<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-36447
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FEDERAL DATA CORPORATION
<TABLE>
<S> <C> <C>
DELAWARE 5045 52-0940566
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
<TABLE>
<S> <C> <C>
FDCT Corp. Delaware 52-1950796
FDC Technologies, Inc. Delaware 52-1801937
DoxSys, Inc. Delaware 52-1799055
NYMA, Inc. Maryland 52-1127149
VAD International, Inc. Maryland 52-1982445
Sylvest Management Systems Corporation Maryland 52-1550631
</TABLE>
4800 HAMPDEN LANE
BETHESDA, MARYLAND 20814
(301) 986-0800
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
JAMES M. DEAN
FEDERAL DATA CORPORATION
4800 HAMPDEN LANE
BETHESDA, MARYLAND 20814
(301) 986-0800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT OF SERVICE)
COPIES TO:
MARK A. STEGEMOELLER
LATHAM & WATKINS
SEARS TOWER, SUITE 5800
CHICAGO, ILLINOIS 60606
(312) 876-7700
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
10 1/8% Senior Subordinated Notes
due 2005...................................... $105,000,000 100% $105,000,000 $31,818
Subsidiary Guarantees of the 10 1/8% Senior
Subordinated Notes due 2005................... -- -- -- (2)
</TABLE>
(1) Estimated solely for the purposes of calculating the amount of the
registration fee pursuant to Rule 457.
(2) Pursuant to Rule 457(n), no separate registration fee is payable with
respect to the subsidiary guarantees.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ------------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page Prospectus................................. Outside Front Cover Page; Cross Reference Sheet; Inside
Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front Cover Page; Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed Charges and
other Information..................................... Prospectus Summary; Risk Factors; Selected Unaudited Pro
Forma Consolidated Financial Information; Selected
Consolidated Historical Financial Data of Federal Data
Corporation
4. Terms of the Transaction................................ The Exchange Offer; Certain Federal Income Tax
Considerations; Plan of Distribution; Description of
Notes
5. Pro Forma Financial Information......................... Consolidated Financial Statements
6. Material Contacts with the Company Being Acquired....... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters......... Not Applicable
8. Interests of Named Experts and Counsel.................. Not Applicable
9. Disclosure of Commission Position on Indemnification for
Securities Act
Liabilities........................................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants............. Not Applicable
11. Incorporation of Certain Information by Reference....... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants...... Nor Applicable
13. Incorporation of Certain Information by Reference....... Not Applicable
14. Information with Respect to Registrants Other Than S-3
or S-2 Registrants.................................... Prospectus Summary; Risk Factors; The Exchange Offer;
The Recapitalization and the Transactions; Use of
Proceeds; Capitalization; Selected Unaudited Pro Forma
Consolidated Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Management; Principal
Stockholders; Certain Transactions; Description of
Certain Indebtedness; Description of Notes; Financial
Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ------------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
C. INFORMATION ABOUT THE COMPANY TO BE ACQUIRED
15. Information with Respect to S-3 Companies............... Not Applicable
16. Information with Respect to S-2 or S-3 Companies........ Not Applicable
17. Information with Respect to Companies Other Than S-2 or
S-3 Companies......................................... Not Applicable
D. VOTING AND MANAGEMENT
18. Information if Proxies, Consents or Authorizations are
to be Solicited....................................... Not Applicable
19. Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer........... Management; Certain Transactions; Principal Stockholders
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
OFFER TO EXCHANGE
10 1/8% SENIOR SUBORDINATED NOTES DUE 2005 (THE "EXCHANGE NOTES")
FOR ALL OUTSTANDING 10 1/8% SENIOR SUBORDINATED NOTES DUE 2005 (THE "PRIVATE
NOTES")
OF
FEDERAL DATA CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
UNLESS EXTENDED.
------------------------------
Federal Data Corporation ("FDC") is offering (the "Exchange Offer"), upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$1,000 principal amount of its 10 1/8% Senior Subordinated Notes Due 2005 (the
"Exchange Notes"), which exchange has been registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a registration statement
of which this Prospectus is a part (the "Registration Statement"), for each
$1,000 principal amount of its outstanding 10 1/8% Senior Subordinated Notes Due
2005 (the "Private Notes"), of which $105,000,000 in aggregate principal amount
was issued on July 25, 1997 and is outstanding as of the date hereof. The form
and terms of the Exchange Notes are the same as the form and terms of the
Private Notes except that (i) the exchange will have been registered under the
Securities Act, and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to certain rights of holders of the Private Notes under the
Registration Rights Agreement (as defined), which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be entitled to
the benefits of the Indenture (as defined). The Private Notes and the Exchange
Notes are sometimes referred to herein collectively as the "Notes." See "The
Exchange Offer" and "Description of Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at the
rate of 10 1/8% per annum and the interest thereon will be payable semi-annually
on February 1 and August 1 of each year, commencing February 1, 1998. The
Exchange Notes will bear interest from and including the date of issuance of the
Private Notes (July 25, 1997). Holders whose Private Notes are accepted for
exchange will be deemed to have waived the right to receive any interest accrued
on the Private Notes.
The Exchange Notes will be general unsecured obligations of FDC and will be
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of FDC including obligations under the New Senior Credit Facility
(as defined) and rank PARI PASSU with other senior subordinated indebtedness of
FDC. Pursuant to the terms of the Indenture, the Exchange Notes will be fully
and unconditionally guaranteed (the "Subsidiary Guarantees") by each of FDC's
wholly owned subsidiaries (collectively, the "Subsidiary Guarantors") for so
long as such subsidiaries guarantee FDC's obligations under the New Senior
Credit Facility. The Subsidiary Guarantees will be general unsecured obligations
of the Subsidiary Guarantors and will be subordinated in right of payment to all
existing and future Guarantor Senior Indebtedness (as defined). At September 30,
1997, FDC had $7.5 million of Senior Indebtedness (representing revolving line
of credit borrowings of $3.5 million and $4.0 million of undrawn letters of
credit) and $113.0 million of senior subordinated indebtedness outstanding and
the Subsidiary Guarantors had $8.2 million of Guarantor Senior Indebtedness
outstanding (excluding guarantees of indebtedness under the New Senior Credit
Facility). The Subsidiary Guarantors also had $11.0 million of secured
nonrecourse notes and nonrecourse obligations under capital leases. As a result
of the Subsidiary Guarantees, the Notes are not subordinated to obligations of
the Guarantors that are not Guarantor Senior Indebtedness. But see "Risk
Factors--Fraudulent Conveyance; Preferential Transfer."
The Exchange Notes are redeemable in whole or in part, at the option of FDC,
on or after August 1, 2001, at the redemption prices set forth herein plus
accrued and unpaid interest, if any, to the date of redemption. In addition, at
any time, or from time to time, on or prior to August 1, 2000, FDC, at its
option, may redeem up to 35% of the aggregate principal amount of the Exchange
Notes originally issued in the Offering, as described herein, with the net cash
proceeds received from one or more Public Equity Offerings (as defined) by FDC
at the redemption prices set forth herein plus accrued and unpaid interest, if
any, to the date of redemption; PROVIDED that at least 65% of the original
aggregate principal amount of the Exchange Notes remains outstanding after any
such redemption. The Exchange Notes will also be redeemable by FDC in the event
of a Change in Control (as defined) at any time prior to August 1, 2001, at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium (as defined) plus accrued and unpaid interest, if any, to the
date of redemption. In the event of a Change of Control, if FDC does not redeem
all of the outstanding Exchange Notes, (i) FDC will have the option, at any time
on or prior to August 1, 2000, to redeem the Exchange Notes in whole but not in
part, at a redemption price equal to 100% of the principal amount thereof, plus
the Applicable Premium (as defined) as of, and accrued and unpaid interest, if
any, to the date of redemption, and (ii) if FDC does not so redeem the Exchange
Notes, each holder of Exchange Notes will have the right to require FDC to
repurchase all or any part of such Holder's Exchange Notes at a price equal to
101% of the principal amount thereof, plus accrued interest to the date of
purchase. Certain of FDC's Senior Indebtedness, including indebtedness under the
New Senior Credit Facility, contain provisions requiring repayment upon a Change
of Control and there can be no assurance that FDC would have sufficient funds to
satisfy its obligations under such other indebtedness or to repurchase all
Exchange Notes tendered upon a Change of Control. In addition, FDC will be
obligated to offer to purchase Exchange Notes at 100% of their principal amount,
plus accrued and unpaid interest, if any, thereon to the date of purchase in the
event of certain asset sales.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
FDC will accept for exchange any and all validly tendered private notes not
withdrawn prior to 5:00 p.m., New York City time, on , 1997, unless
the Exchange Offer is extended by FDC in its sole discretion (the "Expiration
Date"). Tenders of private notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the expiration date. The Exchange Offer is not
conditioned upon any minimum principal amount of private notes being tendered
for exchange. Private notes may be tendered only in integral multiples of
$1,000. The Exchange Offer is subject to certain customary conditions. See "The
Exchange Offer--Conditions."
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
The date of this Prospectus is , 1997
<PAGE>
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, FDC believes that the Exchange Notes issued pursuant to the Exchange
Offer in exchange for Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) a broker-dealer who
purchases such Exchange Notes directly from FDC to resell pursuant to Rule 144A
or any other available exemption under the Securities Act or (ii) a person that
is an affiliate of FDC within the meaning of Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions of
the Securities Act; PROVIDED that the holder is acquiring the Exchange Notes in
the ordinary course of its business and is not participating, and had no
arrangement or understanding with any person to participate, in the distribution
of the Exchange Notes. Holders of Private Notes wishing to accept the Exchange
Offer must represent to FDC, as required by the Registration Rights Agreement,
that such conditions have been met. FDC believes that, to its knowledge, none of
the registered holders of the Private Notes is an affiliate (as such term is
defined in Rule 405 under the Securities Act) of FDC.
Prior to the Exchange Offer, there has been no public market for the Private
Notes. FDC does not intend to list the Exchange Notes on any securities exchange
or to seek approval for quotation through any automated quotation system. There
can be no assurance that an active market for the Exchange Notes will develop.
To the extent that a market for the Exchange Notes does develop, the market
value of the Exchange Notes will depend on market conditions (such as yields on
alternative investments), general economic conditions, FDC's financial condition
and certain other factors. Such conditions might cause the Exchange Notes, to
the extent that they are traded, to trade at a significant discount from face
value. See "Risk Factors--Absence of Public Market."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer may be deemed to be an
"underwriter" within the meaning of the Securities Act. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Private Notes where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. FDC has indicated its intention to make
this Prospectus (as it may be amended or supplemented) available to any
broker-dealer for use in connection with any such resale for the period required
by the Securities Act. See "Plan of Distribution."
FDC will not receive any proceeds from, and has agreed to bear the expenses
of, the Exchange Offer. No underwriter is being used in connection with this
Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL FDC ACCEPT SURRENDERS FOR
EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FDC.
NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A
2
<PAGE>
PROSPECTUS IN CONNECTION THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM. FDC
EXPECTS THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
ISSUED IN THE FORM OF ONE OR MORE FULLY REGISTERED GLOBAL NOTES THAT WILL BE
DEPOSITED WITH, OR ON BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC" OR THE
"DEPOSITARY") AND REGISTERED IN ITS NAME OF CEDE & CO., AS ITS NOMINEE.
BENEFICIAL INTERESTS IN THE GLOBAL NOTE REPRESENTING THE EXCHANGE NOTES WILL BE
SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, RECORDS
MAINTAINED BY THE DEPOSITARY AND ITS PARTICIPANTS. AFTER THE INITIAL ISSUANCE OF
SUCH GLOBAL NOTE, EXCHANGE NOTES IN CERTIFICATED FORM WILL BE ISSUED IN EXCHANGE
FOR THE GLOBAL NOTE IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THE
INDENTURE. SEE "DESCRIPTION OF NOTES--BOOK ENTRY, DELIVERY AND FORM."
NOTICE REGARDING FORWARD-LOOKING INFORMATION
This Prospectus includes "forward looking statements," which are identified
by the use of forward-looking words or phrases including, but not limited to,
"intended," "will," "should," "may," "strategically positioned," "expects,"
"expected," "anticipates," and "anticipated." These forward looking statements
are based on the Company's current expectations. All statements other than
statements of historical facts included in this Prospectus, including those
regarding market trends, the Company's financial position, business strategy,
projected costs, and plans and objectives of management for future operations,
are forward looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, there
can be no assurance that such expectations will prove to have been correct.
Because forward-looking statements involve risks and uncertainties, the
Company's actual results could differ materially. Important factors that could
cause actual results to differ materially from the Company's expectations
("Cautionary Statements') are disclosed under "Risk Factors," and elsewhere in
this Prospectus including, without limitation, in conjunction with the
forward-looking statements included in this Prospectus. These forward-looking
statements represent the Company's judgment as of the date of this Prospectus.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements. The Company disclaims, however, any
intent or obligation to update its forward-looking statements.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. AS USED IN THIS PROSPECTUS, ALL REFERENCES TO THE COMPANY INCLUDE,
UNLESS THE CONTEXT INDICATES OTHERWISE, FEDERAL DATA CORPORATION ("FDC") AND ITS
SUBSIDIARIES AFTER GIVING EFFECT TO THE ACQUISITIONS OF NYMA, INC. ("NYMA") IN
MAY 1997 (THE "NYMA ACQUISITION") AND SYLVEST MANAGEMENT SYSTEMS CORPORATION
("SYLVEST") IN JUNE 1997 (THE "SYLVEST ACQUISITION") (COLLECTIVELY, THE
"ACQUISITIONS"). ALL REFERENCES IN THE PROSPECTUS TO "PRO FORMA" INFORMATION,
UNLESS OTHERWISE INDICATED, ARE PRO FORMA FOR THE ACQUISITIONS, THE APPLICATION
OF THE PROCEEDS OF THE OFFERING OF THE PRIVATE NOTES AND ENTRY INTO A NEW SENIOR
CREDIT FACILITY (THE "NEW SENIOR CREDIT FACILITY") (COLLECTIVELY, THE
"TRANSACTIONS").
THE COMPANY
The Company is a major supplier of information technology to a wide range of
customers within the U.S. Federal Government (the "Government"). The Company has
assembled, through internal growth and strategic acquisitions, comprehensive
information technology product and services capabilities to address
the unique needs of its Government clients. Management believes that the Company
is strategically positioned to benefit from the current trends in the Government
market for information technology and outsourcing of technical and professional
services. The Government is among the world's largest purchasers of information
technology with estimated total expenditures in fiscal 1997 in excess of $26
billion according to estimates prepared by Federal Sources, Inc. For the year
ended December 31, 1996 and the nine months ended September 30, 1997, the
Company's total pro forma revenues were $332.8 million and $308.7 million,
respectively, and total pro forma EBITDA (as defined herein) was $23.3 million
and $10.3 million, respectively.
Founded in 1969, the Company serves a diverse and expanding customer base
representing over 20 Government agencies including the National Aeronautics and
Space Administration ("NASA"), the Federal Aviation Administration (the "FAA"),
the National Institutes of Health (the "NIH"), the Department of Defense (the
"DoD"), the Veterans Benefit Administration (the "VBA") and the Department of
State. In addition, the Company has longstanding relationships with many of its
key clients, with agencies served by the Company for five or more years
accounting for more than half of the Company's pro forma revenues in 1996.
Management believes that the Company's established reputation and long-standing
relationships with Government customers, and the extensive knowledge gained from
those relationships, have been critical to the Company's strong record of growth
and provide a key competitive advantage in pursuing business opportunities with
new and existing customers.
Consistent with its strategy of providing a complete range of information
technology offerings to its Government customers, the Company has pursued
strategic acquisitions to broaden and strengthen key skill areas. In May 1997,
the Company purchased NYMA, a provider of sophisticated engineering and
information technology services. NYMA complemented and significantly expanded
the Company's core capabilities in the technology and engineering services
sector, providing the Company with the ability to bid effectively on new
contracts with a higher component of technical services requirements. In June
1997, the Company acquired Sylvest, a value-added reseller and integrator of
commercial off-the-shelf ("COTS") hardware, software and technical services
supporting open systems architectures within the Government marketplace. Through
the Sylvest Acquisition, the Company has become a leading reseller of COTS
hardware and software to the Government and has substantially expanded the
number of customers to which it can market its systems integration and services
offerings.
The Acquisitions have significantly enhanced the Company's presence in the
Government marketplace. Based on a recent survey, on a pro forma basis, the
Company would have been the 25th largest information technology contractor to
the Government in 1996. Management believes the information technology industry,
particularly the portion serving Government customers, has consolidated and will
4
<PAGE>
continue to consolidate, resulting in additional opportunities for the Company
to make attractive acquisitions that complement or expand its core capabilities.
A substantial portion of the Company's revenues are derived from integrated
technology solutions, which include both a technical services component and the
resale of COTS hardware and software. Management believes that its ability to
bundle products and services gives it a significant competitive advantage over
competitors who offer only products or services. The Company is organized into
four operating groups:
- THE SYSTEMS INTEGRATION GROUP provides large-scale, integrated information
technology systems customized to meet the unique needs of individual
customers. These systems are typically delivered through multi-year,
technically complex data processing projects that entail the application
and integration of leading-edge technology of multiple vendors. The
Company delivers systems integration services and provides required COTS
hardware and software as both a prime contractor and a subcontractor
across a broad range of Government opportunities.
- THE SERVICES GROUP provides information technology services, including
program management, software development and software maintenance
functions, to various Government agencies and prime contractors. The
Services Group also provides engineering support to NASA, the FAA and
other Government agencies in the areas of aeromechanics, aerospace
technology, space experimentation, structures, materials, instrumentation
and aeronautics. The Company has also recently been awarded contracts to
provide these services to private industry on a selected basis. The
Company substantially enhanced its services capabilities through the NYMA
Acquisition.
- THE SOLUTIONS GROUP provides information technology solutions designed to
address six discrete customer needs: document management, Microsoft
consulting, executive management consulting, point-of-sale systems
implementations, electronic commerce and training. These projects usually
are smaller scale and involve a higher content of pre-packaged systems or
specialized subject matter consulting than those of the Systems
Integration Group. In providing these solutions, the Company combines its
in-house technical expertise with its ability to provide COTS products
from multiple vendors.
- THE PRODUCT SALES GROUP is the Company's principal product resale unit and
focuses on the sale of workstations, servers and enterprise networking
hardware. Product sales are also made through the Systems Integration and
Solutions Groups, which resell hardware and software in connection with
their services engagements. Along with providing a broad range of top
quality products through its supplier and teaming relationships with
leading hardware and software manufacturers, the Company adds value for
its customers through its extensive knowledge of the Government
procurement process and through its integration, technical support and
implementation services. The Company substantially enhanced its product
reselling operations through the Sylvest Acquisition.
Management believes that the Company's expertise in both technical services
and product resales distinguishes it from most of its competitors and provides
it with significant cross-selling opportunities that support the Company's
growth strategy.
BUSINESS STRENGTHS
The Company attributes its growth and performance to several factors,
including the following:
- EXTENSIVE KNOWLEDGE OF CUSTOMERS. Through its experience on numerous
Government contracts since 1969, the Company has acquired an in-depth
knowledge of Government contracting and procurement rules and regulations
and of the unique information technology needs of its Government
customers. The Company's experience in the Government marketplace helps it
to anticipate a Government agency's needs, to fashion solutions
appropriate to the agency's infrastructure and
5
<PAGE>
personnel and to guide the agency's personnel through the Government
buying process, which has undergone significant change in recent years.
- STRONG POSITION IN AN ATTRACTIVE AND GROWING MARKET. The Government
market for information technology products and services is large and has
experienced significant growth. Federal Sources, Inc. estimates Government
spending in this area to be in excess of $26 billion in 1997 and forecasts
such spending to grow at 6-8% annually over the next five years. In
addition, the General Services Administration (the "GSA") anticipates a
continuation of the trend toward increased Government use of outside
information technology providers and estimates that 65% of all Government
agencies operating in-house data systems may eventually outsource
information technology services to the private sector at an estimated cost
savings of 25% to 30%.
- TECHNOLOGICAL EXPERTISE. Through its experience in offering a complete
package of technology products and services, the Company has developed a
high level of technological expertise. Core information technology
competencies include systems integration, engineering services, software
engineering, high end workstations and servers, networking products,
internet solutions, document management workflow systems and complex
project management. These core competencies allow the Company to bid
successfully on a wide range of contracts. Management believes the
Company's expertise and training programs contribute to employee and
customer loyalty.
- EXTENSIVE TEAMING RELATIONSHIPS WITH SUPPLIERS. The Company maintains
strong relationships with many of its key suppliers. These relationships
allow the Company to work with these suppliers to fashion joint solutions
for its customers. Management believes that the Company provides
significant value to its suppliers by allowing them to take advantage of
the Company's extensive knowledge of the Government and its procurement
regulations. In addition, the Company's sales and marketing capabilities
allow its suppliers to access new end-user markets without expanding their
marketing functions. The Company currently has relationships with most
leading hardware and software suppliers.
- STRONG MANAGEMENT TEAM AND INVESTOR BASE. The Company has a highly
experienced and committed management team that has successfully expanded
the Company's business and led the Company's diversification into
additional service and product markets. The Company's senior management
team averages over 11 years experience with the Company and over 23 years
experience in the industry. The Carlyle Group (including its affiliates,
"Carlyle"), the Company's principal stockholder, has supported the
Company's acquisition strategy and provided a critical source of equity
capital for the implementation of the Company's growth strategy.
BUSINESS AND GROWTH STRATEGY
The Company's goal is to be a leading one-stop information technology
solutions supplier, providing high-quality products and services that meet the
complete needs of its Government client base. The Company's strategies to meet
this objective are the following:
- CREATE COMPREHENSIVE SKILL AND PRODUCT BASE. The Company seeks to
continuously add new information technology capabilities and strategically
expand existing business areas to meet the changing information technology
needs and buying patterns of its clients. By expanding its extensive
technical skill base and ability to supply a broad and diverse set of COTS
hardware and software, the Company can provide its customers with the
widest possible range of cost effective solutions and engender a high
level of customer satisfaction. Management believes that such
capabilities, together with the Company's in-depth knowledge of changing
Government procurement practices, should continue to create new
opportunities for the Company.
- STRONG CUSTOMER KNOWLEDGE AND FOCUS. The Company strives to understand
the full range of each of its customers' information technology needs. The
Company's strategy is to continue to leverage its strong customer
knowledge, advanced technical skills and supplier relationships to tailor
optimal
6
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solutions to its customers' specific needs and to offer technology
infrastructures that anticipate its customers' rapidly evolving needs.
- PURSUE STRATEGIC ACQUISITIONS. The Company seeks to continue expanding
the breadth and quality of the information technology products and
services it offers. The recently completed acquisitions of NYMA and
Sylvest have added important complementary skills to the Company's
information technology capabilities. Management expects to continue to
pursue strategic acquisitions which it believes can contribute
significantly to the Company's future business growth.
- MAXIMIZE FLEXIBILITY OF GOVERNMENT CUSTOMERS. A key component of the
Company's success has been its ability to quickly adapt to the rapidly
evolving Government procurement process. The Company continually pursues
means of maximizing its customers' flexibility in acquiring a range of
products and services with competitive prices and minimal bureaucratic
delay by selecting the best acquisition methods available in the current,
more streamlined procurement climate.
- CAPITALIZE ON OUTSOURCING OPPORTUNITIES. The Company seeks to pursue new
opportunities created by changes in the Government information technology
industry. In particular, although the Government has frequently hired
service providers to fill specific roles in the past, the Government is
increasingly considering opportunities to outsource entire functions to
private industry. The Company intends to leverage its client
relationships, technical skills and access to COTS hardware and software
to pursue these opportunities.
THE INVESTOR
The Carlyle Group, a Washington D.C.-based private merchant bank founded in
1987, became the Company's controlling stockholder in a 1995 recapitalization of
the Company. Carlyle and its affiliates currently manage a $1.3 billion private
equity fund. Carlyle has made over 30 investments in select industries including
aerospace, defense, information technology and related services. Some of these
investments include BDM International, Inc. (NASDAQ: BDMI), a multinational
information technology company; Magnavox Electronic Systems Company, an
electronics systems supplier to the Government and prime contractors (later sold
to Hughes Electronics); Howmet Corporation, a leading supplier of investment
cast turbine engine components for the jet aircraft and industrial gas power
generation markets; and GDE Systems Inc., a leading supplier of mission planning
and information systems as well as test equipment to the Government and prime
contractors (later sold to Tracor, Inc.); Power Paragon Inc., a leading supplier
of power distribution systems to the U.S. government and prime contractors
(later sold to SPD Inc.); and Vought Aircraft Company, a leading supplier of
major aircraft structures and subassemblies for commercial and military aircraft
(later sold to Northrop Grumman Corporation).
THE RECAPITALIZATION AND THE TRANSACTIONS
Prior to December 1, 1995, a substantial majority of the Company's common
stock was owned by its employees. On December 1, 1995, the Company effected a
recapitalization, through which FDC Holdings, Inc. ("Holdings") merged with and
into the Company with the Company continuing as the surviving corporation (the
"Recapitalization"). Holdings was a company organized by Carlyle to facilitate
the Recapitalization and had no operating activity or history. Upon consummation
of the Recapitalization, Holdings received 85.4% of the Company's common stock
and 14.6% was retained by members of Company management who were shareholders
prior to the Recapitalization. The Recapitalization resulted in a charge to
stockholders' equity of $58.8 million to reflect redemption of certain common
stock.
The Company financed the Recapitalization through proceeds from term loans
of $35.0 million, borrowings of approximately $6.5 million under its prior
senior credit facility (the "Prior Senior Credit Facility"), issuance of $7.0
million in the Company's notes (the "FDC Notes") and an equity investment by
Holdings of $16.1 million. These proceeds were also utilized to pay fees and
expenses related to the Recapitalization and related financing, and to provide
working capital for the Company.
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In May 1997, the Company purchased all of the outstanding capital stock of
NYMA for $29.5 million, consisting of $24.5 million in cash and $5.0 million in
the Company's notes (the "NYMA Notes"). The purchase price may be increased by
up to $7.0 million if certain performance criteria related to earnings and new
business activity are met. The Company funded the cash portion of the purchase
price with borrowings of approximately $9.5 million under the Prior Senior
Credit Facility and approximately $15.0 million in proceeds from an issuance of
additional stock to the Company's stockholders.
In June 1997, the Company purchased all of the outstanding capital stock of
Sylvest for $40.4 million, consisting of $33.4 million in cash and $7.0 million
in the Company's notes (the "Sylvest Notes"). The purchase price may be
increased by up to $1.0 million if certain earnings objectives are met and is
subject to adjustment based on an audit of the closing balance sheet. The
Company funded the cash portion of the purchase price with borrowings of $21.4
million under the Prior Senior Credit Facility and approximately $12.0 million
in proceeds from an issuance of additional stock to the Company's stockholders.
NYMA and Sylvest are referred to from time to time as the "Acquired Companies."
In July 1997, the Company sold $105 million in aggregate principal amount of
Private Notes to the Initial Purchasers in a transaction exempt from the
registration requirements of the Securities Act (the "Private Placement"). The
Company used the proceeds of the Private Placement to (i) prepay $7.7 million of
notes originally issued in connection with the recapitalization of the Company
at the time of Carlyle's initial investment in 1995 (the "FDC Notes" and,
together with the NYMA Notes and the Sylvest Notes, the "Seller Notes") and $4.0
million of the Sylvest Notes, (ii) repay (the "Refinancing") all amounts
(approximately $80.4 million) of long-term debt ("Refinanced Bank Debt") owing
under the Prior Senior Credit Facility, (iii) pay $7.0 million in fees and
expenses associated with the Private Placement and the Refinancing and (iv)
generate $5.9 million in additional cash for working capital purposes. None of
the proceeds of the Private Placement are remaining. In addition, the Company
terminated the Prior Senior Credit Facility and executed a new senior secured
revolving credit facility (the "New Senior Credit Facility"), which provides
revolving borrowing availability up to $75.0 million, subject to a borrowing
base limitation.
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer................ FDC is hereby offering to exchange $1,000 principal
amount of Exchange Notes for each $1,000 principal
amount of Private Notes that are properly tendered and
accepted. FDC will issue Exchange Notes on or promptly
after the Expiration Date. As of the date hereof, there
is $105,000,000 aggregate principal amount of Private
Notes outstanding. See "The Exchange Offer."
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in exchange
for Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than
(i) a broker-dealer who purchases such Exchange Notes
directly from the Company to resell pursuant to Rule
144A or any other available exemption under the
Securities Act or (ii) a person that is an affiliate of
the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions of the
Securities Act; PROVIDED that the holder is acquiring
Exchange Notes in the ordinary course of its business
and is not participating, and had no arrangement or
</TABLE>
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<TABLE>
<S> <C>
understanding with any person to participate, in the
distribution of the Exchange Notes. Each broker-dealer
that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the
Exchange Offer may be deemed to be an "underwriter"
within the meaning of the Securities Act. The Letter of
Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. See "The Exchange
Offer--Resale of the Exchange Notes."
Registration Rights Agreement..... The Private Notes were sold by the Company on July 25,
1997 (the "Closing Date") to BT Alex. Brown Incorporated
and Lehman Brothers Inc. (the "Initial Purchasers")
pursuant to a Purchase Agreement, dated July 18, 1997,
by and among the Company and the Initial Purchasers (the
"Purchase Agreement"). The Initial Purchasers
subsequently sold the Private Notes to third parties.
See "The Exchange Offer-- Purpose of the Exchange
Offer." Pursuant to the Purchase Agreement, the Company
and the Initial Purchasers entered into a Registration
Rights Agreement, dated as of July 25, 1997 (the
"Registration Rights Agreement"), which grants the
holders of the Private Notes certain exchange and
registration rights. The Exchange Offer is intended to
satisfy such rights, which will terminate upon the
consummation of the Exchange Offer. The holders of the
Exchange Notes will not be entitled to any exchange or
registration rights with respect to the Exchange Notes.
See "The Exchange Offer--Termination of Certain Rights."
Expiration Date................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1997, unless the
Exchange Offer is extended by the Company in its sole
discretion, in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended. See "The Exchange
Offer--Expiration Date; Extensions; Amendments."
Accrued Interest on the Exchange
Notes and the Private Notes..... The Exchange Notes will bear interest from and including
the date of issuance of the Private Notes (July 25,
1997). Holders whose Private Notes are accepted for
exchange will be deemed to have waived the right to
receive any interest accrued on the Private Notes. See
"The Exchange Offer--Interest on the Exchange Notes."
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to the condition that, in
the reasonable judgment of the Company, it does not
violate applicable law, rules or regulations or an
applicable
</TABLE>
9
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<TABLE>
<S> <C>
interpretation of the staff of the Commission. The
Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Private Notes being
tendered for exchange. See "The Exchange
Offer--Conditions."
Procedures for Tendering Private
Notes........................... Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Private Notes and any
other required documentation to Norwest Bank Minnesota,
National Association, as exchange agent (the "Exchange
Agent"), at the address set forth herein. By executing
the Letter of Transmittal, the holder will represent to
and agree with the Company that, among other things, (i)
the Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are
being acquired by such holder in the ordinary course of
its business, (ii) such holder has no arrangement or
understanding with any person to participate in a
distribution of the Exchange Notes, (iii) that if such
holder is a broker-dealer registered under the Exchange
Act or is participating in the Exchange Offer for the
purposes of distributing the Exchange Notes, such holder
will comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely
on the position of the staff of the Commission set forth
in no-action letters (see "The Exchange Offer--Resale of
the Exchange Notes"), (iv) such holder understands that
a secondary resale transaction described in clause (iii)
above and any resales of Exchange Notes obtained by such
holder in exchange for Private Notes acquired by such
holder directly from the Company should be covered by an
effective registration statement containing the selling
securityholder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the Commission
and (v) such holder is not an "affiliate", as defined in
Rule 405 under the Securities Act, of the Company. Any
broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the
Exchange Offer may be deemed to be an "underwriter"
within the meaning of the Securities Act. If the holder
is a broker-dealer that will receive Exchange Notes for
its own account in exchange for Private Notes that were
acquired as a result of market-making activities or
other trading activities, such holder will be required
to acknowledge in the Letter of Transmittal that such
holder will deliver a prospectus meeting the
requirements of the Securities Act in connection with
any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, such
holder will not be deemed to admit
</TABLE>
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<TABLE>
<S> <C>
that it is an "underwriter" within the meaning of the
Securities Act. See "The Exchange Offer--Procedures for
Tendering. "
Special Procedures for Beneficial
Owners.......................... Any beneficial owner whose Private Notes are registered
in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Private Notes in the Exchange Offer should contact such
registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering such
owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes
in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time and may
not be able to be completed prior to the Expiration
Date. See "The Exchange Offer-- Procedures for
Tendering."
Guaranteed Delivery Procedures.... Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any other
documentation required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date must
tender their Private Notes according to the guaranteed
delivery procedures set forth under "The Exchange
Offer--Guaranteed Delivery Procedures."
Acceptance of the Private Notes
and Delivery of the Exchange
Notes........................... Subject to the satisfaction or waiver of the conditions
to the Exchange Offer, the Company will accept for
exchange any and all Private Notes that are properly
tendered in the Exchange Offer prior to the Expiration
Date. The Exchange Notes issued pursuant to the Exchange
Offer will be delivered within five business days
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Withdrawal Rights................. Tenders of Private Notes may be withdrawn at any time
prior to the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
Certain Federal Income Tax
Considerations.................. The exchange of Private Notes for Exchange Notes will be
treated as a "non-event" for federal income tax
purposes. As a result, no material federal income tax
consequences will result to holders exchanging Private
Notes for Exchange Notes. See "Certain Federal Income
Tax Considerations."
Exchange Agent.................... Norwest Bank Minnesota, National Association is serving
as the Exchange Agent in connection with the Exchange
Offer.
</TABLE>
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<PAGE>
THE EXCHANGE NOTES
The Exchange Offer applies to the entire aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are the same as the form
and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued under,
and be entitled to the benefits of, the Indenture. For further information and
for definitions of certain capitalized terms used below, see "Description of
Notes."
<TABLE>
<S> <C>
Maturity Date..................... August 1, 2005
Interest Payment Dates............ Interest on the Exchange Notes will accrue from the date
of original issuance (the "Issue Date") and will be
payable semi-annually on February 1 and August 1 of each
year commencing on February 1, 1998.
Optional Redemption............... On or after August 1, 2001, the Exchange Notes will be
redeemable at the option of the Company, in whole or in
part, at the redemption prices set forth herein plus
accrued interest to the date of redemption. In addition,
prior to August 1, 2000, the Company may, at its option,
redeem up to 35% of the aggregate principal amount of
the Exchange Notes originally issued with the net cash
proceeds of one or more Public Equity Offerings (as
defined), at the redemption prices set forth herein plus
accrued interest to the date of redemption; PROVIDED
that at least 65% of the original aggregate principal
amount of Exchange Notes shall remain outstanding after
any such redemption.
Change of Control................. Upon a Change of Control (as defined), (i) the Company
will have the option, at any time on or prior to August
1, 2001, to redeem the Exchange Notes in whole but not
in part, at a redemption price equal to 100% of the
principal amount thereof, plus the Applicable Premium
(as defined) as of, and accrued and unpaid interest, if
any, to, the date of redemption, and (ii) if the Company
does not so redeem the Exchange Notes, each holder will
have the right, subject to certain conditions, to
require the Company to repurchase such holder's Exchange
Notes at a price equal to 101% of the principal amount
thereof plus accrued interest to the date of repurchase.
Ranking........................... The Exchange Notes will be general unsecured obligations
of the Company and will be subordinated in right of
payment to all existing and future Senior Indebtedness
(as defined) of the Company. The Exchange Notes will
rank PARI PASSU with any senior subordinated
indebtedness of the Company (including the Seller Notes)
and will rank senior to all other subordinated
indebtedness of the Company. As of September 30, 1997,
the Company had approximately $7.5 million of Senior
Indebtedness (representing revolving line of credit
borrowings of $3.5 million and $4.0 million of undrawn
letters of credit) outstanding.
</TABLE>
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<TABLE>
<S> <C>
Guarantees........................ The Exchange Notes will be guaranteed on a senior
subordinated basis (the "Subsidiary Guarantees") by the
Subsidiary Guarantors. The Subsidiary Guarantees will be
general unsecured obligations of the Subsidiary
Guarantors and will be subordinated in right of payment
to all existing and future Guarantor Senior Indebtedness
(as defined). As of September 30, 1997, the Subsidiary
Guarantors collectively had approximately $8.2 million
of Guarantor Senior Indebtedness outstanding (excluding
guarantees of Indebtedness under the New Senior Credit
Facility). Guarantor Senior Indebtedness includes $5.9
million outstanding under the Floor Plan Financing
Facility (as defined), which amount is reflected as
accounts payable in the September 30, 1997 balance
sheet. The Subsidiary Guarantors also had $11.0 million
of secured nonrecourse notes and nonrecourse obligations
under capital leases at September 30, 1997.
Certain Covenants................. The Indenture governing the Notes (the "Indenture") will
contain certain covenants that, among other things,
limit the ability of the Company and certain of its
subsidiaries to pay dividends or make certain other
Restricted Payments (as defined), incur additional
indebtedness, consummate certain asset sales, incur
indebtedness that is subordinated in right of payment to
any Senior Indebtedness and senior in right of payment
to the Notes, incur liens, impose restrictions on the
ability of a subsidiary to pay dividends or make certain
payments to the Company and its subsidiaries, guarantee
certain indebtedness, issue certain preferred stock,
enter into certain transactions with affiliates, sell,
assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of the Company,
or enter into certain mergers and consolidations. In
addition, under certain circumstances, the Company will
be required to offer to purchase Notes at a price equal
to 100% of the principal amount thereof, plus accrued
interest, if any, to the date of purchase, with the
proceeds of certain Asset Sales (as defined). All of
such covenants are subject to significant qualifications
and exceptions.
</TABLE>
For additional information regarding the Exchange Notes, including
definitions of capitalized terms used above, see "Description of Notes."
RISK FACTORS
See "Risk Factors", which begins on page 16, for a discussion of certain
factors that should be considered in evaluating an investment in the Notes.
The Company is organized under the laws of Delaware with principal executive
offices located at 4800 Hampden Lane, Bethesda, Maryland 20814 (telephone
number: (301) 986-0800).
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SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary unaudited pro forma consolidated
financial information of the Company. The pro forma consolidated financial
information for the year ended December 31, 1996 and the nine months ended
September 30, 1997, give effect to the Transactions as if they had occurred on
January 1, 1996. The following information should be read in conjunction with
the "Selected Unaudited Pro Forma Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company and the Acquired Companies and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
-------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues................................................................ $ 332,822 $ 308,723
-------- --------
Cost of sales and services.............................................. 259,679 258,255
Selling, general and administrative..................................... 49,490 40,406
Amortization of goodwill................................................ 3,953 2,965
Interest expense(a)..................................................... 15,771 10,563
-------- --------
Total expenses........................................................ 328,893 312,189
-------- --------
Income (loss) before income taxes....................................... 3,929 (3,466)
Provision (benefit) for income taxes.................................... 2,131 (966)
-------- --------
Net income (loss)..................................................... $ 1,798 $ (2,500)
-------- --------
-------- --------
OTHER DATA:
EBITDA(b)............................................................... $ 23,295 $ 10,254
Net recourse interest expense(c)........................................ 13,557 9,462
Net cash recourse interest expense(d)................................... 12,532 8,693
Depreciation and amortization(e)........................................ 5,809 4,258
Capital expenditures.................................................... 2,124 1,788
</TABLE>
- ------------------------
(a) Interest expense includes interest on both recourse and nonrecourse notes
payable and obligations under capital leases. The Company finances certain
equipment leases to Government customers with borrowings or capital leases
that are recourse only to the related payment stream and property leased. In
most circumstances, the Company's future obligations under these nonrecourse
agreements, in event of default by the end user lessee, would be limited to
ensuring the return of the associated assets to the lender. These
nonrecourse notes payable and obligations under capital leases are
considered debt under generally accepted accounting principles and,
accordingly, are reflected as liabilities in the Company's historical
financial statements.
(b) EBITDA represents the sum of income (loss) before income taxes, net recourse
interest expense and depreciation and amortization. EBITDA is not a measure
of performance or financial condition under generally accepted accounting
principles but is presented to provide additional information related to
debt service capability. EBITDA should not be considered in isolation or as
a substitute for other measures of financial performance or liquidity under
generally accepted accounting principles. While EBITDA is frequently used as
a measure of operations and the ability to meet debt service requirements,
it is not necessarily comparable to other similarly titled captions of other
companies due to the potential inconsistencies in the method of calculation.
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(c) Net recourse interest expense is interest expense minus interest expense on
nonrecourse notes payable and nonrecourse obligations under capital leases
of $2,015 and $1,014, and minus interest income on cash balances of $199 and
$87 for the year ended December 31, 1996 and the nine months ended September
30, 1997, respectively.
(d) Net cash recourse interest expense is net recourse interest expense minus
amortization of deferred financing costs of $1,025 and $769 for the year
ended December 31, 1996 and the nine months ended September 30, 1997,
respectively.
(e) Excludes amortization of deferred financing costs on the Private Notes that
are included in interest expense.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE FOLLOWING RISK FACTORS BEFORE
DECIDING TO MAKE AN INVESTMENT IN THE NOTES.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company is highly leveraged. At September 30, 1997, the Company's
consolidated total recourse debt and total stockholders' equity was $118.8
million and $1.8 million, respectively. See "Capitalization." The Company's pro
forma ratio of earnings to fixed charges for the year ended December 31, 1996
was 1.2 to 1.0 and the Company would have had a fixed charge coverage deficiency
of $3.5 million for the nine months ended September 30, 1997. The Company's
ability to make scheduled payments of the principal of, or interest on, or to
refinance its indebtedness (including the Notes) depends on its future
performance, which to a certain extent is subject to economic, financial,
competitive and other factors beyond its control. Based upon pro forma 1996
operations, management believes that available cash flow, together with
borrowings available under the New Senior Credit Facility and other sources of
liquidity, should be adequate to meet the Company's anticipated requirements for
working capital, capital expenditures, interest payments and revolving balances
under the New Senior Credit Facility through at least the scheduled date of
expiration of the New Senior Credit Facility on July 25, 2002. There can be no
assurance, however, that the Company's cash flow will be sufficient to satisfy
such requirements. If the Company is unable to generate sufficient cash flow
from operations in the future to service its debt and make necessary capital
expenditures, the Company may be required to refinance all or a portion of its
existing debt, including the Notes, to sell assets or to obtain additional
financing. There can be no assurance that any such refinancing would be possible
or that any such sales of assets or additional financing could be achieved. If
the Company is unable to repay its debt as it becomes due, the purchasers of the
Notes could lose some or all of their investment. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The Indenture and the New Senior Credit Facility permit the Company to incur
additional Indebtedness, subject to certain limitations, and the Indenture
permits the Company to borrow up to $75.0 million (or greater amounts subject to
a borrowing base limitation) under the New Senior Credit Facility and one or
more Floor Plan Financing Facilities (as defined). The Indenture limits the
ability of FDC to pay dividends to holders of its capital stock, subject to
certain exceptions. See "Description of Notes--Certain Covenants--Limitation on
Restricted Payments."
The Company's high level of debt will have several important effects on its
future operations, including (a) requiring the Company to dedicate a significant
portion of its cash flow to service its debt, reducing funds available for
operations, capital expenditures, research and development, acquisitions and
future business opportunities, and increasing the Company's vulnerability to
adverse general economic and industry conditions; (b) increasing the Company's
cost of capital and debt service requirements under its variable rate credit
facilities if interest rates rise; (c) limiting the Company's flexibility in
reacting to changes in its markets, in technology and in general economic
conditions; and (d) through the financial covenants and other restrictions
contained in the New Senior Credit Facility and in the Indenture, requiring the
Company to meet certain financial tests and restricting its ability to borrow
additional funds (which could adversely affect the Company's liquidity and
ability to finance additional acquisitions), to dispose of assets or to engage
in certain transactions.
SUBORDINATION OF THE NOTES; ASSET ENCUMBRANCE
The Notes will be subordinated to all Senior Indebtedness, including Senior
Indebtedness incurred after the date of the Indenture. As of September 30, 1997,
the Company had $7.5 million of Senior Indebtedness outstanding including debt
under the New Senior Credit Facility (representing revolving line of credit
borrowings of $3.5 million and $4.0 million of undrawn letters of credit). The
Indenture permits
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the Company to incur Senior Indebtedness under the New Senior Credit Facility as
well as additional Senior Indebtedness (provided certain financial or other
conditions are met). The Company's Restricted Subsidiaries have guaranteed the
obligations of the Company under the Indenture and the Notes, but such
guarantees will be subordinated to all Guarantor Senior Indebtedness, which will
include the guarantees of the Company's indebtedness under the New Senior Credit
Facility and the Floor Plan Financing Facility. The Notes and the Subsidiary
Guarantees will be subordinated in right of payment to all existing and future
Senior Indebtedness of the Company and the Subsidiary Guarantors, respectively,
including the principal, premium (if any) and interest with respect to the
Senior Indebtedness under the New Senior Credit Facility and guarantees thereof
and the Floor Plan Financing Facility. As a result of the Subsidiary Guarantees,
the Notes are not subordinated to obligations of the Guarantors that are not
Guarantor Senior Indebtedness. But see "Risk Factors--Fraudulent Conveyance;
Preferential Transfer."
The Company may not pay principal of, premium (if any) on, or interest on,
the Notes, make any deposit pursuant to defeasance provisions or repurchase or
redeem or otherwise retire any Notes (i) if any Significant Senior Indebtedness
(as defined) is not paid when due or (ii) if any other default on Designated
Senior Indebtedness (as defined) occurs that permits the holders of such
Designated Senior Indebtedness to accelerate maturity of such Designated Senior
Indebtedness, in accordance with its terms, and the Trustee receives a notice of
such default unless, in either case, the default has been cured or waived, any
such acceleration has been rescinded or such Senior Indebtedness has been paid
in full or, in the case of any default other than a payment default, 179 days
have passed since the default notice is given. See "Description of Notes." Upon
any payment or distribution of the assets of the Company or any Subsidiary
Guarantor in connection with a total or partial liquidation or dissolution or
reorganization of or similar proceeding relating to the Company or such
Subsidiary Guarantor, the holders of Senior Indebtedness will be entitled to
receive payment in full before the holders of the Notes are entitled to receive
any payment. See "Description of the Securities--Subordination." The Notes are
also unsecured and thus, in effect, will rank junior to any secured indebtedness
of the Company or the Guarantors. The indebtedness and guarantees outstanding
under the New Senior Credit Facility will be secured by liens upon all assets,
including all receivables, inventory and general intangibles and equipment, as
well as the stock of the Restricted Subsidiaries, and indebtedness under Floor
Plan Financing Facilities and nonrecourse lease financing transactions will also
be secured.
Because the Company conducts substantially all of its operations through its
Subsidiaries, it is required to rely almost entirely upon payment from its
Subsidiaries for the funds necessary to meet its obligations, including the
payment of interest on and principal of the Notes. The ability of the
Subsidiaries to make such payments will be subject to, among other things,
applicable state laws. Claims of creditors of the Company's Subsidiaries will
generally have priority as to the assets of such Subsidiaries over the claims of
the Company.
Although the Subsidiary Guarantees provide the holders of the Notes with a
direct claim against the assets of the Subsidiary Guarantors, enforcement of the
Subsidiary Guarantees against any Subsidiary Guarantor would be subject to
certain "suretyship" defenses available to guarantors generally, and such
enforcement would also be subject to certain defenses available to the
Subsidiary Guarantors in certain circumstances. See "--Fraudulent Conveyance;
Preferential Transfer." Although the Indenture contains waivers of most
"suretyship" defenses, there can be no assurance that those waivers would be
enforced by a court in a particular case. To the extent that the Subsidiary
Guarantees are not enforceable, the Notes and Subsidiary Guarantees would be
effectively subordinated to all liabilities of the Subsidiary Guarantors,
including trade payables of such Subsidiary Guarantors, whether or not such
liabilities otherwise constitute Guarantor Senior Indebtedness under the
Indenture. In addition, although the New Senior Credit Facility will generally
permit Subsidiaries to pay dividends in amounts sufficient to pay interest on
the Notes, the payment of dividends to the Company by its Subsidiaries is
contingent upon the earnings of those Subsidiaries and approval of those
Subsidiaries.
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FRAUDULENT CONVEYANCE; PREFERENTIAL TRANSFER
If the court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy or the Company or any Subsidiary
Guarantor as a debtor-in-possession, were to find under relevant federal and
state fraudulent conveyance statutes that the Company or any Subsidiary
Guarantor did not receive fair consideration or reasonably equivalent value for
incurring the indebtedness represented by the Notes or its Subsidiary
Guarantees, and that, at the time of such incurrence, the Company or such
Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of
such incurrence or grant, (iii) was engaged in a business or transaction for
which the assets remaining with the Company or such Subsidiary Guarantor
constituted unreasonably small capital or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
such court, subject to applicable statutes of limitation, could avoid the
Company's obligations under the Notes or the Subsidiary Guarantor's obligations
under the Subsidiary Guarantees, subordinate the Notes or the Subsidiary
Guarantees to other indebtedness of the Company or the Subsidiary Guarantors or
take other action detrimental to the holders of the Notes.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts
(including contingent obligations) is greater than all of that company's
property at a fair valuation, or if the present fair saleable value of that
company's assets is less than the amount that will be required to pay its
probable liability on its existing debts (including contingent obligations) as
they become absolute and matured. Moreover, regardless of solvency, a court
could avoid an incurrence of indebtedness, including the Notes or the Subsidiary
Guarantees, to the claims of all existing and future creditors on similar
grounds. Based upon financial and other information currently available to it,
management believes the Company and each Subsidiary Guarantor were solvent at
the time of and immediately after the Private Placement. However, there can be
no assurance as to what standard a court would apply in order to determine
whether the Company or the Subsidiary Guarantors were "insolvent" upon
consummation of the sale of the Notes and the Subsidiary Guarantees.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings are initiated by or against the
Company or any Subsidiary Guarantor within 90 days after any payment by the
Company or any Subsidiary Guarantor with respect to the Notes or the Subsidiary
Guarantees or if the Company or any Subsidiary Guarantor anticipated becoming
insolvent at the time of such payment, all or a portion of such payment could be
avoided as a preferential transfer and the recipient of such payment could be
required to return such payment.
GOVERNMENT CONTRACTING RISKS
The Company derives substantially all of its revenues from contracts or
subcontracts with the Government and believes that the success and development
of its business will continue to depend on its successful participation in
Government contract programs. Accordingly, changes in Government contracting
policies could directly affect the Company's financial performance. Among the
factors that could materially adversely affect the Company's Government
contracting business are budgetary constraints affecting Government spending
generally or specific departments (such as DoD, NASA or the Veterans
Administration, for example), in particular, changes in fiscal policies or
available funding, changes in Government programs or requirements, curtailment
of the Government's use of technology services firms such as the Company, the
adoption of new laws or regulations, technological developments, Governmental
shutdowns (such as that which occurred during the Government's fiscal 1996, as
discussed under "Management's Discussion and Analysis of Financial Condition and
Results of Operations") and general economic conditions. These or other factors
could cause Governmental agencies to reduce their purchases under contracts, to
exercise their right to terminate contracts or not to exercise options to renew,
which could have a material adverse effect on the Company's financial condition,
results of operations and debt service capability.
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Several Government customers served by the Company represented significant
portions of 1996 pro forma revenues. The U.S. Navy, NASA and the Veterans
Administration represented approximately 15%, 13% and 11% of 1996 pro forma
revenues, respectively, and the loss of any of these customers could have a
material adverse effect on the Company's financial condition, results of
operations and debt service capability. See "Business--Products and Services"
for a discussion of the Company's material contracts.
Consistent with the overall trend toward reduced growth in Government
spending, many of the Company's Government customers are subject to increasingly
stringent budgetary constraints. For example, the budgets of DoD and NASA have
been substantially reduced in recent years. The Company has substantial
contracts in place with a number of these agencies, and the Company's continued
performance under these contracts, or award of additional contracts from these
agencies, could be materially adversely affected by continued or future spending
reductions or budget cutbacks at these agencies. See "Business-- Products and
Services." Although these reductions have not materially impacted the Company to
date, there can be no assurance that further budget reductions will not occur,
and such reductions could have a material adverse effect on the Company's
financial condition, results of operations and debt service capability.
All Government contracts require compliance with various contract provisions
and procurement regulations. The Government frequently reviews and considers
revisions to its procurement practices and has substantially modified numerous
procurement procedures in recent years. Such new or modified procurement
regulations could materially adversely affect the Company, increase competition
or increase the Company's costs of competing for or performing under Government
contracts. Moreover, any violation of procurement regulations could result in
the termination of the contracts, imposition of fines, and/or debarment from
award of additional Government contracts.
Most Government contracts are subject to modification or termination in the
event of changes in funding, and the Company's contractual costs and revenue are
subject to adjustment as a result of Government audits. In addition, Government
contracts, by their terms, generally can be terminated at any time by the
Government, without cause, for its convenience. Further, all Government contract
awards are subject to protest by competitors. The termination or nonrenewal of
any of the Company's significant contracts or the imposition of fines, damages
or suspension from bidding on additional contracts could have a material adverse
effect on the Company's financial condition, results of operations and debt
service capability.
RISKS UNDER SECTION 8(A) CONTRACT VEHICLES. Through the operations of NYMA
and Sylvest, the Company derived approximately 24% of its pro forma 1996 revenue
and approximately 12% of its pro forma 1996 income before income taxes
(excluding interest expense and amortization of goodwill) from contracts that
were awarded under section 8(a) of the Small Business Act ("Section 8(a)"),
which is intended to foster growth of small businesses owned and controlled by
socially and economically disadvantaged individuals. After consummation of the
Acquisitions, Sylvest's and NYMA's continued participation under these Section
8(a) contracts will require waivers from the Administrator of the Small Business
Administration. There can be no assurance that waivers will be obtained with
respect to these Section 8(a) contracts, and the failure to obtain such waivers
could have a material adverse effect on the Company's financial condition,
results of operations or debt service capability. For a description of the
material contract that could be affected, see "Business--Products and Services."
NASA has recently notified NYMA that it does not plan to request a waiver or to
exercise the final option year of a contract when the current option expires on
December 31, 1997. The Government has advised the Company that it plans to
procure the goods and services currently provided by NYMA under a new Section
8(a) set-aside contract on which NYMA would be ineligible to participate as a
prime contractor. NYMA intends to pursue continued participation in the program
in a reduced role as a subcontractor on the new contract in 1998, although such
participation would generate lower revenues and EBITDA than NYMA has
historically earned, and there can be no assurance that such a subcontract will
be obtained. 1996 revenues from this contract were approximately $33 million.
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RISKS UNDER TRADITIONAL CONTRACT VEHICLES. The Company derives a
substantial portion of its revenues from fixed-term Government contracts that
typically span a base year and one or more option years and are awarded through
formal competitive bids. There can be no assurance that the Government will
extend a fixed-term contract through its option years and, even if the
Government were to so extend each of the Company's fixed-term contracts, several
of such contracts expire in the next few years, and substantially all of the
Company's existing fixed-term contracts expire prior to the maturity of the
Exchange Notes. For a description of the Company's material contracts, see
"Business--Products and Services." Upon expiration, to the extent a requirement
continues to exist for the services provided thereunder, such contracts are
frequently subject to a competitive rebidding process, and there can be no
assurance that the Company will win any particular bid, or that the Company will
be able to replace business lost upon expiration or completion of any such
contract. The Company's failure to win or replace a significant dollar volume of
such contracts could materially adversely affect the Company's financial
condition, results of operations and debt service capability.
RISKS UNDER NEW CONTRACT VEHICLES. In contrast to traditional, longer-term
agreements by individual agencies to purchase specific services or products from
a single contractor or team of contractors, budget pressures and reforms in the
procurement process have caused many Government customers to spend an increasing
portion of their procurement budgets over the past few years through GSA
Schedules and other smaller-scale, shorter-term, multiple award, and/or multiple
agency contract ("MAC") vehicles. These vehicles are generally for an
"indefinite delivery, indefinite quantity" ("IDIQ") of goods and services, and
therefore effectively constitute procurement "schedules" or catalogs. These new
contract vehicles are generally awarded to multiple contractors, may be
available to multiple agencies, and require that the contractor make an
effective post-award sales effort to realize meaningful revenue under the
contract. The acquisition of Sylvest increases the relative proportion of the
Company's consolidated business being done on the basis of these contracts,
which was partially responsible for the decline in the Company's relative profit
margins for the nine months ended September 30, 1997 compared to the prior year
period. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Competition for post-award sales under many IDIQ contracts is intense and
there can be no assurance that the Company will continue to increase revenues or
otherwise sell successfully pursuant to GSA Schedules or other IDIQ vehicles,
and failure to do so could materially and adversely affect the Company's
financial condition, results of operation and debt service capability. Moreover,
sales are frequently made pursuant to such contracts at prices lower than those
stated in the contracts or related schedules. The Government's growing use of
GSA Schedules and other IDIQ vehicles and increasing emphasis on commercial
procurement practices, along with pressure for continuous competition through
the lifetime of these contracts, could have a material adverse effect on the
Company's financial condition, results of operations and debt service
capability.
The Company derives significant revenues from sales made pursuant to its GSA
Schedules and other IDIQ vehicles. One such contract, the NIH's Electric
Computer Store II ("ECS II"), presently has 45 awardees. The Company's inability
to renew or replace its GSA Schedules or other IDIQ contracts could have a
material adverse effect on the Company's financial condition, results of
operations and debt service capability.
COMPETITION
The Company serves highly competitive and fragmented markets, in which no
single competitor holds a significant market position. The Company derives
substantially all of its revenues from contracts with the Government and its
prime contractors, and many such contracts are awarded on the basis of
negotiations or competitive bids where price may be a significant factor. The
Company experiences vigorous competition from a large number of private-sector
firms. In addition, under new procurement regulations, Government agencies can
compete with private firms such as the Company in certain cases by offering
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services to other agencies. Some of the Company's competitors are large,
diversified firms with substantially greater financial resources and larger
technical staffs than the Company. In addition, under GSA Schedules and many
IDIQ vehicles, the Company faces a large number of competitors for post-award
sales of COTS products. It is increasingly likely that the Company's customers,
many of which have had multi-year contracts with individual suppliers (including
the Company) in the past, will meet an increasing proportion of their
information technology requirements through multi-vendor, multi-agency
procurement vehicles. There can be no assurance that the Company will be able to
continue to compete successfully in this changing procurement environment.
DEPENDENCE ON KEY TECHNICAL PERSONNEL
The Company's continued success depends in large part on its ability to
recruit and retain the technical personnel necessary to serve its clients
effectively. Competition for skilled personnel in the information technology
services industry is intense and increasing, and technology service companies
often experience high attrition among their skilled employees. Excessive
attrition among its technical personnel could increase the Company's costs of
performing its contractual obligations, reduce the Company's ability to
efficiently satisfy its clients' needs and seriously constrain the Company's
future growth potential. In addition, the Company must often comply with
provisions in Government contracts that require employment of persons with
specified levels of education, work experience and security clearances. The loss
of any significant number of the Company's existing key technical personnel or
the inability to attract and retain key employees in the future could have a
material adverse effect on the Company's financial condition, results of
operations and debt service capability. See "Business--Employees" and
"Management."
ACQUISITION STRATEGY
Principally through the Acquisitions, the Company has increased its work
force by approximately 360% in September 1997 compared to year-end 1996. The
Company's continued success will depend upon its ability to integrate NYMA,
Sylvest and other acquired businesses into its operations. The integration of
such businesses into the Company's operations may require a disproportionate
amount of management's attention and the Company's resources. There can be no
assurance that the acquired entities will operate profitably, that the Company
will realize anticipated synergies, or that the Acquisitions will cause the
Company's operating performance to improve.
Although management intends to continue to identify and complete synergistic
acquisitions and the Company regularly engages in discussions with acquisition
targets, there can be no assurances that suitable acquisition targets will be
available in the future on reasonable terms, that additional acquisitions will
be completed, that acquisition financing will be available on reasonable terms
or at all, that any new businesses will generate revenues or net income
comparable to the Company's existing businesses or that such businesses will be
integrated successfully or operated profitably. In addition, the New Senior
Credit Facility contains certain covenants restricting, among other things,
acquisitions and capital expenditures, and the New Senior Credit Facility and
the Indenture limit the incurrence of additional indebtedness. Such covenants
may limit the ability of the Company to complete certain additional
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is seasonal, with revenues and profitability
generally higher in the third and fourth quarters and lower in the first quarter
(which has frequently shown an operating loss) of each fiscal year, in line with
Government procurement patterns. Any quarter may include significant variations
in revenue and profitability, depending on the timing of particular contract
awards, installation schedules, and contract expiration schedules. Product sales
are generally more seasonal than services sales, and the Sylvest Acquisition
could exacerbate the seasonality of the Company's business. As a result of this
seasonality, operating results and cash flow may vary significantly from quarter
to quarter.
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CONCENTRATION OF OWNERSHIP
Entities controlled by Carlyle have, in the aggregate, more than 80% of the
Company's voting power. Consequently, Carlyle can control the election of the
directors of the Company and the outcome of all matters submitted to a vote of
the Company's stockholders, as well as the Company's management, operations and
policies.
ABSENCE OF PUBLIC MARKET
There is currently no established trading market for the Notes. Although the
Private Notes are eligible for trading in the Private Offerings, Resales and
Trading through Automatic Linkages ("PORTAL") market of the National Association
of Securities Dealers, Inc., the Company does not intend to apply for listing of
the Notes on any securities exchange or on any automated dealer quotation
system. The Company has been advised by the Initial Purchasers that they
presently intend to make a market in the Notes, but the Initial Purchasers are
under no obligation to do so, and any such market-making may be discontinued at
any time without notice, at the sole discretion of the Initial Purchasers.
Accordingly, no assurance can be given as to the prices or liquidity of, or
trading markets for, the Notes. The liquidity of any market for the Notes will
depend upon the number of holders of the Notes, the interest of securities
dealers in making a market in the Notes, prevailing interest rates, the market
for similar securities and other factors, including general economic conditions
and the financial condition and performance of, and prospectus for, the Company.
The absence of an active market for the Notes could adversely affect the market
price and liquidity of the Notes.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes for exchange. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. To the extent
that Private Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Private Notes could be
adversely affected due to the limited amount, or "float," of the Private Notes
that are expected to remain outstanding following the Exchange Offer. Generally,
a lower "float" of a security could result in less demand to purchase such
security and could, therefore, result in lower prices for such security. For the
same reason, to the extent that a large amount of Private Notes are not tendered
or are tendered and not accepted in the Exchange Offer, the trading market for
the Exchange Notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on the Closing Date to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently sold the Private Notes, and the Company and the Initial Purchasers
entered into the Registration Rights Agreement on July 25, 1997. Pursuant to the
Registration Rights Agreement, the Company agreed that, unless the Exchange
Offer is not permitted by applicable law or Commission policy, it would file
with the Commission a registration statement under the Securities Act (a
"Registration Statement") with respect to the Exchange Notes within 60 days
after the Closing Date and use its best efforts to cause such Registration
Statement to become effective under the Securities Act within 150 days after the
Closing Date. A copy of the Registration Rights Agreement has been filed as an
exhibit to the Registration Statement. The Registration Statement is intended to
satisfy certain of the Company's obligations under the Registration Rights
Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges Private Notes for Exchange Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, will be allowed to resell Exchange Notes to
the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of the Exchange Notes or is a broker-dealer,
such holder cannot rely on the position of the staff of the Commission
enumerated in certain no-action letters issued to third parties and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer may be deemed to be an
"underwriter" within the meaning of the Securities Act. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection of
resales of Exchange Notes received in exchange for Private Notes where such
Private Notes were acquired by such broker-dealer as a result of market-making
or other trading activities. Pursuant to the Registration Rights Agreement the
Company has agreed to make this Prospectus, as it may be amended or supplemented
from time to time, available to broker-dealer for use in connection with any
resale for the period required by the Securities Act. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and the Letter of Transmittal, the Company will accept any and all Private Notes
validly tendered and not withdrawn prior to the Expiration Date. The Company
will issue $1,000 principal amount of Exchange Notes in exchange for
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each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral multiples
of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace) and will be issued under, and be entitled
to the benefits of, the Indenture, which also authorized the issuance of the
Private Notes, such that both series of Notes will be treated as a single class
of debt securities under the Indenture.
As of the date of this Prospectus, $105,000,000 in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede &
Co., as nominee for DTC. Only a registered holder of the Private Notes (or such
holder's legal representative or attorney-in-fact) as reflected on the records
of the Trustee under the Indenture may participate in the Exchange Offer. There
will be no fixed record date for determining registered holders of the Private
Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Securities Exchange Act of 1934 as amended (the "Exchange Act"), and
the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered holders. If the
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Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 10 1/8% per annum.
Interest on the Exchange Notes will be payable semi-annually on February 1 and
August 1 of each year, commencing February 1, 1998. Holders of Exchange Notes
will receive interest from the date of initial issuance of the Private Notes.
Holders of Private Notes that are accepted for exchange will be deemed to have
waived the right to receive any interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "--Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Private Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
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Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed by
an Eligible Institution (as defined below) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be made by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act which is a member of one of the recognized signature
guarantee programs identified in the Letter of Transmittal (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be endorsed
or accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Private Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes. All
questions as to the validity, form, eligibility (including time of receipt),
compliance with conditions, acceptance and withdrawal of tendered Private Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Private Notes not properly tendered or any Private Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Private Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Private Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "--Conditions," to terminate the
Exchange Offer and to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in
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connection with a secondary resale transaction of the Exchange Notes acquired by
such person and cannot rely on the position of the staff of the Commission set
forth in certain no-action letters, (iv) such holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Private Notes acquired by
such holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission and (v) such holder is not an "affiliate," as defined in Rule 405
under the Securities Act, of the Company. If the holder is a broker-dealer that
will receive Exchange Notes for such holder's own account in exchange for
Private Notes that were acquired as a result of market-making activities or
other trading activities, such holder will be required to acknowledge in the
Letter of Transmittal that such holder will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a prospectus,
such holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Any broker-dealer that resells Exchange Notes
that were received by it for its own account pursuant to the Exchange Offer may
be deemed to be an "underwriter" within the meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are withdrawn
or are submitted for a greater principal amount than the holders desire to
exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depositary pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"--Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company
setting forth the name and address of the holder, the certificate
number(s) of such Private Notes and the principal amount of Private Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within five New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or a facsimile thereof),
together
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with the certificate(s) representing the Private Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof), as
well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Private Notes) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Private Notes so withdrawn are validly retendered. Properly withdrawn
Private Notes may be retendered by following one of the procedures described
above under "The Exchange Offer--Procedures for Tendering" at any time prior to
the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the Staff of the
Commission.
If the Company reasonably determines that such condition (that the Exchange
Offer not violate applicable law, rules, regulations or interpretation of the
Staff) is not satisfied, the Company may (i) refuse to accept any Private Notes
and return all tendered Private Notes to the tendering holders or (ii) extend
the Exchange Offer and retain all Private Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Private Notes (see "--Withdrawal of Tenders").
LIQUIDATED DAMAGES
The Company, the Subsidiary Guarantors and the Initial Purchaser entered
into a registration rights agreement (the "Registration Rights Agreement") dated
as of July 25, 1997, pursuant to which each of the Company and the Subsidiary
Guarantors agreed that they will, at their cost, for the benefit of the Holders,
(i) to the extent not prohibited by any applicable law or applicable
interpretation of the staff of the Commission (A) prepare and, on or prior to 60
days (the "Filing Date") after the date of original issuance of the Private
Notes (the "Issue Date"), file with the Commission a Registration Statement
under the Securities Act with respect to an offer by the Company to the holders
of the Private Notes (the "Exchange
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Offer") to issue and deliver to such holders, in exchange for the Private Notes,
a like principal amount of notes (the "Exchange Notes") guaranteed on a senior
subordinated basis by each of the Subsidiary Guarantors, and identical to the
Private Notes in all material respects, except that the such notes will not have
provisions regarding restrictions on transfer, (B) use their best efforts to
cause the Registration Statement relating to the Exchange Offer to be declared
effective by the Commission under the Securities Act on or prior to 150 days
after the Issue Date, and (C) commence the Exchange Offer and use their best
efforts to issue, on or prior to the date (the "Consummation Date") that is 30
days immediately following the date that the Exchange Registration Statement
shall have been declared effective, the Exchange Notes. The offer and sale of
the Exchange Notes pursuant to the Exchange Offer shall be registered pursuant
to the Securities Act on an appropriate form (the "Exchange Registration
Statement") and duly registered or qualified under all applicable state
securities or Blue Sky laws and will comply with all applicable tender offer
rules and regulations under the Exchange Act and state securities or Blue Sky
laws. The Exchange Offer shall not be subject to any condition, other than that
the Exchange Offer does not violate any applicable law or interpretation of the
staff of the Commission.
If, prior to consummation of the Exchange Offer, any of the Initial
Purchasers hold any Private Notes acquired by it and having, or which are
reasonably likely to be determined to have, the status of an unsold allotment in
the initial distribution, or any other holder of Private Notes is not entitled
to participate in the Exchange Offer, the Company and the Subsidiary Guarantors,
upon the request of such Initial Purchaser or any such holder, shall,
simultaneously with the delivery of the Exchange Notes in the Exchange Offer,
issue and deliver to such Initial Purchaser and any such holder, in exchange
(the "Private Exchange") for such Private Notes held by such Initial Purchaser
and any such holder, a like principal amount of debt securities of the Company,
guaranteed by each of the Subsidiary Guarantors on a senior subordinated basis,
that are identical in all material respects to the Exchange Notes (the "Private
Exchange Notes").
If (i) the Company and the Subsidiary Guarantors are not permitted to file
the Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by any applicable law or applicable
interpretation of the Staff of the Commission or (ii) any holder of a Private
Note notifies the Company on or prior to the 30th day following the Issue Date
that (A) due to a change in law or policy it is not entitled to participate in
the Exchange Offer, (B) due to a change in law or policy it may not resell
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the Prospectus contained in the Exchange
Registration Statement is not appropriate or available for such resales by such
holder or (C) it owns Private Notes (including any Initial Purchaser that holds
Private Notes as part of an unsold allotment from the original offering of the
Private Notes) acquired directly from the Company or a Subsidiary Guarantor or
an Affiliate of the Company or a Subsidiary Guarantor or (iii) any holder of
Private Exchange Notes so requests after the consummation of the Private
Exchange or (iv) the Company and the Subsidiary Guarantors have not consummated
the Exchange Offer within 180 days after the Issue Date (each such event
referred to in clauses (i) through (iv), a "Shelf Filing Event"), the Company
and the Subsidiary Guarantors shall (a) promptly deliver to the holders and the
Trustee notice thereof and (b) at their own expense cause to be filed with the
Commission pursuant to Rule 415 a shelf registration statement (the "Shelf
Registration Statement") as promptly as practicable and in any event prior to 60
days after such filing obligation arises relating to all Transfer Restricted
Notes (as defined) (the "Shelf Registration") the holders of which have provided
certain information requested by the Company (provided that if the Shelf Filing
Event arises pursuant to clause (iv) above, the Company and the Subsidiary
Guarantors shall file the Shelf Registration Statement on or prior to the 181st
day after the Issue Date), and shall use their best efforts to have the Shelf
Registration Statement declared effective by the Commission on or prior to 90
days after the filing thereof. In such circumstances, the Company and the
Subsidiary Guarantors shall use their best efforts to keep the Shelf
Registration Statement continuously effective under the Securities Act, until
(A) two years (or such shorter period as may be established by any amendment to
the two year period set forth in Rule 144(k) under the Securities Act) following
the Issue Date or (B) if sooner, the date immediately following the date that
all Transfer Restricted Notes covered by the Shelf Registration Statement have
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been sold pursuant thereto or otherwise cease to be Transfer Restricted Notes
(the "Effectiveness Period").
During any consecutive 365-day period, the Company will have the ability to
suspend the availability of the Shelf Registration Statement for up to two
periods of up to 45 consecutive days, but no more than an aggregate of 60 days
during any 365-day period.
For purposes of the foregoing, a "Transfer Restricted Note" means each
Private Note, each Exchange Note as to which clause (ii) of the second preceding
paragraph is applicable, and each Private Exchange Note, in each case upon
original issuance thereof and at all time subsequent thereto until the earliest
to occur of (A) the date on which any such Private Note has been exchanged by a
person other than a Participating Broker-Dealer for an Exchange Note (other than
with respect to an Exchange Note as to which clause (ii) of the preceding
paragraph applies) pursuant to the Exchange Offer, (B) with respect to Exchange
Notes received by Participating Broker-Dealers in the Exchange Offer, the
earlier of (x) the date on which such Exchange Note has been sold by such
Participating Broker-Dealer by means of the Prospectus contained in the Exchange
Registration Statement and (y) the date on which the Exchange Registration
Statement has been effective under the Securities Act for a period of six months
after the Consummation Date, (C) a Shelf Registration Statement covering such
Note, Exchange Note or Private Exchange Note has been declared effective by the
Commission and such Note, Exchange Note or Private Exchange Note, as the case
may be, has been disposed of in accordance with such effective Shelf
Registration Statement, (D) the date on which such Note, Exchange Note or
Private Exchange Note, as the case may be, is eligible for distribution to the
public without volume or manner of sale restrictions pursuant to Rule 144(k) or
(E) the date on which such Private Note, Exchange Note or Private Exchange Note,
as the case may be, ceases to be outstanding for purposes of the Indenture or
any other indenture under which such Exchange Note or Private Exchange Note was
issued.
If the Company and the Subsidiary Guarantors fail to comply with the above
provisions or if the Exchange Offer Registration Statement or the Shelf
Registration statement fails to become effective, then, as liquidated damages
(the "Liquidated Damages") shall become payable in respect of the Private Notes
as follows:
(i) if (A) neither the Exchange Offer Registration Statement nor Shelf
Registration Statement is filed with the Commission on or prior to the
Filing Date or (B) notwithstanding that the Company and the Subsidiary
Guarantors have consummated or will consummate an Exchange Offer, the
Company and the Subsidiary Guarantors are required to file a Shelf
Registration Statement and such Shelf Registration Statement is not filed on
or prior to the date required by the Registration Rights Agreement, then
commencing on the day after either such required filing date, Liquidated
Damages shall accrue on the principal amount of the Private Notes at a rate
of 0.5% per annum for the first 90 days immediately following each such
filing date, such Liquidated Damages rate increasing by an additional 0.5%
per annum at the beginning of each subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor a
Shelf Registration Statement is declared effective by the Commission on or
prior to 90 days after the applicable filing date or (B) notwithstanding
that the Company and the Subsidiary Guarantors have consummated or will
consummate an Exchange Offer, the Company and the Subsidiary Guarantors are
required to file a Shelf Registration Statement and such Shelf Registration
Statement is not declared effective by the Commission on or prior to the
90th day following the date such Shelf Registration Statement was filed,
then commencing on the day after the 90th day following the applicable
filing date, Liquidated Damages shall accrue on the principal amount of the
Private Notes at a rate of 0.5% per annum for the first 90 days immediately
following such date, such Liquidated Damages rate increasing by an
additional 0.5% per annum at the beginning of each subsequent 90-day period;
or
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(iii) if (A) the Company and the Subsidiary Guarantors have not
exchanged Exchange Notes for all Private Notes validly tendered in
accordance with the terms of the Exchange Offer on or prior to the 30th day
after the date on which the Exchange Offer Registration Statement was
declared effective or (B) if applicable, the Shelf Registration Statement
has been declared effective and such Shelf Registration Statement ceases to
be effective at any time prior to the second anniversary of its effective
date (other than after such time as all Private Notes have been disposed of
thereunder), then Liquidated Damages shall accrue on the principal amount of
the Private Notes at a rate of 0.5% per annum for the first 90 days
commencing on (x) the 31st day after such effective date, in the case of (A)
above, or (y) the day such Shelf Registration Statement ceases to be
effective in the case of (B) above, such Liquidated Damages rate increasing
by an additional 0.5% per annum at the beginning of each subsequent 90-day
period;
PROVIDED, HOWEVER, that the Liquidated Damages rate on the Private Notes may not
exceed in the aggregate 1.50% per annum; PROVIDED, FURTHER, HOWEVER, that (1)
upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (ii) above), or (3) upon the
exchange of Exchange Notes for all Private Notes tendered (in the case of clause
(iii) (A) above), or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective (in the case of clause (iii) (B) above),
Liquidated Damages on the Private Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
Any Liquidated Damages will be payable in cash to record holders in the same
manner as interest will be payable on the Private Notes.
No holder of Transfer Restricted Notes shall be entitled to Liquidated
Damages payable in connection with any Shelf Registration Statement unless and
until such holder shall have provided certain information reasonably requested
by the Company for use in connection with such Shelf Registration Statement.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any holder of a transfer-restricted Private Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Private Notes pursuant to Rule 144A and (iii) to provide
copies of the latest version of the Prospectus to broker-dealers upon their
request for the period required by the Securities Act.
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EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: IN PERSON:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave. S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Ser.
Minneapolis, MN 55480-1517 Minneapolis, MN
BY HAND OR OVERNIGHT COURIER: BY FACSIMILE FOR ELIGIBLE INSTITUTIONS
ONLY):
Norwest Bank Minnesota, (612) 667-4927
National Association CONFIRM RECEIPT OF NOTICE OF
Corporate Trust Operations GUARANTEED DELIVERY BY TELEPHONE:
Norwest Center (612) 667-9764
Sixth and Marquette
Minneapolis, MN 55479-0113
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$250,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take, and the Company takes no position with respect
to the advisability of the Exchange Offer.
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The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Private
Notes may be resold only (i) to a person whom the seller reasonably believes is
a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
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THE RECAPITALIZATION AND THE TRANSACTIONS
Prior to December 1, 1995, a substantial majority of the Company's common
stock was owned by its employees. On December 1, 1995, the Company effected the
Recapitalization, wherein Holdings merged with and into the Company with the
Company continuing as the surviving corporation. Holdings was a company
organized by Carlyle to facilitate the Recapitalization and had no operating
activity or history. Upon consummation of the Recapitalization, Holdings
received 85.4% of the Company's common stock and 14.6% was retained by members
of Company management who were shareholders prior to the Recapitalization. The
Recapitalization resulted in a charge to stockholders' equity of $58.8 million
to reflect redemption of certain common stock.
The Company financed the Recapitalization through proceeds from term loans
of $35.0 million, borrowings of approximately $6.5 million under the Prior
Senior Credit Facility, issuance of $7.0 million in FDC Notes and an equity
investment by Holdings of $16.1 million. These proceeds were also utilized to
pay fees and expenses related to the Recapitalization and related financing, and
to provide working capital for the Company.
In May 1997, the Company purchased all of the outstanding capital stock of
NYMA for $29.5 million, consisting of $24.5 million in cash and $5.0 million in
NYMA Notes. The purchase price may be increased by up to $7.0 million if certain
performance criteria related to earnings and new business activities are met.
Such payments, if any, will be accounted for as adjustments to the purchase
price. No additional payments have been made as of September 30, 1997.
Additional payments, if any, will be funded with additional borrowings. The
Company funded the cash portion of the purchase price with additional borrowings
of approximately $9.5 million and the sale of 555,556 shares of the Company's
common stock for approximately $15.0 million. In connection with the NYMA
Acquisition, the Company also borrowed approximately $18.5 million under the
Prior Senior Credit Facility to retire existing Company and NYMA working capital
debt and to pay related fees and expenses.
In June 1997, the Company purchased all of the outstanding capital stock of
Sylvest for $40.4 million, consisting of $33.4 million in cash and $7.0 million
in Sylvest Notes. The purchase price may be increased by up to $1.0 million if
certain earnings objectives are met and is subject to adjustment based on an
audit of the closing balance sheet. Such payments, if any, will be accounted for
as adjustments to the purchase price. No additional payments have been made as
of September 30, 1997. Additional payments, if any, will be funded with
additional borrowings. The Company funded the cash portion of the purchase price
with additional borrowings of $21.4 million and the sale of 444,444 shares of
the Company's common stock for approximately $12.0 million. In connection with
the Sylvest Acquisition, the Company also borrowed approximately $6.0 million
under the Prior Senior Credit Facility to retire existing Sylvest working
capital debt and to pay related fees and expenses.
The Company does not presently expect additional payments in connection with
either acquisition to be material.
34
<PAGE>
USE OF PROCEEDS
In July 1997, the Company sold $105 million in aggregate principal amount of
Private Notes to the Initial Purchasers in a transaction exempt from the
registration requirements of the Securities Act (the "Private Placement"). The
Company used the proceeds of the Private Placement to (i) prepay $7.7 million of
notes originally issued in connection with the recapitalization of the Company
at the time of Carlyle's initial investment in 1995 (the "FDC Notes" and,
together with the NYMA Notes and the Sylvest Notes, the "Seller Notes") and $4.0
million of the Sylvest Notes, (ii) repay (the "Refinancing") all amounts
(approximately $80.4 million) of long-term debt ("Refinanced Bank Debt") owing
under the Prior Senior Credit Facility, (iii) pay $7.0 million in fees and
expenses associated with the Private Placement and the Refinancing and (iv)
generate $5.9 million in additional cash for working capital purposes. None of
the proceeds of the Private Placement are remaining. In addition, the Company
terminated the Prior Senior Credit Facility and executed a new senior secured
revolving credit facility (the "New Senior Credit Facility"), which provides
revolving borrowing availability up to $75.0 million, subject to a borrowing
base limitation.
The Company will not receive any proceeds from the Exchange Offer. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive in exchange Private Notes in like principal amount, the
terms of which are identical to the Exchange Notes except that (i) the exchange
will have been registered under the Securities Act, and, therefore, the Exchange
Notes will not bear legends restricting the transfer thereof and (ii) holders of
the Exchange Notes will not be entitled to certain rights of holders of the
Private Notes under the Registration Rights Agreement, which rights will
terminate upon the consummation of the Exchange Offer. The Private Notes
surrendered in exchange for Exchange Notes will be retained by the Company and
the Exchange Offer will not result in any increase in the indebtedness of the
Company.
35
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997. The debt balances and total capitalization presented below
represent the recourse obligations of the Company and exclude $11.0 million of
nonrecourse notes payable and nonrecourse obligations under capital leases. The
information presented below is unaudited and should be read in conjunction with
the financial statements of the Company and the notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
(DOLLARS IN
MILLIONS)
<S> <C>
Cash and cash equivalents.................................................................... $ 8.0
------
------
Recourse debt:(a)
Revolving line of credit(b)................................................................ $ 3.5
Recourse obligations under capital leases.................................................. 2.3
Senior subordinated notes due 2005......................................................... 105.0
Seller notes............................................................................... 8.0
------
Total recourse debt...................................................................... 118.8
Stockholders' equity(c)...................................................................... 1.8
------
Total capitalization(a)................................................................ $ 120.6
------
------
</TABLE>
- ------------------------
(a) The Company has excluded $11.0 million of nonrecourse notes payable and
nonrecourse obligations under capital leases from the debt balances and
total capitalization presented above. The Company's future obligation under
these nonrecourse agreements, in the event of default by the end user
lessee, would be limited in most circumstances, outside a bankruptcy
proceeding, to ensuring the return of the associated assets to the lender.
These nonrecourse notes payable and nonrecourse obligations under capital
leases are considered debt under generally accepted accounting principles
and accordingly, are reflected as liabilities in the Company's historical
financial statements. Total recourse debt is total debt of $129.8 million
minus the $11.0 million of nonrecourse notes payable and nonrecourse
obligations under capital leases noted above.
(b) At September 30, 1997, the Company's New Senior Credit Facility had a
revolving credit borrowing availability of $75 million subject to a
borrowing base limitation. Availability was reduced by borrowings of $3.5
million and $4.0 million through the issuance of a letter of credit in
connection with the contingent consideration available to the former
shareholders of NYMA.
(c) Stockholders' equity includes the effect of the Recapitalization which
included a charge to stockholders' equity of $58.8 million. In connection
with the Recapitalization and the Acquisitions, Carlyle and management have
contributed approximately $43.1 million of cash to the Company. See Notes 2
and 14 to FDC's consolidated financial statements.
36
<PAGE>
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected unaudited pro forma consolidated financial data give
effect to the Transactions. The unaudited pro forma consolidated statements of
operations have been prepared assuming the sale of the Private Notes and the
application of the net proceeds therefrom occurred as of January 1, 1996. The
unaudited pro forma consolidated statements of operations reflect the historical
results of the Company, NYMA and Sylvest for the year ended December 31, 1996
and for the nine months ended September 30, 1997. The acquisition of NYMA was
completed on May 2, 1997. The acquisition of Sylvest was completed on June 30,
1997. Pursuant to the stock purchase agreement with Sylvest, the Solutions
Division of Sylvest, which was retained by the previous owners, was excluded
from the transaction. Where significant, pro forma adjustments have been made to
reflect the impact of excluding the related revenue and expense amounts. The
unaudited pro forma consolidated financial data give effect to certain pro forma
adjustments that are described in the notes to these statements.
The unaudited pro forma consolidated financial data are presented for
informational purposes only and are not necessarily indicative of the results of
operations that would have been achieved had the Transactions been completed as
of the respective date or period presented, nor are they necessarily indicative
of the Company's future results of operations. The unaudited pro forma
consolidated financial data should be read in conjunction with the historical
financial statements of the Company, NYMA and Sylvest, including the notes
thereto, included elsewhere in this Prospectus.
The Company believes that the assumptions used in preparing the unaudited
pro forma consolidated financial data provide a reasonable basis for presenting
all of the significant effects of the Transactions and that the pro forma
adjustments give effect to those assumptions in the unaudited pro forma
consolidated financial data. The Company, NYMA and Sylvest each have fiscal
years ending December 31.
37
<PAGE>
FEDERAL DATA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
PRO FORMA RELATED TO THE
ADJUSTMENTS OFFERING OF
THE RELATED TO THE THE PRIVATE PRO FORMA
COMPANY NYMA SYLVEST ACQUISITIONS SUBTOTAL NOTES CONSOLIDATED
---------- --------- ---------- -------------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $ 151,108 $ 82,046 $ 106,542 $ (6,874)(a) $ 332,822 $ 332,822
---------- --------- ---------- ------- ---------- ------------
Cost of sales and services.......... 114,248 57,824 92,736 (5,129)(a) 259,679 259,679
Selling, general and administrative
expenses.......................... 21,366 22,481 11,376 (3,380)(a) 49,490 49,490
(2,353)(b)
Amortization of goodwill............ 3,953(c) 3,953 3,953
Interest expense.................... 7,564 394 340 (734)(d) 13,997 $ (338)(g) 15,771
6,433(e) 2,112(h)
---------- --------- ---------- ------- ---------- ------- ------------
Total expenses.................. 143,178 80,699 104,452 (1,210) 327,119 1,774 328,893
---------- --------- ---------- ------- ---------- ------- ------------
Income before income taxes.......... 7,930 1,347 2,090 (5,664) 5,703 (1,774) 3,929
Provision for income taxes.......... 3,202 547 47 (955)(f) 2,841 (710)(f) 2,131
---------- --------- ---------- ------- ---------- ------- ------------
Net income.......................... $ 4,728 $ 800 $ 2,043 $ (4,709) $ 2,862 $ (1,064) $ 1,798
---------- --------- ---------- ------- ---------- ------- ------------
---------- --------- ---------- ------- ---------- ------- ------------
</TABLE>
<TABLE>
<S> <C>
OTHER PRO FORMA DATA
EBITDA(1)................................................................................. $ 23,295
Net recourse interest expense(2).......................................................... 13,557
Net cash recourse interest expense(3)..................................................... 12,532
Depreciation and amortization(4).......................................................... 5,809
Capital expenditures...................................................................... 2,124
</TABLE>
- ------------------------
(1) EBITDA represents the sum of income (loss) before income taxes, net recourse
interest expense and depreciation and amortization. EBITDA is not a measure
of performance or financial condition under generally accepted accounting
principles, but is presented to provide additional information related to
debt service capability. EBITDA should not be considered in isolation or as
a substitute for other measures of financial performance or liquidity under
generally accepted accounting principles. While EBITDA is frequently used as
a measure of operations and the ability to meet debt service requirements,
it is not necessarily comparable to other similarly titled captions of other
companies due to the potential inconsistencies in the method of calculation.
(2) Net recourse interest expense is interest expense minus interest expense on
nonrecourse notes payable and nonrecourse obligations under capital leases
of $2,015 and minus interest income on cash balances of $199.
(3) Net cash recourse interest expense is net recourse interest expense minus
amortization of deferred financing costs of $1,025.
(4) Excludes amortization of deferred financing costs on the Notes that are
included in interest expense.
38
<PAGE>
FEDERAL DATA CORPORATION
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
1. PRO FORMA ADJUSTMENTS TO THE UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
Pro forma adjustments to the unaudited consolidated statement of
operations for the year ended December 31, 1996 are made to reflect the
following:
(a) To remove revenues and direct costs of the Solutions division of
Sylvest pursuant to the stock purchase agreement.
(b) To record the reduction in compensation expense in connection with
new employment agreements entered into with NYMA and Sylvest senior
management concurrent with the effective date of their respective stock
purchase agreements.
(c) To record amortization of goodwill related to the Acquisitions over
an estimated useful life of 15 years.
(d) To remove historical interest expense incurred by NYMA and Sylvest
due to the repayment of the related debt balances.
(e) To reflect interest expense, including amortization of additional
deferred financing costs on additional borrowings under the Prior Senior
Credit Facility and the Seller Notes.
(f) To record the estimated aggregate income tax provision. This amount
includes the tax effect of all pro forma adjustments and the tax effect of
accounting for Sylvest as if it were a C corporation. Sylvest was a S
corporation prior to the Sylvest Acquisition.
(g) To reflect the net change in amortization of deferred financing
costs resulting from the issuance of the Notes:
<TABLE>
<S> <C>
Amortization of deferred financing costs related to
the Prior Senior Credit Facility................. $ (1,363)
Pro forma deferred financing costs related to the
Notes and the New Senior Credit Facility......... 1,025
---------
Net decrease....................................... $ (338)
---------
---------
</TABLE>
At December 31, 1996, there were deferred financing costs related to the
Prior Senior Credit Facility. No adjustments for the write-off of these amounts
has been included in the unaudited pro forma consolidated statement of
operations for the year ended December 31, 1996.
(h) To record the net change in interest expense resulting from the
issuance of the Notes and the establishment of the New Senior Credit
Facility:
<TABLE>
<S> <C>
Notes at 10.125%................................... $ 10,631
Actual interest expense on Prior Senior Credit
Facility......................................... (2,361)
Pro forma interest expense on additional borrowings
under the Prior Senior Credit Facility and Seller
Notes............................................ (6,408)
Pro forma increased fees related to the New Senior
Credit Facility.................................. 250
---------
Net increase....................................... $ 2,112
---------
---------
</TABLE>
39
<PAGE>
FEDERAL DATA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
THE RELATED TO THE RELATED TO THE PRO FORMA
COMPANY NYMA(1) SYLVEST(1) ACQUISITIONS SUBTOTAL OFFERING CONSOLIDATED
---------- ----------- ----------- -------------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 212,069 $ 23,624 $ 78,863 $ (5,833)(a) $ 308,723 $ 308,723
---------- ----------- ----------- ------- ---------- ------------
Cost of sales and services...... 178,132 13,838 70,312 (4,027)(a) 258,255 258,255
Selling, general, and
administrative expenses........ 23,624 11,670 10,213 (1,963)(a) 40,406 40,406
(3,138)(b)
Amortization of goodwill........ 1,195 -- -- 1,770(c) 2,965 2,965
Interest expense................ 7,124 144 297 (441)(d) 9,244 $ (166)(g) 10,563
2,120(e) 1,485(h)
---------- ----------- ----------- ------- ---------- ------- ------------
Total expenses.............. 210,075 25,652 80,822 (5,679) 310,870 1,319 312,189
---------- ----------- ----------- ------- ---------- ------- ------------
Income (loss) before income
taxes.......................... 1,994 (2,028) (1,959) (154) (2,147) (1,319) (3,466)
Provision (benefit) for income
taxes.......................... 1,031 (785) -- (685)(f) (439) (527)(f) (966)
---------- ----------- ----------- ------- ---------- ------- ------------
Net income (loss)............... $ 963 $ (1,243) $ (1,959) $ 531 $ (1,708) $ (792) $ (2,500)
---------- ----------- ----------- ------- ---------- ------- ------------
---------- ----------- ----------- ------- ---------- ------- ------------
OTHER PRO FORMA DATA
EBITDA(2)......................................................................................................... $ 10,254
Net recourse interest expense(3).................................................................................. 9,462
Net cash recourse interest expense(4)............................................................................. 8,693
Depreciation and amortization(5).................................................................................. 4,258
Capital expenditures.............................................................................................. 1,788
</TABLE>
- ------------------------
(1) Includes activity of NYMA and Sylvest prior to their acquisition by the
Company.
(2) EBITDA represents the sum of income (loss) before income taxes, net recourse
interest expense and depreciation and amortization. EBITDA is not a measure
of performance or financial condition under generally accepted accounting
principles, but is presented to provide additional information related to
debt service capability. EBITDA should not be considered in isolation or as
a substitute for other measures of financial performance or liquidity under
generally accepted accounting principles. While EBITDA is frequently used as
a measure of operations and the ability to meet debt service requirements,
it is not necessarily comparable to other similarly titled captions of other
companies due to the potential inconsistencies in the method of calculation.
(3) Net recourse interest expense is interest expense minus interest expense on
nonrecourse notes payable and nonrecourse obligations under capital leases
of $1,014 and minus interest income on cash balances of $87.
(4) Net cash recourse interest expense is net recourse interest expense minus
amortization of deferred financing costs of $769.
(5) Excludes amortization of deferred financing costs on the Notes that are
included in interest expense.
40
<PAGE>
FEDERAL DATA CORPORATION
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
1. PRO FORMA ADJUSTMENTS TO THE UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
Pro forma adjustments to the unaudited consolidated statement of operations
for the nine months ended September 30, 1997 are made to reflect the following:
(a) To remove revenues and direct costs of the Solutions division of
Sylvest pursuant to the stock purchase agreement.
(b) To record the reduction in compensation expense in connection with
new employment agreements entered into with NYMA and Sylvest senior
management concurrent with the effective date of their respective stock
purchase agreements.
(c) To record amortization of goodwill related to the Acquisitions over
an estimated useful life of 15 years.
(d) To remove historical interest expense incurred by NYMA and Sylvest
due to the repayment of the related debt balances.
(e) To reflect interest expense, including amortization of additional
deferred financing costs on additional borrowings under the Prior Senior
Credit Facility and the Seller Notes.
(f) To record the estimated aggregate income tax provision. This amount
includes the tax effect of all pro forma adjustments and the tax effect of
accounting for Sylvest as if it were a C corporation. Sylvest was a S
corporation prior to the Sylvest Acquisition.
(g) To reflect the net change in amortization of deferred financing
costs resulting from the issuance of the Notes:
<TABLE>
<S> <C>
Amortization of deferred financing costs related to
the Prior Senior Credit Facility................. $ (935)
Pro forma deferred financing costs related to the
Notes and the New Senior Credit Facility......... 769
---------
Net decrease....................................... $ (166)
---------
---------
</TABLE>
Deferred financing costs related to the Prior Senior Credit Facility
were written off in the third quarter. No adjustments for the write-off of
these amounts has been included in the unaudited pro forma consolidated
statement of operations for the nine months ended September 30, 1997.
(h) To record the net change in interest expense resulting from the
issuance of the Notes and the establishment of the New Senior Credit
Facility:
<TABLE>
<S> <C>
Notes at 10.125%................................... $ 7,973
Actual interest expense on Prior Senior Credit
Facility......................................... (1,870)
Pro forma interest expense on additional borrowings
under the Prior Senior Credit Facility and Seller
Notes............................................ (4,806)
Pro forma increased fees related to the New Senior
Credit Facility.................................. 188
---------
Net increase....................................... $ 1,485
---------
---------
</TABLE>
41
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF
FEDERAL DATA CORPORATION
The following table sets forth selected consolidated historical financial
data of FDC as of and for the years ended December 31, 1992, 1993, 1994, 1995
and 1996. The selected consolidated historical financial data has been derived
from FDC's consolidated financial statements, which have been audited by Price
Waterhouse LLP, independent accountants. Consolidated balance sheets at December
31, 1995 and 1996 and the related consolidated statements of operations, of
stockholders' (deficit) equity and of cash flows for the three years ended
December 31, 1996 and notes thereto appear elsewhere in this Prospectus. The
selected consolidated historical financial data as of September 30, 1997 and for
the nine months ended September 30, 1996 and 1997 have been derived from FDC's
unaudited consolidated financial statements which, in the opinion of management,
reflect all material adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the data for the unaudited
periods. The operating results for the nine months ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the full year
ending December 31, 1997. The selected consolidated historical financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements of FDC, together with the related notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT RATIO DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.............................. $ 96,933 $112,441 $143,527 $129,819 $151,108 $ 91,767 $212,069
-------- -------- -------- -------- -------- -------- --------
Expenses:
Cost of sales and services.......... 73,710 86,623 114,038 107,366 114,248 69,506 178,132
Selling, general and
administrative.................... 13,297 14,395 20,546 20,943 21,366 13,823 24,819
Interest(a)......................... 4,377 5,389 3,580 3,663 7,564 6,080 7,124
-------- -------- -------- -------- -------- -------- --------
Total expenses.................... 91,384 106,407 138,164 131,972 143,178 89,409 210,075
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before extraordinary item
and income taxes.................... 5,549 6,034 5,363 (2,153) 7,930 2,358 1,994
Income tax provision (benefit)........ 2,220 369 1,171 (3,950) 3,202 943 1,031
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations
before extraordinary item........... 3,329 5,665 4,192 1,797 4,728 1,415 963
Loss from discontinued operations, net
of income tax benefit(b)............ (6,330) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item................................ (3,001) 5,665 4,192 1,797 4,728 1,415 963
Extraordinary loss from early
retirement of debt, net of income
tax benefit(c)...................... -- -- -- -- -- -- (2,655)
-------- -------- -------- -------- -------- -------- --------
Net (loss) income..................... $ (3,001) $ 5,665 $ 4,192 $ 1,797 $ 4,728 $ 1,415 $ (1,692)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
EARNINGS PER SHARE(D):
Income before extraordinary item...... $ 2.43 $ 0.73 $ 0.39
Extraordinary loss from early
retirement of debt, net of income
tax................................. -- -- (1.07)
-------- -------- --------
Net income (loss)..................... $ 2.43 $ 0.73 $ (0.68)
-------- -------- --------
-------- -------- --------
Weighted average common shares and
common share equivalents(e)........... 1,946,194 1,934,984 2,478,425
-------- -------- --------
-------- -------- --------
OPERATING AND OTHER DATA(F):
EBITDA(g)............................. $ 8,149 $ 7,509 $ 6,734 $ (847) $ 14,082 $ 7,337 $ 10,068
Net recourse interest expense(h)...... 431 109 44 40 5,370 4,342 6,023
Net cash recourse interest
expense(f).......................... 431 109 44 40 3,926 3,462 5,512
Depreciation and amortization......... 2,169 1,366 1,327 1,266 782 637 2,051
Capital expenditures.................. 362 593 2,590 686 903 546 1,582
Ratio of earnings to fixed
charges(j).......................... 2.0x 2.0x 2.2x (k) 2.0x -- 1.3x
Pro forma ratio of earnings to fixed
charges(j).......................... -- -- -- -- 1.2x -- (k)
BALANCE SHEET DATA AT END OF PERIOD:
Working capital....................... $ 4,073 $ 14,422 $ 17,195 $ 11,025 $ 16,249 $ 53,282
Total assets.......................... 103,046 115,094 120,947 150,102 83,286 212,428
Long-term debt(l)..................... 46,984 35,753 20,077 43,412 50,170 120,676
Stockholders' equity (deficit)(m)..... 9,823 15,310 19,399 (25,962) (22,826) 1,781
</TABLE>
42
<PAGE>
- ------------------------------
(a) Interest expense includes interest on both recourse and nonrecourse notes
payable and obligations under capital leases.
(b) During 1990, the Company sold the business and substantially all the assets
of a subsidiary and accounted for the disposition as a discontinued
operation. The loss recorded during 1992 related to estimated costs arising
from a subcontractor's breach of contract to perform services under a
Government prime contract related to the discontinued operation.
(c) During the nine months ended September 30, 1997, the Company wrote off the
deferred financing fees related to the FDC, NYMA and Sylvest acquisition
debt that was refinanced in July 1997.
(d) Net income (loss) per share has been omitted for 1992-1995 because of the
material change in outstanding common shares resulting from the
recapitalization described at (m) below.
(e) See Note 3 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing the net income (loss) per
share.
(f) Net cash flows from (for) operating activities was $5,443, $12,258, $19,242,
$(2,767), $1,452, $(9,309) and $14,927 for the years ended December 31,
1992, 1993, 1994, 1995 and 1996, and for the nine months ended September 30,
1996 and 1997, respectively. Net cash flows (for) from investing activities
was $(24,977), $(8,093), $(7,558), $(52,841), $49,703, $50,006 and $(59,707)
for the years ended December 31, 1992, 1993, 1994, 1995 and 1996, and for
the nine months ended September 30, 1996 and 1997, respectively. Net cash
flows from (for) financing activities was $26,358, $(4,155), $(3,529),
$50,327, $(60,275), $(50,790) and $51,612 for the years ended December 31,
1992, 1993, 1994, 1995 and 1996, and for the nine months ended September 30,
1996 and 1997, respectively.
(g) EBITDA represents the sum of income (loss) from continuing operations before
extraordinary item and income taxes, net recourse interest expense and
depreciation and amortization. EBITDA is not a measure of performance or
financial condition under generally accepted accounting principles, but is
presented to provide additional information related to debt service
capability. EBITDA should not be considered in isolation or as a substitute
for other measures of financial performance or liquidity under generally
accepted accounting principles. While EBITDA is frequently used as a measure
of operations and the ability to meet debt service requirements, it is not
necessarily comparable to other similarly titled captions of other companies
due to the potential inconsistencies in the method of calculation.
(h) Net recourse interest expense is interest expense minus interest expense on
nonrecourse notes payable and nonrecourse obligations under capital leases
of $3,734, $4,910, $3,188, $2,669, $2,015, $1,651 and $1,014 and minus
interest income on cash balances of $212, $370, $348, $954, $179, $87 and
$87 for the years ended December 31, 1992, 1993, 1994, 1995 and 1996 and for
the nine months ended September 30, 1996 and 1997, respectively.
(i) Net cash recourse interest expense is net recourse interest expense minus
amortization of deferred financing costs of $817, $544 and $511 for the year
ended December 31, 1996 and for the nine months ended September 30, 1996 and
1997, respectively, and minus interest expense of $627 and $336 for the year
ended December 31, 1996 and the nine months ended September 30, 1996,
respectively, on Seller Notes that was paid through the issuance of payment
in kind notes.
(j) For the purpose of calculating the ratios of earnings to fixed charges,
"earnings" represents income from continuing operations before income taxes
plus fixed charges. "Fixed charges" consist of interest expense, excluding
interest income and including amortization of debt issuance costs, and the
portion of operating lease rental expense (33%) which management believes is
representative of the interest component of lease expense.
(k) As a result of the loss from continuing operations before income taxes
incurred for the year ended December 31, 1995, the Company was unable to
fully cover the indicated fixed charges by $2,153. On a pro forma basis,
after giving effect to the Transactions, earnings did not cover fixed
charges for the nine months ended September 30, 1997 by $3,466.
(l) Long-term debt includes both recourse and nonrecourse notes payable and
obligations under capital leases.
(m) Stockholders' equity (deficit) includes the effect of the Recapitalization
which included a charge to stockholders' equity of $58.8 million. In
connection with the Recapitalization and the Acquisitions, Carlyle and
management have contributed approximately $43.1 million of cash to the
Company. See Notes 2 and 14 to FDC's consolidated financial statements.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF FDC'S CONSOLIDATED FINANCIAL
CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION
WITH FDC'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS EXPRESSLY INDICATED, THE FOLLOWING
DISCUSSION DOES NOT GIVE EFFECT TO THE OFFERING OF THE PRIVATE NOTES OR THE
ACQUISITIONS OR INCLUDE PRO FORMA FINANCIAL INFORMATION.
GENERAL
FDC is a major supplier of information technology to a wide range of
customers within the Government. FDC has assembled, through internal growth and
strategic acquisitions, comprehensive information technology product and
services capabilities to address the unique needs of its Government clients.
Management believes the continuing consolidation within the information
technology industry, particularly among companies serving Government customers,
should result in additional opportunities for the Company to make attractive
acquisitions. As a result, the Company is continually involved in the
investigation and evaluation of potential acquisition candidates. Any such
transactions are typically subject to numerous conditions, including due
diligence investigations, contract reviews and negotiation of a definitive
purchase agreement in addition to arranging acceptable financing. In evaluating
acquisition targets, the Company considers, among other things, their
competitive market position, management teams, growth position, technical skills
and contract base. At any time the Company may have one or more offers
outstanding and may have executed one or more letters of intent or binding
acquisition agreements. There can be no assurance, however, that any such
understandings, letters of intent or discussions will result in any particular
transaction being consummated, or that acceptable financing will be available.
Prior to December 1, 1995, the majority of FDC's common stock was owned by
its employees. On December 1, 1995, FDC effected the Recapitalization wherein
Holdings merged with and into FDC with FDC continuing as the surviving
corporation. Holdings was a company organized by Carlyle to facilitate the
Recapitalization and had no operating activity or history. Upon consummation of
the Recapitalization, Holdings received 85.4% of FDC's outstanding common stock
and 14.6% was retained by members of FDC's management who were shareholders
prior to the Recapitalization. The merger was accounted for as a
recapitalization which resulted in a charge to stockholders' equity of $58.8
million to reflect the redemption of common stock.
The Government accounted for approximately 95%, 95% and 97% of total
revenues during 1994, 1995 and 1996, respectively. Revenue from sales and
sales-type leases (capital leases on which the lessor derives profit on the
underlying product as well as on the financing feature of the lease) is
generally recognized upon installation at the customer's site. FDC pioneered the
lease-to-ownership-plan ("LTOP"), a capital lease transaction, which allows
customers the flexibility to use operating lease funds to acquire equipment and
software and convert the transaction to an installment purchase if the contract
equipment meets its longer-term technological requirements. Under an LTOP, the
title of the equipment or software passes to the Government after the Government
makes the final lease payment. FDC typically discounts payments to be received
from the Government on a nonrecourse basis with independent financial
institutions. Accordingly, FDC's net investment in sales-type leases are pledged
as collateral for these nonrecourse obligations, which are reflected as
nonrecourse indebtedness on FDC's consolidated balance sheet. FDC considers
LTOPs to be sales-type leases in those instances where FDC believes that the
risk of cancellation of the Government lease is remote.
The Company's business is highly seasonal due to the Government's funding
and buying patterns which generally produce greater revenue, earnings and cash
flow to the Company in the third and fourth quarters with weaker performance
(frequently including operating losses) in the first quarter. Results for the
nine months ended September 30, 1997 are not necessarily indicative of results
to be expected for the year ending December 31, 1997.
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The Company's operating performance is affected by the number of Government
contracts held, the types of contracts, the timing of installation or delivery
and the relative margins of the services performed or products sold, as the case
may be. For a discussion of the Company's material contracts, including the
receipt of a recent termination notice stating that NASA will not exercise its
option at year-end 1997 on a NYMA "Section 8(a)" contract and related
considerations, see "Business--Products and Services-- Services
Group--Engineering Services--Scientific, Engineering, Technical and
Administrative Related Services." In general, the Company earns its highest
margins on its most specialized systems integration work and lower margins on
cost-plus services contracts and on sales of COTS products by its Product Sales
Group, which tend to have a lower services component associated with such sales
and a more competitive after-award sales environment. However, profitability
regularly varies from contract to contract and product to product over the
contract term.
The following discussion includes the results of operations of NYMA from May
2, 1997 and Sylvest from June 30, 1997 (the dates of acquisition) through
September 30, 1997. The Acquisitions substantially expanded the size of the
Company. Pro forma revenues for 1996 were more than double FDC's revenues (see
"Selected Unaudited Pro Forma Consolidated Financial Data"), and the Company's
work force expanded from 250 at the end of 1996 to over 1,000 after the
Acquisitions. As a result of these Acquisitions, the Company's results of
operations and financial condition will differ materially from those reported in
prior periods, as the Company's revenues, expenses and level of indebtedness and
capitalization will all increase materially. Cash flows may also be affected
materially depending on the operating performance of the Acquired Companies.
Because of the indebtedness incurred to finance the Recapitalization, operating
results for periods after the Recapitalization are not comparable with the
results for periods prior to the Recapitalization. For financial information
regarding the Acquired Companies, see "Selected Unaudited Pro Forma Consolidated
Financial Data" and the financial statements and the notes thereto of the
Acquired Companies included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
REVENUES
Revenues for the nine months ended September 30, 1997 were $212.1 million,
up $120.3 million or 131% over the comparable period of 1996. The NYMA and
Sylvest acquisitions accounted for $82.4 million of the increase in revenue over
the comparable period of 1996. Revenue from equipment and software sales was
$115.9 million, up $67.2 million or 138% from the comparable period of 1996. The
NYMA and Sylvest acquisitions accounted for $43.5 million of the increase in
equipment and software sales revenue over the comparable period of 1996. The
remaining increase in revenue from equipment and software sales is principally
due to increased emphasis on FDC's COTS products business and the negative
impact of the Government budget delay and shutdown on FDC's 1996 first half
revenue. Revenue from maintenance and support services was $93.8 million, up
$53.8 million or 135% from the comparable period of 1996. The NYMA and Sylvest
acquisitions accounted for $38.9 million of the increase in revenue over the
comparable period of 1996. The remaining increase in revenue from maintenance
and support services is principally due to increased professional services
performed under existing contracts and additional contracts under maintenance
plans.
COST OF SALES AND SERVICES
Cost of sales and services for the nine months ended September 30, 1997 was
$178.1 million, up $108.6 million or 156% over the comparable period of 1996.
The NYMA and Sylvest acquisitions accounted for $73.6 million of the increase in
cost of sales and services over the comparable period of 1996. Cost of sales and
services for the nine months ended September 30, 1997 was 85% of sales and
services revenues compared with 78% of sales and services revenues for the
comparable period in 1996. The decrease in the gross margin percentage primarily
relates to increased influence of the COTS products sold through the Product
Sales Group including Sylvest, which generally have lower gross margin
percentages than product sales by FDC's Systems Integration Group and Solutions
Group, and the lower margins on NYMA's cost plus award fee business, offset by
the improved margins from the professional
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services business, a greater percentage of which is now being performed by FDC
employees instead of being subcontracted to others.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the nine months ended
September 30, 1997 was $24.8 million, up $11.0 million or 80% over the
comparable period of 1996. The NYMA and Sylvest acquisitions accounted for $4.8
million of the increase in selling, general and administrative expenses over the
comparable period of 1996. The amortization of goodwill related to the NYMA and
Sylvest acquisitions accounted for $1.2 million of the increase in selling,
general and administrative expense over the comparable period of 1996. The
remaining increase in selling, general and administrative expense was due
primarily to an increase in the number of personnel. Excluding the effect of the
NYMA and Sylvest acquisitions and the amortization of goodwill, selling, general
and administrative expense for the nine months ended September 30, 1997 was down
to 14% of revenues compared with 15% of revenues for the comparable period of
1996. This decrease in selling, general and administrative expense as a
percentage of revenue was due primarily to economies of scale resulting from the
increase in revenues.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 1997 was $7.1
million, up $1.0 million, or 17% over the comparable period of 1996. Recourse
interest expense increased $1.6 million for the nine months ended September 30,
1997 over the comparable period of 1996 primarily due to increased recourse debt
balances including term debt used to partially finance the Acquisitions.
Interest expense on nonrecourse debt declined $0.6 million for the nine months
ended September 30, 1997 from the comparable period of 1996 due to a reduced
level of capital leases. Interest expense is expected to be higher in 1998 than
in 1997, reflecting the higher level of Indebtedness to be outstanding for the
full year, as a result of the Acquisitions.
INCOME TAXES
The provision for income taxes for the the nine months ended September 30,
1997 is based on an estimated annual effective rate, excluding expenses not
deductible for income tax purposes. Before giving effect to the Acquisitions,
the effective tax provision rate for the year ending December 31, 1997 is
estimated to be 40%, approximately the same rate as that experienced for 1996.
The Company believes that the nondeductibility of goodwill associated with the
NYMA acquisition will cause future tax rates to be higher.
EXTRAORDINARY LOSS
During the nine months ended September 30, 1997, the Company wrote off $4.4
million of deferred financing fees related to the FDC, NYMA and Sylvest
acquisition debt that was refinanced in July 1997. This write-off was reduced by
an income tax benefit of $1.7 million which produced an extraordinary loss of
$2.7 million.
NET INCOME/LOSS
Net loss for the nine months ended September 30, 1997 was $1.7 million, a
$3.1 million decrease from the net income of $1.4 million recorded in the
comparable period of 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
REVENUES
Revenues for the year ended December 31, 1996 were $151.1 million, up $21.3
million or 16% over 1995. Revenue from equipment and software sales was $87.5
million, up $6.5 million or 8% from 1995. The increase in revenue from equipment
and software sales was principally due to increased emphasis on FDC's COTS
products business. Revenue from maintenance and support services was $59.9
million, up $16.1 million or 37% from 1995. The increase in revenue from
maintenance and support services was principally due to increased professional
services performed under existing contracts and additional contracts under
maintenance plans.
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COST OF SALES AND SERVICES
Cost of sales and services for the year ended December 31, 1996 was $114.2
million, up $6.9 million or 6% compared with 1995. Cost of sales and services
for 1996 was 78% of sales and services revenues compared with 86% of sales and
services revenues in 1995. The increase in gross margin percentage primarily
relates to efficiencies recognized on the higher revenue base in the maintenance
and support services businesses and to a $6.3 million loss recorded in 1995 on a
single fixed-price government contract. The loss resulted when expected cost
reductions associated with the introduction of new technology were not realized.
Excluding the effect of the $6.3 million loss, cost of sales and services for
1995 was 81% of sales and services revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the year ended December 31,
1996 was $21.4 million, up $0.4 million or 2% over 1995. Selling, general and
administrative expense for the year ended December 31, 1996 was down to 14% of
revenues compared with 16% of revenues for 1995. This decrease as a percent of
revenues was due primarily to $5.4 million of expenses incurred during 1995 in
connection with the Recapitalization. These expenses included the forgiveness of
$3.1 million of indebtedness from certain of FDC's officers, special
discretionary bonuses of $1.4 million and $0.9 million of other one-time
charges. Excluding the effect of expenses incurred in connection with the
Recapitalization, selling, general and administrative expenses as a percent of
revenues would have been 11% in 1995. The increase in recurring selling, general
and administrative expenses during 1996 primarily relates to increased personnel
as FDC expanded its sales force in the products and professional services areas.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1996 was $7.6 million, up
$3.9 million or 106% over 1995. The increase in interest expense primarily
relates to the interest on the indebtedness which was issued in connection with
the Recapitalization. The increase in interest expense on such indebtedness more
than offset the decrease in interest expense resulting from reduced capital
leases.
INCOME TAXES
The effective tax provision rate for the year ended December 31, 1996 was
40% as compared with the effective tax benefit rate of 184% for 1995. The 1995
tax benefit resulted from the Company's elimination of its deferred tax asset
valuation allowance of $3.3 million based on management's belief that there was
sufficient assurance that the Company's deferred tax assets would be realized,
offset by $0.6 million of nondeductible expenses. Excluding the effect of the
elimination of the deferred tax asset valuation allowance and the nondeductible
expenses, the Company would have had an effective tax benefit rate for the year
ended December 31, 1995 of 36%.
NET INCOME
Net income for the year ended December 31, 1996 was $4.7 million, up $2.9
million or 163% over 1995 based on the reasons discussed above.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
REVENUES
Revenues for the year ended December 31, 1995 were $129.8 million, down
$13.7 million or 10% from 1994. Revenues from equipment and software sales were
$81.0 million, down $26.9 million or 25% from 1994. The decrease in revenues
from equipment and software sales is principally due to a reduction in business
volume on contracts that were awarded and had high initial order levels during
1994. In addition,
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the first of two Government budget delays and shutdowns had a negative impact on
the Company's business in the fourth quarter of 1995. Revenues from maintenance
and support services were $43.8 million, up $12.3 million or 39% from 1994. The
increase in revenues from maintenance and support services is principally due to
increased professional services performed under existing contracts and
additional contracts under maintenance plans.
COST OF SALES AND SERVICES
Cost of sales and services for the year ended December 31, 1995 was $107.4
million, down $6.7 million or 6% from 1994 primarily due to the decrease in
product and software sales. Cost of sales and services for the year ended
December 31, 1995 was 86% of sales and services revenues compared with 82% of
sales and services revenues for 1994. During 1995, the Company recorded a $6.3
million loss on a single fixed-price government contract. The loss resulted when
expected cost reductions associated with the introduction of new technology were
not realized. Excluding the effect of the $6.3 million loss, cost of sales and
services for 1995 was 81% of sales and services revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the year ended December 31,
1995 was $20.9 million, up $0.4 million or 2% over 1994. Selling, general and
administrative expense for the year ended December 31, 1995 was 16% of revenues
compared with 14% of revenues for 1994. This increase in selling, general and
administrative expense as a percent of revenues was due primarily to $5.4
million of expenses incurred during 1995 in connection with the
Recapitalization. These expenses included the forgiveness of $3.1 million of
indebtedness from certain of FDC's officers, special discretionary bonuses of
$1.4 million and $0.9 million of other one-time charges. Excluding the effect of
the expenses incurred in connection with the Recapitalization, selling, general
and administrative expenses as a percent of revenues would have been 11% in
1995. Selling, general and administrative expenses during 1994 included $2.1
million of one-time compensation expenses incurred in contemplation of a
potential change in ownership of FDC and a $0.5 million reserve established for
a possible loss on a limited partnership, which owned FDC's office space.
Excluding the effect of these expenses, selling, general and administrative
expenses as a percent of revenues would have been 12% in 1994.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1995 was $3.7 million, up
$0.1 million or 2% over the comparable period of 1994.
