SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K 405
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended: Commission File Number:
December 31, 1997 333-36447
Federal Data Corporation
(Exact name of registrant as specified in its charter)
DELAWARE EI 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 office) (Zip Code)
301-986-0800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 25, 1998 is $223,587. Because the Company is
privately held, the aggregate value of such voting stock was computed on the
basis of a $27 per share price, the price paid for the common stock of the
Company by all investors in June 1997, the time of the most recent purchase and
sale of such common stock.
As of the close of business February 28, 1998, the registrant had
outstanding 2,910,896 shares of Common Stock, par value $.01 per share.
Documents Incorporated By Reference
None
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PART I
Item 1. Business.
Federal Data Corporation and its subsidiaries (collectively the "Company")
are 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 products 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 engineering, scientific and
other 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, 1997 the
Company's total revenues were $336.3 million, income before extraordinary item
and income taxes was $1.6 million, net loss was $2.5 million and EBITDA (as
defined herein) was $18.2 million.
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 ("FAA"), the
National Institutes of Health ("NIH"), the Department of Defense ("DoD"), the
Veterans Benefit Administration ("VBA") and the Department of State. 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.
TC Group, L.L.C. d/b/a/ The Carlyle Group ("Carlyle"), a Washington
D.C.-based private merchant bank founded in 1987, through its affiliates 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 (later sold to TRW, Inc.); 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; 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 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).
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 Federal Data Corporation with Federal Data Corporation continuing as the
surviving corporation (the "Recapitalization"). Holdings was a company organized
by Carlyle to facilitate the Recapitalization and had no operating activity or
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history. Upon consummation of the Recapitalization, the shareholders of 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. Carlyle has supported the
Company's acquisition strategy with its financial expertise and provided a
critical source of equity capital for the implementation of the Company's growth
strategy.
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.
ACQUISITIONS AND REFINANCING
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, Inc. ("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 Management Systems
Corporation ("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 offerings.
To effect the acquisitions of NYMA and Sylvest and to secure the
availability of additional capital for future acquisitions, in July 1997 the
Company sold $105 million in aggregate principal amount of 10 1/8% Senior
Subordinated Notes due 2005 (the "Private Notes")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 FDC Notes and $4.0 million of notes originally issued in connection
with the acquisition of Sylvest, (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 new senior secured
revolving credit facility (the "New Senior Credit Facility") 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 the New Senior Credit
Facility, which provides revolving borrowing availability up to $75.0 million,
subject to a borrowing base limitation. In December 1997, the Company completed
an offer to exchange $1,000 principal amount of its 10 1/8% Senior Subordinated
Notes Due 2005 (the "Exchange Notes") for each $1,000 principal amount of its
outstanding Private Notes (the "Exchange Offer"), which exchange was registered
under the Securities Act of 1933, as amended, pursuant to a registration
statement on Form S-4. As a
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result of such Exchange Offer the Company issued $105 million in aggregate
principal amount Exchange Notes in exchange for all of the issued and
outstanding Private Notes.
The Company has continued its strategy of expanding its core customer base
and strengthening its capability to service existing customers through
acquisitions in the first quarter of 1998. In February, 1998, the Company
acquired R.O.W. Sciences, Inc. ("R.O.W."), a provider of information technology
and health science research services. The acquisition of R.O.W. expanded and
strengthened the Company's already substantial presence at the NIH and also
broadened the Company's ability to offer professional services and information
technology solutions to federal and commercial health science research
organizations. In February, 1998, the Company also acquired Telos Information
Systems ("TIS"), a division of the Telos Corporation. TIS provides information
technology and engineering services principally to NASA and the Jet Propulsion
Laboratory ("JPL"). TIS expands the Company's Pasadena, CA operations making it
one of the leading information technology contractors at JPL and provides
additional capability to service NASA, one of the Company's long-standing
customers. In March, 1998, the Company purchased Technical and Management
Assistance, Inc. ("TMA"), a provider of software development services to
Lockheed Martin, Computer Sciences Corporation ("CSC"), and the FAA. TMA
specializes in air traffic control software and complements the Company's FAA
business base.
The acquisitions have significantly enhanced the Company's presence in the
Government marketplace. 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.
DISPOSITIONS
During 1997, the Company sold substantially all of the assets and business
of its wholly-owned subsidiaries, DoxSys, Inc. ("DoxSys") and VAD International,
Inc. ("VAD") resulting in a pretax gain of $1.6 million. The operations of
DoxSys and VAD were not material to the Company's financial position or results
of operations.
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. estimated fiscal 1997 Government spending specifically designated for
information technology at $26.5 billion. The Government also spends 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, projected an
additional $20 billion spending 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 General Services
Administration ("GSA") anticipates a continuation of the trend toward increased
Government use of outside information technology providers and estimates that
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the majority of all Government agencies operating in-house data systems may
eventually outsource information technology services to the private sector at a
significant cost savings. 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 indefinite delivery, indefinite quantity ("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. This
includes in-depth vertical expertise in selected high-potential markets
such as space systems, air traffic management and health science research.
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 have added important
complementary skills to the Company's information technology capabilities
and vertical customer expertise. 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 Science & Engineering Group (formerly
known as the Services Group) focuses primarily on providing sophisticated
technical, scientific and engineering services to enhance information technology
performance and productivity and to support the missions of its customers. 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 Systems & Technology
Group (formerly known as the Products 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 since its founding 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.
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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 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 services.
Listed below are summary descriptions of major contracts and programs for
the Systems Integration Group. 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 contract 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.
VETERANS BENEFIT ADMINISTRATION MODERNIZATION. This contract 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. The Company is providing LAN servers and workstations which connect
to Honeywell mainframes.
DEPARTMENT OF STATE. This contract calls for the Company to augment and
replace existing IBM mainframe systems and their components at five
Department of State processing hubs.
DEPARTMENT OF VETERANS AFFAIRS. This contract calls for the Company to
provide IBM systems in support of Veterans Administration on-line
processing systems.
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NIH CERTAN CORPORATE COMPUTING SYSTEMS. This contract 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.
SCIENCE & ENGINEERING 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 three key areas:
information technology services, engineering services and scientific research
services. The acquisitions of NYMA, R.O.W., TIS and TMA have created a
substantial base concentrated in three key areas: information technology,
engineering and scientific R&D skill. The Science & Engineering Group now has
recognized expertise in space systems, air traffic management, health science
research and the application of leading-edge information technology to the
requirements of customers in these segments.
INFORMATION TECHNOLOGY SERVICES. The Company operates over 40 separate
contracts for information technology services, through which it provides project
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 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 development of an
online grant management system for NIH.
SCIENTIFIC RESEARCH SERVICES. The Company, principally through R.O.W.,
performs biomedical research and supports biomedical and health research
activities for clients which include NIH, Centers for Disease Control and
Prevention, Food and Drug Administration and other federal agencies involved in
health research and policy formulation. In addition, R.O.W. has begun to provide
similar services on a small scale to commercial biotechnology organizations and
pharmaceutical companies. R.O.W. has over 250 employees engaged in health and
biomedical research support services at facilities in six states.
ENGINEERING SERVICES. The Company provides engineering services to support
NASA, JPL, the FAA, other Government agencies and private industry. Operating
under five large NASA contracts to provide comprehensive engineering support for
NASA's Lewis Research Center in Cleveland, Ohio, Langley Research Center
("Langley") in Hampton, Virginia, and JPL in Pasadena, CA, the Company provides
engineering services in the areas of aeromechanics, aerospace technology, space
experimentation, structures, materials, instrumentation, aeronautics and space
mission operations.
The Company has approximately 270 employees at Lewis Research Center
("Lewis"), over 35% of whom have PhDs, who 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
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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, this team has been involved in the development of over 60 payloads flown
on 28 Space Shuttle missions.
Langley research, relating mainly to aeronautics, involves approximately
100 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.
The acquisition of TIS increased the Company's Pasadena, CA staff to
approximately 250 employees supporting JPL. Services are provided to JPL under
three contracts and include information technology support, engineering support
to space research and planning, and engineering and information technology
support to the operation of space missions such as Voyager and Mars Explorer.
Listed below are summary descriptions of major contracts and programs of
the Science & Engineering Group. 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) of the
Small Business Act ("Section 8(a)") to NYMA in 1993 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. Late in 1997, NASA notified the Company that it did not plan
to request a waiver of Section 8(a) regulations to exercise the final option
year of the contract. A competition was conducted to select a replacement
Section 8(a) firm to perform the work during the final year of the Company's
contract. The Company bid as a subcontractor to a Section 8(a) firm and that
firm's bid was unsuccessful. The firm filed a protest of the procurement
process and that protest is currently under evaluation by the Government.
The Company has been issued a new contract to enable it to continue to
perform the work pending the outcome of the
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protest. The timing and disposition of the protest will determine the
impact on the Company's 1998 results from this contract. Revenues for 1997
were approximately $32 million, of which, approximately $22 million were
recorded by the Company subsequent to the acquisition of NYMA.
HOST SOFTWARE SUPPORT. The Company is a subcontractor to Lockheed Martin
under a fixed-price labor hour contract 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.
MISSION OPERATIONS SUPPORT SERVICES. This cost-plus-fixed-fee contract
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.
SERVICE OPERATIONS SUPPORT. This cost-plus-fixed-fee contract was awarded
under Section 8(a) to TMA in 1996 by the William J. Hughes Technical
Center of the FAA. After the acquisition of TMA by the Company, TMA's
continued participation as a prime contractor for a small business award
required a review by the FAA counsel and submission of an updated
statement of ownership. No final determination has been rendered as of the
date of this report. Revenues recorded by TMA in 1997 were approximately
$7 million.
TECHNICAL SUPPORT EFFORT PROGRAM. This time and materials contract was
awarded to Telos in 1995 by NASA. The contract provides for software
development support at JPL in support of various programs including Deep
Space Network, Cassini and Solar Dust.
TECHNICAL AND APPLICATION PROGRAM SUPPORT. This cost-plus-fixed-fee contract
was awarded to Telos in 1993 by NASA. The contract provides software
engineering, systems integration, systems administration, hardware
procurement, field installation and support of various communications
systems at JPL.
IMPAC/CRISP. This cost-plus-fixed-fee contract was awarded to R.O.W. in
1994 by NIH. The contract is in support of the modernization effort of the
legacy mainframe system to a state-of-the-art, client/server solution. The
IMPAC/CRISP system is a large-scale, mission critical grants
tracking/financial database management system.
SYSTEMS & TECHNOLOGY 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
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Government marketplace. The Company substantially expanded its capabilities in
this area through the Sylvest acquisition.
The Systems & Technology Group employs approximately 50 sales, marketing,
business development and contract representatives and 30 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") contract. 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
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The Solutions Group provides information technology solutions designed to
address five discrete customer needs: Microsoft consulting, executive management
consulting, electronic commerce, financial systems implementations 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.
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.
In 1998 the Company became an authorized Solutions Center for Navision
software. Navision is a complete financial package that can be tailored for mid
range commercial companies. The Company provides a full range of services to
include turnkey implementation, customization and on-going support to commercial
clients.
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
16,500 people in 1997, 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.
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; 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
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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 Systems &
Technology Group, the Company competes with certain computer manufacturers
(including the Company's suppliers), who occasionally sell directly to the
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 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
December 31, 1997 was $940 million (without giving effect to the R.O.W., TIS or
TMA acquisitions). 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. As of December 31, 1997, the Company's funded
contract backlog was approximately $57 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.
At December 31, 1997, R.O.W., TIS, and TMA had a combined contract backlog
of approximately $150 million, of which approximately $54 million was funded.
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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 this report.
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 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
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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
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 the Company 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
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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.
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. The Company does not rely on any single supplier of products or
services.
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 35 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 NASA, NIH,
and the U.S. Navy represented approximately 16%, 15% and 15% of 1997 revenues,
respectively. Sales utilizing GSA schedules accounted for approximately 11% of
1997 revenues. 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 December 31, 1997, the Company employed 996 persons, 717 of these
employees were technical personnel, 120 were marketing/sales personnel and 159
were other administrative staff. The Company believes that it is competitive in
hiring and retaining qualified personnel. Less than 2% of the Company's
employees are covered by collective bargaining agreements with labor unions. The
Company
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considers its relations with its employees to be good and has not experienced
any significant labor problems. R.O.W., TIS and TMA had 789 employees as of
December 31, 1997.
Item 2. 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.
Expiration
of
Location Purpose Square Footage Lease(s)
Bethesda, MD Corporate Headquarters 67,602 12/31/04
Cleveland, OH NASA Lewis Support Facility 90,000 12/31/98
Greenbelt, MD Systems & Technology Group and
Science & Engineering Group Headquarters 66,746 12/31/04
With the acquisitions of R.O.W., TIS and TMA, the Company has an additional
132,168 square feet of leased facilities.
Item 3. Legal Proceedings.
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.
Item 4. Submission Of Matters To A Vote Of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock is not traded on any established public trading
market. As of March 25, 1998, there were 28 holders of record and approximately
22 beneficial owners of the Company's common stock. Substantially all of the
shares of the Company's common stock are owned of record and beneficially by
affiliates of TC Group, L.L.C. d/b/a/ The Carlyle Group ("Carlyle") or the
directors and officers of the Company. The Company has not paid a cash dividend
on its common stock for the two years ended March 25, 1998. The Company has no
present intention to pay cash dividends on its common stock for the foreseeable
future in order to retain all earnings for investment in the Company's business
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and the repayment of the Company's current indebtedness. The Company's Senior
Credit Facility and the trust indenture for the Exchange Notes include certain
restrictions on the Company's ability to pay cash dividends on the Company's
common stock including, without limitation an aggregate limitation on all
dividends since July 25, 1997 in excess of 50% of the Company's consolidated net
income since the date thereof.
Recent Sales of Unregistered Securities
Since January 1, 1997, the Company has sold and issued the following
unregistered securities:
On May 7, 1997, the Company issued 555,556 shares of the Company's common
stock for an aggregate offering price of $15,000,000.
On June 30, 1997, the Company issued 444,444 shares of the Company's
common stock for an aggregate offering price of $12,000,000.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from the
registration provisions of the Securities Act set forth in Section 4(2) thereof
as transactions not involving a public offering, the respective purchasers
thereof having acquired such shares for their respective accounts without a
view to the distribution thereof.
Item 6. Selected Financial Data.
The consolidated statement of operations data set forth below with respect
to the years ended December 31, 1993, 1994, 1995, 1996 and 1997 and the
consolidated balance sheet data at December 31, 1993, 1994, 1995, 1996 and 1997
have been derived from, and are qualified by reference to, the Company's
consolidated financial statements and notes thereto audited by Price Waterhouse
LLP, independent accountants. The selected consolidated financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto in Items 7 and 8.
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<TABLE>
<CAPTION>
Year Ended December 31,
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues ........................................ $ 112,441 $ 143,527 $ 129,819 $ 151,108 $ 336,306
--------- --------- --------- --------- ---------
Expenses:
Cost of sales and services .................... 86,623 114,038 107,366 114,248 280,903
Selling, general and administrative ........... 14,395 20,546 20,943 21,366 37,804
Amortization of goodwill
and intangible assets...................... -- -- -- -- 5,031
Interest (a) .................................. 5,389 3,580 3,663 7,564 10,947
--------- --------- --------- --------- ---------
Total expenses ................... 106,407 138,164 131,972 143,178 334,685
--------- --------- --------- --------- ---------
Income (loss) before extraordinary
item and income taxes ....................... 6,034 5,363 (2,153) 7,930 1,621
Income tax provision (benefit) .................. 369 1,171 (3,950) 3,202 1,368
--------- --------- --------- --------- ---------
Income before extraordinary item ................ 5,665 4,192 1,797 4,728 253
Extraordinary loss from early retirement of debt,
net of income tax benefit (b) ............... -- -- -- -- (2,770)
--------- --------- --------- --------- ---------
Net income (loss)................................ $ 5,665 $ 4,192 $ 1,797 $ 4,728 $ (2,517)
========= ========= ========= ========= =========
Operating Data(f):
EBITDA (c) ...................................... $ 7,509 $ 6,734 ($ 847) $ 14,082 $ 18,213
Net recourse interest expense (d) ............... 109 44 40 5,370 9,493
Net cash recourse interest expense(e) ........... 109 44 40 3,926 8,689
Depreciation and amortization ................... 1,366 1,327 1,266 782 7,099
Balance Sheet Data at End of Period:
Working capital ................................. $ 14,422 $ 17,195 $ 11,025 $ 16,249 $ 47,566
Total assets .................................... 115,094 120,947 150,102 83,286 192,966
Long-term debt .................................. 35,753 20,077 43,412 50,170 113,359
Stockholders' equity (deficit) (g) .............. 15,310 19,399 (25,962) (22,826) 1,017
</TABLE>
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(a) Interest expense includes interest on both recourse and nonrecourse notes
payable and obligations under capital leases.
(b) During the year ended December 31, 1997, the Company wrote off the deferred
financing fees related to the Recapitalization and the NYMA and Sylvest
acquisition debt that was refinanced in July 1997.
(c) EBITDA represents the sum of income (loss) 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.
(d) Net recourse interest expense is interest expense minus interest expense on
nonrecourse notes payable and nonrecourse obligations under capital leases of
$4,910, $3,188, $2,669, $2,015 and $1,161 and minus interest income on cash
balances of $370, $348, $954, $179 and $293 for the years ended December 31,
1993, 1994, 1995, 1996 and 1997, respectively.
(e) Net cash recourse interest expense is net recourse interest expense minus
amortization of deferred financing costs of $817 and $804 for the years ended
December 31, 1996 and 1997, respectively, and minus interest expense of $627 for
the year ended December 31, 1996 on FDC Notes that was paid through the issuance
of payment in kind notes.
(f) Net cash flows from (for) operating activities was $12,258, $19,242,
$(2,767), $1,452 and $20,907 for the years ended December 31, 1993, 1994, 1995,
1996 and 1997, respectively. Net cash flows (for) from investing activities was
$(8,093), $(7,558), $(52,841), $49,703 and $(58,471) for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997, respectively. Net cash flows from
(for) financing activities was $(4,155), $(3,529), $50,327, $(60,275) and
$42,700 for the years ended December 31, 1993, 1994, 1995, 1996 and 1997,
respectively.
(g) 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 of NYMA and Sylvest, Carlyle and
management have contributed approximately $43.1 million of cash to the Company.
See Notes 2 and 4 to the Company's consolidated financial statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S CONSOLIDATED
FINANCIAL CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS SHOULD BE READ IN
CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO APPEARING ELSEWHERE IN THIS REPORT. EXCEPT AS EXPRESSLY INDICATED, THE
FOLLOWING DISCUSSION DOES NOT GIVE EFFECT TO THE PRE-ACQUISITION OPERATIONS OF
NYMA, SYLVEST, R.O.W., TIS AND TMA OR INCLUDE PRO FORMA FINANCIAL INFORMATION.
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.
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Prior to December 1, 1995, the 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 outstanding common stock and 14.6% was retained
by members of the Company'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.
In May 1997, the Company purchased all of the outstanding shares of common
stock of NYMA for $31.6 million. The purchase price consists of $26.6 million in
cash and $5.0 million in subordinated notes. The agreement also provides for
additional cash payments of up to $3.0 million if certain operating objectives
related to new business activity through May 1998 are met. Such payments, if
any, will be accounted for as adjustments to the purchase price. The Company
financed the acquisition of NYMA through additional borrowing of $28.0 million
and the sale of 555,556 shares of the Company's common stock, primarily to
existing stockholders, for $15.0 million. 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 Government agencies and subcontracts with large
government contractors.
In June 1997, the Company purchased all of the outstanding shares of
common stock of Sylvest for $41.0 million. The purchase price consists of $33.0
million in cash and subordinated notes of $8.0 million of which $1.0 million was
issued during 1998 after certain earnings objectives were met. Subordinated
notes of $4.0 million were paid in August 1997. The Company financed the
acquisition of Sylvest through additional borrowing of $27.4 million and the
sale of 444,444 shares of the Company's common stock, primarily to existing
stockholders, for $12.0 million. 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, $1.0 million was paid to an affiliate of Carlyle.
In December 1997, the Company sold substantially all of the assets of its
wholly-owned subsidiary, DoxSys, Inc. for $4.2 million. The sale price may be
increased by up to $6.0 million if certain earnings objectives during 1998 are
met and is subject to adjustment based on an audit of the closing balance sheet.
In February and March 1998, the Company purchased all of the outstanding
common stock of R.O.W. Sciences, Inc. ("R.O.W.") and Technical and Management
Assistance, Inc. ("TMA") and also in February purchased all of the assets of
Telos Corporation's Telos Information Systems Division ("TIS"), (collectively,
the "Acquisitions"). The aggregate purchase price of the Acquisitions was $32.7
million. The purchase price consisted of $30.7 million in cash and $2.0 million
in subordinated notes. The agreements also provide for additional cash payments
up to $1.0 million if certain revenue objectives are met. Such payments, if any,
will be accounted for as adjustments to the purchase price. The purchase prices
for all of the Acquisitions are subject to adjustment based on an audit of the
closing balance sheets. The Company financed the Acquisitions through borrowing
under its existing revolving line of credit facility. R.O.W. provides services
that combine expert knowledge in life and health sciences with state-of-the-art
computer based technologies principally to Government agencies. TMA provides
information technology services principally to the air traffic management
function within the Federal Aviation Administration. TIS provides
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<PAGE>
engineering and information technology services to the Jet Propulsion Laboratory
and other Government customers.
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 potential, technical
skills and contract base. As of March 25, 1998, the Company is not a party to
any definitive binding acquisition, however at any time the Company may have one
or more offers outstanding and may have executed one or more letters of intent.
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.
The Government accounted for approximately 95%, 97% and 97% of total
revenues during 1995, 1996 and 1997, 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. The Company
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. The Company typically discounts
payments to be received from the Government on a nonrecourse basis with
independent financial institutions. Accordingly, the Company's net investment in
sales-type leases are pledged as collateral for these nonrecourse obligations,
which are reflected as nonrecourse indebtedness on the Company's consolidated
balance sheet. The Company considers LTOPs to be sales-type leases in those
instances where the Company believes that the risk of cancellation of the
Government lease is remote.
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. 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 Systems & Technology 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.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
22
<PAGE>
REVENUES
Revenues for the year ended December 31, 1997 were $336.3 million, up
$185.2 million or 123% over 1996. The NYMA and Sylvest acquisitions accounted
for $147.6 million of the increase in revenue over 1996. Revenue from equipment
and software sales was $196.7 million, up $109.2 million or 125% from 1996. The
NYMA and Sylvest acquisitions accounted for $86.1 million of the increase in
equipment and software sales revenue over 1996. The remaining increase in
revenue from equipment and software sales is principally due to increased
emphasis on the Company's COTS products. Revenue from maintenance and support
services was $134.5 million, up $74.7 million or 125% from 1996. The NYMA and
Sylvest acquisitions accounted for $61.4 million of the increase in maintenance
and support services revenue over 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 year ended December 31, 1997 was $280.9
million, up $166.7 million or 146% over 1996. The NYMA and Sylvest acquisitions
accounted for $131.7 million of the increase in cost of sales and services over
1996. Cost of sales and services in 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 Systems & Technology Group
including Sylvest, which generally have lower gross margin percentages than
product sales by the Systems Integration Group and Solutions Group, and the
lower margins on NYMA's cost-plus-award fee business. This decrease was
partially offset by the improved margins from the professional services
business, a greater percentage of which is now being performed by the Company's
employees instead of being subcontracted to third parties. Cost of sales and
services and margin analysis do not reflect the current year's amortization of
the present value of the contract profits acquired in the NYMA and Sylvest
acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the year ended December
31, 1997 was $37.8 million, up $16.4 million or 77% over 1996. The NYMA and
Sylvest acquisitions accounted for $9.6 million of the increase in selling,
general and administrative expenses over 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, selling, general and administrative expense for the year ended
December 31, 1997 was 15% of revenues, compared with 14% in 1996.
AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
The excess of the cost of acquiring NYMA and Sylvest over the fair value
of identifiable net tangible and intangible assets acquired was $48.5 million
and is being amortized on a straight-line basis over fifteen years. The present
value of the contract profits of $10.7 million acquired in the NYMA and Sylvest
acquisitions is being amortized over the remaining terms of the acquired
contracts in relation to the recognition of related contract revenue.
Amortization of goodwill and intangible assets for 1997 was $5.0 million.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1997 was $10.9 million,
up $3.4 million, or 45% over 1996. Recourse interest expense increased $4.3
million for the year ended December 31, 1997 over 1996 primarily due to
increased
23
<PAGE>
recourse debt balances including term debt used to partially finance the
acquisitions of NYMA and Sylvest. Interest expense on nonrecourse debt declined
$0.9 million for the year ended December 31, 1997 from 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 of NYMA, and Sylvest, and the
additional indebtedness incurred to finance the acquisitions of R.O.W., TIS and
TMA.
INCOME TAXES
The effective tax benefit rate for the year ended December 31, 1997 was
12% as compared with the effective tax provision rate of 40% for 1996. The
1997 tax benefit resulted from the effect of the taxable loss incurred during
the year and other items which were partially offset by the nondeductibility of
the amortization of goodwill and the value assigned to contract backlog
associated with the NYMA acquisition during 1997. The Company believes that the
nondeductibility of the additional amortization of goodwill and the value
related to contract backlog associated with the R.O.W acquisition will cause
future tax rates to be higher.
EXTRAORDINARY LOSS
In 1997, the Company recorded a charge to earnings of $4.5 million related
to deferred financing fees associated with the debt incurred to finance the
Prior Senior Credit Facility and the NYMA and Sylvest acquisitions. This debt
was refinanced with proceeds from the Senior Subordinated Notes. This charge to
earnings was reduced by an income tax benefit of $1.7 million which produced an
extraordinary loss of $2.8 million.
NET LOSS/INCOME
Net loss for the year ended December 31, 1997 was $2.5 million, a $7.2
million decrease from the net income of $4.7 million recorded in 1996 based on
the reasons discussed above.
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 the
Company'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.
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
24
<PAGE>
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 the Company'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 the Company 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.
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 year.
