<PAGE>
As filed with the Securities and Exchange Commission on May 14, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933
----------------
AVERSTAR, INC.
(Exact name of registrant as specified in its charter)
Delaware 8711 043411541
(State or other (Primary standard industrial (I.R.S. employer
jurisdiction of classification code number) identification number)
incorporation or
organization)
----------------
23 Fourth Avenue
Burlington, MA 01803
(781) 221-6990
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Michael B. Alexander
Chief Executive Officer
AverStar, Inc.
23 Fourth Avenue
Burlington, MA 01803
(781) 221-6990
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Gerald Adler, Esq. Julie M. Allen, Esq.
Swidler Berlin Shereff Friedman, LLP O'Sullivan Graev & Karabell, LLP
919 Third Avenue 30 Rockefeller Plaza
New York, New York 10022 New York, New York 10112
(212) 758-9500 (212) 408-2400
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement is declared effective.
----------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] .
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_] .
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_] .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of Securities Aggregate Offering Amount of
to be Registered Price (1)(2) Registration Fee
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<S> <C> <C>
Common Stock, $0.001 par value.............. $46,000,000 $12,788.00
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</TABLE>
(1) Includes shares being offered by selling stockholders and shares of Common
Stock that the underwriters have an option to purchase solely to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any jurisdiction where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 14, 1999
PROSPECTUS
Shares
AverStar, Inc.
Common Stock
-----------
This is an initial public offering of shares of our common stock. We are
offering shares of our common stock. Selling stockholders named in this
prospectus are offering shares of our common stock. We anticipate that the
initial public offering price will be between $ and $ per share.
We will apply to have our common stock approved for listing on the Nasdaq
National Market under the symbol "ASTR".
See "Risk Factors" beginning on page 6 to read about risks that you should
consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price............................................. $ $
Underwriting discounts and commissions............................ $ $
Total proceeds, before expenses, to us from this offering......... $ $
Total proceeds, before expenses, to selling stockholders from this
offering......................................................... $ $
</TABLE>
-----------
The underwriters may purchase up to an additional shares of our common
stock from us at the initial public offering price less the underwriting
discount to cover over-allotments.
-----------
Bear, Stearns & Co. Inc. Legg Mason Wood Walker
Incorporated
The date of this prospectus is , 1999
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, especially the risks of
investing in our common stock discussed under "Risk Factors," before investing
in our common stock.
Our Business
AverStar is a pioneer in providing information technology, or IT, services
and software products for the mission-critical systems of a significant number
of civilian and defense agencies of the United States government. Our customers
include 16 of the 20 government agencies with the largest IT budgets for the
government's 1999 fiscal year. We also provide our services to large commercial
companies. We have established long-term customer relationships, some of which
have extended over 20 years. During our 30-year history, we have maintained a
strong record of customer satisfaction based on the quality and reliability of
our services and products.
We provide an integrated offering of services and products in four areas of
IT:
. IT Assurance. We provide independent analysis, testing and verification
of critical information systems under development or being upgraded. We
also provide security for customers' information systems.
. IT Development. We offer a full range of software and systems
development services for customer-specific applications and Internet
applications.
. IT Operations. We manage and operate information system networks and
data centers at our customers' facilities.
. IT Consulting. We serve as consultants with respect to our customers'
development of innovative applications or improvements to existing
critical systems.
We believe that we are a leader in providing IT assurance services for
mission-critical systems to the United States government. Our key IT assurance
contracts include NASA's space shuttle, space station and ground systems, the
Health Care Finance Administration's Medicare transactions system and the
United States Postal Service's automation systems. Once a customer retains us
to perform assurance services, we believe that we can gain expertise about the
customer's business and therefore become well positioned to provide additional
services and products to that customer. For example, after first being engaged
to provide IT assurance services, we have been awarded contracts to provide IT
development and IT consulting services to the United States Postal Service and
the Securities and Exchange Commission.
We serve as the prime contractor on a majority of our contracts. Prime
contracts accounted for approximately 78% of our 1998 pro forma revenues. We
believe that our position as prime contractor allows us to develop closer
relationships with our customers, to better control the quality of services and
products delivered to the customer and to expand our customer relationships.
Our Market
The demand for third-party IT services has grown substantially in recent
years. Organizations are increasingly using IT to improve the quality of their
products and services, to reduce their costs and to improve operating
efficiencies. International Data Corporation, or IDC, forecasts that the United
States market for IT services will grow from an estimated $139 billion in 1998
to $204 billion in 2002. IDC forecasts that the IT system services segment of
the worldwide IT services market will grow at a compound annual growth rate of
approximately 12% over this period.
<PAGE>
According to Federal Sources, Inc., the United States government is the
world's largest single buyer of IT services and products. The Electronics
Industry Association, or EIA, reports that the United States government's IT
budget for fiscal 1999 is approximately $30 billion, nearly double the budget
ten years ago. The EIA also estimates that the outsourced portion of the
federal IT budget will be $26 billion in 1999, with approximately 64% allocated
to civilian agencies of the government and 36% allocated to the Department of
Defense.
We believe that the increasing emphasis by the United States government on
downsizing and reducing budgets will result in the growing use of IT to enhance
productivity and in more testing and upgrading of existing IT systems. In
addition, government agencies are increasingly using commercial procurement
practices. With our leadership position in IT assurance, reputation for quality
and reliability and broad customer base, we believe that we are well positioned
to take advantage of these trends.
Our Corporate History
Our current business and operations result from a series of strategic
acquisitions of well established IT companies, executed by our current
management team. In February 1998, we combined the businesses of Intermetrics,
Inc. and Pacer Infotec, Inc. Previously, Pacer acquired Infotec Development,
Inc. in July 1996. Founded in 1969, Intermetrics brought us expertise in IT
assurance and IT consulting services for United States civilian and defense
agencies and for commercial organizations and IT development services for
customer- specific applications. Founded in 1968, Pacer broadened our base of
contracts for IT assurance and IT development services for United States
defense and civilian agencies. In March 1999, we acquired Computer Based
Systems, Inc. Founded in 1978, CBSI strengthened our IT operations services and
broadened our customer base among civilian agencies of the federal government.
Our acquisitions have provided us with an experienced management team, a broad
base of long term contracts, a diverse group of established customers,
substantial backlog and strong sales and marketing resources. We believe that
these strengths enable us to compete effectively in our industry.
Our Strategy
Our goal is to be the leading quality supplier of IT services and software
products for mission-critical systems. To achieve our goal, our strategy is to:
. Leverage our leadership position in IT assurance. We intend to continue
to capitalize on our leadership position in IT assurance to attract new
customers and to provide additional services and products to our
existing customers.
. Pursue targeted acquisition opportunities. We seek to acquire companies
that operate in defined vertical market niches complementary to our
current business or that have well established relationships with key
customers.
. Expand our commercial business. We intend to leverage our expertise and
reputation in the federal IT market to compete for commercial projects.
. Continue our investment in sales and marketing. We are continuing to
strengthen our sales and marketing efforts to compete effectively for
government contracts in a changing procurement environment and to expand
our commercial customer base.
. Maintain our high level of customer satisfaction. We believe that
maintaining our high level of customer satisfaction and the resulting
long-term relationships provide a stable customer base from which we can
grow our business.
----------------
We are incorporated in Delaware. Our principal executive offices are located
at 23 Fourth Avenue, Burlington, Massachusetts 01803. Our telephone number at
that location is (781) 221-6990. Our web site address is www.averstar.com.
Information contained on our web site does not constitute part of this
prospectus.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Common Stock Offered By:
AverStar................................... shares
Selling Stockholders....................... shares
Total Shares Offered................... shares
Common Stock Outstanding After this Offering.. shares
Use of Proceeds............................... To repay a portion of our
indebtedness. Please see "Use
of Proceeds."
Proposed Nasdaq National Market Symbol........ ASTR
</TABLE>
Additional shares may be issued after this offering.
You should be aware that we are permitted, and in some cases obligated, to
issue shares of common stock in addition to the common stock to be outstanding
after this offering. If and when we issue these shares, the percentage of
common stock you own may be diluted. 1,513,433 shares are issuable upon the
exercise of outstanding options at a weighted average exercise price of $2.92
per share, of which 757,055 shares are exercisable. In addition, 1,836,014
shares are available for future option grants.
Unless otherwise indicated all information in this prospectus assumes that
the underwriters do not exercise their option to purchase additional shares
after the closing of this offering.
----------------
All pro forma statement of operations information in this prospectus is
presented as if our acquisitions of Pacer and of CBSI had occurred as of
January 1, 1998 unless otherwise noted.
----------------
AverStar, Inc., Intermetrics, Inc., Pacer Infotec, Inc., JWatch, EWatch, Ada
Magic and our logo are our trademarks. Each other trademark, tradename or
service mark appearing in this prospectus belongs to its holder.
3
<PAGE>
Summary Financial Data
The following table sets forth our summary financial data. This table does
not present all of our financial information. You should read this information
together with our financial statements and the notes to those statements
beginning on page F-1 of this prospectus and the information under "Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In August 1995, an investor group led by
current management acquired Intermetrics. The selected financial data for the
12 months ended February 29, 1996, which are unaudited, reflect the operations
of Intermetrics for the first six months of the period based on Intermetrics'
basis of accounting prior to the acquisition, and the operations of
Intermetrics for the last six months of the period giving effect to the
acquisition in August 1995. In February 1998, we acquired Pacer, whose results
of operations are included from the date of acquisition in our results for the
12 months ended December 31, 1998. In March 1999, we acquired CBSI. The pro
forma column below presents our statement of operations data as if the
acquisitions of Pacer and CBSI had occurred as of January 1, 1998. The pro
forma as adjusted column reflects our sale of shares of common stock in this
offering, after deducting underwriting discounts and estimated offering
expenses, and the application of the proceeds to repay debt.The selected
financial data for the 12 months ended February 28, 1997, the 10 months ended
December 31, 1997 and the 12 months ended December 31, 1998 are derived from
our audited financial statements included elsewhere in this prospectus. The
selected financial data for the 12 months ended February 28, 1995 are derived
from audited financial statements not included in this prospectus. Historical
results are not necessarily indicative of the results we may achieve in the
future.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Twelve Twelve Twelve Ten Twelve Twelve As Adjusted
Months Months Months Months Months Months Twelve
Ended Ended Ended Ended Ended Ended Months Ended
February 28, February 29, February 28, December 31, December 31, December 31, December 31,
1995 1996 1997 1997 1998 1998 1998
------------ ------------ ------------ ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue................. $50,623 $53,234 $53,274 $53,646 $121,056 $169,220 $169,220
Cost of revenues........ 36,613 41,397 40,704 41,685 93,604 128,520 128,520
Selling, general and
administrative
expense................ 11,652 10,747 10,159 10,253 19,531 31,007 31,007
Amortization expense.... -- 514 1,085 150 1,050 4,344 4,344
In process research and
development expense.... -- 8,600 -- -- -- -- --
------- ------- ------- ------- -------- -------- --------
Income (loss) from
operations............. 2,358 (8,024) 1,326 1,558 6,871 5,349 5,349
Interest expense........ 26 747 1,441 1,302 2,513 4,973 2,163
Interest income......... 525 512 160 96 244 244 244
------- ------- ------- ------- -------- -------- --------
Income (loss) from
continuing operations
before taxes........... 2,857 (8,259) 45 352 4,602 620 3,430
Provision for income
taxes.................. 1,144 191 18 154 2,168 442 1,566
------- ------- ------- ------- -------- -------- --------
Net income (loss) from
continuing operations.. $ 1,713 $(8,450) $ 27 $ 198 $ 2,434 $ 178 $ 1,864
======= ======= ======= ======= ======== ======== ========
Computation of Adjusted
EBITDA:
Net income (loss) from
continuing operations.. $ 1,713 $(8,450) $ 27 $ 198 $ 2,434 $ 178 $ 1,864
Provision for income
taxes.................. 1,144 191 18 154 2,168 442 1,566
Interest income......... (525) (512) (160) (96) (244) (244) (244)
Interest expense........ 26 747 1,441 1,302 2,513 4,973 2,163
Depreciation expense.... 1,918 980 1,066 785 2,178 2,465 2,465
Amortization expense.... -- 514 1,085 150 1,050 4,344 4,344
In process research and
development expense.... -- 8,600 -- -- -- -- --
Merger-related expense.. -- 1,592 -- 700 560 560 560
------- ------- ------- ------- -------- -------- --------
Adjusted EBITDA......... $ 4,276 $ 3,662 $ 3,477 $ 3,193 $ 10,659 $ 12,718 $ 12,718
======= ======= ======= ======= ======== ======== ========
</TABLE>
4
<PAGE>
Adjusted EBITDA is net income (loss) from continuing operations before
taxes, interest expense, interest income, depreciation expense (included in
cost of revenues), amortization expense, in process research and development
expense and merger-related expense (included in selling, general and
administrative expense). Adjusted EBITDA is provided because we believe that
investors may find it to be a useful tool for analyzing our ability to service
debt. Adjusted EBITDA should not be construed:
. As an alternative to operating income (as determined in accordance with
generally accepted accounting principles, or GAAP) as an indicator of
our operating performance; or
. As an alternative to cash flows from operating activities (as determined
in accordance with GAAP) as a measure of liquidity.
We may calculate adjusted EBITDA differently than other companies.
The following table is a summary of our balance sheet data as of December
31, 1998. The pro forma column presents our balance sheet as if our acquisition
of CBSI had occurred as of December 31, 1998. The pro forma as adjusted column
reflects our sale of shares of common stock in this offering, assuming an
initial public offering price of $ per share and after deducting
underwriting discounts and estimated offering expenses, and the application of
the proceeds to repay debt.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------
Pro Forma
Pro As
Actual Forma Adjusted
------ ------ ---------
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................. $ 332 $1,637
Working capital....................................... 9,256 8,533
Total assets.......................................... 59,663 96,524
Total debt............................................ 31,610 61,904
Redeemable common stock............................... 5,598 5,598
Stockholders' equity (deficit)........................ (3,412) (3,412)
</TABLE>
5
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this prospectus, before you decide to
buy our common stock. If any of the following risks actually occur, our
business, results of operations and financial condition would likely suffer. In
this case, the market price of our common stock could decline, and you may lose
all or part of the money you paid to buy our common stock.
Most of our revenues are derived from contracts with agencies of the United
States government, and uncertainties in government contracts could adversely
affect our business.
Our largest customers are agencies of the United States government. In 1998,
government contracts, and contracts with prime contractors of the United States
government, accounted for approximately 90% of our pro forma revenues. We
believe that United States government contracts are likely to continue to
account for a significant portion of our revenues for the foreseeable future.
Significant changes in the contracting policies or fiscal policies of the
United States government could adversely affect our business, results of
operations or financial condition.
Changes in government contracting policies could directly affect our
financial performance. Among the factors that could materially adversely affect
our United States government contracting business are:
. Budgetary constraints affecting government spending generally, or
specific departments or agencies in particular, and changes in fiscal
policies or available funding;
. Cancellation of government programs;
. Curtailment of the government's use of technology services firms;
. The adoption of new laws or regulations;
. Technological developments;
. Governmental shutdowns (such as the shutdown that occurred during the
United States government's 1996 fiscal year);
. Competition and consolidation in the IT industry; and
. General economic conditions.
These or other factors could cause governmental agencies to reduce their
purchases under contracts, to exercise their right to terminate contracts or
not to exercise options to renew contracts, any of which could have a material
adverse effect on our business, financial condition or results of operations.
Many of our United States government customers are subject to increasingly
stringent budgetary constraints. We have substantial contracts in place with
many departments and agencies, and our continued performance under these
contracts, or award of additional contracts from these agencies, could be
materially adversely affected by spending reductions or budget cutbacks at
these agencies. Such reductions or cutbacks could have a material adverse
effect on our business, financial condition or results of operations.
Our government contracts may be terminated prior to their completion, and we
may not retain these contracts in any competitive rebidding process.
We derive substantially all of our revenues from government contracts that
typically span one or more base years and one or more option years and are
awarded through formal competitive bidding processes. Many of the option
periods cover more than half of the contract's potential duration. United
States government
6
<PAGE>
agencies generally have the right not to exercise these option periods. In
addition, our contracts typically also contain provisions permitting a
government customer to terminate the contract on short notice, with or without
cause. A decision not to exercise option periods or to terminate contracts
would reduce the profitability of these contracts to us.
Upon expiration, if the customer requires further services of the type
provided in the contract, there is frequently a competitive rebidding process,
and we may not win any particular bid, or be able to replace business lost upon
expiration or completion of a contract. Further, all government contracts are
subject to protest by competitors. The unexpected termination of one or more of
our significant contracts could result in significant revenue shortfalls. The
termination or nonrenewal of any of our significant contracts, short-term
revenue shortfalls, the imposition of fines or damages or our suspension or
debarment from bidding on additional contracts could have a material adverse
effect on our business, financial condition or results of operations.
A negative audit could adversely affect our business, and we could be
required to reimburse the government for costs that we have expended on our
contracts.
Certain government agencies routinely audit government contracts. These
agencies review a contractor's performance on its contract, pricing practices,
cost structure and compliance with applicable laws, regulations and standards.
Any costs found to be improperly allocated to a specific contract will not be
reimbursed, while costs already reimbursed must be refunded. Therefore, an
audit could result in a substantial adjustment to our revenues. No material
adjustments have resulted from any audits of us completed as of December 31,
1994, and we believe that adjustments resulting from subsequent audits will not
adversely affect our business. If a government audit uncovers improper or
illegal activities, we may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts, forfeitures of
profits, suspension of payments, fines and suspension or debarment from doing
business with United States government agencies. In addition, we could suffer
serious reputational harm if allegations of impropriety were made against us.
Any such government determination of impropriety or illegality, or allegation
of impropriety, could have a material adverse effect on our business, financial
condition or results of operations.
Many of our United States government customers spend their procurement
budgets through General Service Administration Schedule contracts and we are
required to compete for post-award orders.
Budgetary pressures and reforms in the procurement process have caused many
United States government customers to increasingly purchase goods and services
through General Service Administration Schedule contracts and other multiple
award and/or government-wide acquisition contract vehicles. These contract
vehicles have resulted in increased competition requiring that we make
sustained post-award efforts to realize revenues under the relevant contract.
We may not continue to increase revenues or otherwise sell successfully under
these contracts. Our failure to compete effectively in this procurement
environment could have a material adverse effect on our business, financial
condition or results of operations.
We may be liable for penalties under a variety of procurement rules and
regulations, and changes in government regulations could adversely affect our
business.
Our defense and commercial businesses must comply with and are affected by
various government regulations. Among the most significant regulations are the
Federal Acquisition Regulations, which comprehensively regulate the formation,
administration and performance of government contracts; the Truth in
Negotiations Act, which requires certification and disclosure of all cost and
pricing data in connection with contract negotiations; the Cost Accounting
Standards, which impose accounting requirements that govern our right to
reimbursement under certain cost-based government contracts; and laws,
regulations and Executive Orders restricting the use and dissemination of
information classified for national security purposes and the exportation of
certain products and technical data. These regulations affect how our customers
and we do business and, in some instances, impose added costs on our
businesses. Any changes in applicable laws could
7
<PAGE>
adversely affect the financial performance of the business affected by the
changed regulations. Any failure to comply with applicable laws could result in
contract termination, price or fee reductions or suspension or debarment from
contracting with the United States government.
If we fail to recruit, train and retain skilled personnel, our costs could
increase and our growth would be limited.
Our success depends to a significant extent upon our ability to attract,
retain and motivate highly skilled personnel. If we fail to attract, train, and
retain sufficient numbers of skilled people, our business, results of
operations or financial condition would suffer. We must continue to hire
skilled people to perform services under our existing contracts and new
contracts that we will enter into. Competition for skilled personnel is intense
in the IT services industry. Recruiting and training skilled personnel require
substantial resources. We also experience significant turnover of skilled
employees. We must pay an increasing amount to hire and retain a skilled
workforce. These factors may create variations and uncertainties in our
compensation expense.
In addition, our ability to implement our business strategy and to operate
profitably depends largely on the skills, experience and performance of key
members of our management. If several members of the management team become
unable or unwilling to serve in their present positions, our business, results
of operations or financial condition could suffer.
If we fail to maintain our security clearances, we may not be able to perform
classified work for the government.
Certain of our government contracts require us, and some of our employees,
to maintain security clearances. The loss of these security clearances could
curtail the term and renewal of these government contracts. We maintain
facility security clearances complying with the requirements of the Department
of Defense and other agencies. In addition, approximately 30% of our employees
have security clearances.
We may not successfully execute our acquisition strategy.
Through acquisitions of companies, we intend to expand our geographic
presence and to expand the products and services we offer to new and existing
customers. If our acquisition strategy fails, we may not continue to grow at
historical rates or at all. We cannot assure you that we will consummate any
acquisitions, or that any acquisitions, if consummated, will be advantageous to
us.
Various risks may prevent us from completing acquisitions. These risks
include:
. Increased competition for acquisitions;
. Fewer suitable acquisition candidates available at acceptable prices;
. Insufficient capital resources for acquisitions; and
. Inability to enter into definitive agreements for desired acquisitions
on acceptable terms.
In addition, there are risks that we may not benefit from our acquisitions.
These risks include:
. Inability to integrate or operate acquired companies successfully or at
expected levels of profitability;
. Accounting charges that adversely affect our financial results;
. Issuance of additional shares of common stock, which could dilute your
investment; and
. Incurrence of additional debt.
8
<PAGE>
If we fail to properly manage our growth, our business could be adversely
affected.
If we do not manage our growth effectively, our business, results of
operations or financial condition could be materially adversely affected. We
intend to continue the expansion of our operations in the foreseeable future to
pursue existing and potential market opportunities. Our growth places
significant demands on our management and operational resources. In order to
manage our growth effectively, we must continue to invest in our systems of
internal controls and procedures, and continue to expand, train and manage our
workforce.
We are highly leveraged.
We have a substantial amount of indebtedness. If we default on our debt
agreements, our business, financial condition or results of operations would be
materially adversely affected. As of March 31, 1999 we had approximately $59
million of debt outstanding. We will repay $ million of this debt from the
proceeds of this offering. Please see "Use of Proceeds." We will have
approximately $ million of debt outstanding after this offering. We pay
interest on this debt at variable rates averaging approximately 8.5% per annum.
In addition, we may incur additional debt to finance acquisitions or future
growth.
Our leverage could have the following important consequences:
. We may be required to dedicate a substantial portion of our cash flow
from operations to the repayment of debt, which would reduce funds
available for other purposes;
. We may be constrained in our ability to obtain additional debt financing
in the future for working capital, general corporate purposes or
acquisitions;
. We may be at a competitive disadvantage because we are more leveraged
than our competitors; and
. We may be more vulnerable to downturns in general economic conditions or
our business than our competitors.
We may require additional financing that we may not be able to secure on
favorable terms or at all.
We may need more financing than currently anticipated to support our growth,
to develop new or enhanced services, to respond to competitive pressures or
unanticipated requirements or to make acquisitions. Any required additional
financing may not be available on terms favorable to us, or at all. If adequate
funds are not available on acceptable terms, we may be unable to fund our
expansion, to develop or enhance services, to respond to competitive pressures
or to take advantage of acquisition opportunities, any of which could have a
material adverse effect on our business, results of operations or financial
condition. If additional funds are raised by our issuing equity securities,
stockholders may experience dilution of their ownership interest and the newly
issued equity securities may have rights superior to those of the common stock.
If additional funds are raised by our issuing debt, we may be subject to
limitations on our operations, including limitations on the payment of
dividends. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
We may not be able to compete successfully.
Our business could suffer if we are not able to compete successfully. We
experience significant competition in all areas of our business. In general,
the markets in which we compete are not dominated by a single company or a
small number of companies. Rather, a large number of companies offer services
and products that are competitive with our services and products. Many of our
competitors are significantly larger and have greater financial resources than
we do. In addition, many of our competitors have significantly more experience
in the commercial IT market than we have. These factors may place us at a
disadvantage in responding to competition, technological changes and changes in
customer requirements. In addition, some of the contracts on which we have the
technical capability to bid are set aside for companies which the United States
government classifies as "small businesses" or "minority businesses." After
1999, we will not qualify for any of these classifications. Please see
"Business--Competition."
9
<PAGE>
The pricing provisions of our contracts may adversely affect our profits.
Some of our contracts are fixed-price contracts which contain pricing
provisions that require the payment of a set price by the customer for our
services regardless of the costs we incur in performing these services, or
provide for penalties in the event we fail to achieve certain contract
requirements. Failure to anticipate technical problems, estimate costs
accurately or control costs during our performance of a fixed-price contract
may reduce our profit or cause us to suffer a loss. We believe that an
increasing percentage of our contracts will be fixed-price as our commercial
business increases.
Recently, a growing percentage of our contracts are time-and-materials
contracts. Typically, time-and-materials contracts provide for the customer to
pay a specified rate per hour of labor dedicated to the project. If market or
other conditions require us to increase our employees' salaries or other costs
and we cannot convince our customers to pay proportionately higher prices, we
would suffer reduced profits or losses under these contracts.
Fluctuations in our operating results may negatively impact our stock price.
The price of our common stock may fall because of fluctuations in our
quarterly operating results and our inability to meet market expectations. Our
operating results may fluctuate significantly in the future due to a variety of
factors that could affect our revenues or our expenses in any particular
quarter. Factors that may affect our quarterly results include, but are not
limited to:
. The number, size and scope of projects;
. Our expenditures;
. The accuracy of our estimates of resources required to complete ongoing
projects;
. The demand for our services and products; and
. The adequacy of our reserves for losses.
Accordingly, we believe that quarter-to-quarter comparisons of operating
results are not necessarily meaningful. You should not rely on the results of
any one quarter as an indication of our results for a full year or any other
quarter.
We may not realize all of the revenues included in our backlog.
Although our contract backlog was approximately $450 million as of March 31,
1999, we may not realize all of this backlog as revenue. Backlog represents
management's estimate of our realizable revenues on our contracts. Please see
"Business--Backlog." Factors that may affect our ability to realize revenues
included in our backlog include:
. The government's failure to fund all of the years of a multi-year
contract;
. The government's failure to exercise its option to extend the length of
a contract;
. The government's failure to request any services under contracts that we
provide only upon request of the government; and
. The government's decision to decrease the size or scope of a contract.
We may not be able to replace our Year 2000 testing and assessment contracts
with equally profitable business.
As demand for Year 2000 services declines, unless we are able to replace our
Year 2000 business with equally profitable work, our rate of revenue growth and
our profits could suffer. In 1998, approximately 6% of our pro forma revenues
related to Year 2000 testing and assessment services.
10
<PAGE>
We may not be successful in expanding our commercial business.
Only a small portion of our business is currently derived from the
commercial IT market. If we are not able to increase the amount of services and
products we sell to the commercial market, we may not grow at expected rates
and our reliance on federal government agencies may continue. Please see "--
Most of our revenues are derived from contracts with agencies of the United
States government, and uncertainties in government contracts could adversely
affect our business."
Changes in technology could adversely affect our business.
Our business could suffer if we are not successful in adopting and
integrating new technologies into our service and product offerings in a timely
and cost-effective manner. The markets for our IT services and products change
rapidly because of technological innovations, new product introductions,
changes in customer requirements, declining prices and evolving industry
standards, among other factors. New products and new technology often render
existing information services or technology infrastructure obsolete. As a
result, our success depends on our ability to integrate new technologies into
our service offerings.
Further, we cannot be sure that we will be able to continue to commit the
resources necessary to refresh our technology infrastructure at the rate
demanded by our markets. Advances in technology require us to commit
substantial resources to acquire and deploy new technologies for use in our
operations. We must continue to commit resources to train our personnel in the
use of these new technologies. We must also continue to maintain the
compatibility of existing hardware and software systems with these new
technologies.
We may be unable to protect our intellectual property rights, and we may be
liable for infringing the intellectual property rights of others.
Third parties may infringe or misappropriate our patents, trademarks or
other proprietary rights, which could have a material adverse effect on our
business, results of operations or financial condition. The steps we have taken
to protect our proprietary rights may not prevent misappropriation. Our
suppliers, customers and competitors may have patents and other proprietary
rights that cover technology utilized by us. These persons may also seek
patents in the future. United States patent applications are confidential until
a patent is issued, and most technologies are developed in secret. Accordingly,
we are not aware of all patents or other intellectual property rights that our
services and products may infringe.
We could incur substantial costs to prosecute or defend any litigation
against others who allege infringement of intellectual property rights.
Intellectual property litigation could force us to do one or more of the
following:
. Cease selling or using services or products that incorporate infringed
intellectual property;
. Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology; and
. Redesign those services or products that incorporate infringed
intellectual property.
The initial public offering price per share of our common stock may not be
indicative of the market price that will prevail after this offering.
You may not be able to resell your shares at or above the initial public
offering price and may suffer a loss on your investment. Prior to this
offering, you could not buy or sell our common stock publicly. We negotiated
and determined the initial public offering price of our common stock with the
underwriters. Please see "Underwriting." Following this offering, an active or
liquid trading market may not develop.
Our shares may experience extreme price and volume fluctuations.
Just as the shares of other IT companies have experienced price and volume
fluctuations, the market price of our common stock may be volatile. In the
past, securities class action litigation has often been initiated
11
<PAGE>
against a company following periods of volatility in the market price of their
securities. If a suit is initiated against us, regardless of the outcome, it
could result in substantial costs, diversion of our management's attention and
resources, and a material adverse effect on our business, results of operations
or financial condition.
The market price of our common stock may fluctuate significantly in response
to a number of factors, some of which are beyond our control, including:
. Quarterly variations in operating results;
. Changes in financial estimates by securities analysts;
. Changes in market valuations of IT service companies;
. Announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
. Losses of major contracts;
. Additions or departures of key personnel; and
. Sales of common stock by our stockholders.
Future sales of large amounts of our stock, or the perception that such sales
could occur, may adversely affect our stock price.
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after this offering, or
the perception that such sales could occur. Assuming no exercise of the
underwriters' over-allotment option, there will be shares of common stock
outstanding immediately after this offering. The shares of common stock sold
in this offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, unless such shares are held by
our "affiliates," as that term is defined in Rule 144 under the Securities Act.
As of March 1, 2000, holders of approximately shares of our common stock
will be able to sell their shares without limitation under Rule 144(k). The
holders of approximately shares of our common stock have registration
rights requiring us to register their shares after . After this offering, we
will have shares of common stock reserved for issuance upon the exercise of
stock options, of which shares are subject to currently outstanding
options. Following this offering, we intend to file registration statements on
Form S-8 to register these shares. Please see "Shares Eligible for Future
Sale."
Provisions of our certificate of incorporation and bylaws and Delaware law
could deter takeover attempts.
Some provisions in our certificate of incorporation and bylaws could delay,
defer, prevent or make more difficult a merger, tender offer or proxy contest
involving our company. However, our stockholders might view such a transaction
as being in their best interests because, for example, a change of control
might result in a price higher than the market price for shares of our common
stock. Among other things, these provisions:
. Require an 80% vote of the stockholders to amend certain provisions of
our certificate of incorporation and by-laws;
. Permit only our chairman, president or a majority of the board of
directors to call stockholder meetings;
. Authorize our board of directors to issue shares of preferred stock in
series with the terms of each series to be fixed by our board of
directors without any further action by our stockholders;
. Divide our board of directors into three classes so that only
approximately one-third of the total number of directors will be elected
each year; and
. Specify advance notice requirements for stockholder proposals and
director nominations to be considered at a meeting of stockholders.
12
<PAGE>
In addition, with certain exceptions, Section 203 of the Delaware General
Corporation Law restricts certain mergers and other business combinations
between us and any holder of 15% or more of our voting stock.
Potential Year 2000 problems could adversely affect our business.
We believe that it is not possible to determine with complete certainty that
all Year 2000 problems affecting us or our customers have been identified or
corrected. As a result, we believe that the following consequences are
possible:
. Operational inconveniences and inefficiencies for us and our customers
may divert management's time and attention and financial and human
resources from ordinary business activities;
. Routine business disputes and claims for pricing adjustments or
penalties due to Year 2000 problems may occur, which will be resolved in
the ordinary course of business;
. Serious system failures may require significant efforts by us or our
customers to prevent or alleviate material business disruptions; and
. Serious business disputes alleging that we failed to comply with the
terms of contracts or industry standards of performance may result in
litigation or contract termination.
In addition, any system failures could interfere with our ability to
properly manage contracted projects and could adversely affect our business.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of the Year 2000 Issue."
After this offering, our officers and directors may still control us.
Following this offering, our executive officers and directors may be able to
exercise control over all matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. These stockholders will, in the aggregate, beneficially own
approximately % of the common stock following this offering. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of us, which could have a material adverse effect on our
stock price. Please see "Principal and Selling Stockholders."
You will suffer immediate and substantial dilution.
Investors purchasing shares in this offering will suffer immediate and
substantial dilution of their investment, because the initial public offering
price per share will significantly exceed the net tangible book value per
share. Please see "Dilution."
13
<PAGE>
FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are forward-
looking statements. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts" or "continue" or the
negative of these terms or other comparable terminology. Forward-looking
statements are speculative and uncertain and not based on historical facts.
Because forward-looking statements involve risks and uncertainties, there are
important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors." Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
forward-looking statements. We are under no duty to update any of the forward-
looking statements after the date of this prospectus to conform such statements
to actual results.
14
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the shares offered by us in this offering
are estimated to be approximately $ million, or approximately $ million
if the underwriters' over-allotment option is exercised in full, assuming an
initial public offering price of $ per share and after deducting
underwriting discounts and estimated offering expenses payable by us.
We intend to use these net proceeds as follows:
. To repay $27 million of the outstanding amount under our credit
agreement with First Union Commercial Corporation, as agent, and the
other lenders that are parties to our credit agreement; and
. To repay $5 million of subordinated debt outstanding under our
subordinated debt agreement with MassMutual, an affiliate of the selling
stockholders (please see "Certain Relationships and Related-Party
Transactions").
As of March 31, 1999, approximately $54 million was outstanding under our
credit agreement with First Union. We used approximately $25 million to acquire
CBSI, $24 million to repay existing debt and $5 million to pay transaction fees
and expenses and to fund general working capital requirements. Our credit
agreements with First Union expire in 2004 and March 2005. Loans outstanding at
March 31, 1999 under our credit agreement with First Union bear interest at
variable rates averaging approximately 8% per year. Loans outstanding under our
subordinated debt agreement with MassMutual bear interest at a rate of 13% per
year.
We will not receive any proceeds from the sale of shares by the selling
stockholders in this offering.
DIVIDEND POLICY
We intend to retain all future earnings, if any, to finance the expansion of
our business. We have not declared or paid any cash dividends on our common
stock since our inception and do not expect to declare or pay any cash
dividends in the foreseeable future. In addition, our credit agreement contains
restrictions on our ability to pay dividends.
15
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, our capitalization:
. On an actual basis;
. On a pro forma basis, as if our acquisition of CBSI had occurred as of
December 31, 1998; and
. On a pro forma as adjusted basis to give effect to our sale of
shares in this offering, assuming an initial public offering price of
$ per share and after deducting underwriting discounts and the
estimated offering costs payable by us, and the application of the
proceeds to repay debt.
This information should be read together with our financial statements and
the notes relating to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
At December 31, 1998
---------------------------------------------------------
Pro Forma As
Actual Pro Forma Adjusted
----------------- ----------------- ------------------
(In thousands, except share and per share data)
<S> <C> <C> <C>
Total debt:
Term notes................ $ 23,583 $ 45,000
Current portion of term
debt..................... 954 954
Revolver notes............ 2,500 11,377
Subordinated notes due
June 17, 2005............ 4,573 4,573
----------------- -----------------
Total debt............... 31,610 61,904
Redeemable common stock,
2,202,875 shares
outstanding............... 5,598 5,598
Stockholders' equity:
Preferred stock, $.001 par
value, 1,000,000 shares
authorized;
no shares issued and
outstanding actual or pro
forma as adjusted ....... -- --
Common stock, $.001 par
value, 17,000,000 shares
authorized; 4,766,344
issued and outstanding
shares actual; shares
issued and outstanding
pro forma as adjusted.... 5 5
Additional paid in
capital.................. 9,624 9,624
Accumulated deficit....... (12,847) (12,847)
Deferred compensation..... (80) (80)
Treasury stock at cost,
42,105 shares............ (114) (114)
----------------- -----------------
Total stockholders'
equity (deficit)........ (3,412) (3,412)
----------------- -----------------
Total capitalization.... $ 33,796 $ 64,090
================= =================
</TABLE>
16
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1998 was
$(34,268,000), or $(7.25) per share. Our pro forma net tangible book value per
share is equal to the amount of our total tangible assets less total
liabilities, divided by the pro forma number of shares of common stock
outstanding as of December 31, 1998. Assuming that we sell the shares
offered by us in this offering at an initial public offering price of $ per
share, after deducting the underwriting discounts and the estimated offering
expenses payable by us, and applying the proceeds to repay debt, our pro forma
net tangible book value as of December 31, 1998 would have been $ , or $
per share. This amount represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $ per share to investors
purchasing shares in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Pro forma net tangible book value per share
as of December 31, 1998......................................... $(7.25)
Pro forma increase in net tangible book value per share
attributable to new investors purchasing shares in this offer-
ing............................................................. $
Pro forma net tangible book value per share after this offering..
Pro forma dilution per share to new investors purchasing shares
in this offering................................................ $
====
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
differences between existing stockholders and the new investors purchasing
shares in this offering in:
. The total number of shares of common stock purchased from us;
. The total consideration paid to us; and
. The average price per share paid by existing stockholders and by new
investors purchasing shares in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------- -------------------
Average Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 6,927,114 % $15,113,000 % $2.18
New investors purchasing
shares in this
offering...............
--------- --- ----------- ---
Total................. 100% 100%
========= === =========== ===
</TABLE>
None of the foregoing tables or calculations assumes the sale of shares of
common stock offered by the selling stockholders in this prospectus, or that
any options outstanding as of March 31, 1999 will be exercised. If all
outstanding options were exercised on the date of the closing of this offering,
new investors purchasing shares in this offering would suffer total dilution of
$ per share.
17
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth our selected financial data. This table does
not present all of our financial information. You should read this information
together with our financial statements and the notes to those statements
beginning on page F-1 of this prospectus and the information under "Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In August 1995, an investor group led by
current management acquired Intermetrics. The selected financial data for the
12 months ended February 29, 1996, which are unaudited, reflect the operations
of Intermetrics for the first six months of the period based on Intermetrics'
basis of accounting prior to the acquisition, and the operations of
Intermetrics for the last six months of the period, giving effect to the
acquisition in August 1995. In February 1998, we acquired Pacer, whose results
of operations are included from the date of acquisition in our results for the
12 months ended December 31, 1998. In March 1999, we acquired CBSI. The pro
forma column below presents our statement of operations data as if the
acquisitions of Pacer and CBSI had occurred as of January 1, 1998. The pro
forma as adjusted column reflects our sale of shares of common stock in this
offering, after deducting underwriting discounts and estimated offering
expenses, and the application of the proceeds to repay debt. The selected
financial data for the 12 months ended February 28, 1997, the 10 months ended
December 31, 1997 and the 12 months ended December 31, 1998 are derived from
our audited financial statements included elsewhere in this prospectus. The
selected financial data for the 12 months ended February 28, 1995 are derived
from audited financial statements not included in this prospectus. Historical
results are not necessarily indicative of the results we may achieve in the
future.
<TABLE>
<CAPTION>
Pro Forma
Pro Forma As Adjusted
Twelve Twelve Twelve Ten Twelve Twelve Twelve
Months Ended Months Ended Months Ended Months Ended Months Ended Months Ended Months Ended
February 28, February 29, February 28, December 31, December 31, December 31, December 31,
1995 1996 1997 1997 1998 1998 1998
------------ ------------ ------------ ------------ ------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue...................... $50,623 $53,234 $53,274 $53,646 $121,056 $169,220 $169,220
Cost of revenues............. 36,613 41,397 40,704 41,685 93,604 128,520 128,520
Selling, general and
administrative expense...... 11,652 10,747 10,159 10,253 19,531 31,007 31,007
Amortization expense......... -- 514 1,085 150 1,050 4,344 4,344
In process research and
development expense......... -- 8,600 -- -- -- -- --
------- ------- ------- ------- -------- -------- --------
Income (loss) from
operations.................. 2,358 (8,024) 1,326 1,558 6,871 5,349 5,349
Interest expense............. 26 747 1,441 1,302 2,513 4,973 2,163
Interest income.............. 525 512 160 96 244 244 244
------- ------- ------- ------- -------- -------- --------
Income (loss) from continuing
operations before taxes..... 2,857 (8,259) 45 352 4,602 620 3,430
Provision for income taxes... 1,144 191 18 154 2,168 442 1,566
------- ------- ------- ------- -------- -------- --------
Net income (loss) from
continuing operations....... $ 1,713 $(8,450) $ 27 $ 198 $ 2,434 $ 178 $ 1,864
======= ======= ======= ======= ======== ======== ========
Income (loss) per share from
continuing operations:
Basic....................... $0.43 $(2.17) $0.01 $0.05 $0.38 $0.03
======= ======= ======= ======= ======== ========
Diluted..................... $0.43 $(2.17) $0.01 $0.04 $0.36 $0.03
======= ======= ======= ======= ======== ========
Weighted average common
shares and equivalents:
Basic....................... 4,019 3,901 3,878 3,865 6,428 6,428
Diluted..................... 4,019 3,901 4,523 4,552 6,847 6,847
</TABLE>
18
<PAGE>
The following table is a summary of our balance sheet data. The pro forma
column presents our balance sheet as if our acquisition of CBSI had occurred as
of December 31, 1998.
<TABLE>
<CAPTION>
As of December
31, 1998
------------------
As of As of As of As of
February 28, February 29, February 28, December 31,
1995 1996 1997 1997 Actual Pro Forma
------------ ------------ ------------ ------------ ------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 1,304 $ 1,345 $ 614 $ 131 $ 332 $ 1,637
Working capital......... 16,099 6,608 19,850 2,567 9,256 8,533
Total assets............ 30,979 19,192 17,039 23,646 59,663 96,524
Total debt.............. -- 12,710 12,769 15,060 31,610 61,904
Redeemable common
stock.................. -- -- -- 1,412 5,598 5,598
Stockholders' equity
(deficit).............. 21,192 (3,312) (3,218) (5,795) (3,412) (3,412)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the financial statements and the notes
to those statements included elsewhere in this prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties.
Please see "Risk Factors" and "Forward-Looking Statements."
Overview
We provide IT services and products to the United States government and to
commercial companies. Through both internal growth and a series of
acquisitions, we have increased our revenues from $53.3 million for the fiscal
period ended February 28, 1997 to $169.2 million in pro forma revenues for the
fiscal period ended December 31, 1998. This growth has resulted in a broader
base of long-term contracts and a more diverse group of established customers.
AverStar is the result of a series of strategic acquisitions executed by our
current management. In February 1998, we combined the businesses of
Intermetrics and Pacer. In March 1999, we acquired CBSI for $26 million in
cash, $25 million of which was paid to the former CBSI stockholders at the
closing and $1 million of which will be paid ratably over the next five years.
All three transactions were accounted for as purchases. During 1997, we changed
our fiscal year to a December 31 year end in anticipation of the merger with
Pacer. As a result, the fiscal period ended December 31, 1997 is a ten month
period.
A substantial portion of our revenues are derived from contracts with the
United States government. Approximately 90% of our pro forma revenues in the
fiscal period ended December 31, 1998 were derived from government contracts,
either directly with government customers or indirectly through government
prime contractors. Please see "Risk Factors--Uncertainties in government
contracts could harm our business" and "Business--Contracts."
We enter into three types of contracts: cost-reimbursable, time-and-
materials, and fixed-price contracts. Of our total pro forma revenues for 1998,
cost-reimbursable contracts represented approximately 46%, time-and-materials
contracts approximately 45% and fixed-price contracts approximately 9%. Cost-
reimbursable contracts provide for the reimbursement of costs plus the payment
of a fixed fee. Under time-and-materials contracts, we are reimbursed for labor
hours at negotiated hourly billing rates and reimbursed for travel and other
direct expenses at actual cost plus applied indirect, general and
administrative expenses. Under fixed-price contracts, we agree to perform
certain work for a fixed price and, accordingly, realize a benefit or detriment
to the extent that our actual cost of performing the work differs from the
negotiated price.
We assume greater financial risk on fixed-price contracts than on either
time-and-materials or cost-reimburseable contracts. We believe that an
increasing percentage of our contracts will be fixed-price as our commercial
business increases. Failure to anticipate technical problems, estimate costs
accurately or control costs during performance of a fixed-price contract may
reduce our profits or cause us to suffer a loss. If we are successful in
providing our services at a reduced cost, however, we expect that fixed-price
contracts will result in greater profitability. In addition, greater risks are
involved under time-and-materials contracts than under cost-reimbursement
contracts because we assume the responsibility for the delivery of specified
skills at a fixed hourly rate. Our management believes that adequate reserves
for our fixed-price and time-and-materials contracts are reflected in our
financial statements. Please see "Risk Factors--The pricing provisions of our
contracts may adversely affect our profits."
We recognize revenues on government and commercial contracts under the
percentage-of-completion method. This method involves a periodic assessment of
the estimated total cost to complete each contract. The percentage-of-
completion method is determined by relating the actual costs incurred to date
to the estimated total costs at completion. The cumulative effects resulting
from revisions of estimated total costs and revenues
20
<PAGE>
are recorded in the period in which the facts requiring revisions become known.
When a loss is anticipated on a contract, the full amount of the anticipated
loss is provided for at that time.
Revenues from standard software products are recognized upon shipment in
accordance with Statement of Position 97-2, "Software Revenue Recognition."
Revenues from maintenance agreements are deferred and amortized over the life
of the maintenance agreement. Per unit royalties earned from the license of
standard software products are recognized when received from the customer.
Results of Operations
Fiscal Periods Ended February 28, 1997, December 31, 1997 and December 31,
1998
Revenue. For the 12 months ended December 31, 1998, our revenue was $121.1
million compared to $53.6 million for the ten months ended December 31, 1997
and $53.3 million for the 12 months ended February 28, 1997, representing a
127% increase over this period. Of the approximately $68 million increase in
revenues over this period, approximately $39 million, or 57% of the increase,
was the result of the acquisition of Pacer which became effective February 27,
1998. Approximately $12 million, or 18% of the increase, resulted from our
winning two contracts with the United States Postal Service in mid-1997. We
benefitted from the first full-year effect of these contracts in 1998. The
buildup of work under a contract awarded by NASA in 1996 accounted for
approximately $9 million, or 13% of the increase. Revenues were also positively
affected by increased business with commercial customers, by new contracts with
the National Institute of Health and the United States Navy and by increased
royalty income.
Cost of revenues. For the 12 months ended December 31, 1998, our cost of
revenues was $93.6 million compared to $41.7 million for the ten months ended
December 31, 1997 and $40.7 million for the 12 months ended February 28, 1997,
representing a 130% increase over this period. The increase primarily resulted
from higher labor costs to support a larger number of contracts. As a
percentage of revenues, cost of revenues has not changed significantly.
Selling, general and administrative expense. For the 12 months ended
December 31, 1998, our selling, general and administrative expense, or SG&A,
including amoritization expense, was $20.6 million compared to $10.4 million
for the ten months ended December 31, 1997, and $11.2 million for the 12 months
ended February 28, 1997, representing an increase of $9.4 million, or 84%, over
this period. This increase is attributed to increased staff related to the
acquisition of Pacer, increased sales and marketing staff and $1.5 million of
expenditures related to the consolidation of Pacer. The decrease of $800,000
from the 12 month period ended February 28, 1997 to the ten month period ended
December 31, 1997 was primarily due to the ten-month reporting period. As a
percentage of revenues, SG&A expense decreased to 17% in the 12 months ended
December 31, 1998, from 21% in the 12 months ended February 28, 1997, primarily
because SG&A expense was spread over a larger revenue base in 1998.
Income from operations. For the 12 months ended December 31, 1998, our
income from operations was $6.9 million compared to $1.6 million for the ten
months ended December 31, 1997 and $1.3 million for the 12 months ended
February 28, 1997, representing a 431% increase over this period. Of the $5.6
million increase in income from operations over this period, approximately $1.9
million, or 34% of the increase, is attributable to the merger with Pacer.
Approximately $1.8 million of the increase, or 32%, was the result of higher
royalty revenue.
Net income from continuing operations. For the 12 months ended December 31,
1998, net income from continuing operations was $2.4 million compared to
$198,000 for the ten months ended December 31, 1997 and $27,000 for the 12
months ended February 28, 1997. The increase in net income from continuing
operations of $2.4 million over this period resulted from the increase in
income from operations of $5.5 million offset by a $1.0 million net increase in
interest expense and an increase in taxes of $2.2 million. The
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<PAGE>
increase in interest resulted from additional borrowing to partially fund the
acquisition of Pacer and to support working capital needs. The increase in
taxes resulted from the increased operating income.
Net income. For the 12 months ended December 31, 1998, our net loss was
$2.7 million, compared to a net loss of $1.5 million for the ten months ended
December 31, 1997 and net income of $27,000 for the 12 months ended February
28, 1997. The net loss for 1998 resulted from income from continuing operations
of $2.4 million offset by a net loss from the discontinued operations of $2.5
million and by a net loss on the disposal of discontinued operations of $2.6
million. Similarly, the net loss for the ten months ended December 31, 1997 was
the result of income from continuing operations of $198,000 and a net loss from
discontinued operations of $1.7 million. There was no loss from discontinued
operations for the 12 months ended February 28, 1997.
Liquidity and Capital Resources
As of December 31, 1998, we maintained a $35 million credit facility with
various affiliates of Massachusetts Mutual Life Insurance Company. This
facility comprised $25 million in senior debt, $5 million in subordinated debt,
and $5 million in revolving credit. At December 31, 1998, we owed $24.4 million
under the senior term agreement, $5 million under the subordinated debt
agreement and $2.5 million under the revolving credit agreement. An additional
$2.5 million was available under the revolving credit agreement. We repaid the
$2.5 million borrowed under the revolving credit early in 1999 as we collected
outstanding receivables, and we reduced the borrowing under the senior term
agreement to $23.2 million in February 1999. Our net working capital at
December 31, 1998 was $9.3 million, consisting primarily of accounts receivable
less accounts payable and other accrued liabilities.
In March 1999, we refinanced our outstanding debt in conjunction with the
purchase of CBSI. We obtained a $75 million credit facility from a group of
lenders led by First Union Commercial Corporation. This facility comprised $45
million in senior debt and $30 million in revolving credit. In addition, we
maintained the $5 million subordinated debt agreement with MassMutual, for a
total debt capacity of $80 million. At March 31, 1999, our outstanding debt
under these agreements was approximately $59 million. The availability of the
remaining $21 million under the revolving credit agreement is subject to
certain covenants and collateral limitations. At March 31, 1999, about $10
million of additional borrowing under the revolving credit facility was
available to us based on the covenants and limitations. The agreements expire
in March 2004 and March 2005. Loans outstanding under these agreements bear
interest at variable rates generally based on LIBOR approximating 8.5% per
year.
Our current credit agreements require that at least 50% of the proceeds of a
sale of equity be used to reduce debt under the agreements. Of the expected
$ million in proceeds from this offering, we expect to apply $ million to
reduce the senior and subordinated debt under our current agreements. Please
see "Use of Proceeds." After this offering, approximately $ million will be
outstanding in senior debt, $0 in subordinated debt, and $ million in
revolving credit. We intend to seek an increase in our revolving credit
facility with First Union after this offering.
We believe the capital resources available to us under our credit agreements
and cash from our operations are adequate to fund our ongoing operations and to
support the internal growth we expect to achieve for the next 12 months. Please
see "Risk Factors--We may require additional financing that we may not be able
to secure on favorable terms or at all."
Discontinued Operations
In August 1997, we combined our computer and video game business with the
operations of Looking Glass Technologies, Inc. to form Intermetrics
Entertainment Software, LLC, or IES. After the combination, we owned 66% of IES
and consolidated the results of IES' operations with our operations for our
financial reporting purposes. In December 1998, we approved the divestiture of
IES by means of a distribution of our interest in IES to our stockholders. We
effected the distribution in March 1999.
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As a result of the plan of divestiture approved by us in December 1998 and
completed in March 1999, we have accounted for our investment in IES as a
discontinued operation in 1997 and 1998. For the five months ended December 31,
1997, IES recorded revenues of $1.9 million and a net loss from operations of
$1.7 million. For the twelve months ended December 31, 1998, IES recorded
revenues of $7.2 million and a net loss from operations of $2.5 million. The
increase in revenues in 1998 over 1997 was the result of a full year of
operations and a higher level of development activities supported by advances
of royalties from publishers of the games under development. The increased loss
in 1998 over 1997 is primarily attributable to the full year of operations in
1998. The operating losses in both years were the result of the increasing
number of game development projects, for some of which the estimated costs to
complete the development exceeded the expected advances from publishers,
resulting in the recording of losses in current periods. The net losses in both
1997 and 1998 are accounted for in our statement of operations as losses from
discontinued operations. In addition, we incurred a net loss from the disposal
of IES of $2.6 million, representing the write-off of other assets and
liabilities incurred, relating to the divestiture of IES.
Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk relates to changes in interest rates for
borrowings under our senior term loans and our revolving credit facility. These
borrowings bear interest at variable rates. The unsecured notes bear interest
at a fixed rate. A hypothetical 10% increase in interest rates would increase
interest expense by approximately $500,000 and would decrease cash flow from
operations by approximately $300,000.
Impact of the Year 2000 Issue
General. Many currently installed computer systems and software products are
coded to accept or recognize only two-digit entries in the date code field.
These systems may recognize a date using "00" as the year 1900 rather than the
year 2000. As a result, computer systems and/or software used by many companies
and governmental agencies may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities. We are exposed to the risk that the systems we, our
customers and vendors depend on to conduct operations are not Year 2000
compliant.
State of Readiness. We have developed a Year 2000 program that was
structured to address our Year 2000 exposure. Our Year 2000 program focuses on
certain tasks that address critical Year 2000 issues. These tasks include
assessing each of the following:
. Our computer hardware and software, including data, networks, servers
and workstations, human resources systems and financial systems;
. Our telephone systems, computer room systems and office equipment; and
. Our financial interfaces and leased facilities.
We also monitor critical suppliers and vendors for Year 2000 readiness as part
of our Year 2000 program.
We have substantially completed the process of determining the Year 2000
readiness of our IT systems. We believe that our internal systems, as a whole,
are Year 2000 compliant. Our remaining Year 2000 tasks include:
. Migrating employee records and data from legacy computer systems;
. Reviewing how our systems interface with those of our financial services
companies, including payroll functions, direct deposits, health and
retirement benefits, and customer electronic interfaces;
. Completing our review of Year 2000 compliance by critical suppliers and
vendors;
. Implementing a strategy for deploying uniform desktop applications
across our operations and maintaining desktop systems in a Year 2000
compliant configuration;
. Completing upgrades for data and voice communications equipment; and
. Working with landlords to assess Year 2000 issues in building systems.
We intend to complete our assessment, and the replacement or remediation of
any non-Year 2000 compliant technologies, by September 1999.
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<PAGE>
Costs. We estimate that the total remaining cost of our Year 2000 compliance
efforts will be approximately $500,000. Most of these expenses relate to costs
incurred for licensing standardized Year 2000 compliant software, costs for
personal computer hardware upgrades and operating costs associated with time
spent by employees in Year 2000 compliance matters. If we encounter unexpected
difficulties, or if we are unable to obtain compliance information from
material third parties, we may need to spend additional amounts to ensure that
our systems are Year 2000 complaint.
Risks. We provide our IT assurance services for information systems affected
by Year 2000 problems. Although we attempt to contractually limit our liability
for damages arising from errors, mistakes, omissions or negligent acts in
rendering services, our attempts to limit liability may not be successful. Our
failure or inability to meet a customer's expectations could cause our
customer's operations to suffer and, therefore, could give rise to claims
against us or damage our reputation, adversely affecting our business,
operating results and financial condition.
We would consider an interruption in our operations to be the most likely
unfavorable result of any failure by us, or failure by third parties on whom we
rely, to achieve Year 2000 compliance. Presently, we believe we are unable to
reasonably estimate the duration and extent of any such interruption, or
quantify the effect it may have on our future revenue.
Contingency Plan. We have not yet developed a contingency plan to address
the worst-case scenario that might occur if our technologies are not Year 2000
compliant. The results of our Year 2000 simulation testing and the responses
received from the Year 2000 readiness disclosures obtained from critical
providers will be taken into account in determining the need for and nature and
extent of any contingency plans. We intend to complete the development of any
required contingency plan by September 1999.
Effects of Recent Accounting Pronouncements
In 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities," which must be
adopted for fiscal years beginning after December 15, 1998, and the Financial
Accounting Standards Board issued Statement No. 133, "Accounting for Derivative
Investments and Hedging Activities," which must be adopted for fiscal years
beginning after June 15, 1999. The adoption of these statements is not expected
to have a material impact on us.
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BUSINESS
Overview
AverStar is a pioneer in providing IT services and software products for the
mission-critical systems of a significant number of civilian and defense
agencies of the United States government. Our customers include 16 of the 20
government agencies with the largest IT budgets. We also provide our services
to large commercial companies. We have established long-term customer
relationships, some of which have extended over 20 years. During our 30-year
history, we have maintained a strong record of customer satisfaction based on
the quality and reliability of our services and products.
We provide an integrated offering of services and products in four areas of
IT:
. IT Assurance. We provide independent analysis, testing and verification
of critical information systems under development or being upgraded. We
also provide security for customers' information systems.
. IT Development. We offer a full range of software and systems
development services for customer-specific applications and Internet
applications.
. IT Operations. We manage and operate information system networks and
data centers at our customers' facilities.
. IT Consulting. We serve as consultants with respect to our customers'
development of innovative applications or improvements to existing
critical systems.
We believe that we are a leader in providing IT assurance services for
mission-critical systems to the United States government. Our key IT assurance
contracts include NASA's space shuttle, space stations and ground systems, the
Health Care Finance Administration's Medicare transactions system and the
United States Postal Service's automation systems. Once a customer retains us
to perform assurance services, we believe that we can gain expertise about the
customer's business and therefore become well positioned to provide additional
services and products to that customer. For example, after first being engaged
to provide IT assurance services, we have been awarded contracts to provide IT
development and IT consulting services to the United States Postal Service and
the Securities and Exchange Commission.
We serve as the prime contractor on a majority of our contracts. Prime
contracts accounted for approximately 78% of our 1998 pro forma revenues. We
believe that our position as prime contractor allows us to develop closer
relationships with our customers, to better control the quality of services and
products delivered to the customer and to expand our customer relationships.
Industry Background
Growth of IT Industry
The demand for third-party IT services has grown substantially in recent
years. Organizations are increasingly using IT to improve the quality of their
products and services, to reduce their costs and to improve operating
efficiencies. IDC forecasts that the United States market for IT services will
grow from an estimated $139 billion in 1998 to $204 billion in 2002. IDC
forecasts that the IT system services segment of the worldwide IT services
market will grow at a compound annual growth rate of approximately 12% over
this period.
According to Federal Sources, Inc., the United States government is the
world's largest single buyer of IT services and products. The EIA reports that
the United States government's IT budget for fiscal 1999 is approximately $30
billion, nearly double the budget ten years ago. The EIA also estimates that
the outsourced portion of the federal IT budget will be $26 billion in 1999,
with approximately 64% allocated to civilian agencies of the government and 36%
allocated to the Department of Defense.
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We believe that the increasing emphasis by the United States government on
downsizing and reducing budgets will result in the growing use of IT to enhance
productivity and in more testing and upgrading of existing IT systems.
Trends in Federal IT Industry
Historically, the United States government purchased IT services and
products primarily through a protracted, competitive bidding process involving
numerous service providers. Recent government procurement reform has
streamlined the government's buying practices, resulting in a more commercial
approach. These changes have led to the following trends in the federal IT
procurement process:
. The government now places greater emphasis on an IT service provider's
past performance. In evaluating contract bids, the government examines
an IT service provider's technical merit, reputation and references,
leading to an increasing emphasis on the quality and reliability of IT
services and products.
. The government increasingly awards government-wide acquisition
contracts, or GWACs. GWACs are contracts awarded by a government agency
to many IT service contractors to provide IT services and products at
pre-negotiated prices, terms and conditions. GWACs streamline the
government's procurement process by allowing any government agency to
choose IT services and products from any agency's existing GWAC rather
than going through its own protracted contract procurement process.
. Government contracts procured by a single agency are increasing in size.
Government agencies are consolidating more work under single contracts
to reduce the time and effort required to procure IT services and
products. These larger contracts favor IT service providers with greater
management, financial and technical resources and broader service
offerings. In addition, these contracts may lead to preferred contractor
relationships for successful IT service providers.
. Government agencies have moved toward multiple-award contracts.
Multiple-award contracts are awarded by one government agency to several
IT service contractors, each with similar service offerings and
products. These contracts provide the government agency that awarded the
contract a choice among IT service providers. In addition, multiple-
award contracts favor IT service contractors with broad technical
resources.
These trends in the federal procurement process have led to the following
responses by IT service providers:
. Federal IT service providers are increasing their investments in sales
and marketing. As the government adopts a more commercial approach to
contract procurement, IT service contractors must increase their sales
and marketing efforts. Government-wide acquisition contracts and
multiple-award contracts require continued sales and marketing efforts
over the life of the contract because a government agency has the
freedom to choose among several pre-approved IT service providers.
. There is increasing consolidation among federal IT service providers.
The trends toward government-wide acquisition contracts, multiple-award
contracts and larger single agency contracts requires IT service
providers to have greater management, financial, technical and sales
resources. As a result, IT service providers increasingly seek to
consolidate complementary businesses.
The AverStar Solution
We provide high-quality and cost-effective IT services and products designed
to meet all the needs of mission-critical information systems. We believe that
we are well-positioned to take advantage of the trends in the federal IT
industry and to differentiate ourselves from other IT service providers through
the following:
. Emphasis on Quality and Reliability. Over our 30-year history, we
believe that we have established a reputation for providing IT services
and products of the highest quality and reliability.
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We have developed a company culture that emphasizes and rewards the
delivery of services and products of the highest quality and
reliability. As a result, over the last 10 years, we have won over 95%
of our government contracts for which we have recompeted.
. In-Depth Knowledge of Mission-Critical Systems. Mission-critical systems
are complex and perform vital functions in which even a minor failure
exposes customers to substantial losses, including potential loss of
life. We have developed significant expertise in addressing the needs of
these large, complex systems. For 30 years, we have worked on some of
the country's most sensitive and critical systems, including NASA's
manned flight systems and the Health Care Finance Administration's
Medicare transactions system. We also provide services for commercial
customers' critical systems.
. Highly Developed Project Management Skills. Each of our projects is
headed by an experienced project manager. The project manager works
closely with our customers' management and IT personnel to ensure that
the project is completed on-time and within budget. We currently have
approximately 100 project managers with an average of 23 years
experience in the IT industry.
