction and the accuracy of the information to be submitted, and • Refuse to sign any license application or other request for approval without prejudice or other adverse recourse

43. Types of export approvals • DSP • DSP-5 – for the PERMANENT export of hardware or technical data • DSP-61 – for the TEMPORARY import of hardware • DSP-73 – for the TEMPORARY export of hardware • DSP-85 – CLASSIFIED • Agreements • Technical Assistance Agreement – for the transfer of technical data AND defense services • Manufacturing License Agreement – for the transfer of technical data, defense services AND manufacturing rights • Exemptions • Export approval that DOES not require a DSP or an Agreement, but DOES require that the exporter meet pre-defined criteria

44. Commonly used exemptions: • 125.4(b)(1) – Technical Data Pursuant to a written request of DOD • Technical Data, including classified information, to be disclosed pursuant to an official written request or directive from the U.S. Department of Defense • Usually accomplished through a signed letter from the USG citing the exemption • ALL limitations on the letter MUST be adhered to

45. Commonly used exemptions: • 126.4(a) • A license is not required for the temporary import, or temporary export, of any defense article, including technical data or the performance of the defense service, by or for any agency of the U.S. Government • For official use by any such agency • For carrying out any foreign assistance, cooperative project or sales program authorized by law and subject to control by the President by other means

46. Commonly used exemptions (cont.): • 126.4(a) • Usually issued by USG through a letter • All limitations outlines in the letter must be adhered to