Historically, cash flow from the collection of accounts receivable from the
Government has generally been predictable and dependable. Cash and cash
equivalents were $6.3 million at December 31, 1997, up $5.1 million from
December 31, 1996 primarily as a result of net cash flow from operating
activities of $20.9 million and net cash flows from financing activities of
25
<PAGE>
$42.7 million being offset by net cash flow used in investing activities of
$58.5 million. Net cash flow from operating activities was primarily a result of
decreases in accounts receivable and net investments in sales-type leases of
$11.5 million and $5.7 million, respectively. An increase in accounts payable
and accrued expenses of $1.6 million was offset, in part, by an increase of $1.3
million in inventory. In addition, net change in other assets and liabilities
represented a use of cash of $2.8 million. Net cash flow from financing
activities was $42.7 million for 1997 primarily as a result of issuance of
$105.0 million of Senior Subordinated Notes due in 2005, issuance of other term
notes in connection with the NYMA and Sylvest acquisition of $55.4 million due
in 2004, and $27.0 million from the issuance of additional common stock. This
cash was used to retire existing term debt of $99.7 million, repay and retire
line of credit balances of acquired companies of $18.3 million, repay other line
of credit balances of $10.8 million, repayments of capital lease obligations of
$5.0 million and costs associated with the issuance of stock and debt
acquisition costs of $11.0 million. Net cash used in investing activities
amounted to $58.5 million for 1997, primarily as a result of acquisition costs
of NYMA and Sylvest totaling $54.2 million and the purchases of equipment for
sales-type leases and property and equipment totaling $4.3 million.
As of December 31, 1997, the Company had outstanding recourse debt of
$113.0 million. This amount excludes $3.5 million of nonrecourse notes payable
and obligations under capital leases, which the Company has recorded in
connection with the financing of certain equipment sales and leases.
The Company's 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 and leverage coverage. 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 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 Senior Credit Facility), up to a maximum
availability of $75.0 million. At March 25, 1998 there were $4.0 million of
undrawn letters of credit and borrowings of $28.9 million outstanding under the
revolving line of credit. The 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.
The Company also maintains an inventory and receivables financing facility
with an asset-based lender to facilitate the purchase of inventory from approved
vendors for prompt resale to customers. The Company pays no interest on accounts
drawn under such Floor Plan Financing Facility for negotiated periods and such
drawn amounts are reflected in accounts payable and accrued contract expenses
during such periods.
Upon the closing of the acquisitions, all outstanding balances of NYMA,
Sylvest and R.O.W. under their respective lines of credit were repaid in full by
the Company and all lines of credit related to NYMA, Sylvest, R.O.W. and TMA
have been cancelled. TMA had no borrowing outstanding under its line of credit
upon closing.
Stockholders' equity amounted to $1.0 million at December 31, 1997, an
increase in stockholders' equity of $23.8 million from December 31, 1996. This
26
<PAGE>
increase is principally due to proceeds from the sale of common stock of $27.0
million, less issuance costs of $0.9 million and the net loss for 1997 of $2.5
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 redemption's 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 December 31, 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 available borrowings under the 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 through at least
the next twelve months.
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 March 25, 1998, the
Company had borrowings of $28.9 million outstanding and $4.0 million of undrawn
letters of credit 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
In June 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and
No. 131, "Disclosure about Segments of an Enterprise and Related Information."
These statements become effective for the Company's 1998 financial statements.
The Company is evaluating these statements to determine the impact on its
reporting and disclosure requirements.
YEAR 2000 COMPLIANCE
To the extent that the Company's internal business systems and
applications will not accommodate the turn of the century, the Company plans to
27
<PAGE>
implement the necessary vendor upgrades and modifications to ensure continued
functionality beyond December 31, 1999. At present, management does not expect
that material incremental costs will be incurred in the aggregate or in a single
year by addressing the "Year 2000" issue.
***
The foregoing discussion of various factors that may impact 1998
performance contains certain forward-looking statements. In addition, the
Company or its representatives from time to time may make or have made certain
forward-looking statements. Those forward looking statements made by the Company
or its representatives are qualified in their entirety by reference to the
discussion in this document, other public documents, and the discussion of
important factors that could cause the Company's actual results to differ
materially from those projected or discussed in those forward looking
statements. It is intended that the foregoing constitute meaningful cautionary
statements so as to obtain the protections of the safe harbor established for
such statements by the Private Securities Litigation Reform Act of 1995.
###
Item 8. Consolidated Financial Statements.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants............................................F-1
Consolidated Balance Sheets as of December 31, 1996 and 1997.................F-2
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1996 and 1997.......................................F-3
Consolidated Statements of Stockholders' (Deficit) Equity for the
Years Ended December 31, 1995, 1996 and 1997.................................F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997.............................................F-5
Notes to Consolidated Financial Statements...................................F-6
Financial statement schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Federal Data Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Federal Data Corporation and its subsidiaries at December 31, 1996 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, 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 18, 1998
F-1
<PAGE>
Federal Data Corporation
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1997
--------- ---------
Assets
<S> <C> <C>
Cash and cash equivalents ....................................... $ 1,191 $ 6,327
Accounts receivable ............................................. 54,379 96,074
Net investment in sales-type leases ............................. 9,251 6,839
Inventory ....................................................... -- 6,346
Other assets .................................................... 4,629 8,376
--------- ---------
Total current assets ............................... 69,450 123,962
Net investment in sales-type leases ............................. 8,609 1,203
Leased and other property and equipment ......................... 1,462 3,746
Goodwill and intangible assets .................................. -- 54,161
Other assets .................................................... 3,765 9,894
--------- ---------
Total assets ....................................... $ 83,286 $ 192,966
========= =========
Liabilities and stockholders' (deficit) equity
Notes payable - recourse ........................................ $ 4,235 $ 0
Notes payable - nonrecourse ..................................... 5,177 478
Obligations under capital leases - recourse ..................... 1,614 --
Obligations under capital leases - nonrecourse .................. 4,255 2,636
Accounts payable and other liabilities .......................... 37,920 73,282
--------- ---------
Total current liabilities .......................... 53,201 76,396
Notes payable - recourse ........................................ 40,250 113,000
Notes payable - nonrecourse ..................................... 5,032 --
Obligations under capital leases - recourse ..................... 2,586 --
Obligations under capital leases - nonrecourse .................. 2,302 359
Other liabilities ............................................... 2,741 2,194
--------- ---------
Total liabilities .................................. 106,112 191,949
--------- ---------
Stockholders' (deficit) equity
Common stock, $.01 par value: 8,000,000 shares authorized;
shares issued and outstanding, 1,910,896 in 1996 and
2,910,896 in 1997 .......................................... 19 29
Capital in excess of par value .................................. 13,950 40,300
Accumulated deficit ............................................. (36,795) (39,312)
--------- ---------
Total stockholders' (deficit) equity ............... (22,826) 1,017
--------- ---------
Commitments
Total liabilities and stockholders' (deficit) equity $ 83,286 $ 192,966
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
Federal Data Corporation
Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues
Equipment and software sales ............... $ 81,038 $ 87,543 $ 196,735
Maintenance and support services ........... 43,750 59,871 134,533
Interest and other ......................... 5,031 3,694 5,038
--------- --------- ---------
Total revenues ................ 129,819 151,108 336,306
--------- --------- ---------
Expenses
Cost of sales and services ................. 107,366 114,248 280,903
Selling, general and administrative ........ 20,943 21,366 37,804
Amortization of goodwill and
intangible assets...................... -- -- 5,031
Interest ................................... 3,663 7,564 10,947
--------- --------- ---------
Total expenses ................ 131,972 143,178 334,685
--------- --------- ---------
(Loss) income before extraordinary item and
income taxes .............................. (2,153) 7,930 1,621
Income tax (benefit) provision .................. (3,950) 3,202 1,368
--------- --------- ---------
Income before extraordinary item ................ 1,797 4,728 253
Extraordinary loss from early retirement of debt,
net of income tax benefit of $1,697 ........ -- -- (2,770)
--------- --------- ---------
Net income (loss) ............................... $ 1,797 $ 4,728 $ (2,517)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
Federal Data Corporation
Consolidated Statements of Stockholders' (Deficit) Equity
(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, 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 loss .......................... -- -- -- (2,517) (2,517)
Proceeds from sale of common stock,
net of expenses of $882 ...... 1,000,000 10 26,108 -- 26,118
Deferred compensation ............. -- -- 242 -- 242
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 ........ 2,910,896 $ 29 $ 40,300 ($ 39,312) $ 1,017
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
Federal Data Corporation
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 1,797 $ 4,728 $ (2,517)
Adjustments to reconcile net income to
net cash flows from operating activities:
Extraordinary loss from early retirement of debt,
net of income tax benefit of $1,697 ....... -- -- 2,770
Depreciation and amortization ................... 1,266 782 7,099
Gain on sale of subsidiaries .................... -- -- (1,600)
(Income) loss recorded on sales-type leases ..... (4,062) (1,738) 465
Collections from sales-type leases .............. 12,372 6,075 5,655
Increase in inventory ........................... -- -- (1,347)
Decrease (increase) in accounts receivable ...... 6,712 (5,569) 11,511
(Decrease) increase in accounts payable
and accrued expenses ....................... (18,839) 2,180 1,626
Net change in other assets and liabilities ...... (2,013) (5,006) (2,755)
--------- --------- ---------
Net cash flows from operating activities ........ (2,767) 1,452 20,907
--------- --------- ---------
Cash flows from investing activities:
(Purchase) sale of short-term investments ....... (51,762) 51,762 --
Acquisitions of businesses, net of cash
received ................................... -- -- (54,175)
Proceeds from sale of equipment ................. 1,503 -- --
Proceeds from sale of division .................. 890 -- --
Purchase of equipment for sales-type leases ..... (2,786) (1,156) (2,151)
Purchase of property and equipment .............. (686) (903) (2,145)
--------- --------- ---------
Net cash flows from investing activities ........ (52,841) 49,703 (58,471)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings ........................ 61,478 1,916 160,400
Repayments of borrowings ........................ (13,451) (15,797) (99,650)
Net borrowings (repayments) under lines of
credit ..................................... -- 10,800 (29,058)
Payments to selling stockholders ................ -- (51,762) --
Proceeds from sale of common stock .............. 16,100 -- 27,000
Recapitalization, stock issuance and debt
acquisition costs .......................... (5,294) -- (10,988)
Redemption of common stock ...................... (1,817) -- --
Repayments of capital lease obligations ......... (6,689) (5,432) (5,004)
--------- --------- ---------
Net cash flows from financing activities ........ 50,327 (60,275) 42,700
--------- --------- ---------
Net change in cash and cash equivalents .............. (5,281) (9,120) 5,136
Cash and cash equivalents, beginning of year ......... 15,592 10,311 1,191
--------- --------- ---------
Cash and cash equivalents, end of year ............... $ 10,311 $ 1,191 $ 6,327
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
Federal Data Corporation
Notes to Consolidated Financial Statements
(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 sale and integration of commercially available data processing solutions
and professional services to the United States Government (the Government). The
Government accounted for approximately 95%, 97%, and 97% of total revenue during
1995, 1996, and 1997, respectively. The Company pursues this business as a
computer/network 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. 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
In December 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. In January 1996, the
Company liquidated this investment and paid the selling 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 in April 1996. The subordinated notes were paid in full in August 1997.
As part of the consideration for the purchase of the common stock of the selling
stockholders 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 recorded a
reduction of $1,610 in retained earnings during 1996 based on the distribution
that will be made to the selling shareholders in 1999 when the Split Dollar
payments are received.
F-6
<PAGE>
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 independent appraised 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 an
affiliate of Carlyle 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 $200 and the lease of the aircraft provides for annual
payments of $300 plus a usage charge which amounted to $56 and $48 during 1996
and 1997, respectively.
================================================================================
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.
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 fixed price sales and sales-type leases is recorded upon
installation or shipment to the customer's site, depending on contractual terms.
On cost reimbursable contracts, revenue is recorded as contract costs are
incurred, plus a proportionate amount of the fee expected to be realized on the
contract. Maintenance and other support service 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 related lease. Deferred financing fees are being amortized
over the terms of the related notes payable.
F-7
<PAGE>
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 3
months or less at date of acquisition. Similar investments with original
maturities beyond 3 months are considered short-term investments and are carried
at cost, which approximates market value.
Inventory
Inventory of computer equipment and software is carried at the lower of cost or
market, using the specific identification method.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, receivables, accounts payable, and
accrued expenses approximate their carrying value because of their short-term
nature. The fair value of long-term debt has been estimated using quoted market
prices or discounted cash flow analysis using rates currently available to the
Company for debt with similar terms and maturities.
The carrying and fair value of the Company's long-term debt including current
maturities consist of the following as of December 31:
<TABLE>
<CAPTION>
1996 1997
------------------ ------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------ ------------------
<S> <C> <C> <C> <C>
Long-term debt including current maturities........$54,694 $54,694 $113,478 $110,853
</TABLE>
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, 1997.
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of acquiring businesses over the fair
value of identifiable net tangible and intangible assets acquired. Goodwill is
amortized on a straight-line basis over the period for which the Company
estimates it will benefit directly from the acquisition. Although the period of
benefit from the goodwill can be difficult to estimate, the Company considers
goodwill to be recoverable as long as the acquisition generates positive cash
flow from operations after implementation of the Company's strategic plan or
completion of reorganization efforts, if any. Recoverability of goodwill is
evaluated periodically based on current undiscounted cash flow projections of
each specific acquired business. Goodwill related to the acquisitions described
in Note 4 amounted to $48,491 and is being amortized over fifteen years.
Goodwill amortization expense for the year ended December 31, 1997 was $1,784.
Other intangible assets represent contract backlog at the acquisition date and
is recorded at the present value of the projected pretax profits. The present
value of the contract profits relating to the acquisitions described in Note 4
of $10,701 is being amortized over the remaining terms of the acquired contracts
in relation to the recognition of related contract revenue. The amortization of
this intangible asset amounted to $3,247 for the year ended December 31, 1997.
Earnings per share
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). Under SFAS 128, the Company is not required to
present earnings per share for as long as the Company is not publicly held.
================================================================================
Note 4 - Acquisitions
In May 1997, the Company purchased all of the outstanding shares of common stock
of NYMA, Inc. (NYMA) for $31,587. The purchase price consists of $26,587 in cash
and $5,000 in subordinated notes. The
F-8
<PAGE>
agreement also provides for additional cash payments of up to $3,000 if certain
operating objectives related to new business activity are met. Such payments, if
any, will be accounted for as adjustments to the purchase price. 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 $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 $41,017. The purchase price consists of
$33,017 in cash and subordinated notes of $8,000 of which $1,000 was issued
during 1998 after certain earnings objectives were met. Subordinated notes of
$4,000 were paid in August 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 $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 unaudited pro forma operating data which gives effect to the
acquisitions of NYMA and Sylvest for the year ended December 31, 1996 and 1997
is provided below. Such unaudited pro forma operating data has been prepared as
if the acquisitions occurred as of the beginning of the reporting period.
1996 1997
--------- ---------
Revenue ......................................... $ 332,822 $ 432,993
========= =========
Income (loss) before extraordinary item
and income taxes ............................. $ 3,076 $ (2,806)
========= =========
Net income (loss) ............................... $ 1,258 ($ 5,978)
========= =========
In the opinion of management, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred had
the acquisitions been consumated at the beginning of 1996 or at the beginning of
1997 or of future operations of the combined companies under the ownership and
management of the Company.
================================================================================
Note 5 - Accounts Receivable
Accounts receivable consists of the following as of December 31:
1996 1997
-------- --------
Billed ......................................... $ 38,546 $ 85,240
Unbilled ....................................... 16,169 11,462
Less allowance for doubtful accounts ........... (336) (628)
-------- --------
Total accounts receivable ...................... $ 54,379 $ 96,074
======== ========
Unbilled accounts receivable consisted primarily of revenue not yet billable
because of contract terms, differences between actual and provisional indirect
rates for years open to Government audit and contract retainages. Retainages are
generally billable upon acceptance of work by customers or completion of
contract audits by the Government.
================================================================================
F-9
<PAGE>
Note 6 - Net Investment in Sales-Type Leases
Net investment in sales-type leases consists of the following as of December 31:
1996 1997
-------- --------
Minimum lease payments receivable ........... $ 20,683 $ 8,782
Less unearned income ........................ (2,823) (740)
-------- --------
Total net investment in sales-type leases ... 17,860 8,042
Less current portion ........................ 9,251 6,839
-------- --------
Long-term net investment in sales-type leases $ 8,609 $ 1,203
======== ========
Future minimum lease payments receivable as of December 31, 1997 are due as
follows:
1998 ................ $7,545
1999 ................ 1,237
================================================================================
Note 7 - Other Assets
Other assets consist of the following as of December 31:
1996 1997
------------------- -------------------
Current Long-term Current Long-term
------- --------- ------- ---------
Deferred financing fees .......... $ 0 $2,319 $ 0 $7,196
Receivable from sale of subsidiary -- -- 4,000 215
Prepaid expenses ................. 1,895 -- 2,716 403
Refundable income taxes .......... -- -- 1,448 --
Deferred taxes ................... 2,105 1,092 -- 1,237
Other ............................ 629 354 212 843
------ ------ ------ ------
Total other assets ............... $4,629 $3,765 $8,376 $9,894
====== ====== ====== ======
In 1997, the Company recorded a charge to earnings of $4,467 related to deferred
financing fees associated with the debt incurred to finance the Merger and the
NYMA and Sylvest acquisitions. This debt was refinanced with proceeds from the
Senior Subordinated Notes. This charge to earnings was reduced by an income tax
benefit of $1,697 which produced an extraordinary loss of $2,770. Amortization
of deferred financing fees which is included in interest expense amounted to
$817 and $804 during 1996 and 1997, respectively.
During 1997, the Company sold substantially all the assets and business of its
wholly-owned subsidiaries, DoxSys, Inc. (DoxSys) and VAD International, Inc.
(VAD) resulting in a pretax gain of $1,600. The operations of DoxSys and VAD
were not material to the Company's financial condition or results of operations.
================================================================================
F-10
<PAGE>
Note 8 - Leased and Other Property and Equipment
Leased and other property and equipment consist of the following as of December
31:
1996 1997
------ ------
Furniture, office and other equipment, net of
accumulated depreciation of $3,798 and $8,845 ... $1,364 $3,600
Leasehold improvements, net of accumulated
amortization of $3,678 and $3,675 ............... 98 146
------ ------
Total leased and other property and equipment ........ $1,462 $3,746
====== ======
Total depreciation and amortization expense related to leased and other property
and equipment during 1995, 1996 and 1997 was $1,266, $782 and $1,326,
respectively.
================================================================================
Note 9 - Notes Payable
Recourse notes payable consist of the following as of December 31:
1996 1997
-------- --------
Senior Subordinated Notes payable in August 2005 ... $ 0 $105,000
Term A note payable in quarterly installments
through December 2000 ........................ 17,647 --
Revolving line of credit ........................... 10,800 --
Term B note payable in quarterly installments
through December 2002 ........................ 8,319 --
Other subordinated notes ........................... 7,350 8,000
Notes payable in monthly installments through
October 1997, with interest at 7.34% to 10.73% 369 --
-------- --------
Total recourse notes payable ....................... 44,485 113,000
Less current portion ............................... 4,235 --
-------- --------
Long-term recourse notes payable ................... $ 40,250 $113,000
======== ========
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.
The Senior Subordinated Notes bear interest at 10.125% per annum with interest
payable semi-annually in February and August of each year, commencing in
February 1998. The principal of the Senior Subordinated Notes is due in August
2005. The Company may redeem a portion of the Senior Subordinated Notes at any
F-11
<PAGE>
time prior to August 2001 with the net proceeds of one or more public equity
offerings. At any time after August 2001, the indenture provides that a portion
of the Senior Subordinated Notes may be redeemed upon a change of control and
also provides for other optional redemptions. All redemptions prior to August
2005 require the Company to pay a premium. The indenture includes certain
restrictions as to the Company's ability, among other things, to acquire or
dispose of assets, incur additional debt, or to pay dividends. In addition, the
Company is required to maintain a minimum net worth and certain operating
ratios, including among others, interest and leverage coverage.
At December 31, 1997, the Company had a $75,000 revolving line of credit
facility which expires in July 2002. Interest accrues on borrowings under the
revolving line of credit at 1.25% plus the highest of (a) the rate which is 1/2
of 1% in excess of the Federal Funds Effective Rate (5.8% at December 31, 1997)
or (b) the prime lending rate (8.5% at December 31, 1997). In addition, the
Company pays a commitment fee of 0.5% of the unused line of credit facility. The
Company's revolving line of 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 and
leverage coverage. All of the Company's assets not otherwise pledged are
utilized as collateral under the Company's credit agreements.
The other subordinated notes outstanding as of December 31, 1997 were issued by
the Company in connection with the NYMA and Sylvest acquisitions. The other
subordinated notes bear interest payable semi-annually at increasing rates
starting at 9% per annum and increasing to 13% per annum. The principal of the
notes are due in 2004 and can be repaid at any time without penalty at the
option of the Company.
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
obligation under nonrecourse agreements, in the event of default by the end user
lessee, would be limited to ensuring the return of the associated assets to the
lender.
Nonrecourse notes payable consist of the following as of December 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Notes secured by equipment and minimum lease payments receivable from
customers, repayable through March 1998, with interest at
6.75% to 12.75% ............................................... $10,209 $ 478
Less current portion ............................................... 5,177 478
------- -------
Long-term nonrecourse notes payable ................................ $ 5,032 $ 0
======= =======
</TABLE>
================================================================================
F-12
<PAGE>
Note 10 - Obligations under Capital Leases
Obligations under recourse capital leases consist of the following as of
December 31:
1996 1997
------- -------
Minimum lease payments .............................. $ 4,919 $ 0
Less deferred interest .............................. (719) --
------- -------
Total obligations under recourse capital leases ..... 4,200 --
Less current portion ................................ 1,614 --
------- -------
Long-term obligations under recourse capital leases . $ 2,586 $ 0
======= =======
Obligations under nonrecourse capital leases consist of the following as of
December 31:
1996 1997
------- -------
Minimum lease payments ............................... $ 7,239 $ 3,167
Less deferred interest ............................... (682) (172)
------- -------
Total obligations under nonrecourse capital leases ... 6,557 2,995
Less current portion ................................. 4,255 2,636
------- -------
Long-term obligations under nonrecourse capital leases $ 2,302 $ 359
======= =======
Future minimum lease payments under capital leases as of December 31, 1997 are
due as follows:
Recourse Nonrecourse
-------- -----------
1998 ............................. $ 0 $2,808
1999 ............................. -- 359
================================================================================
F-13
<PAGE>
Note 11 - Accounts Payable and Other Liabilities
Accounts payable and other liabilities consist of the following as of December
31:
<TABLE>
<CAPTION>
1996 1997
--------------------- ---------------------
Current Long-term Current Long-term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Accrued contract expenses ...... $19,289 $ 0 $29,143 $ 0
Accounts payable ............... 8,042 -- 23,425 --
Other accrued expenses ......... 3,368 -- 7,809 1,164
Accrued interest payable ....... 508 -- 5,030 --
Deferred income ................ 3,121 2,272 4,608 1,030
Deferred income taxes payable .. -- -- 843 --
Income taxes payable ........... 1,660 -- 733 --
Other .......................... 1,932 469 1,691 --
------- ------- ------- -------
Total accounts payable and other
liabilities .................... $37,920 $ 2,741 $73,282 $ 2,194
======= ======= ======= =======
</TABLE>
As of December 31, 1997 accounts payable and accrued contract expenses include
approximately $2,841 in amounts payable to an asset-based lender under an
arrangement established to facilitate the purchase of inventory. Under this
arrangement, the lender directly pays the vendors for purchases made by the
Company. The arrangement provides the Company with up to $30,000 in credit from
the lender 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 plus 2.0% as determined by the lender (10.50% at December 31, 1997). This
arrangement requires the Company to maintain a minimum net worth and certain
operating ratios, including among others, interest and leverage coverage.
In connection with this arrangement, the asset-based lender entered into an
Intercreditor and Subordination Agreement (the Intercreditor Agreement) with
the bank group that has extended the Company a revolving line of credit facility
(see Note 9). Under the Intercreditor Agreement, all advances made by the
asset-based lender are collateralized by the Company's inventory and accounts
receivable resulting from the sale of inventory purchased under the above
arrangement.
================================================================================
F-14
<PAGE>
Note 12 - Income Taxes
The income tax (benefit) provision consists of the following for the years ended
December 31:
1995 1996 1997
------- ------- -------
Current income tax provision:
Federal ..................................... $ 153 $ 1,370 $ 364
State ....................................... 508 418 157
------- ------- -------
Total current income tax provision .......... 661 1,788 521
------- ------- -------
Deferred income tax (benefit) provision:
Federal ..................................... (4,365) 1,228 (723)
State ....................................... (246) 186 (127)
------- ------- -------
Total deferred income tax (benefit) provision (4,611) 1,414 (850)
------- ------- -------
Total income tax (benefit) provision ........ ($3,950) $ 3,202 ($ 329)
======= ======= =======
Income tax (benefit) provision as reflected on the consolidated statements of
operations consist of the following:
1995 1996 1997
------- ------- -------
(Loss) income before extraordinary item
and income taxes.................... ($3,950) $ 3,202 $ 1,368
Extraordinary loss ....................... -- -- (1,697)
------- ------- -------
Total income tax (benefit) provision ..... ($3,950) $ 3,202 ($ 329)
======= ======= =======
F-15
<PAGE>
Deferred tax assets and liabilities consist of the following as of December 31:
1996 1997
------ ------
Deferred tax assets:
Deferred income .................................... $2,049 $2,143
Compensation and employee benefits ................. 904 1,502
Accounts receivable reserves ....................... 128 239
Goodwill and intangible assets ..................... -- 226
Property and equipment ............................. 131 45
Other .............................................. 77 321
------ ------
Total deferred tax assets .......................... 3,289 4,476
------ ------
Deferred tax liabilities:
Contractually unbilled revenue ..................... -- 2,797
Accrual to cash conversion ......................... -- 1,118
Other .............................................. 92 167
------ ------
Total deferred tax liabilities ..................... 92 4,082
------ ------
Net deferred tax asset .................................. $3,197 $ 394
====== ======
Net deferred income taxes as reflected on the consolidated balance sheets
consist of the following as of December 31:
1996 1997
------- -------
Current deferred income tax asset (liability) ... $ 2,105 ($4,082)
Less current deferred income tax asset .......... -- 3,239
------- -------
Net current deferred income tax asset
(liability) ..................................... 2,105 (843)
Long-term deferred income tax asset ............. 1,184 1,237
Less long-term deferred income tax liability .... (92) --
------- -------
Net long-term deferred income tax asset ......... 1,092 1,237
------- -------
Net deferred income tax asset ................... $ 3,197 $ 394
======= =======
F-16
<PAGE>
A reconciliation between the provision for income taxes computed on income
before tax at the statutory federal tax rate and the provision for income taxes
is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate ............................... -34.0% 34.0% -34.0%
State income taxes, net of federal benefit ...................... -4.5% 2.6% 3.6%
Nondeductible goodwill .......................................... -- -- 37.8%
Other nondeductible expenses .................................... 6.2% 0.2% 1.4%
Reduction in valuation allowance ................................ -154.0% -- --
Other ........................................................... 2.8% 3.5% -20.4%
------- ------- -------
-183.5% 40.3% -11.6%
======= ======= =======
</TABLE>
During 1995, the Company reduced the tax valuation allowance by $3,313, to
reflect management's assessment that the realization of these benefits was more
likely than not. At December 31, 1996 and 1997, the Company has not recorded any
tax valuation allowance.