. Comprehensive Offering of Services and Products. We offer a
comprehensive range of IT services and products. We can support a
customer throughout the entire life cycle of an information system from
design and development through deployment and operation.
. Expertise in Multiple Technologies. Our IT professionals have experience
and expertise in diverse technical environments, legacy platforms,
programming languages and software, as well as newer technologies
including client/server applications and the Internet. This expertise
enables us to assist customers in determining the best solutions for
their specific IT needs. We also have extensive knowledge of customers'
mission-critical systems and operations, which allows us to design and
integrate new systems or applications.
Our Business Strategy
Our goal is to be the leading quality supplier of IT services and software
products for mission-critical systems. To achieve our goal, our strategy is to:
. Leverage Our Leadership Position in IT Assurance. We intend to continue
to leverage our leadership position in IT assurance to attract new
customers and to provide additional services and products to our
existing customers. We believe that the knowledge we gain concerning our
customers' business, processes and technologies while performing IT
assurance services allows us to expand our customer relationships over
time.
. Pursue Targeted Acquisition Opportunities. Strategic acquisitions of IT
service providers are an integral part of our growth strategy. We seek
to acquire companies that operate in defined vertical market niches
complementary to our current business or that have well established
relationships with key customers. These acquisitions may allow us to:
-- Offer technical products and services which we do not currently
provide;
-- Add new markets and customers which we do not currently serve; and
-- Compete more effectively for larger contracts with increased
technical, financial and sales and marketing resources.
Our recent acquisition of CBSI is an example of our targeted
acquisition strategy. Through CBSI, we acquired several new customer
relationships as well as significantly increased our IT operations
capabilities.
. Expand Our Commercial Business. We intend to capitalize on our expertise
and reputation in the federal IT market to compete for commercial
projects. As the size of IT systems of commercial companies has grown in
response to the demand for improved product quality, reduced costs and
improved operating efficiencies, information systems have become
critical to their business. As a result, the need for high-quality IT
services is likely to grow. We believe that our reputation for high
quality and reliability together with our leadership position in IT
assurance will enable us to take advantage of this opportunity in the
commercial market.
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. Continue Our Investment in Sales and Marketing. Over the last three
years, we have significantly strengthened our sales and marketing
efforts and have increased the number of our employees dedicated to
sales and marketing from eight to 26. Our investment in sales and
marketing enables us to compete effectively for larger government
contracts, to provide the continuous sales presence necessary to obtain
additional work under government-wide acquisition contracts and
multiple-award contracts and to expand our commercial customer base.
. Maintain Our High Level of Customer Satisfaction. We remain focused on
customer satisfaction which has been a major factor in our past success.
Our highly qualified, responsive project teams ensure quick and
effective responses to customers' IT concerns. We believe that
maintaining our high level of customer satisfaction and the resulting
long-term relationships provide a stable customer base from which we can
grow our business.
Our Services and Products
We provide our customers with an integrated offering of services and
products in four areas: IT assurance, IT development, IT operations and IT
consulting. Through these offerings, we are able to support customers during
all or any particular phase of the life cycle of an information system.
IT Assurance
Our IT assurance services include the independent analysis, review, testing,
verification and validation of information systems under development or being
upgraded. Customers increasingly view more of their information systems as
being critical to their operations. This growth in the number of critical
systems, which must operate correctly and be delivered within schedule and cost
constraints, has increased the market demand for our IT assurance services.
We provide the following types of IT assurance services:
Systems Assurance. Our systems assurance services involve independent
assessment of the specification, design, implementation and testing of
information systems being developed for our customers. We focus on early
detection of problems so that cost-effective corrections can be made early in
the development cycle. We also evaluate the processes and tools being used by
the systems developer and provide oversight in tracking the customer's schedule
and budget. Our systems assurance methodologies, tools and services verify our
customers' information systems and provide them with comprehensive technical
reports detailing any and all tracking and reporting problems.
Information Assurance. Our information assurance services include providing
customers with security risk assessments, security policy and architecture
design, and certification and accreditation of IT systems. Our solutions help
customers automate highly secure transmissions of data across communications
networks. With more information systems migrating to Internet and intranet
applications, the potential threat from computer viruses and computer hackers
increases the demand for these services. We also offer products that provide
customers with the ability to control a user's access to network systems in a
multi-level, secure environment.
Compliance Assessments. Customers retain us to determine whether a specific
component of an information system complies with their specifications. The
scope of our compliance assessment services may vary from assessing the
readiness of software for operational implementation, to assessing the process,
cost and schedule for an information system upgrade.
As part of our business strategy, we have begun to apply our expertise in
assessing critical information systems to the commercial IT services market. As
a result of current market demand, the majority of our recent commercial
projects have focused on the Year 2000 problem. We believe that the high demand
for these
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services presents a significant opportunity for us to expand our customer base
in the commercial IT market. Already, commercial companies that originally
hired us to do Year 2000 work have retained us to provide broader-based IT
assurance as well as IT development services such as building web-based
applications for legacy systems.
IT Development
Our IT development services include specification and design, coding and
implementation, system integration, testing and verification, training and
operational deployment of IT systems. We use both our proprietary and
commercially available tools, together with well established procedures, to
develop and implement IT systems. Our many years of experience in performing IT
assurance services on major systems provide us with a competitive advantage as
an IT developer through the use of processes that avoid common development
problems and through the utilization of project management disciplines to
control the cost, schedule and performance of our projects. Our IT development
services specialize in the following:
Mission Applications. Mission applications involve developing and
maintaining software and systems to support customer-specific programs or
operations.
Electronic Business. Applications for electronic business involve enabling
legacy systems for web-based access and building new Internet and intranet
applications for government and commercial customers.
IT Operations
Our IT operations include network and desktop operations and complete data
center operations at our customers' facilities. We install, maintain and
support our customers' network and desktop operations. Our data center
operations include software development, data collection and input, database
archives, report generation and hardware maintenance. We also support customers
in incorporating new technologies and requirements into their operations. As a
provider of end-to-end services for these operations, we frequently call upon
our expertise in IT assurance, IT development and IT consulting to fulfill
particular requirements of an IT operations contract.
We recently expanded our IT operations services through the acquisition of
CBSI, a company that has significant expertise in providing IT operations
services to several civilian agencies of the federal government.
IT Consulting
Our IT consulting services include supporting customers' innovative
applications of new technologies or enhancements to existing critical
information systems. Through our IT consulting services, we gain knowledge of
customers' systems, providing us with opportunities to capture other IT
projects. Our IT consulting services include:
Technology Studies. When customers want to investigate the application of a
new or developing technology for a particular use, they can engage us to
provide our IT consulting services in order to study feasibility of the
concept, define the scope of the project, plan the detailed steps involved in
phasing in new technology to replace an existing system, or develop a detailed
plan, including schedules and budget, for a development project.
Prototyping. We develop rapid prototype demonstrations for a variety of
systems or applications.
Language and Software Tool Development and Services. We deliver custom
language and software tool development products and services to support
distributed open systems, such as web-based or private network systems, and to
support electronic design and manufacturing.
. Monitoring and Debugging Tools. JWatch, our proprietary software
debugging tool, provides users with the ability to analyze JAVA code
execution and to display data and information to isolate
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problems and repair them within a JAVA software development environment.
We license JWatch to software product companies that incorporate it into
their products. Building on our JWatch technology, we have developed a
new product, EWatch, which is currently being beta tested. EWatch
supports monitoring and debugging in a distributed computing
environment. We expect EWatch to enter the marketplace in late 1999 or
early 2000.
. Computer-Aided Design Automation Tools. We are a leader in developing
languages to support the design and simulation of integrated circuits.
We lead a group of design automation companies in an effort to develop
an industry solution for the exchange of design information for
integrated circuits directly between the designer and manufacturer.
. Software Languages and Tool Development Services. We have been one of
the leaders in creating higher order programming languages for building
software-intensive systems for the United States government. We created
NASA's HAL/S language, the standard for manned space avionics software,
and the latest version of Ada, the standard language of the Department
of Defense.
These tools and related high-technology capabilities distinguish us and
enable us to capture IT services contracts. In addition, our tools have
intrinsic value of their own. By licensing some of our tools to third-party
distributors, we are able to generate higher margin royalty revenues.
Our Markets and Customers
Our primary customers are agencies of the United States government. Our ten
largest contracts by revenues are all with United States government agencies
and accounted for approximately 45% of our 1998 pro forma revenues. In 1998,
the United States Navy accounted for approximately 15% of our pro forma
revenues, and NASA accounted for approximately 12% of our pro forma revenues.
These revenues are the result of various contracts awarded by several
procurement offices within these agencies. Our experience has indicated that
particular contracts are subject to the discretion of each procurement office.
Of the 20 government agencies with the largest IT budgets for the government's
1999 fiscal year, we have contracts with 16. The breadth of our government
contract base and service offerings provides us with less dependence on any
one agency and more opportunities to sell additional services to our
customers.
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The following chart illustrates a selected number of our customers across
our markets from January 1998 to the date of this prospectus.
<TABLE>
<CAPTION>
SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET IT Assurance IT Development IT Operations IT Consulting
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care Finance Department of Department of National Institute of
Administraiton Housing & Urban Agriculture Standards &
(Medicare Claims Development (Geographical Technology
Processing Systems) (Business Systems) Information Services (Distributed
for United States Component-Based
Forest Service) Development Tools)
NASA NASA Department of Labor NASA
(Space Shuttle, Space (Manned Spacecraft (Data Collection and (Advanced
Station, Earth Observing Center) Reporting for Bureau Development Tools)
System) of Labor Statistics)
Civilian
Government
Agencies United States Postal Jet Propulsion Environmental
Service Laboratory Protection Agency
(Automated Mail (Space Exploration) (Regulatory Data
Processing System) Collection and Quality
Control)
Securities & Department of Health United States Patent
Exchange & Human Services & Trademark Office
Commission (Development (ADP Facilities
(Enforcement & Services for National Management)
Reporting Systems) Institute of Health)
- ------------------------------------------------------------------------------------------------------------------------------------
United States Navy United States Navy United States Navy Defense Advanced
(Navigation and (Executive (Naval Wargaming Research Projects
Communication Helicopter, Maritime System, Landing Agency
Systems) Patrol Aircraft, EA- Craft Air Cushion (Joint Strike Fighter
6B Software Support Vehicle) Simulation,
Activity, Tactical Command Post of the
United States Support System, Future)
Defense Air Force Light Airborne
Government (Security Services Multipurpose System)
Agencies & Products)
United States Army
(Communications &
Electronics)
- ------------------------------------------------------------------------------------------------------------------------------------
[Telecom Company] America Online Metropolitan Washington [Software Company]
(Compliance (Web Development) Airports Authority (Ada Tools)
Assessment Services) (ADP Facilities
Management)
[Investment Bank] Delphi Automotive Systems [Software Distributor]
(Compliance Assessment (Language Tool (Ada Magic License)
Services) Development)
Prudential Insurance Vanguard [Software Developer]
(Compliance Assessment (Web Development) (Java Debugging Tool)
Services)
Commercial
[Investment Bank] [Insurance Company] [Biotechnology Company]
(Compliance Assessment (Quality Management) (Human Genome
Services) Consulting)
[Investment Bank] [Investment Bank] [Entertainment Company]
(Compliance Assessment (Quality Management) (Digital Studio
Services) Consulting)
</TABLE>
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Illustrative Customer Relationships
We have long standing relationships with several of our customers. Over
time, we have been successful in expanding the range of services that we
provide to these customers.
National Aeronautics Space Agency
The National Aeronautics and Space Administration, or NASA, is currently one
of our largest customers. Our contractual relationships with NASA go back
nearly 30 years. In the early 1970s, we won a contract to design a programming
system for the next generation of manned spacecraft operations, including the
space shuttle and space station programs. We designed and developed an advanced
programming language called HAL/S which NASA adopted as a standard for avionics
software for manned applications. HAL/S was used to program the software for
all on-board computers and is still used today for all software updates for
each space shuttle flight. Based on the success of HAL/S for the space shuttle,
NASA adopted HAL/S for other missions including on-board programming for the
Galileo spacecraft that recently visited Jupiter. We continue to maintain HAL/S
for NASA today.
During the development and initial operational phases of the space shuttle,
we played several key contracting roles for NASA. We developed the design
requirements for the operating system for the on-board system that is still in
use today. We were one of three contractors involved in the development of the
backup flight software system that the crew uses in the event of catastrophic
failure to the space shuttle's primary on-board flight system. We were also the
prime contractor for the validation of the flight navigation system. We
invented and implemented the Dynamic Integrated Test Technique, a concept for
fully-integrated testing of the software and hardware systems while the shuttle
is on the launch pad with the crew in the cockpit, just prior to launch. This
test is recognized as the critical end-to-end evaluation of the shuttle's
avionics, software, crew and communications prior to an actual flight.
Following the Challenger accident in 1986, NASA recommended that we perform
a complete audit of all software processes and the key interfaces of software
to hardware to determine whether the shuttle was ready to fly again. As a
result of our staffing up to perform this high-visibility task, NASA continued
our role as the independent verification and validation contractor to assess
all changes to the software made for each shuttle flight. Today, we continue to
perform this role for NASA and our contract has expanded to include the space
station program, ground control systems and robotic spacecraft. Also, within
the scope of this contract, we oversee the avionics and software development
for the X-33 spacecraft and are supporting NASA in the testing of its software
for a ground control system.
In 1994, because of our reputation on past work with NASA, we won a contract
to perform independent verification and validation for NASA's Earth Observing
System and Data Information System, or DIS. Under this contract, we support
NASA in the testing and integration of the DIS, which will archive
approximately one million megabytes of environmental data per day, collected
from satellite-based sensors. The DIS will distribute data over the Internet to
scientific and commercial users throughout the world.
United States Navy
The United States Navy was one of our first and continues to be one of our
largest customers. The first contract we received from the Navy over 30 years
ago was to define the ground support requirements for the yet-to-be-deployed P-
3C anti-submarine warfare landbased aircraft. Since that time we have been a
major contributor to every version of P-3 aircraft that has been delivered to
the Navy fleet. Our contributions have included definition of system and
software requirements, generation of detailed equipment and software
specifications, design and development of system test and integration
facilities, validation and verification of system performance in the lab and
onboard the aircraft, and development of training media and the training of
fleet personnel.
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<PAGE>
Other major Navy programs we have supported in similar capacities include
the S-3A carrier-based anti-submarine warfare aircraft, used to detect and
destroy enemy submarines; the executive helicopter, used for transporting the
President of the United States and his staff; the Light Airborne Multi-Purpose
System Helicopter, used onboard ships for submarine and anti-missile detection
and defense; and the Landing Craft Air Cushion vehicle, or LCAC, used to
transport personnel and equipment in hostile, shallow water operations. For
the LCAC, we also provide the crews used to operate the test craft, and
perform all logistics support functions for the United States Navy for all
LCACs deployed throughout the world.
For over 15 years we have performed analytical, design, testing and
validation efforts associated with the integration of global positioning
systems and other navigation systems into a wide range of Navy and joint
aircraft and ship programs. We have supported the design, development, testing
and operation of the Naval Wargaming System at both the Naval War College and
Tactical Training Group Pacific for approximately 20 years. In addition, for
approximately 12 years, we have worked closely with the Navy in the design,
development, validation and operation of the software used to resolve
operational problems and test future avionic upgrades for the EA-6B aircraft.
Delphi Automotive Systems
Delphi Automotive Systems, a leading manufacturer of automotive control
systems, has been one of our largest commercial customers, and we have
sustained our relationship with them over a 15-year period.
In the mid-1980s, Delphi decided to design and build a proprietary software
development system to program the computer chips used in automotive control
systems. With over six million vehicles equipped on a yearly basis and a
significant increase in the number of individual computers involved to control
and monitor various parts of the vehicle, the needs for the programming system
were threefold:
. To enhance the productivity and lower the time for development to meet
manufacturing schedules;
. To improve the efficiency of the code generated to reduce memory needs;
and
. To enhance reliability and maintainability because of the critical
nature of the functions performed for the vehicle.
At that time, these needs were not met through the use of available
programming tools. We won a contract in 1985 to develop this programming
system and the related compilers for several of the major microcomputer chips
being used in vehicles at that time.
Following the initial development of the Delphi system, we designed and
developed a complete configuration management system to support the building
and control of the software used in Delphi-equipped vehicles and computers.
Our role was extended to include building new versions of compilers for the
microcomputer chips being planned for future Delphi-equipped vehicles. In
addition, Delphi asked us to convert our software from a mainframe to a fully-
integrated workstation environment. During the 1990s, we built an electronic
specification system for distributing and controlling documentation for the
vehicle-based electronic systems. This system is used to distribute and
control documentation on a worldwide basis. Delphi now uses this system to
distribute and control other information beyond the documentation of vehicle-
based electronics systems. We have recently added a web-based interface to the
system.
Sales and Marketing
Over the last four years, we have significantly increased the investment in
our sales and marketing efforts. As of March 31, 1999, we had 26 employees
dedicated to our sales and marketing efforts. These employees all belong to
our corporate-wide business development team. The majority of these employees
work with project managers and operating teams to pursue new business. Several
of our sales and marketing employees work primarily at the corporate level to
identify and develop new sales targets and to obtain government awards.
33
<PAGE>
Our management works to foster an environment in which every employee shares
the responsibility for our sales and marketing and internal growth. In addition
to our dedicated sales and marketing personnel, many other employees spend
significant amounts of their time on sales and marketing activities. We seek to
ensure that each employee understands how he or she can contribute to our
growth, whether by communicating to management opportunities for new business,
by building a new customer relationship or by supporting a proposal.
As we grow, we will continue to invest our resources in sales and marketing.
Our continually growing sales presence is necessary to compete for larger,
long-term government contracts, and to develop the ongoing relationships with
present and prospective customers demanded by the prevalence of multiple-award
government contracts and by our expansion of commercial opportunities.
A significant portion of our new business derives from existing customer
relationships. We frequently leverage our strong incumbent positions to expand
the scope of our customer relationships. In addition, we identify new contract
opportunities through the use of industry contacts, attendance at conferences
and review of publications that identify new contracting opportunities.
While the services and products we provide to commercial customers are the
same as or similar to those we offer to government customers, the process of
selling to commercial customers is somewhat different. A portion of our sales
and marketing staff is, therefore, dedicated to selling services to commercial
customers. We expect to continue to expand our commercial sales and marketing
staff. We also have a sales effort dedicated to licensing our technology and
products to companies that sell our products and pay us royalties.
We have an incentive compensation program for sales and marketing personnel.
Incentive awards are based on achievement of our goals for profitability and
bookings of new business.
Contracts
Government Contracts
We have several multi-year contracts with United States government agencies,
typically for three to five years. These contracts require us to provide a
broad range of requested services. We receive specific assignments under a
given contract through the issuance by the government of task orders. Task
orders describe the specific assignment, the number of employees allocated to
the assignment and the estimated cost, fee and travel allocated to the
assignment.
Under our Government Services Agency Schedule, which is a type of GWAC, any
government agency may purchase IT services and products at pre-approved prices
and without any additional competitive bidding. The term of our current
Government Services Agency Schedule contract expires in September 2002.
Commercial Contracts
Typically, commercial contracts require us to complete a specific task or
provide a defined range of services and support. Payments are usually made
incrementally during the performance of each specific work assignment.
Currently, we are working to expand our customer base and increase the sales of
our products and services in the commercial IT market. Most of our existing
commercial contracts are fixed-price contracts.
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<PAGE>
Backlog
Backlog represents management's estimate of our aggregate realizable
revenues over the term of all of our contracts, including any option periods.
However, backlog is not necessarily indicative of future revenues. Our contract
backlog was approximately $450 million as of March 31, 1999. Our backlog is
composed of:
. Customer authorized contract values for which the customer has set
aside, appropriated or committed funds for specifically identified
services, products, tasks or delivery orders; and
. Management's estimate of the realizable contract values for all expected
future services, products, tasks or delivery orders (including
unexercised options under existing contracts) for which funds have not
yet been set aside, appropriated or committed.
The actual timing of our receipt of revenues (if any) on projects included
in our backlog could change because many factors affect the scheduling of
projects. In addition, cancellations or adjustments to contracts may occur. Our
backlog is subject to large variations from quarter to quarter as existing
contracts are renewed or new contracts are awarded. Additionally, the majority
of our backlog represents contracts with the United States government which may
be terminated at any time for any reason.
Competition
We experience significant competition in all areas of our business. In
general, the markets in which we compete are not dominated by a single company
or a small number of companies. Rather, a large number of companies offer
services that overlap and are competitive with our services and products. We
believe that the principal competitive factors in our business are technical
understanding, management capability, past contract performance, personnel
qualifications and price. While we have considerable experience, there are many
other contractors that have comparable skills. Many of our competitors are
significantly larger and have greater financial resources than we do. In
addition, many of our competitors have significantly more experience in the
commercial IT market than we do.
Proprietary Information
Although much of our work is performed for the United States government,
wherever possible we attempt to retain proprietary rights in our products. We
rely on copyright, patent and trade secret laws and internal non-disclosure
safeguards, as well as restrictions incorporated into software product license
agreements and other contractual provisions to protect our proprietary rights.
However, these measures may not prevent the unauthorized disclosure or use of
our technical knowledge, practices or procedures, or prevent others from
independently developing similar knowledge, practices or procedures. Further,
the government may acquire certain proprietary rights to software programs and
other products that we develop while performing services under government
contracts. The government may disclose this information to others, including
our competitors. Disclosure or loss of control over our proprietary information
could have a material adverse effect on our business, financial condition and
results of operations.
Employees
As of March 31, 1999, we had a total of 1,758 employees, consisting of 1,642
full-time and 116 part-time or temporary employees. Of our total full-time
employees, approximately 1,500 are in engineering, technical and technical
support positions, 116 are in general and administrative positions and 26 are
in sales and marketing positions. None of our employees are covered by a
collective bargaining agreement.
We have several full-time employees dedicated to recruiting technical and
administrative professionals and managing our human resources. As part of our
retention efforts, we seek to minimize turnover by emphasizing our reputation,
the nature of our work, our work environment, our encouragement of technical
publications, our participation in professional societies and our competitive
compensation packages.
35
<PAGE>
Certain Regulatory Matters
United States government contracts are subject to the Federal Acquisition
Regulations, or FAR, and other agency FAR supplements. Major contracts are also
subject to the Truth in Negotiations Act, or TIN Act, and Cost Accounting
Standards, or CAS. Among other procurement regulations, the FAR contains the
cost principles for setting contract prices while the TIN Act requires us to
provide current, accurate and complete cost or pricing data in connection with
the negotiation of a contract. CAS requires consistency of accounting practices
over time and compliance with specific cost accounting criteria.
To the extent that a company fails to comply with procurement requirements,
the United States government may adjust contract prices. Additionally, changes
in cost accounting practices are subject to a required procedure for
negotiation of the cost of the change. The United States government is
protected from paying increased costs resulting from accounting changes.
Finally, the United States government has the right to audit contractors for
three years after final payment. Accordingly, our revenues are subject to
adjustment.
United States law and regulations restrict and regulate the export of
technology as well as goods and commodities provided by United States
businesses to controlled foreign subsidiaries and affiliates. We are subject to
certain of these regulations with respect to our technology that is sold to
non-United States customers.
Facilities
We currently lease approximately 310,000 square feet of space comprised of
24 facilities. We consider these properties to be modern, well maintained and
suitable for their intended purposes. We lease our principal executive and
administrative offices and software facility located in 38,800 square feet of
space in Burlington, Massachusetts. This lease expires in 2003. We also have
offices located in:
. Fountain Valley, Huntington Beach, Pasadena, Point Mugu, Sacramento, San
Diego and Santa Clara, California;
. Colorado Springs, Colorado;
. Panama City, Florida;
. Baltimore, Greenbelt and Lexington Park, Maryland;
. Billerica, Massachusetts;
. Kansas City, Missouri;
. Eatontown, New Jersey;
. Lawton, Oklahoma;
. Portland, Oregon;
. Warminster, Pennsylvania;
. Charleston, South Carolina;
. Houston, Texas; and
. Arlington, Fairfax and Vienna, Virginia.
Legal Proceedings
We are not involved in any material litigation.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth, as of the date of this prospectus, the name,
age and position of each of our executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael B. Alexander.... 48 Chief Executive Officer and Chairman of the Board of Directors
John C. Rennie.......... 61 Vice Chairman of the Board of Directors
Joseph A. Saponaro...... 59 President, Chief Operating Officer and Director
Bruce A. Burton......... 44 Executive Vice President
Sigmund H. Goldblum..... 61 Executive Vice President and Director
Rudolph R. Koczera...... 61 Senior Vice President, Administration and Finance
Barbara L. Landes....... 49 Executive Vice President and Chief Financial Officer
Nicholas A. Pettinella.. 56 Senior Vice President, Treasurer and Secretary
Mary Ann Gilleece....... 58 Director
Joel N. Levy............ 58 Director
Peter M. Schulte........ 41 Director
</TABLE>
Executive Officers
Michael B. Alexander has served as our Chief Executive Officer and Chairman
from February 1998 to the present, and as Chief Executive Officer and Chairman
of Intermetrics from August 1995 to February 1998. From 1993 to August 1995,
Mr. Alexander was the principal of AFH Partners, which invests in public and
private computer software companies. From 1990 to 1993, Mr. Alexander served as
President and Chief Operating Officer of Pinelands, Inc., a New York Stock
Exchange company that was a spin-off from MCA, Inc. From 1981 to 1990, Mr.
Alexander worked for MCA/Universal in several capacities, including as
President and General Manager of WWOR-TV, Executive Vice President of MCA
Broadcasting and Vice President and Chief Financial Officer of USA Network. Mr.
Alexander received an AB from Harvard College, cum laude, an MA in Education
from Ohio State and completed the course work for a doctorate in education from
the Harvard Graduate School of Education.
John C. Rennie has served as Vice Chairman of the Board of Directors from
February 1998 to the present, and as Chairman of the Board of Directors and
Chief Executive Officer of Pacer since he founded Pacer in 1968 until February
1998. Mr. Rennie was Chairman at the time Pacer was named the Overseas Company
of the Year in 1987 on the Unlisted Securities Market of the London Stock
Exchange. Mr. Rennie has served as a director on a number of private technology
companies' boards of directors, and has also served as a director on numerous
organizations' boards, including the United States Chamber of Commerce and the
National Security Industrial Association. Mr. Rennie has an engineering degree
from the United States Naval Academy and a graduate engineering management
degree from Northeastern University and is also a graduate of the Harvard
Business School, Smaller Company Management Program.
Joseph A. Saponaro has served as our President and Chief Operating Officer
from March 1999 to the present. From August 1986 to December 1998, Mr. Saponaro
served as President of Intermetrics, and from August 1986 to August 1995 served
as Chief Executive Officer of Intermetrics. Mr. Saponaro has served as our
director from February 1998 to the present and served as a director of
Intermetrics from 1986 until February 1998. Mr. Saponaro joined Intermetrics in
1969 and served in a number of management positions before becoming President
in August 1986. Mr. Saponaro was a director of Intermetrics from 1979 to 1998.
Mr. Saponaro received a BS in Navigation and Astronomy from Massachusetts
Maritime Academy, an MS in Mathematics from Northeastern University and
attended Massachusetts Institute of Technology's Aeronautics PhD program.
37
<PAGE>
Bruce A. Burton, Ph.D. was appointed as our Executive Vice President in
March 1999. Prior to March 1999, Dr. Burton served as Senior Vice President of
Intermetrics' Information Systems and Services business area from 1996 to March
1999. Dr. Burton has been an employee of Intermetrics for 16 years and has held
a number of technical and management positions. Dr. Burton received a BS in
chemistry from California State University at Bakersfield and an MS degree in
computer science and a PhD in chemistry from the University of California in
Irvine.
Sigmund H. Goldblum has served as our Executive Vice President from March
1999 to the present. From January 1989 to December 1998, Mr. Goldblum served as
President and Chief Operating Officer of Pacer. Mr. Goldblum has served as our
director from February 1998 to the present and as a director of Pacer from 1989
to February 1998. Mr. Goldblum served as Chief Operating Officer of Pacer from
1983. Previously, Mr. Goldblum served Pacer as Senior Vice President from 1977
to 1983 and Vice President from 1973 to 1977. Mr. Goldblum joined Pacer in
December 1969. Mr. Goldblum received a BS in electrical engineering from Drexel
University and an MS in electrical engineering from the University of
Pennsylvania.
Rudolph R. Koczera has served as our Senior Vice President, Administration
and Finance from February 1998 to the present. Mr. Koczera also served as our
Chief Financial Officer from February 1998 to May 1999. Prior to February 1998,
Mr. Koczera served as a Director Ex-Officio, Senior Vice President,
Administration and Finance, Chief Financial Officer and Treasurer/Clerk of
Pacer since 1983. Mr. Koczera served as a Senior Vice President of Pacer from
1977 to 1998. Previously, Mr. Koczera served as Vice President of Pacer from
1973 to 1977. Mr. Koczera joined Pacer in January 1969 as a manager of
administration and finance. Mr. Koczera received an accounting degree from
Bentley College with honors and an MBA from Babson College.
Barbara L. Landes has served as our Executive Vice President and Chief
Financial Officer since May 1999. From October 1998 to May 1999, Ms. Landes was
self-employed. Ms. Landes served as Vice President and Chief Financial Officer
of Watson Wyatt and Company from May 1994 until October 1998. From January 1991
through August 1992, Ms. Landes worked as Vice President, Chief Financial
Officer and Treasurer of Pinelands, Inc., a New York Stock Exchange company
which was a spin-off from MCA, Inc. From November 1989 to December 1993, Ms.
Landes was Senior Vice President, Finance and Operations of WWOR-TV. From 1980
to 1989, Ms. Landes worked for NBC in several capacities, including Vice
President, Finance and Administration of NBC Radio. Ms. Landes received a BA in
political science from Washington University and an MBA from Wharton Graduate
School of the University of Pennsylvania.
Nicholas A. Pettinella has served as our Senior Vice President and Treasurer
from February 1998 to the present, and as Senior Vice President and Chief
Financial Officer of Intermetrics from 1983 to February 1998. Mr. Pettinella
joined Intermetrics as Director of Finance in November 1981. Mr. Pettinella
received a BS in accounting from Bentley College and an MBA from Babson
College, and attended the Corporate Finance Management program at Harvard
University and the Executive Financial Management Program at Stanford
University. He is a licensed Certified Public Accountant in the Commonwealth of
Massachusetts.
Directors
Mary Ann Gilleece has served as our director since September 1998. Ms.
Gilleece is a partner of the law firm of Manatt, Phelps and Philips, where she
counsels domestic and foreign corporations on issues related to legislative,
government contract and regulatory matters. Prior to joining Manatt, Phelps and
Philips, Ms. Gilleece held several senior positions in the United States
government including Deputy Undersecretary of Defense for Research and
Engineering, representative for the Department of Defense on the OMB Executive
Committee on Procurement Reforms, and Counsel to the United States House of
Representatives Committee on Armed Services. Ms. Gilleece sits on the National
Board of Trustees of the National Defense Industrial Association, the Board of
Advisors of the National Contract Management Association and is vice chair of
the Legislative Coordinating Committee of the Section of Public Contract Law of
the American Bar Association. Ms. Gilleece received a BA from the University of
Connecticut, a JD from Suffolk University Law School, and an LLM in government
procurement from George Washington University.
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<PAGE>
Joel N. Levy has served as our director from February 1998 to the present
and as a director of Intermetrics from August 1995 to February 1998. Mr. Levy
is a managing partner of CMLS Management, L.P. and CM Equity Partners, L.P.,
and a principal officer of Joel N. Levy/Peter M. Schulte, L.L.C. Joel N.
Levy/Peter M. Schulte, L.L.C. supported the management buyout of Intermetrics
in August 1995. Mr. Levy managed the buyout group at Arnhold and S.
Bleichroeder, Inc., from 1990 to 1992. From 1986 to 1990, Mr. Levy managed
Resource Holdings Capital Group, a buyout fund comprised of Swiss investors
(Trident II) acquiring United States-based companies. Mr. Levy is a member of
the Boards of Directors of Tep Fund, Inc., C-3, Inc., Examination Management
Services, Inc., Kronos-Central Products, Inc. (Chairman), Beta Brands
Incorporated, Evans Consoles, Inc. and Resource Consultants, Inc. Mr. Levy
received a BA from American University in Washington, D.C.
Peter M. Schulte has served as our director from February 1998 to the
present and as a director of Intermetrics from August 1995 to February 1998.
Mr. Schulte is a managing partner of CMLS Management, L.P. and CM Equity
Partners, L.P. and is a principal officer of Joel N. Levy/Peter M. Schulte,
L.L.C. Joel N. Levy/Peter M. Schulte, L.L.C. supported the management buyout of
Intermetrics in August 1995. Mr. Schulte was a member of the buyout group at
Arnhold and S. Bleichroeder, Inc. from 1990 to 1992. From 1983 to 1990, Mr.
Schulte was a Vice President of Salomon Brothers Inc, where he managed the
firm's southeast United States corporate finance relationships and activities
with industrial companies. Mr. Schulte is a member of the Boards of Directors
of Kronos-Central Products, Inc., Evans Consoles, Inc. and Resource
Consultants, Inc. (Chairman). Mr. Schulte received a BA from Harvard University
and a Masters in Public and Private Management from Yale University.
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our other four most highly compensated
executive officers for services rendered to us during 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
------------------------------
Other Annual All Other
Name and Principal Position Salary Bonus Compensation Compensation
--------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Michael B. Alexander
Chief Executive Officer and Chair-
man............................... $339,068 $105,000 $3,809 $2,801
John C. Rennie
Vice Chairman...................... 267,315 70,000 699 6,787
Joseph A. Saponaro
President and Chief Operating Offi-
cer............................... 266,200 85,000 24,912 7,575
Sigmund H. Goldblum
Executive Vice President........... 223,575 60,000 1,910 5,702
Bruce A. Burton
Executive Vice President........... 177,001 80,000 9,631 1,703
</TABLE>
In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted for the named
executive officers because the aggregate amount of these perquisites and other
personal benefits constituted less than the lesser of $50,000 or 10% of the
total of annual salary and bonuses for each of the named executive officers in
1998.
Options Granted in Last Year
No options were granted to the named executive officers during the year
ended December 31, 1998.
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<PAGE>
Option Exercises in the Year Ended December 31, 1998 and Year-End Option Values
The following table sets forth information concerning the value realized
upon exercise of options during 1998 and the number and value of unexercised
options held by each of the named executive officers at December 31, 1998.
There was no public trading market for the common stock as of December 31,
1998. Accordingly, the values set forth below have been calculated on the basis
of the assumed initial public offering price of $ per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying the options.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Value Realized Underlying Unexercised the-
Shares (Market Price Options at Money Options at
Acquired at Exercise less December 31, 1998 December 31, 1998
on Exercise ------------------------- -------------------------
Name Exercise Price)(/1/) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael B. Alexander.... -- -- -- 387,831(/2/) -- $
John C. Rennie.......... 17,117 $ 24,453 -- $ --
Joseph A. Saponaro...... -- -- -- 116,349(/3/) -- $
Sigmund H. Goldblum..... 17,117 $ 48,906 -- $ --
Bruce A. Burton......... -- -- -- -- -- --
</TABLE>
- --------
(1) Solely for purposes of this calculation, the fair market value of the
common stock at the time of the exercise was deemed to be the initial
public offering price of $ per share. The exercise price of the options
was $1.08 per share.
(2) Options to purchase 387,831 shares of common stock will accelerate and
become exercisable when this offering closes. This will result in an
increase in the value of Mr. Alexander's unexercised in-the-money
exercisable options of $ .
(3) Options to purchase 116,349 shares of common stock will accelerate and
become exercisable when this offering closes. This will result in an
increase in the value of Mr. Saponaro's unexercised in-the-money
exercisable options of $ .
Classified Board of Directors
The board of directors presently consists of seven persons. Our board of
directors is divided into three classes. Directors of each class serve for
three years and are elected at the annual meeting of stockholders held in the
year in which the term for such class expires. Michael B. Alexander, Mary Ann
Gilleece and Peter M. Schulte serve as Class 1 directors with their terms
expiring at the 2000 annual meeting of stockholders. Joseph A. Saponaro and
John C. Rennie serve as Class 2 directors with their terms expiring at the 2001
annual meeting of stockholders. Sigmund H. Goldblum and Joel N. Levy serve as
Class 3 directors with their terms expiring at the 2002 annual meeting of
stockholders. For further information on the effect of the classification of
the Board of Directors, please see "Description of Capital Stock--Certain
Provisions of the Certificate of Incorporation and Bylaws."
Directors Compensation
In September 1998, we began compensating our non-employee directors $20,000
per year, paid in arrears in semi-annual increments. In addition, we reimburse
each non-employee director for customary and reasonable out-of-pocket expenses
for attending each board of directors or committee meeting. At the discretion
of the board of directors, non-employee directors will be granted options to
purchase common stock at the then prevailing fair market value during each
calendar year in which such director serves on the board. We also have a
consulting agreement with Messrs. Levy and Schulte. (Please see "Certain
Relationships and Related- Party Transactions.") Prior to September 1998,
directors received no cash compensation for their service on our Board of
Directors or any of our committees.
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<PAGE>
Committees of the Board
Audit Committee
The audit committee currently consists of Mary Ann Gilleece (chair), Peter
M. Schulte and Michael B. Alexander. After this offering, the audit committee
will consist of Mary Ann Gilleece (chair) and Peter M. Schulte. The audit
committee selects and evaluates our independent auditors, reviews the scope of
the annual audit with management and our independent auditors, consults with
management and our independent auditors about our systems of internal
accounting controls and reviews the non-audit services performed by our
independent auditors.
Compensation Committee
Our compensation committee currently consists of Peter M. Schulte (chair),
Joel N. Levy and John C. Rennie. The compensation committee is responsible for
approving or recommending salaries and benefits for our employees,
consultants, directors and other individuals compensated by us. The
compensation committee also reviews our benefit plans.
Option Committee
Our option committee currently consists of Peter M. Schulte (chair) and
Joel N. Levy. The option committee is responsible for approving or
recommending option grants, and administering our long-term incentive plan.
1998 Long Term Incentive Plan
General. Our 1998 long term incentive plan was approved by our board of
directors and our stockholders in June 1998. The purpose of our 1998 long term
incentive plan is to enable us to attract, retain and reward employees,
officers and directors and to strengthen the mutuality of interests between
our employees, officers and directors and our stockholders, by permitting them
to participate in our ownership. Pursuant to the plan, we may grant options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, non-qualified stock options, stock appreciation
rights, restricted stock, deferred stock, stock purchase rights or other
stock-based awards.
Shares reserved for issuance. A total of 3,349,447 shares of common stock
have been reserved for issuance under the plan. Appropriate adjustments in the
aggregate number of shares subject to the plan will be made in the event of
any recapitalization, dividend of stock or property other than cash, stock
split, reclassification or other change in corporate structure affecting the
common stock. As of March 31, 1999, we have granted stock options to purchase
1,513,433 shares of common stock.
Eligibility. Our employees, officers and directors who are responsible for
or contribute to the management, growth and/or profitability of our business
are eligible to be granted awards under the plan. However, only our employees
are eligible to receive incentive stock options.
Administration. Our stock option committee is authorized to administer the
plan, including the selection of individuals eligible for grants under the
plan and the terms of grants. Generally, the stock option committee has broad
authority to amend the plan to take into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
We may grant any of the following, or any combination of the following,
types of awards under the plan:
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<PAGE>
Stock options. We may grant incentive stock options and non-qualified stock
options. A stock option may have a term of not more than ten years. The price
per share of common stock purchasable under the plan is determined by our stock
option committee at the time of grant and may be equal to, greater than or less
than the fair market value of our common stock on the date of grant. However,
the price per share of common stock purchasable under an incentive stock option
cannot be less than the fair market value of our common stock on the date of
grant. In addition, in the case of an incentive stock option granted to an
employee who, at the time of grant, owns common stock with more than ten
percent (10%) of the total combined voting power of our outstanding common
stock, the price per share of common stock cannot be less than one hundred ten
percent (110%) of the fair market value of our common stock on the date of
grant.
Stock appreciation rights. A stock appreciation right is the right to
surrender to us all or a portion of a stock option in exchange for an amount
equal to the difference between (i) the fair market value, as of the date any
part of a stock option is surrendered, of the shares of common stock covered by
any part of a stock option, subject to certain pricing provisions, and (ii) the
aggregate exercise price of any part of a stock option. A stock appreciation
right granted with respect to a given stock option shall terminate and no
longer be exercisable upon the termination or exercise of the related stock
option, subject to provisions specified by the stock option committee.
Restricted stock. A restricted stock award entitles the holder to receive
shares of common stock at the end of a restricted period determined by the
stock option committee. During the restricted period, the holder is not
permitted to sell, transfer, pledge or assign shares of restricted stock. The
stock option committee may provide for the lapse of such restrictions in
installments and may accelerate or waive such restriction in whole or in part,
based on service, performance and other criteria as the stock option committee
may determine.
Deferred stock. A deferred stock award entitles the holder to receive shares
of common stock at the end of a specified deferral period. The stock option
committee shall determine, among other things, the duration of the period
during which, and the conditions under which, receipt of the common stock will
be deferred.
Stock purchase rights. Stock purchase rights entitle the holder to purchase
common stock, including deferred stock and restricted stock (i) at its fair
market value on the date of grant; (ii) at fifty percent (50%) of the fair
market value on the date of grant; (iii) at an amount equal to book value on
the date of grant; or (iv) at an amount equal to the par value of the common
stock on the date of grant.
Other stock-based awards. We may also make other awards of common stock and
other awards that are valued in whole or in part by reference to, or are
otherwise based on, common stock, including performance shares, convertible
preferred stock, convertible debentures, exchangeable securities and stock
awards or options valued by reference to book value or our performance.
Employment, Severance and Other Agreements with Management
Mr. Alexander serves as Chief Executive Officer and Chairman of the Board of
Directors pursuant to the terms of a five-year employment agreement dated as of
August 21, 1995 between us and Mr. Alexander. Under the terms of his employment
agreement, Mr. Alexander receives a base salary of $300,000 per year, which
increases by at least 5% each year plus any additional amounts as may be
approved from time to time by the board. In addition, commencing April 1, 1997,
Mr. Alexander will be paid a tax anticipation payment of $50,000 or a bonus, at
the discretion of our board of directors, of not less that $50,000. If Mr.
Alexander's employment agreement is terminated by us for any reason other than
"cause", as defined in Mr. Alexander's employment agreement, or long-term
disability, then he is entitled to the following severance:
. His then current salary for the lesser of 36 months following the date
of his termination or the remaining term of his employment agreement;
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<PAGE>
. His tax anticipation payments;
. Any earned but unpaid salary and bonus amounts; and
. Continued medical benefits on the same basis as immediately prior to his
termination.
If Mr. Alexander's employment agreement is terminated for a long-term
disability, then he is entitled to the following severance:
. $25,000 per month and his tax anticipation payments for 12 months
following his termination;
. Any earned but unpaid salary and bonus amounts; and
. Benefits under our long-term disability policy and medical benefits from
the date of termination until his 65th birthday.
If Mr. Alexander's employment agreement is terminated by his death, or if Mr.
Alexander voluntarily terminates his employment agreement, then he, or his
estate in the event of his death, is entitled to receive any earned but unpaid
salary and bonus amounts.
Under his employment agreement, Mr. Alexander also received options to
purchase a maximum of 387,831 shares of common stock, at an exercise price of
$1.37 per share. This stock option will vest and become exercisable upon the
closing of this offering.
Mr. Saponaro serves as President and director pursuant to the terms of an
employment agreement, dated as of August 21, 1995, between us and Mr. Saponaro.
Under the terms of his employment agreement, Mr. Saponaro receives an annual
base salary of $230,000 or such greater amount as may be approved from time to
time by our board of directors. Mr. Saponaro's employment agreement provides
that he will be eligible to receive a bonus at the discretion of the board of
directors. If Mr. Saponaro's employment agreement is terminated by us for any
reason other than "cause" (as defined in Mr. Saponaro's employment agreement)
or long-term disability, or we fail to renew his employment agreement, then he
is entitled to the following severance:
. One-half of his then current salary, on a monthly basis, and one-half of
his bonus, on an annual basis, for four years following the date of his
termination;
. Any earned but unpaid salary and bonus amounts; and
. Continued medical benefits on the same basis as immediately prior to his
termination.
If Mr. Saponaro's employment agreement is terminated for a long-term
disability, then he is entitled to the following severance:
. His then current salary and bonus (less our medical benefits described
below) for 12 months following his termination, and $9,000 per month
(less our medical benefits described below) thereafter or such greater
amount as our disability insurance policy permits;
. Any earned but unpaid salary and bonus amounts; and
. Benefits under our long-term disability policy from the date of
termination until his 65th birthday.
If Mr. Saponaro's employment agreement is terminated by his death, or if Mr.
Saponaro voluntarily terminates his employment agreement, then he, or his
estate in the event of his death, is entitled to receive any earned but unpaid
salary and bonus amounts.
In addition, Mr. Saponaro received options to purchase a maximum of 116,349
shares of common stock at an exercise price of $1.37 per share. This stock
option will vest and become exercisable upon the closing of this offering.
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<PAGE>
Mr. Rennie serves as Vice Chairman of our board of directors pursuant to the
terms of a three-year employment agreement, dated as of February 27, 1998,
between us and Mr. Rennie. Mr. Rennie receives a base salary of $275,000 per
year, or such greater amount as may be approved from time to time by us. The
agreement provides that Mr. Rennie will be eligible to receive a bonus at the
discretion of the board of directors. If Mr. Rennie's employment agreement is
terminated by us for any reason other than "cause" (as defined in Mr. Rennie's
employment agreement) or long-term disability or by Mr. Rennie for "good
reason", then he is entitled to the following severance:
. His base salary, on a monthly basis, and a company car through the term
of his employment agreement;
. One-half of his then current salary, on a monthly basis, for two years
following the expiration of the term of his employment agreement;
. Any earned but unpaid vacation, salary and bonus amounts; and
. Continued medical benefits on the same basis as immediately prior to his
termination for the greater of the remaining term of his employment
agreement or 18 months after his date of termination.
If Mr. Rennie's employment agreement is terminated for a long-term disability,
then he is entitled to the following severance from the date of termination
until the earlier of his 65th birthday or the date specified by our long-term
disability plan:
. His then current salary and bonus (less our medical benefits described
below) for 12 months following his termination, and $10,000 per month
(less our medical benefits described below) thereafter;
. Any earned but unpaid vacation, salary and bonus amounts;
. Continued use of a company car; and
. Benefits under our long-term disability policy and medical benefits from
the date of termination until the earlier of the date specified by our
disability policy or his 65th birthday.
If Mr. Rennie's employment agreement is terminated by his death, or if Mr.
Rennie voluntarily terminates his employment agreement, then he, or his estate
in the event of his death, is entitled to receive any earned but unpaid
vacation, salary and bonus amounts.
Mr. Goldblum serves as Executive Vice President and Director pursuant to the
terms of a three-year employment agreement, dated as of February 27, 1998,
between us and Mr. Goldblum. Mr. Goldblum receives a base salary of $225,000
per year or such greater amount as may be approved from time to time by our
board of directors. The agreement provides that Mr. Goldblum will be eligible
to receive a bonus at the discretion of the board of directors. If Mr.
Goldblum's employment agreement is terminated by us for any reason other than
"cause" (as defined in Mr. Goldblum's employment agreement) or long-term
disability or by Mr. Goldblum for "good reason", then he is entitled to the
following severance:
. His base salary, on a monthly basis, and a company car through the term
of his employment agreement;
. One-half of his then current salary, on a monthly basis, for two years
following the expiration of the term of his employment agreement;
. Any earned but unpaid vacation, salary and bonus amounts; and
. Continued medical benefits on the same basis as immediately prior to his
termination for the greater of the remaining term of his employment
agreement or 18 months after his date of termination.
If Mr. Goldblum's employment agreement is terminated for a long-term
disability, then he is entitled to the following severance from the date of
termination until the earlier of his 65th birthday or the date specified by our
long-term disability plan:
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<PAGE>
. His then current salary and bonus (less our medical benefits described
below) for 12 months following his termination, and $10,000 per month
(less our medical benefits described below) thereafter;
. Any earned but unpaid vacation, salary and bonus amounts;
. Continued use of a company car; and
. Benefits under our long-term disability policy and medical benefits from
the date of termination until the earlier of the date specified by our
disability policy or his 65th birthday.
If Mr. Goldblum's employment agreement is terminated by his death, or if Mr.
Goldblum voluntarily terminates his employment agreement, then he, or his
estate in the event of his death, is entitled to receive any earned but unpaid
vacation, salary and bonus amounts.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of the shares of common stock offered by this prospectus, by:
. Each of our directors and named executive officers;
. All of our directors and executive officers as a group;
. Each person, or group of affiliated persons, who we know beneficially
owns 5% or more of the common stock; and
. Each of the selling stockholders.
In accordance with the SEC's rules, the following table gives effect to the
shares of common stock that could be issued upon the exercise of outstanding
options and warrants within 60 days of March 31, 1999. Unless otherwise
indicated in the footnotes to the table, the following individuals have sole
voting and sole investment control with respect to the shares they beneficially
own.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering Shares to be After Offering
----------------------- Sold in the --------------------
Beneficial Owner Number Percent Offering Number Percent
---------------- ------------ ---------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
Directors and Officers:
Michael B. Alexander
(/1/).................. 1,119,645 13.2%
John C. Rennie (/2/) ... 330,085 3.9%
Joseph A. Saponaro
(/3/).................. 281,052 3.3%
Sigmund H. Goldblum
(/4/).................. 138,459 1.6%
Nicholas A. Pettinella
(/5/).................. 131,774 1.6%
Rudolph R. Koczera
(/4/).................. 129,316 1.5%
Peter M. Schulte (/6/).. 73,176 *
Bruce A. Burton (/7/)... 73,234 *
Joel N. Levy (/6/)...... 54,882 *
Barbara L. Landes
(/8/).................. -- *
Mary Ann Gilleece....... -- *
All Directors and
Executive Officers as a
group (11 persons)
(/9/).................. 2,331,623 27.4%
Other 5% Stockholders:
J. Fernando Niebla...... 696,765 8.2%
Richards Capital Fund,
L.P.................... 548,817 6.5%
AFH Partners (/10/)..... 537,841 6.3%
Selling Stockholders:
Massachusetts Mutual
Life Insurance
Company--Pension
Management............. 276,695 3.3%
Massachusetts Mutual
Life Insurance
Company--IMF
Traditional............ 276,695 3.3%
MassMutual Corporate In-
vestors................ 147,499 1.7%
MassMutual Corporate
Value Partners
(Gerlach & Co.)....... 147,499 1.7%
MassMutual Participation
Investors.............. 73,749 *
</TABLE>
- --------
* Less than 1%
(1) Includes options to purchase 387,831 shares of common stock for $1.37 per
share. Includes 537,841 shares of common stock held by AFH Partners.
Includes 58 shares of common stock held for the benefit of Mr. Alexander in
the Intermetrics 401(k) profit sharing plan.
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<PAGE>
(2) Includes options to purchase 24,453 shares of common stock at $3.78 per
share. Includes 2,966 shares of common stock held in the Pacer Infotec ESBP
for the benefit of Mr. Rennie. Excludes 155,351 shares held by the Pacer
Infotec ESBP with respect to which Mr. Rennie, as trustee, has voting power
but no pecuniary interest. After this offering, Mr. Rennie will not have
the right to vote the shares held by the Pacer Infotec ESBP.
(3) Includes options to purchase 116,349 shares of common stock for $1.37 per
share. Includes 58 shares of common stock held for the benefit of Mr.
Saponaro in the Intermetrics 401(k) profit sharing plan. Excludes 150,867
shares held by the Intermetrics 401(k) profit sharing plan with respect to
which Mr. Saponaro has voting power but no pecuniary interest.
(4) Includes options to purchase 48,906 shares of common stock at $3.78 per
share. Includes 2,932 shares of common stock held for the benefit of Mr.
Goldblum and 2,225 shares of common stock held for the benefit of Mr.
Koczera, in the Pacer Infotec ESBP.
(5) Excludes shares to be received by Messrs. Levy and Schulte from certain
other AverStar stockholders pursuant to agreements between Messrs. Levy
and Schulte and such stockholders. In connection with the acquisition of
Intermetrics by Apollo Holding, Inc. in 1995, certain stockholders of
Apollo who are now stockholders of AverStar agreed to share a percentage
of their interest in Intermetrics' profits with Messrs. Levy and Schulte.
Each of Mr. Levy and Mr. Schulte will receive from these other
stockholders (i) shares of common stock (assuming an initial public
offering price of $ ) immediately after this offering and (ii) an
additional number of shares of common stock six months after this offering
to be determined based on the market price of the common stock at that
time.
(6) Includes 58 shares of common stock held for the benefit of Mr. Pettinella
in the Intermetrics 401(k) profit sharing plan.
(7) Includes 58 shares of common stock held for the benefit of Dr. Burton in
the Intermetrics 401(k) profit sharing plan.
(8) Does not include options to purchase 75,000 shares of common stock
issuable upon exercise of options that do not vest within 60 days of March
31, 1999.
(9) Includes options to purchase 626,445 shares of common stock.
(10) Mr. Alexander is the President of Bronto, Inc., which is the general
partner of AFH Partners.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
In connection with the acquisition of Intermetrics by an investor group led
by current management, we obtained a $35 million credit facility with certain
Massachusetts Mutual Life Insurance Company, or MassMutual, and certain of
affiliates of MassMutual. This facility comprised $25 million in senior debt,
$5 million in subordinated debt and $5 million in revolving credit. In
connection with this facility, MassMutual and its affiliates received warrants
to purchase shares of common stock. In connection with our acquisition of Pacer
in February 1998, these warrants were exchanged for 605,286 shares of our
common stock. At December 31, 1998, we owed $23.6 million under the senior term
agreement, $5 million under the subordinated debt agreement and $2.5 million
under the revolving credit agreement. An additional $2.5 million was available
under the revolving credit agreement. We repaid the $2.5 million borrowed under
the revolving credit early in 1999 as we collected outstanding receivables. In
March 1999, we refinanced our outstanding debt in conjunction with our
acquisition of CBSI, and repaid our outstanding debt of $23.2 million under the
senior term agreement. Currently, we maintain the $5 million subordinated debt
agreement with MassMutual. MassMutual is also one of our lenders under our
credit agreement with First Union.
In connection with our divestiture of IES, we:
. Provided a $2.0 million credit facility to IES;
. Received a $1.25 million promissory note from IES; and
. Extended the due date of two $200,000 secured notes from IES.
Outstanding amounts under the credit facility and the promissory note bear
interest at a rate of 8.5% per year. Outstanding amounts under the secured
notes bear interest at a rate of 10.5% per year. After December 31, 1999, we
are not required to fund any additional amounts under the credit facility,
which matures on December 31, 2001. The promissory note and secured notes
mature on December 31, 2001.
Mr. Levy and Mr. Schulte, both members of our board, are the principal
officers of Joel N. Levy/Peter M. Schulte, LLC, or L&S, which supported the buy
out of Intermetrics in August 1995. We have retained L&S to provide financial,
strategic and business planning and consulting services, including analysis and
advice with respect to programs relating to value of our common stock. The
consulting agreement with L&S terminates on the first anniversary of this
offering. The total amounts of fees paid to L&S by us in 1998, 1997 and 1996
were $263,000, $200,000 and $100,000, respectively.
In connection with our formation, J. Fernando Niebla entered into a
repurchase agreement with us. This agreement provides that during 1998, 1999,
2000 and 2001, Mr. Niebla can require us to repurchase some of his shares of
common stock. Our total cost to repurchase all of his shares of his common
stock would be $1,757,000. However, approximately $1,000,000 of such amount
will be paid by cancellation of certain outstanding indebtedness owed to us by
Mr. Niebla.
Each of our stockholders (including certain of our executive officers) who
own 3% or more of our common stock calculated on a fully diluted basis have
granted us a right of first refusal to purchase their shares at the prevailing
market price. For three years following the date of this prospectus, each of
these stockholders, other than MassMutual and its affiliates, must offer their
shares to us before they may sell their shares on the public market. If we do
not buy these shares, then these stockholders may sell their shares on the
public market.
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The following table sets forth loans made by us to our executive officers
and 5% stockholders:
<TABLE>
<CAPTION>
Amount
Name and Principal Amount of Currently
Position Loan Outstanding Interest Rate Due Date
------------------ --------- ----------- ------------- --------
<S> <C> <C> <C> <C>
Michael B. Alexander..... $200,000 $100,000 8.4% July 31, 1999
Chief Executive Officer
and $265,000 $ 0 7.0% Paid in Full
Chairman of the Board of
Directors
Bruce A. Burton.......... $ 80,000 $ 80,000 7.0% August 31, 2005
Executive Vice President
Joseph A. Saponaro....... $ 75,000 $ 0 Imputed Paid in Full
President, Chief interest based
Operating Officer and on IRS
Director guidelines
John C. Rennie........... $ 94,762 $ 0 6.5% Paid in Full
Vice Chairman of the
Board of Directors
Sigmund H. Goldblum...... $ 27,957 $ 0 6.5% Paid in Full
Executive Vice President
and Director
Rudolph R. Koczera....... $ 18,767 $ 0 6.5% Paid in Full
Senior Vice President
Administration and
Finance
J. Fernando Niebla....... $848,730 $848,730 6.36% May 1, 2001
</TABLE>
The amounts of the loans set forth above represent the largest amounts owed to
us at any time during our last three fiscal periods, or since March 1, 1996.
The loans set forth above are evidenced by notes, payable to us as indicated.
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<PAGE>
DESCRIPTION OF SECURITIES
The following descriptions of our common stock and preferred stock, and
provisions of our certificate of incorporation and bylaws, reflect changes that
will occur upon the filing of an amended and restated certificate of
incorporation immediately prior to the closing of this offering.
Our authorized capital stock consists of 17,000,000 shares of common stock,
par value $.001 per share, and 1,000,000 shares of preferred stock, par value
$.001 per share.
Common Stock
As of the date of this prospectus, there are 6,984,257 shares of common
stock outstanding and held of record by 111 stockholders. There will be
shares of common stock outstanding upon the closing of this offering.
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of a majority of the
shares of common stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of common stock are
entitled to receive dividends, if, as and when declared by the board of
directors out of funds legally available for such purposes, subject to any
dividend preferences of any outstanding preferred stock. Upon our liquidation,
dissolution or winding up, the holders of common stock are entitled to share
ratably in our assets available for distribution, subject to the preferential
rights of any outstanding preferred stock. Holders of the common stock have no
preemptive, subscription, redemption or conversion rights. Upon the closing of
this offering, there will be no shares of preferred stock outstanding. The
rights, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock that we may designate and issue in the future.
Preferred Stock
As of the date of this prospectus, there are no shares of preferred stock
outstanding. Upon the closing of this offering, the board of directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 1,000,000 shares of preferred stock in one or more series.
The board of directors may fix or alter the designations, preferences, rights
and any qualifications, limitations or restrictions of the shares of each of
these series, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of
these series. We have no present plans to issue any shares of preferred stock.
Please see "--Anti-Takeover Effects of Certain Provisions of Delaware Law and
Our Certificate of Incorporation and Bylaws."
Stock Options
Options to purchase a total of 3,349,447 shares of common stock may be
granted under our stock option plan. As of the date of this prospectus, there
are outstanding options to purchase a total of 1,513,433 shares of common stock
under our stock option plan. Of these, stock options to purchase 757,055 shares
are currently exercisable and options to purchase 504,180 shares will become
exercisable upon the closing of this offering. As soon as practicable following
the closing of this offering, we intend to file a registration statement on
Form S-8 which will register the offer and sale of the shares to be issued upon
exercise of these options. Upon the filing of the Form S-8, these shares will
be immediately available for sale in the public market, subject to the terms of
lock-up agreements entered into between certain of these option holders and the
underwriters. Please see "Management--1998 Long Term Incentive Plan" and
"Shares Eligible for Future Sale."
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<PAGE>
Anti-Takeover Effects of Certain Provisions of Delaware Law and Our
Certificateof Incorporation and Bylaws
Delaware Law. We are subject to the provisions of Section 203 of the
Delaware General Corporation Law, or the DGCL. Section 203 of the DGCL
generally prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the interested stockholder attained that status
with the approval of the board of directors or unless the business combination
is approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Subject to exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three
years did own, fifteen percent (15%) or more of a corporation's voting stock.
The provisions of Section 203 of the DGCL are intended to assure that the price
that stockholders receive for the common stock in certain transactions is fair
in relation to the market value of and the prices paid by the "interested
stockholder" in its initial acquisitions of common stock and to allow the board
of directors and the stockholders to prevent the consummation of such a
transaction because it may not be in our best interest or in the best interest
of our stockholders. Under those circumstances in which this statute would
apply, minority stockholders may prevent a transaction favored by a majority of
stockholders. This statute could prohibit or delay the accomplishment of
mergers or other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.
Our Certificate of Incorporation and Bylaws. Certain provisions of our
certificate of incorporation and bylaws, which will be in effect upon the
closing of this offering and which are described in the following paragraphs,
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders. However, these provisions are
designed to help to ensure that stockholders are treated fairly and equally in
a multi-step acquisition, and are intended to encourage persons seeking to
acquire control of us to pursue their acquisition in arms-length negotiations
with our board of directors.
Classified Board of Directors. Our board of directors is divided into three
classes of directors serving staggered terms. The terms of our current
directors expire at the 2000, 2001 or 2002 annual stockholders meeting. One
class of directors will be elected at each annual stockholders meeting for a
three-year term. This classification of directors may deter stockholders from
changing the composition of our board of directors in a relatively short period
of time. At least two annual stockholders meetings, instead of one, generally
will be required to change the majority of directors. Because of the additional
time required to change the directors, classification of directors also may
delay the removal of our current management team. A classified board of
directors helps to assure the continuity and stability of our board of
directors and our business strategies and policies because generally a majority
of directors at any given time will have had prior experience as directors.
Board of Directors Vacancies. The certificate authorizes the board of
directors to fill vacant directorships or increase the size of the board of
directors. In addition, the certificate permits stockholders to remove
directors only for cause. This may deter a stockholder from removing incumbent
directors or simultaneously gaining control of the board of directors by
filling the vacancies created by that removal with its own nominees.
Stockholder Action; Special Meeting of Stockholders. The certificate
provides that stockholders may only take action at duly called annual or
special meetings of stockholders and not by written consent. The certificate
further provides that special meetings of stockholders may be called only by
the president, the chief executive officer, chairman of the board of directors
or a majority of the board of directors. These provisions may delay a
stockholders vote for a proposal over the objection of the board of directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate
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<PAGE>
candidates for election as directors at an annual meeting of stockholders, must
deliver a written notice to our principal executive offices within a prescribed
time period. The bylaws also specify requirements as to the form and content of
a stockholder's notice. These provisions may preclude stockholders from
bringing matters before an annual meeting of stockholders or from making
nominations for directors at an annual meeting of stockholders. Advance notice
requirements may also delay a contest for the election of directors, and
discourage or deter a tender offer or takeover attempt.