INCOME TAXES
The Company recorded an effective tax benefit rate of 184% for the year
ended December 31, 1995, compared with an effective tax provision rate of 22%
for 1994. This tax benefit was primarily the result of the Company's elimination
of its deferred tax asset valuation allowance of $3.3 million based on
management's belief that there was sufficient assurance that the Company's
deferred tax assets would be realized, offset in part by $0.6 million of
nondeductible expenses. Excluding the effect of the elimination of the deferred
tax asset valuation allowance and the nondeductible expenses, the Company would
have had an effective tax benefit rate for the year ended December 31, 1995 of
36%. During 1994, the Company recorded the benefit of investment tax credits of
$1.1 million and released $0.9 million of the deferred tax asset valuation
allowance. Excluding the effects of the investment tax credits and the release
of the deferred tax asset valuation allowance, the effective tax provision rate
for the year ended December 31, 1994 would have been 36%.
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NET INCOME
Net income for the year ended December 31, 1995 was $1.8 million, down $2.4
million or 57% from 1994 based on the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash provided by operations.
The Company's liquidity requirements generally vary seasonally with revenues,
which are generally higher in the third and fourth quarters of each fiscal year.
Historically, cash flow from the collection of accounts receivable from the
Government has generally been predictable and dependable. Cash and cash
equivalents were $1.2 million at December 31, 1996, down $9.1 million from
December 31, 1995 primarily as a result of net cash flow from operating
activities of $1.5 million and net cash flows from investing activities of $49.7
million being offset by net cash flow used in financing activities of $60.3
million. Net cash flow from operating activities was primarily a result of net
income plus depreciation and amortization, which totaled $5.5 million, offset in
part by other changes in assets and liabilities of $4.0 million. Net cash flow
from investing activities was $49.7 million for 1996 primarily as a result of
selling the short-term investments resulting from the equity payments received
in the Recapitalization of $51.8 million, offset in part by purchases of
equipment for sales-type leases and property and equipment totaling $2.1
million. Net cash flows used in financing activities amounted to $60.3 million
for 1996, primarily as a result of the redemption payments made to selling
shareholders in the Recapitalization of $51.8 million, repayments of borrowings
of $15.8 million and repayments of capital lease obligations of $5.4 million,
offset in part by additional net borrowings under the Company's line of credit
of $10.8 million.
As of September 30, 1997, FDC had outstanding recourse debt of $118.8
million. See "Capitalization." These amounts exclude $11.0 million of
nonrecourse notes payable and obligations under capital leases, which the
Company records in connection with the financing of certain equipment sales and
leases. See "--General."
The Company's New Senior Credit Facility includes certain restrictions as to
the Company's ability, among other things, to acquire or dispose of assets, to
pay dividends and to incur additional indebtedness. In addition, the Company is
required to maintain a minimum net worth and certain operating ratios,
including, among others, interest coverage and fixed charges. Such requirements
could limit the Company's ability to incur debt and could thereby limit the
Company's liquidity and ability to make certain acquisitions. All of the
Company's assets not otherwise pledged are utilized as collateral under the
Company's credit agreements. The New Senior Credit Facility also provides for a
maximum availability based upon a borrowing base comprised of 85% of Eligible
Receivables and 60% of Eligible Inventory (as defined in the New Senior Credit
Facility), up to a maximum availability of $75.0 million. At September 30, 1997
there were $4.0 million of undrawn letters of credit and $3.5 million of
revolving line of credit borrowings. The New Senior Credit Facility bears
interest at the Company's option at the base rate in effect from time to time
plus 1.25% or the eurodollar rate plus 2.25% plus an additional 2.0% on overdue
amounts. See "Description of Certain Indebtedness."
The Company, through Sylvest, also maintains an inventory and receivables
financing facility with an asset-based lender to facilitate the purchase of
inventory by Sylvest from approved vendors for prompt resale to customers. The
Company pays no interest on accounts drawn under such Floor Plan Financing
Facility (as defined) for negotiated periods and such drawn amounts are
reflected in accounts payable during such periods. See "Description of Certain
Indebtedness."
Upon the closing of the Acquisition, all outstanding balances of NYMA and
Sylvest under their respective lines of credit were repaid in full by the
Company and the lines of credit were cancelled.
Stockholders' equity amounted to $1.8 million at September 30, 1997, an
increase in stockholders' equity of $24.6 million from December 31, 1996. This
increase is principally due to proceeds from the sale
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of common stock of $27.0 million, net of issuance costs of $0.8 million. The
stockholders' deficit amounted to $22.8 million at December 31, 1996, a
reduction of $3.1 million from December 31, 1995. This reduction is principally
due to the net income of $4.7 million for 1996, net of a charge to retained
earnings of $1.6 million, to fund future additional distributions for the
benefit of the selling shareholders in the Recapitalization. The stockholders'
deficit amounted to $26.0 million at December 31, 1995, a change of $45.4
million from stockholders' equity at December 31, 1994. The reduction is
principally due to the redemption of common stock in the Recapitalization of
$58.8 million and other redemptions of common stock of $1.8 million, offset in
part by net income of $1.8 million and net proceeds from the sale of common
stock of $13.9 million.
As of September 30, 1997, the Company had no significant capital expenditure
commitments.
Based on the Company's current level of operations, management believes that
available cash, together with the net proceeds of the offering of the Private
Notes and available borrowings under the New Senior Credit Facility and the
Floor Plan Financing Facility, should be adequate to meet the Company's
anticipated future requirements for working capital, capital expenditures and
scheduled payments of interest on its debts (including the Notes) through at
least the scheduled date of expiration of the New Senior Credit Facility on July
25, 2002.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of inflation on
its operations, it does not believe that inflation has had, or is likely in the
foreseeable future to have, a material impact on its results of operations.
Unlike other service providers, the Company does not have a significant number
of fixed price service contracts where the Company bears the risk of cost
increases. The Company's operating results would be adversely affected by
increases in interest rates which would result in higher interest payments by
the Company under its variable rate credit facilities. As of September 30, 1997,
the Company had $3.5 million (excluding $4.0 million of undrawn letters of
credit) outstanding under its variable rate credit facilities. If interest rates
rise, the Company's cost of capital and debt service requirements would
increase. The Company has not historically entered into hedging transactions
with respect to its variable rate debt, but may do so in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128) is effective for the Company for the year ending December 31, 1997.
Under SFAS 128, the Company will not be required to present earnings per share
for as long as its common stock is not publicly held.
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BUSINESS
GENERAL
The Company is a major supplier of information technology to a wide range of
customers within the Government. The Company has assembled, through internal
growth and strategic acquisitions, comprehensive information technology product
and services capabilities to address the unique needs of its Government clients.
Management believes that the Company is strategically positioned to benefit from
the current trends in the Government market for information technology and
outsourcing of technical and professional services. The Government is among the
world's largest purchasers of information technology with estimated total
expenditures in fiscal 1997 in excess of $26 billion. For the year ended
December 31, 1996 and the six months ended September 30, 1997, the Company's
total pro forma revenues were $332.8 million, $308.7 million, respectively, and
total pro forma EBITDA (as defined herein) were $23.3 million and $10.3 million,
respectively.
Founded in 1969, the Company serves a diverse and expanding customer base
representing over 20 Government agencies including NASA, the FAA, the NIH, the
DoD, the VBA and the Department of State. In addition, the Company has
longstanding relationships with many of its key clients, with agencies served by
the Company for five or more years accounting for more than half of the
Company's pro forma revenues in 1996. Management believes that the Company's
established reputation and long-standing relationships with Government
customers, and the extensive knowledge gained from those relationships, have
been critical to the Company's strong record of growth and provide a key
competitive advantage in pursuing business opportunities with new and existing
customers.
Consistent with its strategy of providing a complete range of information
technology offerings to its Government customers, the Company has pursued
strategic acquisitions to broaden and strengthen key skill areas. In May 1997,
the Company purchased NYMA, a provider of sophisticated engineering and
information technology services. NYMA complemented and significantly expanded
the Company's core capabilities in the technology and engineering services
sector, providing the Company with the ability to bid effectively on new
contracts with a higher component of technical services requirements. In June
1997, the Company acquired Sylvest, a value-added reseller and integrator of
COTS hardware, software and technical services supporting open systems
architectures within the Government marketplace. Through the Sylvest
Acquisition, the Company has become a leading reseller of COTS hardware and
software to the Government and has substantially expanded the number of
customers to which it can market its systems integration offerings. FDCT Corp.
is the parent holding company of FDC Technologies, Inc., NYMA, Inc. and Sylvest
Management Systems Corporation and has no independent operations. DoxSys, Inc.
is a wholly-owned subsidiary of FDC Technologies, Inc. and provides complete
image-based document management solutions tailored to customers. VAD
International, Inc. is a wholly-owned subsidiary of NYMA, Inc. and is a value
added distributor of document workflow management software and assorted hardware
products.
The Acquisitions have significantly enhanced the Company's presence in the
Government marketplace. Based on a recent survey, on a pro forma basis, the
Company would have been the 25th largest information technology contractor to
the Government in 1996. Management believes the information technology industry,
particularly the portion serving Government customers, has and will continue to
consolidate, resulting in additional opportunities for the Company to make
attractive acquisitions that complement or expand its core capabilities.
INDUSTRY OVERVIEW
According to Federal Sources, Inc., an independent market research firm
specializing in the Government market, the Government is the world's largest
single buyer of information technology services and products. Federal Sources,
Inc. estimates that Government spending specifically designated for information
technology will be $26.5 billion during the Government's fiscal 1997. The
Government also spends
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significant additional funds on information technology through other general
budget appropriations. According to the Electronic Industries Association,
Government agencies that are not required to report their information technology
expenditures, including agencies in the intelligence community, will spend an
additional $20 billion on such technology in the Government's fiscal 1997.
Despite growing budget pressures, Government outlays for third-party
technology services and outsourcing have increased steadily as the Government
has sought to control its spending and gain the efficiencies and flexibility
experienced by commercial purchasers of these services. The GSA anticipates a
continuation of the trend toward increased Government use of outside information
technology providers and estimates that 65% of all Government agencies operating
in-house data systems may eventually outsource information technology services
to the private sector at an estimated cost savings of 25% to 30%. The current
legislative and regulatory environment generally supports initiatives in the
Government information technology sector to change procurement practices and
become more like the private sector. Several statutory and regulatory changes
have brought about a significant transition in Government procurement practices,
dramatically increasing the number of procurement "vehicles" available to
Government customers and generally reducing the lead time required to buy
information technology products and services. See "--Government Contracts."
In addition to its growing use of third-party providers, the Government,
like many corporate organizations, has sought to address an increasing portion
of its information technology needs through relatively inexpensive, open
architecture systems based on COTS hardware and software, which are rapidly
displacing the single purpose, custom systems historically favored by the
Government.
These concurrent changes in the types of information technology solutions
purchased by Government agencies and the rules governing the procurement of such
solutions have dramatically changed the marketplace in the last few years and
are likely to continue doing so. Where Government agencies traditionally
procured customized information technology solutions through agency-specific
contracts awarded to a single contractor or contractor team, Government agencies
are now more likely to purchase flexible, COTS-based information technology
systems through IDIQ contracts awarded to multiple contractors or teams of
contractors or through established GSA Schedules or multi-agency contracts
("MACs"). See "--Government Contracts."
BUSINESS AND GROWTH STRATEGY
The Company's goal is to be a leading one-stop information technology
solutions supplier, providing high-quality products and services that meet the
complete needs of its Government client base. The Company's strategies to meet
this objective are the following:
- CREATE COMPREHENSIVE SKILL AND PRODUCT BASE. The Company seeks to
continuously add new information technology capabilities and strategically
expand existing business areas to meet the changing information technology
needs and buying patterns of its clients. By expanding its extensive
technical skill base and ability to supply a broad and diverse set of COTS
hardware and software, the Company can provide its customers with the
widest possible range of cost effective solutions and engender a high
level of customer satisfaction. Management believes that such
capabilities, together with the Company's in-depth knowledge of changing
Government procurement practices, should continue to create new
opportunities for the Company.
- STRONG CUSTOMER KNOWLEDGE AND FOCUS. The Company strives to understand
the full range of each of its customers' information technology needs. The
Company's strategy is to continue to leverage its strong customer
knowledge, advanced technical skills and supplier relationships to tailor
optimal solutions to its customers' specific needs and to offer technology
infrastructures that anticipate its customers' rapidly evolving needs.
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- PURSUE STRATEGIC ACQUISITIONS. The Company seeks to continue expanding
the breadth and quality of the information technology products and
services it offers. The recently completed acquisitions of NYMA and
Sylvest have added important complementary skills to the Company's
information technology capabilities. Management expects to continue to
pursue strategic acquisitions which it believes can contribute
significantly to the Company's future business growth.
- MAXIMIZE FLEXIBILITY OF GOVERNMENT CUSTOMERS. A key component of the
Company's success has been its ability to quickly adapt to the rapidly
evolving Government procurement process. The Company continually pursues
means of maximizing its customers' flexibility in acquiring a range of
products and services with competitive prices and minimal bureaucratic
delay by selecting the best methods available in the current, more
streamlined procurement climate.
- CAPITALIZE ON OUTSOURCING OPPORTUNITIES. The Company seeks to pursue new
opportunities created by changes in the Government information technology
industry. In particular, although the Government has frequently hired
service providers to fill specific roles in the past, the Government is
increasingly considering opportunities to outsource entire functions to
private industry. As part of this strategy, the Company intends to
leverage its client relationships, technical skills and access to COTS
hardware and software in pursuing emerging opportunities in the
outsourcing of certain Government information technology functions.
PRODUCTS AND SERVICES
The Company focuses on providing a comprehensive array of high technology
professional services in combination with hardware and software products from a
variety of selected manufacturers. The Services Group focuses primarily on
providing sophisticated technical and engineering personnel to enhance
information technology performance and productivity and to provide project
engineering and outsourcing services. The Systems Integration Group integrates
diverse hardware and software components into a single turnkey system, usually
selling COTS hardware and software products as an element of the integrated
solution. The Product Sales Group provides a one-stop shop for government
customers to procure COTS hardware and software. The Solutions Group provides
high-end, solutions-oriented consulting services.
SYSTEMS INTEGRATION GROUP
Systems integration refers to the integration of diverse information
technology products, frequently including the combination of existing custom
systems with COTS hardware and software into a single turnkey system. The
Company's Systems Integration Group provides large-scale, tailored integrated
solutions to its customers, generally including design, construction, and
implementation, as well as the sale of any COTS hardware and software required
for completion. The Company is a prominent computer systems integrator, having
been a pioneer in systems integration for the Government in 1969. The Company
has over 25 years of experience supplying custom turnkey systems to various
departments and agencies of the Government. The contracts completed during this
period have ranged from national defense programs to administrative, payroll and
inventory control functions of various Government departments and agencies.
The Company's systems integration projects are characterized by complex
features such as multi-year systems life, multiple vendors, technical
complexity, the application and integration of leading-edge technology and the
selection and management of subcontractors and teaming partners with expertise
specific to the system solution required by the customer. The Company acts as
both a prime contractor and as a subcontractor on a broad range of systems
integration projects for the Government. In performing these duties, the Company
generally procures equipment, software, networking components and services from
several manufacturers or suppliers to produce a single, program-specific turnkey
system. When no "off-the-shelf" solution or product exists, the Company on
occasion develops software to provide a total
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compliant solution. The Company also generally provides installation,
maintenance, training and technical support services throughout the life of the
contract. Most systems integration contracts specify initial system requirements
to be covered by the contract amount; as technology and customer needs change
over the life of the contracts, they function as IDIQ contracts that permit the
Company to supply equipment upgrades and customer support in response to
changing customer requirements and improvements in technology. Management
believes that such long-term contracts have permitted the Company to develop
strong partnerships with its customers and have contributed to the Company's
success with long-term programs in an environment of rapidly changing
procurement requirements and technological growth.
The Systems Integration Group consists of over 100 dedicated technical and
management personnel trained to provide COTS integration, mainframe, midrange
and microcomputer integration, communications and networking, software
development, and help desk and support organizations.
Listed below are summary descriptions of major contracts and programs for
the Systems Integration Group. The term of each contract specified is the
maximum term under the contract including all options. The Government has
typically exercised all options under the Systems Integration Group's contracts.
Although the future status of any contract is uncertain after contract
expiration, management believes that certain support and service functions being
provided under many of these contracts may be subject to recompetition and rebid
upon expiration, either alone or in combination with other products and/or
services. For a description of Government contracts, see "--Government
Contracts."
U.S. NAVY SUPPLY SYSTEMS COMMAND. This fifteen-year contract was
awarded in 1983 and provides for the installation of computer systems at 62
NAVSUP sites worldwide. The systems are used for integrated wide-area and
local area communications control, terminal emulation, data conversion and
database management. The contract expires in 1998. 1996 revenues were
approximately $32 million.
VETERANS BENEFIT ADMINISTRATION MODERNIZATION. This eight-year contract
was awarded in December 1992 and provides for the modernization of the
information technology environment in regional offices of the VBA. Products
and services provided include hardware, software, maintenance, support desk,
training, installation and technical support services. The Company is
providing LAN servers and workstations which connect to Honeywell
mainframes. The contract expires in 2000. 1996 revenues were approximately
$28 million.
INVENTORY CONTROL POINTS II. Awarded in 1992, this five-year contract
calls for the Company to provide hardware, software and services to
modernize portions of the Navy's logistics support services. The contract
expires in 1997. 1996 revenues were approximately $18 million.
DEPARTMENT OF STATE. This seven-year contract was awarded in 1994 and
calls for the Company to augment and replace existing IBM mainframe systems
and their components at five Department of State processing hubs. The
contract expires in 2001. 1996 revenues were approximately $11 million.
DEPARTMENT OF VETERANS AFFAIRS. Awarded in 1991, this ten-year contract
calls for the Company to provide IBM systems in support of Veterans
Administration on-line processing systems. The contract expires in 2001.
1996 revenues were approximately $10 million.
NIH CERTAN CORPORATE COMPUTING SYSTEMS. This eight-year contract was
awarded in December 1996 and involves the provision and support of both new
and existing IBM mainframes and open systems, and the provision of related
software. In addition, the Company will install and provide post-
installation support of DEC AlphaServers and install Oracle software. The
contract expires in 2004. No revenues were realized under this contract in
1996.
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SERVICES GROUP
The Company's technology services offerings are focused predominantly on
providing sophisticated professional and outsourcing services to various
Government agencies. These activities are concentrated in two key areas:
information technology services and engineering services.
INFORMATION TECHNOLOGY SERVICES. The Company operates under approximately
35 separate contracts for information technology services, through which it
provides program management, software development and software maintenance
functions for various Government agencies and prime contractors to the
Government. Specific activities include providing software engineering services
to support the maintenance and modification of the FAA's Air Traffic Control
Operational Computer Program at seven FAA Enroute Centers and at the FAA
Technical Center; supporting the design, development and implementation and
maintenance of systems and programs for spacecraft mission operations at the
California Institute of Technology Jet Propulsion Laboratory ("JPL"); performing
acceptance testing and supporting integration and test activities and quality
assurance for the Earth Observing System Data and Information System, a network
to support a constellation of earth observing spacecraft for NASA; and
monitoring contractor activities under the HUD Integrated Information Service,
including contracts administration, negotiations, budget analysis, quality
control and other services.
ENGINEERING SERVICES. The Company provides engineering services primarily
through NYMA, which provides support to NASA, the FAA, other Government agencies
and private industry. Operating under two large NASA cost-plus contracts to
provide comprehensive engineering support for NASA's Lewis Research Center in
Cleveland, Ohio and Langley Research Center in Hampton, Virginia, the Company
provides engineering services in the areas of aeromechanics, aerospace
technology, space experimentation, structures, materials, instrumentation and
aeronautics.
The Company's 300 employees at Lewis Research Center, over 25% of whom have
PhDs, perform research into rocket propulsion, space power, space propulsion,
wind tunnels and other test facilities support, structural analysis for
spacecraft materials and materials research. Specific projects include the
conceptual design and performance modeling for the national aerospace plane, the
advanced subsonic transport and high speed research engines; aerodynamic and
mission analysis for single- and two-stage-to-orbit vehicles and high speed
supersonic civilian transports; icing research studies; and the design of
propulsion system aeroacoustics and turbomachinery technologies, such as an
energy efficient engine. The group at Lewis is also responsible for building
space flight hardware for NASA space experiments including hardware for
microgravity experiments on the Space Shuttle, the Mir space station, sounding
rockets and the planned International Space Station. To date, NYMA has been
involved in the development of over 55 payloads flown on 16 Space Shuttle
missions.
Langley research relating mainly to aeronautics involves approximately 120
employees, and is focused in the areas of aeronautical systems analysis,
spacecraft mission analysis and engineering and flight operations support. The
Langley unit provides a full range of systems analysis and integration studies
including systems analysis for advanced military and civil aircraft designs,
conceptual design studies of critical and high-payoff technologies,
multi-discipline studies of unique military aircraft configurations, airframe
and engine design studies on hypersonic vehicles, scramjet integrated design
studies and spacecraft mission and system performance analysis. The Company
provides engineering and operations support in such areas as the design,
engineering and development of flight projects; the development of ground test
systems and test techniques (such as the development of innovative wind
tunnels); and the maintenance and operations of aircraft and aircraft systems
including research vehicles and experimental avionics systems.
As a result of its work at the two NASA centers, the Services Group
generated approximately $1 million in additional 1996 revenues by providing
similar engineering services to approximately ten private aerospace companies.
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Listed below are summary descriptions of major contracts and programs of the
Services Group. The term of each contract specified is the maximum term under
the contract including all options. The Government has typically exercised all
options under the Services Group's contracts. Although the future status of any
contract is uncertain after contract expiration, the Company expects the
customer under each of these contracts to continue to require the services being
performed after the contract expires and expects such services to be the subject
of a new bidding competition for a new contract, either alone or in combination
with other services. For a description of different types of Government
contracts, see "--Government Contracts."
SCIENTIFIC, ENGINEERING, TECHNICAL AND ADMINISTRATIVE RELATED
SERVICES. This five-year cost-plus-award-fee contract was awarded under
Section 8(a) to NYMA in 1994 by NASA's Lewis Research Center, as described
above. After the acquisition of NYMA by the Company, NYMA's continued
participation as a prime contractor under Section 8(a) contracts required a
waiver from the Administrator of the Small Business Administration, as
discussed under "Risk Factors--Government Contracting Risks." NASA has
recently notified NYMA that it does not plan to request a waiver or to
exercise the final option year of the contract when the current option
expires on December 31, 1997. The Government has advised the Company that it
plans to procure the goods and services currently provided by NYMA under a
new Section 8(a) set-aside contract on which NYMA would be ineligible to
participate as a prime contractor. NYMA intends to pursue continued
participation in the program in a reduced role as a subcontractor on the new
contract in 1998, although such participation would generate lower revenues
and EBITDA than NYMA has historically earned, and there can be no assurance
that such a subcontract will be obtained. 1996 revenues were approximately
$33 million.
HOST SOFTWARE SUPPORT. This twelve-year fixed-price labor hour contract
was awarded to NYMA in 1986. The Company is a subcontractor to Lockheed
Martin and provides software support to 7 FAA Enroute Air Traffic Control
Centers east of the Mississippi River. The Enroute system monitors and
directs aircraft between airports. Approximately 65 employees perform
project activities including software engineering and maintenance, systems
enhancements, systems programming and data reduction and analysis. The
contract expires in 1998. 1996 revenues were approximately $8 million.
MISSION OPERATIONS SUPPORT SERVICES. This five-year cost-plus-fixed-fee
contract was awarded in 1994 by the JPL and provides NASA flight project
mission operations support systems at the JPL. Company personnel support
Galileo, Voyager, Topex, Cassini, New Millennium, Mars Global Surveyor and
the Multi-Mission Ground System Office. The contract expires in 1999. 1996
revenues were approximately $7 million.
SYSTEMS ANALYSIS AND ENGINEERING RESEARCH SUPPORT. This five and
one-half year cost-plus-award-fee contract was awarded in 1997 by NASA's
Langley Research Center, as described above. The contract expires in 2002.
PRODUCT SALES GROUP
The Company is a leading value-added reseller of hardware, software and
related services to the Government. Consistent with the Company's strategy of
offering solutions based on open computing architectures, the Company has
focused its reselling activities on workstations, servers, enterprise networking
hardware and related peripherals and software. Along with providing a broad
range of top quality products through supplier and teaming relationships with
hardware and software original equipment manufactures ("OEMs"), the Company
makes its technical personnel available to provide its customers with customized
"value-added" technical support services. Information technology product sales
have been a core business for the Company and have provided it with the
marketing platform to become a major open systems solutions provider in the
Government marketplace. The Company substantially expanded its capabilities in
this area through the Sylvest Acquisition.
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The Product Sales Group employs approximately 60 sales, marketing, business
development and contract representatives and 40 technical personnel, each of
whom has been recruited based on his or her extensive knowledge of a particular
customer group, particular products sold by the Company, or both. The sales
force's extensive training in various Government procurement rules allows them
to guide customers to the most efficient acquisition vehicle for the Company's
products, whether that vehicle is an agency-specific IDIQ contract, a MAC
contract or a GSA Schedule. See "--Government Contracts." These representatives
maintain regular contact and working relationships with a set of vendors and
existing or potential customers.
The Company's product reselling activities add value for both information
technology manufacturers and Government customers. Manufacturers gain access to
the Company's sales force and its experience in the Government procurement and
sales process, including capabilities and experience in electronic commerce,
order entry and invoicing. Customers benefit from the Company's technical
knowledge of available products and vendors, and also from the Company's
procurement expertise, which helps them select the optimal procurement vehicle
to meet their needs. The Company's procurement personnel also make it easier for
Government customers to place orders and configure and set-up new systems.
Management believes that the new contract vehicles resulting from Government
procurement reform (see "--Government Contracts") could enhance the Company's
opportunities to provide value-added services to both suppliers and customers by
allowing the Company to demonstrate how these vehicles can be used by suppliers
to sell more products and by customers to buy more products and services.
Management believes the Company is on the leading edge of electronic
commerce for sales of information technology to the Government. The Company has
developed Internet facilities including a World Wide Web Site to support
"paperless" contracting with the GSA Schedules and under the NIH Electronic
Computer Store II ("ECS II"). ECS II is a MAC contract vehicle providing an
electronic catalog from which agencies may place individual orders ranging in
value from a few thousand dollars to several million dollars. The Company is one
of 45 vendors providing products under the ECS II vehicle and is able to quickly
add new products as they become available and requested by its customers.
Customers typically select from among the participating vendors based on prior
or existing service relationships, breadth of product offerings, reputation and
price. Management believes the Company is well positioned to benefit from its
electronic commerce capabilities as more and more government procurement
vehicles are requiring these competencies as a condition of award.
The Company also provides expertise in the Government procurement process as
a subcontractor to OEMs, providing services including initial bid and proposal
preparation, contract management, customer support services, technical
management services and electronic commerce services. By providing these
services, the Company allows the OEMs to sell to the Government as if they were
direct marketers of hardware and software. Under a NASA Scientific and
Engineering Workstation Program II ("SEWP II") subcontract, the Company will
provide several of these subcontracting services to a leading microcomputer and
workstation manufacturer for a specified percentage of revenues.
SOLUTIONS GROUP
The Solutions Group provides information technology solutions designed to
address six discrete customer needs: document management, Microsoft consulting,
executive management consulting, point of sale systems implementations,
electronic commerce and training. In providing these solutions, the Company
combines its in-house expertise with appropriate products of different vendors.
Management believes the Company's expertise in these key substantive areas
provides an effective marketing tool in sales of other products and services.
Through its DoxSys subsidiary, the Company provides complete image-based
document management solutions tailored to customers. These systems are primarily
based on a line of products manufactured by
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Mosaix, Inc. Management believes that the Company has one of the largest
installed bases of document management workflow systems in the Government.
The executive management consulting group seeks to help Government agencies
respond to recent legislation including the Chief Financial Officer Act, the
Government Performance and Results Act and the Information Technology Management
Reform Act. Subject matter topics include integrated financial management
solutions, financial management improvement, financial management operations,
internal management controls, fraud detection and prevention, strategic
information management, software process improvement, performance-based
budgeting and strategic and performance plans. These projects are often similar
to the Company's systems integration activities but are usually smaller and
involve a higher content of pre-packaged systems or specialized subject matter.
The Company is a Microsoft Solutions provider. Microsoft Solutions is an
intensive program developed by Microsoft to train information technology
professionals in five key functional areas: messaging, Internet, intranet,
extranet and large data center replacement applications. The group provides
infrastructure analysis and migration to Windows NT, enterprise-wide messaging
design and implementation, Internet and intranet design and deployment and
mainframe replacement, migration and connectivity.
The Company operates an authorized and certified training and education
center for Microsoft and maintains four fully-equipped classrooms devoted to
Microsoft training. In on-site and off-site services, the Company trained over
14,000 people in 1996, including Government and private sector clients as well
as Company personnel. Management believes that these training services can play
a large role in retaining customers and key Company personnel.
The point of sale business of the Solutions Group provides customized
software and hardware systems to movie theaters and quick service restaurants.
The systems allow for advanced day theater ticket sales, customer order entry,
multi-point inventory, "real time" agents and up-to-the-minute operations
reports. The theater system also provides a module to schedule movies so as to
maximize concessions revenues. Current customers include United Artist Theaters,
Arby's franchisees and Dairy Queen franchisees in selected cities.
COMPETITION
In providing a broad range of services and products that address the
complete information technology needs of its clients, the Company participates,
to varying degrees, in multiple segments of the information technology market,
including markets for systems engineering, development and integration;
networking; document imaging services; and product and component sales. Each
market segment in which the Company operates experiences vigorous competition.
Within each segment, the Company competes against different firms of varying
sizes, with different specializations and skills. The number and size of
competitors vary among operating groups and within the individual divisions of
each group. Frequently, the number and identity of competitors vary even from
program to program within a given business area. While the recent trend toward
increased use of GSA and IDIQ contracts has changed some aspects of how
companies sell to the Government, the Company has experienced no material change
in the overall competitiveness of the federal market. Many of the Company's
competitors are significantly larger and have greater financial resources than
the Company. Some of these competitors are divisions or subsidiaries of large,
diversified companies that have access to the financial resources of their
parent companies. In the Product Sales Group, the Company competes with certain
computer manufacturers (including the Company's suppliers), who occasionally
sell directly to the U.S. Government market, as well as a substantial number of
systems integrators, resellers and distributors. To a lesser extent, the Company
competes with Government agencies themselves which are permitted to sell
services to other Government agencies as a result of procurement reform.
The Company believes that the principal competitive factors in the
Government services market are technical knowledge, management capability, past
contract performance, personnel qualifications and
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price. During its recent history, the Company has been successful in winning new
and repeat contract awards in each of its businesses and in getting customers to
exercise contract option years in its services business, both of which the
Company believes are attributable to the strength of its past contract
performance, its technical knowledge, and its competitive prices. Further, the
Company's senior management team has extensive, industry-specific technical and
managerial experience. As a result, the Company believes that it has generally
been able to compete successfully on each of the principal competitive factors
within each of its business lines.
BACKLOG
The Company's total contract backlog is only a portion of the total contract
capacity (i.e., the maximum amount that the Government can purchase under its
contracts with the Company) and represents management's estimate of the
aggregate revenues that are likely to be earned by the Company over the life of
all of its contracts, including option periods. Because many of the Company's
contracts are multi-year contracts and contracts with option years, total
contract backlog represents revenues expected to be realized over a number of
years into the future. The Company's estimated total contract backlog as of
September 30, 1997 was $1.1 billion. The Company's estimates of revenue from
such contracts are based on the Company's history with such contracts and
similar contracts, and management believes such estimates to be reasonable.
However, because total contract backlog is based on management's estimate as to
the future potential of existing contracts, there can be no assurances that all
of such backlog will be recognized as revenue. In addition, the Government's
ability to select multiple winners under IDIQ contracts, as well as its right to
limit orders to any particular awardee, mean that there is no assurance that
unfunded contract backlog will result in actual orders.
Because the Government operates under annual appropriations, agencies of the
Government typically fund contracts on an incremental basis. Accordingly, only a
portion of the Company's total contract backlog is "funded." Funded backlog
consists of the aggregate dollar portion of contracts currently appropriated by
Government customers and allocated to contracts by the purchasing Government
agencies or otherwise allocated for payment by customers upon completion of
specified work. The Company estimates that as of September 30, 1997 its funded
contract backlog was $90 million. Funded backlog generally varies depending on
procurement and funding cycles and other factors beyond the Company's control.
Accordingly, period-to-period comparisons are difficult and not necessarily
indicative of any future trends in revenues.
The preceding information regarding contract backlog and future revenues to
be derived therefrom, is forward-looking and is subject to certain risks and
uncertainties including, but not limited to, a dependence on the continued
funding of Government programs and contract procurements and the risk of
contract termination described elsewhere in the Prospectus.
GOVERNMENT CONTRACTS
The Company derives substantially all of its revenues from business
performed under Government contracts. These include services, systems
integration and other contracts obtained through a negotiated procurement
process, as well as product sales contracts made under GSA Schedules, MACs and
similar IDIQ vehicles.
Traditional negotiated procurement contracts typically authorize a single
contractor or team of contractors to provide a defined set of services and
products to a single government agency. These contracts include
cost-reimbursement contracts (both cost-plus-fixed-fee and cost-plus-award-fee),
time and materials contracts, fixed-price contracts and IDIQ contracts.
Cost-plus-fixed-fee contracts generally provide for the reimbursement of
incurred costs during contract performance, to the extent that such costs are
allowable and allocable, and the payment of a fee, the size of which is fixed in
the contract. Cost-plus-award-fee contracts typically provide for the
reimbursement
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of costs with a base fee and an additional fee that is based upon a periodic
evaluation of the contractor's performance against specified criteria. Under
time and materials contracts, the contractor agrees to provide certain
categories of labor and materials at negotiated rates. To the extent a
contractor's costs differ from the negotiated rates, the contractor realizes all
of the benefit or detriment resulting from the difference between the contract
price and the contractor's cost for a unit of labor or product. Risks associated
with these fluctuations have been mitigated for information technology providers
by the consistent decline in product costs over time, although these reductions
must frequently be anticipated in the proposal process. Under fixed-price
contracts, the contractor agrees to perform specified work for a fixed price
and, accordingly, realizes all the benefit or detriment resulting from decreases
or increases in the cost of performing the work.
The IDIQ contracts historically negotiated by the Company typically specify
the prices at which certain services and/or products are to be provided. These
contracts have been and continue to be used for large-scale Government purchases
of integrated systems that include a significant service or maintenance
component, along with the provision of computer hardware and software. These
IDIQ contracts are typically awarded to a single bidder or team of bidders
chosen through a formal competitive bid process. The periods of performance for
IDIQ contracts typically span a base year and a number of option years. IDIQ
contracts do not obligate the Government to purchase goods or services at the
levels set out in the request for proposal, and allow the Government to
terminate the contract if it is dissatisfied with the contractor's pricing or
performance, or simply for convenience. Alternatively, IDIQ vehicles offer both
the Government and the contractor flexibility to introduce new products and
services as technology changes over the life of the contract.
Over the past few years, reforms of the Government procurement process have
introduced a dramatic increase in the flexibility and alternatives available to
the federal information technology buyer. Onerous regulations that effectively
encouraged large scale, long term, single award procurements have given way to a
more "commercial" buying approach. Government customers, particularly those
buying computer hardware and software without a custom service element, are
spending an increasing share of their procurement budgets through smaller scale,
shorter term, multiple award, multiple agency contract vehicles. While each of
these flexible contractual vehicles has its own unique characteristics, they
have several major elements in common. Because these vehicles do not require the
Government to make specific purchases, they are generally characterized as IDIQ
contracts, and function as procurement "schedules" or catalogs. Although
contractors must compete for the right to participate in these multi-agency,
multi-vendor vehicles, winning the right to participate does not guarantee
revenues, which require an effective post-award sales effort.
In addition to purchasing from multiple IDIQ contracts, Government agencies
may also purchase from GSA Schedules or MACs. Historically, the GSA would
produce schedules for each agency, after extensive bidding and review processes,
that would dictate the products, prices and vendors for all purchases by that
agency. As a result of recent changes to the rules governing use of GSA
Schedules for Government agency purchases of hardware, software and services,
GSA Schedules now frequently act as broadly defined IDIQ contracts under which
multiple Government agencies may procure hardware, software or related services
from contractors authorized to sell under such GSA Schedules without minimum or
maximum order limitations. Contractors participating in the GSA Schedule program
are eligible to market their products to a broad range of Government customers.
The GSA Schedules together with related basic purchasing agreements for larger
volume purchases at reduced prices ("BPAs") offer Government agencies the
advantage of an established contracting infrastructure including staff who are
expert in the technologies offered by various vendors, volume driven pricing,
access to the latest technology and streamlined purchasing mechanisms.
At the time of initial award, prices to the end-users under the Company's
GSA Schedules are set, either at a specified level for the duration of the
contract or at specified levels varying over time. In addition, under certain
circumstances, the Company is required under the terms of its GSA Schedules to
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pass on any savings, resulting from supplier discounts or other price
reductions, to the Government in the form of corresponding price reductions. GSA
Schedules do not have pre-set delivery schedules or minimum purchase levels. The
uncertainties related to future contract performance costs, quantities to be
shipped and dates of delivery make it difficult to predict the future revenues
and profitability performance that may be associated with any particular GSA
Schedule.
Similar to GSA Schedules, MACs offer multiple agencies the opportunity to
procure products from a broad range of vendors. For example, 45 contractors,
including FDC and Sylvest, now hold MACs through the NIH's ECS II, which is a
series of electronic hardware and software catalogs from which any Government
agency that elects to participate may order. MACs specify products and prices
and are issued by a specific government agency to multiple contractors. The
agency which selects the vendors and maintains the products list and takes a
small percentage of each order for administering the contract, and multiple
agencies are permitted to place orders under the MAC.
The evolution of procurement methods has had the effect of making the
procurement of information technology in the Government more similar to that in
the commercial sector. The new procurement methods allow for more timely
purchases of information technology products and for multiple vendors selling
the same products and services, resulting in increasing competition for contract
orders. Thus, whereas historically a contract award typically assured the
winning bidder of a predictable amount of revenue, in the current environment
the contractor's post-award sales, marketing, and customer service effectiveness
frequently dictate the amount and timing of all revenue to be realized under the
contract or schedule. In effect, the new vehicles necessitate two selling
cycles: one to win participation as a vendor under the umbrella contract and a
second to actually win specific orders after contract award.
SALES AND MARKETING
Sales and marketing efforts are split into contract pre-award and post-award
activities. Employees in the Corporate Marketing Group focus on pre-award sales
and marketing, including identifying new contracts, qualifying the Company to
bid on such contracts and then bidding on such contracts. Once a contract is
awarded, the business unit responsible for the new contract leads the technical
performance and/or post-award sales and marketing effort intended to maximize
sales. Under IDIQ contracts, the Company's post-award activities are the most
significant factor in determining the amount of revenue realized.
Within the Corporate Marketing Group, senior management and the Company's
own professional staff of engineers, analysts and other personnel conduct the
Company's sales and marketing activities. The Corporate Marketing Group employs
approximately 50 people, the majority of which are engaged in the preparation
and negotiation of major proposals.
MAJOR CUSTOMERS
The Company has derived and expects to continue to derive substantially all
of its total revenues from Government contracts. Contracts with the U.S. Navy,
NASA and the Veterans Administration represented approximately 15%, 13% and 11%
of pro forma 1996 revenues, respectively. The various Government customers
exercise independent purchasing decisions, and sales to the Government are
generally not regarded as constituting sales to one customer. Instead, each
contracting entity is considered to be a separate customer.
EMPLOYEES
On September 30, 1997, the Company employed 1,052 persons, 673 of these
employees were technical, 130 were marketing/sales personnel and 249 were other
administrative staff. Of the total, 259 employees held advanced degrees. The
Company believes that it is competitive in hiring and retaining
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qualified personnel. Less than 2% of the Company's employees are covered by
collective bargaining agreements with labor unions. The Company considers its
relations with its employees to be good and has not experienced any significant
labor problems.
FACILITIES
The Company leases all of the offices and facilities used in connection with
its operations. The following table sets forth information relating to the
significant facilities leased by the Company. In addition, the Company leases
several other customer support offices near customer facilities in various
states.
<TABLE>
<CAPTION>
EXPIRATION
OF
LOCATION PURPOSE SQUARE FOOTAGE LEASES(S)
- ----------------- -------------------------------------------------------- --------------- -----------
<S> <C> <C> <C>
Bethesda, MD Corporate Headquarters 67,602 12/31/04
Cleveland, OH NASA Lewis Support Facility 90,000 12/31/98
Greenbelt, MD Services Group Headquarters 66,746 12/31/04
Landover, MD Product Sales Group Headquarters 23,777 2/28/98
</TABLE>
LEGAL MATTERS
The Company is not involved in any material legal proceedings. From time to
time, the Company or its competitors file protests, as permitted under
procurement regulations, in connection with specific contract awards.
Historically, these proceedings have not had any material effect on the
Company's financial condition, results of operations, or cash flow. There can be
no assurance that the Company will not become involved in material legal
proceedings or contract bid protest proceedings in the future.
62
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
members of the Board of Directors and the executive officers of the Company.
Executive officers of the Company are chosen by the Board of Directors and serve
at its discretion. Directors of the Company serve until the election and
qualification of their successors.
<TABLE>
<CAPTION>
NAME TITLE AGE
- ----------------------------- ------------------------------------------------------------------------- ---
<S> <C> <C>
William E. Conway, Jr........ Chairman 48
Allan M. Holt................ Director 45
C. Robert Hanley............. Director and Chairman Emeritus 64
Daniel R. Young.............. Director, President and CEO 63
Peter J. Clare............... Director 32
Harry T. Marren.............. Director, President--FDC Technologies, Inc. 63
Paul A. Taltavull............ Senior Vice President, Solutions Group--FDC Technologies, Inc. 43
John W. Wayne................ Vice President--FDC Technologies, Inc. 41
James M. Dean................ Vice President, Chief Financial Officer and Treasurer of the Company; 50
Treasurer--FDC Technologies, Inc.
Michael D. Brant............. President--DoxSys, Inc. 50
Sterling E. Phillips, Jr..... Vice President, Corporate Marketing--FDC Technologies, Inc. 50
Charles M. Mathews, Jr....... Vice President, Product Sales Group--FDC Technologies, Inc. 38
Peter C. Belford, Sr......... Vice President, Services Group--FDC Technologies, Inc. and President and 51
Chief Operating Officer--NYMA, Inc.
</TABLE>
William E. Conway, Jr. was elected as a Director of the Company in 1996. He
has been a Managing Director of The Carlyle Group, a Washington, D.C.-based
private merchant bank, since 1987. Mr. Conway was Senior Vice President and
Chief Financial Officer of MCI Communications Corporation from 1984 until 1987,
and was a Vice President and Treasurer of MCI from 1981 to 1984. Mr. Conway
presently serves on the Board of Directors of BDM International, Inc., GTS
Duratek, Inc., Nextel Communications, Inc., Tracor Inc. and several privately
held companies.
Allan M. Holt was elected as a Director of the Company in 1996. He is a
Managing Director of The Carlyle Group, a Washington, D.C.-based private
merchant bank which he joined in 1991. He was previously with Avenir Group, a
private investment and advisory group, and from 1984 to 1987 was Director of
Planning and Budgets at MCI Communications Corporation, which he joined in 1982.
Mr. Holt currently serves on the boards of several privately held companies.
C. Robert Hanley has been a Director of the Company since its founding in
1969. Mr. Hanley was President and Chief Executive Officer of the Company from
1969 until 1985, when he became its Chairman and Chief Executive Officer. He
retired in January 1996 and now serves as a consultant to the Company.
Daniel R. Young has been a Director of the Company since 1977 and its
President and Chief Executive Officer since 1996. Mr. Young joined the Company
in 1976 as its Executive Vice President and became its President and Chief
Operating Officer in 1985. Prior to joining the Company, Mr. Young was employed
by Data Transmission Company as Executive Vice President and held various
management positions at Texas Instruments Incorporated.
Peter J. Clare was elected as a Director of the Company in 1996. He is
currently a Principal with The Carlyle Group, a Washington, D.C.-based private
merchant bank which he joined in 1992. Mr. Clare was previously with First City
Capital, a private investment group. From 1987 to 1989, he worked in the
63
<PAGE>
mergers and acquisitions and merchant banking groups at Prudential-Bache. Mr.
Clare currently serves on the boards of several privately held companies.
Harry T. Marren was elected as a Director of the Company in 1997. He has
been President of FDC Technologies, Inc. and its predecessor organization,
Federal Data Systems Corporation, since 1989. Mr. Marren joined the Company in
1977 as General Manager of Operations and was promoted to Vice President in 1980
and Senior Vice President in 1988.
Paul A. Taltavull has been Senior Vice President of the Solutions Group
within FDC Technologies, Inc. since April 1997. Mr. Taltavull joined the Company
in 1982 as a Federal Marketing Representative and has held a series of marketing
management positions with the Company, including Senior Vice President of
Marketing from 1992 to 1997. Before joining the Company, Mr. Taltavull was a
sales representative for Hewlett-Packard Company and a practicing engineer for
the U.S. Government.
John W. Wayne has been Vice President of the Systems Integration Group of
FDC Technologies, Inc. since 1990. He previously directed the Company's systems
design and engineering group. He joined Federal Data Corporation in 1981 as an
Operations Project Manager and was subsequently promoted to Director of
Technical Services. Prior to joining the Company, Mr. Wayne was employed as a
Systems Engineer with Inforex Incorporated and by TRW Data Systems as a Customer
Engineer.
James M. Dean has been Vice President and Chief Financial Officer of the
Company since 1986 and its Treasurer since 1987. Mr. Dean joined Federal Data
Corporation in 1983 as its Controller. He was previously employed by Price
Waterhouse as a Senior Audit Manager.
Michael D. Brant has been President of DoxSys, Inc. since April 1997. He
joined FDC Technologies, Inc. in 1993 as Vice President and General Manager of
DoxSys. From 1972 to 1992, Mr. Brant held various marketing positions with Xerox
Corporation, including Vice President of Custom Systems Integration.
Sterling E. Phillips, Jr. has been Vice President of corporate marketing of
FDC Technologies, Inc. since April 1997. He joined FDC Technologies, Inc. in
1996 as Vice President of its Services Group. He was previously employed as
Chief Operating Officer of TRI-COR Industries, Inc. and President of Business
Development of the federal business unit of Computer Sciences Corporation. From
1968 through 1992, Mr. Phillips held various positions in management, sales and
marketing with The IBM Corporation.
Charles M. Mathews, Jr. has been Vice President of the Product Sales Group
of FDC Technologies, Inc. since 1996. From 1990 through 1994, Mr. Mathews was
President of Bohdan Associates, Inc. and President of the Atlantic region of
AmeriData, Inc. from 1994 through 1995.
Peter C. Belford, Sr. has been Vice President of the Services Group of FDC
Technologies, Inc. since 1997 and President and Chief Operating Officer of NYMA,
Inc. since 1994. Mr. Bedford joined NYMA in 1985 as its Executive Vice
President. Mr. Belford was previously employed by Computer Sciences Corporation
("CSC") as Vice President, Product Management and Product Assurance. He joined
CSC in 1977 as a Program Manager and became Assistant to the President of the
System Sciences Division of that company, with executive management
responsibilities.
The Company does not currently pay any fees or remuneration to its directors
for service on the Board and the Board has not established committees of the
Board of Directors.
CONSULTING AGREEMENTS
In January 1996, the Company and C. Robert Hanley entered into a 3-year
consulting agreement. Under the terms of the agreement, Mr. Hanley consults on
certain aspects of the Company's business and receives a consulting fee of
$200,000 per year, maintains an office at the Company's Bethesda headquarters
and participates in the Company's health insurance plan. Mr. Hanley regularly
provides consulting services to the Company pursuant to the consulting agreement
and serves as director to the Company without compensation.
64
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid by the Company for services rendered during the year ended December 31,
1996 to the Chief Executive Officers and to each of the four other most highly
compensated executive officers of the Company (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION --------------------------------------------------
----------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS(1) COMPENSATION(2) AWARD(S) SARS(3) PAYOUTS COMPENSATION(4)
PRINCIPAL POSITION ($) ($) ($) ($) (#) ($) ($)
- ---------------------------------------- ------- -------- --------------- ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel R. Young(5) ..................... 225,012 300,000 -- -- 75,000 -- 430,351
(Chief Executive Officer)
C. Robert Hanley(6) .................... 10,418 -- -- -- -- -- 2,341,260
(Chief Executive Officer)
Harry T. Marren ........................ 150,000 250,000 -- -- 40,000 -- 168,086
(President, FDC Technologies, Inc.)
Paul A. Taltavull ...................... 150,000 150,000 -- -- 25,000 -- --
(Senior Vice President)
John W. Wayne .......................... 102,000 160,000 -- -- 15,000 -- --
(Vice President)
James M. Dean .......................... 110,000 130,000 -- -- 10,000 -- --
(Vice President and Chief Financial
Officer)
</TABLE>
- ------------------------
(1) Bonus awards are reflected in the year to which they are attributable and
not the year in which they are actually paid. Bonuses are awarded at the
discretion of management subject to review by the Board of Directors.
(2) Fringe benefit amounts are omitted to the extent the aggregate value of such
benefits is less than 10% of the salary and bonus, or $50,000.
(3) The options listed were awarded in 1996 pursuant to the Company's Stock
Option Plan for Executives and Other Key Employees (the "Plan"). Under the
Plan, 6% of the options granted become exercisable on December 31 of each
year beginning on December 31, 1996 and ending December 31, 2001. The
remaining 70% of the options granted become exercisable throughout a
five-year period beginning December 31, 1996 based on satisfaction of
certain financial criteria, including earnings and cash flow targets.
(4) Amounts shown include the dollar value of life insurance premiums paid on
behalf of Messrs. Young ($430,351), Hanley ($2,149,593) and Marren
($168,086). Mr. Hanley also received $191,667 in consulting fees.
(5) Mr. Young was appointed Chief Executive Officer in January 1996.
(6) Resigned in January 1996.
65
<PAGE>
The following table sets forth information regarding the Company's Option
Grants during the fiscal year ended December 31, 1996. The Company has granted
no stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
INDIVIDUAL GRANTS STOCK
------------------------------ PRICE
NUMBER OF APPRECIATION
SECURITIES PERCENT OF TOTAL FOR OPTION TERM
UNDERLYING OPTIONS GRANTED EXERCISE OR ----------------
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION 5% 10%
NAME GRANTED (#) FISCAL YEAR ($/SH)(1) DATE ($) ($)
- ---------------------------------------- ----------- ---------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Daniel R. Young......................... 75,000 30% 10 03/31/01 207,211 457,883
C. Robert Hanley........................ -- -- -- -- -- --
Harry T. Marren......................... 40,000 16% 10 03/31/01 110,513 244,204
Paul A. Taltavull....................... 25,000 10% 10 03/31/01 69,070 152,627
John W. Wayne........................... 15,000 6% 10 03/31/01 41,442 91,577
James M. Dean........................... 10,000 4% 10 03/31/01 27,628 61,051
</TABLE>
- ------------------------
(1) On February 14, 1996, the Board of Directors established an exercise price
of $10 per share, which equaled the per share price paid by Carlyle in
connection with the Recapitalization on December 1, 1995.
The following table sets forth for each of the Named Executive Officers the
number of, and the value of, the exercisable and unexercisable stock options
each of them held at December 31, 1996. None of the Named Executive Officers
exercised a stock option during 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY
OPTIONS OPTIONS AT FISCAL
AT FISCAL YEAR-END (#) YEAR-END ($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Daniel R. Young......................... 4,500 70,500 76,500 1,198,500
C. Robert Hanley........................ -- -- -- --
Harry T. Marren......................... 2,400 37,600 40,800 639,200
Paul A. Taltavull (2)................... 1,500 23,500 25,500 399,500
John W. Wayne (3)....................... 900 14,100 15,300 239,700
James M. Dean (2)....................... 600 9,400 10,200 159,800
</TABLE>
- ------------------------
(1) No valuation of the common stock was made at year-end. The assumed value of
$27.00 per share is based on the price paid for the common stock by all
investors at the time of the NYMA Acquisition in May 1997, which management
believes to be substantially higher than the year-end valuation.
(2) Excludes options to purchase 30,000 shares granted prior to the
Recapitalization pursuant to FDC's 1987 Stock Incentive Plan, which options
will be replaced with immediately exercisable options to purchase shares of
FDC in a quantity and at a price that will preserve the economic value of
the options prior to the Recapitalization.
(3) Excludes options to purchase 5,000 shares granted prior to the
Recapitalization pursuant to FDC's 1987 Stock Incentive Plan, which options
will be replaced with immediately exercisable options to purchase shares of
FDC in a quantity and at a price that will preserve the economic value of
the options prior to the Recapitalization.
66
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the ownership of common stock of the Company
by each person known by the Company to be the owner of 5% or more of the
Company's outstanding common stock, by each person who is a director or Named
Executive Officer of the Company and by all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER ALL OUTSTANDING
BENEFICIAL OWNER(1) OF SHARES COMMON STOCK
- ------------------------------------------------------------------ ---------- ---------------
<S> <C> <C>
TCG Holdings, L.L.C.(2)........................................... 2,447,272 84.1
William E. Conway, Jr.(3)......................................... -- --
Allan M. Holt(3).................................................. -- --
C. Robert Hanley(4)............................................... 73,172 2.5
Daniel R. Young(5)(6)............................................. 155,407 5.3
Peter J. Clare(3)................................................. -- --
Harry T. Marren(6)................................................ 31,000 1.1
Paul A. Taltavull(6).............................................. 14,880 *
James M. Dean(6).................................................. 5,920 *
John W. Wayne(6).................................................. 12,000 *
All directors and executive officers as a group (13 persons)...... 345,288 11.9
</TABLE>
- ------------------------
* less than one percent
(1) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all units owned by such beneficial
owner.
(2) TCG Holdings, L.L.C., a Delaware limited liability company, is the sole
managing member of TC Group, L.L.C., a Delaware limited liability company,
which is the sole general partner of Carlyle Partners II, L.P., a Delaware
limited partnership, Carlyle Partners III, L.P., a Delaware limited
partnership, Carlyle International Partners II, L.P., a Cayman Islands
limited partnership, Carlyle International Partners III, L.P., a Cayman
Islands limited partnership, and certain other partnerships formed by
Carlyle. The address of TCG Holdings L.L.C. is c/o The Carlyle Group, 1001
Pennsylvania Avenue, N.W., Washington, D.C. 20004.
(3) The address of such person is c/o The Carlyle Group, 1001 Pennsylvania
Avenue, N.W., Washington, D.C. 20004.
(4) The address of C. Robert Hanley is 2808 Tarflower Way, Naples, Florida
34105.
(5) 7,000 of these shares (0.3% of the total outstanding shares of the Company)
are owned by the Daniel R. Young Irrevocable Unitrust U/A dated November 16,
1994, for which Daniel R. Young is the trustee.
(6) The address of such person is 4800 Hampden Lane, Bethesda, Maryland 20814.
67
<PAGE>
CERTAIN TRANSACTIONS
Concurrently with the acquisition of the Company by Carlyle in 1995, the
Company entered into a management agreement (the "Management Agreement") with TC
Group, L.L.C. for certain management and financial advisory services to be
provided to the Company and its subsidiaries. In consideration of the management
and financial advisory services, the Company pays TC Group, L.L.C. an annual
management fee of $300,000. Based on fees being paid by comparably situated
companies, the Company believes that this Management Agreement is on terms no
less favorable to the Company than could have been obtained from an independent
third party.
Carlyle received fees of $1.5 million and $0.5 million for advisory and
other services rendered in connection with the Recapitalization and the NYMA
Acquisition, respectively. Carlyle received a fee of $1.5 million for advisory
and other services rendered in connection with the Sylvest Acquisition, the
offering of the Private Notes and the Refinancing.
In connection with the Recapitalization, the Company sold an airplane, the
Company's financial services division, and a 10% limited partnership interest in
a bankrupt partnership that previously held title to the office building in
which the Company is located to an entity controlled by C. Robert Hanley, a
Director of the Company and its former chief executive officer. Mr. Hanley
purchased the above-described assets and assumed the related liabilities for
approximately $2.4 million, the aggregate estimated value of the airplane and
the financial services division. The Company attributed no value to the
partnership interest. The Company entered into a three-year consulting agreement
with Mr. Hanley and a three-year agreement for use of the airplane from an
affiliate of Mr. Hanley. The consulting agreement provides for annual payments
of $200,000, and the lease of the airplane provides for annual payments of
$300,000 plus a usage charge which amounted to $55,632 during the year ended
December 31, 1996. Mr. Hanley regularly provides consulting services to the
Company pursuant to the consulting agreement and serves as director to the
Company without compensation.
In connection with the Recapitalization, the stockholders of the Company
executed a Holders Agreement dated as of November 30, 1995 (as amended,
supplemented or replaced, the "Holders Agreement"). The Holders Agreement
restricts transfer of the common stock of the Company (except to affiliates, to
the public in a registered offering or pursuant to Rule 144 under the Securities
Act, transfers in a merger or sale of the Company, or transfer pursuant to
certain rights under the Holders Agreement). The Holders Agreement also provides
for tag-along rights on transfers of more than 15% of the common stock, bring
along rights with respect to more than 50% of the common stock and registration
rights.
68
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW SENIOR CREDIT FACILITY
As a part of the refinancing of the Company, FDC entered into a new senior
secured credit agreement (the "New Senior Credit Facility") shortly after the
offering of the Private Notes. The New Senior Credit Facility is among the
Company, its subsidiaries (as Subsidiary Guarantors), Bankers Trust Company (as
agent) and Bank of Boston, The Bank of New York, BTM Capital Corporation,
Creditanstalt Bankverein, Credit Lyonnais New York Branch, First Source
Financial LLP, First Union Commercial Corp. and IBJ Schroder Bank & Trust
Company. The New Senior Credit Facility consists of a $75.0 million revolving
credit facility, including a subfacility for letters of credit (the "Revolving
Loan"). As of September 30, 1997, approximately $3.5 million (excluding $4.0
million of undrawn letters of credit) was outstanding under the New Senior
Credit Facility.
The Revolving Loan is evidenced by notes and matures on or before the fifth
anniversary of the closing of the New Senior Credit Facility. Availability of
Loans and Letters of Credit are subject to a borrowing base comprised of 85% of
Eligible Receivables and 60% of Eligible Inventory (as such terms are defined in
the New Senior Credit Facility).
Mandatory reductions of outstanding principal amounts under the New Senior
Credit Facility are required upon the occurrence of certain events.
All outstanding loans under the New Senior Credit Facility bear interest at
the Company's option at the base rate in effect from time to time plus 1.25% or
the eurodollar rate plus 2.25% plus an additional 2.0% on overdue amounts.
Interest in respect of base rate loans is payable quarterly in arrears on the
last business day of each fiscal quarter. Interest in respect of eurodollar
loans is payable at the end of the applicable interest period or, if earlier,
quarterly.
FDC's obligations under the New Senior Credit Facility are guaranteed by all
direct and indirect domestic subsidiaries of FDC and are secured by a lien on
all assets (present and future, tangible and intangible) of FDC and the
Subsidiary Guarantors, with such exceptions as are satisfactory to the lenders.
The New Senior Credit Facility contains customary covenants restricting the
incurrence of debt (except for the Notes and the existing Floor Plan Financing
Facility (as defined), as amended, modified or replaced), and encumbrances on or
sales of assets, limiting mergers and acquisitions except Permitted Acquisitions
(as defined in the New Senior Credit Facility) and restricting dividends,
investments and changes of control, providing for the maintenance of certain
financial ratios and various other financial and other covenants and
restrictions. A change of control under the Notes would constitute a change of
control under the New Senior Credit Facility that would require the Company to
repay any obligations then outstanding under the New Senior Credit Facility. If
a Change of Control were to occur, the Company may not have sufficient assets to
satisfy its repayment obligations under the New Senior Credit Facility which
will rank senior to the Notes, and its repurchase obligations under the Notes.
FLOOR PLAN FINANCING FACILITY
On September 17, 1996, Sylvest entered into the Agreement for Wholesale
Financing and the STAR Agreement (Short Term Accounts Receivable Program) with
Deutsche Financial Services Corporation ("DFS") (as amended or replaced from
time to time, collectively, the "Floor Plan Financing Facility") to facilitate
the purchase of inventory by Sylvest from approved vendors for prompt resale to
customers. In return, Sylvest granted DFS a first priority security interest in
the assets financed by DFS and certain other rights and assets. The Floor Plan
Financing Facility currently contains certain financial covenants, which if
breached may require FDC to return to Sylvest moneys paid by Sylvest to FDC in
the previous month to the extent such repayments are necessary to cure such
breach. As of September 30, 1997, approximately $5.9 million was outstanding
under the Floor Plan Financing Facility.
69
<PAGE>
SELLER NOTES
On January 4, 1996, in connection with the Recapitalization, the Company
issued an aggregate principal amount of $7.0 million of 9% Increasing Rate
Subordinated Notes (the "FDC Notes") due on the later of (i) six months after
the indefeasible payment of all amounts owed under the Company's senior credit
facility (including any refinancing thereof), to the extent the term of the
senior credit facility is extended in connection with a default or anticipated
default and (ii) July 4, 2003. The FDC Notes accrue interest at 9% from January
4, 1996 through January 3, 1999, 11% from January 4, 1999 through December 31,
2002 and 13% thereafter. Interest on the FDC Notes is payable semi-annually
beginning July 4, 1996; provided, however, that any amount of cash interest
which is not paid on the FDC Notes as a result of payment restrictions under any
"senior debt" (as defined in the FDC Notes) will be paid by the issuance of
payment-in-kind notes. The interest payments of $316,485 due July 4, 1996 and
$330,727 due January 4, 1997 were made through the issuance of payment-in-kind
notes.
On May 2, 1997, in connection with the NYMA Acquisition, the Company issued
an aggregate principal amount of $5.0 million of 9% Increasing Rate Subordinated
Notes (the "NYMA Notes") due on the later of (i) six months after the
indefeasible payment of all amounts owed under the Company's senior credit
facility (including any refinancing thereof), to the extent the term of the
senior credit facility is extended in connection with a default or anticipated
default and (ii) November 2, 2004. The NYMA Notes accrue interest at 9% from May
2, 1997 through May 2, 2000, 11% from May 3, 2000 through May 3, 2003 and 13%
thereafter. Interest on the NYMA Notes will be payable semi-annually beginning
November 2, 1997; provided, however, that any amount of cash interest which is
not paid on the NYMA Notes as a result of payment restrictions under any "senior
debt" (as defined in the NYMA Notes) will be paid by the issuance of
payment-in-kind notes.
On June 30, 1997, in connection with the Sylvest Acquisition, the Company
issued an aggregate principal amount of $7.0 million of 9% Increasing Rate
Subordinated Notes (the "Sylvest Notes") due on the (i) later of six months
after the indefeasible payment of all amounts owed under the Company's senior
credit facility (including any refinancing thereof), to the extent the term of
the senior credit facility is extended in connection with a default or
anticipated default and (ii) December 31, 2004. The Sylvest Notes accrue
interest at 9% from June 30, 1997 through June 30, 1999, 11% from July 1, 1999
through June 30, 2001 and 13% thereafter. Interest on the Sylvest Notes will be
payable semi-annually beginning December 31, 1997; provided, however, that any
amount of cash interest which is not paid on the Sylvest Notes as a result of
payment restrictions under any "senior debt" (as defined in the Sylvest Notes)
will be paid by the issuance of payment-in-kind notes.
Each of the Seller Notes contain financial covenants. All of the outstanding
FDC Notes and a portion of the Sylvest Notes were repaid with the proceeds of
the offering of the Private Notes.
70
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes were issued under an Indenture (the "Indenture") dated as of July
15, 1997, by and among the Company, the Subsidiary Guarantors and Norwest Bank,
Minnesota, National Association, as Trustee (the "Trustee").
The following summaries of certain provisions of the Indenture hereunder do
not purport to be complete and are subject to, and are qualified by reference
to, all the provisions of the Indenture, including the definitions therein of
certain terms included herein. Wherever particular defined terms of the
Indenture are referred to herein, such defined terms shall be incorporated
herein by reference. Unless the context otherwise requires, references to
defined terms refer to defined terms of the Indenture.
The Notes are unsecured senior subordinated obligations of the Company, are
guaranteed on a senior subordinated unsecured basis by the Subsidiary
Guarantors, are limited to $175,000,000 aggregate principal amount, of which
$105,000,000 aggregate principal amount were issued in the offering of the
Private Notes, and mature on August 1, 2005. Additional amounts may be issued in
one or more series from time to time subject to the limitations set forth under
"--Certain Covenants--Limitation on Indebtedness" and the restrictions contained
in the Senior Credit Facility. The Notes are subordinated to Senior Indebtedness
of the Company as described below under "--Subordination."
As of the consummation of the offering of the Private Notes, all of the
Company's Subsidiaries are Restricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to any of the restrictive covenants set forth in the Indenture.
TERMS OF NOTES
The Notes mature on August 1, 2005, and bear interest at the rate per annum
stated on the cover page hereof from the date of issuance, payable semiannually
in arrears on each February 1 and August 1 commencing on February 1, 1998, to
the persons who are registered holders thereof at the close of business on the
January 15 or July 15 preceding the applicable interest payment date. The Notes
are payable both as to principal and interest at the office of the agent of the
Company maintained for such purpose within the City and State of New York, or,
at the option of the Company, payment of interest may be made by check mailed to
the holders of the Notes at their respective addresses set forth in the Notes
holder register. Unless otherwise designated by the Company, the Company's agent
in New York will be at the office of the Trustee maintained for such purpose.
Interest on the Notes will be computed on the basis of a 360-day year of twelve
30-day months. The Notes are transferable and exchangeable at the offices of the
Registrar. The Notes were issued in fully registered form, without coupons, in
principal amounts of $1,000 and any integral multiple thereof.
OPTIONAL REDEMPTION
Except as provided below, the Notes may not be redeemed prior to August 1,
2001. On or after such date, the Notes may be redeemed at the option of the
Company, at any time as a whole, or from time to time in part, on not less than
30 nor more than 60 days' notice, at the following redemption prices (expressed
as percentages of principal amount), plus accrued and unpaid interest (if any)
to the date of
71
<PAGE>
redemption (subject to the rights of holders of record on the relevant record
date to receive interest due on the relevant interest payment date), if redeemed
during the 12-month periods commencing August 1:
<TABLE>
<CAPTION>
REDEMPTION
PRICE
-----------
<S> <C>
2001............................................................................. 105.063%
2002............................................................................. 103.375%
2003............................................................................. 101.688%
2004 and thereafter.............................................................. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to August 1, 2000, the
Company may redeem, in part and from time to time, with the net proceeds of one
or more Public Equity Offerings, up to 35% aggregate principal amount of the
Notes originally issued in the offering of the Private Notes at a redemption
price equal to 110.125% of the aggregate principal amount thereof plus accrued
and unpaid interest thereon, if any, to the redemption date; PROVIDED that at
least 65% of the aggregate principal amount of the Notes originally issued in
the offering of the Private Notes remain outstanding immediately after the
occurrence of any such redemption and that any such redemption occurs within 90
days following the closing of any such Public Equity Offering.
At any time on or prior to August 1, 2001, the Notes may also be redeemed as
a whole at the option of the Company upon the occurrence of a Change of Control,
upon not less than 30 nor more than 60 days prior notice (but in no event more
than 90 days after the occurrence of such Change of Control), at a redemption
price equal to 100% of the principal amount thereof plus the Applicable Premium
as of, and accrued and unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date). The
Company may not redeem Notes pursuant to this paragraph if it has made a Change
of Control Offer (as defined) with respect to such Change of Control.
NOTICES AND SELECTIONS
In the event of a redemption of less than all of the Notes, the Notes will
be selected for redemption by the Trustee PRO RATA, by lot or by any other
method that the Trustee considers fair and appropriate and, if the Notes are
listed on any securities exchange, by a method that complies with the
requirements of such exchange; PROVIDED, HOWEVER, that if partial redemption is
made with the proceeds of a Public Equity Offering prior to August 1, 2000,
selection of the Notes or portions thereof for redemption shall be made by the
Trustee only on a PRO RATA basis unless such method is otherwise prohibited.
Notice of redemption will be mailed at least 30 days but not more than 60 days
before the redemption date to each holder of Notes to be redeemed at such
holder's registered address. On and after the redemption date, interest will
cease to accrue on Notes or portions thereof called for redemption (unless the
Company shall default in the payment of the redemption price or accrued
interest). Notes that are redeemed by the Company or that are purchased by the
Company pursuant to a Net Proceeds Offer as described under "--Limitation on
Asset Sales" or pursuant to a Change of Control Offer as described under
"--Change of Control" or that are otherwise acquired by the Company will be
surrendered to the Trustee for cancellation.
SUBORDINATION
The payment of all obligations on the Notes is subordinated in right of
payment to the prior payment in full, in cash or Cash Equivalents, of all
Obligations on the Senior Indebtedness. Upon any payment or distribution of
assets of the Company to the creditors upon any liquidation, dissolution,
winding up, reorganization, assignment for the benefit of creditors or
marshaling of assets of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, whether voluntary or involuntary, all obligations with respect to all
Senior Indebtedness shall first be paid in full, in cash or Cash Equivalents,
before any payment or distribution is made on account of any
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Obligations on the Notes, or for the acquisition of any of the Notes for cash or
property or otherwise; and until all such Obligations with respect to all Senior
Indebtedness are paid in full, in cash or Cash Equivalents, any distribution to
which the holders of the Notes would be entitled but for the subordination
provisions will be made to the holders of Senior Indebtedness as their interests
may appear. If (i) any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by declaration or otherwise, of any
principal of, interest on, or other amounts due and owing on, any Senior
Indebtedness or (ii) any default occurs and is continuing with respect to any
Significant Senior Indebtedness resulting in the acceleration of the maturity of
all or any portion of any Significant Senior Indebtedness, no payment shall be
made by or on behalf of the Company or any of its Subsidiaries or any other
person on its or their behalf with respect to any Obligations on the Notes or to
acquire any of the Notes for cash or property or otherwise, except out of a
trust theretofore established pursuant to the provisions of the Indenture
described under "Satisfaction and Discharge of the Indenture; Covenant
Defeasance" (PROVIDED that payment into such trust was not made during any
period in which payment on the Notes is blocked pursuant to the subordination
provisions of the Indenture) and except by issuance of Junior Securities. In
addition, if any other event of default occurs and is continuing (or if such an
event of default would occur upon any payment with respect to the Notes) with
respect to the Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness permitting the holders of such Designated Senior Indebtedness then
outstanding, or their Representative, to accelerate the maturity thereof and if
the Representative for the Designated Senior Indebtedness gives written notice
of the event of default to the Trustee (a "Default Notice"), then, unless and
until the date, if any, on which all Designated Senior Indebtedness to which
such event of default relates is discharged or the Representative for the
Designated Senior Indebtedness gives notice that all events of default have been
cured or waived or have ceased to exist or the Trustee receives written notice
from the Representative for the Designated Senior Indebtedness terminating the
Blockage Period (as defined below), during the 179 days after the delivery of
such Default Notice (the "Blockage Period"), none of the Company or any of its
Subsidiaries or any other person on its or their behalf shall (x) make any
payment with respect to any Obligations on the Notes or (y) acquire any of the
Notes for cash or property or otherwise. Notwithstanding anything herein to the
contrary, in no event will a Blockage Period extend beyond 179 days from the
date the payment on the Notes was due. Only one such Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing (it being acknowledged that any action of the Company or its
Subsidiaries occurring subsequent to delivery of a Default Notice that would
give rise to any event of default pursuant to any provision under which an event
of default previously existed (or was continuing at the time of delivery of such
Default Notice) shall constitute a new event of default for this purpose) on the
date of the commencement of any Blockage Period with respect to the Designated
Senior Indebtedness shall be, or be made, the basis for the commencement of a
second Blockage Period by the Representative of the Designated Senior
Indebtedness whether or not within a period of 360 consecutive days, unless such
event of default shall have been cured or waived for a period of not less than
90 consecutive days.
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness,
including the holders of the Notes, may recover less, ratably, than holders of
Senior Indebtedness.
At September 30, 1997, the Company had $7.5 million of Senior Indebtedness
(representing revolving line of credit borrowings of $3.5 million and $4.0
million of undrawn letters of credit) and $113.0 million of senior subordinated
indebtedness (representing $105.0 million of Private Notes and $8.0 million of
Seller Notes) outstanding and the Subsidiary Guarantors had $8.2 million of
Guarantor Senior Indebtedness outstanding (excluding guarantees of Indebtedness
under the New Senior Credit Facility). The Subsidiary Guarantors also had $11.0
million of secured nonrecourse notes and nonrecourse obligations under capital
leases.
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CHANGE OF CONTROL
Upon a Change of Control, each holder of Notes shall have the right to
require that the Company repurchase all or a portion of such holder's Notes at a
repurchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to any Repurchase Date (subject to the
rights of the holders of record on the relevant record date to receive interest
on the relevant interest payment date), in accordance with the terms set forth
below (the "Change of Control Offer").
Within 30 days following the date upon which the Change of Control occurred,
if the Company has not made a redemption offer pursuant to the third paragraph
under "Optional Redemption", the Company must send, by first class mail, a
notice to each holder, with a copy to the Trustee, which notice shall govern the
terms of the Change of Control Offer. Such notice shall state, among other
things, the purchase date, which must be not earlier than 30 days nor later than
60 days from the date such notice is mailed, other than as may be required by
law (the "Change of Control Payment Date"). Holders electing to have a Note
purchased pursuant to a Change of Control Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day prior to the
Change of Control Payment Date.
The Indenture requires that if the Senior Credit Facility is in effect, or
any amounts are owing thereunder, at the time of the occurrence of a Change of
Control, prior to the mailing of the notice to holders described in the
preceding paragraph, but in any event within 30 days following any Change of
Control, the Company covenants to (i) repay in full all Obligations under the
Senior Credit Facility or offer to repay in full all Obligations under the
Senior Credit Facility and repay the Obligations under the Senior Credit
Facility of each lender who has accepted such offer or (ii) obtain the requisite
consent under the Senior Credit Facility to permit the repurchase of the Notes
as described above. The Company must first comply with the covenant described in
the preceding sentence before it shall be required to purchase Notes in the
event of a Change of Control; PROVIDED that the Company's failure to comply with
the covenant described in the preceding sentence constitutes an Event of Default
described in clause (c) under "Events of Default" below if not cured within 30
days after the notice required by such clause. As a result of the foregoing, a
holder of the Notes may not be able to compel the Company to purchase the Notes
unless the Company is able at the time to refinance all of the Senior Credit
Facility or obtain requisite consents under the Senior Credit Facility. Failure
by the Company to make a Change of Control Offer when required by the Indenture
constitutes a Default under the Indenture and, if not cured within 30 days after
notice, constitutes an Event of Default.
The Company will comply with all applicable securities laws in connection
with any Change of Control Offer, including Rule 14e-1 under the Exchange Act.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS
The Company may not create, incur, issue, assume, guarantee or otherwise
become liable for, contingently or otherwise (collectively, "issue"), directly
or indirectly, any Indebtedness, and may not permit any Restricted Subsidiary to
issue, directly or indirectly, any Indebtedness; PROVIDED that the Company or a
Subsidiary Guarantor may issue Indebtedness if the Operating Coverage Ratio of
the Company is greater than (x) 1.75 to 1.0, if the date of such issuance is on
or prior to August 1, 1999, or (y) 2.00 to 1.0, if the date of such issuance is
after August 1, 1999.
The above limitation will not apply to the issuance of the following
Indebtedness: (a)(1) Indebtedness pursuant to the Senior Credit Facility, in an
aggregate principal amount at any time outstanding not to exceed the greater of
(x) $75.0 million and (y) the sum of 85% of Eligible Receivables and 60% of
Eligible Inventory, in each case, as defined in the Senior Credit Facility (but
including accounts and inventory in
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which the lenders under any Floor Plan Financing Facility have a security
interest), as in effect on the Issue Date (the "Borrowing Base") less, in either
case, the aggregate principal amount of Indebtedness then outstanding pursuant
to clause (a)(2) below, permanently reduced by repayments of term loans or
revolving loans out of the Excess Net Proceeds of Asset Sales actually made
(other than temporary reductions of revolving loan balances pending application
as permitted by the covenant described under "Limitation on Asset Sales"), and
(2) Indebtedness pursuant to any Floor Plan Financing Facility in an aggregate
principal amount not to exceed the greater of (x) $75.0 million and (y) the
Borrowing Base less, in either case, the aggregate principal amount of
Indebtedness then outstanding pursuant to the Senior Credit Facility; (b) the
Notes and the Subsidiary Guarantees; (c) Indebtedness owed to the Company or a
Restricted Subsidiary by the Company or a Restricted Subsidiary; PROVIDED,
HOWEVER, that any transfer of such Indebtedness (excluding a pledge or other
transfer thereof intended to create a security interest therein, but including
any enforcement thereof other than an enforcement that results in the repayment
of an obligation permitted by the terms of this covenant) to a person other than
the Company or a Restricted Subsidiary will be deemed for the purposes of this
covenant to constitute, in each case, the issuance of such Indebtedness by the
issuer thereof; (d) Indebtedness of the Company or any Restricted Subsidiary
(other than Indebtedness described in clause (a), (b) or (c) above) outstanding
as of the Issue Date, which Indebtedness is not contemplated to be repaid with
the proceeds of the offering of the Private Notes; (e) Indebtedness of the
Company or a Restricted Subsidiary issued in exchange for, or the proceeds of
which are used to refinance, extend, renew, substitute, replace or refund or pay
at maturity (including any mandatory sinking fund payment), any Indebtedness
issued pursuant to the covenant described in the first paragraph of this
"Limitation on Indebtedness" covenant or clauses (b) and (d) above and (j) below
(the "Refinancing Indebtedness"); PROVIDED that (l) the principal amount of such
Refinancing Indebtedness (or, if such Indebtedness is issued with original issue
discount, the amount equal to the original issue price of such Indebtedness plus
accretion, if any) shall not exceed the principal amount and accrued interest of
the Indebtedness so refinanced (plus the amount of any premiums required to be
paid under the terms of the instrument governing such Indebtedness and plus the
amount of reasonable expenses incurred by the Company or such Restricted
Subsidiary in connection therewith), (2) the Refinancing Indebtedness shall have
a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being refinanced, (3) if the
Indebtedness being refinanced is subordinate in right of payment to the Notes or
any Guarantee, the Refinancing Indebtedness shall be subordinated in right of
payment to the Notes or any Guarantee, on terms, considered as a whole, at least
as favorable to the holders of Notes as those contained in the documentation
governing the Indebtedness being refinanced, if any; and (4) if the Indebtedness
to be refinanced is Indebtedness of the Company, such Refinancing Indebtedness
will only be permitted by this clause (e) if it is Indebtedness of the Company;
(f) Indebtedness incurred by the Company or any Restricted Subsidiary under
Hedging Obligations; PROVIDED that (x) in the case of an Interest Rate
Agreement, the notional principal amount thereof does not exceed the principal
amount of the Indebtedness to which such Interest Rate Agreement relates and (y)
in the case of a Currency Agreement, such Currency Agreement does not increase
the Indebtedness of the Company and its Subsidiaries other than as a result of
fluctuations in foreign currency exchange or by reason of fees, indemnities and
compensation payable thereunder; (g) Indebtedness incurred by the Company or any
Restricted Subsidiary under performance bonds, letter of credit obligations to
provide security for worker's compensation claims, payment obligations in
connection with self-insurance or similar requirements and bank overdrafts
incurred in the ordinary course of business; PROVIDED that any Obligations
arising in connection with such bank overdraft Indebtedness is extinguished
within five business days; (h) Indebtedness incurred by the Company or any
Restricted Subsidiary and arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, from guarantees or letters
of credit, surety bonds or performance bonds securing any Obligations of the
Company or any Restricted Subsidiary pursuant to such agreements, in any case
incurred in connection with the disposition of any business, assets or
Restricted Subsidiary other than guarantees of Indebtedness incurred by any
person acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition, in a principal amount
not to exceed the gross proceeds (with proceeds other
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than cash or Cash Equivalents being valued at the fair market value thereof as
determined by the Board of Directors of the Company in good faith) actually
received by the Company or any Restricted Subsidiary in connection with such
dispositions; (i) Indebtedness of the Company in an aggregate principal amount
not to exceed $5.0 million at any time outstanding in connection with the
purchase, redemption, acquisition, cancellation or other retirement for value of
shares of Capital Stock of the Company or any corporation of which the Company
is a Subsidiary, options on any such shares or related stock appreciation rights
or similar securities held by officers or employees or former officers or
employees of the Company or any Subsidiary of the Company (or their estates or
beneficiaries under their estates) and which were issued pursuant to any stock
option or other equity incentive plan, upon death, disability, retirement,
termination of employment or pursuant to the terms of such stock option or other
equity incentive plan or any other agreement under which such shares of capital
stock, options, related rights or similarly securities were issued; PROVIDED
that (1) such Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such Indebtedness is issued, is expressly made
subordinate in right of payment to the Notes at least to the extent that the
Notes are subordinated in right of payment to Senior Indebtedness, and (2) such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, provides that no payments of
principal of such Indebtedness by way of sinking fund, mandatory redemption or
otherwise (including defeasance) may be made at any term prior to one year after
the stated maturity of the Notes; (j) Acquired Indebtedness that is without
recourse to the Company or any of its Restricted Subsidiaries or any of their
respective assets (other than the Subsidiary acquired subject to such Acquired
Indebtedness and its assets), and is not guaranteed by any such person; PROVIDED
that, with respect to the incurrence of more than $5.0 million of such Acquired
Indebtedness at any time outstanding, after giving PRO FORMA effect to the
incurrence thereof, the Company could incur at least $1.00 of Indebtedness under
the first paragraph of this "Limitation on Indebtedness" covenant; (k)
Indebtedness issued as pay-in-kind interest in lieu of cash interest under the
terms of and pursuant to the Seller Notes or any other Indebtedness that is
incurred in accordance with the Indenture which is expressly subordinated in
right of payment to the Notes to at least the same extent as payment on the
Notes is subordinated to payment on Senior Indebtedness; (l) Indebtedness
represented by Capitalized Lease Obligations and Purchase Money Indebtedness of
the Company and Restricted Subsidiaries, in each case incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the Company
or such Restricted Subsidiary, in aggregate principal amount not to exceed $5.0
million at any time outstanding; (m) lease financings and notes payable of the
Company or its Restricted Subsidiaries which are classified as nonrecourse in
accordance with GAAP, in each case entered into in the ordinary course of
business and consistent with past practice and secured solely by the equipment,
proceeds therefrom and associated lease payments in an aggregate principal
amount at any time outstanding not to exceed 20% of the Total Assets at the time
of issuance of such Indebtedness; and (n) additional Indebtedness of the Company
and Restricted Subsidiaries, which may, but need not be incurred under the
Senior Credit Facility, in an aggregate principal amount not to exceed $7.5
million at any time outstanding. Notwithstanding any other provision of this
covenant, a guarantee by a Subsidiary Guarantor or the Company of Indebtedness
incurred in accordance with the terms of the Indenture at the time such
Indebtedness was incurred will not constitute a separate incurrence of
Indebtedness.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
described in clauses (a) through (n) in the second paragraph of this covenant or
is entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof; PROVIDED that all outstanding Indebtedness under
the Senior Credit Facility or any Floor Plan Financing Facility immediately
following the offering of the Private Notes shall be deemed to have been
incurred pursuant to clause (a) of the second paragraph of this covenant.
Accrual of interest and the accretion of accreted value will not be deemed to be
an incurrence of Indebtedness for purposes of this covenant.
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LIMITATION ON ADDITIONAL SENIOR SUBORDINATED DEBT
Neither the Company nor any Subsidiary Guarantor will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
expressly by its terms subordinate or junior in right of payment to any
Indebtedness of such person and senior in any respect of payment to the Notes or
the Guarantee of such Subsidiary Guarantor, as the case may be.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly (i) declare or pay any dividend or make any distribution
in either case on account of the Company's Capital Stock to the holders of the
Company's Capital Stock (except dividends or distributions payable in the
Company's Capital Stock), (ii) purchase, redeem or otherwise acquire or retire
for value any Capital Stock (including any option or warrant to purchase Capital
Stock) of the Company, (iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations or the Seller Notes,
or (iv) make any Investment other than a Permitted Investment (any such
dividend, distribution, payment, purchase, redemption, defeasance, other
acquisition or retirement or Investment being hereinafter referred to as a
"Restricted Payment") if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment: (a) a Default or Event of Default has occurred
and is continuing (or would result therefrom); (b) the Company is not able to
incur $1.00 of additional Indebtedness under the first paragraph of the covenant
described under "Limitation on Indebtedness"; or (c) the aggregate amount of
such Restricted Payment and all other Restricted Payments subsequent to the
Issue Date would exceed the sum of (A) the aggregate Net Cash Proceeds received
by the Company from any offering of the Qualified Capital Stock of the Company,
or of any entity of which the Company is a direct or indirect Subsidiary, to the
extent the proceeds thereof shall have been contributed as common equity to the
Company, and the amount of any other capital contributions received by the
Company in cash subsequent to the Issue Date and on or prior to the date the
Restricted Payment occurs (the "Reference Date"), (B) 50% of the cumulative
Consolidated Net Income of the Company subsequent to the Issue Date and on or
prior to the Reference Date or minus 100% of any cumulative deficit in
Consolidated Net Income during such period, (C) to the extent that any
Investment (other than a Permitted Investment) that was made after the Issue
Date is sold for cash or otherwise liquidated or repaid for cash, or any
Unrestricted Subsidiary which is designated as an Unrestricted Subsidiary
subsequent to the Issue Date is sold or liquidated for cash, the lesser of (1)
the cash return of capital with respect to such Investment (less the cost of
disposition, if any) and (2) the initial amount of such Investment (in each case
to the extent not included in clause (B) above), and (D) $5.0 million.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph will not prevent (i) the declaration and payment of any
dividends paid within 60 days after the date of declaration thereof if, at such
date of declaration, such dividend would have complied with this covenant, (ii)
if no Default or Event of Default shall have occurred and be continuing as a
consequence thereof, any purchase or redemption of Capital Stock or any
Subordinated Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Qualified Capital Stock of the
Company (other than Capital Stock issued or sold to a Restricted Subsidiary),
(iii) if no Default or Event of Default shall have occurred and be continuing as
a consequence thereof, the repurchase, redemption or other repayment of any
Subordinated Obligations in exchange for or solely out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary) of
Subordinated Obligations with a Weighted Average Life to Maturity equal to or
greater than the then remaining Weighted Average Life to Maturity of the
Subordinated Obligations repurchased, redeemed or repaid, (iv) any payment by
the Company or any Restricted Subsidiary of the Company (a) in connection with
repurchases of Equity Interests or Subordinated Obligations of the Company
following the death, disability or termination of employment of members of
management, and (b) of amounts (to the extent such payments would
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otherwise constitute Restricted Payments) required to be paid by the Company or
any of its Restricted Subsidiaries to participants in employee benefit plans
upon termination of employment by such participants, as provided in the
documents related thereto, in an aggregate amount (for both clauses (a) and (b))
not to exceed $2.0 million in any fiscal year; PROVIDED that any unused amounts
may be carried over to any subsequent fiscal year subject to a maximum amount of
$5.0 million in any fiscal year; PROVIDED, FURTHER, that such amount in any
fiscal year may be increased by an amount not to exceed (i) the cash proceeds
from the sale of Equity Interests of the Company to members of management,
directors or consultants of the Company and its Subsidiaries that occurs after
the Issue Date (to the extent the cash proceeds from the sale of such Equity
Interests have not otherwise been applied to the payment of Restricted Payments
by virtue of subclause (c) of the preceding paragraph) plus (ii) the cash
proceeds of key man life insurance policies received by the Company and its
Restricted Subsidiaries after the Issue Date less (iii) the amount of any
Restricted Payments previously made pursuant to clauses (i) and (ii); and
PROVIDED, FURTHER, that the cancellation of Indebtedness owing to the Company
from members of management of the Company or any of its Restricted Subsidiaries
in connection with a repurchase of Equity Interests of the Company will not be
deemed to constitute a Restricted Payment for purposes of this covenant or any
other provision of the Indenture, (v) Investments in securities not constituting
cash or Cash Equivalents and received in connection with an Asset Sale made
pursuant to the provisions of the covenant described under "--Certain
Covenants--Limitation on Asset Sales" below or any other disposition of assets
not constituting an Asset Sale by reason of the $500,000 threshold contained in
the definition thereof, (vi) repurchases of Equity Interests deemed to occur
upon exercise of stock options if such Equity Interests represent a portion of
the exercise of such options, (vii) Investments in Unrestricted Subsidiaries
that are made with Excluded Contributions, (viii) if no Default or Event of
Default shall have occurred and be continuing as a consequence thereof, the
declaration and payment of dividends to holders of any class or series of
Designated Preferred Stock issued after the Issue Date; PROVIDED, HOWEVER, that
for the most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date of issuance of
such Designated Preferred Stock, after giving effect to such issuance on a pro
forma basis, the Company and its Restricted Subsidiaries would have had an
Operating Coverage Ratio greater than (x) 1.75 to 1.0, if the date of such
incurrence is on or prior to August 1, 1999, or (y) 2.00 to 1.0, if the date of
incurrence is after August 1, 1999, (ix) Investments in Unrestricted
Subsidiaries having an aggregate fair market value, taken together with all
other Investments made pursuant to this clause (ix) that are at that time
outstanding, not to exceed $5.0 million at the time of such Investment (with the
fair market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value) and (x) prepayments of Seller
Notes in an amount not to exceed $11.7 million in connection with the
Transactions and, after the Issue Date, additional prepayments of Seller Notes
in an amount not to exceed $2.0 million in any fiscal year; PROVIDED that any
unused amounts may be carried over to any subsequent fiscal year; PROVIDED that,
for purposes of determining whether Restricted Payments can be made pursuant to
the previous paragraph, all payments made pursuant to clauses (i), (iv), (viii)
and (ix) shall be included and payments made pursuant to all other clauses
specified above shall not be so included.
LIMITATION ON PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to: (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness or other obligation owed to the
Company or a Restricted Subsidiary, (ii) make any loans or advances to the
Company or a Restricted Subsidiary or (iii) transfer any of its property or
assets to the Company, except any such encumbrance or restriction under or by
reason of (a) applicable law or any applicable rule, regulation or order, (b)
the Indenture and the Notes, (c) the Senior Credit Facility or any Floor Plan
Financing Facility, (d) secured Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenants described under "--Limitation on
Liens" that
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limit the right of the debtor to dispose of the assets securing such
Indebtedness, (e) customary net worth provisions contained in leases and other
agreements entered into in the ordinary course of business, (f) customary
restrictions with respect to a Restricted Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Restricted Subsidiary, (g) provisions
with respect to the disposition or distribution of assets or property in joint
venture agreements and other similar agreements, (h) any other instrument
governing Indebtedness incurred on or after the Closing Date or any refinancing
thereof that is incurred in accordance with the Indenture, PROVIDED that the
encumbrance or restriction contained in any such Indebtedness or any such
refinancing thereof is no more restrictive and no more unfavorable to the
holders of the Notes than that contained in the Senior Credit Facility or any
Floor Plan Financing Facility as in effect on the Closing Date, (i) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of a Restricted Subsidiary, (j) Acquired Indebtedness;
PROVIDED that (x) such restriction is not applicable to any person, or the
properties or assets of any person, other than the person acquired, and (y) such
Indebtedness is otherwise permitted to be incurred pursuant to the "Limitation
on Indebtedness" covenant and (k) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the ordinary course
of business.
LIMITATION ON ASSET SALES
The Company may not, and may not permit any Restricted Subsidiary to,
consummate any Asset Sale unless (i) the Company (or the Restricted Subsidiary,
as the case may be) receives consideration at the time of each such Asset Sale
at least equal to the fair market value (as specified in an Officers'
Certificate with respect to any Asset Sale of less than $2.0 million and as
determined by the Board of Directors of the Company in good faith with respect
to Asset Sales in excess of $2.0 million) of the assets sold; (ii) not less than
75% (100% in the case of lease payments) of the consideration received by the
Company (or such Restricted Subsidiary, as the case may be) is in the form of
cash; PROVIDED that any note or other obligation received by the Company (or
such Restricted Subsidiary, as the case may be) that is converted into cash
within 30 days after receipt and any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than Contingent Liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that are
assumed by the transferee of any such assets shall be deemed to be cash for
purposes of this clause (ii); and (iii) the Company within 365 days of such
Asset Sale (x) reinvests or causes a Restricted Subsidiary to reinvest
(including by way of acquisitions) the Net Cash Proceeds of any Asset Sale into
one or more of the then existing businesses of the Company and its Subsidiaries
or any Similar Business; or (y) applies or causes to be applied such Net Cash
Proceeds to the permanent reduction of outstanding Senior Indebtedness or
Guarantor Senior Indebtedness, as the case may be; or (z) after such time as the
accumulated Excess Net Proceeds equal or exceed $10.0 million, applies or causes
to be applied such Excess Net Proceeds to the purchase of Notes tendered to the
Company for purchase at a price equal to 100% of the principal amount thereof
plus accrued interest thereon to the date of purchase pursuant to an offer to
purchase by the Company (a "Net Proceeds Offer") as set forth below; PROVIDED,
HOWEVER, that the Company shall have the right to exclude Asset Sales the net
proceeds of which in the aggregate do not exceed $2.0 million annually from the
calculation of accumulated Net Cash Proceeds; PROVIDED, FURTHER, to the extent
Net Cash Proceeds have not been applied pursuant to clause (x), (y) or (z) above
within 325 days of an Asset Sale, such Net Cash Proceeds shall be held in a
segregated account pending such application. Pending the final application of
any such Net Cash Proceeds, the Company or Restricted Subsidiary, as the case
may be, may temporarily reduce Senior Indebtedness or Guarantor Senior
Indebtedness, as the case may be, or otherwise invest such Net Cash Proceeds in
any manner not prohibited by the Indenture.
The Company will be required under the Senior Credit Facility to apply
certain net proceeds of asset sales to the repayment of Obligations thereunder.
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Each Net Proceeds Offer will be mailed to record Holders of Notes as shown
on the register of Holders not less than 365 nor more than 395 days after the
relevant Asset Sale, with a copy to the Trustee, shall specify the purchase date
(which shall be no earlier than 30 days nor later than 60 days from the date
such notice is mailed) and shall otherwise comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer, Notes of tendering Holders will be repurchased
on a pro rata basis (based on amounts tendered). If the aggregate purchase price
of Notes tendered pursuant to the Net Proceeds Offer is less than the Net Cash
Proceeds allotted to the purchase of the Notes, the Company may apply the
remaining Net Cash Proceeds for general corporate purposes.
The Company will comply with all applicable securities laws in connection
with any Net Proceeds Offer, including Rule 14e-1 under the Exchange Act.
LIMITATION ON LIENS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, create, incur or otherwise cause or suffer to exist or become effective any
Liens of any kind (other than Permitted Liens) upon any property or asset of the
Company or any Restricted Subsidiary or any shares of stock or debt of any
Restricted Subsidiary which owns property or assets, now owned or hereafter
acquired, unless (i) if such Lien secures Indebtedness which is PARI PASSU with
the Notes or a Guarantee, then the Notes or such Guarantee, as the case may be,
are secured on an equal and ratable basis with the obligations so secured until
such time as such obligation is no longer secured by a Lien or (ii) if such Lien
secures Indebtedness which is subordinated to the Notes or a Guarantee, any such
Lien shall be subordinated to the Lien granted to the holders of the Notes or
such Guarantee, as the case may be, to the same extent as such Subordinated
Obligations are subordinated to the Notes.
LIMITATION ON CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company will not, if such action would cause a Subsidiary not to be a
Controlled Subsidiary, (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Restricted Subsidiary (other than Liens on
such Capital Stock securing Obligations under Senior Indebtedness or Guarantor
Senior Indebtedness) or (ii) permit any of its Restricted Subsidiaries to issue
any Capital Stock, other, in any such case, than to the Company or a Controlled
Subsidiary. The foregoing restrictions shall not apply to an Asset Sale made in
compliance with "--Limitation on Asset Sales" or the issuance of Preferred Stock
in compliance with the covenant described under "--Limitation on Indebtedness."
GUARANTEES OF CERTAIN INDEBTEDNESS
The Company will not permit any of its Subsidiaries, directly or indirectly,
to incur, guarantee or secure through the granting of Liens the payment of any
Indebtedness under the Senior Credit Facility or any refunding or refinancing
thereof in each case unless such Subsidiary, the Company and the Trustee execute
and deliver a supplemental indenture evidencing such Subsidiary's Guarantee,
such Guarantee to be a senior subordinated unsecured obligation of such
Subsidiary. Neither the Company nor any Subsidiary Guarantor shall be required
to make a notation on the Notes or the Guarantees to reflect any such subsequent
Guarantee. Nothing in this covenant shall be construed to permit any Subsidiary
of the Company to incur Indebtedness otherwise prohibited by the "Limitation on
Indebtedness" covenant.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, following the Issue Date, enter into or permit to exist
any transaction with any Affiliate of the Company or any Significant Stockholder
of the Company (an "Affiliate Transaction") unless such transaction is on
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terms that are fair and reasonable to the Company or such Subsidiary and no less
favorable to the Company or such Subsidiary than those that could be obtained in
a comparable arm's length transaction with an entity that is not an Affiliate of
the Company or a Significant Stockholder of the Company; PROVIDED that in the
event such transaction or series of related transactions involves aggregate
consideration in excess of $2.0 million, the foregoing determination as to
fairness shall be made by a majority of the Disinterested Directors of the Board
of Directors of the Company as evidenced by a Board Resolution; PROVIDED,
FURTHER, that in the event such transaction or series of related transactions
involves aggregate consideration in excess of $10.0 million, the Company shall,
in addition to obtaining the approval of the Disinterested Directors of its
Board of Directors, obtain a written opinion of an Independent Financial Advisor
stating that the terms of such transaction are fair and reasonable to the
Company or such Subsidiary from a financial point of view; PROVIDED, HOWEVER,
that (i) reasonable and customary directors' fees, indemnification and similar
arrangements and payments thereunder, (ii) transactions between or among or for
the benefit of the Company and its Subsidiaries, which are not otherwise
prohibited by the Indenture, (iii) any employment agreement entered into by the
Company or any of its Subsidiaries in the ordinary course of business, (iv)
Restricted Payments permitted by the provisions of the Indenture described above
under "--Limitation on Restricted Payments," (v) provision of administrative or
management services by the Company or its Subsidiaries or any of their officers
to any of their respective Subsidiaries in the ordinary course of business, (vi)
arm's length transactions entered into in the ordinary course of business
between the Company or any Restricted Subsidiary and any Affiliate of the
Company or any Significant Stockholder of the Company engaged in a Similar
Business and (vii) transactions contemplated by any agreement as in effect as of
the Closing Date or any amendment thereto so long as any such amendment is not
disadvantageous to the Holders of the Notes in any material respect and so long
as the amounts paid by the Company and the Restricted Subsidiaries under any
such amended agreement do not exceed the amounts payable by the Company and the
Restricted Subsidiaries on the Closing Date, in each case, shall not be deemed
Affiliate Transactions.
LIMITATION ON MERGERS AND CERTAIN OTHER TRANSACTIONS
The Company, in a single transaction or through a series of related
transactions, shall not consolidate with or merge with or into any other person,
or transfer (by lease, assignment, sale or otherwise) all or substantially all
of its properties and assets unless (i) either the Company shall be the
continuing person, or the person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company are transferred
(the Company or such other person hereinafter referred to as the "Surviving
person") shall be a corporation organized and validly existing under the laws of
the United States, any state thereof or the District of Columbia, and if other
than the Company shall expressly assume, by an indenture supplement, all of the
obligations of the Company under the Notes and the Indenture; (ii) immediately
after and giving effect to such transaction and the assumption contemplated by
clause (i) above and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, the Surviving person could
incur at least $1.00 of Indebtedness pursuant to the first paragraph under the
"Limitation on Indebtedness" covenant and (iii) immediately before and
immediately after and giving effect to such transaction and the assumption of
the obligations as set forth in clause (i) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, no Default or Event of Default shall have occurred and be continuing;
and (iv) the Surviving person shall have delivered to the Trustee an officers'
certificate stating that such consolidation, merger, sale, assignment, transfer,
lease, conveyance or other disposition and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture comply
with the applicable provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries of
the Company the Capital Stock of which constitutes all or substantially all of
the properties
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and assets of the Company shall be deemed to be the transfer of all or
substantially all of the properties and assets of the Company. Notwithstanding
the foregoing clauses (ii) and (iii), (a) any Restricted Subsidiary of the
Company may consolidate with, merge into or transfer all or part of its
properties and assets to the Company or a Subsidiary Guarantor and (b) the
Company may merge with an Affiliate incorporated solely for the purpose of
reincorporating the Company in another jurisdiction.
The Indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, the surviving entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Notes with the same effect as if such surviving entity had
been named as such.
GUARANTEES
Each Subsidiary Guarantor unconditionally guarantees, jointly and severally,
to each holder and the Trustee, subject to subordination provisions
substantially the same as those described above, the full and complete payment
of principal of and interest on the Notes. Upon (i) the release by the lenders
under the Senior Credit Facility, related documents and future refinancings
thereof of all guarantees of a Subsidiary Guarantor and all Liens on the
property and assets of such Subsidiary Guarantor relating to such Indebtedness,
or (ii) the sale or disposition of a Subsidiary Guarantor (or all or
substantially all of its assets) to an entity which is not a subsidiary of the
Company, which is otherwise in compliance with the Indenture, such Subsidiary
Guarantor shall be deemed released from all its obligations under the Indenture
and its Guarantee; PROVIDED, HOWEVER, that any such termination shall occur only
to the extent that all obligations of such Subsidiary Guarantor under the Senior
Credit Facility and all of its guarantees of, and under all of its pledges of
assets or other security interests which secure, Indebtedness of the Company
shall also terminate upon such release, sale or transfer.
The Indebtedness evidenced by each Guarantee (including the payment of
principal of, premium, if any, and interest on the Notes) will be subordinated
on the same basis to Guarantor Senior Indebtedness (defined with respect to the
Indebtedness of a Guarantor in the same manner as Senior Indebtedness is defined
with respect to the Company) as the Notes are subordinated to Senior
Indebtedness. See "--Subordination" above.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including, without limitation, any
guarantees under the Senior Credit Facility) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
the Guarantee, not constitute a fraudulent conveyance or fraudulent transfer
under federal or state law. Each Subsidiary Guarantor that makes a payment or
distribution under a Guarantee shall be entitled to a contribution from each
other Subsidiary Guarantor in a PRO RATA amount based on the Adjusted Net Assets
of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. Each
Subsidiary Guarantor may consolidate with or merge into or sell all or
substantially all its assets to a corporation other than the Company or another
Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor):
PROVIDED that either (x) the transaction is an Asset Sale consummated in
accordance with the "Limitation on Asset Sales" covenant or (y)(a) if the
surviving corporation is not the Subsidiary Guarantor, the surviving corporation
agrees to assume such Subsidiary Guarantor's Guarantee and all its obligations
pursuant to the Indenture and (b) such transaction does not (i) violate any
covenants set forth in the Indenture or (ii) result in a Default or Event of
Default immediately thereafter that is continuing.
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Separate financial statements of the Subsidiary Guarantors are not included
herein because such Subsidiary Guarantors are jointly and severally liable with
respect to the Company's obligations pursuant to the Notes, and the aggregate
net assets, earnings and equity of the Subsidiary Guarantors are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis.
EVENTS OF DEFAULT
An "Event of Default" is defined in the Indenture to mean (a) default in the
payment of any installment of interest upon any of the Notes as and when the
same shall become due and payable, and continuance of such default for a period
of 30 days (whether or not prohibited by the subordination provisions of the
Indenture); (b) default in the payment of all or any part of the principal on
any of the Notes when the same shall become due and payable, either at maturity,
upon any redemption, by declaration or otherwise (whether or not prohibited by
the subordination provisions of the Indenture); (c) failure on the part of the
Company or any Subsidiary Guarantor duly to observe or perform any other of the
covenants or agreements on the part of the Company or any Subsidiary Guarantor
in the Notes or in the Indenture for a period of 30 days after receipt of
written notice specifying such failure, stating that such notice is a "Notice of
Default" under the Indenture and demanding that the Company or such Subsidiary
Guarantor, as the case may be, remedy the same, shall have been given by
registered or certified mail, return receipt requested, to the Company by the
Trustee, or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Notes at the time outstanding; (d) a default
under any Indebtedness of the Company or any of its Restricted Subsidiaries,
whether such Indebtedness now exists or shall hereinafter be created, if both
(A) such default either (i) results from the failure to pay principal on
Indebtedness at the final maturity of the respective issue of Indebtedness and
such failure continues for a period of 10 days or more, or (ii) results in the
holder or holders of such Indebtedness causing such Indebtedness to become due
prior to its stated maturity and such acceleration has not been rescinded,
canceled or otherwise cured within 10 days after receipt of notice of
acceleration by the Company and (B) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default for
failure to pay principal at final maturity or the maturity of which has been so
accelerated, in each case with respect to which the 10-day period described
above has passed, aggregates in excess of $10.0 million at any one time; (e) any
final judgment or order for the payment of money shall be rendered against the
Company or any Significant Subsidiary of the Company by a court of competent
jurisdiction in excess of $10.0 million individually or in the aggregate for all
such judgments or orders against all such persons that are not stayed, bonded or
discharged and there is a period of 60 consecutive days, after written notice
has been given by the Trustee or the holders of at least 25% in aggregate
principal amount of the Notes then outstanding, during which a stay of
enforcement of such judgment or order, by reason of pending appeal or otherwise,
shall not be in effect; (f) certain events of bankruptcy with respect to the
Company and its Significant Subsidiaries; or (g) any Subsidiary Guarantee shall
for any reason cease to be in full force and effect or be declared null and void
or any responsible officer of the Company or any Guarantor denies that it has
any further liability under any Subsidiary Guarantee or gives notice to such
effect (other than by reason of the termination of the Indenture or the release
of any such Subsidiary Guarantee in accordance with the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(f) above with respect to the Company) occurs and is continuing, either the
Trustee or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), may declare the entire principal
amount of and accrued interest on the Notes to be due and payable immediately,
and the same (i) shall become immediately due and payable or (ii) if there are
any amounts outstanding under the Senior Credit Facility, shall become due and
payable upon the first to occur of an acceleration under the Senior Credit
Facility, or 5 business days after receipt by the Company and the Representative
under the Senior Credit Facility of such Acceleration Notice, unless all Events
of Default specified in such Acceleration Notice (other than any Event of
Default in respect of non-payment of
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principal) shall have been cured or waived. In the event of a declaration
because an Event of Default set forth in clause (d) of the preceding paragraph
has occurred and is continuing, such declaration of acceleration shall be
automatically annulled if the missed payments in respect of such Indebtedness
have been paid or if the holders of the Indebtedness that is subject to
acceleration have rescinded their declaration of acceleration and the Trustee
has received written notice of such Indebtedness having been repaid in full, in
each case within 60 days thereof and if (i) the annulment of such acceleration
would not conflict with any judgment or decree of a court of competent
jurisdiction, (ii) all existing Events of Default, except non-payment of
principal or interest which have become due solely because of the acceleration,
have been cured or waived and (iii) the Company has delivered an Officer's
Certificate to the Trustee to the effect of clauses (i) and (ii) above. If an
Event of Default specified in clause (f) above occurs with respect to the
Company, the principal amount of and accrued interest on the Notes shall become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder.
The declaration of acceleration is subject to the condition that if, at any
time after the principal of the Notes shall have been so declared due and
payable, and before any judgment or decree for the payment of the moneys shall
have been obtained or entered as hereinafter provided, the Company shall pay or
shall deposit with the Trustee a sum sufficient to pay all matured installments
of interest upon all the Notes and the principal of any and all Notes which
shall have become due otherwise than by acceleration (with interest upon such
principal and, to the extent that payment of such interest is unenforceable
under applicable law, on overdue installments of interest, at the same rate as
the rate of interest specified in the Notes, to the date of such payment or
deposit) and such amount as shall be sufficient to cover reasonable compensation
to the Trustee and each predecessor Trustee, their respective agents, attorneys
and counsel, and all other expenses and liabilities incurred, and all advances
made, by the Trustee and each predecessor Trustee except as a result of
negligence or bad faith, and if any and all Events of Default under the
Indenture, other than the non-payment of the principal of Notes which shall have
become due by acceleration, shall have been cured, waived or otherwise remedied
as provided in the Indenture, then and in every such case the holders of a
majority in aggregate principal amount of the Notes then outstanding, by written
notice to the Company and to the Trustee, may waive all defaults and rescind and
annul such declaration and its consequences, but no such waiver or rescission
and annulment shall extend to or shall affect any subsequent default or shall
impair any right consequent thereon.
The holders of a majority in outstanding aggregate principal amount of the
Notes by notice to the Trustee may on behalf of the holders of the Notes waive
any existing Default or Event of Default under the Indenture and its
consequences, except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in principal amount of the outstanding Notes have made written
request, and offered indemnity, to the Trustee to institute such proceeding as
Trustee, the Trustee has failed to institute such proceeding within 30 days
after receipt of such notice and the Trustee has not within such 30-day period
received directions inconsistent with such written request by holders of a
majority in principal amount of the outstanding Notes. Such limitations do not
apply, however, to a suit instituted by a holder of a Note for the enforcement
of the payment of the principal of, premium, if any, or accrued interest on,
such Note on or after the respective due dates expressed in such Note.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal, premium (if any) or interest on any Note, the
Trustee may withhold notice if and so long as a committee of its trust officers
determines that withholding notice is in the interest of the holders of the
Notes. In addition, the Company is required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred under the Indenture during the
previous year. The Company is also required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of events which would
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constitute certain Defaults under the Indenture, their status and what action
the Company is taking or proposes to take in respect thereof.
TRANSFER
The Notes were issued in registered form and are transferable only upon the
surrender of the Notes being transferred for registration of transfer. The
Company may require payment of a sum sufficient to pay all taxes, assessments or
other governmental charges. The Notes were issued in a transaction exempt from
registration under the Act and are subject to transfer restrictions. The
registered holder of a Note may be treated as the owner of it for all purposes.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder, as such, of the Company or
any Subsidiary shall have any liability for any obligations of the Company or
any Subsidiary under the Notes, any Subsidiary Guarantee or the Indenture. Each
holder of the Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
This provision does not affect any possible claims under the federal securities
laws.
SATISFACTION AND DISCHARGE OF THE INDENTURE; COVENANT DEFEASANCE
The Indenture will cease to be of further effect as to all outstanding Notes
(except as to (a) rights of registration of transfer, substitution, exchange and
the Company's right of optional redemption and prepayment, (b) rights of holders
to receive payments of principal of and interest on the Notes and any other
rights of the holders thereof with respect to the amounts deposited with the
Trustee under the provisions referred to in this paragraph, (c) the rights,
obligations and immunities of the Trustee under the Indenture and (d) certain
other specified provisions in the Indenture) when (x) all outstanding Notes
(except lost, stolen or destroyed Notes which have been replaced or paid) have
been delivered to the Trustee for cancellation or (y) the Company shall have
paid or caused to be paid the principal of and interest on the Notes as and when
the same shall have become due and payable or (z)(i) the Notes not previously
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be called
for redemption upon delivery of notice and (ii) the Company shall have deposited
with the Trustee, as trust funds, the entire amount in cash sufficient to pay
the principal of and interest on the outstanding Notes to maturity or
redemption, as the case may be.
The Indenture will also cease to be in effect (except as aforesaid) on the
91st day after the deposit by the Company with the Trustee, in trust for the
benefit of the holders of Notes, of (a) money in an amount or (b) U.S.
government obligations which through the payment of interest and principal in
accordance with their terms will provide, not later than one business day before
the due date of payments in respect of the Notes, money in an amount, or (c) a
combination thereof, sufficient in the opinion of a nationally recognized
independent public accounting firm to pay and discharge without consideration of
reinvestment of such interest each installment of principal and interest on the
Notes then outstanding at the maturity date of such principal or installment of
principal and interest. Such a trust may only be established if the Company has
delivered to the Trustee an opinion of counsel acceptable to the Trustee (who
may be counsel to the Company) to the effect that (i) the defeasance and
discharge will not be deemed, or result in, a taxable event, with respect to
holders of the Notes, (ii) the creation of the trust will not violate the
Investment Company Act of 1940 and (iii) after the passage of 90 days following
the deposit of the trust funds, such funds will not be subject to any
bankruptcy, insolvency, reorganization or other similar law affecting creditors'
rights generally. The Indenture will not be discharged if, among other things,
an Event of Default, or an event which with notice or lapse of time would have
become an Event of Default, shall have occurred and be continuing on the date of
such deposit or during the period ending on the 91st day
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after such date. In the event of any such defeasance and discharge, Note holders
will thereafter be able to look only to such trust fund for payment of principal
and interest on the Notes.
The Indenture provides that the Company may cease to comply with certain
covenants imposing restrictions on the incurrence of Indebtedness by the Company
and its Subsidiaries, and limitations on certain Restricted Payments,
disposition of assets of the Company and its Subsidiaries, limitations on
payment of dividends and other distributions or payments by Subsidiaries,
transactions with Affiliates, mergers and consolidations, limitations on Capital
Stock of Restricted Subsidiaries, limitations on Guarantees of certain
Indebtedness, limitations on Liens and Change in Control transactions if the
Company deposits with the Trustee money and/or U.S. government obligations,
which, through the payment of interest and principal thereof in accordance with
their terms, will provide, not later than one business day before the date
payments in respect of the Notes are payable, money in an amount sufficient in
the opinion of a nationally recognized independent public accounting firm to pay
principal of and interest on the outstanding Notes (without consideration of the
reinvestment of such interest) or installments of principal or interest. The
obligations of the Company under the Indenture other than with respect to the
covenants referred to above shall remain in full force and effect. Such a trust
may only be established if the Company has delivered to the Trustee an opinion
of counsel acceptable to the Trustee (who may be counsel to the Company) to the
effect that (i) the deposit and related covenant defeasance will not be deemed,
or result in, a taxable event with respect to holders of Notes; and (ii) the
creation of the trust will not violate the Investment Company Act of 1940.
MODIFICATION OF THE INDENTURE
The Indenture and the Notes may be amended or supplemented (and compliance
with any provision thereof may be waived) by the Company, the Trustee and the
holders of not less than a majority in aggregate principal amount of the Notes
then outstanding, except that without the consent of each holder affected, no
such amendment, supplement or waiver may (1) change the principal amount of
Notes whose holders must consent to an amendment, supplement or waiver of any
provision of the Indenture or the Notes; (2) reduce the rate or extend the time
for payment of interest on any Note; (3) reduce the principal amount of any
Note; (4) change the Maturity Date of any Note or alter the redemption
provisions in a manner adverse to any holder (except that provisions affecting
the requirement to repurchase Notes following a Change of Control or certain
asset sales may be amended by the Company, the Trustee and the holders of not
less than a majority in aggregate principal amount of the Notes then
outstanding); (5) make any changes in the provisions concerning waivers of
Defaults or Events of Default by holders or the rights of holders to recover the
principal of, premium (if any) or interest on or redemption payment with respect
to any Note; (6) make the principal of, or interest on, any Note payable with
anything other than as provided for in the Indenture and the Notes; and (7) make
any change to the subordination provisions of the Indenture and the Notes in a
manner that adversely affects the holders.
In addition, the Company and the Trustee may amend the Indenture and the
Notes for certain specified purposes, including, among other things, (a) to cure
any ambiguity, defect or inconsistency therein; PROVIDED that such amendment or
supplement does not adversely affect the rights of any holder, (b) to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act of 1939 or (c) to
make any other change that does not adversely affect the rights of any holder.
Notwithstanding the foregoing, no amendment shall modify any provision of the
Indenture so as to adversely affect the rights of any holder of Senior
Indebtedness without the consent of such holder.
THE TRUSTEE
The holders of a majority in principal amount of the outstanding Notes may
remove the Trustee and appoint a successor trustee with the Company's consent,
by so notifying the trustee to be so removed and the Company. In addition, the
holders of a majority in principal amount of the outstanding Notes have the
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right, subject to certain limitations, to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on such Trustee.
The Indenture provides that, in case a Default or an Event of Default has
occurred and is continuing, the Trustee thereunder shall exercise such of the
rights and powers vested in it by the Indenture, and use the same degree of care
and skill in the exercise thereof, as a prudent person would exercise or use
under the circumstances in the conduct of his own affairs. Subject to the latter
provision, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request, order or direction of any of the
holders, unless they shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
thereby.
The Indenture contains limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to be realized on certain property received by it in respect of any such
claims, securities or otherwise. The Trustee is permitted to engage in other
transactions: however, if the Trustee acquires any "conflicting interest," it
must eliminate such conflict or resign.
REPORTS
So long as the Notes are outstanding, the Company will furnish to the
Trustee and holders of the Notes all quarterly and annual financial reports that
the Company is required to file with the Commission under the Exchange Act (or
similar reports in the event that the Company is not at the time required to
file such reports with the Commission). The Indenture provides that even if the
Company is entitled under the Exchange Act not to furnish such information to
the Commission or the holders of the Notes, it will nonetheless continue to
furnish such information to the Commission (to the extent the Commission is
accepting such reports) and holders of the Notes.
CERTAIN DEFINITIONS
"ACQUIRED INDEBTEDNESS" means (i) with respect to any person that becomes a
Restricted Subsidiary, Indebtedness of such person at the time such person
becomes a Restricted Subsidiary and not incurred in connection with, or in
contemplation of, such person becoming a Restricted Subsidiary, treating for
purposes of this definition as Indebtedness the unused portion of any revolving
loan commitments provided in agreements to which such person is a party as
borrower or guarantor and (ii) with respect to the Company or any of its
Restricted Subsidiaries, any Indebtedness assumed by the Company or any of its
Restricted Subsidiaries in connection with the acquisition of any assets from
another person (other than the Company or any of its Restricted Subsidiaries),
and which was not incurred by such other person in connection with or, in
contemplation of, such acquisition.