================================================================================
Note 13 - Stockholders' Equity and Transactions with Stockholders
During 1984, a principal stockholder 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 principal stockholder, had
transferred the stock. At December 31, 1997, the Company has fully amortized the
compensation expense related to this transaction.
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 10 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. During 1997, options to purchase 20,000 shares at an exercise price of
$9.00 per share were cancelled. As of March 18, 1998, the new options related to
the remaining 73,500 shares have not been issued.
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 5 years and expire 10 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, 1997, under
the variable component of the plan 161,700 options for shares will vest only if
certain financial measures are met. As of December 31, 1997, none of the
financial measures had been met and accordingly, no compensation has been
recorded. As of December 31, 1997, options to purchase 27,720 shares at a price
of $10.00 per share were exercisable and options to purchase 26,000 shares were
available for granting. The Company has adopted the disclosure-only provisions
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, 1996 and 1997, 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, 1996 and 1997: a risk-free interest rate of 5.67%,
expected lives of 5 years and expected dividends of zero.
F-17
<PAGE>
The following is a summary of stock option activity for outstanding options:
Option Price Number of
Per Share Shares
------------ ---------
Balance at December 31, 1994 ............... $7.50-$9.00 90,000
Granted .................................... 7.50 8,500
Exercised .................................. 7.50 (5,000)
Forfeited .................................. -- --
Cancelled .................................. -- --
------------ -------
Balance at December 31, 1995 ............... 7.50-9.00 93,500
Granted .................................... 10.00 253,000
Exercised .................................. -- --
Forfeited .................................. 10.00 (10,000)
Cancelled .................................. -- --
------------ -------
Balance at December 31, 1996 ............... 7.50-10.00 336,500
Granted .................................... -- --
Exercised .................................. -- --
Forfeited .................................. 10.00 (12,000)
Cancelled .................................. 9.00 (20,000)
------------ -------
Balance at December 31, 1997 ............... $7.50-$10.00 304,500
============ =======
================================================================================
Note 14 - Supplemental Disclosure of Cash Flow Information
During 1995, 1996 and 1997, the Company paid interest costs of $3,124, $7,546
and $5,621, respectively. During the same years, the Company paid income taxes
of $1,097, $628 and $1,452, respectively.
During 1995, 1996 and 1997, the Company financed through capital leases the
acquisition of computer equipment which was sold to customers of $6,700, $779
and $0, respectively.
================================================================================
Note 15 - Commitments
The Company leases office space and equipment under various operating lease
agreements. Leases for principal office space typically have terms of five to
seven years and carry optional renewal periods of three to five years. Most
leases include provisions for fixed annual increases to base rent payments and
escalations based on increases in operating expenses and real estate taxes.
F-18
<PAGE>
Future minimum payments at December 31, 1997, for all noncancellable operating
leases with initial terms of one year or more are as follows:
1998 ................................. $5,048
1999 ................................. 3,226
2000 ................................. 3,279
2001 ................................. 3,325
2002 ................................. 3,408
Thereafter ........................... 6,629
Operating lease expense was $1,532, $1,782 and $3,879 during 1995, 1996 and
1997, respectively. The Company received $368, $146 and $0 from sublease rentals
during 1995, 1996 and 1997, respectively.
The Company is subject to contract audits by Government agencies. Completed and
future audits may result in various billed and unbilled costs being disallowed.
At December 31, 1997, audits have been completed through 1993. In the opinion of
management, adequate reserves have been provided for the remaining open audit
periods.
================================================================================
Note 16 - Retirement Plans
The Company sponsors several defined contribution plans that provide all
salaried employees that meet certain age and minimum length of service
requirements and certain hourly employees an opportunity to accumulate funds for
their retirement. The Company's contributions to these plans are based on either
a percentage of employee contributions or an amount at the discretion of the
Company. The Company recognized expense of $258, $302 and $1,029 during 1995,
1996 and 1997, respectively.
================================================================================
Note 17 - Subsequent Events (Unaudited)
In February and March 1998, the Company purchased all of the outstanding common
stock of R.O.W. Sciences, Inc. ("R.O.W.") and Technical and Management
Assistance, Inc. ("TMA") and also in February purchased all of the assets of
Telos Corporation's Telos Information Systems Division ("TIS"), (collectively,
the "Acquisitions"). The aggregate purchase price of the Acquisitions was
$32,675. The purchase price consisted of $30,675 in cash and $2,000 in
subordinated notes. The agreements also provide for additional cash payments up
to $1,000 if certain revenue objectives are met. Such payments, if any, will be
accounted for as adjustments to the purchase price. The purchase prices for all
of the Acquisitions are subject to adjustment based on an audit of the closing
balance sheets. The Company financed the Acquisitions through borrowing under
its existing revolving line of credit facility. R.O.W. provides information
technology and health science research services to federal and commercial
clients. TMA provides software development services principally to the air
traffic management function within the Federal Aviation Administration. TIS
provides information technology and engineering services principally to NASA and
the Jet Propulsion Laboratory.
F-19
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
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.
Name Title Age
William E. Conway, Jr..... Chairman 48
C. Robert Hanley.......... Director and Chairman Emeritus 65
Daniel R. Young........... Vice Chairman and CEO 64
Harry T. Marren........... Director and President 63
Peter J. Clare............ Director 32
Allan M. Holt............. Director 46
Peter C. Belford, Sr...... Senior Vice President, Science & Engineering
Group 51
Paul A. Taltavull......... Senior Vice President, Solutions Group 43
John W. Wayne............. Senior Vice President, Systems Integration
Group 41
James M. Dean............. Vice President, Chief Financial Officer and
Treasurer 50
Charles M. Mathews, Jr.... Vice President, Systems & Technology Group 38
Sterling E. Phillips, Jr.. Vice President, Corporate Marketing 51
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 GTS Duratek, Inc., Nextel
Communications, Inc., Tracor Inc., Howmet International Inc. and 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 P. Young has been a Director of the Company since 1977 and was
named Vice Chairman of the Board of Directors in 1998. He has been the Chief
Executive Officer since 1996 and its President from 1985 through 1998. 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.
Harry T. Marren was elected as a Director of the Company in 1997 and
became its President in 1998. 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.
29
<PAGE>
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
mergers and acquisitions and merchant banking groups at Prudential-Bache. Mr.
Clare currently serves on the boards of 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.
Peter C. Belford, Sr. has been Senior Vice President of the Science &
Engineering Group since 1997 and President and Chief Operating Officer of NYMA,
Inc. since 1994. Mr. Belford 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.
Paul A. Taltavull has been Senior Vice President of the Solutions Group
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 Senior Vice President of the Systems Integration
Group since 1998, having previously been Vice President of the Systems
Integration Group 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 from 1969 through 1983.
Charles M. Mathews, Jr. has been Vice President of the Systems &
Technology Group 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.
Sterling E. Phillips, Jr. has been Vice President of corporate marketing
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.
30
<PAGE>
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
$200,000 per year, maintains an office at the Company's Bethesda headquarters
and participates in the Company's health insurance plan. The consulting
agreement requires Mr. Hanley to be available to provide such consulting
services as the Company may reasonably request. Mr. Hanley regularly provides
consulting services to the Company pursuant to the consulting agreement and
serves as director to the Company without compensation.
Item 11. Executive Compensation.
The following table sets forth information with respect to the
compensation paid by the Company for services rendered during the years ended
December 31, 1995, 1996 and 1997 to the Chief Executive Officer and to each of
the four other most highly compensated executive officer of the Company (the
"Named Executive Officers").
31
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------------- ------------------------------
Awards Payouts
------------------------------
Securities
Other Under-
Annual Restricted Lying All Other
Compen- Stock Options/ 0LTIP Compen-
Year Salary Bonus (1) sation(2) Award(s) SARs(3) Payouts sation(4)
Name ($) ($) ($) ($) (#) ($) ($)
-------- ------------ ------------ --------- ---------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel R. Young ............ 1997 300,000 200,000 -- -- -- -- --
Chief Executive Officer 1996 225,012 300,000 -- -- 75,000 -- 430,351
1995 225,000 1,373,945 -- -- -- -- --
Harry T. Marren ............ 1997 200,000 175,000 -- -- -- -- --
Senior Vice President 1996 150,000 250,000 -- -- 40,000 -- 168,086
1995 150,000 905,362 -- -- -- -- --
Paul A. Taltavull .......... 1997 175,000 100,000 -- -- -- -- --
Senior Vice President 1996 150,000 150,000 -- -- 25,000 -- --
1995 150,000 391,633 -- -- -- -- --
John W. Wayne .............. 1997 150,000 156,432 -- -- -- -- --
Senior Vice President 1996 102,000 160,000 -- -- 15,000 -- --
1995 102,000 327,636 -- -- -- -- --
Charles M. Mathews, Jr ..... 1997 150,000 130,923 -- -- -- -- --
Vice President ........ 1996 118,200 60,000 -- -- 10,000 -- --
1995 -- -- -- -- -- --
</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) and Marren ($168,086).
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted during 1997.
32
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In the Money
Options Options at Fiscal
At Fiscal Year-End (#) Year-End ($) (1)
----------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Daniel R. Young ........ 9,000 66,000 153,000 1,122,000
Harry T. Marren ........ 4,800 35,200 81,600 598,400
Paul A. Taltavull (2) .. 3,000 22,000 51,000 374,000
John W. Wayne (3) ...... 1,800 13,200 30,600 224,400
Charles M. Mathews, Jr . 1,200 8,800 20,400 149,600
</TABLE>
(1) As a privately held Company not then engaged in any transaction
requiring a current valuation of its shares, the Company did not determine
the value of its common stock at year-end. Accordingly, the Company has
assumed for purposes of this table a value of $27.00 per share, the price
paid for the common stock by all investors at the time of the Sylvest
acquisition in June 1997.
(2) Excludes options to purchase 30,000 shares granted prior to the
Recapitalization pursuant to the Company's 1987 Stock Incentive Plan,
which options will be replaced with immediately exercisable options to
purchase shares of the Company 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 the Company's 1987 Stock Incentive Plan,
which options will be replaced with immediately exercisable options to
purchase shares of the Company in a quantity and at a price that will
preserve the economic value of the options prior to the Recapitalization.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
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.
33
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
ALL OUTSTANDING NUMBER
BENEFICIAL OWNER(1) COMMON STOCK OF SHARES
- ----------------------------------------------------------- --------------- -------------
<S> <C> <C>
TCG Holdings, L.L.C.(2) .................................... 2,447,272 84.1
William E. Conway, Jr.(3) .................................. -- --
C. Robert Hanley(4) ........................................ 73,172 2.5
Daniel R. Young(5)(6) ...................................... 155,407 5.3
Harry T. Marren(6) ......................................... 31,000 1.1
Peter J. Clare(3) .......................................... -- --
Allan M. Holt(3) ........................................... -- --
Paul A. Taltavull(6) ....................................... 14,880 *
John W. Wayne(6) ........................................... 12,000 *
Charles M. Mathews, Jr.(6) ................................. 3,000 *
All directors and executive officers as a group (12 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. James A. Baker
III, Frank C. Carlucci, William E. Conway, Jr., Daniel A. D'Aniello,
Richard G. Darman, David W. Dupree, Allan M. Holt, Jerome H. Powell and
David M. Rubenstein, as the managing members of TCG Holdings, L.L.C., may
be deemed to share beneficial ownership of the shares shown as
beneficially owned by TCG Holdings, L.L.C. Such persons disclaim such
beneficial ownership.
(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.
Item 13. Certain Relationships and Related 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
34
<PAGE>
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 an 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 approximately $48,000 during the
year ended December 31, 1997. The consulting agreement requires Mr. Hanley to be
available to provide such consulting services as the Company may reasonably
request. 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.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(1) -- Financial Statements
The following Consolidated Financial Statements of the Company and its
subsidiaries are included in this Report:
1. Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1997
35
<PAGE>
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997
Consolidated Statements of Stockholders' (Deficit) Equity for the years
ended December 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or the notes
thereto under Item 8.
3. Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
(b)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.
(b)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.
(b)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.
(b)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
(d)2.5 Stock Purchase Agreement by and among Federal Data Corporation and
Ralph O. Williams, Frederic M. Cullen, Trustees of R.O.W. Sciences
ESOP, John C. Smith, Paul H. Tardif and R.O.W. Sciences, Inc. dated
as of February 17, 1998
(e)2.5 Asset Purchase Agreement dated as of February 20, 1998 by and among
Telos Corporation and NYMA, Inc.
(e)2.6 Interim Agreement dated as of February 28, 1998 by and among Telos
Corporation and NYMA, Inc.
* 2.7 Stock Purchase Agreement among Federal Data Corporation and Harry
P. Headley, as Trustee, Dorothy Headley, as Trustee, Michael K.
Headlry, Kathleen Kowis, George Kowis and Technical and Management
Assistance, Inc. dated March 11, 1998
36
<PAGE>
(a)3.1 Certificate of Incorporation of Federal Data Corporation
(a)3.2 By-laws of Federal Data Corporation
(a)3.3 Certificate of Incorporation of FDCT Corp.
(a)3.4 By-laws of FDCT Corp.
(a)3.5 Articles of Incorporation of NYMA, Inc.
(a)3.6 By-laws of NYMA, Inc.
(a)3.7 Articles of Incorporation of Sylvest Management Systems Corporation
(a)3.8 By-laws of Sylvest Management Systems Corporation
(a)3.9 Certificate of Incorporation of FDC Technologies, Inc.
(a)3.10 By-laws of FDC Technologies, Inc.
(a)3.11 Certificate of Incorporation of DoxSys, Inc.
(a)3.12 By-laws of DoxSys, Inc.
(a)3.13 Articles of Incorporation of VAD International, Inc.
(a)3.14 By-laws of VAD International, Inc.
* 3.15 Certificate of Incorporation of R.O.W. Sciences, Inc.
* 3.16 By-laws of R.O.W. Sciences, Inc.
* 3.17 Articles of Incorporation of Technical and Management Assistance,
Inc.
* 3.18 By-laws of Technical and Management Assistance, Inc.
(a)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
(a)4.2 Specimen Certificate of 10 1/8% Senior Subordinated Notes due 2005
(included in Exhibit 4.1 hereto)
(a)4.3 Purchase Agreement dated as of July 18, 1997 among Federal Data
Corporation, BT Securities Corporation and Lehman Brothers
(a)4.4 Registration Rights Agreement dated as of July 25, 1997 among
Federal Data Corporation, BT Securities Corporation and Lehman
Brothers
(b)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
37
<PAGE>
Corporation, various lending institutions signatory thereto and
Bankers Trust Company as Agent
(a)4.6 Form of 9% Increasing Rate Subordinated Note due 2004 dated May 21,
1997
(a)4.7 Form of 9% Increasing Rate Subordinated Note due 2004 dated June
30, 1997
* 4.8 Form of 9% Increasing Rate Subordinated Note due 2000 dated
February 17, 1998
* 4.9 Form of 9% Increasing Rate Subordinated Note due 2000 dated March
13, 1998
4.10 The Company is a party to several non-recourse financing agreements
evidenced by promissory notes, none of which exceed 10 percent of
the total assets of the Company and its subsidiaries on a
consolidated basis. The Company hereby agrees to furnish a copy of
such agreements to the Commission upon request.
(c)4.11 Security Agreement-Inventory dated September 5, 1997 among Federal
Data Corporation, Sylvest Management Systems Corporation, FDC
Technologies, Inc. and Nationscredit Commercial Corporation of
America
(c)4.12 Intercreditor Agreement dated as of September 11, 1997 between
Bankers Trust Company, as Agent, and Nationscredit Commercial
Corporation of America
(c)4.13 First Supplemental Indenture dated as of December 19, 1997 between
Federal Data Corporation and Norwest Bank, Minnesota, National
Association
(a)10.1 + Employment Agreement dated April 30, 1997 between NYMA, Inc. and
Peter C. Belford
(b)10.2 + Stock Option Plan dated February 16, 1996 for Executives and Other
Key Employees
(b)10.3 + Form of Executive Management Incentive Stock Option Agreement
(a)10.4 Agreement of Lease dated December 5, 1984 between Federal Data
Corporation and Community Motor Property Associates Limited
Partnership
(a)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
(a)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.
38
<PAGE>
* 10.7 Lease Assignment, Modification and Extension Agreement
(c)10.8 + Consulting Agreement dated December 1, 1995 between Federal Data
Corporation and C. Robert Hanley
(a)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
(b)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.
* 21.1 Subsidiaries of Federal Data Corporation
* 27 Financial Data Schedule
* Filed herewith
(a) Incorporated by reference to exhibits to the Company's
Registration Statement on Form S-1, filed on September 26, 1997.
(b) Incorporated by reference to exhibits to the Company's Amendment
No. 1 to Registration Statement on Form S-1, filed on November 26,
1997.
(c) Incorporated by reference to exhibits to the Company's Amendment
No. 2 to Registration Statement on Form S-1, filed on December 19,
1997.
(d) Incorporated by reference to the exhibits to the Company's Report on
form 8-K, filed on March 3, 1998.
(e) Incorporated by reference to the exhibits to the Company's Report on
form 8-K, filed on March 16, 1998.
+ Executive Compensation Plan or Arrangement
(4) The Company filed Form 8-K's dated March 3, 1998, March 16, 1998 and March
24, 1998 related to the acquisition of R.O.W. Sciences, Inc., Telos Information
Systems, a division of Telos Corporation and Technical and Management
Assistance, Inc.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf be the undersigned, thereunto duly authorized, in Bethesda, Maryland
on March 25, 1998.
39
<PAGE>
FEDERAL DATA CORPORATION
By /s/ JAMES M. DEAN
------------------------------------------
James M. Dean
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND TREASURER
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ --------------
/s/ WILLIAM E. CONWAY, JR. March 25, 1998
- ------------------------------ Chairman of the Board
William E. Conway, Jr.
/s/ DANIEL R. YOUNG Vice Chairman and Chief March 25, 1998
- ------------------------------ Executive Officer
Daniel R. Young
Vice President, Chief
/s/ JAMES M. DEAN Financial Officer and March 25, 1998
- ------------------------------ Treasurer (Principal
James M. Dean Financial and Accounting
Officer)
/s/ ALLAN M. HOLT March 25, 1998
- ------------------------------ Director
Allan M. Holt
/s/ PETER J. CLARE March 25, 1998
- ------------------------------ Director
Peter J. Clare
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/s/ HARRY T. MARREN March 25, 1998
- ------------------------------ President and Director
Harry T. Marren
/s/ C. ROBERT HANLEY March 25, 1998
- ------------------------------ Director
C. Robert Hanley
41
[Execution Copy]
STOCK PURCHASE AGREEMENT
AMONG
Federal Data Corporation
AND
Harry P. Headley, as Trustee
Dorothy Headley, as Trustee
Michael K. Headley
Lisa Headley
Kathleen Kowis
Gregory Kowis
AND
Technical and Management Assistance, Inc.
March 11, 1998
<PAGE>
[Execution Copy]
EXHIBITS
Exhibit A-1: Frisbie Employment Agreement
Exhibit A-2: Headley Employment Agreement
Exhibit B: Noncompetition Agreement
Exhibit C: Form of Note
Exhibit D: Financial Statements
Exhibit E: Projections
Exhibit F: Form of Required Consents; List of Required Consents
2
<PAGE>
STOCK PURCHASE AGREEMENT
Agreement entered into as of March 11, 1998, by and among Federal Data
Corporation, a Delaware corporation (the "Buyer"), and Harry P. Headley, Trustee
of the Harry P. Headley Revocable Trust (the "Seller Representative"); Dorothy
Headley, Trustee of the Dorothy Headley Revocable Trust; Michael K. Headley;
Lisa Headley; Kathleen Kowis; and Gregory Kowis (together, the "Other Holders"
and collectively with the Seller Representative, the "Sellers"), and Technical
and Management Assistance, Inc., a New Jersey 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 of software engineering,
software maintenance, and computer programming services provided primarily 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.
"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.
"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 employment agreements executed by Frank L.
Frisbie and Michael K. Headley, respectively, attached hereto as Exhibit A-1 and
A-2, respectively (the "Employment Agreements"), and the noncompetition
agreement executed by Harry P. Headley, attached hereto as Exhibit B (the
"Noncompetition Agreement") all in connection with the transactions contemplated
by this Agreement.
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"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").
"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
agreement solely between or among shareholders which will be terminated as of
the Closing, with no terms surviving thereafter (the "Excluded Books and
Records").
"Business" has the meaning set forth in the Preface.
"Buyer" has the meaning set forth in the preface above.
"Claim" means any claim for indemnification pursuant to section 9 of this
Agreement.
"Closing" has the meaning set forth in section 2(e) below.
"Closing Date" has the meaning set forth in section 2(e) 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.
"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
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.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,
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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.
"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; and
(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; and
(iii) any refunds of Taxes for periods ending on or prior to the
Closing Date.
"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 Sellers' and Target's
counsel, Lewis J. Greco, or, except as expressly set forth herein, T. M. Byxbee
Company;
(d) 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;
(e) all other liabilities and obligations for which any Seller has
expressly assumed responsibility pursuant to this Agreement or otherwise;
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<PAGE>
(f) all Pre-Closing Environmental Liabilities;
(g) 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, except to the extent that Buyer has specifically
agreed that Target shall retain responsibility for such obligations in this
Agreement;
(h) all obligations for any indebtedness for borrowed money; except to the
extent the same are reflected on the Closing Net Asset Statement; and
(i) 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 ss.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.
"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.
"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
4
<PAGE>
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 Seller Representative"
or "Knowledge of Target" or other similar phrase shall mean the Knowledge of
Harry P. Headley, Michael K. Headley, and Frank L. Frisbie. Any reference in
this Agreement to "Knowledge of Buyer" or other similar phrase shall mean the
Knowledge of James M. Dean, Peter Belford, Pamela J. Thompson, Eric Lindberg, or
Michael Wendlinger.
"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 accruing after the Closing Date.
"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.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
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<PAGE>
"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 ss.3(37).
"Other Holder" has the meaning set forth in the preface above.
"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.
"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, together with all
Leasehold Improvements or Fixtures located thereon.
"Reference Amount" means Two Million Five Hundred Thousand Dollars
($2,500,000).
"Release" means any spill, leak, discharge, disposal, pumping, pouring,
emitting, emptying, injecting, abandoning, leaching, dumping or allowing to
escape of any Hazardous Substance.
"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
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<PAGE>
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 Harry P. Headley, 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.
"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, without par value,
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 "transferee" (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.
"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
---- -----------------
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Assignment of Claims Act Section 4(c)
Assignment of Contracts Act Section 4(c)
Business Employees Section 5(k)
Buyer Indemnification Matter Section 9(b)
Buyer Parties Section 9(b)
Cash Consideration Section 2(b)
CERCLA Section 1
Closing Net Asset Statement Section 2(c)
Determination Date Section 2(c)(i)
Employment Agreements Section 1
Leased Real Property Section 4(m)(ii)
Material Contracts Section 4(p)(i)
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 1
Note Section 2(b)(i)
Objection Notice Section 2(c)(i)
Parties preface
Permit Section 4(r)
Post-Closing Adjustment Section 2(c)(i)
Pre-Closing Default Section 11(a)
Product Warranties Section 6(c)
Projections Section 4(h)
Pro Rata Share Section 2(b)(ii)
Receivables and Unbilled Costs Section 4(z)(iii)
Required Consents Section 5(g)
Seller Indemnification Matters Section 9(c)
Seller Parties Section 9(c)
Shareholder Agreements Section 3(b)(iv)
Termination Date Section 11(a)(iv)
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 shall consist of the
Purchase Price, as defined below.
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(i) The "Purchase Price" shall, subject to adjustment as provided in
section 2(c) hereof, consist of (x) Eight Million Dollars ($8,000,000) in
cash (the "Cash Consideration"); and (y) a promissory note in the form
attached hereto as Exhibit C (the "Note"), made by the Buyer, in the
aggregate principal amount of One Million Dollars ($1,000,000), which
aggregate principal amount shall be subject to adjustment as set forth in
section 2(c) below and to the rights of set-off as provided in section
9(g) hereof.
(ii) 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 Seller Representative the Note.
The Purchase Price shall be paid to, or as directed in writing by, each of
the Sellers as follows:
(A) a portion of the Cash Consideration shall be paid to each
Other Holder, in each case equal to such Other Holder's respective
percentage holding of Target Shares ("Pro Rata Share") multiplied by
$9,000,000;
(B) the remainder of the Cash Consideration shall be paid to
Seller Representative; provided, however, that Buyer shall withhold Two
Hundred Fifty Thousand Dollars ($250,000) (the "Holdback"); and
(C) the Note shall be fully payable to, and delivered at
Closing to, the Seller Representative.
(c) Net Asset Adjustment. Not later than ninety (90) days after the
Closing Date, the Seller Representative 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 T. M. Byxbee Company 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. Buyer and Sellers each shall be responsible for one-half
of the fees and expenses charged by T. M. Byxbee Company 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.
(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"); provided, however, that no such objection may be
made by reason of any accounting methods, principles or practices used
consistently by Target prior to the Closing, as applied in or shown on the
Financial Statements described in section 4(g) of this Agreement. Failure
to provide an Objection Notice within such thirty-
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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 Four accounting firm
mutually acceptable to the Buyer and the Seller Representative or, in the
absence of agreement, by a Big Four accounting firm selected by lot after
eliminating Target's and Buyer's principal outside accountants. 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 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 (excluding, pursuant to the definition of
"Assets," all Excluded 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 Harry P. Headley the amount of such excess plus the Holdback,
in immediately available funds, within ten (10) business days after the
Determination Date.
(iii) If the Post Closing Adjustment is a negative number, the
Holdback shall be retained and applied by Buyer, to the extent of the
amount of the deficiency, and the remainder shall be paid to Seller
Representative within ten (10) business days after the Determination Date.
In the event the Post Closing Adjustment decreases the Purchase Price by
more than the Holdback, any such remaining amount shall first be applied
to reduce the principal amount of the Note, and then any additional
portion of such remaining amount shall be paid to Buyer by the Seller
Representative within ten (10) days after such amount is demanded by the
Buyer.
(d) Valuation of the Noncompetition Agreement and Noncompetition and
Nonsolicitation Provisions. Buyer and Sellers agree that the amount of the
consideration allocable to the Noncompetition Agreement shall be Twenty Thousand
Dollars ($20,000) and that the amount of the consideration allocable to the
Noncompetition and Nonsolicitation provisions of each Employment Agreement shall
each be Ten Thousand Dollars ($10,000).
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(e) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Shaw Pittman Potts
& Trowbridge in Washington, D.C., commencing at 1:00 p.m. local time on Friday,
March 13, 1998 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 Seller Representative may mutually determine (the "Closing
Date").