Authorized But Unissued Shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval, subject to limitations imposed by the Nasdaq National Market. These
additional shares may be utilized for a variety of corporate purposes,
including future public offerings, acquisitions and employee benefit plans. The
existence of authorized but unissued and unreserved common stock and preferred
stock could complicate or discourage an attempt to obtain control of us by
means of a proxy contest, tender offer, merger or otherwise.
Restrictions on Certain Business Combinations. The certificate contains
provisions which are substantially similar to Section 203 of the DGCL. Such
provisions may dely or discourage mergers or other acquisition attempts with
respect to us.
Vote Required to Amend our Certificate of Incorporation and Bylaws. Subject
to certain exceptions, our certificate and bylaws require the vote of 80% of
the stockholders to amend, repeal or adopt any provision inconsistent with the
anti-takeover and indemnification provisions discussed in this prospectus. This
supermajority vote prevents a controlling stockholder from avoiding the
requirements of these provisions by simply amending or repealing such
provisions.
Limitation of Liability and Indemnification Matters
To the extent permitted under the DGCL, the certificate limits the personal
liability of our directors to us or our stockholders for monetary damages for
any breach of fiduciary duty as our directors. Under the DGCL, our directors
have a fiduciary duty to us that is not eliminated by this provision of the
certificate and, in appropriate circumstances, injunctions and other
nonmonetary relief will remain available. This provision also does not affect
the directors' responsibilities under any other laws, including the federal
securities laws.
Section 145 of the DGCL enables a corporation to indemnify its directors and
officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers. However, this provision
does not eliminate or limit the liability of a director:
. For any breach of the director's duty of loyalty to the corporation or
its stockholders;
. For acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. For payments of dividends or approval of stock repurchases or
redemptions that are prohibited by the DGCL; or
. For any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation provides that we may fully indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that the
person is or was one of our directors or officers or is or was serving at our
request as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorney's fees), judgments, fine and amount paid in settlement
actually and reasonably incurred by that person in connection with any
threatened, pending or completed action, suit or proceeding.
52
<PAGE>
We believe that the provisions of our certificate and bylaws are necessary
to attract and retain qualified directors and executive officers. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions, regardless
of whether the DGCL would permit indemnification. We have obtained liability
insurance for our officers and directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent for which indemnification will be required
or permitted under the certificate. We are not aware of any threatened
litigation or proceeding that may result in a claim for indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be Chase Mellon
Shareholder Services, Ridgefield Park, New Jersey.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock. We cannot predict the effect, if any, that market sales of shares of
common stock or the availability of shares of common stock for sale will have
on the prevailing market price of our common stock. Nevertheless, sales of
substantial amounts of common stock in the public market, or the perception
that such sales could occur, could adversely affect the market price of our
common stock and could impair our future ability to raise capital through the
sale of our equity securities.
Upon the closing of this offering, we will have an aggregate of shares of
common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options. Of the outstanding
shares, the shares being sold in this offering will be freely tradable,
subject to the lock-up agreements and the right of first refusal described
below. Additional shares will be available for sale in the public market as
follows:
<TABLE>
<CAPTION>
Number of Shares Date
---------------- ---------------------------------------------------------
<C> <S>
After 180 days from the date of this prospectus (subject,
in some cases, to volume limitations)
At various times after 180 days from the date of this
prospectus
Upon the filing of a registration statement on Form S-8
to register the offer and sale shares of common stock
issuable upon the exercise of options granted under our
stock option plan. (Please see "Description of
Securities--Stock Options)
</TABLE>
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
. 1% of the then outstanding shares of common stock
(approximately shares) immediately after this offering; or
. The average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of that sale is filed,
subject to restrictions.
In addition, a person who is not deemed to have been our affiliate at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years is entitled to sell those
shares under Rule 144(k) without regard to the requirements described above. To
the extent that shares are acquired from our affiliate, the acquiring person's
holding period for the purpose of effecting a sale under Rule 144 generally
commences on the date of transfer from the affiliate.
As of the date of this prospectus, options to purchase a total of 1,513,433
shares of common stock are outstanding, of which options to purchase 757,055
shares are currently exercisable. Of the options to purchase 756,378 shares of
common stock that are not currently exercisable, options to purchase 504,180
shares of common stock shall immediately vest and become exercisable upon the
closing of this offering. Upon the commencement of this offering, we intend to
file a registration statement to register the 1,836,014 shares of common stock
reserved for issuance under the stock option plan. That registration statement
will automatically become effective upon filing. Accordingly, shares issued
upon the exercise of stock options granted under the stock option plan will be
eligible for resale in the public market from time to time, subject to vesting
restrictions and, in the case of some of the options, the lock-up agreements
and the right of first refusal referred to below.
Our directors and officers and stockholders who hold shares in the
aggregate, together with the holders of options to purchase shares of common
stock, have agreed that they will not sell, directly or
54
<PAGE>
indirectly, any shares of common stock without the prior written consent of
Bear, Stearns & Co. Inc. for a period of 180 days from the date of this
prospectus. Please see "Underwriting."
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except we
may issue, and grant options to purchase, shares of common stock under the
stock option plan. In addition, we may issue shares of common stock in
connection with any acquisition of another company if the terms of that
issuance provide that the common stock shall not be resold prior to the
expiration of the 180-day period referenced in the preceding sentence.
Each stockholder who owns more than shares of common stock, which
represents 3% of our common stock calculated on a fully diluted basis, have
granted us a right of first refusal to purchase their shares at the prevailing
market price. For three years following the date of this prospectus, each of
these stockholders, other than MassMutual and its affiliates, must offer their
shares to us before they may sell their shares on the public market. If we do
not buy these shares, then these stockholders may sell their shares on the
public market.
55
<PAGE>
UNDERWRITING
The underwriters of this offering named below, for whom Bear, Stearns & Co.
Inc. and Legg Mason Wood Walker Incorporated are acting as representatives,
have severally agreed with us, subject to the terms and conditions of the
underwriting agreement, to purchase from us and the selling stockholders the
aggregate number of shares of common stock set forth opposite their respective
names below:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Legg Mason Wood Walker, Incorporated........................
---
Total
===
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of certain legal matters by counsel and to
various other conditions. We and the selling stockholders have agreed to
indemnify the several underwriters against certain liabilities, including
liabilities under the Securities Act, and where such indemnification is
unavailable, to contribute to payments that the underwriters may be required to
make in respect of such liabilities. The nature of the underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of common stock if any are purchased.
If the underwriters sell more than the total number set forth in the table
above, the underwriters have an option to buy up to an additional shares to
cover such sales from us. The underwriters may exercise that option for 30
days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in the same proportion as set forth in the table
above.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to of the shares of common stock to be sold in
this offering for sale to our employees and directors and other persons
designated by us. The number of shares available for sale to the general public
will be reduced to the extent that any reserved shares are purchased. Any
reserved shares not so purchased will be offered by the underwriters on the
same basis as the other shares offered hereby.
The underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority.
We, the selling stockholders, all of our directors and officers and other
stockholders holding an aggregate of shares of our common stock have agreed
that, subject to certain exceptions, for a period of 180 days from the date of
this prospectus, without the prior written consent of Bear, Stearns & Co. Inc.,
which may be waived, we will not, directly or indirectly, issue, sell, offer or
agree to sell, grant any option for the sale of, pledge, make any short sale,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Exchange Act or otherwise dispose of any shares of our common stock
(or securities convertible into, exercisable for or exchangeable for our common
stock).
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us and by the selling
stockholders. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Paid by us
Per Share.......................................... $ $
Total.............................................. $ $
Paid by Selling Stockholders
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>
56
<PAGE>
Shares sold by the underwriters to the public will initially be offered at
the public offering price set forth on the cover of this prospectus. Any shares
sold by the underwriters to securities dealers may be sold at a discount of up
to $ per share from the public offering price. Any such securities dealers
may resell any shares purchased from the underwriters to certain other brokers
or dealers at a discount of up to $ per share from the public offering
price. If all the shares are not sold at the offering price, the representative
may change the offering price and the other selling terms.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the common stock
will be determined by negotiations among us, the selling stockholders and the
representatives of the underwriters. Among the factors to be considered in
those negotiations will be:
. Our results of operations in recent periods;
. Estimates of our prospects and the industry in which we compete;
. An assessment of our management;
. The general state of the securities markets at the time of this
offering; and
. The prices of similar securities of generally comparable companies.
We will apply to have our common stock approved for quotation on the Nasdaq
National Market under the symbol ASTR. However, there can be no assurance that
an active or orderly trading market will develop for the common stock or that
the common stock will trade in the public markets subsequent to this offering
at or above the initial offering price.
In connection with the offering, certain persons participating in this
offering may purchase and sell shares of common stock in the open market. These
transactions may include short sales, stabilizing transactions and purchases to
cover positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of shares than they are required to purchase
in this offering. Stabilizing transactions consist of certain bids or purchases
made for the purpose of preventing or retarding a decline in the market price
of the common stock while this offering is in progress. The underwriters also
may impose a penalty bid. This occurs when a particular underwriter repays to
the underwriters a portion of the underwriting discount received by it because
the representative has repurchased shares sold by or for the account of such
underwriter in stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
Certain persons participating in this offering may also engage in passive
market making transactions in the common stock on the Nasdaq National Market.
Passive market making consists of displaying bids on the Nasdaq National Market
limited by the prices of independent market makers and affecting purchases
limited by such prices and in response to order flow. Rule 103 of Regulation M
promulgated by the Commission limits the amount of net purchases that each
passive market maker may make and the displayed size of each bid.
Passive market making may stabilize the market price of the common stock at
a level above that which might otherwise prevail in the open market and, if
commenced, may be discontinued at any time.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ . We are paying the
expenses of the selling stockholders, all applicable stock transfer taxes and
fees of counsel for the selling stockholders.
57
<PAGE>
AVERSTAR, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Information
Overview.................................................................. F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet at December 31,
1998..................................................................... F-3
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 1998............................................. F-4
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information.............................................................. F-5
AverStar, Inc.
Report of Independent Auditors............................................ F-7
Consolidated Balance Sheets as of December 31, 1997 and 1998.............. F-8
Consolidated Statements of Operations for the year ended February 28,
1997, the ten-month period ended December 31, 1997 and the year ended
December 31, 1998........................................................ F-9
Consolidated Statements of Changes in Stockholders' Deficit for the year
ended February 28, 1997, the ten-month period ended December 31, 1997 and
the year ended December 31, 1998......................................... F-10
Consolidated Statements of Cash Flows for the year ended February 28,
1997, the ten-month period ended December 31, 1997 and the year ended
December 31, 1998........................................................ F-11
Notes to Consolidated Financial Statements................................ F-12
Computer Based Systems, Inc.
Report of Independent Auditors............................................ F-23
Report of Independent Auditors............................................ F-24
Balance Sheets as of December 31, 1997 and 1998........................... F-25
Statements of Operations for the years ended December 31, 1996, 1997 and
1998..................................................................... F-26
Statements of Other Comprehensive Income for the years ended December 31,
1996, 1997 and 1998...................................................... F-27
Statements of Stockholders' Equity for the years ended December 31, 1996,
1997 and 1998............................................................ F-28
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998..................................................................... F-29
Notes to Consolidated Financial Statements................................ F-34
Pacer Infotec, Inc. and Subsidiaries
Report of Independent Auditors............................................ F-36
Consolidated Balance Sheets as of December 31, 1996 and 1997.............. F-37
Consolidated Statements of Operations for the years ended December 31,
1996 and 1997 and the period from January 1, 1998 to February 28, 1998... F-38
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1997 and the period from January 1, 1998 to
February 28, 1998........................................................ F-39
Consolidated Statements of Cash Flows for the years ended December 31,
1996 and 1997 and the period from January 1, 1998 to February 28, 1998... F-40
Notes to Consolidated Financial Statements................................ F-41
</TABLE>
F-1
<PAGE>
AVERSTAR, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Overview
On February 27, 1998, we acquired Pacer. The purchase price was
approximately $17 million, plus transaction-related expenses of approximately
$1.7 million. Of the total purchase price, approximately $7 million was paid in
cash to Pacer shareholders, with the balance paid by the issuance of
approximately 2,255,000 shares of our common stock. The merger has been
accounted for using the purchase method of accounting.
On March 18, 1999, we acquired Computer Based Systems, Inc. for $26 million.
We did not acquire certain assets of CBSI that we believed were not related to
IT operations. $25 million of the purchase price was paid at the closing, with
the $1 million balance to be paid equally over five years. The transaction
costs are estimated to be $600,000. The purchase price is subject to
adjustment, based on CBSI's net worth on the closing date.
Simultaneous with the CBSI closing, we entered into a $75 million secured
financing agreement comprised of $45 million in senior term loans and a $30
million revolving credit note. Expenses associated with the financing were
estimated to be $1.9 million. Proceeds from the financing agreement were used
to acquire CBSI and retire debt, and for working capital purposes. The senior
term loans are comprised of two tranches: Term A of $15 million with periodic
principal payments maturing in five years carrying a variable interest rate of
up to LIBOR plus 2.75% and Term B of $30 million with periodic payments
maturing in six years carrying a variable interest rate of LIBOR plus 3%.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1998 gives effect to the acquisitions of Pacer and
CBSI, including the financing of these acquisitions, as if they had occurred on
January 1, 1998. The Unaudited Pro Forma Condensed Statement of Operations
includes the historical results of operations of Pacer for the two months ended
February 28, 1998 and CBSI for the year ended December 31, 1998.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to
the acquisition of CBSI as if it had occurred on December 31, 1998. The
following pro forma statements and the accompanying notes should be read in
conjunction with the historical financial statements of us, Pacer and CBSI and
notes thereto.
The Unaudited Pro Forma Condensed Consolidated Financial Information is
intended for informational purposes only and is not necessarily indicative of
the future position or future results of operations of the consolidated company
after the acquisitions of Pacer and CBSI or of the financial position or
results of operations of the consolidated company that would have actually
occurred had the acquisitions of Pacer and CBSI been effected on January 1,
1998.
F-2
<PAGE>
AVERSTAR, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
As of
December 31, 1998
------------------- Pro Forma Pro Forma
AverStar CBSI Adjustments Balance Sheet
---------- -------- ----------- -------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents.... $ 332 $ 1,305 $ -- $ 1,637
Accounts receivable, net of
allowances.................. 23,923 12,311 -- 36,234
Unbilled receivable, net of
allowances.................. 10,261 -- -- 10,261
Other current assets......... 3,496 764 -- 4,260
-------- -------- ------- -------
Total current assets....... 38,012 14,380 -- 52,392
Fixed assets, net............ 4,264 513 -- 4,777
Intangible and other assets,
net......................... 15,593 -- 21,880 1)a,d 37,473
Other assets................. 1,794 88 -- 1,882
-------- -------- ------- -------
Total assets............... $ 59,663 $ 14,981 $21,880 $96,524
======== ======== ======= =======
Liabilities & Stockholders'
Equity (Deficit)
Revolving credit note
payable..................... $ 2,500 $ 2,794 $ 6,083 1)c $11,377
Accounts payable & accrued
expenses.................... 25,302 5,400 -- 30,702
Amount due under non-compete
agreement................... -- -- 826 1)a 826
Current portion of long-term
debt........................ 954 -- -- 954
-------- -------- ------- -------
Total current liabilities.. 28,756 8,194 6,909 43,859
Long-term debt............... 28,156 -- 21,417 1)c 49,573
Other long-term liabilities.. 565 341 -- 906
Redeemable common stock...... 5,598 -- -- 5,598
Stockholders' equity
(deficit)................... (3,412) 6,446 (6,446) 1)b (3,412)
-------- -------- ------- -------
Total liabilities and
stockholders' equity
(deficit)................. $ 59,663 $ 14,981 $21,880 $96,524
======== ======== ======= =======
</TABLE>
F-3
<PAGE>
AVERSTAR, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended December 31, 1998
-----------------------------------------
2 Months of Pro Forma Pro Forma
AverStar Pacer CBSI Adjustments Total
------------- --------------------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue................. $ 121,056 $ 7,479 $ 40,685 $ -- $169,220
Costs and expenses:
Cost of revenues...... 93,604 6,230 28,686 -- 128,520
Selling, general and
administrative
expenses............. 20,581 1,180 10,296 3,294 2)a,b,c 35,351
------------- ----------- ------------ ------ --------
Income from continuing
operations before
interest and taxes..... 6,871 69 1,703 (3,294) 5,349
Interest, net......... 2,269 65 117 2,278 2)d 4,729
------------- ----------- ------------ ------ --------
Income from continuing
operations before
taxes.................. 4,602 4 1,586 (5,572) 620
Provision for income
taxes................ 2,168 4 -- (1,730)2)e 442
------------- ----------- ------------ ------ --------
Net income from continu-
ing operations......... 2,434 -- 1,586 (3,842) 178
============= =========== ============ ====== ========
Basic net income per
share.................. $ 0.38 $ 0.03
============= ========
Weighted average shares
used in computing net
income per share....... 6,428 6,428
============= ========
Diluted net income per
share.................. $ 0.36 $ 0.03
============= ========
Weighted average shares
used in computing
diluted net income per
share.................. 6,847 6,847
============= ========
</TABLE>
F-4
<PAGE>
AVERSTAR, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
1. Pro Forma Adjustments and Assumptions--Balance Sheet
The pro forma adjustments to the unaudited pro forma condensed consolidated
balance sheet, assuming the acquisition occurred on December 31, 1998 are as
follows:
1(a) Adjustment to record the purchase price and intangible assets acquired
of CBSI as follows:
<TABLE>
<S> <C>
Cash portion of purchase price............................. $25,000,000
Present value for non-competition agreement to be paid over
5 years................................................... 825,830
Estimated transaction costs................................ 600,000
-----------
Purchase price............................................. 26,425,830
Less: estimated fair value of net assets to be acquired as
of December 31, 1998...................................... 6,446,000
-----------
Estimated cost in excess of fair value of net assets
acquired (goodwill)....................................... $19,979,830
===========
</TABLE>
Of the estimated amount of goodwill, the Company expects to allocate
this amount and amortize it over estimated useful lives as follows:
<TABLE>
<S> <C> <C>
Contract Backlog................................... $ 2,300,000 18 Months
Workforce.......................................... 1,000,000 4 Years
Non-Compete Agreement.............................. 825,830 5 Years
Residual........................................... 15,854,000 20 Years
</TABLE>
1(b) Adjustment to eliminate the equity of CBSI in consolidation.
1(c) Adjustment to record the financing from First Union for the
acquisition of CBSI as follows:
<TABLE>
<S> <C>
Senior Term Loan A........................................... $15,000,000
Senior Term Loan B........................................... 30,000,000
Revolver loan drawdown....................................... 6,458,000
-----------
Total Amount Borrowed...................................... $51,458,000
Senior Notes repayment....................................... 23,958,000
-----------
Additional Borrowings...................................... $27,500,000
===========
</TABLE>
1(d) Adjustment to record the estimated financing costs of $1,900,000
associated with the refinancing with First Union to be amortized over
6 years.
2. Pro Forma Adjustments and Assumptions--Statement of Operations
The pro forma adjustments to the unaudited pro forma condensed consolidated
statement of operations, assuming the acquisition occurred on January 1, 1998,
are as follows:
2(a) Adjustment to record 12 months of amortization associated with the
CBSI intangible assets acquired as follows:
<TABLE>
<S> <C>
Contract backlog............................................. $1,533,000
Assembled workforce.......................................... 250,000
Cost in excess of net assets acquired........................ 765,000
Non-competition agreement.................................... 165,000
----------
Total...................................................... $2,713,000
==========
</TABLE>
F-5
<PAGE>
2(b) Adjustment to record 2 months of amortization associated with the
Pacer intangible assets acquired as follows:
<TABLE>
<S> <C>
Contract backlog............................................... $189,000
Assembled Workforce............................................ 25,000
Cost in excess of net assets acquired.......................... 50,000
--------
Total........................................................ $264,000
========
</TABLE>
2(c) Adjustment to record the amortization of the financing costs
associated with the First Union refinancing.
2(d) Adjustment to record the incremental interest costs associated with
the First Union Senior and Revolving Credit Notes used to finance the
acquisition of CBSI. The interest rate on the Company's new borrowing
is comparable to those in prior borrowing arrangements.
2(e) Adjustment to record the federal and state income taxes associated
with CBSI operations assumed to be part of a C Corporation in 1998 and
with the pro forma adjustments based upon the statutory rates in
effect.
F-6
<PAGE>
AVERSTAR, INC.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders of AverStar, Inc.
We have audited the accompanying consolidated balance sheets of AverStar,
Inc. (the Company), as of December 31, 1997 and 1998, and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for the year ended February 28, 1997, the ten-month period ended
December 31, 1997 and the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of AverStar, Inc. at December 31, 1997 and 1998, and the consolidated results
of its operations and its cash flows for the year ended February 28, 1997, the
ten-month period ended December 31, 1997 and the year ended December 31, 1998,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 30, 1999
F-7
<PAGE>
AVERSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 131 $ 332
Accounts receivable, net of allowances of $169,000 and
$287,000 at December 31, 1997 and 1998................... 11,423 23,923
Unbilled receivables, net of allowances of $265,000 and
$310,000 at December 31, 1997 and 1998................... 4,927 10,261
Other current assets...................................... 740 1,100
Refundable income taxes................................... 1,050 1,662
Deferred income taxes..................................... -- 734
-------- --------
Total current assets.................................... 18,271 38,012
Property and equipment:
Land...................................................... -- 90
Computer, equipment and furniture......................... 4,591 9,711
Building and improvements................................. 832 1,610
-------- --------
5,423 11,411
Less allowances for depreciation.......................... 2,337 7,147
-------- --------
3,086 4,264
Other assets:
Deferred income taxes..................................... -- 1,794
Intangible and other assets, net.......................... 2,289 15,593
-------- --------
2,289 17,387
-------- --------
Total assets............................................ $ 23,646 $ 59,663
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 5,634 $ 7,371
Accrued payroll and employee benefits..................... 2,850 7,109
Accrued liabilities....................................... 3,559 9,909
Revolving credit notes payable............................ 2,000 2,500
Current portion of long-term debt......................... 735 954
Unearned revenue.......................................... 926 913
-------- --------
Total current liabilities............................... 15,704 28,756
Long-term debt:
Senior debt............................................... 7,833 23,583
Subordinated debt......................................... 4,492 4,573
-------- --------
12,325 28,156
Net liabilities of discontinued operations................. -- 565
Redeemable common stock issued and outstanding, 1,179,225
and 2,202,875 shares at December 31, 1997 and 1998........ 1,412 5,598
Stockholders' deficit:
Common Stock, $.001 par value per share-authorized
9,146,950 shares in 1997 and 17,000,000 in 1998; issued
2,850,011 and 4,766,344 shares at December 31, 1997 and
1998..................................................... 3 5
Additional paid in capital................................ 4,502 9,624
Accumulated deficit....................................... (10,159) (12,847)
Deferred compensation..................................... (106) (80)
Treasury stock at cost, 23,306 and 42,105 shares at
December 31, 1997 and 1998............................... (35) (114)
-------- --------
Total stockholders' deficit............................. (5,795) (3,412)
-------- --------
Total liabilities and stockholders' deficit............ $ 23,646 $ 59,663
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
AVERSTAR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended February 28, 1997, ten months ended December 31, 1997 and
year ended December 31, 1998.
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
February 28, December 31, December 31,
1997 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues................................ $53,274 $53,646 $121,056
Costs and Expenses
Cost of revenues...................... 40,704 41,685 93,604
Selling, general and administrative... 11,244 10,403 20,581
------- ------- --------
Income from operations.................. 1,326 1,558 6,871
Interest expense, net................... 1,281 1,206 2,269
Income from continuing operations before
income taxes........................... 45 352 4,602
Provision for income taxes.............. 18 154 2,168
Income from continuing operations....... 27 198 2,434
Loss from discontinued operations, net
of income tax benefit of $664,000 in
1997 and $1,659,000 in 1998............ -- (1,727) (2,489)
Loss on disposal of discontinued
operations, net of income tax benefit
of $1,267,000.......................... -- -- (2,633)
------- ------- --------
Net income (loss)....................... $ 27 $(1,529) $ (2,688)
======= ======= ========
Earnings per share:
Basic
Income from continuing operations..... $ 0.01 $ 0.05 $ 0.38
Discontinued operations............... -- (0.45) (0.80)
------- ------- --------
Net income (loss)..................... $ 0.01 $ (0.40) $ (0.42)
======= ======= ========
Diluted
Income from continuing operations..... $ 0.01 $ 0.04 $ 0.36
Discontinued operations............... -- (0.45) (0.80)
------- ------- --------
Net income (loss)..................... $ 0.01 $ (0.40) $ (0.42)
======= ======= ========
Weighted-average shares outstanding:
Basic................................... 3,878 3,865 6,428
Diluted................................. 4,523 4,552 6,847
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
AVERSTAR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND STOCKHOLDERS'
DEFICIT
(In thousands)
<TABLE>
<CAPTION>
Stockholders' Deficit
-----------------------------------------------------------------------------
Redeemable Treasury
Common Stock Common Stock Additional Stock
-------------- ------------- Paid-In Accumulated Deferred ------------ Stockholders'
Shares Amount Shares Amount Capital Deficit Compensation Shares Cost Deficit
------ ------ ------ ------ ---------- ----------- ------------ ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 29,
1996................... 1,179 $1,147 2,699 $ 3 $4,129 $ (8,657) $(4,525)
Payment of promissory
notes................. 133 --
Net income............. 27 27
----- ------ ----- --- ------ -------- ----- --- ----- -------
Balance, February 28,
1997................... 1,179 $1,280 2,699 $ 3 $4,129 $ (8,630) -- -- -- $(4,498)
Payment of promissory
notes................. 132 --
Purchase of treasury
stock................. (23) (35) (35)
Deferred compensation.. 133 (133) --
Stock option vesting... 27 27
Stock contribution to
Profit Sharing Plan... -- 151 240 240
Net loss............... (1,529) (1,529)
----- ------ ----- --- ------ -------- ----- --- ----- -------
Balance, December 31,
1997................... 1,179 $1,412 2,850 $ 3 $4,502 $(10,159) $(106) (23) $ (35) $(5,795)
Issuance of shares in
connection with
acquisition........... 1,030 4,211 1,831 2 5,010 5,012
Options Exercised...... -- -- 79 -- 87 87
Purchased treasury
stock................. -- (13) (54) (54)
Redeemed stock......... (6) (25) 6 -- 25 (6) (25) --
Deferred Compensation.. 26 26
Net loss............... (2,688) (2,688)
----- ------ ----- --- ------ -------- ----- --- ----- -------
Balance, December 31,
1998................... 2,203 $5,598 4,766 $ 5 $9,624 $(12,847) $ (80) (42) $(114) $(3,412)
===== ====== ===== === ====== ======== ===== === ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
AVERSTAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended February 28, 1997, ten months ended December 31, 1997 and
year ended December 31, 1998.
(In thousands)
<TABLE>
<CAPTION>
February 28, December 31, December 31,
1997 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Income (loss) from continuing
operations............................. $ 27 $ 198 $2,434
Adjustments to derive cash flows from
continuing operating activities:
Depreciation and amortization.......... 2,151 935 3,228
Changes in deferred income taxes....... (78) 29 (2,384)
Loss on disposal of fixed assets....... 22 5 315
Change in assets and liabilities
Accounts receivable.................... (1,034) (839) (7,987)
Unbilled receivables................... 706 (1,322) 209
Other current assets................... 143 (110) 861
Accounts payable....................... (223) 2,323 (3,451)
Accrued payroll and employee benefits.. (519) 487 1,491
Accrued liabilities.................... (902) 422 6,817
Unearned revenue....................... (272) (71) 378
Refundable income taxes................ 412 (1,050) (612)
------ ------ ------
Net cash provided by continuing
operating activities................... 433 1,007 1,299
Net cash used by discontinued operating
activities............................. (1,367) (8,951)
------ ------ ------
Net cash provided by (used in) operating
activities............................. 433 (360) (7,652)
Cash flows from investing activities:
Acquisitions net of cash acquired....... -- (400) (6,749)
Proceeds from sale of division.......... 300 100 1,000
Purchase of equipment and leaseholds.... (1,376) (1,866) (2,615)
Deposits and investment in other
assets................................. (221) (305) 365
------ ------ ------
Net cash used in investing activities... (1,297) (2,471) (7,999)
Cash flows from financing activities:
Issuance of common Stock................ -- 240 87
Purchase of redeemable and treasury
stock.................................. -- (35) (79)
Net borrowings (repayments) of revolving
credit................................. -- 2,000 500
Repayments of long term debt............ -- (1) (5,011)
Proceeds from issuance of long term
debt................................... 16,500
Repayment of loan from shareholder...... 133 144 --
------ ------ ------
Net cash provided by financing
activities of continuing operations.... 133 2,348 11,997
Net cash provided by financing
activities of discontinued operations.. 3,855
------ ------ ------
133 2,348 15,852
Net increase in cash and cash
equivalents............................ (731) (483) 201
Cash and cash equivalents at beginning
of year................................ 1,345 614 131
------ ------ ------
Cash and cash equivalents at end of
year................................... $ 614 $ 131 $ 332
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies and Basis of Presentation
Nature of Operations
AverStar provides information technology, or IT, services and software
products for the mission-critical systems of civilian and defense agencies of
the United States government, as well as, large commercial companies.
Basis of Presentation
These consolidated financial statements include the accounts of AverStar,
Inc. (the Company) and its wholly owned subsidiaries, Apollo Holding, Inc.,
(Apollo), and Pacer Infotec, Inc. (Pacer). The Company was incorporated in
Delaware on February 4, 1998 for the purpose of combining the businesses of
Apollo and Pacer (see Note 2). All material intercompany balances and
transactions have been eliminated.
In connection with the transactions described in Note 2, the Company
effected exchanges of stock with Apollo and Pacer shareholders. All share and
per share data included in these financial statements and related footnotes
have been adjusted to reflect such exchanges.
In 1997, the Board of Directors changed Apollo's fiscal year from the last
day of February to the last day of December. For the year ended December 31,
1998, the financial statements include twelve months of operations for Apollo
and ten months of operations for Pacer. For the period ended December 31, 1997,
the financial statements include ten months of operations for Apollo.
Revenue Recognition
Contracts with the Federal Government, or prime contractors of the Federal
Government, are cost reimbursable with a fee that is fixed or awarded based on
performance. Contracts with commercial enterprises and some Government
contracts are time and materials. Overhead and general and administrative costs
charged on U.S. Government contracts are generally subject to audit by the
Federal Government for allowability and proper charging under the contracts.
These contracts provide for periodic payments as the services are performed and
generally do not represent any unusual burden on the Company's liquidity. All
contracts with the Federal Government are subject to termination by the
customer. The Company has not suffered any adverse effects from the termination
of Government contracts in the past.
The Company recognizes revenue on government and commercial contracts under
the percentage-of-completion method in accordance with Statement of Position
81-1, "Accounting for Performance of Construction-Type and Certain Production-
Type contracts." The percentage of completion is determined by relating the
costs incurred to date to the estimated total costs at completion. The
cumulative effects resulting from revisions of estimated total contract costs
and revenues are recorded in the period in which the facts requiring revision
become known. When a loss is anticipated on a contract, the full amount of the
anticipated loss is provided for when it becomes probable.
Revenues from standard software products are recognized upon shipment in
accordance with Statement of Position 97-2, "Software Revenue Recognition."
Revenues from maintenance agreements are deferred and amortized over the life
of the maintenance agreement. Per unit royalties earned from the license of
standard software products are recognized when received from the customer.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
F-12
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unbilled Receivables
Unbilled receivables represent expenditures and fees earned but not yet
billed that can be billed to the customer upon the completion of certain
contractual requirements. To the extent that billings exceed costs incurred,
plus fees or less losses, the difference is recorded as unearned revenue.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation and amortization over estimated useful lives using the straight-
line method as follows:
<TABLE>
<CAPTION>
Asset Classification Estimated Useful Life
-------------------- ---------------------
<S> <C>
Building & improvements........ 30 years, lesser of remaining life
of lease or estimated life of improvement
Computer, equipment and
furniture..................... 2-7 years
</TABLE>
Stock Compensation
The Company accounts for grants of stock options in accordance with the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees."
The Company has adopted the disclosure-only provision of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." See
Note 9.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
Impairment Evaluation
The Company examines the carrying value of its long lived assets,
identifiable intangibles, and goodwill to determine whether there are any
impairment losses. If indicators of impairment were present in those assets,
and future undiscounted cash flows were not expected to be sufficient to
recover the assets' carrying amounts, an impairment loss would be charged to
expense in the period identified. No event has been identified that would
indicate an impairment of the value of long-lived assets, identifiable
intangibles, and goodwill recorded in the accompanying consolidated financial
statements.
Concentration of Credit Risk
Financial instruments which subject the Company to credit risk consist of
cash equivalents and accounts receivable. The risk with respect to cash
equivalents is minimized by the Company's policies in which investments are
placed with highly rated issuers with relatively short maturities. The risk
with respect to accounts receivable is minimized due to the fact that customer
accounts and unbilled receivables represent amounts earned under the Company's
contracts, which are principally with U.S. Government agencies.
F-13
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The Company's cash equivalents, accounts receivable, long-term debt and
redeemable common stock are carried at cost, which approximates fair value.
Reclassifications
Certain reclassifications have been made to the 1997 financial statements to
conform to the 1998 basis of presentation.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share," of SFAS 128, which was required to be adopted for fiscal
years ending after December 15, 1997. Earnings per share amounts for all
periods presented conform to the SFAS 128 requirements. See Note 11 for the
computation of basic and diluted earnings per share.
Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income," or SFAS 130, which was required to be adopted
for fiscal years beginning after December 15, 1997. This statement established
new rules for reporting and display of comprehensive income and its components.
The adoption of this Statement had no impact on the Company's financial
statements.
Segments of an Enterprise
In 1997, the Financial Accounting Standards Board issued statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information," or SFAS
131, which was required to be adopted for fiscal years beginning after December
15, 1997. SFAS 131, superseded SFAS No. 14, "Financial Reporting for Segments
of a Business Enterprise." This statement changes the way public companies
report segment information in annual financial statements. SFAS 131 requires
public companies to report financial and descriptive information about their
operating segments in interim financial reports to shareholders as well. The
adoption of this Statement had no impact on the disclosures in the Company's
financial statements as the Company has one reportable segment from continuing
operations: the development and delivery of information technology products and
services. The U.S. Government and its prime aerospace, civil and defense
contractors accounted for approximately 88%, 80% and 90% of the Company's
revenues for the year ended February 28, 1997, the ten-month period ended
December 31, 1997 and the year ended December 31, 1998.
Pending Accounting Pronouncements
In 1998, the Accounting Standard Executive Committee issued Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities," which must be
adopted for fiscal years beginning after December 15, 1998, and the Financial
Accounting Standards Board issued Statement No. 133, "Accounting for Derivative
Investments and Hedging Activities," which must be adopted for fiscal years
beginning after June 15, 1999. The adoption of these statements is not expected
to have a material impact on AverStar.
Note 2. Acquisition
On February 27, 1998, Pacer, a company providing software engineering
services primarily to government customers, was acquired for a purchase price
of approximately $17,000,000, plus transaction related expenses of
approximately $1,700,000. Of the total purchase price, approximately $7,000,000
was paid in cash to Pacer
F-14
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
shareholders, with the balance paid by the issuance of approximately 2,255,000
shares of Class F common stock issued by AverStar and the fair value of options
exchanged in the transaction. The merger has been accounted for using the
purchase method of accounting, whereby assets and liabilities have been
allocated based upon their respective fair values, resulting in goodwill and
other intangible assets of approximately $12 million.
Unaudited pro forma revenue, net loss and loss per share shown below for the
ten month period ended December 31, 1997 and the year ended December 31, 1998
assumes the acquisition of Pacer occurred on March 1, 1997:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Revenue................................................ $95,519 $128,530
Income (loss) from continuing operations............... $ (403) $ 2,109
Net loss............................................... $(2,130) $ (3,013)
Net loss per share..................................... $ (0.55) $ (0.47)
</TABLE>
On March 18, 1999, the Company acquired all of the outstanding shares of
Computer Based Systems, Inc. (CBSI) for $26,000,000. The agreement provides for
$25,000,000 to be paid at the closing, with the balance paid equally over five
years. The transaction costs are estimated to be $600,000.
Note 3. Discontinued Operations
In December 1998, the Board of Directors of AverStar, Inc. adopted a plan to
divest of its 66% interest in Intermetrics Entertainment Software, Inc.'s (IES)
operation, which developed software games, by distributing such interest to
AverStar shareholders.
As part of the plan to dispose of IES, the Company converted approximately
$1.3 million of contributed capital into an 8.5% term loan due on December 31,
2001 and agreed to provide financing of up to $2 million pursuant to an 8.5%
revolving credit agreement. Under the terms of the revolving credit agreement,
no new borrowings may occur subsequent to December 31, 1999 and amounts
borrowed are due on December 31, 2001. Based upon forecasted operating results
for IES, AverStar management believes it is probable that the full amount
available will be drawn by IES and, further, management does not believe such
amounts which may become due under the term loan or revolving credit agreement
will be recoverable and, therefore, has assigned no value to them in the
accompanying financial statements. Any subsequent recovery of such amounts will
be reflected as a gain from discontinued operations at the time of such
recovery.
As of December 31, 1998, the liabilities of IES discontinued operations
exceeded its assets by $565,000, which is comprised of billed and unbilled
receivables of $4,200,000, other assets and equipment of $2,300,000, bank debt
of $3,900,000, accrued expenses of $1,500,000, and obligations to AverStar of
approximately $1,700,000. Included in the loss on disposal in 1998 is
approximately $500,000 of operating losses from the date the Plan was adopted
through the date of divestiture, which occurred on March 18, 1999.
In addition, interest of $293,000 was allocated to the loss from
discontinued operations based on the financing that was specifically attributed
to those operations.
Revenues from discontinued operations were $7,232,000 for the year ended
December 31, 1998 and $1,928,000 for the period from August 9 through December
31, 1997.
F-15
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4. Intangible Assets
The following represents the components of net intangible assets at December
31, 1997 and 1998 and their estimated useful lives:
<TABLE>
<CAPTION>
Estimated Useful Life December 31, 1997 December 31, 1998
--------------------- ----------------- -----------------
<S> <C> <C> <C>
Cost in excess of fair
value of net assets
acquired............... 15-20 years $488 $12,458
Contract backlog........ 18 months -- 256
Workforce............... 7 years -- 875
---- -------
$488 $13,589
==== =======
</TABLE>
Accumulated amortization relating to these intangible assets is $62,000 and
$1,005,000 at December 31, 1997 and 1998, respectively.
Note 5. Income Taxes
The provision for (benefit from) income taxes from continuing operations for
the year ended February 28, 1997 and the ten-month period ended December 31,
1997 and the year ended December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
February 28, 1997 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
($ in thousands)
<S> <C> <C> <C>
Current:
Federal............. $ 75 $117 $2,507
State............... 21 8 502
---- ---- ------
96 125 3,009
Deferred:
Federal............. (60) 63 (715)
State............... (18) (34) (126)
---- ---- ------
(78) 29 (841)
---- ---- ------
Total................. $ 18 $154 $2,168
==== ==== ======
</TABLE>
The following table reconciles the provision (benefit) for income taxes to
the amount computed by applying the statutory federal income tax rate to income
from continuing operations before the provision for (benefit from) income taxes
for the year ended February 28, 1997, the ten-month period ended December 31,
1997 and the year ended December 31, 1998:
<TABLE>
<CAPTION>
February 28, 1997 % December 31, 1997 % December 31, 1998 %
----------------- ---- ----------------- ---- ----------------- ----
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income tax
expense/(benefit) at
statutory rate......... $ 15 34.0% $120 34.0% $1,564 34.0%
State income tax (net).. 6 13.0 21 6.0 276 6.0
Non-deductible items.... (3) (7.0) 13 4.0 328 7.1
----- ---- ---- ---- ------ ----
Total................. $ 18 40.0% $154 44.0% $2,168 47.1%
===== ==== ======
Income taxes (refunded)
paid................... $(799) $418 $1,481
===== ==== ======
</TABLE>
F-16
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes arise from temporary differences between the tax bases
of assets and liabilities and their reported amounts in the financial
statements. The significant temporary differences included in net deferred tax
assets at December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998
----------------- -----------------
($ in thousands)
<S> <C> <C>
Accrued liabilities................... $ 530 $ 3,195
Accounts and unbilled receivables..... (1,874) (1,511)
Depreciation and amortization......... 370 766
Net operating loss.................... 312 --
Other................................. 662 78
------- -------
Deferred income tax asset............. $ -- $ 2,528
======= =======
</TABLE>
Note 6. Benefit Plans
The Company has a 401(k) profit-sharing plan that covers substantially all
employees and provides for a company matching contribution. As defined under
the Plan, employees are allowed to contribute the maximum established by law,
and the Company may match up to 4% of the employee's contribution. Expenses
relating to this Plan amounted to $402,000 for the year ended February 28,
1997, $784,000 for the ten-month period ended December 31, 1997 and $1,405,000
for the year ended December 31, 1998.
The Company has a noncontributory defined contribution plan that covered
substantially all employees of Pacer prior to the acquisition described in Note
2. Substantially all of the contributions have been invested in the Company's
common stock. At December 31, 1998, the Plan is dormant and the Company did not
incur any expense related to the Plan in 1998.
Note 7. Borrowings
At December 31, 1998, the Company has $24,333,000 of secured Senior Notes,
secured by substantially all of the Company's tangible and intangible assets,
and $5,000,000 of unsecured Subordinated Notes. The interest rate on the Senior
Notes of $7,833,000 is a variable rate based on the three-month London
Interbank Offered Rate (LIBOR) plus 3% (8.065% at December 31, 1998). The
interest rate on the Senior Bridge Notes of $16,500,000 is LIBOR plus 3% and
increases .5% each six months during the term. The interest rate on the
Subordinated Notes is fixed at 13% per annum. The Senior Notes contain
covenants and restrictions involving consolidated net worth, ratio of current
assets to current liabilities, fixed charge and interest coverage, limitations
on liens, restricted payments and investments, transactions with affiliates,
sale of assets, sale and leaseback transactions, and mergers and
consolidations.
The Company has a secured Senior Revolving Credit Agreement that provides
for aggregate borrowings of $5,000,000 maturing on August 31, 2001. The
revolving credit facility is available to finance general operating
requirements. The outstanding borrowings under this facility were $2,000,000 as
of December 31, 1997 and $2,500,000 as of December 31, 1998. The interest paid
on all borrowings was $1,255,000 for the ten-month period ended December 31,
1997 and $2,809,000 for the year ended December 31, 1998.
On March 18, 1999, simultaneous with the CBSI closing described in Note 2,
the Company entered into an agreement to provide up to $75,000,000 of secured
financing, based upon availability, comprised of $45,000,000 in Senior Term
Loans and a $30,000,000 revolving facility note. Expenses associated with the
financing are estimated to be $1,900,000. Proceeds from the financing agreement
will be used to pay CBSI shareholders, retire existing debt, and provide for
working capital requirements. The Senior Term Loans
F-17
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
comprise two tranches, the Term A Note of $15,000,000 matures March 17, 2004
and carries a variable interest rate of up to LIBOR plus 2.75% (7.815% at
December 31, 1998). The Term B Note of $30,000,000 matures March 17, 2005 and
carries a variable interest rate of LIBOR plus 3% (8.065% at December 31,
1998). The revolving facility note matures on March 17, 2004 and carries a
variable interest rate of up to LIBOR plus 2.75%. These agreements contain
covenants and restrictions pertaining to the maintenance of net worth and
certain ratios relating to operating results.
The following represents aggregate maturities of long term debt pursuant to
these borrowing arrangements:
<TABLE>
<S> <C>
1999......................................................... $ 1,500,000
2000......................................................... 2,700,000
2001......................................................... 3,600,000
2002......................................................... 4,200,000
2003......................................................... 4,500,000
Thereafter................................................. 33,500,000
-----------
$50,000,000
===========
</TABLE>
Note 8. Capital Stock
The following summarizes the classes of stock the Company has authorized
and issued as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Shares Authorized Shares Issued
-------------------- -------------------
Class of
Common Stock 1997 1998 1997 1998
------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C>
A--Voting........................... 1,943,727 2,280,471 1,847,687 1,847,687
A--Non-Voting....................... 91,470 105,190 84,152 84,152
B--Voting........................... 1,737,921 1,867,808 1,494,246 1,494,246
B--Non-Voting....................... 233,247 290,873 232,698 232,698
C--Voting........................... 146,350 182,939 146,352 146,352
D--Voting........................... 3,388,945 2,924,643 150,925 150,925
D--Non-Voting....................... 617,419 -- -- --
E--Voting........................... 73,176 91,470 73,176 73,176
F--Voting........................... -- 6,000,000 -- 2,334,697
G--Voting........................... -- 756,608 -- --
G--Non-Voting....................... -- 756,608 -- 605,286
Not designated...................... 914,695 1,743,390 -- --
--------- ---------- --------- ---------
Total Shares...................... 9,146,950 17,000,000 4,029,236 6,969,219
========= ========== ========= =========
</TABLE>
In connection with the merger of Apollo and Pacer as described in Note 2,
the Apollo stockholders agreed to exchange their shares of Class A, B, C, D,
E, and G into shares of AverStar at a ratio of approximately 4.6:1. Pacer
stockholders were given the choice of receiving $2.00 per share in cash or to
exchange their shares of Pacer into Class F shares of AverStar at a ratio of
approximately .5:1. Such issuance and conversions are reflected in the table.
F-18
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain classes of common stock noted above have provisions which require
the holders, in certain circumstances, to share a portion of proceeds received
upon the sale of such shares with holders of other classes of common stock.
Redeemable Common Stock
In connection with the acquisition described in Note 2, the Company granted
certain shareholders rights that require the company to purchase up to a
maximum number of shares of Class F--Voting common stock held by the
shareholders at $4.09 per share over a four year period. Shares that are not
redeemed in a year convert to shareholders' equity and the shareholders' rights
to redeem these shares expire. The 1998 activity and schedule of Class F--
Voting redeemable shares are as follows:
<TABLE>
<S> <C>
Beginning balance at February 28, 1998............................ 484,597
Lapsed in 1998.................................................. (24,450)
Redeemed in 1998................................................ (6,112)
-------
Balance at December 31, 1998...................................... 454,035
=======
</TABLE>
Class F--Voting redeemable shares and related maximum amounts redeemable
annually as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Shares Amount
---- ------- ----------
<S> <C> <C>
1999.................................................... 122,249 $ 500,000
2000.................................................... 137,531 562,500
2001.................................................... 194,255 794,500
------- ----------
Total................................................. 454,035 $1,857,000
======= ==========
</TABLE>
Certain Class F voting, redeemable shares serve as collateral on a note
receivable of approximately $850,000 issued to the Company by a former
employee. The note bears interest at 6.36% per annum with scheduled repayments
through May 2001. In the event the Class F shareholder presents certain shares
to the Company for redemption, the proceeds from such redemption are required
to be remitted to the Company in satisfaction of this note, which is included
in other assets in the accompanying balance sheet.
In addition to the redemption features of the Class F--Voting shares, the
Company has also granted to certain management shareholders the right to have
the Company redeem approximately 1,749,000 shares of Class A-F stock at certain
amounts, as defined. The estimated fair value of such redemption at December
31, 1998 is $3,941,225. The redemption of such shares is limited in the first
five years by amounts stipulated in the Stockholder Agreements. The shares are
subject to redemption at a price and upon terms as defined in the Stockholder
Agreements. Upon the occurrence of certain events, including an initial public
offering, the redemption features for all classes of stock lapse.
The Company holds Promissory Notes of $200,000 issued by certain employees
for the purchase of Class A Common Stock. The Notes, which are fully recourse
to the issuers and have been classified as a reduction of redeemable common
stock, bear interest at 7% per annum. Interest is payable semiannually or
annually, and the principal is scheduled for payment from March 2000 through
August 2005.
Note 9. Stock Options
The Company has a Long Term Incentive Plan (the Plan) pursuant to which the
Company may grant Incentive Stock Options, Non-qualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Stock Purchase Rights or
Other Stock-Based Awards.
F-19
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The maximum aggregate number of shares of Stock reserved and available for
distribution under the Plan shall be 3,349,447 shares of Stock, reduced by the
number of shares of Stock subject to being issued from time to time upon the
exercise of outstanding awards granted under the Plan. At December 31, 1998
there were 3,349,447 shares of stock reserved and available for distribution.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," and will continue to account for option grants to employees
under the Plan in accordance with APB No. 25, "Accounting for Stock Issued to
Employees." Adoption of SFAS No. 123 did not have a material impact on the
Company's financial statements and, accordingly, no pro forma net income has
been disclosed for the year ended February 28, 1997, the ten-month period ended
December 31, 1997 and the year ended December 31, 1998, for the compensation
expense of options grants which otherwise would be required under the
disclosure requirements of SFAS No. 123.
The fair market value of each option grant is estimated on the date using
the Minimum Value option-pricing model with the following weighted-average
assumptions used for grants issued in the year ended February 28, 1997, the
ten-month period ended December 31, 1997 and the year ended December 31, 1998:
<TABLE>
<CAPTION>
February 28, 1997 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Dividend yield.......... 0% 0% 0%
Expected lives (years).. 5 5 5
Range of risk-free
interest rates......... 5.70-6.29 5.70-6.37 6.22-6.36
</TABLE>
A summary of the status of AverStar's stock compensation plan as of February
28, 1997, December 31, 1997 and December 31, 1998 and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
February 28, 1997 December 31, 1997 December 31, 1998
----------------- ----------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed Options
Outstanding at beginning
of year................ 504,180 $1.37 533,908 $1.37 588,789 $1.37
Granted................. 29,728 1.37 54,881 1.37 -- --
Exchanged............... 845,086 3.29
Exercised............... -- -- -- -- (79,473) 1.10
Forfeited............... -- -- -- -- (30,969) 2.70
------- ------- ---------
Outstanding at end of
year................... 533,908 1.37 588,789 1.37 1,323,433 2.66
======= ======= =========
Options exercisable at
year-end............... -- 100,836 467,446
Weighted-average fair
market value of options
granted/exchanged
during the year........ $ 0 .37 $ 0.34 $ 0.94
</TABLE>
F-20
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options at December
31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Number Life Price Number Price
- --------------- --------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$1.08 to $2.11......... 617,372 8.8 years $1.56 240,441 $ 1.43
2.44 to 2.99......... 98,826 7.6 2.50 67,824 2.47
3.15 to 3.91......... 590,118 8.3 3.79 151,845 3.81
4.05 to 4.25......... 17,117 7.5 4.08 7,336 4.09
--------- ----------
1,323,433 8.5 2.66 467,446 2.40
========= ==========
</TABLE>
Note 10. Commitments and Contingencies
The Company leases certain equipment and operating facilities under non-
cancelable operating leases expiring at various dates through November 2004.
Most facilities have leases with renewable options of between three and five
years. Facilities and equipment rental expense charged to operations was
approximately $3,273,000 for the year ended December 31, 1998 and $1,766,000
for the ten-month period ended December 31, 1997 and $1,528,000 for the
twelve-month period ended February 28, 1997.
As of December 31, 1998, future minimum rental commitments under operating
leases were as follows:
<TABLE>
<CAPTION>
Fiscal Year Facilities Equipment Total
- ----------- ---------- --------- -------
<S> <C> <C> <C>
1999............................................... $ 3,110 $496 $ 3,606
2000............................................... 2,469 154 2,623
2001............................................... 2,168 27 2,195
2002............................................... 1,715 -- 1,715
2003............................................... 961 -- 961
Thereafter......................................... 198 -- 198
------- ---- -------
Total............................................ $10,621 $677 $11,298
======= ==== =======
</TABLE>
In connection with improvements made to leased office facilities, the
Company has issued standby letters of credit for $435,000 in favor of the
landlord.
Certain shareholders are entitled to receive fees for ongoing business
planning and consulting services under the terms of consulting agreements
between such shareholders and the Company, up to an aggregate annual amount of
$300,000. These consulting agreements terminate on August 31, 2002. Such fees
totaled $200,000 for the year ended February 28, 1997, $106,000 in the ten-
month period ended December 31, 1997 and $263,000 for the twelve-month period
ended December 31, 1998.
F-21
<PAGE>
AVERSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11. Earnings Per Share
The calculations of earnings per share are as follows:
<TABLE>
<CAPTION>
February 28, December 31, December 31,
1997 1997 1998
------------ ------------ ------------
(In thousands, except per-
share amounts)
<S> <C> <C> <C>
Numerator:
Income from continuing operations..... $ 27 $ 198 $2,434
Denominator:
Denominator for basic earnings per
share:
Weighted-average shares
outstanding........................ 3,878 3,865 6,428
Effect of dilutive securities:
Employee stock options................ 40 82 419
Warrants.............................. 605 605 --
----- ----- ------
645 687 419
Dilutive potential common shares:
Denominator for diluted earnings per
share:
Adjusted weighted-average shares
outstanding and assumed
conversions........................ 4,523 4,552 6,847
===== ===== ======
Basic earnings per share................ $0.01 $0.05 $ 0.38
===== ===== ======
Diluted earnings per share.............. $0.01 $0.04 $ 0.36
===== ===== ======
</TABLE>
Options to purchase 24,494 shares of common stock at December 31, 1998 were
outstanding but were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the average market
price of the common shares and, therefore, the effect would be anti-dilutive.
There were no shares of common stock excluded in the computation of diluted
earnings per share at February 28, 1997 and December 31, 1997.
F-22
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Computer Based Systems, Inc.
Fairfax, Virginia
We have audited the accompanying Balance Sheets of COMPUTER BASED SYSTEMS,
INC. (An S Corporation) as of December 31, 1997 and 1998, and the related
Statements of Operations, Other Comprehensive Income, Stockholders' Equity and
Cash Flows for the years then ended. 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. The financial
statements of COMPUTER BASED SYSTEMS, INC. as of December 31, 1996, were
audited by other auditors whose report dated April 18, 1997, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of COMPUTER BASED SYSTEMS,
INC. as of December 31, 1997 and 1998, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Aronson, Fetridge & Weigle
Rockville, Maryland
March 12, 1999
F-23
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Computer Based Systems, Inc.
We have audited the accompanying statements of operations, changes in
stockholders' equity and cash flows of Computer Based Systems, Inc. (a Virginia
corporation), for the year ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations, changes in stockholders'
equity and cash flows of Computer Based Systems, Inc., for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Vienna, Virginia
April, 18, 1997
F-24
<PAGE>
COMPUTER BASED SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 1).................. $ 215,120 $ 1,304,849
Marketable securities (Note 3)...................... 1,142,495 --
Accounts receivable--contracts (Notes 2 and 5)...... 11,184,784 12,310,839
Prepaid expenses.................................... 631,374 612,302
Current portion of notes and other receivables
(Note 4)........................................... 608,902 912,755
----------- -----------
Total current assets.............................. 13,782,675 15,140,745
----------- -----------
Property and Equipment, Net (Notes 1 And 5)
Office equipment and software....................... 1,315,634 1,378,002
Furniture and fixtures.............................. 409,589 410,868
Vehicles............................................ 138,954 71,135
Land and building................................... 2,455,184 2,455,184
Tenant improvements................................. 76,010 131,304
----------- -----------
Total............................................. 4,395,371 4,446,493
Less: Accumulated depreciation and amortization..... (1,437,934) (1,534,139)
----------- -----------
Net property and equipment........................ 2,957,437 2,912,354
----------- -----------
Other Assets
Deposits............................................ 52,374 62,831
Notes receivable, net of current portion (Note 4)... 88,851 25,831
----------- -----------
Total other assets................................ 141,225 88,662
----------- -----------
Total Assets...................................... $16,881,337 $18,141,761
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
ZBA account balance (Note 1)........................ $ -- $ 2,758,759
Note payable--line of credit (Note 5)............... 4,510,000 1,357,313
Current portion of long-term notes payable (Note
5)................................................. 592,681 514,588
Accounts payable.................................... 442,676 284,332
Accrued expenses and wages.......................... 1,805,577 2,310,533
Distributions payable............................... 128,131 --
Current portion of accrued rent payable (Note 9).... 55,725 46,208
Deferred income taxes (Note 1)...................... 1,136,881 1,136,881
----------- -----------
Total current liabilities........................ 8,671,671 8,408,614
----------- -----------
Long-term Liabilities, Net of Current Portion
Accrued rent payable (Note 9)....................... 334,600 341,002
Long-term notes payable (Note 5).................... 1,437,689 1,412,717
----------- -----------
Total long-term liabilities....................... 1,772,289 1,753,719
----------- -----------
Total liabilities................................. 10,443,960 10,162,333
----------- -----------
Commitments and Contingencies (Notes 7, 8, 9, 10 and
11) -- --
Stockholders' Equity (Note 12)
Common stock--$1 par value per share,
Voting--500,000 shares authorized, issued and
outstanding........................................ 500,000 500,000
Nonvoting--1,500,000 shares authorized, issued and
outstanding....................................... 1,500,000 1,500,000
Accumulated other comprehensive income
Unrealized losses on investments held as available
for sale (Note 3)................................. (74,918) --
Retained earnings................................... 4,512,295 5,979,428
----------- -----------
Total stockholders' equity........................ 6,437,377 7,979,428
----------- -----------
Total Liabilities and Stockholders' Equity....... $16,881,337 $18,141,761
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-25
<PAGE>
COMPUTER BASED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Contract Revenue and Other Income......... $23,052,976 $30,035,802 $40,685,426
----------- ----------- -----------
Costs and Expenses
Cost of contract service and sales...... 15,265,645 20,560,682 28,685,685
Selling, general and administrative..... 7,899,435 8,175,058 10,295,156
Interest................................ 226,422 195,332 237,452
----------- ----------- -----------
Total costs and expenses.............. 23,391,502 28,931,072 39,218,293
----------- ----------- -----------
Income (Loss) Before Income Taxes......... (338,526) 1,104,730 1,467,133
Federal and State Income Taxes (Note 1)... -- -- --
----------- ----------- -----------
Net Income (Loss)......................... $ (338,526) $ 1,104,730 $ 1,467,133
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-26
<PAGE>
COMPUTER BASED SYSTEMS, INC.
STATEMENTS OF OTHER COMPREHENSIVE INCOME
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Net Income (loss)............................. $(338,526) $1,104,730 $1,467,133
Other Comprehensive Income
Unrealized losses on investments held as
available for sale......................... -- (74,918) --
Adjustment for realized losses on
investments held as available for sale..... -- -- 74,918
--------- ---------- ----------
Comprehensive Income (loss)................... $(338,526) $1,029,812 $1,542,051
========= ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-27
<PAGE>
COMPUTER BASED SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
Voting Nonvoting Unrealized
Common Common Retained Loss on
Stock Stock Earnings Investment Total
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1996, as Restated
(Note 12).............. $500,000 $1,500,000 $3,831,241 $ -- $5,831,241
Distribution of Retained
Earnings Paid or
Accrued................ -- -- (85,150) -- (85,150)
Net Loss................ -- -- (338,526) -- (338,526)
-------- ---------- ---------- ------- ----------
Balance, December 31,
1996, as Restated
(Note 12).............. 500,000 1,500,000 3,407,565 -- 5,407,565
Unrealized Loss on
Investment (Note 3).... -- -- -- (74,918) (74,918)
Net Income.............. -- -- 1,104,730 -- 1,104,730
-------- ---------- ---------- ------- ----------
Balance, December 31,
1997................... 500,000 1,500,000 4,512,295 (74,918) 6,437,377
Adjustment for Realized
Gain on Investment
(Note 3)............... -- -- -- 74,918 74,918
Net Income.............. -- -- 1,467,133 -- 1,467,133
-------- ---------- ---------- ------- ----------
Balance, December 31,
1998................... $500,000 $1,500,000 $5,979,428 $ -- $7,979,428
======== ========== ========== ======= ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-28
<PAGE>
COMPUTER BASED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss)....................... $ (338,526) $ 1,104,730 $ 1,467,133
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities
Depreciation and amortization......... 190,306 209,915 232,172
Gain on sale of fixed assets.......... -- -- (5,542)
Gain on sale of marketable
securities........................... -- -- (712)
(Increase) decrease in
Accounts receivable--contracts....... 1,162,836 (3,026,280) (1,126,055)
Prepaid expenses..................... (473,810) 389,640 19,072
Other receivables.................... (114,228) -- --
Deposits............................. (37,182) (6,996) (10,457)
Increase (decrease) in
ZBA account balance.................. -- -- 2,758,759
Accounts payable..................... (88,625) 370,732 (158,344)
Accrued expenses and wages........... (140,779) 729,977 504,956
Accrued rent payable................. 23,361 2,034 (3,115)
---------- ----------- ------------
Net cash provided (used) by
operating activities............... 183,353 (226,248) 3,677,867
---------- ----------- ------------
Cash Flows from Investing Activities
Purchase of fixed assets................ (66,816) (446,221) (188,547)
Proceeds from sales of fixed assets..... -- -- 7,000
Advances under notes and other
receivables............................ (32,389) (368,610) (984,408)
Repayment of notes and other
receivables............................ -- 5,717 743,575
Purchase of marketable securities....... -- (1,217,413) (480,429)
Cash proceeds from sale of marketable
securities............................. -- -- 1,698,554
---------- ----------- ------------
Net cash provided (used) by investing
activities............................. (99,205) (2,026,527) 795,745
---------- ----------- ------------
Cash Flows from Financing Activities
Proceeds from line of credit............ -- 2,920,000 17,898,093
Curtailments of line of credit.......... 125,000 (485,000) (21,050,780)
Shareholder distributions paid.......... (52,378) (25,221) (128,131)
Payments of long-term debt.............. (25,116) (180,989) (203,065)
Proceeds on long-term debt.............. -- 30,000 100,000
---------- ----------- ------------
Net cash (used) provided by financing
activities............................ 47,506 2,258,790 (3,383,883)
---------- ----------- ------------
Net Increase in Cash.................... $ 131,654 $ 6,015 $ 1,089,729
Cash and Cash Equivalents, Beginning of
Year................................... 77,451 209,105 215,120
---------- ----------- ------------
Cash and Cash Equivalents, End of Year.. $ 209,105 $ 215,120 $ 1,304,849
========== =========== ============
Supplemental Cash Flow Information
Actual cash payments for:
Interest................................ $ 226,422 $ 195,332 $ 237,452
========== =========== ============
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-29
<PAGE>
COMPUTER BASED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
NOTE 1--Organization And Significant Accounting Policies
(A) Organization
Computer Based Systems, Inc. (CBSI) was incorporated in 1978 under the laws
of the Commonwealth of Virginia. The Company's primary business is providing
engineering, management and analytical services to principally civilian
agencies of the U.S. Government.