"ACT" means the Securities Act of 1933, as amended.
"ADJUSTED NET ASSETS" of a Subsidiary Guarantor at any date shall mean the
lesser of the amount by which (i) the fair value of the property of such
Subsidiary Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantee, of such Subsidiary Guarantor at such
date and (ii) the present fair salable value of the assets of such Subsidiary
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Subsidiary Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date and after giving effect to any collection from any Subsidiary of such
Subsidiary Guarantor in respect of the obligations of such Subsidiary under the
Subsidiary Guarantee), excluding debt in respect of the Subsidiary Guarantee, as
they become absolute and matured.
"AFFILIATE" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of
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this definition, "control" when used with respect to any person means the power
to direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"APPLICABLE PREMIUM" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at August 1, 2001 (such redemption price being described under "--Optional
Redemption") plus (2) all required interest payments due on such Note through
August 1, 2001, computed using a discount rate equal to the Treasury Rate plus
50 basis points, over (B) the principal amount of such Note.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer for value (including any sale and
leaseback transaction) by the Company or any of its Restricted Subsidiaries to
any person other than the Company or any wholly owned Restricted Subsidiary of
(i) any Capital Stock of any Restricted Subsidiary; or (ii) any other property
or assets of the Company or any Restricted Subsidiary other than in the ordinary
course of business, in each case, resulting in Net Cash Proceeds to the Company
and its Restricted Subsidiaries of $500,000 or more, provided that the sale,
conveyance, transfer, assignment or other transfer of substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole will be
governed by the terms of the Indenture described above under the caption
"Limitation on Mergers and Certain Other Transactions"; provided, however, an
Asset Sale shall not mean (a) a disposition of Cash Equivalents or Investment
Grade Securities or obsolete equipment in the ordinary course of business; (b)
the disposition of all or substantially all of the assets in a manner permitted
pursuant to the provisions described under "Limitation on Mergers and Certain
Other Transactions" or any disposition that constitutes a Change of Control
pursuant to the Indenture; (c) any Restricted Payment that is permitted to be
made, and is made, under the first paragraph of the covenant described above
under "Limitation on Restricted Payments"; and (d) any disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Restricted Subsidiary.
"CAPITAL STOCK" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person,
including, without limitation, if such person is a partnership, partnership
interests (whether general or limited) and any other interest or participation
that confers on a person the right to receive a share of the profits and losses
of, or distributions of assets of, such partnership.
"CAPITALIZED LEASE OBLIGATION" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"CASH EQUIVALENTS" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") and maturing not more than one year from the date of
creation thereof, (iii) demand and time deposits with, and certificates of
deposit and banker's acceptances issued by, any bank having capital surplus and
undivided profits aggregating at least $250 million and maturing not more than
one year from the date of creation thereof, (iv) repurchase agreements that are
secured by a perfected security interest in an obligation described in clause
(i) and are with any bank described in clause (iii), (v) readily marketable
direct obligations issued by any state of the United States of America or any
political subdivision thereof having one of the two highest rating categories
obtainable from either Moody's or S&P and (vi) investments in money market funds
which invest substantially all of their assets in securities of the types
described in clauses (i) through (v) above.
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"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any person or group of related persons for purposes of Section 13(d)
of the Exchange Act (a "Group") together with any Affiliates thereof (whether or
not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); or (iii) the acquisition in
one or more transactions, of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) by (x) any person or Group (other than a Group the
majority in economic interests and voting or similar rights is owned by
Permitted Holders) that either (A) beneficially owns (within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, (I) at least 30% (or, in
the case of a transaction or transactions approved before the consummation of
same by a majority of the directors of the Company, 35%) of the Company's then
outstanding voting securities entitled to vote on a regular basis for the Board
of Directors of the Company and (II) a greater beneficial interest than the
Permitted Holders, or (B) otherwise has the ability to elect, directly or
indirectly, a majority of the members of the Company's Board of Directors,
including without limitation by the acquisition of revocable proxies for the
election of directors. Clause (i) of the definition of "Change of Control"
includes a sale, lease, exchange or other transfer of "all or substantially all"
of the assets of the Company to a Group. There is little case law interpreting
the phrase "all or substantially all" in the context of an indenture. Because
there is no precise established definition of this phrase, the ability of a
holder of Notes to require the Company to repurchase such Notes as a result of a
sale, lease, exchange or other transfer of all or substantially all of the
Company's assets to person or a Group may be uncertain.
"COMPANY" means Federal Data Corporation, a Delaware corporation and its
successors that become a party to the Indenture in accordance with its terms.
"CONSOLIDATED EBITDA" of the Company means, for any period, the sum (without
duplication) of (i) Consolidated Net Income, (ii) to the extent Consolidated Net
Income has been reduced thereby, all income taxes of the Company and its
Restricted Subsidiaries paid or accrued in accordance with GAAP for such period,
Consolidated Interest Expense, amortization expense (including write-off of
intangible assets and deferred financing costs), depreciation expense, and any
restructuring reserve or charge recorded during such period in accordance with
GAAP, (iii) LIFO charge (credit) of the Company and its Restricted Subsidiaries
for such period, (iv) other non-cash items reducing Consolidated Net Income
(excluding any such charge which requires an accrual of or a cash reserve for
cash charges for any future period) and (v) cash received with respect to any
non-cash item previously deducted from Consolidated Net Income pursuant to
clause (x) below less (x) other non-cash items increasing Consolidated Net
Income (excluding any reversal of any non-cash item to the extent such reversed
non-cash item previously reduced an addition to Consolidated EBITDA pursuant to
the parenthetical to clause (iv) above) and (y) the amount of all cash payments
made by such person or its subsidiaries during such period to the extent that
such cash payment has been provided for in a reserve or charge referred to (and
previously added back to such Consolidated Net Income) in clause (ii) or (iv)
above (and were not otherwise deducted in the computation of Consolidated Net
Income of such person for such period), all as determined on a consolidated
basis for the Company and its Restricted Subsidiaries in conformity with GAAP.
"CONSOLIDATED INTEREST EXPENSE" of the Company means the aggregate of (i)
all cash and non-cash interest expense (minus amortization or write-off of
deferred financing costs included in cash or non-cash interest expense and minus
interest income (other than the interest income, if any, attributable to the
assets of the type financed pursuant to clause (m) of the second paragraph of
the covenant described under "--Limitation on Indebtedness") and capitalized
interest) with respect to all outstanding Indebtedness of the Company and its
Restricted Subsidiaries for such period (other than Indebtedness of the type
permitted to be incurred pursuant to clause (m) of the second paragraph of the
covenant described under "--Limitation on Indebtedness") plus (ii) the product
of (x) the amount of all cash dividend payments on any series of Preferred Stock
of the Company and its Restricted Subsidiaries (other than to or for the
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benefit of the Company or a Restricted Subsidiary); provided that with respect
to any series of Designated Preferred Stock that is Disqualified Capital Stock
(including, without limitation Designated Preferred Stock) that has not paid
cash dividends during such period but accrues dividends according to its terms
during any period prior to the maturity date of the Notes, cash dividends shall
be deemed to have been paid with respect to such series of Designated Preferred
Stock during such period for purposes of clause (i) of this definition; times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of the Company expressed as a decimal.
"CONSOLIDATED NET INCOME" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (i) gains and losses from Asset
Sales or abandonments or reserves relating thereto and the related tax effects,
(ii) items classified as extraordinary, nonrecurring or unusual gains and
losses, and the related tax effects, each determined in accordance with GAAP,
(iii) the net income of any person acquired in a pooling of interests
transaction accrued prior to the date it becomes a Restricted Subsidiary of the
Company or is merged or consolidated with the Company or any Restricted
Subsidiary, (iv) the net income (or loss) of any Restricted Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income was actually prevented by contract,
operation of law or otherwise and (v) the net income (or loss) of any person,
other than a Restricted Subsidiary, except to the extent of the lesser of (x)
cash dividends or distributions paid to the Company or a Restricted Subsidiary
of the Company by such person and (y) the net income of such person (but in no
event less than zero) and (vi) the cumulative effects of any change in
accounting principles.
"CONTINGENT OBLIGATIONS" means, with respect to any person, any obligation
of such person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("primary obligations") of any other person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
"CONTROLLED SUBSIDIARY" of the Company means a Restricted Subsidiary (i) 90%
or more of the total Equity Interest or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by the
Company (directly or through one or more Controlled Subsidiaries of the
Company), and (ii) of which the Company possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies, whether
through the ownership of voting securities, by agreement or otherwise.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DESIGNATED PREFERRED STOCK" means Preferred Stock of the Company that is
issued for cash (other than to a Restricted Subsidiary) and is so designated as
Designated Preferred Stock, pursuant to an Officers' Certificate executed by the
principal executive officer and the principal financial officer of the Company,
on the issuance date thereof, the cash proceeds of which are excluded from the
calculation set forth in clause (A) of the first paragraph of the "Limitation on
Restricted Payments" covenant.
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"DESIGNATED SENIOR INDEBTEDNESS" means any Indebtedness under or in respect
of the Senior Credit Facility or any other Senior Indebtedness designated as
such in an Officers' Certificate delivered to the Trustee, in aggregate
principal amount outstanding of $25.0 million or more.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver a
resolution of the Board of Directors under the Indenture, a member of the Board
of Directors who does not have any material direct or indirect financial
interest in or with respect to such transaction or series of transactions
(except arising exclusively as a consequence of such member's relationship to
the Company).
"DISQUALIFIED CAPITAL STOCK" means, with respect to any person, any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any event
(other than an event which would constitute a Change of Control), matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is exchangeable for Indebtedness, or is redeemable at the option of the holder
thereof (except, in each case, upon the occurrence of a Change in Control), in
whole or in part, on or prior to the maturity date of the Notes.
"EQUITY INTEREST" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXCESS NET PROCEEDS" shall mean Net Cash Proceeds of any Asset Sale not
applied in accordance with clause (iii)(x) or (y) of the "Limitation on Asset
Sales" covenant.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED CONTRIBUTIONS" means net cash proceeds received by the Company
after the Issue Date from (a) capital contributions and (b) the private sale of
common stock of the Company to Carlyle or its Affiliates, in each case
designated as Excluded Contributions pursuant to an Officers' Certificate
executed by the principal executive officer and the principal financial officer
of the Company on the date such capital contributions are made or the date such
Equity Interests are sold, as the case may be, the cash proceeds of which are
excluded from the calculation set forth in clause (c) of the first paragraph of
the "Limitation on Restricted Payments" covenant.
"FLOOR PLAN FINANCING FACILITY" means any facility (including without
limitation the Agreement for Wholesale Financing and the STAR Agreement (Short
Term Accounts Receivable Program) dated as of September 17, 1996 by and between
Deutsche Financial Services Corporation and Sylvest Management Systems
Corporation, as amended, extended, renewed, restated, supplemented, replaced or
otherwise modified (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from time to time) entered or
to be entered into by the Company or any Restricted Subsidiary pursuant to which
the Company or such Restricted Subsidiary may (i) borrow funds to purchase
inventory from certain vendors for prompt resale to customers and to finance
related accounts receivable and (ii) grant a security interest in such entity's
assets (including the accounts receivable generated by such resales) to secure
such borrowings.
"GAAP" or "generally accepted accounting principles" means generally
accepted accounting principles in the United States as in effect from time to
time, including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession.
"GUARANTEE" means a guarantee, direct or indirect, in any manner of all or
any part of any Indebtedness.
"GUARANTOR SENIOR INDEBTEDNESS" means (i) indebtedness of a Subsidiary
Guarantor for money borrowed and all obligations, whether direct or indirect,
under guarantees, letters of credit, foreign
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currency or interest rate swaps, foreign exchange contracts, caps, collars,
options, hedges or other agreements or arrangements designed to protect against
fluctuations in currency values or interest rates, other extensions of credit,
expenses, fees, reimbursements, indemnities and all other amounts (including
interest at the contract rate accruing on or after the filing of any petition in
bankruptcy or reorganization relating to such Subsidiary Guarantor whether or
not a claim for post-filing interest is allowed in such proceeding) owed by such
Subsidiary Guarantor under, or with respect to, the Senior Credit Facility, (ii)
the principal of and premium, if any, and accrued and unpaid interest (including
interest at the contract rate accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to a Subsidiary Guarantor whether or
not a claim for post-filing interest is allowed in such proceeding), whether
existing on the date hereof or hereafter incurred, in respect of (A)
indebtedness of such Subsidiary Guarantor for money borrowed, (B) express
written guarantees by such Subsidiary Guarantor of indebtedness for money
borrowed by any other person, (C) indebtedness evidenced by notes, debentures,
bonds, or other instruments of indebtedness for the payment of which such
Subsidiary Guarantor is responsible or liable, by guarantees or otherwise, (D)
obligations of such Subsidiary Guarantor for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction, (E)
obligations of such Subsidiary Guarantor under any agreement to lease, or any
lease of, any real or personal property which, in accordance with GAAP, is
classified upon Subsidiary Guarantor's consolidated balance sheet as a
liability, and (F) obligations of such Subsidiary Guarantor under or
guaranteeing interest rate swaps, caps, collars, options and similar
arrangements and foreign currency hedges and (iii) modifications, renewals,
extensions, replacements, refinancings, and refundings of any such indebtedness,
obligations or guarantees, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is expressly provided that
such indebtedness, obligations or guarantees, or such modifications, renewals,
extensions, replacements, refinancings, or refundings thereof, are not superior
in right of payment to the Guarantee of such Subsidiary Guarantor; provided,
that Guarantor Senior Indebtedness will not be deemed to include (a) any
liability for Federal, state, local or other taxes owed or owing by a Subsidiary
Guarantor, (b) any accounts payable or other liability to trade creditors
arising in the ordinary course of business, (c) any Indebtedness, guarantee or
obligation of a Subsidiary Guarantor which is expressly subordinate or junior by
its terms in any respect to any other Indebtedness, guarantee or obligations of
such Subsidiary Guarantor, (d) Indebtedness incurred in violation of the
"Limitation on Indebtedness" covenant or (e) Indebtedness of a Subsidiary
Guarantor which is classified as nonrecourse in accordance with GAAP or any
unsecured claim arising in respect thereof by reason of the application of
section 1111(b)(1) of the Bankruptcy Code.
"HEDGING OBLIGATIONS" means, with respect to the Company or a Restricted
Subsidiary, (i) the obligations of such person under Interest Rate Agreements,
(ii) the obligations of such person under Currency Agreements and (iii)
obligations under agreements or arrangements designed to protect such person
against fluctuations in the value of commodities entered into in such person's
business.
"INDEBTEDNESS" of any person means, at any time, without duplication: (i)
the principal of and, if any is due and payable at such time, premium in respect
of (A) indebtedness of such person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds, or other similar instruments for the
payment of which such person is responsible or liable; (ii) all Capitalized
Lease Obligations of such person; (iii) all obligations of such person issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such person and all obligations of such person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such person;
PROVIDED that, for the purpose of determining Events of Default referred to in
clause (d) under the caption "--Events of Default", obligations with respect to
letters of credit securing obligations entered into in the ordinary course of
business shall be excluded only to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third
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Business Day following receipt by such person of a demand for reimbursement
following payment on the letter of credit); (v) the principal amount of all
obligations of such person with respect to the redemption, repayment or other
purchase of any Disqualified Capital Stock; (vi) in the case of the Company, any
Preferred Stock of a Restricted Subsidiary, valued at the aggregate liquidation
preference thereof plus accrued and unpaid dividends thereon; (vii) all
obligations of the type referred to in clauses (i) through (vi) above of other
persons and all dividends of other persons the payment of which, in either case,
such person is responsible or liable for as obligor, guarantor or otherwise; and
(viii) all obligations of the type referred to in clauses (i) through (vii) of
other persons secured by a lien, mortgage, pledge or encumbrance of any kind on
any property or asset of such person (whether or not such obligation is assumed
by such person), the amount of such obligation being deemed to be the lesser of
the value of such property or assets or the amount of the obligation so secured;
provided, however, that Indebtedness shall not include any interest, commitment
or other fees.
"INDEPENDENT FINANCIAL ADVISOR" means a reputable accounting, appraisal or
investment banking firm that is, in the reasonable judgment of the Board of
Directors of the Company, qualified to perform the task for which such firm has
been engaged hereunder and disinterested and independent with respect to the
Company and its Affiliates.
"INITIAL PURCHASERS" means BT Alex. Brown Incorporated and Lehman Brothers
Inc.
"INTEREST RATE AGREEMENTS" means, with respect to the Company and the
Restricted Subsidiaries, any arrangements with any other person, whereby,
directly or indirectly, such person is entitled to receive from time to time
periodic payments calculated by applying either a floating or a fixed rate of
interest on a stated notional amount in exchange for periodic payments made by
such other person calculated by applying a fixed or a floating rate of interest
on the same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements.
"INVESTMENT" means, with respect to any person, all investments by such
person in other persons (including Affiliates of such person) in the form of
loans, guarantees, advances of assets or capital contributions (excluding
commission, travel and similar advances to, and compensation and benefits of,
officers and employees of such person made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Capital Stock
or other securities and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the fair market value (as determined by the Board of Directors of the Company in
good faith) of the assets of any Subsidiary of the Company at the time that such
Subsidiary is designated as an Unrestricted Subsidiary shall be deemed to be an
Investment made by the Company in such Unrestricted Subsidiary at such time.
"Investment" shall exclude (i) extensions of trade credit by the Company and the
Restricted Subsidiaries on commercially reasonable terms in the ordinary course
of business and (ii) sales, assignments, transfers, contributions, licenses or
other dispositions of patents, copyrights, applications with respect thereto,
and other trademarks, intellectual property and other technological "know-how"
(collectively, "Intellectual Property") to joint ventures in which the Company
or a wholly-owned Restricted Subsidiary owns at least 50% of the equity
interests (PROVIDED, that if the equity interest of the Company or such
Restricted Subsidiary, as the case may be, in such joint venture is reduced
below 50%, the Company shall have been deemed to make an Investment in such
joint venture in an amount equal to the fair market value (as determined by the
Board of Directors of the Company in good faith) of such Intellectual Property).
"INVESTMENT GRADE SECURITIES" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
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"ISSUE DATE" means the date of first issuance of the Notes under the
Indenture.
"JUNIOR SECURITIES" means Equity Interests of the Company or debt securities
that are subordinated to all Senior Indebtedness (and any debt securities issued
in exchange for Senior Indebtedness) to substantially the same extent as, or
greater extent than, the Notes are subordinated to Senior Indebtedness pursuant
to the Indenture.
"LIEN" means with respect to any property or assets of any person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"NET CASH PROCEEDS" means cash payments received (including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received) from any
sale, lease, transfer or other disposition of Capital Stock of the Company or a
Restricted Subsidiary or property or other assets of the Company or a Restricted
Subsidiary, in each case net of (i) any reserve for adjustment in respect of the
sale price of such asset or assets as required by GAAP (provided, that upon the
payment of such adjustment amount the excess, if any, of the amount so reserved
over the amount so paid shall be deemed "Net Cash Proceeds"), (ii) repayment of
any Purchase Money Indebtedness secured by a Lien on the sold asset or assets
and (iii) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and any taxes payable and reasonably estimated
income taxes, as a consequence of such sale, lease, transfer or other
disposition.
"NET WORTH" of any person means the total of the amounts shown on the
balance sheet of such person, as of the end of the most recent fiscal quarter of
such person ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as the sum of (i) par or
stated value for all outstanding Capital Stock of such person plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (x) any accumulated deficit and (y) any
amounts attributable to Disqualified Capital Stock.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under, or with respect to, the documentation governing any Indebtedness.
"OPERATING COVERAGE RATIO" means the ratio of Consolidated EBITDA of the
Company and the Restricted Subsidiaries during the four most recent full fiscal
quarters for which financial information is available (the "Four Quarter
Period") ending not more than 135 days prior to the date of the transaction
giving rise to the need to calculate the Operating Coverage Ratio (the
"Transaction Date") of the Company and the Restricted Subsidiaries for the Four
Quarter Period to Consolidated Interest Expense of the Company and the
Restricted Subsidiaries for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Interest Expense" shall be calculated after giving
effect on a PRO FORMA basis for the Four Quarter Period to (i) the incurrence or
repayment of any Indebtedness (excluding the incurrence of Indebtedness under
any revolving credit facility and including repayments of Indebtedness under any
revolving credit facility only to the extent that such repayment effects, or is
accompanied by, a permanent reduction in the availability thereunder) or the
issuance of any Designated Preferred Stock (and the application of the proceeds
of such Indebtedness or Designated Preferred Stock) of the Company and the
Restricted Subsidiaries at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such incurrence or
repayment or issuance, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales (and the application of proceeds thereof) or asset acquisitions
(including Capital Stock) outside the ordinary course of business in excess of
$100,000 occurring during the Four Quarter Period or at any time subsequent to
the last day of
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the Four Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale (and the application of proceeds thereof) or asset acquisition
occurred on the first day of the Four Quarter Period, without giving effect to
the limitations set forth in clause (iii) of the definition of Consolidated Net
Income. If the Company or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third person (other than the Company or
any of its Restricted Subsidiaries), the preceding sentence shall give effect to
the incurrence of such guaranteed Indebtedness as if such person or any
subsidiary (other than an Unrestricted Subsidiary) of such person had directly
incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in
calculating "Consolidated Interest Expense," (A) interest on Indebtedness or
dividends on Designated Preferred Stock determined on a fluctuating basis as of
the Transaction Date and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the Transaction Date, (B) if interest
on any Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate or
dividend rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period and (C) notwithstanding clause (A) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by Interest Rate Agreements, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
Interest Rate Agreements. Any such PRO FORMA calculation may include (a) any
adjustments, that would, in the reasonable determination of the Company set
forth in an Officers' Certificate, satisfy the requirements of Rule 11-02(a) of
Regulation S-X as if included in a registration statement filed with the
Commission, and (b) any other operating expense reductions reasonably expected
to result from any acquisition of assets (including any Permitted Investment
provided for in clause (iv) of the definition of such term), if such expected
reductions are (i) set forth in reasonable detail in a plan approved by or
resolutions of the Board of Directors, and (ii) limited to operating expenses
specified in such plan (and, if any such reductions are set forth as a range,
the lowest amount of such range) that would otherwise have resulted in the
payment of cash within twelve months after the date of consummation of such
transaction, net of any operating expenses (other than extraordinary items,
non-recurring or temporary charges and other similar one-time expenses)
reasonably expected to be incurred to implement such plan or to obtain goods or
services (including without limitation personnel, occupancy and transportation
expenses) in replacement of goods and services that are being curtailed or
eliminated to result in such expected reductions, and that are to be paid in
cash during such twelve-month period, and such Officers' Certificate so states.
"PERMITTED HOLDERS" or "Carlyle" means TC Group, L.L.C., a Delaware limited
liability company, and its Affiliates, and any successors thereof that are
Permitted Holders.
"PERMITTED INVESTMENT" means (i) cash and Cash Equivalents; (ii) any
Investment in the Company or in a Controlled Subsidiary of the Company; (iii)
any Investment by the Company or any Subsidiary existing on the Closing Date;
(iv) any Investment by the Company or any Subsidiary of the Company in a person,
if as a result of such Investment (A) such person becomes a Controlled
Subsidiary of the Company or (B) such person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Controlled Subsidiary of the
Company; (v) advances to employees in an aggregate principal amount not to
exceed $500,000 at any time outstanding; (vi) any Investment acquired by the
Company or any of its Restricted Subsidiaries (a) in exchange for any other
Investment or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment or
accounts receivable or (b) as a result of a foreclosure by the Company or any of
its Restricted Subsidiaries with respect to any secured Investment or other
transfer of title with respect to any secured Investment in default; (vii)
Hedging Obligations; (viii) loans and advances to officers, directors and
employees for business-related travel expenses, moving expenses and other
similar expenses, in each case incurred in the ordinary course of business; (ix)
Investments the payment for which consists of Equity Interests of the Company
(exclusive of Disqualified Capital Stock); PROVIDED, HOWEVER, that such Equity
Interests will not increase the amount available for Restricted Payments under
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clause (c) of the first paragraph of the "Limitation on Restricted Payments"
covenant; and (x) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (x) that
are at that time outstanding, not to exceed $5.0 million at the time of such
Investment (with the fair market value of each Investment being measured at the
time made and without giving effect to subsequent changes in value) (subject in
each case to the restrictions described under "--Limitation on Indebtedness" and
"--Limitation on Mergers and Certain Other Transactions").
"PERMITTED LIENS" means (i) Liens on property or assets of, or any shares of
stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries,
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Refinancing Indebtedness; PROVIDED that any such Lien does not
extend to or cover any Property, shares or debt other than the Property, shares
or debt securing the Indebtedness so refunded, refinanced or extended, (iii)
Liens in favor of the Company or any of its Restricted Subsidiaries, (iv) Liens
securing industrial revenue bonds, (v) Liens to secure Purchase Money
Indebtedness that is otherwise permitted under the Indenture; PROVIDED that (A)
any such Lien is created solely for the purpose of securing Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales) and excise taxes, installation and delivery charges and other direct
costs of, and other direct expenses paid or charged in connection with, such
purchase or construction) of such Property, (B) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such costs, and (C)
such Lien does not extend to or cover any Property other than such item of
Property and any improvements on such item, (vi) statutory Liens or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business which do not secure
any Indebtedness and with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provisions, if any, as shall be required in conformity with GAAP
shall have been made therefor, (vii) Liens in favor of the Trustee under the
Indenture and any substantially equivalent Lien granted to any trustee or
similar institution under any indenture for Indebtedness permitted by the terms
of the Indenture, (viii) Liens incurred or pledges or deposits made in the
ordinary course of business to secure obligations under workers' compensation,
unemployment insurance or other types of social security or similar legislation,
(ix) Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money), (x) Liens upon specific items of inventory or other
goods and proceeds of any person securing such person's obligations in respect
of bankers' acceptances issued or created for the account of such person to
facilitate the purchase, shipment or storage of such inventory or other goods in
the ordinary course of business, (xi) Liens securing reimbursement obligations
with respect to letters of credit which encumber documents and other property
relating to such letters of credit and the products and proceeds thereof, (xii)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of nondelinquent customs duties in connection with the
importation of goods, (xiii) judgment and attachment Liens not giving rise to a
Default or Event of Default, (xiv) leases or subleases granted to others not
interfering in any material respect with the business of the Company or any
Subsidiary, (xv) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business that are
within the general parameters customary in the industry, in each case securing
Indebtedness under Hedging Obligations, (xvi) Liens encumbering deposits made in
the ordinary course of business to secure nondelinquent obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company or
its Subsidiaries for which a reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made, (xvii) Liens arising out of
consignment or similar arrangements for the sale of goods entered into by the
Company or any Subsidiary in the ordinary course of business in accordance with
past practices, (xviii) any interest or title of a lessor in the property
subject to any lease, whether characterized
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as capitalized or operating other than any such interest or title resulting from
or arising out of a default by the Company or any Subsidiary of its obligations
under such lease, (xix) Liens arising from filing UCC financing statements for
precautionary purposes in connection with true leases of personal property that
are otherwise permitted under the applicable indenture and under which the
Company or any Subsidiary is lessee, (xx) other Liens securing obligations
incurred in the ordinary course of business which obligations or judgments do
not exceed $10.0 million in the aggregate at any one time outstanding, (xxi)
Liens securing Capitalized Lease Obligations permitted to be incurred; PROVIDED
that such Lien does not extend to any property other than that subject to the
underlying lease, (xxii) Liens on assets or capital stock of Unrestricted
Subsidiaries, (xxiii) Liens securing Indebtedness under the Senior Credit
Facility or any Floor Plan Financing Facility (xxiv) Liens existing on the
Closing Date, (xxv) Liens on assets of the Company securing Senior Indebtedness
and Liens on assets of a Subsidiary Guarantor securing Guarantor Senior
Indebtedness, (xxvi) any extensions, substitutions, replacements or renewals of
the foregoing, (xxvii) Liens for taxes, assessments or governmental charges that
are not delinquent or are being contested in good faith by appropriate
proceedings and (xxviii) easements or minor defects or irregularities in title
and other similar charges or encumbrances on property not interfering in any
material respect with the Company's use of such property.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint- stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
"PREFERRED STOCK" means any Capital Stock of a person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such person over the holders of other
Capital Stock issued by such person.
"PROPERTY" of any person means all types of real, personal, tangible,
intangible or mixed property owned by such person whether or not included in the
most recent consolidated balance sheet of such person and its Subsidiaries under
GAAP.
"PUBLIC EQUITY OFFERING" means an underwritten equity offering of the
Qualified Capital Stock of the Company, or of any entity of which the Company is
a direct or indirect subsidiary, to the extent the proceeds thereof shall have
been contributed to the Company, pursuant to an effective registration statement
under the Act.
"PURCHASE MONEY INDEBTEDNESS" means any Indebtedness incurred in the
ordinary course of business by a person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such person incurred in connection therewith.
"QUALIFIED CAPITAL STOCK" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.
"REPRESENTATIVE" means the agent or representative in respect of any
Designated Senior Indebtedness; provided that if, and for so long as, any
Designated Senior Indebtedness lacks such a representative, then the
Representative for such Designated Senior Indebtedness shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Indebtedness in respect of any Designated Senior Indebtedness.
"RESTRICTED SUBSIDIARY" means any Subsidiary that is not an Unrestricted
Subsidiary.
"SELLER NOTES" means the 9% Increasing Rate Subordinated Notes outstanding
on the Issue Date that were issued by the Company to certain present and former
shareholders of the Company and former shareholders of NYMA, Inc. and Sylvest
Management Systems Corporation, as in effect on the Issue Date.
"SENIOR CREDIT FACILITY" means the Credit Agreement to be entered into by
and among the Company, certain of its Subsidiaries, the lenders referred to
therein, Bankers Trust Company, as Agent, together with
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the related documents thereto (including, without limitation, any guarantees and
security documents), as amended, extended, renewed, restated, supplemented or
otherwise modified (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from time to time, and any
agreement (and related documents) governing Indebtedness incurred to refund or
refinance the entirety of the borrowings and commitments then outstanding or
permitted to be outstanding under such Credit Agreement or a successor Senior
Credit Facility, whether by the same or any other lender or group of lenders.
The Company shall promptly notify the Trustee of any other lender or group of
lenders. The Company shall promptly notify the Trustee of any such refunding or
refinancing of the Senior Credit Facility.
"SENIOR INDEBTEDNESS" means (i) indebtedness of the Company for money
borrowed and all obligations, whether direct or indirect, under guarantees,
letters of credit, foreign currency or interest rate swaps, foreign exchange
contracts, caps, collars, options, hedges or other agreements or arrangements
designed to protect against fluctuations in currency values or interest rates,
other extensions of credit, expenses, fees, reimbursements, indemnities and all
other amounts (including interest at the contract rate accruing on or after the
filing of any petition in bankruptcy or reorganization relating to the Company
whether or not a claim for post-filing interest is allowed in such proceeding)
owed by the Company under, or with respect to, the Senior Credit Facility, or
any Floor Plan Financing Facility, (ii) the principal of and premium, if any,
and accrued and unpaid interest, whether existing on the date hereof or
hereafter incurred, in respect of (A) indebtedness of the Company for money
borrowed, (B) express written guarantees by the Company of indebtedness for
money borrowed by any other person, (C) indebtedness evidenced by notes,
debentures, bonds, or other instruments of indebtedness for the payment of which
the Company is responsible or liable, by guarantees or otherwise, (D)
obligations of the Company for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction, (E) obligations of
the Company under any agreement to lease, or any lease of, any real or personal
property which, in accordance with GAAP, is classified on the Company's
consolidated balance sheet as a liability, and (F) obligations of the Company
under interest rate swaps, caps, collars, options and similar arrangements and
foreign currency hedges and (iii) modifications, renewals, extensions,
replacements, refinancings and refundings of any such indebtedness, obligations
or guarantees, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is expressly provided that such
indebtedness, obligations or guarantees, or such modifications, renewals,
extensions, replacements, refinancings or refundings thereof, are not superior
in right of payment to the Notes; PROVIDED that Senior Indebtedness will not be
deemed to include (a) any obligation of the Company to any Subsidiary (other
than obligations pledged pursuant to the Senior Credit Facility, as security for
the obligations of the Company thereunder), (b) any liability for federal,
state, local or other taxes owed or owing by the Company, (c) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business, (d) any Indebtedness, guarantee or obligation of the Company which is
expressly subordinate or junior by its terms in any respect to any other
Indebtedness, guarantee or obligation of the Company, (e) Indebtedness with
respect to the Seller Notes, (f) that portion of any Indebtedness incurred in
violation of the "Limitation on Indebtedness" covenant or (g) Indebtedness of
the Company which is classified as nonrecourse in accordance with GAAP or any
unsecured claim arising in respect thereof by reason of the application of
section 1111(b)(1) of the Bankruptcy Code. Notwithstanding clause (f) of the
foregoing proviso, any Indebtedness incurred pursuant to the Senior Credit
Facility in reliance of an Officers' Certificate with respect to the amount of
Indebtedness outstanding pursuant to the Floor Plan Financing Facility shall be
deemed Senior Indebtedness.
"SIGNIFICANT SENIOR INDEBTEDNESS" means any Indebtedness under or in respect
of the Senior Credit Facility or Senior Indebtedness with principal amount due
(or accreted value with respect to Senior Indebtedness issued at a discount) in
excess of $5.0 million upon initial issuance thereof.
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"SIGNIFICANT STOCKHOLDER" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 5% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"SIGNIFICANT SUBSIDIARY" means each Restricted Subsidiary of the Company
that is a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X
under the Securities Act and the Exchange Act (as such regulation is in effect
on the date hereof).
"SIMILAR BUSINESS" means an information technology business the majority of
whose revenues are derived from government contracting or value added reselling
of goods or services or any business or activity that is reasonably similar
thereto or a reasonable extension, development or expansion thereof or ancillary
thereto.
"SUBORDINATED OBLIGATIONS" means any Indebtedness of the Company which is
expressly subordinated or junior in right of payment to the Notes.
"SUBSIDIARY" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person, or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than fifty percent of the assets of such partnership
upon its dissolution, or (ii) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person or such person
and one or more subsidiaries of such person, directly or indirectly, at the date
of determination, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other
governing body of such person.
"SUBSIDIARY" means any subsidiary of the Company.
"SUBSIDIARY GUARANTEE" means the Guarantees executed and delivered by any
Subsidiary Guarantor with respect to the Company's obligations under the
Indenture and the Notes.
"SUBSIDIARY GUARANTOR" means (i) each of (a) FDCT Corp., (b) NYMA, Inc., (c)
Sylvest Management Systems Corporation, (d) FDC Technologies, Inc. (e) DoxSys,
Inc. and (f) VAD International, Inc., (ii) each of the Company's Subsidiaries
which becomes a guarantor of the Notes pursuant to the "Guarantees of Certain
Indebtedness" covenant, and (iii) each of the Company's Subsidiaries executing a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of the Indenture; provided that any person constituting a Subsidiary Guarantor
as described above shall cease to constitute a Subsidiary Guarantor when its
respective Subsidiary Guarantee is released in accordance with the terms
thereof.
"TOTAL ASSETS" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"TRANSACTIONS" means the acquisition by the Company of NYMA, Inc. in May
1997 and of Sylvest Management Systems Corporation in June 1997, prepayment of
certain of the Seller Notes, entry into the Senior Credit Facility, the offering
of the Private Notes and the application of the proceeds of the offering of the
Private Notes.
"TREASURY RATE" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source or similar market date)) most nearly equal to the
period from the Redemption Date to August 1, 2001; provided, however, that if
the period from the Redemption Date to August 1, 2001 is not equal to the
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constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to August 1, 2001 is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"UNRESTRICTED SUBSIDIARY" of any person means (i) any Subsidiary of such
person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided that (x) the Company certifies to the
Trustee that such designation complies with the "Limitation on Restricted
Payments" covenant and (y) each Subsidiary to be so designated and each of its
Subsidiaries have not at the time of designation, and do not thereafter, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable with respect to any Indebtedness pursuant to which the lender has
recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness under the first paragraph of the covenant described under
"Limitation on Indebtedness" above and (y) immediately before and immediately
after giving effect to such designation, no Default or Event of Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by, multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Notes (and the related
guarantees) initially will be represented by a single, permanent global
certificate in definitive, fully registered form (the "Global Note"). The Global
Note will be deposited on the Issue Date with, or on behalf of, The Depository
Trust Company, New York, New York ("DTC") and registered in the name of a
nominee of DTC. The Global Note will be subject to certain restrictions on
transfer set forth therein and will bear the legend regarding such restrictions
set forth under the heading "Transfer Restrictions" herein.
Notes (i) originally purchased by or transferred to "foreign purchasers" (as
defined in "Transfer Restrictions") or (ii) held by qualified institutional
buyers or Accredited Investors who are not QIBs who elect to take physical
delivery of their certificates instead of holding their interests through the
Global Note (collectively referred to herein as the "Non-Global Purchasers")
will be issued in registered form (the "Certificated Security"). The
Certificated Security will initially be registered in the name of DTC or the
nominee of DTC and will be deposited with the trustee or custodian on behalf of
DTC. Upon the transfer to a QIB of any Certificated Security initially issued to
a Non-Global Purchaser, such Certificated Security will, unless the transferee
requests otherwise or the Global Note has previously been exchanged in whole for
Certificated Securities, be exchanged for an interest in the Global Note.
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THE GLOBAL NOTE. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Note, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Note to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Note will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchasers and ownership of beneficial interests in the Global Note will be
limited to persons who have accounts with DTC ("participants") or person who
hold interests through participants. QIBs may hold their interests in the Global
Note directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Note for all purposes
under the Indenture. No beneficial owner of an interest in the Global Note will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any) and interest (including
Liquidated Damages) on, the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Liquidated Damages) in
respect of the Global Note, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the Global Note as shown on the records of DTC or its nominee. The
Company also expects that payments by participants to owners of beneficial
interests in the Global Note held through such participants will be governed by
standing instructions and customary practice, as is now the case with securities
held for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in federal funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities, which it will distribute to its participants and
which will be legended as set forth under the heading "Transfer Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities
101
<PAGE>
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Latham & Watkins, counsel to the Company, the following
discussion describes the material federal income tax consequences expected to
result to holders whose Private Notes are exchanged for Exchange Notes in the
Exchange Offer. Such opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service ("the Service") will not take a contrary view,
and no ruling from the Service has been or will be sought with respect to the
Exchange Offer. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations, and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
LAWS.
The exchange of Private Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes. As a result, no material federal
income tax consequences will result to holders exchanging Private Notes for
Exchange Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer may be deemed to be an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with the resales of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for the period required by the Securities Act, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer that
requests such document in the Letter of Transmittal for use in connection with
any such resale.
102
<PAGE>
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealers and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Latham & Watkins, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Federal Data Corporation as of
December 31, 1995 and 1996, and for each of the three years in the period ended
December 31, 1996, included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of NYMA, Inc., as of December 31, 1995
and 1996 and for each of the three years in the period ended December 31, 1996,
included in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The balance sheets as of December 31, 1995 and 1996 and the statements of
operations, changes in shareholders' equity, and cash flows of Sylvest
Management Systems Corporation, for each of the three years in the period ended
December 31, 1996, included in this Prospectus, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Rights Agreement on
Form S-4 under the Securities Act with respect to the Exchange Notes offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. As a result of the Exchange Offer, the
Company will become subject to the informational requirements of the Exchange
Act.
103
<PAGE>
The Registration Statement (and the exhibits and schedules thereto), as well as
the periodic reports and other information filed by the Company with the
Commission, may be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048 and Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
its public reference facilities in New York, New York and Chicago, Illinois at
the prescribed rates. The Commission also maintains a web site (located at
http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
Pursuant to the Indenture, the Company has agreed to furnish to the Trustee
and to registered holders of the Exchange Notes, without cost to the Trustee or
such registered holders, copies of all reports and other information that would
be required to be filed by the Company with the Commission under the Exchange
Act, whether or not the Company is then required to file reports with the
Commission. As a result of this Exchange Offer, the Company will become subject
to the periodic reporting and other informational requirements of the Exchange
Act. In the event that the Company ceases to be subject to the information
requirements of the Exchange Act, the Company has agreed that, so long as any
Exchange Notes remain outstanding, it will file with the Commission (but only if
the Commission at such time is accepting such voluntary filings) and distribute
to holders of the Notes copies of the financial information that would have been
contained in such annual reports and quarterly reports, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," that would have been required to be filed with the Commission
pursuant to the Exchange Act. The Company will also furnish such other reports
as it may determine or as may be required by law.
The principal address of the Company is 4800 Hampden Lane, Bethesda,
Maryland 20814 and the Company's telephone number is (301) 986-0800.
104
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Federal Data Corporation
Report of Independent Accountants.................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)...................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995
and 1996 and for the Nine Months Ended September 30, 1996 and 1997 (unaudited)... F-4
Consolidated Statements of Stockholders' (Deficit) Equity for the Years Ended
December 31, 1994, 1995 and 1996 and for the Nine Months Ended September 30, 1997
(unaudited)...................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996 and for the Nine Months Ended September 30, 1996 and 1997 (unaudited)... F-6
Notes to Consolidated Financial Statements......................................... F-7
NYMA, Inc.
Independent Auditors' Report....................................................... F-20
Consolidated Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997
(unaudited)...................................................................... F-21
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995
and 1996 and for the Quarters Ended March 31, 1996 and 1997 (unaudited).......... F-22
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1994, 1995 and 1996 and for the Quarter Ended March 31, 1997 (unaudited)......... F-23
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996 and for the Quarters Ended March 31, 1996 and 1997 (unaudited).......... F-24
Notes to Consolidated Financial Statements......................................... F-25
Sylvest Management Systems Corporation
Report of Independent Accountants.................................................. F-32
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (unaudited)...... F-33
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996 and
for the Six Months Ended June 30, 1996 (unaudited) and 1997 (unaudited).......... F-34
Statements of Changes in Shareholders' Equity for the Years Ended December 31,
1994, 1995 and 1996 and for the Six Months Ended June 30, 1997 (unaudited)....... F-35
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and
for the Six Months Ended June 30, 1996 (unaudited) and 1997 (unaudited).......... F-36
Notes to Financial Statements...................................................... F-37
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Federal Data Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' (deficit) equity and of
cash flows present fairly, in all material respects, the financial position of
Federal Data Corporation and its subsidiaries at December 31, 1995 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Washington, D.C.
March 28, 1997
F-2
<PAGE>
FEDERAL DATA CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ---------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................................................. $ 10,311 $ 1,191 $ 8,023
Merger consideration investments.......................................... 51,762 -- --
Accounts receivable....................................................... 48,812 54,379 109,649
Net investment in sales-type leases....................................... 13,360 9,251 6,886
Deferred income taxes..................................................... 1,811 2,105 1,003
Other assets.............................................................. 2,836 2,524 15,348
---------- ---------- -------------
Total current assets.................................................. 128,892 69,450 140,909
Net investment in sales-type leases....................................... 13,743 8,609 5,543
Leased and other property and equipment................................... 1,341 1,462 4,066
Goodwill.................................................................. -- -- 56,549
Deferred income taxes..................................................... 2,800 1,092 1,089
Other assets.............................................................. 3,326 2,673 4,272
---------- ---------- -------------
Total assets.......................................................... $ 150,102 $ 83,286 $ 212,428
---------- ---------- -------------
---------- ---------- -------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Notes payable-recourse.................................................... $ 15,799 $ 4,235 $ 27
Notes payable-nonrecourse................................................. 9,045 5,177 3,598
Obligations under capital leases-recourse................................. 1,683 1,614 1,355
Obligations under capital leases-nonrecourse.............................. 4,267 4,255 3,999
Merger consideration payable.............................................. 51,762 -- --
Accounts payable and other liabilities.................................... 35,311 37,920 78,648
---------- ---------- -------------
Total current liabilities............................................. 117,867 53,201 87,627
Notes payable-recourse.................................................... 26,333 40,250 116,449
Notes payable-nonrecourse................................................. 7,618 5,032 1,259
Obligations under capital leases-recourse................................. 4,131 2,586 903
Obligations under capital leases-nonrecourse.............................. 5,330 2,302 2,065
Merger consideration payable.............................................. 7,033 -- --
Other liabilities......................................................... 7,752 2,741 2,344
---------- ---------- -------------
Total liabilities..................................................... 176,064 106,112 210,647
---------- ---------- -------------
Stockholders' (deficit) equity
Common stock, $.01 par value: 8,000,000 shares authorized; shares issued
and outstanding, 1,910,896 in 1995 and 1996 and 2,910,896 in 1997..... 19 19 29
Capital in excess of par value.......................................... 13,932 13,950 40,239
Accumulated deficit..................................................... (39,913) (36,795) (38,487)
---------- ---------- -------------
Total stockholders' (deficit) equity.................................. (25,962) (22,826) 1,781
---------- ---------- -------------
Commitments
Total liabilities and stockholders' (deficit) equity.................... $ 150,102 $ 83,286 $ 212,428
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
FEDERAL DATA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ --------------------------
1994 1995 1996 1996 1997
---------- ---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Equipment and software sales................. $ 107,958 $ 81,038 $ 87,543 $ 48,645 $ 115,866
Maintenance and support services............. 31,424 43,750 59,871 39,962 93,800
Interest and other........................... 4,145 5,031 3,694 3,160 2,403
---------- ---------- ------------ ------------ ------------
Total revenues............................. 143,527 129,819 151,108 91,767 212,069
---------- ---------- ------------ ------------ ------------
Expenses
Cost of sales and services................... 114,038 107,366 114,248 69,506 178,132
Selling, general and administrative.......... 20,546 20,943 21,366 13,823 24,819
Interest..................................... 3,580 3,663 7,564 6,080 7,124
---------- ---------- ------------ ------------ ------------
Total expenses............................. 138,164 131,972 143,178 89,409 210,075
---------- ---------- ------------ ------------ ------------
Income (loss) before extraordinary item and
income taxes................................. 5,363 (2,153) 7,930 2,358 1,994
Income tax provision (benefit)................. 1,171 (3,950) 3,202 943 1,031
---------- ---------- ------------ ------------ ------------
Income before extraordinary item............... 4,192 1,797 4,728 1,415 963
Extraordinary loss from early retirement of
debt net of income tax benefit of $1,770..... -- -- -- -- (2,655)
---------- ---------- ------------ ------------ ------------
Net income (loss).............................. $ 4,192 $ 1,797 $ 4,728 $ 1,415 $ (1,692)
---------- ---------- ------------ ------------ ------------
---------- ---------- ------------ ------------ ------------
Earnings per share:
Income before extraordinary item............. $ 2.43 $ 0.73 $ 0.39
Extraordinary loss from early retirement of
debt, net of income tax.................... -- -- (1.07)
------------ ------------ ------------
Net income (loss).............................. $ 2.43 $ 0.73 $ (0.68)
------------ ------------ ------------
------------ ------------ ------------
Weighted average common shares and common share
equivalents.................................. 1,946,194 1,934,984 2,478,425
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
FEDERAL DATA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK CAPITAL IN EARNINGS
------------------------ EXCESS OF (ACCUMULATED
SHARES PAR VALUE PAR VALUE DEFICIT) TOTAL
----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993......................... 5,777,344 $ 58 $ 5,948 $ 9,305 $ 15,311
Net income......................................... -- -- -- 4,192 4,192
Redemption of common stock......................... (39,032) (1) (174) -- (175)
Deferred compensation.............................. -- -- 71 -- 71
----------- --- ----------- ------------ ----------
Balance, December 31, 1994......................... 5,738,312 57 5,845 13,497 19,399
Net income......................................... -- -- -- 1,797 1,797
Redemptions of common stock from Merger............ (5,313,814) (53) (4,094) (54,648) (58,795)
Other redemption of common stock................... (164,831) (1) (1,816) -- (1,817)
Shares exchanged, net.............................. 16,229 -- -- -- --
Proceeds from sale of common stock, net of expenses
of $2,158........................................ 1,635,000 16 13,926 -- 13,942
Distribution to liquidating trust.................. -- -- -- (559) (559)
Deferred compensation.............................. -- 71 -- 71
----------- --- ----------- ------------ ----------
Balance, December 31, 1995......................... 1,910,896 19 13,932 (39,913) (25,962)
Net income......................................... -- -- -- 4,728 4,728
Additional Merger expenses......................... -- -- (53) -- (53)
Distribution to be made to former stockholders..... -- -- -- (1,610) (1,610)
Deferred compensation.............................. -- -- 71 -- 71
----------- --- ----------- ------------ ----------
Balance, December 31, 1996......................... 1,910,896 19 13,950 (36,795) (22,826)
Net income (Unaudited)............................. -- -- -- (1,692) (1,692)
Proceeds from sale of common stock, net of expenses
of $817 (Unaudited).............................. 1,000,000 10 26,173 -- 26,183
Deferred compensation (Unaudited).................. -- -- 116 -- 116
----------- --- ----------- ------------ ----------
Balance, September 30, 1997 (Unaudited)............ 2,910,896 $ 29 $ 40,239 $ (38,487) $ 1,781
----------- --- ----------- ------------ ----------
----------- --- ----------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
FEDERAL DATA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ 4,192 $ 1,797 $ 4,728 $ 1,415 $ (1,692)
Adjustments to reconcile net income (loss) to net
cash flows from operating activities:
Extraordinary loss from early retirement of debt,
net of income tax benefit of $1,770............... -- -- -- -- 2,655
Depreciation and amortization....................... 1,327 1,266 782 637 2,051
Loss (income) recorded on sales-type leases......... (3,705) (4,062) (1,738) (2,151) 1,219
Collections from sales-type leases.................. 18,403 12,372 6,075 1,107 3,046
(Increase) decrease in accounts and notes
receivable........................................ (16,584) 6,712 (5,569) 2,325 (1,013)
Increase (decrease) in accounts payable and accrued
expenses.......................................... 22,398 (18,839) 2,180 (8,493) 3,346
Net change in other assets and liabilities.......... (6,789) (2,013) (5,006) (4,149) 5,315
---------- ---------- ---------- ---------- ----------
Net cash flows from operating activities............ 19,242 (2,767) 1,452 (9,309) 14,927
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Sale (purchase) of short-term investments........... 2,000 (51,762) 51,762 51,762 --
Acquisitions of businesses.......................... -- -- -- -- (58,125)
Proceeds from sale of equipment..................... -- 1,503 -- -- --
Proceeds from sale of division...................... -- 890 -- -- --
Purchase of equipment for sales-type leases......... (6,968) (2,786) (1,156) (1,210) --
Purchase of property and equipment.................. (2,590) (686) (903) (546) (1,582)
---------- ---------- ---------- ---------- ----------
Net cash flows from investing activities............ (7,558) (52,841) 49,703 50,006 (59,707)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from borrowings............................ 9,463 61,478 1,916 -- 160,400
Repayments of borrowings............................ (2,620) (13,451) (15,797) (13,308) (98,101)
Net borrowings (repayments) under line of credit.... -- -- 10,800 15,700 (25,855)
Payments to selling stockholders.................... -- -- (51,762) (51,762) --
Proceeds from sale of common stock.................. -- 16,100 -- -- 27,000
Recapitalization, stock issuance and debt
acquisition costs................................. -- (5,294) -- -- (10,202)
Redemption of common stock.......................... (174) (1,817) -- -- --
Repayments of capital lease obligations............. (10,198) (6,689) (5,432) (1,420) (1,630)
---------- ---------- ---------- ---------- ----------
Net cash flows from financing activities............ (3,529) 50,327 (60,275) (50,790) 51,612
---------- ---------- ---------- ---------- ----------
Net change in cash and cash equivalents............... 8,155 (5,281) (9,120) (10,093) 6,832
Cash and cash equivalents, beginning of period........ 7,437 15,592 10,311 10,311 1,191
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period.............. $ 15,592 $ 10,311 $ 1,191 $ 218 $ 8,023
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1--NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of
Federal Data Corporation and its wholly-owned subsidiaries (collectively, the
Company). The Company operates in one business segment and principally engages
in the design and marketing of commercially available data processing solutions
and consulting to the United States Government (the Government). The Government
accounted for approximately 95%, 95% and 97% of total revenues during 1994, 1995
and 1996, respectively. The Company pursues this business as a computer systems
integrator, reseller and professional services provider. The traditional
integration business focuses on configuring various types of computer hardware,
software and peripherals obtained from one or more manufacturers or suppliers,
combined with data networking components, to produce a single turnkey system
designed to accommodate the data processing requirements of the customer. This
business is generally oriented toward mission critical business applications
rather than research and development or tactical military systems. The Company
also focuses on image-based document management and automation technologies. The
Company generally provides ongoing maintenance and other consulting and support
services related to the solutions installed by the Company. The Company also
establishes relationships with providers of hardware and software components and
offers these products under a variety of contract offerings such as GSA
schedules and competitive contract vehicles.
The data processing solutions are sold or leased to the Government under
various types of agreements providing for, in certain cases, purchase options or
other lease to ownership arrangements. Most contracts with Government agencies
expire on September 30 of each year (the Government's fiscal year end) and are
renewable for additional fiscal years subject to the appropriation of funding.
While the Company's Government contracts provide for fiscal funding termination,
the Company has not experienced any early terminations of significant contracts
since its inception.
NOTE 2--MERGER
On December 1, 1995, FDC Holdings, Inc. (Holdings) merged with and into the
Company with the Company continuing as the surviving corporation (the Merger).
Holdings was a company organized by the Carlyle Group (Carlyle) to facilitate
the Merger and had no operating activity or history. Upon consummation of the
Merger, Holdings received 85.4% of the Company's common stock and 14.6% was
retained by members of Company management who were shareholders prior to the
Merger. Existing shareholders exchanged 259,667 shares of the Company's common
stock for 275,896 shares of common stock of the surviving corporation, 164,831
shares of common stock were purchased and retired and the remaining 5,313,814
shares of common stock were redeemed with the Merger consideration. The Merger
was accounted for as a recapitalization which resulted in a charge to
stockholders' equity of $58,795 to reflect the redemption of common stock.
The Company financed the Merger through proceeds from term loans of $35,000,
borrowings under a revolving line of credit of $6,500 and an equity purchase of
1,635,000 shares of common stock by Holdings for $16,100. These proceeds were
also utilized to pay fees and expenses related to the Merger and acquisition of
the debt, and to provide working capital for the Company. Of the total fees and
expenses, $1,500 was paid to an affiliate of Carlyle. At December 31, 1995, the
Merger consideration was invested in money market funds. On January 4, 1996, the
Company liquidated this investment and paid the selling
F-7
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 2--MERGER (CONTINUED)
shareholders $49,448 of the Merger consideration in cash and issued subordinated
notes amounting to $7,033. The remaining balance of the Merger consideration of
$2,315 was paid in cash on April 4, 1996.
The subordinated notes issued on January 4, 1996 accrue interest at 9% from
January 4, 1996 through January 3, 1999, 11% from January 4, 1999 through
December 31, 2002 and 13% thereafter. Interest on the subordinated notes is
payable semi-annually beginning July 4, 1996; provided however, that any amount
of cash interest which is not paid on the subordinated notes as a result of
payment restrictions under any senior debt will be made by the issuance of
payment in kind subordinated notes. The interest payment of $316 due July 4,
1996 was made through the issuance of payment in kind subordinated notes. The
principal and any accrued and unpaid interest will be payable on the latter of
six months after the payment of all amounts owed under the Company's credit
agreement (see Note 7) or July 4, 2003.
As part of the consideration for the purchase of the common stock of the
selling shareholders outlined in the Merger agreement, the Company prepaid
$1,610 of premiums during 1996 under a Split Dollar life insurance policy to
fund future additional distributions to the selling shareholders. The Company
has recorded a reduction of $1,610 in retained earnings based on the
distribution that will be made to the selling shareholders in 1999 when the
Split Dollar payments are received.
As a condition of the Merger, the Company was required to dispose of certain
nonessential assets and related liabilities. These assets and related
liabilities consisted of an airplane, land and building in South Carolina,
certain artwork, the Company's Financial Services Division and a 10% limited
partnership interest in a bankrupt partnership that previously held title to the
office building in which the Company is located. An entity controlled by the
former majority shareholder purchased the airplane, the Company's Financial
Services Division and the 10% limited partnership interest and assumed the
related liabilities for $2,393, the aggregate estimated value of the airplane
and the Financial Services Division. The Company attributed no value to the
partnership interest. The Company has placed the artwork and the land and
building in South Carolina into a liquidating trust. The liquidating trust is
required to sell these assets and distribute the net proceeds to the selling
shareholders. The disposition of these nonessential assets and liabilities did
not have a significant impact on the Company's consolidated financial
statements.
The Merger agreement generally required the Company to complete the
distribution of the assets held by the Federal Data Corporation Employee Stock
Ownership Plan (the ESOP). These assets consisted principally of shares of the
Company's common stock. The Company had previously terminated the ESOP in May
1994 and received approval from the Internal Revenue Service to distribute the
assets in October 1995. In October and November 1995, the Company distributed
the assets of the ESOP to the participants. The ESOP distribution had no effect
on the Company's consolidated financial statements.
Concurrent with the acquisition of a controlling interest in the Company by
Carlyle in 1995, the Company entered into a management agreement with TC Group,
L.L.C. for certain management and financial advisory services to be provided to
the Company and its subsidiaries. The agreement provides for the payment of
annual management fees in an amount equal to $300. In addition, concurrent with
the acquisition of Carlyle's controlling interest, the Company entered into a
three year consulting agreement with the former majority shareholder and a three
year agreement to lease a corporate aircraft with an affiliate of the former
majority shareholder. The consulting agreement provides for annual payments of
F-8
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 2--MERGER (CONTINUED)
$200 and the lease of the aircraft provides for annual payments of $300 plus a
usage charge which amounted to $56 during the year ended December 31, 1996.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company conform to generally accepted
accounting principles. All significant intercompany accounts and transactions
have been eliminated in consolidation. Those policies significantly affecting
the consolidated financial statements are summarized below.
UNAUDITED INFORMATION
Interim financial information for the nine months ended September 30, 1996
and 1997 included herein is unaudited but has been prepared on the same basis as
the audited consolidated statements and, in the opinion of management, contain
all adjustments necessary, consisting only of normal recurring adjustments, for
a fair presentation of the financial position, results of operations, and cash
flows for such periods. The consolidated results of operations for the nine
months ended September 30, 1997 are not necessarily indicative of the results to
be expected for the full year ending December 31, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from sales and sales-type leases is recorded upon installation or
delivery at the customer's site depending upon contractual terms. Maintenance
and support services revenue is recognized as services are provided.
DEPRECIATION AND AMORTIZATION
Leased and other property and equipment are stated at original cost, net of
accumulated depreciation and amortization, and are depreciated and amortized by
the Company using the straight-line method over their estimated useful lives.
The estimated useful lives of principal items of computer, furniture, office and
other equipment range from 3 to 10 years. Leasehold improvements are amortized
over the term of the lease. Debt acquisition fees are being amortized over the
terms of the related notes payable.
GOODWILL
Goodwill represents the excess of the cost of acquiring businesses over the
fair value of net assets acquired and is amortized over fifteen years using the
straight-line method. The Company periodically reviews goodwill to assess
recoverability, and impairments are recognized in the results of operations, as
F-9
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
appropriate. The measurement of possible impairment is based primarily on the
ability to recover the balance of the goodwill from expected future operating
cash flows on an undiscounted basis.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist primarily of short-term, highly liquid
investments with insignificant interest rate risk and original maturities of
three months or less at date of acquisition. Similar investments with original
maturities beyond three months are considered short-term investments and are
carried at cost, which approximates market value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, receivables, accounts payable, and accrued
expenses are reflected in the consolidated financial statements at fair value
because of their short-term nature. The carrying value of notes payable
approximates fair value as determined through discounted cash flow analysis
using rates currently available to the Company for debt with similar terms and
maturities.
INCOME TAXES
The Company recognizes deferred income taxes for the expected future tax
consequences of temporary differences by applying enacted statutory tax rates to
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist of cash and accounts receivable. The Company maintains
its cash principally in one United States bank. Accounts receivable result
primarily from contracts with the Government. Contracts with the Government do
not require collateral or other arrangements. The Company does not believe
significant credit risk exists at December 31, 1996.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by the
sum of the weighted average number of common and, where applicable, dilutive
common equivalent shares outstanding. The Company's common equivalent shares,
consisting entirely of options to purchase common stock, are calculated using
the treasury stock method which assumes the exercise of all outstanding stock
options with the hypothetical proceeds being used to repurchase shares for
treasury. Net income per share has been omitted for 1994 and 1995 because of the
material change in outstanding common shares resulting from the recapitalization
described above.
F-10
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 4--NET INVESTMENT IN SALES-TYPE LEASES
Net investment in sales-type leases consists of the following as of December
31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Minimum lease payments receivable....................................... $ 31,260 $ 20,683
Less unearned income.................................................... (4,157) (2,823)
--------- ---------
Total net investment in sales-type leases............................... 27,103 17,860
Less current portion.................................................... 13,360 9,251
--------- ---------
Long-term net investment in sales-type leases........................... $ 13,743 $ 8,609
--------- ---------
--------- ---------
</TABLE>
Future minimum lease payments receivable as of December 31, 1996 are due as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997............................................................................... $ 11,157
1998............................................................................... 7,668
1999............................................................................... 1,570
2000............................................................................... 288
</TABLE>
NOTE 5--OTHER ASSETS
Other assets consist of the following as of December 31:
<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Deferred financing costs.......................... $ -- $ 3,136 $ -- $ 2,319
Prepaid expenses.................................. 2,590 -- 1,895 --
Other............................................. 246 190 629 354
----------- ----------- ----------- -----------
Total other assets................................ $ 2,836 $ 3,326 $ 2,524 $ 2,673
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Amortization expense for deferred financing costs was $817 during 1996.
NOTE 6--LEASED AND OTHER PROPERTY AND EQUIPMENT
Leased and other property and equipment consist of the following as of
December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Furniture, office and other equipment, net of accumulated depreciation of
$3,262 and $3,798........................................................ $ 1,051 $ 1,364
Leasehold improvements, net of accumulated amortization of $3,443 and
$3,678................................................................... 290 98
--------- ---------
Total leased and other property and equipment.............................. $ 1,341 $ 1,462
--------- ---------
--------- ---------
</TABLE>
Total depreciation and amortization expense during 1994, 1995 and 1996 was
$1,327, $1,266 and $782, respectively.
F-11
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 7--NOTES PAYABLE
Recourse notes payable consist of the following as of December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Term A note payable in quarterly installments through December 2000..... $ 25,000 $ 17,647
Term B note payable in quarterly installments through December 2002..... 10,000 8,319
Revolving line of credit................................................ -- 10,800
Subordinated notes...................................................... -- 7,350
Notes payable in monthly installments through October 1997, with
interest from 7.34% to 10.73%......................................... 7,132 369
--------- ---------
Total recourse notes payable............................................ 42,132 44,485
Less current portion.................................................... 15,799 4,235
--------- ---------
Long-term recourse notes payable........................................ $ 26,333 $ 40,250
--------- ---------
--------- ---------
</TABLE>
The Company's Term A and Term B notes payable accrue interest at LIBOR plus
2.75% (8.3% at December 31, 1996) and LIBOR plus 3.25% (8.8% at December 31,
1996), respectively. In addition to the required quarterly principal and
interest payments on the Company's Term A and B notes, the Company is required
to make mandatory principal payments based on excess cash flow as defined in the
credit agreement. No mandatory principal payments based on excess cash flow were
required for 1996.
At December 31, 1996, the Company had a $25,000 revolving line of credit
facility which expires in December 2002. Interest accrues on borrowings under
the revolving line of credit at prime plus 1.25% (9.50% at December 31, 1996).
In addition, the Company pays a commitment fee of 0.5% of the unused line of
credit facility. The Company has the option to convert the interest rate on the
revolving line of credit to LIBOR plus 2.75%.
The Company's above credit agreement includes certain restrictions as to the
Company's ability, among other things, to acquire or dispose of assets or to pay
dividends. In addition, the Company is required to maintain a minimum net worth
and certain operating ratios, including among others, interest coverage and
fixed charges. All of the Company's assets not otherwise pledged are utilized as
collateral under the Company's credit agreements.
The Company finances certain equipment leases to Government customers with
borrowings or capital leases that are recourse only to the related payment
stream and property leased. In most circumstances, the Company's future
obligations under nonrecourse agreements, in event of default by the end user
lessee, would be limited to ensuring the return of the associated assets to the
lender.
F-12
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 7--NOTES PAYABLE (CONTINUED)
Nonrecourse notes payable consist of the following as of December 31:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Notes secured by equipment and minimum lease payments receivable from
customers, repayable through September 2000, with interest from
6.75% to 12.75%..................................................... $ 16,663 $ 10,209
Less current portion................................................. 9,045 5,177
--------- -----------
Long-term nonrecourse notes payable.................................. $ 7,618 $ 5,032
--------- -----------
--------- -----------
</TABLE>
Principal payments on the notes payable as of December 31, 1996 are due as
follows:
<TABLE>
<CAPTION>
RECOURSE NONRECOURSE
--------- -----------
<S> <C> <C>
1997................................................................. $ 4,235 $ 5,177
1998................................................................. 4,286 2,924
1999................................................................. 4,706 1,760
2000................................................................. 5,126 348
2001................................................................. 3,992 --
Thereafter........................................................... 22,140 --
</TABLE>
NOTE 8--OBLIGATIONS UNDER CAPITAL LEASES
Obligations under recourse capital leases consist of the following as of
December 31:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Minimum lease payments............................................... $ 7,177 $ 4,919
Less deferred interest............................................... (1,363) (719)
--------- -----------
Total obligations under recourse capital leases...................... 5,814 4,200
Less current portion................................................. 1,683 1,614
--------- -----------
Long-term obligations under recourse capital leases.................. $ 4,131 $ 2,586
--------- -----------
--------- -----------
</TABLE>
Obligations under nonrecourse capital leases consist of the following as of
December 31:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Minimum lease payments............................................... $ 10,791 $ 7,239
Less deferred interest............................................... (1,194) (682)
--------- -----------
Total obligations under nonrecourse capital leases................... 9,597 6,557
Less current portion................................................. 4,267 4,255
--------- -----------
Long-term obligations under nonrecourse capital leases............... $ 5,330 $ 2,302
--------- -----------
--------- -----------
</TABLE>
F-13
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 8--OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
Future minimum lease payments under capital leases as of December 31, 1996
are due as follows:
<TABLE>
<CAPTION>
RECOURSE NONRECOURSE
----------- -------------
<S> <C> <C>
1997.................................................................. $ 2,064 $ 4,768
1998.................................................................. 1,986 2,409
1999.................................................................. 869 62
</TABLE>
NOTE 9--ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities consist of the following as of
December 31:
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
CURRENT LONG-TERM CURRENT LONG-TERM
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Accrued contract expenses....................... $ 14,677 $ -- $ 19,289 $ --
Other accrued expenses.......................... 2,896 -- 3,876 --
Accounts payable................................ 13,033 -- 8,042 --
Deferred income................................. 2,932 7,217 3,121 2,272
Income taxes payable............................ 754 -- 1,660 --
Other........................................... 1,019 535 1,932 469
--------- ----------- --------- -----------
Total accounts payable and other liabilities.... $ 35,311 $ 7,752 $ 37,920 $ 2,741
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
NOTE 10--INCOME TAXES
The income tax provision (benefit) consists of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current income tax provision:
Federal....................................................... $ 916 $ 153 $ 1,370
State......................................................... 255 508 418
--------- --------- ---------
Total current income tax provision.............................. 1,171 661 1,788
--------- --------- ---------
Deferred income tax provision (benefit):
Federal....................................................... -- (4,365) 1,228
State......................................................... -- (246) 186
--------- --------- ---------
Total deferred income tax provision (benefit)................... -- (4,611) 1,414
--------- --------- ---------
Total income tax provision (benefit)............................ $ 1,171 $ (3,950) $ 3,202
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 10--INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities consist of the following as of
December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Deferred income.......................................................... $ 3,857 $ 2,049
Compensation and employee benefits....................................... 284 904
Property and equipment................................................... 326 131
Accounts receivable reserves............................................. 20 128
Other.................................................................... 243 77
--------- ---------
Total deferred income tax assets......................................... 4,730 3,289
Deferred income tax liabilities............................................ 119 92
--------- ---------
Net deferred income tax assets............................................. $ 4,611 $ 3,197
--------- ---------
--------- ---------
</TABLE>
Net deferred income taxes as reflected on the consolidated balance sheet
consist of the following as of December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current deferred income tax assets......................................... $ 1,811 $ 2,105
Long-term deferred income tax assets....................................... 2,919 1,184
Less long-term deferred income tax liabilities............................. (119) (92)
--------- ---------
Net long-term deferred income tax assets................................... 2,800 1,092
--------- ---------
Net deferred income tax assets............................................. $ 4,611 $ 3,197
--------- ---------
--------- ---------
</TABLE>
A reconciliation between the provision (benefit) for income taxes computed
on income (loss) before income (loss) tax at the statutory federal tax rate and
the provision (benefit) for income taxes is as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate.................................. 34.0% (34.0)% 34.0%
State income taxes, net of federal benefit......................... 1.0% (4.5)% 2.6%
Nondeductible expenses............................................. 1.0% 6.2% 0.2%
Reduction in valuation allowance................................... (16.1)% (154.0)% --
Other.............................................................. 2.0% 2.8% 3.5%
--------- --------- ---
Effective income tax rate.......................................... 21.9% (183.5)% 40.3%
--------- --------- ---
--------- --------- ---
</TABLE>
During 1994 and 1995, the Company reduced the tax valuation allowance by
$862 and $3,313, respectively, to reflect management's assessment that the
realization of these benefits was more likely than not. At December 31, 1995 and
1996, the Company has not recorded any tax valuation allowance.
F-15
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 11--STOCKHOLDERS' EQUITY AND TRANSACTIONS WITH STOCKHOLDERS
During 1984, the majority shareholder of the Company transferred shares of
the Company's common stock to certain key employees. The Company has accounted
for this transaction as if the Company, and not the majority shareholder, had
transferred the stock. At December 31, 1996, the unamortized compensation
expense related to this transaction was $242.
In June 1987, the Company adopted a Stock Incentive Plan (the Plan) under
which stock options were granted to officers and key employees at an exercise
price established at the discretion of the Plan Committee at the date of award.
Options granted under the Plan were nontransferable and were exercisable
immediately for a period of ten years following the date of grant. Prior to the
Merger, options to purchase 93,500 shares of the Company's common stock at
exercise prices ranging from $7.50 to $9.00 per share were outstanding under the
Plan. Subject to the provisions of the Merger agreement, these options are to be
replaced with new options to acquire shares of common stock of the surviving
corporation. The terms of the new options, including the number of shares and
exercise price will be equitably adjusted to reflect the consummation of the
Merger, provided that the new options will provide substantially the same
economic benefits to the option holders as the benefits provided prior to the
Merger. As of March 28, 1997, the new options have not been exchanged for the
old options.
In February 1996, the Company adopted a new Stock Option Plan for Executives
and Key Employees of Federal Data Corporation. Under the plan, options may be
granted at fair value to purchase up to 257,000 shares of common stock. Options
granted under the plan vest ratably over five years and expire ten years from
the date of grant or in accordance with other terms as specified by the
Company's Board of Directors. Of the options outstanding as of December 31,
1996, under the variable component of the plan 170,100 options for shares will
vest only if certain financial measures are met. As of December 31, 1996, none
of the financial measures had been met and accordingly, no compensation has been
recorded. As of December 31, 1996, options to purchase 14,580 shares at a price
of $10.00 per share were exercisable and options to purchase 14,000 shares were
available for granting. The Company has adopted the disclosure-only provision of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (SFAS 123). Accordingly, no compensation cost has been recognized
for the stock option plan. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date for awards in
1995 and 1996, there would not have been a material impact on the Company's
results of operations. To determine fair value under SFAS 123, the Company used
the Present Value Approach and the following weighted-average assumptions for
1995 and 1996: a risk-free interest rate of 6.35%, expected lives of 5 years and
expected dividends of zero.
F-16
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 11--STOCKHOLDERS' EQUITY AND TRANSACTIONS WITH STOCKHOLDERS (CONTINUED)
The following is a summary of stock option activity for outstanding options:
<TABLE>
<CAPTION>
OPTION PRICE NUMBER OF
PER SHARE SHARES
--------------- -----------
<S> <C> <C>
Balance at December 31, 1993.................................... $7.50-$9.00 90,000
Granted......................................................... -- --
Exercised....................................................... -- --
Forfeited....................................................... -- --
Canceled........................................................ -- --
Balance at December 31, 1994.................................... 7.50-9.00 90,000
Granted......................................................... 7.50 8,500
Exercised....................................................... 7.50 (5,000)
Forfeited....................................................... -- --
Canceled........................................................ -- --
Balance at December 31, 1995.................................... 7.50-9.00 93,500
Granted......................................................... 10.00 253,000
Exercised....................................................... -- --
Forfeited....................................................... 10.00 (10,000)
Canceled........................................................ -- --
Balance at December 31, 1996.................................... $7.50-$10.00 336,500
</TABLE>
NOTE 12--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During 1994, 1995 and 1996, the Company paid interest costs of $3,700,
$3,124 and $7,546, respectively. During the same years, the Company paid income
taxes of $40, $1,097 and $628, respectively.
During 1994, 1995 and 1996, the Company financed through capital leases the
acquisition of computer equipment, which was sold to customers, of $5,741,
$6,700 and $779, respectively.
NOTE 13--COMMITMENTS
The Company leases its primary office space under a ten year lease, expiring
in 2004. The lease payments are subject to escalations of approximately 2% per
year and also subject to yearly increases based on increases in operating
expenses and property taxes. The Company has two consecutive five year renewal
options.
F-17
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 13--COMMITMENTS (CONTINUED)
Future minimum payments at December 31, 1996, for all noncancellable
operating leases with initial terms of one year or more are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 1,690
1998.............................................................. 1,630
1999.............................................................. 1,614
2000.............................................................. 763
2001.............................................................. 778
Thereafter........................................................ 2,428
</TABLE>
The Company has the option to terminate the lease on approximately one-half
of its office space as of January 2000. Operating lease expense was $2,675,
$1,532 and $1,782 during 1994, 1995 and 1996, respectively. The Company received
$587, $368 and $146 from sublease rentals during 1994, 1995 and 1996,
respectively.
NOTE 14--SUBSEQUENT EVENTS (UNAUDITED)
ACQUISITIONS
In May 1997, the Company purchased all of the outstanding shares of common
stock of NYMA, Inc. (NYMA) for $29,499. The purchase price consists of $24,499
in cash and $5,000 in subordinated notes. The agreement also provides for
additional cash payments of up to $6,000 and additional subordinated notes of
$1,000 if certain operating objectives related to earnings and new business
activities are met. Such payments, if any, will be accounted for as adjustments
to the purchase price. No additional payments have been made as of September 30,
1997. The Company financed the acquisition of NYMA through additional borrowing
of $28,000 and the sale of 555,556 shares of the Company's common stock for
approximately $15,000. A portion of the new borrowings was used to retire
existing Company and NYMA working capital debt. NYMA is a provider of high
technology engineering and information technology services under contracts with
various U.S. Government agencies and subcontracts with large government
contractors. In June 1997, the Company also purchased all of the outstanding
shares of common stock of Sylvest Management Systems Corporation (Sylvest) for
$40,350. The purchase price consists of $33,350 in cash and subordinated notes
of $7,000. The purchase price is subject to adjustment based on an audit of the
closing balance sheet. The Company does not expect any such adjustment to be
material. The agreement also provides for an additional subordinated note of
$1,000 if certain earnings objectives are met. Such payments, if any, will be
accounted for as adjustments to the purchase price. No additional payments have
been made as of September 30, 1997. The Company financed the acquisition of
Sylvest through additional borrowing of $27,400 and the sale of 444,444 shares
of the Company's common stock for approximately $12,000. A portion of the new
borrowings was used to retire existing Sylvest working capital debt. Sylvest is
a leading reseller and technical services vendor supporting open systems
architecture within the federal marketplace. Of the total fees and expenses
related to these transactions, $1,000 was paid to an affiliate of Carlyle.
Condensed pro forma operating data which gives effect to the acquisitions of
NYMA and Sylvest for the year ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997 is provided
F-18
<PAGE>
FEDERAL DATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 14--SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
below. Such pro forma operating data has been prepared as if the acquisitions
occurred as of the beginning of the reporting period. Goodwill associated with
the acquisitions is being amortized over an estimated useful life of 15 years.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED ----------------------
DECEMBER 31, 1996 1996 1997
----------------- ---------- ----------
<S> <C> <C> <C>
Revenues.............................................................. $ 332,822 $ 212,475 $ 308,723
-------- ---------- ----------
-------- ---------- ----------
Income (loss) before extraordinary item and income taxes.............. $ 5,703 $ 833 $ (2,147)
-------- ---------- ----------
-------- ---------- ----------
Net income (loss)..................................................... $ 2,862 $ (483) $ (1,708)
-------- ---------- ----------
-------- ---------- ----------
Net income (loss) per common share.................................... $ 1.47 $ (0.25) $ (0.69)
-------- ---------- ----------
-------- ---------- ----------
</TABLE>
ISSUANCE OF SENIOR SUBORDINATED NOTES
In July 1997, the Company issued $105,000 of Senior Subordinated Notes and
utilized the proceeds to repay its indebtedness under its existing term loans as
well as the additional borrowings incurred to finance the NYMA and Sylvest
acquisitions. All of the Company's direct and indirect wholly-owned subsidiaries
have fully and unconditionally guaranteed, on a joint and several basis, the
Company's obligations under the Senior Subordinated Notes. The Company is a
holding company with no assets or operations other than its investments in its
subsidiaries. The separate financial statements of the subsidiary guarantors are
not presented because the Company's management believes that such financial
statements are not material to investors.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
NYMA, Inc.
Greenbelt, Maryland
We have audited the accompanying consolidated balance sheets of NYMA, Inc.
and subsidiary (the Company) as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996.
DELOITTE & TOUCHE LLP
Washington, D.C.
March 21, 1997 (May 2, 1997 as to Note 9)
F-20
<PAGE>
NYMA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1996
--------- --------- AS OF MARCH 31,
1997
------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable................................................... $ 27,287 $ 24,619 $ 22,289
Inventory............................................................. 1,097 1,632 1,729
Prepaid expenses...................................................... 450 431 451
Refundable income taxes............................................... 1,914 1,383 1,383
Total current assets................................................ 30,748 28,065 25,852
PROPERTY AND EQUIPMENT--NET............................................. 950 947 876
DEPOSITS AND OTHER ASSETS............................................... 465 687 686
--------- --------- -------
TOTAL................................................................... $ 32,163 $ 29,699 $ 27,414
--------- --------- -------
--------- --------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable.......................................................... $ 12,463 $ 8,923 $ 5,189
Accounts payable and other accrued expenses........................... 2,749 2,559 4,205
Salaries and related payroll taxes.................................... 1,459 1,627 1,302
Accrued employee benefits............................................. 2,530 2,942 3,150
Income taxes payable.................................................. 344 50 --
Deferred income taxes................................................. 4,555 5,049 5,049
--------- --------- -------
Total current liabilities........................................... 24,100 21,150 18,895
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.02 par value--authorized, 4,000,000 shares; shares
issued and outstanding, 3,706,700 in 1995, 3,611,000 in 1996, and
3,615,400 in 1997................................................... 74 72 72
Additional paid-in capital............................................ 41 128 135
Retained earnings..................................................... 7,948 8,349 8,312
--------- --------- -------
Total stockholders' equity.......................................... 8,063 8,549 8,519
--------- --------- -------
TOTAL................................................................... $ 32,163 $ 29,699 $ 27,414
--------- --------- -------
--------- --------- -------
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
NYMA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Contracts................................................ $ 97,916 $ 93,482 $ 82,004 $ 20,071 $ 17,318
Interest................................................. 13 24 20 6 2
Other.................................................... 2 214 22 1 --
--------- --------- --------- --------- ---------
97,931 93,720 82,046 20,078 17,320
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of products and services............................ 74,138 72,013 57,824 13,657 12,102
General and administrative............................... 22,091 20,247 22,481 5,612 5,197
Interest................................................. 402 794 394 141 80
--------- --------- --------- --------- ---------
96,631 93,054 80,699 19,410 17,379
--------- --------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES........................ 1,300 666 1,347 668 (59)
PROVISION FOR INCOME TAXES (BENEFIT)....................... 739 294 547 267 (22)
--------- --------- --------- --------- ---------
NET EARNINGS (LOSS)........................................ $ 561 $ 372 $ 800 $ 401 $ (37)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
NYMA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996 AND
THE QUARTER ENDED MARCH 31, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL
NUMBER OF PAID-IN
SHARES AMOUNT CAPITAL RETAINED EARNINGS TOTAL
---------- ----------- ------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.......................... 3,689,150 $ 74 $ 27 $ 7,015 $ 7,116
Net earnings.................................... -- -- -- 561 561
Exercise of options............................. 17,550 -- 15 -- 15
---------- ----- ----- ------ ---------
BALANCE, DECEMBER 31, 1994........................ 3,706,700 74 42 7,576 7,692
Net earnings.................................... -- -- -- 372 372
Exercise of options............................. 250 -- -- -- --
Repurchase of stock............................. (250) -- (1) -- (1)
---------- ----- ----- ------ ---------
BALANCE, DECEMBER 31, 1995........................ 3,706,700 74 41 7,948 8,063
Net earnings.................................... -- -- -- 800 800
Exercise of options, including income tax
benefit....................................... 24,300 -- 88 -- 88
Repurchase of stock............................. (120,000) (2) (1) (399) (402)
---------- ----- ----- ------ ---------
BALANCE, DECEMBER 31, 1996........................ 3,611,000 72 128 8,349 8,549
Net loss (unaudited)............................ -- -- -- (37) (37)
Exercise of options (unaudited)................. 4,400 -- 7 -- 7
---------- ----- ----- ------ ---------
BALANCE, MARCH 31, 1997
(unaudited)..................................... 3,615,400 $ 72 $ 135 $ 8,312 $ 8,519
---------- ----- ----- ------ ---------
---------- ----- ----- ------ ---------
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
NYMA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)......................................... $ 561 $ 372 $ 800 $ 401 $ (37)
Adjustments to reconcile net earnings (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization............................... 266 568 613 113 136
Loss on sale of property and equipment...................... 40 -- -- -- --
Deferred income taxes....................................... 1,971 (512) 494 -- --
Change in assets and liabilities:
(Increase) decrease in accounts receivable................ (9,151) 211 2,668 437 2,330
Decrease (increase) in inventory.......................... 3,682 (137) (535) (261) (97)
Decrease (increase) in prepaid expenses................... 100 (230) 19 20 (20)
(Increase) decrease in refundable income taxes............ (1,326) (588) 531 237 --
(Increase) decrease in deposits and other assets.......... (9) (253) (222) (8) 1
(Decrease) increase in accounts payable and other accrued
expenses................................................ (3,082) 415 (190) 1,539 1,645
Increase (decrease) in salaries and related payroll
taxes................................................... 534 (29) 168 (14) (324)
Increase (decrease) in accrued employee benefits.......... 779 270 412 (143) 208
(Decrease) increase in income taxes payable............... (1,129) 344 (239) 35 (50)
--------- --------- --------- --------- ---------
Net cash (used in) provided by operating activities..... (6,764) 431 4,519 2,356 3,792
--------- --------- --------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment......................... (840) (378) (610) (79) (65)
Proceeds from sale of property and equipment................ 5 -- -- -- --
Decrease in notes receivable................................ 223 -- -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing activities................... (612) (378) (610) (79) (65)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on note payable................... 6,980 (52) (3,540) (2,277) (3,734)
Proceeds from sale of stock................................. 15 -- 33 -- 7
Cost of stock repurchase.................................... -- (1) (402) -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities..... 6,995 (53) (3,909) (2,277) (3,727)
--------- --------- --------- --------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS........................... (381) -- -- -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................ 381 -- -- -- --
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................... $ -- $ -- $ -- $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL INFORMATION:
Cash payments for interest.................................. $ 392 $ 721 $ 394 $ 198 $ 121
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash payments for taxes..................................... $ 1,308 $ 1,394 $ 775 $ -- $ 28
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NON-CASH FINANCING ACTIVITY:
Income tax benefit from exercise of stock options........... $ -- $ -- $ 55 $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
NYMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
QUARTERS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS--NYMA, Inc., headquarters in Greenbelt,
Maryland, was incorporated July 19, 1978, under the laws of the State of
Maryland. The Company provides diversified technical support and assembles
computer products under contracts with various U.S. Government agencies and
subcontracts with large private government contractors.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of NYMA, Inc. and its eighty percent owned subsidiary, VAD
International, Inc., formed on July 1, 1996. All significant intercompany
accounts and transactions have been eliminated in consolidation.
CONCENTRATION OF RISK--On January 1, 1994, the Company commenced operations
under a contract with National Aeronautics and Space Administration which
accounted for approximately 33%, 34% and 41% of revenues for the years ended
December 31, 1994, 1995 and 1996, respectively. The contract base term expired
on December 31, 1995, with three separate one-year options, exercisable by the
government, to extend the term through December 31, 1998. The option to extend
the term of the contract through December 31, 1997, has been exercised.
During the years ended December 31, 1994, 1995 and 1996, revenues from a
contract with U.S. Department of Agriculture accounted for approximately 16%,
20% and 9%, respectively, of contract revenues. The contract term was completed
on September 30, 1996.
During the years ended December 31, 1994, 1995 and 1996, revenues from U.S.
Government contracts accounted for approximately 95%, 96% and 97% of revenues,
respectively.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION--On cost reimbursable contracts, revenues are recorded
as contract costs are incurred, plus a proportionate amount of the fee expected
to be realized on the contract. On fixed-price contracts, revenues are recorded
using the percentage of completion method. Generally, progress to completion is
measured using a cost output measure as units are delivered. Provision for
estimated losses on contracts are recorded when identifiable.
Contract performance incentives, which provide increased or decreased fees
based on actual performance compared to established targets, are recorded when
reasonably determinable.
CASH AND CASH EQUIVALENTS--The Company has a cash management system that
provides for the investment of excess cash balances in Short-Term securities.
The participating bank transfers the Company's excess cash daily to overnight
investments that are under the bank's control and redeposits the cash the
following day. Cash overdrafts are funded by draws against the revolving credit
facility (see Note 4). For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
date of three months or less to be cash equivalents.
F-25
<PAGE>
NYMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
QUARTERS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY--Inventory of microcomputer equipment and software is carried at
the lower of actual cost or market, using the average cost method.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost. The cost
of maintenance and repairs is charged to expense as incurred; significant
renewals and betterments are capitalized. Depreciation and amortization are
provided over the expected useful lives of the assets, which range from five to
seven years, generally using accelerated methods. Leasehold improvements are
amortized over the lease term or expected useful life, whichever is shorter.
OTHER ASSETS--Other assets consist of cash surrender value on life insurance
policies for certain officers of the Company (see Note 8). No policy loans exist
at December 31, 1995 and 1996.
INCOME TAXES--The Company records its provision for income taxes in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109).
SFAS 109 requires the Company to record a provision for deferred income taxes
for differences between the basis of certain assets and liabilities for income
tax and financial statement reporting purposes, and between reporting methods
for income tax return and financial statement reporting purposes, which will
create taxable income or deductions in future periods.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)--In the opinion of management, the
accompanying unaudited financial statements contain all adjustments (consisting
only of various normal accruals) necessary to present fairly the Company's
financial position, results of operations, and cash flows. The results of
operations for the quarter ended March 31, 1997, are not necessarily indicative
of the results of operations to be expected for the full year.
NEW ACCOUNTING PRONOUNCEMENTS--Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, was adopted by the
Company during 1996. However, the Company did not adopt the recognition and
measurement principles of SFAS No. 123 and therefore will provide only the
applicable disclosures.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Billed........................................................ $ 17,487 $ 13,819
Unbilled...................................................... 9,800 10,800
--------- ---------
$ 27,287 $ 24,619
--------- ---------
--------- ---------
</TABLE>
Unbilled receivables at December 31, 1995 and 1996, include approximately
$5,325 and $5,753, respectively, for amounts billed in January 1996 and 1997,
respectively. The remainder represents differences between actual and
provisional overhead rates for years open to government audit (see Note 8) and
contract retainages. Retainages are generally billable upon acceptance of work
by customers or completion of contract audits by the government.
F-26
<PAGE>
NYMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
QUARTERS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Office furniture and equipment..................................................... $ 1,294 $ 1,353
Computer equipment................................................................. 1,633 2,187
Leasehold improvements............................................................. 19 19
--------- ---------
2,946 3,559
Accumulated depreciation and amortization.......................................... (1,996) (2,612)
--------- ---------
$ 950 $ 947
--------- ---------
--------- ---------
</TABLE>
4. NOTE PAYABLE
Under the terms of a revolving credit facility agreement, the Company can
borrow up to $13,000, limited by certain percentages of billed accounts
receivable. Borrowings under the line-of- credit agreement bear interest at the
one-month LIBOR (5.50% at December 31, 1996) plus 1.75% and are due on June 30,
1997. Borrowings are payable at maturity with interest payable monthly. At
December 31, 1996, $8,923 was outstanding under this agreement.
The borrowings are predominately collateralized by accounts receivable,
certain contract rights, and certain other assets of the Company. The three
primary stockholders of the Company have provided unconditional and unlimited
personal guarantees, until the time when the Company meets certain specific
financial results.
The line-of-credit agreement contains certain covenants (as defined in such
agreement) requiring the Company to maintain, among other things, specified
ratios of total liabilities to tangible net worth and a fixed charge coverage
ratio as well as other financial and nonfinancial covenants.
The fair value of the Company's note payable is considered to be equivalent
to its carrying value based upon consideration of borrowings with similar credit
ratings, collateral, and maturity.
5. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan covering substantially all of its employees.
Company contributions are equal to 50% of each employee's contribution, subject
to certain limitations. For the years ended December 31, 1994, 1995 and 1996,
the Company contributed approximately $962, $975 and $938, respectively, to this
plan.
F-27
<PAGE>
NYMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
QUARTERS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. INCOME TAXES
INCOME TAX PROVISION--The provision (benefit) for income taxes consists of
the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Federal..................................................................... $ (920) $ 696 $ 68
State....................................................................... (312) 110 (15)
Deferred.................................................................... 1,971 (512) 494
--------- --------- ---------
$ 739 $ 294 $ 547
--------- --------- ---------
--------- --------- ---------
</TABLE>
DEFERRED INCOME TAXES--The principal components of the deferred portion of
the provision for income taxes for the years ended December 31, 1994, 1995, and
1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Accrual to cash conversion................................................... $ 1,828 $ (378) $ 687
Contractually unbilled revenue............................................... 70 (45) --
Other........................................................................ 73 (89) (193)
--------- --------- ---------
$ 1,971 $ (512) $ 494
--------- --------- ---------
--------- --------- ---------
</TABLE>
The approximate tax effect of each type of temporary difference that gave
rise to the Company's deferred tax liability at December 31, 1995 and 1996, is
as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Accrual to cash conversion......................................................... $ (4,510) $ (5,197)
Other.............................................................................. (45) 148
--------- ---------
Current deferred tax liability..................................................... $ (4,555) $ (5,049)
--------- ---------
--------- ---------
</TABLE>
Effective and Statutory Rate Reconciliation. The difference between the
effective rate in the provision for income taxes and the statutory rate for the
federal income taxes is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Statutory federal income tax rate............................................... 35% 35% 35%
Provision computed at federal statutory rate.................................... $ 455 $ 233 $ 469
State income taxes, net of federal benefit...................................... 78 73 67
Increase in deferred taxes due to higher expected rates......................... 150 -- --
Other........................................................................... 56 (12) 11
--------- --------- ---------
$ 739 $ 294 $ 547
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-28
<PAGE>
NYMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
QUARTERS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. STOCKHOLDERS' EQUITY
The Company has granted options to key employees to purchase shares of
common stock exercisable at prices ranging from $.50 to $3.35 per share, which
approximates the fair market value of the Company's stock at date of grant, as
determined by the Board of Directors. Under the provisions of APB Opinion No.
25, no compensation expense is recognized.
During the year ended December 31, 1996, option holders exercised options
for 24,300 shares. The difference between the exercise price and the fair market
value of the stock at date of exercise resulted in taxable income to the
optionee. The Company received a deduction for income tax purposes equal to the
optionees' taxable income, which resulted in a reduction in taxes payable and an
increase in additional paid-in capital equal to the tax effect of $55 for the
year ended December 31, 1996.
Options for 144,900 and 163,945 shares were exercisable at December 31, 1995
and 1996, respectively. The remaining options become exercisable over periods
ranging from five to ten years. The schedule of option activity for the years
ended December 31, 1994, 1995, and 1996, is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Outstanding, beginning of year......................................... 144,450 167,850 184,800
Granted................................................................ 45,500 26,500 175,700
Canceled............................................................... (4,550) (9,300) (20,700)
Exercised.............................................................. (17,550) (250) (24,300)
--------- --------- ---------
Outstanding, end of year............................................... 167,850 184,800 315,500
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1996 the Company adopted the disclosure provisions of SFAS No. 123. The
Company accounts for its stock-based compensation plan under APB No. 25. For
SFAS No. 123 purposes, the fair value of each option has been estimated as of
the date of grant using the minimum value method with a risk-free interest rate
of 6.18% and an expected life of five years. Using these assumptions, the fair
value of the stock options is $175, which would be amortized over the expected
life of the options. Had compensation expense been determined consistent with
SFAS No. 123 utilizing the assumptions detailed above, the Company's net
earnings for the year ended December 31, 1996, would have been reduced to the
following pro forma amount:
<TABLE>
<S> <C>
Net earnings:
As reported................................................................ $ 800
Pro forma.................................................................. 765
</TABLE>
The resulting pro forma compensation expense may not be representative of
that expected in future years.
8. COMMITMENTS AND CONTINGENCIES
LEASES--The Company leases office facilities, automobiles, and certain
office equipment under long-term operating lease agreements with terms extending
to 2000. Certain of these leases contain provisions for renewal options and rent
escalations to provide for increases in operating costs. In addition, the
Company has executed a letter of credit in the amount of $45 in lieu of a lease
deposit on its corporate
F-29
<PAGE>
NYMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
QUARTERS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
headquarters building. Certain officers of the Company are limited partners in a
partnership that owns the corporate headquarters.
The approximate aggregate future minimum lease payments as of December 31,
1996, for leases with remaining terms in excess of one year, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -----------------------------------------------------------------------------------------------
<S> <C>
1997........................................................................................... $ 3,687
1998........................................................................................... 3,562
1999........................................................................................... 162
2000........................................................................................... 37
---------
$ 7,448
---------
---------
</TABLE>
Rental expense for operating leases for the years ended December 31, 1994,
1995 and 1996, was approximately $3,247, $3,065 and $3,362, respectively.
AUDITS--The Company is subject to contract cost audits by government
agencies. Completed and future audits may result in various billed and unbilled
costs being disallowed. At December 31, 1996, audits have been completed through
1993. In the opinion of management, adequate reserves have been provided for the
results of remaining open audit periods.
LITIGATION--The Company is a defendant in various legal actions arising in
the normal course of business. Management believes that the ultimate liability,
if any, resulting from these actions will not have a material effect upon
results of operations or financial position.
STOCK RESTRICTION AND REPURCHASE AGREEMENT--The Company and three of its
stockholders, representing 3,543,825 shares of the 3,611,000 shares issued and
outstanding at December 31, 1996, are parties to an agreement restricting any
transfer of Company stock without prior written consent of all other parties to
this agreement. Upon the death of a stockholder, the Company shall pay to the
estate or surviving spouse an amount, as outlined below, equal to the value of
all the deceased party's shares of stock in the Company. The Company owns life
insurance policies on these stockholders in connection with this agreement (see
Note 1).
The purchase price per share is to be determined as the greater of net book
value per share (total stockholders' equity divided by the total number of
shares issued and outstanding) using the next available audited financial
statements or an independently appraised value per share determined by
appraisers, selected by the Company, based upon the next available audited
financial statements. Further, per the agreement, the purchase price for shares
of one of the stockholders, representing 2,040,000 shares at December 31, 1996,
shall be discounted by 60% of the value of the above determined purchase price
per share. The estate or surviving spouse shall surrender all shares of the
party's stock to the Company within three months of such party's death.
F-30
<PAGE>
NYMA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
QUARTERS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Payment by the Company shall be made in five equal installments. The first
installment is to be made within eighteen months of the party's death and the
remaining payments are to be made in consecutive annual disbursements on the
anniversary of the first payment. Interest shall accrue at the imputed interest
rate applicable to similar extensions of credit in accordance with the U.S.
Internal Revenue Code. Prepayment by the Company in whole or in part of the
entire balance is permitted.
9. SUBSEQUENT EVENT-MERGER
On May 2, 1997, the Company's stockholders sold their shares of the
Company's stock, including shares under options outstanding which were exercised
prior to closing, to Federal Data Corporation for cash, a subordinated note, and
other incentives.
* * * * * *
F-31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Sylvest Management Systems Corporation
We have audited the accompanying balance sheets of Sylvest Management
Systems Corporation ("the Company") as of December 31, 1995 and 1996, and the
related statements of operations, changes in shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sylvest Management Systems
Corporation as of December 31, 1995 and 1996 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 21, 1997, except for Notes 5 and 10,
as to which the date is June 30, 1997
F-32
<PAGE>
SYLVEST MANAGEMENT SYSTEMS CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................................................... $ 3,580 $ 1,603
Accounts receivable, net of allowance for doubtful accounts of $73, $168 and $168 as of
December 31, 1995 and 1996 and June 30, 1997, respectively.............................. 14,708 27,864
Unbilled costs............................................................................ 2,188 1,881
Prepaid expenses and other current assets................................................. 157 495
--------- ---------
Total current assets.................................................................... 20,633 31,843
Property and equipment, net................................................................. 1,154 1,281
Deposits and other assets................................................................... 27 21
--------- ---------
Total assets............................................................................ $ 21,814 $ 33,145
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank line of credit....................................................................... $ 6,915 $ 5,406
Accounts payable.......................................................................... 9,184 19,545
Accrued expenses.......................................................................... 780 2,272
Other current liabilities................................................................. 460 225
Payable to Federal Data Corporation....................................................... -- --
--------- ---------
Total current liabilities............................................................... 17,339 27,448
--------- ---------
Commitments
Shareholders' equity:
Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding............ 1 1
Additional paid-in capital................................................................ 45 45
Notes receivable from shareholders........................................................ (400) (400)
Retained earnings......................................................................... 4,829 6,051
--------- ---------
Total shareholders' equity.............................................................. 4,475 5,697
--------- ---------
Total liabilities and shareholders' equity.............................................. $ 21,814 $ 33,145
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
SYLVEST MANAGEMENT SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
--------- --------- ---------- SIX MONTHS ENDED JUNE
30,
------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.............................................. $ 58,988 $ 84,013 $ 106,544 $ 29,515 $ 78,863
--------- --------- ---------- ----------- -----------
Costs and expenses:
Cost of sales and services......................... 50,909 71,483 92,736 25,054 70,312
Selling, general and administrative expenses....... 6,805 10,672 11,376 4,772 10,213
--------- --------- ---------- ----------- -----------
57,714 82,155 104,112 29,826 80,525
--------- --------- ---------- ----------- -----------
Operating income (loss).............................. 1,274 1,858 2,432 (311) (1,662)
Interest expense, net................................ (130) (349) (340) (161) (297)
Other income (expense), net.......................... 22 42 (2) -- --
--------- --------- ---------- ----------- -----------
Income (loss) before income taxes.................... 1,166 1,551 2,090 (472) (1,959)
Provision (benefit) for income taxes................. 14 19 47 -- --
--------- --------- ---------- ----------- -----------
Net income (loss)................................ $ 1,152 $ 1,532 $ 2,043 $ (472) $ (1,959)
--------- --------- ---------- ----------- -----------
--------- --------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
SYLVEST MANAGEMENT SYSTEMS CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN NOTES RECEIVABLE RETAINED
SHARES AMOUNT CAPITAL FROM SHAREHOLDERS EARNINGS TOTAL
----------- ----------- ------------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.................... 1,000 $ 1 $ 45 $ (400) $ 3,283 $ 2,929
Distributions to shareholders................... -- -- -- -- (394) (394)
Net income...................................... -- -- -- -- 1,152 1,152
----- --- --- ----- --------- ---------
Balance at December 31, 1994.................... 1,000 1 45 (400) 4,041 3,687
Distributions to shareholders................... -- -- -- -- (744) (744)
Net income...................................... -- -- -- -- 1,532 1,532
----- --- --- ----- --------- ---------
Balance at December 31, 1995.................... 1,000 1 45 (400) 4,829 4,475
Distributions to shareholders................... -- -- -- -- (821) (821)
Net income...................................... -- -- -- -- 2,043 2,043
----- --- --- ----- --------- ---------
Balance at December 31, 1996.................... 1,000 1 45 (400) 6,051 5,697
Distributions to shareholders................... -- -- -- 400 (2,345) (1,945)
Net income...................................... -- -- -- -- (1,959) (1,959)
----- --- --- ----- --------- ---------
Balance at June 30, 1997 (unaudited)............ 1,000 $ 1 $ 45 $ -- $ 1,747 $ 1,793
----- --- --- ----- --------- ---------
----- --- --- ----- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
SYLVEST MANAGEMENT SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- --------- SIX MONTHS ENDED JUNE
30,
------------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
Net income (loss)...................................... $ 1,152 $ 1,532 $ 2,043 $ (472) $ (1,959)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 170 301 461 277 247
Loss on disposal of property and equipment........... -- -- 23 17 --
Deferred income taxes................................ 11 (7) (6) -- --
Changes in operating assets and liabilities:
Accounts receivable................................ (9,557) 5,938 (13,156) 2,889 (2,990)
Unbilled costs..................................... (104) (857) 307 219 (153)
Prepaid expenses and other current assets.......... (563) 1,064 (338) (52) 779
Deposits and other assets.......................... (202) 194 6 (34) (89)
Accounts payable................................... 4,772 (2,600) 10,361 (1,388) 253
Accrued expenses................................... 575 (189) 1,492 75 (133)
Other current liabilities.......................... 377 (719) (229) (438) (159)
--------- --------- --------- ----------- -----------
Net cash provided by (used in) operating activities.... (3,369) 4,657 964 1,093 (4,204)
--------- --------- --------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment.................. (258) (832) (611) (301) (104)
--------- --------- --------- ----------- -----------
Net cash used in investing activities.................. (258) (832) (611) (301) (104)
--------- --------- --------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) on bank line of credit... 5,765 (1,330) (1,509) (2,378) (5,378)
Borrowings from Federal Data Corporation............. -- -- -- -- 13,353
Distributions to shareholders........................ (394) (744) (821) (379) (2,007)
--------- --------- --------- ----------- -----------
Net cash provided by (used in) financing activities.... 5,371 (2,074) (2,330) (2,757) 5,968
--------- --------- --------- ----------- -----------
Net increase (decrease) in cash........................ 1,744 1,751 (1,977) (1,965) 1,660
Cash at the beginning of the period.................... 85 1,829 3,580 3,580 1,603
--------- --------- --------- ----------- -----------
Cash at the end of the period.......................... $ 1,829 $ 3,580 $ 1,603 $ 1,615 $ 3,263
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
SYLVEST MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sylvest Management Systems Corporation ("the Company") was organized in
March 1987 and incorporated in May 1987 to design and implement open systems
solutions. The U.S. Government accounted for approximately 70%, 75% and 70% of
total revenue for the years ended December 31, 1994, 1995 and 1996,
respectively, and is the Company's primary customer. Most contracts with
government agencies expire on September 30 of each year (the Federal
government's fiscal year-end) and are renewable for additional fiscal years
subject to adequate funding. The Company generated 11% and 10% of its revenue
from one customer in 1995 and 1996, respectively. In 1994, the Company generated
approximately 13% of its revenue from one customer and 10% of its revenue from
another customer.
REVENUE RECOGNITION
The Company generally recognizes revenue from hardware and software sales at
the time of shipment. Service and maintenance revenue is recognized ratably over
the contractual period or as the services are performed.
UNBILLED COSTS
Unbilled costs represent amounts incurred for contractual obligations which
have not been invoiced or shipped to the customer pursuant to contractual terms.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost. Depreciation and amortization are
recorded over the estimated useful lives of the assets ranging from three to
five years, primarily by the straight-line method. When assets are sold or
otherwise disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts and resulting gains or losses are
included in operations. The cost of additions and betterments are capitalized.
Repair and maintenance costs are expensed as incurred.
Management periodically monitors the carrying value of property and
equipment and other long-lived assets for potential impairment on an on-going
basis. The impairment amount would be determined by comparing the carrying value
of these assets with their related, expected future net cash flows. Should the
sum of the related, expected future net cash flows be less than the carrying
value, management would determine whether an impairment loss should be
recognized. An impairment loss would be measured by the amount by which the
carrying value of these assets exceeds the future discounted cash flows. For the
years ended December 31, 1994, 1995 and 1996 there were no adjustments to the
carrying values of property and equipment.
INCOME TAXES
The Company has elected to be treated as an S Corporation for federal income
tax purposes. Accordingly, elements of income and expense will pass through
directly to shareholders. The Company remains a taxable entity for those states
which do not recognize the S Corporation status. Taxes for these
F-37
<PAGE>
SYLVEST MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
states are accounted for using the liability method whereby deferred tax assets
and liabilities are determined based upon differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to amounts expected to be realized. Income tax
expense represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist of cash and accounts receivable. The Company maintains
its cash in one U.S. commercial bank. Accounts receivable result primarily from
shipments and contracts with the U.S. Government. Contracts with the U.S.
Government do not require collateral or other arrangements. The Company does not
believe significant credit risk exists at December 31, 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
dates of the financial statements, and the reported amounts of revenue and
expenses during the reported periods. Actual results could differ from
management's estimates.
FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable and accounts payable
approximates fair value, because of the relatively short maturities of these
instruments. The carrying value of the bank line of credit approximates fair
value since it carries a fluctuating market interest rate.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statement
amounts to conform to the current year presentation.
2. NOTES RECEIVABLE FROM SHAREHOLDERS
In December 1993, the Company made advances in the form of promissory notes
to its two principal shareholders in the amount of $200 each. In 1996 the
maturity dates of the promissory notes were extended from December 16, 1996 to
December 15, 1997. The outstanding principal is due in full on December 15,
1997. Interest is due and payable monthly at the prime rate (8.5%, 8.5% and
8.25% at December 31, 1994, 1995 and 1996 respectively) plus 1%. Total interest
income earned on these notes was approximately $38 during each of the three
years in the period ended December 31, 1996.
F-38
<PAGE>
SYLVEST MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Equipment..................................................................................... $ 966 $ 1,379
Furniture and fixtures........................................................................ 299 365
Automobiles................................................................................... 147 150
Computer software............................................................................. 428 485
Leasehold improvements........................................................................ 92 130
--------- ---------
1,932 2,509
Accumulated depreciation and amortization..................................................... (778) (1,228)
--------- ---------
Property and equipment, net................................................................... $ 1,154 $ 1,281
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $170, $301, and $461, respectively.
4. ACCOUNTS PAYABLE
As of December 31, 1996, accounts payable includes approximately $2,400 in
amounts payable to an international asset-based lender under an arrangement
established to facilitate the purchase of inventory under a major U.S.
Government contract. Under this arrangement, the lender directly pays the
vendors for purchases made by the Company. The arrangement provides the Company
with up to $7,000 in credit for inventory purchases. The terms of the
arrangement enable the Company to repay outstanding amounts paid by the lender,
interest free, within a stipulated time period from the initial purchase from
the vendors. After the stipulated time period, interest under this arrangement
accrues at the prime rate as determined by Chase Manhattan Bank (8.25% at
December 31, 1996). The Company generally pays its outstanding amounts within
the stipulated time period and therefore incurs minimal interest expense. This
arrangement requires the Company to maintain a minimum tangible net worth and
establishes a maximum debt to tangible net worth ratio. As of December 31, 1996,
the Company was in compliance with these covenants.
In connection with this arrangement, the Company entered into an
Intercreditor and Subordination Agreement (the "Intercreditor Agreement")
between a local bank that has extended the Company a line of credit (see Note 5)
and the international asset-based lender. Under the Intercreditor Agreement, all
advances made by the international asset-based lender are collateralized by the
Company's unbilled costs and accounts receivable resulting from the sale of
inventory purchased under the above arrangement.
5. BANK LINE OF CREDIT
The Company, pursuant to a revolving credit agreement with a local bank, may
borrow up to $15,000, subject to a borrowing base defined in the agreement,
which expired May 31, 1997. All loans made under the revolving credit agreement
are collateralized by all accounts receivable other than those collateralizing
advances under the Intercreditor Agreement (see Note 4). Upon the closing of the
acquisition of the
F-39
<PAGE>
SYLVEST MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
5. BANK LINE OF CREDIT (CONTINUED)
Company by Federal Data Corporation (see Note 10), all outstanding balances
under the line of credit were repaid in full by Federal Data Corporation and the
line was canceled.
The revolving credit agreement requires the Company to comply with certain
restrictive covenants. The most restrictive of these covenants requires the
Company to maintain a minimum tangible net worth of $4,000. As of December 31,
1996, the Company was in compliance with this covenant. The repayment of the
credit agreement is personally guaranteed by the President of the Company. The
terms of the agreement require payment of interest at the bank's prime rate
(8.5%, 8.5% and 8.25% at December 31, 1994, 1995 and 1996, respectively) plus
one quarter of one percent. Interest expense incurred in connection with the
revolving credit agreement approximated $130, $430 and $430 for the years ended
December 31, 1994, 1995 and 1996, respectively.
6. INCOME TAXES
The provision for (benefit from) state income taxes consists of the
following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Current...................................................................................... $ 3 $ 26 $ 53
Deferred..................................................................................... 11 (7) (6)
--- --- ---
$ 14 $ 19 $ 47
--- --- ---
--- --- ---
</TABLE>
Net deferred state income tax liabilities, included in other current
liabilities, were $9 and $15 as of December 31, 1996 and 1995, respectively.
Deferred taxes result principally from accelerated depreciation, timing of
certain liabilities and different revenue recognition methods for tax purposes
on the shipment of products.
7. COMMITMENTS
The Company leases office space under noncancelable operating leases
expiring through 1997. The Company is reviewing its options for its future
office space requirements. In addition, the Company leases certain equipment on
an annual basis. Aggregate rent expense for the years ended December 31, 1994,
1995 and 1996 was approximately $281, $571 and $702, respectively.
Future minimum annual rental commitments for noncancelable leases are as
follows as of December 31, 1996:
<TABLE>
<CAPTION>
OPERATING LEASES
-----------------
<S> <C>
1997......................................................................... $ 379
-----
$ 379
-----
-----
</TABLE>
F-40
<PAGE>
SYLVEST MANAGEMENT SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
8. 401(K) PLAN
During 1993, the Company established the Sylvest Management Systems
Corporation 401(k) Profit Sharing Plan and Trust ("the Plan") which covers all
employees who have completed one year of service and are at least 21 years of
age or were employed on April 15, 1993, the effective date of the Plan.
Effective January 1, 1994, the Plan was amended to make all employees who are
least 18 years of age eligible to participate in the Plan on the date of hire.
Eligible employees may contribute up to 15% of their salary, subject to certain
annual limits. The Company at its discretion may make contributions to the Plan
for all employees who have completed 1,000 hours of service. The Company
recognized expense of $100, $50 and $100 for 1994, 1995 and 1996, respectively,
for contributions to the Plan.
9. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest paid............................................................................. $ 116 $ 386 $ 435
--------- --------- ---------
--------- --------- ---------
Income taxes paid......................................................................... $ 13 $ 12 $ 35
--------- --------- ---------
--------- --------- ---------
</TABLE>
10. SUBSEQUENT EVENT-MERGER
On June 30, 1997, the Company's shareholders sold their shares of the
Company's stock to Federal Data Corporation for cash, a subordinated note, and
other incentives.
11. INTERIM INFORMATION (UNAUDITED)
The interim financial information for the six months ended June 30, 1996 and
1997 is unaudited. The unaudited interim financial statements reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the results of operations, changes in
cash flows and financial position as of and for the periods presented. The
unaudited interim financial information should be read in conjunction with the
audited financial statements and related notes thereto. The results for the
interim periods presented are not necessarily indicative of results to be
expected for the full year.
The interim balance sheet as of June 30, 1997 has been excluded from the
financial statements based on the fact that, effective June 30, 1997, the
Company was acquired by Federal Data Corporation (see Note 10). In connection
with the acquisition, the Company incurred a note payable to Federal Data
Corporation for approximately $13.3 million in connection with the repayment of
the existing line of credit balance and the payment of certain operating
liabilities outstanding as of June 30, 1997. Further, in connection with the
acquisition, the notes receivable from shareholders existing as of December 31,
1996 was forgiven and reflected as a distribution in the statement of changes in
shareholders' equity.
F-41
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR THE SOLICITATION OF AN OFFER TO BY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 4
Summary Unaudited Pro Forma Consolidated
Financial Data............................... 14
Risk Factors................................... 16
The Exchange Offer............................. 23
The Recapitalization and the Transactions...... 34
Use of Proceeds................................ 35
Capitalization................................. 36
Selected Unaudited Pro Forma Consolidated
Financial Data............................... 37
Selected Consolidated Historical Financial Data
of Federal Data Corporation.................. 43
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 44
Business....................................... 51
Management..................................... 63
Executive Compensation......................... 65
Principal Stockholders......................... 67
Certain Transactions........................... 68
Description of Certain Indebtedness............ 69
Description of Notes........................... 71
Certain Federal Income Tax Considerations...... 102
Plan of Distribution........................... 102
Legal Matters.................................. 103
Experts........................................ 103
Available Information.......................... 103
Index to Financial Statements.................. F-1
Annex.......................................... A-1
</TABLE>
FEDERAL DATA CORPORATION
OFFER TO EXCHANGE
10 1/8% SENIOR SUBORDINATED
NOTES DUE 2005
FOR ALL OUTSTANDING
10 1/8% SENIOR SUBORDINATED
NOTES DUE 2005
---------------------
PROSPECTUS
---------------------
, 1997
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II:
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Each of FDC, FDCT Corp., FDC Technologies, Inc. and Dox Sys, Inc. are
Delaware corporations and their respective Bylaws and Certificates of
Incorporation provide for indemnification of their respective directors,
officers, employees and agents to the fullest extent permitted by the Delaware
General Corporation Law (the "DGCL"), as the same exists or may hereafter be
amended. Section 145 of the DGCL provides in relevant part that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In addition, Section 145 of the DGCL provides that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper. Delaware law further provides that nothing in the above-described
provisions shall be deemed exclusive of any other rights to indemnification or
advancement of expenses to which any person may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 102(b)(7) of the DGCL eliminates the liability of a corporation's
directors to a corporation or its stockholders, except for liabilities related
to a breach of duty of loyalty, actions not in good faith, and certain other
liabilities.
NYMA, Inc., Sylvest Management Systems Corporation and VAD International,
Inc. are Maryland corporations and their respective Bylaws provide for
indemnification of their respective directors, officers, employees and agents to
the fullest extent permitted by the Maryland General Corporation Law (the
"MGCL"), as the same exists or may hereafter be amended. Subsection (c) of
Section 2-418 of the MGCL provides that no director may be indemnified under
subsection (b) of Section 2-418 of the MGCL in respect of any proceeding
charging improper personal benefit to the director, whether or not involving
action in the director's official capacity, in which the director was adjudged
to be liable on the basis that personal benefit was improperly received.
II-1
<PAGE>
Subsection (d)(1) of Section 2-418 of the MGCL requires that a director who
has been successful, on the merits or otherwise, in the defense of any
proceeding referred to in subsection (b) or Section 2-418 of the MGCL be
indemnified against reasonable expenses incurred by the director in connection
with the proceeding.
Subsection (d)(2) of Section 2-418 of the MGCL permits a court of
appropriate jurisdiction, upon application of a director or such notice as the
court shall require, to order indemnification in the following circumstances:
(i) If it determines a director is entitled to reimbursement under
paragraph (1) of subsection (d) of Section 2-418 of the MGCL, the court
shall order indemnification, in which case the director shall be entitled to
recover the expenses of securing such reimbursement; or
(ii) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances,
whether or not the director has met the standards of conduct set forth in
subsection (b) of Section 2-418 of the MGCL or has been adjudged liable
under the circumstances described in subsection (c) of Section 2-418 of the
MGCL, the court may order such indemnification as the court shall deem
proper. However, indemnification with respect to any proceeding by or in the
right of the corporation or in which liability shall have been adjudged in
the circumstances described in subsection (c) of Section 2-418 of the MGCL
shall be limited to expenses.
A court of appropriate jurisdiction may be the same court in which the
proceeding involving the director's liability took place.
Subsection (e) of Section 2-418 of the MGCL provides that indemnification
under subsection (b) of Section 2-418 of the MGCL may not be made by the
corporation unless authorized for a specific proceeding after a determination
has been made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct set forth in
that subsection. This determination must be made by the board of directors,
special legal counsel selected by the board of directors or the stockholders.
Subsection (f)(1) of Section 2-418 of the MGCL permits payment of reasonable
expenses incurred by a director who is a party to a proceeding to be paid or
reimbursed in advance of the final disposition of the proceeding upon receipt by
the corporation of:
(i) A written affirmation by the director of the director's good faith
belief that the standard of conduct necessary for indemnification by the
corporation as authorized in this section has been met; and
(ii) A written undertaking by or on behalf of the director to repay the
amount if it ultimately is determined that the standard of conduct has not
been met.
The undertaking required by subparagraph (ii) of subsection (f)(1) must be an
unlimited general obligation of the director but need not be secured and may be
accepted without reference to financial ability to make the repayment.
Subsection (i) of Section 2-418 of the MGCL requires a corporation to
indemnify an officer of the corporation as and to the extent provided in
subsection (d) of Section 2-418 of the MGCL. Such officer is also entitled, to
the same extent as a director, to seek indemnification pursuant to subsection
(d) of Section 2-418 of the MGCL.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
**2.1 Agreement and Plan of Merger dated as of April 9, 1997 by and among Azmat Ali, Peter Belford, Arthur
Verbin, Peter Belford, as Holder Representative, NYMA and NYMA Acquisition, Inc.