(f) 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, as applicable, the portions of the consideration
specified in section 2(b)(i) and (ii) above.
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, if any, 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.
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(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 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.
(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.
(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.
(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.
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4. Representations and Warranties Concerning Target. Each of Target and the
Seller Representative 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 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 New Jersey. 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
20,000 shares of common stock, no par value, of which 400 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.
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(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 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 Seller
Representative make no representation as to the applicability of 41 U.S.C.
section 15 (the "Assignment of Contracts Act") or 31 U.S.C. section 3727 (the
"Assignment of Claims Act").
(d) Title to Assets. Except as set forth in section 4(d) of the Disclosure
Schedule, 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 D are the following
financial statements (collectively the "Financial Statements"): (i) reviewed
balance sheets and reviewed statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended December 31, 1997
(the "Most Recent Fiscal Year End"), December 31, 1996 and
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December 31, 1995 for Target, and (ii) unaudited balance sheets and statements
of operations, (the "Most Recent Financial Statements") as of and for the one
month ended January 31, 1998 (the "Most Recent Fiscal Month End") for Target.
The Financial Statements described above present fairly the financial condition
of Target and the Business as of such dates and the results of operations of
Target for such periods. The Financial Statements (including the notes thereto )
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 and lack
footnotes and other presentation items.
(h) Projections. Seller Representative has delivered to Buyer projected
income statements and balance sheets of the Business for the 1998 and 1999
fiscal years (the "Projections"), which are attached as Exhibit E 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.
Buyer further recognizes that future circumstances and events may affect the
actual performance of the Business, and there can be no assurance that such
performance will be in accordance with the Projections.
(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, 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;
(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, 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 1997 in
accordance with the normal practices of the Target, or
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(B) the extension of coverage to such persons who became eligible after
the Most Recent Fiscal Year End;
(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
$10,000 or $50,000 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; or
(xii) agreement by Target or the Seller Representative 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, 1997 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 Seller
Representative's 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 Seller Representative, are any such actions
threatened.
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(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.
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(l) 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(l) of the Disclosure Schedule, there are no pending or to the
best of the Target's knowledge, threatened audits, investigations or
claims for or relating to any additional Tax liability, and there are no
matters under discussion with any governmental authorities with respect to
Taxes that in the reasonable judgment of the Target is likely to result in
a material additional liability of Target for Taxes. Except as set forth
in such Section, neither Target nor Seller Representative 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 168(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.
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(ix) 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.
(x) 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.
(xi) 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. ss. 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(xii) 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.
(xiii) 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.
(xiv) Changes in Accounting Method. Except as set forth in section
4(l) 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 Seller Representative has any knowledge that the IRS has
proposed any such adjustment or change in accounting method.
(m) Real Property.
(i) Target owns only the real property described on section 4(m)(i)
of the Disclosure Schedule (the "Owned Real Property"). Target's title to
and possession of the Owned Real Property is without any lien,
encumbrance, covenant, condition or adverse claim of any kind except as
shown on the owner's title insurance policy and deed with respect thereto,
as previously furnished to Buyer.
(ii) Section 4(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 4(m)(ii) of the Disclosure Schedule (as amended to date). With
respect to each lease and sublease listed in section 4(m)(ii) of the
Disclosure Schedule, 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
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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 Leased Real
Property. Each lease or sublease 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 Leased Real Property.
(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.
(n) Tangible Personal Property. All items of tangible Personal Property
having a gross book value equal to or greater than $10,000 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 Seller Representative,
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
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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
(C) Target has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(iii) 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 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 $5,000 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 $25,000
during the year ended December 31, 1997, or reasonably expects based upon
the operation of the Business as of the date hereof to pay or receive
aggregate consideration in excess of $25,000 during the year ending
December 31, 1998;
(C) any Government Contract;
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(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
$10,000 per annum;
(E) any note, debenture, guarantee, loan, letter of credit,
surety-bond 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
$10,000 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);
(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 $10,000 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 Contract requiring capital expenditures by Target in
connection with the Business or the Assets after the date hereof in an
amount in excess of $5,000 individually or $25,000 in the aggregate;
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(M) each written warranty, guaranty or other similar
undertaking with respect to contractual performance extended by Target
other than in the ordinary course of business;
(N) each Loss Contract: and
(O) each amendment, supplement, and modification (whether
written or oral) in respect of any of the foregoing.
(ii) With respect to each such Material Contract, 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 (the
"Transferred Receivables"), (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 the Seller Representative's 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; and
(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 the Seller Representative's 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 of social security and
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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. To Target's knowledge, (i) Target has complied
with and is not in violation of any Environmental Laws with respect to the Owned
Real Property and the Leased Real Property, (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 Owned Real Property or 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 Owned Real Property or 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 the Owned Real Property or 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 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.
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(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) At no time has any payment 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 $10,000 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 customer 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
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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) Neither Target nor any officer or management employee of Target
is currently, nor has ever been, 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 ever been issued against
Target, except, as to any such cure notices, those with respect to which
cure has been made in the ordinary course of business.
(vi) Neither Target nor any officer or management employee of Target
is currently, nor has ever been, under administrative, civil or criminal
indictment or, to the Seller Representative's 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 has never been denied a security clearance necessary to perform any
such Government Contract unless such clearance has later been granted.
(aa) Brokers' Fees. 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.
(bb) Backlog. Section 4(ab) of the Disclosure Schedule identifies for each
Government 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
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number of such contracts are IDIQ contracts as to which no specific quantities
are designated, that Target's estimates are not intended to be, or relied upon
by Buyer as, guarantees of the revenues which will actually be received under
such Government Contracts, and that there can be no assurance that the actual
experience under any particular Government Contract will conform to such
estimates.
(cc) 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. Buyer agrees that, if
prior to Closing Buyer obtains Knowledge that any of the representations or
warranties in this section 4 is inaccurate or misleading in any material
respect, Buyer will give Seller Representative notice thereof and will either
(i) give Seller Representative a reasonable opportunity to cure such
representation or warranty prior to Closing, (ii) terminate this Agreement prior
to Closing, in which case Sellers shall be responsible under section 12 hereof
only for Buyer's out of pocket expenses in connection with this Agreement and
not for any further amount, or (iii) notify Seller Representative that Buyer is
prepared to waive such breach of representation and proceed to Closing.
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) Governmental Consents. Each of Buyer, Sellers and Target 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.
(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. Without limiting the 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;
(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;
(iv) except as otherwise required by law or in the ordinary course
of business, take any action relating to Business Employees (as
hereinafter defined) with respect to the
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grant of any bonus, severance or termination pay (otherwise than pursuant
to policies or agreements of Target in effect on the date hereof 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;
(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
$10,000 in 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(l) 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;
provided that Sellers shall cause Target to report to Buyer promptly any
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; or
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(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.
(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 the Seller
Representative may agree or consent to 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 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 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 F
attached hereto, such consents to be substantially in the form set forth in such
Exhibit F (the "Required Consents"), including specifically (i) consents from
the landlords of the facilities leased by Target in Atlantic City, New Jersey,
and Washington, D.C., and (ii) letters from appropriate representative of each
of Lockheed Martin, Computer Sciences Corporation and the FAA Technical Center
stating that the contracts between Target and each such company, respectively,
will not be terminated due to the change in control of Target resulting from the
transactions contemplated by this Agreement.
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(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 of the representations and warranties in
section 3(b) or 4 above relating to the Sellers, 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 the Seller Representative 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). 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 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 individuals as are designated on section 4(v) of the Disclosure
Schedule (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 to any Excluded Employee by virtue of the
termination of their employment with Target effective as of the Closing.
(l) 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 (and subject to the same reservations) 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.
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6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General.
(i) 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 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
9 below).
(ii) 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 compete 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.
(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 9 below).
(c) Seller Representative represents and warrants to Buyer that the
Business does not include the manufacture or sale of any products.
(d) 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);
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(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-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) the Buyer shall have received from counsel to the Sellers an
opinion, addressed to the Buyer, reasonably satisfactory to Buyer and its
counsel and dated as of the Closing Date;
(v) Buyer shall have received from Target and Sellers such
certificates of 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;
(vi) Buyer shall have received the Required Consents;
(vii) The Seller Representative shall have executed and delivered to
Buyer the Noncompetition Agreement subject to consummation of the
transactions contemplated hereby, as of the date of this Agreement, and
shall have executed the acknowledgment at the end of the Note; and
(viii) Buyer shall have had discussions with the appropriate
representatives of each of Lockheed Martin, Computer Sciences Corporation
and the FAA Technical Center, whereby Buyer shall have received reasonable
assurances in Buyer's sole discretion that the commercial relationship
between each such company and Target shall continue after the Closing
Date.
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 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 quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling,
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or charge would prevent consummation of any of the transactions
contemplated by this Agreement;
(iv) the Sellers shall have received from counsel to the Buyer an
opinion addressed to the Sellers, reasonably satisfactory to Sellers and
their counsel, and dated as of the Closing Date;
(v) 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; and 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 Seller Representative 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.
(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, Seller
Representative obtaining Knowledge thereof, including information as to the
amount of insurance, if any,
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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 (10) 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 11.
9. Survival; Indemnification.
(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 one (1) year
thereafter except (i) those representations made with respect to the matters set
forth in sections 4(a) (ii) and (iii), 4(j), 4(l), 4(w), 4(x) and 4(z) and any
claim with respect thereto, and any matters arising by reason of any DCAA audits
for periods prior to and through the Closing Date, 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, and (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 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, 6 or 10 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 Seller Representative pursuant to section 13(h) below within the
survival period described above, then the Seller Representative agrees 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 Seller Representative shall not have any
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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 $50,000 in the aggregate, after which point
Seller Representative will be obligated only to indemnify the Buyer Parties from
and against further such Adverse Consequences); further provided, that the
limitations set forth above shall not apply to (x) any breach of a covenant set
forth in sections 2, 5, 6 or 10 of this Agreement, or of the representation set
forth in section 4(l)(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. Notwithstanding the foregoing, Seller Representative shall have no
liability for Adverse Consequences arising from the breach of the representation
set forth in section 4(q) except as follows. If and to the extent any
Transferred Receivable is not collected by Buyer within ninety (90) days after
the later of the Closing Date or the date on which the same was billed (the
"Preliminary Collection Date"), Buyer shall notify Seller representative of such
non-collection. For a period of ninety (90) days after the Preliminary
Collection Date, Seller Representative shall have the right to work together
with Buyer in an attempt to collect any such uncollected Transferred
Receivables; provided that Seller Representative shall not take any action which
could reasonably be deemed to have an adverse affect on any ongoing relationship
between Target or Buyer and the account debtor on any such Transferred
Receivable. If and to the extent that, at the end of such further ninety-day
period, any such Transferred Receivable has not been fully paid over to Buyer,
one-half (1/2) of any remaining uncollected amount thereof shall be deemed an
Adverse Consequence as to which Seller Representative shall have an
indemnification responsibility pursuant to this section 13(b).
(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 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 of the Sellers or any
of the Seller Parties (as defined below) with respect thereto, provided that any
of the Sellers or such Seller Party makes a written claim for indemnification
against the Buyer pursuant to section 13(h) below within the survival period
described above, then the Buyer agrees to indemnify, save, and hold harmless any
of such Sellers and any Sellers' Affiliates, 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 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 $50,000 in the aggregate, after which point
the Sellers shall be entitled to indemnification for all such Adverse
Consequences in excess of such amount; and further provided that the limitations
set forth above shall not apply to claims for breaches of any covenant set forth
in section 2, 5 or 6 of this Agreement.
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(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 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 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
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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, 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 Seller Representative 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. At the Buyer's election, the principal amount of the Note is subject
to adjustment following the Closing for any aggregate amount finally determined
to be payable by or to Buyer or the Seller Representative 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 (g)(ii), 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, Seller Representative shall, upon request of Buyer, surrender the
outstanding Note for a replacement Note reflecting the adjusted principal
amount, and Buyer shall, upon request of Seller Representative, execute and
deliver to Seller Representative such replacement Note.
10. Tax Matters. The following provisions shall govern the allocation of
responsibility as between Buyer and Sellers for certain tax matters:
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(a) Buyer shall, and shall cause Target to, promptly provide and make
available to the Seller Representative all information he may request for the
purpose of preparing and filing any such return or working on any such audit.
(b) 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.
(c) 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).
(d) 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 ss.6043 of the Code and all Treasury Department Regulations
promulgated thereunder.
(e) 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 half by Sellers and half by Buyer when due, and Buyer will 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.
(f) 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 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.
(g) 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
expense. 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
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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.
(h) 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 Form 8023-A and other such
forms, returns, elections, schedules, attachments and other documents as may be
required (collectively, the "Forms")) to effect and preserve a timely election.
(i) 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)-1(f)) and (ii) the proper allocation of the
MADSP among the Assets in accordance with Treas. Reg. Section
1.338(h)(10)-1(f); provided, however that for such purpose, the
depreciable tangible assets of Target shall have the value of such assets
as set forth on the balance sheet of Target dated January 31, 1998. 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. ss. 1.338(h)(10)-1(f)(4)).
(ii) 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 procedure set forth in the
preceding subsection (i) 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 Seller Representative 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.
(iii) 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.
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11. Termination.
(a) Termination of Agreement. Either Buyer or Seller Representative may
terminate this Agreement as provided below:
(i) Buyer and Seller Representative 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 ten (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
(iii) Seller Representative 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, Seller
Representative have notified the Buyer of the breach, and the breach has
continued without cure for a period of ten (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 March 16, 1998; 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 March 31, 1998 in order to obtain satisfaction of the closing
conditions set forth in Section 7.
(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 shall survive termination, and (ii) the provisions of Article 12
shall apply.
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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 (a "Pre-Closing Default"), the
nondefaulting party shall have the right to provide the applicable Seller
and Seller Representative, 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.
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 an amount equal
to $250,000, 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 (in the event Buyer obtains the remedy of
specific performance) 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 Pre-Closing
Default, then Buyer shall be entitled to recover an amount equal to
$250,000, 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 an amount equal to $250,000, 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. Buyer shall have the right to
make any claim under this section 12(c) against Seller
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Representative, without including a claim against any of the other Sellers. Any
claim of Buyer under this section 12(c) shall not be subject to any restrictions
or limitations on Seller Representative's liability set forth in section 9 of
this Agreement.
(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).
(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 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 Seller Representative; 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.
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(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 Harry P. Headley
21041 Goshen Road
Gaithersburg, Maryland 20882
Copy to: Louis J. Greco
642 Bay Avenue
Somers, New Jersey 08244-2520
If to the Buyer: Federal Data Corporation
4800 Hampden Lane
Bethesda, MD 20816
Attn: Peter C. Belford
Copy to: Federal Data Corporation
4800 Hampden Lane
Bethesda, MD 20816
Attn: Catherine M. Clark
Copy to: Victoria J. Perkins, Esq.
Shaw Pittman Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
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
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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 Seller Representative, 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.
(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.
44
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER:
FEDERAL DATA CORPORATION
By: /s/ Peter C. Belford
Name: Peter C. Belford
Title: Sr. Vice President
SELLERS:
/s/ Harry P. Headley
Name: Harry P. Headley, Trustee of the
Harry P. Headley Revocable Trust
/s/ Harry P. Headley
Name: Dorothy Headley, Trustee of the
Dorothy Headley Revocable Trust
By: Harry P. Headley as Attorney-in-Fact
/s/ Harry P. Headley
Name: Michael K. Headley
By: Harry P. Headley as Attorney-in-Fact
/s/ Harry P. Headley
Name: Lisa Headley
By: Harry P. Headley as Attorney-in-Fact
/s/ Harry P. Headley
Name: Kathleen Kowis
By: Harry P. Headley as Attorney-in-Fact
/s/ Harry P. Headley
Name: Gregory Kowis
By: Harry P. Headley as Attorney-in-Fact
45
<PAGE>
TARGET:
TECHNICAL AND MANAGEMENT ASSISTANCE, INC.
By: /s/ Harry P. Headley
Name: Harry P. Headley
Title: Secretary
46
VOL F143 PAGE 865
FILED
FEB 25 1983 9AM
/s/ [Illegible]
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
of
ROW Sciences, Inc.
A CLOSE CORPORATION
FIRST. The name of this Corporation is ROW Sciences, Inc.
SECOND. Its registered office in the State of Delaware is to be located at
725 Market Street, City of Wilmington, County of New Castle. The registered
agent in charge thereof is The Company Corporation address "same as above".
THIRD. The nature of the business and, the objects and purposes proposed
to be transacted, promoted and carried on, are to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. The amount of total authorized capital stock of the corporation is
divided into 1,000 shares of no par value.
FIFTH. The name and mailing address of the incorporator is as follows:
Ralph 0. Williams, 12702 Theresa Dr., Silver Spring, Maryland 20904
SIXTH. The powers of the incorporator are to terminate upon filing of the
certificate of incorporation. and the name and mailing addresses of the persons
who are to serve as managing stockholder(s) until their successors are elected
are as follows:
Name and address of managing stockholder(s)
Ralph 0. Williams Fill in name(s)
12702 Theresa Dr., Silver Spring, Maryland 20904 and address(s)
SEVENTH. All of the corporation's issued stock, exclusive of treasury
shares, shall be held of record by not more than thirty (30) persons.
EIGHTH. All of the issued stock of all classes shall be subject to the
following restriction on transfer permitted by Section 202 of the General
Corporation Law.
Each stockholder shall offer to the Corporation or to other stockholders
of the corporation a thirty (30) day "first refusal" option to purchase his
stock should he elect to sell his stock.
NINTH. The corporation shall make no offering of any of its stock of any
class which would constitute a "public offering" within the meaning of the
United States Securities Act of 1933, as it may be amended from time to time.
I, THE UNDERSIGNED, for the purpose of forming a corporation under the
laws of the State of Delaware do make, file and record this certificate, and do
certify that the facts herein stated are true; and I have accordingly hereunto
set my hand.
DATED AT: February 16, 1983
/s/ Ralph 0. Williams
----------------------------
<PAGE>
FILED
JUL 22 1987 9AM
/s/ [Illegible]
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
ROW SCIENCES, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the managing stockholders of ROW SCIENCES,
INC. resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows.
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by adding the Article thereof numbered "10th" so that, as amended said
Article shall be and read as follows:
Article Tenth:
"Directors of the corporation shall not be liable to either the corporation or
its stockholders for monetary damages for a breach of fiduciary duties unless
the breach involves; (1) a director's duty of loyalty to the corporation or its
stockholders; (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) liability for unlawful
payments of dividends or unlawful stock purchases or redemption by the
corporation; or (4) a transaction from which the director derived an improper
personal benefit."
SECOND: That thereafter, pursuant to resolution of its managing
stockholders, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment as duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said ROW SCIENCES, INC. has caused its corporate seal
to be hereunto affixed and this certificate to be signed by Ralph 0. Williams
its President and Mariah W. Williams its Secretary this 30th day of June 1987.
/s/ Ralph 0. Williams
----------------------------
President
/s/ Mariah W. Williams
----------------------------
Secretary
BY-LAWS
of R.O.W. Sciences, Inc.
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 725 Market Street, Wilmington, Delaware.
The registered agent in charge thereof shall be The Company Corporation.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered
office of the corporation in this state or at such place, either within or
without this state, as may be selected from time to time by the Board of
Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders shall
be held on the 1st day of March in each year if not a legal holiday, and if a
legal holiday, then on the next secular day following at 10 o'clock A.M.,
<PAGE>
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. If the annual meeting for election
of directors is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the directors of the
corporation may be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duty called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least ten days before such meeting, unless a greater period of notice
is required by statute in a particular case.
<PAGE>
Section 5. Quorum: A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
<PAGE>
shall be filed with the Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
<PAGE>
Section 9. List of Stockholders: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, 2 in number. The directors need not be residents of
this state or stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation, and each
director shall be elected for the term of one year, and until his
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation or
removal.
Section 2. Regular Meetings: Regular meetings of the Board shall be held
without notice on the first Friday of every 6th month at the registered office
of the corporation, or at such other time and place as shall be determined by
the Board.
Section 3. Special Meetings: Special Meetings of the Board may be called
by the President on 5 days notice to each director, either personally or by mail
or by telegram; special meetings shall be called by the President or Secretary
in like manner and on like notice on the written request of a majority of the
directors in office.
Section 4. Quorum: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. Consent in Lieu of Meeting: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. Conference Telephone. One or more directors may participate in
a meeting of the Board, of a committee of the Board
<PAGE>
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in this manner shall constitute
presence in person at such meeting.
Section 7. Compensation: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. Removal: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary
<PAGE>
and Treasurer. The Board of Directors may also choose a Chairman, one or more
Vice Presidents and such other officers as it shall deem necessary. Any number
of offices may be held by the same person.
Section 2. Salaries: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Term of Office: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. President: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation. He shall be EX-OFFICIO a member of all committees, and shall have
the general power and duties of supervision and management usually vested in the
office of President of a corporation.
<PAGE>
Section 5. Secretary: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the
<PAGE>
corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom.
<PAGE>
A proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the president.
Section 2. Transfers: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 3. Lost Certificate: The corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative,
<PAGE>
to give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 4. Record Date: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of
<PAGE>
Directors is necessary, shall be the day on which the first written
consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5. Dividends: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation, from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. Reserves: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year shall begin on the first day of
January.
Section 3. Notice: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. Waiver of Notice. Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such
<PAGE>
meeting. Attendance of a person either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 5. Disallowed Compensation: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. Resignations: Any director or other officer may resign at
anytime, such resignation to be in writing, and to take effect from the time of
its receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall
<PAGE>
present at each annual meeting a full and complete statement of the business and
affairs of the corporation for the preceding year. Such statement shall -be
prepared and presented in whatever manner the Board of Directors shall deem
advisable and need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the vote of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast thereon, at any regular or special meeting of
the stockholders, duly convened after notice to the stockholders of that
purpose.
FILED
MAY 14 1986
JANE BURGIO
Secretary of State
CERTIFICATE OF INCORPORATION
OF
TECHNICAL AND MANAGEMENT ASSISTANCE, INC.
THE UNDERSIGNED, of the age of eighteen years or over, in order to form a
corporation pursuant to the provisions of the New Jersey Business Corporation
Act, hereby certify as follows:
1. The name of the corporation is Technical and Management Assistance,
Inc.
2. The purpose of the corporation is to engage in any activity within the
purposes for which corporations may be organized under the New Jersey Business
Corporation Act.
3. The corporation is authorized to issue 2,500 shares of capital stock
without par value.
4. The initial registered office of the corporation is: 137 White Horse
Pike, P.O. Box 1208, Hammonton, New Jersey, 08037-5208. The name of the
corporation's initial registered agent at that office is Louis J. Greco,
Esquire.
5. One person will constitute the first Board of Directors; his name and
address is as follows:
Alfred Neuweiler
1-17 Pinehurst Dr.
Tuckerton, NJ 08087
<PAGE>
6. The name and address of the incorporator of the corporation is as
follows:
Alfred Neuweiler
1-17 Pinehurst Dr.
Tuckerton, NJ 08087
7. The corporation may elect to be treated as a Sub-chapter "S"
corporation under the Federal Internal Revenue Code now in effect.
IN WITNESS WHEREOF, the undersigned have signed this Certificate of
Incorporation this 12th day of May, 1986.
/s/ Alfred Neuweiler
---------------------------------
ALFRED NEUWEILER
Signed, Sealed and Delivered
in the presence of:
[Illegible]
- ----------------------------
Attorney at law
of New Jersey
-2-
<PAGE>
FILED
DEC 9 1996
LONNA R. HOOKS
Secretary of State
AMENDMENT TO CERTIFICATE OF INCORPORATION
EFFECTING A SHARE DIVISION
CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION
OF TECHNICAL AND MANAGEMENT ASSISTANCE, INC.,
PURSUANT TO N.J.S.A. 14A:7-15.1(3)
The undersigned, the President of Technical and Management Assistance, Inc.,
hereby certifies as follows:
(a) The name of the Corporation is Technical and Management Assistance,
Inc.
(b) The date of the adoption by the Corporation's Board of Directors of
the Resolution approving the following amendment and the division of its issued
and outstanding shares is November 22, 1996.
(c) The following amendment to the Certificate of Incorporation will not
adversely affect the rights or preferences of the holders of the only class of
shares issued and outstanding and will not result in the percentage of
authorized shares that remains unissued after the share division exceeding the
percentage of authorized shares that was unissued before the share division.
(d) The Corporation has only one class of 2,500 authorized shares of which
50 are issued and outstanding. Each of the authorized but unissued shares and
each of the issued and outstanding shares are to be divided into 8 shares.
(e) Paragraph 3 of the Certificate of Incorporation is hereby amended to
read in its entirety as follows:
3. The Corporation is authorized to issue 20,000 shares of capital stock
without par value.
(f) This amendment to the Certificate of Incorporation is to become
effective at the time of filing of this Certificate with the Secretary of State
of the State of New Jersey.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed on its behalf by its President.
Technical and Management Assistance, Inc.
By: /s/ Harry P. Headley
------------------------------
Harry P. Headley, President
Dated: November 22, 1996
BY-LAWS
OF
TECHNICAL AND MANAGEMENT ASSISTANCE, INC.
- --------------------------------------------------------------------------------
Adopted May 14, 1986
ARTICLE I
OFFICES
1. Registered Office and Agent. The registered office of the Corporation
in the State of New Jersey is at 137 South White Horse Pike, P. 0. Box 1208,
Hammonton, New Jersey 08037.
The registered agent of the Corporation at such office is Louis J. Greco,
Esquire.
2. Principal Place of Business. The principal place of business of the
Corporation is 1-17 Pinehurst Drive, Tuckerton, New Jersey 08087.
3. Other Places of Business. Branch or subordinate places of business or
offices may be established at any time by the Board at any place or places where
the Corporation is qualified to do business.
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ARTICLE II
SHAREHOLDERS
1. Annual Meeting. The annual meeting of shareholders shall be held upon
not less than ten (10) nor more than sixty (60) days' written notice of the
time, place and purposes of the meeting, on the 15th day of the month of
February of each year, or on such other date as may be fixed by the Board of
Directors, in order to elect directors and transact such other business as shall
come before the meeting. If that date is a legal holiday, the meeting shall be
held on the next succeeding business day.
2. Special Meetings. A special meeting of shareholders may be called for
any purpose by the President or the Board of Directors. A special meeting shall
be held upon not less than ten (10) nor more than sixty (60) days' written
notice of the time, place and purposes of the meeting.
3. Place of Meetings. Meetings of the shareholders shall be held at the
principal business office of the Corporation in the State of New Jersey, or at
such other place, within or without the State of New Jersey, as may be fixed by
the Board of Directors.
4. Action Without Meeting. The shareholders may act without a meeting if,
prior or subsequent to such action, each shareholder who would have been
entitled to vote upon
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such action shall consent in writing to such action. Such written consent or
consents shall be filed in the minute book.