(B) Revenue recognition
Revenue from cost-type contracts is recognized as costs are incurred on the
basis of direct costs plus allowable indirect costs and an allocable portion of
a fixed fee.
Revenue from fixed-price type contracts is recognized under the percentage-
of-completion method of accounting with costs and estimated profits included in
contract revenue as work is performed. If actual and estimated costs to
complete a contract indicate a loss, provision is made currently for the loss
anticipated on the contract.
Revenue from time and materials contracts is recognized as costs are
incurred at amounts represented by the agreed-upon billing amounts.
Revenue recognized on contracts for which billings have not been presented
to customers at year end, is included in the Accounts receivable--contracts
classification on the Balance Sheets as detailed in Note 2.
(C) Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization
is provided using the straight-line method over the estimated useful lives of
the assets. The estimated lives used in determining depreciation and
amortization are:
<TABLE>
<S> <C>
Office equipment and software...... 5 years
Furniture and fixtures............. 7 years
Vehicles........................... 5 years
Tenant improvements................ shorter of term of lease or useful life
Building........................... 39 years
</TABLE>
(D) Income taxes
Effective January 1, 1990, the Company elected S-Corporation status whereby
the taxable income of the Company, subject to certain restrictions and
elections, is taxed directly to the Company's shareholders. The Company
continues to be liable for tax on built-in gains existing at the date of the
election which are primarily deferred taxable income from the Company's use of
the cash basis of accounting for income tax purposes, net of available net
operating loss and investment tax credit carryforwards. Such tax is payable to
the extent the Company would have otherwise paid income taxes on a C
Corporation basis during the ten-year period following the election. A deferred
tax liability has been provided in the accompanying financial statements for
this liability. The liability is classified as current due to the uncertainty
as to when this liability might be required to be paid.
F-30
<PAGE>
COMPUTER BASED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
NOTE 1--Organization And Significant Accounting Policies--(continued)
(E) Cash and cash equivalents
The Company maintains cash balances which may exceed Federally insured
limits. The Company does not believe that this results in any significant
credit risk.
For purposes of the financial statement presentation, the Company considers
all highly liquid debt instruments with initial maturities of ninety days or
less to be cash equivalents.
Beginning in 1998, the Company has a Money Management Zero Balance Account
(ZBA) arrangement for its checking account activity. Under this arrangement,
the bank automatically draws/repays the line of credit based upon the net daily
activity in the checking accounts and invests any excess cash balance
overnight. Therefore, checks not yet presented for payment are reflected on the
Balance Sheet as ZBA account balance which at December 31, 1998 was $2,758,759.
(F) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(G) Comprehensive income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement established standards for the reporting and display of
comprehensive income and its components in the financial statements. In
accordance with the provisions of this statement, the Company has included a
separate Statement of Other Comprehensive Income in the accompanying financial
statements. Comprehensive income for the years ended December 31, 1996 and 1997
has been presented for comparative purposes.
(H) Reclassifications
Certain 1996 amounts have been reclassified to conform to the 1997 and 1998
presentation.
NOTE 2--Accounts Receivable--Contracts
The accounts receivable consist mainly of billed and unbilled recoverable
amounts under contracts in progress with governmental units, principally with
four agencies of the Federal Government. Unbilled receivables consist primarily
of award fees earned on cost-reimbursement contracts earned during the year.
The components of accounts receivable at December 31, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Billed............................................... $10,896,170 $12,196,691
Unbilled............................................. 288,614 114,148
----------- -----------
Total.............................................. $11,184,784 $12,310,839
=========== ===========
</TABLE>
All billed and unbilled amounts are expected to be collected during the next
fiscal year. The accounts receivable are pledged to Crestar Bank as collateral
on the line of credit arrangement described in Note 5.
F-31
<PAGE>
COMPUTER BASED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
NOTE 3--Marketable Securities
The Company held marketable equity securities which are considered to be
available for sale as of December 31, 1997, as follows:
<TABLE>
<S> <C>
Fair market value............................................... $ 1,142,495
Cost of securities.............................................. $(1,217,413)
-----------
Net unrealized loss............................................. $ (74,918)
===========
</TABLE>
During 1998, the Company sold the securities and realized a gain of $712.
As of December 31, 1997, the aggregate unrealized loss on marketable
securities was $101,386 and the aggregate unrealized gain was $26,468 which
resulted in the net unrealized loss of $74,918 which has been reflected as a
separate component of stockholders' equity in the accompanying financial
statements. Realized gains and losses are determined using the specific
identification method to determine cost.
NOTE 4--Notes and Other Receivables
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Note receivable from two stockholders, bearing
interest at 7%, due on demand, paid in 1998.......... $ 67,770 $ --
Note receivable from affiliated company (Note 6),
bearing interest at 8%, payable in monthly
installments of $649, including interest, final
payment due May 2001................................. 22,715 22,715
Due from affiliate (Note 6)........................... 457,345 681,003
Advances and other receivables........................ 149,923 234,868
--------- ---------
Total............................................... 697,753 938,586
Less: Current portion................................. (608,902) (912,755)
--------- ---------
Long-term portion................................... $ 88,851 $ 25,831
========= =========
</TABLE>
NOTE 5--Notes Payable
(A) Line of Credit
At December 31, 1997 and 1998, the Company had a line of credit with Crestar
Bank which had a maximum amount available of $5,000,000. Under the terms of the
line of credit, interest is payable monthly at the bank's prime rate. The line
is secured by all accounts receivable and equipment. In addition, the agreement
requires the Company to maintain a minimum taxable net worth, which the Company
was in compliance with at December 31, 1997 and 1998. The outstanding balance
at December 31, 1997 and 1998 was $4,510,000 and $1,357,313, respectively.
F-32
<PAGE>
COMPUTER BASED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
NOTE 5--Note Payable--(Continued)
(B) Long-term debt
At December 31, 1997 and 1998, long-term debt was as follows.
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Notes payable to shareholders, due upon demand with
interest ranging from 7% to 10%, uncollateralized.. $ 490,000 $ 490,000
Notes payable to relatives of the shareholders due
upon demand; with interest ranging from 7.5% to
10%; uncollateralized, paid off in 1998............ 80,000 --
Note payable to bank; balloon payment due in 2002
with interest at 8.10%; monthly principal and
interest payments of $11,677; collateralized by a
building and land.................................. 1,460,370 1,437,305
---------- ----------
Total............................................. 2,030,370 1,927,305
Less: Current portion............................... (592,681) (514,588)
---------- ----------
Long-term debt.................................... $1,437,689 $1,412,717
========== ==========
</TABLE>
The aggregate amount of principal payments due as of December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
----------- ----------
<S> <C>
1999.............................................................. $ 514,588
2000.............................................................. 26,320
2001.............................................................. 28,868
2002.............................................................. 1,357,529
----------
Total........................................................... $1,927,305
==========
</TABLE>
(C) Letters of Credit
The Company is contingently liable under irrevocable letters of credit
aggregating approximately $56,000 at December 31, 1998. The letters of credit
expire in March 1999.
NOTE 6--Related Party Transactions
CBSI owns a rental real estate property which is managed, at no cost, by a
Company which is owned by the shareholders of CBSI. The 1996, 1997 and 1998 net
earnings of approximately $181,000, $203,000 and $181,000, respectively, are
included in other income on the statements of operations. As of December 31,
1997 and 1998, the Company had a net intercompany receivable of $457,345 and
$681,003, respectively, due from the management company. There are no specific
repayment terms on these amounts due from the management company.
During 1996 and 1997, the Company paid $34,000 and $22,000, respectively, in
consulting fees to a Company owned by an officer/shareholder. The Company paid
no such consulting fees during 1998.
F-33
<PAGE>
COMPUTER BASED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
NOTE 6--Related Party Transactions
In addition, at December 31, 1996 and 1997, the Company had interest bearing
notes receivable (Note 4) with stockholders of the Company in the amount of
$53,500 and $67,770, respectively. The notes were due on demand or on a
specific future date and were repaid during 1998.
NOTE 7--Retirement Plan
The Company maintains a qualified profit sharing plan with a 401(k) deferred
contribution option for all present and future employees that have reached 21
years of age and are employed on the first day of any calendar quarter with the
Company. The annual contribution to the profit sharing plan is determined by
the Board of Directors with the maximum contributions equal to the maximum
allowed by Internal Revenue Service regulations, which at the present time is
15% of gross salaries. There was no profit sharing contribution for 1996, 1997
and 1998.
The participants in the 401(k) deferred contribution option may elect to
contribute from 1% to 17.5% of their gross annual earnings up to $7,000, as
indexed for inflation. The Company may, at its discretion, make a matching
contribution of each participants contributions. Employees become fully vested
in the Company's contributions at the rate of 20% per year after three years
and are fully vested after seven years. Participants are fully vested in their
voluntary contributions. For the years ended December 31, 1996, 1997 and 1998,
the Company's matching contribution was $53,000, $12,112 and $94,620 net of
forfeitures of $69,933, $86,810 and $54,351, respectively.
NOTE 8--Self Insurance
The Company maintains a self-insurance program for certain health care costs
of its employees. The Company is liable for claims of up to $75,000 for the
year ended December 31, 1996 and $50,000 per employee annually for the years
ended December 31, 1997 and 1998, and aggregate claims up to $1,500,000
annually. Self-insurance costs are accrued based upon the aggregate of the
liability for reported claims and an actuarially determined estimated liability
for claims incurred but not reported. Total expense under the program for the
years ended December 31, 1996, 1997 and 1998, was approximately $814,000,
$597,000 and $730,000, respectively.
NOTE 9--Leases
The Company is obligated under certain noncancelable operating leases for
facilities and equipment. The following is a schedule by years of the
approximate future minimum rental payments required under operating leases that
have an initial and remaining noncancelable lease term of one year or more as
of December 31, 1998:
<TABLE>
<CAPTION>
Year Ending Office Office
December 31 Space Subleases Furniture Total
----------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
1999......................... 1,365,890 (279,290) (60,417) 1,026,183
2000......................... 1,387,622 (221,329) (60,417) 1,105,876
2001......................... 1,407,018 (180,138) (60,417) 1,166,463
2002......................... 1,316,122 (180,138) (60,417) 1,075,567
2003......................... 964,802 (142,609) (60,417) 761,776
Thereafter................... 18,218 (15,012) (5,035) (1,829)
---------- ----------- --------- ----------
Total...................... $6,459,672 $(1,018,516) $(307,120) $5,134,036
========== =========== ========= ==========
</TABLE>
F-34
<PAGE>
COMPUTER BASED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998
NOTE 9--Leases--(continued)
Total rental expense under all leases, net of sublease income, charged to
operations for the years ended December 31, 1996, 1997 and 1998, was
approximately $1,285,000, $1,133,000 and $1,220,000, respectively. In addition,
the Company received approximately $140,000, $286,000 and $349,000 in rental
income during the years ended December 31, 1996, 1997 and 1998, respectively,
from sublease agreements. During 1997, the Company entered into an agreement to
lease office furniture to one of its tenants which resulted in income from
furniture rental of $66,417 and $60,417 for the years ended December 31, 1997
and 1998, respectively.
Certain leases have escalation clauses and rent for certain office space was
abated by a lessor for approximately four months. The Company has recorded rent
on a straight-line basis based upon the total of lease payments to be paid over
the life of the leases. The straight-line recognition of rent expense has
created a deferred rent payable which will be paid over the remaining life of
these leases.
NOTE 10--Contracts
Billings under cost-based government contracts are calculated using
provisional rates that permit recovery of indirect costs. These rates are
subject to audit on an annual basis by the government agencies' cognizant audit
agency. The cost audit will result in the negotiation and determination of the
final indirect cost rates that the Company may use for the period(s) audited.
The final rates, if different from the provisionals, may create an additional
receivable or liability.
As of December 31, 1998, the Company has final settlements on indirect rates
through December 31, 1995. The Company periodically reviews its cost estimates
and experience rates, and adjustments, if needed, are made and reflected in the
period in which the estimates are revised. In the opinion of management,
redetermination of any cost-based contracts will not have a material effect on
the Company's financial position or results of operations.
NOTE 11--Subsequent Event
As of December 31, 1998, the Company had entered into a letter of intent for
the sale of the Company. On January 31, 1999, the Company signed an agreement
and Plan of Merger with the acquiring company.
NOTE 12--Restatement Of Stockholder's Equity
During 1998, the Company corrected an error to the par value of its voting
and non-voting common stock. During 1996, the financial statements reflected a
par value of $.01 per share for voting and non-voting common stock. The error
has been corrected by restating the components of stockholders' equity as of
January 1, 1996 to reflect $1 par value of voting and non-voting common stock.
F-35
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders of Pacer Infotec, Inc.
We have audited the accompanying consolidated balance sheets of Pacer
Infotec, Inc. and subsidiaries (the Company) as of December 31, 1996 and 1997
and the related consolidated statements of operations, stockholders equity, and
cash flows for the years ended December 31, 1996 and 1997 and the period from
January 1, 1998 to February 28, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pacer Infotec,
Inc. and subsidiaries at December 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1996 and 1997 and the period from January 1, 1998 to February 28, 1998 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
April 17, 1998
F-36
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 140,224 $ 48,234
Customer accounts receivable....................... 10,449,685 5,556,779
Unbilled amounts on contracts in process........... 6,837,843 5,443,807
Inventory.......................................... 159,055 172,566
Prepaid expenses and other current assets.......... 915,186 472,024
Deferred income taxes.............................. -- 573,800
Refundable income taxes............................ 681,002 --
----------- -----------
Total current assets............................. 19,182,995 12,267,210
Property, equipment and leasehold improvements:
Land............................................... 89,800 89,800
Building and improvements.......................... 884,872 751,827
Furniture and equipment............................ 3,613,619 4,181,279
----------- -----------
4,588,291 5,022,906
Less allowance for depreciation..................... (2,671,392) (3,248,496)
----------- -----------
1,916,899 1,774,410
Other assets:
Deferred income taxes.............................. 339,000 1,094,500
Cost in excess of net assets acquired of business
acquired, net of amortization of $87,795 and
$413,970 at December 31, 1996 and 1997............ 4,246,477 5,430,303
Notes receivable from stockholders................. 1,238,102 1,160,960
Deposits, notes receivable and other assets........ 1,021,036 1,072,467
----------- -----------
6,844,615 8,758,230
----------- -----------
Total assets......................................... $27,944,509 $22,799,850
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to affiliate...............................
Accounts payable and accrued expenses.............. $ 7,699,526 $ 7,011,660
Notes payable to bank.............................. 7,500,000 4,300,000
Compensation and related payroll taxes............. 2,739,476 2,433,342
Federal and state income taxes..................... -- 161,317
Deferred income taxes.............................. 111,000 --
Current portion of long-term debt.................. 210,282 207,749
----------- -----------
Total current liabilities........................ 18,260,284 14,114,068
Long-term debt: 400,000 200,000
Stockholders' equity:
Common stock, $.01 par value per share--authorized
15,000,000 shares at December 31, 1996 and 1997,
issued and outstanding 7,962,339 shares at
December 31, 1996, and 8,086,716 at December 31,
1997 respectively................................. 79,623 80,867
Additional paid-in capital......................... 5,997,196 6,120,065
Retained earnings.................................. 3,207,406 2,284,850
----------- -----------
Total stockholders' equity....................... 9,284,225 8,485,782
----------- -----------
Total liabilities and stockholders' equity....... $27,944,509 $22,799,850
=========== ===========
</TABLE>
See accompanying notes.
F-37
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
January 1,
Year ended December 31, 1998 to
----------------------- February 28,
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Contract revenues and other income...... $41,337,214 $51,708,445 7,478,506
Costs and expenses:
Cost of contract service and product
sales................................ 33,794,564 42,874,426 6,229,752
Selling, general and administrative... 5,685,093 7,976,362 1,179,496
Interest.............................. 381,056 636,026 65,252
----------- ----------- ---------
39,860,713 51,486,814 7,474,500
----------- ----------- ---------
Earnings before income taxes............ 1,476,501 221,631 4,006
Federal and state income taxes.......... 622,000 384,000 4,000
----------- ----------- ---------
Net earnings (loss)..................... $ 854,501 $ (162,369) $ 6
=========== =========== =========
Net earnings (loss) per share:
Basic................................. $ .13 $ (.02) $ .00
=========== =========== =========
Diluted............................... $ .13 $ (.02) $ .00
=========== =========== =========
Shares used in computing net earnings
(loss) per share:
Basic................................. 6,392,566 8,013,599 8,086,716
=========== =========== =========
Diluted............................... 6,687,051 8,013,599 8,343,953
=========== =========== =========
</TABLE>
See accompanying notes.
F-38
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995..................... 5,267,588 $52,676 $2,283,400 $2,537,498 $4,873,574
Exercise of options..... 6,500 65 4,010 -- 4,075
Issuance of shares in
connection with
acquisition............ 2,688,251 26,882 3,709,786 -- 3,736,668
Cash dividends.......... -- -- -- (184,593) (184,593)
Net earnings............ -- -- -- 854,501 854,501
--------- ------- ---------- ---------- ----------
Balance at December 31,
1996..................... 7,962,339 79,623 5,997,196 3,207,406 9,284,225
Exercise of options..... 124,377 1,244 122,869 -- 124,113
Cash dividends.......... -- -- -- (760,187) (760,187)
Net loss................ -- -- -- (162,369) (162,369)
--------- ------- ---------- ---------- ----------
Balance at December 31,
1997..................... 8,086,716 $80,867 $6,120,065 $2,284,850 $8,485,782
Net earnings............ -- -- -- 6 6
--------- ------- ---------- ---------- ----------
Balance at February 28,
1998..................... 8,086,716 $80,867 $6,120,065 $2,284,856 $8,485,788
========= ======= ========== ========== ==========
</TABLE>
See accompanying notes.
F-39
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period from
January 1,
Year ended December 31 1998 to
------------------------ February
1996 1997 28, 1998
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net earnings (loss)..................................... $ 854,501 $ (162,369) $ 6
Adjustments to reconcile net earnings (loss) to net cash
flows provided by operations:
Depreciation and amortization......................... 602,927 948,617 135,966
Deferred income tax benefit........................... (764,000) (653,100) --
Changes in operating assets and liabilities, net of
effect of acquisition:
Customer accounts receivable and unbilled amounts on
contracts in process................................. 1,600,068 5,786,942 591,299
Inventory............................................. 155,441 (13,511) (107,313)
Accounts payable and accrued expenses................. (1,715,131) (2,374,020) (920,616)
Compensation and related payroll taxes................ -- (306,135) 428,886
Income taxes.......................................... 899,972 731,319 4,000
Prepaid expenses and other assets..................... 18,601 443,087 30,017
----------- ----------- -----------
Net cash provided by operating activities............... 1,652,379 4,400,830 162,245
Investing activities
Costs incurred in connection with acquisition, including
reduction of notes payable of acquired business, less
cash acquired of $354,435.............................. (4,032,713) -- --
Acquisition of equipment and leaseholds................. (276,466) (455,520) (20,398)
Deposits and investment in other assets, net............ 53,096 1,307 3,380
----------- ----------- -----------
Net cash used in investing activities................... (4,256,083) (454,213) (17,018)
Financing activities
Cash received in connection with merger................. -- -- 16,500,000
Issuance of common stock................................ 4,075 124,113 --
Notes payable to bank repayments........................ -- (3,200,000) (4,300,000)
Net repayment of long-term debt)........................ (180,714) (202,533) --
Cash dividends.......................................... (184,593) (760,187) --
----------- ----------- -----------
Net cash provided by (used in) financing activities..... (361,232) (4,038,607) 12,200,000
----------- ----------- -----------
Net increase in cash and cash equivalents............... (2,964,936) (91,990) 12,345,227
Cash and cash equivalents at beginning of period........ 3,105,160 140,224 48,234
----------- ----------- -----------
Cash and cash equivalents at end of period.............. $ 140,224 $ 48,234 $12,393,461
=========== =========== ===========
</TABLE>
See accompanying notes.
F-40
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of Pacer Infotec, Inc. (formerly Pacer
Systems, Inc.) and subsidiaries (collectively, the Company) include the
accounts of the Company and its wholly-owned subsidiaries, Computing
Applications Software Technology, Inc. (CAST), acquired in 1992, and Infotec
Development, Inc. (IDI), which was merged with Pacer Systems, Inc. in 1996 by
way of acquisition. In connection with this merger, the Company's name was
changed to Pacer Infotec, Inc. All significant intercompany transactions have
been eliminated in consolidation. On February 27, 1998, the Company merged with
Apollo Holding, Inc. (see Note 2).
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less from the date acquired to be cash equivalents.
Inventory
Inventory, principally electrical and mechanical components and assemblies,
is stated at the lower of cost or market. Cost is determined using the first-
in, first-out (FIFO) method.
Property and Equipment
Property and equipment are valued at historical cost or fair value if
obtained in connection with an acquisition. Depreciation of office building,
furniture and equipment is provided for over the estimated useful lives of the
assets, which range from five to thirty years. Amortization of leasehold
improvements is provided for over the term of the lease or their estimated
useful lives, whichever is shorter. Depreciation and amortization are
calculated on the straight-line basis for financial reporting purposes.
Cost in Excess of Net Assets of Business Acquired
This balance represents the excess of the value of shares issued and other
costs incurred over the fair value of the net assets acquired of IDI. The
excess cost is being amortized using the straight-line method over 20 years.
Impairment of Long-Lived Assets
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." SFAS No. 121 requires recognition of impairment losses on long-
lived assets when indicators of impairment losses on long-lived assets are
present and future undiscounted cash flows are insufficient to support the
assets' recovery. Adoption of SFAS No. 121 had no material impact on the
Company's financial statements.
Revenue Recognition
A major portion of the Company's sales consists of revenues earned from
long-term professional engineering service and other contracts, principally
with U.S. Government agencies. The Company recognizes revenue as services are
performed or the percentage-of-completion method based upon the terms of the
contracts. Sales of air data systems are recognized as revenue at the time of
shipment.
F-41
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
1. Significant Accounting Policies--(continued)
Risks and Uncertainties
Concentration of Credit Risk
Financial instruments which subject the Company to credit risk consist of
cash equivalents and accounts receivable. The risk with respect to cash
equivalents is minimized by the Company's policies in which investments are
only placed with highly rated issuers with relatively short maturities. The
risk with respect to accounts receivable is minimized due to the fact that
customer accounts and unbilled receivables represent amounts earned under the
Company's contracts, which are principally with U.S. Government agencies.
Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates and assumptions are required by
management in the area of determining contract completion. Significant
estimates and assumptions have also been made by management in connection with
the merger discussed in Note 2. Actual results could differ from those
estimates.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes." This
method requires income taxes to be recognized based on income taxes currently
payable and the change in deferred taxes during the year. Deferred taxes are
recognized based on the temporary differences between the financial statement
and tax bases of assets and liabilities at enacted tax rates as of the dates
the differences are expected to reverse.
Earnings per Share
In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share." SFAS No. 128 establishes criteria for
calculating basic earnings per share in which the dilutive effect of stock
options is excluded, and requires restatement of all prior period earnings per
share data presented. Adoption of SFAS No. 128 did not have a material impact
on the Company's financial statements.
Basic earnings per share is computed using the weighted-average number of
common shares outstanding during the year. Diluted earnings per share includes
the effect of all potentially dilutive securities.
Reclassification
Certain amounts at December 31, 1996 have been reclassified to permit
comparison with December 31, 1997.
Stock-Based Compensation
The Company accounts for stock option grants to employees in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees."
F-42
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
1. Significant Accounting Policies--(continued)
Accounting Pronouncements
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which is effective for all financial statements
beginning after December 15, 1997. Under SFAS No. 130, the Company is required
to report and display comprehensive income and its components in a full set of
general purpose financial statements and to reclassify earlier periods provided
for comparative purposes. For the period from January 1, 1998 to February 28,
1998, net earnings and comprehensive income are the same.
In 1997, the Financial Accounting Standards Board issued statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information," or SFAS
131, which was required to be adopted for fiscal years beginning after December
15, 1997, SFAS 131, superseded SFAS No. 14, "Financial Reporting for Segments
of a Business Enterprise." This statement changes the way public companies
report segment information in annual financial statements. SFAS 131 requires
public companies to report financial and descriptive information about their
operating segments in interim financial reports to shareholders as well. The
adoption of this Statement had no impact on the disclosures in the Company's
financial statements as the Company has once reportable segment.
2. Business Combination
On June 28, 1996, Pacer Systems, Inc. (Pacer) and IDI entered into an
Agreement of Merger and Plan of Reorganization (Merger Agreement) in which each
share of IDI common stock was exchanged for 4.1856 shares of Pacer. In
accordance with the Merger Agreement, and subsequent modifications, 2,688,251
shares of stock were issued by Pacer and exchanged for all the outstanding
common stock of IDI. In connection with the merger, Pacer changed its name to
Pacer Infotec, Inc. The merger has been accounted for under the purchase method
and, accordingly, the fair value of the shares and costs including professional
fees and certain liabilities, principally related to severance arrangements,
incurred in connection with the merger have been allocated to the net assets of
IDI based upon their fair value. The excess of the cost over fair value of net
assets is being amortized over 20 years on a straight-line basis. The operating
results of IDI have been included in the Company's consolidated financial
statements from July 25, 1996, the effective date of the merger. As previously
discussed, management allocated the cost of the acquisition to the net assets
of IDI based on its estimate of their fair value. Significant estimates were
made with respect to the fair value of unbilled receivables recoverable under
certain contracts which are subject to final settlement with the U.S.
Government agencies. Although at the date of the merger management believed its
estimates to be appropriate, the final resolution of actual amounts due in
connection with these contract settlements differed from the estimates. As a
result, the Company increased costs in excess of net assets at December 31,
1997 by $857,651 to reflect the final resolution of these estimates.
In connection with the merger, certain stockholders of IDI executed new
promissory notes representing principal and accrued interest owed to IDI on
notes entered into in previous years in exchange for cash. The promissory notes
bear interest at 6.3 6%, mature at various dates ranging from 1997 to 2001 and
are collateralized by shares of the Company owned by these stockholders.
F-43
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
On February 27, 1998, Pacer Infotec, Inc. and Apollo Holding, Inc. merged to
form AverStar, Inc. (AverStar), a newly formed corporation. The merger was
consummated by the contribution of approximately 4.6 million shares of common
stock of Pacer Infotec, Inc. and all of the outstanding shares of Apollo
Holding, Inc. As a result, the Company's business and operations will be
combined into AverStar, Inc. In connection with the merger, AverStar provided
cash to the Company to reduce its bank debt (see Note 3). In addition, AverStar
will pay approximately $7 million to redeem the remaining 3.5 million
outstanding shares of Pacer Infotec, Inc. publicly registered common stock on
the London Stock Exchange. The Company terminated its listing on the London
Stock Exchange on February 27, 1998.
3. Financing Arrangements
In July 1996, in connection with the acquisition discussed in Note 2, the
Company entered into a revolving credit agreement (Agreement) with its bank
which permits borrowings up to $12,000,000 based on specified levels of billed
and unbilled accounts receivable on contracts in process. At the date of the
merger, approximately $11,000,000 of IDI debt was repaid from $7,500,000 of
proceeds from borrowings under the
Agreement and the Company's existing cash balances. Borrowings are due on
demand and bear interest at the bank's prime lending rate plus 1.75% (10% at
December 31, 1997). Substantially all of the Company's assets are secured as
collateral under the Agreement.
The Agreement as amended in January 1997, includes certain quarterly and
annual operating and net worth covenants. The Agreement expires on June 30,
1998. At December 31, 1996 and 1997, $7,500,000 and $4,300,000 were outstanding
under the Agreement.
On February 27, 1998, the Company, in connection with its acquisition
disclosed in Note 2, canceled the Agreement by paying its outstanding line of
credit balance.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
-------------------
1996 1997
--------- --------
<S> <C> <C>
Obligation under settlement agreement, payable in
annual installments of $200,000 bearing interest at
8%.................................................. $ 600,000 $400,000
Other................................................ 10,282 7,749
--------- --------
610,282 407,749
Less current portion................................. (210,282) (207,749)
--------- --------
$ 400,000 $200,000
========= ========
</TABLE>
Future maturities of long-term debt are as follows: 1998--$207,240 and
1999--$200,000.
The carrying value of the Company's debt approximates fair value. Interest
paid for the years ended December 31, 1996 and 1997 and the period from January
1, 1998 to February 28, 1998 approximates interest expense.
4. Stock Options
The Company has an Incentive Stock Option Plan (the Plan). Under terms of
the Plan, as amended, options may be granted to key employees to purchase up to
3,000,000 shares of common stock at prices not less than fair market value at
date of grant. The options expire up to ten years from date of grant, or upon
termination of employment, and are exercisable in installments based on vesting
schedules approved by the Board of Directors.
F-44
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
The Company has adopted the disclosure provisions only of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based-
Compensation," and will continue to account for option grants to employees
under the Plan in accordance with APB No. 25, "Accounting for Stock Issued to
Employees." Adoption of SFAS No. 123 would not have a material impact on the
Company's financial statements and, accordingly, no pro forma net income has
been disclosed for the years ended December 31, 1997 and for the period from
January 1, 1998 to February 28, 1998 and for the compensation expense of option
grants which otherwise would be required under the disclosure requirements of
SFAS No. 123.
4. Stock Options--(continued)
Information regarding options under the Plan is summarized below:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Shares Price
--------- ---------
<S> <C> <C>
Balance at December 31, 1995.......................... 351,200 $0.74
Granted............................................. 35,000 2.08
Exercised........................................... (6,500) 0.63
Canceled............................................ (7,500) 0.96
Exchanged for options of IDI........................ 740,849 1.67
---------
Balance at December 31, 1996.......................... 1,113,049 1.37
Granted............................................. 785,000 1.85
Exercised........................................... (124,377) 1.00
Canceled............................................ (45,700) .95
---------
Balance at December 31, 1997.......................... 1,727,972 1.61
---------
Granted............................................. --
Canceled............................................ --
Balance at February 28, 1998.......................... 1,727,972 $1.61
=========
</TABLE>
The options for 740,849 shares of the Company's common stock were issued in
exchange for all of the outstanding options of IDI at the merger date. The
number of shares and exercise prices were adjusted based upon the exchange
ratio of 4.1856 described in Note 2. At December 31, 1996, December 31, 1997
and February 28, 1998, options for the purchase of 947,482, 1,722,972 and
1,727,972 shares, respectively, were exercisable with weighted average exercise
prices of $.93, $1.61 and $1.45, respectively. Exercise prices for options
outstanding as of February 28, 1998 ranged from $0.53 to $2.08. The weighted
average remaining contractual life of options outstanding at February 28, 1998
is 6.67.
5. Retirement Plans
Defined Contribution Plan
The Company has a 401(k) profit-sharing plan which covers substantially all
employees and provides for a Company matching contribution. As defined under
the plan, employees are allowed to contribute the maximum established by law,
and the Company may match up to 4% of the employee's compensation. The
Company's expense relating to this plan amounted to $289,975 for the year ended
December 31, 1996, $499,983 for the year ended December 31, 1997 and $96,679
for the period January 1, 1998 to February 28, 1998.
F-45
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
Employee Stock Bonus Plan
The Company has a noncontributory defined contribution plan which covers
substantially all employees and provides for an annual discretionary
contribution by the Company as determined by the Board of Directors based on
the Company's performance. The contribution is allocated among participating
employees in proportion to each participant's basic annual salary, as defined
in the plan. Substantially all of the Company's contributions will be invested
in the Company's common stock. The Company recognized $132,000 for the year
ended December 31, 1996 and $157,004 of expense for the year ended December 31,
1997 and did not recognize any expense for the period from January 1, 1998 to
February 28, 1998 related to the plan.
6. Leases
The Company leases office space, office equipment and automobiles which have
been accounted for as operating leases. The base agreements expire at various
times through 2003. Total rent expense amounted to $996,019 for the year ended
December 31, 1996, $1,504,925 for the year ended December 31, 1997 and $230,592
for the period from January 1, 1998 to February 28, 1998, respectively. The
future minimum annual rental commitments under these long-term noncancelable
leases are as follows:
<TABLE>
<C> <S> <C>
Year ending December 31, 1998.............. $1,460,856
1999.............. 1,275,082
2000.............. 854,963
2001.............. 617,114
2002.............. 288,655
Thereafter........ 188,264
----------
$4,684,934
==========
</TABLE>
7. Income Taxes
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1997
----------- ----------
<S> <C> <C>
Deferred tax asset (liability):
Cash to accrual method.......................... $(1,018,000) $ --
Depreciation and amortization................... 339,000 243,100
Contracts in progress........................... 92,000 925,600
Compensation.................................... 605,000 399,700
Other........................................... 210,000 99,900
----------- ----------
Net deferred tax asset............................ 228,000 1,668,300
Net current deferred (asset) liability............ 111,000 (573,800)
----------- ----------
Noncurrent net deferred tax asset................. $ 339,000 $1,094,500
=========== ==========
</TABLE>
In connection with the merger described in Note 2, the Company assumed a net
deferred tax liability, the most significant component of which related to the
change in 1993 by IDI from the cash to the accrual method of reporting taxable
income. The effect of this change has been included in taxable income ratably
over tax reporting periods beginning in 1993 and ending February 28, 1998. In
addition, due to significant losses of IDI incurred prior to the merger, the
Company was entitled to refundable income taxes of approximately $1,533,000 as
of December 31, 1996. These refundable income taxes have been included in the
accompanying
F-46
<PAGE>
PACER INFOTEC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
1996 balance sheet net of federal and state taxes otherwise payable by the
Company. In addition, in 1997, as a result of the final resolution of amounts
due under certain IDI contracts assumed as of the acquisition, the Company
recognized a deferred tax asset of $787,200 in connection with the final
adjustment of costs in excess of net assets of IDI acquired.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Current:
Federal......................................... $1,113,000 $ 787,000
State........................................... 273,000 250,100
---------- ---------
1,386,000 1,037,100
Deferred benefit, principally federal............. (764,000) (653,100)
---------- ---------
$ 622,000 $ 384,000
========== =========
</TABLE>
The Company's tax provision for the period from January 1, 1998 to February
28, 1998 exceeds the statutory rate due to the amortization of the excess of
costs over net assets acquired, which are not deductible for income tax
purposes.
The 1997 effective income tax rate is higher than the expected statutory
rate due to amortization of the excess of costs over net assets acquired and
merger-related costs (see Note 8) which are not deductible for income tax
reporting purposes.
The Company made payments of approximately $571,000 for the year ended
December 31, 1996, $1,295,000 for the year ended December 31, 1997 and did not
make any income tax payments from January 1, 1998 to February 28, 1998.
F-47
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. Nei-
ther AverStar, any selling stockholder nor any underwriter has authorized any-
one to provide prospective investors with different or additional information.
This prospectus is not an offer to sell nor is it seeking an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
The information contained in this prospectus is correct only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or any
sale of these securities.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
The Offering............................................................. 3
Summary Financial Data................................................... 4
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 25
Management............................................................... 37
Principal and Selling Stockholders....................................... 46
Certain Relationships and Related-Party Transactions..................... 48
Shares Eligible For Future Sale.......................................... 54
Underwriting............................................................. 56
Legal Matters............................................................ 58
Experts.................................................................. 58
Where You Can Find Additional Information................................ 58
</TABLE>
-------------------
Until , 1999 (25 days after the date of this prospectus), all dealers
effecting transactions in the common stock, whether or not participating in
this distribution, may be required to deliver a prospectus. This delivery re-
quirement is in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
AVERSTAR, INC.
Common Stock
-----------------------------------
PROSPECTUS
-----------------------------------
Bear, Stearns & Co. Inc.
Legg Mason Wood Walker
Incorporated
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown
are estimates, except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $
NASD filing fee...........................................................
Nasdaq National Market listing application fee............................
Blue Sky fees and expenses................................................
Printing and engraving expenses...........................................
Legal fees and expenses...................................................
Accounting fees and expenses..............................................
Transfer agent and registrar fees.........................................
Miscellaneous expenses....................................................
----
TOTAL..................................................................
====
</TABLE>
Item 14. Indemnification of Directors and Officers.
Our amended and restated bylaws that will become effective upon the closing
of this offering provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law and may indemnify our
other officers, employees and other agents to the fullest extent permitted by
Delaware law.
In addition, our second amended restated certificate of incorporation that
will become effective upon the closing of this offering provides that, to the
fullest extent permitted by Delaware law, our directors will not be personally
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty as directors. This provision of the restated certificate of
incorporation does not eliminate the directors' duty of care. In appropriate
circumstances, equitable remedies such as an injunction or other forms of non-
monetary relief are available under Delaware law. This provision also does not
affect the directors' responsibilities under any other laws, such as the
federal securities laws.
Each director will continue to be subject to liability for:
. Breach of a director's duty of loyalty to us and our stockholders;
. Acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. Unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
. Any transaction from which a director derived an improper personal
benefit.
We have purchased liability insurance for our directors and executive
officers.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of
any pending or threatened litigation that may result in a claim for
indemnification.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Common Stock. In connection with the combination of the businesses of
Intermetrics and Pacer and our acquisition of Pacer on February 27, 1998, we
issued an aggregate of:
. 4,611,211 shares of common stock in exchange for all of the issued and
outstanding capital stock of Apollo Holding, Inc., the parent of
Intermetrics; and
. 2,255,224 shares of common stock, and paid $7 million in exchange for
all of the issued and outstanding capital stock of Pacer Infotec, Inc.
The issuance and sale of these shares of common stock was exempt from
registration pursuant to Section 4(2) of the Securities Act.
Options. In connection with the combination of the business of Intermetrics
and Pacer and our acquisition of Pacer, we assumed all outstanding stock
options of each of Intermetrics and Pacer in reliance upon exemptions from
registration pursuant to either Section 4(2) of the Securities Act, or (ii)
Rule 701 under the Securities Act. In addition, we have granted and may grant
stock options to employees in reliance upon exemptions from registration
pursuant to Rule 701 under the Securities Act. From March 1, 1998 to March 31,
1999, we have granted options under our 1998 Long Term Incentive Plan to
purchase 190,000 shares of common stock at an exercise price per share of $ .
Underwriters. No underwriters were involved in the transactions referred to
in this Item 15.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of AverStar.
3.2* Certificate of Amendment of Amended and Restated Certificate of
Incorporation of AverStar.
3.3* Form of Second Amended and Restated Certificate of Incorporation of
AverStar, to become effective upon the closing of this offering.
3.4 Bylaws of AverStar.
3.5* Form of Amended and Restated Bylaws of AverStar, to become effective
upon the closing of this offering.
4.1 Reference is made to exhibits 3.1 through 3.5.
4.2* Specimen of stock certificate representing shares of our common stock.
5.1* Opinion of Swidler Berlin Shereff Friedman, LLP regarding the legality
of the common stock being registered in this registration statement.
10.1* Business Loan and Security Agreement, dated as of March 18, 1999, by
and among AverStar, Inc., Computer Based Systems, Inc., and other
borrower parties thereto from time to time, First Union Commercial
Corporation, and other lender parties hereto from time to time, and
First Union Commercial Corporation, as the Agent.
10.2(a) Amended and Restated Securities Purchase Agreement, dated February 27,
1998, by and among AverStar, Inc., Apollo Holding, Inc., Intermetrics,
Inc. and Pacer Infotec, Inc., and each of Massachusetts Mutual Life
Insurance Company, MassMutual Corporate Investors, MassMutual
Participation Investors and MassMutual Corporate Value Partners
Limited.
10.2(b) Amendment to Amended and Restated Securities Purchase Agreement, dated
March 18, 1999.
10.3 Lease, dated July 31, 1996, by and between Trustees of Maryland
Building's Trust and Intermetrics, Inc.
10.4 Lease Agreement, dated as of May 23, 1997, between The Equitable Life
Assurance Society of the United States and Intermetrics, Inc.
10.5 Lease Amendment, dated October 31, 1997, between The Equitable Life
Assurance Society of the United States and Intermetrics, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
10.6 Second Lease Amendment, dated March 16, 1999, between The Equitable
Life Assurance Society of the United States and AverStar, Inc.
10.7 Consulting Agreement, dated August 31, 1995, between Joel N.
Levy/Peter M. Schulte, LLC and Intermetrics, Inc.
10.8 Assignment Agreement and Amendment to Consulting Agreement, dated as
of February 27, 1998, by and among Joel L. Levy/Peter M. Schulte,
LLC, Intermetrics, Inc. and AverStar, Inc.
10.9 AverStar, Inc. 1998 Long Term Incentive Plan.
10.10 Employment Agreement, dated as of August 21, 1995, by and among IMT
Acquisition Corp., Apollo Holding, Inc. and Michael B. Alexander.
10.11 Amendment to Employment Agreement, dated as of March 1998, among
Apollo Holding Inc., AverStar, Inc. and Michael B. Alexander.
10.12 Intentionally omitted.
10.13 Employment Agreement, dated as of August 21, 1995, by and among IMT
Acquisition Corp., Apollo Holding, Inc. and Joseph A. Saponaro.
10.14 Amendment to Employment Agreement, dated as of March 1998, among
Apollo Holding, Inc., AverStar, Inc. and Joseph A. Saponaro.
10.15 Intentionally omitted.
10.16 Assignment and Assumption Agreement, dated as of February 27, 1998
among Apollo Holding Inc., Intermetrics, Inc. and IP Technologies,
Inc.
10.17 Employment Agreement, dated as of February 27, 1998 by and among
Pacer Infotec, Inc., AverStar, Inc. and John C. Rennie.
10.18 Non-Competition Agreement, dated as of February 27, 1998, by and
between AverStar, Inc. and John C. Rennie.
10.19 Employment Agreement, dated as of February 27, 1998, by and among
Pacer Infotec, Inc., AverStar, Inc. and Sigmund H. Goldblum.
10.20 Non-Competition Agreement, dated as of February 27, 1998, by and
between AverStar, Inc. and Sigmund Goldblum.
10.21 Employment Agreement, dated as of April 22, 1999, between AverStar,
Inc. and Barbara Landes.
10.22 Termination Benefit Agreement, dated as of February 27, 1998, among
Pacer Infotec, Inc., AverStar, Inc. and Rudolph R. Koczera.
21 List of Subsidiaries of AverStar, Inc.
23.1 Consent of Swidler Berlin Shereff Friedman, LLP (included in exhibit
5.1).
23.2(a) Consent of Ernst & Young LLP.
23.2(b) Consent of Ernst & Young LLP.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of Aronson, Fetridge & Weigle.
24.1 Powers of Attorney (included on Page II-5).
27.1 Financial Data Schedule.
</TABLE>
* To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules.
The following financial statement schedules are filed herewith, accompanied
by reports of independent accountants for such schedules:
For the years ended December 31, 1996, 1997 and 1998.
Schedule II--Valuation and Qualifying Accounts
Years Ended February 28, 1997 December 31, 1997 and December 31, 1998
<TABLE>
<CAPTION>
Balance at Additions Additions
beginning due to charged to costs Amounts Balance at
of year acquisitions and expenses written off end of year
---------- ------------ ---------------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
February 28, 1997
Allowance for doubtful
accounts.............. $ 73 $-- $-- $(27) $ 46
Allowance for unbilled
receivables........... 192 -- 10 -- 202
---- ---- ---- ---- ----
Total................ $265 $-- $ 10 $(27) $248
December 31, 1997
Allowance for doubtful
accounts.............. $ 46 $ 15 $108 $-- $169
Allowance for unbilled
receivables........... 202 -- 63 -- 265
---- ---- ---- ---- ----
Total................ $248 $ 15 $171 $-- $434
December 31, 1998
Allowance for doubtful
accounts.............. $169 $ 93 $ 25 $-- $287
Allowance for unbilled
receivables........... 265 -- 45 -- 310
---- ---- ---- ---- ----
Total................ $434 $ 93 $ 70 $-- $597
==== ==== ==== ==== ====
</TABLE>
Financial statement schedules other than those listed above have been
omitted because they are inapplicable, are not required under applicable
provisions of Regulation S-X, or the information that would otherwise be
included in such schedules is contained in the registrant's financial
statements or accompanying notes.
II-4
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in those
denominations and registered in those names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission this indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against those liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
this indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of that issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of these securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
EXHIBIT INDEX
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of AverStar.
3.2* Certificate of Amendment of Amended and Restated Certificate of
Incorporation of AverStar.
3.3* Form of Second Amended and Restated Certificate of Incorporation of
AverStar, to become effective upon the closing of this offering.
3.4 Bylaws of AverStar.
3.5* Form of Amended and Restated Bylaws of AverStar, to become effective
upon the closing of this offering.
4.1 Reference is made to exhibits 3.1 through 3.5.
4.2* Specimen of stock certificate representing shares of our common stock.
5.1* Opinion of Swidler Berlin Shereff Friedman, LLP regarding the legality
of the common stock being registered in this registration statement.
10.1* Business Loan and Security Agreement, dated as of March 18, 1999, by
and among AverStar, Inc., Computer Based Systems, Inc., and other
borrowers parties thereto from time to time, First Union Commercial
Corporation, and other lenders parties hereto from time to time, and
First Union Commercial Corporation, as the Agent.
10.2(a) Amended and Restated Securities Purchase Agreement, dated February 27,
1998, by and among AverStar, Inc., Apollo Holding, Inc., Intermetrics,
Inc. and Pacer Infotec, Inc., and each of Massachusetts Mutual Life
Insurance Company, MassMutual Corporate Investors, MassMutual
Participation Investors and MassMutual Corporate Value Partners
Limited.
10.2(b) Amendment to Amended and Restated Securities Purchase Agreement, dated
March 18, 1999.
10.3 Lease, dated July 31, 1996, by and between Trustees of Maryland
Building's Trust and Intermetrics, Inc.
10.4 Lease Agreement, dated as of May 23, 1997, between The Equitable Life
Assurance Society of the United States and Intermetrics, Inc.
10.5 Lease Amendment, dated October 31, 1997, between The Equitable Life
Assurance Society of the United States and Intermetrics, Inc.
10.6 Second Lease Amendment, dated March 16, 1999, between The Equitable
Life Assurance Society of the United States and AverStar, Inc.
10.7 Consulting Agreement, dated August 31, 1995, between Joel N.
Levy/Peter M. Schulte, LLC and Intermetrics, Inc.
10.8 Assignment Agreement and Amendment to Consulting Agreement, dated as
of February 27, 1998, by and among Joel L. Levy/Peter M. Schulte, LLC,
Intermetrics, Inc. and AverStar, Inc.
10.9(a) AverStar, Inc. 1998 Long Term Incentive Plan.
10.9(b) AverStar Inc. Form of Non-Qualified Stock Option Agreement.
10.10 Employment Agreement, dated as of August 21, 1995, by and among IMT
Acquisition Corp., Apollo Holding, Inc. and Michael B. Alexander.
10.11 Amendment to Employment Agreement, dated as of March 1998, among
Apollo Holding Inc., AverStar, Inc. and Michael B. Alexander.
10.12 Intentionally omitted.
10.13 Employment Agreement, dated as of August 21, 1995, by and among IMT
Acquisition Corp., Apollo Holding, Inc. and Joseph A. Saponaro.
10.14 Amendment to Employment Agreement, dated as of March 1998, among
Apollo Holding, Inc., AverStar, Inc. and Joseph A. Saponaro.
10.15 Intentionally omitted.
10.16 Assignment and Assumption Agreement, dated as of February 27, 1998
among Apollo Holding Inc., Intermetrics, Inc. and IP Technologies,
Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
10.17 Employment Agreement, dated as of February 27, 1998 by and among Pacer
Infotec, Inc., AverStar, Inc. and John C. Rennie.
10.18 Non-Competition Agreement, dated as of February 27, 1998, by and
between AverStar, Inc. and John C. Rennie.
10.19 Employment Agreement, dated as of February 27, 1998, by and among
Pacer Infotec, Inc., AverStar, Inc. and Sigmund H. Goldblum.
10.20 Non-Competition Agreement, dated as of February 27, 1998, by and
between AverStar, Inc. and Sigmund Goldblum.
10.21 Employment Agreement, dated as of April 22, 1999, between AverStar,
Inc. and Barbara Landes.
10.22 Termination Benefit Agreement, dated as of February 27, 1998, among
Pacer Infotec, Inc., AverStar, Inc. and Rudolph R. Koczera.
21 List of Subsidiaries of AverStar, Inc.
23.1 Consent of Swidler Berlin Shereff Friedman, LLP (included in exhibit
5.1).
23.2(a) Consent of Ernst & Young LLP.
23.2(b) Consent of Ernst & Young LLP.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of Aronson, Fetridge & Weigle.
24.1 Powers of attorney (included on Page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IP TECHNOLOGIES, INC.
The undersigned directors of IP Technologies, Inc., a Delaware corporation
(the "Corporation") do hereby certify as follows:
FIRST: The name of the Corporation is IP Technologies, Inc. The
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on February 4, 1998. The Certificate of Incorporation has not
previously been amended.
SECOND: Pursuant to Sections 241 and 245 of the General Corporation Law of
the State of Delaware, this Amended and Restated Certificate of Incorporation
amends and restates the provisions of the Corporation's Certificate of
Incorporation in all respects.
THIRD: The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
I. The name of the corporation is Averstar, Inc.
II. The registered office of the Corporation is to be located at 1013
Centre Road, Wilmington, Delaware 19085, in the County of New Castle, State of
Delaware. The name of its registered agent at that address is Corporation
Service Company.
III The purpose of the Corporation and the nature of its business are to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware, and, in general, to
possess powers and privileges granted by the General Corporation Law of the
State of Delaware or by this certificate of incorporation, together with any
powers incidental thereto.
IV. Capital Stock. The total number of shares of stock which the
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Corporation shall have authority to issue is SEVENTEEN MILLION (17,000,000)
shares of Common Stock ("Common Stock"), of which (A) 2,280,471 shares shall be
designated as Voting Class A Common Stock, and 105,190 shares shall be
designated as Non-Voting Class A Common Stock, both with a par value of $.001
per share (and referred to collectively as "Class A Common Stock"), (B)
1,867,808 shares
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shall be designated as Voting Class B Common Stock, and 290,873 shares shall be
designated as Non-Voting Class B Common Stock, both with a par value of $.001
per share (and referred to collectively as "Class B Common Stock"), (C) 182,939
shares shall be designated as Voting Class C Common Stock with a par value of
$.001 per share (and referred to as "Class C Common Stock"), (D) 3,681,251
shares shall be designated as Voting Class D Common Stock and 756,608 shares,
shall be designated as Non-Voting Class D Common Stock both with a par value of
$.001 per share (and referred to as "Class D Common Stock"), (E) 91,470 shares
shall be designated as Voting Class E Common Stock, par value $.001 per share
(and referred to as "Class E Common Stock"), (F) 6,000,000 shares shall be
designated as Voting Class F Common Stock, par value $.001 per share (and
referred to as "Class F Common Stock"), (G) 756,608 shares shall be designated
as Non-Voting Class G Common Stock, with a par value of $.001 per share (and
referred to as "Class G Common Stock"), and (H) 986,782 shares of additional
classes of Common Stock with a par value of $.001 per share which may be issued
in one or more series, from time to time, with such designations, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereon (including without
limitation voting rights) as may be provided in a resolution or resolutions
adopted by the Board of Directors of the Corporation, provided, however, that
none of the provisions of such additional classes of stock shall affect the
designations and preferences, relative, participating, optional or other special
rights and qualifications, limitations or restrictions of the shares of Class A
Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock,
Class E Common Stock, Class F Common Stock and Class G Common Stock relative to
each other. All classes of Common Stock shall be treated the same except as
specifically required pursuant to the provisions of this Certificate of
Incorporation, as the same may be amended from time to time, or with respect to
the purchase of shares of Common Stock as permitted pursuant to the Stockholders
Agreement between the Corporation and its stockholders, as the same may be
hereafter amended or modified (the "Stockholders Agreement"). The holders of
shares of Class A Common Stock, Class B Common Stock, Class C Common Stock,
Class D Common Stock, Class E Common Stock, Class F Common Stock and Class G
Common Stock shall have the following rights and privileges:
(i) Definitions.
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(A) "A Stock Interest Trigger Per Share" shall mean the sum of (x)
the Original Purchase Price plus (y) the Original Purchase Price
multiplied by the Interest Multiplier.
(B) "A Stock Trigger Amount Per Share" shall mean the greater of (x)
Book Value Per Share or (y) the A Stock Interest Trigger Per
Share.
(C) "Balance Amount" shall have the meaning set forth in subparagraph
(ii) (B)(4) below.
(D) "Basis" shall mean the amount, if any, by which the Original
Purchase Price exceeds the B Distribution.
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(E) "B Distribution" shall equal the lesser of (x) all Payments
actually made by or on behalf of the Corporation prior to the
Exit Event on account of which the B Distribution calculation is
to be calculated on each share of Class B Common Stock or (y) the
Original Purchase Price, in both cases, subject to appropriate
adjustment upon the occurrence of an event described in
subparagraph (viii) hereof.
(F) "B Excess Value" shall be the result obtained by multiplying the
number of outstanding shares of Class B Common Stock by the
amount, if any, by which (x) the sum of the B Distribution plus
the Distribution Per Share (without duplication of amount)
exceeds (y) the Original Purchase Price.
(G) "B Excess Value Per Share" shall mean B Excess Value divided by
the aggregate number of shares of Class B Common Stock
outstanding or deemed outstanding on a fully diluted basis.
(H) "Book Value" shall mean the Corporation's consolidated net worth
determined in accordance with generally accepted accounting
principles as set forth on the Corporation's audited balance
sheet as of the end of its last full fiscal year preceding the
date of determination.
(I) "Book Value Per Share" shall mean Book Value divided by the
aggregate number of shares of all classes of Common Stock
outstanding or deemed outstanding on a fully diluted basis.
(J) "C Distribution Per Share" shall be an amount equal to twenty
percent (20%) of the B Excess Value divided by the number of
shares of Class C Common Stock outstanding or deemed outstanding
on a fully diluted basis.
(K) "Distribution Per Share" shall mean the net amount available for
distribution to the holders of Common Stock outstanding or deemed
outstanding on a fully diluted basis, after payment of any
expenses of sale which are the obligation of all of the holders
of Common Stock outstanding or deemed outstanding on a fully
diluted basis on account of such ownership divided by the
aggregate number of shares of all classes of Common Stock
outstanding or deemed outstanding on a fully diluted basis and
without giving effect to any of the special allocations provided
herein (other than as provided in subparagraphs (iii)(C), (iv)(D)
and (x) hereof).
(L) "Excess Payment" shall have the meaning set forth in subparagraph
(ii)(B) hereof.
(M) "Exit Event" shall mean
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(1) (A) the sale, in a single transaction or series of related
transactions, of all or substantially all of the
Corporation's consolidated assets (it being agreed that a
sale of 65% or more of the Corporation's consolidated assets
(calculated based on the fair market value thereof, taking
into account both asset value and income and/or cash flow
generating capabilities) shall be deemed a sale of
substantially all of the Corporation's assets), or (B) a
change of 50.01% or more in the beneficial ownership of the
outstanding shares of Common Stock of the Corporation as of
the date of the closing of the transactions contemplated
under the Agreement and Plan of Merger, by and between Pacer
Infotec, Inc. and Apollo Holding, Inc., dated January 22,
1998 (the "Merger Agreement"), other than changes in
beneficial ownership because of transfer to Permitted
Transferees (as such term is defined in the Stockholders
Agreement) or pursuant to Section 3.10 of the Stockholders
Agreement, unless Persons owning such Common Stock prior to
the change and controlling the Corporation retain ownership,
after such change, of such number of shares of Common Stock
of the Corporation as is sufficient to control the
Corporation;
(2) the merger or consolidation of the Corporation with another
company, where the stockholders of the Corporation prior to
the merger or consolidation and controlling the Corporation
do not own such number of the shares of the surviving entity
as is sufficient to control the surviving entity;
(3) a public offering which is completed which results in
aggregate gross cash proceeds of sale of at least
$18,750,000, and the Corporation's outstanding Common Stock
having an aggregate market valuation of at least $75,000,000
calculated on the public offering price; or
(4) such date as is designated in a written notice to the
Corporation (which effective date must be at least ten (10)
days after the date of the written notice) from the holders
of seventy percent (70%) or more of the aggregate amount of
outstanding Class E Common Stock, given within twelve (12)
months after the time when the Corporation has a class of
common stock that is publicly traded or, if approved by the
Institutional Investors (as such term is defined in the
Stockholders Agreement) and the affirmative vote of the
holders of 50.01% or more of the outstanding shares of Common
Stock in the Corporation, given at any time during the period
beginning at the end of such twelve (12) month period and
ending eighteen (18) months after the time when the
Corporation has a class of common stock that is publicly
traded, but in either case the event described in subpart (3)
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of this subparagraph (M) has not occurred. Upon receipt of
such notice, the Corporation shall promptly give notice of
the occurrence of an Exit Event to all the holders of the
Corporation's outstanding Common Stock.
(N) "E Distribution" shall have the meaning set forth in subparagraph
(iv)(A) hereof.
(O) "E Stock Reduction Trigger" shall mean $10.932606 per share,
subject to appropriate adjustment upon the occurrence of an event
described in subparagraph (viii) hereof.
(P) "Interest Multiplier" shall be the number of days between August
31, 1995 and the date of the Exit Event divided by 365 and
multiplied by seven percent (7%).
(Q) "IES" shall mean IES Holding, Inc., a Delaware corporation.
(R) "Institutional Investors" shall mean the MassMutual Investors and
their respective successors and assigns including Permitted
Transferees.
(S) "MassMutual Investors" means each of MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY, MASSMUTUAL CORPORATE INVESTORS, MASSMUTUAL
PARTICIPATION INVESTORS and MASSMUTUAL CORPORATE VALUE PARTNERS
LIMITED.
(T) "Original Purchase Price" shall mean $1.366576 per share, subject
to appropriate adjustment upon the occurrence of an event
described in subparagraph (viii) hereof.
(U) "Payments" shall mean all payments of cash, securities or other
property made by or on behalf of or on account of, ownership of
shares of Class A Common Stock, Class B Common Stock, Class C
Common Stock, Class D Common Stock, Class E Common Stock and
Class F Common Stock, including, without limitation, payments of
dividends (whether cash or stock, other than a pro-rata stock
split, stock dividend or other similar event), upon dissolution
or liquidation, or by redemption, purchase, retirement or any
other acquisition.
(V) "Permitted Transferees" and "Securities Purchase Agreements"
shall each have the meaning set forth in the Stockholders
Agreement.
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(W) "Stockholders" shall mean, as of any date, the stockholders of
the Corporation on such date, each of whom is a Stockholder.
(X) Shares of Class D Common Stock issuable upon conversion of the
Class G Common Stock shall be deemed outstanding solely for the
purpose of calculating the amounts payable upon conversion of the
Class G Common Stock as provided in Section 2.2 of paragraph
(xiv) of this Article IV.
(ii) Rights Upon Distributions To All Holders of All Classes of Common
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Stock.
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Prior to the occurrence of an Exit Event, with respect to which the
provisions of subparagraphs (iii), (iv) and (v) below shall apply, all
Payments in respect of the outstanding shares of Class A Common Stock,
Class B Common Stock, Class C Common Stock, Class D Common Stock,
Class E Common Stock and Class F Common Stock (other than repurchases
of shares of Common Stock pursuant to the Stockholders Agreement)
shall be made as follows:
(A) Subject to the provisions of paragraph (vii)(G) of this Article
IV, until the cumulative per share amount of the Payment(s) made
by or on behalf of the Corporation equals the Original Purchase
Price, each share of Class A Common Stock, Class B Common Stock,
Class C Common Stock, Class D Common Stock, Class E Common Stock
and Class F Common Stock shall receive the same amount of each
Payment;
(B) After the cumulative per share amount of the Payment(s) made by
or on behalf of the Corporation on account of each share of Class
A Common Stock, Class B Common Stock, Class C Common Stock, Class
D Common Stock and Class E Common Stock equals the Original
Purchase Price, the following shall apply to all subsequent
Payments (the aggregate amount of each such Payment being
hereinafter referred to as an "Excess Payment"):
(1) the holders of shares of Class A Common Stock shall receive
(pro rata according to their percentage ownership of Class A
Common Stock) the per share amount of the Excess Payment
determined by multiplying the total amount of such Excess
Payment by a fraction, the numerator of which is the total
number of shares of Class A Common Stock issued and
outstanding and the denominator of which is the total number
of shares of Class A Common Stock, Class B Common Stock,
Class C Common Stock, Class D Common Stock, Class E Common
Stock and Class F Common Stock issued and outstanding;
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(2) the holders of shares of Class D Common Stock shall receive
(pro rata according to their percentage ownership of Class D
Common Stock) the per share amount of the Excess Payment
determined by multiplying the total amount of such Excess
Payment by a fraction, the numerator of which is the total
number of shares of Class D Common Stock issued and
outstanding and the denominator of which is the total number
of shares of Class A Common Stock, Class B Common Stock,
Class C Common Stock, Class D Common Stock, Class E Common
Stock and Class F Common Stock issued and outstanding;
(3) the holders of shares of Class E Common Stock shall receive
(pro rata according to their percentage ownership of Class E
Common Stock) the per share amount of the Excess Payment
determined by multiplying the total amount of such Excess
Payment by a fraction, the numerator of which is the total
number of shares of Class E Common Stock issued and
outstanding and the denominator of which is the total number
of shares of Class A Common Stock, Class B Common Stock,
Class C Common Stock, Class D Common Stock, Class E Common
Stock and Class F Common Stock issued and outstanding;
(4) the holders of shares of Class B Common Stock and Class C
Common Stock shall receive a proportionate amount of the
aggregate balance of such Excess Payment ("Balance Amount")
not paid under subparagraphs (B)(1), (B)(2) and (B)(3) above
and B(5) below determined as follows:
(a) the holders of shares of Class B Common Stock shall
receive (pro rata according to their percentage
ownership of Class B Common Stock) the per share amount
equal to the Balance Amount times the product of 80%
multiplied by a fraction, the numerator of which is the
total number of shares of Class B Common Stock issued
and outstanding and the denominator of which is the
total number of shares of Class B Common Stock and
Class C Common Stock issued and outstanding;
(b) the holders of shares of Class C Common Stock shall
receive (pro rata according to their percentage
ownership of Class C Common Stock) the remainder of the
Balance Amount;
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(5) the holders of shares of Class F Common Stock shall receive
(pro rata according to their percentage ownership of Class F
Common Stock) the per share amount of the Excess Payment
determined by multiplying the total amount of such Excess
Payment by a fraction, the numerator of which is the total
number of shares of Class F Common Stock issued and
outstanding and the denominator of which is the total number
of shares of Class A Common Stock, Class B Common Stock,
Class C Common Stock, Class D Common Stock, Class E Common
Stock and Class F Common Stock issued and outstanding.
(iii) Special Provision Applicable to Distributions or Value of Class B and
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Class C Common Stock Upon an Exit Event.
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(A) After making the allocation, if any, described in subparagraph
(iii)(C) hereof on account of shares of Class B Common Stock held
in the Corporation's Treasury, each share of Class C Common Stock
shall receive upon the occurrence of an Exit Event, an amount, or
have a value, equal to the sum of (x) the Distribution Per Share
and (y) the C Distribution Per Share.