**2.2 First Amendment, dated as of May 2, 1997, to the Agreement and Plan of Merger dated as of April 9,
1997 by and among Azmat Ali, Peter Belford, Arthur Verbin, Peter Belford, as Holder Representative,
NYMA and NYMA Acquisition, Inc.
**2.3 Post-Closing Amendment, dated as of May 2, 1997, to the Agreement and Plan of Merger dated as of
April 9, 1997 by and among Azmat Ali, Peter Belford, Arthur Verbin, Peter Belford, as Holder
Representative, NYMA and NYMA Acquisition, Inc.
**2.4 Stock Purchase Agreement dated June 18, 1997 among Federal Data Corporation and Gary S. and Areather
T. Murray, William S. Strang, Holton B. Shipman, Jr., James K. White, Peter A. Perucci, Myron P.
Erkiletian and Sylvest
+3.1 Certificate of Incorporation of Federal Data Corporation
+3.2 By-laws of Federal Data Corporation
+3.3 Certificate of Incorporation of FDCT Corp.
+3.4 By-laws of FDCT Corp.
+3.5 Articles of Incorporation of NYMA, Inc.
+3.6 By-laws of NYMA, Inc.
+3.7 Articles of Incorporation of Sylvest Management Systems Corporation
+3.8 By-laws of Sylvest Management Systems Corporation
+3.9 Certificate of Incorporation of FDC Technologies, Inc.
+3.10 By-laws of FDC Technologies, Inc.
+3.11 Certificate of Incorporation of DoxSys, Inc.
+3.12 By-laws of DoxSys, Inc.
+3.13 Articles of Incorporation of VAD International, Inc.
+3.14 By-laws of VAD International, Inc.
+4.1 Indenture dated as of July 15, 1997 among Federal Data Corporation, FDCT Corp., NYMA, Inc., Sylvest
Management Systems Corporation, FDC Technologies, Inc., DoxSys, Inc., VAD International, Inc. and
Norwest Bank Minnesota, National Association
+4.2 Specimen Certificate of 10 1/8% Senior Subordinated Notes due 2005 (included in Exhibit 4.1 hereto)
+4.3 Purchase Agreement dated as of July 18, 1997 among Federal Data Corporation, BT Securities
Corporation and Lehman Brothers
+4.4 Registration Rights Agreement dated as of July 25, 1997 among Federal Data Corporation, BT Securities
Corporation and Lehman Brothers
**4.5 Credit Agreement dated as of July 25, 1997 among Federal Data Corporation, various lending
institutions signatories thereto and Bankers Trust Company as Agent, as amended by First Amendment
to Credit Agreement dated as of August 4, 1997 among Federal Data Corporation, various lending
institutions signatory thereto and Bankers Trust Company as Agent
+4.6 Agreement for Wholesale Financing dated as of September 17, 1996 by and between Deutsche Financial
Services and Sylvest Management Systems Corporation
+4.7 Amendment to Agreement for Wholesale Financing dated as of September 17, 1996 by and between Deutsche
Financial Services and Sylvest Management Systems Corporation
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
+4.8 STAR Agreement dated as of September 17, 1996 by and between Deutsche Financial Services and Sylvest
Management Systems Corporation
+4.9 STAR Assignment Agreement dated September 19, 1996 by Sylvest Management Systems Corporation in favor
of Deutsche Financial Services
**4.10 Intercreditor and Subordination Agreement dated July 25, 1997 by and between Bankers Trust Company,
as Agent, and Deutsche Financial Services Corporation
+4.11 Form of 9% Increasing Rate Subordinated Note due 2004 dated May 21, 1997
+4.12 Form of 9% Increasing Rate Subordinated Note due 2004 dated June 30, 1997
+4.13 FDC is a party to several non-recourse financing agreements evidenced by promissory notes, none of
which exceed 10 percent of the total assets of FDC and its subsidiaries on a consolidated basis.
FDC hereby agrees to furnish a copy of such agreements to the Commission upon request.
**5.1 Form of Opinion of L&W regarding the validity of the Exchange Notes
+10.1+ Employment Agreement dated April 30, 1997 between NYMA, Inc. and Peter C. Belford
**10.2+ Stock Option Plan dated February 16, 1996 for Executives and Other Key Employees
**10.3+ Form of Executive Management Incentive Stock Option Agreement
+10.4 Agreement of Lease dated December 5, 1984 between Federal Data Corporation and Community Motor
Property Associates Limited Partnership
+10.5 Lease Agreement dated January 6, 1989 between TechPark Limited Partnership and NYMA, Inc., as
modified by First Modification to Lease dated as of December 21, 1990, that certain Second
Modification to Lease dated as of December 20, 1990, that certain Third Modification to Lease dated
as of January 31, 1994 and that Landlord Consent and Estoppel Certificate dated as of May 2, 1997
+10.6 Lease Agreement dated February 2, 1988 between Second Trade Center Office Associates Limited
Partnership and NYMA, Inc., as modified by Lease Modification Agreement dated December 22, 1988
between Second Trade Center Office Associates Limited Partnership and NYMA, Inc.
+10.7 Sublease dated as of October 31, 1995 between Digital Equipment Corporation and Sylvest Management
Systems Corporation
*10.8+ Consulting Agreement between Federal Data Corporation and C. Robert Handley
+10.9 Trust Agreement dated December 27, 1994 among Federal Data Corporation, Charles R. Hanley, II, Daniel
Young, Harry Marren, Marvin Haber and Paul Taltavull
**10.10 Management Agreement dated as of December 1, 1995 among FDC Technologies, Inc., the subsidiaries
listed on Schedule A thereto and TC Group, L.L.C.
**11.1 Statement Regarding Computation of Per Share Earnings
**12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
**12.2 Statement Regarding Computation of Pro Forma Ratio of Earnings to Fixed Charges
+21.1 Subsidiaries of Federal Data Corporation
**23.1 Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1)
**23.2 Consent of Price Waterhouse LLP
**23.3 Consent of Deloitte & Touche LLP
**23.4 Consent of Coopers & Lybrand L.L.P.
+24.1 Powers of Attorney of Registrants (included on signature page to this Registration Statement on Form
S-4)
**25.1 Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939 of
Norwest Bank Minnesota, National Association
**27 Financial Data Schedule
+99.1 Letter of Transmittal and related materials
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
+99.2 Notice of Guaranteed Delivery
+99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9
</TABLE>
- ------------------------
* To be filed by amendment
+ Previously filed
** Filed herewith
+ Executive Compensation Plan or Arrangement
(b) Financial Statement Schedules:
Schedules are omitted because of the absence of the conditions under which
they are required or because the information required by such omitted schedules
is set forth in the financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS
(a) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities hereunder through use of a prospectus
which is part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as apart of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) "The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission
II-5
<PAGE>
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;"
"(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, there unto duly
authorized, in the District of Columbia on November 26, 1997.
<TABLE>
<S> <C> <C>
FEDERAL DATA CORPORATION ("FDC")
and the Guarantors listed on Annex A
(the "Guarantors")
By /s/ JAMES M. DEAN
------------------------------------------
James M. Dean
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND
TREASURER OF FDC AND VICE PRESIDENT OF
EACH
OF THE GUARANTORS
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James M.
Dean and Daniel R. Young, and each of them, such person's true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
this Registration Statement, and any and all amendments thereto (including pre-
and post-effective amendments) or any registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with exhibits and
schedules thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
S-1
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ -------------------
<C> <S> <C>
/s/ WILLIAM E. CONWAY, JR.*
- ------------------------------ Chairman of the Board of FDC
William E. Conway, Jr.
President, Chief Executive
Officer and Director of FDC
and Director of FDCT Corp.,
/s/ DANIEL R. YOUNG* FDC Technologies, Inc.,
- ------------------------------ DoxSys, Inc., NYMA, Inc.,
Daniel R. Young VAD International, Inc., and
Sylvest Management Systems
Corporation
Vice President, Chief
/s/ JAMES M. DEAN Financial Officer and
- ------------------------------ Treasurer (Principal
James M. Dean Financial and Accounting
Officer)
Director of FDC, FDCT Corp.,
/s/ ALLAN M. HOLT* NYMA, Inc., and Sylvest
- ------------------------------ Management Systems November 26, 1997
Allan M. Holt Corporation
Director of FDC, FDCT Corp.,
/s/ PETER J. CLARE* NYMA, Inc., VAD
- ------------------------------ International, Inc., and
Peter J. Clare Sylvest Management Systems
Corporation
Director of FDC, FDCT Corp.,
FDC Technologies, Inc.,
/s/ HARRY T. MARREN* DoxSys, Inc., NYMA, Inc.,
- ------------------------------ VAD International, Inc., and
Harry T. Marren Sylvest Management Systems
Corporation
/s/ C. ROBERT HANLEY*
- ------------------------------ Director of FDC
C. Robert Hanley
</TABLE>
*By: /s/ JAMES M. DEAN
-------------------------
James M. Dean
ATTORNEY-IN-FACT
S-2
<PAGE>
ANNEX A
FDCT CORP.
FDC TECHNOLOGIES, INC.
DOXSYS, INC.
NYMA, INC.
VAD INTERNATIONAL, INC.
SYLVEST MANAGEMENT SYSTEMS CORPORATION
S-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
**2.1 Agreement and Plan of Merger dated as of April 9, 1997 by and among Azmat Ali, Peter Belford, Arthur
Verbin, Peter Belford, as Holder Representative, NYMA and NYMA Acquisition, Inc.
**2.2 First Amendment, dated as of May 2, 1997, to the Agreement and Plan of Merger dated as of April 9,
1997 by and among Azmat Ali, Peter Belford, Arthur Verbin, Peter Belford, as Holder Representative,
NYMA and NYMA Acquisition, Inc.
**2.3 Post-Closing Amendment, dated as of May 2, 1997, to the Agreement and Plan of Merger dated as of
April 9, 1997 by and among Azmat Ali, Peter Belford, Arthur Verbin, Peter Belford, as Holder
Representative, NYMA and NYMA Acquisition, Inc.
**2.4 Stock Purchase Agreement dated June 18, 1997 among Federal Data Corporation and Gary S. and Areather
T. Murray, William S. Strang, Holton B. Shipman, Jr., James K. White, Peter A. Perucci, Myron P.
Erkiletian and Sylvest
+3.1 Certificate of Incorporation of Federal Data Corporation
+3.2 By-laws of Federal Data Corporation
+3.3 Certificate of Incorporation of FDCT Corp.
+3.4 By-laws of FDCT Corp.
+3.5 Articles of Incorporation of NYMA, Inc.
+3.6 By-laws of NYMA, Inc.
+3.7 Articles of Incorporation of Sylvest Management Systems Corporation
+3.8 By-laws of Sylvest Management Systems Corporation
+3.9 Certificate of Incorporation of FDC Technologies, Inc.
+3.10 By-laws of FDC Technologies, Inc.
+3.11 Certificate of Incorporation of DoxSys, Inc.
+3.12 By-laws of DoxSys, Inc.
+3.13 Articles of Incorporation of VAD International, Inc.
+3.14 By-laws of VAD International, Inc.
+4.1 Indenture dated as of July 15, 1997 among Federal Data Corporation, FDCT Corp., NYMA, Inc., Sylvest
Management Systems Corporation, FDC Technologies, Inc., DoxSys, Inc., VAD International, Inc. and
Norwest Bank Minnesota, National Association
+4.2 Specimen Certificate of 10 1/8% Senior Subordinated Notes due 2005 (included in Exhibit 4.1 hereto)
+4.3 Purchase Agreement dated as of July 18, 1997 among Federal Data Corporation, BT Securities
Corporation and Lehman Brothers
+4.4 Registration Rights Agreement dated as of July 25, 1997 among Federal Data Corporation, BT Securities
Corporation and Lehman Brothers
**4.5 Credit Agreement dated as of July 25, 1997 among Federal Data Corporation, various lending
institutions signatories thereto and Bankers Trust Company as Agent, as amended by First Amendment
to Credit Agreement dated as of August 4, 1997 among Federal Data Corporation, various lending
institutions signatory thereto and Bankers Trust Company as Agent
+4.6 Agreement for Wholesale Financing dated as of September 17, 1996 by and between Deutsche Financial
Services and Sylvest Management Systems Corporation
+4.7 Amendment to Agreement for Wholesale Financing dated as of September 17, 1996 by and between Deutsche
Financial Services and Sylvest Management Systems Corporation
+4.8 STAR Agreement dated as of September 17, 1996 by and between Deutsche Financial Services and Sylvest
Management Systems Corporation
+4.9 STAR Assignment Agreement dated September 19, 1996 by Sylvest Management Systems Corporation in favor
of Deutsche Financial Services
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
**4.10 Intercreditor and Subordination Agreement dated July 25, 1997 by and between Bankers Trust Company,
as Agent, and Deutsche Financial Services Corporation
+4.11 Form of 9% Increasing Rate Subordinated Note due 2004 dated May 21, 1997
+4.12 Form of 9% Increasing Rate Subordinated Note due 2004 dated June 30, 1997
+4.13 FDC is a party to several non-recourse financing agreements evidenced by promissory notes, none of
which exceed 10 percent of the total assets of FDC and its subsidiaries on a consolidated basis.
FDC hereby agrees to furnish a copy of such agreements to the Commission upon request.
**5.1 Form of Opinion of L&W regarding the validity of the Exchange Notes
+10.1+ Employment Agreement dated April 30, 1997 between NYMA, Inc. and Peter C. Belford
**10.2+ Stock Option Plan dated February 16, 1996 for Executives and Other Key Employees
**10.3+ Form of Executive Management Incentive Stock Option Agreement
+10.4 Agreement of Lease dated December 5, 1984 between Federal Data Corporation and Community Motor
Property Associates Limited Partnership
+10.5 Lease Agreement dated January 6, 1989 between TechPark Limited Partnership and NYMA, Inc., as
modified by First Modification to Lease dated as of December 21, 1990, that certain Second
Modification to Lease dated as of December 20, 1990, that certain Third Modification to Lease dated
as of January 31, 1994 and that Landlord Consent and Estoppel Certificate dated as of May 2, 1997
+10.6 Lease Agreement dated February 2, 1988 between Second Trade Center Office Associates Limited
Partnership and NYMA, Inc., as modified by Lease Modification Agreement dated December 22, 1988
between Second Trade Center Office Associates Limited Partnership and NYMA, Inc.
+10.7 Sublease dated as of October 31, 1995 between Digital Equipment Corporation and Sylvest Management
Systems Corporation
*10.8+ Consulting Agreement between Federal Data Corporation and C. Robert Handley
+10.9 Trust Agreement dated December 27, 1994 among Federal Data Corporation, Charles R. Hanley, II, Daniel
Young, Harry Marren, Marvin Haber and Paul Taltavull
**10.10 Management Agreement dated as of December 1, 1995 among FDC Technologies, Inc., the subsidiaries
listed on Schedule A thereto and TC Group, L.L.C.
**11.1 Statement Regarding Computation of Per Share Earnings
**12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
**12.2 Statement Regarding Computation of Pro Forma Ratio of Earnings to Fixed Charges
+21.1 Subsidiaries of Federal Data Corporation
**23.1 Consent of Latham & Watkins (included in their opinion filed as Exhibit 5.1)
**23.2 Consent of Price Waterhouse LLP
**23.3 Consent of Deloitte & Touche LLP
**23.4 Consent of Coopers & Lybrand L.L.P.
+24.1 Powers of Attorney of Registrants (included on signature page to this Registration Statement on Form
S-4)
**25.1 Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939 of
Norwest Bank Minnesota, National Association
**27 Financial Data Schedule
+99.1 Letter of Transmittal and related materials
+99.2 Notice of Guaranteed Delivery
+99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9
</TABLE>
- ------------------------
* To be filed by amendment
+ Previously filed
** Filed herewith
+ Executive Compensation Plan or Arrangement
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FEDERAL DATA CORPORATION
VOLUME I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- ---------------------------------------------------------
- ---------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FEDERAL DATA CORPORATION
VOLUME II
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AGREEMENT AND PLAN OF MERGER
dated as of
April 9, 1997
by and among
AZMAT ALI, PETER BELFORD, ARTHUR VERBIN,
PETER BELFORD, AS HOLDER REPRESENTATIVE,
NYMA, INC.,
and
NYMA ACQUISITION, INC.
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.1 Conversion of Shares. . .. . . . . . . . . . . . . . . . 10
Section 2.2 Total Consideration and Terms. . . . . . . . . . . . . . 10
Section 2.3 Exchange of Certificates; Payment of Dividends . . . . . 11
Section 2.4 Effective Time of Merger; Closing Date . . . . . . . . . 12
Section 2.5 Adjustments . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.5.1 Closing Date Adjustments . . . . . . . . . . . . . . . . 12
Section 2.5.2 Post-Closing Adjustment. . . . . . . . . . . . . . . . . 12
Section 2.5.3 Rights of Set-Off. . . . . . . . . . . . . . . . . . . . 13
Section 2.6 Contingent Payments. . . . . . . . . . . . . . . . . . . 14
ARTICLE III CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.1 Filing . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.3 Holder Representative's Closing Deliveries . . . . . . . 16
Section 3.4 Acquisition's Closing Deliveries . . . . . . . . . . . . 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
PRINCIPAL HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.2 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . 17
Section 4.4 Authorization. . . . . . . . . . . . . . . . . . . . . . 18
Section 4.5 No Conflict or Violation . . . . . . . . . . . . . . . . 18
Section 4.6 Financial Statements . . . . . . . . . . . . . . . . . . 19
Section 4.7 Books and Records. . . . . . . . . . . . . . . . . . . . 19
Section 4.8 Projections. . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.9 Undisclosed Liabilities. . . . . . . . . . . . . . . . . 20
Section 4.10 Absence of Certain Changes or Events . . . . . . . . . . 20
Section 4.11 Contracts; No Defaults . . . . . . . . . . . . . . . . . 21
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Section 4.12 Government Contracts . . . . . . . . . . . . . . . . . . 23
Section 4.13 Machinery and Equipment and Other Property . . . . . . . 24
Section 4.14 Intellectual Property . . . . . . . . . . . . . . . . . 24
Section 4.15 Real Property . . . . . . . . . . . . . . . . . . . . . 25
Section 4.16 Litigation and Proceedings . . . . . . . . . . . . . . . 25
Section 4.17 Employee Benefit Plans . . . . . . . . . . . . . . . . . 25
Section 4.18 Labor Relations . . . . . . . . . . . . . . . . . . . . 30
Section 4.19 Legal Compliance . . . . . . . . . . . . . . . . . . . . 30
Section 4.20 Environmental Protection . . . . . . . . . . . . . . . . 30
Section 4.21 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.22 Governmental Authorities; Consents . . . . . . . . . . . 34
Section 4.23 Licenses, Permits and Authorizations . . . . . . . . . . 34
Section 4.24 Insurance . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.25 Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . 35
Section 4.26 No Other Agreements to Sell the Shares . . . . . . . . 35
Section 4.27 Merger with Certain Persons. . . . . . . . . . . . . . . 35
Section 4.28 Customers, Distributors and Suppliers. . . . . . . . . . 35
Section 4.29 Banking Relationships. . . . . . . . . . . . . . . . . . 36
Section 4.30 Full Disclosure. . . . . . . . . . . . . . . . . . . . . 36
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUISITION. . . . . . . . . . . 36
Section 5.1 Corporate Organization . . . . . . . . . . . . . . . . . 36
Section 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . 36
Section 5.3 No Conflict or Violation . . . . . . . . . . . . . . . . 36
Section 5.4 Governmental Authorities; Consents . . . . . . . . . . . 37
Section 5.5 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . 37
Section 5.6 Sophisticated Investor . . . . . . . . . . . . . . . . . 37
ARTICLE VI COVENANTS OF COMPANY AND PRINCIPAL HOLDERS. . . . . . . . . . . . 37
Section 6.1 Conduct of Business. . . . . . . . . . . . . . . . . . . 37
Section 6.2 HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.3 No Solicitations . . . . . . . . . . . . . . . . . . . . 39
Section 6.4 Notice to . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.5 Consents; Reasonable Effort; Cooperation . . . . . . . . 40
Section 6.6 Estoppel Certificates. . . . . . . . . . . . . . . . . . 40
Section 6.7 Inspections. . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.8 Employee Benefit Plans. . . . . . . . . . . . . . . . . 40
Section 6.9 Stockholder Approval . . . . . . . . . . . . . . . . . . 41
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ARTICLE VII COVENANTS OF ACQUISITION . . . . . . . . . . . . . . . . . . . . 41
Section 7.1 [This Section Intentionally Omitted.]. . . . . . . . . . 41
Section 7.2 Notice to Company. . . . . . . . . . . . . . . . . . . . 41
ARTICLE VIII COVENANTS OF THE COMPANY, PRINCIPAL HOLDERS
AND ACQUISITION. . . . . . . . . . . . . . . . . . . . . . . . 41
Section 8.1 Confidentiality. . . . . . . . . . . . . . . . . . . . . 41
Section 8.2 Books and Records. . . . . . . . . . . . . . . . . . . . 42
Section 8.3 Support of Transactions. . . . . . . . . . . . . . . . . 42
Section 8.4 [This Section Intentionally Omitted.]. . . . . . . . . . 43
Section 8.5 Notice of Changes by the Company . . . . . . . . . . . . 43
Section 8.6 Notice of Changes by Acquisition . . . . . . . . . . . . 43
Section 8.7 Dissenting Stockholders . . . . . . . . . . . . . . . . 43
Section 8.8 Provision of Schedules and Annexes . . . . . . . . . . . 43
Section 8.9 1996 Financial Statements. . . . . . . . . . . . . . . . 44
ARTICLE IX CONDITIONS TO OBLIGATIONS . . . . . . . . . . . . . . . . . . . . 44
Section 9.1 Conditions to Obligations of Acquisition, the
Company and Principal Holders . . . . . . . . . . . . . 44
Section 9.2 Conditions to Obligations of Acquisition. . . . . . . . 44
Section 9.3 Conditions to the Obligations of the Company and
Principal Holders. . . . . . . . . . . . . . . . . . . . 46
ARTICLE X TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.1 Termination . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.2 Effect of Termination . . . . . . . . . . . . . . . . . 47
ARTICLE XI DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . 47
Section 11.1 Breach and Opportunity to Cure . . . . . . . . . . . . . 47
Section 11.2 Company's and Principal Holders' Remedies . . . . . . . 48
Section 11.3 Acquisition's Remedies . . . . . . . . . . . . . . . . . 48
ARTICLE XII HOLDER REPRESENTATIVE. . . . . . . . . . . . . . . . . . . . . . 49
Section 12.1 Designation and Replacement of Holder Representative . . 49
Section 12.2 Authority and Rights of Holder Representative;
Limitations on Liability . . . . . . . . . . . . . . . . 49
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ARTICLE XIII POST CLOSING OBLIGATIONS; SURVIVAL OF
REPRESENTATION . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 13.1 Indemnification . . . . . . . . . . . . . . . . . . . . 50
Section 13.1.1 Acquisition's Right to Indemnification. . . . . . . . . 50
Section 13.1.2 Principal Holders' Right to Indemnification . . . . . . 50
Section 13.1.3 Limitation on Indemnification Obligations . . . . . . . 51
Section 13.1.4 Time Period . . . . . . . . . . . . . . . . . . . . . . 51
Section 13.1.5 Conduct of Proceedings. . . . . . . . . . . . . . . . . 51
Section 13.1.6 Indemnification Sole Remedy . . . . . . . . . . . . . . 52
Section 13.1.7 Right of Offset . . . . . . . . . . . . . . . . . . . . 52
Section 13.2 Survival of Representations . . . . . . . . . . . . . . 52
Section 13.3 Rights of Set-Off . . . . . . . . . . . . . . . . . . . 52
Section 13.4 Rights of Set-Off for Third Party Claims . . . . . . . 53
ARTICLE XIV TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 14.1 Indemnification . . . . . . . . . . . . . . . . . . . . 54
ARTICLE XV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 15.1 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 15.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 15.3 Assignment. . . . . . . . . . . . . . . . . . . . . . . 59
Section 15.4 Rights of Third Parties . . . . . . . . . . . . . . . . 59
Section 15.5 Reliance. . . . . . . . . . . . . . . . . . . . . . . . 59
Section 15.6 Transfer Taxes; Title Costs; Expenses . . . . . . . . . 59
Section 15.7 Construction. . . . . . . . . . . . . . . . . . . . . . 60
Section 15.8 Captions; Counterparts. . . . . . . . . . . . . . . . . 60
Section 15.9 Entire Agreement. . . . . . . . . . . . . . . . . . . . 60
Section 15.10 Amendments. . . . . . . . . . . . . . . . . . . . . . . 60
Section 15.11 Publicity . . . . . . . . . . . . . . . . . . . . . . . 60
ANNEXES
Annex A - Certificate of Merger
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Annex B - Form of Note
Annex C - Form of Escrow Agreement
Annex D - Form of Contingent Payment Escrow Agreement
Annex E - Form of Opinion of Principal Holders' and Company's Counsel
Annex F - Form of Non-Disclosure and Non-Solicitation Agreement
Annex G - Form of Employment Agreement
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "AGREEMENT") is entered into
as of this 9th day of April, 1997 by and among AZMAT ALI, PETER BELFORD and
ARTHUR VERBIN (each a "PRINCIPAL HOLDER" and collectively the "PRINCIPAL
HOLDERS"), PETER BELFORD as the initial Holder Representative hereunder, NYMA,
INC., a Maryland corporation (the "COMPANY"), and NYMA ACQUISITION, INC., a
Delaware corporation ("ACQUISITION").
PLAN OF MERGER
A. Acquisition and the Company (Acquisition and the Company sometimes
being referred to as the "CONSTITUENT CORPORATIONS") are hereby adopting a plan
of merger, providing for the merger of Acquisition, a corporation formed by FDCT
Corp. ("FDCT"), a Delaware corporation, for the purpose of effecting the Merger,
with and into the Company, with the Company being the surviving corporation.
This merger (the "MERGER") will be consummated in accordance with this Agreement
and evidenced by a Certificate of Merger between Acquisition and the Company in
substantially the form of ANNEX A hereto (the "CERTIFICATE OF MERGER"), such
Merger to be consummated as of the "EFFECTIVE TIME OF THE MERGER" as defined
below.
B. Upon consummation of the Merger, the separate corporate existence of
Acquisition shall cease and the Company, as the surviving corporation in the
Merger (hereinafter referred to for the periods on and after the Effective Time
of the Merger as the "SURVIVING CORPORATION"), shall continue its corporate
existence under the Maryland General Corporation Law ("MGCL") as a wholly-owned
Subsidiary of FDCT.
C. On and after the Effective Time of the Merger, the Surviving
Corporation shall thereupon and thereafter possess all of the rights,
privileges, powers and franchises, of a public as well as a private nature, of
the Constituent Corporations, and shall become subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; and all rights,
privileges, powers and franchises of each Constituent Corporation, and all
property, real, personal and mixed, and all debts due to each such Constituent
Corporation, on whatever account, and all chose in action belonging to each such
corporation, shall become vested in the Surviving Corporation; and all property,
rights, privileges, powers and franchises, and all and every other interest
shall become thereafter the property of the Surviving Corporation as they are of
the Constituent Corporations; and the title to any real property vested by deed
or otherwise or any other interest in real estate vested by any instrument or
otherwise in either of such Constituent Corporations shall not revert or become
in any way impaired by reason of the Merger; but all Liens upon any property of
either Constituent Corporation shall thereupon attach to the Surviving
Corporation and shall be enforceable against it to the same extent as if said
debts, liabilities and duties had been incurred or contracted by it; all of the
foregoing in accordance with the applicable provisions of the MGCL.
D. At the Effective Time of the Merger, the Certificate of Incorporation
and Bylaws of the Surviving Corporation shall be the Certificate of
Incorporation and Bylaws of the Company, as amended and restated as provided in
the Certificate of Merger, until thereafter amended as provided therein and
under the MGCL, and the directors and officers of the
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Surviving Corporation shall be the directors and officers of Acquisition
immediately prior to the Effective Time of the Merger.
E. For certain limited purposes, and subject to the terms set forth
herein, the Holder Representative shall serve as the initial representative of
the holders of the "COMPANY COMMON STOCK" as defined below.
AGREEMENT
In order to consummate the Merger, and in consideration of the mutual
agreements hereinafter contained, Acquisition, the Company, the Principal
Holders and the Holder Representative agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following
meanings:
"1996 AUDITED FINANCIAL STATEMENTS" shall have the meaning set forth
in SECTION 8.9.
"1997 EBIT" shall mean the EBIT of the Company (excluding any
contribution to earnings of any acquired assets or businesses, including,
without limitation, the acquisition by the Company of certain assets of Analex
Corporation) for the period between January 1, 1997 and December 31, 1997. For
the purposes of such calculations, allocations to the Surviving Corporation of
indirect corporate expenses from FDC or its Affiliates shall be excluded to the
extent the amount of such indirect corporate expenses exceed the amount of such
expenses currently incurred (or reflected in the Projections to be incurred) by
the Company.
"ACQUISITION" shall have the meaning set forth in the Preamble.
"ACQUISITION INDEMNITEES" shall have the meaning set forth in
SUBSECTION 13.1.1.
"AFFILIATE" shall mean with respect to any specified Person, any
other Person that, directly or indirectly, controls, is controlled by, or is
under common control with, such Person, through one or more intermediaries or
otherwise.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"ANCILLARY AGREEMENTS" shall mean all annexes and schedules to the
Agreement.
"ANTITRUST AUTHORITY" shall mean the Antitrust Division of the United
States Department of Justice or the United States Federal Trade Commission.
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"APPLICABLE PERCENTAGE" shall have the meaning set forth in SECTION
2.2(b)(ii).
"BALANCE SHEET" shall mean the consolidated balance sheet of the
Company as of the date indicated thereon, together with the notes thereon.
"BAFO" shall mean the best and final offer of a prospective
contractor in submission of bids for procurement of Government Contract awards.
"BENEFIT ARRANGEMENT" shall have the meaning set forth in
SECTION 4.17.
"BOOKS AND RECORDS" shall mean (a) all records and lists pertaining
to the Business, customers, suppliers or personnel of the Company, (b) all
product, business and marketing plans of the Company and (c) all books, ledgers,
files, reports, plans, drawings and operating records of every kind maintained
by the Company including, without limitation, all stock books, stock ledgers and
corporate minutes and Real Estate Records of the Company.
"BUSINESS" shall mean the Company's business of information
technology services, engineering services and computer hardware, software,
maintenance and related support.
"BUSINESS DAY" shall mean any day that is not a Saturday, Sunday or
any other day on which banks are required or authorized by law to be closed in
New York, New York.
"CASH CONSIDERATION" shall have the meaning specified in SECTION 2.2.
"CERTIFICATE OF MERGER" shall have the meaning specified in the
Recitals.
"CLAIMS" shall have the meaning set forth in SUBSECTION 13.1.1.
"CLOSING" shall have the meaning set forth in SECTION 3.2.
"CLOSING BALANCE SHEET" shall mean the most recent available (as of
the Closing Date) monthly unaudited and consolidated balance sheet for the
Company and its Subsidiary.
"CLOSING DATE" shall have the meaning set forth in SECTION 3.2.
"CLOSING DATE NET ASSETS" shall have the meaning set forth in
SUBSECTION 2.5.1(a).
"CLOSING DEFERRED INCOME TAX LIABILITY" shall mean the deferred
income tax liability of the Company calculated in accordance with GAAP related
to the cash to accrual conversion as reflected on the Closing Financial
Statements.
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"CLOSING FINANCIAL STATEMENTS" shall mean the Closing Balance Sheet
and the unaudited statements of operations, changes in shareholders' equity and
cash flow for the period ended as of the date of the Closing Balance Sheet.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
"COMPANY" shall have the meaning set forth in the Preamble.
"COMPANY COMMON STOCK" shall mean the shares of common stock, par
value $.02 per share, of the Company.
"CONSOLIDATED NET INCOME" shall mean the aggregate of the net income
(loss) of the Company determined in accordance with GAAP, excluding, however,
any extraordinary gain or loss, together with any related provisions for taxes
on such extraordinary gain or loss. Such amount shall be determined pursuant to
an audit by a nationally recognized accounting firm in accordance with GAAP.
"CONTINGENT PAYMENTS" shall have the meaning set forth in SECTION
2.6.
"CONTRACTS" shall mean, collectively, all agreements, contracts,
leases, purchase orders, memoranda of understanding and other binding
contractual commitments listed on SCHEDULE 4.11.
"CONTRACT VALUE" shall mean the total life-cycle revenue value of a
contract in the aggregate, based on the evaluated price at BAFO; PROVIDED,
HOWEVER, that in the event there is no customer price evaluation with respect to
any contract, the value of such contract will equal the minimum assured revenue
amount thereunder. The value of contracts awarded to a joint venture which
includes the Company shall be determined by multiplying the value of such
contract by the percentage interest of the Company in such joint venture.
Multiple award contracts shall be valued by dividing the total life-cycle
revenue value of such contracts based on the evaluated price at BAFO (or, if
there is no customary price evaluation, the minimum assured revenue as
determined by FDC under such contracts) by the number of contracts included in
such multiple award. Such calculation shall be made by the Chief Executive
Officer of FDC.
"DELOITTE" shall have the meaning set forth in SUBSECTION 2.5.2.
"DESIGNATED HOLDERS" shall mean those Holders listed on SCHEDULE 1.1
whose names are marked with an asterisk.
"DISCLOSURE SCHEDULE" shall mean the schedules attached hereto.
"EBIT" shall mean, for any period, the Consolidated Net Income of the
Company for such period, adjusted to deduct therefrom interest income and to add
thereto the following to
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the extent deducted in calculating such Consolidated Net Income: (i) income
tax expense and (ii) interest expense. Such amounts shall be determined
pursuant to an audit by a nationally recognized accounting firm in accordance
with GAAP, consistently applied.
"EFFECTIVE TIME OF THE MERGER" shall have the meaning set forth in
SECTION 2.4.
"ENCUMBRANCE" shall mean any mortgage, claim, charge, lien, easement,
right-of-way, covenant, condition, option, pledge, call, commitment, security
interest, conditional sales agreement, title retention agreement, lease, and any
other imperfection of title or restriction of any kind and nature, choate or
inchoate.
"EMPLOYEE PLANS" shall have the meaning set forth in SECTION 4.17(a).
"EMPLOYEE LAWS" shall have the meaning set forth in SECTION 4.18.
"ENVIRONMENTAL CONDITIONS" shall mean the state of the environment,
including natural resources (e.g., flora and fauna), soil, surface water, wet
lands, ground water, any present or potential drinking water supply, subsurface
strata, or ambient air, regulated under Environmental Laws relating to or
arising out of the use, handling, storage, treatment, recycling, generation,
transportation, release, spilling, leaking, pumping, pouring, emptying,
discharging, injecting, escaping, leaching, disposal, dumping, or threatened
release of Hazardous Materials by the Company or its Subsidiary or their
predecessors or successors in interest, or by their agents, representatives,
employees, or independent contractors when acting in such capacity on behalf of
the Company or its Subsidiary. With respect to Environmental Claims by third
parties, Environmental Conditions also include the exposure of persons to
Hazardous Materials at the work place or the exposure of persons or property to
Hazardous Materials migrating from or otherwise emanating from or located on
property owned or occupied by the Company or its Subsidiary.
"ENVIRONMENTAL LAWS" shall mean any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, legally binding decrees or other requirement of any Governmental
Authority (including, without limitation, common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of the
environment or of human health relating to exposure of any kind of Hazardous
Materials, as has been, is now, or may at any time hereafter be, in effect.
"ENVIRONMENTAL NONCOMPLIANCE" shall mean: (i) the release of any
Hazardous Materials into the environment, any storm drain, sewer, septic system
or publicly owned treatment works, in violation of any effluent or emission
limitations, standards or other criteria or guidelines established by any
federal, state or local law, regulation, rule, ordinance, plan or order; (ii)
any noncompliance with Environmental Laws including the failure to have obtained
permits, variances or other authorizations required under Environmental Laws;
(iii) any facility operations, procedures and/or designs which do not conform to
the statutory or regulatory requirements of Environmental Laws; and (iv) the
operation of any facility or equipment in
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violation of any permit condition, schedule of compliance, administrative or
court order and the like.
"ERISA" shall have the meaning set forth in SECTION 4.17(a).
"ERISA AFFILIATE" shall have the meaning set forth in SECTION
4.17(a).
"ESCROW AGENT" shall have the meaning set forth in SECTION 2.2(b)(i).
"ESCROW AGREEMENT" shall have the meaning set forth in SECTION
2.2(b)(i).
"ESCROW DEPOSIT" shall have the meaning set forth in SECTION
2.2(b)(i).
"ESTOPPEL CERTIFICATE" shall have the meaning set forth in SECTION
6.6.
"FDC" shall mean Federal Data Corporation, a Delaware corporation.
"FINAL BALANCE SHEET" shall mean a consolidated balance sheet of the
Company and its Subsidiary as of the Closing Date which shall be audited by
Deloitte.
"FINAL DEFERRED INCOME TAX LIABILITY" shall mean the deferred income
tax liability of the Company calculated in accordance with GAAP related to the
cash to accrual conversion as reflected on the Final Financial Statements.
"FINAL FINANCIAL STATEMENTS" shall mean the Final Balance Sheet and
the consolidated statements of operations, changes in shareholders' equity and
cash flow for the period ended on the Closing Date.
"FINAL NET ASSETS" shall have the meaning set forth in SUBSECTION
2.5.2(a).
"FINANCIAL STATEMENTS" shall mean the Interim Financial Statements,
the Final Financial Statements and the Closing Financial Statements.
"FIXTURES" shall mean any fixtures, machinery, installations and
building equipment located at or on any Real Property.
"GAAP" shall mean United States generally accepted accounting
principles.
"GOLDEN PARACHUTE PAYMENT" shall have the meaning set forth in
SECTION 4.17(c).
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state, municipal or
local government, governmental authority, regulatory or administrative agency,
governmental commission, department, board, bureau, court, tribunal, arbitrator
or arbitral body.
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"GOVERNMENT CONTRACT" shall have the meaning set forth in
SECTION 4.12.
"GOVERNMENT ORDER" shall mean any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"HAZARDOUS MATERIALS" shall mean any hazardous substance, gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, ureaformaldehyde insulation, asbestos or asbestos-
containing materials, pollutants, contaminants, radioactivity, and any other
materials or substances of any kind, whether solid, liquid or gas, and whether
or not any such substance is defined as hazardous under any Environmental Law,
that is regulated pursuant to any Environmental Law or that could give rise to
liability under any Environmental law.
"HOLDER INDEMNITEES" shall have the meaning set forth in
SUBSECTION 13.1.2.
"HOLDER REPRESENTATIVE" shall have the meaning set forth in
SECTION 12.1.
"HOLDERS" shall mean those individuals listed on SCHEDULE 1.1 hereto.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvement Act
of 1976, as amended.
"IMPROVEMENTS" shall mean any right, title or interest in any
buildings, facilities, other structures and improvements, building systems and
fixtures.
"INDEMNIFIED PARTY" shall have the meaning set forth in
SUBSECTION 13.1.5.
"INDEMNITOR" shall have the meaning set forth in SUBSECTION 13.1.5.
"INDEPENDENT ACCOUNTING FIRM" shall have the meaning set forth in
SUBSECTION 2.5.2(c).
"INSURANCE POLICY" shall have the meaning set forth in SECTION 4.24.
"INTELLECTUAL PROPERTY" shall have the meaning set forth in
SECTION 4.14.
"INTERIM BALANCE SHEET" shall mean the unaudited Balance Sheet dated
the Interim Balance Sheet Date.
"INTERIM BALANCE SHEET DATE" shall mean December 31, 1996.
"INTERIM FINANCIAL STATEMENTS" shall mean the Interim Balance Sheet
and the unaudited statements of operations, changes in shareholders' equity and
cash flow for the period ended on the Interim Balance Sheet.
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"LETTER OF CREDIT" shall have the meaning set forth in
SECTION 2.2(b).
"LIABILITIES" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"MACHINERY AND EQUIPMENT" shall have the meaning set forth in
SECTION 4.13.
"MAJORITY PRINCIPAL HOLDERS" shall have the meaning set forth in
SECTION 12.1.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
business, assets, liabilities, condition (financial or otherwise), results of
operations or prospects of the Company and its Subsidiary, taken as a whole.
"MULTIEMPLOYER PLAN" shall have the meaning set forth in
SECTION 4.17(a).
"MERGER" shall have the meaning set forth in the Recitals.
"MERGER CONSIDERATION" shall have the meaning set forth in
SECTION 2.2(a).
"NET ASSETS" shall have the meaning set forth in SUBSECTION 2.5.1(a).
"NEW CONTRACTS" shall mean contracts awarded to the Company from the
Closing Date up to and including the first anniversary of the Closing; PROVIDED,
HOWEVER, that such term shall not include the NASA Langley SAERS contract.
"NOTES" shall have the meaning set forth in SECTION 2.2(a).
"PBGC" shall have the meaning specified in SECTION 4.17(a).
"PENSION PLAN" shall have the meaning specified in SECTION 4.17(a).
"PERMITS" shall mean any licenses, permits, certificates of
occupancy, approvals, authorizations, variances and waivers issued by any
Governmental Authority.
"PERMITTED ENCUMBRANCE" shall mean any (i) mechanics lien,
materialmen's lien and similar Encumbrance with respect to any amounts not yet
due and payable or which are being contested in good faith through appropriate
proceedings and for which adequate reserves are maintained in accordance with
GAAP, (ii) Encumbrance for Taxes not yet due and payable or which are being
contested in good faith through appropriate proceedings, for which adequate
reserves are maintained in accordance with GAAP, and which are disclosed to
Acquisition, (iii) routine utility easements or other non-detrimental agreements
of record affecting the Real Property which do not materially interfere with the
use, occupancy or marketability of the Real Property subject thereto and (iv)
other Encumbrances disclosed in the Schedules to this Agreement.
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"PERSON" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, labor union or Governmental Authority.
"PERSONNEL" shall have the meaning set forth in SECTION 4.10(b).
"POST-CLOSING ADJUSTMENT" shall have the meaning set forth in
SUBSECTION 2.5.2(d).
"PRIME RATE" shall have the meaning set forth in SUBSECTION 13.1.1.
"PRO FORMA BALANCE SHEET" shall mean the Closing Balance Sheet with
pro forma adjustments for (i) the amount of proceeds to be received by the
Company prior to the Closing Date resulting from the exercise of stock options
in the Company Common Stock from the date hereof to the Closing Date; (ii) the
value of the Tax benefit to the Company resulting from the exercise of stock
options in the Company Common Stock from the date hereof to the Closing Date;
and (iii) the difference, if any, between the Closing Deferred Income Tax
Liability and Two Million Three Hundred Thousand Dollars ($2,300,000).
"PROJECTIONS" shall have the meaning set forth in SECTION 4.8.
"QUALIFIED PROPOSALS" shall mean proposals submitted from the Closing
Date up to and including the first anniversary of the Closing in accordance with
a customer's bid schedule that satisfy FDC's customary bid criteria. New
business opportunities of the Surviving Corporation will be reviewed, evaluated,
and approved or disapproved using substantially the same criteria as comparable
opportunities of FDC, and decisions to make bids that meet such criteria will
not be unreasonably withheld.
"REAL ESTATE RECORDS" shall mean, to the extent in the possession or
control of Principal Holders or the Company, the real estate records, files,
books, blueprints, plans (as-built and otherwise), surveys, specifications,
designs, drawings, and other data associated with the Real Property.
"REAL PROPERTY" shall have the meaning set forth in SECTION 4.15.
"RECIPIENTS" shall have the meaning set forth in SECTION 4.17(c).
"SECURITIES LAW NONCOMPLIANCE" shall mean any noncompliance by the
Company or its security holders with any applicable federal or state securities
laws at any time prior to the Closing, and any noncompliance with any applicable
federal or state securities laws in connection with the transactions
contemplated hereby including, without limitation, the offer and sale of the
Notes and issuance and payment of the Contingent Payments and rights thereto and
approval of the Merger.
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"SHARES" shall have the meaning set forth in the Recitals.
"SUBSIDIARY" shall mean any corporation, partnership, limited
liability company, joint venture or other entity in which the Company, directly
or indirectly, holds fifty percent (50%) or more of the voting power of all
equity securities or other ownership interests of such entity, or over which the
Company either directly or indirectly exercises actual control.
"SURVIVING CORPORATION" shall have the meaning set forth in the
Recitals.
"TARGET NET ASSETS" shall have the meaning set forth in
SUBSECTION 2.5.1(b).
"TAX" or "TAXES" shall mean any federal, state, local or foreign net
or gross income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, (including taxes under Code Sec. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax, governmental fee or like assessment or charge of any
kind whatsoever, including any interest, penalty or addition thereto, whether
disputed or not, imposed by any Governmental Authority or arising under any Tax
law or agreement, including, without limitation, any joint venture or
partnership agreement.
"TAX RETURNS" shall have the meaning set forth in SUBSECTION 4.21.
"WELFARE PLAN" shall have the meaning set forth in SECTION 4.17(a).
ARTICLE II
THE MERGER
Section 2.1 CONVERSION OF SHARES.
(a) At the Effective Time of the Merger, each share (a "COMPANY
SHARE") of the common stock, par value $0.02 per share, of the Company (the
"COMPANY COMMON STOCK") that is then issued and outstanding (other than shares,
if any, held in the treasury of the Company, which treasury shares shall be
canceled as part of the Merger, and other than shares held by Persons who object
to the Merger and comply with the provisions of the MGCL concerning the rights
of holders of the Company Shares to dissent from the Merger and require
appraisal of their Company Shares ("DISSENTING SHAREHOLDERS"), which shares of
Dissenting Shareholders will not constitute the "COMPANY SHARES" hereunder),
shall thereupon be converted into and become the right to receive the applicable
portion of the Merger Consideration (defined below), as determined pursuant to
SECTION 2.2(b).
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(b) Each share of the common stock, par value $.01 per share, of
Acquisition outstanding immediately prior to the Effective Time of the Merger
shall be converted into one share of the common stock, par value $0.02 per
share, of the Surviving Corporation.
Section 2.2 TOTAL CONSIDERATION AND TERMS.
(a) The aggregate consideration for the Shares hereunder (the
"MERGER CONSIDERATION") shall, subject to adjustment as provided in
SECTIONS 2.5, 2.6, and 13.1 hereof, consist of (i) Twenty-Five Million Dollars
($25,000,000) in cash (the "CASH CONSIDERATION"); (ii) promissory notes of FDC
the form attached hereto as ANNEX B (the "NOTES") in the aggregate principal
amount of Six Million Dollars ($6,000,000), subject to the rights of set-off as
provided in the Notes and ARTICLE XIII hereof; and (iii) up to Six Million
Dollars ($6,000,000) in Contingent Payments (as defined below), subject to the
rights of set-off as provided in ARTICLE XIII hereof and subject to satisfaction
of the terms and conditions set forth below in SECTION 2.4.
(b) The Total Consideration shall be payable as follows:
(i) At Closing, (A) Acquisition shall deposit Three Million
Dollars ($3,000,000) (the "ESCROW DEPOSIT") with Signet Banking Corporation, as
escrow agent (the "ESCROW AGENT"), to be held in accordance with the escrow
agreement attached hereto as ANNEX C (the "ESCROW AGREEMENT"); (B) Acquisition
shall either (i) deposit Four Million Dollars ($4,000,000) (the "CONTINGENT
PAYMENT DEPOSIT") with Signet Banking Corporation, as contingent payment escrow
agent ("CONTINGENT PAYMENT ESCROW AGENT") to be held in accordance with the
contingent payment escrow agreement attached hereto as ANNEX D (the "CONTINGENT
PAYMENT ESCROW AGREEMENT") or (ii) obtain a letter of credit ("LETTER OF
CREDIT") in the amount of Four Million Dollars ($4,000,000) from a financial
institution that has total assets of more than Five Hundred Million Dollars
($500,000,000) for the ratable benefit of the Holders to secure the payment
obligations of the Company pursuant to SECTION 2.6; (C) Acquisition will pay to
Holder Representative for the ratable benefit of the Holders by wire transfer of
immediately available funds to an account designated in writing by the Holders
an amount equal to the Cash Consideration as adjusted pursuant to SUBSECTION
2.5.1 (the "CASH CONSIDERATION"), LESS the Escrow Deposit; and (D) the Company
will issue the Notes to Designated Holders.
(ii) Each Holder of the outstanding Company Shares as of the
Effective Time of the Merger (a "HOLDER") shall be entitled to receive (A) such
Holder's Applicable Percentage (as defined below) of the Closing Cash
Consideration and Contingent Payments, respectively and (B) the Notes in the
principal amount equal to such Holder's Applicable Percentage of the aggregate
principal amount of Notes included in the Total Consideration. A Holder's
"APPLICABLE PERCENTAGE" shall mean, with respect to any Holder, the percentage
listed on SCHEDULE A alongside such Holder's name.
Section 2.3 EXCHANGE OF CERTIFICATES; PAYMENT OF DIVIDENDS.
Immediately after the Effective Time of the Merger, each holder of a certificate
or certificates for Company Shares, upon surrender of the same to the exchange
agent provided for in the Certificate of
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Merger, shall be entitled to receive from Acquisition (or from the exchange
agent or their behalf) in exchange therefor (subject to the provisions of
SECTIONS 2.5 and 2.6 below and less the Escrow Deposit) such Holder's
Applicable Percentage of the Merger Consideration into which such Holder's
Company Shares shall have been converted as a result of the Merger. Pending
such surrender and exchange, a Holder's certificate or certificates for
Company Shares shall be deemed for all purposes (other than the exchange
contemplated by this SECTION 2.3) to evidence the portion of the Merger
Consideration into which such Company Shares shall have been converted by the
Merger. Unless and until the outstanding certificate or certificates
representing any Company Shares held of record by any Holder shall be
surrendered, no interest shall be paid to such Holder with respect to the
Subordinated Notes into which such Company Shares shall have been converted,
but upon surrender of the certificate or certificates evidencing such Company
Shares there shall be paid to the record holder thereof the amount of all
interest that has theretofore become payable subsequent to the Effective Time
of the Merger with respect to the Subordinated Notes issued upon such
surrender and exchange. The stock transfer books of the Company shall be
closed at the Effective Time of the Merger. If a portion of the Merger
Consideration to which any Holder is entitled is to be paid and issued to a
Person other than the Person in whose name a Holder's certificate or
certificates are registered, it shall be a condition of such payment and
issuance that the certificate(s) surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the Person requesting such
payment and issuance shall pay all transfer and other taxes required by
reason of receipt of such portion of the Merger Consideration by a Person
other than the registered holder of the certificate(s) surrendered. If any
certificate representing Company Shares shall not have been surrendered prior
to one year after the Effective Time of the Merger (or such earlier date on
which any payment in respect thereof would otherwise escheat to or become the
property of any governmental unit or entity), the right to receive the
portion of the Merger Consideration evidenced by such certificates shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims of interest of any Person
previously entitled thereto.
Section 2.4 EFFECTIVE TIME OF MERGER; CLOSING DATE. As soon as
practicable following the satisfaction (or, to the extent permitted, the waiver)
of all conditions to the Merger set forth in this Agreement, and provided that
this Agreement has not been terminated pursuant to the provisions hereof,
Acquisition and the Company shall cause the Certificate of Merger to be executed
and filed with the Secretary of the State of Delaware as provided in Section 251
of the Delaware General Corporation Law ("DGCL") and the Secretary of State of
Maryland and the State Department of Taxation of the State of Maryland as
provided in Sections 3-110 and 3-107, respectively, of the MGCL. For purposes
of this Agreement, the "EFFECTIVE TIME OF THE MERGER" shall mean the time at
which the Certificate of Merger has been duly filed in the Office of the
Secretary of the State of Delaware, the Secretary of State of Maryland and the
State Department of Taxation of the State of Maryland and has become effective
in accordance with the DGCL and the MGCL; and the term "CLOSING DATE" shall mean
the date on which the Effective Time of the Merger occurs.
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Section 2.5 ADJUSTMENTS
2.5.1 CLOSING DATE ADJUSTMENTS
(a) No later than five (5) Business Days before the Closing Date,
the Company shall deliver to Acquisition (i) the Pro Forma Balance Sheet, and
(ii) a calculation of Net Assets (as defined below) of the Company as set forth
on the Pro Forma Balance Sheet ("CLOSING DATE NET ASSETS"). The Pro Forma
Balance Sheet shall be prepared in accordance with GAAP consistent with the
preparation of the historical consolidated financial statements of the Company,
and shall fairly present the consolidated financial position of the Company as
of the Closing. "NET ASSETS" as of any date shall mean (i) assets of the
Company as of such date, MINUS (ii) liabilities of the Company as of such date.
(b) The Cash Consideration payable to Holders shall be increased
(or reduced) dollar-for-dollar to the extent that the Closing Date Net Assets
exceeds (or is less than) Nine Million Dollars ($9,000,000) ("TARGET NET
ASSETS").
(c) The Cash Consideration payable to the Holders shall be
increased (or reduced) dollar-for-dollar to the extent that the Closing Deferred
Income Tax Liability is less than (or exceeds) Two Million Three Hundred
Thousand Dollars ($2,300,000).
2.5.2 POST-CLOSING ADJUSTMENT
(a) Within ninety (90) calendar days following the Closing Date,
Deloitte & Touche, LLP ("Deloitte") shall prepare and deliver to the Company,
Acquisition and the Holder Representative (i) the Final Balance Sheet, and
(ii) a calculation of the Net Assets of the Company and its Subsidiary as set
forth on the Final Balance Sheet (the "FINAL NET ASSETS"). The Final Balance
Sheet shall be audited, prepared in accordance with GAAP consistent with the
preparation of the historical consolidated financial statements of the Company
and accompanied by an unqualified audit opinion. During the preparation of the
Final Balance Sheet by Deloitte, Holder Representative and each of the Principal
Holders shall cooperate fully with Deloitte, in each case to the extent required
by Deloitte in order to prepare the Final Balance Sheet and render the audit
opinion. Such Final Balance Sheet shall be binding with respect to the Post-
Closing Adjustment on all parties to this Agreement.
(b) The Final Net Assets shall be increased (or reduced) dollar-
for-dollar to the extent that the Final Deferred Income Tax Liability is less
than (or exceeds) the Closing Deferred Income Tax Liability.
(c) Within fifteen (15) calendar days of delivery of the Final
Balance Sheet by Deloitte to the Company, Holder Representative and Acquisition,
the following adjustments shall be made: (i) if the Post-Closing Adjustment (as
defined below) is a negative number, the Surviving Corporation and Holder
Representative shall instruct the Escrow Agent to return a portion of the Escrow
Deposit equal to the Post Closing Adjustment to the Surviving Corporation
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(including any interest accrued thereon) with any remaining amount paid to
Holder Representative for the ratable benefit of Holders and (ii) if the Post-
Closing Adjustment is a positive number, the Surviving Corporation and Holder
Representative shall instruct the Escrow Agent to return all of the Escrow
deposit to Holder Representative for the ratable benefit of the Holders
(including any interest accrued thereon) with any remaining amount to be paid by
the Surviving Corporation. The "POST-CLOSING ADJUSTMENT" shall be computed by
subtracting the Closing Date Net Assets from the Final Net Assets (as adjusted
pursuant to SUBSECTION 2.5.2(d)). If such amount due exceeds the Escrow
Deposit, the Surviving Corporation shall pay such excess to Holder
Representative for the ratable benefit of Holders.
(d) In the event that any taxing authority, court, or other
governmental or regulatory authority determines that the deferred income tax
liability of the Company related to the cash to accrual conversion as of
December 31, 1996 is greater than the Final Deferred Income Tax Liability,
Surviving Corporation and Holder Representative shall instruct the Escrow Agent
to return a portion of the Escrow Deposit equal to the difference between such
amounts to Surviving Corporation.
2.5.3 RIGHTS OF SET-OFF. Any Claims by the Surviving Corporation
against Principal Holders pursuant to SUBSECTION 2.5.2 and SECTION 13.3 in
excess of the amount of the Escrow Deposit are subject to the following rights
of set-off of the Surviving Corporation in the following priority:
(a) REDUCTION OF CONTINGENT PAYMENTS. Any Contingent Payments
owed by Acquisition to the Principal Holders (but not yet paid) pursuant to
SECTION 2.6 are subject to reduction for any Post-Closing Adjustments pursuant
to SUBSECTION 2.5.2. Any such adjustment is intended as, and shall be treated
by the parties as, an adjustment to the Total Consideration.
(b) REDUCTION OF PRINCIPAL AMOUNT OF THE NOTES. The principal
amount of the Notes is subject to reduction following the Closing for any Post-
Closing Adjustments pursuant to SUBSECTION 2.5.2. Any such adjustment is
intended as, and shall be treated by the parties as, an adjustment to the Total
Consideration. If the principal amount of the Notes is reduced pursuant to this
SUBSECTION 2.5.3, such reduction shall be deemed to be made effective as of the
Closing Date and all interest that may have accrued on the principal amount so
cancelled shall also be deemed to be retroactively cancelled, effective as of
the Closing Date (except with respect to third party claims, as to which no such
interest shall be cancelled). Upon any reduction of the principal amount of the
Notes, Principal Holders shall, upon request of the Surviving Corporation,
surrender the outstanding Notes for replacement Notes reflecting the reduced
principal amount.
Section 2.6 CONTINGENT PAYMENTS. As further consideration of the
Merger and of the agreements set forth herein, the Surviving Corporation shall
pay to Holder Representative for the ratable benefit of Holders the following
amounts (each a "CONTINGENT PAYMENT"), subject to the satisfaction of the terms
and conditions set forth below:
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(a) 1997 EBIT. In the event the 1997 EBIT is equal to or exceeds
Six Million Dollars ($6,000,000), the Surviving Corporation shall pay to Holder
Representative for the ratable benefit of Holders in an amount as follows,
PROVIDED THAT any amounts payable under this SUBSECTION 2.6(a) shall be paid out
of the Contingent Payment Escrow to the extent funds are available in such
escrow and, to the extent funds are not so available, the remaining amount that
is payable shall be paid by the Surviving Corporation:
(i) One Million Dollars ($1,000,000) in the event 1997 EBIT is
equal to or greater than Six Million Dollars ($6,000,000) but less than Six
Million Five Hundred Thousand Dollars ($6,500,000); or
(ii) One Million Five Hundred Thousand Dollars ($1,500,000) in
the event 1997 EBIT is equal to or greater than Six Million Five Hundred
Thousand Dollars ($6,500,000) but less than Seven Million Dollars ($7,000,000);
or
(iii) Three Million Dollars ($3,000,000) in the event 1997 EBIT
is equal to or greater than Seven Million Dollars ($7,000,000).
Such amount shall be payable within thirty (30) calendar days after receipt by
Surviving Corporation of the Company's audited financial statements for calendar
year 1997 and in any event no later than April 30, 1998.
(b) NEW CONTRACTS. (i) In the event the aggregate Contract Value
of New Contracts equals or exceeds One Hundred Million Dollars ($100,000,000),
the Surviving Corporation shall pay to Holder Representative no later than
thirty (30) calendar days after the first anniversary of the Closing Date, for
the ratable benefit of Holders, the sum of: (A) Five Hundred Thousand Dollars
($500,000), (B) an amount (not to exceed One Million Dollars ($1,000,000)) equal
to one percent (1%) of the aggregate Contract Value of New Contracts in excess
of One Hundred Million Dollars ($100,000,000) and (C) Five Hundred Thousand
Dollars ($500,000) in the event the aggregate Contract Value of New Contracts
equals or exceeds Two Hundred Million Dollars ($200,000,000); PROVIDED, HOWEVER,
the amounts payable under this SUBSECTION 2.6(b) shall not exceed Two Million
Dollars ($2,000,000) in the aggregate and shall be paid out of the Contingent
Payment Escrow to the extent funds are available in such escrow and, to the
extent funds are not so available, the remaining amount that is payable shall be
paid by the Surviving Corporation.
(i) In instances where the Company is proposed as a subcontractor
by FDC or one of its subsidiaries under a subcontract to a New Contract, the
Company shall receive a credit to the Aggregate Contract Value of such
subcontract equal to the value of the Company's subcontract.
(ii) Notwithstanding the foregoing, any New Contract or any
subcontract that is subject to protest, no amount shall be payable hereunder
unless and until such protest is denied or dismissed with prejudice and that New
Contract or subcontract is officially
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awarded and all impediments to, or suspensions of, performance based on such
protest have been lifted.
(c) QUALIFIED PROPOSALS. In the event that the aggregate Contract
Value of contracts subject to Qualified Proposals equals or exceeds One Hundred
Million Dollars ($100,000,000), the Surviving Corporation shall pay to Holder
Representative, no later than thirty (30) calendar days after the first
anniversary of the Closing Date, for the ratable benefit of Holders in an amount
equal to one-half of one percent (0.5%) of the aggregate Contract Value of
contracts subject to Qualified Proposals; PROVIDED, HOWEVER, that the amount
payable under this SUBSECTION 2.6(c) shall not exceed One Million Dollars
($1,000,000). For purposes of determining Contract Value in connection with a
Qualified Proposal that is submitted from the Closing Date up to and including
the first anniversary of the Closing but BAFO will occur after the first
anniversary of the Closing, such Contract Value will be based upon projected
BAFO price (Projected BAFO price shall be determined in good faith by the Chief
Executive Officer of FDC, based upon information available at the time such
projections are made.), PROVIDED THAT any amounts payable under this
SUBSECTION 2.6(c) shall be paid out of the Contingent Payment Escrow to the
extent funds are available in such escrow and, to the extent funds are not so
available, the remaining amount that is payable shall be paid by the Surviving
Corporation.
ARTICLE III
CLOSING
Section 3.1 FILING. As soon as all of the conditions set forth in
ARTICLE IX of this Agreement have either been fulfilled or waived, the Board of
Directors of Acquisition and the Company shall direct their officers forthwith
to file and record all relevant documents with the appropriate government
officials to effectuate the Merger.
Section 3.2 CLOSING. The consummation of the Merger shall take
place at 10:00 a.m., local time, on the tenth (10) Business Day following the
satisfaction of the conditions to the obligations of the parties set forth in
ARTICLE IX hereof, at the offices of Latham & Watkins, 1001 Pennsylvania Avenue,
N.W., Suite 1300, Washington, D.C., or at such other time or place as the
Company and Acquisition may agree in writing. The term "CLOSING" (when used in
this Agreement, means the Effective Time of the Merger.
Section 3.3 HOLDER REPRESENTATIVE'S CLOSING DELIVERIES. At the
Closing, Holder Representative shall deliver or cause to be delivered to
Acquisition (a) stock certificates evidencing not less than ninety-five percent
(95%) of the Shares outstanding, duly endorsed in blank or accompanied by a
stock power duly executed in blank, and (b) the other documents required to be
delivered by Holder Representative pursuant to ARTICLE IX hereof.
Section 3.4 ACQUISITION'S CLOSING DELIVERIES. At the Closing,
(a) Acquisition shall pay to Holder Representative the Cash Consideration (as
provided in SECTION 2.2 hereof) and shall deliver to Holder Representative the
Notes and (b) Acquisition shall deliver to Holder
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Representative the other documents required to be delivered by Acquisition
pursuant to ARTICLE IX hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND PRINCIPAL HOLDERS
The Company and the Principal Holders each hereby jointly and
severally represents and warrants to Acquisition as follows, except as otherwise
set forth on the Disclosure Schedule, which representations and warranties are,
as of the date hereof, and will be, as of the Closing Date, true and correct:
Section 4.1 ORGANIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland with full corporate power and authority to conduct the Business as it
is presently being conducted and to own and lease its properties and assets.
The Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of its properties owned
or leased or the nature of its activities make such qualification necessary.
Copies of the certificate of incorporation and bylaws of the Company, and all
amendments thereto, heretofore delivered to Acquisition are accurate and
complete as of the date hereof. SCHEDULE 4.1 contains a true, correct and
complete list of all jurisdictions in which the Company is qualified to do
business as a foreign corporation.
Section 4.2 SUBSIDIARY.
(a) Other than the Subsidiary listed on SCHEDULE 4.2, the Company
has no direct or indirect stock or other equity or ownership interest (whether
controlling or not) in any corporation, association, partnership, joint venture
or other entity. The Subsidiary listed on SCHEDULE 4.2 is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction identified on SCHEDULE 4.2, has the requisite power and authority
to conduct its business as it is presently being conducted and to own and lease
its properties and Assets. SCHEDULE 4.2 contains a true, correct and complete
list of all jurisdictions in which the Subsidiary is qualified to do business as
a foreign corporation. The Subsidiary is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of its properties owned or leased or the nature of its activities make
such qualification necessary except. Copies of the certificate of incorporation
and bylaws (and/or similar organizational documents under the relevant law of
the Subsidiary) of the Subsidiary heretofore delivered to Acquisition are
accurate and complete. SCHEDULE 4.2 sets forth a description of all of the
issued and outstanding equity securities of the Subsidiary. The Company owns of
record and beneficially all of the issued and outstanding capital or other stock
of the Subsidiary free and clear of any Encumbrances, except as set forth on
SCHEDULE 4.2. There are no options, puts, calls or warrants with respect to the
equity securities of the Subsidiary.
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(b) The Limited Liability Company Agreement ("L.L.C. AGREEMENT")
of Millennium Information Systems, Technology L.L.C. ("MIST"), a Delaware
Limited Liability Company dated as of September 12, 1996 between NYMA, Inc. and
Electronic Data Systems Corporation ("EDS") has been terminated and is no longer
in effect. The Company has made no capital contributions as none were required
under the L.L.C. Agreement, and the Company has no further liability or
obligation to any party, including, without limitation, MIST and EDS thereunder.
Section 4.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists solely of
4,000,000 shares of Company Common Stock, of which no more than 2,550,000 shares
will be issued and outstanding at the Closing. Except as set forth on
SCHEDULE 4.3 all of the issued and outstanding shares of the Company Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. The Company has honored all of its obligations with respect to
preemptive rights (or as the same have been validly waived) relating to the
Company Common Stock.
(b) Except as set forth on SCHEDULE 4.3, the Company has not
issued or granted any outstanding options, warrants, rights or other securities
convertible into or exchangeable or exercisable for shares of the capital stock
of the Company, any other commitments or agreements providing for the issuance
of additional shares of the capital stock of the Company, the sale of treasury
shares, or for the repurchase or redemption of shares of the Company's capital
stock, and there are no agreements of any kind which may obligate the Company to
issue, purchase, register for sale, redeem or otherwise acquire any of its
securities or interests.
(c) Set forth on SCHEDULE 4.3 is a true, correct and complete list
of the record holders of the capital stock of the Company and all other
securities of the Company (together with an identification of the number and
type of securities owned by each such record holder) as of the date hereof. The
Company will provide an updated SCHEDULE 4.3 at least five (5) business days
prior to the Closing Date setting forth a true, correct and complete list of the
record holders of the capital stock of the Company and all other securities of
the Company (together with an identification of the number and type of
securities owned by each such record holder) as of the Closing Date. In
connection with the Merger and the payment of the Merger Consideration,
Acquisition and the Surviving Corporation shall be entitled to rely conclusively
on such updated SCHEDULE 4.3. Each Principal Holders represents and warrants
that he is the beneficial owner of the capital stock listed on SCHEDULE 4.3 (as
of the date hereof) and updated SCHEDULE 4.3 (as of the Closing Date) as owned
by him, free and clear of any Encumbrances.
Section 4.4 AUTHORIZATION. The Company has all requisite
corporate power and authority, and has taken all corporate and shareholder
action necessary, to execute and deliver this Agreement and the Ancillary
Agreements, to consummate the transactions contemplated hereby and thereby and
to perform its obligations hereunder and thereunder. The execution and
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delivery of this Agreement and the Ancillary Agreements by action of the
Company and Principal Holders and the consummation by the Company and
Principal Holders of the transactions contemplated hereby and thereby have
been duly approved by the board of directors and shareholders of the Company.
Except for approval of this Agreement by the shareholders of the Company in
accordance with the MGCL, no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and thereby. This
Agreement has been duly executed and delivered by the Company, Holder
Representative and Principal Holders and is, and upon execution and delivery
of the Ancillary Agreements will be, legal, valid and binding obligations of
the Company, Holder Representative and Principal Holders, enforceable against
them in accordance with its terms subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights generally.
Section 4.5 NO CONFLICT OR VIOLATION. Neither the execution,
delivery or performance of this Agreement and the Ancillary Agreements nor the
consummation of the transactions contemplated hereby, nor compliance by the
Company, Holder Representative and Principal Holders with any of the provisions
hereof, does or will violate any provision of, or result in the breach of, any
applicable law, rule or regulation of any governmental body, the certificate of
incorporation or bylaws of the Company or its Subsidiary, or any agreement,
indenture or other instrument to which any Principal Holder, the Company or its
Subsidiary is a party or by which the Company or its Subsidiary may be bound, or
of any order, judgment or decree applicable to any of them, or terminate or
result in the termination of any such agreement, indenture or instrument, or
result in the creation of any lien, charge or encumbrance upon any of the
properties or assets of the Company or its Subsidiary, or constitute any event
which, after notice or lapse of time or both, would result in any such
violation, breach, acceleration, termination or creation of a lien or result in
a violation or revocation of any required license, permit or approval from any
government or other third party. Notwithstanding the foregoing, the Principal
Holders make no representation as to the applicability of 41 U.S.C. Section 15
(the "ASSIGNMENT OF CONTRACTS ACT"), 31 U.S.C. Section 3727 (the "ASSIGNMENT OF
CLAIMS ACT"), or the assignability of any Contracts subject to any restrictions
under Small Business Administration programs, as to each of which Acquisition
has made its own independent analysis.
Section 4.6 FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 4.6
are the Interim Financial Statements. The Company shall deliver the Closing
Financial Statements at the same time the Pro Forma Balance Sheet is delivered
pursuant to SECTION 2.5.1. The Financial Statements (a) have and will be in
accordance with the Books and Records of the Company, (b) have and will be
prepared in accordance with GAAP consistently applied throughout the periods
covered thereby and (c) fairly and accurately present the consolidated assets,
Liabilities (including all reserves) and financial position of the Company as of
the respective dates thereof and the consolidated results of operations and
changes in cash flows for the periods then ended. The Final Balance Sheet will
be examined by Deloitte, independent certified public accountants, whose report
thereon will be included with such Final Balance Sheet. At the respective dates
of the Financial Statements, there were and will not be any Liabilities of the
Company, which, in
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accordance with GAAP, should have been set forth or reserved for in the
Financial Statements or the notes thereto, which are not set forth or
reserved for in the Financial Statements or the notes thereto.
Section 4.7 BOOKS AND RECORDS. The Company has made and kept (and
given Acquisition access to) Books and Records and accounts, which, in
reasonable detail, accurately and fairly reflect the activities of the Company.
The minute books of the Company and of its Subsidiary previously delivered to
Acquisition accurately and adequately reflect all formal actions previously
taken by the shareholders, board of directors and committees of the board of
directors of the Company and its Subsidiary as applicable. The copies of the
stock book records of the Company previously delivered to Acquisition are true,
correct and complete, and accurately reflect all transactions effected in the
Company's stock as recorded on the books of the Company or presented for
recordation through and including the date hereof. The Company has not engaged
in any transaction, maintained any bank account or used any corporate funds
except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained Books and Records of the Company.
Section 4.8 PROJECTIONS. The Company has delivered to Acquisition
projected income statements, balance sheet and statements of cash flow of the
Company and its consolidated Subsidiary for the 1997 through 2001 fiscal years
(the "PROJECTIONS"), which are attached as SCHEDULE 4.8 hereto. The Projections
were prepared in good faith represent the Company's best estimate, at the time
of their preparation, of the financial position, cash flow and results of
operations of the Company and its consolidated Subsidiary for the periods
indicated. Nothing in this representation and warranty shall be construed as a
guarantee that the projected results set forth in the Projections will be
actually realized, and no variance between such projected results and actual
results shall, by itself, give rise to a breach of this SECTION 4.8.
Section 4.9 UNDISCLOSED LIABILITIES. To the best knowledge of the
Company and Principal Holders, since the Interim Balance Sheet Date neither the
Company nor its Subsidiary has any Liabilities, except for liabilities and
obligations that have arisen since the date of the Interim Balance Sheet in the
ordinary course of the operation of the business and consistent with past
practice of the Company and its Subsidiary (all of which are current liabilities
similar in type to those reflected on the audited balance sheet for 1995).
Section 4.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the
Interim Balance Sheet Date, except as disclosed on SCHEDULE 4.10 or a
transaction expressly and specifically contemplated by this Agreement, there has
not been any:
(a) adverse change in the business, operations, condition
(financial or otherwise), assets, liabilities, or prospects of the Company or
its Subsidiary;
(b) except for normal periodic increases in the ordinary course of
business consistent with past practice, increase in the compensation payable or
to become payable by the Company or its Subsidiary to any of their respective
officers, employees or agents (collectively,
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"PERSONNEL"), (ii) any bonus, incentive compensation, service award or other
like benefit granted, made or accrued, contingently or otherwise, for or to
the credit of any of the Personnel, (iii) any employee welfare, pension,
retirement, profit-sharing or similar payment or arrangement made or agreed
to by the Company for any Personnel except pursuant to the existing plans and
arrangements described in the Disclosure Schedules hereto or (iv) any new
employment agreement to which the Company is a party;
(c) addition to or modification of the employee benefit plans,
arrangements or practices affecting Personnel other than (i) contributions made
for 1996 in accordance with the normal practices of the Company and its
Subsidiary or (ii) the extension of coverage to other Personnel who became
eligible after the Interim Balance Sheet Date;
(d) sale, assignment or transfer of any assets of the Company or
its Subsidiary other than in the ordinary course;
(e) cancellation of any indebtedness or waiver of any rights of
substantial value to the Company or its Subsidiary, whether or not in the
ordinary course of business;
(f) amendment, cancellation or termination of any Contract,
license or other instrument of the Company or its Subsidiary;
(g) capital expenditure or the execution of any lease or any
incurring of liability therefor by the Company or its Subsidiary, involving
payments in excess of $20,000 in the aggregate;
(h) failure to operate the Business of the Company and the
business of its Subsidiary in the ordinary course, consistent with past practice
so as to use reasonable efforts to preserve the business intact, to keep
available the services of the Personnel, and to preserve the goodwill of the
Company's suppliers, customers and others having business relations with the
Company or its Subsidiary;
(i) change in accounting methods or practices by the Company or
its Subsidiary;
(j) revaluation by the Company or its Subsidiary of any of their
respective assets, including without limitation, writing off notes or accounts
receivable;
(k) damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties, business or prospects of the
Company or its Subsidiary; or
(l) any indebtedness incurred by the Company for borrowed money or
any commitment to borrow money entered into by the Company, or any loans made or
agreed to be made by the Company.
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Section 4.11 CONTRACTS; NO DEFAULTS.
(a) SCHEDULE 4.11 contains a listing of all Contracts described in
(i) through (xv) below to which the Company or its Subsidiary is a party. Such
listing provides reasonably complete details concerning such contracts,
identifying among other things, the parties to the contracts and the office of
the Company or such Subsidiary where details relating to the contract are
located. True, correct and complete copies of contracts referred to in
clauses (i) through (xv) below have been delivered to or made available upon
request to Acquisition and its agents and representatives.
(i) Each Contract which involves performance of services or
delivery of goods and/or materials, by or to the Company or its Subsidiary of an
amount or value in excess of $100,000;
(ii) Each note, debenture, other evidence of indebtedness,
guarantee, loan, letter of credit, surety-bond or financing agreement or
instrument or other contract for money borrowed, including any agreement or
commitment for future loans, credit or financing;
(iii) Each Contract not in the ordinary course of business other
than as listed on SCHEDULE 4.10;
(iv) Each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property;
(v) Each licensing agreement or other Contract with respect to
patents, trademarks, copyrights, or other intellectual property, including
agreements with current or former employees, consultants or contractors
regarding the appropriation or the nondisclosure of Intellectual Property;
(vi) Each Contract to which any employee of the Company or its
Subsidiary is bound which in any manner purports to (A) restrict such Person's
freedom to engage in any line of business or to compete with any other Person,
or (B) assign to any other Person its rights to any invention, improvement, or
discovery;
(vii) Each employment agreement, collective bargaining agreement
or other Contract to or with any employee or any labor union or other employee
representative of a group of employees relating to wages, hours, and other
conditions of employment;
(viii) Each joint venture Contract, partnership agreement,
limited liability company or other Contract (however named) involving a sharing
of profits, losses, costs, or liabilities by the Company or its Subsidiary with
any other Person;
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(ix) Each Contract containing covenants which in any way
purport to restrict the Company's or its Subsidiary' business activity or
purport to limit the freedom of the Company or its Subsidiary to engage in any
line of business or to compete with any Person;
(x) Each Contract providing for payments to or by any Person or
entity based on sales, purchases or profits, other than direct payments for
goods;
(xi) Each power of attorney which is currently effective and
outstanding;
(xii) Each Contract requiring capital expenditures after the
date hereof in an amount in excess of $20,000;
(xiii) Each written warranty, guaranty or other similar
undertaking with respect to contractual performance extended by the Company or
its Subsidiary other than in the ordinary course of business;
(xiv) Any other Contract relating to the business or operations
of the Company or its Subsidiary; and
(xv) Each amendment, supplement, and modification (whether
written or oral) in respect of any of the foregoing.
(b) Except as set forth on SCHEDULE 4.11, all of the Contracts
listed pursuant to paragraph (a) hereof are (i) in full force and effect,
(ii) represent the legal, valid and binding obligations of the Company or the
Subsidiary of the Company party thereto and are enforceable against the Company
or such Subsidiary in accordance with their terms and (iii) to the best
knowledge of the Company and Principal Holders, represent the legal, valid and
binding obligations of the other parties thereto and are enforceable against
such parties in accordance with their terms. To the best knowledge of the
Company and Principal Holders, no condition exists or event has occurred which,
with notice or lapse of time or both, would constitute a default or a basis for
force majeure or the claim of excusable delay or nonperformance under such
Contracts.
(c) Except as set forth on SCHEDULE 4.11, there are no
renegotiations of, or attempts to renegotiate, or outstanding rights to
renegotiate, any amounts paid or payable to the Company or its Subsidiary under
current or completed Contracts, with any Person or entity having the contractual
or statutory right to demand or require such renegotiation. Neither the Company
nor its Subsidiary has received any written demand for such renegotiation in
respect of any such Contract. Except as set forth on SCHEDULE 4.11, no customer
or government contracting officer has asserted in writing or by formal
notification that any adjustments are required to the terms of any Contracts.
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(d) Except as set forth on SCHEDULE 4.11, neither Principal
Holders, the Company nor its Subsidiary has committed any act or omission which
would result in, and there has been no occurrence which would give rise to, any
product liability or liability for breach of warranty on the part of the Company
or its Subsidiary.
Section 4.12 GOVERNMENT CONTRACTS.
(a) There is no suit pending as to which notice has been provided
to the Company or its Subsidiary or, to the best knowledge of the Company or the
Principal Holders, investigation pending or threatened against the Company or
its Subsidiary asserting or alleging the commission of criminal acts or bribery
by either the Company or its Subsidiary with respect to any Contract between the
Company or its Subsidiary and the United States Government or a department or
agency thereof (a "GOVERNMENT CONTRACT"). Neither the Company nor its
Subsidiary has been debarred or suspended from participation in the award of
contracts with the U.S. government or any agency or department thereof (it being
understood that debarment and suspension does not include ineligibility to bid
for certain contracts due to generally applicable bidding requirements). The
Company and its Subsidiary are, and at times have been, in compliance with all
applicable laws, rules and regulations relating to any Government Contract and
neither the Company nor any Subsidiary has received written notice of any kind
from the United States Government or any agency or department thereof alleging
any violation, or notifying the Company or any Subsidiary of any investigation
of a possible violation, of any applicable law, rule, or regulation by the
Company or its Subsidiary or any act for which the Company or its Subsidiary
could be debarred or suspended from contracting with any agency of any
government, or prohibiting or seeking to prohibit the Company or its Subsidiary
from conducting, or restricting or seeking to restrict the Company's or its
Subsidiary' ability to conduct, all or any part of its business or operations or
from contracting with any government. No payment has been made by the Company
or its Subsidiary, or, to the best knowledge of the Company, by any Person
acting on its or their behalf, to any Person in connection with any Government
Contract in violation of applicable procurement laws or regulations or in
violation of (or requiring disclosure pursuant to) the Foreign Corrupt Practices
Act. The cost accounting and procurement systems maintained by the Company and
its Subsidiary with respect to Government Contracts are in compliance with all
applicable U.S. government laws and regulations.
(b) With respect to each Government Contract (i) the Company and
its Subsidiary have complied with all terms and conditions of such Government
Contract, including all clauses, provisions and requirements incorporated
expressly, by reference or by operation of law therein; (ii) all representations
and certifications executed, acknowledged or set forth in or pertaining to such
Government Contract were complete and correct in all respects as of their
effective date, and the Company and each Subsidiary has complied in all respects
with all such representations and certifications; (iv) no termination for
convenience, termination for default, cure notice or show cause notice is in
effect as of the date hereof pertaining to any Government Contract.
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(c) Except as set forth on SCHEDULE 4.12, no Contract with a
customer has accrued or is expected by the Company to result in any losses.
(d) SCHEDULE 4.12 identifies the Company's current Government
Contracts, provides a best estimate of the value of the remaining contract
ceiling, and provides a best estimate of the portion of the remaining ceiling
value that is authorized and remaining.
Section 4.13 MACHINERY AND EQUIPMENT AND OTHER PROPERTY. Except as
set forth on SCHEDULES 4.11 or 4.13, the Company or its Subsidiary owns and has
good and marketable title to the machinery, equipment, tools, spare parts,
furniture and automobiles reflected on the books of the Company and its
Subsidiary as owned by the Company or its Subsidiary (the "MACHINERY AND
EQUIPMENT"), free and clear of all Encumbrances other than Permitted
Encumbrances. The Machinery and Equipment, taken as a whole, are in good
operating condition and repair (subject to normal wear and tear) and are
suitable for the purposes for which each has historically been used. Except as
otherwise contemplated by this Agreement, the Company and its Subsidiary owns,
or, in the case of leases and licenses, has valid leasehold interests or
licenses in, all of the properties and assets of whatever kind (whether
personal, tangible or intangible), used in its business, in each case free and
clear of any Encumbrances other than Permitted Encumbrances.
Section 4.14 INTELLECTUAL PROPERTY. SCHEDULE 4.14 lists each
patent, registered and unregistered trademark, service mark, trade dress, logo,
trade name, copyright, mask work and registration or application for any of the
foregoing (the foregoing, together with all know-how, trade secrets,
confidential information, software, technical information process technology,
plans, drawings, and blue prints, being hereinafter collectively referred to as
the "INTELLECTUAL PROPERTY") owned by the Company or its Subsidiary. The
Contracts listed on SCHEDULE 4.11 include all license or sublicense agreements
with respect to any patent, trademark, service mark, trade dress, logo, trade
name, copyright or mask work to which the Company or its Subsidiary is a party.
Except as set forth on SCHEDULE 4.14, the Company or its Subsidiary has good
title to each item of Intellectual Property owned by it, free and clear of any
Encumbrances other than Permitted Encumbrances, and no other Person has the
right to use any Intellectual Property other than pursuant to the Contracts
listed on SCHEDULE 4.11. The Company's and its Subsidiary's use of the
Intellectual Property and other trade rights, trade secrets, designs, plans,
specifications and other proprietary rights, whether or not registered, is not
to the knowledge of the Company infringing upon or otherwise violating the
rights of any third party in or to such rights and no claims have been asserted
by any Person against the Company or its Subsidiary with respect to the use of
any trademark, trade name, service mark, patent, copyright, know how or process
or other rights used by the Company and its Subsidiary challenging or
questioning the validity or effectiveness of such use or any such right, license
or agreements and no Person has a right to a royalty or similar payment, or has
any other rights, in respect of any such rights, except any of the foregoing.
Neither the Company nor its Subsidiary, or the other party or parties thereto,
is in breach of any license of sublicense with respect to any item of
Intellectual Property. The Company and its Subsidiary own or have the right to
use pursuant to a valid license,
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sublicense, agreement or permission all items of Intellectual Property used
in the operation of the business of the Company and its Subsidiary, as
presently conducted.
Section 4.15 REAL PROPERTY. SCHEDULE 4.15 lists the address of all
real property (together with all Improvements located thereon, the "REAL
PROPERTY") now used, operated or occupied by the Company or its Subsidiary. The
Company has delivered or made available to Acquisition true and correct copies
of the leases and subleases for the real property listed on SCHEDULE 4.15. Each
such lease or sublease is in full force and effect and gives the lessee or the
sublessee thereunder the right to use and occupy the demised premises thereunder
for the uses set forth therein.
Section 4.16 LITIGATION AND PROCEEDINGS. Except as disclosed on
SCHEDULE 4.16, there are no lawsuits, actions, suits, claims or other
proceedings at law or in equity (including, without limitation, investigations
by any government involving any Government Contract wherein a claim for improper
charges was made), or before or by any court or governmental authority or
instrumentality or before any arbitrator pending or, to the knowledge of the
Company, or any Principal Holder, threatened, against the Company, its
Subsidiary or any Principal Holder. Except as set forth on SCHEDULE 4.16, there
is no unsatisfied judgment, order, injunction or decree binding upon the Company
its Subsidiary or any Principal Holder.
Section 4.17 EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. The following terms, when used in this
SECTION 4.17, shall have the following meanings. Any of these terms may,
unless the context otherwise requires, be used in the singular or the
plural depending on the reference.
(i) BENEFIT ARRANGEMENT. "BENEFIT ARRANGEMENT" shall mean any
employment, consulting, severance or other similar contract, arrangement or
policy and each plan, arrangement (written or oral), program, agreement or
commitment providing for insurance coverage (including without limitation any
self-insured arrangements), workers' compensation, disability benefits, fringe
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, life, health, disability or accident benefits (including without
limitation any "voluntary employees' beneficiary association" as defined in
SECTION 501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing bonuses, stock options, restricted stock,
stock appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (A) is
not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case may be,
by the Company, and (C) covers any employee or former employee of the Company or
any ERISA Affiliate (with respect to their relationship with such entity).
(ii) EMPLOYEE PLANS. "EMPLOYEE PLANS" shall mean all Benefit
Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.
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(iii) ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
(iv) ERISA AFFILIATE. "ERISA AFFILIATE" shall mean any entity
which is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, a member of an "affiliated
service group" with, or otherwise required to be aggregated with, the Company as
set forth in Section 414(b), (c), (m) or (o) of the Code.
(v) MULTIEMPLOYER PLAN. "MULTIEMPLOYER PLAN" shall mean any
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA, (A) which the
Company or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to and (B) which covers any employee or former employee
of the Company or any ERISA Affiliate (with respect to their relationship with
such entities).
(vi) PBGC. "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
(vii) PENSION PLAN. "PENSION PLAN" shall mean any "employee
pension benefit plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) (A) which the Company or any ERISA Affiliate maintains,
administers, contributes to or is required to contribute to and (B) which covers
any employee or former employee of the Company or any ERISA Affiliate (with
respect to their relationship with such entities).
(viii) WELFARE PLAN. "WELFARE PLAN" shall mean any "EMPLOYEE
welfare benefit plan" as defined in Section 3(1) of ERISA, (A) which the Company
or any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, and (B) which covers any employee or former employee of the
Company or any ERISA Affiliate (with respect to their relationship with such
entities).
(b) DISCLOSURE; DELIVERY OF COPIES OF RELEVANT DOCUMENTS AND OTHER
INFORMATION. SCHEDULE 4.17 contains a complete list of Employee Plans.
(c) Except as set forth in SCHEDULE 4.17:
(i) PENSION PLANS
(A) Neither the Company nor any ERISA Affiliate currently
maintains, or has ever maintained, a Pension Plan subject to Section 302 ERISA
or Section 412 of the Code.
(B) Each Pension Plan and each related trust agreement,
annuity contract or other funding instrument has been determined by the Internal
Revenue Service to be qualified and tax-exempt under the provisions of Code
Sections 401(a) and 501(a).
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(C) Each Pension Plan and each related trust agreement,
annuity contract or other funding instrument is in compliance with its terms
and, both as to form and in operation, with the requirements prescribed by any
and all statutes, orders, rules and regulations which are applicable to such
plans, including without limitation ERISA and the Code.
(D) Neither the Company nor any ERISA Affiliate has engaged
in, or is a successor or parent corporation to an entity that has engaged in, a
transaction which, to the best knowledge of the Company, is described in Section
4069 of ERISA. No filing has been made by the Company or any ERISA Affiliate
with the PBCG, and no proceeding has been commenced by the PBGC, to terminate
any Pension Plan.
(ii) MULTIEMPLOYER PLANS There are no Multiemployer Plans, and
neither the Company nor any ERISA Affiliate has ever maintained, contributed to,
participated or agreed to participate in a Multiemployer Plan.
(iii) WELFARE PLANS
(A) Each Welfare Plan which covers or has covered employees or
former employees of the Company (with respect to their relationship with such
entities) is in compliance with its terms and, both as to form and operation,
with the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Welfare Plan, including without
limitation ERISA and the Code.
(B) Neither the Company, the Principal Holders, any ERISA
Affiliate nor any Welfare Plan has any present or future obligation to make
payment to, or with respect to, any present or former employee of the Company or
any ERISA Affiliate pursuant to any retiree medical benefit plan, or other
retiree Welfare Plan, and no condition exists which would prevent the Company
from amending or terminating any such benefit plan or Welfare Plan.
(C) Each Welfare Plan which is a "group health plan," as
defined in Section 607(1) of ERISA, has been operated in compliance with the
provisions of Part 6 of Title I, Subtitle B of ERISA and Section 4980B of the
Code at all times.
(iv) BENEFIT ARRANGEMENTS. Each Benefit Arrangement is in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Benefit
Arrangement, including without limitation the Code.
(v) FIDUCIARY DUTIES AND PROHIBITED MERGER. Neither the Company
nor its Subsidiary has any liability with respect to any transaction in
violation of Sections 404 or 406 of ERISA or any "prohibited transaction," as
defined in Section 4975(c)(1) of the Code, for which no exemption exists under
Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code
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with respect to any Welfare Plan or Pension Plan. Neither the Company nor
any of its Subsidiary has participated in a violation of Part 4 of Title I,
Subtitle B of ERISA by any plan fiduciary of any Welfare Plan or Pension Plan
or has any unpaid civil penalty under Section 502(l) of ERISA.
(vi) UNPAID CONTRIBUTIONS. Neither the Company nor any ERISA
Affiliate has any liability for unpaid contributions with respect to any Pension
Plan, Multiemployer Plan or Welfare Plan. The Company or an ERISA Affiliate has
made all required contributions under each Employee Plan for all periods through
the last payroll period prior to the Closing Date or proper accruals have been
made and are reflected on the appropriate balance sheet and books and records.
(vii) The Company has delivered pursuant to this Agreement a true
and complete set of copies of (a) all Employee Plans and related trust
agreements, annuity contracts or other funding instruments as in effect
immediately prior to the Closing Date, together with all amendments thereto
which shall become effective at a later date; (b) the latest Internal Revenue
Service determination letter obtained with respect to any such Employee Plan
which is intended to be qualified or exempt under Section 401 or 501 of the
Code; (c) Forms 5500 and certified financial statements for the most recently
completed three fiscal years for each Employee Plan required to file such form,
together with the most recent actuarial report, if any, prepared by the Employee
Plan's enrolled actuary; (d) all summary plan descriptions for each Employee
Plan required to prepare, file and distribute summary plan descriptions; (e) all
summaries furnished employees, officers and directors of the Company and its
Subsidiary of all incentive compensation, other plans and fringe benefits for
which a summary plan description is not required; and (f) the notifications to
employees of their rights under Section 4980B of the Code.
(viii) No payment made to any Person who constitutes a "disqualified
individual" within the meaning of Section 280G(c) of the Code with respect to
the Company or its Subsidiary ("RECIPIENTS") pursuant to any employment
contract, severance agreement or other arrangement to which the Company or any
ERISA Affiliate is a party ("GOLDEN PARACHUTE PAYMENT"), other than any payment
made or to be made under any of the Employment and Non-Competition Agreements,
will be nondeductible to the Company and its Subsidiary because of the
applicability of Section 280G of the Code to the Golden Parachute Payment, nor
will the Company or its Subsidiary be required to "gross up" or otherwise
compensate any Recipient because of the imposition of any excise tax (including
any interest or penalties related thereto) on the Recipient because of the
applicability of Sections 280G and 4999 of the Code.
(ix) UNRELATED BUSINESS TAXABLE INCOME. No Employee Plan (or
trust or other funding vehicle pursuant thereto) is subject to any tax under
Code Section 511.
(x) DEDUCTIBILITY OF PAYMENTS. Except for the items set forth on
SCHEDULE 4.17 (which identify the nature and amount of such items), there is no
contract, agreement, plan or arrangement covering any employee or former
employee of the Company (with respect to its relationship with such entities)
that, individually or collectively, provides for
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the payment by the Company of any amount that is not deductible under Section
162(a)(1) or 404 of the Code.
(xi) VALIDITY AND ENFORCEABILITY. Each Welfare Plan, Pension
Plan, related trust agreement, annuity contract or other funding instrument and
Benefit Arrangement which covers or has covered employees or former employees of
the Company (with respect to their relationship with the Company) is legally
valid and binding and in full force and effect.
(xii) LITIGATION. There is no action, order, writ, injunction,
judgment or decree outstanding or claim, suit, litigation, proceeding, arbitral
action, governmental audit or investigation relating to or seeking benefits
under any Employee Plan that is pending, threatened or anticipated against the
Company, Principal Holders, any ERISA Affiliate or any Employee Plan.
(xiii) NO AMENDMENTS. None of the Company, Principal Holders or
any ERISA Affiliate has any announced plan or legally binding commitment to
create any additional Employee Plans which are intended to cover employees or
former employees of Company (with respect to their relationship with the
Company) or to amend or modify any existing Employee Plan which covers or has
covered employees or former employees of the Company (with respect to their
relationship with the Company).
(xiv) NO OTHER MATERIAL LIABILITY. No event has occurred in
connection with which the Company, Principal Holders or any ERISA Affiliate or
any Employee Plan, directly or indirectly, could be subject to any liability
(A) under any statute, regulation or governmental order relating to any Employee
Plans or (B) pursuant to any obligation of the Company to indemnify any person
against liability incurred under any such statute, regulation or order as they
relate to the Employee Plans.
(xv) INSURANCE CONTRACTS. None of the Company, Principal
Holders or any Employee Plan holds as an asset of any Employee Plan any interest
in any annuity contract, guaranteed investment contract or any other investment
or insurance contract issued by an insurance company that is the subject of
bankruptcy, conservatorship or rehabilitation proceedings.
(xvi) NO ACCELERATION OR CREATION OF RIGHTS. Neither the
execution and delivery of this Agreement by the Principal Holders nor the
consummation of the transactions contemplated hereby will result in the
acceleration or creation of any rights of any person to benefits under any
Employee Plan.
Section 4.18 LABOR RELATIONS. The Contracts listed on
SCHEDULE 4.11 include all collective bargaining agreements to which the Company
or its Subsidiary is a party. The Company has delivered or made available to
Acquisition true, correct and complete copies of each such Contract, as amended
to date. Neither the Company nor its Subsidiary that is a party thereto nor, to
the knowledge of the Company, the other party or parties thereto, is in breach
of
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any term of any such Contract. Neither the Company nor its Subsidiary has
engaged in any unfair labor practice and there are no complaints against the
Company or its Subsidiary pending before the National Labor Relations Board
or any similar state or local labor agency by or on behalf of any employee of
the Company or its Subsidiary, except as disclosed SCHEDULE 4.16, to the
extent such actions and deemed "labor" actions. There are no representation
questions, arbitration proceedings, labor strikes, slow downs or stoppages,
grievances or other labor disputes pending or, to the knowledge of the
Company, threatened with respect to the employees of the Company or its
Subsidiary, and neither the Company nor its Subsidiary has experienced any
attempt by organized labor to cause the Company or its Subsidiary to comply
or conform to demands of organized labor relating to its employees. Except
as provided on SCHEDULE 4.18 hereto, neither the Company nor its Subsidiary
has entered into any severance or similar arrangement in respect of any
present employee of the Company or its Subsidiary that will result in any
obligation (absolute or contingent) of the Company or the Company's
Subsidiary to make any payment to any present employee of the Company or its
Subsidiary following termination of employment. The Company and its
Subsidiary have complied in all respects with all laws, rules and regulations
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health and plant
closings (hereinafter collectively referred to as the "EMPLOYMENT LAWS").
Neither the Company nor its Subsidiary is liable for the payment of taxes,
fines, penalties or other amounts, however designated, for failure to comply
with any of the foregoing Employment Laws.
Section 4.19 LEGAL COMPLIANCE. The Company and its Subsidiary have
been and are in compliance with all laws (including rules and regulations
thereunder) of federal, state, local and foreign governments (and all agencies
thereof) applicable thereto relating to the conduct of the Business, and have
not received any notice that the Company or its Subsidiary are not in compliance
with such laws.
Section 4.20 ENVIRONMENTAL PROTECTION. The Company and its
Subsidiary:
(a) At all times have been in compliance with all Environmental
Laws.
(b) Neither the Company nor its Subsidiary has received any claim,
assessment, or notification of any inquiry or investigation regarding any
disposal, release, or threatened release of any Hazardous Materials at any
current or former owned or leased facility or at any location to which any
Hazardous Materials may have been transported.
(c) With respect to any property currently or formerly owned or
under lease by the Company or its Subsidiary, there are (i) no underground tanks
or other underground storage receptacles for Hazardous Materials and there have
been no releases of any Hazardous Materials from any such underground tank,
receptacle or related piping, and (ii) there have been no releases (I.E., any
past or present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, disposing, or dumping) of
Hazardous Materials.
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(d) There are no consent decrees, consent orders, judgments,
judicial or administrative orders, agreements with, or liens by, any
governmental authority or quasi-governmental entity relating to any
Environmental Law against the Company or its Subsidiary relating to any property
currently or formerly owned or leased by the Company or its Subsidiary or
relating to any Hazardous Materials generated, transported or released by the
Company or its Subsidiary.
(e) There are no written environmental reports, audits and
assessments conducted by the Company or its Subsidiary related to any property,
whether currently or formerly owned or leased by the Company or its Subsidiary.
(f) Neither the Company nor its Subsidiary have assumed any
responsibility or liability for any releases of Hazardous Materials or any other
liabilities arising from any Environmental Conditions or Environmental Laws.
(g) The Company and its Subsidiary have obtained all permits, and
have made or maintained all notices, warnings, records and reports so as to be
in compliance with all Environmental Laws.
Section 4.21 TAX MATTERS. Except as otherwise disclosed in
SCHEDULE 4.21:
(a) All federal, state, local, and foreign tax returns of the
Company and its Subsidiary and of each consolidated or affiliated group which
the Company and its Subsidiary have been a part ("TAX RETURNS"), including those
Tax Returns relating to income, employment, franchise, property, sales and use,
and excise taxes, and any other Taxes due from and/or withheld by or required to
be withheld by the Company and its Subsidiary and of each consolidated or
affiliated group which the Company and its Subsidiary have been a part, have
been duly and timely filed and are correct and complete.
(b) All Taxes or estimates thereof that are due, or are claimed or
asserted by any taxing authority to be due, have been timely and appropriately
paid so as to avoid penalties for underpayment.
(c) Except as set forth on SCHEDULE 4.21, none of the Tax Returns
has been audited or is being audited by any taxing authority.
(d) Except as set forth on SCHEDULE 4.21, no assessment, audit or
other proceeding by any taxing authority, court, or other governmental or
regulatory authority is proposed, pending, or, to the knowledge of the Company,
threatened with respect to the Taxes or Tax Returns of the Company or its
Subsidiary.
(e) There are no outstanding agreements, waivers, or arrangements
extending the statutory period of limitations applicable to any claim for or the
period for the collection or assessment of Taxes due for any taxable period.
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(f) All positions taken on federal Tax Returns that could give
rise to a penalty for substantial understatement pursuant to Section 6662(d) of
the Code have been disclosed on such Tax Returns.
(g) Neither the Company, the Principal Holders nor the Subsidiary
is a foreign person within the meaning of Section 1445(b)(2) of the Code.
(h) Neither the Company nor its Subsidiary has made any tax
elections under any section of the Code, including, without limitation under any
of Sections 108, 168, 338, 441, 472, 1017, 1033 or 4977 of the Code or Treasury
Regulation Section 1.1502 (or any predecessor thereof). No consent to the
application of Section 341(f)(2) of the Code (or any predecessor thereof) has
been made or filed by or with respect to any of the Company or the Subsidiary or
any of their assets and properties. None of the assets and properties of the
Company or its Subsidiary is an asset or property that the holders of the
outstanding capital stock of Acquisition or any of the Affiliates of such entity
is or will be required to treat as being (i) owned by any other Person pursuant
to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954 as
amended, and in effect immediately before the enactment of the Tax Reform Act of
1986, or (ii) tax-exempt use property within the meaning of Section 168(h)(1) of
the Code.
(i) No closing agreement pursuant to Section 7121 of the Code (or
any predecessor provision) or any similar provision of any state, local, or
foreign law has been entered into by or with respect to the Company or its
Subsidiary or any assets thereof.
(j) Neither the Company nor its Subsidiary has agreed to or is
required to make any adjustment pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method of the
Company or its Subsidiary, neither the Company nor its Subsidiary has any
application pending with any taxing authority requesting permission for any
changes in any accounting method of the Company or its Subsidiary, and the
Internal Revenue Service has not proposed any such adjustment or change in
accounting method therefor.
(k) The Company has previously made available to Acquisition true,
correct and complete copies of each of the United States federal, state, local
and foreign income Tax Returns for each of the most recent two taxable years,
filed by the Company and the Subsidiary or (insofar as such returns relate to
any of the Company or the Subsidiary) filed by any affiliated or consolidated
group of which the Company or any such Subsidiary was then a member.
(l) Neither the Company nor its Subsidiary has been or is in
violation (or with notice or lapse of time or both, would be in violation) of
any applicable law relating to the payment of withholding of Taxes. The Company
and its Subsidiary have duly and timely withheld from salaries, wages and other
compensation and paid over to the appropriate taxing authorities all amounts
required to be so withheld and paid over for all periods under all applicable
laws.
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(m) Neither the Company nor its Subsidiary is a party to, is bound
by, or has any obligation under any Tax sharing agreement or similar agreement
and no such agreement shall be entered into or amended by the Company or its
Subsidiary at or prior to the Closing.
(n) No "excess loss account" or "deferred intercompany gain" (as
such terms are described in Treasury Regulation Section 1.1502) exist for,
between or with respect to the Company and its Subsidiary.
(o) Except as disclosed on SCHEDULE 4.21, neither the Company nor
its Subsidiary is partner in any partnership.
(p) No claim has ever been made by an authority in a jurisdiction
where the Company or its Subsidiary do not file Tax Returns that either of the
Company or its Subsidiary are or may be subject to taxation by that
jurisdiction;
(q) There are no liens or encumbrances related to Taxes on any of
the assets of the Company or its Subsidiary (other than for current Taxes not
yet due and payable);
(r) The Company and its Subsidiary have not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency;
(s) Neither the Company nor its Subsidiary (A) has been a member
of any affiliated group filing a consolidated federal income Tax Return and (B)
has any liability for the Taxes of any person as defined in Section 7701(a)(1)
of the Code (other than the Company and its Subsidiary under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise;
(t) The charges, accruals and reserves for Taxes (including
deferred Taxes) currently reflected on the Financial Statements in accordance
with GAAP are adequate to cover all unpaid Taxes accruing or payable by the
Company and its Subsidiary in respect of taxable periods that end on or before
the Closing Date and for any taxable periods that begin before the Closing Date
and end thereafter to the extent such Taxes are attributable to the portion of
such period ending on the Closing Date (determined under the closing of the
books method of allocation);
Section 4.22 GOVERNMENTAL AUTHORITIES; CONSENTS. Assuming the
truth and completeness of the representations and warranties of Acquisition
contained in this Agreement, no consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority or other
third party is required on the part of the Company with respect to the Company's
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby which will not be obtained by the Company prior to the
Closing, except for the following which are not required or have been obtained:
(a) any novations or consents required in connection with Government Contracts
or subcontracts thereunder, (b) any filings
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required under the DOD Industrial Security Manual for Safeguarding Classified
Information, (c) any filings required under U.S. Export Control Laws, (d) the
approval of this Agreement by the stockholders of the Company in accordance
with the MGCL and (e) as otherwise disclosed in SCHEDULE 4.22. Any such
novations, consents, filings or approvals referenced above are listed on
SCHEDULE 4.22.
Section 4.23 LICENSES, PERMITS AND AUTHORIZATIONS. SCHEDULE 4.23
contains a list of all licenses, approvals, consents, franchises and other
permits (including without limitation, all facility security clearances) of or
with any governmental regulatory or administrative authority, whether foreign,
federal, state or local, which are held by the Company or its Subsidiary. All
such licenses, franchises and other permits are in full force and effect and
there are no proceedings pending or to the best knowledge of the Company,
threatened that seek the revocation, cancellation, suspension or adverse
modification thereof. Such licenses, approvals, consents, franchises and
permits constitute all of the licenses, approvals, consents, franchises and
permits necessary to permit the Company and its Subsidiary to own, operate, use
and maintain their assets in the manner in which they are now operated and
maintained and to conduct the business of the Company and its Subsidiary as
currently conducted. All required filings with respect to such licenses,
approvals, consents, franchises and permits have been timely made and all
required applications for renewal thereof have been timely filed.
Section 4.24 INSURANCE.
(a) SCHEDULE 4.24 contains an accurate and complete description of
all policies of property, fire and casualty, product liability, workers'
compensation, and other forms of insurance held by the Company or its Subsidiary
("INSURANCE POLICIES"). True, correct and complete copies of such insurance
policies have been made available to Acquisition.
(b) All policies listed on SCHEDULE 4.24 (i) are valid,
outstanding, and enforceable policies, (ii) to the best knowledge of the Company
and its management, provide adequate insurance coverage for the assets and the
operations of the Company and its Subsidiary for all risks normally insured
against by a Person or entity carrying on the same business or businesses as the
Company and its Subsidiary, and (iii) will not terminate (except for directors
and officers liability insurance), or lapse by reason of, the transactions
contemplated by this Agreement.
(c) Neither the Company nor its Subsidiary has received (i) any
notice of cancellation of any policy described in paragraph (a) hereof or
refusal of coverage thereunder, (ii) any notice that any issuer of such policy
has filed for protection under applicable bankruptcy laws or is otherwise in the
process of liquidating or has been liquidated, or (iii) any other notice that
such policies are no longer in full force or effect or that the issuer of any
such policy is no longer willing or able to perform its obligations thereunder.
Section 4.25 BROKERS' FEES. Except as disclosed on SCHEDULE 4.25,
no broker, finder, investment banker or other Person is entitled to any
brokerage fee, finders' fee or other
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commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by the Company or its Subsidiary or Affiliates.
Section 4.26 NO OTHER AGREEMENTS TO SELL THE SHARES . Principal Holders,
the Company or any officer, director, or affiliate of the Company have no
commitment or legal obligation, absolute or contingent, to any other person or
firm other than NYMA Acquisition, Inc. to sell, assign, transfer or effect a
sale of any of the capital stock of the Company, to effect any merger,
consolidation, liquidation, dissolution or other reorganization of the Company,
or to enter into any agreement or cause the entering into of an agreement with
respect to any of the foregoing.
Section 4.27 MERGER WITH CERTAIN PERSONS. Except as set forth on
SCHEDULE 4.27, no officer, director or employee of the Company or Principal
Holders nor any member of any such person's immediate family is presently, or
within the past five (5) years has been, a party to any transaction with the
Company relating to the Business, including without limitation, any contract,
agreement or other arrangement (a) providing for the furnishing of services by,
(b) providing for the rental of real or personal property from, or (c) otherwise
requiring payments to (other than for services as officers, directors or
employees of the Company) any such person or corporation, partnership, trust or
other entity in which any such person has an interest as a shareholder, officer,
director, trustee or partner.
Section 4.28 CUSTOMERS, DISTRIBUTORS AND SUPPLIERS. SCHEDULE 4.28
sets forth a complete and accurate list of the names and addresses of the
Company's (a) ten largest customers, distributors and other agents and
representatives, showing the approximate total sales in dollars by the Company
to each such customer during such fiscal year; and (b) suppliers with purchases
greater than $1,000,000 during the Company's last fiscal year, showing the
approximate total purchases in dollars by the Company from each such supplier
during such fiscal year. Since January 1, 1997, there has been no adverse
effect in the business relationship of the Company with any customer,
distributor or supplier named on SCHEDULE 4.28. The Company has not received
any communication from any customer, distributor or supplier named on
SCHEDULE 4.28 of any intention to terminate or reduce purchases from or
supplies to the Company.
Section 4.29 BANKING RELATIONSHIPS. SCHEDULE 4.29 sets forth a
complete and accurate description of all arrangements that the Company has with
any banks, savings and loan associations or other financial institutions
providing for checking accounts, safe deposit boxes, borrowing arrangements, and
certificates of deposit or otherwise, indicating in each case account numbers,
if applicable, and the person or persons authorized to act or sign on behalf of
the Company in respect of any of the foregoing.
Section 4.30 FULL DISCLOSURE. No representation or warranty made
by Principal Holders, the Company or its Subsidiary in this Agreement, nor any
document, exhibit, statement, certificate or schedule furnished by Principal
Holders, the Company or any Subsidiary to Acquisition in connection with the
Merger, contains any untrue statement of fact or omits to state any fact
necessary in order to make the statement contained herein not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
Acquisition hereby represents and warrants to the Company and
Principal Holders as follows, except as otherwise set forth on the Disclosure
Schedule, which representations and warranties are, as of the date hereof, and
will be, as of the Closing Date, true and correct:
Section 5.1 CORPORATE ORGANIZATION. Acquisition is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware with full corporate power and authority to conduct its
business as it is presently being conducted and to own and lease its properties
and assets. Acquisition is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
its properties owned or leased or the nature of its activities make such
qualification necessary, except where the failure to be so qualified or in good
standing would not have a material adverse effect on its business.
Section 5.2 AUTHORIZATION. Acquisition has all requisite
corporate power and authority, and has taken all corporate action necessary, to
execute and deliver this Agreement and the Ancillary Agreements, to consummate
the Merger and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the Ancillary Agreements by
Acquisition and the consummation by Acquisition of the Merger duly approved by
the board of directors and shareholders of Acquisition. No other corporate
proceedings on the part of Acquisition are necessary to authorize this Agreement
and the Ancillary Agreements and the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by Acquisition and
is, and upon execution and delivery of the Ancillary Agreements will be, legal,
valid and binding obligations of Acquisition enforceable against it in
accordance with its terms.
Section 5.3 NO CONFLICT OR VIOLATION. Neither the execution,
delivery or performance of this Agreement nor the consummation of the
transactions contemplated hereby, nor compliance by Acquisition with any of the
provisions hereof, violates any provision of, or will result in the breach of,
any applicable law, rule or regulation of any governmental body, the certificate
of incorporation, bylaws or other organizational documents of Acquisition, or
any agreement, indenture or other instrument to which Acquisition is a party or
by which Acquisition may be bound, or of any order, judgment or decree
applicable to any of them, or terminate or result in the termination of any such
agreement, indenture or instrument, or constitute any event which, after notice
or lapse of time or both, would result in any such violation, breach,
acceleration, termination or result in a violation or revocation of any required
license, permit or approval from any government or other third party.
Section 5.4 GOVERNMENTAL AUTHORITIES; CONSENTS. Assuming the
truth and completeness of the representations and warranties of the Company and
Principal Holders contained in this Agreement, no consent, approval or
authorization of, or designation, declaration
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or filing with, any governmental authority or other third party is required
on the part of Acquisition respect to Acquisition's execution or delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (a) applicable requirements of the HSR Act, (b) any novations or
consents required in connection with Government Contracts or subcontracts
thereunder, (c) any filings required under the DOD Industrial Security Manual
for Safeguarding Classified Information, (d) any filings required under U.S.
Export Control Laws.
Section 5.5 BROKERS' FEES. No broker, finder, investment banker
or other Person is entitled to any brokerage fee, finders' fee or other
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by Acquisition or any of its Affiliates.
Section 5.6 SOPHISTICATED INVESTOR. Acquisition is a
sophisticated investor, represented by independent legal counsel. Acquisition
has carefully reviewed the representations concerning the Company contained in
this Agreement and has made detailed inquiry concerning the Company, its
business and its personnel. The officers of the Company have caused to be made
available to Acquisition any and all written information that it has requested
and have answered to Acquisition's satisfaction any and all inquiries made by
Acquisition.
ARTICLE VI
COVENANTS OF COMPANY AND PRINCIPAL HOLDERS
Section 6.1 CONDUCT OF BUSINESS.
(a) From the date hereof through the Closing Date, Principal
Holders agree that they shall, and shall cause the Company and its Subsidiary,
except as otherwise specifically and expressly contemplated by this Agreement or
as consented to by Acquisition in writing (which consent or denial of consent
shall not be unreasonably delayed), to operate the Business in the ordinary
course and consistent with past practice and not to take any action inconsistent
with this Agreement. Without limiting the generality of the foregoing, unless
consented to by Acquisition in writing, Principal Holders shall cause the
Company and its Subsidiary not to, except as contemplated by this Agreement and
as listed on SCHEDULE 6.1:
(i) change or amend their articles of incorporation, bylaws or
other organizational documents;
(ii) declare or pay any dividends, or make any distributions in
respect of any shares of its capital stock or other equity interests, or
repurchase or redeem any issued and outstanding shares of its capital stock or
other equity interests;
(iii) issue any shares of capital stock of the Company or equity
interest (including, without limitation, any options or warrants);
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(iv) enter into, extend, materially modify, terminate or renew
any Contract of a type required to be listed on SCHEDULE 4.11;
(v) sell, assign, transfer, convey, lease or otherwise
dispose of any interest in the Real Property or any other material asset;
(vi) except as otherwise required by law or consistent with
past practices, take any action with respect to the grant of any severance or
termination pay (otherwise than pursuant to policies or agreements of the
Company or its Subsidiary as the case may be, in effect on the date hereof);
(vii) make any change in the key management structure of the
Company or its Subsidiary, including, without limitation, the hiring of
additional officers or the terminations of existing officers, other than in the
ordinary course of business;
(viii) acquire by merger or consolidation with, or merge or
consolidate with, or purchase substantially all of the assets of, or otherwise
acquire any material assets or business of any corporation, partnership,
association or other business organization or division thereof, including the
proposed acquisition of certain assets of Analex Corporation by the Company.
(ix) make any material loans or advances to any Person;
(x) make any material income Tax elections that could
affect the Surviving Company or its Subsidiary after the Closing;
(xi) agree to any material adjustments proposed in connection
with any Tax audit or examination that would affect the Company or its
Subsidiary; or
(xii) make any material change in its accounting policies or
practices;
(xiii) make any capital expenditure in excess of $20,000;
(xiv) waive, settle or release any claim or cause of action of
the Company or its Subsidiary;
(xv) enter into any agreement, or otherwise become obligated,
to do any action prohibited hereunder;
(xvi) except for transfers of life insurance policies to each of
the respective Principal Holders, declare or issue any bonus or other payments,
whether or not in the ordinary course of business, to any management or
executive employees of Company or its Subsidiaries; or
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(xvii) enter into, extend, materially modify, terminate or renew
any Employee Plan of the type required to be listed on SCHEDULE 4.17.
(b) The Company and Principal Holders agree that, prior to the
Closing, they shall cause the Company and its Subsidiary to use their best
efforts to preserve substantially intact the business organization of the
Business, keep available to Acquisition the services of the key employees of the
Company and its Subsidiary employed in the Business and preserve the current
relationships of the Company and its Subsidiary with the material customers and
suppliers of, and other persons which have significant business relationships
with, the Business.
Section 6.2 HSR ACT. In connection with the transactions
contemplated by this Agreement, the Company and Principal Holders have (and, to
the extent required, have caused their Affiliates to) complied with the
notification and reporting requirements of the HSR Act and have obtained early
termination of the waiting period under the HSR Act. The Company and Principal
Holders shall (and, to the extent required, shall cause their Affiliates to)
have substantially complied with any additional requests for information,
including requests for production of documents and production of witnesses for
interviews or depositions, by any Antitrust Authority. A copy of the letter
from the Federal Trade Commission granting early termination is attached hereto
as SCHEDULE 6.2.
Section 6.3 NO SOLICITATIONS. From the date hereof through the
Closing Date, the Company and Principal Holders shall not, and shall not
knowingly permit any of their respective Affiliates, officers, directors,
employees, representatives and agents to, directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, or provide
any information to, any Person or group of Persons (other than Acquisition or
any of its Affiliates) concerning any merger, sale of assets, sale of shares of
capital stock or similar transactions involving the Company or its Subsidiary or
division of the Company or its Subsidiary. The Company and Principal Holders
shall (a) immediately notify Acquisition (orally and in writing) if any
discussions or negotiations are sought to be initiated, any inquiry or proposal
is made, any information is requested with respect to the Merger or any offer is
made with respect to the Company, its Subsidiary, any Real Property, or any
Shares, (b) include in such notification the terms of any such proposal or offer
that it may receive with respect thereto (and provide Acquisition with a copy
thereof in writing), including the identity of the soliciting party and (c) keep
Acquisition informed with respect to the status of the foregoing.
Section 6.4 NOTICE TO ACQUISITION. The Company and Principal
Holders will promptly notify Acquisition of any circumstance, event or action by
any Principal Holder or otherwise, that causes any statement made by Principal
Holders in this Agreement to be inaccurate or incomplete or that may result in a
breach of this Agreement by the Company or any Principal Holder.
Section 6.5 CONSENTS; REASONABLE EFFORT; COOPERATION. Unless
waived specifically in writing by Acquisition, the Company and Principal Holders
will obtain in writing any consents listed on SCHEDULE 4.22 of any Governmental
Authority or other third party
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necessary for the consummation of the Transactions. Acquisition shall
cooperate with Principal Holders in connection with Principal Holders'
efforts to obtain the consent required by this Section.