5. Quorum. The holders of a majority of the shares entitled to vote at a
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of any business except as provided in the New Jersey Business
Corporation Act.
ARTICLE III
BOARD OF DIRECTORS
1. Number and Term of Office. The business of this Corporation shall be
managed by its Board of Directors. The initial Board shall consist of the
person(s) designated as such in the Certificate of Incorporation. Thereafter,
the number of directors for each ensuing year may be established by the Board of
Directors at its annual meeting. Each director shall be elected by the
shareholders at each annual meeting and shall hold office until the next annual
meeting of shareholders and until that director's successor shall have been
elected and qualified, or until his earlier death, resignation or removal.
2. Regular Meetings. A special meeting of the Board shall be held without
notice immediately following and at the same place as the annual shareholders'
meeting for the purposes of electing officers and conducting such other
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business as may come before the meeting. The Board, by resolution, may provide
for additional regular meetings which may be held without notice, except to
members not present at the time of the adoption of the resolution.
3. Special Meetings. A special meeting of the Board may be called at any
time by the President for any purpose upon two (2) days' notice to each
director, either personally or by mail or by telegram; a special meeting shall
be called by the President or Secretary in like manner and on like notice on the
written request of a majority of the directors in office.
4. Action Without Meeting. The Board may act without a meeting if, prior
or subsequent to such action, each member of the Board shall consent in writing
to such action. Such written consent or consents shall be filed in the minute
book.
5. Quorum. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business.
6. Vacancies in Board of Directors. Any vacancy in the Board, including a
vacancy caused by an increase in the number of directors, may be filled by the
affirmative vote of a majority of the remaining directors, even though less than
a quorum of the Board, or by a sole remaining director.
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ARTICLE IV
OFFICERS
1. Election. At its regular meeting following the annual meeting of
shareholders, the Board shall elect a president, a treasurer, a secretary, and
it may elect such other officers, including one or more vice presidents, as it
shall deem necessary. One person may hold two or more offices.
2. Duties and Authority of President. The president shall be chief
executive officer of the Corporation. Subject only to the authority of the
Board, he shall have general charge and supervision over, and responsibility
for, the business and affairs of the Corporation. Unless otherwise directed by
the Board, all other officers shall be subject to the authority and supervision
of the president. The president may enter into and execute in the name of the
Corporation contracts or other instruments in the regular course of business or
contracts or other instruments not in the regular course of business which are
authorized, either generally or specifically, by the Board. He shall have the
general powers and duties of management usually vested in the office of
president of a corporation.
3. Duties and Authority of Vice President. The vice president shall
perform such duties and have such authority as from time to time may be
delegated to him by the president
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or by the Board. In the absence of the president or in the event of his death,
inability, or refusal to act, the vice president shall perform the duties and be
vested with the authority of the president.
4. Duties and Authority of Treasurer. The treasurer shall have the custody
of the funds and securities of the Corporation and shall keep or cause to be
kept regular books of account for the Corporation. The treasurer shall perform
such other duties and possess such other powers as are incident to that office
or as shall be assigned by the president or the Board.
5. Duties and Authority of Secretary. The secretary shall cause notices of
all meetings to be served as prescribed in these by-laws and shall keep or cause
to be kept the minutes of all meetings of the shareholders and the Board. The
secretary shall have charge of the seal of the corporation. The secretary shall
perform such other duties and possess such other powers as are incident to that
office or as are assigned by the president or the Board.
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ARTICLE V
WAIVERS OF NOTICE
Any notice required by these By-Laws, by the Certificate of Incorporation,
or by the New Jersey Business Corporation Act, may be waived in writing by any
person entitled to notice. The waiver or waivers may be executed either before
or after the event with respect to which notice is waived. Each director or
shareholder attending a meeting without protesting, prior to its conclusion,
shall be deemed conclusively to have waived notice of the meeting.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify its directors to the fullest extent
permitted under the New Jersey Business Corporation Act and may, if and to the
extent authorized by the Board of Directors, so indemnify its officers and any
other person whom it has the power to indemnify against any liability, expense
or other matter.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
1. Fiscal Year. The fiscal year of the Corporation shall begin on the
first day of January of each year.
2. Participation in Meetings. Any or all directors or shareholders may
participate in a meeting of the Board, or of the shareholders, by means of a
conference telephone or similar communications equipment, by means of which all
persons participating in the meeting can hear each other.
ARTICLE VIII
AMENDMENTS TO AND EFFECT OF BY-LAWS
1. Force and Effect of By-Laws. These By-Laws are subject to the
provisions of the New Jersey Business Corporation Act and the Corporation's
Certificate of Incorporation, as it may be amended from time to time. If any
provision in these By-Laws is inconsistent with a provision in that Act or the
Certificate of Incorporation, the provision of that Act or the Certificate of
Incorporation shall govern.
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2. Amendments to By-Laws. These By-Laws may be altered, amended or
repealed by the shareholders or the Board of Directors. Any By-Law adopted,
amended or repealed by the shareholders may be amended or repealed by the Board,
unless the resolution of the shareholders adopting such By-Law expressly
reserves to the shareholders the right to amend or repeal it.
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SUBORDINATED NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT AND WITHOUT THE PRIOR WRITTEN CONSENT
OF PAYOR.
FEDERAL DATA CORPORATION
9% SUBORDINATED NOTE
DUE FEBRUARY 17, 2000
$1,000,000 February 17, 1998
Federal Data Corporation, a Delaware corporation ("Payor"), for
value received, promises to pay Ralph O. Williams, or order, ("Payee") the
principal amount of One Million Dollars ($1,000,000.00), together with accrued
interest thereon, each calculated and payable only as and to the extent set
forth below, including without limitation Section 5 hereof, (the "Note" or
"Subordinated Note"). The principal and interest on this Note is payable in
lawful money of the United States of America in immediately available funds at
11222 River View Drive, Potomac, Maryland 20854 or such other place in the
United States as Payee may from time to time designate in writing to Payor.
This Note is made pursuant to that certain Stock Purchase Agreement
(the "Agreement"), dated February 17, 1998, by and among Payor, R.O.W. Sciences,
Inc., a Delaware corporation (the "Target"), and Ralph O. Williams, Frederic M.
Cullen, the Trustees of the R.O.W. Sciences ESOP, John C. Smith and Paul H.
Tardif (the "Sellers") pursuant to which Payor has purchased from Sellers all
the issued and outstanding shares of Target, and is the "Note" referred to
therein. Payee is a former shareholder of Target and is receiving this Note
pursuant to the Agreement. Payments under this Note are subject to the right of
Payor to reduce amounts payable under this Note as set forth in Section 5 below,
which right shall be binding upon any holder of the Subordinated Note. All
capitalized term used herein and not defined herein shall have the meanings
assigned to such terms in the Agreement.
1. Payment of Principal and Interest
1.1 Calculation and Payment of Interest. Interest on the principal balance
of this Note outstanding from time to time until paid in full shall accrue at
the rate of nine percent (9%) per annum computed on the basis of a 365 or
366-day year, as appropriate, for the actual number of days elapsed, commencing
on the date hereof. Such interest shall be payable semiannually in arrears,
beginning on July 17, 1998 and thereafter on each January 1 and July 1 until the
Maturity Date (as defined herein).
<PAGE>
1.2 Payment on Maturity Date. The principal balance of, and any accrued
and unpaid interest on, this Note shall be payable on the later of (a) February
17, 2000, and (b) to the extent that any Defense Contract Audit Agency ("DCAA")
or other applicable governmental agency audits of contracts that were in effect
as of the date hereof, constituting part of the Assets under the Agreement, with
agencies of the United States Government remain open on February 17, 2000, a
date reasonably selected by the Payor which would allow for the finalization of
any such DCAA audits (as applicable, the "Maturity Date").
1.3 Optional Prepayment.
(a) Payor may, at its option at any time, without premium or
penalty, prepay all or any portion of this Note.
(b) Any prepayment of this Note shall be applied as follows: first,
to payment of accrued interest; and second, to payment of principal. Upon any
partial prepayment, at the request either of Payee or Payor, this Note shall be
surrendered to Payor in exchange for a substitute note, which shall set forth
the revised principal amount but otherwise identical to this Note. In the event
that this Note is prepaid in its entirety, this Note shall be surrendered to
Payor for cancellation as a condition to any such prepayment.
1.4 Payment Only on Business Days. Any payment hereunder which, but for
this Section 1.4, would be payable on a day which is not a Business Day, shall
instead be due and payable on the Business Day next following such date for
payment.
2. Events of Default
The following shall constitute "Events of Default" under this Note:
(a) Subject to Section 4 below, failure by Payor to make any payment
required under this Note when the same shall become due and payable (whether at
maturity, by acceleration or otherwise) and the continuation of such failure for
a period of thirty (30) days; or
(b) Payor breaches any covenant under Section 3.1, Section 3.2, or
the last sentence of Section 7.9 of this Note, which breach or failure, if
curable, shall continue uncured for a period of thirty (30) days after the date
on which written notice specifying such breach, and stating that such notice is
a "Notice of Default" hereunder, shall have been given by Payee to Payor; or
(c) Payor, pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief against it in
an involuntary case or proceeding;
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(C) consents to the appointment of a Custodian of it or for
all or any substantial portion of its property or assets;
(D) makes a general assignment for the benefit of the
creditors; or
(d) an involuntary case or proceeding is commenced against Payor
under any Bankruptcy Law and is not dismissed, bonded or discharged within
ninety (90) days thereafter, or a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(A) is for relief against Payor in an involuntary case or
proceeding;
(B) appoints a Custodian of Payor for all or substantially all
of its properties; or
(C) orders the liquidation of Payor;
and in each case the order or decree remains unstayed and in effect for ninety
(90) days; or
(e) the occurrence of any merger or consolidation with, or any sale
of all or substantially all of the assets of the Payor (a "Business
Combination"), to any other corporation or business entity, which Business
Combination results in a Change in Control of the Payor. For purposes hereof, a
"Change in Control" means (A) any Business Combination other than a Business
Combination in which the shareholders who were shareholders of the Payor
immediately prior to such event have, directly or indirectly, at least a
majority of the voting common equity of the continuing or surviving corporation
immediately after such Business Combination and the conditions stated in clauses
(X) and (Y) below are met, or (B) any Business Combination (1) in which the
Payor is not the continuing or surviving corporation or (2) pursuant to which
the Payor's capital stock would be converted into cash, securities or other
property, except that a Change of Control shall not include any Business
Combination in which, (X) the relative economic values of the respective
interests in the continuing or surviving corporation of the shareholders of the
corporation who were shareholders immediately prior to such Business Combination
plus the consideration received by such Shareholders in connection with the
Business Combination is approximately equal to the relative economic values of
their respective equity interests in the Payor immediately prior to such
Business Combination and (Y) the charter of such continuing or surviving
corporation contains provisions substantially similar to the Payor's Certificate
of Incorporation, reserving rights to each shareholder substantially similar to
the existing rights of such shareholder prior to the Business Combination.
If an Event of Default specified in Section 2(a), 2(b) or 2(e) shall
have occurred and be continuing and any Senior Debt should then be outstanding,
subject to the provisions of Section 4 hereof, Payee may, at its option, by
notice in writing to Payor and to the Agent under the Senior Debt Documents (the
"Acceleration Notice"), declare the entire principal amount of this Note and the
interest accrued thereon to be due and payable upon the earlier of (i) one
hundred fifty (150) days after the receipt of the Acceleration Notice by Payor
and the Agent
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under the Senior Debt Documents or (ii) an acceleration under the Senior Debt
Documents, and upon any such declaration the same shall become due and payable
at such time. If an Event of Default specified in Section 2(a), 2(b) or 2(e)
shall have occurred and be continuing and no Senior Debt shall then be
outstanding, Payee may, at its option, declare the entire principal amount of
this Note and the interest accrued thereon to be due and payable upon the date
which is five (5) Business Days after the date of delivery by Payee to Payor of
a written notice of acceleration, and upon any such declaration the same shall
become due and payable at such time. If an Event of Default specified in Section
2(c) or 2(d) hereof occurs, the principal balance of and accrued interest on
this Note shall become due and payable immediately without any declaration or
other act on the part of Payee.
If any Event of Default shall have occurred and be continuing,
subject to the provisions of Sections 2 and 4 hereof, Payee may proceed to
protect and enforce its rights either by suit in equity or by action at law, or
both, whether for specific performance of any provision of this Note or in aid
of the exercise of any power granted to Payee under this Note.
3. Covenants.
3.1 Affirmative Covenant. Payor covenants and agrees that for so long as
any indebtedness evidenced by this Note shall remain outstanding, unless waived
by Payee, Payor shall: promptly give notice to Payee of (i) any default or Event
of Default hereunder (ii) any notice of an "Event of Default" (as defined in the
Senior Debt Documents) permitting the holder or holders of the Senior Debt to
accelerate such Senior Debt given to Payor by any holder of Senior Debt or its
agent or (iii) any acceleration of the Senior Debt or any other Indebtedness of
Payor having an aggregate principal amount in excess of $5,000,000.
3.2 Negative Covenants. Payor covenants and agrees that for so long as any
indebtedness evidenced by this Note remains outstanding, Payor will not, without
the written consent of Payee:
(a) liquidate, wind up or dissolve itself (or suffer any liquidation
or dissolution), or convey, sell, lease, transfer or otherwise dispose of, in
one transaction or a series of related transactions, all or substantially all of
its assets; provided, however, that the foregoing shall not apply in any way to
the grant of a lien or security interest in, or the foreclosure, sale or other
disposition of, collateral pledged to secure Senior Debt pursuant to any
judicial proceeding or by or at the direction of the holders of any Senior Debt
or any agent or other representative acting on their behalf; or
(b) consolidate with, or merge with or into, any Person unless (i)
Payor shall be the continuing Person, or the Person (if other than Payor) formed
by such consolidation or into which Payor is merged shall be a corporation
organized and existing under the laws of the United States or any state thereof
or of the District of Columbia and, in the event Payor is merged with or into
any other Person, such Person shall expressly assume, by an agreement executed
and delivered to Payee, the obligations of Payor under this Note. Upon any
consolidation or merger
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of Payor in accordance with this Section 3.2(b), the successor corporation
formed by such consolidation or into which Payor is merged shall succeed to, and
be substituted for, and may exercise every right and power of, Payor under this
Note with the same effect as if such successor corporation had been named as
Payor herein.
4. Subordination
4.1 Note Subordinated to Senior Debt. To the extent and in the manner
hereinafter set forth in this Section 4 and subject to the terms of Section 5
below, the indebtedness represented by this Note and the payment of the
principal of and the interest on this Note and any claim for rescission of the
purchase of this Note, and any claim (such as a claim in a bankruptcy or similar
proceeding) which is the equivalent of or substitute for principal of or
interest on this Note, and all other payments with respect to or on account of
this Note (collectively, the "Subordinated Debt") (a) rank, notwithstanding any
provisions to the contrary in such notes, pari passu in right of payment with
the subordinated notes issued by Payor (i) pursuant to that certain Agreement
and Plan of Merger dated April 9, 1997 by and among Azmat Ali, Peter Belford,
Arthur Vebin, NYMA, Inc. and NYMA Acquisition, Inc., and Peter Belford as the
initial shareholder representative; (ii) pursuant to that Stock Purchase
Agreement dated June 18, 1997 by and among Payor 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 Management Systems Corporation; and
(iii) in the offering by Payor of 10-1/8% Senior Subordinated Notes due 2005 or
the 10-1/8% Senior Subordinated Notes due 2005 issued in exchange therefor, and
(b) are hereby expressly made subordinate and subject in right of payment to the
prior payment in full in cash of all other Senior Debt. This Section 4 shall
inure to the benefit of all Persons who become holders of, or continue to hold,
Senior Debt, each of whom is an obligee hereunder and is entitled to enforce
such holder's rights under this section 4, subject to the provisions hereof,
without any act or notice of acceptance hereof or reliance hereon. For purposes
of this Section 4, Senior Debt shall not be deemed to have been paid in full
until the termination of all commitments or other obligations by any holder
thereof and unless all such holders shall have received indefeasible payment in
full in cash of all obligations under or in respect of Senior Debt (including,
without limitation, Post Petition Interest).
4.2 No Payment on Note in Certain Circumstances.
(a) During the continuance of any default in the payment of any
Senior Debt, whether at maturity, upon redemption or pursuant to acceleration or
otherwise (each, a "Payment Default"), no direct or indirect payment of any kind
shall be made, asked for, demanded, accepted, received or retained with respect
to principal, interest or other amounts due under the Note nor shall any holder
thereof exercise any remedies with respect thereto.
(b) Upon the occurrence of any default (other than a Payment
Default) under any Senior Debt Document which would permit the Banks (or any
other holder of Senior Debt) to accelerate the maturity of the Senior Debt
outstanding thereunder (whether after the giving of notice, the lapse of time,
or both or otherwise) (each, a "Non-Payment Default"), no payment or
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distribution (including any payment or distribution that may be payable by
reason of any other indebtedness of Payor being subordinated to payment of the
Subordinated Debt) shall be made by or on behalf of Payor for or on account of
or in respect of the Subordinated Debt until such Non-Payment Default shall have
been cured or waived or otherwise ceases to exist pursuant to the terms of such
Senior Debt, or the benefits of this sentence shall have been waived by or on
behalf of, and at the sole option of, the holders of a majority of the principal
amount of such Senior Debt. Notwithstanding the foregoing, the suspension of
payments described in the preceding sentence shall terminate, and the Payor
shall be obligated to make all payments of principal and interest on this Note,
including any payments not made by virtue of such suspension, if any holder or
holders of the relevant Senior Debt has not, on or prior to the 180th day after
the occurrence of the Non-Payment Default under the Senior Debt, declared all
unpaid principal and interest on such Senior Debt to be immediately due and
payable, unless such Non-Payment Default shall have been cured or waived or
otherwise ceases to exist pursuant to the terms of such Senior Debt, or the
benefits of the previous sentence shall have been waived by or on behalf of, and
at the sole option of, the holders of a majority of the principal amount of such
Senior Debt.
(c) Payee agrees that, so long as payments or distributions for or
on account of the Subordinated Debt are not permitted pursuant to this Section
4, Payee will not take, sue for, ask or demand from Payor payment of all or any
amounts under or in respect of this Note, or commence, or join with any creditor
other than the holders of Senior Debt and their agents in commencing, directly
or indirectly cause Payor to commence, or assist Payor in commencing, any
proceeding referred to in Section 4.3, and Payee shall not take or receive from
Payor, directly or indirectly or on its behalf, in cash or other property or by
set-off (except in respect to Payor's rights as set forth in Section 5 below) or
in any other manner, including, without limitation, from or by way of
collateral, payment of all or any amounts under or in respect of the
Subordinated Debt. In the event that notwithstanding the foregoing provisions of
this Section 4.2, any payment or distribution of any kind or character, whether
in cash, property or securities (including any payment or distribution that may
be payable by reason of any other indebtedness of Payor being subordinated to
payment of the Subordinated Debt), shall be received by Payee for or on account
of or in respect of the Subordinated Debt before all Senior Debt is indefeasibly
paid in full, such payment or distribution shall be received and held in trust
for, and shall be paid over (in the same form as so received, to the extent
practicable, and with any necessary endorsement) to the holders of the Senior
Debt remaining unpaid or their representative or representatives, or to the
trustee or trustees under any such indenture or agreement under which any Senior
Debt may have been issued, for application (in the case of cash) to, or as
collateral (in the case of non-cash property or securities) for the payment or
prepayment of Senior Debt, until all Senior Debt shall have been paid in full in
cash, after giving effect to any concurrent payment or distribution to the
holders of such Senior Debt.
4.3 Dissolution; Liquidation; Bankruptcy; Acceleration. In the event of
(i) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar proceeding in connection therewith,
relative to the Payor or any of its assets, or (ii) any liquidation, dissolution
or other winding up of the Payor, whether voluntary or involuntary or
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whether or not involving insolvency or bankruptcy, or (iii) any assignment for
the benefit of creditors or any other marshalling of assets or liabilities of
the Payor, or (iv) the acceleration of the Senior Debt by reason of the
occurrence of a default or an event of default thereunder (each such event, if
any, herein sometimes referred to as a "Proceeding"):
(a) The holders of all Senior Debt shall first be entitled to
receive payment in full in cash of all Senior Debt before any direct or indirect
payment may be made for or on account of payments under or in respect of the
Subordinated Debt, whether in cash, property or securities of any kind;
(b) Any payment or distribution of any kind or character, whether in
cash, property or securities (including any payment or distribution that may be
payable by reason of any other indebtedness of Payor being subordinated to
payment of the Subordinated Debt), to which Payee would be entitled except for
the provisions of this Section 4, shall be paid by the liquidating trustee or
agent or other person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or other trustee or agent,
directly to the holders of Senior Debt or their representative or
representatives, or to the trustee or trustees under any indenture under which
any instrument evidencing any of such Senior Debt may have been issued for
application (in the case of cash) to, or as collateral (in the case of non-cash
property or securities) for the payment or prepayment of Senior Debt, to the
extent necessary to make payment in full of all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the holders of
such Senior Debt.
(c) The holders of Senior Debt are hereby irrevocably authorized and
empowered (in their own names or in the name of Payee or otherwise), but shall
have no obligation, to demand, sue for, collect and receive every payment or
distribution referred to in paragraph (b) above and give acquittance therefor
and to file claims and proofs of claim and take such other action (including,
without limitation, voting the amounts owing under the Subordinated Debt or
enforcing any security interest or other lien securing payment of the amounts
owing under the Subordinated Debt) as they may deem necessary or advisable for
the exercise or enforcement of any of the rights or interests of the holders of
Senior Debt hereunder.
(d) Payee shall duly and promptly take such action as the holders of
Senior Debt may reasonably request to execute and deliver to the holders of
Senior Debt such powers of attorney, assignments, or other instruments as the
holders of Senior Debt may request in order to enable the holders of Senior Debt
to enforce any and all claims with respect to, and any security interests and
other liens securing payment of, the amounts owing under the Subordinated Debt.
(e) In the event that, notwithstanding the foregoing provisions of
this Section 4.3, any payment or distribution of any kind or character, whether
in cash, property or securities (including any payment or distribution that may
be payable by reason of any other indebtedness of Payor being subordinated to
payment of the Subordinated Debt), shall be received by Payee for or on account
of or in respect of the Subordinated Debt before all Senior Debt is indefeasibly
paid in full, such payment or distribution shall be received and held in trust
for, and shall be paid
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over (in the same form as so received, to the extent practicable, and with any
necessary endorsement) to the holders of the Senior Debt remaining unpaid or
their representative or representatives, or to the trustee or trustees under any
such indenture or agreement under which any Senior Debt may have been issued,
for application (in the case of cash) to, or as collateral (in the case of
non-cash property or securities) for the payment or prepayment of Senior Debt,
until all Senior Debt shall have been paid in full in cash, after giving effect
to any concurrent payment or distribution to the holders of such Senior Debt.
4.4 Subrogation. Upon the final payment in full in cash of all Senior
Debt, Payee shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of Payor
applicable to the Senior Debt until the principal of and interest on and all
other amounts payable under the Subordinated Debt shall be paid in full, and for
the purposes of such subrogation, no payments or distributions to the holders of
the Senior Debt of any cash, property or securities to which Payee would be
entitled except for the provisions of this Section 4 and no payment over
pursuant to the provisions of this Section 4 to the holders of Senior Debt by
Payee shall, as between Payor, its creditors other than holders of Senior Debt,
and Payee, be deemed to be a payment by Payor to or on account of the
Subordinated Debt. It is understood that the provisions of this Section 4 are
and are intended solely for the purpose of defining the relative rights of
Payee, on the one hand, and the holders of the Senior Debt, on the other hand.
4.5 Obligations of Payor Unconditional. Nothing contained in this Section
4 or elsewhere in this Note is intended to or shall impair, as among Payor, its
creditors other than the holders of Senior Debt, and Payee, the obligation of
Payor, which is absolute and unconditional, to pay to Payee the principal of and
interest on and all other amounts due under this Note in accordance with its
terms, or is intended to or shall affect the relative rights of Payee and
creditors of Payor other than the holders of the Senior Debt, nor shall anything
herein prevent Payee from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the provisions of this
Section 4 and to the rights of holders of Senior Debt to receive distributions
and payments otherwise payable to Payee.
4.6 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon
any payment or distribution of assets of Payor referred to in this Section 4,
Payee shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation
or reorganization proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to Payee, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Debt and other indebtedness of Payor, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to Section 4 of this Note. Such reliance shall not affect the rights
of the holders of the Senior Debt.
4.7 Subordination Rights Not Impaired by Acts or Omissions of Payor or
Holders of Senior Debt. No right of any present or future holders of any Senior
Debt to enforce
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subordination as provided herein will at any time in any way be prejudiced or
impaired by any act or failure to act on the part of Payor or by any act or
failure to act by any such holder, or by any act, failure to act or
noncompliance by Payor, the holders of Senior Debt or their respective agents
with the terms of this Note, regardless of any knowledge thereof which any such
holder or Payor may have or otherwise be charged with. No amendment, waiver or
other modification of this Note shall in any way adversely affect the rights of
the holders of any Senior Debt under this Section 4 unless such holders of
Senior Debt consent in writing to such amendment, waiver or modification. The
provisions of this Section 4 are intended for the benefit of and shall be
enforceable directly by the holders of the Senior Debt.
4.8 Further Assurances. Payee and Payor each will, at Payor's expense and
at any time and from time to time, promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the holders of Senior Debt may request, in order to protect
any right or interest granted or purported to be granted hereby or to enable the
holders of Senior Debt to exercise and enforce their rights and remedies
hereunder.
4.9 Agreements in Respect of Subordinated Debt.
(a) Payor agrees that it will not make any payment for or on account
of or in respect of this Note, or take any other action, in contravention of the
provisions of this Section 4.
(b) Payee shall promptly notify the holders of Senior Debt, at
Bankers Trust Company, 130 Liberty Street, New York, NY 10006, or such other
address of which Payee has been notified in writing, of the occurrence of any
default under this Note of which Payee shall obtain knowledge.
4.10 Obligations Hereunder Not Affected. All rights and interests of the
holders of Senior Debt hereunder, and all agreements and obligations of Payee
and Payor under this Section 4, shall remain in full force and effect
irrespective of:
(i) any lack of validity or enforceability of any Senior Debt
Document;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Senior Debt, or any other amendment
or waiver of or any consent to any departure from any Senior Debt
Document, including, without limitation, any increase in the Senior Debt
resulting from the extension of additional credit to Payor or any of its
Subsidiaries or otherwise;
(iii) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release, amendment or waiver of or consent to
departure from any guaranty, for all or any of the Senior Debt;
(iv) any manner of application of collateral, or proceeds thereof,
to all or any of the Senior Debt, or any manner of sale or other
disposition of any collateral for all or any of the Senior Debt or any
other assets of Payor or any of its Subsidiaries;
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(v) any change, restructuring or termination of the corporate
structure or existence of Payor or any of its Subsidiaries; or
(vi) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Payor or a subordinated creditor.