(B) Upon the occurrence of an Exit Event, each share of Class B Common
Stock shall receive an amount, or have a value, equal to the sum
of (x) the Distribution Per Share but not more than the Basis, and
(y) Eighty Percent (80%) of the B Excess Value Per Share.
(C) Notwithstanding anything to the contrary contained herein, if any
shares of Class B Common Stock are held in the Corporation's
Treasury upon the occurrence of the events referred to in
subparagraphs (iii)(A) and (B) above, the holders of Class C
Common Stock shall receive, after any payment then being made to
the holders of Class F Common Stock but prior to any payment then
being made to the holders of any other class of Common Stock, a
payment from the Corporation (pro rata according to their
percentage ownership of Class C Common Stock) equal in the
aggregate to the amount that such holders of Class C Common Stock
would have received on account of such shares of Class B Common
Stock in the Corporation's Treasury pursuant to subparagraph
(iii)(A) above of this Article 4 (making the assumption that the
shares of Class B Common Stock held in the Corporation's Treasury
were outstanding and were transferred or redeemed upon the
occurrence of such Exit Event.)
(D) Upon the occurrence of an Exit Event, if less than all shares of
Class B Common Stock are transferred or redeemed and as a result
the full amount due to the holders of shares of Class C Common
Stock under subparagraph
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(iii)(A) above is not paid to holders of Class C Common Stock in
cash or securities concurrently with the occurrence of the Exit
Event, the continuing percentage interest in the Corporation of
the shares of Class B Common Stock after the Exit Event shall be
reduced by an amount equal to the amount unpaid to the holders of
the Class C Common Stock and the continuing percentage interest in
the Corporation of the shares of Class C Common Stock shall be
increased by the same amount, both on a pro rata basis among the
shares of such class outstanding on the date of the Exit Event.
(E) The Stockholders direct the Board of Directors of the Corporation
to issue shares of common stock and take such other action as is
necessary or appropriate to accomplish the results described in
this subparagraph (iii) as provided in subparagraph (ix) below.
(iv) Special Provisions Applicable to Value of Class A and Class E Common
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Stock Upon An Exit Event.
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(A) After making the allocation, if any, described in subparagraph
(iv)(D) hereof on account of shares of Class A Common Stock held
in the Corporation's Treasury, upon the occurrence of an Exit
Event, each share of Class E Common Stock shall receive an amount,
or have a value, equal to the greater of (I) the Distribution Per
Share but not more than the A Stock Trigger Amount Per Share, or
(ii) the E Distribution. For purposes of this subparagraph
(iv)(A), the "E Distribution" shall mean and be equal to the sum
of (I) the Distribution Per Share and (ii) the remainder of (x)
five percent (5%) of the amount by which the Distribution Per
Share exceeds the A Stock Trigger Amount Per Share minus (y) an
amount equal to two and one-half percent (2.5%) of the amount by
which the Distribution Per Share exceeds the E Stock Reduction
Trigger, which remainder shall be multiplied by a fraction of
which the numerator is the number of shares of Class A Common
Stock outstanding or deemed outstanding and the denominator is the
number of shares of Class E Common Stock outstanding or deemed
outstanding.
(B) Upon the occurrence of an Exit Event, each share of Class A Common
Stock shall receive an amount or have a value, equal to the
greater of (x) the Distribution Per Share but not more than the A
Stock Trigger Amount Per Share or (y) the sum of (I) the A Stock
Trigger Amount Per Share, (ii) ninety-five percent (95%) of the
remainder of the Distribution Per Share minus the A Stock Trigger
Amount Per Share and (iii) two and one half percent (2.5%) of the
amount by which the Distribution Per Share exceeds the E Stock
Reduction Trigger.
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(C) Upon the occurrence of the events referred to in subparagraphs
(iv)(A) and (B) above, if less than all shares of Class A Common
Stock are transferred or redeemed and as a result the full amount
due to the holders of shares of Class E Common Stock under
subparagraph (iv)(A) above is not paid to them in cash or
securities concurrently with the occurrence of the Exit Event, the
continuing percentage interest in the Corporation of the shares of
Class A Common Stock after the Exit Event shall be reduced by an
amount equal to the amount unpaid to the holders of the Class E
Common Stock and the continuing percentage interest in the
Corporation of the shares of Class E Common Stock shall be
increased by the same amount, both on a pro rata basis among the
shares of such class outstanding on the date of the Exit Event.
(D) Notwithstanding anything to the contrary contained herein, if any
shares of Class A Common Stock are held in the Corporation's
Treasury at the time of the occurrence of the events referred to
in subparagraphs (iv)(A) and (B) above, the holders of Class E
Common Stock shall receive, after any payment then being made to
the holders of Class F Common Stock but prior to any payment then
being made to the holders of any other class of Common Stock, a
payment from the Corporation (pro rata according to their
percentage ownership of Class E Common Stock) equal in the
aggregate to the amount that such holders of Class E Common Stock
would have received on account of such shares of Class A Common
Stock in the Corporation's Treasury pursuant to subparagraph
(iv)(A) above of this Article 4 (making the assumption that the
shares of Class A Common Stock held in the Corporation Treasury
were outstanding and were transferred or redeemed upon the
occurrence of such Exit Event.)
(E) The Stockholders direct the Board of Directors of the Corporation
to issue shares of common stock and take such other action as is
necessary or appropriate to accomplish the results described in
this subparagraph (iv) as provided in subparagraph (ix) below.
(v) Provisions applicable to Class D Common Stock and Class F Common Stock
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upon an Exit Event.
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Upon the occurrence of an Exit Event, each share of Class D Common
Stock and Class F Common Stock shall receive an amount, or have a
value, equal to the Distribution Per Share.
(vi) Voting Rights.
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Except as otherwise required by this Certificate of Incorporation or
by-laws, the holders of Voting Class A Common Stock, Voting Class B
Common Stock, Class C Common Stock, Voting Class D Common Stock, Class
E Common Stock and Class F Common Stock shall vote together as one
class on all matters presented to the stockholders of the
Corporation. Each share of Non-Voting Class A Common Stock, Non-
Voting Class B Common Stock, Non-Voting Class D Common Stock and Non-
Voting Class G Common Stock shall have no voting rights, except as
expressly provided herein or as may be required by law and if so
required and if permitted by law, shall be exercised by voting
together with all other classes of Common Stock as one class.
(vii) Miscellaneous.
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(A) Amounts received in cash, securities or other property by or
allocations of value to holders of Class C and Class E Common
Stock upon an event requiring a calculation pursuant to
subparagraphs (ii), (iii), (iv) or (v) above shall be paid (x) in
cash to the same extent cash is received by the holders of Class A
and Class B Common Stock and (y) in securities or other property
in the same proportion that part or all of the consideration for
the shares of Common Stock is paid in securities or other
property.
(B) Upon the occurrence of an Exit Event as the result of an event
described in subparagraph (I)(M)(3), there shall be assumed for
the purposes of subparagraphs (iii) and (iv) hereof to have
occurred a transfer with a payment made in securities, and the
Distribution Per Share shall be the initial per share offering
price at the time the public offering is effective for shares of
Common Stock.
(C) Upon the occurrence of an Exit Event described in subparagraph
(I)(M)(4), the holders of the Class C and Class E Common Stock
shall receive pursuant to the provisions of subparagraphs
(iii)(A), (iii)(C), (iv)(A) and (iv)(D) shares of the Common Stock
determined on the basis that there shall be assumed for the
purposes of subparagraphs (iii) and (iv) hereof to have occurred a
transfer with a payment made in securities and the Distribution
Per Share shall be the closing price, as reported, or if not
reported, the average of the bid and asked prices, reported for
publicly traded shares, regardless of class, of Common Stock on
the last fifteen (15) trading days prior to the giving of the
notice provided in Section (I)(M)(4) hereof.
(D) In the event the amount or type of consideration payable in
respect of any shares of Common Stock on an Exit Event or Payment
is other than cash, securities or other property for which a means
of determining the value of the distribution is provided
hereunder, (x) the Distribution Per Share shall be the
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fair market value per share as reasonably determined in good faith
by the Board of Directors of the Corporation and (y) the transfer
shall be effected in shares of Common Stock with a Distribution
Per Share value equal to the amount to be transferred.
(E) Amounts received by or allocations of value to shares of Class A
Common Stock, Class B Common Stock, Class C Common Stock, Class D
Common Stock, Class E Common Stock and Class F Common Stock
hereunder shall be made in the same proportionate amount of cash,
securities or other property to each share of Common Stock based
upon the interest, calculated after giving effect to the
provisions of this Article 4, of such share of Common Stock in
such amount or value.
(F) Notwithstanding anything to the contrary contained herein, no
holder of Class A Common Stock, Class B Common Stock, Class C
Common Stock, Class D Common Stock, Class E Common Stock or Class
G Common Stock shall be obligated upon an Exit Event to pay from
such Stockholder's assets, other than Common Stock owned by such
Stockholder and any proceeds thereof pro rata received on account
of the occurrence of such Exit Event.
(G) Notwithstanding anything to the contrary contained herein:
(a) in determining whether the holders of shares of Common Stock
have received cumulative per share amount of Payments equal
to the Original Purchase Price as contemplated by paragraph
(ii)(A) above the aggregate Payments and allocations made by
the Corporation on its Class B Common Stock and the Payments
(as defined in IES' Certificate of Incorporation) and
allocations pursuant to Sections (ii)(B) and (iii) of IES'
Certificate of Incorporation made by or on behalf of IES with
respect to its shares of class B common stock shall be
aggregated;
(b) the special provisions contained in paragraph (iii) above of
this Article IV shall not apply until such time as the
aggregate of the Payments and allocations on the Class B
Common Stock and the Payments (as defined in IES' Certificate
of Incorporation) and allocations pursuant to Sections
(ii)(B) and (iii) of IES' Certificate of Incorporation made
by or on behalf of IES with respect to its class B common
stock shall equal $6.25 per share of IES or $1.366576 per
share of the Corporation;
(c) for purposes of determining whether the A Stock Interest
Trigger Per Share has been met, amounts allocated and
Payments made to the
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class A common stock of IES pursuant to paragraph (iv) of
Article IV of IES' Certificate of Incorporation shall be
aggregated with allocations and Payments made pursuant to
paragraph (iv) of this Certificate of Incorporation;
(d) for purposes of the determining whether the Distribution Per
Share exceeds the E Stock Reduction Trigger in paragraph
(iv)(B) above, Payments and allocations made prior to the
Exit Event with respect to the class A common stock of IES
shall be aggregated with the Payments and allocations made by
the Corporation on Class A Common Stock.
(H) The Stockholders direct the Board of Directors to take, and the
Board of Directors shall take such action as is necessary or
appropriate to increase the number of authorized shares of capital
stock, including without limitation amending the Certificate of
Incorporation, in order to ensure that the Corporation has
sufficient authorized shares to comply with the provisions of
Section 9.3 of the Merger Agreement.
(viii) Corporate Event.
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There shall be no increase, decrease or other alteration of the issued
and outstanding shares of any class of Common Stock of the Corporation
by or as a result of any stock split, stock dividend, combination of
shares, recapitalization, reclassification, merger, consolidation,
sale of all or substantially all assets of the Corporation,
reorganization, liquidation, dissolution or other similar corporate
transaction unless at the same time the shares of all classes of
Common Stock then outstanding or deemed outstanding on a fully diluted
basis are also proportionately increased, decreased or otherwise
altered, as the case may be, in accordance with the provisions of this
Article 4.
(ix) Vote Required To Amend Provisions of Article 4 and Section 3.11 of the
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Stockholders Agreement.
----------------------
Prior to the occurrence of an Exit Event (unless such action reflects
a continuation without change of the pro-rata interests of the Class A
Common Stock, Class B Common Stock, Class C Common Stock, Class D
Common Stock, Class E Common Stock and Class F Common Stock in the
Corporation's equity and is being taken by the affirmative vote of a
majority of the outstanding shares of the Corporation's Common Stock
in connection with and at the time of an Exit Event, in which case
only the affirmative vote of a majority of the outstanding shares
shall be sufficient), the affirmative vote of at least eighty-five
percent (85%) of the outstanding shares of each voting class, voting
separately as a class, of Class A Common Stock, Class
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B Common Stock, Class C Common Stock, Class D Common Stock, Class E
Common Stock and, if the interest of the holders of Class F Common
Stock would be adversely affected by such change, Class F Common Stock
shall be required to (i) alter, amend, or repeal the provisions of
this Article 4 or (ii) alter, amend or repeal Section 3.11 of the
Stockholders Agreement. After making the distributions and adjustments
required by this Article 4 upon the occurrence of the Exit Event, the
stockholders direct the Board of Directors to take and the Board shall
take such action as is necessary or appropriate to cause the shares of
Class A Common Stock, Class B Common Stock, Class C Common Stock,
Class D Common Stock, Class E Common Stock and Class F Common Stock to
be consolidated into one class of Common Stock (and upon such
consolidation, the shares of Class G Common Stock shall be convertible
into such class of Common Stock, as provided in Section 2.2(g) of
subparagraph (xiv) below) with each share of such stock having the
same designation, preferences and relative, participating, optional or
other rights and qualifications, limitations, or restrictions as each
other share and thereafter no further adjustment shall be made in the
designations, preferences and relative, participating, optional or
other rights and qualifications, limitations or restrictions of such
shares of Common Stock without the affirmative vote of a majority of
the shares outstanding of Common Stock.
(x) Shares of Common Stock Held in Treasury.
---------------------------------------
Shares of Class A and Class B Common Stock held in Treasury shall not
be canceled or retired but shall be held in Treasury as Treasury
shares and will not be considered as outstanding except as
specifically provided in subparagraphs (iii)(C) and (iv) (D) hereof.
Shares of Class D Common Stock and Class F Common Stock held in
Treasury will not be considered outstanding.
(xi) Schedule 1 Computations.
-----------------------
A formula for and examples of the allocation of Payments pursuant to
subparagraphs (iii), (iv), (v) and (vii) is attached as Schedule 1.
The provisions hereof are intended to conform to the formula on page 1
of Schedule 1 (and the formula on page 1 of Schedule 1 shall control
in the event of any inconsistency.)
(xii) Legends.
-------
Each Certificate representing shares of Common Stock shall contain a
legend stating that the Corporation will furnish without charge to
each stockholder who so requests a statement of the powers,
designations, preferences and relative, participating, optional and
other special rights of each class of stock.
(xiii) Conversion of Certain Shares.
----------------------------
14
<PAGE>
Notwithstanding anything to the contrary contained herein, each share
of Common Stock (other than Class G Common Stock) issued to any
Institutional Investor and each share of Common Stock issued upon the
conversion of Class G Common Stock initially issued to any
Institutional Investor, may, if non-voting, be exchanged at any time
and from time to time at the option of the holder thereof for one
share of voting Common Stock of the same class.
(xiv) Special Provisions Concerning Class G Common Stock.
--------------------------------------------------
The rights, preferences and limitations of the shares of Class G
Common Stock are as follows:
1.1 Conversion Rights.
-----------------
(i) Each share of Class G Common Stock may be converted into either
shares of Voting Class D Common Stock or shares of Non-Voting Class D
Common Stock, as hereinafter provided. Each share of Class G Common Stock
is convertible, at any time, into shares of Class D Common Stock, at the
option of the holder, upon written notice to the Corporation at the initial
rate of one share of Class D Common Stock for each share of Class G Common
Stock. The number of shares of Class D Common Stock into which each share
of Class G Common Stock may be converted may from time to time be
increased or reduced pursuant to the provisions hereof, and is hereinafter
referred to as the "Conversion Rate." The Corporation shall, as soon as
---------------
practicable after shares of Class G Common Stock are surrendered for
conversion, issue and deliver to such holder of shares of Class G Common
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Voting Class D Common Stock or
shares of Non-Voting Class D Common Stock to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of
the shares of Class G Common Stock to be converted, and the Person or
Persons entitled to receive the shares of Voting Class D Common Stock or
shares of Non-Voting Class D Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Class D Common Stock as of such date.
(ii) If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, as amended,
the conversion may, at the option of any holder tendering shares of Class G
Common Stock for conversion, be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which
event the Person(s) entitled to receive the shares of Class D Common Stock
issuable upon such conversion of the shares of Class G Common Stock shall
not be deemed to have converted such shares of Class G Common Stock until
immediately prior to the closing of such sale of securities. On or after
the date of the occurrence of the closing of a public sale as set forth
above, and in any event within ten days after receipt of notice,
15
<PAGE>
by mail, postage prepaid from the Corporation, of the occurrence of
closing, each holder of shares of Class G Common Stock, who shall have
elected to convert such shares at such time shall surrender such holder's
certificates evidencing such shares at the principal office of the
Corporation or at such other place as the Corporation shall designate, and
shall thereupon be entitled to receive certificates evidencing the number
of shares of Class D Common Stock, at the option of the holder, into which
such shares of Class G Common Stock are converted. On the date of such
closing, each holder of shares of Class G Common Stock who shall have
elected to convert such shares at such time shall be deemed to be a holder
of record of the shares of Class D Common Stock, as applicable, issuable
upon such conversion, notwithstanding that (x) the certificates
-
representing such shares of Class G Common Stock shall not have been
surrendered at the office of the Corporation, (y) notice from the
-
Corporation shall not have been received by any holder of shares of Class G
Common Stock, or (z) the certificates evidencing such shares of Class D
-
Common Stock shall not then be actually delivered to such Person.
1.2 Voting Rights.
-------------
(i) Except as otherwise required by Section 1.2(ii) below or by
Delaware law, the holders of shares of Class G Common Stock shall have no
other voting rights.
(ii) So long as any shares of Class G Common Stock are outstanding,
the Corporation shall not, without the written consent or the affirmative
vote at a meeting of at least 85% of the total number of shares of Class G
Common Stock then outstanding, voting as a separate voting group (with each
share of Class G Common Stock being entitled to one vote), in any manner,
whether by amendment to the Certificate of Incorporation or By-Laws of the
Corporation or otherwise, amend or repeal any provision of, or add any
provision to, the Corporation's Certificate of Incorporation if such action
would alter or change the designations, relative rights, preferences or
limitations of, or the restrictions provided for the benefit of, the shares
of Class G Common Stock so as to have an adverse effect on the shares of
Class G Common Stock.
2. Anti-Dilution Provisions.
------------------------
2.1. Intentionally Omitted.
---------------------
2.2 Adjustment of Conversion Rate. In addition to any adjustment required
-----------------------------
under the provisions of Section 2.5 below, and except as otherwise provided in
Section 2.2(n) below, the Conversion Rate shall be subject to adjustment from
time to time as set forth in this Section 2.2.
(a) Stock Dividends, Subdivisions and Combinations. If and whenever
----------------------------------------------
the Corporation subsequent to the date hereof:
16
<PAGE>
(i) declares a dividend upon, or makes any distribution in
respect of, any of its capital stock, payable in shares of Common
Stock, Convertible Securities or Stock Purchase Rights, or
(ii) subdivides its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then:
(A) any such dividend or distribution shall be declared and paid
or made, as the case may be, in respect of all outstanding shares of
Common Stock of each class pro rata among all such classes, including
--- ----
without limitation Class G Common Stock, each share of which shall
receive the same amount and type of consideration as is received by
the number of shares of Class D Common Stock into which such share of
Class G Common Stock is then convertible;
(B) any such subdivision shall be effected in respect of all
outstanding shares of Common Stock of each class including Class G
Common Stock on the same terms as such subdivision is to be effected
with respect to the shares of Common Stock of each other class; and
(C) any such combination shall be effected in respect of all
outstanding Common Stock of each class including Class G Common Stock
on the same terms as such combination is to be effected with respect
to the shares of Common Stock of each other class.
In the event of any conflict between Section 2.2(a) and any other provision
of this Certificate of Incorporation, the provisions of this Section 2.2(a)
shall govern. Any purported dividend, distribution, subdivision or
combination which violates the provisions of this Section 2.2(a) shall be
void. No adjustment to the Conversion Rate shall be made with respect to
any dividend, distribution, subdivision or combination made in compliance
with the provisions of this Section 2.2(a).
(b) Issuance of Additional Shares of Common Stock. If and whenever
---------------------------------------------
the Corporation subsequent to the date hereof shall issue or sell any
shares of Common Stock (except as otherwise provided in the last paragraph
of this Section 2.2(b)), for a consideration per share less than the Fair
Value per share (determined, in each case, as of the date specified in the
next succeeding paragraph), the Conversion Rate upon each such issuance or
sale shall be adjusted as of the date specified in the next succeeding
paragraph and shall be determined by dividing the Conversion Rate in effect
--------
as of the date specified in the next succeeding
17
<PAGE>
paragraph by a fraction the numerator of which is (i) the sum of (A) the
- -
number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the Fair Value per share of Common Stock
immediately prior to such issue or sale plus (B) the aggregate
-
consideration, if any, received by the Corporation upon such issue or sale,
divided by (ii) the total number of shares of Common Stock outstanding
--
immediately after such issue or sale, and the denominator of which is the
Fair Value per share of Common Stock immediately prior to such issue or
sale.
For purposes of this Section 2.2(b), the date as of which the
Conversion Rate shall be adjusted and the date as of which the Fair Value
shall be determined shall be the earlier of (A) the date on which the
-
Corporation shall enter into a firm contract for the issuance of such
shares of Common Stock and (B) immediately prior to the date of actual
-
issuance of such shares of Common Stock.
No adjustment of the Conversion Rate shall be made under this Section
2.2(b) upon the issuance of any shares of Common Stock which are (i)
-
distributed to holders of Common Stock pursuant to a stock dividend or
subdivision for which no adjustment is required under Section 2.2(a) or
(ii) issued pursuant to the exercise of any Stock Purchase Rights or
--
pursuant to the conversion or exchange of any Convertible Securities to the
extent that an adjustment shall previously have been made upon the issuance
of such Stock Purchase Rights or Convertible Securities pursuant to
Sections 2.2(C) or (d) or to the extent that Section 2.2(a) expressly
provides that no adjustment is required upon the issuance of such Stock
Purchase Rights or Convertible Securities.
(c) Issuance of Stock Purchase Rights. If and whenever the
---------------------------------
Corporation subsequent to the date hereof shall issue or sell any Stock
Purchase Rights (except as otherwise provided in the last paragraph of this
Section 2.2(c)) and the consideration per share for which shares of Common
Stock may at any time thereafter be issuable upon exercise thereof (or, in
the case of Stock Purchase Rights exercisable for the purchase of
Convertible Securities, upon the subsequent conversion or exchange of such
Convertible Securities) shall be less than the Fair Value per share
(determined, in each case, as of the date specified in the next succeeding
paragraph), the Conversion Rate upon each such issuance or sale shall be
adjusted as provided in Section 2.2(b) as of the date specified in the next
succeeding paragraph on the basis that the maximum number of shares of
Common Stock ever issuable upon exercise of such Stock Purchase Rights (or
upon conversion or exchange of such Convertible Securities following such
exercise) shall be deemed to have been issued as of the date of the
determination of the Fair Value specified in the next succeeding paragraph.
For the purposes of this Section 2.2(c), the date as of which the
Conversion Rate shall be adjusted and the date as of which the Fair Value
shall be determined shall be the earlier of (A) the date on which the
-
Corporation shall enter into a firm contract for the issuance of
18
<PAGE>
such Stock Purchase Rights and (B) immediately prior to the date of actual
-
issuance of such Stock Purchase Rights.
No adjustment of the Conversion Rate shall be made under this Section
2.2(C) upon the issuance of any Stock Purchase Rights to the extent that
Section 2.2(a) expressly provides that no adjustment is required upon the
issuance of such Stock Purchase Rights.
(d) Issuance of Convertible Securities. If and whenever the
----------------------------------
Corporation subsequent to the date hereof shall issue or sell any
Convertible Securities (except as otherwise provided in the last paragraph
of this Section 2.2(d)) and the consideration per share for which shares of
Common Stock may at any time thereafter be issuable pursuant to the terms
of such Convertible Securities shall be less than the Fair Value per share
(determined, in each case, as of the date specified in the next succeeding
paragraph), the Conversion Rate upon each such issuance or sale shall be
adjusted as provided in Section 2.2(b) as of the date specified in the next
succeeding paragraph on the basis that the maximum number of shares of
Common Stock ever necessary to effect the conversion or exchange of all
such Convertible Securities shall be deemed to have been issued as of the
date of the determination of the Fair Value specified in the next
succeeding paragraph.
For the purposes of this Section 2.2(d), the date as of which the
Conversion Rate shall be adjusted and the date as of which the Fair Value
shall be determined shall be the earlier of (A) the date on which the
-
Corporation shall enter into a firm contract for the issuance of such
Convertible Securities and (B) immediately prior to the date of actual
-
issuance of such Convertible Securities.
No adjustment of the Conversion Rate shall be made under this Section
2.2(d) upon the issuance of any Convertible Securities which are (i)
-
distributed to holders of Common Stock pursuant to a stock dividend to the
extent that Section 2.2(a) expressly provides that no adjustment is
required upon the issuance of such Convertible Securities or (ii) issued
--
pursuant to the exercise of any Stock Purchase Rights to the extent that an
adjustment shall previously have been made upon the issuance of such Stock
Purchase Rights pursuant to Section 2.2(C) or to the extent that Section
2.2(a) expressly provides that no adjustment is required upon the issuance
of such Stock Purchase Rights.
(e) Minimum Adjustment. If any adjustment of the Conversion Rate
------------------
pursuant to this Section 2.2 shall result in an adjustment of less than
.0001, no such adjustment shall be made, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with
the next subsequent adjustment which, together with any adjustments so
carried forward, shall amount to .0001; provided that upon any adjustment
--------
of the Conversion Rate resulting from (i) the declaration of a dividend
-
upon, or the making of any distribution in respect of, any shares of the
Corporation payable in Common Stock, Stock Purchase Rights or Convertible
Securities or (ii) the reclassification by subdivision, combination or
--
otherwise, of the Common Stock into a greater or smaller number of shares,
19
<PAGE>
the foregoing figure of .0001 per share (or such figure as last adjusted)
shall be proportionately adjusted, and provided, further, that upon a
-------- -------
conversion, the Corporation shall make all necessary adjustments (to the
nearest .0001) not theretofore made to the Conversion Rate up to and
including the date of such conversion.
(f) Readjustment of Conversion Rate. Upon each change in (i) the
------------------------------- -
consideration, if any, payable for any Stock Purchase Rights or Convertible
Securities referred to in Section 2.2(a), (c) or (d), (ii) the
--
consideration, if any, payable upon exercise of such Stock Purchase Rights
or upon the conversion or exchange of such Convertible Securities or (iii)
---
the number of shares of Common Stock issuable upon the exercise of such
Stock Purchase Rights or the rate at which such Convertible Securities are
convertible into or exchangeable for shares of Common Stock, the Conversion
Rate in effect at the time of such event shall forthwith be readjusted to
the Conversion Rate which would have been in effect at such time had such
Stock Purchase Rights or Convertible Securities provided for such changed
consideration, number of shares of Common Stock so issuable or conversion
rate, as the case may be, at the time initially granted, issued or sold.
On the expiration of any Stock Purchase Rights not exercised or of any
right to convert or exchange under any Convertible Securities not
exercised, the Conversion Rate then in effect shall forthwith be decreased
to the Conversion Rate which would have been in effect at the time of such
expiration had such Stock Purchase Rights or Convertible Securities never
been issued. No readjustment of the Conversion Rate pursuant to this
Section 2.2(f) shall (i) decrease the Conversion Rate by an amount in
-
excess of the adjustment originally made to the Conversion Rate in respect
of the issue, sale or grant of the applicable Stock Purchase Rights or
Convertible Securities or (ii) require any adjustment to the amount paid or
--
number of shares of Class D Common Stock (or other securities) received by
any Person upon any conversion of any shares of Class G Common Stock prior
to the date upon which such readjustment to the Conversion Rate shall
occur.
(g) Reorganization, Reclassification or Recapitalization of the
-----------------------------------------------------------
Corporation. If and whenever subsequent to the date hereof the Corporation
-----------
shall effect (i) any reorganization or reclassification or recapitalization
-
of the capital stock of the Corporation, including without limitation any
such event following an Exit Event as provided in subparagraph (ix) above,
(other than in the cases referred to in Section 2.2(a)), (ii) any
--
consolidation or merger of the Corporation with or into another Person,
(iii) the sale, transfer or other disposition of the property, assets or
----
business of the Corporation as an entirety or substantially as an entirety
or (iv) any other transaction (or any other event shall occur) as a result
--
of which holders of Common Stock become entitled to receive any shares of
stock or other securities and/or property (including, without limitation,
cash) with respect to or in exchange for the Common Stock, there shall
thereafter be deliverable upon the conversion of any shares of Class G
Common Stock (in lieu of or in addition to the shares of Common Stock
theretofore deliverable, as appropriate) the highest number of shares of
stock or other securities and/or the greatest amount of property
(including, without limitation, cash) which the holder of shares of Class G
Common Stock would have received if such shares of Class G Common Stock had
been converted in their entirety into shares of Class D Common Stock
20
<PAGE>
immediately prior to such reorganization or reclassification or
recapitalization of capital stock, consolidation, merger, sale, transfer,
disposition or other transaction or other event.
Prior to and as a condition of the consummation of any transaction or
event described in the preceding sentence, the Corporation shall make
equitable, written adjustments in the application of the provisions herein
set forth satisfactory to the Required Class G Holders so that the
provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares of stock or other securities or other
property thereafter deliverable upon conversion, and the Corporation shall
cause any successor to make all appropriate provisions in its charter or
other agreements or documents as to the application of the provisions
herein set forth as shall be requested by the Required Class G Holders.
(h) Other Dilutive Events. If any other transaction or event (other
---------------------
than those explicitly referred to in this Section 2.2), including, without
limitation, any issuance, repurchase, redemption, or other distribution in
respect of any shares of stock or securities of the Corporation or of any
other Person, including any Person referred to in Section 2.2(g), shall
occur as to which the other provisions of this Section 2 are not strictly
applicable but the failure to make any adjustment to the Conversion Rate
would not fairly protect the rights of the holders of Class G Common Stock
in accordance with the essential intent and principles hereof, then, and as
a condition to the consummation of any such transaction or event, and in
each such case, the Corporation shall appoint a firm of independent
certified public accountants of recognized national standing (which may be
the regular auditors of the Corporation), which shall give its opinion as
to the adjustment, if any, on a basis consistent with the essential intent
and principles established in this Section 2, necessary to preserve,
without dilution, the rights of the holders of Class G Common Stock. The
certificate of any such firm of accountants shall be conclusive evidence of
the correctness of any computation made under this Section 2. The
Corporation shall pay the fees and expenses of such firm of accountants in
connection with any such opinion. Upon receipt of such opinion, the
Corporation will promptly deliver a copy thereof to each holder of Class G
Common Stock and shall make the adjustments described therein.
(i) Determination of Consideration. For purposes of this Section 2,
------------------------------
the consideration received or receivable by the Corporation for the
issuance, sale, grant or assumption of shares of Common Stock, Stock
Purchase Rights or Convertible Securities, irrespective of the accounting
treatment of such consideration, shall be valued and determined as follows:
(i) Cash Payment. In the case of cash, the gross amount paid by
------------
the purchasers without deduction of any accrued interest or dividends,
any reasonable expenses paid or incurred and any reasonable
underwriting commissions or concessions paid or allowed by the
Corporation in connection with such issue or sale.
21
<PAGE>
(ii) Non-Cash Payment. In the case of consideration other than
----------------
cash, the Fair Value thereof (in any case as of the date immediately
preceding the issuance, sale or grant in question).
(iii) Certain Allocations. If shares of Common Stock, Stock
-------------------
Purchase Rights and/or Convertible Securities are issued or sold
together with other securities or other assets of the Corporation for
a consideration which covers more than one of the foregoing categories
of securities and assets, the consideration received or receivable
(computed as provided in clauses (i) and (ii) of this Section 2.2(I))
shall be allocable to such shares of Common Stock, Stock Purchase
Rights and/or Convertible Securities as reasonably determined in good
faith by the Board of Directors of the Corporation (provided such
--------
allocation is set forth in a written resolution and a certified copy
thereof is furnished to the holders of Class G Common Stock promptly
(but in any event within 10 days) following its adoption).
(iv) Dividends in Securities. If the Corporation shall declare a
-----------------------
dividend or make any other distribution upon any stock of the
Corporation payable in shares of Common Stock, Convertible Securities
or Stock Purchase Rights, such shares of Common Stock, Convertible
Securities or Stock Purchase Rights, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been
issued or sold without consideration.
(v) Stock Purchase Rights and Convertible Securities. The
------------------------------------------------
consideration for which each share of Common Stock shall be deemed to
be issued upon the issuance or sale of any Stock Purchase Rights or
Convertible Securities shall be determined by dividing (A) the total
-
consideration, if any, received by the Corporation as consideration
for the Stock Purchase Rights or the Convertible Securities, as the
case may be, plus the minimum aggregate amount of additional
consideration, if any, ever payable to the Corporation upon the
exercise of such Stock Purchase Rights and/or upon the conversion or
exchange of such Convertible Securities, as the case may be, but
without deduction of any accrued interest or dividends, any reasonable
expenses paid or incurred and any reasonable underwriting commissions
or concessions paid or allowed by the Corporation in connection with
such issue or sale; by (B) the maximum number of shares of Common
-
Stock ever issuable upon the exercise of such Stock Purchase Rights or
upon the conversion or exchange of such Convertible Securities.
(vi) Merger, Consolidation or Sale of Assets. If any shares of
---------------------------------------
Common Stock, Convertible Securities or Stock Purchase Rights are
issued in connection with any merger or consolidation of which the
Corporation is the surviving corporation, the amount of consideration
therefor shall be deemed to be the Fair Value of such portion of the
assets and business of the non-surviving corporation as shall be
attributable to such Common Stock, Convertible Securities or Stock
Purchase Rights,
22
<PAGE>
as the case may be. In the event of (A) any merger or consolidation of
-
which the Corporation is not the surviving corporation or (B) the
-
sale, transfer or other disposition of the property, assets or
business of the Corporation as an entirety or substantially as an
entirety for stock or other securities of any other Person, the
Corporation shall be deemed to have issued the number of shares of its
Common Stock for stock or securities of the surviving corporation or
such other Person computed on the basis of the actual exchange ratio
on which the transaction was predicated and for a consideration equal
to the Fair Value on the date of such transaction of such stock or
securities of the surviving corporation or such other Person, and if
any such calculation results in adjustment of the Conversion Rate, the
determination of the number of shares of Class D Common Stock issuable
upon conversion of shares of Class G Common Stock immediately prior to
such merger, consolidation or sale, for the purposes of Section
2.2(g), shall be made after giving effect to such adjustment of the
Conversion Rate.
(j) Record Date. If the Corporation shall take a record of the
-----------
holders of the Common Stock for the purpose of entitling them (i) to
-
receive a dividend or other distribution payable in Common Stock,
Convertible Securities or Stock Purchase Rights or (ii) to subscribe for or
--
purchase Common Stock, Convertible Securities or Stock Purchase Rights,
then all references in this Section 2 to the date of the issue or sale of
the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the
case may be, shall be deemed to be references to such record date.
(k) Shares Outstanding. The number of shares of Common Stock deemed
------------------
to be outstanding at any given time shall not include shares of Common
Stock held by the Corporation or any Subsidiary of the Corporation.
(l) Maximum Conversion Rate. At no time shall the Conversion Rate be
-----------------------
less than one, except as a result of an adjustment thereto pursuant to
Section 2.2(g).
(m) Application. All subdivisions of this Section 2.2 are intended to
-----------
operate independently of one another. If a transaction or an event occurs
that requires the application of more than one subdivision, all applicable
subdivisions shall be given independent effect (but without duplication of
adjustment).
(n) No Adjustments under Certain Circumstances. Anything herein to the
------------------------------------------
contrary notwithstanding, no adjustment to the Conversion Rate shall be
made in the case of:
(i) any issuance of shares of Common Stock (or other securities)
upon the conversion of any shares of Class G Common Stock;
23
<PAGE>
(ii)(A) the granting by the Corporation to any employees of the
Corporation or of any Subsidiary of the Corporation of Stock Purchase
Rights to purchase shares of Class D Common Stock, and (B) the
issuance of shares of Class D Common Stock upon the exercise of such
Stock Purchase Rights, provided that the aggregate number of shares of
Class D Common Stock so issued and issuable at any time shall not
exceed 65,000 (adjusted appropriately for stock splits, stock
dividends and other similar events);
(iii) any issuance of shares of Common Stock to the holders of
outstanding shares of Common Stock (or any adjustments to the number
of shares then outstanding) required to be made under the other
provisions of this Article IV upon the occurrence of an Exit Event
to give effect to the relative ownership interests in the Corporation
of the holders of the shares of the various classes of Common Stock;
(iv) any issuance or sale to any Management Stockholder (as
defined in the Stockholders Agreement as in effect on February 27,
1998 ) of shares of Class A or Class D Common Stock which were
outstanding on February 27, 1998 and were, after February 27, 1998,
repurchased by the Corporation, provided that (A) the aggregate number
-------- -
of such shares shall not exceed 343,010 (adjusted appropriately for
stock splits, stock dividends and other similar events) and (B) the
-
consideration actually received by the Corporation for any such share
upon issuance is equal to or more than the consideration actually paid
by the Corporation for such share upon repurchase;
(v) any issuance or sale of shares of Common Stock upon exercise
of any of the Stock Purchase Rights outstanding on (and as in effect
on) February 27, 1998 and listed on Exhibit 5.5 to the Securities
Purchase Agreements; or
(vi) any issuance of shares of Voting Common Stock of any class
upon conversion of any shares of Non-Voting Common Stock of the same
class.
2.3. Intentionally Omitted.
---------------------
2.4. Certificates and Notices.
------------------------
(a) Adjustments to Conversion Rate. As promptly as practicable (but
------------------------------
in any event not later than five Business Days) after the occurrence of any
event requiring any adjustment under this Section 2 to the Conversion Rate
(or to the number or kind of securities or other property deliverable upon
conversion of any shares of Class G Common Stock), the Corporation shall,
at its expense, deliver to the holders of Class G Common Stock either (i)
-
an Officers' Certificate or (ii) a certificate signed by a firm of
--
independent certified public accountants of recognized national standing
(which may be the regular auditors of the Corporation), setting forth in
reasonable detail the events requiring the adjustment and the
24
<PAGE>
method by which such adjustment was calculated and specifying the
adjusted Conversion Rate and the number of shares of Class D Common Stock
(or other securities) into which each share of Class G Common Stock is
convertible after giving effect to such adjustment. The certificate of any
such firm of accountants shall be conclusive evidence of the correctness of
any computation made under this Section 2.
(b) Extraordinary Corporate Events. If and whenever the Corporation
------------------------------
subsequent to the date hereof shall propose to (i) pay any dividend to the
-
holders of shares of Common Stock or to make any other distribution to the
holders of shares of Common Stock (including, without limitation, any cash
dividend), (ii) offer to the holders of shares of Common Stock rights to
--
subscribe for or purchase any additional shares of any class of stock or
any other rights or options, (iii) effect any reclassification of the
---
Common Stock (other than a reclassification involving merely the
subdivision or combination of outstanding shares of Common Stock), (iv)
--
engage in any reorganization or recapitalization or any consolidation or
merger (other than a merger in which no distribution of securities or other
property is to be made to holders of shares of Common Stock), (v)
-
consummate any sale, transfer or other disposition of its property, assets
and business as an entirety or substantially as an entirety, (vi) effect
--
any other transaction which might require an adjustment to the Conversion
Rate (or to the number or kind of securities or other property deliverable
upon the conversion of any shares of Class G Common Stock), including,
without limitation, any transaction of the kind described in Section 2.2(g)
or (vii) commence or effect the liquidation, dissolution or winding up of
---
the Corporation, then, in each such case, the Corporation shall deliver to
the holders of the Class G Common Stock an Officers' Certificate giving
notice of such proposed action, specifying (A) the date on which the stock
-
transfer books of the Corporation shall close, or a record shall be taken,
for determining the holders of Common Stock entitled to receive such
dividend or other distribution or such rights or options, or the date on
which such reclassification, reorganization, recapitalization,
consolidation, merger, sale, transfer, other disposition, transaction,
liquidation, dissolution or winding up shall take place or commence, as the
case may be, and (B) the date as of which it is expected that holders of
-
Common Stock of record shall be entitled to receive securities or other
property deliverable upon such action, if any such date is to be fixed.
Such Officers' Certificate shall be delivered in the case of any action
covered by clause (i) or (ii) above, at least 30 days prior to the record
date for determining holders of Common Stock for purposes of receiving such
payment or offer, and, in any other case, at least 30 days prior to the
date upon which such action takes place and 30 days prior to any record
date to determine holders of Common Stock entitled to receive such
securities or other property.
(c) Effect of Failure. Failure to give any certificate or notice, or
-----------------
any defect in any certificate or notice required under this Section 2.4
shall not affect the legality or validity of the adjustment of the
Conversion Rate or the number of shares of Class G Common Stock (or other
securities) deliverable upon conversion of any shares of Class G Common
Stock.
25
<PAGE>
3. Freely Convertible Shares; Reservation of Common Stock. Each nonvoting
------------------------------------------------------
share and each voting share of Class D Common Stock held by any Institutional
Investor shall at all times be freely convertible into one voting share and one
nonvoting share, respectively, of Class D Common Stock, all as further provided
herein. The Corporation will at all times reserve and keep available, solely
for delivery upon the conversion of the shares of Class G Common Stock, such
number of shares of Class D Common Stock (and/or other securities) equal to the
number of shares of Class D Common Stock (and/or other securities) deliverable
upon the conversion of the shares of Class G Common Stock. All such shares of
Class D Common Stock (and/or other securities) shall be duly authorized and,
when issued upon conversion of any shares of Class G Common Stock in accordance
with the terms hereof, will be validly issued and fully paid and nonassessable
with no liability on the part of the holders thereof and not subject to
preemptive rights on the part of any other Person.
4. Various Covenants of the Corporation.
------------------------------------
4.1. No Impairment or Amendment. The Corporation shall not by any action
--------------------------
including, without limitation, amending its charter, any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Section (xiv), but will at
-------------
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate to protect the
rights of the holder of shares of Class G Common Stock against impairment.
4.2. Anti-Dilution Provisions. If the Corporation issues any Stock
------------------------
Purchase Rights or Convertible Securities or other securities containing
provisions protecting the holder or holders thereof against dilution in any
manner more favorable to such holder or holders thereof than those set forth in
this Section (xiv), such provisions (or any more favorable portion thereof)
-------------
shall be deemed to be incorporated herein as if fully set forth in this Section
-------
(xiv) and, to the extent inconsistent with any provision of this Section (xiv),
- ----- -------------
shall be deemed to be substituted therefor.
4.3. Restrictions on Issuance of Common Stock, Stock Purchase Rights and
-------------------------------------------------------------------
Convertible Securities. Notwithstanding anything to the contrary herein, after
- ----------------------
the date hereof, so long as any shares of Class G Common Stock are outstanding,
the Corporation shall not issue or sell any shares of Common Stock, Stock
Purchase Rights and/or Convertible Securities other than (a) any issuance or
-
sale of shares of Common Stock and options to purchase shares of Common Stock
(including shares which were outstanding on February 27, 1998 and were, after
February 27, 1998, repurchased by the Corporation) for a consideration per share
not less than the Fair Value per share (determined, in each case, as of the date
specified in the second paragraph of Section 2.2(b) or of Section 2.2(c), as
applicable), (b) any issuance or sale of the kind specified in Section 2.2(n)
-
and (c) any issuance or sale of shares of the Corporation's undesignated shares
-
of Common Stock, provided that the consideration per share actually paid to the
--------
Corporation for any share referred to in this clause (c) is not less than the
Fair Value thereof at the time of issuance or sale.
26
<PAGE>
4.4. Amendment. Any term, covenant, agreement or condition of this Section
--------- -------
(xiv) may be amended, or compliance therewith may be waived (either generally or
- -----
in a particular instance and either retroactively or prospectively), by one or
more substantially concurrent written instruments signed by the Required Class G
Holders, provided that (a) no such amendment or waiver shall change the number
-------- -
of shares of Class D Common Stock issuable upon the conversion of any share of
Class G Common Stock or the manner of conversion without the prior written
consent of the holder of such share of Class G Common Stock and (b) no such
-
amendment or waiver shall extend to or affect any obligation not expressly
amended or waived or impair any right consequent thereon.
5. Definitions.
-----------
5.1. Definitions of Terms. The terms defined in this Section 5, whenever
--------------------
used and capitalized in this Section (xiv), shall, unless the context otherwise
requires, have the following respective meanings:
"Conversion Period" shall mean, with respect to any share of Class G Common
---------- ------
Stock, the period commencing on the date of issue of such share of Class G
Common Stock and terminating at 5:00 p.m. (Boston time) on August 31, 2005.
"Conversion Rate" shall have the meaning specified in Section 1.1.
--------------- ------------
"Convertible Securities" shall mean evidences of indebtedness, shares
----------- ----------
(including, without limitation, any shares of any class of Common Stock and
Preferred Shares) of stock or other securities which are convertible into or
exchangeable or exercisable for, with or without payment of additional
consideration, shares of Common Stock, either immediately or upon the arrival of
a specified date or the happening of a specified event.
"Current Market Price" of any security as of any date herein specified
------- ------ -----
shall mean the average of the daily closing prices for the 30 consecutive
trading days commencing 45 trading days before the day in question (or in the
event that a security has been traded for less than 45 days, each of the trading
days on which such security has been traded). The closing price for each day
shall be (a) if such security is listed or admitted for trading on any national
-
securities exchange, the last sale price of such security, regular way, or the
average of the closing bid and asked prices thereof if no such sale occurred, in
each case as officially reported on the principal securities exchange on which
such security is listed, or (b) if not reported as described in clause (a), the
-
average of the closing bid and asked prices of such security in the over-the-
counter market as shown by the National Association of Securities Dealers, Inc.
Automated Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, as reported by
any member firm of the New York Stock Exchange selected by the Corporation, or
(c) if not quoted as described in clause (b), the average of the closing bid and
- --
asked prices for such security as reported by the National Quotation Bureau
Incorporated or any similar successor organization, as reported by any member
firm of the New York Stock Exchange selected by the Corporation. If such
security is quoted on a national securities or central market system in lieu of
a market or quotation system
27
<PAGE>
described above, the closing price shall be determined in the manner set forth
in clause (a) of the preceding sentence if actual transactions are reported and
in the manner set forth in clause (b) of the preceding sentence if bid and asked
prices are reported but actual transactions are not.
"Employment Agreements" shall mean the President's Employment Agreement and
---------- ----------
the CEO Employment Agreement (as defined in the Stockholders Agreement).
"Fair Value" shall mean the fair value of the appropriate security,
---- -----
property, assets, business or entity as determined by the Board of Directors of
the Corporation, provided that if, within 10 days following receipt of the
--------
writing setting forth any such determination of fair value by the Board of
Directors of the Corporation, the Required Class G Holders shall notify the
Corporation of their disagreement with such determination, then fair value shall
be determined by an independent appraiser of recognized national standing
(selected by the Corporation and reasonably satisfactory to the Required Class G
Holders) who shall be willing to provide its determination within 10 days of
such appraiser's selection. Each determination of fair value shall be in
accordance with generally accepted financial practice and shall be set forth in
writing, and the Corporation shall, immediately following such determination,
deliver a copy thereof to each holder or holders of Class G Common Stock then
outstanding. For purposes of calculating Fair Value, adjustments required by
generally accepted financial practice shall include, without limitation,
adjustments, if and to the extent appropriate, on account of lack of liquidity,
lack of control and restrictions on transferability of any securities. The
determination of any such independent appraiser so made shall be conclusive and
binding on the Corporation and on such holder or holders. The Corporation shall
pay all of the expenses incurred in connection with any such determination,
including, without limitation, the expenses of the independent appraiser engaged
to make such determination. If the Corporation shall not have selected such
appraiser within 10 days after the occurrence of the event giving rise to the
need therefor, then the Required Class G Holders at the time outstanding may,
upon 10 days prior notice to the Corporation, select such appraiser.
Notwithstanding the foregoing, in the case of any security, (a) issued in
-
connection with a registered public offering of Common Stock, then Fair Value of
such Common Stock shall be the offering price to the public thereof; (b) issued
-
in connection with a private placement of Common Stock approved at the time of
such issue by the Required Class G Holders, then Fair Value shall be the price
that is specifically approved by the Required Class G Holders; (c) issued in
-
connection with the consummation of an Exit Event approved at the time of such
issue by the holder or holders of a majority of the outstanding shares of Common
Stock, then Fair Value shall be the price that is specifically approved by such
holder or holders and (d) in circumstances not subject to the provisions of
-
clauses (a), (b) and/or (c) above, if clauses (a), (b) or (c) of the definition
of Current Market Price are applicable to such security, then the Fair Value of
such security shall be the Current Market Price of such security.
"Officers' Certificate" shall mean a certificate signed on behalf of the
--------- -----------
Corporation by its Chairman, President or one of its Vice Presidents and its
Treasurer or one of its Assistant Treasurers.
28
<PAGE>
"Person" shall mean an individual, a corporation, an association, a joint-
------
stock company, a business trust or other similar organization, a partnership, a
joint venture, a trust, an unincorporated organization or a government or any
agency, instrumentality or political subdivision thereof.
"Preferred Shares", as applied to shares of any Person, shall mean shares
--------- ------
of such Person which shall be entitled to preference or priority over any other
shares of such Person in respect of either the payment of dividends or the
distribution of assets upon liquidation.
"Required Class G Holders" shall mean, at any date, the holder or holders
-------- ----- - -------
of 66-2/3% or more in interest of the shares of Class G Common Stock at the time
outstanding (excluding all shares of Class G Common Stock owned by the
Corporation or any affiliates of the Corporation (provided that none of the
--------
initial holders of the Class G Common Stock or their respective successors and
assigns shall be deemed to be affiliates of the Corporation)).
"Stock Purchase Rights" shall mean any warrants, options or other rights to
----- -------- ------
subscribe for, purchase or otherwise acquire any shares of Common Stock or any
Convertible Securities, either immediately or upon the arrival of a specified
date or the happening of a specified event.
"Stockholders Agreement" shall mean the Stockholders Agreement dated
------------ ---------
February 27, 1998 by and among the Corporation and the stockholders named
therein.
"Subsidiary" of any Person at any date shall mean (a) any other Person a
---------- -
majority (by number of votes) of the Voting Stock of which is owned by such
first-mentioned Person and/or by one or more other Subsidiaries of such first-
mentioned Person and (b) any other Person with respect to which such first-
-
mentioned Person and/or any one or more other Subsidiaries of such first-
mentioned Person (i) is entitled to more than 50% of such Person's profits or
-
losses or more than 50% of such Person's assets on liquidation or (ii) holds an
--
equity interest in such Person of more than 50%. As used herein, unless the
context clearly required otherwise, the term "Subsidiary" refers to a Subsidiary
of the Corporation.
"Voting Stock", when used with reference to any Person, shall mean shares
------ -----
(however designated) of such Person having ordinary voting power for the
election of a majority of the members of the board of directors (or other
governing body) of such Person, other than shares having such power only by
reason of the happening of a contingency.
5.2. Other Definitions. The terms defined in this Section 5.2, whenever
-----------------
used in this Section (xiv), shall, unless the context otherwise requires, have
the following respective meanings:
"shares" of any Person shall include any and all shares of capital stock of
------
such Person of any class or other shares, interests, participations or other
equivalents (however designated) in the capital of such Person.
29
<PAGE>
V. The Corporation shall indemnify and hold harmless, to the fullest
extent permitted by applicable law as it presently exists or may be hereafter
amended, any person made or threatened to be made a party to an action or
proceeding whether criminal, civil, administrative or investigative, by reason
of the fact that such person, his or her testator or intestate is or was a
director or officer of the Corporation or serves or served any other enterprise
as a director, officer, employee or agent at the request of the Corporation;
provided, however, the Corporation shall not indemnify any person for any
proceeding initiated by him or her unless the proceeding was authorized by the
Board of Directors. No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except of liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the director derived an improper
personal benefit. The Corporation shall also indemnify its directors and
officers for advance expenses incurred in connection with any proceeding
described above to the fullest extent permitted by Section 145(e) of the General
Corporation Law as in effect on the date of this Certificate of Incorporation or
as it may be hereafter amended.
VI. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
VII The Board of Directors is expressly authorized to exercise all powers
granted to the directors by law except insofar as such powers are limited herein
or in the By-laws or Stockholders Agreement of the Corporation. In furtherance
and not in limitation of the powers conferred by statute, the By-laws of the
Corporation may be adopted, altered, amended, changed, added to or repealed by
the Board of Directors.
30
<PAGE>
IN WITNESS WHEREOF, the undersigned directors of the Corporation have
signed this Certificate as of the 27th day of February, 1998 and hereby affirm
that the statements herein are true, under the penalties of perjury.
/s/ Michael B. Alexander
-------------------------------------------
Michael B. Alexander
Director
/s/ Joseph A. Saponaro
--------------------------------------------
Joseph A. Saponaro
Director
31
<PAGE>
Exhibit 3.4
BY-LAWS
of
IP HOLDING CO.
(A Delaware Corporation)
ARTICLE I
Meetings of Stockholders
------------------------
Section 1. Annual Meeting. The Annual Meeting of the Stockholders of
--------------
this Corporation shall be held within a period of four (4) months following the
end of the fiscal year of the Corporation, at a place and time determined by the
Board of Directors, for the election of directors and the transaction of such
other business as may properly come before the meeting.
Section 2. Special Meetings. Special meetings of Stockholders may be
----------------
called at any time by the Chairman, Vice Chairman, President, a Vice-President,
the Secretary or a majority of the Board of Directors, and shall be called upon
the request of the holders of a majority of the outstanding shares entitled to
vote (and if the Corporation has different classes of common stock, as if each
class of voting common stock of the Corporation had been converted into a single
class of common stock) (hereinafter "Equivalent Voting Common Stock"), made in
writing to the Chairman, Vice Chairman, President or Secretary.
Section 3. Notices. Written notices of each meeting of Stockholders,
-------
whether annual or special, stating the date, time and place of such meeting,
shall be given by serving a copy of such notice upon each Stockholder entitled
to vote, either personally or by mail, not less than ten nor more
<PAGE>
than sixty days before such meeting. If mailed, such copy shall be addressed to
each such Stockholder at his or her address as the same shall appear on the
stockbook of the Corporation unless such Stockholder shall have filed with the
Secretary of the Corporation a written request that notices intended for him or
her shall be mailed to some other address, in which case such copy shall be
mailed to the address designated in such request.
Section 4. Quorum. At all meetings of Stockholders, the holders of a
------
majority of Equivalent Voting Common Stock, present either in person or by
proxy, shall constitute a quorum, except as may be otherwise required by law.
Section 5. Record Date. The Board of Directors may fix a day and
-----------
hour not less than ten (10) nor more than sixty (60) days prior to the day of
holding any meeting of Stockholders as the time as of which Stockholders
entitled to notice of and to vote at such meeting shall be determined, and all
persons who shall be holders of record of voting stock at such time, and not
others, shall be entitled to notice of and to vote at such meeting.
Section 6. Voting. At all meetings of Stockholders at which a quorum
------
is present, all matters shall be determined by the vote of the holders of a
majority of the Equivalent Voting Common Stock, present in person or by proxy,
except as may be otherwise provided by law, the Corporation's Certificate of
Incorporation, these By-laws or the Stockholders Agreement, as amended, which is
described in Section 6 below. Any meeting of Stockholders may be adjourned to a
designated time and place by the vote of a majority in interest of the holders
of the Equivalent Voting Common Stock present in person or by proxy and entitled
to vote, even though less than a quorum is so present. No notice of such an
adjourned meeting of Stockholders need be given, other than by announcement at
the meeting, unless the adjourned meeting is more than thirty days after
2
<PAGE>
the scheduled meeting or if a new record date is fixed for the adjourned
meeting. 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 scheduled.
Section 7. Written Consent. Any action required to be taken or which
---------------
may be taken at any annual or special meeting of 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 number of
holders of Equivalent Voting Common Stock that would be necessary to authorize
the action at a meeting at which all Stockholders entitled to vote thereon were
present and voting. The consent shall set forth the action so taken and 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.
Section 8. Proxies. Every proxy must be executed in writing by the
-------
Stockholder or by his attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the Stockholder
executing it prior to a vote, except in those cases where an irrevocable proxy
is permitted by law.
ARTICLE II
Directors
---------
Section 1. General. The business of the Corporation shall be managed
-------
by the Board of Directors. Meetings of the Board of Directors may be held
either within or without the State of Delaware. Directors need not be
Stockholders.
3
<PAGE>
Section 2. Number. The initial Board of Directors nominated and
------
elected by the incorporator of the Corporation shall be seven (7). Thereafter,
the number of directors that shall constitute the entire Board shall be seven
(7) or such greater or lesser number (but not less than three (3)) as is
determined by a majority of the Board of Directors or Stockholders, subject to
the provisions of the Stockholders Agreement, as amended, which is described in
Section 6 below.
Section 3. Election; Tenure. Directors, other than members of the
----------------
first Board, shall be elected as provided in Section 3.11 of the Stockholders
Agreement described in Section 6 below. Each director shall hold office until
the annual meeting of Stockholders next following his or her election and until
his or her respective successors shall have been elected and qualified.
Section 4. Quorum. A quorum at any meeting of the Board of Directors
------
shall be a majority of all of the members of the Board, and if a quorum is
present, the vote of a majority of the directors present at the time of the vote
shall be the act of the Board, except as may otherwise be specifically required
by law or the Certificate of Incorporation.
Section 5. Meetings. Regular meetings of the Board may be held upon
--------
such notice, or without notice, and at such time and at such place as shall from
time to time be determined by the Board. The Chairman, Vice Chairman, President
or a Vice-President may, and at the request of a majority of directors must,
call a special meeting of the Board of Directors, two days notice of which shall
be given in person or by mail, telegraph, facsimile, cable or telephone.
Nothing contained herein shall be deemed to prevent a waiver of notice of any
meeting by any director.
Section 6. Vacancies. Except as provided in Section 7 of this
---------
Article, vacancies occurring in the membership of the Board of Directors, from
whatever cause arising, may be filled by the nominee who elected or has the
right to elect such director in accordance with Section 3.11
4
<PAGE>
of the Stockholders Agreement to be entered into between the Corporation and the
holders of outstanding Common Stock and options of the Corporation (the
"Stockholders Agreement").
Section 7. Removal. Any one or more or all of the directors may be
-------
removed, either with or without cause, at any time, by the nominee who elected
such director in accordance with the Stockholders Agreement. A vacancy or
vacancies occurring from such removal may be filled by such nominee.
Section 8. Executive Committee. By resolution adopted by a majority
-------------------
of the entire Board of Directors, the Board may designate one or more directors
to constitute an Executive Committee which shall have the authority specified by
the Board of Directors, with the exception of any authority the delegation of
which is prohibited by Section 141 of the General Corporation Law.
Section 9. Written Consent. 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 of the committee.
Section 10. Conference Calls. Members of the Board of Directors, or
----------------
of any committee thereof, may participate in a meeting of the Board or of the
committee, as the case may be, by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
provision shall constitute presence in person at such meeting.
5
<PAGE>
ARTICLE III
Officers
--------
Section 1. General. After the first meeting of incorporators and
-------
after each annual meeting of the Stockholders, the Board of Directors shall meet
and may elect a Chairman of the Board, Vice Chairman, President, one or more
Vice Presidents, a Secretary and a Treasurer, one or more Assistant Secretaries
and Assistant Treasurers, and such other officers as it may from time to time
determine. Any two or more offices may be held by the same person. None of the
officers need be members of the Board of Directors or Stockholders. All
officers shall have such authority and perform such duties as may be provided in
these By-laws or by the Board.
Section 2. Chairman of the Board. The Chairman of the Board shall
---------------------
preside at the meetings of the Stockholders and of the Board of Directors and
shall be the Chief Executive Officer of the Corporation and shall have the
general management of the general affairs of the Corporation.
Section 3. Vice Chairman. In the absence of the Chairman, the Vice
-------------
Chairman shall perform the duties of the Chairman and shall preside at the
meetings of the Stockholders and of the Board of Directors.
Section 4. President. The President, if there shall be one, shall
---------
exercise and perform those duties delegated to him or her by the Board of
Directors, Chairman or Vice Chairman.
Section 5. Vice President. The Vice-Presidents shall, in the absence
--------------
or incapacity of the President, perform the duties of the President; they shall
also perform such other duties and have such powers as may be prescribed or
assigned to them from time to time by the Board of Directors or the By-laws.
6
<PAGE>
Section 6. Chief Financial Officer. The Chief Financial Officer
-----------------------
shall perform all the duties customary to that office, shall have the care and
custody of the funds and securities of the Corporation, subject always to the
control and supervision of the Board of Directors, and shall have the general
supervision of the books of account. The Chief Financial Officer shall have
such other powers and duties as the Board of Directors from time to time may
prescribe. The Chief Financial Officer shall give such bonds for the faithful
performance of his or her duties as the Board of Directors from time to time may
determine.
Section 7. Treasurer. The Treasurer shall supervise the
---------
Corporation's relationships with banking and lending institutions, subject
always to the control and supervision of the Board of Directors. The Treasurer
shall have such other powers and duties as the Board of Directors from time to
time may prescribe.
Section 8. Secretary. The Secretary shall keep the minutes of the
---------
meetings of the Board of Directors and of the Stockholders and shall have the
custody of the seal of the Corporation and shall affix the same to certificates
of stock and other documents when authorized to do so. The Secretary shall
perform all the other duties usual to that office, and such other duties as the
Board of Directors from time to time may prescribe.
Section 9. Removal. The Board of Directors may, at any time, by the
-------
vote of a majority of the Board, remove any officer or officers, whether or not
elected or appointed by the Board of Directors, and any such removal may be made
at the pleasure of the Board, with or without cause.
Section 10. Compensation. The officers shall receive such salaries
------------
or other compensation as may from time to time be determined by the Board of
Directors.
7
<PAGE>
ARTICLE IV
Capital Stock
-------------
Section 1. Certificates. Certificates of stock shall be in such form
------------
as shall be approved by the Board of Directors, shall be numbered and registered
in the order in which they are issued, and shall be signed by the Chairman of
the Board of Directors, the Vice Chairman, the President or a Vice-President,
and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant
Treasurer, and the seal of the Corporation shall be affixed thereto. Such seal
may be a facsimile, engraved or printed. Where any such certificate is signed
by a transfer agent or transfer clerk and by a registrar, the signatures of any
such Chairman of the Board, Vice Chairman, President, Vice-President, Secretary,
Assistant Secretary, Treasurer or Assistant Treasurer, may be facsimiles,
engraved or printed.
Section 2. Transfers. Transfers of shares shall be made upon the
---------
books of the Corporation by the registered holder in person or by attorney, duly
authorized, and on surrender of the certificate or certificates for such shares,
properly assigned for transfer.