Section 6.6 ESTOPPEL CERTIFICATES. The Company and Principal
Holders will obtain estoppel certificates (each an "ESTOPPEL CERTIFICATE") from
the parties to the Contracts listed on SCHEDULE 6.6 certifying that (a) such
Contract is a valid agreement of the parties thereto and in full force and
effect, (b) such Contract has not been amended, modified, supplemented or
extended except as disclosed to Acquisition, (c) no known breach or default or
known event which, with the passage of time or notice, or both, would constitute
a material breach or default under such Contract has occurred and is continuing
and (d) the consummation of the Merger shall not materially impair the rights of
the Company or its Subsidiary under such Contract.
Section 6.7 INSPECTIONS. Prior to the Closing, the Company and
Principal Holders shall provide Acquisition and its representatives (including,
without limitation, its engineers, surveyors, attorneys and accountants) access
at all reasonable times to the Real Property and other assets of the Company and
its Subsidiary. At all times prior to Closing, Acquisition and its
representatives, upon reasonable notice to the Company shall have the right to
have access to the Company's or its Subsidiary's employees, agents and
representatives to review all books and records of Company and its Subsidiary,
including all the Real Estate Records, to enter onto the Real Property, and to
inspect, examine and survey the Real Property; PROVIDED that such access shall
be had in such a manner so as not to unreasonably interfere with the conduct of
the Business.
Section 6.8 EMPLOYEE BENEFIT PLANS. Principal Holders shall
prevent the Company, its Subsidiary and any Welfare Plan or Pension Plan, or
trust created thereunder, from engaging in any "prohibited transaction" (as such
term is defined in Section 406 of ERISA), and prevent the Company or its
Subsidiary from (a) terminating any Pension Plan in a manner that results in the
imposition of a lien on any property of the Company or its Subsidiary pursuant
to Section 4068 of ERISA or (b) take any action that adversely affects the
qualification of any Employee Plan or its compliance with the applicable
requirements of ERISA or the Code or results in a "reportable event" (as such
term is defined in Section 4043(b) of ERISA).
Section 6.9 STOCKHOLDER APPROVAL. The Company shall promptly call
and convene, a special meeting of its stockholders (the "COMPANY STOCKHOLDERS'
MEETING") on or prior to May 1, 1997 to obtain all approvals of its stockholders
required in connection with the transactions contemplated by this Agreement, or,
in lieu thereof, shall obtain, on or prior to May 1,, 1997, any such approval by
the written consent of its stockholders as provided in Section 3-105 of the
MGCL, and shall, through its board of directors, recommend to its stockholders
approval of the Merger at the Company Stockholders' Meeting or by written
consent, as the case may be. Approval of this Agreement by the stockholders of
the Company shall not restrict the ability of the Board of Directors of the
Company thereafter to cause the Company to enter into an amendment to this
Agreement pursuant to SECTION 12.11 hereof. Prior to the vote of the Company's
stockholders with respect to the Merger, the Company and Principal Holders will
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cause the Designated Holders to be the sole holders of equity securities in the
Company, including, without limitation, common stock and option agreements to
acquire common stock of the Company. The Company and Principal Holders shall
cause the Merger and the transactions contemplated hereby, including, without
limitation, the issuance of the Notes and the Contingent Payment rights to
comply with all applicable securities laws. The Company and Principal Holders
agree to cause this Agreement to be approved by Holders. The Principal Holders
agree to vote in favor of the Merger.
ARTICLE VII
COVENANTS OF ACQUISITION
Section 7.1 [This Section Intentionally Omitted.]
Section 7.2 NOTICE TO COMPANY. Acquisition will promptly notify
the Company of any circumstance, event or action by Acquisition that causes any
statement made by Acquisition in this Agreement to be inaccurate or incomplete
in any material respect or that may result in a breach of this Agreement by
Acquisition.
ARTICLE VIII
COVENANTS OF THE COMPANY, PRINCIPAL HOLDERS AND ACQUISITION
Section 8.1 CONFIDENTIALITY.
(a) Except (i) for any governmental filings required in order to
complete the Transactions, and (ii) as Acquisition, the Company and Principal
Holders may agree or consent in writing, all information received by
Acquisition, the Company or Principal Holders and their respective
representatives pursuant to the terms of this Agreement shall be kept in
confidence by the receiving party and its representatives; PROVIDED, HOWEVER,
that any party hereto may disclose such information to its legal and financial
advisors, lenders, financing sources and their respective legal advisors and
representatives so long as such Persons agree to maintain the confidentiality of
such information in accordance with this SECTION 8.1. If the transactions
contemplated hereby shall fail to be consummated, all copies of documents or
extracts thereof containing information and data as to one of the other parties,
including all information prepared by the receiving party or such receiving
party's representatives, shall be turned over to the party furnishing same,
except that such information prepared by the receiving party or such receiving
party's representatives may be destroyed at the option of the receiving party,
with notice of such destruction (or return) to be confirmed in writing to the
disclosing party. Any information not so destroyed (or returned) will remain
subject to these confidentiality provisions (notwithstanding any termination of
this Agreement) until the second anniversary of the date of this Agreement.
(b) The foregoing confidentiality provisions shall not apply to
such portions of the information received which (i) are or become generally
available to the public through no
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action by the receiving party or by such party's representatives or (ii) are
or become available to the receiving party on a nonconfidential basis from a
source, other than the disclosing party or its representatives, which the
receiving party believes, after reasonable inquiry, is not prohibited from
disclosing such portions to it by a contractual, legal or fiduciary
obligation, and shall not apply to any disclosure by Acquisition or the
Company after the Closing.
Section 8.2 BOOKS AND RECORDS.
(a) ACCESS. The Company and Principal Holders agree that they will
cooperate with and make available to Acquisition, its representatives and
agents, during normal business hours, all books and records information and
personnel (without substantial disruption of the other party's business)
retained and remaining in existence after the Closing which are necessary or
useful in connection with any tax inquiry, audit, investigation or dispute, any
litigation or investigation or any other matter requiring any such books and
records, information or employees for any reasonable business purpose not
adverse to the Company.
(b) COOPERATION AND RECORDS RETENTION. The Company and Principal
Holders shall (a) provide Acquisition with such assistance as may reasonably be
requested by in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for any taxes, (b) provide Acquisition with any records or
other information that may be relevant to such return, audit or examination,
proceeding or determination, and (c) provide Acquisition with any final
determination of any such audit or examination, proceeding, or determination
that affects any amount required to be shown on any tax return of the other for
any period. Without limiting the generality of the foregoing, the Company and
Principal Holders shall each retain, until the applicable statutes of
limitations (including any extensions) have expired, copies of all tax returns,
supporting work schedules, and other records or information that may be relevant
to such returns for all tax periods or portions thereof ending on or before the
Closing Date.
Section 8.3 SUPPORT OF TRANSACTIONS. Acquisition, the Company,
and their respective Affiliates shall each (i) use its reasonable best efforts
to assemble, prepare and file any information (and, as needed, to supplement
such information) as may be reasonably necessary to obtain as promptly as
practicable all governmental and regulatory consents required under
ARTICLE VIII, (ii) use its reasonable best efforts to obtain all material
consents and approvals of third parties that any of Acquisition, the Company,
or their respective Affiliates are responsible to obtain in order to consummate
the Merger, (iii) take such other action as may reasonably be necessary or as
another party may reasonably request to satisfy the conditions of ARTICLE IX or
otherwise to comply with this Agreement, and (iv) provide the other parties and
such other party's employees, officers, accountants, lawyers, financial advisors
and other representatives with access to its personnel, properties, business and
records under all reasonable circumstances.
Section 8.4 [This Section Intentionally Omitted.]
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Section 8.5 NOTICE OF CHANGES BY THE COMPANY. The Company shall
promptly inform Acquisition in writing if any change shall have occurred or
shall have been threatened (or any development or condition shall have occurred
or shall have been threatened involving a prospective change) in the financial
condition, results of operations or business of the Company and its Subsidiary
that is or may reasonably be expected to become materially adverse to the
Company and its Subsidiary taken as a whole. The Company shall promptly inform
Acquisition in writing if any representation or warranty made in ARTICLE II of
this Agreement shall cease to be accurate in any material respect.
Section 8.6 NOTICE OF CHANGES BY ACQUISITION. Acquisition shall
promptly inform the Company in writing if any change shall have occurred or
shall have been threatened (or any development or condition shall have occurred
or shall have been threatened involving a prospective change) in the financial
condition, results of operations or business of Acquisition that is or may
reasonably be expected to become materially adverse to Acquisition and its
business, taken as a whole. Acquisition shall promptly inform the Company in
writing if any representation or warranty made in ARTICLE III of this Agreement
shall cease to be accurate in any material respect.
Section 8.7 DISSENTING STOCKHOLDERS. The Company shall give
Acquisition (a) prompt notice of any demands received from Dissenting
Stockholders, if any, for payment of the fair value for their shares of capital
stock and (b) the opportunity to participate in all negotiations and proceedings
with respect to any such demands.
Section 8.8 PROVISION OF SCHEDULES AND ANNEXES. The parties agree
to cooperate with one another in good faith to agree upon the form and substance
of all Schedules and Annexes hereto, within ten (10) Business Days after the
date hereof (or such later date that the parties may agree upon). In the event
such Schedules and Annexes shall have been agreed upon within such time period,
they shall be initialed and attached hereto and become part of this Agreement as
of the date hereof. In the event the parties are unable to reach agreement as
to the form and substance of such Schedules and Annexes, then this Agreement may
be terminated pursuant to SECTION 10.1(d) hereof.
Section 8.9 1996 FINANCIAL STATEMENTS. The Company and Principal
Holders shall deliver to Acquisition the audited consolidated financial
statements of the Company and its Subsidiary for the year ended and at December
31, 1996 (the "1996 AUDITED FINANCIAL STATEMENTS") as soon as they become
available and in no event later than April 19, 1997. In the event the 1996
Audited Financial Statements shall not be satisfactory in form and substance to
Acquisition in its sole discretion, Acquisition shall have the right to
terminate this Agreement pursuant to SECTION 10.1(b). There shall be no
presumption that the 1996 Audited Financial Statements will be satisfactory to
Acquisition if they do not vary materially from the draft of such financial
statements provided to Acquisition on April 3, 1997.
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ARTICLE IX
CONDITIONS TO OBLIGATIONS
Section 9.1 CONDITIONS TO OBLIGATIONS OF ACQUISITION, THE COMPANY
AND PRINCIPAL HOLDERS. The obligations of Acquisition, the Company and
Principal Holders to consummate, or cause to be consummated, the Merger are
subject to the satisfaction of the following conditions, any one or more of
which may be waived in writing by such parties:
(a) All necessary permits, approvals, clearances, and consents of,
and all filings with, Governmental Authorities required to be procured which are
listed on SCHEDULE 4.22 shall have been procured.
(b) There shall not be in force any order or decree, statute, rule
or regulation nor shall there be on file any complaint by a Governmental
Authority seeking an order or decree, restraining, enjoining or prohibiting the
consummation of the Merger and neither of Acquisition nor the Company shall have
received notice from any Governmental Authority that it has determined to
institute any suit or proceeding to restrain or enjoin the consummation of the
Merger or to nullify or render ineffective this Agreement if consummated, or to
take any other action which would result in the prohibition or a material change
in the terms of the Merger.
(c) This Agreement and the Merger shall have been approved and
adopted by the requisite vote or consent of the stockholders of the Company
required by the MGCL.
Section 9.2 CONDITIONS TO OBLIGATIONS OF ACQUISITION. The
obligations of Acquisition to consummate, or cause to be consummated, the Merger
are subject to the satisfaction of the following additional conditions, any one
or more of which may be waived in writing by Acquisition:
(a) Each of the representations and warranties of the Company and
Principal Holders contained in this Agreement shall be true and correct in all
material respects both on the date hereof and as of the Closing, as if made anew
at and as of that time, and each of the covenants and agreements of the Company
and Principal Holders to be performed as of or prior to the Closing shall have
been duly performed in all material respects.
(b) The Company shall have delivered to Acquisition a certificate
signed by each of the Principal Holders and an officer of the Company dated as
of the Closing Date, certifying that the conditions specified in SECTION 9.1, as
they relate to the Company and Principal Holders, and SECTION 9.2(a) have been
fulfilled.
(c) Any consent required for the consummation of the Merger under
any Contract required to be listed on SCHEDULE 4.11 hereto or for the continued
enjoyment by the
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Company or its Subsidiary of the benefits of any such Contract after the
Closing shall have been obtained.
(d) There shall not have occurred any Material Adverse Effect.
(e) All Persons who are directors or officers of the Company shall
have resigned such directorships or offices, effective as of the Closing Date.
(f) Acquisition shall have received an opinion, dated as of the
Closing Date, from counsel to the Company, in the form of ANNEX E hereto.
(g) Principal Holder and the Company shall not have been informed
by any of the customers of the Company that such customer will terminate or
modify in any material respect its existing contractual relationship with the
Company and/or its Subsidiary after the Closing Date as a result of the
consummation of the Merger.
(h) The Company and Principal Holders shall have delivered all
assignments, consents, approvals and other documents, certificates and
instruments as Acquisition may reasonably request for the purpose of
(i) evidencing the accuracy and completeness of any of the representations,
warranties or statements, the performance of any covenants or agreements of the
Company or the compliance by the Company with any of the conditions, all as
contained or referred to in this Agreement or (ii) effectuating or confirming
the consummation of the Merger.
(i) Acquisition shall have received possession or control of all
corporate, accounting, business and tax records of the Company and its
Subsidiary.
(j) The form and substance of all actions, proceedings,
instruments and documents required to consummate the Merger shall be
satisfactory in all reasonable respects to Acquisition and its counsel.
(k) Azmat Ali shall have entered into a Non-Disclosure and Non-
Solicitation Agreement in the form attached hereto as ANNEX F.
(l) Peter Belford, Guion Bluford and Arthur Verbin shall have
entered into an Employment Agreement in the form attached hereto as ANNEX G.
(m) Acquisition shall have received a true and complete copy,
certified by the Secretary or an Assistant Secretary (or similar officer) of the
Company of the resolutions duly and validly adopted by the Board of Directors of
the Company evidencing its authorization of the execution and delivery of this
Agreement and the consummation of the Merger.
(n) Principal Holders shall have delivered the Estoppel
Certificates from the parties to the Contracts listed on SCHEDULE 6.6 to
Acquisition.
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(o) At the Effective Time, the aggregate number of shares of the
Company Common Stock held by Dissenting Stockholders, if any, shall not exceed
five percent of the total number of shares of the Company Common Stock then
outstanding.
(p) Principal Holders shall cause any and all Tax sharing, Tax
allocation and similar agreements among any of Holders, the Company or its
Subsidiary to be terminated immediately prior to Closing.
(q) The protest of the NASA Langley SAERS Contract shall have been
denied or dismissed with prejudice and shall have been officially awarded for
the scope and value previously represented by the Company to Acquisition and all
impediments to, or suspensions of, performance based on such protest have been
lifted.
(r) Company and Principal Holders shall have delivered audited
financial statements (including footnotes) of the Company and its Subsidiary for
the year ended December 31, 1996 and shall be in form and substance reasonably
satisfactory to Acquisition in its sole discretion.
Section 9.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
PRINCIPAL HOLDERS. The obligation of the Company and Principal Holders to
consummate the Merger is subject to the satisfaction of the following additional
conditions, any one or more of which may be waived in writing by the Company and
Principal Holders:
(a) Each of the representations and warranties of Acquisition
contained in this Agreement shall be true and correct in all material respects
both on the date hereof and as of the Closing, as if made anew at and as of that
time, and each of the covenants and agreements of Acquisition to be performed as
of or prior to the Closing shall have been duly performed in all material
respects.
(b) Acquisition shall have delivered to the Company a certificate
signed by an officer of Acquisition, dated as of the Closing Date, certifying
that, the conditions specified in SECTION 9.1, as they relate to Acquisition,
and SUBSECTION 9.3(a) have been fulfilled.
(c) The form and substance of all actions, proceedings,
instruments and documents required to consummate the Merger shall be
satisfactory in all reasonable respects to the Company and their counsel.
(d) The Company shall have received a true and complete copy,
certified by the Secretary or an Assistant Secretary (or similar officer) of
Acquisition, of the resolutions duly and validly adopted by the Board of
Directors of Acquisition evidencing its authorization of the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
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ARTICLE X
TERMINATION
Section 10.1 TERMINATION. This Agreement may be terminated and the
Transactions abandoned:
(a) By mutual written consent of the parties at any time prior to
the Closing.
(b) Prior to the Closing, by written notice to the Company and the
Holder Representative from Acquisition, (i) pursuant to SECTION 11.1, (ii) if
the Closing has not occurred on or before June 1, 1997 and Acquisition is not in
material breach of a representation, warranty, covenant or agreement, (iii) if
consummation of the Merger is enjoined, prohibited or otherwise restrained by
the terms of a final, non-appealable order or judgment of a court of competent
jurisdiction, (iv) if the 1996 Audited Financial Statements are not satisfactory
to Acquisition in its sole discretion, or (v) this Agreement and the Merger
shall fail to receive the requisite votes for approval and adoption (or
consents) by the stockholders of the Company.
(c) Prior to the Closing, by written notice to Acquisition from
the Company and the Holder Representative, (i) pursuant to SECTION 11.1, (ii) if
the Closing has not occurred on or before June 1, 1997 and neither Principal
Holders nor the Company are in material breach of their representations,
warranties, covenants or agreements or (iii) if consummation of the Merger is
enjoined, prohibited or otherwise restrained by the terms of a final, non-
appealable order or judgment of a court of competent jurisdiction.
(d) Prior to the Closing, by written notice either (i) to the
Company and the Holder Representative from Acquisition or (ii) to Acquisition
from the Company and the Holder Representative, in the event that the form and
substance of the Schedules and Annexes hereto shall not have been agreed upon
within the time period specified in SECTION 8.8.
Section 10.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement pursuant to SECTION 10.1, this Agreement shall forthwith become
void and have no effect, without liability on the part of any party hereto or
their respective Affiliates, officers, directors or stockholders, other than
(solely in the case of termination pursuant to SECTION 10.1(a), (b) or (c))
liability of Principal Holders, the Company or Acquisition as the case may be,
for any misrepresentation contained in, or any breach of this Agreement
occurring prior to such termination. The provisions of SECTION 10.1, this
SECTION 10.2 and ARTICLE XI shall survive any termination of this Agreement.
ARTICLE XI
DEFAULT AND REMEDIES
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Section 11.1 BREACH AND OPPORTUNITY TO CURE. If any party shall
breach the terms of this Agreement or default in the performance of its
obligations hereunder, nondefaulting party shall have the right to provide the
defaulting party with notice specifying in reasonable detail the nature of such
breach or default. If such breach or default has not been cured by the earlier
of (a) the Closing Date and (b) thirty (30) calendar days after delivery of such
notice, then the party giving such notice may (i) terminate this Agreement by
giving written notice to the defaulting party hereunder, (ii) extend the Closing
Date if such default has not been cured by the Closing Date (but no such
extension shall constitute a waiver of such nondefaulting party's right to
terminate as a result of such default), (iii) exercise the remedies available to
such party pursuant to SECTION 11.2 or 11.3, subject to the right of the other
party to contest such action through appropriate proceedings, and/or (iv)
proceed to Closing, but such Closing shall not constitute a waiver of such
breach or default.
Section 11.2 COMPANY'S AND PRINCIPAL HOLDERS' REMEDIES.
Acquisition recognizes that if the Merger is not consummated solely as a result
of Acquisition's default, the Company and Principal Holders would incur damages,
the extent of which is extremely difficult and impractical to ascertain. The
parties, therefore, agree that if this Agreement is terminated or otherwise is
not consummated solely due to the default of Acquisition, Acquisition shall pay
to the Holder Representative One Million Dollars ($1,000,000) for the ratable
benefit of Holders, as liquidated damages, as Company's and Principal Holders'
sole and exclusive remedy in full settlement of any damages of any nature or
kind that such parties may suffer or allege to suffer as the result of any
default or breach by Acquisition. The parties agree that this sum shall be in
lieu of any and all other relief to which the Company or the Principal Holders
might otherwise be entitled due to Acquisition's breach of, or default under,
this Agreement. FDC agrees to guarantee the payment by Acquisition of such
liquidated damages amount.
Section 11.3 ACQUISITION'S REMEDIES. Principal Holders and the
Company agree that the Shares represent unique property that cannot be readily
obtained on the open market and that Acquisition would be irreparably injured if
this Agreement is not specifically enforced after default. Therefore,
Acquisition shall have the right to specifically enforce Principal Holders' and
the Company's performance under this Agreement, and Principal Holders and the
Company agree to waive, and cause each other to waive, the defense in any such
suit that Acquisition has an adequate remedy at law and to interpose no
opposition, legal or otherwise, as to the propriety of specific performance as a
remedy, and that Acquisition shall have the right to obtain specific performance
of the terms of this Agreement without being required to prove actual damages,
post bond or furnish other security. In addition, Acquisition shall be entitled
to obtain from Principal Holders and the Company court costs and reasonable
attorneys' fees incurred by Acquisition in enforcing its rights hereunder. As a
condition to seeking specific performance, Acquisition shall not be required to
have tendered the Cash Consideration, but shall be ready, willing and able to do
so. In the event Acquisition elects to terminate this Agreement as a result of
Principal Holders' or the Company's default instead of seeking specific
performance, then Acquisition shall be entitled to a return of the Escrow
Payment and to recover its damages resulting from Principal Holders or the
Company's default, plus reasonable attorneys' fees and court costs incurred by
Acquisition in enforcing its rights under this Agreement.
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ARTICLE XII
HOLDER REPRESENTATIVE
Section 12.1 DESIGNATION AND REPLACEMENT OF HOLDER
REPRESENTATIVE. The parties have agreed that it is desirable to designate a
representative to act on behalf of Principal Holders (the "HOLDER
REPRESENTATIVE"). The parties have designated Peter Belford as the initial
Holder Representative, and approval of this Agreement by Principal Holders shall
constitute ratification and approval of such designation. The Holder
Representative may resign at any time, and the Holder Representative may be
removed by the vote of Persons which collectively owned more than fifty percent
(50%) of the Shares at the Closing ("MAJORITY PRINCIPAL HOLDERS"). In the event
that a Holder Representative has resigned or been removed, a new Holder
Representative shall be appointed by a vote of Majority Principal Holders, such
appointment to become effective upon the written acceptance thereof by the new
Holder Representative.
Section 12.2 AUTHORITY AND RIGHTS OF HOLDER REPRESENTATIVE;
LIMITATIONS ON LIABILITY. The Holder Representative shall have such powers and
authority as are necessary to carry out the functions assigned to it under this
Agreement; PROVIDED, HOWEVER, that the Holder Representative will have no
obligation to act on behalf of Principal Holders, except as expressly provided
herein. Without limiting the generality of the foregoing, the Holder
Representative shall have full power, authority and discretion to exercise the
rights granted to it under the Escrow Agreement and to act on behalf of all the
Holder Indemnitees pursuant to SECTION 13.1 hereof. The Holder Representative
will have no liability to the Company or Principal Holders with respect to
actions taken or omitted to be taken in its capacity as Holder Representative,
except with respect to the Holders' Representative gross negligence or willful
misconduct. The Holder Representative will at all times be entitled to rely on
any directions received from the Majority Principal Holders; PROVIDED, HOWEVER,
that the Holder Representative shall not be required to follow any such
direction, and shall be under no obligation to take any action in its capacity
as Holder Representative. The Holder Representative shall be entitled to engage
such counsel, experts and other agents and consultants as it shall deem
necessary in connection with exercising its powers and performing its function
hereunder and (in the absence of bad faith on the part of Principal Holder
Representative) shall be entitled to conclusively rely on the opinions and
advice of such Persons. Holder Representative shall be entitled to
reimbursement, from Principal Holders for all reasonable expenses, disbursements
and advances (including fees and disbursements of its counsel, experts and other
agents and consultants) incurred by the Holder Representative in such capacity,
and for indemnification against any loss, liability or expenses arising out of
actions taken or omitted to be taken in its capacity as Holder Representative
(except for those arising out of the Holder Representative's gross negligence or
willful misconduct), including the costs and expenses of investigation and
defense of claims.
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ARTICLE XIII
POST CLOSING OBLIGATIONS; SURVIVAL OF REPRESENTATION
The parties covenant and agree as follows with respect to the period
subsequent to the Closing Date:
Section 13.1 INDEMNIFICATION.
13.1.1 ACQUISITION'S RIGHT TO INDEMNIFICATION. The Company and
Principal Holders, jointly and severally, undertake and agree to indemnify,
defend by counsel reasonably acceptable to Acquisition, and hold harmless
Acquisition, its parent, affiliates, successors and assigns and their respective
directors, officers, employees, shareholders, representatives and agents
(hereinafter referred to collectively as "ACQUISITION INDEMNITEES") from and
against and in respect of any and all losses, costs, liabilities, claims,
obligations, diminution in value and out-of-pocket expenses, including
reasonable attorneys' fees (together "CLAIMS"), incurred or suffered by an
Acquisition Indemnitee arising from (a) the claims of third parties with respect
to operation of the Business and the Company prior to Closing; (b) a breach,
misrepresentation, or other violation of any of the Company's or Principal
Holders' covenants, warranties or representations contained in this Agreement;
(c) any breach or default by the Company or Principal Holders under any Contract
prior to Closing; (d) any Environmental Noncompliance under SECTION 4.20; (e)
any Securities Law Noncompliance; and (f) any and all actions, suits,
proceedings, claims demands, assessments, judgments, costs and expenses,
including reasonable attorney fees, incident to any of the foregoing or incurred
or to oppose the imposition thereof, or in enforcing this indemnity; together
with interest at the Prime Rate (as defined below) on any such Claim from the
date of incurrence by Acquisition until the date of reimbursement by the Company
or Principal Holders; provided, however, that interest shall accrue with respect
to third party claims from the date of payment of such claims until the date of
satisfaction in full of all indemnification obligations with respect thereto.
"PRIME RATE" shall mean the prime rate as published in the Money Rates column of
the Eastern Edition of the WALL STREET JOURNAL (or the average of such rates if
more than one rate is indicated), in effect on the date of incurrence of such
Claim. The foregoing indemnity is intended by Principal Holders to cover all
acts, suits, proceedings, claims, demands, assessments, adjustments, diminution
in value, costs, and expenses with respect to any and all of the specific
matters in this indemnity set forth.
13.1.2 PRINCIPAL HOLDERS' RIGHT TO INDEMNIFICATION. Acquisition
undertakes and agrees to indemnify, defend by counsel reasonably acceptable to
Principal Holders and hold harmless Principal Holders, their employees,
representatives and agents (hereinafter referred to collectively as "HOLDER
INDEMNITEES") from and against and in respect of any and all Claims incurred or
suffered after Closing; (a) a breach, misrepresentation, or other violation of
any of Acquisition's covenants, warranties and representations contained in this
Agreement; (b) any breach or default by Acquisition under any Ancillary
Agreement or Contract after Closing; and (c) any and all actions, suits,
proceedings, claims, demands, assessments, judgments, costs and expenses,
including reasonable attorney fees, incident to any of the foregoing or incurred
or to
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oppose the imposition thereof; together with interest at the Prime Rate on
any such claim from the date of incurrence by Principal Holders to the date of
reimbursement by Acquisition. The foregoing indemnity is intended by
Acquisition to cover all acts, suits, proceedings, claims, demands, assessments,
adjustments, costs, and expenses with respect to any and all of the specific
matters in this indemnity set forth.
13.1.3 LIMITATION ON INDEMNIFICATION OBLIGATIONS. No Holder
Indemnitees shall be entitled to indemnification for any Losses or Damages for
which they would otherwise be entitled to indemnification pursuant to this
SECTION 13.1 unless and until the aggregate amount of all Losses and Damages for
which all the Holder Indemnitees are entitled to indemnification exceeds
$400,000, at which time, the Holder Indemnitees shall (subject to the other
limitations set forth in this SECTION 13.1) be entitled to indemnification for
the full amount of all such Losses and Damages. No Acquisition Indemnitees
shall be entitled to indemnification for any Losses and Damages for which it
would otherwise be entitled to indemnification pursuant to this SECTION 13.1
unless and until the aggregate amount of all Losses and Damages for which all
Acquisition Indemnitees are entitled to indemnification exceeds $400,000, at
which time, such Acquisition Indemnitees shall (subject to the other limitations
set forth in this SECTION 13.1) be entitled to indemnification for the full
amount of all such Losses and Damages; PROVIDED, HOWEVER, that such $400,000
threshhold shall not apply to any indemnification obligation of Holder
Indemnitees arising from any Securities Law Noncompliance. Notwithstanding any
provision hereof to the contrary, (i) Acquisition Indemnitees shall not be
entitled to indemnification by Principal Holders for Losses or Damages in excess
of $10,000,000, PLUS interest accrued on such Damages as provided in this
SECTION 13.1, and (ii) Principal Holder Indemnitees shall not be entitled to
indemnification by Surviving Corporation for Losses or Damages in excess of
$10,000,000, PLUS interest accrued on such Damages as provided in this
SECTION 13.1. In addition, each Principal Holder's liability under this
SECTION 13.1 shall not exceed an amount equal to fifty-percent (50%) of the
Merger Consideration payable to such Principal Holder under this Agreement.
13.1.4 TIME PERIOD. The indemnification obligations of Principal
Holders and the Company under this ARTICLE XIII shall continue for the same
period of survival specified in SECTION 13.2 for each such representation and
warranty. Any claim against the Company or Principal Holders which is pending
or asserted at or prior to the expiration of any survival period may continue to
be asserted and indemnified against. Such clause may be asserted
notwithstanding that the scope or amount of such claim shall not have been
finally determined.
13.1.5 CONDUCT OF PROCEEDINGS. If any claim or proceeding covered by
the foregoing agreements to indemnify and hold harmless shall arise (by receipt
of notice of any such claim or proceeding prior to the expiration of the periods
set forth in SECTION 13.2), the party who seeks indemnification (the
"INDEMNIFIED PARTY") shall give written notice thereof to the other party (the
"INDEMNITOR", which, in the case of Principal Holders, shall be the Holder
Representative) promptly after the Indemnified Party learns of the existence of
such claim or proceeding; PROVIDED, HOWEVER, that the Indemnified Party's
failure to give the Indemnitor prompt notice shall not bar the Indemnified
Party's right to indemnification unless such failure
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has materially prejudiced the Indemnitor's ability to defend the claim or
proceeding. The Indemnitor shall have the right to employ counsel reasonably
acceptable to the Indemnified Party to defend against any such claim or
proceeding, or to compromise, settle or otherwise dispose of the same, if the
Indemnitor deems it advisable to do so, all at the expense of the Indemnitor;
PROVIDED that the Indemnitor shall not have the right to control the defense
of any such claim or proceeding unless it has acknowledged in writing its
obligation to indemnify the Indemnified Party fully from all liabilities
incurred as a result of such claim or proceeding and then and periodically
thereafter provides the Indemnified Party with reasonably sufficient evidence
of the ability of the Indemnitor to satisfy any such liabilities. The
parties will fully cooperate in any such action, and shall make available to
each other any books or records useful for the defense of any such claim or
proceeding. If the Indemnitor fails to acknowledge in writing its obligation
to defend against or settle such claim or proceeding within thirty (30)
calendar days after receiving notice thereof from the Indemnified Party (or
such shorter time specified in the notice as the circumstances of the matter
may dictate), the Indemnified Party shall be free to dispose of the matter,
at the expense of the Indemnitor, reasonably and in any way in which the
Indemnified Party deems to be in its best interest; provided, however, that
during such thirty (30) day notice period, the Indemnified Party shall have
the right to take any actions it deems appropriate to preserve its rights and
avoid prejudicing its defenses with regard to such claim or proceeding;
PROVIDED, FURTHER, that if Indemnitor and Indemnified Party agree in advance
that both Indemnitor and Indemnified Party would both share liability with
respect to a claim or proceeding, the Indemnitor and Indemnified Party shall
agree on a joint defense of such claim or proceeding without the requirement
for an advance acknowledgement in writing of Indemnitor's obligation to
indemnify the Indemnified Party fully from all liabilities incurred as a
result of such claim or proceeding.
13.1.6 INDEMNIFICATION SOLE REMEDY. The right to indemnification
hereunder shall be the exclusive remedy of any party in connection with any
breach by another party of its representations, warranties, or covenants set
forth in this Agreement, except in cases of fraud, violations of law (except for
violations of law constitute a breach of SECTION 4.22) or intentional
misconduct.
13.1.7 RIGHT OF OFFSET. Each of Acquisition and Principal Holders
shall have the right to offset against amounts owing to the other any amounts
owing to such party pursuant to this SECTION 13.1.
Section 13.2 SURVIVAL OF REPRESENTATIONS. The representations and
warranties contained herein shall survive for three (3) years after the Closing;
PROVIDED, HOWEVER, that and the representations and warranties made by the
Company and Principal Holders in SECTION 4.12 shall survive until the Company
receives notice of the completion of the 1997 DCAA audit; PROVIDED, FURTHER,
that the representations, warranties and covenants contained herein relating to
Tax matters shall survive for the period set forth in Section 6501(a) plus 90
calendar days, provided that if such period is voluntarily extended, the
representations, warranties and covenants shall survive through the period of
such extension plus 90 calendar days, and provided
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further that matters described in Sections 6501(c)(1)-(9), 6501(e), and
6501(f) shall survive for five years.
Section 13.3 RIGHTS OF SET-OFF. Subject to the restrictions set
forth in SECTION 13.4, any Claims by Acquisition or the Surviving Corporation
against Principal Holders pursuant to SECTION 13.1 above are subject the
following rights of set-off at the option of Acquisition in the following
priority:
(a) First, any payment owed but not yet paid by Acquisition to
Principal Holders pursuant to SUBSECTION 2.5.2 is subject to reduction for any
Claims pursuant to SECTION 13.1 as provided in SUBSECTION 2.5.3 above. Any such
adjustment is intended as, and shall be treated by the parties as, an adjustment
to the Total Consideration.
(b) Second, any Contingent Payments owed but not yet paid by
Acquisition to Principal Holders pursuant to SECTION 2.6 are subject to
reduction for any Claims pursuant to SECTION 13.1 above. Any such adjustment is
intended as, and shall be treated by the parties as, an adjustment to the Total
Consideration.
(c) Third, the principal amount of the Notes is subject to
reduction following the Closing for any Claims pursuant to SECTION 13.1 as
provided in Subsections 2.5.3 above. Any such adjustment is intended as, and
shall be treated by the parties as, an adjustment to the Total Consideration.
If the principal amount of the Notes is reduced pursuant to this SECTION 13.3,
such reduction shall be deemed to be made effective as of the Closing Date and
all interest that may have accrued on the principal amount so cancelled shall
also be deemed to be retroactively cancelled, effective as of the Closing Date.
Upon any reduction of the principal amount of the Notes, Principal Holders
shall, upon request of Acquisition, surrender the outstanding Notes for
replacement Notes reflecting the reduced principal amount.
Section 13.4 RIGHTS OF SET-OFF FOR THIRD PARTY CLAIMS. The rights
of set-off under SECTION 13.3 above with respect to any Claims by Acquisition
against Principal Holders which arise from a third party claim may not be
exercised until the amount of such third party claim has been determined and
payment is due; provided, however, that notwithstanding anything to the contrary
set forth in this Agreement:
(a) In connection with the repayment of the Notes in full, the
Surviving Corporation may withhold from such repayment (and pay into escrow) a
sum equal to the maximum possible amount of any and all third party claims then
outstanding until the same have been determined and payment is due; and
(b) To the extent that any third party claims are asserted by any
government authority or relate to any Government Contract and the relief sought
thereunder exceed $2,000,000 in the aggregate, Surviving Corporation may
withhold the amount by which such claims exceed $2,000,000 from any amounts due
to Principal Holders (including amounts held in the Escrow Agreement and the
Contingent Payment Escrow Agreement).
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Any amounts withheld by Surviving Corporation pursuant to subsections
(a) and (b) above shall be held in escrow until determination of the third party
claims and payment of such claims shall have been made out of such escrow. All
amounts (including interest) remaining in such escrow after payment in full of
such claims shall thereupon be disbursed to the Holder Representative for the
ratable benefit of Principal Holders.
ARTICLE XIV
TAX MATTERS
Section 14.1 INDEMNIFICATION.
14.1.1 (a) Principal Holders shall indemnify and hold harmless
Acquisition and its respective Affiliates, successors and assigns, from and
against all Taxes in excess of reserves for Taxes on the Final Balance Sheet (i)
with respect to all periods of the Company and the Subsidiaries ending on or
prior to the Closing Date, (ii) with respect to any period of the Company and
the Subsidiaries beginning before the Closing Date and ending after the Closing
Date, but only with respect to the portion of such period up to and including
the Closing Date (such portion, a "PRE-CLOSING PARTIAL PERIOD"), or (iii)
payable as a result of a material breach of any representation or warranty set
forth in SECTION 4.21 of this Agreement.
(b) Acquisition shall indemnify and hold harmless Principal
Holders from and against all unpaid Taxes (i) with respect to all periods
beginning after the Closing Date, (ii) with respect to any period of any of the
Company and its Subsidiary beginning before the Closing Date and ending after
the Closing Date, but only with respect to the portion of such period beginning
the day after the Closing Date (such portion, a "POST-CLOSING PARTIAL PERIOD")
or (iii) payable as a result of an election under Section 338(g) and/or any
comparable state election by Acquisition or any of its Affiliates to treat the
Merger for federal and/or state income tax purposes as a purchase of the assets
of the Company.
(c) The amount of indemnity required to be paid by an indemnitor
under this ARTICLE XIV shall be subject to the indemnity threshold and cap
limits set forth in SUBSECTION 13.1.3. Indemnity claims under each of
ARTICLE XIII and XIV shall be counted together in determining whether the
indemnity threshold and cap limits set forth in SECTION 13.1.3 have been met.
For purposes of this SECTION 14.1, Tax or Taxes shall include the amount of
Taxes which would have been paid but for the application of any credit or net
operation or capital loss deduction attributable to periods beginning after the
Closing Date or to any Post-Closing Partial Period, but shall not include
amounts which would have been paid but for the application of any credit or net
operating or capital loss deduction attributable to periods ending on or prior
to the Closing Date or to any Pre-Closing Partial Period.
(d) Any Taxes for a period including a Pre-Closing Partial Period
and a Post-Closing Partial Period shall be apportioned between such Pre-Closing
Partial Period and such Post-Closing Partial Period, based, in the case of real
and personal property Taxes, on a per diem
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basis and, in the case of other Taxes, on the actual activities, taxable
income or taxable loss of the Company and the Subsidiaries during such
Pre-Closing Partial Period and such Post-Closing Partial Period.
(e) Payment by the indemnitor of any amount due under this
SECTION 14.1 shall be made within 30 calendar days following written notice by
the indemnitee that payment of such amounts to the appropriate tax authority
is due, provided that the indemnitor shall not be required to make any payment
earlier than two calendar days before it is due to the appropriate Tax
authority.
(f) The parties agree to treat all payments made under this
SECTION 14.1, under any other indemnity provision contained in this Agreement,
and for any misrepresentations or breach of warranties or covenants, as
adjustments to the Purchase Price for Tax purposes.
14.1.2 (a) After the Closing, the Surviving Corporation shall
promptly notify Principal Holders in writing of the commencement of any Tax
audit or administrative or judicial proceeding or of any demand or claim on the
Surviving Corporation or any Operating Company or Subsidiary which, if
determined adversely to the taxpayer or after the lapse of time, would be
grounds for indemnification under SECTION 14.1. Such notice shall contain
factual information (to the extent known) describing the asserted Tax liability
in reasonable detail and shall include copies of any notice or other document
received from any Tax authority in respect of any such asserted Tax liability.
(b) Principal Holders may elect to direct, through counsel of
their own choosing and at its own expense, any audit, claim for refund and
administrative or judicial proceeding involving any asserted liability with
respect to which indemnity may be sought under SECTION 14.1 (any such audit,
claim for refund or proceeding relating to an asserted Tax liability is referred
to herein as a "CONTEST"). If Principal Holders elect to direct a Contest, it
shall within 30 calendar days of receipt of the notice of asserted Tax liability
notify the Surviving Corporation of its intent to do so, and the Surviving
Corporation shall cooperate and shall cause each Operating Company and
Subsidiary to cooperate in each phase of such Contest and Principal Holders
shall pay the Operating Company's and Subsidiary's out-of-pocket expenses in
connection therewith. If the Principal Holders elect not to direct the Contest,
fail to notify the Surviving Corporation of its election as herein provided or
contests its obligation to indemnify under SECTION 14.1, Surviving Corporation
or relevant Subsidiary may pay, compromise or contest at its own expense, such
asserted liability. However, in such case, neither the Surviving Corporation
nor any Subsidiary may settle or compromise any asserted liability over the
objection of the Principal Holders; PROVIDED, HOWEVER, that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Surviving Corporation may participate, at their own expense, in the Contest. If
the Principal Holders choose to direct the contest, the Surviving Corporation
shall promptly empower and shall cause the relevant Operating Company or
Subsidiary promptly to empower (by power of attorney and such other
documentation as may be appropriate) such representative of Principal Holders as
it may designate to represent the Surviving Corporation and such Operating
Company or Subsidiary in the Contest insofar as the
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Contest involves an asserted Tax liability for which the Principal Holders
would be liable under SECTION 14.1.
14.1.3 The Surviving Corporation shall prepare and file U.S. federal,
state and local income and franchise Tax Returns relating to the Company and its
Subsidiary for any Tax period ending on or after the Closing Date and which are
required to be filed after the Closing Date. The Surviving Corporation shall
deliver to Principal Holders copies of such Tax Returns within 10 calendar days
of the date such Tax Return is filed with the appropriate Tax authority.
14.1.4 (a) The Surviving Corporation and Principal Holders agree to
furnish or cause to be furnished to each other, upon request, as promptly as
practicable, such information (including access to personnel, books and records)
and assistance relating to the Business as is reasonably necessary for the
filing of any Return, for the preparation of any audit, for the prosecution or
defense of any claim relating to any proposed adjustment with respect to Taxes,
for accounting requirements and any reports or documents to be filed with any
regulatory agency or for any other reasonable purpose.
(b) The Surviving Corporation and Principal Holders agree to
retain or cause to be retained all books and records pertinent to the Business
(including the Returns, documents and records relating to the assets and
properties of both) until the applicable period for assessment under applicable
law (giving effect to any and all properly claimed and valid extensions or
waivers) has expired, and to abide by or cause the compliance with all record
retention agreements entered into with any governmental or taxing authority.
(c) The Surviving Corporation and Principal Holders shall
cooperate with each other in the conduct of any audit or other proceedings
involving the Business for any Tax and shall execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
ARTICLE XIV.
(d) Principal Holders will reimburse the Surviving Corporation for
all out-of-pocket-costs which Acquisition may reasonably incur pursuant to this
SECTION 14.1.4 in assisting the Surviving Corporation and the Surviving
Corporation will reimburse Principal Holders for all out-of-pocket-costs which
the Principal Holders may reasonably incur pursuant to this SUBSECTION 14.1.4 in
assisting the Surviving Corporation.
(e)The Surviving Corporation and Principal Holders will, upon
request, provide the other with all information that is required to report
pursuant to Section 6043 of the Code and all Treasury Department Regulations
promulgated thereunder.
14.1.5 For purposes of this ARTICLE XIV, all references to the
Surviving Corporation, the Principal Holders, the Company and its Subsidiary
include successors.
14.1.6 This ARTICLE XIV shall be the exclusive Article governing
indemnity for Tax matters.
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ARTICLE XV
MISCELLANEOUS
Section 15.1 WAIVER. Either party to this Agreement may, at any
time prior to the Closing, waive any of the terms or conditions of this
Agreement; PROVIDED, HOWEVER, any such waiver must be in writing, executed in
the same manner as this Agreement.
Section 15.2 NOTICES. All notices and other communications among
the parties shall be in writing and shall be deemed to have been duly given when
(i) delivered in person, or (ii) five (5) calendar days after posting in the
United States mail having been sent registered or certified mail return receipt
requested, or (iii) delivered by telecopy and promptly confirmed by delivery in
person or post as aforesaid in each case, with postage prepaid, addressed as
follows:
(a) If to Acquisition:
NYMA Acquisition, Inc.
4800 Hampden Lane
Bethesda, Maryland 20814
Attention: James M. Dean
Telecopy No.: (301) 961-7039
with copies to (which shall not constitute notice):
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Attention: Eric A. Stern
Telecopy No.: (202) 637-2201
(b) If to the Company, to:
NYMA, Inc.
7501 Greenway Center Drive
Suite 1200
Greenbelt, Maryland 20770
Attention: Peter Belford
Telecopy No.: (301) 441-1012
with copies to (which shall not constitute notice)
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Manatt, Phelps & Phillips, LLP
1501 M Street, N.W., Suite 700
Washington, D.C. 20005-1702
Attention: B. Michael Rauh
Telecopy No.: (202) 463-4394
(c) If to Holder Representative, to:
Peter Belford
NYMA, Inc.
7501 Greenway Center Drive
Suite 1200
Greenbelt, Maryland 20770
Attention: Peter Belford
Telecopy No.: (301) 441-1012
with copies to (which shall not constitute notice):
Manatt, Phelps & Phillips, LLP
1501 M Street, N.W., Suite 700
Washington, DC 20005-1702
Attention: B. Michael Rauh
Telecopy No.: (202) 463-4394
(d) If to Azmat Ali:
Azmat Ali
9705 Grenadier Court
Bethesda, Maryland 20817
Telephone No.: (301) 365-8121
with copies to
Manatt, Phelps & Phillips, LLP
1501 M Street, N.W., Suite 700
Washington, DC 20005-1702
Attention: B. Michael Rauh
Telecopy No.: (202) 463-4394
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(e) If to Peter Belford:
Peter Belford
NYMA, Inc.
7501 Greenway Center Drive
Suite 1200
Attention: Peter Belford
Telecopy No.: (301) 441-1012
with copies to
Manatt, Phelps & Phillips, LLP
1501 M Street, N.W., Suite 700
Washington, DC 20005-1702
Attention: B. Michael Rauh
Telecopy No.: (202) 463-4394
(f) If to Arthur Verbin:
Arthur Verbin
11309 Spur Wheel Lane
Potomac, Maryland 20854
Telephone No.: (301) 983-2947
with copies to
Manatt, Phelps & Phillips, LLP
1501 M Street, N.W., Suite 700
Washington, DC 20005-1702
Attention: B. Michael Rauh
Telecopy No.: (202) 463-4394
or to such other address or addresses as the parties may from time to time
designate in writing.
Section 15.3 ASSIGNMENT. Neither the Company nor the Principal
Holders may assign their rights or obligations hereunder or with respect to any
portion of the Merger Consideration (including rights with respect to the
Contingent Payment and the Notes) without the prior written consent of the other
parties hereto; PROVIDED, HOWEVER, that after the Closing the Designated Holders
may assign Notes to the Principal Holders.
Section 15.4 RIGHTS OF THIRD PARTIES. Nothing expressed or implied
in this Agreement is intended or shall be construed to confer upon or give any
Person, other than the parties hereto, any right or remedies under or by reason
of this Agreement.
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Section 15.5 RELIANCE. Each of the parties to this Agreement shall
be deemed to have relied upon the accuracy of the written representations and
warranties made to it in or pursuant to this Agreement, notwithstanding any
investigations conducted by or on its behalf or notice, knowledge or belief to
the contrary.
Section 15.6 TRANSFER TAXES; TITLE COSTS; EXPENSES.
Notwithstanding any other provision hereof, Principal Holders shall be solely
responsible for the costs and expenses of all recording fees (on a per-page
basis or otherwise), transfer taxes, conveyance taxes, sales and use taxes,
stamp taxes and other taxes incurred or otherwise payable in connection with the
Transaction. Such payments shall be made by Principal Holders promptly after
incurred, but in any event on or prior to the Closing Date or, in the case of
taxes, fees and charges that may accrue or arise after the Closing Date,
promptly after the date that such obligation so accrues or arises. All other
costs and expenses incurred by the parties in connection with the transactions
contemplated hereby shall be borne by the party incurring such expense.
Section 15.7 CONSTRUCTION. This Agreement shall be construed and
enforced in accordance with the laws of the State of Maryland. Unless otherwise
stated, references to Sections, Articles, Schedules and Annexes refer to the
Sections, Articles, Exhibits and Schedules to this Agreement. As used herein,
the phrase "to the knowledge" of any Person shall mean the actual knowledge of
such Person's executive officers. The parties to this Agreement participated
jointly in the negotiation and drafting of this Agreement. If any ambiguity or
question of intent or interpretation shall arise with respect to this Agreement,
then this Agreement shall be construed as if drafted jointly by the parties and
no presumption or burden of proof will arise favoring or disfavoring any party
to this Agreement by virtue of the authorship of any provision of this
Agreement.
Section 15.8 CAPTIONS; COUNTERPARTS. The captions in this
Agreement are for convenience only and shall not be considered a part of or
affect the construction or interpretation of any provision of this Agreement.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
Section 15.9 ENTIRE AGREEMENT. This Agreement (together with the
Schedules and Annexes to this Agreement, which constitute part of this
Agreement) constitutes the entire agreement among the parties and supersedes any
other agreements, whether written or oral, that may have been made or entered
into by or among any of the parties hereto or any of their respective Subsidiary
relating to the Merger. No representations, warranties, covenants,
understandings, agreements, oral or otherwise, relating to the transactions
contemplated by this Agreement exist between the parties except as expressly set
forth in this Agreement.
Section 15.10 AMENDMENTS. This Agreement may be amended or
modified in whole or in part, only by a duly authorized agreement in writing
executed in the same manner as this Agreement and which makes reference to this
Agreement.
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Section 15.11 PUBLICITY. All press releases or other public
communications of any nature whatsoever relating to the transactions
contemplated by this Agreement, and the method of the release for publication
thereof, shall be subject to the prior mutual approval of the Company and
Acquisition which approval shall not be unreasonably withheld by any party;
PROVIDED, HOWEVER, that, nothing herein shall prevent any party from publishing
such press releases or other public communications as such party may consider
necessary in order to satisfy such party's legal or contractual obligations
after such consultation with the other parties hereto as is reasonable under the
circumstances.
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IN WITNESS WHEREOF the parties have hereunto caused this Agreement to
be duly executed as of the date first above written.
NYMA, INC.
By: /s/ Azmat Ali
------------------------------------------------
Name: Azmat Ali
Title: Chairman & CEO
HOLDER REPRESENTATIVE
By: /s/ Peter Belford
------------------------------------------------
Peter Belford
AZMAT ALI
/s/ Azmat Ali
------------------------------------------------
PETER BELFORD
/s/ Peter Belford
------------------------------------------------
ARTHUR VERBIN
/s/ Arthur Verbin
------------------------------------------------
<PAGE>
NYMA ACQUISITION, INC.
By: /s/ Harry Marren
------------------------------------------------
Name: Harry Marren
Title: President
As to Section 11.2 Only:
FEDERAL DATA CORPORATION
By: /s/ James M. Dean
------------------------------------------------
Name: James M. Dean
Title: Vice President-
Chief Financial Officer
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ANNEX A
CERTIFICATE OF MERGER
<PAGE>
ANNEX B
FORM OF NOTE
<PAGE>
ANNEX C
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT
among
ACQUISITION
NYMA, INC.
HOLDER REPRESENTATIVE
and
____________________
as Escrow Agent
Dated as of ___________, 1997
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of _________ __, 1997, among Acquisition,
and after the Effective Time, Surviving Corporation, the Holder Representative
(as defined in the Merger Agreement) and ____________________ (the "ESCROW
AGENT").
WHEREAS, Principal Holders, the Company, Holder Representative and
Acquisition have entered into an Agreement and Plan of Merger Purchase dated as
of ________ __, 1997 (the "MERGER AGREEMENT");
WHEREAS, Section 2.2 of the Merger Agreement provides that at the
Closing (as such term and other capitalized terms used herein without definition
are defined in the Merger Agreement), the sum of Three Million Dollars
($3,000,000) (the "ESCROW DEPOSIT") shall be delivered to the Escrow Agent,
which shall be held and disbursed by the Escrow Agent pursuant to the terms
hereof.
NOW THEREFORE, the parties hereto agree as follows:
SECTION I
APPOINTMENT OF ESCROW AGENT; RESIGNATION AND SUCCESSOR
1.1 APPOINTMENT OF ESCROW AGENT. The Escrow Agent is hereby
appointed, and accepts its appointment and designation as, Escrow Agent pursuant
to the terms and conditions of this Agreement.
1.2 RESIGNATION OF ESCROW AGENT; APPOINTMENT OF SUCCESSOR. The
Escrow Agent acting at any time hereunder may resign at any time by giving at
least 30 calendar days' prior written notice of resignation to the Holder
Representative and Surviving Corporation, such resignation to be effective on
the date specified in such notice. Upon receipt of such notice, the Holder
Representative and Surviving Corporation shall, unless they otherwise agree,
appoint a bank or trust company with a combined capital and surplus of at least
One Hundred Million Dollars ($100,000,000) as successor to the Escrow Agent, by
a written instrument delivered to such successor Escrow Agent, the Holder
Representative and Surviving Corporation, whereupon such successor Escrow Agent
shall succeed to all the rights and obligations of the resigning Escrow Agent as
of the effective date of resignation as if originally named herein. Upon such
assignment of this Agreement, the resigning Escrow Agent shall duly transfer and
deliver the Escrow Amount (as defined in SECTION 2.1(b) hereof), at the time
held by the resigning Escrow Agent, to such successor Escrow Agent, PROVIDED
that, if no successor Escrow Agent shall have been appointed on the effective
date of resignation of the resigning Escrow Agent hereunder, the resigning
Escrow Agent may pay the Escrow Amount into a court of competent jurisdiction.
2
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SECTION II
ESCROW ARRANGEMENTS
2.1 DELIVERY OF THE DEPOSIT, ETC.
(a) Acquisition has, concurrent with the execution hereof, delivered
to the Escrow Agent, by wire transfer of immediately available funds, the Escrow
Deposit. The parties acknowledge and agree that for tax purposes, the Escrow
Agent shall report Earnings (as defined in Section 2.1(b) hereof) on the Escrow
Deposit as attributable to the party receiving such portion of the Escrow
Deposit. Each party hereto, except the Escrow Agent shall, promptly after the
date hereof, provide the Escrow Agent with its Employer Identification Number
(ION) as assigned by the Internal Revenue Service. Any disbursement of the
Escrow Deposit shall be allocated and paid by the Escrow Agent as provided
herein and reported by the recipient to the Internal Revenue Service as having
been so allocated and paid.
(b) The Escrow Agent shall hold the Escrow Deposit and all interest
and other proceeds from the investment thereof ("Earnings", together with the
Escrow Deposit, the "Escrow Amount") in an escrow account (the "Escrow
Account"). The Escrow Amount shall not be subject to any lien or attachment or
any creditor or any third party and shall be used solely for the purposes and
subject to the conditions set forth in this Agreement and the Purchase
Agreement.
2.2 INVESTMENT OF THE ESCROW AMOUNT. The Escrow Agent is hereby
authorized and directed to invest and reinvest and reinvest any amounts at any
time in the Escrow Account in the following obligations (collectively, the
"Permitted Investments"):
(a) obligations of, or fully guaranteed as to timely payment of
principal and interest by, the United States of America;
(b) such money market funds as are agreed to from time to time by the
Holder Representative and Surviving Corporation; and
(c) certificates of deposit with any bank or trust company organized
under the laws of the United States of America or any agency or instrumentality
thereof or under the laws of any state thereof which has a combined capital and
surplus of at least One Hundred Million Dollars ($100,000,000).
Subject to the foregoing limitations, the Escrow Agent shall invest
the Escrow Amount in accordance with written instructions delivered to it by
Holder Representative from time to time. Except as provided above, the Escrow
Agent shall have no power or duty to invest the Escrow Amount or to make
substitutions thereof.
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SECTION III
RELEASE OF THE ESCROW AMOUNT
The Escrow Agent shall release the Escrow Amount only in accordance
with this SECTION 3.
3.1 NOTICE OF CLAIM. Following the receipt by the Escrow Agent of
the Escrow Deposit, the following procedures shall govern the application of the
Escrow Deposit to satisfy any adjustments pursuant to ARTICLE II of the Purchase
Agreement:
3.1.1 ADJUSTMENT
(a) The Surviving Corporation shall promptly give to Holder
Representative and the Escrow Agent a notice of any adjustments owed by
Principal Holders to Surviving Corporation under Section 2.5 of the Purchase
Agreement.
(b) Following receipt of notice of any such adjustment owed by
Principal Holders to Surviving Corporation, Surviving Corporation and the Holder
Representative shall promptly give the Escrow Agent joint written instructions
to apply such portion of the balance of the Escrow Account (including Earnings
from such portion) agreed upon Surviving Corporation and Holder Representative
as shall be necessary to compensate Surviving Corporation for such Post-Closing
Adjustment ("JOINT INSTRUCTIONS"). In the event any such adjustment exceeds the
Escrow Amount, then the Joint Instructions shall direct the Escrow Agent to
apply the full amount of the Escrow Amount (including all Earnings). If
Surviving Corporation and Holder Representative do not reach an agreement within
such period (or a mutually agreed upon extension thereof), such claim shall be
governed by the provisions of SECTION 3.4 hereof.
3.2 PAYMENT OF CLAIMS. Whenever there shall be delivered to the
Escrow Agent Joint Instructions, the Escrow Agent shall pay to the party
entitled thereto the amount specified in such instructions. In the event the
amount set forth in such instructions exceeds the balance of the Escrow Account,
the Escrow Agent shall apply the full amount of the Escrow Amount (including all
Earnings) to such claim.
3.3 TERMINATION: RETENTION OF FUNDS.
As of the date of the final determination and payment of the Post-
Closing Adjustment to Surviving Corporation pursuant to Section 3.1 hereof (the
"ADJUSTMENT DATE"), the following procedures shall govern the application of the
Escrow Amount. On the Adjustment Date the Escrow Agent shall pay and deliver to
Holder Representative for the ratable benefit of Principal Holders the balance
of the Escrow Amount, in accordance with written instructions delivered by the
parties hereto; PROVIDED that if prior to the Adjustment Date Surviving
Corporation shall have provided one or more notices of an adjustment pursuant to
SECTION 3.1
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hereof, then that portion of the balance of the Escrow Account (without
giving effect to any Earnings) equal to the aggregate of all such adjustments
shall not be paid and delivered to Holder Representative until the amount, if
any, due to Surviving Corporation in respect of all such adjustments shall
have been determined by delivery to the Escrow Agent of one or more Joint
Instructions.
3.4 DISPUTE. In the event of any dispute among any of the parties to
this Agreement relating to this Agreement, including without limitation a
dispute with respect to (a) an adjustment by Surviving Corporation to the Escrow
Amount or any portion thereof or (b) the interpretation or administration of
this Agreement, the Escrow Agent shall not comply with any such claims or
demands from either Surviving Corporation or Holder Representative as long as
such dispute may continue, and the Escrow Agent shall make no delivery or other
disposition of any property then held by it under this Agreement until it has
received either joint written instructions from Surviving Corporation and Holder
Representative or certified copy of a final and non-appealable judgement of a
court of competent jurisdiction directing disposition of the Escrow Amount.
3.5 OTHER DISBURSEMENTS OF THE ESCROW AMOUNT. The Escrow Agent shall
disburse amounts to Holder Representative for the payment of Taxes on the
Earnings, upon receipt of a certificate signed by Holder Representative setting
forth the amount and nature of such Taxes, PROVIDED, HOWEVER, that the amount of
any such disbursements shall not exceed the Earnings accrued on the Escrow
Deposit through the date of such disbursement.
SECTION IV
ESCROW AGENT
4.1 EXPENSES. Surviving Corporation, on the one hand, and Holder
Representative, on the other hand, shall share equally the cost of reimbursing
the Escrow Agent for its reasonable out-of-pocket expenses, including reasonable
attorney's fees in administering the Escrow Account and performing its duties
under this Agreement.
4.2 RESPONSIBILITIES OF ESCROW AGENT. The Escrow Agent's acceptance
of its duties under this Agreement is subject to the following terms and
conditions, which the parties hereto agree shall govern and control with respect
to its rights, duties, liabilities and immunities:
(a) Except as to its due execution and delivery of the Agreement, it
makes no representation and has no responsibility as to the validity of this
Agreement or of any other instrument referred to herein, or as to the
correctness of any statement contained herein, and it shall not be required to
inquire as to the performance of any obligation under the Purchase Agreement;
(b) The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, receipt or other paper or document, not only
as to its due execution and
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the validity and effectiveness of its provisions, but also as to the truth of
any information therein contained, which it in good faith believes to be
genuine and what it purports to be;
(c) The Escrow Agent shall not be liable for any error of judgment,
or for any act done or step taken or omitted by it in good faith, or for any
mistake of fact or law, or for anything which it may do or refrain from doing in
connection therewith, except its own gross negligence or misconduct;
(d) The Escrow Agent may consult with competent and responsible legal
counsel selected by it, and it shall not be liable for any action taken or
omitted by it in good faith in accordance with the advice of such counsel;
(e) Principal Holders, on the one hand, and Surviving Corporation, on
the other hand, agree to indemnify and hold the Escrow Agent and its directors,
employees, officers, agents, successors and assigns (collectively, the
"INDEMNIFIED PARTIES") harmless from and against any and all losses, claims,
damages, liabilities and expenses (collectively, "DAMAGES"), including, without
limitation, reasonable costs of investigation and counsel fees and expenses
which may be imposed on the Escrow Agent or incurred by it in connection with
the performance of its duties hereunder. Such indemnity includes, without
limitation, Damages incurred in connection with any litigation (whether at the
trial or appellate levels) arising from this Agreement or involving the subject
matter hereof. The indemnification provisions contained in this paragraph shall
survive the termination of this Agreement or the resignation or removal of the
Escrow Agent. Notwithstanding any provision to the contrary in this Agreement,
neither the Principal Holders, Holder Representative nor Surviving Corporation
shall have any liability to the Indemnified Parties with respect to any Damages
that result, directly or indirectly, from the gross negligence or misconduct of
the Escrow Agent;
(f) The Escrow Agent shall have no duties or responsibilities except
those expressly set forth herein, and it shall not be bound by any modification
of this Agreement unless in writing and signed by all parties hereto or their
respective successors in interest;
(g) The recitals of facts in this Agreement shall be taken as the
statements of Principal Holders and Surviving Corporation, and the Escrow Agent
assumes no responsibility for the correctness of the same. The Escrow Agent
shall be under no obligation or duty to perform any act which would involve it
in an expense or liability or to institute or defend any suit in respect of this
Agreement or to advance any of its own moneys unless properly indemnified;
(h) The Escrow Agent shall be protected in acting upon any notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
paper or document reasonably believed by it to be genuine and to have been
signed and presented by the proper party or parties. Whenever the Escrow Agent
shall deem it necessary or desirable that a matter be proved or established
prior to taking or suffering any action under this agreement, such matter may be
deemed inclusively proved and established by a certificate signed by the Holder
Representative
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and Surviving Corporation, and such certificate shall be full warranty for
any action taken or suffered in good faith under the provisions of this
Agreement; and
(i) The Escrow Agent does not have any interest in the Escrow Amount
but is serving as Escrow Agent only and having only possession thereof. This
SECTION 4.2(i) shall survive notwithstanding any termination of this Agreement
or the resignation of the Escrow Agent.
SECTION V
MISCELLANEOUS
5.1 AMENDMENT. No amendment, waiver of compliance with any provision
or condition hereof or consent pursuant to this Agreement shall be effective
unless evidenced by an instrument in writing signed by the party against whom
enforcement of any amendment, waiver, consent is sought.
5.2 TERMINATION. This Agreement shall terminate automatically at
such time as all funds from the Escrow Account have been paid or distributed in
accordance with the terms of this Agreement and the Escrow Agent has received
all fees as described in SECTION 4.1 hereof. Notwithstanding the foregoing, all
provisions concerning the indemnification of the Escrow Agent shall survive any
termination of this Agreement.
5.3 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, and if any provision of this Agreement is interpreted by a
court of competent jurisdiction and found to be invalid or unenforceable,
neither the enforceability nor the validity of such provisions with respect to
any other facts or under any other circumstances shall thereby be impaired. The
unenforceability or invalidity of any provision shall not result in the
interpretation of the remainder of this Agreement, or any section hereof, in a
manner inconsistent with intent of the parties as evidenced by the terms of this
Agreement, or such section, as a whole.
5.4 WAIVER. Failure of any party to complain of any act or omission
on the part of any other party in breach or default of this Agreement, no matter
how long the same may continue, shall not be deemed to be a waiver by the part
of its rights hereunder. No waiver by any party at any time, express or
implied, of any breach of any other provision of this Agreement shall be deemed
a waiver of a breach of any other provision of this Agreement or a consent to
any subsequent breach of the same or other provisions.
5.5 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as follows: (a) if sent by registered or certified mail in the United
States return receipt requested, upon receipt; (b) if sent by reputable
overnight air courier (such as DHL or Federal Express), two business days after
mailing; (c) if sent by fax, with a copy mailed on the same day in the manner
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provided in (a) or (b) above, when transmitted and receipt is confirmed by
telephone; or (d) if otherwise actually personally delivered, when delivered,
and shall be delivered as follows:
(a) If to Holder Representative:
_________________________
_________________________
_________________________
Attention:_______________
Telecopy No.:____________
with copies to (which shall not constitute notice)
_________________________
_________________________
_________________________
Attention:_______________
Telecopy No.:____________
(b) If to Surviving Corporation
_________________________
4800 Hampden Lane
Bethesda, Maryland 20814
Attn: James M. Dean
Telecopy No.: (301) 961-7039
with a copy (which shall not constitute notice) to:
Latham & Watkins
1001 Pennsylvania Avenue, NW, Suite 1300
Washington, D.C. 20004
Attn: Eric A. Stern
Telecopy No.: (202) 637-2201
(c) If to the Escrow Agent:
_________________________
_________________________
_________________________
Attention:_______________
Telecopy No.:____________
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or to such other address or to such other person as the party to whom notice is
given may have previously furnished to the other in writing in the manner set
forth above.
5.6 ASSIGNMENT. Surviving Corporation and Principal Holders may
assign their rights under this Agreement to the same extent as they are
permitted to assign their rights and obligations under the Merger Agreement.
5.7 ENTIRE AGREEMENT. This Agreement, the Merger Agreement and the
exhibits thereto embody the entire agreement and understanding among Holder
Representative, Acquisition, Surviving Corporation and the Escrow Agent with
respect to the subject matter hereof and supersedes any and all prior agreements
and understandings, oral and written, among Holder Representative, Acquisition,
Surviving Corporation and the Escrow Agent with respect to the subject matter
hereof.
5.8 INTERPRETATION. The headings set forth in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provision hereof.
5.9 GOVERNING LAW; JURISDICTION. The construction and performance of
this Agreement shall be governed by the laws of the State of Maryland without
regard to its principles of conflict of law, and the state and federal courts of
Maryland shall have exclusive jurisdiction over any controversy or claim arising
out of or relating to this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
ACQUISITION
By:_____________________________
Name:
Title:
HOLDER REPRESENTATIVE,
on behalf of Principal Holders
By:_____________________________
ESCROW AGENT
By:_____________________________
Name
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ANNEX D
CONTINGENT PAYMENT ESCROW AGREEMENT
CONTINGENT PAYMENT ESCROW AGREEMENT, dated as of April __, 1997, among
NYMA Acquisition, Inc., a Delaware corporation ("Acquisition," and after the
Effective Time, the "Surviving Corporation"), the Holder Representative (as
defined in the Merger Agreement) and ____________________ (the "CONTINGENT
PAYMENT ESCROW AGENT").
WHEREAS, Principal Holders (as defined in the Merger Agreement), the
Holder Representative, the Company and Acquisition have entered into an
Agreement and Plan of Merger Purchase dated as of April __, 1997 (the "MERGER
AGREEMENT");
WHEREAS, Section 2.2 of the Merger Agreement provides that at the
Closing (as such term and other capitalized terms used herein without definition
are defined in the Merger Agreement), the sum of Three Million Seven Hundred and
Fifty Thousand Dollars ($3,750,000) (the "CONTINGENT PAYMENT DEPOSIT") shall be
delivered to the Contingent Payment Escrow Agent, which shall be held and
disbursed by the Contingent Payment Escrow Agent pursuant to the terms hereof.
NOW THEREFORE, the parties hereto agree as follows:
SECTION I
APPOINTMENT OF CONTINGENT PAYMENT ESCROW AGENT; RESIGNATION AND SUCCESSOR
1.1 APPOINTMENT OF CONTINGENT PAYMENT ESCROW AGENT. The Contingent
Payment Escrow Agent is hereby appointed, and accepts its appointment and
designation as, Contingent Payment Escrow Agent pursuant to the terms and
conditions of this Agreement.
1.2 RESIGNATION OF CONTINGENT PAYMENT ESCROW AGENT; APPOINTMENT OF
SUCCESSOR. The Contingent Payment Escrow Agent acting at any time hereunder may
resign at any time by giving at least 30 calendar days' prior written notice of
resignation to the Holder Representative and Surviving Corporation, such
resignation to be effective on the date specified in such notice. Upon receipt
of such notice, the Holder Representative and Surviving Corporation shall,
unless they otherwise agree, appoint a bank or trust company with a combined
capital and surplus of at least One Hundred Million Dollars ($100,000,000) as
successor to the Contingent Payment Escrow Agent, by a written instrument
delivered to such successor Contingent Payment Escrow Agent, the Holder
Representative and Surviving Corporation, whereupon such successor Contingent
Payment Escrow Agent shall succeed to all the rights and obligations of the
resigning Contingent Payment Escrow Agent as of the effective date of
resignation as if originally named herein. Upon such assignment of this
Agreement, the resigning Contingent Payment Escrow Agent shall duly transfer and
deliver the Contingent Payment Escrow Amount (as defined in SECTION 2.1(b)
hereof), at the time held by the resigning
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Contingent Payment Escrow Agent, to such successor Contingent Payment Escrow
Agent, PROVIDED that, if no successor Contingent Payment Escrow Agent shall
have been appointed on the effective date of resignation of the resigning
Contingent Payment Escrow Agent hereunder, the resigning Contingent Payment
Escrow Agent may pay the Escrow Amount into a court of competent jurisdiction.
SECTION II
ESCROW ARRANGEMENTS
2.1 DELIVERY OF THE DEPOSIT, ETC.
(a) Acquisition has, concurrent with the execution hereof, delivered
to the Contingent Payment Escrow Agent, by wire transfer of immediately
available funds, the Contingent Payment Deposit. The parties acknowledge and
agree that for tax purposes, the Escrow Contingent Payment Agent shall report
Earnings (as defined in Section 2.1(b) hereof) on the Contingent Payment Deposit
as attributable to the party receiving such portion of the Contingent Payment
Deposit. Each party hereto, except the Contingent Payment Escrow Agent shall,
promptly after the date hereof, provide the Contingent Payment Escrow Agent with
its Employer Identification Number (ION) as assigned by the Internal Revenue
Service. Any disbursement of the Contingent Payment Deposit shall be allocated
and paid by the Contingent Payment Escrow Agent as provided herein and reported
by the recipient to the Internal Revenue Service as having been so allocated and
paid.
(b) The Contingent Payment Escrow Agent shall hold the Contingent
Payment Deposit and all interest and other proceeds from the investment thereof
("EARNINGs", together with the Contingent Payment Deposit, the "CONTINGENT
PAYMENT ESCROW AMOUNT") in an escrow account (the "CONTINGENT PAYMENT ACCOUNT").
The Contingent Payment Escrow Amount shall not be subject to any lien or
attachment or any creditor or any third party and shall be used solely for the
purposes and subject to the conditions set forth in this Agreement and the
Purchase Agreement.
2.2 INVESTMENT OF THE ESCROW AMOUNT. The Contingent Payment Escrow
Agent is hereby authorized and directed to invest and reinvest and reinvest any
amounts at any time in the Contingent Payment Account in the following
obligations (collectively, the "PERMITTED INVESTMENTS"):
(a) obligations of, or fully guaranteed as to timely payment of
principal and interest by, the United States of America;
(b) such money market funds as are agreed to from time to time by the
Holder Representative and Surviving Corporation; and
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(c) certificates of deposit with any bank or trust company organized
under the laws of the United States of America or any agency or instrumentality
thereof or under the laws of any state thereof which has a combined capital and
surplus of at least One Hundred Million Dollars ($100,000,000).
Subject to the foregoing limitations, the Contingent Payment Escrow
Agent shall invest the Contingent Payment Escrow Amount in accordance with
written instructions delivered to it by the Holder Representative from time to
time. Except as provided above, the Contingent Payment Escrow Agent shall have
no power or duty to invest the Contingent Payment Escrow Amount or to make
substitutions thereof.
SECTION III
RELEASE OF THE CONTINGENT PAYMENT ESCROW AMOUNT
The Contingent Payment Escrow Agent shall release the Contingent
Payment Escrow Amount only in accordance with this SECTION 3.
3.1 NOTICE OF CLAIM. Following the receipt by the Contingent Payment
Escrow Agent of the Contingent Payment Deposit, the following procedures shall
govern the application of the Contingent Payment Deposit to satisfy any
contingent payments due to Holders pursuant to SECTION 2.6 of the Merger
Agreement:
3.1.1 CONTINGENT PAYMENTS
(a) The Surviving Corporation shall promptly give to Holder
Representative and the Contingent Payment Escrow Agent a notice of any payments
owed by Surviving Corporation to the Holders under Section 2.6 of the Merger
Agreement.
(b) Following receipt of notice of any such payment owed by the
Surviving Corporation to the Holders, the Surviving Corporation shall promptly
give the Contingent Payment Escrow Agent written instructions to disburse such
portion of the balance of the Escrow Account (including Earnings from such
portion) equal to the amount of payment due under Section 2.6 of the Merger
Agreement ("PAYMENT INSTRUCTIONS"). In the event any such payment exceeds the
Contingent Payment Escrow Amount, then the Payment Instructions shall direct the
Contingent Payment Escrow Agent to apply the full amount of the Contingent
Payment Escrow Amount (including all Earnings).
3.2 PAYMENT OF CLAIMS. Whenever there shall be delivered to the
Contingent Payment Escrow Agent Payment Instructions, the Contingent Payment
Escrow Agent shall pay to the party entitled thereto the amount specified in
such instructions. In the event the amount set forth in such instructions
exceeds the balance of the Contingent Payment Account, the
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Contingent Payment Escrow Agent shall apply the full amount of the Contingent
Payment Escrow Amount (including all Earnings) to such claim.
3.3 TERMINATION: RETENTION OF FUNDS.
As of the date of the final determination and payment of any sums due
Holders pursuant to Section 3.1 hereof (the "ADJUSTMENT DATE"), the following
procedures shall govern the application of the Contingent Payment Escrow Amount.
On the Adjustment Date the Contingent Payment Escrow Agent shall pay and deliver
to Acquisition the balance of the Contingent Payment Escrow Amount, in
accordance with written instructions delivered by the parties hereto.
3.4 DISPUTE. In the event of any dispute among any of the parties to
this Agreement relating to this Agreement, including without limitation a
dispute with respect to the interpretation or administration of this Agreement,
the Contingent Payment Escrow Agent shall not comply with any such claims or
demands from either Surviving Corporation or Holder Representative as long as
such dispute may continue, and the Contingent Payment Escrow Agent shall make no
delivery or other disposition of any property then held by it under this
Agreement until it has received either joint written instructions from the
Surviving Corporation and Holder Representative or certified copy of a final and
non-appealable judgement of a court of competent jurisdiction directing
disposition of the Escrow Amount.
3.5 OTHER DISBURSEMENTS OF THE ESCROW AMOUNT. The Contingent Payment
Escrow Agent shall disburse amounts to Surviving Corporation or Holder
Representative, as the case may be for the payment of Taxes on the Earnings,
upon receipt of a certificate signed by Holder Representative setting forth the
amount and nature of such Taxes, PROVIDED, HOWEVER, that the amount of any such
disbursements shall not exceed the Earnings accrued on the Contingent Payment
Deposit through the date of such disbursement.
SECTION IV
ESCROW AGENT
4.1 EXPENSES. Surviving Corporation, on the one hand, and Holder
Representative, on the other hand, shall share equally the cost of reimbursing
the Contingent Payment Escrow Agent for its reasonable out-of-pocket expenses,
including reasonable attorney's fees in administering the Escrow Account and
performing its duties under this Agreement.
4.2 RESPONSIBILITIES OF ESCROW AGENT. The Contingent Payment Escrow
Agent's acceptance of its duties under this Agreement is subject to the
following terms and conditions, which the parties hereto agree shall govern and
control with respect to its rights, duties, liabilities and immunities:
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(a) Except as to its due execution and delivery of the Agreement, it
makes no representation and has no responsibility as to the validity of this
Agreement or of any other instrument referred to herein, or as to the
correctness of any statement contained herein, and it shall not be required to
inquire as to the performance of any obligation under the Merger Agreement;
(b) The Contingent Payment Escrow Agent shall be protected in acting
upon any written notice, request, waiver, consent, receipt or other paper or
document, not only as to its due execution and the validity and effectiveness of
its provisions, but also as to the truth of any information therein contained,
which it in good faith believes to be genuine and what it purports to be;
(c) The Contingent Payment Escrow Agent shall not be liable for any
error of judgment, or for any act done or step taken or omitted by it in good
faith, or for any mistake of fact or law, or for anything which it may do or
refrain from doing in connection therewith, except its own gross negligence or
misconduct;
(d) The Contingent Payment Escrow Agent may consult with competent
and responsible legal counsel selected by it, and it shall not be liable for any
action taken or omitted by it in good faith in accordance with the advice of
such counsel;
(e) Principal Holders, on the one hand, and Surviving Corporation, on
the other hand, agree to indemnify and hold the Contingent Payment Escrow Agent
and its directors, employees, officers, agents, successors and assigns
(collectively, the "INDEMNIFIED PARTIES") harmless from and against any and all
losses, claims, damages, liabilities and expenses (collectively, "DAMAGES"),
including, without limitation, reasonable costs of investigation and counsel
fees and expenses which may be imposed on the Contingent Payment Escrow Agent or
incurred by it in connection with the performance of its duties hereunder. Such
indemnity includes, without limitation, Damages incurred in connection with any
litigation (whether at the trial or appellate levels) arising from this
Agreement or involving the subject matter hereof. The indemnification
provisions contained in this paragraph shall survive the termination of this
Agreement or the resignation or removal of the Contingent Payment Escrow Agent.
Notwithstanding any provision to the contrary in this Agreement, neither the
Principal Holders, the Holder Representative nor Surviving Corporation shall
have any liability to the Indemnified Parties with respect to any Damages that
result, directly or indirectly, from the gross negligence or misconduct of the
Contingent Payment Escrow Agent;
(f) The Contingent Payment Escrow Agent shall have no duties or
responsibilities except those expressly set forth herein, and it shall not be
bound by any modification of this Agreement unless in writing and signed by all
parties hereto or their respective successors in interest;
(g) The recitals of facts in this Agreement shall be taken as the
statements of Principal Holders and Surviving Corporation, and the Contingent
Payment Escrow Agent
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assumes no responsibility for the correctness of the same. The Contingent
Payment Escrow Agent shall be under no obligation or duty to perform any act
which would involve it in an expense or liability or to institute or defend
any suit in respect of this Agreement or to advance any of its own moneys
unless properly indemnified;
(h) The Contingent Payment Escrow Agent shall be protected in acting
upon any notice, resolution, request, consent, order, certificate, report,
opinion, bond or other paper or document reasonably believed by it to be genuine
and to have been signed and presented by the proper party or parties. Whenever
the Contingent Payment Escrow Agent shall deem it necessary or desirable that a
matter be proved or established prior to taking or suffering any action under
this agreement, such matter may be deemed inclusively proved and established by
a certificate signed by the Holder Representative and Surviving Corporation, and
such certificate shall be full warranty for any action taken or suffered in good
faith under the provisions of this Agreement; and
(i) The Contingent Payment Escrow Agent does not have any interest in
the Contingent Payment Escrow Amount but is serving as Contingent Payment Escrow
Agent only and having only possession thereof. This SECTION 4.2(i) shall
survive notwithstanding any termination of this Agreement or the resignation of
the Contingent Payment Escrow Agent.
SECTION V
MISCELLANEOUS
5.1 AMENDMENT. No amendment, waiver of compliance with any provision
or condition hereof or consent pursuant to this Agreement shall be effective
unless evidenced by an instrument in writing signed by the party against whom
enforcement of any amendment, waiver, consent is sought.
5.2 TERMINATION. This Agreement shall terminate automatically at
such time as all funds from the Contingent Payment Account have been paid or
distributed in accordance with the terms of this Agreement and the Contingent
Payment Escrow Agent has received all fees as described in SECTION 4.1 hereof.
Notwithstanding the foregoing, all provisions concerning the indemnification of
the Contingent Payment Escrow Agent shall survive any termination of this
Agreement.
5.3 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, and if any provision of this Agreement is interpreted by a
court of competent jurisdiction and found to be invalid or unenforceable,
neither the enforceability nor the validity of such provisions with respect to
any other facts or under any other circumstances shall thereby be impaired. The
unenforceability or invalidity of any provision shall not result in the
interpretation of the remainder of this Agreement, or any section hereof, in a
manner inconsistent with intent of the parties as evidenced by the terms of this
Agreement, or such section, as a whole.
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5.4 WAIVER. Failure of any party to complain of any act or omission
on the part of any other party in breach or default of this Agreement, no matter
how long the same may continue, shall not be deemed to be a waiver by the part
of its rights hereunder. No waiver by any party at any time, express or
implied, of any breach of any other provision of this Agreement shall be deemed
a waiver of a breach of any other provision of this Agreement or a consent to
any subsequent breach of the same or other provisions.
5.5 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as follows: (a) if sent by registered or certified mail in the United
States return receipt requested, upon receipt; (b) if sent by reputable
overnight air courier (such as DHL or Federal Express), two business days after
mailing; (c) if sent by fax, with a copy mailed on the same day in the manner
provided in (a) or (b) above, when transmitted and receipt is confirmed by
telephone; or (d) if otherwise actually personally delivered, when delivered,
and shall be delivered as follows:
(a) If to Holder Representative:
_________________________
_________________________
_________________________
Attention:_______________
Telecopy No.:____________
with copies to (which shall not constitute notice)
_________________________
_________________________
_________________________
Attention:_______________
Telecopy No.:____________
(b) If to Surviving Corporation
_________________________
4800 Hampden Lane
Bethesda, Maryland 20814
Attn: James M. Dean
Telecopy No.: (301) 961-7039
with a copy (which shall not constitute notice) to:
Latham & Watkins
1001 Pennsylvania Avenue, NW, Suite 1300
Washington, D.C. 20004
7
<PAGE>
Attn: Eric A. Stern
Telecopy No.: (202) 637-2201
(c) If to the Contingent Payment Escrow Agent:
_________________________
_________________________
_________________________
Attention:_______________
Telecopy No.:____________
or to such other address or to such other person as the party to whom notice is
given may have previously furnished to the other in writing in the manner set
forth above.
5.6 ASSIGNMENT. Surviving Corporation and Principal Holders may
assign their rights under this Agreement to the same extent as they are
permitted to assign their rights and obligations under the Merger Agreement.
5.7 ENTIRE AGREEMENT. This Agreement, the Merger Agreement and the
schedules and annexes thereto embody the entire agreement and understanding
among Holder Representative, Acquisition, Surviving Corporation and the
Contingent Payment Escrow Agent with respect to the subject matter hereof and
supersedes any and all prior agreements and understandings, oral and written,
among Holder Representative, Acquisition, Surviving Corporation and the
Contingent Payment Escrow Agent with respect to the subject matter hereof.
5.8 INTERPRETATION. The headings set forth in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provision hereof.
5.9 GOVERNING LAW; JURISDICTION. The construction and performance of
this Agreement shall be governed by the laws of the State of Maryland without
regard to its principles of conflict of law, and the state and federal courts of
Maryland shall have exclusive jurisdiction over any controversy or claim arising
out of or relating to this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
NYMA ACQUISITION, INC.
By:_____________________________
Name:
Title:
HOLDER REPRESENTATIVE,
on behalf of Principal Holders
By:_____________________________
CONTINGENT PAYMENT ESCROW
AGENT
By:_____________________________
Name
9
<PAGE>
ANNEX E
FORM OF OPINION OF PRINCIPAL HOLDERS AND COMPANY COUNSEL
1. The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Maryland. The Company has
the requisite corporate power and authority to conduct its business as now
conducted, and the Company and Principal Holders have the requisite corporate or
other power and authority to execute, deliver and perform their obligations
under the Merger Agreement and the Ancillary Agreements.
2. The execution and delivery of the Merger Agreement and the
Ancillary Agreements by the Company and Principal Holders, and the performance
of their respective obligations thereunder, have been duly authorized by all
necessary corporate or other action by the Company and Principal Holders.
3. The Merger Agreement and the Ancillary Agreements have been duly
executed by the Company and Principal Holders, as applicable, and delivered to
Acquisition and constitute the valid and binding obligation of the Company and
Principal Holders enforceable against the Company and Principal Holders in
accordance with their terms.
4. The execution and delivery by the Company and Principal Holders
of the Merger Agreement and the Ancillary Agreements, and the performance by the
Company and Principal Holders of their obligations thereunder, do not:
(i) violate any United States federal or Maryland state statute, rule or
regulation applicable to the Company or Principal Holders, (ii) violate the
provisions of the Company's or Principal Holders governing documents, (iii)
violate any of the Contracts or (iii) require any consents, approvals,
authorizations, registrations, declarations or filings under any United States
federal or Maryland state statute, rule or regulation.
5. There is no judgment, order, injunction, decree, litigation,
proceeding or governmental investigation in effect, pending or to the best of
our knowledge, threatened against the Company or Principal Holders which might
adversely affect the ability of the Company or Principal Holders to perform
their obligations under the Merger Agreement.
6. The authorized capital stock of the Company consists of _______
shares of Common Stock, $.01 par value per share, of which _______ shares are
issued and outstanding. There are no (i) options, warrants, rights of
conversion or other rights to acquire from the Company or Principal Holders
shares of the capital stock of the Company or securities convertible or
exchangeable or exercisable for shares of the capital stock of the Company or
(ii) agreements or commitments by the Company or Principal Holders to issue or
sell any shares of capital stock of the Company, any options, warrants, rights
of conversion or other rights to
1
<PAGE>
acquire shares of the capital stock of the Company or any securities
convertible into or exchangeable or exercisable for shares of capital stock
of the Company.
7. All the issued and outstanding shares of capital stock of the
Company have been duly authorized and are fully paid and non-assessable and are
owned of record and beneficially by Holders as set forth on the Disclosure
Schedules to the Merger Agreement.
2
<PAGE>
ANNEX F
FORM OF NON-DISCLOSURE AND NON-SOLICITATION AGREEMENT
<PAGE>
ANNEX G
FORM OF EMPLOYMENT AGREEMENT
<PAGE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 dated as of May 2, 1997, to Agreement and Plan of
Merger, dated as of April 9, 1996 (the "Merger Agreement"), by and among
Azmat Ali, Peter Belford, Arthur Verbin, Peter Belford, as Holder
Representative, NYMA, Inc., and NYMA Acquisition, Inc.
WITNESSETH
WHEREAS, Azmat Ali, Peter Belford, Arthur Verbin, Peter Belford, as
Holder Representative, NYMA, Inc. and NYMA Acquisition, Inc. have agreed the
Merger Agreement be amended as set forth below.
AGREEMENT
In consideration of the premises and of the mutual covenants of the
parties hereto, it is hereby agreed as follows:
Section 1. AMENDMENT AND RESTATEMENT OF SUBPARAGRAPH 2.2(a) OF THE MERGER
AGREEMENT. SUBPARAGRAPH 2.2(a) of the Merger Agreement is hereby amended and
restated to read in its entirety as follows:
(a) The aggregate consideration for the Shares hereunder (the
"MERGER CONSIDERATION") shall, subject to adjustment as provided in
SECTIONS 2.5, 2.6, and 13.1 hereof, consist of (i) Twenty-Five Million
Dollars ($25,000,000) in cash (the "CASH CONSIDERATION"); (ii) promissory
notes of FDC in the aggregate principal amount of Six Million Dollars
($6,000,000) either: (A) in the form attached hereto as ANNEX B-1, or (B) if
such Holder elects in writing prior to the Effective Time of the Merger, in
the form attached hereto as ANNEX B-2 (collectively, with the Notes in the
form attached hereto as ANNEX B-1, the "NOTES"), (provided that, for the
purpose of calculating the $6,000,000 aggregate principal amount of the Notes
under this clause (ii), such aggregate principal amount shall equal the sum
of the principal amounts of the Notes issued pursuant to this SECTION 2.2,
plus the aggregate Additional Payment Amounts (as defined in the Notes issued
in the form Attached hereto as ANNEX B-2)), subject to the rights of set-off
as provided in Article XIII hereof, provided that, in the event no election
is received prior to the Effective Time of the Merger, such Holder shall be
deemed to have elected to receive Notes in the form attached hereto as ANNEX
B-1; and (iii) up to Six Million Dollars ($6,000,000) in Contingent Payments
(as defined below), subject to the rights of set-off as provided in ARTICLE
XIII hereof and subject to satisfaction of the terms and conditions set forth
below in SECTION 2.4.
Section 2. ADDITION OF SUBPARAGRAPH 2.5.2(e) OF THE MERGER AGREEMENT. The
Merger Agreement is hereby amended by adding a new SUBPARAGRAPH 2.5.2(e)
which shall read as follows:
<PAGE>
2.5.2(e) The Final Net Assets shall be reduced dollar-for-dollar to
the extent of any payments made by the Surviving Corporation following the
Closing Date and not reflected on the Final Balance Sheet in settlement of the
audits or proceedings with respect to the Tax Returns disclosed on SCHEDULE 4.21
(the "PENDING AUDITS") in excess of $2,300,000.
Section 3. ADDITION OF SUBPARAGRAPH 2.5.2(f) OF THE MERGER AGREEMENT.
The Merger Agreement is hereby amended by adding a new SUBPARAGRAPH 2.5.2(f)
which shall read as follows:
2.5.2(f) Notwithstanding the foregoing, to the extent that the
Pending Audits have not been settled and fully reflected on the Final Balance
Sheet, or pursuant to SUBPARAGRAPH 2.5.2(e) of the Merger Agreement, as amended,
all proceeds of the Escrow Deposit that would otherwise be distributable to
Principal Holders pursuant to this SUBSECTION 2.5.2 shall continue to be held in
the Escrow Deposit until the earlier of (i) the settlement of the Pending Audits
and any payments by the Surviving Corporation in settlement of such audits have
been made or (ii) the first anniversary of the Closing Date, at which time the
remaining Escrow Deposit shall be released as otherwise required by SUBPARAGRAPH
2.5.2(c); provided that, an amount equal to the amount of any payments made by
the Surviving Corporation pursuant to this SUBPARAGRAPH 2.5.2(f) in excess of
$2,300,000 shall be paid to the Surviving Corporation out of the Escrow Deposit
to the extent funds are available in such escrow.
Section 4. AMENDMENT AND RESTATEMENT OF SUBPARAGRAPH 2.2(a) OF THE MERGER
AGREEMENT. SUBPARAGRAPH 2.2(a) of the Merger Agreement is hereby amended and
restated to read in its entirety as follows:
(a) The aggregate consideration for the Shares hereunder (the
"MERGER CONSIDERATION") shall, subject to adjustment as provided in
SECTIONS 2.5, 2.6, and 13.1 hereof, consist of (i) Twenty-Five Million
Dollars ($25,000,000) in cash (the "CASH CONSIDERATION"); (ii) promissory
notes of FDC (A) in the form attached hereto as ANNEX B-1, or (B) if such
Holder elects in writing prior to the Effective Time of the Merger, Notes in
the form attached hereto as ANNEX B-2 (collectively, with the Notes in the
form attached hereto as ANNEX B-1, the "NOTES"), in the aggregate principal
amount of Six Million Dollars ($6,000,000), subject to the rights of set-off
as provided in Article XIII hereof, provided that, in the event no election
is received prior to the Effective Time of the Merger, such Holder shall be
deemed to have elected to receive Notes in the form attached hereto as
ANNEX B-1; and (iii) up to Six Million Dollars ($6,000,000) in Contingent
Payments (as defined below), subject to the rights of set-off as provided in
ARTICLE XIII hereof and subject to satisfaction of the terms and conditions
set forth below in SECTION 2.4.
Section 5. LIMITATION ON AMENDMENT. Except as expressly provided
herein, the Merger Agreement shall continue to be, and shall remain, in full
force and effect. Except as expressly provided herein, this First Amendment
shall not be deemed to be a waiver or, or consent to, or a modification or
amendment of, any other term or condition of the Agreement.
<PAGE>
Section 6. SEVERABILITY. If any provision of this Amendment shall be
declared by any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Amendment shall be affected and
shall remain in full force and effect.
Section 7. CAPTIONS; COUNTERPARTS. The captions in this Amendment are
for convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Amendment may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
Section 8. CONSTRUCTION. This Amendment shall be construed and enforced
in accordance with the laws of the State of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
NYMA, INC.
By: /s/ Azmat Ali
-----------------------------------------
Azmat Ali
Chairman and CEO
HOLDER REPRESENTATIVE
By: /s/ Peter Belford
-----------------------------------------
Peter Belford
AZMAT ALI
/s/ Azmat Ali
--------------------------------------------
PETER BELFORD
/s/ Peter Belford
--------------------------------------------
ARTHUR VERBIN
/s/ Arthur Verbin
--------------------------------------------
<PAGE>
NYMA ACQUISITION, INC.
By: /s/ James Dean
-----------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 2-3
POST-CLOSING AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
POST-CLOSING AMENDMENT, dated as of May 2, 1997, to Agreement and Plan
of Merger, dated as of April 9, 1996 (the "Merger Agreement"), by and among
Azmat Ali, Peter Belford, Arthur Verbin, Peter Belford, as Holder
Representative, NYMA, Inc., and NYMA Acquisition, Inc.
WITNESSETH
WHEREAS, the Closing under the Merger Agreement has occurred;
WHEREAS, John Quann and the Estate of Phillip Bennett have assigned
all of their respective right, title and interest in the Merger Consideration
(as defined in the Merger Agreement) to the remaining Holders;
WHEREAS, Azmat Ali, Peter Belford, Arthur Verbin, Peter Belford, as
Holder Representative, and NYMA, Inc. (as the Surviving Corporation) have agreed
the Merger Agreement be amended as set forth below.
AGREEMENT
In consideration of the premises and of the mutual covenants of the
parties hereto, it is hereby agreed as follows:
Section 1. AMENDMENT AND RESTATEMENT OF SUBPARAGRAPH 2.2(b)(II) OF THE
MERGER AGREEMENT. SUBPARAGRAPH 2.2(b)(ii) of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
(ii) Each Holder of the outstanding Company Shares as of the Effective
Time of the Merger (a "HOLDER") listed on SCHEDULE A-1 hereto shall be entitled
to receive (A) such Holder's Applicable Percenta ge (as defined below) of the
Closing Cash Consideration and Contingent Payments, respectively and (B) the
Notes in the principal amount equal to such Holder's Applicable percentage in of
the principal amount of Notes included in the Total Consideration. A Holder's
"APPLICABLE PERCENTAGE" shall mean, with respect to any Holder, the percentage
listed on SCHEDULE A-1 hereto, alongside such Holder's name.
Section 2. ADDITION OF SCHEDULE A-1 OF THE MERGER AGREEMENT. The
Merger Agreement is hereby amended by adding a new SCHEDULE A-1, as attached
hereto.
Section 3. LIMITATION ON AMENDMENT. Except as expressly provided
herein, the Merger Agreement shall continue to be, and shall remain, in full
force and effect. Except as expressly provided herein, this First Amendment
shall not be deemed to be a waiver or, or consent to, or a modification or
amendment of, any other term or condition of the Agreement.
<PAGE>
Section 4. SEVERABILITY. If any provision of this Amendment shall be
declared by any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Amendment shall be affected and
shall remain in full force and effect.
Section 5. CAPTIONS; COUNTERPARTS. The captions in this Amendment are
for convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Amendment may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
Section 6. CONSTRUCTION. This Amendment shall be construed and
enforced in accordance with the laws of the State of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
NYMA, INC.
By: /s/ Azmat Ali
_________________________
Azmat Ali
Chairman and CEO
HOLDER REPRESENTATIVE
By: /s/ Peter Belford
_________________________
Peter Belford
AZMAT ALI
/s/ Azmat Ali
____________________________
PETER BELFORD
/s/ Peter Belford
____________________________
ARTHUR VERBIN
/s/ Arthur Verbin
____________________________
<PAGE>
NYMA ACQUISITION, INC.
By: /s/ James M. Dean
------------------------
Name:
Title:
<PAGE>
Exhibit 2.4
STOCK PURCHASE AGREEMENT
AMONG
Federal Data Corporation
AND
Gary S. and Areather T. Murray,
William S. Strang,
Holton B. Shipman, Jr.,
James K. White,
Peter A. Perucci and
Myron P. Erkiletian
AND
Sylvest Management Systems Corporation
June 18, 1997
<PAGE>
STOCK PURCHASE AGREEMENT
Agreement entered into as of June 18, 1997, by and among Federal Data
Corporation, a Delaware corporation (the "BUYER"), and Gary S. and Areather T.
Murray, William S. Strang (together, the "MAJORITY HOLDERS"), Holton B. Shipman,
Jr., James K. White, Peter A. Perucci and Myron P. Erkiletian (together, the
"MINORITY HOLDERS" and collectively with the Majority Holders, the "SELLERS"),
and Sylvest Management Systems Corporation, a Maryland corporation (the
"TARGET"). The Buyer, the Sellers and Target are referred to collectively herein
as the "PARTIES."
Sellers in the aggregate own all of the outstanding capital stock of
Target. Target is engaged in a business that consists primarily of providing
goods and services relating to computer hardware and software, systems
integration, network design, technical support and other areas of information
technology to agencies of the Government of the United States pursuant to
contracts with such agencies and subcontracts under prime contracts with such
agencies (the "BUSINESS").
This Agreement contemplates a transaction in which, on and subject to the
terms hereinafter set forth, Buyer will purchase from Sellers, and Sellers will
sell to the Buyer, all of the outstanding capital stock of Target, all as more
specifically set forth herein.
Now, therefore, in consideration of the premises and the mutual promises,
representations, warranties, and covenants herein contained, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows.
1. DEFINITIONS.
"ADJUSTED NET INCOME" means the aggregate of the net income (loss) of
Target for the period from January 1, 1997 through June 30, 1997, determined in
accordance with GAAP pursuant to an audit by Coopers & Lybrand, L.L.P.,
excluding, however, (a) any consideration of the Compensation Amount and any
related provisions for Income Taxes related thereto (but taking into
consideration any employment related taxes for which Target is liable with
respect thereto), and (b) any extraordinary gain or loss, together with any
related provisions for Income Taxes on such extraordinary gain or loss, and
after such audit, adjusted on a basis consistent with the Adjustments used to
prepare the unaudited pro forma balance sheet and income statement provided
pursuant to section 4(g)(iii) of this Agreement. Adjusted Net Income shall be
determined on a basis consistent with the information used in preparing the
Closing Net Asset Statement.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
<PAGE>
"APPLICABLE RATE" means the prime rate of interest published from time to
time in the Wall Street Journal plus 2% per annum.
"AFFILIATE" means, as to any Person, any corporation, partnership, limited
liability company or other entity which controls, is controlled by, or under
common control with, such Person, and as to any Person which is a corporation or
limited liability company, any director, managing member, officer or greater
than 10% shareholder of such Person.
"ANCILLARY AGREEMENTS" mean the Noncompetition Agreements executed by
TimeBridge Technologies, Inc., Gary S. Murray and William S. Strang, the
Management Agreement executed by Rene LaVigne, the Consulting Agreements
executed by Gary S. Murray and William S. Strang, and the Cooperation Agreement
executed by Target and TimeBridge Technologies, Inc., and the Escrow Agreement
among Buyer, the Sellers and a mutually satisfactory escrow agent, all in
connection with the transactions contemplated by this Agreement.
"ASSETS" means all of Target's right, title and interest in and to
properties, assets and rights of any kind, whether tangible or intangible, real
or personal, owned by Target, other than the Excluded Assets (collectively, not
including such Excluded Assets, the "ASSETS").
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"BUSINESS" has the meaning set forth in the Preface.
"BOOKS AND RECORDS" means (a) all records and lists pertaining to Target,
the Assets, the Business, customers, suppliers or personnel of Target, (b) all
product, business and marketing plans of Target and (c) all books, ledgers,
files, reports, plans, drawings and operating records of every kind maintained
by Target and relating to Target, the Business or the Assets, except for any
records or reports relating solely to (x) the reports relating to valuation
described on Section 4(e) of the Disclosure Schedule, and (y) any agreement
between or among shareholders which will be terminated as of the Closing, with
no terms surviving thereafter (the "EXCLUDED BOOKS AND RECORDS").
"BUYER" has the meaning set forth in the preface above.
"CLAIM" means any claim for indemnification pursuant to Section 9 of this
Agreement.
"COMPENSATION AMOUNT" means one-time bonuses payable to certain Business
Employees immediately prior to the Closing, which bonuses shall, in the
aggregate, equal $2,830,000.
"CLOSING" has the meaning set forth in section 2(f) below.
2
<PAGE>
"CLOSING DATE" has the meaning set forth in section 2(f) below.
"CLOSING DATE NET ASSETS" has the meaning set forth in section 2(c)(i)
below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means any information concerning the Target,
Business, or Assets or the businesses and affairs of Buyer, or their respective
Affiliates that is not already generally available to the public.
"CONTRACT" means any written agreement, contract, lease, purchase order,
memoranda of understanding or other binding contractual commitment of Target,
provided, however, that the term Contract shall not, for any purpose hereof,
include any Excluded Assets.
"DISCLOSURE SCHEDULE" has the meaning set forth in section 4 below.
"EBIT" means, for any period, the Adjusted Net Income for such period,
adjusted to deduct therefrom interest income and to add thereto the following,
to the extent deducted in calculating such Adjusted Net Income: (a) income tax
expense, (b) interest expense, and (c) any employment related taxes for which
Target is liable with respect to the Compensation Amount.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Section
3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Section
3(1).
"ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, judgments, orders, codes, or
injunctions, which impose liability for or standards of conduct concerning the
manufacture, processing, generation, distribution, use, treatment, storage,
disposal, cleanup, transport or handling of Hazardous Substances including, The
Resource Conservation and Recovery Act of 1976, as amended, The Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), The Toxic Substances Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, to the extent it relates to the
handling of and exposure to hazardous or toxic materials or similar substances,
and any other so-called "Superfund" or "Superlien" law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGREEMENT" means the Escrow Agreement among Buyer, Sellers and a
3
<PAGE>
mutually acceptable escrow agent, in the form to be agreed upon between Buyer
and the Seller Representative, relating to the holding of certain proceeds from
the prepayment of the Notes and the disbursement of such proceeds, as set forth
herein and therein.
"EXCLUDED ASSETS" notwithstanding any other provision of this Agreement,
shall mean the following assets of Target which are to be transferred by Target
prior to or simultaneously with the Closing hereunder, so that such assets will
not be owned by Target after consummation of the transactions contemplated
hereby:
(i) all receivables or notes payable from Affiliates of Target or
shareholders of Target;
(ii) all of Target's causes of action, choses in action, rights of
recovery and rights of set-off of any kind against any Person arising out of or
relating to the Excluded Assets or the Excluded Liabilities;
(iii) any refunds of Taxes for periods ending on or prior to the
Closing Date;
(iv) all assets set forth on section 5(d) of the Disclosure Schedule,
which will be held by TimeBridge Technologies, Inc. and/or Gary S. Murray or a
corporation controlled by him as of the Closing and additional assets acquired
after April 30, 1997, as set forth in a supplement to such section 5(d) to be
provided by Sellers at least two (2) Business Days prior to Closing and approved
by Buyer, such approval not to be unreasonably withheld; and
(v) all unbilled receivables arising from the assets included on
section 5(d) of the Disclosure Schedule.
"EXCLUDED LIABILITIES" notwithstanding any other provision of this
Agreement, shall mean the following liabilities and obligations of Target or
relating to the Business or the Assets, which are not intended to be borne by
Target or Buyer by reason of the purchase of the Target Shares pursuant to the
terms of this Agreement:
(a) all causes of action, choses in action, rights of recovery and rights
of set-off of any kind by any Person against Target arising out or relating to
any acts or omissions of Target, or any events occurring, prior to the Closing
Date;
(b) all liabilities and obligations for Taxes of Target relating to the
periods ending on or prior to the Closing Date except to the extent such
liabilities and obligations relate to current periods and have been accrued for
on the Closing Date Net Asset Statement;
(c) all liabilities and obligations incurred by or on behalf of the
Sellers, Target or Target's Affiliates in connection with (i) the transactions
contemplated by this Agreement, including any fees due to Quarterdeck Investment
Partners, Inc., Shaw, Pittman, Potts & Trowbridge or, except as expressly set
forth herein, Coopers & Lybrand, L.L.P., or (ii) the transactions described in
section 5(d) below and the formation of TimeBridge Technologies, Inc., including
any fees due to Sack & Associates and Haronson, Fetridge & Weigel;
4
<PAGE>
(d) all liabilities and obligations (other than accounts payable
constituting Retained Accounts) directly arising out of the Excluded Assets, as
set forth on section 5(d) of the Disclosure Schedule attached hereto or out of
the business operated with such Excluded Assets, or the business of TimeBridge
Technologies, Inc.;
(e) all liabilities and obligations to Affiliates of Target other than for
the provision of goods or services in the ordinary course of business on arm's
length terms;
(f) all other liabilities and obligations for which TimeBridge
Technologies, Inc. or any Seller has expressly assumed responsibility pursuant
to this Agreement or otherwise;
(g) all Pre-Closing Environmental Liabilities;
(h) all liabilities and obligations relating to former employees of Target
no longer employed by Target as of the close of business on the business day
prior to the Closing Date, including the employees designated on section 5(k) of
the Disclosure Schedule, except to the extent that Buyer has specifically agreed
that Target shall retain responsibility for such obligations in this Agreement;
(i) all obligations for any indebtedness for borrowed money; except to the
extent the same are reflected on the Closing Net Asset Statement;
(j) all other obligations and liabilities of Target accruing, or incurred
by Target, any time prior to the Closing except to the extent such obligations
and liabilities are accrued or noted on the Closing Net Asset Statement;
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENTS" has the meaning set forth in section 4(g) below.
"FIXTURES" means any fixtures, machinery, installations and building
equipment owned by Target and located at or on any Leased Real Property.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time, except to the extent deviations therefrom are applied
in making the Adjustments.
"GOVERNMENTAL AUTHORITY" means any Federal, state, municipal or local
government, governmental authority, regulatory or administrative agency,
governmental commission, department, board, bureau, court, tribunal, arbitrator
or arbitral body.
"GOVERNMENT CONTRACTS" means contracts or subcontracts held by Target in
which the ultimate contracting party is the United States government or any
agency or instrumentality thereof.
"GOVERNMENT-FURNISHED PROPERTY" means all machinery, equipment, tools,
dies, spare
5
<PAGE>
parts and all other personal property and fixtures loaned, bailed or otherwise
furnished by the United States Government to the Target pursuant to the
Government Contracts.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"HAZARDOUS SUBSTANCE" means any hazardous or toxic substance or waste,
pollutant or contaminant including petroleum products, asbestos, PCBs and
radioactive materials.
"INCOME TAX" means any federal, state, local, or foreign income tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"INCOME TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"INDEMNIFIED PARTY" has the meaning set forth in section 9(d)(i) below.
"INDEMNIFYING PARTY" has the meaning set forth in section 9(d)(i) below.
"INTELLECTUAL PROPERTY" means the following, to the extent related to the
Business (a) all inventions (whether patentable or unpatentable and whether or
not reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"INVENTORY" means all inventory owned by Target or reflected on the Closing
Net Asset Statement and held for resale in the Business, wherever the same may
be located.
"KNOWLEDGE" means actual knowledge. Subject to the remaining provisions of
this definition, as to any corporation, limited liability company or
partnership, the knowledge of any executive officer of such corporation or the
managing member or managing director of such limited liability company or any
general partner of any such partnership shall constitute knowledge of the
entity. Any reference in this Agreement to "Knowledge of Majority Holders" or
"Knowledge of Target" or other similar phrase shall mean the Knowledge of Gary
Murray, Areather Murray and William Strang, Holton Shipman, Rene LaVigne,
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Christopher Lynch, Mays Nakashima, Shirley Bharath, Stuart Strang and Susan
Pequigney. Any reference in this Agreement to "Knowledge of Buyer" or other
similar phrase shall mean the Knowledge of Allan Holt, Peter Clare, Lisa
Valentine, Dan Young or Charles Mathews.
"LEASEHOLD IMPROVEMENTS" shall mean all leasehold improvements situated in
or on the Leased Real Property used in the Business and owned by Target.
"LOSS CONTRACT" means any Contract for which Target has accrued a loss on
its financial statements or which Target reasonably expects, based on Target's
Knowledge as of the date of this Agreement and the Closing Date, to result in a
loss.
"MAJORITY HOLDERS" has the meaning set forth in the preface above.
"MATERIAL ADVERSE CHANGE" means any change relating to the Business or the
Assets which has a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means a material adverse affect on the business,
financial condition, operations, results of operations or future prospects (to
the extent reasonably foreseeable as of the date hereof or the date of Closing)
of the Business or the Assets taken as a whole.
"MINORITY HOLDER" has the meaning set forth in the preface above.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in section
4(g) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in section 4(g)
below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in section 4(g)
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"PARTY" means Buyer and each Seller.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department agency, or political subdivision
thereof).
"PERSONAL PROPERTY" shall mean all of the personal property, whether
tangible or intangible, owned by Target, except for the personal property on
section 5(d) of the Disclosure Schedule.
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"PRE-CLOSING ENVIRONMENTAL LIABILITIES" means, in connection with the
Business or the Real Property, any written notice, claim, demand, action, suit,
complaint, proceeding or other communication by any Person or Government
Authority alleging liability or potential liability (including liability for
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damage, personal injury, fines or penalties) arising
out of, relating to, based on or resulting from circumstances which, as of the
Closing Date, exist and form the basis of any violation or alleged violation of
any Environmental Laws, including the presence, Release or threatened Release of
any Hazardous Substance.
"PURCHASE PRICE" has the meaning set forth in section 2(b) below.
"REAL PROPERTY" means all real property owned, leased, operated or occupied
by the Target as of the date of this Agreement, except for the real property
described in section 5(d) of the Disclosure Schedule (Excluded Assets), together
with all Leasehold Improvements or Fixtures located thereon.
"REFERENCE AMOUNT" means $3,270,000.
"RELEASE" means any spill, leak, discharge, disposal, pumping, pouring,
emitting, emptying, injecting, abandoning, leaching, dumping or allowing to
escape of any Hazardous Substance.
"RETAINED ACCOUNT" means all billed accounts receivable and trade accounts
payable arising from the assets described on section 5(d) of the Disclosure
Schedule, but retained by Target, but only to the extent such accounts are
reflected on the Closing Net Asset Statement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, OTHER THAN (a)(i) mechanic's, materialmen's, and
similar liens, and (ii) other statutory liens, which have been disclosed to
Buyer, with respect to amounts not yet due and payable or which are being
contested in good faith through appropriate proceedings, (b) liens for taxes not
yet due and payable or for taxes that the taxpayer is contesting in good faith
through appropriate proceedings which have been disclosed to Buyer, for which
adequate reserves are maintained and reflected on the Financial Statements, to
the extent required by GAAP (c) purchase money liens and liens securing rental
payments under capital lease arrangements which are reflected on the Closing Net
Asset Statement and which do not arise in whole or in part from indebtedness or
capital lease arrangements which constitute Excluded Assets, and (d) other
encumbrances disclosed in the Schedules to this Agreement.
"SELLER REPRESENTATIVE" means Gary S. Murray, or any other Seller hereafter
designated by a majority in interest of the Sellers to act in the capacity of
Seller Representative under this Agreement, which other Seller shall be
identified to Buyer by written notice in accordance with the terms hereof.
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"SUBSIDIARY" means any corporation, partnership, limited liability company,
joint venture or other entity in which Target, directly or indirectly, holds
more than fifty percent (50%) of the voting power of all equity securities or
other ownership interests of such entity, or possesses, directly or indirectly,
power to direct or cause the direction of management or policies (whether
through ownership of voting securities or otherwise).
"SELLER" has the meaning set forth in the preface above.
"TARGET" has the meaning set forth in the preface above.
"TARGET SHARE" means any share of the Common Stock, par value $1.00 per
share, of Target.
"TAX" or "TAXES" means any federal, state, local or foreign net or gross
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, (including taxes under Code Sec. 59A), customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax, governmental fee or like assessment or charge of any kind
whatsoever, together with any interest and penalties, whether as a primary
obligor or as a result of being a "transferor" (within the meaning of Section
6901 of the Code and any corresponding state and local law) of another person or
a member of an affiliated, consolidated or combined group.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TIMEBRIDGE TECHNOLOGIES" means TimeBridge Technologies, Inc. a Delaware
corporation, and any Affiliates thereof.
"THIRD PARTY CLAIM" has the meaning set forth in section 9(d) below.
Other Defined Terms. The following terms shall have the meanings defined
for such terms in the Section set forth below:
TERM SECTION REFERENCE
---- -----------------
Adjustments Section 4(g)
Assignment of Claims Act Section 4(c)
Assignment of Contracts Section 4(c)
Act Business Employees Section 5(k)
Buyer Indemnification Section 9(b)
Matter Buyer Parties Section 9(b)
Cash Consideration Section 2(b)
CERCLA Section 1
Closing Net Asset
Statement Section 2(c)
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Cooperation Agreement Section 6(c)(ii)
Coopers Section 2(d)
Determination Date Section 2(c)(i)
EBIT Objection Notice Section 2(d)(i)
EBIT Report Section 2(d)
June 30 EBIT Section 2(d)
Leased Real Property Section 4(m)(ii)
Material Contracts Section 4(p)(i)
Material Lease Section 4(m)(ii)
Material Intellectual
Property Section 4(o)(i)
Material Non-Owned
Intellectual Property Section 4(o)(ii)
Net Assets Section 2(c)(i)
Noncompetition Agreement Section 2(e)
Note Section 2(b)
Objection Notice Section 2(c)(ii)
Parties preface
Permit Section 4(r)
Post-Closing Adjustment Section 2(c)(ii)
Pre-Closing Default Section 11(a)
Product Warranties Section 6(d)
Projections Section 4(h)
Pro Rata Share Section 2(b)
Receivables and Unbilled
Costs Section 4(z)(iii)
Required Consents Section 5(g)
Retained Employees Section 5(k)
S Corporation Section 4(1)(vii)
Seller Indemnification
Matters Section 9(c)
Seller Parties Section 9(c)
Shareholder Agreements Section 3(b)(iv)
Termination Date Section 11(a)(iv)
TimeBridge Transfers Section 5(d)
2. PURCHASE AND SALE OF TARGET SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from each Seller, and each Seller agrees
to sell to the Buyer, all of such Seller's Target Shares, free and clear of all
restrictions, for the consideration specified below in this section 2.
(b) TOTAL CONSIDERATION AND TERMS. The aggregate consideration for the
Target Shares to be purchased by the Buyer hereunder (the "PURCHASE PRICE")
shall, subject to adjustment as provided in section 2(c) hereof, consist of (i)
Thirty-Three Million Three Hundred Forty Nine Thousand Five Hundred Seventy
Three Dollars ($33,349,573) in cash
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(the "CASH CONSIDERATION"); and (ii) promissory notes in the form attached
hereto as Exhibit A (collectively, the "NOTES"), made by Federal Data
Corporation, in the aggregate principal amount of Seven Million Dollars
($7,000,000), which aggregate principal amount shall be subject to increase as
set forth therein, and subject to the rights of set-off as provided in section
9(g) hereof. At the Closing, the Buyer shall pay to the Sellers by wire transfer
of immediately available funds to an account or accounts designated in writing
by the Sellers an amount equal to the Cash Consideration and issue and deliver
to the Sellers the Notes. The Purchase Price shall be paid to or as directed in
writing by each of the Sellers in proportion to their respective holdings of
Target Shares as set forth in section 3(b) of the Disclosure Schedule (their
respective "PRO RATA SHARES").
(c) NET ASSET ADJUSTMENT. Not later than ninety (90) days after the
Closing Date, the Majority Holders shall cause to be prepared and delivered to
Buyer an audited special purpose statement of the Net Assets (as defined below)
as of the Closing (the "CLOSING NET ASSET STATEMENT") which shall have been
audited by Coopers & Lybrand L.L.P. in accordance with GAAP, applied on a basis
consistent with, and following the accounting principles, procedures, policies
and methods employed by Target in preparing Target's Most Recent Fiscal Year End
balance sheet (to the extent consistent with GAAP); provided, however, that
appropriate adjustments shall be made to exclude the Excluded Assets and
Excluded Liabilities. It is understood that the Closing Net Asset Statement will
reflect payment of, and any liability incurred for, payment of the Compensation
Amount. Buyer and Sellers each shall be responsible for one-half of the fees and
expenses charged by Coopers & Lybrand for preparing such Closing Net Asset
Statement. Buyer and Sellers shall promptly provide the other Party hereto
access to, and copies of, all information reasonably requested by the other
Party or its representatives in connection with the preparation of the Closing
Net Asset Statement or to investigate the basis of any dispute therewith
(provided that Sellers shall not be required to provide any Excluded Books and
Records which would not reasonably be deemed material to the preparation of the
Closing Net Asset Statement).