The provisions of this Section 4 shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Senior
Debt is rescinded or must otherwise be returned by the holders of Senior Debt
upon the insolvency, bankruptcy or reorganization of Payor or otherwise, all as
though such payment had not been made.
4.11 Waiver. Payee and Payor each hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Senior Debt
and this Section 4 and any requirement that the holders of Senior Debt protect,
secure, perfect or insure any security interest or lien on any property subject
thereto or exhaust any right or take any action against Payor or any other
person or entity or any collateral.
4.12 No Waiver; Remedies. No failure on the part of the holders of Senior
Debt to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof; nor shall any single. or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
4.13 Continuing Agreement, Assignments Under Senior Debt Agreements. The
provisions of this Section 4 constitute a continuing agreement and shall (i)
remain in full force and effect until the indefeasible payment in full in cash
of the Senior Debt, (ii) be binding upon Payee, Payor and their respective
successors and assigns, and (iii) inure to the benefit of, and be enforceable
by, the holders of Senior Debt and their successors, transferees and assigns.
Without limiting the generality of the foregoing clause (iii), the holders of
Senior Debt may assign or otherwise transfer all or any portion of their rights
and obligations under any Senior Debt Document, as applicable, to any other
person or entity, and such other person or entity shall thereupon become vested
with all the rights in respect thereof granted to the holders of Senior Debt
herein or otherwise.
5. Right to Reduce Amounts Payable Under this Note. Payee hereby agrees, by
acceptance of this Note, that Payor may reduce the principal amount of this Note
or withhold certain payments under this Note following the Closing pursuant to
Section 9(g) of the Agreement, subject to such other terms and conditions as are
set forth in the Agreement. Any such adjustment is intended as, and shall be
treated by the parties as, an adjustment to the Purchase Price. If the principal
amount of the Note is reduced pursuant to Subsection 9(g) of the Agreement, 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 earlier of (i) the
date hereof and (ii) the date such Claim arose. To the extent any such reduction
would have caused any interest payment
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theretofore made on this Note not to have been payable, or to have been reduced,
the amount of any such payment in excess of what would have been payable had
such reduction actually been made on the Closing Date shall be set off against
and reduce the amount of each payment thereafter paid hereunder until the full
amount of such excess has been recovered by Payor. Upon any reduction of the
principal amount of the Note, Payee, shall, upon request of the Payor, surrender
this Note and Payor shall issue a replacement Note to Payee, upon such
surrender, to reflect such decrease in principal amount but otherwise identical
to this Note.
6. Certain Definitions
"Agent" means Bankers Trust, as agent for the lenders under the
Senior Debt, and its successors and assigns.
"Bankruptcy Law" means Title II, United States Code, or any similar
federal, state or foreign law for the relief of debtors or any arrangement,
reorganization, assignment for the benefit of creditors or any other marshalling
of the assets and liabilities of Payor.
"Business Day" means each day other than Saturdays, Sundays and days
when commercial banks are authorized or required by law to be closed for
business in New York, New York.
"Credit Agreement" means the Credit Agreement dated July 25, 1997
among the Payor, Bankers Trust Company, as agent thereunder, and the other
parties thereto, together with the related documents thereto (including without
limitation any guarantee agreements and security documents), in each case as
such agreement or document may be amended, modified or supplemented from time to
time, including without limitation any agreement or document extending the
maturity of, refinancing, replacing or otherwise restructuring all or any part
of the Indebtedness under such agreement or document or any replacement or
successor agreement or document and whether by the same or any other agent,
lender or group of lenders.
"Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"Event of Default" to means any of the occurrences specified under
Sections 2(a) through 2(e) of this Note.
"Indebtedness" of any Person means all obligations of such Person
for borrowed money or evidenced by bonds, notes, debentures or similar
instruments, excluding notes and capital leases issued in connection with
offsetting lease assets and excluding all other capitalized lease obligations.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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"Refinancing Debt" means any indebtedness incurred to repay,
refinance or otherwise replace indebtedness or obligations (including, without
limitation, commitments) under the Credit Agreement.
"Senior Debt" means all obligations of Payor (including without
limitation contingent obligations with respect to undrawn letters of credit
issued under the Credit Agreement, any obligations owed with respect to
indemnification obligations, interest rate protection incurred to satisfy the
requirements of the Credit Agreement and commitment fees and agency fees payable
thereunder or pursuant thereto) (i) under the Credit Agreement or (ii) with
respect to Refinancing Debt (including in each such case fees, expenses, claims,
charges, indemnity obligations and interest at the contract rate (including any
rate applicable upon default) accrued or accruing after the commencement of a
Proceeding whether or not such interest is an allowed claim enforceable against
the debtor in a bankruptcy case under Title II of the United States Code or
whether or not such interest accrues after the filing of such petition for
purposes of such Title ("Post Petition Interest"). Senior Debt outstanding under
or in respect of Senior Debt Documents shall continue to constitute Senior Debt
notwithstanding that such Senior Debt may be disallowed, avoided or subordinated
pursuant to any Bankruptcy Law or other applicable insolvency law or equitable
principles.
"Senior Debt Documents" means the Credit Agreement and any other
agreement, indenture, mortgage, guaranty, pledge, security agreement or
instrument evidencing or securing Senior Debt or pursuant to which Senior Debt
is incurred.
"Subordinated Note" means this Note.
7. Miscellaneous
7.1 Section Headings. The section headings contained in this Note are for
reference purposes only and shall not affect the meaning or interpretation of
this Note.
7.2 Amendment and Waiver. Subject to Section 7.10 hereof, no provision of
this Note may be amended or waived unless Payor shall have obtained the written
agreement of Payee and (unless there are no amounts and no commitments
outstanding under the Senior Debt) the Agent. No failure or delay in exercising
any right, power or privilege hereunder shall imply or otherwise operate as a
waiver of any rights of Payee, nor shall any single or partial exercise thereof
preclude any other or future exercise thereof or the exercise of any other
right, power or privilege.
7.3 Successors, Assigns and Transferors. This Note may not be assigned or
transferred by Payee without the express written consent of Payor and may not be
assigned or transferred to (x) any competitor, customer or supplier of Payor or
any of its Subsidiaries or (y) to any other Person if such assignment or
transfer would cause any interest payments due under this Note to become
non-deductible as an expense for any tax purposes. Payor may not assign its
obligations under this Note without the prior written consent of Payee except in
connection with
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a transaction permitted under Section 3.2(b) hereof. Subject to the foregoing,
the obligations of Payor and Payee under this Note shall be binding upon, and
inure to the benefit of, and be enforceable by, Payor and Payee, and their
respective successors and permitted assigns, whether or not so expressed.
7.4 Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of Maryland without giving effect to any
conflicts of laws principles thereof that would otherwise require the
application of the law of any other jurisdiction.
7.5 Lost, Stolen, Destroyed or Mutilated Note. Upon receipt of evidence
reasonably satisfactory to Payor of the loss, theft, destruction or mutilation
of this Note and of indemnity arrangements reasonably satisfactory to Payor from
or on behalf of the holder of this Note, and upon surrender or cancellation of
this Note if mutilated, Payor shall make and deliver a new note of like tenor in
lieu of such lost, stolen, destroyed or mutilated Note, at Payee's expense.
7.6 Waiver of Presentment, Etc. Except as otherwise provided herein,
presentment, demand, protest, notice of dishonor and all other notices are
hereby expressly waived by Payor.
7.7 Usury. Nothing contained in this Note shall be deemed to establish or
require the payment of a rate of interest in excess of the maximum rate legally
enforceable. If the rate of interest called for under this Note at any time
exceeds the maximum rate legally enforceable, the rate of interest required to
be paid hereunder shall be automatically reduced to the maximum rate legally
enforceable. If such interest rate is so reduced and thereafter the maximum rate
legally enforceable is increased, the rate of interest required to be paid
hereunder shall be automatically increased to the lesser of the maximum rate
legally enforceable and the rate otherwise provided for in this Note.
7.8 Notices. Any notice, request, instruction or other document to be
given hereunder by either party to the other shall be in writing and shall be
deemed given when received and shall be (i) delivered personally or (ii) mailed
by certified mail, postage prepaid, return receipt requested or (iii) delivered
by Federal Express or a similar overnight courier or (iv) sent via facsimile
transmission to the fax number given below, as follows:
If to Payor, addressed to:
Federal Data Corporation
4800 Hampden Lane
Bethesda, MD 20814
Attention: James M. Dean
Fax Number: (301) 961-7042
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With a copy to:
The Carlyle Group, L.P.
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, DC 20004
Attention: Peter J. Clare
Fax Number: (202) 347-1818
and
Shaw Pittman Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Attention: Victoria J. Perkins, Esq.
Fax Number: (202) 663-8007
If to Payee, addressed to:
Mr. Ralph O. Williams
11222 River View Drive
Potomac, MD 20854
With a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036
Attention: Alan J. Berkeley, Esq.
Fax Number: (202) 778-9100
or to such other place and with such other copies as either party may designate
as to itself by written notice to the other party.
In the event that any notice under this Note is required to be made
on or as of a day which is not a Business Day, then such notice shall not be
required to be made until the first day thereafter which is a Business Day.
7.9 Representations and Warranties and Covenant of Payor. Payor hereby
represents and warrants to Payee that: (a) Payor is duly incorporated, validly
existing and in good standing under the laws of the State of Delaware; (b) Payor
has duly authorized, executed and delivered this Note; and (c) this Note
constitutes a legally valid and binding obligation of Payor, enforceable against
Payor in accordance with its terms, subject to the effect of bankruptcy,
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insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting the rights or remedies of creditors and the
effect of general principles of equity, whether enforcement is considered in a
proceeding in equity or at law, and the discretion of the court before which any
proceeding therefor may be brought. Payor hereby covenants and agrees to provide
Payee with copies of its required periodic reports filed with the Securities and
Exchange Commission within a reasonable time following such filings.
7.10 Action by Payee. Subject to the provisions of this Section 7.10, the
Payee and Payor may enter into agreements for the purpose of adding or modifying
provisions of the Subordinated Note or changing in any manner the rights of the
Payee or Payor hereunder or waiving any covenant, default or Event of Default
hereunder; provided, however, that no change may be made to this Note which
would either modify the subordination provisions hereof or would otherwise
adversely affect the rights of the holders of Senior Debt without the written
consent, prior to the indefeasible repayment thereof in full in cash, of the
Agent.
IN WITNESS WHEREOF, Payor has executed and delivered this Note as of
the date hereinabove first written.
FEDERAL DATA CORPORATION
By: /s/ James Dean
Name: James Dean
Title: Vice President and Chief
Financial Officer
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Acknowledgment
Ralph O. Williams, Payee under the attached 9% Subordinated
Promissory Note, dated as of February 17, 1998 (the "Note") hereby acknowledges
the provisions of Section 4, Section 5 and Section 7.10 of the Note and agrees
to be bound by the provisions thereof.
By: /s/ Ralph O. Williams
Name: Ralph O. Williams
STATE OF
ss:
COUNTY OF _____________________
On this 17th day of February, 1998, before me personally came Ralph
O. Williams to be known and known to me to be the individual described in and
who executed the foregoing Acknowledgment and acknowledged to me that he
executed the same.
Signed and sworn before me SEAL
on February __, 1998
___________________________ My commission expires:
Notary Public
574477
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SUBORDINATED NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. IT MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT AND WITHOUT THE PRIOR WRITTEN CONSENT
OF PAYOR.
FEDERAL DATA CORPORATION
9% SUBORDINATED NOTE
DUE MARCH 13, 2000
$1,000,000 March 13, 1998
Federal Data Corporation, a Delaware corporation ("Payor"), for
value received, promises to pay Harry P. Headley, or order, ("Payee") the
principal amount of One Million Dollars ($1,000,000.00), together with accrued
interest thereon, each calculated and payable only as and to the extent set
forth below, including without limitation Section 5 hereof, (the "Note" or
"Subordinated Note"). The principal and interest on this Note is payable in
lawful money of the United States of America in immediately available funds at
such place in the United States as Payee may from time to time designate in
writing to Payor.
This Note is made pursuant to that certain Stock Purchase Agreement
(the "Agreement"), dated March 11, 1998, by and among Federal Data Corporation
(the "Buyer"), Technical and Management Assistance, Inc., a Delaware corporation
(the "Target"), and Harry P. Headley, Dorothy Headley, Michael Headley, Lisa
Headley, Kathleen Kowis and Gregory Kowis (the "Sellers") pursuant to which
Buyer has purchased from Sellers all the issued and outstanding shares of
Target, and is the "Note" referred to therein. Payee is a former shareholder of
Target and is receiving this Note pursuant to the Agreement. Payments under this
Note are subject to the right of Payor to reduce amounts payable under this Note
as set forth in Section 5 below, which right shall be binding upon any holder of
the Subordinated Note. All capitalized term used herein and not defined herein
shall have the meanings assigned to such terms in the Agreement.
1. Payment of Principal and Interest
1.1 Calculation and Payment of Interest.
Interest on the principal balance of this Note outstanding from time
to time until paid in full shall accrue at the rate of nine percent (9%) per
annum computed on the basis of a 365 or 366-day year, as appropriate, for the
actual number of days elapsed, commencing on the date hereof. Such interest
shall be payable semiannually in arrears, beginning on August 31, 1998 and
thereafter on each February 28th or 29th (which ever is later) and August 31
until the Maturity Date (as defined herein).
<PAGE>
[Execution Copy]
1.2 Payment on Maturity Date. The principal balance of, and any accrued
and unpaid interest on, this Note shall be payable on March 13, 2000.
1.3 Optional Prepayment.
(a) Payor may, at its option at any time, without premium or
penalty, prepay all or any portion of this Note.
(b) Any prepayment of this Note shall be applied as follows: first,
to payment of accrued interest; and second, to payment of principal. Upon any
partial prepayment, at the request either of Payee or Payor, this Note shall be
surrendered to Payor in exchange for a substitute note, which shall set forth
the revised principal amount but otherwise identical to this Note. In the event
that this Note is prepaid in its entirety, this Note shall be surrendered to
Payor for cancellation as a condition to any such prepayment.
1.4 Payment Only on Business Days. Any payment hereunder which, but for
this Section 1.4, would be payable on a day which is not a Business Day, shall
instead be due and payable on the Business Day next following such date for
payment.
2. Events of Default
The following shall constitute "Events of Default" under this Note:
(a) Subject to Section 4 below, failure by Payor to make any payment
required under this Note when the same shall become due and payable (whether at
maturity, by acceleration or otherwise) and the continuation of such failure for
a period of thirty (30) days; or
(b) Payor breaches any covenant under Section 3.1 or Section 3.2 of
this Note, which breach or failure, if curable, shall continue uncured for a
period of thirty (30) days after the date on which written notice specifying
such breach, and stating that such notice is a "Notice of Default" hereunder,
shall have been given by Payee to Payor; or
(c) Payor, pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief against it in
an involuntary case or proceeding;
(C) consents to the appointment of a Custodian of it or for
all or any substantial portion of its property or assets;
(D) makes a general assignment for the benefit of the
creditors; or
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[Execution Copy]
(d) an involuntary case or proceeding is commenced against Payor
under any Bankruptcy Law and is not dismissed, bonded or discharged within
ninety (90) days thereafter, or a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:
(A) is for relief against Payor in an involuntary case or
proceeding;
(B) appoints a Custodian of Payor for all or substantially all
of its properties; or
(C) orders the liquidation of Payor;
and in each case the order or decree remains unstayed and in effect for
ninety (90) days; or
(e) the occurrence of any merger or consolidation with, or any sale
of all or substantially all of the assets of the Payor (a "Business
Combination") to, any other corporation or business entity, which Business
Combination results in a Change in Control of the Payor. For purposes hereof, a
"Change in Control" means (A) any Business Combination other than a Business
Combination in which the shareholders who were shareholders of the Payor
immediately prior to such event have, directly or indirectly, at least a
majority of the voting common equity of the continuing or surviving corporation
immediately after such Business Combination and the conditions stated in clauses
(X) and (Y) below are met, or (B) any Business Combination (1) in which the
Payor is not the continuing or surviving corporation or (2) pursuant to which
the Payor's capital stock would be converted into cash, securities or other
property, except that a Change of Control shall not include any Business
Combination in which, (X) the relative economic values of the respective
interests in the continuing or surviving corporation of the shareholders of the
corporation who were shareholders immediately prior to such Business Combination
plus the consideration received by such Shareholders in connection with the
Business Combination is approximately equal to the relative economic values of
their respective equity interests in the Payor immediately prior to such
Business Combination and (Y) the charter of such continuing or surviving
corporation contains provisions substantially similar to the Payor's Articles of
Incorporation, reserving rights to each shareholder substantially similar to the
existing rights of such shareholder prior to the Business Combination.
If an Event of Default specified in Section 2(a), 2(b) or 2(e) shall
have occurred and be continuing and any Senior Debt should then be outstanding,
subject to the provisions of Section 4 hereof, Payee may, at its option, by
notice in writing to Payor and to the Agent under the Senior Debt Documents (the
"Acceleration Notice"), declare the entire principal amount of this Note and the
interest accrued thereon to be due and payable upon the earlier of (i) one
hundred fifty (150) days after the receipt of the Acceleration Notice by Payor
and the Agent under the Senior Debt Documents or (ii) an acceleration under the
Senior Debt Documents, and upon any such declaration the same shall become due
and payable at such time. If an Event of Default specified in Section 2(e) shall
have occurred and be continuing, and if Payee shall have provided an
Acceleration Notice in accordance herewith, then any amounts actually paid
pursuant to such Acceleration Notice shall, instead of being paid directly to
Payee, be deposited into an escrow account with an escrow agent, upon customary
and reasonably acceptable terms,
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[Execution Copy]
for the purposes of facilitating Payor's exercise of its rights of set-off
against the Note under Section 9(g) of the Agreement. If an Event of Default
specified in Section 2(a), 2(b) or 2(e) shall have occurred and be continuing
and no Senior Debt shall then be outstanding, Payee may, at its option, declare
the entire principal amount of this Note and the interest accrued thereon to be
due and payable upon the date which is five (5) Business Days after the date of
delivery by Payee to Payor of a written notice of acceleration, and upon any
such declaration the same shall become due and payable at such time. If an Event
of Default specified in Section 2(c) or 2(d) hereof occurs, the principal
balance of and accrued interest on this Note shall become due and payable
immediately without any declaration or other act on the part of Payee.
If any Event of Default shall have occurred and be continuing,
subject to the provisions of Sections 2 and 4 hereof, Payee may proceed to
protect and enforce its rights either by suit in equity or by action at law, or
both, whether for specific performance of any provision of this Note or in aid
of the exercise of any power granted to Payee under this Note.
3. Covenants.
3.1 Affirmative Covenant. Payor covenants and agrees that for so long as
any indebtedness evidenced by this Note shall remain outstanding, unless waived
by Payee, Payor shall: promptly give notice to Payee of (i) any default or Event
of Default hereunder (ii) any notice of an "Event of Default" (as defined in the
Senior Debt Documents) permitting the holder or holders of the Senior Debt to
accelerate such Senior Debt given to Payor by any holder of Senior Debt or its
agent or (iii) any acceleration of the Senior Debt or any other Indebtedness of
Payor having an aggregate principal amount in excess of $5,000,000.
3.2 Negative Covenants. Payor covenants and agrees that for so long as any
indebtedness evidenced by this Note remains outstanding, Payor will not, without
the Written consent of Payee:
(a) liquidate, wind up or dissolve itself (or suffer any liquidation
or dissolution), or convey, sell, lease, transfer or otherwise dispose of, in
one transaction or a series of related transactions, all or substantially all of
its assets; provided, however, that the foregoing shall not apply in any way to
the grant of a lien or security interest in, or the foreclosure, sale or other
disposition of, collateral pledged to secure Senior Debt pursuant to any
judicial proceeding or by or at the direction of the holders of any Senior Debt
or any agent or other representative acting on their behalf; or
(b) consolidate with, or merge with or into, any Person unless (i)
Payor shall be the continuing Person, or the Person (if other than Payor) formed
by such consolidation or into which Payor is merged shall be a corporation
organized and existing under the laws of the United States or any state thereof
or of the District of Columbia and, in the event Payor is merged with or into
any other Person, such Person shall expressly assume, by an agreement executed
and delivered to Payee, the obligations of Payor under this Note. Upon any
consolidation or merger of Payor in accordance with this Section 3.2(b), the
successor corporation formed by such consolidation or into which Payor is merged
shall succeed to, and be substituted for, and may
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[Execution Copy]
exercise every right and power of, Payor under this Note with the same effect as
if such successor corporation had been named as Payor herein.
4. Subordination
4.1 Note Subordinated to Senior Debt. To the extent and in the manner
hereinafter set forth in this Section 4 and subject to the terms of Section 5
below, the indebtedness represented by this Note and the payment of the
principal of and the interest on this Note and any claim for rescission of the
purchase of this Note, and any claim which is the equivalent of or substitute
for principal of or interest on this Note, for damages arising from the purchase
of this Note or for reimbursement or contribution on account of such a claim,
and all other payments with respect to or on account of this Note (collectively,
the "Subordinated Debt") (a) rank pari passu in right of payment with the
subordinated notes, notwithstanding any provisions to the contrary in such
notes, issued by Payor (i) pursuant to that certain Agreement and Plan of Merger
dated April 9, 1997 by and among Azmat Ali, Peter Belford, Arthur Vebin, NYMA,
Inc. and NYMA Acquisition, Inc., and Peter Belford as the initial shareholder
representative; (ii) pursuant to that Stock Purchase Agreement dated June 18,
1997 by and 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 Management Systems Corporation; (iii) pursuant
to that Stock Purchase Agreement dated February 17, 1998, by and among Federal
Data Corporation, R.O.W. Sciences, Inc., a Delaware corporation, Ralph O.
Williams, Frederic M. Cullen, the Trustees of the R.O.W. Sciences ESOP, John C.
Smith and Paul H. Tardif; and (iv) in the offering of 10-1/8% Senior
Subordinated Notes due 2005 or the 10-1/8% Senior Subordinated Notes due 2005
issued in exchange therefor, and (b) are hereby expressly made subordinate and
subject in right of payment to the prior payment in full in cash of all other
Senior Debt. This Section 4 constitutes a continuing offer to all Persons who
become holders of, or continue to hold, Senior Debt, each of whom is an obligee
hereunder and is entitled to enforce such holder's rights hereunder, subject to
the provisions hereof, without any act or notice of acceptance hereof or
reliance hereon. For purposes of this Section 4, Senior Debt shall not be deemed
to have been paid in full until the termination of all commitments or other
obligations by any holder thereof and unless all such holders shall have
received indefeasible payment in full in cash of all obligations under or in
respect of Senior Debt (including, without limitation, Post Petition Interest).
4.2 No Payment on Note in Certain Circumstances.
(a) During the continuance of any default in the payment of any
Senior Debt, whether at maturity, upon redemption or pursuant to acceleration or
otherwise (each, a "Payment Default"), no direct or indirect payment of any kind
shall be made, asked for, demanded, accepted, received or retained with respect
to principal, interest or other amounts due under the Note nor shall any holder
thereof exercise any remedies with respect thereto.
(b) Upon the occurrence of any default (other than a Payment
Default) under any Senior Debt Document which would permit the Banks (or any
other holder of Senior Debt) to accelerate the maturity of the Senior Debt
outstanding thereunder (whether after the giving of
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notice, the lapse of time, or both or otherwise) (each, a "Non-Payment
Default"), no payment or distribution (including any payment or distribution
that may be payable by reason of any other indebtedness of Payor being
subordinated to payment of the Subordinated Debt) shall be made by or on behalf
of Payor for or on account of or in respect of the Subordinated Debt until such
Non-Payment Default shall have been cured or waived or otherwise ceases to exist
pursuant to the terms of such Senior Debt, or the benefits of this sentence
shall have been waived by or on behalf of, and at the sole option of, the
holders of a majority of the principal amount of such Senior Debt.
Notwithstanding the foregoing, the suspension of payments described in the
preceding sentence shall terminate, and the Payor shall be obligated to make all
payments of principal and interest on this Note, including any payments not made
by virtue of such suspension, if any holder or holders of the relevant Senior
Debt has not, on or prior to the 180th day after the occurrence of the
Non-Payment Default under the Senior Debt, declared all unpaid principal and
interest on such Senior Debt to be immediately due and payable, unless such
Non-Payment Default shall have been cured or waived or otherwise ceases to exist
pursuant to the terms of such Senior Debt, or the benefits of the previous
sentence shall have been waived by or on behalf of, and at the sole option of,
the holders of a majority of the principal amount of such Senior Debt.
(c) Payee agrees that, so long as payments or distributions for or
on account of the Subordinated Debt are not permitted pursuant to this Section
4, Payee will not take, sue for, ask or demand from Payor payment of all or any
amounts under or in respect of this Note, or commence, or join with any creditor
other than the holders of Senior Debt and their agents in commencing, directly
or indirectly cause Payor to commence, or assist Payor in commencing, any
proceeding referred to in Section 4.3, and Payee shall not take or receive from
Payor, directly or indirectly or on its behalf, in cash or other property or by
set-off (except in respect to Payor's rights as set forth in Section 5 below) or
in any other manner, including, without limitation, from or by way of
collateral, payment of all or any amounts under or in respect of the
Subordinated Debt. In the event that notwithstanding the foregoing provisions of
this Section 4.2, any payment or distribution of any kind or character, whether
in cash, property or securities (including any payment or distribution that may
be payable by reason of any other indebtedness of Payor being subordinated to
payment of the Subordinated Debt), shall be received by Payee for or on account
of or in respect of the Subordinated Debt before all Senior Debt is indefeasibly
paid in full, such payment or distribution shall be received and held in trust
for, and shall be paid over (in the same form as so received, to the extent
practicable, and with any necessary endorsement) to the holders of the Senior
Debt remaining unpaid or their representative or representatives, or to the
trustee or trustees under any such indenture or agreement under which any Senior
Debt may have been issued, for application (in the case of cash) to, or as
collateral (in the case of non-cash property or securities) for the payment or
prepayment of Senior Debt, until all Senior Debt shall have been paid in full in
cash, after giving effect to any concurrent payment or distribution to the
holders of such Senior Debt.