Section 3. Lost Certificates. In case of the loss, mutilation or
-----------------
destruction of a stock certificate, a duplicate certificate may be issued in its
place upon such terms and conditions as the Board of Directors may prescribe,
and if required by the Board of Directors, upon the furnishing to the
Corporation of an indemnity bond in such form and amount and with such sureties
as the Board of Directors may approve.
8
<PAGE>
ARTICLE V
General
-------
Section 1. Checks, Notes etc. All checks, drafts, notes or other
-----------------
orders or promises for the payment of money shall be signed by such officer or
officers or agent or agents as the Board of Directors from time to time may
designate.
Section 2. Waivers. Whenever under the provisions of the General
-------
Corporation Law, the Corporation's Certificate of Incorporation or of any of
these By-laws, action is authorized to be taken after notice to the Stockholders
or to the Board of Directors, or after the lapse of a prescribed period of time,
such action may be taken without notice and without the lapse of any period of
time, if either (i) the Stockholders or the members of the Board, as the case
may be, attend the meeting without protest of the lack of notice at the
beginning of the meeting, or (ii) at any time before or after such action be
completed such requirements be waived in writing by every Stockholder of this
Corporation entitled to such notice or to participate in such action, or by his
or her attorney thereunto authorized, if such action is to be or has been taken
by Stockholders, or by every director of this Corporation, if such action is to
be or has been taken by directors.
Section 3. Corporate Seal. The corporate seal of the Corporation
--------------
shall consist of a round seal with the name of the Corporation in the margin
thereof and the words "Delaware" with the figures "1998" and such legend,
figures, words and symbols in the center as may be from time to time adopted by
the Board of Directors.
9
<PAGE>
ARTICLE VI
Amendments
----------
Section 1. Stockholders Actions. These By-laws may be altered,
--------------------
amended, changed, added to or repealed at any Stockholders' meeting by vote of
the Stockholders holding a majority of the Equivalent Voting Common Stock
entitled to vote, present either in person or by proxy, provided the notice or
waiver of notice for such meeting contained a reference to the proposed
alteration, amendment or repeal.
Section 2. Directors Actions. The Board of Directors shall have the
-----------------
power without the assent or vote of the Stockholders to make, alter, amend,
change, add to or repeal these By-laws, but any such action taken or any By-laws
so made by the Board of Directors may be altered or repealed by the
Stockholders.
ARTICLE VII
Stockholders Agreement
----------------------
Section 1. Conflicts. In the event there is a conflict in the
---------
provisions of these By-laws and the Stockholders Agreement, the provisions of
the Stockholders Agreement shall govern such provisions.
10
<PAGE>
EXHIBITS 10.2 (a)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERSTAR, INC.
APOLLO HOLDING, INC.
INTERMETRICS, INC.
PACER INFOTEC, INC.
$8,333,000 Senior Term Notes due August 31, 2002
$5,000,000 Senior Revolving Credit Notes due August 31, 2001
$5,000,000 13.00% Senior Subordinated Notes due August 31, 2002
$16,500,000 Senior Bridge Notes due February 28, 2001
84,151.94 Shares of Non-Voting Class A Common Stock of Averstar, Inc.
232,698.41 Shares of Non-Voting Class B Common Stock of Averstar, Inc.
605,285.70 Shares of Non-Voting Class G Common Stock of Averstar, Inc.
----------
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
----------
February 27, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-2-
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
1. Background; Authorization of Securities; Other Purchasers; etc. ...... 1
2. Sale and Purchase of Securities ...................................... 4
3. Closing .............................................................. 5
4. Conditions to Closing................................................. 5
4.1. Representations and Warranties Correct ....................... 5
4.2. Performance; No Default ...................................... 5
4.3. Related Transactions ......................................... 6
4.4. Compliance Certificate ....................................... 7
4.5. Security Documents; Collateral ............................... 7
4.6. Opinions of Counsel for Pacer and the Companies .............. 8
4.7. Opinion of Your Special Counsel .............................. 9
4.8. Certain Additional Documents to be Delivered at or Prior to
the Closing ................................................. 9
4.9. Sale of Securities to Other Purchasers ....................... 9
4.10. Legal Investment; Certificate ................................ 9
4.11. Sale and Purchase Not Forbidden by Law ....................... 9
4.12. Payment of Commitment Fee and Transaction Costs .............. 9
4.13. Proceedings and Documents .................................... 9
5. Representations and Warranties ....................................... 10
5.1. Organization, Standing, etc. of the Companies ................ 10
5.2. Names; Jurisdiction of Incorporation, Subsidiaries, etc. ..... 10
5.3. Qualification ................................................ 10
5.4. Business, etc. ............................................... 10
5.5. Capital Stock ................................................ 10
5.6. Financial Statements ......................................... 11
5.7. Changes; Solvency, etc. ...................................... 12
5.8. Tax Returns and Payments ..................................... 12
5.9. Funded Debt, Current Debt, Liens, Investments, Transactions
with Affiliates and Leases .................................. 12
5.10. Title to Properties; Liens; Leases ........................... 13
5.11. Litigation, etc. ............................................. 13
5.12. Valid and Binding Obligations; Compliance with Other
Instruments; Absence of Restrictions, etc. .................. 14
5.13. ERISA ........................................................ 15
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
5.14. Consents, etc. ............................................... 16
5.15. Proprietary Rights; Licenses ................................. 16
5.16. Offer of Securities; Investment Bankers ...................... 17
5.17. Government Regulation ........................................ 17
5.18. Disclosure ................................................... 17
5.19. Labor Relations; Suppliers, Distributors and Customers ....... 17
5.20. Voting Provisions ............................................ 18
6. Use of Proceeds; Regulation G, etc. ................................ 18
7. Financial Statements and Information ............................... 18
8. Inspection; Confidentiality ........................................ 23
9. Prepayment of Notes ................................................ 24
9.1. Required Semi-Annual Prepayment Without Premium of Senior
Term Notes .................................................. 24
9.2. Optional Prepayment Without Premium of Senior Bridge Notes ... 24
9.3. Optional Prepayment Without Premium of Senior Term Notes ..... 24
9.4. Optional Prepayment Without Premium of Subordinated Notes .... 25
9.5. Supplementary Optional Prepayments Without Premium of
Subordinated Notes .......................................... 25
9.6. Optional Prepayment With Premium of Subordinated Notes ....... 26
9.7. Prepayment at the Option of Holders of Senior Notes and/or
Subordinated Notes upon a Change of Control ................. 26
9.8. Allocation of Partial Prepayments of Notes ................... 28
9.9. Notice of Optional Prepayments of Notes ...................... 28
9.10. Maturity; Accrued Interest; Surrender, etc. of Notes ......... 28
9.11. Purchase of Notes ............................................ 28
9.12. Payment on Non-Business Days ................................. 28
9.13. Intentionally Omitted ........................................ 28
9.14. Proceeds of Revolving Credit Loans Unavailable as a Source
of Funds for Prepayments .................................... 28
10. Subordination of Subordinated Notes ................................ 29
10.1. Certain Definitions .......................................... 29
10.2. Subordinated Indebtedness Subordinated to Superior
Indebtedness; No Amendments ................................. 29
10.3. Dissolution, Liquidation, Reorganization, etc. ............... 30
10.4. No Payments With Respect to Subordinated Indebtedness in
Certain Circumstances ....................................... 31
10.5. Payments and Distributions Received .......................... 34
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
10.6. Subrogation ................................................ 34
10.7. Notice ..................................................... 34
10.8. Subordination Not Affected, etc. ........................... 35
10.9. Obligations Unimpaired ..................................... 35
10.10. Holders of Subordinated Indebtedness Entitled to Assume
Payments Not Prohibited in Absence of Notice .............. 35
10.11. References in Subordinated Notes to Terms of Subordination . 36
10.12. Reinstatement of Terms of Subordination .................... 36
10.13. Limitation on Right of Action .............................. 36
11. Registration, etc. ................................................. 37
11.1. Registration on Request .................................... 37
11.2. Incidental Registration .................................... 39
11.3. Permitted Registration ..................................... 40
11.4. Registration Procedures .................................... 40
11.5. Indemnification ............................................ 41
11.6. Restrictions on Other Agreements ........................... 42
12. The Revolving Credit Facility ...................................... 42
12.1. Certain Definitions ........................................ 42
12.2. Revolving Commitment ....................................... 43
12.3. Prepayments of the Senior Revolving Credit Notes ........... 44
12.4. Permanent Termination of Total Revolving Commitment ........ 44
12.5. Notice of Prepayments or Terminations ...................... 44
12.6. Pro Rata Treatment ......................................... 44
12.7. Permanent Termination of the Total Revolving Commitment Upon
the Occurrence of an Event of Default or a Change of
Control ................................................... 45
12.8. Books and Records .......................................... 45
13. Board Visitation Rights; Management Stock Option Plan .............. 46
14. Covenants of the Companies ......................................... 47
14.1. Books of Record and Account; Reserves ...................... 47
14.2. Payment of Taxes; Corporate Existence; Maintenance of
Properties; Compliance with Laws; Lines of Business;
Proprietary Rights ........................................ 47
14.3. Insurance .................................................. 48
14.4. Limitation on Discount or Sale of Receivables .............. 48
14.5. Limitation on Funded Debt and Current Debt ................. 48
14.6. Limitation on Restricted Payments .......................... 51
14.7. Certain Financial Covenants ................................ 52
14.8. Limitation on Tax Consolidation ............................ 53
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
14.9. Limitation on Liens ........................................ 53
14.10. Limitation on Transactions with Affiliates ................. 53
14.11. Limitation on Investments .................................. 54
14.12. Limitation on Issuance of Shares of Subsidiaries ........... 54
14.13. Limitation on Subsidiary's Consolidation or Merger ......... 54
14.14. Limitation on the Holding Company's Consolidation or Merger. 55
14.15. Limitation on Disposition of Property ...................... 55
14.16. Limitation on Leasebacks ................................... 56
14.17. Modification of Certain Documents, Agreements and
Instruments ............................................... 57
14.18. Further Assurances ......................................... 57
14.19. Additional Subsidiaries .................................... 57
15. Definitions ........................................................ 58
15.1. Definitions of Capitalized Terms ........................... 58
15.2. Other Definitions .......................................... 75
15.3. Accounting Terms and Principles; Laws ...................... 76
16. Remedies ........................................................... 77
16.1. Events of Default Defined; Acceleration of Maturity ........ 77
16.2. Suits for Enforcement, etc. ................................ 81
16.3. No Election of Remedies .................................... 81
16.4. Remedies Not Waived ........................................ 81
16.5. Application of Payments .................................... 81
17. Registration, Transfer and Exchange of Securities .................. 82
18. Replacement of Securities .......................................... 83
19. Amendment and Waiver ............................................... 83
20. Method of Payment of Securities .................................... 84
21. Expenses; Indemnity ................................................ 84
22. Taxes .............................................................. 85
23. Communications ..................................................... 85
24. Survival of Agreements, Representations and Warranties, etc. ....... 86
25. Successors and Assigns; Rights of Other Holders .................... 86
</TABLE>
(iv)
<PAGE>
26. Purchase for Investment; ERISA ..................................... 87
27. Governing Law; Jurisdiction; Waiver of Jury Trial .................. 88
28. Rule 144A .......................................................... 89
29. Miscellaneous ...................................................... 89
Schedule I Schedule of Purchasers
Exhibit l(d)(i) Form of Senior Term Note
Exhibit l(d)(ii) Form of Senior Revolving Credit Note
Exhibit l(d)(iii) Form of Subordinated Note
Exhibit 1(d)(iv) Form of Senior Bridge Note
Exhibit 1(f) Form of Note Guarantee
Exhibit 1(g) Form of Security Agreement
Exhibit 3 Wire Instructions
Exhibit 4.3(b) Indebtedness to be Repaid at Closing
Exhibit 4.3(d) Form of Stockholders Agreement
Exhibit 4.3(e) Form of Holding Company's Charter
Exhibit 4.6 Opinion of each of Bingham Dana LLP and
Shereff, Friedman, Hoffman & Goodman, LLP
Exhibit 4.7 Opinion of Choate, Hall & Stewart
Exhibit 4.8 Additional Documents to be Delivered at or Prior to
the Closing
Exhibit 5.2 Names; Jurisdiction of Incorporation, Subsidiaries, etc.
Exhibit 5.5 Capital Stock
Exhibit 5.6(a) Financial Statements
Exhibit 5.6(b) Projected Financial Information
Exhibit 5.6(c) Pro Forma Unaudited Balance Sheet
Exhibit 5.7 Restricted Payments
Exhibit 5.8 Tax Returns and Payments
Exhibit 5.9 Funded Debt, Current Debt, Liens, Investments,
Transactions with Affiliates and Leases
Exhibit 5.10 Title to Properties; Liens, Leases
Exhibit 5.12 Valid and Binding Obligations; Compliance with Other
Instruments; Absence of Restrictions, etc.
Exhibit 5.14 Consents
Exhibit 5.18 Disclosure Documents
Exhibit 5.20 Voting Provisions
Exhibit 6 Schedule of Sources and Uses
Exhibit 7(c)(v) Information as to New Subsidiaries
Exhibit 12.2(b) Form of Certificate (re: Revolving Credit Loans)
(v)
<PAGE>
AVERSTAR, INC.
APOLLO HOLDING, INC.
INTERMETRICS, INC.
PACER INFOTEC, INC.
23 Fourth Avenue
Burlington, Massachusetts 01803
February 27, 1998
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
1295 State Street
Springfield, Massachusetts 01111
Ladies and Gentlemen:
AVERSTAR, INC., a Delaware corporation formerly named IP Technologies,
Inc. (the "Holding Company"), APOLLO HOLDING, INC., a Delaware corporation
("Apollo"), INTERMETRICS, INC., a Delaware corporation ("Intermetrics") and
PACER INFOTEC, INC., a Massachusetts corporation ("Pacer"), jointly and
severally agree with you as follows. Certain terms used herein are defined in
section 15.
1. Background: Authorization of Securities: Other Purchasers: etc.
---------------------------------------------------------------
(a) Pursuant to those certain Securities Purchase Agreements dated
August 31, 1995, as amended by Amendment and Waiver of Securities Purchase
Agreement dated "February __, 1996" and Amendment and Waiver No. 2 of
Securities Purchase Agreement dated "May __, 1996" (the "Existing
Securities Purchase Agreements"), among Apollo, Intermetrics (the
successor by merger to IMT Acquisition Corp.), and each of the
institutional investors named therein, (i) Apollo issued and sold: (A)
- -
18,400 shares of its Non-Voting Class A Common Stock, $.001 par value (the
"Apollo A Shares"), (B) 50,880 shares of its Non-Voting Class B Common
-
Stock, $.001 par value (the "Apollo B Shares"), and (C) its common stock
-
purchase warrants (the "Apollo Warrants") evidencing rights to purchase in
the aggregate 132,347 shares of its Voting or Non-Voting Class D Common
Stock, $.001 par value; and (ii) Intermetrics issued and sold: (A) its
-- -
Senior Term Notes due August 31, 2002 in the aggregate principal amount of
$8,333,000 (the "Intermetrics Senior Term Notes"), (B) its Senior
-
Revolving Credit Notes due August 31, 2001 in the aggregate principal
amount of $5,000,000 (the "Intermetrics Senior Revolving Credit Notes")
and (C) its 13% Senior Subordinated Notes due August 31, 2002 in the
-
aggregate principal amount
<PAGE>
of $5,000,000 (the "Intermetrics Subordinated Notes" and, together with
the Intermetrics Senior Term Notes and Intermetrics Senior Revolving
Credit Notes, the "Intermetrics Notes").
(b) Apollo and Intermetrics have informed you of the proposed
consummation of the IES Spin Out and the Intermetrics/Pacer Transaction
and, in connection therewith, the Exchange of Securities and the issuance
of the Senior Bridge Notes, and the parties hereto are entering into this
Agreement, the Other Securities Purchase Agreements and the Other
Operative Documents to give effect thereto.
(c) The Holding Company has authorized the issue and sale of:
(i) 84,151.94 shares of Non-Voting Class A Common Stock, $.001
par value, of the Holding Company (herein, together with any shares
of the Holding Company issued in exchange therefor or replacement
thereof, including any shares issued upon conversion thereof, called
the "Purchased A Shares");
(ii) 232,698.41 shares of Non-Voting Class B Common Stock,
$.001 par value, of the Holding Company (herein, together with any
shares of the Holding Company issued in exchange therefor or
replacement thereof, including any shares issued upon conversion
thereof, called the "Purchased B Shares"); and
(iii) 605,285.70 shares of Non-Voting Class G Common Stock,
$.00l par value, of the Holding Company (herein, together with any
shares of the Holding Company issued in exchange therefor or
replacement thereof including any shares issued on conversion
thereof, called the "Purchased G Shares"), convertible into
605,285.70 (subject to adjustment) shares of Class D Common Stock,
3.001 par value, of the Holding Company.
(d) The Note Issuers have authorized the issue and sale of:
(i) their joint and several Senior Term Notes due August 31,
2002 (herein, together with any notes issued in exchange therefor or
replacement thereof called the "Senior Term Notes") in the aggregate
principal amount of $8,333,000. The Senior Term Notes shall bear
interest at a per annum rate equal to the Adjusted LIBOR Rate as in
effect from time to time. The Senior Term Notes are to be
substantially in the form of Exhibit l(d)(i) attached hereto;
---------------
-2-
<PAGE>
(ii) their joint and several Senior Revolving
Credit Notes due August 31, 2001 (herein, together with
any notes issued in exchange therefor or replacement
thereof, called the "Senior Revolving Credit Notes") in
the aggregate principal amount not to exceed $5,000,000.
The Senior Revolving Credit Notes shall bear interest at a
per annum rate equal to the Adjusted LIBOR Rate as in
effect from time to time. The Senior Revolving Credit
Notes are to be substantially in the form of Exhibit
-------
1(d)(ii) attached hereto;
--------
(iii) their joint and several 13.00% Senior
Subordinated Notes due August 31, 2002 (herein, together
with any notes issued in exchange therefor or replacement
thereof, called the "Subordinated Notes") in the aggregate
principal amount of $5,000,000. The Subordinated Notes are
to be substantially in the form of Exhibit 1(d)(iii)
-----------------
attached hereto; and
(iv) their joint and several Senior Bridge Notes due
February 28, 2001 (herein, together with any notes issued
in exchange therefor or replacement thereof, called the
"Senior Bridge Notes") in the aggregate principal amount
of up to $16,500,000. The Senior Bridge Notes shall bear
interest at a per annum rate equal to the Adjusted LIBOR
Rate as in effect from time to time. The Senior Bridge
Notes are to be substantially in the form of Exhibit 1
---------
(d)(iv) attached hereto.
-------
The Purchased A Shares, the Purchased B Shares and the Purchased G Shares
are collectively referred to as the "Purchased Shares" and each as a
"Purchased Share". The Senior Term Notes, the Senior Revolving Credit
Notes and the Senior Bridge Notes are collectively referred to as the
"Senior Notes" and each as a "Senior Note". The Senior Notes and the
Subordinated Notes are collectively referred to as the "Notes" and each as
a "Note". The Notes and the Purchased Shares are collectively referred to
as the "Securities" and each as a "Security".
(e) Interest on the Notes is payable quarterly on the last day of
each February, May, August and November, commencing May 31, 1998, and at
maturity. At the time of making each payment of interest on the Notes, the
Note Issuers shall deliver to the holders of the Notes a spreadsheet
setting forth in reasonable detail the amount (and the applicable rate or
rates) (and all calculations made in determining the same) of interest
accrued and paid on each Note and each Revolving Credit Loan outstanding
during the applicable quarter (all such amounts being subject to review
and approval by the holders of the Notes). In no event shall the amount
paid or agreed to be paid by the Obligors as interest and premium on any
Note exceed the highest lawful rate permissible under any law applicable
thereto.
(f) The Notes shall be guaranteed by each of the Subsidiaries of the
Holding Company (other than any Note Issuer and other than Intermetrics
-3-
<PAGE>
Entertainment Software, LLC) pursuant to a Note Guarantee substantially in
the form of Exhibit 1(f) attached hereto (each, a "Note Guarantee";
------------
collectively, the "Note Guarantees").
(g) The Notes shall be secured by and entitled to the benefits of a
first priority perfected Lien in all presently owned tangible and
intangible property (whether real, personal or mixed) of the Holding
Company and each of its Subsidiaries (whether now existing or hereafter
acquired or organized) (other than Intermetrics Entertainment Software,
LLC) pursuant to one or more security agreements substantially in the form
of Exhibit 1(g) attached hereto (each a "Security Agreement";
-----------
collectively, the "Security Agreements"). The Note Guarantees and Security
Agreements, together with any and all other agreements, documents and
instruments heretofore or hereafter securing the Notes and/or any other
obligations of the Holding Company and/or any of its Subsidiaries under
any of the Operative Documents, as amended, modified or supplemented from
time to time, are sometimes hereinafter referred to collectively as the
"Security Documents" and each, individually, as a "Security Document". The
properties and assets securing the Notes and/or such other obligations,
together with any additions thereto or replacements or proceeds thereof,
all as further described in the Security Documents, are sometimes referred
to collectively as the "Collateral".
(h) The Securities are to be issued under this Agreement and
separate Securities Purchase Agreements (the "Other Securities Purchase
Agreements") identical herewith (except as to the name and address of each
of the other purchasers) being entered into concurrently by the Issuers
with each of the other purchasers (the "Other Purchasers") named in
Schedule I attached hereto. The issue of Securities to you and the issues
----------
of Securities to each of the Other Purchasers are separate transactions
and you shall not be liable or responsible for the acts or defaults of the
Other Purchasers. This Agreement and the Other Securities Purchase
Agreements amend, restate and supersede the Existing Securities Purchase
Agreements.
2. Sale and Purchase of Securities. The Issuers will issue and exchange or
-------------------------------
sell to you and, subject to the terms and conditions hereof and in reliance upon
the representations and warranties of the Issuers contained herein and in the
other Operative Documents, you will exchange and purchase from the Issuers, at
the Closing, as specified in section 3, such Securities as are specified on that
portion of Schedule I attached hereto as is applicable to you; provided that the
---------- --------
Note Issuers shall have specified the aggregate principal amount of the Senior
Bridge Notes to be issued and sold at the Closing by written notice delivered to
you at least two Business Days prior to the Closing Date. The Purchased A
Shares, Purchased B Shares and Purchased G Shares shall be issued and exchanged
at the Closing against delivery for cancellation of the Apollo A Shares, the
Apollo B Shares and the Warrants, respectively. The Senior Term Notes, Senior
Revolving Credit Notes and Subordinated Notes shall be issued and exchanged at
the Closing against delivery for
-4-
<PAGE>
cancellation of the Intermetrics Senior Term Notes, Intermetrics Senior
Revolving Credit Notes and Intermetrics Subordinated Notes, respectively. The
purchase price of the Senior Bridge Notes to be issued at the Closing shall be
100% of the principal amount thereof. The Issuers, you and each of the Other
Purchasers agree that the values ascribed to the Securities (which values shall
be used by the Issuers, you and the Other Purchasers, as well as any subsequent
holder of any of the Securities, for all purposes, including the preparation of
tax returns) shall be determined in accordance with the foregoing and, if
applicable, the values specified in section 2 of Existing Securities Purchase
Agreements.
3. Closing. The closing of the exchange, sale and purchase of the Securities
-------
hereunder (the "Closing") shall take place at the office of Messrs. Choate, Hall
& Stewart, Exchange Place, 53 State Street, Boston, Massachusetts 02109, on
February 27, 1998 (or on such other date (not later than February 27, 1998) as
may be agreed to in writing by the Companies, you and each of the Other
Purchasers) (the "Closing Date") not later than 11:00 A.M. Boston time (your
reinvestment deadline). At the Closing, the Issuers will deliver to you the
Securities to be issued to you at the Closing against payment of the purchase
price thereof to (or for the benefit of) the Companies in immediately available
funds in accordance with the wire instructions set forth on Exhibit 3 attached
---------
hereto or against delivery of the securities to be exchanged therefor, as
applicable. Delivery of the Securities to be issued to you at the Closing shall
be made in the form of one or more Notes and certificates for the Purchased
Shares, in such denominations and registered in such names as are specified on
Schedule I attached hereto and in each case dated, and in the case of the Notes,
- ----------
bearing interest from the Closing Date. If at the Closing the Issuers shall fail
to tender the Securities to be delivered to you thereat as provided herein, or
if at the Closing any of the conditions specified in section 4 shall not have
been fulfilled to your satisfaction, you shall, at your election, be relieved of
all further obligations under this Agreement, without thereby waiving any other
rights you may have by reason of such failure or such non-fulfillment.
4. Conditions to Closing. Your obligation to exchange, purchase and pay for
---------------------
the Securities to be issued to you hereunder at the Closing is subject to the
fulfillment to your satisfaction, prior to, at or in connection with the
Closing, of the following conditions:
4.1. Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Companies herein and in the other Operative Documents
shall have been correct when made and shall be correct at and as of the time of
the Closing (after giving effect to the transactions consummated at the
Closing).
4.2. Performance; No Default. The Companies shall have performed all
-----------------------
agreements and complied with all conditions contained herein and in the other
Operative Documents required to be performed or complied with by them prior to
or at the Closing, including, without limitation, the conditions set forth in
section 4.3, and at the time of the Closing, no Default or Event of Default
shall exist and no condition shall exist which has resulted in, or could
reasonably be expected to result in, a Material Adverse Change.
-5-
<PAGE>
4.3. Related Transactions.
--------------------
(a) Pursuant to and in accordance with the terms of the Agreement
and Plan of Merger dated as of January 22, 1998 by and between Pacer and
Apollo (the "Merger Agreement") (the Merger Agreement and the other
agreements, documents and instruments executed in connection therewith are
sometimes collectively referred to as the "Merger Documents"), (i) the
-
Pacer Merger and the Apollo Merger (the "Mergers") shall have been
consummated and shall have become effective, (ii) the former stockholders
--
of Pacer and Apollo shall have received either cash or shares of Holding
Company Common Stock in the manner specified in the Merger Agreement and
(iii) Apollo, Intermetrics, Pacer and each of the Subsidiaries of Pacer
---
shall have become Wholly-Owned Subsidiaries of the Holding Company. No
stockholder of Apollo or Pacer shall have demanded an appraisal of its
shares of stock in connection with the Mergers. All filings necessary to
effectuate the Mergers, including, without limitation, the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware
and of the Articles of Merger with the Secretary of State of The
Commonwealth of Massachusetts, shall have been made. No material condition
under any of the Merger Documents for the benefit of Apollo and
Intermetrics shall have been waived. The terms of the Merger Documents
shall be satisfactory to you in all material respects.
(b) After giving effect to the Closing, the Companies shall not have
any Funded Debt or Current Debt other than that evidenced by the Notes and
that which is specified on Exhibit 5.9 attached hereto. The Indebtedness of
-----------
Pacer and its Subsidiaries specified on Exhibit 4.3(b) attached hereto
--------------
shall have been repaid in full and all related Liens shall have been
terminated and you shall have received evidence of the foregoing
(including, without limitation, payoff letters, mortgage discharges and UCC
termination statements).
(c) The capitalization of the Companies shall be in all respects
satisfactory to you. Without limiting the generality of the foregoing, the
Persons indicated on Exhibit 5.5 attached hereto shall have acquired the
-----------
specified number of shares of Holding Company Common Stock for the
specified consideration (to be paid in cash, unless otherwise noted on such
exhibit), in each case upon terms satisfactory to you in all material
respects.
(d) You, each of the Other Purchasers, the Holding Company and each
other Person who will own any shares of Holding Company Common Stock (or
any securities convertible into or exercisable or exchangeable for such
shares) immediately following the Closing shall have entered into the
Stockholders Agreement substantially in the form of Exhibit 4.3(d) attached
--------------
hereto (the "Stockholders Agreement") and such agreement shall be in full
force and effect.
-6-
<PAGE>
(e) The Holding Company shall have amended its charter such that it
is in the form of Exhibit 4.3(e) attached hereto.
--------------
(f) The employment agreements dated August 31, 1995 (as amended, the
"Employment Agreements") between Intermetrics and each of the following
individuals: (i) Michael B. Alexander and (ii) Joseph A. Saponaro, shall
- --
have been assigned to the Holding Company and, following the Closing, shall
be amended pursuant to amendments in form and substance satisfactory to you
in all material respects. Without limiting the generality of the foregoing,
the Employment Agreements (as so amended) shall provide for the issuance of
stock options to Messrs. Alexander and Saponaro exercisable for not more
than 504,179.89 shares of Holding Company Common Stock upon terms and
conditions satisfactory to you in all material respects.
(g) The consulting agreement between Intermetrics and Westgate and
the consulting agreement between Intermetrics and Levy/Schulte LLC, each
dated August 31, 1995 (collectively, as amended, the "Consulting
Agreements"), shall have been amended pursuant to amendments in form and
substance satisfactory to you in all material respects and shall be in full
force and effect. Without limiting the generality of the foregoing, each of
the Consulting Agreements shall provide (or Westgate and Levy/Schulte LLC
shall otherwise agree in writing) that payments under the Consulting
Agreements are subject to the provisions of section 14.6.
(h) The IES Spin Out shall have been consummated upon terms and
conditions satisfactory to you in all material respects, and the IES Spin
Out Documents shall be in form and substance satisfactory to you in all
material respects.
4.4. Compliance Certificate. You shall have received an Officers'
----------------------
Certificate, dated the Closing Date, certifying that the conditions specified in
sections 4.1 and 4.2 have been fulfilled.
4.5. Security Documents; Collateral.
------------------------------
(a) The Security Documents shall have been duly authorized, executed
and delivered by each of the parties thereto and shall be in full force and
effect and all agreements, documents and instruments required to be
executed, delivered, filed and/or recorded in connection therewith shall
have been so executed, delivered, filed and/or recorded so as to perfect
the Liens created by the Security Documents.
(b) You and your special counsel shall be reasonably satisfied in
all material respects as to: (i) the insurance coverages applicable to any
portion of the Collateral; (ii) compliance by the Holding Company and each
of its Subsidiaries with all laws, statutes, rules and regulations
applicable to any portion or all of the
-7-
<PAGE>
Collateral (including those relating to permitting, zoning and/or to
environmental matters); (iii) the title to the Collateral (and the absence
---
of any Liens (other than those permitted under section 14.9) or any
outstanding claims); and (iv) the condition and value of the Collateral.
--
(c) In connection with the foregoing, at or prior to the Closing, you
shall have received the following items, each of which shall be in a form
and substance satisfactory to you in all material respects:
(i) a certificate or certificates of insurance evidencing the
insurance coverages maintained by the Holding Company and its
Subsidiaries, which certificates shall name the holders of the Notes
as additional insureds and loss payees, as applicable, and shall
demonstrate that the insurance policies evidenced thereby comply in
all material respects with the terms of this Agreement, the Security
Documents and the other Operative Documents relating to insurance
matters;
(ii) evidence of the recording, registration, filing, validity
and priority of all financing statements and other instruments
related to the Liens created by the Security Documents (and the
payment of all related fees and taxes);
(iii) lien searches (performed as of a recent date) from the
applicable offices in each jurisdiction in which any of the assets
and properties of the Holding Company or its Subsidiaries shall be
located at or after the Closing, which searches shall not reveal any
prior financing statement covering any portion or all of the
Collateral (other than financing statements to be terminated at or
prior to the Closing and those evidencing Liens permitted under
section 14.9);
(iv) consents and waivers from each of the Persons named on
Exhibit 5.14 attached hereto, including, without limitation, consents
------------
from all applicable licensors, landlords, mortgagees, warehousemen,
bailees and other similar persons; and
(v) certificates evidencing all outstanding shares of each of
the Holding Company's Subsidiaries, together with stock powers
executed in blank.
4.6. Opinions of Counsel for Pacer and the Companies. At the Closing, you
-----------------------------------------------
shall have received an opinion, each dated the Closing Date, from each of
Bingham Dana LLP, counsel for Pacer, and Shereff, Friedman, Hoffman & Goodman,
LLP, counsel for the
-8-
<PAGE>
Companies, addressing the matters set forth on Exhibit 4.6 attached hereto and
-----------
such other matters as you may reasonably request.
4.7. Opinion of Your Special Counsel. At the Closing, you shall have
-------------------------------
received an opinion dated the Closing Date, from your special counsel, Messrs.
Choate, Hall & Stewart, substantially in the form of Exhibit 4.7 attached
-----------
hereto.
4.8. Certain Additional Documents to be Delivered at or Prior to the
---------------------------------------------------------------
Closing. You shall have received the items specified on Exhibit 4.8 attached
- ------- -----------
hereto, each of which shall be in form and substance acceptable to you.
4.9. Sale of Securities to Other Purchasers. At the Closing, the Issuers
--------------------------------------
shall issue to the Other Purchasers the Securities to be issued at the Closing
by the Other Purchasers pursuant to the Other Securities Purchase Agreements and
shall receive payment in full of the purchase price thereof.
4.10. Legal Investment: Certificate. At the time of the Closing, your
-----------------------------
exchange and purchase of the Securities to be issued pursuant hereto shall be
permitted under the laws and regulations of any jurisdiction to which you are
subject (without resort to any provision of any such law permitting limited
investments by you without restriction as to the character of the particular
investment), and you shall, if requested by you, have received an Officers'
Certificate, dated the Closing Date, certifying as to such matters as you may
request to enable you to determine whether your exchange and purchase is so
permitted.
4.11. Sale and Purchase Not Forbidden by Law. The offer, issue, exchange,
--------------------------------------
sale and delivery by the Issuers of the Securities to be issued pursuant hereto
and your exchange and purchase of such Securities at the Closing shall not be
prohibited by and shall not subject you to any tax, penalty, liability or other
onerous condition under or pursuant to any law, statute, rule or regulation.
4.12. Payment of Commitment Fee and Transaction Costs. The Companies shall
-----------------------------------------------
have paid (a) a nonrefundable commitment fee to you and the Other Purchasers in
the aggregate amount of $123,750 (of which $10,000 has been paid), which fee
shall be allocated among you and the Other Purchasers in proportion to the
aggregate principal amount of the Senior Bridge Notes committed to be purchased
by each, and (b) all fees, expenses and disbursements incurred by you and the
Other Purchasers at or prior to the time of the Closing in connection with the
transactions contemplated by the Operative Documents, including, without
limitation, the reasonable fees, expenses and disbursements of your special
counsel.
4.13. Proceedings and Documents. All proceedings in connection with the
-------------------------
transactions contemplated by the Operative Documents and all agreements,
documents and instruments incident to such transactions shall be satisfactory in
substance and form to you
-9-
<PAGE>
and your special counsel, and you and your special counsel shall have received
all such counterpart originals or copies thereof as you or they may reasonably
request.
5. Representations and Warranties. The Holding Company, Apollo, Intermetrics
------------------------------
and Pacer jointly and severally represent and warrant that (after giving effect
to the Mergers and the other transactions consummated at the Closing):
5.1. Organization, Standing. etc. of the Companies. Each of the Companies
----------------------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties, to carry on its
business as now conducted, and now proposed to be conducted, to execute, deliver
and perform each of the Operative Documents to which it is (or is to be) a party
and to consummate the transactions contemplated by the Operative Documents and
no approval of the stockholders of any Company or any class thereof is required
in connection therewith which has not been obtained.
5.2. Names; Jurisdiction of Incorporation. Subsidiaries. etc. Exhibit 5.2
------------------------------------------------------- -----------
attached hereto correctly specifies as to each Company (a) its legal name, (b)
the jurisdiction of its incorporation, (c) each jurisdiction (other than its
jurisdiction of incorporation) in which it is qualified to do business and (d)
each jurisdiction in which it conducts any business. All of Subsidiaries of the
Holding Company are listed on Exhibit 5.2 attached hereto.
-----------
5.3. Qualification. Each of the Companies is duly qualified or licensed to
-------------
do business and is in good standing in each jurisdiction in which the character
of the properties owned or leased or the nature of the activities conducted
makes such qualification or licensing necessary, except for those jurisdictions
in which the failure to be so qualified or licensed or to be in good standing
has not resulted in, and could not reasonably be expected to result in, a
Material Adverse Change.
5.4. Business, etc. The Companies are collectively engaged in the business
-------------
(the "Business") of developing, marketing and selling the following services:
(a) systems engineering, software design services and software coding, including
-
(i) analysis and design, (ii) coding development, test and integration and (iii)
- -- ---
operational support and maintenance; (b) multimedia programming services,
-
development software and computer multimedia systems; (c) tools for embedded
-
systems development and (d) software for operation and testing of manufacturing
-
plants and products, as further described in (1) the Confidential Memorandum
-
dated April 1995 prepared by the Apollo with the assistance of Levy/Schulte LLC,
(2) the Pacer Offering Circular (attached as Exhibit J to the Merger Agreement)
-
and (3) the Apollo Merger Materials (attached as Exhibit K to the Merger
- ---------
Agreement) (the "Disclosure Documents"), true, correct and complete copies of
which have been furnished to you.
-10-
<PAGE>
5.5. Capital Stock. Exhibit 5.5 attached hereto correctly specifies as to
------------- -----------
each of the Companies (immediately after giving effect to the consummation of
the Mergers and the other transactions consummated at the Closing), (a) the
-
number of shares of each class of and series of its authorized capital stock and
the number of shares thereof issued and/or outstanding (including treasury
shares), (b) the number (and percentage) of such issued and/or outstanding
-
shares owned by each other Company and (c) the name of each other holder, if
-
any, of such shares, together with the number (and percentage) of shares of each
class and series held by such other holder. Except as set forth on Exhibit 5.5
-----------
attached hereto, (x) all of the outstanding shares of stock of each Company
-
(including all such shares issued pursuant hereto) are, and all shares of
Holding Company Common Stock issued upon conversion of shares of one class or
series into shares of another class or series will be, validly issued, fully
paid and non-assessable and, except as set forth in the Stockholders Agreement,
not subject to preemptive or similar rights on the part of any other Person, and
all of such shares have been (or will have been) offered, issued and sold by the
issuers thereof in accordance with all applicable laws, (y) the outstanding
-
shares of stock of each Company are owned of record and beneficially by the
Persons indicated on Exhibit 5.5 attached hereto and, to the best of the
-----------
Companies' knowledge, free of any Lien, proxy, voting agreement, voting trust,
shareholders agreement or similar agreement or restriction (other than the
Stockholders Agreement), and (z) except as set forth in the Stockholders
-
Agreement and except as set forth on Exhibit 5.5 attached hereto, (i) there are
----------- -
no outstanding rights, options, warrants or agreements for the purchase from, or
sale or issuance by, any Company of any of its capital stock or securities
convertible into or exercisable or exchangeable for such stock; (ii) there are
--
no agreements on the part of any Company to issue, sell or distribute any of its
securities or assets; (iii) no Company has any obligation (contingent or
---
otherwise) to purchase, redeem or otherwise acquire any of its securities or any
interest therein or to pay any dividend or make any distribution in respect
thereof; and (iv) no Person is entitled to any rights with respect to the
--
registration of any securities of any Company under the Securities Act (or the
securities laws of any other jurisdiction).
Since August 31, 1995, no issue or sale of securities or other transaction
or event has occurred which required or requires under the terms of the Apollo
Warrants any adjustment to the Exercise Price (as defined in the Apollo
Warrants) of the Apollo Warrants and/or any change in the number or kind of
Warrant Shares (as defined in the Apollo Warrants) issuable upon exercise
thereof.
5.6. Financial Statements. You have been furnished with:
--------------------
(a) the financial statements referred to on Exhibit 5.6(a) attached
--------------
hereto, which financial statements are complete and correct in all
material respects (subject, in the case of any unaudited financial
statements, to normal year-end and audit adjustments), have been prepared
in accordance with GAAP (except as may be indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q under
the Exchange Act) applied on a consistent basis throughout the
-11-
<PAGE>
periods covered thereby and present fairly in all material respects the
financial position and the results of operations and cash flows of the
Person(s) purported to be covered thereby as at the respective dates and
for the respective periods indicated in conformity with GAAP (subject, in
the case of any unaudited financial statements, to normal year-end and
audit adjustments and the absence of footnotes);
(b) the projections referred to on Exhibit 5.6(b) hereto, which
--------------
projections were prepared in good faith, are based upon assumptions that
the Companies believe are reasonable and, to the best of the Companies'
knowledge, take into account all material adverse information regarding
the matters set forth therein; and
(c) the pro forma unaudited balance sheet of the Companies referred
to on Exhibit 5.6(c) hereto, which balance sheet fairly presents the
--------------
consolidated financial position of the Companies as at December 31, 1997,
adjusted on a pro forma basis to give effect to the consummation of the
Mergers and the other transactions contemplated by the Operative
Documents, and reflects all known liabilities of the Companies, contingent
or other, as at the Closing Date, required by GAAP to be reflected
therein.
5.7. Changes: Solvency, etc. Since December 31, 1997: (a) there has been
----------------------- -
no change in the assets, liabilities or financial condition of the Companies (or
any of them) from that set forth in the balance sheets as at such date referred
to on Exhibit 5.6(a) attached hereto, other than changes which have not been,
--------------
either in any case or in the aggregate, materially adverse; (b) no condition or
-
event has occurred which has resulted in, or could reasonably be expected to
result in, a Material Adverse Change; and (c) except as set forth on Exhibit 5.7
- -----------
attached hereto, no Restricted Payment or Restricted Investment has been,
directly or indirectly, declared, ordered, paid or made. Each of the Companies
is Solvent.
5.8. Tax Returns and Payments. Each Company has filed all tax returns
-------------------------
required by law to be filed and has paid all taxes and assessments shown to be
due and payable on such returns and all other governmental charges levied upon
any of its properties, assets, income, franchises or sales other than those not
yet delinquent. The income tax liability of each Company has been finally
determined by all applicable foreign and domestic, federal, state and local
governmental authorities, including, without limitation, the Internal Revenue
Service, and satisfied, or the time for audit has expired, for all fiscal years
through the fiscal year specified as applicable for such Company on Exhibit 5.8
-----------
attached hereto. None of the Companies has executed any waiver or waivers that
would have the effect of extending the applicable statute of limitations in
respect of income tax liabilities. The charges, accruals and reserves in the
financial statements of the Companies referred to on Exhibit 5.6(a) attached
--------------
hereto in respect of taxes for all fiscal periods are adequate, and there are no
known unpaid assessments for additional taxes for any fiscal period or of any
basis therefor.
-12-
<PAGE>
5.9. Funded Debt. Current Debt, Liens, Investments, Transactions with
----------------------------------------------------------------
Affiliates and Leases. Exhibit 5.9 attached hereto correctly describes:
- --------------------- -----------
(a) all Funded Debt and Current Debt of the Companies to be
outstanding immediately following the Closing (other than that evidenced
by the Notes and the Note Guarantees);
(b) all Liens to which any of the properties and assets of the
Companies will be subject immediately following the Closing (other than
those of the character described in section 14.9(b));
(c) all Investments of the Companies to be owned or held immediately
following the Closing (other than Investments of the character described
in clauses (b) through (e), inclusive, of the definition of Permitted
Investments);
(d) all Affiliates of the Companies and all transactions with
Affiliates of the Companies which were consummated during the 12-month
period ended on the Closing Date or which the Companies are now obligated
or now intend to consummate at any time in the future; and
(e) each lease under which the Companies are lessees and the name of
the lessor, the lessee, the property leased, the annual Rental Obligations
payable thereunder and the term thereof.
5.10. Title to Properties; Liens; Leases.
----------------------------------
(a) Except as set forth in Exhibit 5.10 attached hereto, the
------------
Companies have good and marketable title to all of their respective
properties and assets, including, without limitation, the properties and
assets reflected in the balance sheets, dated December 31, 1997, referred
to on Exhibit 5.6(a) attached hereto, except properties and assets
--------------
disposed of since such date in the ordinary course of business, free and
clear of all Liens (other than Liens permitted under section 14.9). Each
Company enjoys peaceful and undisturbed possession under all leases under
which it operates, and all of such leases are valid, subsisting and in
full force and effect.
(b) Exhibit 5.10 attached hereto fully and correctly sets forth the
------------
address of each location at which any properties and assets of the
Companies are to be located (immediately after the Closing and after
giving effect to the Intermetrics/Pacer Transaction and the other
transactions contemplated hereby).
5.11. Litigation, etc. There is no action, proceeding or investigation
----------------
pending or, to the best of the Companies' knowledge, threatened (or any basis
therefor known to the Companies) which questions the validity of any of the
Operative Documents or any action
-13-
<PAGE>
taken or to be taken pursuant thereto or which has resulted in, or could
reasonably be expected to result in, a Material Adverse Change. There is no
outstanding judgment, decree or order which has resulted in, or could reasonably
be expected to result in, a Material Adverse Change.
5.12. Valid and Binding Obligations; Compliance with Other Instruments;
----------------------------------------------------------------
Absence of Restrictions, etc.
- -----------------------------
(a) Each of the Operative Documents to which any Company is a party
has been duly authorized by such Company and constitutes the valid and
legally binding obligation of such Company, enforceable against it in
accordance with its terms.
(b) None of the Companies is in violation of or in default under any
term of its charter, by-laws or other organizational document, or of any
agreement, document, instrument, judgment, decree, order, law, statute,
rule or regulation applicable to it or any of its properties and assets,
in any way which has resulted in, or could reasonably be expected to
result in, a Material Adverse Change. Without limiting the generality of
the foregoing, each Company is in compliance with (and neither it nor any
of its predecessors in interest has received any notice to the contrary)
and there is no reasonable possibility of any liability of or any
judgment, decree or order binding upon or applicable to any Company or any
of their respective properties or assets under or on account of any
Environmental Laws, except where the same has not resulted in, and could
not reasonably be expected to result in, a Material Adverse Change.
(c) Except as set forth on Exhibit 5.12 attached hereto, the
------------
execution, delivery and performance of and the consummation of the
transactions contemplated by the Operative Documents will not violate or
constitute a default under, or permit any Person to accelerate or to
require the prepayment of any Indebtedness of any Company or to terminate
any material lease or agreement of any Company pursuant to, or result in
the creation of any Lien (other than the Liens created by the Security
Documents) upon any of the properties or assets of any Company pursuant
to, any term of the charter, by-laws or other organizational document of
any Company or of any agreement, document, instrument, judgment, decree,
order, law, statute, rule or regulation applicable to any Company or any
of its properties and assets.
(d) Except as set forth on Exhibit 5.12 attached hereto, none of the
------------
Companies is a party to or bound by or subject to any charter, by-law or
other organizational document, or any agreement, document, instrument,
judgment, decree, order, law, statute, rule or regulation (i) which
-
restricts its right or ability to incur Indebtedness, to issue securities
or to consummate the transactions contemplated hereby; (ii) under the
--
terms of or pursuant to which its obligation to pay all amounts
-14-
<PAGE>
due from it and/or to perform all obligations imposed on it and/or to
comply with the terms applicable to it under any of the Operative
Documents is in any way restricted or (iii) which restricts its right or
---
ability to pay dividends and/or to make any other distributions in respect
of its capital stock, to mortgage or dispose of or to grant Liens on any
of its properties, to consummate any merger, consolidation or acquisition,
to make Investments or capital expenditures, to enter into and perform
leases, to pay executive compensation and/or to conduct its business as
now conducted and now proposed to be conducted.
(e) The provisions of the Security Documents are effective to create
in favor of and for the benefit of the holders of the Notes legal, valid
and enforceable Liens in and on all of the right, title and interest of
the Companies in and on all of their respective personal properties and
assets. At the Closing, by virtue of (i) the recording and filing of the
-
financing statements, registrations and other instruments specified on
Exhibit 5.12 attached hereto in the applicable offices listed on such
------------
exhibit, all of which recordings and filings will have been made and will
be in full force and effect at or prior to the Closing, and (ii) the
--
delivery to the holders of the Notes of certificates evidencing all of the
outstanding shares of each Subsidiary of the Holding Company, there shall
have been created in favor of the holders of the Notes fully perfected
first and prior Liens in and on all right, title and interest of the
Companies in and on all of their respective personal properties and
assets. The Security Documents, including the schedules thereto (if any),
contain true, correct and complete descriptions of the properties and
assets of the Companies adequate for the proper and complete creation,
registration and enforcement of the Liens contemplated thereby. No other
filing or action is required in order to perfect such Liens.
5.13. ERISA.
-----
(a) The Companies and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for
such instances of noncompliance which have not resulted in, and could not
reasonably be expected to result in, a Material Adverse Change. Neither
the Companies nor any ERISA Affiliate has incurred any liability pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans (as defined in section 3 of
ERISA), and no event, transaction or condition has occurred or exists that
could reasonably be expected to result in the incurrence of any such
liability by the Companies or any ERISA Affiliate, or in the imposition of
any Lien on any of the rights, properties or assets of the Companies or
any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or
to such penalty or excise tax provisions or to section 401(a)(29) or 412
of the Code, other than such liabilities or Liens as would not
individually or in the aggregate result in a Material Adverse Change.
-15-
<PAGE>
(b) The present value of the aggregate benefit liabilities under
each of the Plans (other than Multiemployer Plans), determined as of the
end of such Plan's most recently ended plan year on the basis of the
actuarial assumptions specified for funding purposes in such Plan's most
recent actuarial valuation report, did not exceed the aggregate current
value of the assets of such Plan allocable to such benefit liabilities.
The term "benefit liabilities" has the meaning specified in section 4001
of ERISA and the terms "current value" and "present value" have the
meaning specified in section 3 of ERISA.
(c) The Companies and their ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate could result in
a Material Adverse Change. The Companies and their ERISA Affiliates have
made all required contributions to Multiemployer Plans. Neither the
Companies nor any ERISA Affiliate has incurred, nor would reasonably
expect to incur, any Withdrawal Liability upon a complete or partial
withdrawal from any Multiemployer Plan that individually or in the
aggregate could result in a Material Adverse Change. To the best of the
Companies' knowledge, no Multiemployer Plan is, or is reasonably expected
to be, insolvent, in reorganization or terminated within the meaning of
Title IV of ERISA.
(d) The Companies have no postretirement benefit obligation
(determined in accordance with Financial Accounting Standards Board
Statement No. 106, without regard to liabilities attributable to
continuation coverage mandated by section 4980B of the Code).
(e) The consummation of the transactions contemplated by the
Operative Documents will not involve any transaction that is subject to
the prohibitions of section 406 of ERISA or in connection with which a tax
could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The
representation by the Companies in the first sentence of this section
5.13(e) is made in reliance upon and subject to the accuracy of your
representation in section 26(b) as to the sources of the funds used to pay
the purchase price of the Notes to be purchased by you.
5.14. Consents, etc. No consent, approval or authorization of, or
--------------
declaration or filing with, or other action by, any Person is required on the
part of any Company as a condition precedent to the valid execution, delivery
and performance of and the consummation of the transactions contemplated by the
Operative Documents and/or the exercise by any holder of any Securities of any
of its rights in respect thereof, other than those specified on Exhibit 5.14
------------
attached hereto, all of which have been obtained, are unconditional and are in
full force and effect. Without limiting the generality of the foregoing, no
filing under the Clayton Act or the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 is required in connection with the Mergers, and no notice or payments to
-16-
<PAGE>
employees is required under The Worker Adjustment and Retraining Notification
Act, 29 U.S.C. (S). 2101 et seq., in connection with the Mergers.
5.15. Proprietary Rights; Licenses. The Companies have all Proprietary
----------------------------
Rights and Licenses as are adequate for the conduct of their respective
businesses as now conducted and now proposed to be conducted, without any known
conflict with the rights of others. Each such Proprietary Right and License is
in full force and effect, all material obligations with respect thereto have
been fulfilled and performed and there is no infringement thereon by any other
Person. No default in the performance or observance by the Companies (or any of
their predecessors in interest) of their obligations thereunder has occurred
which permits, or after notice of lapse of time or both would permit, the
revocation or termination of any Proprietary Right or License or which has
resulted in, or could reasonably be expected to result in, a Material Adverse
Change.
5.16. Offer of Securities; Investment Bankers. None of the Companies nor
----------------------------------------
any Person acting on their behalf (a) has directly or indirectly offered the
-
Securities or any part thereof or any similar securities for issue or sale to,
or solicited any offer to buy any of the same from, anyone other than you and
the Other Purchasers and not more than 5 other institutional investors, (b) has
-
taken or will take any action which would bring the issuance, exchange and sale
of the Securities within the provisions of Section 5 of the Securities Act or
the registration or qualification provisions of any applicable blue sky or other
securities laws, (c) has dealt with any broker, finder, commission agent or
-
other similar Person in connection with the sale of the Securities and the other
transactions contemplated by the Operative Documents, other than Quarterdeck
Investment Partners, Inc., or (d) is under any obligation to pay any broker's
-
fee, finder's fee or commission in connection with such transactions, other than
fees to Quarterdeck Investment Partners, Inc., which fees are the obligation
solely of the Companies.
5.17. Government Regulation. The Companies are not subject to regulation
---------------------
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940, each as amended.
5.18. Disclosure. Neither this Agreement, the Other Securities Purchase
----------
Agreements, the Securities, the Stockholders Agreement, the Merger Agreement,
the Disclosure Documents nor any of the other items specified on Exhibit 5.18
------------
attached hereto contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein not misleading in the light of the circumstances under which such
statements were made, it being understood that, except as set forth in section
5.6, no representation or warranty is made with respect to any projections or
other prospective financial information. There is no fact known to the Companies
which has resulted in, or could reasonably be expected to result in, a Material
Adverse Change which has not been set forth in this Agreement, the other
Operative Documents and the other documents, certificates and written statements
referred to above in this section 5.18.
-17-
<PAGE>
5.19. Labor Relations; Suppliers, Distributors and Customers. No dispute
------------------------------------------------------
involving employees of the Companies or the Companies' relationships with their
employees has resulted in, or could reasonably be expected to result in, any
Material Adverse Change. The relationships with the suppliers to and
distributors for and customers of the Companies are satisfactory commercial
working relationships and, during the 12-month period ended on the Closing Date,
no such supplier, distributor or customer has cancelled or otherwise terminated
its relationship with or decreased its services, supplies or materials to or its
usage or purchase of the services or products of any Company in a manner which
has resulted in, or could reasonably be expected to result in, a Material
Adverse Change. The Companies are not aware of any intention of any such
supplier, distributor or customer to take any such action.
5.20. Voting Provisions. Except as set forth on Exhibit 5.20 attached
----------------- ------------
hereto, neither the charter, the bylaws nor any other agreement, document or
instrument binding on or applicable to the Holding Company contains any
provision requiring a higher voting requirement with respect to action taken
(and/or to be taken) by the Board of Directors or the holders of the capital
stock of the Holding Company than that which would apply in the absence of such
provision.
6. Use of Proceeds; Regulation G, etc.
-----------------------------------
(a) The proceeds of the sale of the Senior Bridge Notes will be used
on the Closing Date to finance, in part, the obligations of the Companies
incurred in connection with the Mergers, as set forth in the schedule of
sources and uses attached as Exhibit 6 hereto, and any remaining balance
---------
of such proceeds will be used for general corporate purposes of the
Holding Company and its Subsidiaries. The proceeds of the Revolving Credit
Loans made after the Closing will be used for working capital purposes of
the Holding Company and its Subsidiaries and Intermetrics Entertainment
Software, LLC (subject to the provisions of section 14.11).
(b) Neither the Holding Company nor any of its Subsidiaries owns,
and the Holding Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, use any part of the proceeds of
the sale of the Securities for the purpose of purchasing or carrying any
"margin stock" within the meaning of Regulation G (12 CFR Part 207) of the
Board of Governors of the Federal Reserve System (herein called a "margin
security") or for the purpose of reducing or retiring any Indebtedness
which was originally incurred to purchase or carry any margin security or
for any other purpose which might constitute the transactions contemplated
by the Operative Documents a "purpose credit" within the meaning of said
Regulation G or cause this Agreement or any of the other Operative
Documents to violate Regulation G or any other regulation of the Board of
Governors of the Federal Reserve System,
-18-
<PAGE>
or the Exchange Act or any other applicable law, statute, regulation,
rule, order or restriction.
7. Financial Statements and Information. The Companies will furnish to you in
------------------------------------
duplicate, so long as you shall be obligated to purchase Securities hereunder or
shall hold any of the Securities, and to each other institutional holder from
time to time of any of the Securities:
(a) as soon as available and in any event within 30 days (35 days in
the case of the first three months of each fiscal year) after the end of
each monthly accounting period in each fiscal year of the Holding Company,
the consolidated and consolidating balance sheets of the Holding Company
and its Subsidiaries as at the end of such period and the related
consolidated and consolidating statements of income, retained earnings and
cash flows for such period and for the portion of such fiscal year ended
on the last day of such period, in each case setting forth in comparative
form the corresponding figures for the same period and portion of the next
preceding fiscal year and the corresponding figures from the budgets for
such period and for the fiscal year which includes such period;
(b) as soon as available and in any event within 120 days after the
end of each fiscal year of the Holding Company, the consolidated and
consolidating balance sheets of the Holding Company and its Subsidiaries
as at the end of such year and the related consolidated and consolidating
statements of income, retained earnings and cash flows for such year, in
each case setting forth in comparative form the corresponding audited
figures for the next preceding fiscal year and the corresponding unaudited
figures from the budget for such fiscal year, all in reasonable detail and
accompanied by the standard unqualified report on such audited
consolidated financial statements of the Holding Company and its
Subsidiaries of Ernst & Young LLP or other accountants of recognized
national standing selected by the Holding Company and satisfactory to the
Required Holders of each class of Securities, which report shall (i) state
-
that the audit of such accountants in connection with such consolidated
financial statements has been conducted in accordance with generally
accepted auditing standards and that such accountants believe that such
audit provides a reasonable basis for their opinion, (ii) contain the
--
other statements required from time to time by the American Institute of
Certified Public Accountants for an auditor's standard unqualified opinion
(and shall not contain any additional explanatory paragraph concerning
uncertainties or other matters), (iii) include the opinion of such
---
accountants that such consolidated financial statements present fairly in
all material respects the consolidated financial position of the Holding
Company and its Subsidiaries as at the end of such fiscal year and the
consolidated results of operations and cash flows for such fiscal year, in
conformity with GAAP, (iv) state that each holder of the Securities may
--
rely upon such report and (v) be accompanied by a separate certificate
-
from such accountants
-19-
<PAGE>
which shall state (A) that such accountants are familiar with the terms of
-
the Operative Documents and provide negative assurance relative to
compliance with the applicable covenants of the Operative Documents as
they relate to accounting matters and (B) whether or not their examination
-
has disclosed the existence, during or at the end of the fiscal year
covered by such financial statements and/or the date of such certificate,
of (x) any "reportable condition" (as defined in Statement on Auditing
-
Standards No. 60 issued by the Auditing Standards Board of the American
Institute of Certified Public Accountants) in the internal control
structure of the Holding Company or any of its Subsidiaries, (y) any
-
Change of Control or (z) any Default or Event of Default and, if their
-
examination has disclosed such a condition or event, specifying in
reasonable detail the nature and period of existence thereof;
(c) together with each delivery of financial statements pursuant to
sections 7(a) and 7(b), an Officers' Certificate which shall:
(i) certify that such financial statements have been prepared
in accordance with GAAP (subject, in the case of any unaudited
financial statements, to normal year-end and audit adjustments and
the omission of footnotes) applied on a consistent basis throughout
the periods covered thereby and present fairly in all material
respects the consolidated financial position and the consolidated
results of operations and cash flows of the Holding Company and its
Subsidiaries as at the end of and for the periods covered thereby in
conformity with GAAP;
(ii) state that, after due inquiry, the signers do not have
knowledge of the existence, during the fiscal period covered by such
financial statements or as at the date of such Officers'
Certificate, of (A) any "reportable condition" in the internal
-
control structure of the Holding Company or any of its Subsidiaries,
(B) any Change of Control or (C) any Default or Event of Default,
- -
or, if such is not the case, specifying in reasonable detail the
nature and period of existence thereof and what action the Holding
Company or the applicable Subsidiary has taken, is taking and
proposes to take with respect thereto;
(iii) show in reasonable detail all computations required to
demonstrate compliance, during and at the end of the fiscal period
covered by such financial statements, with the provisions of
sections 14.5, 14.6, 14.7, 14.15 and 14.16;
(iv) include management's discussion and analysis of the
financial condition and the results of operations of the Holding
Company and its Subsidiaries (containing on a quarterly basis in all
material respects the information specified therefor by Regulation
S-K of the Commission under
-20-
<PAGE>
the Exchange Act) as at the end of and for the fiscal periods
covered by such financial statements, including a discussion of any
significant variation from the budgets for such periods delivered
pursuant to section 7(h); and
(v) if there shall exist any Subsidiary of the Holding Company
as of the date of such Officers' Certificate which did not exist as
of the date of the last Officers' Certificate delivered pursuant to
this section 7(c), specify with respect to each such Subsidiary the
information called for by Exhibit 7(c)(v) and contain a brief
---------------
description of the nature of each such Subsidiary's business and
certify' that, in connection therewith, all Security Documents
required under the Operative Documents (including Note Guarantees)
have been executed and delivered to the holders of the Notes and
have been duly filed, recorded and/or registered in all applicable
offices in accordance with section 14.18;
(d) as promptly as practicable (but in any event not later than 10
days) after receipt thereof, copies of all reports or written comments
(including, without limitation, audit reports, so-called management
letters and any other reports or communications with respect to the
internal control structure of the Holding Company or any of its
Subsidiaries) submitted by independent accountants or other management
consultants;
(e) at such time as any securities of the Holding Company or any
Subsidiary of the Holding Company are publicly held, as promptly as
practicable (but in any event not later than 10 days) after the same are
available, copies of (i) all material press releases issued by the Holding
-
Company or any Subsidiary of the Holding Company, and all notices, proxy
statements, financial statements, reports and documents as the Holding
Company shall send or make available generally to its stockholders or as
any Subsidiary of the Holding Company shall send or make available
generally to its stockholders other than the Holding Company and (ii) all
--
periodic and special reports, documents and registration statements (other
than on Form S-8) which the Holding Company or any Subsidiary of the
Holding Company furnishes or files, or any officer or director or
stockholder of the Holding Company or any of its Subsidiaries furnishes or
files with respect to the Holding Company or any of its Subsidiaries, with
the Commission (or any analogous foreign governmental authority) or any
securities exchange;
(f) as promptly as practicable (but in any event not later than 10
days) after any executive officer of the Holding Company or any of its
Subsidiaries becomes aware of the occurrence of any of the following
conditions or events, an Officers' Certificate specifying in reasonable
detail the nature and period of existence thereof, what action the Holding
Company or any of its Subsidiaries has taken, is taking and proposes to
take with respect thereto: (i) with respect to any
-
-21-
<PAGE>
Plan, any reportable event, as defined in section 4043(b) of ERISA and the
regulations thereunder, for which notice thereof has not been waived pursuant to
such regulations as in effect on the date hereof; (ii) the taking by the PBGC of
--
steps to institute, or the threatening by the PBGC of the institution of,
proceedings under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the receipt by either
Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in the incurrence of
---
any liability by either Company or any ERISA Affiliate pursuant to Title I or IV
of ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on any of the rights,
properties or assets of either Company or any ERISA Affiliate pursuant to Title
I or IV of ERISA or such penalty or excise tax provisions, if such liability or
Lien, taken together with any other such liabilities or Liens then existing, has
resulted in, or could reasonably be expected to result in, a Material Adverse
Change;
(g) as promptly as practicable (but in any event not later than five days)
after the occurrence of any Default or Event of Default, or of any condition or
event which has resulted in, or could reasonably be expected to result in, a
Material Adverse Change, an Officers' Certificate specifying in reasonable
detail the nature and period of existence thereof, what action the Holding
Company or any of its Subsidiaries has taken, is taking and proposes to take
with respect thereto and the date, if any, on which it is estimated the same
will be remedied;
(h) as promptly as practicable (but in any event not later than 30 days)
prior to the end of each fiscal year of the Holding Company, an annual budget
prepared on a monthly basis for the Holding Company and its Subsidiaries for the
succeeding fiscal year (displaying anticipated balance sheets and statements of
income, retained earnings and cash flows) and, promptly upon preparation
thereof, any other significant budgets which the Holding Company or any of its
Subsidiaries prepares and any revisions of such annual or other budgets;
(i) as promptly as practicable (but in any event not later than 10 days)
after receipt thereof, copies of all notices and communications given or
received by the Holding Company or any of its Subsidiaries under the Merger
Documents;
(j) such other material information relating to the Holding Company or any
of its Subsidiaries as shall be furnished to any bank, financial institution or
other Person to which the Holding Company or any of its Subsidiaries is indebted
for borrowed money or for any letters of credit (or similar instruments) (other
than information relating solely to collateral therefor);
-22-
<PAGE>
(k) as promptly as practicable (but in any event not later than
five days) after the occurrence of any condemnation, taking or destruction
of or damage to (whether or not covered by insurance) any of the
Collateral having a fair market value in excess of $250,000, an Officers'
Certificate specifying in reasonable detail the nature of such event, what
action the Holding Company or any of its Subsidiaries has taken, is taking
and proposes to take with respect thereto and the date, if any, on which
it is estimated the same will be remedied; and
(l) such other information as from time to time may reasonably be
requested.