(i) Buyer shall have a period of thirty (30) days after delivery to
it of the Closing Net Asset Statement to provide to the Seller
Representative notice setting forth with reasonable specificity any
objection thereto, which objection shall relate only to any matters which
affect the amount of Net Assets shown on the Closing Net Asset Statement
(an "OBJECTION NOTICE"). Failure to provide an Objection Notice within such
thirty-day period shall constitute Buyer's approval of the Closing Net
Asset Statement as so delivered. If Buyer timely provides an Objection
Notice, Buyer and the Seller Representative shall promptly commence good
faith discussions in an attempt to resolve any issues raised in the
Objection Notice. If Buyer and the Seller Representative are unable to
resolve such dispute within thirty (30) days after the delivery of the
Objection Notice, such dispute shall be resolved by a Big Six accounting
firm mutually acceptable to the Buyer and the Majority Holders or, in the
absence of agreement, by a Big Six accounting firm selected by lot after
eliminating Target's and Buyer's principal outside accountants and one
additional firm designated as objectionable by Buyer and the Seller
Representative. At or prior to the time such dispute is submitted to such
accounting firm for resolution, Buyer shall provide a specific proposed Net
Asset amount. The accounting firm so selected shall make its
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determination within thirty (30) days after delivery to it of the Objection
Notice which determination shall be final and binding upon the Parties with
respect to the Post-Closing Adjustment. The fees and expenses of such
accounting firm shall be paid by the Buyer and the Sellers pro rata in
accordance with each Party's asserted position relative to the accounting
firm's final determination. The amount of the Net Assets on the Closing
Net Assets Statement, as determined pursuant to this section, shall be the
"CLOSING DATE NET ASSETS." For purposes of this Agreement, "NET ASSETS"
means the book value of total Assets owned by Target as of the Closing,
less the book value of Target's liabilities as of the Closing, other than
all Excluded Liabilities, each as determined in accordance with GAAP,
applied on a basis consistent with, and following the accounting
principles, procedures, policies and methods employed by Sellers in
preparing Target's Most Recent Fiscal Year End balance sheet. The date on
which the Closing Date Net Assets is determined shall be the "DETERMINATION
DATE." The "POST-CLOSING ADJUSTMENT" shall be computed by subtracting the
Reference Amount from the Closing Date Net Assets.
(ii) If the Post-Closing Adjustment is a positive number, Buyer shall
pay to each of the Sellers his Pro Rata Share of such excess, in
immediately available funds, within ten (10) business days after the
Determination Date.
(iii) If the Post Closing Adjustment is a negative number, such
deficiency shall be disbursed to Buyer from the Escrow Account provided for
in the Escrow Agreement, (or, if no such Escrow Account has been
established, then by Sellers in accordance with their respective Pro Rata
Shares) in immediately available funds, within ten (l0) business days after
the Determination Date.
(d) ADJUSTMENT TO NOTE.
(i) Not later than ninety (90) days after the Closing Date, the EBIT
generated by the Business and the Assets for the period from January 1,
1997 through June 30, 1997 (the "June 30 EBIT") shall be determined by
Coopers & Lybrand L.L.P. ("Coopers") in accordance with GAAP, applied on a
basis consistent with, and following the accounting principles, procedures,
policies and methods employed in preparing Target's Most Recent Fiscal Year
End balance sheet and the Closing Net Asset Statement, to the extent not
inconsistent with GAAP. Buyer shall timely provide Coopers & Lybrand with
access to all necessary information and records required to make such
determination. Buyer and Sellers each shall be responsible for one-half of
the fees and expenses charged by Coopers Lybrand for determining such EBIT.
Coopers shall deliver a report of the June 30 EBIT (the "EBIT Report")
within such ninety day period to Buyer and Seller's Representative.
(ii) Each of Buyer and the Seller Representative shall have a period
of thirty (30) days after delivery to it of the EBIT Report to provide the
other with a notice (the "EBIT Objection Notice") setting forth with
reasonable specificity any objection thereto, which objection shall relate
only to any matters which affect the amount of the June 30 EBIT. Failure of
either such party to provide an EBIT Objection Notice
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within such thirty-day period shall constitute such party's acceptance of
the June 30 EBIT as shown on the EBIT Report. If either such party timely
provides an EBIT Objection Notice, Buyer and the Seller Representative
shall promptly commence good faith discussion in an attempt to resolve the
objection within thirty (30) days of delivery of the EBIT Objection Notice.
If Buyer and the Seller Representative are unable to resolve such dispute
within thirty (30) days after delivery of the EBIT Objection Notice, such
dispute shall be resolved by a Big Six accounting firm mutually acceptable
to the Buyer and the Seller Representative or, in the absence of agreement,
by a Big Six accounting firm selected by lot after eliminating Target's and
Buyer's principal outside accountants and one additional firm designated as
objectionable by Buyer and the Seller Representative. The accounting firm
so selected shall make its determination within thirty (30) days after
delivery to it of the EBIT Objection Notice which determination shall be
final and binding upon the Parties with respect to determination of the
June 30 EBIT. The fees and expenses of such accounting firm shall be paid
(i) by Buyer, if the June 30 EBIT is determined to be more than 5% greater
than the amount shown on the EBIT Report; or (ii) by Sellers, if the June
30 EBIT is determined to be more than 5% less than the amount shown on the
EBIT Report, or (iii) in equal shares by Buyer and Sellers if the June 30
EBIT is determined to be within 5% of the amount shown on the EBIT Report.
(iii) The principal amount of the Notes shall be increased, based
upon the June 30 EBIT, as finally determined in accordance with this
subsection (d), if and to the extent provided in section 6 of the Notes.
(e) NONCOMPETE. At the Closing, Sellers shall cause Timebridge
Technologies, Inc., Gary S. Murray and William S. Strang to enter into mutually
satisfactory noncompetition agreements with Buyer in the form of Exhibit E-l,
E-2 and E-3 hereto (the "NONCOMPETITION AGREEMENTS"). Buyer and Sellers agree
that the amount of the consideration allocable to such Noncompetition Agreements
shall be $300,000.
(f) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Latham & Watkins in
Washington, D.C., commencing at 9:00 am. local time on June 30, 1997 or on the
second business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or such other date as the Buyer and the Sellers
may mutually determine (the "CLOSING DATE").
(g) DELIVERIES AT THE CLOSING. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in section 7(a) below, (ii) the Buyer will deliver to the Sellers
the various certificates, instruments, and documents referred to in section 7(b)
below, (iii) each of the Sellers will deliver to the Buyer stock certificates
representing all of such Seller's Target Shares, endorsed in blank or
accompanied by duly executed assignment documents, and (iv) the Buyer will
deliver to each Seller the portions of the consideration specified in section
2(b)(i) and (ii) above .
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3. REPRESENTATIONS AND WARRANTIES OF THE BUYER AND SELLERS.
(a) REPRESENTATIONS AND WARRANTIES CONCERNING THE BUYER. The Buyer
represents and warrants to the Sellers that the statements contained in this
section 3(a) are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this section 3(a)).
(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of
Delaware.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions, except as
the enforceability hereof may be affected by bankruptcy, insolvency,
fraudulent transfer, reorganization and similar laws affecting the rights
of creditors generally, and by general principles of equity. The Buyer need
not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement, except for the
filing contemplated by section 5(b) below.
(iii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is
subject or any provision of its Certificate of Incorporation or Bylaws.
(iv) BROKERS' FEES. The Buyer has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(b) REPRESENTATIONS AND WARRANTIES CONCERNING THE SELLERS. Each of the
Sellers represents and warrants to the Buyer that the statements contained in
this section 3(b) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this section 3(b)) with respect to himself, except as set forth in
the Disclosure Schedule attached hereto.
(i) AUTHORIZATION OF TRANSACTION. Each Seller has full power and
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of each Seller, enforceable against such Seller in
accordance with its terms and conditions, except as
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the enforceability hereof may be affected by bankruptcy, insolvency,
fraudulent transfer, reorganization, and similar laws affecting the rights
of creditors generally, and by general principles of equity. Except as
expressly set forth herein, no Seller is required to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency or any other Person in order to
consummate the transactions contemplated by this Agreement, except for the
filing contemplated by section 5(b) below and the filing of a notice with
the Small Business Administration with respect to the transfer of control
of a company qualified under section 8(a) of the Small Business Act.
(ii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which any Seller is
subject. The Parties recognize that a certain proportion of the contracts
currently held by Target (as shown on section 4(ab) of the Disclosure
Schedule) have been awarded under Small Business Administration programs
which are subject to certain restrictions.
(iii) BROKERS' FEES. No Seller has any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could
become liable or obligated. The Parties acknowledge and agree that, as part
of the Closing, Sellers will pay to Quarterdeck Investment Partners a fee
pursuant to a separate agreement.
(iv) TARGET SHARES. Each Seller holds of record and owns beneficially
the number of Target Shares set forth next to his name in section 3(b) of
the Disclosure Schedule, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state securities
laws), taxes, Security Interests, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands other than such
restrictions as may be contained in the agreements (the "SHAREHOLDER
AGREEMENTS") described in section 3(b) of the Disclosure Schedule, each of
which will be terminated and of no further force or effect as of the
Closing. No Seller is a party to any option, warrant, purchase right, or
other contract or commitment (other than the Shareholder Agreements and
this Agreement) that could require such Seller to sell, transfer, or
otherwise dispose of any capital stock of Target. No Seller is a party to
any voting trust, proxy, or other agreement or understanding with respect
to the voting of any capital stock of Target.
4. REPRESENTATIONS AND WARRANTIES CONCERNING TARGET. Each of Target and the
Majority Holders jointly and severally represent and warrant to the Buyer that
the statements contained in this section 4 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this section 4), except as set forth in the
disclosure schedule delivered by the Sellers to the Buyer on the date hereof and
initialed by the Parties (the "DISCLOSURE SCHEDULE"). The Disclosure Schedule
will be
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arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this section 4.
(a) CORPORATE EXISTENCE AND CAPITALIZATION.
(i) Target is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Maryland. Target is duly
authorized to conduct business as a foreign corporation and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a
Material Adverse Effect. Section 4(a) of the Disclosure Schedule contains
an accurate list of all jurisdictions in which Target is qualified to do
business as a foreign corporation
(ii) The authorized capital stock of Target consists solely of 1,000
shares of common stock, par value $1.00 per share, of which 1,000 shares
are issued and outstanding. All of the issued and outstanding shares of
such common stock have been duly authorized and validly issued and are
fully paid and nonassessable and are not subject to any preemptive rights.
To the knowledge of Target, each of the Sellers owns of record and
beneficially the number of shares of common stock set forth on section 3(b)
of the Disclosure Schedule with respect to such Seller, free and clear of
all restrictions on transfer (other than restrictions under the Securities
Act, state securities laws and the Shareholder Agreements, which
Shareholder Agreements shall be terminated on or before the Closing),
taxes, Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims and demands, other than such restrictions as
may be contained in the Shareholder Agreements.
(iii) Target has not issued or granted any outstanding options,
warrants, rights or other securities convertible into or exchangeable or
exercisable for shares of the capital stock of Target, any other
commitments or agreements providing for the issuance of additional shares
of the capital stock of Target, the sale of treasury shares, or for the
repurchase or redemption of shares of Target's capital stock, or any
obligations arising from canceled stock. There are no agreements of any
kind which may obligate Target to issue, purchase, register for sale,
redeem or otherwise acquire any of its securities or interests. There are
no outstanding or authorized stock appreciation, phantom stock or similar
rights with respect to Target.
(iv) To the Knowledge of Target, except for the Shareholder
Agreements, there are no voting trusts, shareholder agreements, proxies or
other agreements in effect with respect to the voting or transfer of the
Target Shares.
(b) AUTHORIZATION OF TRANSACTION. Target has all requisite corporate
power and authority to own, lease and operate the properties owned by it, to
conduct its business as it is presently being conducted, to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement has been
duly executed and delivered by Target.
(c) NONCONTRAVENTION. Except as set forth in section 4(c) of the
Disclosure
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Schedule, neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Target or any of the Assets is subject or any provision of the
charter or bylaws of Target or (ii) conflict with, result in a material breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any Contract to which Target is a party or by which it is bound or
to which any of the Assets is subject (or result in the imposition of any
Security Interest upon any of the Assets), except where, prior to or
simultaneously with the Closing, such Contract is being terminated or the
consent of the other party thereto will have been obtained. Target does not need
to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement, except
where the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a Material Adverse Effect on the business,
financial condition, operations, results of operations, or future prospects of
the Business, or on the ability of the Parties to consummate the transactions
contemplated by this Agreement, and except for the filing contemplated by
section 5(b) below. Notwithstanding the foregoing, Target and the Majority
Holders make no representation as to the applicability of 41 U.S.C. section 15
(the "Assignment of Contracts Act"), 31 U.S.C. section 3727 (the "Assignment of
Claims Act"), or the assignability of any contracts subject to any restrictions
under Small Business Administration programs, as to each of which Buyer has made
its own independent analysis.
(d) TITLE TO ASSETS. Except as set forth in section 4(d) of the
Disclosure Schedule (and except for a portion of the partitions used in Target's
offices in Landover, Maryland, which are borrowed from Target's sublessor),
Target has good title to, or a valid leasehold interest in, or, as to
Intellectual Property, valid license of, the property and assets used by it, or
shown on the Most Recent Balance Sheet or acquired after the date thereof and
shown on the Closing Net Asset Statement, free and clear of any Security
Interests. Except as contemplated by this Agreement, the Assets are all of the
assets necessary for the conduct of the Business as currently conducted.
(e) BOOKS AND RECORDS. Target has made and kept (and given Buyer access
to) Books and Records and accounts, which, in reasonable detail, accurately and
fairly reflect in all material respects, Target's business. The minute books of
Target to which Buyer has been given access do not omit reference to any
corporate transaction of Target which will continue in effect or remain binding
on Target or any of the Assets after the Closing.
(f) SUBSIDIARIES. Target has no Subsidiaries.
(g) FINANCIAL STATEMENTS. Attached hereto as Exhibit B are the following
financial statements (collectively the "FINANCIAL STATEMENTS"): (i) audited
balance sheets and audited statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended December 31, 1996
(the "MOST RECENT FISCAL YEAR END"), December 31, 1995 and December 31, 1994 for
Target, (ii) unaudited pro forma balance sheets as of December
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31, 1996, and unaudited pro forma income statements for the years ended December
31, 1996, 1995 and 1994, in each case for the Business, based upon internally
prepared adjustments (the "Adjustments") to the balance sheet and income
statements contained in the 1996, 1995 and 1994 audited financial statements,
relating to the Excluded Assets and Excluded Liabilities, and the revenues and
expenses associated therewith, as hereinafter described, including without
limitation certain operating results related to the business being transferred
in the TimeBridge Transfers and certain expenses for, and compensation paid to,
certain executive officers of Target as reflected in Exhibit B, and (iii)
unaudited consolidated balance sheets and statements of operations, (the "MOST
RECENT FINANCIAL STATEMENTS") as of and for the four months ended April 30, 1997
(the "MOST RECENT FISCAL MONTH END") for Target, as adjusted consistent with the
Adjustments. The historical Financial Statements described in clause (i) present
fairly the financial condition of Target as of such dates and the results of
operations of Target for such periods. The pro forma Financial Statements
described in clauses (ii) and (iii) present fairly the financial condition of
the Business, and of the Retained Accounts, as of such dates and the results of
operations of the Business for such periods. The Financial Statements (including
the notes thereto but not including the Adjustments described above in this
section 4(g)) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby; PROVIDED, HOWEVER, that the Most
Recent Financial Statements are subject to normal year-end adjustments (which
will not be material individually or in the aggregate) and lack footnotes and
other presentation items. The Adjustments have been prepared on a consistent
basis throughout the periods covered, and follow the accounting procedures,
policies and methods employed by Target in preparing its Most Recent Fiscal Year
End balance sheet.
(h) PROJECTIONS. Majority Holders have delivered to Buyer projected income
statements and balance sheets of the Business for the 1997 and 1998 fiscal years
(the "PROJECTIONS"), which are attached as Exhibit C hereto. The Projections
were prepared in good faith and represent management's current estimate, based
on Target's current Knowledge, of the financial position and results of
operations of the Business for the periods indicated. To Target's Knowledge as
of the date hereof and as of the Closing Date, the assumptions forming the basis
of such Projections are reasonable. Buyer recognizes that the basis for such
Projections assumes the "stand alone" operation of the Business.
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
Recent Fiscal Year End, there has not been any Material Adverse Change in
Target, subject to the Adjustments referred to in section 4(g) and to the
transfer of the Excluded Assets, or the Business, taken as a whole.
Specifically, without limiting the generality of the foregoing, since the Most
Recent Fiscal Year End, except as contemplated in this Agreement or as set forth
in the Disclosure Schedule, there has not been any:
(i) change in accounting methods, principles, or practices by Target,
except as required by law or by generally applicable changes instituted in
the accounting profession;
(ii) material damage, destruction or loss (whether or not covered by
insurance) adversely affecting the tangible Assets or the Business;
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(iii) cancellation of any material indebtedness or waiver or release
of any material right or claim of Target;
(iv) increase in the rate of compensation payable or to become payable
to, any bonus, incentive compensation, service award or other like benefit
granted, made or accrued, contingently or otherwise, for or to the credit
of, any director, officer or other employee (other than a Retained
Employee), except as provided in any employment agreement (including any
union contract) between Target and any such persons or in any employee
plan, and except for any increases in the normal course of business;
(v) addition to or modification of the Employee Benefit Plans,
arrangements or practices affecting the officers, directors, or Business
Employees of Target other than (A) contributions made for 1996 in
accordance with the normal practices of the Target, (B) the extension of
coverage to such persons who became eligible after the Most Recent Fiscal
Year End, or (C) as set forth in the April 1, 1997 Employee Policy and
Procedure Manual, as provided to Buyer prior to the date hereof;
(vi) cancellation or termination of any material Contract or entry
into any Contract which is not in the ordinary course of the business of
Target;
(vii) sale, assignment or transfer of any material portion of the
Assets, other than in the ordinary course of business, except as approved
in writing in advance by Buyer and except for transfers of the Excluded
Assets;
(viii) capital expenditure or the execution of any lease or any
incurring of liability therefor by Target involving payments in excess of
$50,000 or $100,000 in the aggregate with respect to any such expenditure
or lease or otherwise not substantially in accordance with Target's past
practice;
(ix) any indebtedness incurred by Target for borrowed money or any
commitment to borrow money entered into by Target, or any loans made or
agreed to be made by Target except for loans constituting Excluded Assets
and indebtedness incurred in the ordinary course of business as part of
Target's inventory financing or under the existing working capital line of
credit;
(x) revaluation by Target of any of the Assets, including without
limitation writing off notes, or writing off accounts receivable except
with respect to accounts receivable written off in the ordinary course of
business;
(xi) payment or declaration of any dividends, distributions with
respect to any of the Target Shares, or redemption, repurchase or
acquisition by Target of any of the Target Shares except for dividends
substantially consistent with past practice to permit Sellers to pay
applicable income taxes related to the income or gain of Target taxed to
Sellers and except for the TimeBridge Transfers; or
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(xii) agreement by Target or any of the Majority Holders to do any of
the things described in the preceding clauses (i) through (xi), other than
as expressly provided herein.
(j) UNDISCLOSED LIABILITIES. Target does not have any material liability
(whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due, including any
liability for Taxes), except for (i) liabilities set forth on the Most Recent
Financial Statements (or in any notes to the December 31, 1996 Financial
Statements), (ii) liabilities which have arisen after the Most Recent Fiscal
Month End in the ordinary course of business, and (iii) Excluded Liabilities.
(k) LEGAL COMPLIANCE. Target has complied in its operations in all
material respects with all applicable statutes and governmental rules,
regulations and Permits. No action, suit, proceeding, hearing, or, to Majority
Holders' Knowledge, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against Target alleging any failure so to comply,
nor, to the Knowledge of Majority Holders, are any such actions threatened.
(l) TAX MATTERS.
(i) Filing of Tax Returns. Target has timely filed with the
appropriate taxing authorities all returns (including without limitation
information returns and other material information) in respect of Taxes
required to be filed through the date hereof and will timely file any such
returns required to be filed on or prior to the Closing Date, in each case,
subject to any applicable extensions. The returns and other information
filed are complete and accurate in all material respects. Except with
respect to income tax returns for the calendar year 1996, Target has not
requested any extension of time within which to file returns (including
without limitation information returns) in respect of any Taxes.
(ii) PAYMENT OF TAXES. All Taxes that accrue or are payable by Target
in respect of taxable periods that end on or before the Closing Date and
for any taxable periods that begin before the Closing Date and end
thereafter to the extent such Taxes are attributable to the portion of such
period ending on the Closing Date (such period being referred to herein as
a "Pre-Closing Partial Period"), as determined under the closing of the
books method of allocation, have (or will have, on or before the Closing
Date) been timely paid, or an adequate reserve has been established
therefor, as set forth in Section 4(1) of the Disclosure Schedule or in the
Financial Statements. Target has no liability for Taxes in excess of the
amounts so paid or reserves so established.
(iii) AUDIT, INVESTIGATIONS OR CLAIMS. Except as set forth in
Section 4(1) of the Disclosure Schedule, there are no pending or to the
best of each Majority Holder's knowledge, threatened audits, investigations
or claims for or relating to any additional Tax liability, and there are no
matters under discussion with any
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governmental authorities with respect to Taxes that in the reasonable
judgment of any Majority Holder is likely to result in a material
additional liability of Target for Taxes. Except as set forth in such
Section, neither Target nor any Majority Holder has been notified that any
taxing authority intends to audit a return for any period.
(iv) LIEN. There are no liens for Taxes (other than for current
Taxes not yet due and payable) on the Assets.
(v) SAFE HARBOR LEASE PROPERTY. None of the Assets is property that
is required to be treated as being owned by any other person pursuant to
the so-called safe harbor lease provisions of former Section 168(f)(8) of
the Code.
(vi) SECURITY FOR TAX-EXEMPT OBLIGATIONS. None of the Assets directly
or indirectly secures any debt the interest on which is tax-exempt under
Section 103(a) of the Code.
(vii) TAX EXEMPT USE PROPERTY. None of the Assets is "tax exempt use
property" within the meaning of Section I68(h) of the Code.
(viii) FOREIGN PERSON. Neither Target nor any Seller, is a person
other than a United States person within the meaning of the Code.
(ix) S CORPORATION. Target is an "S Corporation" as defined in
Section 1361(a) of the Code and has been an S Corporation for each taxable
year since April 1, 1988.
(x) WAGE WITHHOLDING. Target has withheld all Taxes required to have
been withheld and paid by them on their behalf in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party, and such withheld Taxes have either been
duly paid to the proper governmental authority or properly set aside in
accounts for such purpose.
(xi) DISCLOSURE STATEMENTS. Target has not filed with respect to any
item a disclosure statement pursuant to Code Section 6662 or any comparable
disclosure with respect to foreign, state and/or local statutes.
(xii) LIABILITY FOR TAXES OF OTHERS. Target (A) has not been a member
of any affiliated group filing a consolidated federal income tax return and
(B) has no liability for the Taxes of any person as defined in Section
7701(a)(1) of the Code under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(xiii) NO WITHHOLDING. The transaction contemplated herein is not
subject to the tax withholding provisions of Section 3406 of the Code, or
of Subchapter A of Chapter 3 of the Code or of any other provision of law.
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(xiv) PARACHUTE PAYMENTS. Target has not made any payments, nor is
Target obligated to make any payments, and is not a party to any agreement
that could obligate it to make any payments that will not be deductible
under Section 280G of the Code.
(xv) CHANGES IN ACCOUNTING METHOD. Except as set forth in section
4(1) of the Disclosure Schedule, Target has not agreed to nor is it
required to make any adjustment pursuant to Section 481(a) of the Code by
reason of a change in accounting method initiated by Target, and neither
Target nor any Majority Holder has any knowledge that the IRS has proposed
any such adjustment or change in accounting method.
(xvi) SECTION 1374 ASSETS. Target would not recognize gain under
Section 1374 of the Code in the event that it sold the Assets to Buyer at
Closing in a transaction that constituted an actual sale of such Assets for
federal income tax purposes (instead of a deemed sale of such Assets under
Section 338(h)(10) of the Code).
(m) REAL PROPERTY.
(i) Target does not own any real property.
(ii) Section 5(m)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to Target [for use in the
Business] (the "Leased Real Property"). Target has made available to the
Buyer correct and complete copies of the leases and subleases listed in
section 5(m)(ii) of the Disclosure Schedule (as amended to date). With
respect to each lease and sublease listed in section 5(m)(ii) of the
Disclosure Schedule which relates to more than 2,000 square feet of net
rentable area (a "Material Lease"), the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect. Target has not
assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered
any interest in any such leasehold or subleasehold. Target enjoys peaceful
and undisturbed possession of all Leased Real Property, and Target has
fulfilled in all material respects all the obligations required to be
performed by it through the date hereof with respect to such Material
Leases. Each Material Lease is transferable (upon receipt of necessary
landlord consents) in connection with the transactions contemplated hereby.
(iii) Target has received all required material approvals of
governmental authorities (including Permits and material certificates of
occupancy or other similar certificates permitting lawful occupancy)
required in connection with the present use of the space covered by the
Material Leases.
(iv) Target has not received notice of any special assessment
relating to any Real Property for which Target would be liable under any of
the Real Property Leases.
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(n) TANGIBLE PERSONAL PROPERTY. All items of tangible Personal Property
having a gross book value equal to or greater than $1,000 constituting part of
the Assets are in good operating condition and repair (subject to normal wear
and tear) and are suitable for the purposes for which they are intended (taking
into account the constantly evolving nature of computer and other technological
equipment).
(o) INTELLECTUAL PROPERTY. To the Knowledge of Majority Holders, Target
has not interfered with, infringed upon, misappropriated, or violated any
Intellectual Property rights of third parties in any material respect, and
Target has not received, within the last two years any written charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation. To the Knowledge of Target, no
third party has interfered with, infringed upon, misappropriated, or violated
any material Intellectual Property rights of Target constituting part of the
Assets.
(i) Section 4(o)(i) of the Disclosure Schedule identifies those items
of Intellectual Property owned by Target and used in the Business, the loss
of which could reasonably be expected to have a Material Adverse Effect
("Material Intellectual Property"), and identifies each license, agreement,
or other permission which Target has granted to any third party with
respect to any such Material Intellectual Property (together with any
exceptions). Copies of all documents of Material Intellectual Property have
been made available to Buyer. With respect to each item of Intellectual
Property required to be identified in section 4(o)(i) of the Disclosure
Schedule:
(A) the item is not subject to any adverse outstanding
injunction, judgment, order, decree, ruling, or charge; and
(B) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of Target,
threatened which challenges the legality, validity, enforceability, use, or
ownership of the item.
(ii) Section 4(o)(ii) of the Disclosure Schedule identifies each
material item of Intellectual Property that any third party owns and that
Target uses in the Business pursuant to license, sublicense, agreement, or
permission ("Material Non-Owned Intellectual Property"). Copies of all
documents of Material Non-Owned Intellectual Property have been made
available to Buyer. With respect to each item of Intellectual Property
required to be identified in section 4(o)(ii) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect; provided, however, that no representation is made as to the
ownership of any Material Non-Owned Intellectual Property or as to the
right of the Target's licensor, sublicensor or grantor to grant any such
license, sublicense, agreement or permission;
(B) neither Target nor, to the Knowledge of Target, any other
party to the license, sublicense, agreement, or permission is in breach or
default which would permit termination, modification, or acceleration
thereunder; and
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(C) Target has not granted any sublicense or similar right with
respect to the license, sublicense, agreement, or permission.
(iii) Notwithstanding the foregoing, the parties acknowledge that the
names "Sylvest" and "Syltech" are currently used by Affiliates of the
Majority Holders. Such use shall be discontinued at or before the Closing.
(iv) With respect to each software license or software sublicense to
which Seller is a party, Seller has not granted any sublicense or similar
right except in accordance with the terms and conditions thereof, including
the payment of all applicable royalties, and is not otherwise in material
violation of such license or sublicense agreement.
(p) CONTRACTS.
(i) Buyer has been given access to copies of the currently effective
Contracts (other than Contracts constituting Excluded Assets) described in
clauses (A) through (P) to which Target is a party (the "Material
Contracts"), which copies are true and correct in all material respects,
subject to ordinary course extensions, renewals, and similar changes.
Section 4(p) of the Disclosure Schedule lists:
(A) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Contract affecting
the ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property, providing for payments in
excess of $50,000 per annum;
(B) any Contract (or group of related Contracts) (other than a
Government Contract) for the furnishing or receipt of services or delivery
of goods and/or materials, the performance of which will extend over a
period of more than one year after the date of this Agreement or under
which Target paid or received aggregate consideration in excess of $400,000
during the year ended December 31, 1996, or reasonably expects based upon
the operation of the Business as of the date hereof to pay or receive
aggregate consideration in excess of $400,000 during the year ending
December 31, 1997;
(C) any Government Contract, including any Government Contract
awarded pursuant to Section 8(a) of the Small Business Act (15 U.S.C.
Section 637(a)), each of which is denoted as a Section 8(a) contract on the
Disclosure Schedule;
(D) any Contract creating or governing a partnership, limited
liability company, joint venture or any teaming agreement or other Contract
(however named) which teaming agreement or other Contract involves a
sharing of profits, losses, costs, or liabilities by Target with any other
Person and involving a liability of Target in excess of $100,000 per annum;
(E) any note, debenture, guarantee, loan, letter of credit,
surety-bond
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or other agreement, instrument or commitment (or group of related
agreements) in effect as of the date hereof, under which Target has
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, including any agreement or commitment for future loans, credit or
financing or any capitalized lease obligation, in excess of $100,000 or
under which Target has imposed a Security Interest on any of the material
Assets, tangible or intangible;
(F) any agreement (other than a teaming agreement) imposing on
Target a restriction or obligation regarding confidentiality or
noncompetition (the "Confidentiality Agreements"); provided that Target and
Sellers shall not be required to include in such section 4(p) of the
Disclosure Schedule the identities of any parties who have entered into
confidentiality agreements in connection with the potential purchase of the
stock or assets of Target pursuant to the solicitation of offers undertaken
by Quarterdeck Investment Partners until the Closing has been completed;
(G) any Contract involving an obligation of Target to make any
payment to any Affiliate of Target, any Seller, or any of Target's
directors, officers or employees (not including salary or similar
compensation reflected on Target's payroll records);
(H) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees (not including customary fringe benefits such as accrued
vacation or sick leave);
(I) any collective bargaining agreement or any other agreement
with any employee representative of a group of employees or labor union
relating to wages, hours or other conditions of employment;
(J) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis which is not terminable
at-will or which provides annual compensation in excess of $100,000 or
severance benefits;
(K) any agreement under which Target has advanced or loaned any
amount which remains outstanding, to any of its directors, officers, and
employees outside the ordinary course of business and which will not be
paid off at or prior to the Closing or will not constitute an Excluded
Asset;
(L) each power of attorney which is currently binding on Target
and which could reasonably be deemed to bind Assets with a value in excess
of $100,000 (except to the extent the same is included in any of the
Contracts to which Buyer has been provided access as set forth herein);
(M) each Contract requiring capital expenditures by Target in
connection with the Business or the Assets after the date hereof in an
amount in excess of $50,000 individually or $100,000 in the aggregate;
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(N) each written warranty, guaranty or other similar undertaking
with respect to contractual performance extended by Target other than in
the ordinary course of business;
(O) each Loss Contract; and
(P) each amendment, supplement, and modification (whether written
or oral) in respect of any of the foregoing.
(ii) With respect to each such Material Contact, except as set forth
in section 4(p) of the Disclosure Schedule, (A) the Contract is legal,
valid, binding, enforceable, and in full force and effect in all material
respects; and (B) no party is in breach or default which would permit
termination, modification, or acceleration under the Contract.
(iii) Except as set forth on section 4(p) of the Disclosure Schedule,
Target is not engaged in any renegotiations of any amounts paid or payable
to Target under current or completed Contracts with any Person having the
contractual or statutory right to demand or require such renegotiation.
Target has not received any written demand for such renegotiation in
respect of any such Contract. Except as set forth on section 4(p) of the
Disclosure Schedule, no Person, including any government contracting
officer or prime contractor has given Target written notice that any
material adjustments are required to the terms of any Material Contracts.
(q) NOTES AND ACCOUNTS RECEIVABLE. The amount of all notes, accounts
receivable, unbilled invoices and other debts due or recorded in the Financial
Statements, except to the extent the same constitute Excluded Assets, (A) will
be, subject to the reserves reflected on the Closing Net Asset Statement, good
and collectible in full in the ordinary course of business and in any event not
later than one hundred eighty (180) days after the Closing Date, or after the
date billed, if later (assuming use by Buyer of billing and collection practices
which are customary in the industry), and (B) are not subject to any
counterclaim or setoff except to the extent of any such reserve.
(r) LICENSES, PERMITS AND AUTHORIZATIONS. Section 4(r) of the Disclosure
Schedules contains a list of all material licenses, approvals, consents,
franchises and other permits (including without limitation, all facility
security clearances) of or with any governmental regulatory or administrative
authority, whether foreign, federal, state or local, which are held by Seller
and necessary for the current conduct of the Business as it is now conducted
(each a "Permit"). All such Permits are in full force and effect and there are
no proceedings pending or, to Majority Holders' Knowledge, threatened that seek
the revocation, cancellation, suspension or adverse modification thereof. Such
Permits constitute all of the material licenses, approvals, consents, franchises
and permits necessary to permit Target to own, operate, use and maintain its
Assets in the manner in which they are now operated and maintained and to
conduct the Business substantially as currently conducted. All required filings
with respect to such Permits have been timely made and all required applications
for renewal thereof have been timely filed.
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(s) INSURANCE. Section 4(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) held by Target:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage; and
(iv) the amount (including a description of how deductibles and
ceilings are calculated and operate) of coverage.
With respect to each such insurance policy, (A) the policy is legal, valid,
binding, enforceable, and in full force and effect in all material respects; (B)
no event has occurred which, with notice or the lapse of time, would permit
termination, modification, or acceleration, under the policy. Section 4(s) of
the Disclosure Schedule describes any material self-insurance arrangements
affecting Target. To Majority Holders' knowledge, Target is not a named insured
or otherwise the beneficiary of coverage under any insurance policy held by any
other Person.
(t) LITIGATION. Section 4(t) of the Disclosure Schedule sets forth each
instance in which Target (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or has received written
notice that it has been threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator.
(u) PRODUCT WARRANTY. Substantially all of the products manufactured,
sold, leased, and delivered by Target have conformed in all material respects
with all applicable contractual commitments. Target has no material liability
for replacement or repair thereof or other damages in connection therewith,
subject only to (i) the express provisions of any of the Material Contracts, and
(ii) the reserve for product warranty claims set forth in the Financial
Statements, as adjusted for operations and transactions through the Closing Date
in accordance with the past custom and practice of Seller.
(v) EMPLOYEES. Except as set forth in section 4(v) of the Disclosure
Schedule, as of the date of this Agreement, no executive officer has given
Target written notice of plans to terminate employment with Target during the
next 12 months. Target is not a party to or bound by any collective bargaining
agreement. There are no complaints against Target pending before the National
Labor Relations Board or any similar state or local labor agency by or on behalf
of any employee of Target. Target has complied in all material respects with all
laws, rules and regulations relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment
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of social security and similar taxes (hereinafter collectively referred to as
the "EMPLOYMENT LAWS"). Target is not liable for the payment of taxes, fines,
penalties or other amounts, however designated, for failure to comply with any
of the foregoing Employment Laws. There are no representation questions,
arbitration proceedings, labor strikes, slow downs or stoppages, grievances or
other labor disputes pending or, to Target's Knowledge, threatened with respect
to the Target's Employees.
(w) ENVIRONMENTAL MATTERS. Target owns no real estate, and each portion of
the Leased Real Property is part of a larger premises also subject to lease
agreements with other tenants. To Target's knowledge, (i) Target has complied
with and is not in violation of any Environmental Laws, (ii) Target is not
required to hold or obtain any environmental permits, certificates, consents or
other settlements agreements, licenses, approvals, registrations or
authorizations under any Environmental Laws, (iii) no notice, citation, summons
or order has been issued, no complaint has been filed, no penalty has been
assessed and no investigation or review is pending or threatened by any
governmental or other entity relating to the Leased Real Property or Target's
operations with respect to any alleged violation by Target of any Environmental
Law or with respect to any use, possession, generation, treatment, storage,
recycling, transportation or disposal of any Hazardous Substances by or on
behalf of Target, (iv) there are no facts or circumstances related to
environmental matters concerning the Leased Real Property that could reasonably
be expected to lead to any future environmental claims against Target under
current Environmental Laws, and (v) there have been no environmental
inspections, investigations, studies, audits, tests, reviews or other analyses
conducted in relation to any Leased Real Property, Target or the Business which
have been provided or reported to Target.
(x) EMPLOYEE BENEFITS.
(i) Section 4(x) of the Disclosure Schedule lists each Employee
Benefit Plan that Target maintains or to which Target contributes.
(ii) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in all material respects with the
applicable requirements of ERISA, the Code, and other applicable laws.
(iii) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-l's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to
each such Employee Benefit Plan.
(iv) All contributions for any period ending on or before the Closing
Date which are not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom and practice of
Target. All premiums or other payments for all periods ending on or before
the Closing Date have been paid with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan.
(v) Each such Employee Benefit Plan which is an Employee Pension
Benefit
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Plan meets the requirements of a "qualified plan" under Code section 401(a)
and has received a favorable determination letter from the Internal Revenue
Service.
(vi) Copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan have been made available to
Buyer.
(vii) With respect to each Employee Benefit Plan that Target maintains
or ever has maintained or to which it contributes, ever has contributed, or
ever has been required to contribute,Target has not incurred any material
liability to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal liability) or under the Code
with respect to any such Employee Benefit Plan which is an Employee Pension
Benefit Plan.
(viii) Target never has contributed to, or ever has been required to
contribute to, any Multiemployer Plan or has any material liability
(whether known or unknown, whether asserted or unasserted, whether absolute
or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any withdrawal
liability, under any Multiemployer Plan.
(ix) Target does not maintain nor ever has maintained, or contribute,
ever has contributed, or ever has been required to contribute to any
Employee Welfare Benefit Plan providing medical, health, or life insurance
or other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance
with Code section 4980B).
(y) GUARANTIES. Target is not a guarantor or otherwise is responsible for
any liability or obligation (including indebtedness) of any other Person.
(z) GOVERNMENT CONTRACTS. With respect to each Government Contract:
(i) During the past five (5) years, no payment has been made by
Target, or by any Person authorized to act on Target's behalf, to any
Person in connection with any such Government Contracts, in violation of
applicable procurement laws or regulations or in violation of (or requiring
disclosure pursuant to) the Foreign Corrupt Practices Act.
(ii) Section 4(z) of the Disclosure Schedule sets forth all
outstanding or pending change orders which could reasonably be deemed to
involve an amount in excess of $100,000 and all claims, requests for
equitable adjustments, outstanding or pending subcontractor, supplier or
vendor claims, and all teaming agreements, joint venture arrangements and
agency agreements, with respect to such Government Contracts.
(iii) Target's accounts receivable, unbilled costs and accrued profits
(less cus-
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tomer progress payments), notes receivable, contracts in progress, accounts
payable and notes payable (collectively the "RECEIVABLES AND UNBILLED
COSTS") as of the Closing shall be recorded on its books and records in the
ordinary course of business in accordance with GAAP applied on a consistent
basis with prior years, subject to the adjustments referred to in section
4(g) above.
(iv) With respect to each Government Contract, except as set forth in
section 4(z) of the Disclosure Schedule, (A) Target has complied with all
material terms and conditions of such Government Contract, including all
clauses, provisions and requirements incorporated expressly, by reference
or by operation of law therein, (B) Target has complied with all
requirements of applicable laws pertaining to such Government Contract, (C)
all representations and certifications executed, acknowledged or set forth
in such Government Contract were complete and correct in all material
respects as of their effective date, and Target has complied in all
material respects with all such representations and certifications, and (D)
neither the United States Government nor any prime contractor,
subcontractor or other Person has notified Seller in writing, that Target
has breached or violated any applicable law, or any material certification,
representation, clause, provision or requirement pertaining to such
Government Contract. Anything herein to the contrary notwithstanding, to
the extent any breach of this representation would also constitute a breach
of the representation made in section 4(u), such breach shall be subject to
the terms of section 6(d) below.
(v) Target is not currently, and has not been in the past five years,
debarred or suspended from doing business with any Federal government
agency, nor has any such suspension or debarment action been commenced. No
show cause notices, notices of termination for default or cure notices have
been issued against Target in the past five years, except, as to any such
cure notices, those with respect to which cure has been made in the
ordinary course of business.
(vi) Target is not currently and has not been in the past five years,
under administrative, civil or criminal indictment or, to Majority Holders'
Knowledge, investigation, with respect to any alleged irregularity,
misstatement or omission arising under or in any way relating to any of
such Government Contracts.
(vii) No security clearances are required to be held by Target for the
execution of its obligations under any such Government Contracts; Target
never has been denied a security clearance necessary to perform any such
Government Contract unless such clearance has later been granted.
(aa) BROKERS' FEES. Except for such fees as are due to Quarterdeck
Investment Partners for which Sellers shall be solely liable, Target has no
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(ab) BACKLOG. Section 4(ab) of the Disclosure Schedule identifies for each
Government
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Contract constituting part of the Assets Target's reasonable estimate, based on
Target's past experience with such Government Contract and other experience in
the industry, of the amounts to be recognized under the term of such Government
Contract during the projected term thereof, assuming all option years are
exercised. The Parties recognize, however, that a number of such Government
Contracts (as indicated in the Disclosure Schedule) are IDIQ contracts, as to
which no specific quantities are designated, and that there can be no assurance
that the actual experience under any particular Government Contract will conform
to such estimates.
(ac) DISCLOSURE. The representations and warranties contained in this
section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this section 4 not misleading.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its reasonable efforts to
cooperate with the other parties in order to consummate and make effective the
transactions contemplated by this Agreement.
(b) HSR AND GOVERNMENTAL CONSENTS. Each of Buyer and the Sellers consent
to give any notices to, make any filings with, and to use its reasonable efforts
to obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in sections
3(a)(iii) and 3(b)(ii) and 4(c) above. Notwithstanding any other provision in
this Agreement, no Seller shall be required to agree to or execute, in
connection with any such authorization, consent or approval, any agreement
pursuant to which such Seller is required to guarantee, provide indemnification,
or otherwise protect, Buyer or any contracting party with respect to the
performance, after Closing, by Buyer, Target or any other party under any
Material Contract (as defined in section 4(p) above). Without limiting the
generality of the foregoing, each of the Parties will file any Notification and
Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act. Any fee in connection
with such filing and any review or processing thereof shall be the
responsibility of Buyer. Each of Buyer and Sellers will use its reasonable
efforts to obtain a waiver from the applicable waiting period, and will make any
further filings pursuant to the Hart-Scott-Rodino Act that may be necessary in
connection therewith. Target and Majority Holders shall consult with Buyer prior
to the delivery of, and give Buyer the opportunity to comment on, any notice
which Target or Sellers are required to provide to the Small Business
Administration pursuant to the terms of Target's section 8(a) contracts or the
Small Business Act.
(c) OPERATION OF BUSINESS. From the date hereof to the Closing Date,
Target and Sellers shall not, and Sellers will not permit Target to, engage in
any practice, take any action, or enter into any transaction outside the
ordinary course of the Business (except as set forth in section 5(d) below with
respect to TimeBridge Technologies). Without limiting the
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generality of the foregoing, except with the written consent of Buyer or with
respect solely to the Excluded Assets, Target shall not and Sellers will not
cause Target to:
(i) change or amend the Articles of Incorporation or Bylaws of Target;
(ii) enter into, extend, materially modify, terminate or renew any
Material Contract, except as described in section 5(c) of the Disclosure
Schedule with respect to a contract with TVA and except for the transfer,
to TimeBridge Technologies, Inc. of leases for space in Lanham, Maryland,
New Jersey and Florida, which are part of the Excluded Assets;
(iii) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any material Assets, or any interests
therein, except in the ordinary course of business and except for the
transfer, to TimeBridge Technologies, Inc. of leases for space in Lanham,
Maryland, New Jersey and Florida, which are part of the Excluded Assets;
(iv) except as otherwise required by law, and except as otherwise
described in section 5(c) of the Disclosure Schedule, take any action
relating to Business Employees with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or
agreements of Target in effect on the date hereof and described in the
April 1, 1997 Employee Policy and Procedure Manual or in section 5(c) of
the Disclosure Schedule), or with respect to any increase of benefits
payable under its severance or termination pay policies or agreements in
effect on the date hereof or increase in any material respect the
compensation or fringe benefits of any employee or pay any benefit not
required by any existing Employee Plan, agreement or policy;
(v) make any change in the key management structure of Seller,
including, without limitation, the hiring of additional officers or the
termination of existing officers other than in the ordinary course of
business and other than in connection with the transactions relating to
TimeBridge Technologies described in section 5(d) below; provided, however,
that in no event shall TimeBridge Technologies hire any person who is an
employee of Target as of the date hereof, except for any Retained Employee;
(vi) adopt, enter into or amend any Employee Plan, agreement
(including, without limitation, any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of
its employees;
(vii) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire
any material assets or business of any corporation, partnership,
association or other business organization or division thereof;
(viii) make any capital expenditures or commitments in excess of
$100,000 in
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the aggregate, except any such expenditures disclosed to Buyer prior to the
date hereof;
(ix) make any material loans or advances to any Person;
(x) make any material tax election or settlement or compromise with
tax authorities which would affect the Assets or the Business after the
Closing hereunder, except as set forth in section 4(1) of the Disclosure
Schedule;
(xi) intentionally do any other act which would cause any
representation or warranty in this Agreement to be or become untrue in any
material respect;
(xii) fail to maintain the tangible Assets in their current state of
repair, excepting normal wear and tear or casualty, or fail to replace
consistent with Target's past practice inoperable, worn out, obsolete or
destroyed Assets;
(xiii) make any changes in accounting policies or practices except as
set forth- in section 5(c)(xiii) of the Disclosure Schedule; provided that
Sellers shall cause Target to report to Buyer promptly any additional such
changes Target proposes to make, and Buyer shall not withhold its consent
to any such change if the same would not reasonably be deemed to have an
adverse effect on Target or Buyer after the Closing; or
(xiv) declare, set aside, or pay any dividend or make any distribution
with respect to its capital stock or redeem, purchase, or otherwise acquire
any of its capital stock, except for dividends substantially consistent
with past practice of Target, to permit Target's shareholders to pay any
applicable Income Taxes related to the income or gain of Target taxed to
Target's shareholders and any dividend or distribution of Excluded Assets;
or
(xv) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
(d) PRESERVATION OF BUSINESS. Target will make reasonable efforts, and
Sellers will make all reasonable efforts to cause Target, to keep the Business
and Assets substantially intact, including its present operations, physical
facilities, and relationships with employees, lessors, licensors, suppliers and
customers, subject to customary commercial practice. Notwithstanding the
foregoing or any other provision of this Agreement, Buyer understands that
Target intends, prior to or simultaneously with Closing hereunder, to distribute
to the Sellers the contracts, employees, assets, and business and all related
liabilities, other than the Retained Accounts, as set forth in section 5(d) of
the Disclosure Schedule, which contracts, assets, employees, business and
liabilities are anticipated to be held after the Closing by TimeBridge
Technologies (the "TimeBridge Transfers"), and no actions taken to implement
such TimeBridge Transfers shall be deemed in violation of this subsection (d) or
any other provision of this Agreement. Buyer agrees to provide all reasonable
cooperation to Sellers and Target in the implementation of such transfer, at no
material expense to Buyer.
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(e) FULL ACCESS. Sellers and Target will permit representatives of the
Buyer to have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of Target, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to the Business.
(f) CONFIDENTIALITY. Except (i) for any governmental filings required in
order to complete the Transactions, and (ii) as Buyer and Majority Holders may
agree or consent in writing, each of Buyer and each Seller will treat and hold
as such any Confidential Information it receives from the other Party or its
representatives (including Quarterdeck as a representative of Sellers), in the
course of the reviews contemplated by section 5(e) or otherwise, and will not
use any of the Confidential Information except in connection with this
Agreement; PROVIDED, HOWEVER, that any party hereto may disclose such
information to its legal and financial advisors, lenders, financing sources and
their respective legal advisors and representatives so long as such Persons
agree to maintain the confidentiality of such information in accordance with
this section 5(f). If this Agreement is terminated for any reason whatsoever,
each Party will return to the other Party or destroy all tangible embodiments
(and all copies of the Confidential Information, including all information
prepared by the receiving party or such receiving party's representatives, which
are in its possession or the possession of its representatives. Any provision
hereof to the contrary notwithstanding, information not so destroyed (or
returned) will remain subject to these confidentiality provisions
(notwithstanding any termination of this Agreement) until the second anniversary
of the date of this Agreement. The foregoing confidentiality provisions shall
not apply to such portions of the information received which (i) are or become
generally available to the public through no action by the receiving party or by
such party's representatives, (ii) are or become available to the receiving
party on a nonconfidential basis from a source, other than the disclosing party
or its representatives, which the receiving party believes, after reasonable
inquiry, is not prohibited from disclosure of such information by a contractual,
legal or fiduciary obligation, and shall not apply to any disclosure after the
Closing by Buyer of any information relating solely to Target (other than
information relating to TimeBridge Technologies or the Excluded Assets or
Excluded Liabilities).
(g) CONSENTS; REASONABLE EFFORT; COOPERATION. Target and Sellers will make
reasonable efforts to obtain in writing the consents of third parties, in
connection with the consummation of the Transactions, listed on Exhibit G
attached hereto, such consents to be substantially in the form set forth in such
Exhibit G (the "Required Consents"). Notwithstanding any other provision in this
Agreement, Sellers shall not be required to agree to or execute, in connection
with any such consent or any novation of any Contract, any agreement pursuant to
which any Seller is required to guarantee, provide indemnification, or otherwise
protect Buyer or any contracting party with respect to the performance, after
Closing, by Target or any other party under any Contract.
(h) NOTICE OF DEVELOPMENTS. Buyer will give written notice to the Seller
Representative of any development causing a breach of any of the representations
and warranties in section 3(a) which has not previously been disclosed to the
Seller Representative, with reasonable promptness after Buyer gains Knowledge
thereof. The Seller Representative will give written notice to Buyer of any
development causing a breach of any
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of the representations and warranties in section 3(b) or 4 above relating to
Target, the Business, the Assets or the transactions contemplated hereby, which
has not previously been disclosed, with reasonable promptness after Target has
Knowledge thereof. Buyer will give the Seller Representative notice, as soon as
reasonably practicable after Buyer has Knowledge thereof, of any material
inaccuracy of the representations and warranties of Majority Holders with regard
to the Business or the Assets of which Buyer gains Knowledge from Buyer's or its
agents' due diligence investigation with regard to this Agreement.
(i) EXCLUSIVITY. Prior to the Closing or other termination of this
Agreement in accordance with the terms hereof, none of the Sellers will (and the
Sellers will not cause or permit Target to) accept an offer from any Person
relating to the acquisition of any capital stock or other voting securities, or
any portion of the Assets, of Target, other than in the ordinary course of
business (including any acquisition structured as a merger, consolidation, or
share exchange), other than the acquisition of Target Shares held by one Seller
by another Seller who is a Majority Holder and actions taken with respect to the
TimeBridge Transfers referred to in subsection (d) above. None of the Sellers
will vote their Target Shares in favor of any such nonpermitted acquisition
structured as a merger, consolidation, or share exchange.
(j) NO SOLICITATIONS. From the date hereof through the Closing Date or
termination of this Agreement in accordance with the terms hereof, neither
Target nor any Seller shall directly or through an agent (including Quarterdeck
Investment Partners acting as the agent of one or more Sellers) solicit,
participate in or initiate discussions or negotiations with any Person or group
of Persons (other than Buyer or any of its Affiliates) concerning any merger,
sale of assets, sale of shares of capital stock or similar transactions
involving Target or the Business.
(k) EMPLOYEE MATTERS. Upon the Closing, Buyer will cause Target to
continue the employment of each employee of Target ("BUSINESS EMPLOYEES") except
for such employees as are listed on section 5(k) of the Disclosure Schedule (the
"RETAINED EMPLOYEES") and except for such individuals as are designated on
section 4(v) of the Disclosure Schedule (together with the Retained Employees,
the "Excluded Employees") at a comparable level of salary and comparable
benefits as currently provided to such Business Employee by Target.
Notwithstanding the foregoing, Buyer shall not thereafter be restricted from any
modification in terms of employment or termination of the Business Employees in
the ordinary course of business. It is acknowledged and agreed that Buyer shall
have no obligation to pay, or cause Target after the Closing to pay, any
severance or termination payments (except to the extent any portion of the
Compensation Amount may be paid after Closing) to any Excluded Employee by
virtue of the termination of their employment with Target effective as of the
Closing.
(l) COOPERATION AGREEMENT. Buyer and TimeBridge Technologies, Inc. ("TTI")
will negotiate in good faith the terms of the Cooperation Agreement referred to
in section 6(c)(ii) below. The Cooperation Agreement will provide for
commercially reasonable terms under which TTI will have the right to utilize the
commercial vendor agreements of Target listed on Exhibit I attached hereto for
purposes of its business, at no cost or expense to
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Target for a reasonable period, to permit TTI to negotiate and enter into its
own contracts with the vendors covered by such agreements. The Cooperation
Agreement will also provide for the following matters, among others, in each
case upon terms mutually acceptable to Buyer and TTI: (1) the ability of Target
to utilize the services of certain members of TTI's technical staff, (2) the
right of Target to have priority rights to the services of (or, if necessary, to
hire) certain members of TTI's technical staff for purposes of the U.S. Courts
contract currently being performed by Target; (3) a sublease by Target of a
portion of the space currently leased by Target in Lanham, Maryland, to the
extent requested by Target, and (4) subcontracting of certain tasks by Target to
TTI. The Cooperation Agreement will provide the terms upon which such
individuals may be rehired by TTI.
(m) UPDATED CONTRACT BACKLOG AND FINANCIAL STATEMENTS. Prior to the
Closing, (i) Target shall provide an updated estimate of the amounts anticipated
to be recognized during the remaining term of the Government Contracts, prepared
on the same basis as described in the representation set forth in section 4(ab)
of this Agreement, and (ii) Target shall deliver to Buyer on a timely basis any
interim financial statements prepared by Target in the ordinary course of
business.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
period following the Closing.
(a) GENERAL. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will,
subject to the limitation set forth in section 5(g) above, take such further
action (including the execution and delivery of such further instruments and
documents) as any other Party reasonably may request, all at the sole cost and
expense of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under section 8 below). The Parties acknowledge and
agree that from and after the Closing the Buyer will be entitled to possession
of the Books and Records (other than such Books and Records relating solely to
the Excluded Assets and Excluded Liabilities, as to which Buyer shall be
entitled to possession of a complete and accurate copy), but will provide copies
thereof to Sellers promptly upon request therefor. Buyer will provide all
reasonable cooperation with Sellers in connection with obtaining any information
reasonably necessary for preparation of financial statements and tax returns,
recognizing the S corporation status of Target.
(b) LITIGATION SUPPORT. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, circumstance,
condition, occurrence, event, incident, action, failure to act, or transaction
prior to the Closing Date directly involving the Business, each of the other
Parties will make all reasonable efforts to cooperate with him or it and his or
its counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
reasonably necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under section
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8 below).
(c) USE OF SYLVEST NAME; CONTRACTUAL ARRANGEMENTS WITH TIMEBRIDGE
TECHNOLOGIES
(i) As soon as practicable after the Closing Date, but in no event
more than thirty (30) days thereafter, Majority Holders shall cause
Timebridge Technologies and its then-current Affiliates constituting
corporations or other entities controlled by either or both Majority
Holders, to make any necessary change to their names so as not to use or
include the tradename "Sylvest," "Syltech," or any other name beginning
with "Syl..." or otherwise confusingly similar with Sylvest, in connection
with the business of any TimeBridge Technologies entity, in any market or
location and to agree not to use any such tradename in connection with any
other business hereafter acquired or started by Majority Holders or any
such Affiliate. In the event Buyer or any of its Affiliates does not engage
in use of the name "Sylvest" in commerce (rather than merely as a technical
legal name of a corporation) for a period of eighteen consecutive months,
Buyer agrees to cause all rights to such name to be transferred to Gary S.
Murray (or his heirs and assigns and his or their nominee) without further
consideration. Gary S. Murray is an intended third party beneficiary of
this subsection (i).
(ii) The Parties acknowledge that certain of the work under some of
the Contracts has been performed by persons who are, or will be following
the Closing Date, employees and officers of TimeBridge Technologies, Inc.
and that it may be mutually beneficial for Buyer and TimeBridge
Technologies, Inc. to cooperate on certain future Contracts. The Parties
intend that such Persons shall continue to perform the functions which they
have historically performed under the Contracts following the Closing Date.
Target and TimeBridge Technologies, Inc. shall enter into a mutually
satisfactory cooperation agreement (the "COOPERATION AGREEMENT") which
shall govern the terms and conditions of such relationship.
(iii) This subsection (c) shall survive the Closing for a period of
ten (10) years.
(d) The parties acknowledge that products sold and delivered by Target
under the Government Contracts prior to the Closing Date may be subject to
certain warranties, relating to the condition, suitability or conformity of such
products to specified requirements, contained in such Government Contracts (the
"Product Warranties"), even though Target has not manufactured any of such
products. Majority Holders shall indemnify Buyer against any liability for
breach of any such Product Warranties, pursuant to the provisions of section 10
below, solely to the extent such Product Warranties exceed the coverage of any
warranties or other protections provided by the manufacturer of such products,
and provided that Buyer makes a claim with respect to such breach within the
two-year period following the Closing. Prior to making any claim against
Majority Holders with respect to any claim or liability relating to such Product
Warranties, Buyer shall make reasonable efforts for a period of ninety (90) days
from the date Buyer obtains Knowledge of such warranty claim to (A) determine
whether the claimed defect or other problems with the product is covered by a
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manufacturer's warranty or similar protection, and (B) obtain protection against
or reimbursement for any such claim or liability from the manufacturer of the
applicable product. Majority Holders shall provide all reasonable cooperation in
such efforts by Buyer.
(e) Majority Holders and Buyer agree as follows with respect to any
accounts receivable constituting Retained Accounts (the "Retained Receivables").
Buyer will cause Target to make commercially reasonable efforts to collect such
Retained Receivables. Notwithstanding the terms of items (A) and (B) of section
9(b), the indemnification provisions of section 9(b) shall apply to any
difference between the amount actually collected by or on behalf of Target
within 180 days after the Closing on any such Retained Receivable and the face
amount thereof, without regard to the minimum amount set forth in such item A
and without being subject to the aggregate cap for Buyer's right to
indemnification set forth in such item (B). Any Retained Receivable or portion
thereof not collected within such 180-day period shall be assigned by Target to
Majority Holders upon payment of such deficiency.
(f) Immediately after the Closing, Sellers shall reveal to Buyer the names
of the parties to the Confidentiality Agreements.
(g) ESCROW. The Notes shall be prepaid pursuant to section 1.4 of the
Notes. At the time of such prepayment (i) an aggregate of One Million Dollars
($1,000,000) of such prepayment amount shall be paid directly to the holders of
the Notes, and (ii) Three Million Dollars ($3,000,000) of such prepayment amount
shall be deposited by Buyer into the Escrow Account in accordance with the
Escrow Agreement and held and distributed as set forth in such Escrow Agreement.
Notwithstanding the foregoing, if, at the time of such prepayment, the
conditions set forth in the Escrow Agreement for distribution in full of the
Escrow Amount (as defined in the Escrow Agreement) have been satisfied, then the
full amount of such prepayment shall be paid directly to the holders of the
Notes.
(h) Except as otherwise set forth above, the terms of this Section 6 shall
survive the Closing for a period of two (2) years.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in sections 3(b) and
4 above shall be true and correct in all material respects at and as of the
Closing Date (except for those expressly relating to a different date);
(ii) Sellers shall have performed and complied in all material
respects with all of their covenants hereunder through the Closing;
(iii) no action, suit, or proceeding shall be pending before any court
or quasi-
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judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would prevent consummation of
any of the transactions contemplated by this Agreement or have a Material
Adverse Effect;
(iv) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated;
(v) the Buyer shall have received from counsel to the Sellers an
opinion substantially in the form set forth in Exhibit D-1 attached hereto,
addressed to the Buyer, reasonably satisfactory to Buyer and its counsel
and dated as of the Closing Date;
(vi) Buyer shall have received from Seller such certificates of its
duly authorized officers and others to evidence compliance with the
conditions set forth in this section 7(a) as may be reasonably requested by
Buyer;
(vii) Buyer shall have received the Required Consents;
(viii) Rene LaVigne shall have entered into an employment or
management agreement with Target in the form approved by Buyer and Rene
LaVigne and executed, subject to consummation of the transactions
contemplated hereby, as of the date of this Agreement, and Gary S. Murray
and William S. Strang shall have entered into consulting agreements with
FDC Technologies, Inc. in the forms approved by Buyer and Mr. Murray and
Mr. Strang, respectively, and executed, subject to consummation of the
transactions contemplated hereby, as of the date of this Agreement;
(ix) TTI and Majority Holders shall have executed and delivered to
Buyer the Noncompetition Agreements to which TTI or the Majority Holders
are a party in the forms attached as exhibits hereto, and executed, subject
to consummation of the transactions contemplated hereby, as of the date of
this Agreement, each of the Sellers shall have executed the appropriate
acknowledgement at the end of the Note payable to such Seller, TTI shall
have executed and delivered to Buyer a mutually satisfactory Cooperation
Agreement and Sellers shall have executed and delivered to Buyer the Escrow
Agreement; and
(x) The TimeBridge Transfers shall have been consummated and all
proceedings with respect thereto shall be satisfactory to Buyer and its
counsel in their reasonable discretion, including without limitation
delivery of a reasonably satisfactory opinion of TTI's counsel.
The Buyer may waive any condition specified in this section 7(a) in writing, or
by consummating the transactions contemplated hereby.
(b) CONDITIONS TO OBLIGATION OF THE SELLERS. The obligation of the Sellers
to consummate the transactions to be performed by them in connection with the
Closing is
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subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in section 3(a) above
shall be true and correct in all material respects at and as of the Closing
Date (except for those expressly relating to a different date);
(ii) the Buyer shall have performed and complied in all material
respects with all of its covenants hereunder through the Closing;
(iii) no action, suit, or proceeding shall be pending before any court
or quasijudicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would prevent
consummation of any of the transactions contemplated by this Agreement;
(iv) all applicable waiting periods (and any extensions thereof) under
the HartScott-Rodino Act shall have expired or otherwise been terminated;
(v) the Sellers shall have received from counsel to the Buyer an
opinion substantially in the form set forth in Exhibit D-2 attached hereto,
addressed to the Sellers, reasonably satisfactory to Sellers and their
counsel, and dated as of the Closing Date;
(vi) Sellers shall have received from Buyer resolutions adopted by the
Board of Directors of Buyer approving this Agreement, the Ancillary
Agreements and the transactions contemplated hereby and thereby, certified
by Buyer's corporate secretary or assistant secretary;
(vii) FDC Technologies, Inc. and Buyer shall have executed and
delivered to TimeBridge Technologies, Inc. and any applicable Seller, as
applicable, the Ancillary Agreements to which TimeBridge Technologies, Inc.
or such Seller is a party in the forms attached as exhibits hereto or, with
respect to the Consulting Agreements of Majority Holders, in the forms
initialed by the parties for identification as of the date of this
Agreement, Buyer shall have executed and delivered to TimeBridge
Technologies, Inc. a mutually satisfactory Cooperation Agreement, and Buyer
shall have executed and delivered to the Seller Representative the Escrow
Agreement; and
(viii) Sellers shall have received from Buyer such certificates of its
duly authorized officers and others to evidence compliance with the
conditions set forth in this section 7(b) as may be reasonably requested by
Sellers.
The Majority Holders may waive any condition specified in this section 7(b) in
writing or by consummating the transactions contemplated hereby.
8. CONSENTS TO ASSIGNMENT OR NOVATION; RISK OF LOSS.
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(a) Anything in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement to assign or novate any Contract, or
any claim or right or any benefit arising thereunder or resulting therefrom, if
an attempted assignment or novation thereof, without the consent of a third
party thereto, would constitute a breach thereof or in any way adversely affect
the rights of Target thereunder. If such consent is not obtained, or if an
attempted assignment or novation thereof would be ineffective or would affect
the rights thereunder so that Target would not receive all such rights, Sellers
and Buyer will cooperate, in all reasonable respects but without material cost
to Sellers which is not promptly reimbursed by Buyer, to obtain such consent as
soon as practicable and, until such consent is obtained, to provide to Target
the benefits under any Contract to which such consent relates (with Target
responsible for all the liabilities and obligations thereunder). Recognizing
that any action taken by Sellers pursuant to this section 8(a) is at the request
of and for the benefit of Buyer, Buyer agrees to indemnify and hold harmless
Sellers from and against any claim, loss, liability, damages, cost or expense
(including reasonable attorneys' fees and expenses) arising from or related to
any breach or default under such contracts by Target following the Closing Date
or any action taken by Sellers pursuant to the terms of this section 8(a) at the
request of Buyer. No failure of a Contract to be transferred shall be deemed to
affect any amount payable to Sellers pursuant to any provision of section 2 of
this Agreement (subject to any set-off rights expressly provided for in this
Agreement), except to the extent such failure is the result of any breach by
Target or any Seller of any covenant, representation or warranty contained
herein.
(b) RISK OF LOSS. If any material portion of the tangible Assets is
destroyed or damaged by fire or any other cause prior to the Closing Date which
destruction or damage disables Target from carrying on, or materially impairs
Target's ability to carry on, a material part of the Business, the Seller
Representative shall give written notice to Buyer as soon as reasonably
practicable after, but in any event within five (5) business days of, Majority
Holders obtaining Knowledge thereof, including information as to the amount of
insurance, if any, believed to cover such destruction or damage. In such event,
prior to the Closing, Buyer shall have the option, which shall be exercised by
written notice to the Seller Representative within ten (10) days after receipt
of the Seller Representative's notice or, if there are not ten days prior to the
Closing Date, as soon as practicable prior to the Closing Date, of (i) closing
with such Assets in their destroyed or damaged condition, in which event Buyer
shall be entitled to the proceeds of any insurance or other proceeds payable
with respect to such loss and, subject to the limitations set forth in section 9
hereof, to indemnification for any uninsured portion of such loss to the extent
provided by such section 9, and the full purchase price shall be paid, (ii) if
agreed by the Seller Representative, excluding such Assets from the transaction
contemplated hereby, in which case the purchase price shall be reduced by the
amount allocated to such Assets, as mutually agreed between the Parties, and
Sellers shall be entitled to promptly receive any insurance or other proceeds
payable with respect to such loss, or (iii) after providing Target with a
reasonable opportunity to repair such destruction or damage, terminating this
Agreement in accordance with section 10.
9. SURVIVAL; INDEMNIFICATION.
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(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties of the Parties contained in this Agreement shall survive the
Closing and continue in full force and effect for a period of two (2) years
thereafter except as otherwise expressly set forth herein and except that those
representations made with respect to the matters set forth in sections 4(a) (ii)
and (iii), 4(j), 4(1), 4(w), 4(x) and 4(z) and any claim with respect thereto
shall survive until ninety (90) days after the expiration of the applicable
statute of limitations (with extensions) with respect to the matters addressed
in those sections, or (ii) as otherwise expressly set forth herein. The
termination after Closing of the representations and warranties provided herein
shall not affect the rights of a party in respect of any claim made by such
party in a writing received by the other party prior to the expiration of the
applicable survival period provided herein.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER. In the event
Target or any Buyer suffers Adverse Consequences after the Closing as a result
of (i) the breach by Sellers or Target of any of their respective
representations and warranties contained in section 3(b) or 4 hereof or of any
covenant in section 2, 5 or 6 hereof, (ii) any third party claim with respect to
the operation of the Business or other actions of Target prior to the Closing
Date (except to the extent any such claim constitutes a liability included on
the Closing Net Asset Statement), (iii) any Excluded Liability or Pre-Closing
Environmental Liability, or (iv) any material breach or default by Target under
any of the Contracts prior to the Closing Date (each, a "BUYER INDEMNIFICATION
MATTER"), provided that the Buyer makes a written claim for indemnification
against Majority Holders pursuant to section 11(h) below within the survival
period described above, then the Majority Holders jointly and severally agree to
indemnify and hold harmless the Buyer and its Affiliates, and their respective
directors, officers, shareholders and employees (collectively, the "BUYER
PARTIES") from and against any Adverse Consequences the Buyer Parties may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer Parties may suffer after the end of any
applicable survival period) directly resulting from or caused by such Buyer
Indemnification Matter (calculated as set forth in subsection (e) below);
provided, however, that (A) no Majority Holder shall have any obligation to
indemnify any of the Buyer Parties from or against any Adverse Consequences
resulting from any Buyer Indemnification Matter until the Buyer Parties have
suffered Adverse Consequences by reason of all such Buyer Indemnification
Matters in excess of $375,000 in the aggregate, after which point Majority
Holders will be obligated only to indemnify the Buyer Parties from and against
further such Adverse Consequences) and (B) there will be a $10,000,000 aggregate
ceiling on the aggregate obligation of Majority Holders under this section 9(b)
and any other sections of this Agreement providing for indemnification by
Majority Holders; provided, however, that the limitations set forth in items (A)
and (B) above shall not apply to (x) any breach of a covenant set forth in
section 2, 5 or 6, or of the representation set forth in section 4(1)(ix),
hereof, or (y) any indemnification for any Excluded Liability, except such
excluded Liabilities as are described in clause (a) of the definition thereof
and are not described in any other clause of such definition.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLERS. In the event (i)
the Buyer breaches any of its representations, warranties, and covenants
contained herein, or (ii) after the Closing, Target takes or fails to take any
action under any Contract which constitutes part
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of the Assets, or fails fully and timely to perform its obligations with respect
to any liabilities existing as of the Closing and not constituting Excluded
Liabilities (each, a "SELLER INDEMNIFICATION MATTER"), and a claim is made
against any Seller or any of the Seller Parties (as defined below) with respect
thereto, provided that Seller or such Seller Party makes a written claim for
indemnification against the Buyer pursuant to section 11(h) below within the
survival period described above, then the Buyer agrees to indemnify, save, and
hold harmless such Seller and its Affiliates (including TimeBridge Technologies,
Inc.), and their respective directors, officers, shareholders and employees
(collectively, the "SELLER PARTIES") from and against any Adverse Consequences
such Seller Parties may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the such Seller Parties may
suffer after the end of any applicable survival period) resulting from or caused
by the Seller Indemnification Matter (calculated as set forth in subsection (e)
below; PROVIDED, HOWEVER, that (A) the Buyer shall not have any obligation to
indemnify the Sellers hereunder until the Sellers have suffered Adverse
Consequences by reason of all Seller Indemnification Matters in excess of
$375,000 in the aggregate, after which point the Sellers shall be entitled to
indemnification for all such Adverse Consequences in excess of such amount, and
(B) there will be a $10 million aggregate ceiling on the aggregate obligation of
the Buyer to indemnify the Sellers under this section 9(c) and further provided
that the limitations set forth in items (A) and (B) above shall not apply to
claims for breaches of any covenant set forth in section 2, 5 or 6 of this
Agreement.
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the "INDEMNIFIED
PARTY") with respect to any matter (a "THIRD PARTY CLAIM" which may give
rise to a claim for indemnification against any other Party (the
"INDEMNIFYING PARTY") under this section 9, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing within ten
(10) days after the Indemnified Party has Knowledge thereof, provided,
however, that the Indemnified Party's failure timely to provide such notice
shall not bar the Indemnified Party's right to indemnification hereunder if
the Indemnified Party can establish that such failure has not materially
prejudiced the Indemnifying Party's ability to defend the claim or
proceeding.
(ii) Any Indemnifying Party will have the right, at its sole cost and
expense, to assume the defense of the Third Party Claim with counsel of his
or its choice reasonably satisfactory to the Indemnified Party at any time
within ten (10) business days after the Indemnified Party has given notice
of the Third Party Claim; PROVIDED, HOWEVER, that the Indemnifying Party
shall not have the right to control the defense of any such claim or
proceeding unless it has acknowledged in writing its obligation to
indemnify the Indemnified Party from liability arising from such claim or
proceeding pursuant to this section 9 (subject to any applicable
limitations set forth in items (A) and (B) of subsections 9(b) and 9(c)
above), and then, and periodically thereafter, provides the Indemnified
Party with reasonably sufficient evidence of the ability of the
Indemnifying Party to satisfy its obligations under this section 9 with
respect to such Third Party Claim. In the event that the Indemnifying Party
assumes the defense as set forth hereunder, the Indemnifying Party shall
conduct the defense of the Third
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Party Claim with reasonable diligence thereafter. The Indemnified Party may
retain separate co-counsel at its sole cost and expense and participate in
the defense of the Third Party Claim; provided that Indemnifying Party's
counsel will consult with such co-counsel, but shall remain in sole control
of such action.
(iii) So long as the Indemnifying Party has assumed and is conducting
the defense of the Third Party Claim in accordance with section 9(d)(ii)
above, (A) the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be
withheld, conditioned or delayed unreasonably) unless the judgment or
proposed settlement involves only the payment of money damages by one or
more of the Indemnifying Parties and does not impose any material
injunction or other equitable relief upon the Indemnified Party and (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld, conditioned
or delayed unreasonably).
(iv) In the event none of the Indemnifying Parties assumes and
conducts the defense of the Third Party Claim in accordance with section
9(d)(ii) above, however, (A) the Indemnified Party may defend against the
Third Party Claim in any manner he or it reasonably may deem appropriate;
provided that the Indemnified Party shall conduct the defense of the Third
Party Claim with reasonable diligence and (B) the Indemnifying Parties will
remain responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim to the extent provided in this section 9.
In such event (1) the Indemnifying Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third Party
Claim, and the Indemnified Party's counsel will consult with such
co-counsel but shall remain in sole control of such proceeding, and (2) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld, conditioned
or delayed unreasonably).
(e) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall make
appropriate adjustments for tax consequences and insurance coverage and take
into account the time cost of money (using the Applicable Rate as the discount
rate from the later of the Closing Date or (x) the date of incurrence of such
Adverse Consequences, if not involving a Third Party Claim, or the date of such
Third Party Claim) in determining Adverse Consequences for purposes of this
section 9. All indemnification payments under this section 9 shall be deemed
adjustments to the Purchase Price.
(f) EXCLUSIVE REMEDY. The Buyer and Sellers acknowledge and agree that,
except (i) as otherwise set forth in this Agreement, (ii) with respect to actual
fraud, intentional misconduct and violations of law, and (iii) for claims
brought for breaches of or default under any Ancillary Agreement, the foregoing
indemnification provisions in this section 9, together with any other
indemnification provisions expressly set forth in this Agreement,
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shall be the exclusive remedy of the Buyer and Sellers with respect to matters
relating to the Business and the Assets and the transactions contemplated by
this Agreement. Without limiting the foregoing, Buyer acknowledges that Target's
inclusion as a Party to this Agreement is not intended to, nor shall it have the
effect of, enlarging the liability of the Majority Holders beyond the
limitations set forth in this section 9.
(g) RIGHT OF SET-OFF. In addition to any other remedies, any Claims under
this section 9 are, at the option of the Buyer, subject to the following right
of set-off. The principal amount of the Notes (including the Notes held by the
Minority Holders, notwithstanding the fact that such Minority Holders are not
liable for indemnifying the Buyer Parties under this Section 9) is subject to
adjustment following the Closing for any amount finally determined to be payable
by or to Buyer or the Sellers pursuant to this section 9. Any such adjustment is
intended as, and shall be treated by the Parties as, an adjustment to the Total
Consideration. If the principal amount of the Note is adjusted pursuant to this
subsection (h), such adjustment shall be deemed to be made effective as of the
later of (i) Closing Date, or (ii) the date such Claim arose, and all interest
that may have accrued on the principal amount so canceled or added shall also be
deemed to be retroactively canceled or added, effective as of such date. Upon
any adjustment of the principal amount of the Note, Sellers shall, upon request
of Buyer, surrender the outstanding Note for a replacement Note reflecting the
adjusted principal amount, and Buyer shall, upon request of Sellers, execute and
deliver to Sellers such replacement Note.
10. TAX MATTERS. The following provisions shall govern the allocation of
responsibility as between Buyer and Sellers for certain tax matters:
(a) The Majority Holders shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for Target for all periods ending on or prior
to the Closing Date which are filed after the Closing Date. All Tax Returns for
Target prepared by the Majority Holders shall be prepared in a manner consistent
with past practices, except as otherwise required by applicable law. Buyer
shall, and shall cause Target to, promptly provide and make available to the
Majority Holders all information they may request for the purpose of preparing
and filing any such return or working on any such audit. The Parties acknowledge
and agree that, by reason of Target's status as an S corporation, Target's
current taxable year will end as of the Closing.
(b) Any Tax refunds that are received by Buyer or by Target, and any
amounts credited against Tax to which Buyer or Target become entitled, that
relate to Tax periods ending on or before the Closing Date shall be for the
account of Sellers, and Buyer shall pay over to the Seller Representative, for
distribution to the Sellers pro rata, any such refund or the amount of any such
credit within fifteen (15) days after receipt or entitlement thereto. Buyer
shall, if Seller Representative so requests and at Sellers' expense, cause
Target to file for and obtain any refund to which Sellers are entitled under
this section 10(b); provided that the Seller Representative shall not file to
obtain any refund that would have the effect of increasing any Tax liability of
Target for any taxable period ending after the Closing Date without obtaining
Buyer's consent, which consent shall not unreasonably be withheld. Buyer shall
permit the Seller Representative to represent Target before the relevant taxing
authority
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with respect to such refund claim, provided that the Seller Representative (i)
shall keep Buyer informed regarding the progress and substantive aspects of any
such refund claim, and (ii) shall not compromise or settle any such refund claim
if such compromise or settlement would have the effect of increasing any Tax
liability of Target for any taxable period ending after the Closing Date without
obtaining Buyer's consent, such consent not to be unreasonably withheld. In
addition, to the extent that a claim for refund or a proceeding results in a
payment or credit against Tax by a taxing authority to the Buyer or Target of
any amount accrued on the Closing Net Asset Statement, the Buyer shall pay such
amount to the Seller Representative, for distribution to Sellers, pro rata,
within fifteen (15) days after receipt or entitlement thereto. In the event that
any refund or credit of Taxes for which a payment has been made pursuant to this
section 10(b) is subsequently reduced or disallowed, the Majority Holders shall
indemnify and hold harmless Target for any Taxes assessed against Target (except
for any penalties that would otherwise be included as part of such Taxes, unless
such refund was sought at the request of the Seller Representative) by reason of
the reduction or disallowance.
(c) Buyer and Sellers shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of any
Tax Returns for Target and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon the
other party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
(d) Buyer and Sellers further agree, upon request, to use all reasonable
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
(e) Buyer and Sellers further agree, upon request, to provide each other
party with all information that either party may be required to report pursuant
to section Section 6043 of the Code and all Treasury Department Regulations
promulgated thereunder.
(f) Any transfer, documentary, sales, use, stamp, registration and other
such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement and the transactions contemplated hereby, shall
be paid by Buyer when due, and Buyer will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law.
(g) Sellers shall have no liability with respect to any Taxes of any kind
with respect to Target or its Assets or operations (i) with respect to all tax
periods beginning after the Closing Date, (ii) with respect to any tax period of
Target beginning before the Closing Date and ending after the Closing Date, but
only with respect to the portion thereof beginning after the Closing Date, or
(iii) with respect to any Pre-Closing Partial Period, but only to the extent
such Taxes were paid prior to Closing or are provided for on the Closing
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Net Asset Statement. Except as set forth in subsection 10(f) above, Sellers
shall have sole liability for all Taxes that arise from the actual sale of the
Target Shares or any deemed sale of the Assets occurring as a result of the
Election.
(h) Buyer, Sellers and Target agree that the Compensation Amount shall be
claimed by Target as a deduction in the period ending on the Closing Date.
(i) CONTESTS. Sellers and Buyer agree to give prompt notice to each other
of any proposed adjustment to Taxes for periods of Target ending on or prior to
the Closing Date or any Pre-closing Partial Period. Sellers and Buyer shall
cooperate with each other in the conduct of any audit or other proceedings
involving Target for such periods and each party may participate at its own
expenses, provided that Target may only participate if the proposed adjustment
affects an item of Tax for any period that includes the day after the Closing or
if the proposed adjustment affects any taxable period beginning after the
Closing Date. Seller Representative shall have the right to control the conduct
of any such audit or proceeding for which Seller Representative agrees that any
resulting Tax allocable to any period prior to or including the Closing Date is
covered by the indemnity provided in Section 9 of this Agreement, (such audit or
other proceeding, a "Sellers' Contest"), provided that: (i) Seller
Representative shall keep Buyer informed regarding the progress and substantive
aspect of any Sellers' Contest and (ii) Seller Representative shall not
compromise or settle any Sellers' Contest without Buyer's consent, which consent
may not be unreasonably withheld. If Seller Representative chooses to direct a
Sellers' Contest, Buyer shall cause powers of attorney authorizing Seller
Representative to represent Target before the relevant taxing authority and such
other documents as are reasonably necessary for Seller Representative to control
the conduct of any Sellers' Contest.
(j) SECTION 338(h)(10) ELECTION AND ALLOCATION OF PURCHASE PRICE. (i) Each
Seller and Buyer shall jointly make the election provided for by Section
338(h)(10) of the Code and any corresponding elections under state, local or
foreign tax law (the "Election") with respect to the purchase and sale of Target
Shares. Seller Representative and Buyer shall provide to the other all necessary
information to permit the Election to be made. Seller Representative and Buyer
shall, as promptly as practicable following the Closing Date, take all actions
necessary and appropriate (including filing IRS from 8023-A and other such
forms, returns, elections, schedules, attachments and other documents as may be
required (the "Forms")) to effect and preserve a timely election.
(i) Buyer and the Majority Holders agree that the aggregate fair
market value of the Assets (the "Aggregate Fair Market Value") will be
appraised at Buyer's expense by Price Waterhouse or an appraisal firm of
Buyer's choosing acceptable to the Seller Representative in his reasonable
judgment (the "Appraisal"). The Appraisal shall be provided to the Seller
Representative simultaneously with Buyer.
(ii) In connection with the Election, Buyer and Seller Representative
shall mutually determine (i) the amount of the modified aggregated deemed
sales price ("MADSP") of the Target Shares (within the meaning of Treas.
Reg. Section 1.338(h)(10)-l(f)) and (ii) based on the Aggregate Fair Market
Value as determined in
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the Appraisal, the proper allocation of the MADSP among the Assets in
accordance with Treas. Reg. Section 1.338(h)(10)-l(f). The allocations
referred to in the preceding sentence are referred to herein as the
"Allocations." Buyer and Seller Representative will calculate the gain or
loss, if any, in a manner consistent with the Allocations, and Buyer and
each Seller will not take any position inconsistent with the Allocations in
any Tax Return (subject to appropriate adjustments pursuant to Treas. Reg.
Section 1.338(h)(10)-l(f)(4)).
(iii) Buyer shall prepare IRS Form 8594 allocating the Purchase Price
(including any Adjustment Amount under Section 2.5 hereof) in accordance
with Section 1060 of the Code in light of the Aggregate Fair Market value
as found by the Appraisal and such other information as required by Form
8594 and shall forward it within one hundred twenty (120) days after
Closing to Seller Representative for his approval, which approval shall not
be unreasonably withheld. In accordance with Code Section 1060(e), Buyer
and each of the Majority Holders shall file with their respective federal
income tax returns for the tax year in which the Closing occurs, IRS Form
8594 containing the information agreed upon by the parties pursuant to the
immediately preceding sentence.
(iv) Buyer shall prepare, after consultation with Seller
Representative, each Form and shall within thirty (30) days prior to the
latest date for the filing of each Form, submit each such Form to Seller
Representative for Seller Representative's approval, which approval shall
not be unreasonably withheld.
11. TERMINATION.
(a) TERMINATION OF AGREEMENT. Either Buyer or Majority Holders may
terminate this Agreement as provided below:
(i) Buyer and Majority Holders may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written notice to
the Seller Representative at any time prior to the Closing (A) in the event
any of the Sellers has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer has
notified the Seller Representative of the breach, and the breach has
continued without cure for a period of 10 days after the notice of breach
or (B) if the Closing shall not have occurred on or before the Termination
Date (as defined below), by reason of the material failure of any condition
precedent under section 7(a) hereof (unless the breach of any
representation, warranty, or covenant of Buyer contained in this Agreement
is a material factor therein); or (C) if consummation of the transactions
contemplated by this Agreement is enjoined, prohibited or otherwise
restrained by the terms of a final, non-appealable order or judgment of a
court of competent jurisdiction, or (D) if such termination would be
authorized pursuant to section 8(b) hereof; and
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(iii) Majority Holders may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (A) in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, Majority Holders have
notified the Buyer of the breach, and the breach has continued without cure
for a period of 10 days after the notice of breach or (B) if the Closing
shall not have occurred on or before the Termination Date, by reason of the
material failure of any condition precedent under section 7(b) hereof
(unless the breach of any representation, warranty, or covenant of Target
or any Seller contained in this Agreement is a material factor therein); or
(C) if consummation of the transactions contemplated by this Agreement is
enjoined, prohibited or otherwise restrained by the terms of a final,
non-appealable order or judgment of a court of competent jurisdiction.
(iv) "Termination Date" means July 3, 1997; provided that Buyer may
extend the Termination Date, by written notice to Seller Representative
prior to any termination of this Agreement, to a date not later than July
31, 1997 in order to obtain satisfaction of the closing conditions set
forth in Section 7(a)(vii) and/or Section 7(a)(x).
(v) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to section 11(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other
Party (except for any liability of any Party then in breach); PROVIDED,
HOWEVER, that (i) the confidentiality provisions contained in section 5(f)
above and in any letter agreement with Quarterdeck Investment Partners
previously executed by Buyer or its any of its Affiliates shall survive
termination, and (ii) the provisions of Article 12 shall apply.
12. BREACH OF AGREEMENT.
(a) BREACH AND OPPORTUNITY TO CURE. If any party shall breach the terms of
this Agreement or default in the performance of its obligations to be performed
hereunder prior to Closing, the nondefaulting party shall have the right to
provide the applicable Seller and Majority Holders, or Buyer, as applicable,
with notice specifying in reasonable detail the nature of such breach or
default. If such breach or default has not been cured within the time period
specified in section 10 above, or by two (2) business days prior to the Closing
Date, if earlier, then the party giving such notice may (i) terminate this
Agreement by giving written notice to the defaulting party hereunder, (ii)
extend the Closing Date for a period not in excess of ten (10) days, if such
default has not been cured by the Closing Date (but no such extension shall
constitute a waiver of such nondefaulting party's right to terminate as a result
of such default), (iii) exercise the remedies available to such party pursuant
to sections 12(b) or 12(c), as applicable, subject to the right of the other
party to contest such action through appropriate proceedings, and/or (iv)
proceed to Closing.
(b) SELLERS' REMEDIES FOR FAILURE OF BUYER TO CLOSE. Buyer recognizes that
if the transactions contemplated hereby are not consummated as a result of
Buyer's default, Sellers would incur damages, the extent of which is extremely
difficult and impractical to ascertain.
49
<PAGE>
The parties, therefore, agree that if this Agreement is terminated or the
transactions contemplated are otherwise not consummated due to the material
default of Buyer, Buyer shall pay to the Sellers its costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby, up
to Five Hundred Thousand Dollars ($500,000), as liquidated damages, as Sellers'
sole and exclusive remedy in full settlement of any damages of such failure to
close. The parties agree that this sum shall be in lieu of any and all other
relief to which Sellers might otherwise be entitled due to such failure to
close.
(c) BUYER'S REMEDIES FOR FAILURE OF SELLERS TO CLOSE. Sellers agree that
the Target Shares represent unique property that cannot be readily obtained on
the open market and that Buyer would be irreparably injured if Sellers'
obligation to sell the Target Shares to Buyer pursuant to this Agreement is not
specifically enforced after default. Therefore, Buyer shall have the right to
specifically enforce Sellers' obligation to sell the Target Shares to Buyer
pursuant to this Agreement, and Sellers agree to waive the defense in any such
suit that Buyer has an adequate remedy at law and to interpose no opposition,
legal or otherwise, as to the propriety of specific performance as a remedy. In
addition, Buyer shall be entitled to obtain from Sellers court costs and
reasonable attorneys' fees incurred by Buyer in enforcing its rights under this
subsection (c). As a condition to seeking specific performance, Buyer shall not
be required to have tendered the Cash Consideration, but shall be ready, willing
and able to do so. In the event Buyer elects not to seek specific performance,
but instead to terminate this Agreement as a result of any PreClosing Default,
then Buyer shall be entitled to recover its costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby, up to
Five Hundred Thousand Dollars ($500,000), as liquidated damages, as Buyer's sole
and exclusive remedy in full settlement of any damages of such wrongful failure
of Sellers to close. If, upon the default of Sellers in their obligation to
close hereunder, Buyer seeks specific performance and does not prevail in its
attempt to obtain specific performance, then Buyer shall be entitled to recover
its costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby, up to Five Hundred Thousand Dollars
($500,000), as liquidated damages, as Buyer's sole and exclusive remedy in full
settlement of any damages arising from such wrongful failure of Sellers to
close.
(d) PARTIES' REMEDIES FOR BREACH AFTER CLOSING. For the breach by any of
the Parties of any covenant or agreement of such Party to be performed after the
Closing, the nondefaulting Party shall have the rights provided for under
section 9 hereof, and all other rights and remedies available for breach of
contract at law and in equity.
13. Miscellaneous.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the Buyer and the Seller
Representative; PROVIDED, HOWEVER, that any Party may make any public disclosure
it believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case the
disclosing Party will advise the other Parties prior to making the disclosure).
50
<PAGE>
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided that Gary S. Murray is an intended
third party beneficiary of subsection 6(c) above, and the Buyer Parties and
Seller Parties are intended third party beneficiaries of section 9 hereof.
(c) ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they relate in any way to the subject matter
hereof.
(d) FURTHER ASSURANCES. Each Party to this Agreement shall execute such
documents and take, or cause Target to take, such further actions as may
reasonably be necessary to implement the provisions of this Agreement.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and Majority Holders; PROVIDED, HOWEVER, that the Buyer
may (i) assign any or all of its rights and interests hereunder to one or more
of its Affiliates or as collateral to its financing source and (ii) designate
one or more of its Affiliates to perform its obligations hereunder (in any or
all of which cases the original Buyer nonetheless shall remain fully responsible
for the performance of all obligations hereunder designated as the obligations
of Buyer); and (iii) after the Closing Date, assign its rights and obligations
under this Agreement to any Person in connection with a sale or other
disposition of substantially all of the Business or substantially all of
Target's assets, without the consent of Sellers.
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given when personally
delivered against a signed receipt or delivered by recognized overnight courier
(and then at the time of delivery or when delivery is refused) or if it is sent
by certified mail, return receipt requested, postage prepaid (and then three
business days after deposited in such mail) and addressed to the intended
recipient as set forth below:
If to the Sellers: c/o Gary S. Murray
12606 Pleasant Prospect Road
51
<PAGE>
Mitchellville, MD 20716
Copy to: Weldon H. Latham, Esq.
Shaw, Pittman, Potts & Trowbridge
2300 N. Street, N.W.
Washington, D.C. 20037
If to the Buyer: c/o The Carlyle Group
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
Attn: William E. Conway, Jr.
Copy to: Eric A. Stern, Esq.
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means, but no such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it actually is received
by the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Maryland without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Maryland or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Maryland.
(j) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by Buyer
and Majority Holders, provided that each Seller must agree to any amendment or
modification of the representations and warranties of the individual Sellers in
section 3(b) hereof. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
52
<PAGE>
(l) EXPENSES. Except as otherwise set forth herein, each of the Parties
will bear his or its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby.
(m) CONSTRUCTION. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(n) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
* * * * *
53
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [as
of] the date first above written.
FEDERAL DATA CORPORATION
By:/s/ Peter J. Clare
--------------------------
Title:_______________________
/s/ Gary S. Murray
-----------------------------
Gary S. Murray
/s/ Areather T. Murray
-----------------------------
Areather T. Murray
/s/ William S. Strang
-----------------------------
William S. Strang
/s/ Holton B. Shipman, Jr.
-----------------------------
Holton B. Shipman, Jr.
/s/ Authorized Signatory
-----------------------------
James K. White
/s/ Authorized Signatory
-----------------------------
Peter A. Perucci
/s/ Authorized Signatory
-----------------------------
Myron Erkiletian
SYLVEST MANAGEMENT SYSTEMS CORPORATION
By: /s/ Gary S. Murray
-------------------------------
Title:_____________________________
S-1
<PAGE>
EXHIBIT 4.5
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
among
FEDERAL DATA CORPORATION,
VARIOUS LENDING INSTITUTIONS,
and
BANKERS TRUST COMPANY,
AS AGENT
________________________________
Dated as of July 25, 1997
________________________________
$75,000,000
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. Amount and Terms of Credit . . . . . . . . . . . . . . . . . . 1
1.01 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Minimum Borrowing Amounts, etc.. . . . . . . . . . . . . . . . . 1
1.03 Notice of Borrowing. . . . . . . . . . . . . . . . . . . . . . . 1
1.04 Disbursement of Funds. . . . . . . . . . . . . . . . . . . . . . 2
1.05 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.06 Conversions, etc.. . . . . . . . . . . . . . . . . . . . . . . . 3
1.07 Pro Rata Borrowings. . . . . . . . . . . . . . . . . . . . . . . 4
1.08 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.09 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . 5
1.10 Increased Costs, Illegality, etc.. . . . . . . . . . . . . . . . 6
1.11 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.12 Change of Lending Office . . . . . . . . . . . . . . . . . . . . 9
1.13 Replacement of Banks . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2. Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . 10
2.01 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . 10
2.02 Bank Default . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.03 Letter of Credit Requests; Notices of Issuance . . . . . . . . . 11
2.04 Agreement to Repay . . . . . . . . . . . . . . . . . . . . . . . 11
2.05 Letter of Credit Participations. . . . . . . . . . . . . . . . . 12
2.06 Increased Costs. . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3. Fees; Commitments. . . . . . . . . . . . . . . . . . . . . . . 15
3.01 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.02 Voluntary Reduction of Commitments . . . . . . . . . . . . . . . 16
3.03 Mandatory Adjustments of Commitments, etc. . . . . . . . . . . . 16
SECTION 4. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.01 Voluntary Prepayments. . . . . . . . . . . . . . . . . . . . . . 16
4.02 Mandatory Prepayments. . . . . . . . . . . . . . . . . . . . . . 17
4.03 Method and Place of Payment. . . . . . . . . . . . . . . . . . . 18
4.04 Net Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 5. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.01 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.02 Each Credit Event. . . . . . . . . . . . . . . . . . . . . . . . 25
(i)
<PAGE>
Page
----
SECTION 6. Representations, Warranties and Agreements . . . . . . . . . . 25
6.01 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . 26
6.02 Power and Authority. . . . . . . . . . . . . . . . . . . . . . . 26
6.03 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.04 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.05 Use of Proceeds; Margin Regulations. . . . . . . . . . . . . . . 26
6.06 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . 27
6.07 Investment Company Act . . . . . . . . . . . . . . . . . . . . . 27
6.08 Public Utility Holding Company Act . . . . . . . . . . . . . . . 27
6.09 True and Complete Disclosure . . . . . . . . . . . . . . . . . . 27
6.10 Financial Condition; Financial Statements. . . . . . . . . . . . 28
6.11 Security Interests . . . . . . . . . . . . . . . . . . . . . . . 29
6.12 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . 29
6.13 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . 29
6.14 Ownership; Subsidiaries. . . . . . . . . . . . . . . . . . . . . 30
6.15 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 30
6.16 Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . . 30
6.17 Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 7. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . 31
7.01 Information Covenants. . . . . . . . . . . . . . . . . . . . . . 31
7.02 Books, Records and Inspections . . . . . . . . . . . . . . . . . 33
7.03 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.04 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . 34
7.05 Corporate Franchises . . . . . . . . . . . . . . . . . . . . . . 34
7.06 Compliance with Statutes, etc. . . . . . . . . . . . . . . . . . 34
7.07 Good Repair. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.08 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.09 End of Fiscal Years; Fiscal Quarters . . . . . . . . . . . . . . 35
7.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 36
7.11 Notices of Assignment. . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 36
8.01 Changes in Business. . . . . . . . . . . . . . . . . . . . . . . 36
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc.. . . . . 37
8.03 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.04 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.05 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . 41
8.06 Advances, Investments and Loans. . . . . . . . . . . . . . . . . 42
8.07 Dividends, etc.. . . . . . . . . . . . . . . . . . . . . . . . . 43
8.08 Transactions with Affiliates . . . . . . . . . . . . . . . . . . 44
8.09 Minimum Consolidated Net Worth . . . . . . . . . . . . . . . . . 44
8.10 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 44
(ii)
<PAGE>
Page
----
8.11 Interest Coverage Ratio. . . . . . . . . . . . . . . . . . . . . 45
8.12 Limitation on Voluntary Payments, etc. . . . . . . . . . . . . . 45
8.13 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9. Events of Default. . . . . . . . . . . . . . . . . . . . . . . 46
9.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.02 Representations, etc.. . . . . . . . . . . . . . . . . . . . . . 46
9.03 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.04 Default Under Other Agreements . . . . . . . . . . . . . . . . . 47
9.05 Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . . . 47
9.06 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.07 Security Documents . . . . . . . . . . . . . . . . . . . . . . . 48
9.08 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.09 Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 10. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 11. The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.02 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . 71
11.03 Exculpatory Provisions. . . . . . . . . . . . . . . . . . . . . 71
11.04 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . 72
11.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . 72
11.06 Non-Reliance on Agent, and Other Banks. . . . . . . . . . . . . 73
11.07 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 73
11.08 Agent in its Individual Capacity. . . . . . . . . . . . . . . . 74
11.09 Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.10 Resignation of the Agent; Successor Agent . . . . . . . . . . . 74
SECTION 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 74
12.01 Payment of Expenses, etc. . . . . . . . . . . . . . . . . . . . 74
12.02 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . 75
12.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
12.04 Benefit of Agreement. . . . . . . . . . . . . . . . . . . . . . 76
12.05 No Waiver; Remedies Cumulative. . . . . . . . . . . . . . . . . 78
12.06 Payments Pro Rata . . . . . . . . . . . . . . . . . . . . . . . 78
12.07 Calculations; Computations. . . . . . . . . . . . . . . . . . . 78
12.08 Governing Law; Submission to Jurisdiction; Venue. . . . . . . . 79
12.09 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 80
12.10 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . 80
12.11 Headings Descriptive. . . . . . . . . . . . . . . . . . . . . . 80
12.12 Amendment or Waiver . . . . . . . . . . . . . . . . . . . . . . 80
12.13 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
(iii)
<PAGE>
Page
----
12.14 Domicile of Loans . . . . . . . . . . . . . . . . . . . . . . . 81
12.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 81
12.17 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . 82
ANNEX I List of Banks
ANNEX II Bank Addresses
ANNEX III Subsidiaries
ANNEX IV Liens
ANNEX V Existing Debt
ANNEX VI Investments
ANNEX VII Affiliate Transactions
ANNEX VIII EBITDA Adjustments
ANNEX IX Interest Expense Adjustments
ANNEX X Average Daily Amount Adjustments
EXHIBIT A-1 -- Form of Notice of Borrowing
EXHIBIT A-2 -- Form of Letter of Credit Request
EXHIBIT B -- Form of Note
EXHIBIT C -- Form of Section 4.04(b)(ii) Certificate
EXHIBIT D-1 -- Opinion from Latham & Watkins
EXHIBIT D-2 -- Opinion from White & Case
EXHIBIT E -- Form of Officer's Certificate
EXHIBIT F -- Form of Subsidiary Guaranty
EXHIBIT G -- Form of Pledge Agreement
EXHIBIT H -- Form of Security Agreement
EXHIBIT I -- Intercreditor Agreement
EXHIBIT J -- Form of Consent Letter
EXHIBIT K -- Borrowing Base Certificate
EXHIBIT L -- Form of Assignment Agreement
(iv)
<PAGE>
CREDIT AGREEMENT, dated as of July 25, 1997, among FEDERAL DATA
CORPORATION, a Delaware corporation, the lenders listed from time to time on
Annex I hereto (each a "Bank" and, collectively, the "Banks") and BANKERS TRUST
COMPANY, as Agent. Unless otherwise defined herein, all capitalized terms used
herein and defined in Section 10 are used herein as so defined.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions herein set
forth, the Banks are willing to make available the credit facilities provided
herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. AMOUNT AND TERMS OF CREDIT.
1.01 COMMITMENTS. Subject to and upon the terms and conditions
herein set forth, each Bank severally agrees to make a loan or loans (each a
"Loan" and, collectively, the "Loans") to the Borrower in an aggregate amount
not exceeding at any time such Bank's Commitment at such time, which Loans: (i)
may be made at any time and from time to time on and after the Effective Date
and prior to the Maturity Date; (ii) except as hereinafter provided, may, at the
option of the Borrower, be incurred and maintained as and/or converted into Base
Rate Loans or Eurodollar Loans, PROVIDED, that all Loans made as part of the
same Borrowing shall, unless otherwise specifically provided herein, consist of
Loans of the same Type; (iii) may be repaid and reborrowed in accordance with
the provisions hereof; and (iv) shall not, giving effect to any incurrence of
Loans and the use of the proceeds thereof, exceed at any time outstanding that
aggregate principal amount which, when combined with the Letter of Credit
Outstandings at such time, equals the Available Amount at such time.
1.02 MINIMUM BORROWING AMOUNTS, ETC. The aggregate principal amount
of each Borrowing shall not be less than the Minimum Borrowing Amount. More
than one Borrowing may be incurred on any day provided, that at no time shall
there be outstanding more than eight Borrowings of Eurodollar Loans.
1.03 NOTICE OF BORROWING. (a) Whenever the Borrower desires to
incur Loans, it shall give the Agent at its Notice Office, (x) prior to 12:00
Noon (New York time), at least three Business Days' prior written notice of each
incurrence of Eurodollar
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Loans and (y) prior to 11:00 A.M. (New York time) on the date of each
incurrence of Base Rate Loans, prior written notice of each incurrence of
Base Rate Loans. Each such notice (each, a "Notice of Borrowing") shall,
except as provided in Section 1.10(b), be irrevocable, and shall be in the
form of Exhibit A-1, appropriately completed to specify: (i) the aggregate
principal amount of Loans to be made pursuant to such incurrence; (ii) the
date of such incurrence (which shall be a Business Day); and (iii) whether
the respective Borrowing shall consist of Base Rate Loans or Eurodollar Loans
and, if Eurodollar Loans, the Interest Period to be initially applicable
thereto.
(b) The Agent shall promptly give each Bank written notice (or
telephonic notice promptly confirmed in writing) of each proposed incurrence of
Loans, of such Bank's proportionate share thereof, if any, and of the other
matters covered by the Notice of Borrowing.
1.04 DISBURSEMENT OF FUNDS. (a) No later than 1:00 P.M. (New York
time) on the date specified in each Notice of Borrowing, each Bank will make
available its PRO RATA share of the Loans requested to be made on such date in
the manner provided below. All amounts shall be made available to the Agent in
U.S. dollars and immediately available funds at the Payment Office and the Agent
promptly will make available the aggregate of the amounts so made available in
the type of funds received by deposit to its account at the Payment Office.
Unless the Agent shall have been notified by any Bank prior to the date of
Borrowing that such Bank does not intend to make available to the Agent its
portion of the Borrowing or Borrowings to be made on such date, the Agent may
assume that such Bank has made such amount available to the Agent on such date
of Borrowing, and the Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Borrower a
corresponding amount and shall thereupon be entitled to recover such amount from
such Bank.
(b) If the amount so made available to the Borrower by the Agent is
not in fact made available to the Agent by such Bank after demand therefor, the
Agent shall promptly notify the Borrower, and the Borrower shall immediately pay
such corresponding amount to the Agent. The Agent shall also be entitled to
recover from the respective Bank or the Borrower, as the case may be, interest
on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Agent to the Borrower to the date
such corresponding amount is recovered by the Agent, at a rate per annum equal
to (x) if paid by such Bank, the overnight Federal Funds Effective Rate or (y)
if paid by the Borrower, the then applicable rate of interest, calculated in
accordance with Section 1.08, for the respective Loans.
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(c) Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its commitments hereunder or to prejudice any rights which
the Borrower may have against any Bank as a result of any default by such Bank
hereunder.
1.05 NOTES. (a) The Borrower's obligation to pay the principal of,
and interest on, all Loans made to it by each Bank shall be evidenced by a
promissory note substantially in the form of Exhibit B with blanks appropriately
completed in conformity herewith (each a "Note" and collectively the "Notes").
(b) The Note issued to each Bank shall (i) be executed by the
Borrower, (ii) be payable to the order of such Bank and be dated the Effective
Date, (iii) be in a stated principal amount equal to the Commitment of such Bank
and be payable in the principal amount of the Loans evidenced thereby, (iv)
mature on the Maturity Date, (v) bear interest as provided in the appropriate
clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans,
as the case may be, evidenced thereby, (vi) be subject to prepayment as provided
in Section 4 and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.
(c) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of its Note endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
shall not affect the Borrower's obligations in respect of such Loans.
1.06 CONVERSIONS, ETC. (a) The Borrower shall have the option to
convert on any Business Day all or a portion at least equal to the applicable
Minimum Borrowing Amount of the outstanding principal amount of the Loans into a
Borrowing or Borrowings of another Type of Loan; PROVIDED, that (i) no partial
conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding
principal amount of the Eurodollar Loans made pursuant to such Borrowing to less
than the Minimum Borrowing Amount applicable thereto, (ii) Base Rate Loans may
only be converted into Eurodollar Loans if no Default under Section 9.01 or
Event of Default is in existence on the date of the conversion and (iii)
Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be limited
in number as provided in Section 1.02. Each such conversion shall be effected
by the Borrower by giving the Agent at its Notice Office, prior to 12:00 Noon
(New York time), at least three Business Days' (or one Business Day's in the
case of a conversion into Base Rate Loans) prior written notice (or telephonic
notice promptly confirmed in writing) (each a "Notice of Conversion") specifying
the Loans to be so converted, the Type of Loans to be converted into and, if to
be converted into a Borrowing of Eurodollar Loans, the Interest Period to be
initially applicable thereto. The Agent shall give each Bank prompt notice of
any such proposed conversion affecting any of its Loans.
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(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Agent may prior to receipt of written confirmation act without liability upon
the basis of such telephonic notice, believed by the Agent in good faith to be
from an Authorized Officer of the Borrower. In each such case, the Borrower
hereby waives the right to dispute the Agent's record of the terms of such
telephonic notice.
1.07 PRO RATA BORROWINGS. All Loans shall be made by the Banks PRO
RATA on the basis of their Commitments. It is understood that no Bank shall be
responsible for any default by any other Bank of its obligation to make Loans
hereunder and that each Bank shall be obligated to make the Loans to be made by
it hereunder, regardless of the failure of any other Bank to fulfill its
commitments hereunder.
1.08 INTEREST. (a) The unpaid principal amount of each Base Rate
Loan shall bear interest from the date of the Borrowing thereof until the
conversion or maturity (whether by acceleration or otherwise) of such Base Rate
Loan, at a rate per annum which shall at all times be the Applicable Base Rate
Margin plus the Base Rate in effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall bear
interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be the
Applicable Eurodollar Margin plus the relevant Eurodollar Rate.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan shall bear interest at a rate per annum equal
to the Base Rate in effect from time to time plus the sum of (i) 2% and (ii) the
Applicable Base Rate Margin; provided that principal in respect of Eurodollar
Loans shall bear interest from the date the same becomes due (whether by
acceleration or otherwise) until the end of the Interest Period applicable to
such Eurodollar Loan at a per annum rate equal to 2% in excess of the rate of
interest applicable to such Eurodollar Loans on such due date.
(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on the last
Business Day of each March, June, September and December, (ii) in respect of
each Eurodollar Loan, on the last day of each Interest Period applicable thereto
and, in the case of an Interest Period in excess of three months, on each date
occurring at three month intervals after the first day of such Interest Period
and (iii) in respect of each Loan, on any prepayment or conversion (on the
amount
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prepaid or converted), at maturity (whether by acceleration or otherwise)
and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in
accordance with Section 12.07(b).
(f) The Agent, upon determining the interest rate for any Borrowing
of Eurodollar Loans for any Interest Period, shall promptly notify the Borrower
and the Banks thereof.
1.09 INTEREST PERIODS. At the time the Borrower gives a Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 12:00 Noon (New York time) on the third
Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans, it shall have the right to elect by giving the
Agent written notice (or telephonic notice promptly confirmed in writing) of the
Interest Period applicable to such Borrowing, which Interest Period shall, at
the option of the Borrower, be a one, two, three or six month period.
Notwithstanding anything to the contrary contained above:
(i) all Eurodollar Loans comprising a Borrowing shall have the same
Interest Period;
(ii) the initial Interest Period for any Borrowing of Eurodollar
Loans shall commence on the date of such Borrowing (including the date of
any conversion from a Borrowing of Base Rate Loans) and each Interest
Period occurring thereafter in respect of such Borrowing shall commence on
the day on which the next preceding Interest Period expires;
(iii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day of
such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day provided that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
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(v) no Interest Period may be elected if it would extend
beyond the Maturity Date; and
(vi) no Interest Period may be elected at any time when a
Default under Section 9.01 or an Event of Default is then in existence.
If upon the expiration of any Interest Period, the Borrower has failed to, or
is not permitted to, elect a new Interest Period to be applicable to the
respective Borrowing of Eurodollar Loans as provided above, the Borrower
shall be deemed to have elected to convert such Borrowing into a Borrowing of
Base Rate Loans effective as of the expiration date of such current Interest
Period.
1.10 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that (x)
in the case of clause (i) below, the Agent or (y) in the case of clauses (ii)
and (iii) below, any Bank, shall have determined (which determination shall,
absent manifest error, be final and conclusive and binding upon all parties
hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period, that, by reason of any changes arising after the
Effective Date affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate on
the basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect
to any Eurodollar Loans (other than any increased cost or reduction in
the amount received or receivable resulting from the imposition of or a
change in the rate of taxes or similar charges) because of (x) any change
since the Effective Date in any applicable law, governmental rule,
regulation, guideline, order or request (whether or not having the force
of law), or in the interpretation or administration thereof and including
the introduction of any new law or governmental rule, regulation,
guideline, order or request (such as, for example, but not limited to, a
change in official reserve requirements, but, in all events, excluding
reserves required under Regulation D to the extent reimbursable pursuant
to Section 1.10(c)) and/or (y) other circumstances affecting the
interbank Eurodollar market or the position of such Bank in such market;
or
(iii) at any time since the Effective Date, that the making or
continuance of any Eurodollar Loan has become unlawful by compliance by
such Bank in good faith with any law, governmental rule, regulation,
guideline or order (or would conflict with any such governmental rule,
regulation, guideline or order not having the
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force of law but with which such Bank customarily complies even though
the failure to comply therewith would not be unlawful), or has become
impracticable as a result of a contingency occurring after the Effective
Date which materially and adversely affects the interbank Eurodollar
market;
then, and in any such event, such Bank (or the Agent in the case of clause
(i) above) shall (x) on such date and (y) within 10 Business Days of the date
on which such event no longer exists give notice (by telephone confirmed in
writing) to the Borrower and (except in the case of clause (i)) to the Agent
of such determination (which notice the Agent shall promptly transmit to each
of the other Banks). Thereafter (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as the Agent
notifies the Borrower and the Banks that the circumstances giving rise to
such notice by the Agent no longer exist, and any Notice of Borrowing or
Notice of Conversion given by the Borrower with respect to Eurodollar Loans
which have not yet been incurred shall be deemed rescinded by the Borrower,
(y) in the case of clause (ii) above, the Borrower agrees to pay to such
Bank, upon written demand therefor (accompanied by the written notice
referred to below), such additional amounts (in the form of an increased rate
of, or a different method of calculating, interest or otherwise as such Bank
in its sole discretion shall determine) as shall be required to compensate
such Bank for such increased costs or reductions in amounts received or
receivable hereunder (a written notice as to the additional amounts owed to
such Bank, showing the basis for the calculation thereof, submitted to the
Borrower by such Bank shall, absent manifest error, be final and conclusive
and binding upon all parties hereto) and (z) in the case of clause (iii)
above, the Borrower shall take one of the actions specified in Section
1.10(b) as promptly as possible and, in any event, within the time period
required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may
(and in the case of a Eurodollar Loan affected pursuant to Section
1.10(a)(iii) the Borrower shall) either (i) if the affected Eurodollar Loan
is then being made pursuant to a Borrowing, cancel said Borrowing by giving
the Agent telephonic notice (confirmed promptly in writing) thereof on the
same date that the Borrower was notified by a Bank pursuant to Section
1.10(a)(ii) or (iii)), or (ii) if the affected Eurodollar Loan is then
outstanding, upon at least three Business Days' notice to the Agent, require
the affected Bank to convert each such Eurodollar Loan into a Base Rate Loan
(which conversion, in the case of the circumstances described in Section
1.10(a)(iii), shall occur no later than the last day of the Interest Period
then applicable to such Eurodollar Loan (or such earlier date as shall be
required by applicable law)); PROVIDED, that if more than one Bank is
affected at any time, then all affected Banks must be treated the same
pursuant to this Section 1.10(b). Each Bank, upon determining in good faith
that any additional amounts will be payable pursuant to this Section 1.10(b),
will give prompt written notice thereof to the Borrower, which notice shall
set forth the basis of the
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calculation of such additional amounts, although the failure to give any such
notice shall not release or diminish the Borrower's obligations to pay
additional amounts pursuant to this Section 1.10(b) upon the subsequent
receipt of such notice.
(c) In the event that any Bank shall reasonably determine (which
determination shall, absent manifest error, be final and conclusive and
binding on all parties hereto) at any time that by reason of Regulation D
such Bank is required to maintain reserves in respect of eurodollar loans or
liabilities during any period it has a Eurodollar Loan outstanding then such
Bank shall promptly notify the Borrower in writing specifying the additional
amounts required to indemnify such Bank against the cost of maintaining such
reserves (such written notice to set forth in reasonable detail a computation
of such additional amounts) and the Borrower shall pay to such Bank such
specified amounts as additional interest at the time that the Borrower is
otherwise required to pay interest in respect of such Loan or, if later, on
written demand therefor by such Bank.
(d) If any Bank shall have determined that after the Effective
Date, the adoption or initial effectiveness of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change
in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation
or administration thereof, or compliance by such Bank or its parent
corporation with any request or directive regarding capital adequacy (whether
or not having the force of law) first made after the Effective Date of any
such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's or its parent
corporation's capital or assets as a consequence of such Bank's commitments
or obligations hereunder to a level below that which such Bank or its parent
corporation could have achieved but for such adoption, effectiveness, change
or compliance (taking into consideration such Bank's or its parent
corporation's policies with respect to capital adequacy), then from time to
time, upon written demand by such Bank (with a copy to the Agent),
accompanied by the notice referred to in the last sentence of this clause
(c), the Borrower shall pay to such Bank such additional amount or amounts as
will compensate such Bank or its parent corporation for such reduction. Each
Bank, upon determining in good faith that any additional amounts will be
payable pursuant to this Section 1.10(d), will give prompt written notice
thereof to the Borrower, which notice shall set forth the basis of the
calculation of such additional amounts, although the failure to give any such
notice shall not release or diminish the Borrower's obligations to pay
additional amounts pursuant to this Section 1.10(d) upon the subsequent
receipt of such notice.
1.11 COMPENSATION. (a) The Borrower agrees to compensate each
Bank, upon its written request (which request shall set forth the basis for
requesting such compensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits
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or other funds required by such Bank to fund its Eurodollar Loans but
excluding loss of anticipated profit with respect to any Loans) which such
Bank may sustain: (i) if for any reason (other than a default by such Bank
or the Agent) a Borrowing of Eurodollar Loans does not occur on a date
specified therefor in a Notice of Borrowing or Notice of Conversion (whether
or not withdrawn by the Borrower or deemed withdrawn pursuant to Section
1.10(a)); (ii) if any repayment or conversion of any Eurodollar Loans occurs
on a date which is not the last day of an Interest Period applicable thereto;
(iii) if any prepayment of any Eurodollar Loans is not made on any date
specified in a notice of prepayment given by the Borrower; or (iv) as a
consequence of (x) any other default by the Borrower to repay its Eurodollar
Loans when required by the terms of this Agreement or (y) an election made
pursuant to Section 1.10(b).
(b) Notwithstanding anything in this Agreement to the contrary, to
the extent any notice or request required by Section 1.10, 1.11, 2.06 or 4.04
is given by any Bank more than 180 days after such Bank obtained, or
reasonably should have obtained, knowledge of the occurrence of the event
giving rise to the additional costs, reductions in amounts, losses, taxes or
other additional amounts of the type described in such Section, such Bank
shall not be entitled to compensation under Section 1.10, 1.11, 2.06 or 4.04
for any amounts incurred or accruing prior to the giving of such notice to
the Borrower.
1.12 CHANGE OF LENDING OFFICE. Each Bank agrees that, upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii)
or (iii), 1.10(d), 2.06 or 4.04 with respect to such Bank, it will, if
requested by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Bank) to designate another lending office for any
Loans or Letters of Credit affected by such event; PROVIDED, that such
designation is made on such terms that, in the sole judgment of such Bank,
such Bank and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequences of the event
giving rise to the operation of any such Section. Nothing in this Section
1.12 shall affect or postpone any of the obligations of the Borrower or the
right of any Bank provided in Section 1.10, 2.06 or 4.04.