4.3 Dissolution; Liquidation; Bankruptcy; Acceleration. In the event of
(i) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar proceeding in connection therewith,
relative to the Payor or any of its assets, or (ii)
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any liquidation, dissolution or other winding up of the Payor, whether voluntary
or involuntary or whether or not involving insolvency or bankruptcy, or (iii)
any assignment for the benefit of creditors or any other marshalling of assets
or liabilities of the Payor, or (iv) the acceleration of the Senior Debt by
reason of the occurrence of a default or an event of default thereunder (each
such event, if any, herein sometimes referred to as a "Proceeding"):
(a) The holders of all Senior Debt shall first be entitled to
receive payment in full in cash of all Senior Debt before any direct or indirect
payment may be made for or on account of payments under or in respect of the
Subordinated Debt, whether in cash, property or securities of any kind;
(b) Any payment or distribution of any kind or character, whether in
cash, property or securities (including any payment or distribution that may be
payable by reason of any other indebtedness of Payor being subordinated to
payment of the Subordinated Debt), to which Payee would be entitled except for
the provisions of this Section 4, shall be paid by the liquidating trustee or
agent or other person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or other trustee or agent,
directly to the holders of Senior Debt or their representative or
representatives, or to the trustee or trustees under any indenture under which
any instrument evidencing any of such Senior Debt may have been issued for
application (in the case of cash) to, or as collateral (in the case of non-cash
property or securities) for the payment or prepayment of Senior Debt, to the
extent necessary to make payment in full of all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the holders of
such Senior Debt.
(c) The holders of Senior Debt are hereby irrevocably authorized and
empowered (in their own names or in the name of Payee or otherwise), but shall
have no obligation, to demand, sue for, collect and receive every payment or
distribution referred to in paragraph (b) above and give acquittance therefor
and to file claims and proofs of claim and take such other action (including,
without limitation, voting the amounts owing under the Subordinated Debt or
enforcing any security interest or other lien securing payment of the amounts
owing under the Subordinated Debt) as they may deem necessary or advisable for
the exercise or enforcement of any of the rights or interests of the holders of
Senior Debt hereunder.
(d) Payee shall duly and promptly take such action as the holders of
Senior Debt may reasonably request to execute and deliver to the holders of
Senior Debt such powers of attorney, assignments, or other instruments as the
holders of Senior Debt may request in order to enable the holders of Senior Debt
to enforce any and all claims with respect to, and any security interests and
other liens securing payment of, the amounts owing under the Subordinated Debt.
(e) In the event that, notwithstanding the foregoing provisions of
this Section 4.3, any payment or distribution of any kind or character, whether
in cash, property or securities (including any payment or distribution that may
be payable by reason of any other indebtedness of Payor being subordinated to
payment of the Subordinated Debt), shall be received by Payee for or on account
of or in respect of the Subordinated Debt before all Senior Debt is indefeasibly
paid in full, such payment or distribution shall be received and held in trust
for, and shall be paid
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over (in the same form as so received, to the extent practicable, and with any
necessary endorsement) to the holders of the Senior Debt remaining unpaid or
their representative or representatives, or to the trustee or trustees under any
such indenture or agreement under which any Senior Debt may have been issued,
for application (in the case of cash) to, or as collateral (in the case of
non-cash property or securities) for the payment or prepayment of Senior Debt,
until all Senior Debt shall have been paid in full in cash, after giving effect
to any concurrent payment or distribution to the holders of such Senior Debt.
4.4 Subrogation. Upon the final payment in full in cash of all Senior
Debt, Payee shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of Payor
applicable to the Senior Debt until the principal of and interest on and all
other amounts payable under the Subordinated Debt shall be paid in full, and for
the purposes of such subrogation, no payments or distributions to the holders of
the Senior Debt of any cash, property or securities to which Payee would be
entitled except for the provisions of this Section 4 and no payment over
pursuant to the provisions of this Section 4 to the holders of Senior Debt by
Payee shall, as between Payor, its creditors other than holders of Senior Debt,
and Payee, be deemed to be a payment by Payor to or on account of the Senior
Debt. It is understood that the provisions of this Section 4 are and are
intended solely for the purpose of defining the relative rights of Payee, on the
one hand, and the holders of the Senior Debt, on the other hand.
4.5 Obligations of Payor Unconditional. Nothing contained in this Section
4 or elsewhere in this Note is intended to or shall impair, as among Payor, its
creditors other than the holders of Senior Debt, and Payee, the obligation of
Payor, which is absolute and unconditional, to pay to Payee the principal of and
interest on and all other amounts due under this Note in accordance with its
terms, or is intended to or shall affect the relative rights of Payee and
creditors of Payor other than the holders of the Senior Debt, nor shall anything
herein prevent Payee from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the provisions of this
Section 4 and to the rights of holders of Senior Debt to receive distributions
and payments otherwise payable to Payee.
4.6 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon
any payment or distribution of assets of Payor referred to in this Section 4,
Payee shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation
or reorganization proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to Payee, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Debt and other indebtedness of Payor, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to Section 4 of this Note. Such reliance shall not affect the rights
of the holders of the Senior Debt.
4.7 Subordination Rights Not Impaired by Acts or Omissions of Payor or
Holders of Senior Debt. No right of any present or future holders of any Senior
Debt to enforce
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subordination as provided herein will at any time in any way be prejudiced or
impaired by any act or failure to act on the part of Payor or by any act or
failure to act by any such holder, or by any act, failure to act or
noncompliance by Payor, the holders of Senior Debt or their respective agents
with the terms of this Note, regardless of any knowledge thereof which any such
holder or Payor may have or otherwise be charged with. No amendment, waiver or
other modification of this Note shall in any way adversely affect the rights of
the holders of any Senior Debt under this Section 4 unless such holders of
Senior Debt consent in writing to such amendment, waiver or modification. The
provisions of this Section 4 are intended for the benefit of and shall be
enforceable directly by the holders of the Senior Debt.
4.8 Further Assurances. Payee and Payor each will, at Payor's expense and
at any time and from time to time, promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the holders of Senior Debt may request, in order to protect
any right or interest granted or purported to be granted hereby or to enable the
holders of Senior Debt to exercise and enforce their rights and remedies
hereunder.
4.9 Agreements in Respect of Subordinated Debt.
(a) Payor agrees that it will not make any payment for or on account
of or in respect of this Note, or take any other action, in contravention of the
provisions of this Section 4.
(b) Payee shall promptly notify the holders of Senior Debt, at
Bankers Trust Company, 130 Liberty Street, New York, NY 10006, or such other
address of which Payee has been notified in writing, of the occurrence of any
default under this Note of which Payee shall obtain knowledge.
4.10 Obligations Hereunder Not Affected. All rights and interests of the
holders of Senior Debt hereunder, and all agreements and obligations of Payee
and Payor under this Section 4, shall remain in full force and effect
irrespective of:
(i) any lack of validity or enforceability of any Senior Debt
Document;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Senior Debt, or any other amendment
or waiver of or any consent to any departure from any Senior Debt
Document, including, without limitation, any increase in the Senior Debt
resulting from the extension of additional credit to Payor or any of its
Subsidiaries or otherwise;
(iii) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release, amendment or waiver of or consent to
departure from any guaranty, for all or any of the Senior Debt;
(iv) any manner of application of collateral, or proceeds thereof,
to all or any of the Senior Debt, or any manner of sale or other
disposition of any collateral for all or any of the Senior Debt or any
other assets of Payor or any of its Subsidiaries;
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(v) any change, restructuring or termination of the corporate
structure or existence of Payor or any of its Subsidiaries; or
(vi) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Payor or a subordinated creditor.
The provisions of this Section 4 shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Senior
Debt is rescinded or must otherwise be returned by the holders of Senior Debt
upon the insolvency, bankruptcy or reorganization of Payor or otherwise, all as
though such payment had not been made.
4.11 Waiver. Payee and Payor each hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Senior Debt
and this Section 4 and any requirement that the holders of Senior Debt protect,
secure, perfect or insure any security interest or lien on any property subject
thereto or exhaust any right or take any action against Payor or any other
person or entity or any collateral.
4.12 No Waiver; Remedies. No failure on the part of the holders of Senior
Debt to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
4.13 Continuing Agreement, Assignments Under Senior Debt Agreements. The
provisions of this Section 4 constitute a continuing agreement and shall (i)
remain in full force and effect until the indefeasible payment in full in cash
of the Senior Debt, (ii) be binding upon Payee, Payor and their respective
successors and assigns, and (iii) inure to the benefit of, and be enforceable
by, the holders of Senior Debt and their successors, transferees and assigns.
Without limiting the generality of the foregoing clause (iii), the holders of
Senior Debt may assign or otherwise transfer all or any portion of their rights
and obligations under any Senior Debt Document, as applicable, to any other
person or entity, and such other person or entity shall thereupon become vested
with all the rights in respect thereof granted to the holders of Senior Debt
herein or otherwise.
5. Right to Reduce Amounts Payable Under this Note. Payee hereby agrees, by
acceptance of this Note, that Payor may reduce the principal amount of this Note
following the Closing pursuant to Section 9(g) of the Agreement, subject to such
other terms and conditions as are set forth in the Agreement. Any such
adjustment is intended as, and shall be treated by the parties as, an adjustment
to the Purchase Price. If the principal amount of the Note is reduced pursuant
to Subsection 9(g) of the Agreement, 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 later of (i) the Closing Date and (ii) the date
such Claim arose. To the extent any such reduction would have caused any
interest payment theretofore made on this Note not to have been payable, or to
have been reduced, the amount of any such payment in excess of what would have
been payable had such
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reduction actually been made on the Closing Date shall be set off against and
reduce the amount of each payment thereafter paid hereunder until the full
amount of such excess has been recovered by Payor. Upon any reduction of the
principal amount of the Note, Payee, shall, upon request of the Payor, surrender
this Note and Payor shall issue a replacement Note to Payee, upon such
surrender, to reflect such decrease in principal amount but otherwise identical
to this Note.
6. Certain Definitions
"Agent" means Bankers Trust, as agent for the lenders under the
Senior Debt, and its successors and assigns.
"Bankruptcy Law" means Title II, United States Code, or any similar
federal, state or foreign law for the relief of debtors or any arrangement,
reorganization, assignment for the benefit of creditors or any other marshalling
of the assets and liabilities of Payor.
"Business Day" means each day other than Saturdays, Sundays and days
when commercial banks are authorized or required by law to be closed for
business in New York, New York.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, warrants, options or other equivalents
(however designated) of capital stock of such Person (if a corporation) and any
and all equivalent ownership interests in such Person (if other than a
corporation), in each case whether now outstanding or hereafter issued.
"Consolidated Net Income" means, with respect to any Person, such
Person's consolidated net income determined in accordance with GAAP.
"Credit Agreement" means the Credit Agreement dated July 25, 1997
among the Payor, Bankers Trust Company, as agent thereunder, and the other
parties thereto, together with the related documents thereto (including without
limitation any guarantee agreements and security documents), in each case as
such agreement or document may be amended, modified or supplemented from time to
time, including without limitation any agreement or document extending the
maturity of, refinancing, replacing or otherwise restructuring all or any part
of the Indebtedness under such agreement or document or any replacement or
successor agreement or document and whether by the same or any other agent,
lender or group of lenders.
"Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"Event of Default" to means any of the occurrences specified under
Sections 2(a) through 2(e) of this Note.
"Indebtedness" of any Person means all obligations of such Person
for borrowed money or evidenced by bonds, notes, debentures or similar
instruments, excluding notes and
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capital leases issued in connection with offsetting lease assets and excluding
all other capitalized lease obligations.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"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.
"Refinancing Debt" means any indebtedness incurred to repay,
refinance or otherwise replace indebtedness or obligations (including, without
limitation, commitments) under the Credit Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means all obligations of Payor (including without
limitation contingent obligations with respect to undrawn letters of credit
issued under the Credit Agreement, any obligations owed with respect to
indemnification obligations, interest rate protection incurred to satisfy the
requirements of the Credit Agreement and commitment fees and agency fees payable
thereunder or pursuant thereto) (i) under the Credit Agreement or (ii) with
respect to Refinancing Debt (including in each such case fees, expenses, claims,
charges, indemnity obligations and interest at the contract rate (including any
rate applicable upon default) accrued or accruing after the commencement of a
Proceeding whether or not such interest is an allowed claim enforceable against
the debtor in a bankruptcy case under Title II of the United States Code or
whether or not such interest accrues after the filing of such petition for
purposes of such Title ("Post Petition Interest"). Senior Debt outstanding under
or in respect of Senior Debt Documents shall continue to constitute Senior Debt
notwithstanding that such Senior Debt may be disallowed, avoided or subordinated
pursuant to any Bankruptcy Law or other applicable insolvency law or equitable
principles.
"Senior Debt Documents" means the Credit Agreement and any other
agreement, indenture, mortgage, guaranty, pledge, security agreement or
instrument evidencing or securing Senior Debt or pursuant to which Senior Debt
is incurred.
"Subordinated Note" means this Note.
"Subsidiary" means, with respect to any Person, any corporation or
other entity, whether such corporation or entity now exists or shall hereafter
be created, of which a majority of the Capital Stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person.
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"Unaffiliated Entity" is an entity which is not an Affiliate of
Payor or The Carlyle Group, L.P.
7. Miscellaneous
7.1 Section Headings. The section headings contained in this Note are for
reference purposes only and shall not affect the meaning or interpretation of
this Note.
7.2 Amendment and Waiver. Subject to Section 7.10 hereof, no provision of
this Note may be amended or waived unless Payor shall have obtained the written
agreement of Payee and (unless there are no amounts and no commitments
outstanding under the Senior Debt) the Agent. No failure or delay in exercising
any right, power or privilege hereunder shall imply or otherwise operate as a
waiver of any rights of Payee, nor shall any single or partial exercise thereof
preclude any other or future exercise thereof or the exercise of any other
right, power or privilege.
7.3 Successors, Assigns and Transferors. This Note may not be assigned or
transferred by Payee without the express written consent of Payor and may not be
assigned or transferred to (x) any competitor, customer or supplier of Payor or
any of its Subsidiaries or (y) to any other Person if such assignment or
transfer would cause any interest payments due under this Note to become
non-deductible as an expense for any tax purposes. Payor may not assign its
obligations under this Note without the prior written consent of Payee except in
connection with a transaction permitted under Section 3.2(b) hereof. Subject to
the foregoing, the obligations of Payor and Payee under this Note shall be
binding upon, and inure to the benefit of, and be enforceable by, Payor and
Payee, and their respective successors and permitted assigns, whether or not so
expressed.
7.4 Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of Maryland without giving effect to any
conflicts of laws principles thereof that would otherwise require the
application of the law of any other jurisdiction.
7.5 Lost, Stolen, Destroyed or Mutilated Note. Upon receipt of evidence
reasonably satisfactory to Payor of the loss, theft, destruction or mutilation
of this Note and of indemnity arrangements reasonably satisfactory to Payor from
or on behalf of the holder of this Note, and upon surrender or cancellation of
this Note if mutilated, Payor shall make and deliver a new note of like tenor in
lieu of such lost, stolen, destroyed or mutilated Note, at Payee's expense.
7.6 Waiver of Presentment, Etc. Except as otherwise provided herein,
presentment, demand, protest, notice of dishonor and all other notices are
hereby expressly waived by Payor.
7.7 Usury. Nothing contained in this Note shall be deemed to establish or
require the payment of a rate of interest in excess of the maximum rate legally
enforceable. If the rate of interest called for under this Note at any time
exceeds the maximum rate legally enforceable, the rate of interest required to
be paid hereunder shall be automatically reduced to the maximum rate legally
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enforceable. If such interest rate is so reduced and thereafter the maximum rate
legally enforceable is increased, the rate of interest required to be paid
hereunder shall be automatically increased to the lesser of the maximum rate
legally enforceable and the rate otherwise provided for in this Note.
7.8 Notices. Any notice, request, instruction or other document to be
given hereunder by either party to the other shall be in writing and shall be
deemed given when received and shall be (i) delivered personally or (ii) mailed
by certified mail, postage prepaid, return receipt requested or (iii) delivered
by Federal Express or a similar overnight courier or (iv) sent via facsimile
transmission to the fax number given below, as follows:
If to Payor, addressed to:
Federal Data Corporation
4800 Hampden Lane
Bethesda, MD 20814
Attention: James M. Dean
Fax Number: (301) 961-7042
With a copy to:
The Carlyle Group, L.P.
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, DC 20004
Attention: Peter J. Clare
Fax Number: (202) 347-1818
and
Shaw Pittman Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Attention: Victoria J. Perkins, Esq.
Fax Number: (202) 663-8007
If to Payee, addressed to:
Harry P. Headley
21041 Goshen Road
Gaithersburg, Maryland 20882
Fax Number: (301) 926-6612
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With a copy to:
Louis J. Greco
642 Bay Avenue
Somers Point, New Jersey 08244-2520
Fax Number: (609) 601-0650
or to such other place and with such other copies as either party may designate
as to itself by written notice to the other party.
In the event that any notice under this Note is required to be made
on or as of a day which is not a Business Day, then such notice shall not be
required to be made until the first day thereafter which is a Business Day.
7.9 Representations and Warranties of Payor. Payor hereby represents and
warrants to Payee that: (a) Payor is duly incorporated, validly existing and in
good standing under the laws of the State of Delaware; (b) Payor has duly
authorized, executed and delivered this Note; and (c) this Note constitutes a
legally valid and binding obligation of Payor, enforceable against Payor in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights or remedies of creditors and the effect of
general principles of equity, whether enforcement is considered in a proceeding
in equity or at law, and the discretion of the court before which any proceeding
therefor may be brought.
7.10 Action by Payee. Subject to the provisions of this Section 7.10, the
Payee and Payor may enter into agreements for the purpose of adding or modifying
provisions of the Subordinated Note or changing in any manner the rights of the
Payee or Payor hereunder or waiving any covenant, default or Event of Default
hereunder; provided, however, that no change may be made to this Note which
would either modify the subordination provisions hereof or would otherwise
adversely affect the rights of the holders of Senior Debt without the written
consent, prior to the indefeasible repayment thereof in full in cash, of the
Agent and thereafter the holders of a majority in principal amount of Senior
Debt.
IN WITNESS WHEREOF, Payor has executed and delivered this Note as of
the date hereinabove first written.
FEDERAL DATA CORPORATION
By: /s/ James Dean
Name: James Dean
Title: Vice President and Chief
Financial Officer
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Acknowledgment
Harry P. Headley, Payee under the attached 9% Subordinated
Promissory Note, dated as of March 13, 1998 (the "Note") hereby acknowledges the
provisions of Section 4, Section 5 and Section 7.10 of the Note and agrees to be
bound by the provisions thereof.
/s/ Harry P. Headley
--------------------
STATE OF
ss:
COUNTY OF _____________________
On this 13th day of March, 1998, before me personally came
_____________ to be known and known to me to be the individual describe in and
who executed the foregoing Acknowledgment and acknowledged to me that he
executed the same.
Signed and sworn before me SEAL
on March 13, 1998
___________________________ My commission expires:
Notary Public
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LEASE ASSIGNMENT, MODIFICATION AND EXTENSION AGREEMENT
THIS LEASE ASSIGNMENT, MODIFICATION AND EXTENSION AGREEMENT (this
"Agreement") is made this 19th day of November, 1997 but is effective for all
purposes as of August 1, 1997, by and between Second Trade Center Office
Associates Limited Partnership, a Maryland limited partnership ("Landlord"), as
landlord, Federal Data Corporation, a Delaware corporation ("Tenant"), as tenant
and NYMA, Inc., a Maryland corporation ("NYMA").
Recitals:
A. Landlord and NYMA executed a Lease together with an Addendum, both
dated February 2, 1988, and a Lease Modification Agreement dated December 22,
1988 (collectively, as amended hereby, the "Lease") covering approximately
69,604 square feet of rentable space in the office building known as Maryland
Trade Center III located at 7501 Greenway Center Drive, Greenbelt, Maryland
20770 (the "Building").
B. NYMA, as sublandlord, and Greenway Infant Care, Inc., as subtenant,
executed a Sublease dated April 9, 1990 for 2,858 square feet of space known as
Suite 100 on the first floor of the Building (the "Sublease").
C. NYMA desires to assign to Tenant, and Tenant desires to accept the
assignment of, all of NYMA's right, title and interest (i) as tenant in and to
the Lease and (ii) as sublandlord in and to the Sublease.
D. Landlord and Tenant desire to modify and extend the Lease in accordance
with the terms set forth below.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Assignment and Assumption. Effective as of August 1, 1997, NYMA hereby
assigns to Tenant, and Tenant hereby accepts the assignment of, all of NYMA's
right, title and interest (i) as tenant in and to the Lease and (ii) as
sublandlord in and to the Sublease. Tenant hereby assumes all of NYMA's
obligations under the Lease, and NYMA is hereby released from all liability
under the Lease.
2. Premises. Effective as of September 1, 1997, the description of the
Leased Premises in Section 1.1 of the Lease shall be amended to delete the 2,858
rentable square feet of space located on the first floor and currently subleased
by Tenant to Greenway Infant Care, Inc., and all rights and obligations of
Tenant and NYMA with respect to such space shall be terminated. The parties
acknowledge that Tenant has assigned its right, title and interest in and
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<PAGE>
to such sublease to Landlord by separate agreement effective September 1, 1997.
The Leased Premises shall consist of the following:
- -------------------------------------------------------------------------------
Floor Rentable Square Feet
- -------------------------------------------------------------------------------
12th 15,840
- -------------------------------------------------------------------------------
11th 15,840
- -------------------------------------------------------------------------------
10th 15,840
- -------------------------------------------------------------------------------
9th 15,840
- -------------------------------------------------------------------------------
Lower Level 3,386
- -------------------------------------------------------------------------------
Total 66,746
- -------------------------------------------------------------------------------
3. Term. The term of the Lease shall be extended for an additional six (6)
years from December 31, 1998 to December 31, 2004. The last paragraph of Section
1.2 of the Lease is deleted in its entirety and the following is inserted in
lieu thereof:
"Provided Tenant is not in default of this Lease beyond the expiration of
any applicable cure period, Tenant shall have and is hereby granted two
(2) successive options to renew the term of this Lease for additional
periods of five (5) years each (the "Renewal Terms"). The first Renewal
Term shall commence on January 1, 2005 and shall expire on December 31,
2010. The second Renewal Term shall commence on January 1, 2011 and shall
expire on December 31, 2015. Each renewal option shall be exercisable by
Tenant by giving written notice of the exercise of such renewal option to
Landlord at least twelve (12) months prior to the expiration of (i) the
initial term, in the case of the first such renewal option, and (ii) the
first Renewal Term, in the case of the second such renewal option. For
purposes of this Lease, no distinction is made between the terms "extend"
and "renew," or any variations thereof. All terms and conditions of this
Lease will remain in full force and effect during the Renewal Term(s),
except that Tenant shall accept the Leased Premises in "as is" condition
with no free rent or other concessions and the annual Basic Rent payable
during the first year of each Renewal Term shall be ninety-five percent
(95%) of the Fair Market Value Rate (as defined below) of the Leased
Premises as of the commencement of such Renewal Term multiplied by the
rentable square footage of the Leased Premises as specified in Section
1.1. During the second through fifth Lease Years of each Renewal Term, the
annual Basic Rent shall be adjusted as set forth in Section 2.1(c).
Within thirty (30) days after Landlord has received notice from Tenant
that Tenant has exercised its option to renew this Lease, Landlord shall
send to Tenant a
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<PAGE>
written notice specifying the Fair Market Value Rate as determined by
Landlord in accordance with the final paragraph of this Section. Within
fifteen (15) days after receipt of such notice from Landlord, Tenant shall
send Landlord a written notice of Tenant's acceptance or challenge of
Landlord's determination of such rate, provided, however, that in the
event that Tenant fails to respond within such fifteen (15) day period,
Tenant shall be deemed to have accepted Landlord's determination of the
Fair Market Value Rate. In the event that Tenant gives written notice that
it challenges Landlord's determination of the Fair Market Value Rate and
Landlord and Tenant are not able to agree on such rate within the
immediately following fifteen (15) days (the "Negotiation Period"), then
Landlord and Tenant shall each, within seven (7) days after the expiration
of the Negotiation Period, select an appraiser, each of whom shall be a
licensed MAI-certified real estate appraiser with at least ten (10) years
experience in the Greenbelt, Maryland area office market, who shall
determine the Fair Market Value Rate in accordance with the final
paragraph of this Section. The appraisers shall be instructed to complete
the appraisal procedure and to submit their written determinations to
Landlord and Tenant (together with supplemental written information
supporting their results which shall be in sufficient detail to permit an
informed evaluation of their determinations) within thirty (30) days after
their selection. In the event that the determination of the Fair Market
Value Rate submitted by Landlord's appraiser is less than or equal to one
hundred ten percent (110%) of the determination of the Fair Market Value
Rate submitted by Tenant's appraiser, the Fair Market Value Rate shall be
the average of such determinations. If the determination of the Fair
Market Value Rate submitted by Landlord's appraiser is greater than one
hundred ten percent (110%) of the determination of the Fair Market Value
Rate submitted by Tenant's appraiser, the appraisers shall, within seven
(7) days, appoint a third appraiser with similar qualifications to make
such determination of the Fair Market Value Rate in accordance with the
foregoing limitations. In the event that the two appraisers cannot agree
as to the selection of the third appraiser within seven (7) days after
Landlord and Tenant are notified of the determinations of the appraisers,
either party may request that the President of the Greater Washington
Commercial Association of Realtors appoint the third appraiser. The third
appraiser shall be instructed to complete the appraisal procedure and to
submit a written determination of the Fair Market Value Rate to Landlord
and Tenant within thirty (30) days after such appraiser's appointment
(together with supplemental written information supporting his or her
determination, which shall be in sufficient detail to permit an informed
evaluation of his or her determination). The Fair Market Value Rate shall
be the determination which is neither the highest of the three
determinations nor the lowest of the three determinations but the
remaining determination which shall be binding upon Landlord and Tenant.
Landlord and Tenant shall each bear the costs of their respective
appraisers. The expenses of the third appraiser shall be borne one-half
(1/2) by Landlord and one-half (1/2) by Tenant.
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<PAGE>
For purposes of this Lease, the term "Fair Market Value Rate" means the
fair market rental rate per square foot of the rentable area of the Leased
Premises specified in Section 1.1 that would be agreed upon between a
landlord and a tenant entering into a lease in a comparable building of
comparable age in Greenbelt, Maryland, assuming the following: (A) the
landlord and tenant are typically motivated; (B) the landlord and tenant
are well informed and well advised and each is acting in what it considers
its own best interest; (C) no free rent, improvement allowance or other
concessions are being provided by landlord; and (D) the Leased Premises
are fit for immediate occupancy and use "as is" and no work is required to
be done by landlord."
4. Paragraph 3 of the Addendum and Section 2.1(a) of the Lease are deleted
in their entirety and the following is inserted in lieu thereof:
"Section 2.1 Basic Rent.