8. Inspection: Confidentiality.
---------------------------
(a) The Holding Company will, and will cause each of its
Subsidiaries to, permit any Person designated by any institutional holder
of any of the Securities on reasonable notice and during normal business
hours and at such holder's expense (unless a Default or Event of Default
shall have occurred and be continuing, in which case, at the Companies'
expense), to visit and inspect any of the properties of the Holding
Company and its Subsidiaries, to examine their books and records (and to
make copies thereof and take extracts therefrom) and to discuss their
affairs, finances and accounts with and to be advised as to the same by,
their officers, consultants, counsel and accountants, all at such
reasonable times and intervals as such holder may desire; provided that
--------
(i) unless a Default or Event of Default shall have occurred and be
-
continuing, there shall not be more than two such inspections during any
fiscal year of the Holding Company or any of its Subsidiaries and (ii) the
--
Holding Company may prohibit any individual conducting any such inspection
from visiting, inspecting and examining any property, book or record (or
any pad thereof) if, but only to the extent that, a U.S. Department of
Defense security clearance is required therefor, unless such individual
has such clearance.
(b) Each holder of any Securities agrees by its acceptance thereof
to use its best efforts to keep confidential and not to disclose to any
other Person any non-public information concerning the Companies which is
furnished by the Companies to such holder pursuant to this Agreement or
any of the other Operative Documents and which is designated in writing as
confidential (collectively "Confidential Information"); provided, however,
--------
no holder shall be liable to the Companies or any other Person for any
breach of this section 8(b). The term "Confidential Information" shall not
include, however, any information which (x) was publicly known or
-
otherwise known to any holder at the time of disclosure by the Companies
to any holder; (y) subsequently becomes publicly known through no act or
-
omission of any holder or its agent or (z) becomes known to any holder
-
otherwise than through disclosure by the Companies. Notwithstanding the
foregoing, each holder of any Securities may disclose Confidential
Information: (i)
-
-23-
<PAGE>
with the consent of the Holding Company (which shall not be unreasonably
withheld or delayed); (ii) when required by law or regulation; (iii) in
-- ---
any report, statement or testimony submitted by such holder to any
regulatory body having or claiming to have jurisdiction over such holder;
(iv) to the National Association of Insurance Commissioners or any
--
similar organization or to any rating agency; (v) to the officers,
-
directors, employees, agents, representatives and professional
consultants of such holder and of such holder's Affiliates; (vi) after
--
the occurrence of an Event of Default, in connection with the
preservation, exercise and/or enforcement of any of such holder's rights
or remedies under this Agreement and the other Operative Documents; (vii)
---
in connection with any contemplated transfer of any of the Securities
held by such holder to any institutional investor or financial
institution; (viii) in a response to any summons, subpoena or other legal
----
process or in connection with any judicial or administrative proceeding
or inquiry; or (ix) to correct any false or misleading information which
--
may become public concerning the relationship of such holder to the
Companies or any of their respective Subsidiaries and/or the transactions
contemplated hereby.
9. Prepayment of Notes.
-------------------
9.1. Required Semi-Annual Prepayment Without Premium of Senior Term Notes.
--------------------------------------------------------------------
In addition to paying the entire outstanding principal amount and the interest
due on the Senior Term Notes on the maturity date thereof, on the last day of
each February and August, commencing February 28, 1998, until the Senior Term
Notes have been paid in full, the Note Issuers will prepay without premium a
principal amount of the Senior Term Notes applicable in accordance with the
following table (or such lesser principal amount thereof as shall then be
outstanding):
<TABLE>
<CAPTION>
Principal Amount Principal Amount
Prepayment Date to be Prepaid Prepayment Date to be Prepaid
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
February 28, 1998 $250,000 August 31, 2000 $ 500,000
August 31, 1998 $250,000 February 28, 2001 $ 750,000
February 28, 1999 $375,000 August 31, 2001 $ 750,000
August 31, 1999 $375,000 February 28, 2002 $2,291,500
February 29, 2000 $500,000 August 31, 2002 $2,291,500
</TABLE>
Except as provided in section 9.3, no partial prepayment of the Senior Term
Notes shall alter the obligation of the Note Issuers to make the required
prepayments provided for in this section 9.1.
9.2. Optional Prepayment Without Premium of Senior Bridge Notes. At any
----------------------------------------------------------
time or from time to time, the Note Issuers may, at their option, upon notice as
set forth in
-24-
<PAGE>
section 9.9, prepay without premium all or any part (in an integral multiple of
$250,000 or such lesser principal amount as shall then be outstanding) of the
Senior Bridge Notes.
9.3. Optional Prepayment Without Premium of Senior Term Notes. At any time
--------------------------------------------------------
or from time to time, the Note Issuers may, at their option, subject to the
provisions of section 9.14, upon notice as set forth in section 9.9, prepay
without premium all or any part of the Senior Term Notes, provided that (a) the
-------- -
aggregate principal amount of any partial prepayment of the Senior Term Notes
pursuant to this section 9.3, other than one made in connection with any
prepayment of the Subordinated Notes pursuant to section 9.4, shall be an
integral multiple of $250,000 or such lesser principal amount thereof as shall
then be outstanding and (b) concurrently with any prepayment of all of the
-
Senior Term Notes, the Note Issuers must prepay without premium all of the
Senior Revolving Credit Notes (whereupon the Total Revolving Commitment shall be
permanently terminated). Any partial prepayment of Senior Term Notes pursuant to
this section 9.3 shall be applied as follows: (x) one-half to the payment of the
-
next succeeding installment or installments of principal of the Senior Term
Notes required to be made pursuant to section 9.1 in order of maturity and (y)
-
one-half to the payment of installments of principal of the Senior Term Notes in
inverse order of maturity.
9.4. Optional Prepayment Without Premium of Subordinated Notes. At any
---------------------------------------------------------
time or from time to time, the Note Issuers may, at their option, subject to the
provisions of section 9.14, upon notice as set forth in section 9.9, prepay
without premium up to $1,000,000 aggregate principal amount of the Subordinated
Notes (in an integral multiple of $250,000 or such lesser principal amount
thereof as shall then be outstanding); provided that no prepayment of
--------
Subordinated Notes may be made pursuant to this section 9.4 unless (a) there
-
shall have been pro rata prepayments (based on the original aggregate principal
--------
amount) of the Senior Term Notes pursuant to section 9.3 simultaneously with or
prior to such prepayment of the Subordinated Notes and (b) after giving effect
-
thereto, the Available Revolving Commitment shall be at least $4,000,000. Each
notice pursuant to section 9.9 of a prepayment under this section 9.4 shall be
accompanied by an Officers' Certificate certifying and demonstrating that this
section 9.4 is being complied with in connection with such prepayment.
9.5. Supplementary Optional Prepayments Without Premium of Subordinated
------------------------------------------------------------------
Notes.
- -----
(a) In the event of the consummation of an underwritten public
offering of Holding Company Common Stock in which the net proceeds to the
Holding Company (after all fees, expenses and disbursements related
thereto and all underwriters' discounts and commissions) are at least
$10,000,000, the Note Issuers may, at their option, subject to the
provisions of section 9.14, upon notice as set forth in section 9.9,
prepay without premium up to $2,500,000 aggregate principal amount of the
Subordinated Notes (in an integral multiple of $250,000 or such lesser
-25-
<PAGE>
principal amount thereof as shall then be outstanding); provided that any
--------
such prepayment is made not later than 10 Business Days following the
consummation of such offering.
(b) In connection with the consummation of an Exit Event (as defined
in the Holding Company's Certificate of Incorporation as in effect on the
date hereof), the Note Issuers may, at their option, subject to the
provisions of section 9.14, upon notice as set forth in section 9.9,
prepay without premium all or any part (in an integral multiple of
$250,000 or such lesser principal amount thereof as shall then be
outstanding) of the Subordinated Notes; provided that any such prepayment
--------
is made not later than 10 Business Days following the consummation of such
Exit Event.
(c) Each notice pursuant to section 9.9 of a prepayment under this
section 9.5 shall be accompanied by an Officers' Certificate certifying
and demonstrating that this section 9.5 is being complied with in
connection with such prepayment.
9.6. Optional Prepayment With Premium of Subordinated Notes. At any time
------------------------------------------------------
or from time to time, the Note Issuers may, at their option, subject to the
provisions of section 9.14, upon notice as set forth in section 9.9, prepay all
or any part (in an integral multiple of $250,000 or such lesser principal amount
thereof as shall then be outstanding) of the Subordinated Notes, upon the
concurrent payment of an amount equal to the Make Whole Amount.
9.7. Prepayment at the Option of Holders of Senior Notes and/or
----------------------------------------------------------
Subordinated Notes upon a Chance of Control.
- -------------------------------------------
(a) If any Change of Control is to occur, then not less than 30 days
nor more than 60 days prior to the anticipated occurrence of such Change
of Control, the Note Issuers will notify each holder of any Notes
(including, for purposes of section 12.7, each holder of any Senior
Revolving Credit Notes) of such pending Change of Control and the date
upon which it is scheduled to occur. If the Required Holders of any class
of the Notes then outstanding furnish a written request for prepayment to
the Note Issuers (in accordance with section 23) not more than 10 Business
Days after receipt by such holders of such notice of such Change of
Control from the Note Issuers, the Note Issuers will prepay all of the
Notes of such class then outstanding, together with, in the case of a
prepayment of the Subordinated Notes, an amount equal to the Make Whole
Amount. Each such prepayment shall occur on the date upon which the Change
of Control occurs, unless the Note Issuers and the Required Holders of
each such class of Notes being prepaid agree to a different date, and no
prepayment requested pursuant to this section 9.7(a) shall be due unless
the Change of Control shall occur.
-26-
<PAGE>
(b) For purposes hereof, the term "Change of Control" shall mean an
-----------------
event or series of events by which:
(i) the Levy/Schulte Investors and Westgate shall own and
control (on a fully-diluted basis) less than 75% (50% if, on the
date on which such Change of Control occurs, the Holding Company is
a Public Company) of the amount of Holding Company Common Stock
owned and controlled by the Levy/Schulte Investors and Westgate on
the Closing Date as set forth on Exhibit 5.5 attached hereto;
-----------
(ii) AFH Partners and Michael B. Alexander shall own and
control (on a fully-diluted basis) less than 75% (50% if, on the
date on which such Change of Control occurs, the Holding Company is
a Public Company) of the amount of Holding Company Common Stock
owned and controlled by AFH Partners and Michael B. Alexander on the
Closing Date as set forth on Exhibit 5.5 attached hereto;
-----------
(iii) any Person (other than the Levy/Schulte Investors,
Westgate, AFH Partners, Michael B. Alexander, the holders of the
Purchased Shares and the other holders of Holding Company Common
Stock on the Closing Date), together with "affiliates" and
"associates" of such Person, within the meaning of Rule 12b-2 of the
Commission under the Exchange Act, shall acquire (other than as a
result of shares issued by the Holding Company in consideration of
assets and properties (including securities) acquired by any of its
Subsidiaries with the consent of the Required Holders of each class
of Notes at the time outstanding) beneficial ownership (including
beneficial ownership resulting from the formation of a "group"
within the meaning of Rule 13d-5 of the Commission under the
Exchange Act) of (A) 25% (50% if, on the date on which such Change
-
of Control occurs, the Holding Company is a Public Company) or more
of the Holding Company Common Stock or (B) 30% or more of the
-
Holding Company Class E Common Stock, in each case calculated on a
fully-diluted basis;
(iv) an Exit Event (as defined in subparagraphs (i)(M)(1)
and/or (i)(M)(2) of Article 4 of the Holding Company's Certificate
of Incorporation as in effect on the date hereof) shall occur;
(v) the stockholders of the Holding Company immediately
following the Closing shall cease to have the right or ability by
voting power, contract or otherwise to elect or designate for
election a majority of the members of the Board of Directors of the
Holding Company;
-27-
<PAGE>
(vi) the Holding Company shall cease to own beneficially and
control, directly or indirectly, all of the outstanding capital
stock Intermetrics and Pacer; or
(vii) the Holding Company shall cease to have the right or
ability by voting power, contract or otherwise to elect or designate
for election all of the members of the Board of Directors of
Intermetrics and Pacer.
(c) Each notice from the Note Issuers pursuant to this section 9.7
shall set forth in reasonable detail the material terms and conditions of
the event constituting the Change of Control, shall make explicit
reference to this section 9.7 and shall state that the right of the
Required Holders of any class of Notes then outstanding to require
prepayment thereof must be exercised within 10 Business Days of the
receipt of such notice.
(d) For purposes of this section 9.7, beneficial ownership shall be
determined in the manner set forth in Rule 13d-3 of the Commission under
the Exchange Act.
9.8. Allocation of Partial Prepayments of Notes. In the case of each
------------------------------------------
partial prepayment of the Senior Term Notes, the Senior Bridge Notes or the
Subordinated Notes under this section 9, the principal amount of the class of
Notes to be prepaid shall be allocated among all of the Notes of such class at
the time outstanding (excluding any Notes at the time owned by the Companies or
any Affiliate of the Companies) in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof, with adjustments, to the extent
practicable, to compensate for any prior prepayments not made exactly in such
proportion.
9.9. Notice of Optional Prepayments of Notes. In the case of each
---------------------------------------
prepayment under this section 9 (other than prepayments under sections 9.1), the
Note Issuers shall give written notice thereof to each holder of any class of
Notes being prepaid not less than 10 nor more than 30 days prior to the date
fixed for such prepayment. Each such notice shall set forth: (a) the date fixed
-
for prepayment; (b) the aggregate principal amount of each class of Notes to be
-
prepaid on such date; and (c) the aggregate principal amount of each class of
-
Notes held by such holder to be prepaid on such date and the amount of accrued
interest and, in the case of a prepayment of the Subordinated Notes pursuant to
section 9.6 or 9.7, an estimation of the Make Whole Amount, if any, to be paid
to such holder on such date (together with the calculation of such Make Whole
Amount, which calculation shall be satisfactory to each holder of the
Subordinated Notes to be prepaid).
9.10. Maturity, Accrued Interest, Surrender; etc. of Notes. In the case of
----------------------------------------------------
each prepayment of all or any part of any Note, the principal amount to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on
-28-
<PAGE>
such principal amount accrued to such date and the premium, if any, due thereon.
Any Note prepaid in full shall be surrendered to the Note Issuers at the Holding
Company's principal place of business promptly following prepayment and
cancelled and shall not be reissued, and no Note shall be issued in lieu of any
prepaid principal amount of any Note.
9.11. Purchase of Notes. The Holding Company will not, and will not permit
-----------------
any of its Affiliates to, directly or indirectly, purchase or otherwise acquire,
or offer to purchase or otherwise acquire, any outstanding Notes of any class
except by way of payment or prepayment in accordance with the provisions of the
Notes and this Agreement.
9.12. Payment on Non-Business Days. If any amount hereunder or under the
----------------------------
Notes shall become due on a day which is not a Business Day, such payment shall
be due on the next succeeding Business Day.
9.13. Intentionally Omitted.
---------------------
9.14. Proceeds of Revolving Credit Loans Unavailable as a Source of Funds
-------------------------------------------------------------------
for Prepayments. Notwithstanding anything to the contrary set forth in this
- ---------------
Agreement, no prepayment of any Notes may be made, directly or indirectly, in
whole or in part, from, or in anticipation of the receipt of the proceeds (or
any part thereof) of, any Revolving Credit Loans, except prepayments made under
section 9.1 hereof.
10. Subordination of Subordinated Notes.
-----------------------------------
10.1. Certain Definitions. As used in this section 10, the following terms
-------------------
have the following respective meanings:
(a) "Bankruptcy Code" shall mean 11 U.S.C. (S) 101 et seq., as from
--------------- -- ---
time to time hereafter amended, and any successor or similar statute.
(b) "Permissible Securities" shall mean securities the payment of
----------------------
which is subordinated, at least to the extent provided in this section 10
with respect to the Subordinated Indebtedness, to the payment of all
Superior Indebtedness at the time outstanding and all securities issued in
exchange therefor.
(c) "Subordinated Indebtedness" shall mean the principal amount of
-------------------------
the Indebtedness evidenced by the Subordinated Notes, together with any
interest, premium and any other amount (including any fee or expense) due
thereon or payable with respect thereto, including any such amounts
payable by any guarantor of the Subordinated Notes.
(d) "Superior Indebtedness" shall mean the principal amount of the
---------------------
Indebtedness evidenced by the Senior Notes (or of any Indebtedness
incurred in
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<PAGE>
compliance with section 14.5 to refinance the Senior Notes), together with
any interest (including any interest accruing after the commencement of
any action or proceeding under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable domestic or foreign federal
or state bankruptcy, insolvency or other similar law, and any other
interest that would have accrued but for the commencement of such
proceeding, whether or not any such interest is allowed as an enforceable
claim in such proceeding), premium and any other amount (including any fee
or expense) due thereon or payable with respect thereto, including any
such amounts payable by any guarantor of the Senior Notes (or of any
Indebtedness incurred in compliance with section 14.5 to refinance the
Senior Notes).
10.2. Subordinated Indebtedness Subordinated to Superior Indebtedness; No
-------------------------------------------------------------------
Amendments.
- ----------
(a) Each of the Note Issuers for itself and its successors and
assigns, and for its Subsidiaries and the successors and assigns of such
Subsidiaries, covenants and agrees, and each holder of any Subordinated
Indebtedness, by its acceptance thereof, shall be deemed to have agreed,
notwithstanding anything to the contrary in this Agreement, the
Subordinated Notes, or any of the other Operative Documents, that the
payment of the Subordinated Indebtedness shall be subordinated to the
extent and in the manner set forth in this section 10, to the prior
payment in full in cash or cash equivalents of all Superior Indebtedness,
and that each holder of Superior Indebtedness, whether now outstanding or
hereafter created, incurred, assumed or guaranteed, shall be deemed to
have acquired Superior Indebtedness in reliance upon the provisions
contained in this section 10. No present or future holder of Superior
Indebtedness shall be prejudiced in the right to enforce the subordination
of the Subordinated Indebtedness effected pursuant to this section 10 by
any act or failure to act on the part of any of the Note Issuers or any of
its Subsidiaries or Affiliates.
(b) Neither this section 10 nor any of the terms of the Subordinated
Indebtedness relating to the timing or amount of any payment (or
prepayment) of the principal of or premium, if any, or interest on the
Subordinated Indebtedness, or any other amount (including any fee or
expense) due thereon, shall be amended without the written consent of the
holder or holders of not less than 66-2/3% in aggregate principal amount
of the Superior Indebtedness at the time outstanding.
10.3. Dissolution, Liquidation, Reorganization, etc. Upon any payment or
---------------------------------------------
distribution of the assets of any of the Note Issuers (or any of its
Subsidiaries) of any kind or character, whether in cash, property or securities,
to creditors upon any dissolution, winding-up, total or partial liquidation,
reorganization, composition, arrangement, adjustment or readjustment of any of
the Note Issuers (or any of its Subsidiaries) or its (or their) securities,
whether voluntary or involuntary, or in bankruptcy, insolvency, reorganization,
liquidation or receivership proceedings, or upon a general assignment for the
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<PAGE>
benefit of creditors, or any other marshalling of the assets and liabilities of
any of the Note Issuers (or any of its Subsidiaries), or otherwise (hereinafter
a "Liquidation Payment"), then and in any such event:
(a) the holders of the Superior Indebtedness shall be entitled to
receive payment in full in cash or cash equivalents (or to have such
payment duly provided for in cash or cash equivalents in a manner
reasonably satisfactory to the holders of Superior Indebtedness) of all
amounts due or to become due on or in respect of all Superior
Indebtedness, before any Liquidation Payment, whether in cash, property or
securities (other than Permissible Securities), is made on account of or
applied to the Subordinated Indebtedness;
(b) the Subordinated Indebtedness shall forthwith become due and
payable, and any Liquidation Payment, whether in cash, property or
securities (other than Permissible Securities), to which the holders of
the Subordinated Indebtedness would be entitled except for the provisions
of this section 10, shall be paid or delivered by any debtor, custodian,
liquidating trustee, agent or other Person making such Liquidation
Payment, directly to the holders of the Superior Indebtedness, or their
representative or representatives, ratably according to the aggregate
amounts remaining unpaid on account of such Superior Indebtedness, for
application to the payment thereof, to the extent necessary to pay all
such Superior Indebtedness in full in cash or cash equivalents after
giving effect to any concurrent payment or distribution, or provision
therefor, to the holders of such Superior Indebtedness;
(c) each holder of the Subordinated Indebtedness at the time
outstanding hereby irrevocably authorizes and empowers each holder of the
Superior Indebtedness or such holder's representative to collect and
receive such holder's ratable share of any Liquidation Payment and to
receipt therefor, and, if any holder of Subordinated Indebtedness fails to
file a claim therefor at least seven (7) calendar days prior to the date
established by rule of law or order of court for such filing, to file and
prove (but not to vote) such claims therefor; and
(d) the holders of the Subordinated Indebtedness shall execute and
deliver to the holders of the Superior Indebtedness or their
representative or representatives all such further instruments confirming
the above authorization and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and shall take all such other
action, as may be reasonably requested by the holders of the Superior
Indebtedness or such representative or representatives, to enforce such
claims and to carry out the purposes of this section 10.
Upon any payment or distribution of assets referred to in this section 10,
the holders of the Subordinated Indebtedness shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
bankruptcy, insolvency, reorganization,
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<PAGE>
liquidation, receivership or other proceeding is pending, or a certificate of
the debtor, custodian, liquidating trustee, agent or other Person making any
such payment or distribution to such holders, for the purpose of ascertaining
the Persons entitled to participate therein, the holders of the Superior
Indebtedness, the then outstanding principal amount of the Superior Indebtedness
and any and all amounts payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this section 10.
10.4. No Payments With Respect to Subordinated Indebtedness in Certain
----------------------------------------------------------------
Circumstances.
- -------------
(a) The Note Issuers may make payments in respect of the
Subordinated Indebtedness in accordance with the terms of such
Subordinated Indebtedness, provided that the Note Issuers will not, and
--------
will not permit any of their respective Subsidiaries to, directly or
indirectly, make or agree to make, and neither the holder nor any assignee
or successor holder of any Subordinated Indebtedness will accept or
receive any payment or distribution (in cash, property or securities
(other than Permissible Securities) by set-off or otherwise), direct or
indirect, of or on account of all or any portion of any Subordinated
Indebtedness if, at the time of such payment or distribution or
immediately after giving effect thereto:
(i) all of the following three conditions shall be
satisfied:
(A) a default (a "Payment Default") in the payment when
due of all or any portion of the principal of or premium, if
any, or interest on any Superior Indebtedness shall have
occurred and shall have continued beyond any applicable grace
period;
(B) such Payment Default shall not have been cured or
waived in writing by the requisite holder or holders of such
Superior Indebtedness; and
(C) less than 180 days shall have elapsed after the date
on which such Payment Default shall have occurred (the period
during which the restrictions imposed by this subdivision (i)
is in effect being hereafter referred to as a "Payment Default
Blockage Period"); or
(ii) all of the following four conditions shall be satisfied:
(A) a default other than a Payment Default shall have
occurred with respect to any Superior Indebtedness (a
"Covenant Default") which permits the holder or holders
thereof to accelerate the maturity thereof (whether
immediately or after notice or lapse of time or both);
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<PAGE>
(B) the Note Issuers and the holder or holders of
Subordinated Indebtedness shall have received written notice
(given as provided in section 23) (each a "Subordination
Notice") of such Covenant Default from the holder or holders
of not less than 66-2/3% in aggregate principal amount of such
Superior Indebtedness, or their representative or
representatives (which notice shall state that it is a
"Subordination Notice" and shall make explicit reference to
the provisions of this section 10.4);
(C) such Covenant Default shall not have been cured or
waived in writing by the requisite holder or holders of the
Superior Indebtedness with respect to which such Covenant
Default shall have occurred; and
(D) less than 120 days shall have elapsed after the date
of receipt by the Note Issuers and the holders of the
Subordinated Indebtedness of such Subordination Notice (the
period during which the restrictions imposed by this
subdivision (ii) are in effect being hereinafter referred to
as a "Covenant Default Blockage Period") (Payment Default
Blockage Periods and Covenant Default Blockage Periods being
hereinafter collectively referred to as the "Blockage Periods"
and each as a "Blockage Period");
provided, however, that, for the purpose of this section 10.4(a), (x)
-------- -
Blockage Periods shall not be in effect for more than an aggregate of 180
days during any period of 360 consecutive days, (y) Blockage Periods shall
-
not be in effect on more than five occasions, and (z) no facts or
-
circumstances known to the holders of Superior Indebtedness giving any
Subordination Notice and constituting a Covenant Default on the date any
Subordination Notice is given may be used as a basis for any subsequent
Subordination Notice.
(b) The restrictions imposed by section 10.4(a) shall cease to
apply and the Note Issuers may resume payments in respect of the
Subordinated Indebtedness (including any payments which shall not have
been made on account of the provisions of this section 10, but excluding
any payments which may have become due upon any acceleration of the
maturity of the Subordinated Indebtedness) or any judgment with respect
thereto:
(i) in the case of a Payment Default, upon the earlier to
occur of (A) the cure or written waiver thereof by the requisite
-
holder or holders of the Superior Indebtedness with respect to which
such Payment Default shall have occurred or (B) the expiration of
-
the Payment Default Blockage Period or the
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<PAGE>
earlier termination of such Blockage Period by such requisite holder
or holders of such Superior Indebtedness; or
(ii) in the case of a Covenant Default, upon the earlier to
occur of (A) the cure or written waiver of such Covenant Default by
-
the requisite holder or holders of the Superior Indebtedness with
respect to which such Covenant Default shall have occurred or (B)
-
the expiration of the Covenant Default Blockage Period or the
earlier termination of such Blockage Period by the holder or holders
of the Superior Indebtedness who shall have delivered the
Subordination Notice with respect to such Covenant Default.
(c) In the event of either (i) the failure of the Obligors to pay
-
any Superior Indebtedness upon the maturity thereof or (ii) an
--
acceleration of the maturity of the principal of any Superior Indebtedness
in accordance with the terms thereof (which acceleration has not been
rescinded or annulled), such Superior Indebtedness shall first be paid in
full in cash or cash equivalents (or provision for such payment in cash or
cash equivalents shall be made in a manner reasonably satisfactory to the
holders of such Superior Indebtedness) before any payment or distribution
(in cash, properties or securities (other than Permissible Securities), by
set-off or otherwise) is made on account of or applied on the Subordinated
Indebtedness.
10.5. Payments and Distributions Received. If any payment or distribution
-----------------------------------
of any kind or character, whether in cash, property or securities (other than
Permissible Securities), shall be received by any holder of any of the
Subordinated Indebtedness in contravention of this section 10, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
or delivered and transferred to, the holders of the Superior Indebtedness, or
their representative or representatives, ratably according to the aggregate
amount remaining unpaid on account of such Superior Indebtedness, for
application to the payment thereof, to the extent necessary to pay all such
Superior Indebtedness in full in cash or cash equivalents, after giving effect
to any concurrent payment or distribution, or provision therefor, to the holders
of such Superior Indebtedness. In the event of the failure of any holder of any
of the Subordinated Indebtedness to endorse or assign any such payment or
distribution, any holder of the Superior Indebtedness or such holder's
representative is hereby irrevocably authorized to endorse or assign the same.
10.6. Subrogation. Subject to the payment in full of all Superior
-----------
Indebtedness in cash or cash equivalents, in case cash, property or securities
otherwise payable or deliverable to the holders of the Subordinated Indebtedness
shall have been applied pursuant to this section 10 to the payment of Superior
Indebtedness, then and in each such case, the holders of the Subordinated
Indebtedness shall be subrogated to the rights of each holder of Superior
Indebtedness to receive any further payment or distribution in respect of or
applicable to the Superior Indebtedness; and, for the purposes of such
subrogation, no payment or distribution
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<PAGE>
to the holders of Superior Indebtedness of any cash, property or securities to
which any holder of Subordinated Indebtedness would be entitled except for the
provisions of this section 10 shall, and no payment over pursuant to the
provisions of this section 10 to the holders of Superior Indebtedness by the
holders of the Subordinated Indebtedness shall as between any of the Note
Issuers, its creditors other than the holders of Superior Indebtedness and the
holders of Subordinated Indebtedness, be deemed to be a payment by any of the
Note Issuers to or on account of Superior Indebtedness.
10.7. Notice. In the event that any Subordinated Indebtedness shall be
------
transferred and/or shall become due and payable before the expressed maturity
thereof as the result of the occurrence of a default, any of the Note Issuers
will give immediate written notice in writing of such happening to each holder
of Superior Indebtedness (together, in the case of any such transfer, with the
address of the transferee for purposes of this section 10, it being agreed that
the holders of Superior Indebtedness shall not be obligated to give to any such
transferee any notice required hereunder to be given by them to the holders of
Subordinated Indebtedness unless the holders of Superior Indebtedness shall have
received from the Note Issuers such notice (and the address of such
transferee)).
10.8. Subordination Not Affected. etc. The terms of this section 10, the
-------------------------------
subordination effected hereby and the rights created hereby of the holders of
the Superior Indebtedness shall not be affected by (a) any amendment or
-
modification of or supplement to any Superior Indebtedness (or any renewal,
extension, refinancing or refunding thereof) or any agreement, document or
instrument relating thereto, (b) any exercise or non-exercise of any right,
-
power or remedy under or in respect of any Superior Indebtedness (or any
security or collateral therefor) or pursuant to any agreement, document or
instrument relating thereto or (c) any waiver, consent, release, indulgence,
-
delay or other action, inaction or omission, in respect of any Superior
Indebtedness (or any security or collateral therefor) or pursuant to any
agreement, document or instrument relating thereto, whether or not any holder of
any Subordinated Indebtedness shall have had notice or knowledge of any of the
foregoing.
10.9. Obligations Unimpaired. The provisions of this section 10 are solely
----------------------
for the purpose of defining the relative rights of the holders of Superior
Indebtedness on the one hand and the holders of Subordinated Indebtedness on the
other hand, and (a) subject to the rights, if any, under this section 10 of the
-
holders of Superior Indebtedness, nothing in this section 10 shall (i) impair as
-
between the Note Issuers and the holder of any Subordinated Indebtedness the
obligation of the Note Issuers, which is unconditional and absolute, to pay to
the holder thereof all amounts due thereon in accordance with the terms thereof
or (ii) except as otherwise provided in section 10.13, prevent the holder of any
--
Subordinated Indebtedness from exercising all remedies available to such holder,
whether arising under the Operative Documents, applicable law or otherwise, and
(b) no Person is entitled to any third party beneficiary rights or other similar
-
rights on account of or under this section 10 other than the holders of the
Superior Indebtedness. The failure to make any payment due in respect of the
Subordinated Indebtedness or to comply with any of the terms and conditions
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<PAGE>
of any of the agreements, documents and instruments related to the Subordinated
Indebtedness by reason of any provision of this section 10 shall not be
construed as preventing the occurrence of any Default or Event of Default with
respect to the Subordinated Indebtedness.
10.10. Holders of Subordinated Indebtedness Entitled to Assume Payments
----------------------------------------------------------------
Not Prohibited in Absence of Notice. No holder of Subordinated Indebtedness
- -----------------------------------
shall at any time be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to it, unless and until such holder
shall have received written notice thereof (given as provided in section 23)
from the Note Issuers or from any holder of Superior Indebtedness or any agent
or representative thereof. Prior to the receipt of any such notice, each holder
of Subordinated Indebtedness shall be entitled to assume conclusively that no
such facts exist, without, however, limiting any right of any holder of Superior
Indebtedness under this section 10 to recover from any holder of the
Subordinated Indebtedness any payment made in contravention of this section 10.
Each payment on the Subordinated Indebtedness by the Note Issuers shall be
deemed to constitute a representation of the Note Issuers that such payment is
permitted to be paid by the Note Issuers under this section 10.
Each holder of Subordinated Indebtedness shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself to be a
holder of Superior Indebtedness or to be the agent or representative of any
holder of Superior Indebtedness to establish that such notice has been given by
any such Person. In the event that such holder of Subordinated Indebtedness
determines in good faith that further evidence is required with respect to the
right of any such Person to participate in any payment or distribution pursuant
to this section 10, such holder of Subordinated Indebtedness may request such
Person to furnish evidence to the reasonable satisfaction of such holder of
Subordinated Indebtedness as to any fact pertinent to the rights of such Person
under this section 10.
10.11. References in Subordinated Notes to Terms of Subordination. The
----------------------------------------------------------
Note Issuers covenant to cause each Subordinated Note now or hereafter issued to
contain a provision in substantially the following form:
"Payments on this Note are subordinate, to the extent
specified in the Securities Purchase Agreements, to
Superior Indebtedness (as defined in the Securities
Purchase Agreements)."
10.12. Reinstatement of Terms of Subordination. Notwithstanding anything
---------------------------------------
to the contrary contained herein, the provisions of this section 10 shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment on any Superior Indebtedness is rescinded, annulled or must
otherwise be returned by any holder of Superior Indebtedness, upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of any of the
Note Issuers or any of its Subsidiaries or otherwise, all as though such payment
had not been made.
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<PAGE>
10.13. Limitation on Right of Action. Notwithstanding anything to the
-----------------------------
contrary contained in this Agreement, the Subordinated Notes or any of the other
Operative Documents, the holders of the Subordinated Indebtedness agree that, if
any Superior Indebtedness is outstanding, the holders of the Subordinated
Indebtedness will not exercise any right or remedy available to them on account
of any Default or Event of Default or otherwise at any time at which payments
may not be made in respect of the Subordinated Indebtedness under this section
10, unless and until (a) the holder or holders of any Superior Indebtedness
-
shall have (i) accelerated the Superior Indebtedness and (ii) taken enforcement
- --
action in connection therewith, (b) a proceeding under the Bankruptcy Code or
-
any similar state statute or law shall have been commenced by or against any
Obligor by Persons other than the holders of the Subordinated Indebtedness or
(c) both (i) an Event of Default under the Operative Documents shall have
- -
occurred and shall have continued uncured and unwaived for a period of 180 days
and (ii) not less than 60 days prior to accelerating any of the Subordinated
--
Indebtedness or taking any other enforcement action with respect to the
Subordinated Indebtedness, the holders of Subordinated Indebtedness shall have
given each holder of Superior Indebtedness written notice of the same (which
notice may be given prior to the expiration of such 180-day period), which
notice shall specify in reasonable detail the default on the basis of which the
holders of the Subordinated Indebtedness shall take any enforcement action and
the enforcement action that the holders of Subordinated Indebtedness then intend
to take.
11. Registration. etc.
-----------------
11.1. Registration on Request.
-----------------------
(a) In case the Holding Company shall receive from one or more
holders of any Registrable Shares a written request or requests that the
Holding Company effect any registration, qualification and/or compliance
of any Registrable Shares held by (or issuable to) such holder or holders,
and specifying the intended method of offering, sale and distribution, the
Holding Company will:
(i) promptly give written notice of the proposed registration,
qualification and/or compliance to each holder of any Registrable
Shares; and
(ii) provided the conditions of section 11.1(b) are satisfied,
--------
as soon as practicable, effect such registration, qualification
and/or compliance (including, without limitation, the execution of
an undertaking for post-effective amendments, appropriate
qualification under applicable blue sky or other state securities
laws and appropriate compliance with exemptive regulations issued
under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or
facilitate the sale and distribution of such amount of Registrable
Shares as is specified in a written request or requests, made within
30 days after receipt of
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<PAGE>
such written notice from the Holding Company, by any holder or
holders of any Registrable Shares.
(b) The obligations of the Holding Company under this section 11 .1
to effect any such registration, qualification and/or compliance are
subject to the following qualifications:
(i) the Holding Company shall only be obligated to effect two
registrations pursuant to this section 11.1, provided that if, in
--------
connection with any registration of Registrable Shares effected
pursuant to this section 11.1, the holders of Registrable Shares
requesting registration are unable for any reason to include in such
registration all of the Registrable Shares for which registration
has been requested, then the holder or holders of the Registrable
Shares shall be entitled to an additional registration of
Registrable Shares pursuant to this section 11.1;
(ii) unless the Holding Company becomes a Public Company prior
to August 31, 2000, the Holding Company shall not be obligated to
effect any registration requested pursuant to this section 11.1
prior to such date. After August 31, 2000, if the Holding Company
has not become a Public Company, the Holding Company shall not be
obligated to effect any registration requested pursuant to this
section 11.1:
(A) unless it shall have been (1) requested to do so by
-
the holder or holders of a majority of the Registrable Shares
at the time outstanding and (2) requested to effect the
-
registration of a majority of the Registrable Shares at the
time outstanding; and
(B) unless (1) after giving effect to such public sale,
-
the aggregate market value of the Holding Company Common Stock
(determined reasonably by the Holding Company and the holder
or holders of a majority of the Registrable Shares with
respect to which registration shall have been requested and on
the basis of the median of the range of the estimated public
offering price per share (as established by the underwriters,
if any, of such registration) to be sold pursuant to such
registration) is at least $75,000,000 and (2) the aggregate
-
gross proceeds of the shares to be sold pursuant to such
registration (before all fees, expenses and disbursements
related thereto and all underwriters' discounts and
commissions) is at least $18,750,000; provided that if such
--------
aggregate market value is estimated to be at least $75,000,000
(in accordance with the provisions of clause (1)), then the
Holding Company shall issue and sell pursuant to such
registration such number of additional shares for
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<PAGE>
its own account as is sufficient to cause such aggregate gross
proceeds to be at least $18,750,000;
(iii) if at the time any registration is requested pursuant to
this section 11.1 the Holding Company is then a Public Company, the
Holding Company shall not be obligated to effect any registration
requested pursuant to this section 11.1:
(A) unless it shall have been (1) requested to do so by
-
the holder or holders of a majority of the Registrable Shares
at the time outstanding and (2) requested to effect the
-
registration of a majority of the Registrable Shares at the
time outstanding; and
(B) prior to the expiration of one year following the
consummation of the public offering most recently consummated
by the Holding Company prior to such request for registration
pursuant to this section 11.1; provided that there shall be no
--------
waiting period pursuant to this clause (iii)(B) following any
public offering effected pursuant to registration statements
on Form S-8 or any successor form used for a similar purpose;
(iv) if the Holding Company shall have effected one
registration requested pursuant to this section 11.1, then the
Holding Company shall not be obligated to effect any subsequent
registration requested pursuant to this section 11.1 unless it shall
have been requested to effect the registration of that number of the
Registrable Shares at the time outstanding which is not less than
25% of the Registrable Shares initially issued on the Closing Date
(adjusted appropriately for stock splits, combinations and the
like);
(v) the Holding Company shall not include in any registration,
qualification or compliance requested pursuant to this section 11.1
any other securities (including, without limitation, those to be
issued and sold by the Holding Company), if as a result of including
any such other securities there is any reduction in the number of
Registrable Shares to be included therein, without the prior written
consent of holders of a majority of the Registrable Shares to be
included in such registration, qualification or compliance; and
(vi) the Holding Company shall pay all Registration Expenses
related to any registration, qualification and compliance effected
pursuant to this section 11.1.
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<PAGE>
11.2. Incidental Registration.
-----------------------
(a) If the Holding Company at any time or from time to time shall
determine to effect the registration, qualification and/or compliance of
any of its equity securities (whether in connection with an offering by
the Holding Company or others) (otherwise than pursuant to a registration
on a form inappropriate for an underwritten public offering or relating
solely to securities to be issued in a merger, acquisition of the stock or
assets of another entity or in a similar transaction), then, in each such
case (including the Holding Company's initial public offering), the
Holding Company will:
(i) promptly give written notice of the proposed registration,
qualification and/or compliance (which shall include a list of the
jurisdictions in which the Holding Company intends to register or
qualify such securities under the applicable blue sky or other state
securities laws) to each holder of any Registrable Shares; and
(ii) include among the securities which it then registers or
qualifies all Registrable Shares specified by any holder thereof in
a written request or requests, made within 30 days after receipt of
such written notice from the Holding Company.
(b) The obligations of the Holding Company under this section 11.2
are subject to the following qualifications:
(i) the Holding Company shall pay all Registration Expenses
related to any registration, qualification or compliance effected
pursuant to this section 11.2; and
(ii) if, in connection with any underwritten offering pursuant
to this section 11.2, the managing underwriter shall impose a
limitation on the number or kind of securities which may be included
in any such registration for sale by any Person other than the
Holding Company because, in its reasonable judgment, such limitation
is necessary to effect an orderly public distribution, then the
Holding Company shall be obligated to include in such registration
statement only such limited portion of the Registrable Shares (which
may be none) as is determined in good faith by such managing
underwriter, provided that, if any securities are being offered for
--------
the account of any Person other than the Holding Company and the
holders of the Registrable Shares, the reduction in the number of
Registrable Shares included in such registration shall not represent
a greater percentage of the amount of Registrable Shares originally
requested to be registered and sold in
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<PAGE>
such registration than the lowest such percentage reduction imposed
upon any other Person.
11.3. Permitted Registration. If and to the extent that any holder or
----------------------
holders of any Registrable Shares shall have, at the time of delivery of the
written request referred to in section 11.2, no present intention of selling or
distributing such securities, the Holding Company shall be obligated to effect
the registration, qualification and compliance of such securities of such holder
or holders only if and to the extent, in each case, that such registration,
qualification and compliance are at the time permitted by the applicable
statutes or rules and regulations thereunder or the practices of the
governmental authority concerned; provided that the Holding Company shall not be
--------
required to effect a shelf registration under Rule 415 of the Commission under
the Securities Act if the only securities to be sold pursuant thereto are
Registrable Shares.
11.4. Registration Procedures. In the case of each registration,
-----------------------
qualification and/or compliance contemplated by this section 11, the Holding
Company will (a) be solely responsible for selecting the underwriter, if any,
-
and (b) keep the holder or holders of Registrable Shares advised in writing as
-
to the initiation of proceedings for such registration, qualification and
compliance and as to the completion thereof, and will advise each such holder,
upon request, of the progress of such proceedings. In addition, the Holding
Company will follow procedures customarily observed by issuers in registered
public offerings, and accord to the holder or holders of Registrable Shares all
rights (including, without limitation, the right to perform appropriate "due
diligence") customarily accorded to selling stockholders in secondary
distributions and to managing underwriters if the transaction in question is or
were an underwritten public offering. At the expense of the Holding Company or
of the party or parties bearing the expenses of such registration, qualification
and compliance, the Holding Company will (a) keep such registration,
-
qualification and compliance current and effective by such action as may be
necessary or appropriate, including, without limitation, the filing of post-
effective amendments and supplements to any registration statement or
prospectus, for such period as is necessary to permit the sale and distribution
of the Registrable Shares pursuant thereto, but in no event longer than six
months, (b) take all necessary action under any applicable blue sky or other
-
state securities law to permit such sale and/or distribution, all as requested
by the holder or holders of Registrable Shares included therein, (c) comply with
-
applicable requirements of all regulatory entities, including, without
limitation, the National Association of Securities Dealers, Inc., (d) furnish
-
each holder of Registrable Shares included therein such number of registration
statements, prospectuses, supplements, amendments, offering circulars and other
documents incidental thereto as such holder from time to time may reasonably
request, (e) list all Registrable Shares on each securities exchange on which
-
securities of the same class are then listed and (f) furnish (or cause to be
-
furnished) to each holder of Registrable Shares, all undertakings, agreements,
certificates, opinions, financial statements and "comfort letters" of the sort
customarily provided to selling stockholders in secondary
-41-
<PAGE>
distributions and to the managing underwriters, if the transaction in question
is or were an underwritten public offering.
11.5. Indemnification. Without limiting the generality of section 21, the
---------------
Holding Company will indemnify, defend and hold harmless each holder of
Registrable Shares included in any registration, qualification and/or compliance
contemplated by this section 11 and each underwriter of such securities, and
each Person, if any, who controls each such holder and underwriter within the
meaning of the Securities Act, and their respective directors, officers,
employees, agents, advisors and Affiliates (each, an "Indemnified Person"), to
the fullest extent enforceable under applicable law against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, supplement, amendment,
offering circular or other document related to any registration, qualification
or compliance or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation (or alleged violation) of the Securities Act or
other securities laws in connection with any such registration, qualification or
compliance, and will reimburse each such Indemnified Person for any legal or any
other expenses reasonably incurred in connection with investigating and/or
defending (and/or preparing for any investigation or defense of) any such claim,
loss, damage, liability, action or violation; provided that the Holding Company
--------
will not be liable in any such case to any such Indemnified Person if, but only
to the extent that, any such claim, loss, damage, liability, action, violation
or expense is finally determined to arise out of or result from any untrue
statement in or omission from written information furnished to the Holding
Company by an instrument duly executed by such Indemnified Person and stated to
be specifically for use therein. Each holder of Registrable Shares will, if
securities held by such holder are included in a registration effected pursuant
to this section 11, indemnify, defend and hold harmless the Holding Company,
each of its directors and officers who signs the related registration statement,
and each Person, if any, who controls the Holding Company within the meaning of
the Securities Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, supplement, amendment, offering circular or other
document or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Holding Company and such directors, officers
or Persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending (and/or preparing for any investigation or
defense of) any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) was made in (or omitted
from) such registration statement, prospectus, supplement, amendment, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Holding Company by an instrument duly executed by
such holder and stated to be specifically for use therein; provided that the
--------
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<PAGE>
liability of any such holder under this section 11.5 shall be limited to the net
sales proceeds actually received by such holder as a result of the sale by it of
securities in such registration.
11.6. Restrictions on Other Agreements. The Holding Company will not grant
--------------------------------
any right relating to the registration of its securities if the exercise thereof
interferes with or is inconsistent with or will delay (or could reasonably be
expected to interfere with or be inconsistent with or delay) the exercise and
enjoyment of any of the rights granted under this section 11, without the
written consent of holders of not less than 51% of the Registrable Shares at the
time outstanding, which consent may be given or withheld in the sole discretion
of such holders. The parties acknowledge that the Stockholders Agreement
contains certain registration rights but the Holding Company agrees that such
registration rights shall not interfere with the registration rights granted
pursuant to this section 11. The Holding Company will not permit any of its
Subsidiaries, including, without limitation, Intermetrics, to effect, or to
grant any right relating to, the registration of its securities.
12. The Revolving Credit Facility.
-----------------------------
12.1. Certain Definitions. As used in this section 12, the following terms
-------------------
have the following respective meanings:
"Available Revolving Commitment" shall mean on any date the Total
------------------------------
Revolving Commitment on such date reduced by the aggregate principal amount of
all Revolving Credit Loans outstanding on such date.
"Expiration Date" shall mean August 31, 2001.
---------------
"Percentage" of any holder of Senior Revolving Credit Notes, shall mean
----------
the percentage specified on that portion of Schedule I attached hereto as is
----------
applicable to such holder.
"Revolving Credit Loan" and "Revolving Credit Loans" shall have the
--------------------- ----------------------
respective meanings specified in section 12.2.
"Total Revolving Commitment" shall mean on any date $5,000,000.
--------------------------
12.2. Revolving Commitment.
--------------------
(a) Subject to the terms and conditions hereof, you and the Other
Purchasers hereby establish for the benefit of the Note Issuers a
revolving credit facility pursuant to which the Note Issuers may borrow
(and repay and reborrow) an aggregate principal amount at any one time
outstanding not in excess of the Available Revolving Commitment as in
effect from time to time. The revolving credit facility established
hereunder shall expire, and all amounts outstanding
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<PAGE>
thereunder shall be due and payable, on the Expiration Date. At any time
or from time to time on or after the Closing Date and prior to the
Expiration Date, subject to the limitations set forth in section 12.2(b),
the Note Issuers may borrow (and repay and reborrow) from each holder of
Senior Revolving Credit Notes an aggregate principal amount at any one
time outstanding not in excess of such holder's Percentage of the
Available Revolving Commitment. The obligations of each holder of Senior
Revolving Credit Notes are several and not joint and several. Each such
borrowing (a "Revolving Credit Loan" and, collectively, the "Revolving
Credit Loans") shall be made pro rata from the holders of the Senior
--- ----
Revolving Credit Notes in accordance with their respective Percentages of
the Available Revolving Commitment unless any such holder fails to honor
its commitment under this section 12.2(a); provided, however, that such
--------
failure shall not relieve you of your commitment under this section
12.2(a).
(b) The Revolving Credit Loans shall be made in such amount (in an
integral multiple of $100,000 and a minimum of $400,000 or such lesser
amount as may be equal to the Available Revolving Commitment) and on such
date as the Note Issuers shall specify in a notice substantially in the
form of Exhibit 12.2(b) attached hereto delivered to the holders of the
---------------
Senior Revolving Credit Notes in accordance with the provisions of section
23 not less than three Business Days nor more than 10 Business Days prior
to the date so specified, provided that no holder of any Senior Revolving
--------
Credit Notes shall be obligated to (i) make any Revolving Credit Loan if
-
at the time thereof or after giving effect thereto any Default or Event of
Default shall exist or any condition shall exist which has resulted in, or
could reasonably be expected to result in, a Material Adverse Change or
(ii) make more than three Revolving Credit Loans during any calendar
--
month.
(c) The Revolving Credit Loans shall be made by transfer of
immediately available funds to an account of the Note Issuers in
accordance with the written instructions of the Note Issuers set forth in
the Officers' Certificate referred to in section 12.2(b).
12.3. Prepayments of the Senior Revolving Credit Notes. In addition to
------------------------------------------------
paying the entire outstanding principal amount and the interest due on the
Senior Revolving Credit Notes on the Expiration Date, at any time or from time
to time after the Closing Date and prior to the Expiration Date, the Note
Issuers may, at their option, upon notice as set forth in section 12.5, prepay
without premium all or any part (in an integral multiple of $100,000 and a
minimum of $200,000 or such lesser amount as shall then be outstanding) of the
Senior Revolving Credit Notes; provided that the Note Issuers may not make more
--------
than three such prepayments during any calendar month. Any prepayment in
connection with a termination of the Total Revolving Commitment pursuant to
section 12.4 shall be made together with accrued interest on the amount prepaid
to the date of such prepayment. If at any time the aggregate outstanding
principal amount of the Revolving Credit Loans exceeds
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<PAGE>
the Total Revolving Commitment or the Available Revolving Commitment, the Note
Issuers will immediately prepay the Senior Revolving Credit Notes, without
premium, in an amount equal to such excess, together with accrued interest
thereon.
12.4. Permanent Termination of Total Revolving Commitment. If at any time
---------------------------------------------------
the Note Issuers prepay pursuant to section 9.1, 9.3 or 9.7 or otherwise all of
the Senior Term Notes, then concurrently therewith the Note Issuers must prepay
without premium all of the Senior Revolving Credit Notes (whereupon the Total
Revolving Commitment shall be permanently terminated).
12.5. Notice of Prepayments or Terminations. In the case of each
-------------------------------------
prepayment of the Senior Revolving Credit Notes under section 12.3 and each
permanent termination of the Total Revolving Commitment under section 12.4, the
Note Issuers shall give written notice thereof to each holder of the Senior
Revolving Credit Notes not less than three Business Days nor more than 10
Business Days prior to the date fixed for such prepayment or termination. Each
such notice shall set forth: (a) the date fixed for prepayment or termination,
-
as applicable; (b) in the case of any prepayment, (i) the aggregate principal
- -
amount of the Revolving Credit Loans to be prepaid on such date and (ii) the
--
aggregate principal amount of the Revolving Credit Loans owing to such holder to
be prepaid on such date and (c) in the case of any prepayment of the Senior
-
Revolving Credit Notes or any permanent termination of the Total Revolving
Commitment, (i) the aggregate amount of the accrued interest due and payable in
-
connection therewith and (ii) the amount of accrued interest to be paid to such
--
holder in connection therewith.
12.6. Pro Rata Treatment. Each payment and prepayment of the principal of
------------------
the Senior Revolving Credit Notes shall be made pro rata among the holders of
--- ----
the Senior Revolving Credit Notes based upon their respective Percentages unless
any holder fails to honor its commitment under section 12.2(a), in which event
payments shall be made in proportion to the aggregate principal amount borrowed
from each such holder.
12.7. Permanent Termination of the Total Revolving Commitment Upon the
----------------------------------------------------------------
Occurrence of an Event of Default or a Chance of Control.
- --------------------------------------------------------
(a) In addition to the rights of the holders of the Senior
Revolving Credit Notes set forth in section 16, upon the occurrence of an
Event of Default of the character described in subdivisions (a), (b), (c),
(d), (h), (i), (i), (k) or (l) of section 16.1 and at the option of the
holder or holders of 50% or more in aggregate principal amount of all
Senior Revolving Credit Notes at the time outstanding (excluding any
Senior Revolving Credit Notes at the time owned by the Companies or any
Affiliate of the Companies), exercised by written notice to the Note
Issuers, the Total Revolving Commitment may be permanently terminated,
whereupon all Revolving Credit Loans, and interest accrued thereon, shall
become immediately due and payable. Upon the occurrence of an Event of
Default of the character described in
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<PAGE>
subdivisions (e), (f) or (g) of section 16.1, the Total Revolving
Commitment shall forthwith terminate without notice of any kind, which is
hereby expressly waived by the Note Issuers, whereupon all Revolving
Credit Loans, and interest accrued thereon, shall become immediately due
and payable.
(b) In addition, as provided in section 9.7, upon the occurrence of
a Change of Control and at the option of the Required Holders of all
Senior Revolving Credit Notes at the time outstanding (excluding any
Senior Revolving Credit Notes at the time owned by the Companies or any
Affiliate of the Companies), exercised by written notice to the Note
Issuers, the Total Revolving Commitment may be permanently terminated,
whereupon all Revolving Credit Loans, and interest accrued thereon, shall
become immediately due and payable.
12.8. Books and Records. The holders of the Senior Revolving Credit Notes
-----------------
are hereby irrevocably authorized by the Note Issuers to maintain records
evidencing the dates and the amounts of the Revolving Credit Loans and of each
payment and prepayment made by the Note Issuers with respect thereto (whether in
respect of the principal thereof and/or the interest or fees accrued thereon)
and the applicable rate or rates and amounts of interest accrued thereon and of
all other related transactions. In the absence of manifest error, such records
shall constitute final, binding and conclusive evidence of the same. No failure
on the part of any holder of the Senior Revolving Credit Notes to maintain any
such records shall in any way affect any Revolving Credit Loan made by such
holder or the rights or obligations of such holder or of the Note Issuers with
respect thereto. Each holder of the Senior Revolving Credit Notes shall, upon
request (but not more frequently than once during any calendar month), furnish
to the Note Issuers a statement of the amounts and dates of each Revolving
Credit Loan made by such holder, the amount of and date on which each payment
and prepayment was made in respect thereof and the amount (and the applicable
rate or rates) of interest accrued thereon. In the absence of manifest error,
such statement shall be deemed final, binding and conclusive upon the Note
Issuers of its contents unless the Note Issuers shall notify such holder in
writing of their objection to any portion of such statement within 45 days of
the date on which such statement was furnished to the Note Issuers.
13. Board Visitation Rights; Management Stock Option Plan.
-----------------------------------------------------
(a) The holders of the Securities shall have the right, as a group,
to appoint one representative who shall: (i) receive notice of all
-
meetings (both regular and special) of the Board of Directors of each of
the Companies and each committee of any such board (such notice to be
delivered or mailed as specified in section 23 at the same time as notice
is given to the members of any such board and/or committee but in no event
later than seven days prior to the date of such meeting); (ii) be entitled
--
to attend (or, in the case of telephone meetings, monitor) all such
meetings; (iii) receive all notices, information and reports which are
---
furnished to the members
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<PAGE>
of any such board and/or committee at the same time and in the same manner
as the same is furnished to such members; (iv) be entitled to participate
--
in all discussions conducted at such meetings and (v) receive as soon as
-
available (but in any event not later than 30 days after such meeting)
copies of the minutes of all such meetings. If any action is proposed to
be taken by any such board and/or committee by written consent in lieu of
a meeting, the Companies will give written notice thereof to such
representative, which notice shall describe in reasonable detail the
nature and substance of such proposed action and shall be delivered not
less than seven days prior to the date upon which such action is proposed
to be taken. The Companies will furnish such representative with a copy of
each such written consent not later than five days after it has been
signed by its last signatory. Such representative shall not constitute
members of any such board and/or committee and shall not be entitled to
vote on any matters presented at meetings of any such board and/or
committee or to consent to any matter as to which the consent of any such
board and/or committee shall have been requested. The Board of Directors
of each Company shall meet not less frequently than once during each
fiscal quarter during the first year of this Agreement and not less
frequently than three times during each subsequent year. The Companies
will pay the reasonable out-of-pocket expenses of such representative
incurred in connection with attending such meetings and/or exercising any
rights hereunder.
(b) Not later than June 30, 1998, the Holding Company shall have
adopted a management stock option plan providing for issuance to employees
of options exercisable for shares of Holding Company Class D Common Stock
(the "Management Stock Option Plan") and otherwise in form and substance
satisfactory to the Required Holders of each class of Securities at the
time outstanding. Without limiting the generality of the foregoing, such
Management Stock Option Plan must provide that no amendment, modification
or waiver of any term thereof (or of any related agreement, document or
instrument) may be made without the prior written consent of the Required
Holders of each class of Securities at the time outstanding.
14. Covenants of the Companies. From and after the date hereof and thereafter
--------------------------
so long as any of the Notes shall remain outstanding, the Holding Company will,
and will cause each of its Subsidiaries to, duly perform and observe each and
all of the covenants and agreements hereinafter set forth (it being agreed that
certain provisions of sections 14.5, 14.7(b), 14.9, 14.11, 14.15 and 14.16 are
subject to modification or termination, in whole or in part, as explicitly
provided in such sections on the first date upon which the Senior Notes shall
have been indefeasibly paid or prepaid in full and the Total Revolving
Commitment shall have been permanently terminated (the "Covenant Adjustment
Date"), but until the Covenant Adjustment Date, the provisions of section 14 are
for the benefit of and are enforceable by the holder or holders of any Notes in
accordance with the terms hereof):
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<PAGE>
14.1. Books of Record and Account: Reserves. The Holding Company will, and
-------------------------------------
will cause each of its Subsidiaries to (a) at all times keep proper books of
-
record and account in which full, true and correct entries shall be made of its
transactions in accordance with GAAP and (b) set aside on its books from its
-
earnings for each fiscal year all such proper reserves as shall be required in
accordance with GAAP in connection with its business.
14.2. Payment of Taxes; Corporate Existence; Maintenance of Properties;
-----------------------------------------------------------------
Compliance with Laws; Lines of Business; Proprietary Rights. Each of the Holding
- -----------------------------------------------------------
Companies will, and will cause each of its respective Subsidiaries to:
(a) pay and discharge promptly as they become due and payable all
taxes, assessments and other governmental charges or levies imposed upon
it or its income or upon any of its property, as well as all claims of any
kind (including claims for labor, materials and supplies) which, if
unpaid, might by law become a Lien upon its property; provided that no
--------
such Person shall be required to pay any such tax, assessment, charge,
levy or claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings promptly
initiated and diligently conducted and if it shall have set aside on its
books such reserves, if any, with respect thereto as are required by GAAP;
provided, further, that the Holding Company will, and will cause each of
-------- -------
its Subsidiaries to, pay any such tax, assessment, charge, levy or claim
prior to the commencement of any proceeding to foreclose any Lien securing
the same;
(b) do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and all material
Licenses, provided that nothing in this clause (b) shall prohibit the
--------
consummation of any transaction consummated in accordance with section
14.13, 14.14 or 14.15;
(c) maintain and keep its material properties necessary for the
conduct of its business in good repair, working order and condition
(reasonable wear and tear excepted), so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times;
(d) comply in all material respects with all applicable laws,
statutes, rules, regulations and orders of, and all applicable
restrictions imposed by, all governmental authorities in respect of the
conduct of its business and the ownership of its property (including,
without limitation, all Environmental Laws); provided that no such Person
--------
shall be required by reason of this section 14.2(d) to comply therewith at
any time while it shall be contesting its obligation to do so in good
faith by appropriate proceedings promptly initiated and diligently
conducted, and if it shall have set aside on its books such reserves, if
any, with respect thereto as are required by GAAP;
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<PAGE>
(e) engage only in lines of business related to the Business and
conduct substantially all its business and keep substantially all its
assets in the United States of America, provided that, notwithstanding
--------
anything to the contrary contained in this Agreement or any of the other
Operative Documents, neither the Holding Company nor Apollo shall engage
in any operations, business or activity other than that which is
incidental to owning and holding its interest in Pacer and Apollo (in the
case of the Holding Company) and Intermetrics (in the case of Apollo) and,
without limiting the generality of the foregoing, neither the Holding
Company nor Apollo shall own any material assets other than such interests
and shall not have any direct Subsidiary other than Pacer and Apollo (in
the case of the Holding Company) and Intermetrics (in the case of Apollo);
and
(f) own or have a valid license for all material Proprietary
Rights used by it in the conduct of its business.