1.13 REPLACEMENT OF BANKS. (a) (i) If any Bank becomes a
Defaulting Bank, (ii) if any Bank refuses to consent to certain proposed
changes, waivers, discharges or terminations with respect to this Agreement
which have been approved by the Required Banks or (iii) upon the occurrence
of any event giving rise to the operation of Section 1.10(a)(ii) or (iii),
Section 1.10(d), Section 1.11, Section 2.06 or Section 4.04 with respect to
any Bank which results in such Bank charging to the Borrower increased costs
in excess of those being generally charged by the other Banks, the Borrower
shall have the right, in accordance with the requirements of Section
12.04(b), if no Event of Default will exist after giving effect to such
replacement, to replace such Bank (the "Replaced Bank") hereunder with an
Eligible Transferee or Transferees, none of which shall constitute a
Defaulting Bank
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at the time of such replacement (collectively, the "Replacement Bank"),
reasonably acceptable to the Agent, PROVIDED that (i) at the time of any
replacement pursuant to this Section 1.13, the Replacement Bank shall enter
into one or more Assignment Agreements pursuant to Section 12.04(b) (and with
the assignment fee payable pursuant to said Section 12.04(b) to be paid by
the Replacement Bank) pursuant to which the Replacement Bank shall acquire
all of the Commitment and outstanding Loans of, and participations in Letters
of Credit by, the Replaced Bank and, in connection therewith, shall pay to
(x) the Replaced Bank in respect thereof an amount equal to the sum of (A) an
amount equal to the principal of, and all accrued interest on, all
outstanding Loans of the Replaced Bank, (B) an amount equal to all Unpaid
Drawings that have been funded by (and not reimbursed to) such Replaced Bank,
together with all then unpaid interest with respect thereto at such time and
(C) an amount equal to all accrued, but theretofore unpaid, Fees owing to the
Replaced Bank pursuant to Section 3.01 and (y) the Letter of Credit Issuer an
amount equal to such Replaced Bank's Percentage of any Unpaid Drawing (which
at such time remains an Unpaid Drawing) to the extent such amount was not
theretofore funded by such Replaced Bank and (ii) all obligations of the
Borrower owing to the Replaced Bank (other than those specifically described
in clause (i) above in respect of which the assignment purchase price has
been, or is concurrently being, paid) shall be paid in full to such Replaced
Bank concurrently with such replacement.
(b) Upon the execution of the respective Assignment Agreements, the
payment of amounts referred to in clauses (i) and (ii) of Section 1.13(a)
and, if so requested by the Replacement Bank, delivery to the Replacement
Bank of the appropriate Note executed by the Borrower, the Replacement Bank
shall become a Bank hereunder and the Replaced Bank shall cease to constitute
a Bank hereunder, except with respect to indemnification provisions
applicable to the Replaced Bank under this Agreement (including, without
limitation, Sections 1.10, 1.11, 2.05, 4.04, 12.01 and 12.06), which shall
survive as to such Replaced Bank.
SECTION 2. LETTERS OF CREDIT.
2.01 LETTERS OF CREDIT. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower may request that the Letter of
Credit Issuer at any time and from time to time on or after the Effective
Date and prior to the Maturity Date to issue, for the account of the Borrower
and in support of (x) trade obligations of the Borrower and its Subsidiaries
incurred in the ordinary course of business (letters of credit issued for
such purposes, "Trade Letters of Credit") and (y) workmen's compensation,
liability insurance, releases of contract retention obligations, contract
performance guarantee requirements and like bonding requirements of the
Borrower and its Subsidiaries arising in the ordinary course of business,
Indebtedness permitted by Section 8.04, obligations (including Contingent
Obligations) in connection with Permitted Acquisitions and such other standby
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obligations of the Borrower and its Subsidiaries that are acceptable to the
Agent (letters of credit issued for such purposes, "Standby Letters of
Credit"), and subject to and upon the terms and conditions herein set forth
the Letter of Credit Issuer agrees to issue from time to time, irrevocable
letters of credit denominated in U.S. dollars and issued on a sight basis
only, in such form as may be approved by the Letter of Credit Issuer and the
Agent.
(b) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued if after giving effect thereto (x) the Letter of Credit Outstandings
would exceed $20,000,000 or (y) the sum of the Letter of Credit Outstandings
plus the aggregate principal amount of all Loans would exceed the Available
Amount at such time; (ii) each Standby Letter of Credit shall have an expiry
date occurring not later than one year after such Letter of Credit's date of
issuance although any Standby Letter of Credit may be extendable for
successive periods of up to 12 months, but not beyond the third Business Day
next preceding the Maturity Date, on terms acceptable to the Letter of Credit
Issuer and in no event shall any Standby Letter of Credit have an expiry date
occurring later than the third Business Day next preceding the Maturity Date;
and (iii) each Trade Letter of Credit shall have an expiry date occurring not
later than (x) 180 days after such Letter of Credit's date of issuance and
(y) the date 30 days prior to the Maturity Date.
2.02 BANK DEFAULT. In the event a Bank Default exists, the Letter
of Credit Issuer shall not be required to issue any Letter of Credit unless
the Letter of Credit Issuer has entered into arrangements satisfactory to it
and the Borrower ("Section 2.02 Arrangements") to eliminate the Letter of
Credit Issuer's risk with respect to the participation in Letters of Credit
of the Defaulting Bank or Banks, including by cash collateralizing such
Defaulting Bank's or Banks' Percentage of the Letter of Credit Outstandings.
2.03 LETTER OF CREDIT REQUESTS; NOTICES OF ISSUANCE. (a) Whenever
it desires that a Letter of Credit be issued, the Borrower shall give the
Agent and the Letter of Credit Issuer written notice in the form of Exhibit
A-2 hereof prior to 1:00 P.M. (New York time) at least five Business Days
(three Business Days in the case of Trade Letters of Credit or, in any event,
such shorter period as may be acceptable to the Letter of Credit Issuer)
prior to the proposed date of issuance (which shall be a Business Day) (each
a "Letter of Credit Request"), which Letter of Credit Request shall include
any other documents that the Letter of Credit Issuer customarily requires in
connection therewith.
(b) The Letter of Credit Issuer shall, promptly after each issuance
of a Standby Letter of Credit by it, give the Agent, each Bank and the
Borrower written notice of the issuance of such Standby Letter of Credit,
accompanied by a copy of such Letter of Credit. The Agent will send to each
Bank, upon each Letter of Credit Fee payment date, a report setting forth for
the period covered by such Letter of Credit Fee the daily aggregate Letter of
Credit Outstandings during such period.
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2.04 AGREEMENT TO REPAY. (a) The Borrower hereby agrees to
reimburse the Letter of Credit Issuer, by making payment to it at the Payment
Office, for any payment or disbursement made by the Letter of Credit Issuer
under any Letter of Credit (each such amount so paid or disbursed until
reimbursed, an "Unpaid Drawing") promptly after (and in no event later than
the Business Day following the date on which) the Borrower is notified by the
Letter of Credit Issuer of such payment or disbursement, with interest on the
amount so paid or disbursed to the extent not reimbursed prior to 1:00 P.M.
(New York time) on the date of such payment or disbursement, from and
including the date paid or disbursed to but not including the date the Letter
of Credit Issuer is reimbursed therefor at a rate per annum which shall be
the Applicable Base Rate Margin in excess of the Base Rate as in effect from
time to time (plus an additional 2% per annum if not reimbursed by the third
Business Day after the date of such notice of payment or disbursement), such
interest also to be payable on demand.
(b) The Borrower's obligation under this Section 2.04 to reimburse
the Letter of Credit Issuer with respect to Unpaid Drawings (including, in
each case, interest thereon) shall be absolute and unconditional under any
and all circumstances and irrespective of any setoff, counterclaim or defense
to payment which the Borrower may have or have had against the Letter of
Credit Issuer, the Agent or any Bank, including, without limitation, any
defense based upon the failure of any drawing under a Letter of Credit to
conform to the terms of the Letter of Credit or any non-application or
misapplication by the beneficiary of the proceeds of such drawing; PROVIDED,
HOWEVER, that the Borrower shall not be obligated to reimburse the Letter of
Credit Issuer for any wrongful payment made by the Letter of Credit Issuer
under a Letter of Credit as a result of acts or omissions constituting
willful misconduct or gross negligence on the part of the Letter of Credit
Issuer as determined by a court of competent jurisdiction.
2.05 LETTER OF CREDIT PARTICIPATIONS. (a) Immediately upon the
issuance by the Letter of Credit Issuer of any Letter of Credit, the Letter
of Credit Issuer shall be deemed to have sold and transferred to each other
Bank, and each such Bank (each a "Participant") shall be deemed irrevocably
and unconditionally to have purchased and received from the Letter of Credit
Issuer, without recourse or warranty, an undivided interest and
participation, to the extent of such Bank's Percentage, in such Letter of
Credit, each substitute letter of credit and each drawing made thereunder and
the obligations of the Borrower under this Agreement with respect thereto
(although the Letter of Credit Fee shall be payable directly to the Agent for
the account of the Banks as provided in Section 3.01(b) and the Participants
shall have no right to receive any portion of any Facing Fees) and any
security therefor or guaranty pertaining thereto. Upon any change in the
Commitment of the Banks pursuant to Section 1.13 or 12.04(b), it is hereby
agreed that, with respect to all outstanding Letters of Credit and Unpaid
Drawings, there shall be an automatic adjustment
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to the participations pursuant to this Section 2.05 to reflect the new
Percentages of the assigning and assignee Bank.
(b) In determining whether to pay under any Letter of Credit, the
Letter of Credit Issuer shall not have any obligation relative to the
Participants other than to determine that the documents, if any, required to
be delivered under such Letter of Credit have been delivered and that they
substantially comply on their face with the requirements of such Letter of
Credit. Any action taken or omitted to be taken by the Letter of Credit
Issuer under or in connection with any Letter of Credit, if taken or omitted
in the absence of gross negligence or willful misconduct as determined by a
court of competent jurisdiction, shall not create for the Letter of Credit
Issuer any resulting liability.
(c) In the event that the Letter of Credit Issuer makes any payment
under any Letter of Credit and the Borrower shall not have reimbursed such
amount in full to the Letter of Credit Issuer pursuant to Section 2.04(a),
the Letter of Credit Issuer shall promptly notify the Agent, and the Agent
shall promptly notify each Participant of such failure, and each Participant
shall promptly and unconditionally pay to the Agent for the account of the
Letter of Credit Issuer, the amount of such Participant's Percentage of such
payment in U.S. dollars and in same day funds provided that no Participant
shall be obligated to pay to the Agent its Percentage of such unreimbursed
amount for any wrongful payment made by the Letter of Credit Issuer under a
Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Letter of Credit Issuer as
determined by a court of competent jurisdiction. If the Agent so notifies
any Participant required to fund an Unpaid Drawing prior to 11:00 A.M. (New
York time) on any Business Day, such Participant shall make available to the
Agent for the account of the Letter of Credit Issuer such Participant's
Percentage of the amount of such payment on such Business Day in same day
funds. If and to the extent such Participant shall not have so made its
Percentage of the amount of such Unpaid Drawing available to the Agent for
the account of the Letter of Credit Issuer, such Participant agrees to pay to
the Agent for the account of the Letter of Credit Issuer, forthwith on demand
such amount, together with interest thereon, for each day from such date
until the date such amount is paid to the Agent for the account of the Letter
of Credit Issuer at the overnight Federal Funds Effective Rate. The failure
of any Participant to make available to the Agent for the account of the
Letter of Credit Issuer its Percentage of any Unpaid Drawing shall not
relieve any other Participant of its obligation hereunder to make available
to the Agent for the account of the Letter of Credit Issuer its Percentage of
any payment under any Letter of Credit on the date required, as specified
above, but no Participant shall be responsible for the failure of any other
Participant to make available to the Agent for the account of the Letter of
Credit Issuer such other Participant's Percentage of any such payment.
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(d) Whenever the Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Agent has received for the account
of the Letter of Credit Issuer any payments from the Participants pursuant to
clause (c) above, the Letter of Credit Issuer shall pay to the Agent and the
Agent shall promptly pay to each Participant which has paid its Percentage
thereof, in U.S. dollars and in same day funds, an amount equal to such
Participant's Percentage of the principal amount thereof and interest thereon
accruing after the purchase of the respective participations.
(e) The obligations of the Participants to make payments to the
Agent for the account of the Letter of Credit Issuer with respect to Letters
of Credit shall be irrevocable and not subject to counterclaim, set-off or
other defense or any other qualification or exception whatsoever (provided
that no Participant shall be required to make payments resulting from the
Letter of Credit Issuer's gross negligence or willful misconduct as
determined by a court of competent jurisdiction) and shall be made in
accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or any
of the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right
which the Borrower may have at any time against a beneficiary named in a
Letter of Credit, any transferee of any Letter of Credit (or any Person
for whom any such transferee may be acting), the Agent, the Letter of
Credit Issuer, any Bank or other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying transaction between
the Borrower and/or any Subsidiary and the beneficiary named in any such
Letter of Credit);
(iii) any draft, certificate or other document, if any, presented
under the Letter of Credit or Acceptance proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Credit Documents; or
(v) the occurrence of any Default or Event of Default.
(f) To the extent the Letter of Credit Issuer is not indemnified by
the Borrower, the Participants will reimburse and indemnify the Letter of
Credit Issuer, in proportion to their respective Percentages, for and against
any and all liabilities, obligations,
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losses, damages, penalties, claims, actions, judgments, costs, expenses or
disbursements of whatsoever kind or nature which may be imposed on, asserted
against or incurred by the Letter of Credit Issuer in performing its
respective duties in any way relating to or arising out of its issuance of
Letters of Credit provided that no Participants shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
the Letter of Credit Issuer's gross negligence or willful misconduct as
determined by a court of competent jurisdiction.
2.06 INCREASED COSTS. If at any time after the Effective Date, the
adoption or initial effectiveness of any applicable law, rule or regulation,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
the Letter of Credit Issuer or any Bank with any request or directive
(whether or not having the force of law) first made after the Effective Date
by any such authority, central bank or comparable agency shall either (i)
impose, modify or make applicable any reserve, deposit, capital adequacy or
similar requirement against Letters of Credit issued by the Letter of Credit
Issuer or such Bank's participation therein, or (ii) shall impose on the
Letter of Credit Issuer or any Bank any other conditions affecting this
Agreement, any Letter of Credit or such Bank's participation therein; and the
result of any of the foregoing is to increase the cost to the Letter of
Credit Issuer or such Bank of issuing, maintaining or participating in any
Letter of Credit, or to reduce the amount of any sum received or receivable
by the Letter of Credit Issuer or such Bank hereunder (other than any
increased cost or reduction in the amount received or receivable resulting
from the imposition of or a change in the rate of taxes or similar charges),
then, upon demand to the Borrower by the Letter of Credit Issuer or such Bank
(a copy of which notice shall be sent by the Letter of Credit Issuer or such
Bank to the Agent), the Borrower shall pay to the Letter of Credit Issuer or
such Bank such additional amount or amounts as will compensate the Letter of
Credit Issuer or such Bank for such increased cost or reduction. A
certificate submitted to the Borrower by the Letter of Credit Issuer or such
Bank, as the case may be (a copy of which certificate shall be sent by the
Letter of Credit Issuer or such Bank to the Agent), setting forth the basis
for the determination of such additional amount or amounts necessary to
compensate the Letter of Credit Issuer or such Bank as aforesaid shall be
conclusive and binding on the Borrower absent manifest error, although the
failure to deliver any such certificate shall not release or diminish any of
the Borrower's obligations to pay additional amounts pursuant to this Section
2.06 upon the subsequent receipt thereof.
SECTION 3. FEES; COMMITMENTS.
3.01 FEES. (a) The Borrower agrees to pay to the Agent for
distribution to each Non-Defaulting Bank a commitment fee (the "Commitment
Fee") for the period from the Effective Date to but not including the date
the Total Commitment has been terminated,
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computed at the rate of 1/2 of 1% per annum on the daily average Unutilized
Commitment of such Bank. Accrued Commitment Fees shall be due and payable
quarterly in arrears on the last Business Day of March, June, September and
December and the date upon which the Total Commitment is terminated.
(b) The Borrower shall pay to the Agent for the account of the
Non-Defaulting Banks PRO RATA on the basis of their Percentages, a fee in
respect of each Letter of Credit (the "Letter of Credit Fee") computed for
each day at a rate per annum equal to the Applicable Eurodollar Margin for
such day multiplied by the Stated Amount of all Letters of Credit outstanding
on such day. Accrued Letter of Credit Fees shall be due and payable
quarterly in arrears on the last Business Day of each March, June, September
and December of each year and on the date upon which the Total Commitment
shall be terminated.
(c) The Borrower shall pay to the Letter of Credit Issuer a fee in
respect of each Letter of Credit issued by it (the "Facing Fee") computed for
each day at the rate of 1/4 of 1% per annum on the Stated Amount of all
Letters of Credit outstanding on such day provided, that in no event shall
the annual Facing Fee with respect to any Letter of Credit be less than $500.
Accrued Facing Fees shall be due and payable quarterly in arrears on the
last Business Day of each March, June, September and December of each year
and on the date upon which the Total Commitment shall be terminated.
(d) The Borrower hereby agrees to pay directly to the Letter of
Credit Issuer upon each issuance of, payment under, and/or amendment of, a
Letter of Credit issued by it such amount as shall at the time of such
issuance, payment or amendment be the administrative charge which the Letter
of Credit Issuer is customarily charging for issuances of, payments under or
amendments of comparable letters of credit issued by it.
(e) The Borrower shall pay to the Agent, for its own account, such
fees as have been agreed to in writing by the Borrower and the Agent and such
other fees and expenses as may be agreed to from time to time between the
Borrower and the Agent, when and as due.
(f) All computations of Fees shall be made in accordance with
Section 12.07(b).
3.02 VOLUNTARY REDUCTION OF COMMITMENTS. Upon at least two
Business Days' prior written notice (or telephonic notice promptly confirmed
in writing) to the Agent at its Notice Office (which notice the Agent shall
promptly transmit to each of the Banks), the Borrower shall have the right,
without premium or penalty, to terminate or partially reduce the Total
Unutilized Commitment (after giving effect to any repayment of Credit
Outstandings then being made); PROVIDED, that (x) any such termination or
partial reduction
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shall apply to proportionately and permanently reduce the Commitment of each
of the Banks, (y) no such reduction shall reduce any Non-Defaulting Bank's
Commitment in an amount greater than the then Unutilized Commitment of such
Bank (after giving effect to any repayment of Credit Outstandings then being
made) and (z) any partial reduction pursuant to this Section 3.02 shall be in
the amount of at least $1,000,000.
3.03 MANDATORY ADJUSTMENTS OF COMMITMENTS, ETC. The Total
Commitment (and the Commitment of each Bank) shall terminate on the earlier
of (i) the date on which a Change of Control occurs and (ii) the Maturity
Date.
SECTION 4. PAYMENTS.
4.01 VOLUNTARY PREPAYMENTS. The Borrower shall have the right to
prepay the Loans, in whole or in part, without premium or penalty except as
otherwise provided in this Agreement, from time to time on the following
terms and conditions: (i) the Borrower shall give the Agent at the Notice
Office written notice (or telephonic notice promptly confirmed in writing) of
its intent to prepay the Loans, the amount of such prepayment and the Type of
Loans to be prepaid and if Eurodollar Loans, the specific Borrowing(s)
pursuant to which made, which notice shall be given by the Borrower prior to
11:00 A.M. (New York time) on the Business Day prior to the date of such
prepayment which notice shall promptly be transmitted by the Agent to each of
the Banks; (ii) each prepayment shall be in an aggregate principal amount of
at least $500,000 provided that no partial prepayment of Eurodollar Loans
made pursuant to a Borrowing shall reduce the aggregate principal amount of
the Loans outstanding pursuant to such Borrowing to an amount less than the
Minimum Borrowing Amount applicable thereto; and (iii) each prepayment in
respect of any Loans made pursuant to a Borrowing shall be applied PRO RATA
among such Loans, provided that no such prepayments shall, if the Borrower so
elects, be applied to the Loans of a Defaulting Bank.
4.02 MANDATORY PREPAYMENTS.
(A) REQUIREMENTS:
(a)(i) If on any date (and after giving effect to all other
repayments on such date) the sum of the aggregate outstanding principal
amount of Loans made by Non-Defaulting Banks and the Letter of Credit
Outstandings (less any amount thereof as to which Section 2.02 Arrangements
are in place) exceeds the Adjusted Total Commitment then in effect, the
Borrower shall repay on such date the principal of Loans of Non-Defaulting
Banks in an aggregate amount equal to such excess. If after giving effect to
such repayment, the Letter of Credit Outstandings (less any amount thereof as
to which Section 2.02 Arrangements are in place) exceeds the Adjusted Total
Commitment, the Borrower
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shall pay to the Agent an amount in cash and/or Cash Equivalents equal to
such excess and the Agent shall hold such payment pursuant to the L/C Cash
Collateral Agreement as security for the obligations of the Borrower in
respect of Letters of Credit.
(ii) If on any date (and after giving effect to all other repayments
on such date) the Credit Outstandings exceed the Borrowing Base as then in
effect, the Borrower shall repay on such date the principal of Loans in an
aggregate amount equal to such excess. If, after giving effect to such
repayment, the aggregate amount of Letter of Credit Outstandings exceed the
Borrowing Base then in effect, the Borrower shall pay to the Agent an amount
in cash and/or Cash Equivalents equal to such excess to be held pursuant to
the L/C Cash Collateral Agreement as security for the obligations of the
Borrower in respect of Letters of Credit.
(iii) If on any date the aggregate outstanding principal amount of
Loans made by a Defaulting Bank exceeds the Commitment of such Defaulting
Bank, the Borrower shall repay the principal of Loans of such Defaulting Bank
in an amount equal to such excess.
(B) APPLICATION: With respect to each prepayment of Loans required
by this Section 4.02, the Borrower may designate the Types of Loans which are
to be prepaid and the specific Borrowing(s) pursuant to which made provided
that (i) if any prepayment of Eurodollar Loans made pursuant to a single
Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing
to an amount less than the Minimum Borrowing Amount, such Borrowing shall be
immediately converted into Base Rate Loans and (ii) each prepayment of any
Loans made pursuant to a Borrowing shall be applied PRO RATA among such
Loans, provided that no prepayment pursuant to Section 4.02(A)(a)(ii) shall
be applied to any Loans of a Defaulting Bank until such time as all the Loans
of the Non-Defaulting Banks have been repaid in full and all Letter of Credit
Outstandings shall have been cash collateralized. In the absence of a
designation by the Borrower as described in the preceding sentence, the Agent
shall, subject to the above, make such designation in its sole discretion
with a view, but no obligation, to minimize breakage costs owing under
Section 1.11.
4.03 METHOD AND PLACE OF PAYMENT. Except as otherwise specifically
provided herein, all payments under this Agreement shall be made to the Agent
for the ratable account of the Banks entitled thereto, not later than 2:00
P.M. (New York time) on the date when due and shall be made in immediately
available funds and in lawful money of the United States of America at the
Payment Office, it being understood that written or facsimile transmission
notice by the Borrower to the Agent to make a payment from the funds in the
Borrower's account at the Payment Office shall constitute the making of such
payment to the extent of such funds held in such account. Any payments under
this Agreement
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which are made later than 2:00 P.M. (New York time) shall be deemed to have
been made on the next succeeding Business Day. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Business
Day, the due date thereof shall be extended to the next succeeding Business
Day and, with respect to payments of principal, interest shall be payable
during such extension at the applicable rate in effect immediately prior to
such extension.
4.04 NET PAYMENTS. (a) All payments made by the Borrower
hereunder or under any Note will be made without setoff, counterclaim or
other defense. Except as provided in Section 4.04(b), all such payments will
be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any jurisdiction or by
any political subdivision or taxing authority thereof or therein with respect
to such payments (but excluding, except as provided in the second succeeding
sentence, any tax imposed on or measured by the net income or net profits of
a Bank pursuant to the laws of the jurisdiction in which it is organized or
the jurisdiction in which the principal office or applicable lending office
of such Bank is located or any subdivision thereof or therein) and all
interest, penalties or similar liabilities with respect to such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges (all such
non-excluded taxes, levies, imposts, duties, fees, assessments or other
charges being referred to collectively as "Taxes"). If any Taxes are so
levied or imposed, the Borrower agrees to pay the full amount of such Taxes,
and such additional amounts as may be necessary so that every payment of all
amounts due under this Agreement or under any Note, after withholding or
deduction for or on account of any Taxes, will not be less than the amount
provided for herein or in such Note. If any amounts are payable in respect
of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse
each Bank, upon the written request of such Bank, for taxes imposed on or
measured by the net income or net profits of such Bank pursuant to the laws
of the jurisdiction in which the principal office or applicable lending
office of such Bank is located or under the laws of any political subdivision
or taxing authority of any such jurisdiction in which the principal office or
applicable lending office of such Bank is located and for any withholding of
taxes as such Bank shall determine are payable by, or withheld from, such
Bank, in each case in respect of such amounts so paid to or on behalf of such
Bank pursuant to the preceding sentence and in respect of any amounts paid to
or on behalf of such Bank pursuant to this sentence. The Borrower will
furnish to the Agent within 45 days after the date the payment of any Taxes
is due pursuant to applicable law certified copies of tax receipts evidencing
such payment by the Borrower. The Borrower agrees to indemnify and hold
harmless each Bank, and reimburse such Bank upon its written request, for the
amount of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes agrees to deliver to
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the Borrower and the Agent on or prior to the Effective Date, or in the case
of a Bank that is an assignee or transferee of an interest under this
Agreement pursuant to Section 12.04 (unless the respective Bank was already a
Bank hereunder immediately prior to such assignment or transfer), on the date
of such assignment or transfer to such Bank, (i) two accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 1001 (or
successor forms) certifying to such Bank's entitlement to a complete
exemption from United States withholding tax with respect to payments to be
made under this Agreement and under any Note, or (ii) if the Bank is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot
deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause
(i) above, (x) a certificate substantially in the form of Exhibit C (any such
certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8 (or
successor form) certifying to such Bank's entitlement to a complete exemption
from United States withholding tax with respect to payments of interest to be
made under this Agreement and under any Note. In addition, each Bank agrees
that from time to time after the Effective Date, when a lapse in time or
change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to the Borrower and the
Agent two new accurate and complete original signed copies of Internal
Revenue Service Form 4224 or 1001, or Form W-8 and a Section 4.04(b)(ii)
Certificate, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Bank to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note, or it shall immediately notify
the Borrower and the Agent of its inability to deliver any such Form or
Certificate in which case such Bank shall not be required to deliver any such
Form or Certificate pursuant to this Section 4.04(b). Notwithstanding
anything to the contrary contained in Section 4.04(a), but subject to Section
12.04(b) and the immediately succeeding sentence, (x) the Borrower shall be
entitled, to the extent it is required to do so by law, to deduct or withhold
income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, Fees or
other amounts payable hereunder for the account of any Bank which is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) for U.S. Federal income tax purposes to the extent that such Bank has
not provided to the Borrower U.S. Internal Revenue Service Forms that
establish a complete exemption from such deduction or withholding and (y) the
Borrower shall not be obligated pursuant to Section 4.04(a) hereof to
gross-up payments to be made to a Bank in respect of income or similar taxes
imposed by the United States if (I) such Bank is not a United States person
(defined as provided above) and has not provided to the Borrower the Internal
Revenue Service Forms provided for in the foregoing provisions of this
Section 4.04(b) or (II) in the case of a payment, other than interest, to a
Bank described in clause (ii) above, to the extent that such Forms do not
establish a complete exemption from withholding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence
or elsewhere in this Section 4.04 and except as set forth in Section
12.04(b), the Borrower agrees
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to pay any additional amounts and to indemnify each Bank in the manner set
forth in Section 4.04(a) (without regard to the identity of the jurisdiction
requiring the deduction or withholding) in respect of any Taxes deducted or
withheld by it as described in the immediately preceding sentence as a result
of any changes after the Effective Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of such Taxes.
SECTION 5. CONDITIONS.
5.01 EFFECTIVE DATE. This Agreement shall become effective on the
date (the "Effective Date") on which all the following conditions have first
been satisfied:
(a) EXECUTION OF AGREEMENT. The Borrower and each of the Banks
shall have signed a copy of this Agreement (whether the same or different
copies) and shall have delivered same to the Agent at its Notice Office
or, in the case of the Banks, shall have given to the Agent telephonic
(confirmed in writing), written, telex or facsimile transmitted notice
(actually received) at such office that the same has been signed and
mailed to it.
(b) NOTES. There shall have been delivered to the Agent for the
account of each Bank the appropriate Note executed by the Borrower in the
amount, maturity and as otherwise provided herein.
(c) OFFICER'S CERTIFICATE. The Agent shall have received a
certificate dated the Effective Date signed by an appropriate officer of
the Borrower stating that all of the applicable conditions set forth in
Sections 5.01(i), (j) and (n) and 5.02 exist as of such date.
(d) OPINIONS OF COUNSEL. The Agent shall have received opinions,
addressed to each of the Banks and dated the Effective Date, (i) from
Latham & Watkins, special counsel to the Borrower, which opinion shall
cover the matters contained in Exhibit D-1 and such other matters
incident to the transactions contemplated herein as the Agent may
reasonably request and (ii) from White & Case, special counsel to the
Banks, which opinion shall cover the matters contained in Exhibit D-2.
(e) CORPORATE PROCEEDINGS. (A) The Agent shall have received from
the Borrower a certificate, dated the Effective Date, signed by the
president or chief financial officer of the Borrower, and attested to by
the secretary or any assistant secretary of the Borrower, in the form of
Exhibit E with appropriate insertions, together with copies of the
Certificate of Incorporation and By-Laws of each Credit
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Party and the resolutions of each Credit Party referred to in such
certificate and all of the foregoing (including each such Certificate of
Incorporation and By-Laws) shall be reasonably satisfactory to the Agent.
(B) On the Effective Date, all corporate and legal proceedings and
all instruments and agreements in connection with the transactions
contemplated by this Agreement and the other Credit Documents shall be
reasonably satisfactory in form and substance to the Agent, and the Agent
shall have received all information and copies of all certificates,
documents and papers, including good standing certificates and any other
records of corporate proceedings and governmental approvals, if any,
which the Agent reasonably may have requested in connection therewith,
such documents and papers, where appropriate, to be certified by proper
corporate or governmental authorities.
(f) PLANS; ETC. There shall have been made available to the Agent
true and correct copies of:
(i) any Plans, and for each Plan (x) that is a
"single-employer plan" (as defined in Section 4001(a)(15) of ERISA)
the most recently completed actuarial valuation prepared therefor by
such Plan's regular enrolled actuary and the Schedule B, "Actuarial
Information" to the IRS Form 5500 (Annual Report) most recently
filed with the Internal Revenue Service and (y) that is a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA),
each of the documents referred to in clause (x) either in the
possession of the Borrower or any of its Subsidiaries, or any ERISA
Affiliate or reasonably available thereto from the sponsor or
trustees of such Plan;
(ii) any collective bargaining agreements or any other
similar agreement or arrangements covering the employees of the
Borrower or any of its Subsidiaries;
(iii) all agreements evidencing or relating to the
Existing Debt;
(iv) all agreements entered into by the Borrower or any
of its Subsidiaries governing the terms and relative rights of its
capital stock, and any agreements entered into by shareholders of
the Borrower or any such Subsidiary with respect to their capital
stock;
(v) any agreement with respect to, the management of
the Borrower or any of its Subsidiaries;
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(vi) any material employment agreements entered into by
the Borrower or any of its Subsidiaries; and
(vii) all tax sharing, tax allocation and other similar
agreements entered into by the Borrower and/or any of its
Subsidiaries with any entity not the Borrower or a Subsidiary
Guarantor;
with all of the foregoing to be reasonably satisfactory to the Agent.
(g) ADVERSE CHANGE; ETC. From March 31, 1997 to the Effective
Date, nothing shall have occurred (and neither the Banks nor the Agent
shall have become aware of any facts or conditions not previously known)
which the Agent or the Required Banks shall reasonably determine (a) has
had, or is reasonably likely to have, a material adverse effect on the
rights or remedies of the Banks or the Agent under this Agreement or any
other Credit Document, or on the ability of the Credit Parties in the
aggregate to perform their obligations thereunder, or (b) has had, or is
reasonably likely to have, a Material Adverse Effect.
(h) LITIGATION. No actions, suits or proceedings shall be pending
or, to the knowledge of the Borrower, threatened against any Credit Party
on the Effective Date (a) with respect to this Agreement or any other
Credit Document, or (b) which either the Agent or the Required Banks
shall determine has had, or is reasonably likely to have, a Material
Adverse Effect.
(i) SENIOR SUBORDINATED NOTES. On or prior to the Effective Date,
the Borrower shall have received at least $105,000,000 in gross cash
proceeds from the issuance of the Senior Subordinated Notes and the Agent
shall have received a certified copy of all Senior Subordinated Note
Documents as in effect on the Effective Date.
(j) EXISTING CREDIT AGREEMENT, ETC. (A) On the Effective Date and
concurrently with the incurrence, if any, of Loans on such date, (i) the
commitments under the Existing Credit Agreement shall have been
terminated, (ii) all loans thereunder shall have been repaid in full,
together with interest thereon, (iii) all letters of credit issued
thereunder that are not Existing Letters of Credit shall have been
terminated or shall become supported by Letters of Credit, (iv) all other
amounts owing pursuant to the Existing Credit Agreement shall have been
repaid in full and (v) the creditors under the Existing Credit Agreement
shall have terminated and released all Liens on the capital stock of and
assets owned by the Borrower or any of its Subsidiaries, and the Agent
shall have received evidence (including
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releases) in form, scope and substance satisfactory to it that the
matters set forth in this Section 5.01(j)(A) have been satisfied at such
time.
(B) The Borrower shall have used, or shall concurrently use, a
portion of the proceeds of the Senior Subordinated Notes to repay at
least $11.7 million principal of the Seller Notes provided that up to
$3.7 million of such principal amount may be placed in an escrow for the
benefit of certain holders of Seller Notes for a period of up to one year.
(k) SUBSIDIARY GUARANTY. Each Subsidiary shall have duly
authorized, executed and delivered a guaranty in the form of Exhibit F
hereto (as modified, amended or supplemented from time to time in
accordance with the terms hereof and thereof, the "Subsidiary Guaranty"),
and the Subsidiary Guaranty shall be in full force and effect.
(l) SECURITY DOCUMENTS. (A) Each Credit Party shall have duly
authorized, executed and delivered a Pledge Agreement in the form of
Exhibit G (as modified, amended or supplemented from time to time in
accordance with the terms thereof and hereof, the "Pledge Agreement") and
shall have delivered to the Collateral Agent, as pledgee thereunder, all
of the Pledged Securities referred to therein, endorsed in blank or
accompanied by executed and undated stock powers, and the Pledge
Agreement shall be in full force and effect.
(B) Each Credit Party shall have duly authorized, executed and
delivered a Security Agreement substantially in the form of Exhibit H (as
modified, supplemented or amended from time to time, the "Security
Agreement") covering all of such Credit Party's present and future
Security Agreement Collateral, in each case together with:
(1) executed copies of Financing Statements (Form UCC-1) in
appropriate form for filing under the UCC of each jurisdiction as
may be necessary to perfect the security interests purported to be
created by the Security Agreement, as the case may be;
(2) certified copies of Requests for Information or Copies
(Form UCC-11), or equivalent reports, each of recent date listing
all effective financing statements that name each Credit Party as
debtor and that are filed in the jurisdictions referred to in clause
(i), together with copies of such financing statements (none of
which shall cover the Collateral except (x) those with respect to
which appropriate termination statements executed
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by the secured lender thereunder have been filed or delivered to the
Agent and (y) to the extent evidencing Permitted Liens);
(3) executed copies of all other recordings and filings of, or
with respect to, the Security Agreement as may be necessary or, in
the reasonable opinion of the Collateral Agent, desirable to perfect
the security interests intended to be created by the Security
Agreement; and
(4) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect and
protect the security interests purported to be created by the
Security Agreement have been taken or provided for.
(m) INTERCREDITOR AGREEMENT. The Agent, the lender under the
Floorplan Financing and the Borrower shall have delivered an
intercreditor agreement (the "Intercreditor Agreement") in the form of
Exhibit I and the Intercreditor Agreement shall be in full force and
effect.
(n) PAYMENT OF FEES. All costs, fees and expenses, and all other
compensation contemplated by this Agreement due to the Agent or the Banks
(including, without limitation, legal fees and expenses) on or prior to
the Effective Date shall have been paid.
(o) CONSENT LETTER. The Agent shall have received a letter from CT
Corporation System, substantially in the form of Exhibit J hereto,
indicating its consent to its appointment by each Credit Party as its
agent to receive service of process.
(p) BORROWING BASE CERTIFICATE. The Agent shall have received an
executed Borrowing Base Certificate dated as of June 30, 1997.
5.02 EACH CREDIT EVENT. The obligation of each Bank to make each
Loan hereunder, and the obligation of the Letter of Credit Issuer to issue
each Letter of Credit hereunder, is subject, at the time of each such Credit
Event, to the satisfaction of the following conditions:
(a) NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of
each Credit Event and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and
warranties contained herein and in the other Credit Documents in effect
at such time shall be true and correct in all material respects with the
same effect as though such representations and warranties had been
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made on and as of the date of such Credit Event, unless stated to relate to
a specific earlier date, in which case such representations and warranties
shall be true and correct in all material respects as of such earlier
date.
(b) NOTICE OF BORROWING; LETTER OF CREDIT REQUEST. The Agent shall
have received a Notice of Borrowing satisfying the requirements of
Section 1.03 with respect to each incurrence of Loans and the Agent and
the Letter of Credit Issuer shall have received a Letter of Credit
Request satisfying the requirements of Section 2.03(a) with respect to
each issuance of a Letter of Credit.
The acceptance of the benefits of each Credit Event shall constitute
a representation and warranty by the Borrower to each of the Banks that all
of the applicable conditions specified above exist as of the date of such
Credit Event. All of the certificates, legal opinions and other documents and
papers referred to in Section 5.01, unless otherwise specified, shall be
delivered to the Agent at its Notice Office for the account of each of the
Banks and, except for the Notes, in sufficient counterparts for each of the
Banks and shall be reasonably satisfactory in form and substance to the Agent.
SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In order to
induce the Banks to enter into this Agreement and to make the Loans and issue
and/or participate in the Letters of Credit provided for herein, the Borrower
makes the following representations, warranties and agreements as to itself
and as to each of its Subsidiaries with the Banks, all of which shall survive
the execution and delivery of this Agreement, the making of the Loans and the
issuance of the Letters of Credit.
6.01 CORPORATE STATUS. Each of the Credit Parties (i) is a duly
organized and validly existing corporation and is in good standing, in each
case under the laws of the jurisdiction of its organization, and has the
power and authority to own its property and assets and to transact the
business in which it is engaged and presently proposes to engage and (ii) is
duly qualified and is authorized to do business and, to the extent relevant,
is in good standing in all jurisdictions where it is required to be so
qualified and where the failure to be so qualified would have a Material
Adverse Effect.
6.02 POWER AND AUTHORITY. Each Credit Party has the corporate
power and authority to execute, deliver and carry out the terms and
provisions of the Credit Documents to which it is a party and has taken all
necessary corporate action to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. Each Credit
Party has duly executed and delivered each Credit Document to which it is a
party and each such Credit Document constitutes the legal, valid and binding
obligation of such Credit Party enforceable in accordance with its terms,
except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
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laws generally affecting creditors' rights and by equitable principles
(regardless of whether enforcement is sought in equity or at law).
6.03 NO VIOLATION. Neither the execution, delivery or performance
by any Credit Party of the Credit Documents to which it is a party nor
compliance by them with the terms and provisions thereof, nor the
consummation of the transactions contemplated therein, (i) will contravene
any applicable provision of any law, statute, rule or regulation, or any
order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict or be inconsistent with or result in any
breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or (other than pursuant to the Security
Documents) result in the creation or imposition of (or the obligation to
create or impose) any Lien upon any of the property or assets of such Credit
Party pursuant to the terms of any indenture, mortgage, deed of trust,
agreement or other instrument to which such Credit Party is a party or by
which it or any of its property or assets are bound or to which it may be
subject or (iii) will violate any provision of the Certificate of
Incorporation or By-Laws, as the case may be, of such Credit Party.
6.04 LITIGATION. There are no actions, suits or proceedings
pending or threatened, with respect to the Borrower or any of its
Subsidiaries (i) that have, or that could reasonably be expected to have, a
Material Adverse Effect or (ii) that have, or that could reasonably be
expected to have, a material adverse effect on the rights or remedies of the
Banks or on the ability of the Credit Parties in the aggregate to perform
their obligations to the Banks under the Credit Documents.
6.05 USE OF PROCEEDS; MARGIN REGULATIONS. (a) The proceeds of all
Loans shall be utilized (i) to repay loans and other Indebtedness under the
Existing Credit Agreement, (ii) to finance Permitted Acquisitions (iii) to
finance, when due, payments that constitute additional purchase price in
respect of the Completed 1997 Acquisitions (which payments will not exceed $8
million) and (iv) for the general corporate and working capital purposes of
the Borrower and its Subsidiaries.
(b) Neither the making of any Loan hereunder, nor the use of the
proceeds thereof, will violate the provisions of Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System and no part of the
proceeds of any Loan will be used to purchase or carry any Margin Stock or to
extend credit for the purpose of purchasing or carrying any Margin Stock.
6.06 GOVERNMENTAL APPROVALS. Except for filings and recordings in
connection with the Security Documents, no order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with,
or exemption by, any foreign or domestic governmental or public body or
authority, or any subdivision thereof, is
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required to authorize or is required in connection with (i) the execution,
delivery and performance of any Credit Document or (ii) the legality,
validity, binding effect or enforceability of any Credit Document except, in
any such case, as expressly provided herein or in the Security Documents.
6.07 INVESTMENT COMPANY ACT. Neither the Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended.
6.08 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor
any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6.09 TRUE AND COMPLETE DISCLOSURE. All factual information (taken
as a whole) heretofore or contemporaneously furnished by or on behalf of the
Borrower in writing to the Agent for purposes of or in connection with this
Agreement or any transaction contemplated herein is, and all other such
factual information (taken as a whole) hereafter furnished by or on behalf of
the Borrower in writing to any Bank will be, true and accurate in all
material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary
to make such information (taken as a whole) not misleading at such time in
light of the circumstances under which such information was provided. The
projections and PRO FORMA financial information contained in such materials
are based on good faith estimates and assumptions believed by the Borrower to
be reasonable at the time made, it being recognized by the Banks that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may
differ from the projected results. There is no fact known to the Borrower or
any of its Subsidiaries (other than matters relating to general economic
conditions or conditions affecting the information technology business
generally) which would have a Material Adverse Effect, which has not been
disclosed herein or in such other documents, certificates and statements
furnished to the Agent for use in connection with the transactions
contemplated hereby.
6.10 FINANCIAL CONDITION; FINANCIAL STATEMENTS. (a) On and as of
the Effective Date, on a PRO FORMA basis after giving effect to the
transactions contemplated hereby and to all Indebtedness incurred, and to be
incurred, and Liens created, and to be created, by each Credit Party in
connection herewith, and with respect to each of (I) the Borrower and its
Subsidiaries taken as a whole and (II) the Borrower (x) the sum of their
assets, at a fair valuation, will exceed their debts, (y) they have not
incurred nor intend to, nor believe that they will, incur debts beyond their
ability to pay such debts as such debts
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mature and (z) they will have sufficient capital with which to conduct their
business. For purposes of this Section 6.10, "debt" means any liability on a
claim, and "claim" means (i) right to payment whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or
(ii) right to an equitable remedy for breach of performance if such breach
gives rise to a payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
(b) The consolidated balance sheets of the Borrower at December 31,
1996 and March 31, 1997 and the related consolidated statements of operations
and stockholders' equity and cash flows of the Borrower for the fiscal year
or three month period, as the case may be, ended as of said dates, which, in
the case of the annual financial statements, have been examined by Price
Waterhouse LLP, independent certified public accountants, copies of which
have heretofore been furnished to each Bank, present fairly the financial
position of the Borrower and its Subsidiaries at the dates of said statements
and the results for the periods covered thereby. All such financial
statements have been prepared in accordance with GAAP consistently applied
except to the extent provided in the notes to said financial statements.
(c) Nothing has occurred since December 31, 1996 that has had or
could reasonably be expected to have a Material Adverse Effect or could
reasonably be expected to result in an Event of Default.
(d) Except as fully reflected in the financial statements described
in Section 6.10(b) or in the footnotes thereto, there were as of the
Effective Date (and after giving effect to any Loans made on such date), no
material Contingent Obligation, contingent liability or liability for taxes
or any long-term lease or unusual forward or long-term commitment, including
interest rate or currency swap or exchange transactions, with respect to the
Borrower or any of its Subsidiaries which either individually or in the
aggregate would be material to the Borrower and its Subsidiaries taken as a
whole, except as incurred (x) in connection with the Completed 1997
Acquisitions or (y) otherwise in the ordinary course of business consistent
with past practices subsequent to December 31, 1996.
6.11 SECURITY INTERESTS. On or after the Effective Date, each of
the Security Documents creates, as security for the obligations secured
thereby, a valid and enforceable perfected security interest in and Lien on
all of the Collateral subject thereto, superior to and prior to the rights of
all third Persons and subject to no other Liens (other than Permitted Liens)
in favor of the Collateral Agent. No filings or recordings are required in
order to perfect the security interests created under any Security Documents
except for filings or recordings required in connection with any such
Security Document which shall have been
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made, or provided for in a manner satisfactory to the Agent, on or prior to
the Effective Date.
6.12 TAX RETURNS AND PAYMENTS. Each of the Borrower and each of
its Subsidiaries has filed all federal income tax returns and all other
material tax returns, domestic and foreign, required to be filed by it and
has paid all material taxes and assessments payable by it which have become
due, except for those contested in good faith. The Borrower and each of its
Subsidiaries have at all times paid, or have provided adequate reserves (in
the good faith judgment of the management of the Borrower) for the payment
of, all federal, state and foreign income taxes applicable for all prior
fiscal years and for the current fiscal year to date.
6.13 COMPLIANCE WITH ERISA. Each Plan is in substantial compliance
with ERISA and the Code; no Reportable Event has occurred with respect to a
Plan; no Plan is insolvent or in reorganization; no Plan has an Unfunded
Current Liability; no Plan has an accumulated or waived funding deficiency,
has permitted decreases in its funding standard account or has applied for a
waiver of the minimum funding standard or an extension of any amortization
period within the meaning of Section 412 of the Code; all contributions
required to be made with respect to a Plan and a Foreign Pension Plan have
been timely made; neither the Borrower nor any Subsidiary of the Borrower nor
any ERISA Affiliate has incurred any material liability to or on account of a
Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the
Code or reasonably expects to incur any material liability (including any
indirect, contingent or secondary liability) under any of the foregoing
Sections with respect to any Plan (other than liabilities of any ERISA
Affiliate which could not, by operation of law or otherwise, become a
liability of the Borrower or any of its Subsidiaries); no proceedings have
been instituted to terminate, or to appoint a trustee to administer, any
Plan; no condition exists which presents a material risk to the Borrower or
any Subsidiary of the Borrower or any ERISA Affiliate of incurring a
liability to or on account of a Plan pursuant to the foregoing provisions of
ERISA and the Code; using actuarial assumptions and computation methods
consistent with Part 1 of Subtitle E of Title IV of ERISA, the aggregate
liabilities of the Borrower and its Subsidiaries and its ERISA Affiliates to
all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of
ERISA) in the event of a complete withdrawal therefrom, as of the close of
the most recent fiscal year of each such Plan ended prior to the date of the
most recent Credit Event, would not result in a Material Adverse Effect; no
lien imposed under the Code or ERISA on the assets of the Borrower or any
Subsidiary of the Borrower or any ERISA Affiliate exists or is likely to
arise on account of any Plan; and the Borrower and its Subsidiaries do not
maintain or contribute to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) which provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any
employee pension benefit plan (as defined in Section 3(2) of
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ERISA) the obligations with respect to which could reasonably be expected to
have a Material Adverse Effect.
6.14 OWNERSHIP; SUBSIDIARIES. On the Effective Date, the
corporations listed on Annex III are the only Subsidiaries of the Borrower.
Annex III correctly sets forth, as of the Effective Date, the percentage
ownership (direct and indirect) of the Borrower in each class of capital
stock of each of its Subsidiaries and also identifies the direct owner
thereof.
6.15 INTELLECTUAL PROPERTY. The Borrower and each of its
Subsidiaries owns or holds a valid license to use all the patents,
trademarks, permits, service marks, trade names, technology, know-how,
copyrights, licenses, franchises and formulas or rights with respect to the
foregoing, that are used in the operation of the business of the Borrower and
each of its Subsidiaries as presently conducted and as proposed to be
conducted and are material to such business.
6.16 LABOR RELATIONS. Neither the Borrower nor any of its
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a Material Adverse Effect. There is (i) no unfair labor
practice complaint pending against the Borrower or any of its Subsidiaries
or, to the best knowledge of the Borrower, threatened against any of them,
before the National Labor Relations Board, and no grievance or arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against the Borrower or any of its Subsidiaries or, to the best
knowledge of the Borrower, threatened against any of them, (ii) no strike,
labor dispute, slowdown or stoppage pending against the Borrower or any of
its Subsidiaries or, to the best knowledge of the Borrower, threatened
against the Borrower or any of its Subsidiaries and (iii) to the best
knowledge of the Borrower, no union representation question existing with
respect to the employees of the Borrower or any of its Subsidiaries and, to
the best knowledge of the Borrower, no union organizing activities are taking
place, except (with respect to any matter specified in clause (i), (ii) or
(iii) above, either individually or in the aggregate) such as is not
reasonably likely to have a Material Adverse Effect.
6.17 SUBORDINATION. The subordination provisions contained in the
Senior Subordinated Note Indenture are enforceable against the Borrower and
the holders of the securities issued thereunder, and all Obligations shall be
within the definition of "Senior Indebtedness" included in the subordination
provisions contained in the Senior Subordinated Note Indenture.
SECTION 7. AFFIRMATIVE COVENANTS. The Borrower hereby covenants
and agrees that, for so long as this Agreement is in effect and until the
Commitments have terminated, no Letters of Credit or Notes are outstanding
and the Loans and Unpaid Drawings,
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together with interest, Fees and all other Obligations (other than any
indemnities described in Section 12.13 hereof which are not then due and
payable) incurred hereunder, are paid in full:
7.01 INFORMATION COVENANTS. The Borrower will furnish to each Bank:
(a) ANNUAL STATEMENTS. Within 90 days after the close of each
fiscal year of the Borrower, the consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such fiscal year and the
related consolidated statements of operations and stockholders' equity
and of cash flows for such fiscal year and setting forth comparative
figures for the preceding fiscal year and comparable budgeted figures for
such fiscal year and certified by the chief financial officer or other
Authorized Officer of the Borrower that such statements fairly present
the financial condition of the Borrower and its Subsidiaries, as of the
dates indicated and the results of their operations and changes in their
cash flows for the periods indicated and examined by Price Waterhouse LLP
or such other independent certified public accountants of recognized
national standing as shall be acceptable to the Agent, whose opinion
shall not be qualified as to the scope of audit or as to the status of
the Borrower and its Subsidiaries as a going concern, together with a
certificate of such accounting firm stating that in the course of its
regular audit of the business of the Borrower and its Subsidiaries, which
audit was conducted in accordance with generally accepted auditing
standards, no Default or Event of Default which has occurred and is
continuing has come to their attention or, if such a Default or Event of
Default has come to their attention a statement as to the nature thereof.
(b) QUARTERLY STATEMENTS. Within 45 days after the close of each
of the first three quarterly accounting periods in each fiscal year of
the Borrower, the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such quarterly period and the related
consolidated statements of operations and stockholders' equity and of
cash flows for such quarterly period and for the elapsed portion of the
fiscal year ended with the last day of such quarterly period; all of
which shall be in reasonable detail and certified by the chief financial
officer or other Authorized Officer of the Borrower that they fairly
present the financial condition of the Borrower and its Subsidiaries as
of the dates indicated and the results of their operations and changes in
their cash flows for the periods indicated, subject to normal year-end
audit adjustments.
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(c) MONTHLY STATEMENTS. Within 30 days after the end of each
month, the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such month and the related consolidated
statements of operations and stockholders' equity and of cash flows for
such month and for the elapsed portion of the fiscal year ended with the
last day of such quarterly period; all of which shall be in reasonable
detail and certified by the chief financial officer or other Authorized
Officer of the Borrower that they fairly present the financial condition
of the Borrower and its Subsidiaries as of the dates indicated and the
results of their operations and changes in their cash flows for the
periods indicated, subject to normal year-end audit adjustments.
(d) BUDGETS, ETC. Not more than 90 days after the commencement of
each fiscal year of the Borrower, a consolidated budget of the Borrower
and its Subsidiaries in reasonable detail for each of the four fiscal
quarters of such fiscal year as customarily prepared by management for
its internal use setting forth, with appropriate discussion, the
principal assumptions upon which such budgets are based. Together with
each delivery of financial statements pursuant to Sections 7.01(a), (b)
[and (c)], a comparison of the current year to date financial results
(other than in respect of the balance sheets included therein) against
the budgets required to be submitted pursuant to this clause (d) shall be
presented.
(e) OFFICER'S CERTIFICATES. At the time of the delivery of the
financial statements provided for in Sections 7.01(a), (b) and (c), a
certificate of the chief financial officer or other Authorized Officer of
the Borrower to the effect that no Default or Event of Default exists or,
if any Default or Event of Default does exist, specifying the nature and
extent thereof, which certificate shall set forth the calculations
required to establish whether the Borrower and its Subsidiaries were in
compliance with the provisions of Sections 8.09 through 8.11, as at the
end of such fiscal month, quarter or year, as the case may be.
(f) BORROWING BASE CERTIFICATES. Upon request by the Agent at any
time if a Default or Event of Default shall exist and in any event not
later than 12:00 Noon New York time on the last day of each month, a
certificate (the "Borrowing Base Certificate") setting forth the
Borrowing Base, in substantially the form of Exhibit K, duly completed,
as of the last Business Day of the prior month (or as of the date
otherwise specified in such report with respect to NYMA if prior to
December 31, 1997), and certified by the Borrower's chief executive
officer or chief financial officer and subject only to adjustment upon
completion of the normal year-end audit, with each Borrowing Base
Certificate to have attached to it such additional schedules and/or other
information, as the Agent may reasonably request.
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(g) NOTICE OF DEFAULT OR LITIGATION, ETC. Promptly, and in any
event within three Business Days after any officer of the Borrower or any
of its Subsidiaries obtains knowledge thereof, notice of (x) the
occurrence of any event which constitutes a Default or Event of Default,
which notice shall specify the nature thereof, the period of existence
thereof and what action the Borrower proposes to take with respect
thereto and (y) the commencement of, or threat of, or any significant
development in, any litigation or governmental proceeding pending against
the Borrower or any of its Subsidiaries which is likely to have a
Material Adverse Effect, or a material adverse effect on the ability of
the Credit Parties, in the aggregate, to perform their obligations
hereunder or under any other Credit Document.
(h) AUDITORS' REPORTS. Promptly upon receipt thereof, a copy of
each report or "management letter" submitted to the Borrower or any of
its Subsidiaries by its independent accountants in connection with any
annual, interim or special audit made by them of the books of the
Borrower or any of its Subsidiaries.
(i) OTHER INFORMATION. Promptly upon transmission thereof, copies
of any filings and registrations with, and reports to, the SEC by the
Borrower or any of its Subsidiaries and copies of all financial
statements, proxy statements, notices and reports as the Borrower or any
of its Subsidiaries shall send to the holders of the Senior Subordinated
Notes (in each case to the extent not theretofore delivered to the Banks
pursuant to this Agreement) and, with reasonable promptness, such other
information or documents (financial or otherwise) as the Agent on its own
behalf or on behalf of the Required Banks may reasonably request from
time to time.
7.02 BOOKS, RECORDS AND INSPECTIONS. The Borrower will, and will
cause each of its Subsidiaries to, permit, upon notice to the chief financial
officer or other Authorized Officer of the Borrower, officers and designated
representatives of the Agent or the Required Banks to visit and inspect any
of the properties or assets of the Borrower and any of its Subsidiaries in
whomsoever's possession (to the extent within the power of the Borrower or
such Subsidiary to do so), and to examine the books of account of the
Borrower and any of its Subsidiaries and discuss the affairs, finances and
accounts of the Borrower and of any of its Subsidiaries with, and be advised
as to the same by, their officers and independent accountants, all at such
reasonable times and intervals and to such reasonable extent as the Agent or
the Required Banks may desire.
7.03 INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect insurance
with reputable and solvent insurers in such amounts, covering such risks and
liabilities and with such deductibles or self-insured retentions as are in
accordance with normal industry practice. The Borrower will furnish on
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the Effective Date and annually thereafter to the Agent a summary of the
insurance carried in respect of the Borrower and its Subsidiaries and the
assets of the Borrower and its Subsidiaries together with certificates of
insurance and other evidence of such insurance, if any, naming the Collateral
Agent as an additional insured and/or loss payee, to the extent of its
interests therein.
7.04 PAYMENT OF TAXES. The Borrower will pay and discharge, and
will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date
on which material penalties attach thereto, and all lawful claims for sums
that have become due and payable which, if unpaid, might become a Lien not
otherwise permitted under Section 8.03(a); PROVIDED, that neither the
Borrower nor any of its Subsidiaries shall be required to pay any such tax,
assessment, charge, levy or claim which is being contested in good faith and
by proper proceedings if it has maintained adequate reserves with respect
thereto in accordance with GAAP.
7.05 CORPORATE FRANCHISES. The Borrower will do, and will cause
each of its Subsidiaries to do, or cause to be done, all things necessary to
preserve and keep in full force and effect its existence and its material
rights, franchises and authority to do business; PROVIDED, HOWEVER, that any
transaction permitted by Section 8.02 will not constitute a breach of this
Section 7.05.
7.06 COMPLIANCE WITH STATUTES, ETC. The Borrower will, and will
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property other than those the
non-compliance with which would not have a Material Adverse Effect or a
material adverse effect on the ability of the Credit Parties, in the
aggregate, to perform their obligations under the Credit Documents.
7.07 GOOD REPAIR. The Borrower will, and will cause each of its
Subsidiaries to, ensure that its material properties and equipment used or
useful in its business are kept in good repair, working order and condition,
normal wear and tear excepted, and, subject to Section 8.05, that from time
to time there are made in such properties and equipment all needful and
proper repairs, renewals, replacements, extensions, additions, betterments
and improvements thereto, to the extent and in the manner useful or customary
for companies in similar businesses.
7.08 ERISA. As soon as possible and, in any event, within 10 days
after the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate
knows or has reason to know of the occurrence of any of the following events
to the extent that one or more
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of such events is reasonably likely to result in a material liability to
the Borrower or any Subsidiary of the Borrower, the Borrower will
deliver to each of the Banks a certificate of the chief financial
officer or other Authorized Officer of the Borrower setting forth
details as to such occurrence and the action, if any, which the
Borrower, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be
given to or filed with or by the Borrower, the Subsidiary, the ERISA
Affiliate, the PBGC, a Plan participant or the Plan administrator with
respect thereto: that a Reportable Event has occurred; that an
accumulated funding deficiency has been incurred or an application may
be or has been made to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under
Section 412 of the Code with respect to a Plan; that a contribution
required to be made to a Plan or Foreign Pension Plan has not been
timely made; that a Plan has been or may be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA; that a Plan
has an Unfunded Current Liability giving rise to a lien under ERISA or
the Code; that proceedings may be or have been instituted to terminate
or appoint a trustee to administer a Plan; that a proceeding has been
instituted pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Plan; that the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate will or may incur any liability
(including any indirect, contingent or secondary liability) to or on
account of the termination of or withdrawal from a Plan under Section
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a
Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section
409, 502(i) or 502(l) of ERISA; or that the Borrower or any Subsidiary
of the Borrower has or may incur any liability under any employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other
than as required by Section 601 of ERISA) or any employee pension
benefit plan (as defined in Section 3(2) of ERISA). At the request of
any Bank, the Borrower will deliver to such Bank a complete copy of the
annual report (Form 5500) of each Plan (including, to the extent
required, the related financial and actuarial statements,
certifications, schedules and information) required to be filed with the
Internal Revenue Service. In addition to any certificates or notices
delivered to the Banks pursuant to the first sentence hereof, copies of
annual reports and any notices received by the Borrower or any
Subsidiary of the Borrower or any ERISA Affiliate with respect to any
Plan or Foreign Pension Plan shall be delivered to the Banks no later
than 10 days after the date such report has been filed with the Internal
Revenue Service or received by the Borrower or the Subsidiary or the
ERISA Affiliate, as applicable.
7.09 END OF FISCAL YEARS; FISCAL QUARTERS. The Borrower will, for
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years and fourth fiscal quarters to end on December 31
of each year and (ii) each of its, and each of its Subsidiaries', first three
fiscal quarters to end on the last day of March, June and
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September of each year provided that NYMA may retain its current monthly
reporting period until January 1, 1998.
7.10 FURTHER ASSURANCES. (a) The Borrower will, and will cause
each of its Subsidiaries to, at the expense of the Borrower, make, execute,
endorse, acknowledge, file and/or deliver to the Collateral Agent from time
to time such vouchers, invoices, schedules, confirmatory assignments,
conveyances, financing statements, transfer endorsements, powers of attorney,
certificates, reports and other assurances or instruments and take such
further steps relating to the collateral covered by any of the Security
Documents as the Collateral Agent may reasonably require.
(b) The Borrower agrees that each action required above by this
Section 7.10 shall be completed as soon as possible, but in no event later
than 60 days after such action is requested to be taken by the Agent or the
Required Banks.
7.11 NOTICES OF ASSIGNMENT. At any time, upon the written
request, and in the sole discretion, of the Required Banks, each Credit Party
shall promptly, and in any event within 5 Business Days of the delivery of
such written request, deliver to the Agent duly completed Notices of
Assignment (the "Notices") pursuant to the provisions of the Assignment of
Claims Act of 1940, 31 U.S.C. Section 3727(c), with respect to each material
contract of a Credit Party with the U.S. government or any branch, agency,
bureau or subdivision thereof and, until otherwise directed by the Required
Banks, shall thereafter update each such Notice, and provide (and update)
Notices with respect to any additional contracts between a Credit Party and
the U.S. government or any branch, agency, bureau or subdivision thereof.
Upon the occurrence and during the continuation of any Default or Event of
Default, the Required Banks may direct the Agent to file Notices with respect
to any or all of the contracts of the Credit Parties with the U.S. government
or any branch, agency, bureau or subdivision thereof. After any such filing,
the Credit Parties shall take all action necessary to maintain such filings
and to make filings with respect to any additional material contracts between
a Credit Party and the U.S. government or any branch, agency, bureau or
subdivision thereof.
SECTION 8. NEGATIVE COVENANTS. The Borrower hereby covenants and
agrees that for so long as this Agreement is in effect and until the
Commitments have terminated, no Letters of Credit or Notes are outstanding
and the Loans, together with interest, Fees and all other Obligations (other
than any indemnities described in Section 12.13 hereof which are not then due
and payable) incurred hereunder, are paid in full:
8.01 CHANGES IN BUSINESS. The Borrower will not permit at any time
the business activities taken as a whole conducted by the Borrower and its
Subsidiaries to be
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materially different from the business activities taken as a whole (including
incidental activities) conducted by the Borrower and its Subsidiaries on the
Effective Date.
8.02 CONSOLIDATION, MERGER, SALE OR PURCHASE OF ASSETS, ETC. The
Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets (other than inventory, obsolete equipment or excess equipment, in each
case in the ordinary course of business), or enter into any partnerships,
joint ventures or sale-leaseback transactions, or purchase or otherwise
acquire (in one or a series of related transactions) any part of the property
or assets (other than purchases or other acquisitions of inventory, materials
and equipment in the ordinary course of business) of any Person, except that
the following shall be permitted:
(a) the Borrower and its Subsidiaries may lease as lessee real or
personal property in the ordinary course of business and otherwise in
compliance with this Agreement;
(b) Consolidated Capital Expenditures by the Borrower and its
Subsidiaries to the extent not in violation of Section 8.05;
(c) the advances, investments, loans and other transactions
permitted pursuant to Section 8.06;
(d) the Borrower and its Subsidiaries may sell or discount, in
each case without recourse, accounts receivables arising in the ordinary
course of business, but only in connection with the compromise or
collection thereof;
(e) the Borrower and its Subsidiaries may, in the ordinary course
of business, license patents, trademarks, copyrights and know-how to
third Persons, so long as each such license does not otherwise prohibit
the granting of a Lien by the Borrower or any of its Subsidiaries
pursuant to the Security Agreement in the intellectual property covered
by such license;
(f) any Subsidiary Guarantor may be merged with or into, or be
dissolved or liquidated into, or transfer any of its assets to the
Borrower or any other Subsidiary Guarantor;
(g) the sale or disposition by the Borrower and/or any Subsidiary
of assets not otherwise permitted to be sold or disposed of under this
Section 8.02 with an aggregate fair market value of not in excess of
$100,000 in any year;
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(h) the sale or disposition by the Borrower and/or its
Subsidiaries of assets not otherwise permitted to be sold or disposed of
under this Section 8.02 (including by way of mergers and consolidations),
PROVIDED that (x) the net cash consideration received from all such sales
and dispositions in any calendar year shall not exceed an amount equal to
2.5% of Total Assets (determined at the time of any such sale or
disposition) and (y) the proceeds of each such sale shall be in an amount
at least equal to the fair market value thereof, which non-contingent
sale proceeds shall consist of at least 80% cash (with any promissory
note or other evidence of Indebtedness received to be pledged to the
Collateral Agent in accordance with the Pledge Agreement), and PROVIDED
FURTHER, that any permitted sale or disposition of the capital stock of
any Subsidiary shall be prohibited unless it is for all the outstanding
capital stock of such Subsidiary owned by the Borrower and its
Subsidiaries;
(i) the Completed 1997 Acquisitions; and
(j) Permitted Acquisitions.
To the extent the Required Banks waive the provisions of this Section 8.02
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 8.02 (and such Collateral is released (or permitted
to be released) from the Liens created by the respective Security Document),
such Collateral in each case shall be sold free and clear of the Liens
created by the Security Documents and the Agent shall take such actions
(including, without limitation, directing the Collateral Agent to take such
actions) as the Agent deems appropriate, or as the Borrower may reasonably
request, in connection therewith.
8.03 LIENS. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any property or assets of any kind (real or personal,
tangible or intangible) of the Borrower or its Subsidiaries, whether now
owned or hereafter acquired, or sell any such property or assets subject to
an understanding or agreement, contingent or otherwise, to repurchase such
property or assets (including sales of accounts receivable or notes) or
assign any right to receive income, except:
(a) Liens for taxes not yet due or Liens for taxes being contested
in good faith and by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP;
(b) Liens in respect of property or assets of the Borrower and its
Subsidiaries imposed by law which were incurred in the ordinary course of
business
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and which have not arisen to secure Indebtedness for borrowed money, such
as carriers', warehousemen's and mechanics' Liens, statutory landlord's
Liens, and other similar Liens arising in the ordinary course of
business, and which either (x) do not in the aggregate materially detract
from the value of such property or assets or materially impair the use
thereof in the operation of the business of the Borrower or any of its
Subsidiaries or (y) are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property or asset subject to such Lien;
(c) Liens created by or pursuant to this Agreement or the Security
Documents;
(d) Liens in existence on, and which are to continue in effect
after the Effective Date which are listed, and the property subject
thereto described, in Annex IV, without giving effect to any extensions
or renewals thereof;
(e) Liens of the Floorplan Borrower securing the Floorplan
Financing and sales and assignments effected in connection with the
Floorplan Financing;
(f) Liens incurred or deposits made (x) in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, contracts,
performance and return-of-money bonds and other similar obligations
incurred in the ordinary course of business (exclusive of obligations in
respect of the payment for borrowed money); and (y) to secure the
performance of leases of Real Property, to the extent incurred or made in
the ordinary course of business consistent with past practices;
(g) licenses, leases or subleases granted to third Persons not
interfering in any material respect with the business of the Borrower or
any of its Subsidiaries;
(h) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(i) Liens arising from UCC financing statements regarding leases
permitted by this Agreement;
(j) any interest or title of a lessor or sublessor under any lease
permitted by this Agreement;
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(k) Liens created pursuant to Capital Leases permitted pursuant
to Section 8.04(b) and Liens securing Specified Indebtedness permitted by
Section 8.04(h) on the assets as to which the obligee thereunder has
recourse as contemplated by the definition of Specified Indebtedness;
(l) Liens arising pursuant to purchase money mortgages securing
Indebtedness representing the purchase price (or financing of the
purchase price within 90 days after the respective purchase) of assets
acquired after the Effective Date, PROVIDED, that (i) any such Liens
attach only to the assets so purchased, (ii) the Indebtedness secured by
any such Lien does not exceed 100%, nor is less than 70%, of the lesser of
the fair market value or the purchase price of the property being
purchased at the time of the incurrence of such Indebtedness, and
(iii) the Indebtedness secured thereby is permitted to be incurred
pursuant to Section 8.04(b);
(m) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.09; and
(n) Liens created by the cash collateralization of the Mellon
Letter of Credit of up to $50,000.
8.04 INDEBTEDNESS. The Borrower will not, and will not permit any
of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(b) Capitalized Lease Obligations initially incurred on and after
the Effective Date and Indebtedness incurred pursuant to purchase money
Liens permitted by Section 8.03(l), PROVIDED, that the sum of all such
Capitalized Lease Obligations outstanding at any time plus the aggregate
principal amount of such purchase money Indebtedness outstanding at such
time shall not exceed $4,000,000;
(c) Indebtedness (x) of the Borrower evidenced by the Seller Notes
in an aggregate principal amount not to exceed $12,000,000 (as increased
by any Seller Notes issued to satisfy pay-in-kind interest obligations)
and (y) of the Borrower and its Subsidiaries incurred prior to, and which
is to remain outstanding after, the Effective Date and is listed on
Annex V hereto (together with the Seller Notes, "Existing Debt"), without,
in the case of Liens permitted by clause (y), giving effect to any
subsequent extension, renewal or refinancing thereof;
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(d) Indebtedness of the Borrower evidenced by the Senior
Subordinated Notes;
(e) Indebtedness constituting intercompany advances to the extent
permitted by Section 8.06(f);
(f) Indebtedness under the Floorplan Financing provided that
the aggregate principal amount of such Indebtedness does not exceed $20
million (or such greater amount as is approved by the Agent) at any time
outstanding;
(g) Indebtedness of (x) a Subsidiary outstanding at the time it is
first acquired by the Borrower or any Subsidiary Guarantor pursuant to a
Permitted Acquisition or (y) secured by assets acquired directly by the
Borrower or any Subsidiary Guarantor pursuant to a Permitted Acquisition
and assumed by the Borrower or such Subsidiary, as the case may be, in
connection with such acquisition, provided that any such Indebtedness was
not created at the time of or in contemplation of such acquisition;
(h) Specified Indebtedness (x) issued by a SI Borrower and/or
(y) issued by the Borrower or a Subsidiary Guarantor provided that after
giving effect to any incurrence thereof the aggregate principal amount
of Specified Indebtedness of the Borrower and its Subsidiaries other
than any SI Borrower shall not exceed 20% of Total Assets at such time;
(i) the Mellon Letter of Credit; and
(j) unsecured Indebtedness of the Borrower not otherwise permitted
by the foregoing clauses (a) through (i), provided that the aggregate
principal amount of Indebtedness incurred pursuant to this clause (j)
shall not exceed $5,000,000 at any time outstanding.
8.05 CAPITAL EXPENDITURES. (a) The Borrower will not, and will
not permit any of its Subsidiaries to, make Consolidated Capital Expenditures
provided that the Borrower and its Subsidiaries may make Consolidated Capital
Expenditures during each fiscal year set forth below so long as the aggregate
amount of Consolidated Capital Expenditures made during any fiscal year does
not exceed $4,000,000.
(b) In the event that the maximum amount which is permitted to be
expended in respect of Consolidated Capital Expenditures during any fiscal
year pursuant to Section 8.05(a) (without giving effect to this clause (b))
is not fully expended during such
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fiscal year, the maximum amount which may be expended during the immediately
succeeding fiscal year pursuant to Section 8.05(a) shall be increased by 50%
of such unutilized amount.
8.06 ADVANCES, INVESTMENTS AND LOANS. The Borrower will not, and
will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any Person, except:
(a) the Borrower and its Subsidiaries may invest in cash and Cash
Equivalents;
(b) the Borrower and its Subsidiaries may acquire and hold
receivables owing to it, if created or acquired in the ordinary course
of business and payable or dischargeable in accordance with customary
trade terms of the Borrower;
(c) the Borrower and its Subsidiaries may acquire and own
investments (including debt obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(d) advances, loans and investments in existence on the Effective
Date and listed on Annex VI, without giving effect to any additions
thereto or replacements thereof, shall be permitted;
(e) deposits made in the ordinary course of business consistent
with past practices to secure the performance of leases shall be
permitted;
(f) the Borrower and the Subsidiary Guarantors may make (i)
capital contributions to any of their direct Subsidiaries to the extent
a Subsidiary Guarantor and (ii) intercompany loans among themselves to
the extent evidenced by promissory notes pledged pursuant to the Pledge
Agreement;
(g) loans and advances to employees for moving and travel expenses
and other similar expenses, in each case incurred in the ordinary
course of business, in an aggregate outstanding principal amount not to
exceed $1,000,000 at any time, shall be permitted;
(h) investments in promissory notes acquired pursuant to sale
transactions permitted by Section 8.02(g);
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(i) the Completed 1997 Acquisitions, Permitted Acquisitions and
transactions in respect of Specified Indebtedness;
(j) creation of a Floorplan Borrower as contemplated by the
definition of such term;
(k) Subsidiaries may be established or created in accordance with
the provisions of Section 8.13;
(l) the Borrower or any Subsidiary may enter into joint ventures
or other similar arrangements for the purpose of exploiting business
opportunities so long as the Credit Parties have no obligation to make
capital contributions (including contributions of cash, copyrights,
patents and other intellectual property but not the use of personnel and/
or the issuance of non-exclusive licenses of intellectual property)
therein in excess of $1,000,000 in the aggregate; and
(m) loans and investments not otherwise permitted by the foregoing
clauses (a) through (l), inclusive, provided that the aggregate amount
of the investments made pursuant to this clause (l) shall not exceed
$1,000,000.
8.07 DIVIDENDS, ETC. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, declare or pay any dividends (other than
dividends payable solely in common stock of the Borrower or any such
Subsidiary, as the case may be) or return any capital to, its stockholders or
authorize or make any other distribution, payment or delivery of property or
cash to its stockholders as such, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, for a consideration, any shares of any class
of its capital stock, now or hereafter outstanding (or any warrants for or
options or stock appreciation rights in respect of any of such shares), or
set aside any funds for any of the foregoing purposes, and the Borrower will
not permit any of its Subsidiaries to purchase or otherwise acquire for
consideration any shares of any class of the capital stock of the Borrower or
any other Subsidiary, as the case may be, now or hereafter outstanding (or
any options or warrants or stock appreciation rights issued by such Person
with respect to its capital stock) (all of the foregoing "Dividends"), except
that: (x) any Subsidiary of the Borrower may pay Dividends to the Borrower or
any Subsidiary of the Borrower, (y) repurchases may be made by the Borrower
at a time when no Default or Event of Default exists of its capital stock
and/or options or warrants to purchase its capital stock from management or
directors of the Borrower and its Subsidiaries in an aggregate amount not to
exceed $2,000,000 in any fiscal year; provided that any unused amounts may be
carried over to any subsequent fiscal year subject to a maximum aggregate
amount of $5,000,000 and (z) cash Dividends may be paid by the Borrower to
the extent that at the time of any declaration of any such Dividend and
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after giving effect to the Dividend so declared as if paid (x) No Default or
Event of Default shall exist and (y) the aggregate cash Dividends declared
and/or paid by the Borrower after July 1, 1997 shall not exceed 50% of
Cumulative Net Income at such time.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist any encumbrance
or restriction which prohibits or otherwise restricts (A) the ability of any
such Subsidiary to (a) pay dividends or make other distributions or pay any
Indebtedness owed to the Borrower or any Subsidiary Guarantor, (b) make loans
or advances to the Borrower or any Subsidiary Guarantor, (c) transfer any of
its properties or assets to the Borrower or any Subsidiary Guarantor, or (B)
the ability of the Borrower or any Subsidiary Guarantor, to create, incur,
assume or suffer to exist any Lien upon its property or assets to secure the
Obligations, other than prohibitions or restrictions existing under or by
reason of: (i) this Agreement and the other Credit Documents; (ii) the
Senior Subordinated Note Documents and the documents governing any Floorplan
Financing; (iii) applicable law; (iv) customary non-assignment provisions
entered into in the ordinary course of business and consistent with past
practices; (v) any restriction or encumbrance with respect to a Subsidiary of
the Borrower imposed pursuant to an agreement which has been entered into for
the sale or disposition of all or substantially all of the capital stock or
assets of such Subsidiary, so long as such sale or disposition is permitted
under this Agreement; and (vi) Liens permitted under Section 8.03(l) and any
documents or instruments governing the terms of any Indebtedness or other
obligations secured by any such Liens.
8.08 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into any transaction or
series of transactions with any Affiliate other than in the ordinary course
of business and on terms and conditions substantially as favorable to the
Borrower or such Subsidiary as would be obtainable by the Borrower or such
Subsidiary at the time in a comparable arm's-length transaction with a Person
other than an Affiliate except that there shall be permitted the Management
Agreement, the Tax Allocation Agreement and the arrangements described on
Annex VII hereto.
8.09 MINIMUM CONSOLIDATED NET WORTH. The Borrower will not permit
Consolidated Net Worth at any time to no less than (x) 50% of Cumulative Net
Income at such time less (y) $1,000,000.
8.10 LEVERAGE RATIO. The Borrower will not permit the Leverage
Ratio determined as at the end of any Test Period ending on the last day of a
fiscal quarter set forth below to be more than the ratio set forth opposite
such day:
FISCAL QUARTER ENDING RATIO
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September 30, 1997 and
December 31, 1997 6.00:1.0
March 31, 1998 through
December 31, 1998 5.50:1.0
March 31, 1999 through
December 31, 1999 5.25:1.0
March 31, 2000 through
December 31, 2000 5.00:1.0
March 31, 2001 through
March 31, 2002 4.75:1.0
Thereafter 4.50:1.0
8.11 INTEREST COVERAGE RATIO. The Borrower will not permit the
Interest Coverage Ratio for any Test Period ending on the last day of a fiscal
quarter set forth below to be less than the ratio set forth opposite such day:
Fiscal Quarter Ending Ratio
--------------------- -----
September 30, 1997 through
September 30, 1999 1.75 to 1.0
December 31, 1999 through
September 30, 2000 1.90 to 1.0
December 31, 2000 through
September 30, 2001 2.00 to 1.0
Thereafter 2.10 to 1.0
8.12 LIMITATION ON VOLUNTARY PAYMENTS, ETC. The Borrower will not,
and will not permit any of its Subsidiaries to:
(a) make (or give any notice in respect of) any payment or prepayment
on or redemption or acquisition for value (including by way of depositing
with any trustee money or securities before due for the purposes of paying
when due and/or defeasance) of the principal of any Senior Subordinated
Note or any Seller Note or pay in cash any interest on any Seller Note at
any time when such interest may be satisfied by the issuance of additional
Seller Notes;
(b) amend or modify (or permit the amendment or modification of) in
any manner adverse to the interests of the Banks any of the terms or
provisions of the
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Senior Subordinated Note Documents or any agreement, document or
instrument governing or evidencing any of the Seller Notes; and
(c) amend, modify or change, in any manner adverse to the interests
of the Banks, the Certificate of Incorporation (including, without
limitation, by the filing of any certificate of designation) or By-Laws of
the Borrower or any of its Subsidiaries, as the case may be, or any other
agreement entered into by the Borrower or any of its Subsidiaries with
respect to its capital stock, or enter into any new agreement with respect
to the capital stock of the Borrower (to the extent adverse to the
interests of the Banks) or any of its Subsidiaries.
8.13 SUBSIDIARIES. The Borrower will not, and will not permit any of
its Subsidiaries to, (x) sell, assign or otherwise encumber of dispose of any
shares of a Subsidiary's capital stock or other securities (or warrants, rights
or options in respect thereof) except to the Borrower or a Subsidiary Guarantor
and except for dispositions permitted by Section 8.02 and (y) establish, create
or acquire any Subsidiary provided that the Borrower and its Subsidiaries shall
be permitted (A) to establish, create or (to the extent permitted by Sections
8.02 and 8.06) acquire Wholly-Owned Subsidiaries so long as (i) the capital
stock of such new Subsidiary is promptly pledged pursuant to the Pledge
Agreement and the certificates representing such stock, together with stock
powers duly executed in blank, are delivered to the Collateral Agent and (ii)
such new Subsidiary promptly executes a counterpart of the Subsidiary Guaranty,
the Pledge Agreement and the Security Agreement, in each case on the same basis
(and to the same extent) as such Subsidiary would have executed such Credit
Documents if it were a Credit Party on the Effective Date and (B) to create SI
Borrowers and/or Floorplan Borrowers as contemplated by the definitions of such
terms.
SECTION 9. EVENTS OF DEFAULT. Upon the occurrence of any of the
following specified events (each an "Event of Default"):
9.01 PAYMENTS. The Borrower shall (i) default in the payment when
due of any principal of the Loans or (ii) default, and such default shall
continue for three or more Business Days, in the payment when due of any Unpaid
Drawing, any interest on the Loans or any Fees or any other amounts owing
hereunder or under any other Credit Document;
9.02 REPRESENTATIONS, ETC. Any representation, warranty or statement
made by the Borrower or any Credit Party herein or in any other Credit Document
or in any statement or certificate delivered pursuant hereto or thereto shall
prove to be untrue in any material respect on the date as of which made or
deemed made; or
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9.03 COVENANTS. Any Credit Party shall (a) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 7.10, 7.11 or 8, or (b) default in the due performance or observance by
it of any term, covenant or agreement (other than those referred to in Section
9.01, 9.02 or clause (a) of this Section 9.03) contained in this Agreement and
such default shall continue unremedied for a period of at least 30 days after
notice to the defaulting party by the Agent or the Required Banks; or
9.04 DEFAULT UNDER OTHER AGREEMENTS. (a) The Borrower or any of its
Subsidiaries shall (i) default in any payment with respect to any Indebtedness
(other than the Obligations and/or Specified Indebtedness) beyond the period of
grace, if any, provided in the instrument or agreement under which Indebtedness
was created or (ii) default in the observance or performance of any agreement or
condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause any such
Indebtedness to become due prior to its stated maturity; or (b) any Indebtedness
(other than the Obligations and/or Specified Indebtedness) of the Borrower or
any of its Subsidiaries shall be declared to be due and payable, or shall be
required to be prepaid other than by a regularly scheduled required prepayment
or as a mandatory prepayment (unless such required prepayment or mandatory
prepayment results from a default thereunder or an event of the type that
constitutes an Event of Default), prior to the stated maturity thereof;
PROVIDED, that it shall not constitute an Event of Default pursuant to clause
(a) or (b) of this Section 9.04 unless the principal amount of any one issue of
such Indebtedness, or the aggregate amount of all such Indebtedness referred to
in clauses (a) and (b) above, exceeds $5,000,000 at any one time; or
9.05 BANKRUPTCY, ETC. The Borrower or any of its Material
Subsidiaries shall commence a voluntary case concerning itself under Title 11 of
the United States Code entitled "Bankruptcy", as now or hereafter in effect, or
any successor thereto (the "Bankruptcy Code"); or an involuntary case is
commenced against the Borrower or any of its Material Subsidiaries and the
petition is not controverted within 20 days, or is not dismissed within 60 days,
after commencement of the case; or a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of the Borrower or any of its Material Subsidiaries; or the Borrower or
any of its Material Subsidiaries commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Borrower or any of its Material
Subsidiaries; or there is commenced against the Borrower or any of its Material
Subsidiaries any such proceeding which remains undismissed for a period of 60
days; or the
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Borrower or any of its Material Subsidiaries is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Borrower or any of its Material Subsidiaries
suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 days; or the Borrower or any of its Material Subsidiaries makes
a general assignment for the benefit of creditors; or any corporate action is
taken by the Borrower or any of its Material Subsidiaries for the purpose of
effecting any of the foregoing; or
9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof or a waiver of such standard
or extension of any amortization period is sought or granted under Section 412
of the Code, any Plan shall have had or is likely to have a trustee appointed to
administer such Plan, any Plan is, shall have been or is likely to be terminated
or the subject of termination proceedings under ERISA, any Plan shall have an
Unfunded Current Liability, a contribution required to be made to a Plan or a
Foreign Pension Plan has not been timely made or the Borrower, any Subsidiary of
the Borrower or any ERISA Affiliate has incurred or is likely to incur a
liability to or on account of a Plan under Section 409, 502(i), 502(l), 515,
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971,
4975 or 4980 of the Code, or the Borrower or any Subsidiary of the Borrower has
incurred or is likely to incur liabilities pursuant to one or more employee
welfare benefit plans (as defined in Section 3(1) of ERISA) which provide
benefits to retired employees or other former employees (other than as required
by Section 601 of ERISA) or employee pension benefit plans (as defined in
Section 3(2) of ERISA) or Foreign Pension Plans; (b) there shall result from any
such event or events the imposition of a lien, the granting of a security
interest, or a liability or a material risk of incurring a liability; or (c)
which lien, security interest or liability, individually and/or in the
aggregate, in the opinion of the Required Banks, will have a Material Adverse
Effect; or
9.07 SECURITY DOCUMENTS. (a) Except in each case to the extent
resulting from the negligent or willful failure of the Collateral Agent to
retain possession of the applicable Pledged Securities, any Security Document
shall cease to be, in any material respect, in full force and effect, or shall
cease, in any material respect, to give the Collateral Agent the Liens, rights,
powers and privileges purported to be created thereby in favor of the Collateral
Agent, or (b) any Credit Party shall default in the due performance or
observance of any material term, covenant or agreement on its part to be
performed or observed pursuant to any such Security Document and such default
shall have continued unremedied for 30 days; or
9.08 GUARANTY. Any Subsidiary Guaranty or any material provision
thereof, shall cease to be in full force and effect, or any Subsidiary Guarantor
or any Person
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acting by or on behalf of such Person shall deny or disaffirm such Person's
obligations under a Subsidiary Guaranty; or
9.09 JUDGMENTS. One or more judgments or decrees shall be entered
against the Borrower or any of its Subsidiaries involving a liability (to the
extent not paid or covered by insurance) in excess of $2,000,000 for all such
judgments and decrees and all such judgments or decrees in excess of such amount
shall not have been vacated, paid, discharged or stayed or bonded pending appeal
within 60 days from the entry thereof; or
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Agent shall, upon the written request of the
Required Banks, by written notice to the Borrower, take any or all of the
following actions, without prejudice to the rights of the Agent or any Bank to
enforce its claims against the Borrower or any other Credit Party, except as
otherwise specifically provided for in this Agreement (PROVIDED, that if an
Event of Default specified in Section 9.05 shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Agent as specified in clauses (i) and (ii) below shall occur automatically
without the giving of any such notice): (i) declare the Total Commitment (or
the unutilized portion thereof) terminated, whereupon the Commitment of each
Bank to make Loans hereunder shall forthwith terminate immediately and any
Commitment Fees shall forthwith become due and payable without any other notice
of any kind; (ii) declare the principal of and any accrued interest in respect
of all Loans and all obligations owing hereunder (including Unpaid Drawings) to
be, whereupon the same shall become, forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; (iii) enforce, as Collateral Agent (or direct the
Collateral Agent to enforce), any or all of the Liens and security interests
created pursuant to the Security Documents; (iv) terminate any Letter of Credit
which may be terminated in accordance with its terms; and (v) direct the
Borrower to pay (and the Borrower hereby agrees upon receipt of such notice, or
upon the occurrence of any Event of Default specified in Section 9.05, to pay)
to the Collateral Agent at the Payment Office such additional amounts of cash,
to be held as security for the Borrower's reimbursement obligations in respect
of Letters of Credit then outstanding, equal to the aggregate Stated Amount of
all Letters of Credit then outstanding.
SECTION 10. DEFINITIONS. As used herein, the following terms shall
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Accounts" shall mean all of the Credit Parties' "accounts" (as that
term is defined in Section 9-106 of the Uniform Commercial Code as in effect in
the State of New York) whether or not such Account has been earned by
performance, whether now existing or existing in the future, including, without
limitation, all (i) accounts receivable, including,
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without limitation, all accounts created by or arising from any Credit
Party's sales of goods or rendition of services and Unbilled Installment
Receivables; (ii) unpaid Seller's rights (including rescission, replevin,
reclamation and stopping in transit) relating to the foregoing or arising
therefrom; (iii) rights to any goods represented by any of the foregoing,
including returned or repossessed goods; (iv) reserves and credit balances
held by a Credit Party with respect to any such accounts receivable or any
account debtor; (v) guarantees or collateral for any of the foregoing; and
(vi) insurance policies or rights relating to any of the foregoing.
"Adjusted Total Commitment" shall mean at any time (i) the Total
Commitment at such time less (ii) the aggregate Commitments at such time of all
Defaulting Banks.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power (i) to vote 5% or more
of the securities having ordinary voting power for the election of directors of
such corporation or (ii) to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Agent" shall have the meaning provided in the first paragraph of this
Agreement and shall include any successor to the Agent appointed pursuant to
Section 11.10.
"Agreement" shall mean this Credit Agreement, as the same may be from
time to time modified, amended and/or supplemented.
"Analex Acquisition" shall mean the proposed acquisition by the
Borrower and/or one of its Subsidiaries of certain contracts and associated
rights and assets of Analex, a Nevada corporation.
"Applicable Base Rate Margin" shall mean 1.25%.
"Applicable Eurodollar Margin" shall mean 2.25%.
"Assignment Agreement" shall mean the Assignment Agreement in the form
of Exhibit L (appropriately completed).
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"Authorized Officer" shall mean the President, chief financial officer
or any financial Vice President of the Borrower.
"Available Amount" shall mean, at any time, the lesser of (x) the
Total Commitment at such time less the then Floorplan Outstandings and (y) the
Borrowing Base at such time.
"Average Daily Amount of Credit Outstandings" for any Test Period
shall mean the average daily amount of Credit Outstandings during such Test
Period provided that for any Test Period ending on or prior to June 30, 1998,
Average Daily Amount of Credit Outstandings shall mean the average daily amount
of Credit Outstandings during the period from the Effective Date to the end of
such Test Period plus the amount specified on Annex X hereto as applicable for
such Test Period.
"Bank" shall have the meaning provided in the first paragraph of this
Agreement.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any incurrence of Loans
under Section 1.01(A) or to fund its portion of any unreimbursed payment under
Section 2.05(c) or (ii) a Bank having notified the Agent and/or the Borrower
that it does not intend to comply with the obligations under Section 1.01 and/or
Section 2.05(c), in each case for any reason, including as a result of the
appointment of a receiver or conservator with respect to such Bank at the
direction or request of any regulatory agency or authority.
"Bankruptcy Code" shall have the meaning provided in Section 9.05.
"Base Rate" at any time shall mean the highest of (x) the rate which
is 1/2 of 1% in excess of the Federal Funds Effective Rate and (y) the Prime
Lending Rate.
"Base Rate Loan" shall mean each Revolving Loan bearing interest at
the rates provided in Section 1.08(a).
"Borrower" shall mean Federal Data Corporation, a Delaware
corporation.
"Borrowing" shall mean the incurrence of one Type of Loans by the
Borrower from all of the Banks on a PRO RATA basis on a given date (or resulting
from conversions on a given date), having in the case of Eurodollar Loans the
same Interest Period; PROVIDED, that Base Rate Loans incurred pursuant to
Section 1.10(b) shall be considered part of any related Borrowing of Eurodollar
Loans.
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"Borrowing Base" shall mean, at any time, an amount equal to the sum
of (i) 85% of Eligible Receivables that are not Unbilled Installment
Receivables, (ii) 80% of Eligible Receivables that are Unbilled Installment
Receivables as to which 30 days or less have elapsed since the booking of same,
(iii) 60% of Eligible Receivables that are Unbilled Installment Receivables as
to which more than 30 but less than 90 days have elapsed since the booking of
same and (iv) 60% of the Eligible Inventory, in each case as set forth on the
last Borrowing Base Certificate delivered pursuant to Section 7.01[(f)].
"Borrowing Base Certificate" shall have the meaning given to such term
in Section 7.01(f).
"BTCo" shall mean Bankers Trust Company and any successor corporation
thereto by merger, consolidation or otherwise.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day excluding Saturday, Sunday and any day which shall
be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close and
(ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) and which is also a day for trading by and
between banks in U.S. dollar deposits in the interbank Eurodollar market.
"Capital Lease", as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person provided that any lease evidencing or governing Specified
Indebtedness shall not constitute a Capital Lease.
"Capitalized Lease Obligations" shall mean all obligations under
Capital Leases of the Borrower or any of its Subsidiaries in each case taken at
the amount thereof accounted for as liabilities in accordance with GAAP.
"Cash Equivalents" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED, that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) U.S. dollar denominated time
deposits, certificates of deposit and bankers acceptances of (x) any Bank or (y)
any bank whose short-term commercial paper rating from Standard & Poor's
Corporation ("S&P") is at least A-1 or the equivalent thereof or from Moody's
Investors Service, Inc. ("Moody's") is at least P-1 or the equivalent thereof
(any such bank or Bank, an "Approved Bank"), in each case with maturities of not
more than one year from
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the date of acquisition, (iii) commercial paper issued by any Approved Bank
or by the parent company of any Approved Bank and commercial paper issued by,
or guaranteed by, any industrial or financial company with a short-term
commercial paper rating of at least A-1 or the equivalent thereof by S&P or
at least P-1 or the equivalent thereof by Moody's, or guaranteed by any
industrial company with a long term unsecured debt rating of at least A or
A2, or the equivalent of each thereof, from S&P or Moody's, as the case may
be, and in each case maturing within one year after the date of acquisition,
(iv) marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest
ratings obtainable from either S&P or Moody's, and (v) investments in money
market funds substantially all the assets of which are comprised of
securities of the types described in clauses (i) through (iv) above.
"Change Control" shall mean (a) any "Change of Control" as such term
is defined in the Senior Subordinated Note Indenture or (b) the acquisition in
one or more transactions of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) by (x) any person or Group (as such term is
defined in Section 13(d) of the Exchange Act (other than a Group the majority in
economic interests and voting or similar rights is owned by Permitted Holders)
that either (A) beneficially owns (within the meaning of Rule 13d-3 under the
Exchange Act), directly or indirectly, (I) at least 30% (or, in the case of a
transaction or transactions approved before the consummation of same by a
majority of the directors of the Borrower, 35%) of the Borrower's then
outstanding voting securities entitled to vote on a regular basis for the Board
of Directors of the Borrower and (II) a greater beneficial interest than the
Permitted Holders, or (B) otherwise has the ability to elect, directly or
indirectly, a majority of the members of the Borrower's Board of Directors,
including without limitation by the acquisition of irrevocable proxies for the
election of directors.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in each of
the Security Documents.
"Collateral Agent" shall mean the Agent acting as collateral agent for
the Banks.
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"Commitment" shall mean at any time, with respect to each Bank, the
amount set forth opposite such Bank's name in Annex I as the same may be reduced
from time to time pursuant to Section 3.02 or 9 or adjusted from time to time as
a result of assignments to or from such Bank as provided for in Section 1.13 or
12.04.
"Commitment Fee" shall have the meaning provided in Section 3.01(a).
"Completed 1997 Acquisitions" shall mean and include the acquisitions
by the Borrower of (x) NYMA, Inc. in May 1997 and (y) Sylvest in June 1997.
"Consolidated Capital Expenditures" shall mean, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including in all events all amounts capitalized under Capital Leases but
excluding any amount representing capitalized interest) by the Borrower and its
Subsidiaries during that period that, in conformity with GAAP, are or are
required to be included in the property, plant or equipment reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries, PROVIDED that
Consolidated Capital Expenditures shall in no event include the purchase price
paid in connection with the acquisition of any Person (including through the
purchase of all of the capital stock or other ownership interests of such Person
or through merger or consolidation) pursuant to any Permitted Acquisition and/or
1997 Completed Acquisition.
"Consolidated Cash Interest Expense" shall mean, for the Borrower for
any period, (x) Consolidated Interest Expense of the Borrower for such period
less (y) the portion of such Consolidated Interest Expense not payable in cash.
"Consolidated EBIT" shall mean, for any Person for any period, (A) the
sum of the amounts for such period of (i) Consolidated Net Income, (ii)
provisions for taxes based on income, (iii) Consolidated Interest Expense, (iv)
amortization or write-off of deferred financing costs to the extent deducted in
determining Consolidated Net Income and (v) losses on sales of assets (excluding
sales in the ordinary course of business) and other extraordinary losses and
other one-time non-cash charges LESS (B) the sum of (i) any cash payments made
in such period in respect of an event as to which a one-time non-cash charge was
previously incurred and (ii) gains on sales of assets (excluding sales in the
ordinary course of business) and other extraordinary gains and other one-time
non-cash gains, all as determined for such Person and its Subsidiaries on a
consolidated basis in accordance with GAAP.
"Consolidated EBITDA" shall mean, for any Person, for any period,
Consolidated EBIT for such Person for such period, adjusted by adding thereto
the amount of all depreciation expense and amortization expense that were
deducted in determining such Consolidated EBIT. Consolidated EBITDA of the
Borrower for any Test Period ending
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prior to June 30, 1998 shall mean the sum of (x) Consolidated EBITDA of the
Borrower for the period commencing July 1, 1997 and ending on such date, as
determined without regard to this proviso, PLUS (y) the amounts set forth in
Annex VIII hereto as applicable to Consolidated EBITDA for such Test Period.
"Consolidated Interest Expense" shall mean, for any Person for any
period, (x) the total interest expense (including that attributable to
Capital Leases in accordance with GAAP but excluding that attributable to
Specified Indebtedness) of such Person and its Subsidiaries determined on a
consolidated basis with respect to all outstanding Indebtedness of such
Person and its Subsidiaries, including, without limitation, all commissions,
discounts and other fees and charges owed with respect to letters of credit
bankers' acceptance financing, but excluding, however, amortization of
deferred financing costs to the extent included in total interest expense
less (y) the interest income of such Person for such period. Consolidated
Interest Expense of the Borrower for any Test Period ending prior to June 30,
1998 shall mean the sum of (x) Consolidated Interest Expense of the Borrower
for the period commencing July 1, 1997 and ending on such date, as determined
without regard to this proviso plus (y) the amounts set forth in Annex IX
hereto as applicable to Consolidated Interest Expense for such Test Period.
"Consolidated Net Income" of any Person (a "Designated Person")
shall mean, for any period, the net income (or loss) of such Designated
Person and its Subsidiaries on a consolidated basis for such period taken as
a single accounting period determined in conformity with GAAP, provided that
there shall be excluded (i) the income (or loss) of any Person (other than
Subsidiaries of the Designated Person) in which any other Person (other than
the Designated Person or any of its Subsidiaries) has a joint interest,
except to the extent of the amount of dividends or other distributions
actually paid to the Designated Person or any of its Subsidiaries by such
Person during such period, (ii) the income (or loss) of any Person accrued
prior to the date it becomes a Subsidiary of the Designated Person or is
merged into or consolidated with the Designated Person or any of its
Subsidiaries or that Person's assets are acquired by the Designated Person or
any of its Subsidiaries and (iii) the income of any Subsidiary of the
Designated Person that is not a Subsidiary Guarantor to the extent that the
declaration or payment of dividends or similar distributions by that Person
of that income is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Person.
"Consolidated Net Worth" shall mean at any time for the
determination thereof all amounts which, in conformity with GAAP, would be
included under the caption " total shareholders' equity" (or any like
caption) on a consolidated balance sheet of the Borrower and its Subsidiaries
as at such date.
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"Contingent Obligations" shall mean as to any Person any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness,
leases, dividends or other obligations ("primary obligations") of any other
Person (the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (x) for the purchase or payment of any such primary obligation or (y)
to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c)
to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (d) otherwise
to assure or hold harmless the owner of such primary obligation against loss
in respect thereof; PROVIDED, HOWEVER, that the term Contingent Obligation
shall not include endorsements of instruments for deposit or collection in
the ordinary course of business. The amount of any Contingent Obligation
shall be deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Contingent Obligation is made
or, if there is no stated or determinable amount, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder) as determined by such Person in good faith.
"Credit Documents" shall mean this Agreement, the Notes, the
Subsidiary Guaranty and each Security Document.
"Credit Event" shall mean the making of a Loan or the issuance of a
Letter of Credit.
"Credit Outstandings" shall mean at any time the sum of (i) the
outstanding principal amount of all Loans plus (ii) the Letter of Credit
Outstandings.
"Credit Party" shall mean the Borrower and each Subsidiary Guarantor.
"Cumulative Net Income" shall mean at any time, Consolidated Net
Income for the period (taken as one accounting period) commencing on July 1,
1997 and ending on the last day of the last fiscal quarter then ended.
"Default" shall mean any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is in effect.
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"Dividends" shall have the meaning provided in Section 8.07.
"Effective Date" shall have the meaning provided in Section 5.01.
"Eligible Inventory" shall mean (A) the gross amount of the
Inventory of the Credit Parties, valued at the lower of cost (on a FIFO
basis) or market, which (i) is owned solely by the Borrower or a Subsidiary
Guarantor and with respect to which the Borrower or a Subsidiary Guarantor
has good, valid and marketable title; (ii) is stored on property that is
either (a) owned or leased by the Borrower or a Subsidiary Guarantor or (b)
owned or leased by a warehouseman that has contracted with the Borrower or a
Subsidiary Guarantor to store Inventory on such warehouseman's property;
(iii) is subject to a valid, enforceable and first priority Lien in favor of
the Collateral Agent subject to (a) a tax lien being contested in good faith
and by appropriate proceedings and permitted by Section 8.03(a), and (b) with
respect to Eligible Inventory stored at sites described in clause (ii)(b)
above, Liens for normal and customary warehouseman charges; and (iv) is
located in the United States; (B) LESS any goods returned or rejected by a
Credit Party's customers and goods in transit to third parties (other than to
a Credit Party's agents or warehousemen that comply with clause (A)(ii)(b)
above); and (C) LESS any reasonable reserves required by the Agent for
special order goods. In addition to the foregoing, Eligible Inventory shall
include such items of the Borrower's Inventory as the Borrower shall request
and that the Agent approves in advance, in writing and in its sole discretion
(or if the aggregate amount of approvals exceeds $1,000,000 at any one time,
the approval of the Required Banks).
"Eligible Receivable" shall mean as at any applicable date of
determination, the aggregate face amount of each of the Credit Parties'
Accounts included in clause (i) of the definition of Accounts hereunder
(excluding any Accounts set forth in clause (ii) through (vi) of such
definition), without duplication, in each case less (without duplication) the
aggregate amount of all reserves, limits and deductions with respect to such
Accounts set forth below or as otherwise provided in this Agreement and less
the aggregate amount of all returns, discounts, claims, credits, charges
(including warehouseman's charges) and allowances of any nature with respect
to such Accounts (whether issued, owing, granted or outstanding). Unless
otherwise approved in writing by the Agent in its sole discretion (or, if the
aggregate amount of approvals exceeds $1,000,000 at any one time, the
approval of the Required Banks), no individual Account shall be deemed to be
an Eligible Receivable if:
(a) a Credit Party does not have legal and valid title to the
Account; or
(b) the Account is not the valid, binding and legally enforceable
obligation of the account debtor subject, as to enforceability, only to (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws at the time in effect affecting the enforceability of creditors'
rights generally, (ii) judicial
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discretion in connection with the remedy of specific performance and other
equitable remedies and (iii) in the case of an Unbilled Installment
Receivable, the issuance of an invoice for the applicable payment or
acceptance of the goods or services giving rise to the Account; or
(c) the Account arises out of a sale made by a Credit Party to an
Affiliate, other than sales made on an arm's-length basis to persons who
are Affiliates only by virtue of TC Group L.L.C. (or other shareholders of
FDC) being an Affiliate of FDC; or
(d) the Account or any portion thereof is unpaid more than 90 days
after the original invoice date, with respect to Accounts the invoice for
which provides that payment is due in 30 days or less from the date of such
invoice, to the extent of such portion unpaid after 90 days; or
(e) the Account is unpaid more than 60 days after the original
payment due date, with respect to Accounts the invoice for which provides
that payment is due more than 30 days from the date of such invoice, to the
extent of such portion unpaid after 60 days; or
(f) if the Account is an Unbilled Installment Receivable, no invoice
has been issued for such Account and more than 90 days have elapsed since
the Unbilled Installment Receivable was booked as an account receivable;
(g) the Account, when aggregated with all other Accounts of the same
account debtor (or any Affiliate thereof), exclusive of all account debtors
which are branches, agencies, bureaus or subdivisions of the U.S.
government, exceeds 30% in face value of all Accounts of the Credit Parties
then outstanding, to the extent of such excess; or
(h) (i) the Account is subject to any claim on the part of the
account debtor disputing liability under such Account in whole or in part,
to the extent of the amount of such dispute or (ii) except in cases when
the account debtor is the United States government or an agency thereof,
the Account otherwise is or is reasonably likely to become subject to any
right of setoff or any counterclaim, claim or defense by the account
debtor, to the extent of the amount of such setoff or counterclaim, claim
or defense; or
(i) the account debtor has commenced a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or made
an assignment for the benefit of creditors or if a decree or order for
relief has been
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entered by a court having jurisdiction in the premises in respect of the
account debtor in an involuntary case under the federal bankruptcy laws,
as now constituted or hereafter amended, or if any other petition or
other application for relief under the federal bankruptcy laws has been
filed by or against the account debtor, or if the account debtor has
failed, suspended business, ceased to be solvent, or consented to or
suffered a receiver, trustee, liquidator or custodian to be appointed for
it or for all or a significant portion of its assets or affairs; PROVIDED
that, if the amount owed to the Borrower by such account debtor is entitled
to administrative expense status under Section 503 of Title 11, United
States Code, such account shall not be deemed ineligible pursuant to this
clause (i); or
(j) the Collateral Agent does not have a valid and perfected first
priority security interest in such Account (taking into account the
Intercreditor Agreement and subject only to (i) a tax lien being contested
in good faith and by appropriate proceedings and permitted by Section
8.03(a) and (ii) the rights of the United States government with respect to
receivables due from the United States government or any agency thereof);
or
(k) the sale to the account debtor is on a consignment,
bill-and-hold, guaranteed sale or pursuant to any written agreement
providing for repurchase or return rights not in the ordinary course of
business; or
(l) it is from the same account debtor (or any Affiliate (exclusive
of all account debtors which are branches, agencies, bureaus or
subdivisions of the U.S. government) thereof) and 50% or more, in face
amount, of other Accounts from either such account debtor or any Affiliate
(exclusive of all account debtors which are branches, agencies, bureaus or
subdivisions of the U.S. government) thereof are due or unpaid for more
than 60 days after the payment due date; or
(m) the Account is an Account a security interest in which would be
subject to the Federal Assignment of Claims Act of 1940, as amended (31
U.S.C. Section 3727 ET SEQ.), and the Borrower has not complied with the
terms of Section 7.11 hereof with respect to such Account; or
(n) the sale is to an account debtor outside the continental United
States or incorporated in or primarily conducting business in any
jurisdiction located outside the United States, unless the sale is (i) on
letter of credit, guaranty or acceptance terms, in each case acceptable to
the Agent, or (ii) otherwise approved by and acceptable to the Agent, which
approval and acceptance shall not, in either case, be unreasonably
withheld; or
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(o) the Agent reasonably determines in good faith in accordance with
its internal credit policies that (i) collection of the Account is insecure
or (ii) the Account may not be paid by reason of the account debtor's
financial inability to pay; PROVIDED, HOWEVER, that any Account referred to
in this clause (o) shall not become ineligible until the Agent shall have
given the Borrower three Business Days' advance notice of such
determination; or
(p) the Account does not comply in all material respects with all
applicable legal requirements, including, where applicable, the Federal
Consumer Credit Protection Act, the Federal Truth in Lending Act and
Regulation Z of the Board of Governors of the Federal Reserve System, in
each case as amended.
"Eligible Transferee" shall mean and include a commercial bank,
financial institution or other "accredited investor" (as defined in SEC
Regulation D), in each case which is not a direct competitor of the Borrower
or engaged in the same or similar business as the Borrower, or any of its
Subsidiaries, or is not an Affiliate of any such competitors of the Borrower
or any of its Subsidiaries.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and the regulations promulgated and the
rulings issued thereunder. Section references to ERISA are to ERISA as in
effect at the date of this Agreement and any subsequent provisions of ERISA
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or any Subsidiary of the Borrower
would be deemed to be a "single employer" (i) within the meaning of Section
414(b), (c), (m) or (o) of the Code or (ii) as a result of the Borrower or a
Subsidiary of the Borrower being or having been a general partner of such
person.
"Eurodollar Loans" shall mean, each Loan bearing interest at the rates
provided in Section 1.08(b).
"Eurodollar Rate" shall mean with respect to each Interest Period
for a Eurodollar Loan, the arithmetic average (rounded to the nearest 1/100
of 1%) of the offered quotations to first-class banks in the interbank
Eurodollar market by the Agent (or any affiliate thereof) for U.S. dollar
deposits of amounts in same day funds comparable to the outstanding principal
amount of the Eurodollar Loan of the Agent for which an interest rate is then
being determined with maturities comparable to the Interest Period to be
applicable to such Eurodollar Loan, determined as of 10:00 A.M. (New York
time) on the date which is two Business Days prior to the commencement of
such Interest Period.
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"Event of Default" shall have the meaning provided in Section 9.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended.
"Existing Credit Agreement" shall mean the Credit Agreement dated as
of December 1, 1995 among INTER ALIA, the Borrower, the lenders party thereto
and Banque Indosuez, New York Branch as Agent, as in effect immediately prior
to the Effective Date.
"Existing Debt" shall have the meaning provided in Section 8.04(c).
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"FDC Notes" shall mean the Borrower's 9% Increasing Rate
Subordinated Notes issued initially on January 4, 1996 (and subsequently
thereto to satisfy pay-in-kind interest obligations) in an aggregate
principal amount on the Effective Date (after giving effect to the
requirements of Section 5.01(j)(B)) of $[7,680,224], as in effect on the
Effective Date and as the same may be amended, modified or supplemented as
provided therein and herein.
"Federal Funds Effective Rate" shall mean for any period, a
fluctuating interest rate equal for each day during such period to the
weighted average of the rates on overnight Federal Funds transactions with
members of the Federal Reserve System arranged by Federal Funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of
the quotations for such day on such transactions received by the Agent from
three Federal Funds brokers of recognized standing selected by the Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.
"Floorplan Agreement" shall mean the Agreement for Wholesale
Financing and STAR Agreement (Short Term Accounts Receivable Program) between
Sylvest and Deutsche Financial Services Corporation, in the form delivered to
the Agent prior to the Effective Date and as the same may be amended,
modified or supplemented with the consent of the Agent (it being understood
that at any time that the Floorplan Agreement is amended, modified or
supplement a copy of the Floorplan Agreement as amended, modified or
supplemented thereby shall be delivered to each of the Banks).
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"Floorplan Borrower" shall mean (x) Sylvest or (y) with the consent
of the Agent, another Subsidiary Guarantor or (z) one (or with the consent of
the Agent more than one) newly created Subsidiary of the Borrower (which
shall not become a Subsidiary Guarantor but the stock of which shall be
pledged under the Pledge Agreement) all of the inventory of which is financed
under the Floorplan Financing and all of the accounts receivable of which
represent sales of inventory so financed, it being agreed that any such new
Subsidiary may be created and may succeed to that business of Sylvest and the
other Credit Parties which is to be financed under the Floorplan Financing
without causing any default under any of the covenants contained in this
Agreement to the extent such formation and succession is accomplished in a
manner satisfactory to the Agent.
"Floorplan Financing" shall mean at any time the financing made
available to the Floorplan Borrower under the Floorplan Agreement or any
successor agreement substantially the same as the Floorplan Agreement in all
material respects as it affects the Floorplan Borrower and the Banks (or as
is otherwise satisfactory to the Agent), as the same may be amended, modified
or supplemented with the consent of the Agent provided that the lender
thereunder has entered into an intercreditor agreement substantially the same
in all material respects as the Intercreditor Agreement or otherwise
satisfactory to the Agent.
"Floorplan Outstandings" shall mean at any time the then aggregate
outstanding principal amount of all loans and advance under the Floorplan
Financing.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time; it being understood
and agreed that determinations in accordance with GAAP for purposes of
Section 8, including defined terms as used therein, are subject (to the
extent provided therein) to Section 12.07(a).
"Indebtedness" of any Person shall mean without duplication (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase
price of assets or services payable to the sellers thereof or any of such
seller's assignees which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person but excluding deferred
rent as determined in accordance with GAAP, (iii) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second
Person secured by any Lien on any property owned by such first Person,
whether or not such Indebtedness has been assumed (and, if not assumed or
guaranteed, such Indebtedness will be deemed outstanding in an amount equal
to the value of the property so securing same), (v) all Capitalized Lease
Obligations of such Person, (vi) all obligations of such Person to pay a
specified purchase price for goods or services whether or not delivered or
accepted, I.E., take-or-pay and similar obligations, (vii) all net
obligations of such Person under Interest Rate Agreements, (viii) Specified
Indebtedness and (ix) all Contingent Obligations of such Person, PROVIDED,
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that Indebtedness shall not include trade payables, taxes payable and accrued
expenses, in each case arising in the ordinary course of business.
"Installment Receivable" shall mean the right of a Credit Party
under a contract to receive fixed payments of all or a portion of the
purchase price for goods sold or services rendered or rent for goods leased.
"Intercreditor Agreement" shall have the meaning provided in Section
5.01(m).
"Interest Coverage Ratio" shall mean, for any period, the ratio of
(x) Consolidated EBITDA of the Borrower for such period to (y) Consolidated
Cash Interest Expense for such period.
"Interest Period", with respect to any Eurodollar Loan, shall mean
the interest period applicable thereto, as determined pursuant to Section
1.09.
"Interest Rate Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedging agreement or other similar agreement or arrangement.
"Inventory" shall mean all of the inventory of a Credit Party,
including, without limitation: (i) all raw materials, work in process,
parts, components, assemblies, supplies and materials used or consumed in the
business of the Credit Party; (ii) all goods, wares and merchandise, finished
or unfinished, held for sale or lease or leased or furnished or to be
furnished under contracts of service; and (iii) all goods returned or
repossessed by the Credit Party.
"L/C Cash Collateral Agreement" shall mean an agreement to be
entered into by the Borrower and the Agent in form and substance reasonably
satisfactory to the Agent and which shall permit certain investments in Cash
Equivalents reasonably satisfactory to the Agent until the proceeds are
applied to satisfy in full the secured obligations or until the Letters of
Credit secured thereby expire undrawn, at which time the amounts therein will
be returned to the Borrower.
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(b).
"Letter of Credit Issuer" shall mean BTCo.
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"Letter of Credit Outstandings" shall mean, at any time, the sum of,
without duplication, (i) the aggregate Stated Amount of all outstanding Letters
of Credit and (ii) the aggregate amount of all Unpaid Drawings in respect of all
Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in
Section 2.03(a).
"Leverage Ratio" shall mean, as at any date, the ratio of (x) the sum
of (i) Total Indebtedness of the Borrower on such date less the Credit
Outstandings on such date included in Total Indebtedness plus (ii) the Average
Daily Amount of Credit Outstandings for the Test Period ended on such date to
(y) Modified Consolidated EBITDA for the Test Period ended on such date.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any similar
recording or notice statute, and any lease having substantially the same effect
as the foregoing).
"Loan" shall have the meaning provided in Section 1.01.
"Management Agreement" shall mean the Management Agreement dated
December 1, 1995 among certain of the Credit Parties and TC Group L.L.C., as in
effect on the Effective Date and as the same may be amended, modified or
supplemented from time to time with the consent of the Agent.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
business, operations, results of operations, assets, liabilities, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries taken
as a whole.
"Material Subsidiary" shall mean any Subsidiary having gross assets at
any time with a value of at least $5,000,000 and/or gross revenues for the last
four fiscal quarters of at least $5,000,000.
"Maturity Date" shall mean July 25, 2002.
"Mellon Letter of Credit" shall mean that certain standby letter of
credit, dated November 11, 1991, issued by Mellon Bank, N.A. in the stated
amount of $45,000 and outstanding on the Effective Date.
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"Minimum Borrowing Amount" shall mean (i) for Base Rate Loans,
$500,000 and (ii) for Eurodollar Loans, $2,000,000.
"Modified Consolidated EBITDA" shall mean, for any period, the sum of
(i) Consolidated EBITDA of the Borrower for such period and (ii) the aggregate
of the Consolidated EBITDA of any business, asset or Person acquired during such
period pursuant to a Permitted Acquisition for the portion of such period prior
to the consummation of such Permitted Acquisition (with a PRO FORMA adjustment
(x) to compensation and non-continuing expenses relating to the sellers payable
by such business, asset or Person during such period to reflect changes therein
affected by the Borrower after consummation of the acquisition and (y) for any
business or asset not being acquired) but only to the extent such business or
asset is acquired directly by the Borrower or any Subsidiary Guarantor or such
Person becomes a Subsidiary Guarantor of, or is merged into, the Borrower.
"Non-Defaulting Bank" shall mean each Bank other than a Defaulting
Bank.
"Note" shall have the meaning provided in Section 1.05(a).
"Notice" shall have the meaning provided in Section 7.11.
"Notice of Borrowing" shall have the meaning provided in Section 1.03.
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Agent located at 130
Liberty Street, ____ Floor, New York, New York 10006, Attention: _____________,
or such other office as the Agent may designate to the Borrower and the Banks
from time to time.
"NYMA Notes" shall mean the Borrower's 9% Increasing Rate Subordinated
Notes issued initially on May 2, 1997 (and subsequently thereto in order to
satisfy pay-in-kind interest obligations and, up to $1 million in aggregate
principal amount, in connection with adjustments to purchase price) in an
aggregate principal amount on the Effective Date of $5 million, as in effect on
the Effective Date and as the same may be amended, modified or supplemented as
provided therein and herein.
"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Agent, the Collateral Agent or any Bank pursuant to the terms of this
Agreement or any other Credit Document.