(a) Commencing as of August 1, 1997, Tenant shall pay Landlord rent
("Basic Rent") for the portion of the Leased Premises located on the
lower level and the 11th and 12th floors of the Building, at the
annual rate of Six Hundred Ninety Thousand Seventy-Two Dollars
($690,072.00), which amount is equal to Twelve Dollars ($12.00)
multiplied by the rentable area of the Leased Premises located on
the lower level plus Twenty and 50/100 Dollars ($20.50) multiplied
by the rentable area of the Leased Premises located on the 11th and
12th floors. Such Basic Rent shall be payable in equal monthly
installments of Fifty-Seven Thousand Five Hundred Six Dollars
($57,506.00) in advance on the first day of the month.
(b) In recognition of the fact that Tenant will not have use of the
portion of the Leased Premises located on the 9th and 10th floors of
the Building for a period of time due to the renovation of such
space, Basic Rent will not commence as to such portion of the Leased
Premises until December 1, 1997. Commencing on December 1, 1997, the
Basic Rent set forth in subparagraph (a) above shall be increased to
an annual rate of One Million Three Hundred Thirty-Nine Thousand
Five Hundred Twelve Dollars ($1,339,512.00), which amount is equal
to Twelve Dollars ($12.00) multiplied by the rentable area of the
Leased Premises located on the lower level plus Twenty and 50/100
Dollars ($20.50) multiplied by the rentable area of the remainder of
the Leased Premises. Such Basic Rent shall be payable in equal
monthly installments of One Hundred Eleven Thousand Six Hundred
Twenty-Six Dollars ($111,626.00) in advance on the first day of the
month.
(c) For the Lease Year commencing on August 1, 1999, and each Lease Year
thereafter, the annual Basic Rent shall be increased by an amount
equal to three percent (3%) of the Basic Rent in effect during the
preceding Lease Year."
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<PAGE>
5. Real Estate Tax - Escalation. Section 2.3(a)(ii) is deleted in its
entirety and the following is inserted in lieu thereof:
"The term "base real estate taxes" means the assessed value of the land,
Building and improvements multiplied by the then current rate for the tax
year ending June 30, 1998."
Tenant's pro rata share of increases in real estate taxes for the then current
real estate tax year over the base real estate taxes, as set forth in Section
2.3(b), is amended from 35.13% to 33.99%.
6. Renovations. Landlord shall, at its sole cost and expense, provide
Tenant with a "turnkey" renovation (the "Renovations") of the portion of the
Leased Premises located on the 9th and 10th floors of the Building and the main
reception area of the Leased Premises on the 12th floor of the Building
(collectively, the "Renovated Space") in accordance with the terms of this
paragraph. Within thirty (30) days after Tenant furnishes Landlord with its
approved space plan annotated with certain specifications for the Renovations
(the "Space Plan"), Landlord shall deliver to Tenant for Tenant's approval full
and complete construction drawings consistent with the Space Plan. Within five
(5) business days after receiving such construction drawings, Tenant shall
notify Landlord either that Tenant approves such construction drawings or that
Tenant disapproves such construction drawings and the reasons for such
disapproval; provided, however, that Tenant shall approve such construction
drawings if they are consistent with the Space Plan. Landlord shall make the
necessary revisions to obtain Tenant's approval of the construction drawings.
Should Tenant fail to respond to Landlord's request for approval of the
construction drawings within five (5) business days, or should Tenant make any
changes to the construction drawings which are not consistent with the Space
Plan, then Tenant shall bear the cost of redesign and any delay in completion of
the Tenant Improvements as a result of such changes or delays shall be of no
consequence to Landlord. Landlord shall construct the Renovations in accordance
with the construction drawings approved by Tenant, in a good and workmanlike
manner with new materials or reusing existing materials so long as the finished
product is of a first class quality. All work shall be in compliance with all
applicable codes and regulations. Landlord shall complete the Renovations and
deliver the Renovated Space for Tenant's occupancy no later than January 31,
1998, except that if Tenant does not furnish Landlord with the Space Plan on or
before October 17, 1997, the aforesaid January 31, 1998 date shall be extended
by one day for each day of such Tenant delay. If Landlord fails to complete the
Renovations and deliver the Renovated Space by January 31, 1998 (as extended by
the number of days, if any, beyond October 17, 1997 that Tenant furnishes
Landlord with the Space Plan), then, in addition to any remedies available to
Tenant at law or in equity, Tenant's obligation to pay Basic Rent with respect
to the Renovated Space shall be abated until Landlord completes the Renovations
and delivers the Renovated Space. Landlord acknowledges that if Landlord fails
to complete the Renovations and deliver the Renovated Space in time for Tenant
to relocate into the Renovated Space by February 28, 1998, Tenant will incur
holdover penalties under its present lease and other related damages. The
Renovations shall be deemed completed when Landlord has obtained and delivered
to Tenant all necessary approvals and certificates as may be required
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<PAGE>
for Tenant to lawfully occupy the Renovated Space. Landlord, at its sole cost
and expense, shall replace all materials, workmanship, fixtures or equipment
which prove to be defective during a period of twelve (12) months after Landlord
delivers the Renovated Space to Tenant.
7. Alterations. Notwithstanding anything to the contrary in Section 3.3 of
the Lease or elsewhere in the Lease, Tenant shall submit to Landlord for its
prior approval any and all plans required by Prince George's County to perform
any alterations, installations, changes, replacements, additions or improvements
to the Leased Premises. Landlord shall not unreasonably withhold its consent and
shall notify Tenant within five (5) business days whether the plans are approved
or disapproved. If Landlord fails to respond to Tenant's request for approval of
such plans within such five (5) day period, Landlord's approval shall be deemed
given. Should Landlord approve the requested changes, Landlord shall notify
Tenant at the time of said approval whether Tenant will be required to remove
such alterations, installations, changes, replacements, additions or
improvements upon termination of the Lease. Tenant shall be permitted to make
any alteration, installations, changes, replacements, additions or improvements
without Landlord's prior written consent if the work will not require a building
permit from Prince George's County.
8. Electrical Equipment. Section 3.6 of the Lease is deleted in its
entirety. Landlord shall provide sufficient electric service to the Leased
Premises for Tenant to operate its business as currently conducted and operate
equipment typically found in modern office buildings, including, without
limitation, personal computers, copier machines, fax machines, etc. If at any
time Tenant's demand for electric service (i) on the eleventh and twelfth floors
exceeds the capacity set forth in the plans and specifications for the original
leasehold improvements on the eleventh and twelfth floors or (ii) in the
remaining portions of the Leased Premises exceeds the capacity set forth in the
construction drawings for the Renovations, then, in either case, Landlord, at
Tenant's expense, will make reasonable efforts to supply such service through
the then-existing feeders servicing the Building and Tenant shall pay Landlord,
on demand, the costs of the additional electric consumption. If Landlord is
unable to provide such additional service through existing feeders to the
Building or risers or wiring installations, any feeders, risers or wiring
necessary to meet Tenant's excess electrical requirements will, upon Tenant's
written request, be installed by Landlord at Tenant's cost.
9. Cooking; Vending Machines. Notwithstanding anything in the Lease to the
contrary, Tenant shall be permitted to have a microwave oven, refrigerator,
dishwasher and other kitchen appliances and vending machines in the Leased
Premises for its employees and visitors and to operate such appliances and
vending machines as is reasonable or customary in an office setting.
10. Subletting and Assignment. Section 3.9 of the Lease is deleted in its
entirety and the following is inserted in lieu thereof:
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"Section 3.9 Subletting and Assignment.
(a) Tenant shall have the unrestricted right to assign this Lease or
sublet all or any portion of the Leased Premises without Landlord's
consent (i) to any entity which controls, is controlled by or is
under common control with Tenant (an "Affiliate") or (ii) in
connection with a merger or consolidation of Tenant or an Affiliate,
a sale of all or substantially all of Tenant's or an Affiliate's
assets, or a sale of stock or other ownership interests in Tenant or
an Affiliate. Notwithstanding the foregoing, the sale of stock or
other ownership interests in an Affiliate that is not an operating
business and has this Lease as its sole or primary asset shall
require the prior written consent of Landlord, which shall not be
unreasonably withheld, conditioned or delayed. Tenant agrees to
notify Landlord of any assignment or subletting pursuant to this
Section 3.9(a) prior to the effective date of such assignment or
subletting.
(b) Any assignment of this Lease other than pursuant to subsection (a)
of this Section 3.9 shall require the prior written consent of
Landlord, which shall not be unreasonably withheld, conditioned or
delayed. Any subletting of all or any portion of the Leased Premises
other than pursuant to subsection (a) of this Section 3.9 shall
require the prior written consent of Landlord, which shall not be
withheld unless the subtenant's occupancy will have a material
adverse effect on the operation of the Building or the Building
systems. Landlord shall respond in writing to a request for consent
to an assignment or subletting within thirty (30) days after receipt
of such request, which response shall set forth in reasonable
detail, in the event Landlord denies its consent, the reasons for
such denial. If Landlord fails to respond to a request for consent
to an assignment or subletting within such thirty (30) day period,
such consent shall be deemed given.
(c) In the event of any assignment or subletting, Tenant shall remain
fully liable and obligated under all the terms conditions and
provisions of this Lease and any assignee shall assume all of the
obligations of Tenant under this Lease. The consent by Landlord to
any assignment or subletting shall not be construed as a waiver or
release of Tenant from the terms of any covenants or obligations
under this Lease, nor shall the collection or acceptance of rent
from any such assignee or subtenant constitute a waiver of, or
release of Tenant from, any covenant or obligation contained in this
Lease, nor shall any such assignment or subletting be construed to
relieve Tenant from obtaining the consent in writing of Landlord to
any further assignment or subletting, to the extent such consent is
required by this Lease. In the event that Tenant defaults hereunder
beyond the expiration of any applicable notice and cure or grace
period, Tenant hereby assigns to Landlord the rent due from any
subtenant of Tenant and hereby authorizes each such subtenant to pay
said rent directly to Landlord.
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11. Utility Services. Notwithstanding anything to the contrary in Section
4.1 of the Lease, the hours during which Building services are provided on
Saturdays shall be 8:00 a.m. until 1:00 p.m. Section 4.1 of the Lease is amended
by deleting the first sentence of the Addendum and inserting the following in
lieu thereof: "Tenant shall be provided after-hours HVAC and electrical service
at the actual hourly rate as billed to Landlord from the utility company." The
final two sentences of Section 4.1 of the Addendum are deleted in their
entirety.
12. Insurance and Indemnification.
(a) Notwithstanding anything to the contrary in Section 5.1 of the
Lease, the companies writing insurance which Tenant is required to
maintain pursuant to the Lease shall have a policyholders rating of
at least A, with an financial rating of VII.
(b) During the term of the Lease, Landlord shall insure the Building and
the Leased Premises, including the Renovations and existing
leasehold improvements but excluding Tenant's furniture, trade
fixtures, equipment and other personal property, against damage with
All-Risk insurance for the full replacement value and commercial
general liability insurance in amounts which are reasonable and
customary for office buildings in the Washington, D.C. metropolitan
area.
(c) Paragraph 9 of the Addendum is amended by deleting the words
"Section 5.1 of" from the first sentence.
(d) The limitation of Landlord's liability contained in Section 5.3 of
the Lease shall not limit Landlord's insurance, restoration and
repair obligations under the Lease.
13. Defaults and Remedies. Notwithstanding anything in Section 7.1 or
elsewhere in the Lease to the contrary, Landlord shall not be entitled to
exercise its remedies unless and until Landlord provides Tenant with written
notice of Tenant's default and Tenant fails to cure such default (i) in the case
of a payment default, within ten (10) days following such notice; provided,
however, Landlord shall not be required to provide notice more than two (2)
times in any twelve (12) month period or (ii) in the case of a default of any
other provision of the Lease, within thirty (30) days following such notice;
provided, however, that if such default cannot reasonably be cured within thirty
(30) days, Tenant shall have such longer period of time as is reasonable
provided Tenant commences such cure within such thirty (30) day period and
diligently prosecutes such cure to completion. Section 7.1(c) is deleted in its
entirety.
14. Estoppel Certificates. Notwithstanding anything to the contrary in the
Lease, Tenant shall have ten (10) business days to deliver any estoppel
certificate Tenant is required under the Lease to deliver.
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15. Notice to Mortgagee. Pursuant to Section 8.3 of the Lease, Tenant
shall send notice of any default by Landlord to the following deed of trust
holder:
Mass Mutual 700 11th Street, N.W.
Suite 610
Washington, D.C. 20001
Attention: John Doan
16. Notices. Tenant's address for notices set forth in Section 9.8 of the
Lease is amended as follows:
Federal Data Corporation
4800 Hampden Lane
Bethesda, Maryland 20814
Attention: James M. Dean, Vice President and
Chief Financial Officer
with a courtesy copy to (which shall not constitute notice):
Federal Data Corporation
7501 Greenway Center Drive
Suite 1200
Greenbelt, Maryland 20770
Attention: Peter Belford
17. Rights to Lease Additional Space.
(a) Paragraph 10 of the Addendum is deleted in its entirety. Subject to
the rights of other tenants of the Building set forth on Exhibit A to this
Agreement (the "Other Tenant Rights"), and provided Tenant is not in default of
the Lease beyond the expiration of any applicable cure period, Tenant shall have
the right to lease any Additional Space (as defined below) on the terms and
conditions contained in the Lease, except that the per square foot rate of Basic
Rent shall be as set forth in subparagraph (b) below. Additional Space" shall
mean any of the following space which may become available (as defined below):
(i) the third, fourth and fifth floors of the Building, which space is currently
occupied by Bell Atlantic (the "Bell Atlantic Space"), (ii) the sixth floor of
the Building, which space is currently occupied by Applied Information Sciences
(the "AIS Space"), (iii) any space in the Building containing 5,000 or more
rentable square feet and (iv) any space in the Building contiguous to space
occupied by Tenant or on a contiguous floor to space occupied by Tenant. For
purposes of this Section, "available" space shall mean any space in the Building
(a) which is or becomes vacant on or before December 31, 1999, or (b) the lease
of which expires on or before December 31, 1999 and with respect to which no
Other Tenant Rights apply, or (c) with respect to which Landlord receives
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notice on or before December 31, 1999 that the current tenant of such space
intends to vacate such space, or (d) with respect to which the tenant of such
space fails to timely give notice exercising any Other Tenant Rights that apply
to such space, which notice was required to be delivered on or before December
31, 1999 in order to exercise such Other Tenant Rights, or (e) which Landlord is
otherwise able to put on the market on or before December 31, 1999. Landlord
shall notify Tenant when any Additional Space becomes available and Tenant shall
notify Landlord within thirty (30) days whether Tenant elects to lease such
Additional Space on the terms contained herein.
(b) If Tenant elects to lease at least the entire AIS Space and/or at
least one full floor of the Bell Atlantic Space, then the Basic Rent applicable
to such Additional Space and any additional increments of Additional Space
leased by Tenant which equal either (A) at least fifty percent (50%) of a full
floor or (B) the remaining then available rentable area on a floor shall be (x)
during any period of time from the date of this Agreement until July 31, 1999,
Twenty and 50/100 Dollars ($20.50), (y) during any period of time from August 1,
1999 until July 31, 2001, Twenty-One and 75/100 Dollars ($21.75) and (z) during
any period of time from August 1, 2001 until the expiration of the Lease, the
then current per square foot rate of Basic Rent under the Lease. The parties
agree to negotiate in good faith to determine the per square foot rate of Basic
Rent for any Additional Space that Tenant elects to lease which is not described
in the immediately preceding sentence.
(c) If, in Tenant's reasonable judgment, the Additional Space is usable by
Tenant in its existing configuration, Landlord shall paint and install new
carpeting in the Additional Space prior to delivering the Additional Space to
Tenant. If, in Tenant's reasonable judgment, the Additional Space is not usable
by Tenant in its existing configuration, Landlord shall, at its sole cost and
expense, renovate the Additional Space in accordance with plans and
specifications mutually agreed-upon by the parties, with leasehold improvements
of a class and quality similar to those of the Leased Premises, prior to
delivering the Additional Space to Tenant.
(d) Effective as of the date of delivery to Tenant of the Additional
Space, (1) the Additional Space shall be added to and constitute a part of the
Leased Premises for all purposes under this Lease, (2) the rentable area of the
Leased Premises shall be increased by the rentable area of the Additional Space,
(3) Tenant's pro rata share of real estate tax increases shall be increased by
an amount which is proportionate to the square footage of the Additional Space
and (4) the annual Basic Rent shall be increased by an amount equal to the
number of square feet of rentable area in the Additional Space multiplied by the
per square foot rate of Basic Rent for the Additional Space as determined
pursuant to this paragraph.
18. Security Deposit. Upon execution of this Agreement, Landlord shall
return to Tenant the letter of credit being held by Landlord as a security
deposit as described in Paragraph 14 of the Addendum.
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<PAGE>
19. Subordination, Attornment and Non-Disturbance. Landlord shall use its
best efforts to deliver to Tenant a Non-Disturbance Agreement pursuant to which
any foreclosure of such mortgage or deed of trust or termination of ground lease
shall not terminate this Lease or affect Tenant's rights hereunder as long as
the Landlord under this Lease does not have a right to terminate this Lease by
reason of a default by Tenant hereunder ("NDA") from each current mortgagee,
deed of trust holder and ground lessor of the Building within *. If Landlord
fails to deliver such NDA within such ** then in the event any such mortgagee,
deed of trust holder or ground lessor, or any party purchasing or otherwise
claiming through them, acquires title to the Building, Tenant shall have the
right, at its option, to terminate the Lease at any time prior to the expiration
of twelve (12) months after Tenant receives written notice that such party has
acquired title to the Building. In addition, notwithstanding anything to the
contrary in Section 8.1 of the Lease, Tenant's obligation to subordinate and
attorn to any future mortgagee, deed of trust holder or ground lessor shall be
conditioned upon Tenant having received an NDA from such mortgagee, deed of
trust holder or ground lessor. Tenant acknowledges and agrees that the NDA from
Landlord's current lender will be substantially in the form attached as Exhibit
B.
20. Lease Continues; Definitions. Except as amended hereby, the Lease
continues in full force and effect. If there is any conflict or inconsistency
between the terms and provisions of the Lease and the terms and provisions of
this Agreement, this Agreement shall control. Capitalized terms not defined in
this Agreement shall have the meanings ascribed to them in the Lease.
** Twenty (20) business day period after receipt of an acceptable NDA
executed by the Tenant.
[Signatures Appear on Following Page]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease Assignment,
Modification and Extension Agreement to be duly executed, effective as of the
day and year first written above.
LANDLORD:
Witness: SECOND TRADE
CENTER OFFICE
ASSOCIATES LIMITED PARTNERSHIP,
a Maryland limited partnership
[Illegible] By: /s/ Neil T. Coakley
- ---------------------------- ------------------------------------
Neil T. Coakley, General Partner
TENANT:
Witness: FEDERAL
DATA CORPORATION, a
Delaware corporation
[Illegible] By: /s/ James M. Dean
- ---------------------------- ------------------------------------
Name: JAMES M. DEAN
Title: VICE PRESIDENT & CHIEF
FINANCIAL OFFICER
NYMA:
Witness: NYMA, INC.,
a Maryland corporation
[Illegible] By: /s/ James M. Dean
- ---------------------------- ------------------------------------
Name: JAMES M. DEAN
Title: VICE PRESIDENT
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<PAGE>
EXHIBIT A
RIGHTS OF OTHER TENANTS
Maryland Trade Center III
Available Space
<TABLE>
<CAPTION>
Lease
Name Location R.S.F Expiration Options
- ---- -------- ----- ---------- -------
<S> <C> <C> <C> <C>
Greenway Infant 1st Floor 2,858 12/31/97
Mortgage Capital 1st Floor 3,695 08/14/99
Wall Street Deli 1st Floor 1,237 05/31/99 1-5 year renewal at
market - 12 months notice
Dr Palmer 2nd Floor 4,870 09/30/99 2 - 5 year renewals at
market - 8 months notice
Kimberly Leaman 2nd Floor 1,380 M-T-M
Dr Person 2nd Floor 4,570 04/30/00 1 - 3 year renewal at market
- 6 months notice
Dr. Green 2nd Floor 1,948 07/31/98 2 - 5 year renewals at
market - 12 months notice
Bell Atlantic 3rd Floor 16,384 12/31/99 1 - 5 year renewal at
Bell Atlantic 4th Floor 16,384 12/31/99 market - 12 months
Bell Atlantic 5th Floor 16,384 12/31/99 notice (12/31/98)
------
49,152
AIS 6th Floor 16,384 12/31/99 1 - 5 year renewal at market
- 9 months notice (3/31/99)
Informatics 7th Floor 2,967 10/31/98
Intermodal 6,203 02/28/05 1 - 5 year renewal
12 months notice
Vacant 2,860
Asiavision 1,584 03/31/98
Ameriquest 2,770 05/31/02
Donohoe 8th Floor 2,536 12/31/98
Crestar 3,723 10/31/98
Hewlett Packard 2,117 04/30/98
Rockledge Group 1,807 04/30/98
Coakley & Williams 6,202 04/30/98
</TABLE>
<PAGE>
EXHIBIT B
TENANT'S ACCEPTANCE LETTER
NONDISTURBANCE SUBORDINATE AND ATTORNMENT
Date: _________________ MassMutual Mortgage Loan Commitment No. __________
Massachusetts Mutual Life Insurance Company
1395 State Street
Springfield, Massachusetts 0111-0001
Attention: Mortgage Loan Administration
Real Estate Investment Division
Re: ____________________________________________________________________________
________________________________________________(Property name and location)
To Massachusetts Mutual Life Insurance Company:
The undersigned ("Tenant") understands that Massachusetts Mutual Life
Insurance Company ("MassMutual") has made or will be making a mortgage loan (the
"Loan") on the Property described below. In connection with the Loan, MassMutual
will be receiving an assignment of all leases with respect to the Property and
will be acting in reliance upon this letter.
By signing below, the Tenant certifies to and agrees with MassMutual as follows:
1. The Tenant leases a portion of a(n) __________________________________
______________________________________________________________________
(office building/shopping center/warehouse/other property type)
located at ___________________________________________________________
______________________________________________________________________
________________(street address, city and state) and known generally
as ___________________________________________________________________
(the "Property").
2. The lease between the Tenant and the landlord ("Landlord") regarding
the Tenant's premises (the "Premises") is dated ______________________
and is unamended except as follows: __________________________________
______________________________________________________________________
_______________(dates of lease amendments). The lease together with
the amendments is referred to herein as the "Lease," and is the
complete statement of the Landlord and the Tenant regarding the
Premises.
3. The Lease provides
A. Current monthly fixed or base rent: _____________________________
_________________________________________________________________
B. Pertcentage rent: _______________________________________________
_________________________________________________________________
C. Common area expenses: ___________________________________________
_________________________________________________________________
D. Commencement Date: ______________________________________________
_________________________________________________________________
<PAGE>
E. Termination Date (exclusive of renewal periods): ________________
_________________________________________________________________
F. Renewal Periods: ________________________________________________
_________________________________________________________________
G. Security Deposit: _______________________________________________
_________________________________________________________________
4. The Tenant has accepted and is now in sole possession of the Premises. Any
construction, build out, improvements, alterations or additions to the
Premises required under the Lease have been completed in accordance with
the Lease.
5. The Tenant has not subleased any part of the Premises or assigned the
Lease.
6. As of this date, the Lease is in full force and effect and to the best of
Tenants' knowledge there is no violation of or default under the Lease on
the part of the Landlord or the Tenant. There is no present offset of rent
and the Tenant has no knowledge of any circumstances which would give rise
to any credit or set-off against the obligation for present or future
rentals under the Lease.
7. The Tenant will, concurrently with the giving of any notice to the
Landlord, give MassMutual written notice (at the above address) of any
default by the Landlord under the Lease. MassMutual will have a reasonable
opportunity, before the exercise of any rights the Tenant may have
pertaining to the Lease, to cure any such default by the Landlord.
8. The Tenant hereby subordinates all of its right, title and interest under
the Lease to the lien, operation and effect of any mortgage(s) (as
modified or extended) of MassMutual now or hereafter in force against the
Property, and to all advances hereafter made under such mortgage(s).
9. In the event that MassMutual or any third party becomes the owner of the
Property, by foreclosure or otherwise, the Tenant agrees to attorn to
MassMutual or any purchaser and to recognize MassMutual or any purchaser as
the landlord under the Lease. Acceptance of this letter by MassMutual
constitutes MassMutual's agreement that it will not disturb or interfere
with the Tenant's possession of the Premises during the term of the Lease
or any extension or renewal thereof so long as the Tenant is not in default
under the Lease beyond the expiration of any applicable notice and cure or
grace periods.
Sincerely,
TENANT:
- -------------------------------------------------------- [As specified in Lease]
- ---------------------------------------------------------------------[Signature]
By (Name):
Title:
MassMutual, in consideration of the agreements made by Tenant in this Tenant's
Acceptance Letter and in reliance upon the accuracy in a11 material respects of
the certifications herein made by Tenant, joins in execution of this Tenant's
Acceptance Letter solely to evidence its agreement to be bound by the provisions
of paragraph 9 above.
Massachusetts Mutual Life Insurance Company
By:___________________________________
Its:__________________________________
EXHIBIT "B"
EXHIBIT 21.1
SUBSIDIARIES OF FEDERAL DATA CORPORATION
State of Doing
Subsidiaries Incorporated Business Names
- ------------ ------------ --------------
FDCT Corp. Delaware FDCT Corp.
FDC Technologies, Inc. Delaware FDC Technologies, Inc.
DoxSys, Inc. Delaware DoxSys, Inc.
VAD International, Inc. Maryland VAD International, Inc.
NYMA, Inc. Maryland NYMA, Inc.
Sylvest Management Sylvest Management
Systems Corporation Maryland Systems Corporation
R.O.W. Sciences, Inc. Delaware R.O.W. Sciences, Inc.
Technical and Management Technical and Management
Assistance, Inc. New Jersey Assistance, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,327
<SECURITIES> 0
<RECEIVABLES> 96,702
<ALLOWANCES> 628
<INVENTORY> 6,346
<CURRENT-ASSETS> 123,962
<PP&E> 16,266
<DEPRECIATION> 12,520
<TOTAL-ASSETS> 192,966
<CURRENT-LIABILITIES> 76,396
<BONDS> 113,000
0
0
<COMMON> 29
<OTHER-SE> 988
<TOTAL-LIABILITY-AND-EQUITY> 192,966
<SALES> 331,268
<TOTAL-REVENUES> 336,306
<CGS> 280,903
<TOTAL-COSTS> 334,685
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 292
<INTEREST-EXPENSE> 10,947
<INCOME-PRETAX> 1,621
<INCOME-TAX> 1,368
<INCOME-CONTINUING> 253
<DISCONTINUED> 0
<EXTRAORDINARY> (2,770)
<CHANGES> 0
<NET-INCOME> (2,517)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