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"Minimum Borrowing Amount" shall mean (i) for Base Rate Loans,
$500,000 and (ii) for Eurodollar Loans, $2,000,000.
"Modified Consolidated EBITDA" shall mean, for any period, the sum of
(i) Consolidated EBITDA of the Borrower for such period and (ii) the aggregate
of the Consolidated EBITDA of any business, asset or Person acquired during such
period pursuant to a Permitted Acquisition for the portion of such period prior
to the consummation of such Permitted Acquisition (with a PRO FORMA adjustment
(x) to compensation and non-continuing expenses relating to the sellers payable
by such business, asset or Person during such period to reflect changes therein
affected by the Borrower after consummation of the acquisition and (y) for any
business or asset not being acquired) but only to the extent such business or
asset is acquired directly by the Borrower or any Subsidiary Guarantor or such
Person becomes a Subsidiary Guarantor of, or is merged into, the Borrower.
"Non-Defaulting Bank" shall mean each Bank other than a Defaulting
Bank.
"Note" shall have the meaning provided in Section 1.05(a).
"Notice" shall have the meaning provided in Section 7.11.
"Notice of Borrowing" shall have the meaning provided in Section 1.03.
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Agent located at 130
Liberty Street, ____ Floor, New York, New York 10006, Attention: _____________,
or such other office as the Agent may designate to the Borrower and the Banks
from time to time.
"NYMA Notes" shall mean the Borrower's 9% Increasing Rate Subordinated
Notes issued initially on May 2, 1997 (and subsequently thereto in order to
satisfy pay-in-kind interest obligations and, up to $1 million in aggregate
principal amount, in connection with adjustments to purchase price) in an
aggregate principal amount on the Effective Date of $5 million, as in effect on
the Effective Date and as the same may be amended, modified or supplemented as
provided therein and herein.
"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Agent, the Collateral Agent or any Bank pursuant to the terms of this
Agreement or any other Credit Document.
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"Participant" shall have the meaning provided in Section 2.05(a).
"Payment Office" shall mean the office of the Agent located at 130
Liberty Street, ___ Floor, New York, New York 10006, or such other office as the
Agent may designate to the Borrower and the Banks from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" shall mean at any time for each Bank, the percentage
obtained by dividing its Commitment at such time by the Total Commitment at such
time (or if the Total Commitment has been terminated, in each case as in effect
immediately prior to such termination).
"Permitted Acquisitions" shall mean (A) the Analex Acquisition and (B)
the acquisition of any business, asset or 100% of the capital stock or similar
equity interests in any Person by the Borrower or any Subsidiary Guarantor
(including by way of merger so long as the Borrower or Subsidiary Guarantor is
the surviving entity) provided that (i) after giving effect thereto, no Default
or Event of Default (including under Section 8.01) exists and no Change of
Control shall occur; (ii) the aggregate amount expended by the Borrower and its
Subsidiaries, together with the aggregate amount of Indebtedness assumed (as
permitted by Section 8.04(g)), for all Permitted Acquisitions after the
Effective Date (other than the Analex Acquisition and other than the capital
stock of the Borrower issued in any Permitted Acquisition wherein at least 80%
in value of the consolidation paid by the Borrower and its Subsidiaries consists
of the capital stock of the Borrower) shall not exceed $10,000,000 in each
calendar year (plus in any calendar year after 1997, the portion of the
$10,000,000 permitted for each prior calendar year commencing with 1997 not
theretofore expended) provided that the aggregate of all such amounts expended
after the Effective Date shall not exceed $30,000,000; (iii) the consideration
paid by the Borrower and its Subsidiaries in respect of any such acquisition
shall consist solely of (a) cash constituting the proceeds of Loans hereunder
and/or common equity contributions by the shareholders of the Borrower, (b) the
capital stock of the Borrower, (c) seller notes of the Borrower and/or (d)
contingency payments; and (iv) each of the covenants contained in Sections 8.09,
8.10 and 8.11 shall be complied with on a PRO FORMA basis as if the business,
asset or Person so acquired had been owned by the Borrower, and all Indebtedness
assumed and/or incurred to acquire and/or finance same had been outstanding, for
the 12 month period last ended immediately prior to such acquisition (without
giving any credit for unobtained or unrealized gains in connection with such
acquisition).
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"Permitted Holders" shall mean TC Group, L.L.C., Carlyle Investment
Management L.L.C., and any other entity controlled directly or indirectly by
either of them.
"Permitted Liens" shall mean the Liens permitted by Section 8.03.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any multiemployer or single-employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of) the Borrower or a Subsidiary of the
Borrower or an ERISA Affiliate and each plan for the five-year period
immediately following the latest date on which the Borrower or a Subsidiary of
the Borrower or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section
5.01(l)(A).
"Pledged Securities" shall mean all the Pledged Securities as defined
in the Pledge Agreement.
"Prime Lending Rate" shall mean the rate which BTCo announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. BTCo may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
"Register" shall have the meaning provided in Section 12.16.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing margin requirements.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan other than those events as to which the 30-day
notice period is waived.
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"Replaced Bank" shall have the meaning provided in Section 1.13.
"Replacement Bank" shall have the meaning provided in Section 1.13.
"Required Banks" shall mean Non-Defaulting Banks, the sum of whose
Percentages exceeds 50% of the Percentages of all Non-Defaulting Banks.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b)(ii).
"Section 2.02 Arrangements" shall have the meaning provided in Section
2.02.
"Security Agreement" shall have the meaning provided in Section
5.01(l)(B).
"Security Documents" shall mean and include the Security Agreement,
the Pledge Agreement and to the extent delivered pursuant to Section 7.11, each
Additional Security Document.
"Seller Notes" shall mean and include the FDC Notes, the NYMA Notes
and the Sylvest Notes.
"Senior Subordinated Note Documents" shall mean and include each of
the documents and other agreements (including, without limitation, the Senior
Subordinated Note Indenture) governing or evidencing the Senior Subordinated
Notes, as in effect on the Effective Date and as the same may be entered into,
modified, supplemented or amended from time to time pursuant to the terms hereof
and thereof.
"Senior Subordinated Note Indenture" shall mean the Indenture entered
into by and between the Borrower and NORWEST BANK, MINNESOTA, N.A., as trustee
thereunder.
"Senior Subordinated Notes" shall mean the Borrower's 10.125% Senior
Subordinated Notes due 2005, as in effect on the Effective Date and as the same
may be modified, supplemented or amended from time to time pursuant to the terms
hereof and thereof.
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"SI Borrower" shall mean a newly created wholly-owned Subsidiary (i)
all of the capital stock of which is pledged pursuant to the Pledge Agreement
and (ii) all of the assets of which shall consist of assets (or cash)
contributed to it pursuant to Section 8.06(m) and/or assets which have been
financed through the incurrence by such Subsidiary of Specified Indebtedness
provided that none of the Specified Indebtedness of such Subsidiary shall be
guaranteed, directly or indirectly, by the Borrower or any other Subsidiary
Guarantor.
"Specified Indebtedness" shall mean (i) indebtedness for borrowed
money or the deferred purchase price of goods owing by the Borrower or any
Subsidiary incurred in connection with the acquisition of goods, or (ii)
indebtedness owing by the Borrower or a Subsidiary under capital leases of
goods, which, in each case, are promptly upon acquisition thereof leased (or
subleased) by the Borrower or a Subsidiary to a U.S. Government entity or other
Person to the extent the obligee of such indebtedness or the lessor under such
lease has agreed that its only recourse upon the failure of the obligor under
such indebtedness to pay interest or principal thereon and/or lease payments
thereunder is to reclaim the goods or proceed against the lease (or sublease) to
the U.S. Government entity or other Person (I.E., the obligee has no general
recourse against the Borrower or any Subsidiary for the payment of such
indebtedness).
"Specified Leases" shall mean leases of the goods purchased by the
Borrower or a Subsidiary with Specified Indebtedness.
"Stated Amount" of each Letter of Credit shall mean the maximum amount
available to be drawn thereunder (regardless of whether any conditions for
drawing could then be met).
"Subsidiary" of any Person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time. Any reference to
"Subsidiary" shall mean a Subsidiary of the Borrower unless otherwise indicated.
"Subsidiary Guarantor" shall mean at any time each Subsidiary of the
Borrower that executes a counterpart of the Subsidiary Guaranty.
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"Subsidiary Guaranty" shall have the meaning provided in Section
5.01(k).
"Sylvest" shall mean Sylvest Management Systems Corporation, a
__________ corporation.
"Sylvest Notes" shall mean the Borrower's 9% Increasing Rate
Subordinated Notes issued initially on June 30, 1997 (and subsequently thereto
in order to satisfy pay-in-kind interest obligations and, up to $1 million in
aggregate principal amount, in connection with adjustments to purchase price) in
an aggregate principal amount on the Effective Date (after giving effect to the
requirements of Section 5.01(j)(B)) of up to $4 million, as in effect on the
Effective Date and as the same may be amended, modified or supplemented as
provided therein and herein.
"Tax Allocation Agreement" shall mean the Tax Allocation Agreement
dated December 1, 1995 among certain of the Credit Parties as in effect on the
Effective Date and as the same may be amended, modified or supplemented with the
consent of the Agent.
"Taxes" shall have the meaning provided in Section 4.04.
"Test Period" shall mean as of the end of any quarter, the four
consecutive fiscal quarters of the Borrower then ended.
"Total Assets" shall mean the total consolidated assets of the
Borrower and its Subsidiaries as shown on the most recent consolidated balance
sheet of the Borrower delivered to the Banks pursuant to Section 7.01 of this
Agreement.
"Total Commitment" shall mean, at any time, the sum of the Commitments
of all the Banks at such time.
"Total Indebtedness" of any Person shall mean, as at any date of
determination, (x) the aggregate stated balance sheet amount of all Indebtedness
for borrowed money (other than Specified Indebtedness) of such Person and its
Subsidiaries on a consolidated basis as determined in accordance with GAAP plus
(y) the aggregate balance sheet Indebtedness for borrowed money of any other
Person not a Subsidiary which has been guaranteed directly or indirectly, by
such first Person and/or its Subsidiaries.
"Total Unutilized Commitment" shall mean, at any time, (i) the Total
Commitment at such time less (ii) the sum of the aggregate outstanding principal
amount of all Loans at such time plus the Letter of Credit Outstandings at such
time.
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"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, I.E., a Base Rate Loan or Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
of New York.
"Unbilled Installment Receivable" shall mean an Installment Receivable
as to which a Credit Party has not yet issued an invoice but, in accordance with
past practice, has booked the Installment Receivable as an account receivable
provided that Unbilled Installment Receivable shall not include any such
Installment Receivable so booked to the extent billed at a rate in excess of the
then provisional rate.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year exceeds the fair market
value of the assets allocable thereto, each determined in accordance with
Statement of Financial Accounting Standards No. 87, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the Plan.
"Unpaid Drawing" shall have the meaning provided in Section 2.04(a).
"Unutilized Commitment" shall mean for each Bank at any time (i) the
Commitment of such Bank at such time less (ii) the sum of the aggregate
principal amount of all Loans made by such Bank or any affiliate plus an amount
equal to such Bank's Percentage of the Letter of Credit Outstandings at such
time.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than directors qualifying shares)
is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries
of such Person and (ii) any partnership, association, joint venture or other
entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such
Person has a 100% equity interest at such time.
"Written" or "in writing" shall mean any form of written communication
or a communication by means of telex, facsimile device, telegraph or cable.
SECTION 11. THE AGENT.
11.01 APPOINTMENT. Each Bank hereby irrevocably designates and
appoints BTCo as Agent (such term to include for purposes of this Section 11,
BTCo acting as a Collateral Agent under any Security Document) to act as
specified herein and in the other
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Credit Documents, and each such Bank hereby irrevocably authorizes BTCo as
the Agent to take such action on its behalf under the provisions of this
Agreement and the other Credit Documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of
this Agreement and the other Credit Documents, together with such other
powers as are reasonably incidental thereto. The Agent agrees to act as such
upon the express conditions contained in this Section 11. Notwithstanding
any provision to the contrary elsewhere in this Agreement or in any other
Credit Document, the Agent shall not have any duties or responsibilities,
except those expressly set forth herein or in the other Credit Documents, or
any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or otherwise exist against the Agent. The provisions of
this Section 11 are solely for the benefit of the Agent and the Banks, and
neither the Borrower nor any of its Subsidiaries shall have any rights as a
third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement, the Agent shall act solely as
agent of the Banks and the Agent does not assume and shall not be deemed to
have assumed any obligation or relationship of agency or trust with or for
the Borrower or any of its Subsidiaries.
11.02 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement or any other Credit Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care except to the extent otherwise required by Section 11.03.
11.03 EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or the other Credit Documents
(except for its or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Borrower, any of its Subsidiaries or
any of their respective officers contained in this Agreement or the other Credit
Documents, or in any certificate, report, statement or other document referred
to or provided for in, or received by the Agent under or in connection with,
this Agreement or for any failure of the Borrower or any of its Subsidiaries or
any of their respective officers to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Bank to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or to inspect the
properties, books or records of the Borrower or any of its Subsidiaries. The
Agent shall not be responsible to any Bank for the effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of this Agreement or for
any representations, warranties, recitals or
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statements made herein or therein or made in any written or oral statement or
in any financial or other statements, instruments, reports, certificates or
any other documents in connection herewith or therewith furnished or made by
the Agent to the Banks or by or on behalf of the Borrower or any of its
Subsidiaries to the Agent or any Bank or be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained herein or therein or as to the
use of the proceeds of the Loans or of the existence or possible existence of
any Default or Event of Default.
11.04 RELIANCE BY AGENT. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, facsimile, telex
or teletype message, statement, order or other document or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower or any of its
Subsidiaries), independent accountants and other experts selected by the Agent.
The Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Credit Document unless it shall first receive
such advice or concurrence of the Required Banks as it deems appropriate or it
shall first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Required Banks, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Banks.
11.05 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has actually received notice from a Bank or the
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event
that the Agent receives such a notice, the Agent shall give prompt notice
thereof to the Banks. The Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Banks; PROVIDED, that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Banks.
11.06 NON-RELIANCE ON AGENT, AND OTHER BANKS. Each Bank expressly
acknowledges that neither the Agent nor any of its respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrower or any of its
Subsidiaries, shall be deemed to constitute any representation or war-
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ranty by the Agent to any Bank. Each Bank represents to the Agent that it
has, independently and without reliance upon the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, assets, operations,
property, financial and other condition, prospects and creditworthiness of
the Borrower and its Subsidiaries and made its own decision to make its Loans
hereunder and enter into this Agreement. Each Bank also represents that it
will, independently and without reliance upon the Agent or any other Bank,
and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit analysis, appraisals and decisions
in taking or not taking action under this Agreement, and to make such
investigation as it deems necessary to inform itself as to the business,
assets, operations, property, financial and other condition, prospects and
creditworthiness of the Borrower and its Subsidiaries. The Agent shall not
have any duty or responsibility to provide any Bank with any credit or other
information concerning the business, operations, assets, property, financial
and other condition, prospects or creditworthiness of the Borrower or any of
its Subsidiaries which may come into the possession of the Agent or any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates.
11.07 INDEMNIFICATION. The Banks agree to indemnify the Agent in its
capacity as such ratably according to their respective Percentages at such time,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, reasonable expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Obligations) be imposed on,
incurred by or asserted against the Agent in its capacity as such in any way
relating to or arising out of this Agreement or any other Credit Document, or
any documents contemplated by or referred to herein or the transactions
contemplated hereby or any action taken or omitted to be taken by the Agent
under or in connection with any of the foregoing, but only to the extent that
any of the foregoing is not paid by the Borrower or any of its Subsidiaries;
PROVIDED, that no Bank shall be liable to the Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
gross negligence or willful misconduct of the Agent. If any indemnity furnished
to the Agent for any purpose shall, in the opinion of the Agent be insufficient
or become impaired, the Agent may call for additional indemnity and cease, or
not commence, to do the acts indemnified against until such additional indemnity
is furnished. The agreements in this Section 11.07 shall survive the payment of
all Obligations.
11.08 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower and its Subsidiaries as though the Agent were not the
Agent hereunder. With respect to the Loans made by it and all Obligations owing
to it, the Agent shall have the same rights and powers under this Agreement as
any Bank and may exercise the same as
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though it were not the Agent and the terms "Bank" and "Banks" shall include the
Agent in its individual capacity.
11.09 HOLDERS. The Agent may deem and treat the payee of any Note as
the owner thereof for all purposes hereof unless and until a written notice of
the assignment, transfer or endorsement thereof, as the case may be, shall have
been filed with the Agent. Any request, authority or consent of any Person or
entity who, at the time of making such request or giving such authority or
consent, is the holder of any Note shall be conclusive and binding on any
subsequent holder, transferee, assignee or indorsee, as the case may be, of such
Note or of any Note or Notes issued in exchange therefor.
11.10 RESIGNATION OF THE AGENT; SUCCESSOR AGENT. The Agent may
resign as the Agent upon 20 days' notice to the Banks. Upon the resignation of
the Agent, the Required Banks shall appoint from among the Banks a successor
Agent which is a bank or a trust company for the Banks subject to prior approval
by the Borrower (such approval not to be unreasonably withheld) and acceptances
by such Bank, whereupon such successor agent shall succeed to the rights, powers
and duties of the Agent, and the term "Agent" shall include such successor agent
effective upon its appointment, and the resigning Agent's rights, powers and
duties as the Agent shall be terminated, without any other or further act or
deed on the part of such former Agent or any of the parties to this Agreement.
After the resignation of the Agent hereunder, the provisions of this Section 11
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
SECTION 12. MISCELLANEOUS.
12.01 PAYMENT OF EXPENSES, ETC. The Borrower agrees to: (i) whether
or not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Agent (including, without limitation,
the reasonable fees and disbursements of White & Case) in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to therein and any amendment, waiver or
consent relating thereto and in connection with the Agent's syndication efforts
with respect to this Agreement; (ii) pay all reasonable out-of-pocket costs and
expenses of the Agent and each of the Banks in connection with the enforcement
of the Credit Documents and the documents and instruments referred to therein
and, after an Event of Default shall have occurred and be continuing, the
protection of the rights of the Agent and each of the Banks thereunder
(including, without limitation, the reasonable fees and disbursements of counsel
(including in-house counsel) for the Agent and for each of the Banks); (iii) pay
and hold each of the Banks harmless from and against any and all present and
future stamp and other similar taxes with respect to the foregoing matters and
save each of the Banks harmless from and against any and all liabilities with
respect to or resulting
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from any delay or omission (other than to the extent attributable to such
Bank) to pay such taxes; and (iv) indemnify the Agent, the Collateral Agent
and each Bank, its officers, directors, employees, representatives and agents
from and hold each of them harmless against any and all losses, liabilities,
claims, damages or expenses incurred by any of them as a result of, or
arising out of, or in any way related to, or by reason of, (a) any interest
in any Real Property (other than as permitted hereunder and/or under the
other Credit Documents) is claimed by any other Person, (b) any
investigation, litigation or other proceeding (whether or not the Agent, the
Collateral Agent or any Bank is a party thereto) related to the entering into
and/or performance of this Agreement or the use of the proceeds of any Loans
hereunder or the consummation of any other transactions contemplated in any
Credit Document, or (c) the actual or alleged presence of Hazardous Materials
in the air, surface water or groundwater or on the surface or subsurface of
any Real Property owned, leased or at any time operated by the Borrower or
any of its Subsidiaries, the release, generation, storage, transportation,
handling or disposal of Hazardous Materials at any location, whether or not
owned or operated by the Borrower or any of its Subsidiaries, the
non-compliance by the Borrower or any of its Subsidiaries of any Real
Property with foreign, federal, state and local laws, regulations, ordinances
or Environmental Laws (including applicable permits thereunder) applicable to
any Real Property, or any Environmental Claim relating to the Borrower or any
of its Subsidiaries or any Real Property owned, leased or at any time
operated by the Borrower or any of its Subsidiaries, including, in each case,
without limitation, the reasonable fees and disbursements of counsel incurred
in connection with any such investigation, litigation or other proceeding
(but excluding any such losses, liabilities, claims, damages or expenses to
the extent incurred by reason of the gross negligence or willful misconduct
of the Person to be indemnified or of any other Indemnitee who is such Person
or an affiliate of such Person). To the extent that the undertaking to
indemnify, pay or hold harmless any Person set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall make the maximum contribution to the payment and
satisfaction of each of the indemnified liabilities which is permissible
under applicable law.
12.02 RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to the Borrower
or any of its Subsidiaries or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and apply any and all deposits
(general or special) and any other Indebtedness at any time held or owing by
such Bank (including, without limitation, by branches and agencies of such Bank
wherever located) to or for the credit or the account of the Borrower or any
Subsidiary Guarantor against and on account of the Obligations and liabilities
of the Borrower or any of its Subsidiaries to such Bank under this Agreement or
under any of the other Credit
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Documents, including, without limitation, all interests in Obligations of the
Borrower or any of its Subsidiaries purchased by such Bank pursuant to
Section 12.06(b), and all other claims of any nature or description arising
out of or connected with this Agreement or any other Credit Document,
irrespective of whether or not such Bank shall have made any demand hereunder
and although said Obligations, liabilities or claims, or any of them, shall
be contingent or unmatured.
12.03 NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to any Credit Party,
at the address specified opposite its signature below or in the other relevant
Credit Documents, as the case may be; if to any Bank, at its address specified
for such Bank on Annex II hereto; or, at such other address as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and communications shall be mailed, telegraphed, telexed,
telecopied or cabled or sent by overnight courier, and shall be effective when
received.
12.04 BENEFIT OF AGREEMENT. (a) This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; PROVIDED, that no Credit Party may assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Banks and, PROVIDED FURTHER, that, although any Bank may
transfer, assign or grant participations in its rights hereunder, such Bank
shall remain a "Bank" for all purposes hereunder and the transferee, assignee or
participant, as the case may be, shall not constitute a "Bank" hereunder and,
PROVIDED FURTHER, that no Bank shall transfer or grant any participation under
which the participant shall have rights to approve any amendment to or waiver of
this Agreement or any other Credit Document except to the extent such amendment
or waiver would (i) extend the final scheduled maturity of any Loan or Letter of
Credit (unless such Letter of Credit is not extended beyond the Maturity Date)
in which such participant is participating, or reduce the rate or extend the
time of payment of interest or Fees (except in connection with a waiver of
applicability of any post-default increase in interest rates) or reduce the
principal amount thereof, or increase the amount of the participant's
participation over the amount thereof then in effect (it being understood that a
waiver of any Default or Event of Default or of a mandatory reduction in the
Total Commitment shall not constitute a change in the terms of such
participation, and that an increase in any Commitment or Loan shall be permitted
without the consent of any participant if the participant's participation is not
increased as a result thereof), (ii) consent to the assignment or transfer by
the Borrower of any of its rights and obligations under this Agreement to the
extent relating to such participation or (iii) release all or substantially all
of the Collateral under all of the Security Documents (except as expressly
provided in the Credit Documents). In the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Credit
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Documents (the participant's rights against such Bank in respect of such
participation to be those set forth in the agreement executed by such Bank in
favor of the participant relating thereto) and all amounts payable by the
Borrower hereunder shall be determined as if such Bank had not sold such
participation.
(b) Notwithstanding the foregoing, any Bank may (x) assign all or a
portion of its Commitment (and related outstanding obligations hereunder) to any
Affiliate of such Bank or to one or more Banks or (y) assign all, or if less
than all, a portion equal to at least $5,000,000 in the aggregate for the
assigning Bank, of its Commitment (and related outstanding obligations
hereunder) to one or more Eligible Transferees, each of which assignees shall
become a party to this Agreement as a Bank by execution of an Assignment
Agreement, PROVIDED that (i) at such time Annex I shall be deemed modified to
reflect the Commitments of such new Bank and of the existing Banks, (ii) upon
surrender of the old Notes, new Notes will be issued, at the Borrowers' expense,
to such new Bank and to the assigning Bank, such new Notes to be in conformity
with the requirements of Section 1.05 (with appropriate modifications) to the
extent needed to reflect the revised Commitments, (iii) the consent of the Agent
and the Borrower shall be required in connection with any such assignment
pursuant to clause (y) above (which consents shall not be unreasonably withheld
or delayed) and (iv) the Agent shall receive at the time of each such
assignment, from the assigning or assignee Bank, the payment of a non-refundable
assignment fee of $3,500 and, PROVIDED FURTHER, that such transfer or assignment
will not be effective until recorded by the Agent on the Register pursuant to
Section 12.16. To the extent of any assignment pursuant to this Section
12.04(b), the assigning Bank shall be relieved of its obligations hereunder with
respect to its assigned Commitment. At the time of each assignment pursuant to
this Section 12.04(b) to a Person which is not already a Bank hereunder and
which is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Bank shall provide to the Borrower and the Agent the appropriate
Internal Revenue Service Forms (and, if applicable a Section 4.04(b)(ii)
Certificate) described in Section 4.04(b). To the extent that an assignment of
all or any portion of a Bank's Commitment and related outstanding Obligations
pursuant to this Section 12.04(b) would, at the time of such assignment, result
in increased costs under Section 1.10, 1.11, 2.06 or 4.04 from those being
charged by the respective assigning Bank prior to such assignment, then the
Borrower shall not be obligated to pay such increased costs (although the
Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes after the date of the respective
assignment).
(c) Nothing in this Agreement shall prevent or prohibit any Bank from
pledging its Loans and Note hereunder to a Federal Reserve Bank in support of
borrowings made by such Bank from such Federal Reserve Bank.
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12.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of the Agent or any Bank in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
any Credit Party and the Agent or any Bank shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or privilege
hereunder or under any other Credit Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Agent or any
Bank would otherwise have. No notice to or demand on any Credit Party in any
case shall entitle any Credit Party to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the Agent
or the Banks to any other or further action in any circumstances without notice
or demand.
12.06 PAYMENTS PRO RATA. (a) The Agent agrees that promptly after
its receipt of each payment from or on behalf of any Credit Party in respect of
any Obligations of such Credit Party, it shall, except as otherwise provided in
this Agreement, distribute such payment to the Banks (other than any Bank that
has consented in writing to waive its PRO RATA share of such payment) PRO RATA
based upon their respective shares, if any, of the Obligations with respect to
which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the
related sum or sums received by other Banks is in a greater proportion than the
total of such Obligation then owed and due to such Bank bears to the total of
such Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the Obligations
of the respective Credit Party to such Banks in such amount as shall result in a
proportional participation by all of the Banks in such amount provided that if
all or any portion of such excess amount is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
12.07 CALCULATIONS; COMPUTATIONS. (a) The financial statements to
be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by the Borrower to the Banks); PROVIDED, that except as otherwise specifically
provided herein, all computations determining compliance with
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Sections 4.02 and 8, including definitions used therein, shall utilize
accounting principles and policies in effect at the time of the preparation
of, and in conformity with those used to prepare, the December 31, 1996
financial statements delivered to the Banks pursuant to Section 6.10(b).
(b) All computations of interest on Eurodollar Loans and Fees
hereunder shall be made on the basis of the actual number of days elapsed over a
year of 360 days, and all computations of interest on Base Rate Loans shall be
made on the basis of the actual number of days elapsed over a year of 365 or 366
days, as applicable.
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) This
Agreement and the rights and obligations of the parties hereunder shall be
construed in accordance with and be governed by the law of the State of New
York. Any legal action or proceeding with respect to this Agreement or any
other Credit Document may be brought in the courts of the State of New York or
of the United States for the Southern District of New York, and, by execution
and delivery of this agreement, the Borrower hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Borrower hereby irrevocably
designates, appoints and empowers CT Corporation System with offices on the date
hereof at 1633 Broadway, New York, New York 10019 as its designee, appointee and
agent to receive, accept and acknowledge for and on its behalf, and in respect
of its property, service of any and all legal process, summons, notices and
documents which may be served in any such action or proceeding. If for any
reason such designee, appointee and agent shall cease to be available to act as
such, the Borrower agrees to designate a new designee, appointee and agent in
New York City on the terms and for the purposes of this provision satisfactory
to the Agent under this Agreement. The Borrower irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Borrower, at its address for notices pursuant to Section
12.03, such service to become effective 30 days after such mailing. Nothing
herein shall affect the right of the Agent, any Bank or the holder of any Note
to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against any the Borrower in any other
jurisdiction.
(b) The Borrower hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
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<PAGE>
12.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Agent.
12.10 EFFECTIVENESS. The Effective Date shall occur as provided in
Section 5.01.
12.11 HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
12.12 AMENDMENT OR WAIVER. Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination
is in writing signed by the Required Banks and (except in the case of a
waiver) the Borrower provided that no such change, waiver, discharge or
termination shall, without the consent of each Bank (other than a Defaulting
Bank) being directly affected thereby, (i) extend the Maturity Date (it being
understood that any waiver of any prepayment shall not constitute any such
extension), or reduce the rate or extend the time of payment of interest
thereon (other than as a result of waiving the applicability of any
post-default increase in interest rates) or Fees, (ii) release all or
substantially all of the Collateral (except as expressly provided in the
Credit Documents), or release any Credit Party from its obligations
thereunder (except as expressly provided in the Credit Documents), (iii)
amend, modify or waive any provision of this Section 12.12, or any percentage
specified in the definition of Borrowing Base, (iv) reduce the percentage
specified in the definition of Required Banks (it being understood that, with
the consent of the Required Banks, additional extensions of credit pursuant
to this Agreement may be included in the determination of the Required Banks
on substantially the same basis as the extensions of Commitments are included
on the Effective Date), (v) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement except in
accordance with the terms hereof; PROVIDED FURTHER, that no such change,
waiver, discharge or termination shall (w) increase the Commitment of any
Bank over the amount thereof then in effect without the consent of such Bank
(it being understood that waivers or modifications of conditions precedent,
covenants, Defaults or Events of Default or of a mandatory reduction in the
Total Commitment shall not constitute an increase of the Commitment of any
Bank, and that an increase in the available portion of any Commitment of any
Bank shall not constitute an increase in the Commitment of such Bank), (x)
without the consent of the Letter of Credit Issuer, amend, modify or waive
any provision of Section 2 or alter its rights or obligations with respect to
Letters of Credit or
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<PAGE>
(y) without the consent of the Agent amend, modify or waive any provision of
Section 11 or any other provision as same relates to the rights or
obligations of the Agent.
12.13 SURVIVAL. All indemnities set forth herein including, without
limitation, in Section 1.10, 1.11, 2.06, 4.04, 11.07 or 12.01, shall survive the
execution and delivery of this Agreement and the making and repayment of the
Loans.
12.14 DOMICILE OF LOANS. Each Bank may transfer and carry its Loans
at, to or for the account of any branch office, subsidiary or affiliate of such
Bank; PROVIDED, that the Borrower shall not be responsible for costs arising
under Section 1.10, 1.11, 2.06 or 4.04 resulting from any such transfer (other
than a transfer pursuant to Section 1.12) to the extent such costs would not
otherwise be applicable to such Bank in the absence of such transfer.
12.15 CONFIDENTIALITY. Each of the Banks agrees that it will use its
best efforts not to disclose without the prior consent of the Borrower (other
than to its employees, auditors, counsel or other professional advisors, to
affiliates or to another Bank if the Bank or such Bank's holding or parent
company in its sole discretion determines that any such party should have access
to such information) any information with respect to the Borrower or any of its
Subsidiaries which is furnished pursuant to this Agreement and which is
designated by the Borrower to the Banks in writing as confidential; PROVIDED,
that any Bank may disclose any such information (a) as has become generally
available to the public, (b) as may be required or appropriate in any report,
statement or testimony submitted to any municipal, state or Federal regulatory
body having or claiming to have jurisdiction over such Bank or to the Federal
Reserve Board or the Federal Deposit Insurance Corporation or similar
organizations (whether in the United States or elsewhere) or their successors,
(c) as may be required or appropriate in response to any summons or subpoena or
in connection with any litigation, (d) in order to comply with any law, order,
regulation or ruling applicable to such Bank, and (e) to any prospective
transferee in connection with any contemplated transfer of any of the Notes or
any interest therein by such Bank; PROVIDED, that such prospective transferee
executes an agreement with such Bank containing provisions substantially
identical to those contained in this Section. No Bank shall be obligated or
required to return any materials furnished by the Borrower or any Subsidiary.
The Borrower hereby agrees that the failure of a Bank to comply with the
provisions of this Section 12.15 shall not relieve the Borrower of any of its
obligations to such Bank under this Agreement and the other Credit Documents.
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<PAGE>
12.16 REGISTER. The Borrower hereby designates the Agent to serve as
its agent, solely for purposes of this Section 12.16, to maintain a register
(the "Register") on which it will record the Commitment from time to time of
each of the Banks, the Loans made by each of the Banks and each repayment in
respect of the principal amount of the Loans of each Bank. Failure to make any
such recordation, or any error in such recordation, shall not affect the
Borrower's obligations in respect of such Loans. With respect to any Bank, the
transfer of the Commitment of such Bank and the rights to the principal of, and
interest on, any Loan made pursuant to such Commitment shall not be effective
until such transfer is recorded on the Register maintained by the Agent with
respect to ownership of such Commitment and Loan and prior to such recordation
all amounts owing to the transferor with respect to such Commitment and Loans
shall remain owing to the transferor. The registration of assignment or
transfer of all or part of any Commitment and Loans shall be recorded by the
Agent on the Register only upon the acceptance by the Agent of a property
executed and delivered Assignment Agreement pursuant to Section 12.04(b). The
Borrower agrees to indemnify the Agent from and against any and all losses,
claims, damages and liabilities of whatsoever nature which may be imposed on,
asserted against or incurred by the Agent in performing its duties under this
Section 12.16 other than those resulting from the Agent's willful misconduct or
gross negligence.
12.17 WAIVER OF JURY TRIAL. Each of the parties to this Agreement
hereby irrevocably waives all right to a trial by jury in any action, proceeding
or counterclaim arising out of or relating to this Agreement, the other Credit
Documents or the transactions contemplated hereby or thereby.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
Address: FEDERAL DATA CORPORATION
By /s/ James Dean
-------------------------
Title: Vice President
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ David J. Bell
--------------------------
Title: Vice President
<PAGE>
ANNEX I
LIST OF BANKS
Bank Commitment
---- ----------
Bankers Trust Company $75,000,000
---------------
Total: $75,000,000
<PAGE>
ANNEX II
BANK ADDRESSES
Bank Address
---- -------
Bankers Trust Company 130 Liberty Street
New York, New York 10006
<PAGE>
FIRST AMENDMENT TO CREDIT
AGREEMENT AND TO SECURITY AGREEMENT
FIRST AMENDMENT TO CREDIT AGREEMENT AND TO SECURITY AGREEMENT (this
"Amendment"), dated as of August 4, 1997, among FEDERAL DATA CORPORATION (the
"Borrower"), a Delaware corporation, the bank party to the credit Agreement
referred to below on the date hereof and immediately before giving effect to
this Amendment (the "Existing Bank"), BANKERS TRUST COMPANY, as agent (the
"Agent") for the Banks and as Collateral Agent (the "Collateral Agent") for the
creditors (as defined in the Security Agreement referred to below), and each of
the banks listed on Schedule A hereto (each, a "New Bank" and, collectively, the
"New Banks"). All capitalized terms used herein and not otherwise defined
herein shall have the respective meanings provided such terms in the Credit
Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Borrower, the Existing Bank, and the Agent are parties
to a Credit Agreement, date as of July 25, 1997 (the "Credit Agreement");
WHEREAS, the Borrower, various of its Subsidiaries and the
Collateral Agent are parties to a Security Agreement, dated as of July 25,
1997 (the "Security Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement and
the Security Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 1.13 of the Credit Agreement is hereby amended by
deleting the capitalized term "Issuing Bank" appearing in clause (y) of the
proviso contained therein and inserting in lieu thereof the capitalized term
"Letter of Credit Issuer."
2. Section 7.01(f) of the Credit Agreement is hereby amended by
deleting the phrase "30th day" appearing therein and inserting in lieu
thereof the phrase "last day."
3. The definition of "Consolidated EBIT" appearing in Section 10 of
the Credit Agreement is hereby amended by: (x) deleting the word "and"
appearing immediately after the capitalized term "Consolidated Net Income"
and inserting in lieu thereof a comma; (y) inserting the following text
immediately after the phrase "extraordinary losses and other one-time
non-cash charges": "and (vi) any cash received in such period in respect of
an event as to which a one-time non-cash gain was previously realized,"; and
(z) inserting the following text immediately after the phrase "LESS (B)"
appearing therein: "the sum of (i) any cash payments made in such period in
respect of an event as to which a one-time non-cash charge was previously
incurred to the extent not already deducted in determining Consolidated Net
Income and (ii)."
4. The definition of "Floorplan Agreement" appearing in Section 10
of the
<PAGE>
Credit Agreement is hereby amended by inserting the following parenthetical
at the end of such definition:
"(it being understood that, at any time that
the Floorplan Agreement is amended, modified
or supplemented, a copy of the Floorplan
Agreement as amended, modified or supplemented
thereby shall be delivered to each of the Banks)".
5. Section 9.09 of the Credit Agreement is hereby amended by
deleting the word "or" appearing immediately after the phrase "bonded appeal
within 60 days from the entry thereof;" appearing therein.
6. The Existing Bank hereby sells and assigns to each New Bank
without recourse and without representation or warranty (other than as
expressly provided herein) and each New Bank hereby purchases and assumes
from the Existing Bank, that interest in and to the Existing Bank's rights
and obligations under the Credit Agreement as of the date hereof which
represents for such New Bank the percentage as is set froth opposite its name
on Schedule A of the Total Commitment and of the outstanding principal of the
Loans (for each such New Bank, its "Share"), and such Share represents all of
the outstanding rights and obligations under the Credit Agreement that are
being sold and assigned to each such New Bank pursuant to this Amendment.
7. In accordance with the requirements of Section 12.04(b) of the
Credit Agreement, on the First Amendment Effective Date (as defined below),
(i) the Credit Agreement shall be amended by deleting Annex I thereto in its
entirety and by inserting in lieu thereof a new Annex I in the form of
Schedule B hereto and (ii) the Borrower agrees that it will issue an
appropriate Note to each Bank in conformity with the requirements of Section
1.05 the Credit Agreement.
8. On and after the First Amendment Effective Date, Annex II to the
Credit Agreement shall be amended by deleting such Annex in its entirety and
inserting in lieu thereof a new Annex II in the form of Schedule C hereto.
9. The Existing Bank (i) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or the other Credit Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or the other Credit Documents or any other instrument or document
furnished pursuant thereto; and (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or any of its Subsidiaries or the performance or observance by the
Borrower or any of its Subsidiaries of any of their respective obligations
under the Credit Agreement or the other Credit Documents to which they are a
party or any other instrument or document furnished pursuant thereto.
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<PAGE>
10. Each New Bank (i) confirms that it has received a copy of the
Credit Agreement and the other Credit Documents, together with copies of the
financial statements referred to therein and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Amendment; (ii) agrees that it will,
independently and without reliance upon the Agent or any other Bank and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (iii) confirms that it is an Eligible Transferee
under Section 12.04(b) of the Credit Agreement; (iv) appoints and authorizes
the Agent and the Collateral Agent to take such action as agent on its behalf
and to exercise such powers under the Credit Agreement and the other Credit
Documents as are delegated to the Agent and the Collateral Agent by the terms
thereof, together with such powers as are reasonably incidental thereto;
(v) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank; and (vi) to the extent relevant, agrees to
promptly submit to the Borrower and the Agent the appropriate Internal
Revenue Service Forms described in Section 12.04(b) of the Credit Agreement.
11. The Existing Bank, the New Banks and the Agent hereby agree that
(x) all interest on any New Bank's Share of the Loans and all Commitment Fees
(if any) on such New Bank's Share of the Total Commitment, in each case
accrued prior to the delivery by such New Bank of the amount referred to in
clause (ii) of Section 19 of this Amendment, shall be for the account of the
existing Bank and (y) all such interest and Commitment Fees accrued on and
after the deliver of the amount referred to in clause (ii) of such Section 19
shall be for the account of such New Bank.
12. In accordance with Section 12.04(b) of the Credit Agreement, on
and as of the date upon which each New Bank delivers the amount referred to
in clause (ii) of Section 19 of this Amendment, such New Bank shall become a
"Bank" under, and for all purposes of, the Credit Agreement and the other
Credit Documents and, notwithstanding anything to the contrary in Section
12.16 of the Credit Agreement, the Agent shall record the transfers
contemplated hereby in the Bank Register.
13. Section 10.09(b) of the Security Agreement is hereby amended by
inserting the following text immediately after the phrase "or otherwise has
been approved in writing by the Required Banks" appearing in clause (x) of
the proviso contained therein; "or, to the extent required by the Credit
Agreement, all Banks."
14. The Existing Bank hereby consents to the Amendments to the
Security Agreement as set forth in this Amendment.
15. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that:
(a) no Default or Event of Default exists as of the First
Amendment Effective Date (as hereinafter defined), both before and
after giving effect to this Amendment; and
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<PAGE>
(b) all of the representations and warranties contained in the
Credit Agreement and the other Credit Documents are true and correct
in all material respects as of the First Amendment Effective Date,
both before and after giving effect to this Amendment, with the same
effect as though such representations and warranties had been made on
and as of the First Amendment Effective Date (it being understood that
any representations or warranty made as of a specific date shall be
true and correct in all material respects as of such specific date).
16. This Amendment is limited as specified and shall not constitute
a modification, acceptance or waiver of any other provision of the Credit
Agreement, the Security Agreement or any other Credit Document.
17. This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Agent.
18. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.
19. Subject to Section 20 of this Amendment, this Amendment shall
become effective on the date (the "First Amendment Effective Date") when (i)
the Borrower, the Agent, the Collateral Agent, the Existing Bank and each New
Bank shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at its Notice Office and (ii) each New
Bank shall have delivered to the Agent for the account of the Existing Bank,
an amount equal to such New Bank's Share of the principal amount of the
outstanding Loans.
20. Notwithstanding Section 19 of this Amendment, if for any reason
any New Bank shall not have (i) signed a counterpart hereof and delivered the
same to the Agent at its Notice Office and (ii) delivered to the Agent an
amount equal to such new Bank's Share of the principal amount of the
outstanding Loans in each case on or prior to August __, 1997, then, if the
Existing Bank agrees, this Amendment shall become effective notwithstanding
such failure, PROVIDED that (x) Schedule B shall be modified to delete any
such New Bank and such New Bank's Share shall be retained by the Existing
Bank and (y) the signature pages of this Amendment shall be deemed revised to
delete such New Bank's name therefrom.
21. From and after the First Amendment Effective Date, all
references in the Credit Agreement, the Security Agreement and each of the
other Credit Documents to the Credit Agreement shall be deemed to be
references to the Credit Agreement and the Security Agreement as amended
hereby.
* * *
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the
date first above written.
Address: FEDERAL DATA CORPORATION
4800 Hampden Lane
Bethesda, Maryland 20814
Telephone: (301) 986-0800 By: /s/ JAMES M. DEAN
Fax: (301) 961-7039 ------------------------------------
Attention: James M. Dean Title: Vice President
BANKERS TRUST COMPANY, Individually, as
Agent and as Collateral Agent
By: /s/ DAVID J. BELL
------------------------------------
Title: Vice President
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ MARY M. MCLAUGHLIN
------------------------------------
Title: Vice President
CREDITANSTALT BANKVEREIN
By: /s/ PATRICIA ROUNDS
------------------------------------
Title: Vice President
FIRST SOURCE FINANCIAL LLP
By: FIRST SOURCE FINANCIAL, INC.,
Its Agent/Manager
By: /s/ GARY L. FRANCIS
------------------------------------
Title: Senior Vice President
5
<PAGE>
BANKBOSTON, N.A.
By: /s/ GREGORY R.D. CLARK
------------------------------------
Title: Managing Director
THE BANK OF NEW YORK
By: /s/ STEVEN M. ROSS
------------------------------------
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ ATTILA KOC
------------------------------------
Title: First Vice President
BTM CAPITAL CORPORATION
By: /s/ WILLIAM R. YORK
------------------------------------
Title: Senior Vice President
FIRST UNION COMMERCIAL CORP.
By: /s/ BARBARA BOEHM
------------------------------------
Title: Vice President
6
<PAGE>
EXHIBIT 4.10
INTERCREDITOR AND SUBORDINATION AGREEMENT
THIS AGREEMENT is made this 25th day of July, 1997 by and between
BANKERS TRUST COMPANY ("BTCo"), as Agent (the "Agent") for the Banks under the
Credit Agreement (as defined herein and DEUTSCHE FINANCIAL SERVICES CORPORATION,
a Nevada corporation, for itself and doing business as Resellers Credit Corp.
("DFS").
RECITALS
1. The Banks are parties to that certain Credit Agreement, dated as of
July 25, 1997 (as amended, modified or supplemented from time to time, the
"Credit Agreement") by and among the Banks and Federal Data Corporation, a
Delaware corporation ("FDC"). All of FDC's obligations under the Credit
Agreement are guaranteed by its various subsidiaries, including Sylvest
Management Systems Corporation ("Sylvest"), pursuant to a Subsidiary Guaranty
(as amended, modified or supplemented from time to time, the "Subsidiary
Guaranty").
2. All of Sylvest obligations under the Subsidiary Guaranty (the
"Obligations") are, or are to be secured, by a security interest granted to BTCo
as Collateral Agent pursuant to a security agreement (as amended, modified or
supplemented from time to time, the "Security Agreement") in all the Collateral
(as defined therein) of the various assignor parties thereto, including Sylvest.
3. Pursuant to the Credit Agreement, Sylvest is not permitted to incur
Indebtedness (as defined in the Credit Agreement) or create Liens (as defined in
the Credit Agreement) in its assets except as expressly permitted under the
Credit Agreement.
4. Sylvest desires to obtain financing from DFS (as the same shall be
amended, renewed, extended, supplemented or otherwise modified from time to
time, the "DFS Financing").
<PAGE>
5. As security for the DFS Financing, DFS has been or is to be granted a
security interest in all or a portion of the Collateral.
6. The Agent, on behalf of the Banks, is willing to consent to Sylvest's
incurring of Indebtedness and creation of the Liens in connection with the DFS
Financing and DFS is willing to consent to the existence of the Obligations and
the security interest of the Collateral Agent on behalf of the Banks in the
Collateral, in each case, on the terms set forth in this Agreement.
7. The parties hereto desire hereby to establish the relative rights and
priorities of the Banks and DFS in and as to the Collateral.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and in order to induce the Agent to make advances to Sylvest under the
Credit Agreement, the parties hereto do agree as follows:
1. a. The terms defined below shall have the meanings assigned wherever
the terms appear in this Agreement. These meanings are also applicable to the
singular and plural forms of the terms defined.
"Bank First Priority Collateral" means all Collateral except the DFS
First Priority Collateral.
"Bank First Priority Security Interest" means the security interest of
the Collateral Agent on behalf of the Banks in the Bank First Priority
Collateral.
"Bank General Security Interest" means the security interest of the
Collateral Agent on behalf of the Banks in the DFS First Priority Collateral.
"DFS First Priority Collateral" means, whether now owned or hereafter
acquired or existing and wherever located:
i) Inventory;
ii. all cash and insurance proceeds arising from Inventory, but
not any other proceeds of Inventory, except for the Included Accounts;
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<PAGE>
iii. and all substitutions, repossessions, exchanges,
replacements and returns of Inventory;
iv. all parts thereof, attachments, additions, accessories and
accessions of Inventory;
v. all price protection credits, rebates, discounts, and
incentive payments relating to any of the foregoing;
vi. the Included Accounts; and
vii. all proceeds of the Included Accounts.
"DFS First Priority Security Interest" means the security interest of
DFS in the DFS First Priority Collateral.
"DFS General Security Interest" means the security interest of DFS in
the Bank First Priority Collateral.
"First Priority Security Interest" means either the Bank First
Priority Security Interest or the DFS First Priority Security Interest,
depending upon the context in which such term is used.
"Included Accounts" means all accounts, contract rights, chattel
paper, security agreements, instruments, deposit accounts, reserves, documents
and general intangibles of Sylvest, whether now owned or hereafter acquired,
arising from or related to any sale or lease of any goods or services
("Accounts") by Sylvest to: (i) the Boeing Company; (ii) the Defense
Information Systems Agency, pursuant to contract order number DCA100-97-F-0117,
dated as of January 9, 1997, as amended from time to time; (iii) the Defense
Information Systems Agency, pursuant to contract order number DCA100-97-F-0108,
dated as of January 3, 1997, as amended from time to time; (iv) the Bureau of
the Census, pursuant to contract number 40YABC710511, dated as of January 15,
1997, as amended from time to time; (v) the Federal Emergency Management Agency,
pursuant to contract order number EMW-97-DO-0198, dated as of March 17, 1997, as
amended from time to time; (vi) the Federal Emergency Management Agency,
pursuant to contract order number EMW-97-DO-0200, dated as of March 15, 1997, as
amended from time to time; (vii) the Tennessee Valley Authority, pursuant to
contract order number P-96PYL-188515-000, dated as of February 28, 1997, as
amended from time to time, and each and
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<PAGE>
every release or order thereunder; (viii) the Defense Information Systems
Agency, pursuant to contract number NAS5-96012, Delivery Order Number VP01,
dated as of May 20, 1997, as amended from time to time, and each and every
additional release or order thereunder; and (ix) each and every additional
contract to the extent specified in writing to the Agent by Sylvest and DFS
prior to any Accounts arising thereunder.
"Inventory" means collectively and includes all of the following,
whether now owned or hereafter acquired by Sylvest: all goods held or intended
for sale or lease by Sylvest, or furnished or to be furnished under contracts of
services, all raw materials, work in process, finished goods, materials and
supplies of every nature used or usable in connection with the manufacture,
packing, shipping, advertising or sale of any such goods, together with all
property included within the definition of "inventory" set forth in the UCC.
"UCC" means the Uniform Commercial Code as adopted and in effect in
the State of New York.
b. Subject to the continued existence of this Agreement and DFS's
compliance with its obligations hereunder, the Agent hereby consents to the
existence of the DFS Financing, the DFS First Priority Security Interest
and the DFS General Security Interest. Subject to the continued existence
of this Agreement and the Agent's compliance with its obligations
hereunder, DFS hereby consents to the existence of the Obligations, the
Bank First Priority Security Interest and the Bank General Security
Interest.
c. All provisions of this Agreement shall apply notwithstanding the
date, time, manner or order of perfection of any security interest of DFS
or the Banks in the Collateral; provided, however, that nothing contained
herein shall affect the relative priorities of any security interest of the
Banks or DFS or the Collateral Agent to perfect or continue the perfection
of any security interest.
2. DFS agrees that, except as provided in Section 1.c. above with respect
to any failure of DFS or the Collateral Agent to perfect or to continue the
perfection of any security interest, the DFS General Security Interest and all
rights, powers and authorities of DFS in connection therewith are hereby
subordinated to the Bank First Priority Security Interest and all rights, powers
and authorities of the Agent in connection therewith. In consideration of the
Agent's agreements in Section 3 below, unless and until the Agent has issued a
notice to DFS that the Obligations have been fully satisfied and discharged, DFS
agrees with the Agent as follows:
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<PAGE>
a. DFS will not enforce or apply the DFS General Security Interest
or in any manner interfere with the Bank First Priority Security Interest.
b. DFS will not notify account debtors or other obligors of the DFS
General Security Interest.
c. DFS (i) will not assert any claim for marshaling with respect to
the Bank First Priority Collateral; (ii) consents to the collection or
disposition of the Bank First Priority Collateral free of the DFS General
Security Interest therein by the Collateral Agent, and, if the Agent
requests, by Sylvest or any successor to it, including a trustee in
bankruptcy; (iii) until the Agent notifies DFS that Sylvest is in default
under the Credit Agreement, will not knowingly receive the proceeds of any
Bank First Priority Collateral and, upon becoming aware that DFS has
received any such proceeds, will turn or pay over to the Agent, without the
necessity of demand or request by the Agent, any such proceeds which DFS
has not yet applied to reduce the outstanding balance of the DFS Financing;
(iv) following notice from the Agent that Sylvest is in default under the
Credit Agreement but without the necessity of demand or request by the
Agent, will turn or pay over to the Agent the proceeds of any Bank First
Priority Collateral coming into DFS's possession, custody or control, and
until such delivery, shall hold any such proceeds in trust for the Agent;
and (v) shall notify the Agent if DFS receives possession or control of any
books, records or similar data which contain information identifying or
pertaining to the Bank First Priority Collateral and, at the Agent's
request and expense will, as promptly as practical thereafter in the
circumstances, make copies of such data available to the Agent, provided,
however, that the failure of DFS to comply with this subsection (v) shall
not create a cause of action against it by the Agent.
d. DFS will take any and all such action as the Agent may request to
facilitate the collection or disposition of any Bank First Priority
Collateral, including, without limitation, the agreement to permit such
Bank First Priority Collateral to be sold or otherwise disposed of free of
the DFS General Security Interest in such Bank First Priority Collateral,
provided that the Agent certifies in writing that such request is based on
the Agent's good faith belief that such release is necessary or desirable
to enhance its recovery.
-5-
<PAGE>
DFS acknowledges that the intent of the foregoing is to place the Agent in
the same position as if the Bank First Priority Collateral was not subject to
the DFS General Security Interest, and agrees that it will assert no claims
against the Agent, the Collateral Agent or the Banks with respect to the Bank
First Priority Collateral. Subject to all of the foregoing, nothing herein
contained shall be deemed to prohibit DFS from intervening or participating in
any judicial proceeding to the extent necessary to preserve or protect the DFS
General Security Interest.
3. The Agent on behalf of the Collateral Agent and the Banks agree that,
except as provided in Section 1.c. with respect to any failure of DFS or the
Agent to perfect or to continue the perfection of any security interest, the
Bank General Security Interest and all rights, powers and authorities of the
Agent, the Collateral Agent and the Banks in connection therewith are hereby
subordinated to the DFS First Priority Security Interest and all rights, powers
and authorities of DFS in connection therewith. In consideration of DFS's
agreements in Section 2 above, unless and until DFS has issued a notice to the
Agent that Sylvest's obligations with respect to the DFS Financing have been
fully satisfied and discharged, the Agent agrees with DFS as follows:
a. Neither the Agent nor the Collateral Agent will enforce or apply
the Bank General Security Interest or in any manner interfere with the DFS
First Priority Security Interest.
b. Neither the Agent nor the Collateral Agent will notify account
debtors or other obligors of the Bank General Security Interest.
c. The Agent agrees on behalf of the Collateral Agent and the Banks
that it (i) will not assert any claim for marshaling with respect to the
DFS First Priority Collateral; (ii) consents to the collection or
disposition of the DFS First Priority Collateral free of the Bank General
Security Interest therein by DFS and, if DFS requests, by Sylvest or any
successor to it, including a trustee in bankruptcy; (iii) until DFS
notifies the Agent that Sylvest is in default under the DFS Financing, will
not knowingly receive any proceeds of the DFS First Priority Collateral
which also constitute DFS First Priority Collateral and, upon becoming
aware that the Agent has received such proceeds, will turn or pay over to
DFS, without the necessity of demand or request by DFS, any such proceeds
which the Agent has not yet applied to Sylvest's obligations under the
Credit Agreement; (iv) following notice from DFS that Sylvest is in default
under the DFS Financing but without the necessity of demand or request by
DFS, will turn or pay over to DFS the
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<PAGE>
proceeds of any DFS First Priority Collateral coming into the Agent's
possession, custody or control (but only if such proceeds also constitute
DFS First Priority Collateral), and until such delivery, shall hold any
such proceeds in trust for DFS; and (v) notify DFS if the Agent receives
possession or control of any books, records or similar data which contain
information identifying or pertaining to the DFS First Priority Collateral
and, at DFS's request and expense will, as promptly as practical thereafter
in the circumstances, make copies of such data available to DFS, provided,
however, that the failure of the Agent to comply with this subsection (v)
shall not create a cause of action against it by DFS.
d. The Agent will take any and all such action as DFS may request to
facilitate the collection or disposition of any DFS First Priority
Collateral, including without limitation, the agreement to permit such DFS
First Priority Collateral to be sold or otherwise disposed of free of the
Bank General Security Interest in such DFS First Priority Collateral,
provided that DFS certifies in writing that such request is based on DFS's
good faith belief that such release is necessary or desirable to enhance
its recovery.
The Agent acknowledges that the intent of the foregoing is to place DFS in
the same position as if the DFS First Priority Collateral was not subject to the
Bank General Security Interest, and agrees on behalf of the Collateral Agent and
the Banks that they will assert no claims against DFS with respect to the DFS
First Priority Collateral. Subject to the foregoing, nothing herein contained
shall be deemed to prohibit the Agent from intervening or participating in any
judicial proceeding to the extent necessary to preserve or protect the Bank
General Security Interest.
4. DFS and the Agent shall each use their respective best efforts to
provide the other party with at least one (1) business day prior written notice
before taking any action to enforce or foreclose the respective First Priority
Security Interests; provided, however, that the failure to provide any such
notice shall not impair or restrict the rights of the party seeking to foreclose
or enforce its First Priority Security Interest.
5. This Agreement shall constitute a continuing agreement, and both the
Agent and/or the Banks and DFS may continue, without notice to the other, to
lend monies, extend credit and make other accommodations to or for the account
of Sylvest and its affiliates in reliance hereon. The Agent and DFS agree that,
at any time and from time to time, they may enter into such agreement or
agreements with Sylvest and its affiliates as they may deem advisable extending
the time of payment or
-7-
<PAGE>
renewing or otherwise altering the terms of all or of any indebtedness owed
them, respectively, or affecting any security for any or all of such
indebtedness, or may exchange, sell or surrender or otherwise deal with any
such security, without notice to the other party and without in any way
impairing or affecting their rights and benefits under this Agreement.
6. This Agreement shall be binding upon and shall inure to the benefit of
the Agent and DFS and their respective successors and assigns.
7. The interpretation and performance of this Agreement shall be governed
by the internal laws of the New York; provided, however, that the Federal
Arbitration Act, to the extent consistent with such laws, will supersede such
laws and govern. All terms used herein which are defined by the UCC shall have
the meaning assigned to them by the UCC unless and to the extent varied by this
Agreement.
8. Notices under this Agreement shall be given in writing sent to the
recipient at the respective addresses set forth below by hand delivery or by
deposit in the U.S. Mail with sufficient postage thereon for first class
certified or registered delivery service and shall be deemed duly given upon the
date of receipt as indicated by the receipt signed by the recipient or its
agent.
The Agent: c/o Bankers Trust Company
130 Liberty Street
New York, New York 10006
DFS: c/o Deutsche Financial Services Corp.
10000 Midlantic Drive
Suite 401E
Mount Laurel, NJ 08054
Attention: Regional Vice President
9. This Agreement shall remain in effect until the expiration of ninety
(90) days following receipt by the Agent or DFS, as the case may be, of written
notice from the other party terminating this Agreement, but the termination of
this Agreement shall not affect or impair any of the rights or interests of the
parties, including any security interest in assets of Sylvest, created or
acquired hereunder prior to the effective date of such termination.
-8-
<PAGE>
10. The Recitals hereto are hereby incorporated into and made a part of
this Agreement.
11. Any controversy or claim arising out of or relating to this Agreement,
the relationship resulting in or from this Agreement, the breach of any duties
hereunder or any other relationship, transaction or dealing between the parties
will be settled by binding arbitration in accordance with the Commercial
Arbitration Rules of The American Arbitration Association, 140 West 51st Street,
New York, New York 10020-1203. The parties agree that all arbitrators selected
will be attorneys with at least five (5) years secured transactions experience.
Any award rendered by the arbitrator(s) may be entered as a judgment or order
and confirmed or enforced by either party in any state or federal court having
competent jurisdiction thereof. If either party brings or appeals any judicial
action to vacate or modify any award rendered pursuant to arbitration or opposes
the confirmation of such award and the party bringing or appealing such action
or opposing confirmation of such award does not prevail, such party will pay all
of the costs and expenses (including, without limitation, court costs,
arbitrators' fees and expenses and attorneys' fees) incurred by the other party
in defending such action. The arbitrators will not be empowered to award
punitive damages.
12. IF THIS AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, EACH
PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS LOCATED WITHIN THE
STATE OF NEW YORK AND AGREES THAT ALL LEGAL PROCEEDINGS WILL BE TRIED IN A COURT
OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. EACH PARTY WAIVES ANY
RIGHT TO A JURY TRAIL IN ANY SUCH PROCEEDING.
13. This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument. In addition, this Agreement may contain more than one counterpart
of the signature page and this Agreement may be executed by the affixing of the
signatures of each of the parties to one such counterpart Agreement; all of such
signature pages shall be read as though one, and they shall have the same force
and effect as though all of the signers had a single signature page.
14. This Agreement contains the entire agreement between the parties with
respect to the matters addressed herein.
-9-
<PAGE>
WITNESS the following signatures and seals.
THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE
WAIVER PROVISIONS.
BANKERS TRUST COMPANY, as Agent
By /s/ David J. Bell
---------------------------------------
Name: David J. Bell
Title: Vice President
DEUTSCHE FINANCIAL SERVICES
CORPORATION, a Nevada Corporation
By /s/ Keith E. Boudrean
---------------------------------------
Name: Keith E. Boudrean
Title: VP-Area General Manager
-10-
<PAGE>
ACKNOWLEDGMENT BY SYLVEST
Sylvest acknowledges receiving a copy of this Agreement and agrees not to
take or consent to any action in violation of this Agreement.
SYLVEST MANAGEMENT SYSTEMS
CORPORATION
By /s/ Authorized Signatory
---------------------------------------
Name:
Title:
-11-
<PAGE>
[LATHAM & WATKINS LETTERHEAD]
November 26 1997
Federal Data Corporation
4800 Hampden Lane
Bethesda, MD 20814
Re: Registration Statement on Form S-4
Federal Data Corporation
File No. 333-36447
Ladies and Gentlemen:
In connection with the registration of $105,000,000 aggregate principal
amount of its 10 1/8% Senior Subordinated Notes due 2005 (the "New Notes") by
Federal Data Corporation, a company incorporated under the laws of the State
of Delaware (the "Company"), together with guarantees of the New Notes (the
"Guarantees") by FDCT Corp., a Delaware corporation, FDC Technologies, Inc.,
a Delaware corporation, DoxSys, Inc., a Delaware corporation, NYMA, Inc., a
Maryland corporation, VAD International, Inc., a Maryland corporation, and
Sylvest Management Systems Corporation, a Maryland corporation (collectively,
the "Guarantors"),on Form S-4 filed with the Securities and Exchange
Commission (the "Commission") on September 26, 1997 (File No. 333-36447) (the
"Registration Statement"), you have requested our opinion with respect to the
matters set forth below. The New Notes will be issued pursuant to an
indenture (the "Indenture"), dated as of July 25, 1997, among the Company and
Norwest Bank Minnesota, National Association, as trustee (the "Trustee").
The New Notes will be issued in exchange for the Company's outstanding 10 1/8%
Senior Subordinated Notes due 2005 (the "Old Notes") on the terms set forth
in the prospectus contained in the Registration Statement and the Letter of
Transmittal filed as an exhibit thereto (the "Exchange Offer").
<PAGE>
Federal Data Corporation
November 26, 1997
Page 2
In our capacity as your special counsel, we have made such legal and
factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such
documents, corporate records and instruments, as we have deemed necessary or
appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity to authentic original documents of all documents submitted to us
as copies.
We are opining herein as to the effect on the subject transactions only
of the internal laws of the State of New York, the General Corporation Law of
the State of Delaware and the General Corporation Law of the State of
Maryland, and we express no opinion with respect to the applicability
thereto, or the effect thereon, of the laws of any other jurisdiction or, in
the case of Delaware or Maryland, any other laws, or as to any matters of
municipal law or the laws of any other local agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
1. The New Notes, when duly executed, issued, authenticated and
delivered in accordance with the terms of the Exchange Offer and the
Indenture, will be legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.
2. The Guarantees, when they are duly executed and delivered and when
the New Notes are duly executed, issued, authenticated and delivered in
accordance with the terms of the Exchange Offer and the Indenture, will be
legally valid and binding obligations of the Guarantors, enforceable against
the Guarantors in accordance with their terms.
The opinions rendered in paragraphs 1 and 2 above are subject to the
following exceptions, limitations and qualifications: (i) the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to or affecting the rights and remedies of
creditors; (ii) the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or law, and the
discretion of the court before which any proceeding therefor may be brought
and (iii) we express no opinion concerning the enforceability of the waiver
of rights or defenses contained in Section 4.09 of the Indenture.
To the extent that the obligations of the Company and the Guarantors
under the Indenture may be dependent upon such matters, we have assumed for
purposes of this opinion that (i) the Trustee is validly existing and in good
standing under the laws of its jurisdiction of organization; (ii) the Trustee
has been duly qualified to engage in the activities contemplated by the
<PAGE>
Federal Data Corporation
November 26, 1997
Page 3
Indenture; (iii) the Indenture has been duly authorized, executed and
delivered by the Trustee and constitutes a legal, valid and binding
obligation of the Trustee, enforceable against the Trustee in accordance with
its terms; (iv) the Trustee is in compliance generally and with respect to
acting as Trustee under the Indenture, with all applicable laws and
regulations; and (v) the Trustee has the requisite organizational and other
power and authority to perform its obligations under the Indenture.
We have not been requested to express and, with your knowledge and
consent, do not render any opinion with respect to the applicability to the
obligations of the Company or the Guarantors under the New Notes, the
Guarantees and the Indenture of Sections 547 and 548 of Title 11 of the
Bankruptcy Reform Act of 1978, as amended, or applicable state law
(including, without limitation, Article 10 of the New York Debtor & Creditor
Law) relating to fraudulent transfers and obligations.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters."
Very truly yours,
/s/ Latham & Watkins
<PAGE>
EXHIBIT 10.2
STOCK OPTION PLAN
FOR
EXECUTIVE AND OTHER KEY EMPLOYEES
OF
FEDERAL DATA CORPORATION AND ITS SUBSIDIARIES
Federal Data Corporation ("FDC"), a Delaware corporation, hereby
adopts this Stock Option Plan for Executive and Key Employees of Federal Data
Corporation and its Subsidiaries. The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of FDC
and its Subsidiaries (as defined herein), including FDC Technologies, Inc., by
providing additional incentives to employees of FDC and its Subsidiaries who
have been or will be given responsibility for the management or administration
of FDC's (or one of its Subsidiaries') business affairs, by assisting them to
become owners of FDC common stock, thereby benefitting directly from the growth,
development and financial success of FDC and its Subsidiaries.
(2) To enable FDC (and its Subsidiaries) to obtain and retain the
services of the type of professional, technical and managerial employees
considered essential to the long-range success of FDC (and its Subsidiaries) by
providing and offering them an opportunity to become owners of FDC common stock
under options, including options that are intended to qualify as "incentive
stock options" under Section 422 of the Code (as defined herein).
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The singular pronoun shall include the plural where the context so
indicates.
<PAGE>
SECTION 1.1 - BOARD
"Board" shall mean the Board of Directors of FDC.
SECTION 1.2 - CEO
"CEO" shall mean Chief Executive Officer.
SECTION 1.3 - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.4 - COMMITTEE
"Committee" shall mean the Committee appointed as provided in Section
6.1.
SECTION 1.5 - DIRECTOR
"Director" shall mean a member of the Board.
SECTION 1.6 - DISINTERESTED DIRECTOR
"Disinterested Director" shall mean a Director who is a "disinterested
person" as defined by Rule 16b-3.
SECTION 1.7 - ELIGIBLE REPRESENTATIVE
"Eligible Representative" for an Optionee shall mean such Optionee's
personal representative or such other person as is empowered under the deceased
Optionee's will or the then applicable laws of descent and distribution to
represent the Optionee hereunder.
SECTION 1.8 - EMPLOYEE
"Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of the
Code) of FDC or one of its Subsidiaries, whether such employee is so employed at
the time this Plan is adopted or becomes so employed subsequent to the adoption
of this Plan.
2
<PAGE>
SECTION 1.9 - EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
SECTION 1.10 - FDC
"FDC" shall mean Federal Data Corporation. In addition, "FDC" shall
mean any corporation assuming, or issuing new employee stock options in
substitution for, Incentive Stock Options outstanding under the Plan in a
transaction to which Section 424(a) of the Code applies.
SECTION 1.11 - HOLDERS' AGREEMENT
"Holders' Agreement" shall mean the FDC Holdings, Inc. Holders'
Agreement dated November 30, 1995, as amended.
SECTION 1.12 - INCENTIVE STOCK OPTION
"Incentive Stock Option" shall mean an Option which qualifies under
Section 422 of the Code and which is designated as an Incentive Stock Option by
the Committee.
SECTION 1.13 - NON-QUALIFIED OPTION
"Non-Qualified Option" shall mean an Option which is not an "incentive
stock option" under Section 422 of the Code and shall include an Option which is
designated as a Non-Qualified Option by the Committee.
SECTION 1.14 - OFFICER
"Officer" shall mean an officer of FDC, as defined in Rule 16a-1(f)
under the Exchange Act, as such Rule may be amended in the future.
SECTION 1.15 - OPTION
"Option" shall mean an option granted under the Plan to purchase
Voting Common Stock. "Options" includes both Incentive Stock Options and
Non-Qualified Options.
SECTION 1.16 - OPTIONEE
"Optionee" shall mean an Employee to whom an Option is granted under
the Plan.
3
<PAGE>
SECTION 1.17 - PLAN
"Plan" shall mean this Stock Option Plan for Executive and Other Key
Employees of Federal Data Corporation and its Subsidiaries.
SECTION 1.18 - RULE 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended in the future.
SECTION 1.19 - SECRETARY
"Secretary" shall mean the Secretary of FDC.
SECTION 1.20 - SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as amended.
SECTION 1.21 - SUBSIDIARY
"Subsidiary" of any entity shall mean any corporation in an unbroken
chain of corporations beginning with such entity if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
SECTION 1.22 - TERMINATION OF EMPLOYMENT
"Termination of Employment" shall mean the time then the
employee-employer relationship between the Optionee and FDC (or one of its
Subsidiaries) is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding terminations where there is a simultaneous
reemployment by FDC (or one of its Subsidiaries). The Committee shall determine
the effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for the purposes of Section
422(a)(2) of the Code and the then applicable regulations and revenue rulings
under said Section of the Code.
4
<PAGE>
SECTION 1.23 - VOTING COMMON STOCK
"Voting Common Stock" shall mean the $.01 par value Common Stock of
FDC.
ARTICLE II
SHARES SUBJECT TO PLAN
SECTION 2.1 - SHARES SUBJECT TO PLAN
The shares of stock subject to Options shall be shares of Voting
Common Stock. Subject to Sections 7.1 and 7.2, the aggregate number of such
shares which may be issued upon exercise of Options shall not exceed 257,000.
SECTION 2.2 - UNEXERCISED OPTIONS
If any Option (or portion thereof) expires or is cancelled without
having been fully exercised, the number of shares subject to such Option (or
portion thereof) but as to which such Option was not exercised prior to its
expiration or cancellation may again be optioned hereunder, subject to the
limitations of Section 2.1.
ARTICLE III
GRANTING OF OPTIONS
SECTION 3.1 - ELIGIBILITY
Any full-time executive or other key Employee of FDC or one of its
Subsidiaries shall be eligible to be granted Options, except as provided in
Section 3.2.
SECTION 3.2 - QUALIFICATION OF INCENTIVE STOCK OPTIONS
No Incentive Stock Option shall be granted unless such Option, when
granted, qualifies as an "incentive stock option" under Section 422 of the Code.
SECTION 3.3 - GRANTING OF OPTIONS
(a) The Committee shall from time to time:
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<PAGE>
(i) Determine which Employees are executive or other key
Employees and select from among them (including those to whom Options have
been previously granted under the Plan) such of them as in its opinion
should be granted Options; and
(ii) Determine the number of shares to be subject to such Options
granted to such selected executive or other key Employees, and determine
whether, in the case of such Employees, such Options are to be Incentive
Stock Options or Non-Qualified Options; and
(iii) Determine the terms and conditions of such Options,
consistent with the Plan.
(b) Upon the selection of an executive or other key Employee to be
granted an Option pursuant to Section 3.3(a), the Committee shall instruct the
Secretary to issue such Option and may impose such conditions on the grant of
such Option as it deems appropriate. Without limiting the generality of the
preceding sentence, the Committee may require as a condition on the grant of an
Option to an Employee that the Employee surrender for cancellation some or all
of the unexercised Options which have been previously granted to him or her. An
Option the grant of which is conditioned upon such surrender may have an Option
price lower (or higher) than the Option price of the surrendered Option, may
cover the same (or a lesser or greater) number of shares as the surrendered
Option, may contain such other terms as the Committee deems appropriate and
shall be exercisable in accordance with its terms, without regard to the number
of shares, price, period of exercisability or any other term or condition of the
surrendered Option.
ARTICLE IV
TERMS OF OPTIONS
SECTION 4.1 - OPTION AGREEMENT
Each Option shall be evidenced by a written Stock Option Agreement,
which shall be executed by the Optionee and an authorized Officer of FDC and
which shall contain such terms and conditions as the Committee shall determine,
consistent with the Plan. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions as may be necessary to qualify
such Options as "incentive stock options" under Section 422 of the Code.
SECTION 4.2 - EXERCISABILITY OF OPTIONS
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<PAGE>
(a) Each Option shall become exercisable according to the terms of
the applicable Stock Option Agreement; provided, however, that by a resolution
adopted after an Option is granted the Committee may, on such terms and
conditions as it may determine to be appropriate and subject to Sections 4.2(b)
and 4.2(c), accelerate the time at which such Option or any portion thereof may
be exercised.
(b) No portion of an Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
(c) To the extent that the aggregate fair market value of shares with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of FDC or any Subsidiary thereof) exceeds
$100,000, such options shall be treated and taxable as Non-Qualified Options.
The rule set forth in the preceding sentence shall be applied by taking options
into account in the order in which they were granted, and the stock issued upon
exercise of options shall designate whether such stock was acquired upon
exercise of an Incentive Stock Option. For purposes of these rules, the fair
market value of stock shall be determined as of the date of grant of the Option
granted with respect to such stock.
SECTION 4.3 - OPTION PRICE
(a) The price of the shares subject to each Option shall be set by
the Committee; provided, however, that in the case of an Incentive Stock Option,
the price per share shall be not less than 100% of the fair market value of such
shares on the date such Option is granted; and that in the case of an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of FDC, the price per
share shall not be less than 110% of the fair market value of such shares on the
date such Incentive Stock Option is granted.
(b) For purposes of the Plan, the fair market value of a share of the
Voting Common Stock as of a given date shall be: (i) the closing price of a
share of the Voting Common Stock on the principal exchange on which such shares
are then trading, if any, on the day previous to such date, or, if shares were
not traded on the day previous to such date, then on the next preceding trading
day during which a sale occurred; or (ii) if such Common Stock is not traded on
an exchange but is quoted on NASDAQ or a successor quotation system, (1) the
last sales price (if the Voting Common Stock is then listed as a National Market
Issue under the NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Voting Common
Stock on the day previous to such date as reported by NASDAQ or such successor
quotation system; or (iii) if such Voting Common Stock is not publicly traded on
an exchange and not quoted on NASDAQ or a
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<PAGE>
successor quotation system, the mean between the closing bid and asked prices
for the Voting Common Stock, on the day previous to such date, as determined
in good faith by the Committee; or (iv) if the Voting Common Stock is not
publicly traded, the fair market value established by the Committee acting in
good faith and taking account of factors applicable to such shares such as
their status as minority or non-controlling shares and any restrictions on
the shares contained in this Plan.
SECTION 4.4 - EXPIRATION OF OPTIONS
(a) No Option may be exercised to any extent by anyone after the
first to occur of the following events:
(i) The expiration of ten years from the date the Option was
granted; or
(ii) With respect to an Incentive Stock Option in the case of an
Optionee owning (within the meaning of Section 424(d) of the Code), at the
time the Incentive Stock Option was granted, more than 10% of the total
combined voting power of all classes of stock of FDC or any subsidiary
corporation, the expiration of five years from the date the Incentive Stock
Option was granted; or
(iii) Except as the Committee may provide in the terms of the
applicable Stock Option Agreement or otherwise approve, the date of the
Optionee's Termination of Employment for any reason other than death or
disability (as defined in Section 22(e)(3) of the Code); or
(iv) In the case of an Optionee whose Termination of Employment
is by reason of his or her disability (within the meaning of Section
22(e)(3) of the Code), the expiration of 12 months from the date of the
Optionee's Termination of Employment unless the Optionee dies within said
12 month period, in which case the Option shall cease to be exercisable
upon the expiration of 180 days from the date of the Optionee's death; or
(v) The expiration of 180 days from the date of the Optionee's
death.
ARTICLE V
EXERCISE OF OPTIONS
8
<PAGE>
SECTION 5.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he or she may exercise an
Option (or any portion thereof) granted to him or her. After the death of the
Optionee, any exercisable portion of an Option may, prior to the time when such
portion becomes unexercisable under the Plan or the applicable Stock Option
Agreement, be exercised by his or her Eligible Representative.
SECTION 5.2 - PARTIAL EXERCISE
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof becomes unexercisable under
the Plan or the applicable Stock Option Agreement, such Option or portion
thereof may be exercised in whole or in part; provided, however, that FDC shall
not be required to issue fractional shares and the Committee may, by the terms
of the Option, require any partial exercise to be with respect to a specified
minimum number of shares.
SECTION 5.3 - MANNER OF EXERCISE
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary of all of the following prior to
the time when such Option or such portion becomes unexercisable under the Plan
or the applicable Stock Option Agreement:
(a) Notice in writing signed by the Optionee or his or her Eligible
Representative, stating that such Option or portion is exercised, and
specifically stating the number of shares with respect to which the Option is
being exercised;
(b) A copy of the Holders' Agreement signed by the Optionee;
(c) (i) Full payment (in cash or by personal, certified or bank
cashier check) for the shares with respect to which such Option or portion
is thereby exercised; or
(ii) With the consent of the Committee, (A) shares of Voting
Common Stock owned by the Optionee duly endorsed for transfer to FDC or (B)
except with respect to Incentive Stock Options, shares of the Voting Common
Stock issuable to the Optionee upon exercise of the Option, with a fair
market value (as determined under Section 4.3(b)) on the date of Option
exercise equal to the aggregate Option price of the shares with respect to
which such Option or portion is thereby exercised; or
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(iii) With the consent of the Committee, any combination of
the consideration provided in the foregoing subsections (i) and (ii); and
(d) The payment to FDC of all amounts necessary to satisfy any and
all federal, state and local tax withholding requirements arising in connection
with the exercise of the Option;
(e) Such representations and documents as the Committee deems
necessary or advisable to effect compliance with all applicable provisions of
the Securities Act and any other federal or state securities laws or
regulations. The Committee may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance including,
without limitation, placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars; and
(f) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to exercise
the Option or portion thereof.
SECTION 5.4 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by FDC. A certificate
of shares will be delivered to the Optionee at FDC's principal place of business
within thirty days of receipt by FDC of the written notice and payment, unless
an earlier date is agreed upon. Notwithstanding the above, FDC shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on any and all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
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(d) The payment to FDC of all amounts which it is required to
withhold under federal, state or local law in connection with the exercise of
the Option.
SECTION 5.5 - RIGHTS AS SHAREHOLDERS
The holder of an Option shall not be, nor have any of the rights or
privileges of, a shareholder of FDC in respect of any shares purchasable upon
the exercise of any part of an Option unless and until such holder has signed a
copy of the Holders' Agreement and certificates representing such shares have
been issued by FDC to such holder.
SECTION 5.6 - TRANSFER RESTRICTIONS
Shares acquired upon exercise of an Option shall be subject to the
terms and conditions of the Holders' Agreement. The Committee, in its absolute
discretion, may impose such restrictions on the transferability of the shares
purchasable upon the exercise of an Option as it deems appropriate. Any such
restriction shall be set forth in the respective Stock Option Agreement and may
be referred to on the certificates evidencing such shares. The Committee may
require the Employee to give FDC prompt notice of any disposition of shares of
stock, acquired by exercise of an Incentive Stock Option, within two years from
the date of granting such Option or one year after the transfer of such shares
to such Employee. The Committee may direct that the certificates evidencing
shares acquired by exercise of an Option refer to such requirement to give
prompt notice of disposition.
SECTION 5.7 - RIGHTS TO REPURCHASE SHARES
(a) For a period of six months following the Termination of
Employment of an Optionee, FDC shall have the option to repurchase all (but not
less than all) of the shares held by the Optionee or his or her successor in
interest thereunder (the "Call Right"). The repurchase price payable by FDC
upon exercise of a Call Right ("the "Repurchase Price") shall be the fair market
value of the shares subject to the Call Right. A Call Right with respect to an
Optionee's shares shall be exercised by written notice (the "Call Notice") to
such Optionee or, in the event of Optionee's death, Optionee's Eligible
Representative given within six months after the Termination of Employment of
such Optionee.
(b) The repurchase of shares pursuant to the exercise of a Call Right
shall take place on a date specified by FDC, but in no event later than thirty
days following the date of the exercise of the Call Right. On such date, the
Optionee or his or her Eligible Representative (as applicable) shall deliver to
FDC the certificates representing the shares to be repurchased, duly endorsed
for transfer to FDC, and FDC shall pay to the Optionee or his or her Eligible
Representative (as applicable) the Repurchase Price in cash or by bank or
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cashier's check. FDC and Optionee or his or her Eligible Representative (as
applicable) each shall use its reasonable efforts to expedite all proceedings
contemplated hereunder in order to obtain a determination of the Repurchase
Price of the shares at the earliest practicable date.
(c) The fair market value of the shares to be repurchased shall be
determined in accordance with the procedures described in Section 4.3(b) above,
as of the date of the Call Notice; provided, however, that if the fair market
value of FDC shares has been determined in accordance with Section 4.3(b) as of
a date within six months prior to such Termination of Employment, FDC may, in
its discretion, adopt such earlier determination as the Repurchase Price of
shares hereunder.
(d) In the event that the shares of Voting Common Stock subject to
Options under this Plan are exchanged for other shares or securities as
described in Sections 7.1 and 7.2, then the provisions of this Section 5.7 shall
be applicable to the shares or other securities into which the shares have been
exchanged, and the Committee shall make an appropriate and equitable adjustment
in the Repurchase Price specified in Section 5.7(a). Any such adjustment made
by the Committee in good faith shall be final and binding upon Optionee, FDC and
all other interested parties.
ARTICLE VI
ADMINISTRATION
SECTION 6.1 - COMMITTEE
The Committee shall consist of two or more Disinterested Directors,
appointed by and holding office at the pleasure of the Board. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee shall be filled by the Board.
SECTION 6.2 - DELEGATION BY COMMITTEE
Except as otherwise determined by the Committee, all rights, powers
and duties of the Committee under the Plan (except those granted pursuant to
Sections 4.3, 5.6 and Article VII) shall be exercised by the CEO of FDC, subject
to the approval of the Committee.
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SECTION 6.3 - DUTIES AND POWERS OF CEO OF FDC AND THE COMMITTEE
It shall be the duty of the CEO of FDC, subject to the approval of the
Committee, to conduct the general administration of the Plan in accordance with
its provisions. The CEO of FDC, subject to the approval of the Committee, shall
have the power to interpret the Plan and the Options and to adopt such rules for
the administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of the Plan to grant "incentive stock options"
within the meaning of Section 422 of the Code. All determinations and decisions
made by the CEO of FDC and approved by the Committee under any provision of the
Plan or of any Option granted thereunder shall be final, conclusive and binding
on all persons.
SECTION 6.4 - COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
The CEO of FDC and members of the Committee shall receive such
compensation for their services hereunder as may be determined by the Board.
All expenses and liabilities incurred by CEO of FDC and the members of the
Committee in connection with the administration of the Plan shall be borne by
FDC. The CEO of FDC and the Committee may employ attorneys, consultants,
accountants, appraisers, brokers or other persons. The CEO of FDC, the
Committee, FDC and its Officers and Directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by CEO of FDC, subject to the approval
of the Committee, in good faith shall be final and binding upon all Optionees,
FDC and all other interested persons. No member of the Board shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Options, and all members of the Board
shall be fully protected by FDC in respect to any such action, determination or
interpretation.
ARTICLE VII
OTHER PROVISIONS
SECTION 7.1 - ADJUSTMENTS
(a) Subject to Section 7.1(e) and Section 7.2, but notwithstanding
any other term of this Plan, in the event that the Committee determines, in its
sole discretion, that any dividend or other distribution (whether in the form of
cash, Voting Common Stock, other securities, or other property),
recapitalization, reclassification, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Voting Common Stock or other securities of FDC,
issuance of warrants or other rights to purchase Voting Common Stock or other
securities of FDC, or other
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similar corporate transaction or event affects the Voting Common Stock such
that an adjustment is determined by the Committee to be appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to an Option,
then the Committee shall, in such manner as it may deem equitable, adjust any
or all of
(i) the number and type of shares of Voting Common Stock (or
other securities or property) with respect to which Options may be granted
under the Plan (including, but not limited to, adjustments of the
limitations in Section 2.1 on the maximum number and kind of shares which
may be issued),
(ii) the number and type of shares of Voting Common Stock (or
other securities or property) subject to outstanding Options,
(iii) the grant or exercise price with respect to any Option,
and
(iv) the financial or other "targets" specified in each Stock
Option Agreement for determining the exercisability of Options.
(b) Subject to Section 7.1(e) and Section 7.2, but notwithstanding
any other term of this Plan, in the event of any corporate transaction or other
event described in Section 7.1(a) which results in shares of Voting Common Stock
being exchanged for or converted into cash, securities (including securities of
another corporation) or other property, the Committee will have the right to
terminate this Plan as of the date of the event or transaction, in which case
all Options granted under this Plan (to the extent then exercisable and
outstanding and not cancelled) shall become the right to receive such cash,
securities or other property, net of any applicable exercise price.
(c) Subject to Section 7.1(e) and Section 7.2, but notwithstanding
any other term of this Plan, in the event of any corporate transaction or other
event described in Section 7.1(a) or any unusual or nonrecurring transactions or
events affecting FDC, any affiliate of FDC, or the financial statements of FDC
or any affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Committee, in its discretion, is hereby authorized to take any
one or more of the following actions whenever the Committee determines that such
action is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to any Option, to facilitate such transactions or events or to give
effect to such changes in laws, regulations or principles:
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(i) In its discretion, and on such terms and conditions as it
deems appropriate, the Committee may provide, either automatically or upon
the Optionee's request, for either the purchase of any such Option for an
amount of cash equal to the amount that could have been attained upon the
exercise of such Option or realization of the Optionee's rights had such
Option been currently exercisable or payable or the replacement of such
Option with other rights or property selected by the Committee in its sole
discretion;
(ii) In its discretion, the Committee may provide, either by the
terms of such Option or by a resolution adopted prior to the occurrence of
such transaction or event, that it cannot be exercised after such event;
(iii) In its discretion, and on such terms and conditions as
it deems appropriate, the Committee may provide, either by the terms of
such Option or by a resolution adopted prior to the occurrence of such
transaction or event, that for a specified period of time prior to such
transaction or event, such Option shall be exercisable as to all shares
covered thereby;
(iv) In its discretion, and on such terms and conditions as it
deems appropriate, the Committee may provide, either by the terms of such
Option or by a resolution adopted prior to the occurrence of such
transaction or event, that upon such event, such Option be assumed by the
successor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the stock of
the successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; and
(v) In its discretion, and on such terms and conditions as it
deems appropriate, the Committee may make adjustments in the number and
type of shares of Voting Common Stock (or other securities or property)
subject to outstanding Options and/or in the terms and conditions of, and
criteria included in, outstanding Options, including the grant or exercise
price, and options which may be granted in the future.
(d) Subject to Section 7.1(e) and Section 7.2, but notwithstanding
any other term of this Plan, the Committee may, in its discretion, include such
further provisions and limitations in any Option, agreement or certificate as it
may deem equitable and in the best interests of the FDC and its Subsidiaries.
(e) With respect to Incentive Stock Options, no adjustment or action
described in this Section 7.1 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section 422(b)(1) of the
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Code or any successor provisions thereto. The number of shares of Voting
Common Stock subject to any Option shall always be rounded up to the next
higher whole number.
SECTION 7.2 - MERGER, CONSOLIDATION, ACQUISITION, LIQUIDATION OR DISSOLUTION
Subject to subsections (b) and (c), but notwithstanding any other term
of this Plan, in the event of a merger or consolidation of FDC with or into
another corporation, the acquisition by another corporation or person of all or
substantially all of FDC's assets or 80% or more of FDC's then outstanding
Voting Common Stock or the liquidation or dissolution of FDC, then:
(a) For 30 days following the closing thereof, each Option shall be
exercisable as to all shares covered thereby (except for any portion of the
Option which has previously been cancelled pursuant to the applicable Stock
Option Agreement).
(b) Subsection (a) shall not apply to any Option to the extent that
the Committee, in its discretion, determines that, simultaneous with such
closing, such Option shall be exchanged for an option of at least equivalent
value (as determined by the Committee under the principles of Code Section
424(a)) to purchase shares of stock (or other equity interests) in the successor
company to FDC (or an affiliate of such successor).
(c) With respect to Incentive Stock Options, no adjustment or action
described in this Section 7.2 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section 422(b)(1) of the Code or any successor provisions thereto.
SECTION 7.3 - OPTIONS NOT TRANSFERABLE
No Option or interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Optionee or his or her successors
in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law, by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that nothing in this Section 7.3 shall
prevent transfers by will or by the applicable laws of descent and distribution.
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SECTION 7.4 - AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Committee.
However, no action of the Committee may, except as provided in Sections 7.1 and
7.2, increase any limit imposed in Section 2.1 on the maximum number of shares
which may be issued on exercise of Options, reduce the minimum Option price
requirements of Section 4.3(a), or extend the limit imposed in this Section 7.4
on the period during which options may be granted. Except as provided by
Sections 7.1 and 7.2, neither the amendment, suspension nor termination of the
Plan shall, without the consent of the holder of the Option, alter or impair any
rights or obligations under any Option theretofore granted. No Option may be
granted during any period of suspension nor after termination of the Plan, and
in no event may any Option be granted under this Plan after the expiration of
ten years from the date the Plan is adopted by the Board.
SECTION 7.5 - EFFECT OF PLAN UPON OTHER OPTION AND COMPENSATION PLANS
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for FDC or any Subsidiary. Nothing in this Plan shall
be construed to limit the right of FDC or any Subsidiary (a) to establish any
other forms of incentives or compensation for directors or employees of FDC (or
their Subsidiaries) or (b) to grant or assume options otherwise than under this
Plan in connection with any proper corporate purpose, including, but not by way
of limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.
SECTION 7.6 - TITLES
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Plan.
SECTION 7.7 - CONFORMITY TO SECURITIES LAWS
The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder. Notwithstanding anything herein to the contrary, the Plan shall be
administered, and Options shall be granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and Options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
SECTION 7.8 - GOVERNING LAW
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To the extent not preempted by federal law, the Plan shall be
construed in accordance with and governed by the laws of the State of Delaware.
SECTION 7.9 - SEVERABILITY
In the event any portion of the Plan or any action taken pursuant
thereto shall be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of the Plan, and the Plan shall
be construed and enforced as if the illegal or invalid provisions had not been
included, and the illegal or invalid action shall be null and void.
* * * *
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of Federal Data Corporation on _______________________ ____, 1996.
Executed on this ____ day of ____________, 1996.
-----------------------------
Secretary
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EXECUTIVE MANAGEMENT
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated ____________, 19__, is made by and among Federal
Data Corporation, a Delaware corporation ("FDC") and _________________________,
an employee of FDC (or one of its Subsidiaries, as defined herein), hereinafter
referred to as "Optionee":
WHEREAS, FDC wishes to afford the Optionee the opportunity to purchase
shares of its $.01 par value Voting Common Stock; and
WHEREAS, FDC wishes to carry out the Stock Option Plan for Executive
and other Key Employees of Federal Data Corporation and its Subsidiaries (the
"Plan") (the terms of which are hereby incorporated by reference and made a part
of this Agreement); and
WHEREAS, the Committee appointed to administer the Plan has determined
that it would be to the advantage and best interest of FDC and its shareholders
and Subsidiaries to grant the Incentive Stock Option provided for herein to the
Optionee as an inducement to enter into or remain in the service of FDC (or one
of its Subsidiaries) and as an incentive for increased efforts during such
service, and has advised FDC thereof and instructed the undersigned officers to
issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. Capitalized terms used in this Agreement and not defined below shall
have the meaning given such terms in the Plan. The singular pronoun shall
include the plural, where the context so indicates.
SECTION 1.1 - CASH FLOW FOR DEBT AMORTIZATION; CUMULATIVE CASH FLOW FOR DEBT
AMORTIZATION;
"Cash Flow for Debt Amortization" for a given period shall mean the
consolidated free cash flow of FDC available for, or used for, principal
repayments of debt,
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excluding the proceeds of lease or debt financings entered into without the
creation of an offsetting lease or receivable asset. "Cumulative Cash Flow
for Debt Amortization" as of a given date means the total of Cash Flow for
Debt Amortization from and after January 1, 1996 through that date.
SECTION 1.2 - CASH FLOW FOR DEBT AMORTIZATION TARGET; CUMULATIVE CASH FLOW FOR
DEBT AMORTIZATION TARGET
"Cash Flow for Debt Amortization Target" and "Cumulative Cash Flow for
Debt Amortization Target" for a period shall be as set forth in Appendix A to
this Agreement, subject to the provisions of Section 4.6.
SECTION 1.3 - EBITDA; CUMULATIVE EBITDA
"EBITDA" for a given period shall mean earnings before interest on
recourse debt, taxes, depreciation, amortization expenses and the
compensation expense related to the grant or exercise of Options, as
reflected on FDC's audited consolidated financial statements for such period.
"Cumulative EBITDA" as of a given date means the total of EBITDA from and
after January 1, 1996 through that date.
SECTION 1.4 - EBITDA TARGET; CUMULATIVE EBITDA TARGET
"EBITDA Target" and "Cumulative EBITDA Target" for a period shall be
as set forth in Appendix A of this Agreement, subject to the provisions of
Section 4.6.
SECTION 1.5 - OPTION
"Option" shall mean the Incentive Stock Option to purchase Voting
Common Stock granted under this Agreement.
SECTION 1.6 - PLAN
"Plan" shall mean the Stock Option Plan for Executive and Other Key
Employees of Federal Data Corporation and its Subsidiaries.
ARTICLE II
GRANT OF OPTION
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SECTION 2.1 - GRANT OF OPTION
In consideration of the Optionee's agreement to remain in the employ
of FDC or one of its Subsidiaries and for other good and valuable consideration,
on the date hereof FDC irrevocably grants to the Optionee the option to purchase
any part or all of an aggregate of ________ shares of Voting Common Stock upon
the terms and conditions set forth in the Plan and this Agreement.
SECTION 2.2 - OPTION SUBJECT TO PLAN
The Option granted hereunder is subject to the terms and provisions of
the Plan, including without limitation, Article V and Sections 7.1, 7.2 and 7.3
thereof.
SECTION 2.3 - OPTION PRICE
The purchase price of the shares of Voting Common Stock covered by the
Option shall be [$10.00] per share without commission or other charge.
ARTICLE III
EXERCISABILITY
SECTION 3.1 - COMMENCEMENT OF EXERCISABILITY
Subject to Section 3.3,
(a) 30% of the Option shall become exercisable in five equal and
cumulative installments as follows:
(i) The first installment shall consist of six percent of the
shares covered by such Option and shall become exercisable on December 31,
1996;
(ii) The second installment shall consist of six percent of
the shares covered by such Option and shall become exercisable on
December 31, 1997;
(iii) The third installment shall consist of six percent
of the shares covered by such Option and shall become exercisable on
December 31, 1998;
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(iv) The fourth installment shall consist of six percent of
the shares covered by such Option and shall become exercisable on
December 31, 1999; and
(v) The fifth installment shall consist of six percent of
the shares covered by such Option and shall become exercisable on
December 31, 2000.
(b) (i) An installment consisting of 7% of the shares covered by the
Option shall be eligible to become exercisable within 90 days following the
December 31 of each year 1996 through 2000 and shall in fact become
exercisable if (i) the Cash Flow for Debt Amortization for the fiscal year
ending on such December 31 equals or exceeds 50% of the Cash Flow for Debt
Amortization Target for such fiscal year, and (ii) the Cumulative Cash Flow
for Debt Amortization for the fiscal year ending on such December 31 equals
or exceeds the Cumulative Cash Flow for Debt Amortization Target for such
fiscal year.
(ii) If the Cash Flow for Debt Amortization for any fiscal year
is at least 75% of the Cash Flow for Debt Amortization Target for such
fiscal year but the Cumulative Cash Flow for Debt Amortization for such
fiscal year is less than the Cumulative Cash Flow for Debt Amortization
Target for such fiscal year, the portion of the Option that did not become
exercisable pursuant to the provisions of Sections 3.1(b)(i) on the date
first eligible shall become exercisable within 90 days of the first
December 31 thereafter as of which the Cumulative Cash Flow for Debt
Amortization equals or exceeds the Cumulative Cash Flow for Debt
Amortization Target, provided that no portion of the Option shall become
exercisable after [March 31/April 30, 2001].
(iii) Any installment which does not become exercisable
pursuant to Section 3.1(b)(i) and which is not eligible to become
exercisable pursuant to Section 3.1(b)(ii) shall be cancelled and expire as
of the first date on which such installment was eligible to become
exercisable.
(c) (i) An installment consisting of 7% of the shares covered by the
Option shall be eligible to become exercisable within 90 days following the
December 31 of each year 1996 through 2000 and shall in fact become
exercisable if (i) the EBITDA for the fiscal year ending on such December
31 equals or exceeds 50% of the EBITDA Target for such fiscal year, and
(ii) the Cumulative EBITDA for the fiscal year ending on such December 31
equals or exceeds the Cumulative EBITDA Target for such fiscal year.
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(ii) If the EBITDA for any fiscal year is at least 75% of the
EBITDA Target for such fiscal year but the Cumulative EBITDA for such
fiscal year is less than the Cumulative EBITDA Target for such fiscal year,
the portion of the Option that did not become exercisable pursuant to the
provisions of Sections 3.1(c)(i) on the date first eligible shall become
exercisable within 90 days of the first December 31 thereafter as of which
the Cumulative EBITDA equals or exceeds the Cumulative EBITDA Target,
provided that no portion of the Option shall become exercisable after
[March 31/April 30, 2001].
(iii) Any installment which does not become exercisable
pursuant to Section 3.1(c)(i) and which is not eligible to become
exercisable pursuant to Section 3.1(c)(ii) shall be cancelled and expire as
of the first date on which such installment was eligible to become
exercisable.
(d) Within 90 days of each December 31, the Committee shall certify
whether the respective Cash Flow for Debt Amortization Targets, Cumulative Cash
Flow for Debt Amortization Targets, EBITDA Targets and Cumulative EBITDA Targets
have been met, and shall determine the extent to which the Option has become
exercisable.
(e) Any installment that does not become exercisable on or prior to
[March 31/April 30, 2001] shall thereupon be cancelled and expire.
(f) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
SECTION 3.2 - DURATION OF EXERCISABILITY
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable.
SECTION 3.3 - EXPIRATION OF OPTION
(a) The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(i) The expiration of ten years from the date the Option was
granted; or
(ii) In the case of an Optionee owning (within the meaning of
Section 424(d) of the Code), at the time the Incentive Stock Option was
granted, more than
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10% of the total combined voting power of all classes of stock of FDC or
any Subsidiary corporation, the expiration of five years from the date
the Incentive Stock Option was granted; or
(iii) Except as the Committee may approve, the date of the
Optionee's Termination of Employment for any reason other than death or
disability (as defined in Section 22(e)(3) of the Code); or
(iv) In the case of an Optionee whose Termination of Employment
is by reason of his or her disability (within the meaning of Section
22(e)(3) of the Code), the expiration of 12 months from the date of the
Optionee's Termination of Employment, unless the Optionee dies within said
12 month period, in which case the Option shall cease to be exercisable
upon the expiration of 180 days from the date of the Optionee's death; or
(v) The expiration of 180 days from the date of the Optionee's
death.
SECTION 3.4 - PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable; provided,
however, that each partial exercise shall be for not less than ____________ (__)
shares (or the minimum installment set forth in Section 3.1, if a smaller number
of shares) and shall be for whole shares only.
SECTION 3.5 - EXERCISE OF OPTION
The exercise of the Option shall be governed by the terms of this
Agreement and the terms of the Plan, including, without limitation, the
provisions of Article V of the Plan.
SECTION 3.6 - SPECIAL TAX CONSEQUENCES
The Optionee acknowledges that, to the extent that the aggregate fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422 of the Code, but without regard to Section 422(d) of
the Code), including the Option, are exercisable for the first time by the
Optionee during any calendar year (under the Plan and all other stock option
plans of FDC, any Subsidiary and any parent corporation) exceeds $100,000, such
options shall be treated as not qualifying under Section 422 of the Code but
rather shall be treated and taxable as non-qualified options. The Optionee
further acknowledges that the rule set forth in the preceding sentence shall be
applied by taking
6
<PAGE>
options into account in the order in which they were granted, and the stock
certificate issued upon exercise of options shall designate whether such
stock was acquired upon exercise of an Incentive Stock Option. For purposes
of these rules, the fair market value of stock shall be determined as of the
date of grant of the applicable option covering such stock.
ARTICLE IV
OTHER PROVISIONS
SECTION 4.1 - NOT A CONTRACT OF EMPLOYMENT
Nothing in this Agreement or in the Plan shall confer upon the
Optionee any right to continue in the employ of FDC or any of its Subsidiaries
or shall interfere with or restrict in any way the rights of FDC or its
Subsidiaries, which are hereby expressly reserved, to discharge the Optionee at
any time for any reason whatsoever, with or without cause.
SECTION 4.2 - SHARES SUBJECT TO PLAN AND HOLDERS' AGREEMENT
The Optionee acknowledges that any shares acquired upon exercise of
the Option are subject to the terms of the Plan and the Holders' Agreement
including without limitation, the restrictions set forth in Sections 5.5, 5.6
and 5.7 of the Plan.
SECTION 4.3 - CONSTRUCTION
This Agreement shall be administered, interpreted and enforced under
the laws of the State of Delaware.
SECTION 4.4 - CONFORMITY TO SECURITIES LAWS
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Exchange Act
and any and all regulations and rules promulgated thereunder by the Securities
and Exchange Commission, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, the Plan shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
SECTION 4.5 - SHAREHOLDER APPROVAL
7
<PAGE>
The Plan will be submitted for approval by FDC's shareholders within
twelve months after the date the Plan was initially adopted by the Board. This
Option may not be exercised to any extent by anyone prior to the time when the
Plan is approved by the shareholders, and if such approval has not been obtained
by the end of said twelve-month period, this Option shall thereupon be cancelled
and become null and void. FDC shall take such actions as may be necessary to
satisfy any applicable requirements of Rule 16b-3(b).
SECTION 4.6 - ADJUSTMENTS IN CASH FLOW FOR DEBT AMORTIZATION AND EBITDA TARGETS
The Cash Flow for Debt Amortization Targets and EBITDA Targets
(including the Cumulative Cash Flow for Debt Amortization Targets and Cumulative
EBITDA Targets) specified in Appendix A are based upon certain revenue and
expense assumptions about the future business of FDC and its Subsidiaries as of
the date the Option is granted. Accordingly, in the event that, after such
date, the Committee determines, in its sole discretion, that any dividend or
other distribution (whether in the form of cash, Voting Common Stock, other
securities, or other property), recapitalization, reclassification, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Voting Common Stock or other securities
of FDC, issuance of warrants or other rights to purchase Voting Common Stock or
other securities of FDC, any unusual or nonrecurring transactions or events
affecting FDC, any affiliate of FDC, or the financial statements of FDC or any
affiliate, or change in applicable laws, regulations, or accounting principles
occurs such that an adjustment is determined by the Committee to be appropriate
in order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan or with respect to the
Option, then the Committee shall, in good faith and in such manner as it may
deem equitable, adjust the financial targets set forth on Appendix A to reflect
the projected effect of such transaction(s) or event(s) on Cash Flow for Debt
Amortization and/or EBITDA, subject to Sections 7.1(e) and 7.2 of the Plan.
[signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
Federal Data Corporation
By
---------------------------
President
By
---------------------------
Secretary
- ----------------------------
Optionee
- ----------------------------
- ----------------------------
Address
Optionee's Taxpayer
Identification Number:
- ----------------------------
9
<PAGE>
APPENDIX A
INCENTIVE STOCK OPTION AGREEMENT
CASH FLOW AND EBITDA TARGETS
($ Millions)
Fiscal Year Ending December 31
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Cash Flow for Debt Amortization
Target $9.1 $10.6 $14.0 $16.9 $19.7
Cumulative Cash Flow for Debt
Amortization Target $9.1 $19.7 $33.7 $50.6 $70.3
EBITDA Target $18.8 $21.2 $26.6 $30.0 $30.0
Cumulative EBITDA Target $18.8 $40.0 $66.6 $96.6 $126.6
10
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement (the "AGREEMENT") is made as of the 1st day of
December, 1995, by and between FDC Technologies, Inc., a Delaware corporation
(the "COMPANY"), the Company's subsidiaries that are listed on Schedule A
hereto (the "SUBSIDIARIES") and TC Group, L.L.C., a Delaware limited
liability company ("CARLYLE").
WHEREAS, Carlyle, by and through its officers, employees, agents,
representatives and affiliates, has expertise in the areas of corporate
management, finance, product strategy, investment, acquisitions and other
matters relating to the business of the Company; and
WHEREAS, the Company and each of its Subsidiaries desires to avail
itself of the expertise of Carlyle in the aforesaid areas, in which it
acknowledges the expertise of Carlyle.
NOW, THEREFORE, in consideration of the foregoing recitals and covenants
and conditions herein set forth, the parties hereto agree as follows:
1. APPOINTMENT. The Company and the Subsidiaries hereby appoint
Carlyle to render the advisory and consulting services described in Paragraph
2 hereof for the term of this Agreement.
2. SERVICES. Carlyle hereby agrees that during the term of this
Agreement it shall render to the Company and each of its Subsidiaries, by and
through such of Carlyle's officers, employees, agents, representatives and
affiliates as Carlyle, in its sole discretion, shall designate from time to
time, advisory and consulting services (the "SERVICES") in relation to the
planning and other services (but not including those referred to in the next
sentence) including, without limitation, advisory and consulting services in
relation to the selection, retention and supervision of outside legal
counsel, and the selection, retention and supervision of investment bankers
or other financial advisors or consultants. It is expressly agreed that the
services to be performed hereunder shall not include investment banking or
other financial advisory services rendered by Carlyle to the Company or any
of its Subsidiaries in connection with acquisitions and divestitures by the
Company or any of its Subsidiaries. Carlyle shall be entitled to receive
additional reasonable compensation for providing any services of the type
specified in the preceding sentence.
3. FEES. In consideration of the services contemplated by Paragraph 2,
subject to the provisions of Paragraph 6, the Company, its Subsidiaries and
their successors agree to pay to Carlyle an aggregate per annum fee (the
"FEE") equal to $300,000, commencing on the date hereof. The Fee shall be
payable monthly in advance. Fee payments shall be non-refundable.
4. REIMBURSEMENTS. In addition to the Fee, the Company and its
Subsidiaries shall, at the direction of Carlyle, pay directly or reimburse
Carlyle for its reasonable Out-of-Pocket Expenses. For the purposes of this
Agreement, the term "OUT-OF-POCKET EXPENSES" shall mean the amounts actually
paid by Carlyle in cash in connection with the services provided for in
Paragraph 2, including, without limitation, reasonable (i) fees and
disbursements of any independent professionals and organizations, including
independent auditors, outside legal
<PAGE>
counsel, consultants, investment bankers or financial advisors, (ii) costs of
any outside services or independent contractors such as financial printers,
couriers, business publications of similar services and (iii) transportation,
per diem, telephone calls, word processing expenses or any similar expense
not associated with its ordinary operations. All reimbursements for
Out-of-Pocket Expenses shall be made promptly upon or as soon as practicable
after presentation by Carlyle to the Company or any of its Subsidiaries of
the statement in connection therewith.
5. INDEMNIFICATION. The Company and its Subsidiaries will indemnify
and hold harmless Carlyle and its officers, employees, agent, representatives
and affiliates (each being an "INDEMNIFIED PARTY") from and against any and
all losses, claims, damages and liabilities, joint or several (the
"LIABILITIES"), to which such Indemnified Party may become subject under any
applicable federal or state law, or any claim made by any third party, or
otherwise, to the extent they relate to or arise out of the Services
contemplated by this Agreement or the engagement of Carlyle pursuant to, and
the performance by Carlyle of the Services contemplated by, this Agreement.
The Company and its Subsidiaries will reimburse any Indemnified Party for all
reasonable costs and expenses (including reasonable attorneys' fees and
expenses) as they are incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim for which the
Indemnified Party is a party hereto, provided that, subject to the following
sentence, the Company and the Subsidiaries shall be entitled to assume the
defense thereof at their own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment. Any Indemnified Party may, at
its own expense, retain separate counsel to participate in such defense, and
in any action, claim or proceeding in which both the Company or any of its
Subsidiaries, on the one hand, and an Indemnified Party, on the other hand,
or is reasonably likely to become, a party, such Indemnified Party shall have
the right to employ separate counsel at the Company's expense and to control
its own defense of such action, claim or proceeding if, in the reasonable
opinion of counsel to such Indemnified Party, a conflict or potential
conflict exists between the Company or its Subsidiaries, on the one hand, and
such Indemnified Party, on the other hand, that would make such separate
representation advisable. Each of the Company and its Subsidiaries agrees
that it will not, without the prior written consent of the applicable
Indemnified Party, settle, compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding relating to the
matters contemplated hereby (if any Indemnified Party is a party thereto or
has been actually threatened to be made a party thereto) unless such
settlement, compromise or consent includes an unconditional release of the
applicable Indemnified Party and each other Indemnified Party from all
liability arising or that may arise out of such claim, action or proceeding.
Provided that neither the Company nor any of its Subsidiaries is in breach of
its indemnification obligations hereunder, no Indemnified Party shall settle
or compromise any claim subject to indemnification hereunder without the
consent of the Company. Neither the Company nor any of its Subsidiaries will
be liable under the foregoing indemnification provision to the extent that
any loss, claim, damage, liability, cost or expense is determined by a court,
in a final judgment from which no further appeal may be taken, to have
resulted solely from the gross negligence of willful misconduct of Carlyle.
If an Indemnified Party is reimbursed hereunder for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Liabilities in question resulted solely from
the gross negligence or willful misconduct of Carlyle.
2
<PAGE>
6. TERM. This Agreement shall be in effect on the date hereof and
shall continue until such time as Carlyle, TC Group, L.L.C. and any affiliate
thereof collectively control, in the aggregate, less than 10% of the
outstanding shares of voting common stock of the Company. The provisions of
Paragraphs 5, 7 and 8 and otherwise as the context so requires shall survive
the termination of this Agreement.
7. PERMISSIBLE ACTIVITIES. Subject to all applicable provisions of
Delaware law that impose fiduciary duties upon Carlyle or its partners or
affiliates, nothing herein shall in any way preclude Carlyle or its officers,
employees, agents, representatives or affiliates from engaging in any
business activities or from performing services for its or their own account
or for the account of others, including for companies that may be in
competition with the business conducted by the Company.
8. GENERAL.
(a) No amendment or waiver of any provision of this Agreement, or
consent to any departure by either party from any such provision, shall be
effective unless the same shall be in writing and signed by the parties to
this Agreement, and, in any case, such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
(b) This Agreement may be assigned or transferred to a Carlyle
affiliate at the sole discretion of Carlyle.
(c) Any and all notices hereunder shall, in the absence of
receipted hand delivery, be deemed duly given when mailed, if the same shall
be sent by registered or certified mail, return receipt requested, and the
mailing date shall be deemed the date from which all time periods pertaining
to a date of notice shall run. Notices shall be addressed to the parties at
the following addresses:
If to Carlyle: The Carlyle Group, L.P.
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
Attention: Allan M. Holt
If to the Company FDC Technologies, Inc.
or its Subsidiaries: 4800 Hampden Lane
Bethesda, MD 20814
Attention: James M. Dean
(d) This Agreement shall constitute the entire agreement between
the parties with respect to the subject matter hereof, and shall supersede
all previous oral and written (and all contemporaneous oral) negotiations,
commitments, agreements and understandings relating hereto.
(e) This Agreement shall be governed by, and enforced in
accordance with, the laws of the State of Delaware (excluding the choice of
law principles thereof). The parties to
3
<PAGE>
this Agreement hereby agree to submit to the non-exclusive jurisdiction of
the federal and state courts located in the state of Delaware in any action
or proceeding arising out of or relating to This Agreement. This Agreement
shall inure to the benefit of, and be binding upon, Carlyle, the Company and
its Subsidiaries (including any future subsidiaries of the Company that are
not signatories hereto), and their respective successors and assigns.
(f) This Agreement may be executed in two or more counterparts,
and by different parties on separate counterparts. Each set of counterparts
showing execution by all parties shall be deemed an original, and shall
constitute one and the same instrument.
(g) The waiver by any party of any breach of this Agreement shall
not operate as or be construed to be a waiver by such party of any subsequent
breach.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their duly authorized officers or agents as set
forth below.
FDC TECHNOLOGIES, INC. AND ITS
SUBSIDIARIES
By: /s/ Peter J. Clare
------------------------------------
Name: Peter J. Clare
Title: Vice President
TC GROUP, L.L.C.
By: TGG Holdings, L.L.C.
By: /s/ Allan M. Holt
------------------------------------
Name: Allan M. Holt
Title: Principal
4
<PAGE>
SCHEDULE A
DOXSYS, INC.
5
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Federal Data Corporation of our report
dated March 28, 1997 relating to the consolidated financial statements of
Federal Data Corporation, which appears in such Prospectus. We also consent to
the references to us under the headings "Experts" and "Selected Consolidated
Historical Financial Data of Federal Data Corporation" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Consolidated Historical Financial Data of Federal Data
Corporation."
PRICE WATERHOUSE LLP
Washington, DC
November 26, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-36443 of Federal Data Corporation on Form S-4 of our report on our audits of
the financial statements of NYMA, Inc., dated March 21, 1997 (May 2, 1997 as to
Note 9), appearing in the Prospectus which is part of the Registration
Statement. We also consent to the reference to our firm under the heading
"Experts."
Deloitte & Touche LLP
Washington, D.C.
November 26, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 of
Federal Data Corporation of our report dated March 21, 1997, except for Notes 5
and 10, as to which the date is June 30, 1997, on our audits of the financial
statements of Sylvest Management Systems Corporation. We also consent to the
reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Washington, D.C.
November 26, 1997
<PAGE>
EXHIBIT 25.1
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------------
FEDERAL DATA CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE 52-0940566
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4800 HAMPDEN LANE
BETHESDA, MARYLAND 20814
(Address of principal executive offices) (Zip code)
_____________________________
10 1/8% SENIOR SUBORDINATED NOTES DUE 2005
(Title of the indenture securities)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<PAGE>
Item 1. GENERAL INFORMATION. Furnish the following information as to
the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve
System Washington, D.C.
(b) Whether it is authorized to exercise corporate
trust powers.
The trustee is authorized to exercise corporate trust
powers.
Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of
the trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the
obligor is not in default as provided under Item 13.
Item 15. FOREIGN TRUSTEE. Not applicable.
Item 16. LIST OF EXHIBITS. List below all exhibits filed as a part of
this Statement of Eligibility.
Norwest Bank incorporates by reference into this
Form T-1 the exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association
of the trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28,
1872, by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of
the Currency dated January 2, 1934, approving
the consolidation of The Northwestern National
Bank of Minneapolis and The Minnesota Loan and
Trust Company of Minneapolis, with the surviving
entity being titled Northwestern National Bank
and Trust Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January 12,
1943, as to change of corporate title of
Northwestern National Bank and Trust Company of
Minneapolis to Northwestern National Bank of
Minneapolis.*
<PAGE>
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change
effective May 1, 1983 from Northwestern National
Bank of Minneapolis to Norwest Bank Minneapolis,
National Association.*
e. A copy of the letter dated January 4, 1988 from
the Administrator of National Banks for the
Comptroller of the Currency certifying approval
of consolidation and merger effective January 1,
1988 of Norwest Bank Minneapolis, National
Association with various other banks under the
title of "Norwest Bank Minnesota, National
Association."*
Exhibit 3. A copy of the authorization of the trustee to
exercise corporate trust powers issued January 2,
1934, by the Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with
registration statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with
registration statement number 333-25301.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Norwest Bank Minnesota, National Association, a
national banking association organized and existing under the laws of
the United States of America, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto
duly authorized, all in the City of Minneapolis and State of Minnesota
on the 23rd day of September, 1997.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Curtis D. Schwegman
------------------------
Curtis D. Schwegman
Assistant Vice President
<PAGE>
EXHIBIT 6
September 23, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of
the undersigned made by Federal, State, Territorial, or District
authorities authorized to make such examination may be furnished by such
authorities to the Securities and Exchange Commission upon its request
therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Curtis D. Schwegman
---------------------------
Curtis D. Schwegman
Assistant Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 1,191 8,023
<SECURITIES> 0 0
<RECEIVABLES> 54,379 109,649
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 69,450 140,909
<PP&E> 8,938 16,649
<DEPRECIATION> 7,476 12,583
<TOTAL-ASSETS> 83,286 212,428
<CURRENT-LIABILITIES> 53,201 87,627
<BONDS> 0 0
0 0
0 0
<COMMON> 19 29
<OTHER-SE> (22,845) 1,781
<TOTAL-LIABILITY-AND-EQUITY> 83,286 212,428
<SALES> 87,543 115,866
<TOTAL-REVENUES> 151,108 212,069
<CGS> 67,748 134,788
<TOTAL-COSTS> 114,248 178,132
<OTHER-EXPENSES> 21,366 24,819
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,564 7,124
<INCOME-PRETAX> 7,930 1,994
<INCOME-TAX> 3,202 1,031
<INCOME-CONTINUING> 4,728 963
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (2,655)
<CHANGES> 0 0
<NET-INCOME> 4,728 (1,692)
<EPS-PRIMARY> 2.43 .39
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