14.3. Insurance. The Holding Company will, and will cause each of its
---------
Subsidiaries to, maintain with financially sound and reputable insurers,
insurance with respect to their properties and businesses against loss or damage
of the kinds customarily insured against by Persons of established reputation
engaged in the same or a similar business and similarly situated, in such
amounts and by such methods as shall be customary for such Persons and
reasonably deemed adequate by the Holding Company.
14.4. Limitation on Discount or Sale of Receivables. The Holding Company
---------------------------------------------
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, discount or sell any of their accounts receivable, except that
Intermetrics, Pacer and any of their respective Subsidiaries may settle doubtful
accounts in the ordinary course of business.
14.5. Limitation on Funded Debt and Current Debt. The Holding Company
------------------------------------------
will not, and will not permit any of its Subsidiaries to, be liable or create,
assume, incur, guarantee, or in any manner become liable, contingently or
otherwise, in respect of any Funded Debt or Current Debt other than:
(1) until the Covenant Adjustment Date:
(a) Funded Debt evidenced by the Notes and Note Guarantees;
(b) Funded Debt and/or Current Debt outstanding on the date hereof
and referred to on Exhibit 5.9 attached hereto (but no renewal, extension,
-----------
refinancing or refunding thereof);
(c) Funded Debt and/or Current Debt of Intermetrics, Pacer or any
of their respective Subsidiaries constituting Attributable Debt permitted
under section 14.16;
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<PAGE>
(d) Funded Debt and/or Current Debt of Intermetrics, Pacer or any
of their respective Subsidiaries under Capital Leases, provided that (i)
-------- -
both at the time of and immediately after giving effect to the incurrence
thereof and the retirement of any Indebtedness which is concurrently being
retired, no Default or Event of Default shall have occurred and be
continuing, (ii) the aggregate principal amount of Funded Debt and Current
--
Debt permitted by this clause (d) which is incurred during any fiscal year
shall not exceed $350,000, (iii) the aggregate outstanding principal
---
amount of Funded Debt and Current Debt permitted by this clause (d) shall
not exceed $1,000,000 at any time and (iv) any Liens securing such Funded
--
Debt and/or Current Debt are permitted under section 14.9(c);
(e) additional unsecured Funded Debt and/or unsecured Current Debt
of Intermetrics and/or Pacer not otherwise permitted under this
subdivision (1) of this section 14.5, provided that:
--------
(i) both at the time of and immediately after giving effect
to the incurrence thereof and the retirement of any Indebtedness
which is concurrently being retired, no Default or Event of Default
shall have occurred and be continuing;
(ii) the aggregate outstanding principal amount of Funded Debt
and Current Debt permitted by this clause (e) shall not exceed
$3,500,000 at any time;
(iii) all Funded Debt and Current Debt permitted by this clause
(e) shall be subordinated to the Senior Notes upon terms and
conditions reasonably satisfactory to the Required Holders of the
Senior Notes;
(iv) if at the time any Funded Debt or Current Debt permitted
by this clause (e) is incurred the interest coverage ratio
calculated under section 14.7(d) for the most recently completed
four consecutive fiscal quarters of the Holding Company (or such
shorter period as is specified therein) is less than 2.25 to 1.00,
such Funded Debt or Current Debt shall be pari passu to the
Subordinated Notes upon terms and conditions reasonably satisfactory
to the Required Holders of the Subordinated Notes; and
(v) the holders of any Funded Debt and/or Current Debt
permitted by this clause (e) shall not be entitled to the benefit of
any negative pledge or other covenant restricting the ability of the
Companies or any of their respective Subsidiaries from incurring any
Liens;
(f) Funded Debt and/or Current Debt of the Holding Company
evidenced by Permitted Stock Repurchase Notes; and
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<PAGE>
(g) unsecured Current Debt owing by one Company to any other
Company, provided that (i) both at the time of and immediately after
-------- -
giving effect to the incurrence thereof and the retirement of any
Indebtedness which is concurrently being retired, no Default or Event of
Default shall have occurred and be continuing, (ii) the aggregate
--
outstanding principal amount of Current Debt permitted by this clause (g)
which is payable by Intermetrics or Pacer to all other Companies shall not
exceed, in either case, $500,000 at any time and (iii) all Current Debt of
---
the kind referred to in this clause (g) which is payable to Intermetrics
or Pacer must be evidenced by a written instrument and must be payable on
demand and by setoff; and
(2) from and after the Covenant Adjustment Date:
(a) Funded Debt and Current Debt evidenced by the Subordinated
Notes and Note Guarantees;
(b) any Funded Debt and/or Current Debt which is outstanding on the
Covenant Adjustment Date and was incurred prior to the Covenant Adjustment
Date in compliance with subdivision (1) of this section 14.5; and
(c) additional Funded Debt and/or Current Debt of Intermetrics,
Pacer or any of their respective Subsidiaries not otherwise permitted
under this subdivision (2) of this section 14.5 (including any Funded Debt
and/or Current Debt incurred to refinance the Senior Notes), provided that
--------
(i) both at the time of and immediately after giving effect to the
-
incurrence thereof and the retirement of any Indebtedness which is
concurrently being retired, no Default or Event of Default shall have
occurred and be continuing, and (ii) immediately after giving effect to
--
the incurrence thereof and the retirement of any Indebtedness which is
concurrently being retired, the Holding Company will be in compliance with
sections 14.7(c) and 14.7(d) calculated on a pro forma basis giving effect
to such incurrence (and any such retirement) on the first day of the
applicable period of four consecutive fiscal quarters specified in such
sections.
14.6. Limitation on Restricted Payments. The Holding Company will not,
---------------------------------
and will not permit any of its Subsidiaries to, directly or indirectly, make or
commit to make any Restricted Payment other than the following Restricted
Payments:
(a) the Subsidiaries of the Holding Company may pay to the Holding
Company dividends in cash and the Holding Company may, upon receipt of
such dividends, (i) make (x) payments in cash in accordance with the
- -
Stockholders Agreement to repurchase from Management Stockholders (as
defined in the Stockholders Agreement) shares of the Holding Company
Common Stock (including any payments due under Permitted Stock Repurchase
Notes) and (y) Niebla/Soulia Payments, provided that (A) both at the time
- -------- -
of and after giving effect thereto, no
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<PAGE>
Default or Event of Default shall have occurred and be continuing and (B)
-
the aggregate amount of all dividends and payments (including
Niebla/Soulia Payments) (without duplication of amounts) referred to in
this section 14.6(a)(i) shall not exceed (1) $200,000 during the fiscal
-
year ended February 28, 1998 and (2) $600,000 during any subsequent fiscal
-
year and (ii) make payments in cash to repurchase shares of its capital
--
stock, provided that (A) such repurchases are required by ERISA or other
-------- -
applicable law and (B) the aggregate amount of all dividends and payments
-
(without duplication of amounts) referred to in this section 14.6(a)(ii)
shall not exceed $100,000 during any fiscal year;
(b) the Companies may pay to Westgate and to Levy/Schulte LLC the
management fees and other amounts required to be paid to each pursuant to
the Consulting Agreement (as in effect on the Closing Date) to which such
Person is a party; provided that (i) such fees are paid quarterly in
-------- -
arrears, on the last day of each February, May, August and November, (ii)
--
if any Default or Event of Default of the character described in section
16.1(a) or 16.1(b) shall have occurred and be continuing, then such fees
shall be accrued but not paid for any period commencing 30 days after the
Required Holders of any class of Notes shall notify any Company in writing
to suspend the payment of such fees and (iii) if any Default or Event of
---
Default of any character shall have occurred and be continuing, then the
fixed portion of such fees payable pursuant to section 3(a)(i) of each
Consulting Agreement shall be accrued but not paid for any period
commencing 30 days after the Required Holders of any Notes shall notify
any Company in writing to suspend the payment of such fees; and
(c) in addition to the dividends referred to in section 14.6(a),
the Subsidiaries of the Holding Company may pay to the Holding Company
dividends in cash in an aggregate amount not to exceed $50,000 during any
fiscal year, provided that (x) both at the time of and after giving effect
-------- -
thereto, no Default or Event of Default shall have occurred and be
continuing and (y) all dividends referred to in this section 14.6(c) are
-
used by the Holding Company upon receipt only to make payments (or
reimbursements) for its operating expenses (such as franchise taxes,
expenses related to the preparation of financial reports, reimbursement of
directors for reasonable travel and entertainment expenses and other
similar items).
14.7. Certain Financial Covenants.
---------------------------
(a) Minimum Consolidated Net Worth. The Holding Company will at all
------------------------------
times maintain Consolidated Net Worth of not less than $1,800,000 plus an
----
aggregate amount equal to the sum of 50% of positive Consolidated Net
Income for each full quarterly accounting period of the Holding Company
completed after November 30, 1997, but without adjustment for any losses
during any such period. For purposes of this section 14.7(a), Consolidated
Net Worth at any date shall be
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<PAGE>
increased by any amount deducted therefrom in respect of up to $310,000 in
aggregate principal amount of loans made on the Closing Date in compliance
with section 14.11 to employees of the Companies the proceeds of which are
used by such employees to purchase shares of Holding Company Common Stock.
(b) Current Ratio. Until the Covenant Adjustment Date, the Holding
-------------
Company will at all times maintain a ratio of Consolidated Current Assets
to Consolidated Current Liabilities (other than Current Liabilities under
Permitted Stock Repurchase Notes) of at least 1.00 to 1.00.
(c) Minimum Fixed Charge Coverage Ratio. The Holding Company will
-----------------------------------
at all times maintain a ratio of Consolidated Adjusted Net Income
Available for Fixed Charges for the most recently completed four
consecutive fiscal quarters of the Holding Company to Consolidated Fixed
Charges for such period of at least 1.20 to 1.00; provided that (i) until
-------- -
March 31, 1999, the applicable period shall be the number of full fiscal
quarters which have been completed after the Closing Date and (ii)
--
Interest Charges under Permitted Stock Repurchase Notes shall be
disregarded for purposes of this section 14.7(c).
(d) Minimum Interest Charge Coverage Ratio. The Holding Company
--------------------------------------
will at all times maintain a ratio of Consolidated Adjusted Net Income for
the most recently completed four consecutive fiscal quarters of the
Holding Company to Consolidated Interest Charges for such period of at
least 1.65 to 1.00; provided that (i) until March 31, 1999, the applicable
-------- -
period shall be the number of full fiscal quarters which have been
completed after the Closing Date and (ii) Interest Charges under Permitted
--
Stock Repurchase Notes shall be disregarded for purposes of this section
14.7(d).
14.8. Limitation on Tax Consolidation. The Holding Company will not, and
-------------------------------
will not permit any of its Subsidiaries to, become a party to a consolidated or
combined income tax return with any Person other than the Holding Company and
its Subsidiaries.
14.9. Limitation on Liens. Until the Covenant Adjustment Date, the
-------------------
Holding Company will not, and will not permit any of its Subsidiaries to, create
or suffer to exist any Lien in respect of any property of any character of the
Holding Company or any of its Subsidiaries (whether owned on the date hereof or
hereafter acquired); provided that there shall be excluded from the operation of
--------
this section 14.9:
(a) any Lien existing on the date hereof and referred to on Exhibit
-------
5.9 attached hereto;
---
(b) Liens (other than any Lien created by any Environmental Law or
by Section 4068 of ERISA), charges and encumbrances (including any taxes,
-53-
<PAGE>
assessments or other governmental charges, statutory Liens of landlords
and Liens of mechanics, in each case for sums not yet due or the payment
of which is not at the time required under section 14.2(a)) which (i) are
-
incurred in the ordinary course of business and which are incidental to
the conduct of the business of the Holding Company and its Subsidiaries
and the ownership of its and their property, (ii) are not incurred in
--
connection with the borrowing of money or the obtaining of advances or
credit, (iii) do not in the aggregate materially detract from the value of
---
the property of the Holding Company and its Subsidiaries or materially
impair the use thereof in the operation of its or their business and (iv)
--
do not (and could not reasonably be expected to) materially adversely
affect the rights of the holders of the Notes;
(c) any Lien securing Funded Debt and/or Current Debt permitted
under sections 14.5(1)(c) or 14.5(1)(d), provided that (i) such Lien does
-------- -
not extend to or cover any property other than the property being leased
in the applicable Leaseback Transaction or Capital Lease, and (ii) the
--
aggregate amount of Indebtedness secured thereby does not exceed the lower
of the cost and the fair market value of such property; and
(d) any Lien securing the Notes and arising under any of the
Security Documents.
14.10. Limitation on Transactions with Affiliates. The Holding Company
------------------------------------------
will not, and will not permit any of its Subsidiaries to, engage in any
transaction (including, without limitation, the purchase, sale or exchange of
any properties and assets or the rendering of any services) with an Affiliate of
the Holding Company or of any of its Subsidiaries on terms less favorable to the
Holding Company or any such Subsidiary in any material respect than would be
obtainable at the time in comparable transactions with a Person not such an
Affiliate; provided that nothing in this section 14.10 shall prohibit (a) the
-------- -
payment of any amount permitted to be paid under section 14.6, (b) the
-
execution, delivery and performance of the Employment Agreements or the
Stockholders Agreement or (c) the consummation of any transaction required under
-
and effected in accordance with (i) the Holding Company's Certificate of
-
Incorporation and by-laws (as in effect on the Closing Date) or (ii) the
--
Repurchase Agreements, each dated January 14, 1998, between the Holding Company
and J. Fernando Niebla and between the Holding Company and Soulia Family Trust,
or the Compensation Agreement, dated November 11, 1996, between the Holding
Company and J. Fernando Niebla (each as in effect on the Closing Date), provided
--------
that, in the case of this clause (ii), both at the time of and after giving
effect to such transaction, (A) no Default or Event of Default shall exist and
-
(B) all payments made thereunder (collectively, "Niebla/Soulia Payments") are
-
permitted to be made under section 14.6.
14.11. Limitation on Investments. The Holding Company will not, and will
-------------------------
not permit any of its Subsidiaries to, directly or indirectly, make or commit to
make any Investments other than Permitted Investments.
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<PAGE>
14.12. Limitation on Issuance of Shares of Subsidiaries. The Holding
------------------------------------------------
Company will not permit any of its Subsidiaries to (a) issue, sell or otherwise
-
dispose of any shares (or any securities convertible into or exercisable or
exchangeable for shares) of such Subsidiary except to the Holding Company or to
a Wholly-Owned Subsidiary of the Holding Company or (b) sell, transfer or
-
otherwise dispose of any shares (or any securities convertible into or
exercisable or exchangeable for shares) of any other Subsidiary of the Holding
Company except to the Holding Company or to a Wholly-Owned Subsidiary of the
Holding Company. The Holding Company will not, in any event, permit any
Subsidiary of the Holding Company to have outstanding any Preferred Shares.
14.13. Limitation on Subsidiary's Consolidation or Merger. The Holding
--------------------------------------------------
Company will not permit any of its Subsidiaries to consummate any merger or
consolidation with any other Person, provided that, if, both at the time of and
--------
immediately after giving effect thereto, no Default or Event of Default shall
have occurred and be continuing, then, subject to the provisions of section 9.7,
any Subsidiary of the Holding Company may consummate any merger or consolidation
with any Wholly-Owned Subsidiary of the Holding Company so long as, if any
Securities shall remain outstanding following the consummation of such merger or
consolidation, (x) the surviving or resulting corporation shall be a
-
Wholly-Owned Subsidiary of the Holding Company and shall have delivered to each
holder of any Notes to remain outstanding a legal, valid, binding and
enforceable Note Guarantee and (y) the holders of any Securities to remain
-
outstanding shall have received such additional agreements, documents and
instruments (including, without limitation, opinions of counsel) as the Required
Holders of any class of Securities to remain outstanding may reasonably request
in connection therewith. No consolidation or merger permitted by this section
14.13 shall have the effect of releasing any Person from any liability or
obligation under this Agreement or any of the other Operative Documents.
14.14. Limitation on the Holding Company's Consolidation or Merger. The
-----------------------------------------------------------
Holding Company will not consummate any merger or consolidation with any other
Person, provided that, if, both at the time of and immediately after giving
--------
effect thereto, no Default or Event of Default shall have occurred and be
continuing, then, subject to the provisions of section 9.7, the Holding Company
may consummate any merger or consolidation in connection with the consummation
of an Exit Event (as defined in the Holding Company's Certificate of
Incorporation) so long as, if any Securities shall remain outstanding following
the consummation of such merger or consolidation, (x) the surviving or resulting
-
corporation shall have delivered to each holder of any Notes to remain
outstanding a legal, valid, binding and enforceable Note Guarantee and (y) the
-
holders of any Securities to remain outstanding shall have received such
additional agreements, documents and instruments (including, without limitation,
opinions of counsel) as the Required Holders of any class of Securities to
remain outstanding may reasonably request in connection therewith. No
consolidation or merger permitted by this section 14.14 shall have the effect of
releasing any Person from any liability or obligation under this Agreement or
any of the other Operative Documents.
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<PAGE>
14.15. Limitation on Disposition of Property. The Holding Company will
-------------------------------------
not, and will not permit any of its Subsidiaries to, directly or indirectly,
sell, lease or otherwise dispose of any of their respective properties and
assets (or any right, title or interest therein), whether real, personal or
mixed, tangible or intangible, including, without limitation, shares of capital
stock, securities or Indebtedness of any Subsidiaries of the Holding Company,
except for (a) sales by Intermetrics and Pacer and their respective Subsidiaries
-
of inventory in the ordinary course of business consistent with prudent business
practice, (b) the sale by Intermetrics of the Class A Interests held by
-
Intermetrics in Intermetrics Entertainment Software, LLC, (c) the sale by Pacer
-
of that portion of its criminal justice business which is located in McLean,
Virginia, and (d) other sales by Intermetrics and Pacer and their respective
-
Subsidiaries of properties and assets if, in the case of this clause (d), on the
date of such sale and after giving effect thereto:
(i) no Default or Event of Default shall have occurred and
be continuing;
(ii) in the case of any sale for $500,000 or more, the
Board of Directors of the Holding Company shall have reasonably
determined in good faith, as evidenced by written resolutions
thereof promptly delivered to the holders of the Notes, that (A)
-
the sale of such properties and assets is in the best interests of
the Holding Company and its Subsidiaries and is not disadvantageous
in any material respect to the holders of the Notes and (B) such
-
properties and assets are being disposed of for fair and adequate
cash consideration on fair and adequate terms; and
(iii) the aggregate book value of all properties and assets
sold pursuant to this clause (d):
(A) during any fiscal year is not more than 5% (15%
from and after the Covenant Adjustment Date) of Consolidated
Total Assets as at the end of the most recently completed
fiscal year of the Holding Company immediately prior to the
date of such sale; and
(B) from and after the Covenant Adjustment Date, is
not more than 30% of Consolidated Total Assets as at the end
of the most recently completed fiscal year of the Holding
Company immediately prior to the date of any sale;
provided that Intermetrics, Pacer and their respective Subsidiaries
--------
may sell properties and assets consisting exclusively of owned
software and designs in excess of the foregoing limitations so long
as such properties and assets are sold for not less than their net
book value and the consideration paid in respect thereof shall
consist exclusively of cash.
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<PAGE>
14.16. Limitation on Leasebacks. The Holding Company will not, and will
------------------------
not permit any of its Subsidiaries to, directly or indirectly, sell or otherwise
dispose of any of their respective properties and assets if, as part of the same
transaction or series of related transactions, the Holding Company or any of its
Subsidiaries shall then or thereafter rent or lease as lessee, or similarly
acquire the right to possession or use of, such properties and assets (or a
major portion thereof), or other properties and assets which it intends to use
for substantially the same purpose or purposes, under any lease, agreement or
other arrangement which obligates the Holding Company or any of its Subsidiaries
to pay rent as lessee or make any other payments for such possession or use (any
such transaction being hereinafter referred to as a "Leaseback Transaction"),
provided that the Holding Company and its Subsidiaries may enter into Leaseback
- --------
Transactions if:
(a) both at the time of and after giving effect thereto no Default
or Event of Default shall have occurred and be continuing;
(b) the aggregate amount of Attributable Debt of the Holding Company
and its Subsidiaries incurred during any period of twelve consecutive
months commencing on or after the Closing Date shall not exceed $400,000
($1,000,000 from and after the Covenant Adjustment Date) in the aggregate;
and
(c) after giving effect thereto, the aggregate outstanding amount of
all Attributable Debt of the Holding Company and its Subsidiaries shall
not exceed $1,100,000 ($2,750,000 from and after the Covenant Adjustment
Date) at any time.
For purposes hereof, "Attributable Debt" shall mean, as to any particular
Leaseback Transaction, the greater of (i) the present value of all Rental
-
Obligations required to be paid by the Holding Company and/or any of its
Subsidiaries under any related lease during the remaining term thereof
(determined in accordance with generally accepted financial practice using a
discount factor equal to the interest rate implicit in such lease if known or,
if not known, of 10% per annum) and (ii) the fair market value of the property
--
subject to such Leaseback Transaction as reasonably determined by the Board of
Directors of the Holding Company at the time of the consummation of such
Leaseback Transaction.
14.17. Modification of Certain Documents, Agreements and Instruments. The
-------------------------------------------------------------
Companies will not, and will not permit any of their respective Subsidiaries to,
(a) amend, modify or waive any term, condition or provision of any of the
-
agreements referred to in section 4.3 (including, without limitation, the Merger
Documents, Stockholders Agreement, Employment Agreements and Consulting
Agreements) or its charter, by-laws or other organizational documents if the
effect thereof is or could reasonably be expected to be materially adverse to
the interests of any holder of any of the Notes or (b) have a fiscal year which
-
ends on any date other than the last day of December.
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<PAGE>
14.18. Further Assurances. From time to time hereafter, the Holding
------------------
Company will execute and deliver, or will cause to be executed and delivered,
such additional agreements, documents and instruments and will take all such
other actions as any holder or holders of the Notes may reasonably request for
the purpose of implementing or effectuating the provisions of the Operative
Documents, including, without limitation, the Security Documents, and to grant
to the holders of the Notes first priority perfected liens in all properties and
assets (whether real, personal or mixed) of the Holding Company and its
Subsidiaries. Without limiting the generality of the foregoing, in the event
that the Holding Company at any time or from time to time shall organize or
acquire any Subsidiary (subject to the limitations set forth in section 14.19)
or acquire any real property or any interest in real property, then and in each
such case, not less than 25 days prior to consummating such transaction, the
Holding Company will notify each holder of the Notes and, at the time of the
organization or acquisition of such Subsidiary or such acquisition of real
property, the Holding Company will, and will cause each such additional
Subsidiary to, execute and deliver, and file, record and register, if
applicable, such additional Security Documents (including Note Guarantees) to
each holder of any Notes as may be necessary to comply with the terms of section
1. Each such agreement, document and instrument shall be in form and substance
satisfactory to the Required Holders of each class of the Notes.
14.19. Additional Subsidiaries. Notwithstanding anything to the contrary
-----------------------
set forth herein, without the prior written consent of the Required Holders of
each class of the Notes, the Holding Company shall not, and shall not permit any
of its Subsidiaries to, organize or acquire any Subsidiary if the effect thereof
is or could reasonably be expected to be materially adverse to the interests of
any holder of any of the Notes.
15. Definitions.
-----------
15.1. Definitions of Capitalized Terms. The terms defined in this section
--------------------------------
15.1, whenever used in this Agreement, shall, unless the context otherwise
requires, have the following respective meanings:
"Adjusted LIBOR Rate" shall mean, on any date, the sum of (a) the per
-------------------
annum rate of interest reported by The Wall Street Journal as the three-month
-----------------------
London Interbank Offered Rate (LIBOR) for the first Business Day of each
Interest Period plus (b) the following:
---- -
(i) 275 basis points, in the case of the Senior Revolving
Credit Notes;
(ii) 300 basis points, in the case of the Senior Term Notes; or
(iii) in the case of the Senior Bridge Notes (A) from and after
-
the Closing Date to but excluding August 31, 1998, 300 basis points, (B)
-
from and after August 31, 1998 to but excluding February 28, 1999, 350
basis
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<PAGE>
points, (C) from and after February 28, 1999 to but excluding August 31,
-
1999, 400 basis points, (D) from and after August 31, 1999 to but
-
excluding February 28, 2000, 450 basis points, (E) from and after February
-
28, 2000 to but excluding August 31, 2000, 500 basis points and (F) from
-
and after August 31, 2000, 550 basis points.
The Adjusted LIBOR Rate shall be reset effective as of the first Business Day of
each Interest Period. If such rate of interest is no longer reported by The Wall
--------
Street Journal, then any other publicly available source of similar market data,
- --------------
as selected by the Required Holders of each class of the Senior Notes, shall be
utilized.
"Adjusted Net Income" [12.1] of any Person shall mean, for any period, the
-------- --- ------
Net Income of such Person for such period after restoring thereto amounts
deducted for (a) Interest Charges, (b) taxes in respect of earnings and profits,
- -
(c) amortization of expenses, assets and goodwill incurred in connection with
-
the Merger (as defined in the Existing Securities Purchase Agreements), the
Mergers, the issuance of the Securities (including any original issue discount
and warrant amortization arising from the sale of securities under the Existing
Securities Purchase Agreements) and the other transactions referred to in
section 4.3 and consummated on the Closing Date, (d) charges related to the
-
grant, issuance or exercise of stock options or warrants and (e) consulting fees
-
and expenses paid to Westgate and Levy/Schulte LLC in accordance with section
14.6, in each case determined in accordance with GAAP.
"Adjusted Net Income Available for Fixed Charges" of any Person shall
-------- --- ------ --------- --- ----- -------
mean, for any period, the Adjusted Net Income of such Person for such period
after restoring thereto amounts deducted for Rental Obligations, determined in
accordance with GAAP.
"Affiliate" of any Person shall mean any other Person which, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with such first-mentioned Person, or any individual, in
the case of a Person who is an individual, who has a relationship by blood,
marriage or adoption to such first-mentioned Person not more remote than first
cousin, and, without limiting the generality of the foregoing, shall include (a)
-
any Person beneficially owning or holding, directly or indirectly, 5% or more of
any class of Voting Stock or other equity securities of such first-mentioned
Person or (b) any Person of which such first-mentioned Person owns or holds,
-
directly or indirectly, 5% or more of any class of Voting Stock or other equity
securities; provided that in no event shall you or any other institutional
--------
holder of Securities be deemed to be an Affiliate of the Companies. For the
purposes of this definition, "control" (including, with correlative meanings,
-------
the terms "controlled by" and "under common control with"), as used with respect
---------- -- ----- ------ ------- ----
to any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock or other equity securities or by
contract or otherwise.
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<PAGE>
"AFH Partners" shall mean AFH Partners, L.P., a Delaware limited
--- --------
partnership, the sole general partner of which is Bronto, Inc., a Delaware
corporation, the sole shareholder of which is Michael B. Alexander.
"Apollo" shall mean Apollo Holding, Inc., a Delaware corporation, and any
------
successor thereto.
"Appollo A Shares" shall have the meaning specified in section 1.
------- - ------
"Appollo B Shares" shall have the meaning specified in section 1.
------- - ------
"Appollo Merger" shall mean the merger of AH Acquisition Corp. with and
------- ------
into Apollo on the Closing Date.
"Apollo Securities" shall mean the Apollo A Shares, the Apollo B Shares
-----------------
and the Apollo Warrants.
"Apollo Warrants" shall have the meaning specified in section 1.
------ --------
"Attributable Debt" shall have the meaning specified in section 14.16.
------------ ----
"Available Revolving Commitment" shall have the meaning specified in
--------- --------- ----------
section 12.1.
"Bankruptcy Code" shall have the meaning specified in section 10.1.
---------- ----
"Blockage Period" shall have the meaning specified in section 10.4.
-------- ------
"Broadview" shall mean Broadview Associates, L.P.
---------
"Business" shall have the meaning specified in section 5.4.
--------
"Business Day" shall mean any day other than a Saturday, Sunday or other
-------- ---
day which shall be in Boston, Massachusetts, or New York, New York, a legal
holiday or a day on which banking institutions therein are authorized by law to
close.
"Capital Lease" shall mean any lease or similar arrangement which is of
------- -----
such a nature that payment obligations of the lessee or obligor thereunder are
required to be capitalized and shown as liabilities upon a balance sheet of such
lessee or obligor prepared in accordance with GAAP or for which the amount of
the asset and liability thereunder as if so capitalized should be disclosed in a
note to such balance sheet.
"Change of Control" shall have the meaning specified in section 9.7.
------ -- -------
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<PAGE>
"Closing" and "Closing Date" shall have the respective meanings specified
------- ------- ----
in section 3.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" shall have the meaning specified in section 1.
----------
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency from time to time administering the Securities Act and/or
the Exchange Act.
"Companies" shall mean the Holding Company and each of its Subsidiaries
---------
(whether now existing or hereafter acquired or organized), each of which is
sometimes herein referred to as a "Company".
"Confidential Information" shall have the meaning specified in section
------------ -----------
8(b).
"Consolidated Adjusted Net Income" [12.1], "Consolidated Adjusted Net
------------ -------- --- ------ ------------ -------- ---
Income Available for Fixed Charges" [14.7], "Consolidated Current Assets"
- ------ --------- --- ----- ------- ------------ ------- ------
[14.7], "Consolidated Current Liabilities" [14.7], "Consolidated Fixed Charges"
------------ ------- ----------- ------------ ----- -------
[14.7], "Consolidated Net Worth" [14.7] and "Consolidated Total Assets" [14.15]
------------ --- ----- ------------ ----- ------
shall mean the Adjusted Net Income, Adjusted Net Income Available for Fixed
Charges, Current Assets, Current Liabilities, Fixed Charges, Net Worth and Total
Assets, as the case may be, of the Holding Company and its Subsidiaries (whether
or not ordinarily consolidated in consolidated financial statements of the
Holding Company and Subsidiaries), all consolidated in accordance with GAAP, and
after giving appropriate effect to outside minority interests, if any, in
Subsidiaries, provided that in determining Consolidated Adjusted Net Income and
--------
Consolidated Adjusted Net Income Available for Fixed Charges there shall be
excluded (a) the Net Income of any Person (other than a Subsidiary of the
-
Holding Company) in which the Holding Company or any Subsidiary of the Holding
Company has an ownership interest, except to the extent that any such Net Income
has been actually received by the Holding Company or such Subsidiary in the form
of dividends or similar distributions, (b) any undistributed Net Income of a
-
Subsidiary of the Holding Company which for any reason is unavailable for
distribution to the Holding Company or any other Subsidiary of the Holding
Company, (c) the Net Income of any Person accrued prior to the date it becomes a
-
Subsidiary of the Holding Company or is merged into or consolidated with the
Holding Company or a Subsidiary of the Holding Company, (d) in the case of a
-
successor to the Holding Company by consolidation, merger or transfer of assets,
the Net Income of such successor accrued prior to such consolidation, merger or
transfer, (e) any deferred or other credit representing the excess of the equity
-
in any Subsidiary of the Holding Company at the date of acquisition thereof over
the cost of the investment in such Subsidiary and (f) any restoration to income
-
of any contingency reserve, except to the extent that provision for such reserve
was made out of income accrued during the same period.
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<PAGE>
"Consolidated Net Income" [14.7] shall mean the Net Income of the Holding
------------ --- ------
Company and its Subsidiaries, consolidated in accordance with GAAP.
"Consulting Agreements" shall have the meaning specified in section 4.3.
---------- ----------
"Covenant Adjustment Date" shall have the meaning specified at the
-------- ---------- ----
beginning of section 14.
"Covenant Default" and "Covenant Default Blockage Period" shall have the
-------- -------
respective meanings specified in section 10.4.
"Current Assets" of any Person shall mean, at any date, all assets of such
------- ------
Person which would, in accordance with GAAP, be classified as current assets at
such date.
"Current Debt" of any Person shall mean, at any date, (a) all Indebtedness
------- ---- -
for borrowed money or in respect of Capital Leases or the deferred purchase
price of property, whether or not interest bearing, of such Person at such date
which would, in accordance with GAAP, be classified as short-term Indebtedness
at such date, but specifically excluding the current maturities of such Person's
Funded Debt and (b) all Guarantees by such Person at such date of Current Debt
-
of others.
"Current Liabilities" of any Person shall mean, at any date, all
------- -----------
Indebtedness of such Person which would, in accordance with GAAP, be classified
as current liabilities at such date (excluding the current maturities of such
Person's Funded Debt).
"Default" shall mean any condition or event which constitutes or, after
-------
notice or lapse of time or both, would constitute an Event of Default.
"Disclosure Documents" shall have the meaning specified in section 5.4.
---------- ---------
"Employment Agreements" shall have the meaning specified in section 4.3.
---------- ----------
"Environmental Laws" shall mean any law, statute, rule, regulation or
------------- ----
other governmental standard or requirement relating or pertaining to (a) the
-
generation, manufacture, management, handling, use, sale, transportation,
treatment, storage, disposal, delivery, discharge, release or emission of any
waste, pollutant or toxic, hazardous or other substance, or (b) any other act,
-
omission or condition affecting or involving the environment or air or water
pollution or soil or groundwater contamination.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations and rulings thereunder.
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<PAGE>
"ERISA Affiliate" shall mean each trade or business (whether or not
----- ---------
incorporated) that, together with any Company, would be treated as a single
employer under section 4001(b) of ERISA, or that is a member of a group of which
any Company is a member and that is a controlled group within the meaning of
section 497l(e)(2)(B) of the Code.
"Event of Default" shall have the meaning specified in section 16.1.
----- -- -------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
-------- ---
or any successor federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time.
"Exchange of Securities" shall mean (a) the exchange of the Apollo A
-------- -- ---------- -
Shares for the Purchased A Shares, (b) the exchange of the Apollo B Shares for
-
the Purchased B Shares, (c) the exchange and cancellation of the Apollo Warrants
-
for the Purchased G Shares, (d) the exchange of the Intermetrics Senior Term
-
Notes for the Senior Term Notes, (e) the exchange of the Intermetrics Senior
-
Revolving Credit Notes for the Senior Revolving Credit Notes and (f) the
-
exchange of the Intermetrics Subordinated Notes for the Subordinated Notes, in
each case on the Closing Date.
"Existing Securities Purchase Agreements" shall have the meaning specified
-------- ---------- -------- ----------
in section 1.
"Expiration Date" shall have the meaning specified in section 12.1.
---------- ----
"Fixed Charges" of any Person shall mean, for any period, the sum (without
----- -------
duplication of amounts) of all Interest Charges and Rental Obligations of such
Person for such period, determined in accordance with GAAP.
"Funded Debt" of any Person shall mean, at any date, (a) all Indebtedness
------ ---- -
for borrowed money or in respect of Capital Leases or the deferred purchase
price of property, whether or not interest-bearing, of such Person which would,
in accordance with GAAP, be classified as long-term Indebtedness at such date,
but in any event including all such Indebtedness, whether secured or unsecured,
of such Person which matures (or which, pursuant to the terms of a revolving
credit agreement or otherwise, is directly or indirectly renewable or extendible
at the option of such Person for a period ending) more than one year after the
date of the creation thereof, notwithstanding the fact that payments in respect
thereof (whether installment, serial maturity or sinking fund payments or
otherwise) are required to be made by such Person not more than one year after
the date as of which the amount of Funded Debt is being determined, other than
any amount thereof which is at the time included in Current Debt of such Person
and (b) all Guarantees by such Person at such date of Funded Debt of others.
-
-63-
<PAGE>
"GAAP" shall mean generally accepted accounting principles as in effect in
----
the United States from time to time, consistently applied.
"Guarantee" of any Person shall mean, at any date, any obligation of such
---------
Person at such date guaranteeing, directly or indirectly, any Indebtedness,
liability or other obligation of any other Person in any manner, but in any
event including all endorsements (other than for collection or deposit in the
ordinary course of business), all discounts with recourse and all obligations
incurred through an agreement, contingent or otherwise (a) to purchase the
-
obligations of any other Person or any security therefor or to advance or supply
funds for the payment or purchase of such obligations, or (b) to purchase, sell
-
or lease (as lessee or lessor) property, products, materials or supplies or to
purchase or sell transportation or services, primarily for the purpose of
enabling the obligor to make payment of such obligations or to assure the owner
of such obligations against loss, regardless of the delivery or non-delivery of
the property, products, materials or supplies or the furnishing or nonfurnishing
of the transportation or services, or (c) to provide funds for the payment of,
-
or obligating such Person to make, any loan, advance, capital contribution or
other investment in the obligor for the purpose of assuring a minimum equity,
asset base, working capital or other balance sheet condition for any date or to
provide funds for the payment of any obligation, dividend or stock liquidation
payment, or otherwise to supply funds to or in any manner invest in the obligor.
The amount of any Guarantee shall be equal to the amount of all Indebtedness,
liabilities and other obligations directly or indirectly guaranteed thereby.
"Guarantors" shall mean each of the Subsidiaries of the Holding Company
----------
(other than any Note Issuer and other than Intermetrics Entertainment Software,
LLC) whether existing at the time of the Closing or thereafter organized or
acquired. At the time of the Closing, the Guarantors are: (a) Intermetrics
-
International, Inc., (b) Intermetrics Securities, Inc., (c) Infotec
- -
Development, Inc. and (d) Computing Applications Software Technology, Inc.
-
"Holding Company" shall mean Averstar, Inc., a Delaware corporation
------- -------
formerly named IP Technologies, Inc., and any successor corporation.
"Holding Company Class A Common Stock", "Holding Company Class B Common
------- ------- ----- - ------ ----- ------- ------- ----- - ------
Stock", "Holding Company Class C Common Stock", "Holding Company Class D Common
- ----- ------- ------- ----- - ------ ----- ------- ------- ----- - ------
Stock", "Holding Company Class E Common Stock", "Holding Company Class F Common
- ----- ------- ------- ----- - ------ ----- ------- ------- ----- - ------
Stock and "Holding Company Class G Common Stock" shall mean the Class A Common
- ----- ------- ------- ----- - ------ -----
Stock, $.001 par value, Class B Common Stock, $.001 par value, Class C Common
Stock, $.001 par value, Class D Common Stock, $.001 par value, Class E Common
Stock, $.001 par value, Class F Common Stock, $.001 par value, and Class G
Common Stock, $.00l par value, respectively, of the Holding Company, in each
case as constituted on the Closing Date and any stock into which any such stock
shall have been changed or any stock resulting from any reclassification of such
stock.
-64-
<PAGE>
"Holding Company Common Stock" shall mean each class of Common Stock of
------- ------- ------ -----
the Holding Company as constituted on the Closing Date and any stock into which
such stock shall have been changed or any stock resulting from any
reclassification of such stock.
"IES Holding" shall mean IES Holding, Inc., a Delaware corporation.
--- -------
"IES Registration Rights Agreement" shall mean the Securities and
--- ------------ ------ ---------
Registration Rights Agreement dated February 27, 1998 among IES Holding and each
of the institutional investors named therein.
"IES Spin Out" shall mean (a) the organization of IES Holding by
--- ---- --- -
Intermetrics, (b) the contribution to IES Holding by Intermetrics of all of the
-
Class B Interests issued by Intermetrics Entertainment Software, LLC owned by
Intermetrics, (c) the dividend of all of the outstanding shares of capital stock
-
of IES Holding by Intermetrics to Apollo and by Apollo to each of its
stockholders and (d) the issuance of the IES Warrants by IES Holding to the
-
holders of the Apollo Warrants.
"IES Spin Out Documents" shall mean (a) the Certificate of Incorporation
--- ---- --- --------- -
and By-Laws of IES Holding, (b) the IES Registration Rights Agreement and (c)
- -
each of the other agreements, documents and instruments related to the IES Spin
Out.
"IES Warrants" shall mean the common stock purchase warrants issued by IES
--- --------
Holding to the holders of the Apollo Warrants evidencing rights to purchase in
the aggregate 132,347 (subject to adjustment) shares of the Voting or Non-Voting
Class D Common Stock, $.001 par value, of IES Holding, which warrants shall be
in form and substance the same as the Apollo Warrants.
"Indebtedness" of any Person shall mean, at any date, all indebtedness,
------------
liabilities and other obligations of such Person at such date (other than items
of shareholders' equity) which would, in accordance with GAAP, be classified as
liabilities of such Person, but in any event including (without duplication):
(a) all Guarantees of such Person;
(b) all indebtedness, liabilities and other obligations secured by
any mortgage, lien, pledge, charge, security interest or other encumbrance
in respect of property owned by such Person, whether or not such Person
has assumed or become liable for the payment of such obligations;
(c) all indebtedness, liabilities and other obligations of such
Person arising under any conditional sale or other title retention
agreement, whether or not the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession
or sale of such property;
-65-
<PAGE>
(d) the amount of the obligation required to be recorded by the
lessee in respect of any Capital Lease under which such Person is lessee;
and
(e) all indebtedness, liabilities and other obligations arising in
connection with letters of credit, bankers acceptances or other credit
enhancement facilities.
"Indemnified Costs" and "Indemnitee" shall have the respective meanings
----------- ----- ----------
specified in section 21.
"Indemnified Person" shall have the meaning specified in section 11.5.
----------- ------
"Interest Charges" of any Person shall mean, for any period, the remainder
-------- -------
of (a) the aggregate amount of all interest paid, payable or guaranteed during
-
such period by such Person in respect of Funded Debt and Current Debt,
including, without limitation, Rental Obligations on Capital Leases, but
excluding original issue discount, minus (b) the aggregate amount of all
----- -
interest on cash and cash equivalents actually paid to such Person in cash
during such period, determined in accordance with GAAP.
"Interest Periods" shall mean the periods (a) from and after each February
-------- ------- -
28 to but excluding the next succeeding May 31, (b) from and after each May 31
-
to but excluding the next succeeding August 31, (c) from and after each August
-
31 to but excluding the next succeeding November 30, and (d) from and after each
-
November 30 to but excluding the next succeeding February 28 (or February 29, as
the case may be), each of which is an "Interest Period."
-------- ------
"Intermetrics" shall mean Intermetrics, Inc., a Delaware corporation, and
------------
any successor thereto.
"Intermetrics/Pacer Transaction" shall mean the consummation of the
------------------ -----------
transactions contemplated by the Merger Documents, including, without
limitation, the Mergers.
"Intermetrics Senior Term Notes," "Intermetrics Senior Revolving Credit
------------ ------ ---- ----- ------------ ------ --------- ------
Notes" and "Intermetrics Subordinated Notes" shall have the respective meanings
- ----- ------------ ------------ -----
specified in section 1.
"Investment" shall mean any investment made by stock purchase, capital
----------
contribution, loan, advance, acquisition of Indebtedness, Guarantee or
otherwise, but excluding any capital expenditure made in the ordinary course of
business.
"Issuers" shall mean, with respect to any Security, the issuer or issuers
-------
of such Security.
"Leaseback Transaction" shall have the meaning specified in section 14.16.
--------- -----------
-66-
<PAGE>
"Levy/Schulte LLC" shall mean Joel N. Levy/Peter M. Schulte, L.L.C., a
------------ ---
Delaware limited liability company, of which the only members are Mr. Joel N.
Levy and Mr. Peter M. Schulte.
"Levy/Schulte Investors" shall mean the holders at the time of the Closing
------------ ---------
(other than you and the Other Purchasers) of shares of Holding Company Class B
Common Stock, Holding Company Class C Common Stock and Holding Company Class E
Common Stock (as listed on Exhibit 5.5 attached hereto) and their respective
-----------
Permitted Transferees (as such term is defined in the Stockholders Agreement).
"Licenses" shall mean certificates of public convenience and necessity,
--------
franchises, licenses and other permits and authorizations from governmental
authorities.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, lien (statutory or otherwise), preference, priority, security
interest, chattel mortgage or other charge or encumbrance of any kind, or any
other type of preferential arrangement, including, without limitation, the lien
or retained security title of a conditional vendor and any easement, right of
way or other encumbrance on title to real property and any lease having
substantially the same effect as any of the foregoing.
"Liquidation Payment" shall have the meaning specified in section 10.3.
----------- -------
"Make Whole Amount" shall mean, at any date, with respect to any
---- ----- ------
prepayment or payment (whether on account of acceleration or otherwise but not
including any prepayment made pursuant to section 9.4 or 9.5) of any
Subordinated Notes, if the Treasury Rate plus 200 basis points at such date is
lower than 13.00% per annum, the excess of (a) the present value of the
-
principal and interest payments on and in respect of the Subordinated Notes
being prepaid or paid, as the case may be, that would otherwise become due and
payable (without giving effect to such prepayment or payment) (including the
final payment on the maturity date of the Subordinated Notes), discounted at a
rate which is equal to the Treasury Rate plus 200 basis points over (b) the
-
principal amount of the Subordinated Notes being prepaid or paid, as the case
may be, at par. If the Treasury Rate plus 200 basis points at the date of such
prepayment or payment is equal to or higher than 13.00% per annum, the Make
Whole Amount at such date, is zero.
"Management Stock Option Plan" shall have the meaning specified in section
---------- ----- ------ ----
13.
"Material Adverse Change" shall mean a material adverse change which has
-------- ------- ------
affected substantially any of (a) the condition (financial or otherwise),
-
business, performance, operations, properties, profits or prospects of any
Company or of the Companies taken as one enterprise, (b) the legality, validity
-
or enforceability of this Agreement, the Securities or any of the other material
Operative Documents; (c) the rights and remedies of any holder of Securities
-
with respect thereto or (d) the ability of any Company or of the Companies taken
-
-67-
<PAGE>
as one enterprise to perform their material obligations under any of the
Operative Documents and/or to comply with any of the material terms thereof.
"Merger Agreement", "Merger Documents" and "Mergers" shall have the
------ --------- ------ --------- ------
respective meanings specified in section 4.3.
"Multiemployer Plan" shall mean any Plan that is a "multiemployer plan" as
------------- ----
defined in section 4001(a)(3) of ERISA.
"Net Income" of any Person shall mean, for any period, the net income (or
--- ------
net deficit), excluding all extraordinary, unusual, nonrecurring and/or
nonoperating items, of such Person for such period, determined in accordance
with GAAP.
"Net Worth" of any Person shall mean, at any date, the sum of (a) the
--- ----- -
capital stock (excluding treasury stock and capital stock subscribed and
unissued) and (b) surplus (including retained earnings, additional paid-in
-
capital and the balance of the current profit and loss account not transferred
to surplus) of such Person at such date, determined in accordance with GAAP.
"Niebla/Soulia Payments" shall have the meaning specified in section
------------- --------
14.10.
"Note Guarantee" shall have the meaning specified in section 1.
---- ---------
"Note Issuers" shall mean the Holding Company, Apollo, Intermetrics and
---- -------
Pacer.
"Notes" shall have the meaning specified in section 1.
-----
"Obligors" shall mean the Note Issuers and the Guarantors.
--------
"Officers' Certificate" shall mean a certificate signed on behalf of the
-------- -----------
Holding Company by its Chairman, President or one of its Vice Presidents and its
Treasurer or one of its Assistant Treasurers.
"Operative Documents" shall mean this Agreement, the Other Securities
--------- ---------
Purchase Agreements, the Securities, the Stockholders Agreement, the Merger
Documents and each of the other agreements, documents and instruments executed
in connection herewith and therewith, each as it may from time to time be
amended, modified or supplemented.
"Other Securities Purchase Agreements" and "Other Purchasers" shall have
----- ---------- -------- ---------- ----- ----------
the respective meanings specified in section 1.
"Pacer" shall mean Pacer Infotec, Inc. a Massachusetts corporation, and
-----
any successor thereto.
-68-
<PAGE>
"Pacer Merger" shall mean the merger of PI Acquisition Corp. with and into
----- ------
Pacer on the Closing Date.
"Payment Default" and "Payment Default Blockage Period" shall have the
------- ------- ------- ------- -------- ------
respective meanings specified in section 10.4.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA or any successor thereto.
"Percentage" shall have the meaning specified in section 12.1.
----------
"Permissible Securities" shall have the meaning specified in section 10.1.
----------- ----------
"Permitted Investment" shall mean any of the following Investments:
--------- ----------
(a) Investments, if any, existing on the date hereof and referred to
in Exhibit 5.9 attached hereto;
-----------
(b) Investments by the Holding Company or by any Subsidiary of the
Holding Company in any Wholly-Owned Subsidiary (or in any Person which
simultaneously therewith becomes a Wholly-Owned Subsidiary) made by stock
purchase, capital contribution, loan or advance, provided that (i) both at
-------- -
the time of and immediately after giving effect to any such Investment, no
Default or Event of Default shall have occurred and be continuing, (ii)
--
all such Investments are made only in entities which are Solvent and (iii)
---
in the case of any Investment to be made in any Guarantor, such Guarantor
has executed and delivered a valid and enforceable Note Guarantee to each
holder of any Notes;
(c) readily marketable obligations (having a maturity not in excess
of 12 months from the date of acquisition thereof) of, or fully and
unconditionally guaranteed (as to both principal and interest) by, the
United States of America or an agency thereof;
(d) negotiable certificates of deposit and Eurodollar deposit
obligations evidencing direct obligations of any federally insured
commercial bank or trust company organized and operating in the United
States of America having capital and surplus and undivided profits of at
least $100,000,000 and having the highest or second highest rating
available from Moody's Investors Service, Inc., Standard & Poor's
Corporation or Fitch Investors Service; provided that any Subsidiary of
--------
the Holding Company organized under the laws of, and conducting its
business in, any jurisdiction other than the United States of America or
any state thereof or the District of Columbia may purchase similar
securities issued by any bank organized and operating in the jurisdictions
in which such Subsidiary conducts business so long
-69-
<PAGE>
as (i) such securities have the highest or second highest rating available
-
from any comparable rating agency and (ii) the aggregate outstanding
--
amount of all Investments made pursuant to this proviso shall not exceed
$1,000,000 (for obligations having a maturity not in excess of 12 months
from the date of acquisition thereof) or $8,500,000 (for obligations
having a maturity not in excess of five days from the date of acquisition
thereof) at any time; and provided, further, that at no time shall the
-------- -------
amount so invested pursuant to this clause (d) and clause (h) of this
definition exceed an aggregate of $8,500,000;
(e) accounts receivable arising from transactions in the ordinary
course of business; contingent liabilities represented by endorsements of
negotiable instruments for collection or deposit in the ordinary course of
business; advances (including advances to employees), deposits, down
payments and prepayments on account of firm purchase orders, in each case
made in the ordinary course of business;
(f) loans made on the Closing Date to employees of the Companies the
proceeds of which are used by such employees to purchase shares of Holding
Company Common Stock, provided that the aggregate outstanding principal
--------
amount of all such loans shall not exceed $310,000 at any time;
(g) Investments made in corporations with which the Companies
conduct business, provided that the aggregate principal amount of such
--------
Investments made during any fiscal year of the Holding Company shall not
exceed $200,000 ($500,000 from and after the Covenant Adjustment Date) and
the aggregate outstanding principal amount of such Investments shall not
exceed $600,000 ($1,500,000 from and after the Covenant Adjustment Date)
at any time;
(h) repurchase agreements (having a term not in excess of 5 days)
with any federally insured commercial bank or trust company organized and
operating in the United States of America having capital, surplus and
undivided profits of at least $100,000,000 and having the highest or
second highest rating available from Moody's Investors Service, Inc.,
Standard & Poor's Corporation or Fitch Investors Service or with any
securities dealer having stockholders' equity of at least $250,000,000 and
having the highest or second highest rating available from Moody's
Investors Service, Inc. or Standard & Poor's Corporation, provided that
--------
(i) title to and custody of the collateral for each such repurchase
-
agreement is held by the Holding Company or an agent of the Holding
Company other than the issuer of such repurchase agreement and affiliates
thereof, (ii) the fair market value (for purposes hereof, the fair market
--
value of the collateral shall mean the bid prices thereof as published in
a standard publication) of the collateral for each such repurchase
agreement shall at all times be at least 100% of the amount of such
repurchase obligation and (iii) the collateral for each such repurchase
---
agreement shall
-70-
<PAGE>
be in negotiable form, shall be free of all Liens and shall consist solely
of securities of the sort described in clause (c) of this definition,
provided, further, that at no time shall the amount so invested in any
-------- -------
bank, trust company or securities dealer pursuant to this clause (h) plus
any amount then invested in such bank or trust company pursuant to clause
(d) of this definition exceed $8,500,000;
(i) purchases of forward foreign exchange contracts in connection
with purchases of equipment and contracts with foreign customers or
subcontractors denominated in currencies other than U.S. dollars for the
purchase and sale of products and services, provided that (i) the
-------- -
aggregate maximum liability under all such forward foreign exchange
contracts shall not exceed $1,000,000 at any time and (ii) the Investments
--
made pursuant to this clause are (A) made in the ordinary course of
-
business, (B) in the nature of hedging (as opposed to speculative)
-
transactions conducted pursuant to the Companies' currency risk management
program and (C) of such kind and amount and are effected by such methods
-
as are customary for similarly situated Persons of established reputation
engaged in the same or a similar business as the Companies; and
(j) Investments in Intermetrics Entertainment Software, LLC (i) made
-
prior to the Closing Date, (ii) made after the Closing Date pursuant to
--
commitments made therefor prior to the Closing Date, provided that the
--------
aggregate amount of the Investments referred to in this clause (ii) shall
not exceed $1,000,000 and (iii) made after the Closing Date consisting of
---
cash advances, provided that the aggregate amount of the Investments
--------
referred to in this clause (iii) shall not exceed $2,000,000.
"Permitted Stock Repurchase Notes" shall mean any unsecured notes issued
--------- ----- ---------- -----
in accordance with the Stockholders Agreement by the Holding Company to any
stockholder of the Holding Company upon the repurchase of securities from such
stockholder, it being agreed that all payments on such notes are subject to the
provisions of sections 14.6.
"Person" shall mean an individual, a corporation, an association, a
------
joint-stock company, a business trust or other similar organization, a
partnership, a joint venture, a trust, an unincorporated organization or a
government or any agency, instrumentality or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
----
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by any Company or any ERISA Affiliate or
with respect to which any Issuer or any ERISA Affiliate may have any liability.
-71-
<PAGE>
"Preferred Shares", as applied to shares of any Person, shall mean shares
--------- ------
of such Person which shall be entitled to preference or priority over any other
shares of such Person in respect of either the payment of dividends or the
distribution of assets upon liquidation.
"Proprietary Rights" shall mean any patents, registered and common law
----------- ------
trademarks, service marks, trade names, copyrights, licenses and other similar
rights (including, without limitation, know-how, trade secrets and other
confidential information) and applications for each of the foregoing, if any.
"Public Company" as applied to the Holding Company shall mean that (a) the
------ ------- -
Holding Company shall have consummated an initial public offering of the Holding
Company Common Stock pursuant to a registration statement (other than on Form
S-8) filed with the Commission under the Securities Act, (b) the Holding Company
-
Common Stock shall be registered under the Exchange Act and listed on a
securities exchange or market or trading system, (c) all shares of Holding
-
Company Common Stock held by you and the Other Purchasers (and your and the
Other Purchasers' respective successors and assigns) shall have been exchanged
for (or shall be freely convertible into) such class of Holding Company Common
Stock and shall not be subject to any restriction on transfer or sale, other
than restrictions then agreed to by you and the Other Purchasers (and/or your
and the Other Purchasers' respective successors and assigns) in the course of
effectuating a sale of the Holding Company Common Stock and (d) for purposes of
-
section 9.7 only, the aggregate market value of the Holding Company Common Stock
shall not be less than $75,000,000.
"Purchased Shares", "Purchased A Shares", "Purchased B Shares" and
--------- ------ --------- - ------ --------- - ------
"Purchased G Shares" shall have the respective meanings specified in section 1.
--------- - ------
"Registrable Shares" shall mean any Purchased G Shares (including any
----------- ------
shares of Holding Company Class D Common Stock issued on conversion thereof),
except that, as to any particular Registrable Shares, such securities, once
issued, will cease to be Registrable Shares when (i) a registration statement
-
covering such securities has been declared effective and such securities have
been disposed of pursuant to an effective registration statement or (ii) such
--
securities are sold to the public in accordance with Rule 144 (or any similar
provision then in force) under the Securities Act. A Person shall be deemed a
"holder" of Registrable Shares for purposes of section 11 if such Person is the
holder of any Purchased G Shares (including any shares of Holding Company Class
D Common Stock issued on conversion thereof).
"Registration Expenses" shall mean all fees, expenses and disbursements
------------ --------
related to any registration, qualification or compliance pursuant to section 11,
including, without limitation, all registration, filing, rating and listing
fees, blue sky fees and expenses, printing expenses, fees and disbursements of
counsel (including, without limitation, the reasonable fees, expenses and
disbursements of one counsel for the holder or holders of the Registrable
Shares), and expenses of any special audits incident to or required by any
registration,
-72-
<PAGE>
qualification or compliance, except that Registration Expenses shall not include
any underwriters' discounts or commissions attributable to any Registrable
Shares registered and sold pursuant to any such registration.
"Rental Obligations" of any Person shall mean, for any period, all rents
------ -----------
and other amounts (including as such, all payments which such Person is
obligated to make to the lessor on termination of any lease and/or on surrender
of the leased property other than payments for which such Person is contingently
liable on account of early termination or breach of such lease) paid, payable or
guaranteed during such period by such Person, as lessee or sublessee under any
lease, including, without limitation, any amount required to be paid by such
Person (whether or not designated as rents or additional rents) on account of
maintenance, repairs, insurance, taxes, utilities and similar charges,
determined in accordance with GAAP. Whenever it is necessary to determine the
amount of Rental Obligations for any period, to the extent that such Rental
Obligations are not definitely determinable by the terms of the lease, the
Rental Obligations not so definitely determinable shall be estimated in good
faith and in such reasonable manner as the Board of Directors of the Holding
Company may determine (as evidenced by a certified resolution of such Board of
Directors promptly delivered to the holder or holders of the Notes).
"Required Holders" as applied to describe the requisite holder or holders
-------- -------
of any class of the Securities, shall mean, at any date, the holder or holders
of 66-2/3% or more in interest of such class of Securities at the time
outstanding (excluding all Securities at the time owned by the Companies or any
Affiliate of the Companies).
"Restricted Investment" shall mean any Investment other than a Permitted
---------- ----------
Investment.
"Restricted Payment" as applied to any Person shall mean:
---------- -------
(a) any dividend or other distribution, direct or indirect, on
account of any shares of capital stock of such Person now or hereafter
outstanding (including, without limitation, Preferred Shares) or any
securities convertible into or exercisable or exchangeable for such shares
of capital stock, except (i) any such dividend or distribution payable to
-
Intermetrics or Pacer and/or any Wholly-Owned Subsidiary of Intermetrics
or Pacer (which has executed and delivered a valid and enforceable Note
Guarantee to each holder of any Notes) and (ii) a dividend payable to all
--
of the holders of Holding Company Common Stock then outstanding solely in
shares of Holding Company Common Stock;
(b) any redemption, retirement, purchase or other acquisition,
direct or indirect, of any shares of capital stock of such Person now or
hereafter outstanding (including, without limitation, Preferred Shares) or
any securities convertible into or exercisable or exchangeable for such
shares of capital stock;
-73-
<PAGE>
(c) any payment of any management fee or similar amount to any
Affiliate of the Holding Company, including, without limitation,
Levy/Schulte LLC, Westgate, AFH Partners or any Affiliate of any such
Person; and
(d) the Niebla/Soulia Payments;
provided that, notwithstanding the foregoing, the term "Restricted Payment"
- -------- ------------------
shall not include any dividend or other distribution paid on, or any redemption,
retirement, purchase or other acquisition of, any Warrants, Warrant Shares
and/or Purchased Shares.
"Revolving Credit Loan" and "Revolving Credit Loans" shall have the
--------------------- ----------------------
respective meanings specified in section 12.2.
"Securities" shall have the meaning specified in section 1.
----------
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Security Agreement" and "Security Agreements" shall have the respective
------------------ -------------------
meanings specified in section 1.
"Security Document" and "Security Documents" shall have the respective
----------------- ------------------
meanings specified in section 1.
"Senior Notes", "Senior Bridge Notes," "Senior Revolving Credit Notes" and
------------ ------------------- -----------------------------
"Senior Term Notes" shall have the respective meanings specified in section 1.
-----------------
"Solvent" as applied to any Person at any date shall mean that on and as
-------
of such date (a) the fair value of the property of such Person is greater than
-
the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair salable value of the assets of
-
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
-
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature and (d) such Person is not engaged in business or a
-
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small capital. The
amount of contingent liabilities on and as of any date shall be computed as the
amount that, in the light of all the facts and circumstances existing on and as
of such date, represents the amount that can reasonably be expected to become an
actual or matured liability. For purposes of this definition, "Person" shall
------
mean, where so required by the context in which the term "Solvent" appears, such
Person and its Subsidiaries taken as a whole.
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"Source" shall have the meaning specified in section 26.
------
"Stockholders Agreement" shall have the meaning specified in section 4.3.
----------------------
"Subordinated Indebtedness" shall have the meaning specified in section
-------------------------
10.1.
"Subordinated Notes" shall have the meaning specified in section 1.
------------------
"Subordination Notice" shall have the meaning specified in section 10.4.
--------------------
"Subsidiary" of any Person at any date shall mean (a) any other Person a
---------- -
majority (by number of votes) of the Voting Stock of which is owned by such
first-mentioned Person and/or by one or more other Subsidiaries of such
first-mentioned Person and (b) any other Person with respect to which such
-
first-mentioned Person and/or any one or more other Subsidiaries of such
first-mentioned Person (i) is entitled to more than 50% of such Person's profits
-
or losses or more than 50% of such Person's assets on liquidation or (ii) holds
--
an equity interest in such Person of more than 50%. As used herein, unless the
context clearly required otherwise, the term "Subsidiary" refers to a Subsidiary
of the Holding Company.
"Superior Indebtedness" shall have the meaning specified in section 10.1.
---------------------
"Tangible Net Worth" of any Person shall mean, at any date, the Net Worth
------------------
of such Person at such date, less any amount included therein in respect of any
item properly classified as an intangible asset in accordance with GAAP.
"Total Assets" of any Person shall mean, at any date, the depreciated book
------------
value of all properties and assets of such Person (whether real, personal or
mixed and tangible or intangible) at such date, determined in accordance with
GAAP.
"Total Revolving Commitment" shall have the meaning specified in section
--------------------------
12.1.
"Treasury Rate" at any time with respect to any Subordinated Notes being
-------------
prepaid or paid (whether on account of acceleration or otherwise), as the case
may be, shall mean and shall be determined by reference to the display
designated as "page 5" on the Telerate Service as of 10:00 A.M., Boston time, on
the second Business Day prior to the date fixed for such prepayment or payment
(or, if such display is no longer available, any other publicly available source
of similar market data, as selected by the Required Holders of the Subordinated
Notes), and shall be the yield on actively traded United States Treasury
securities adjusted to a maturity equal to the then remaining Weighted Average
Life to Maturity of the Subordinated Notes then being prepaid or paid (whether
on account of acceleration or otherwise) (the "Remaining Life"). If the
--------------
Remaining Life is not equal to the maturity of a United States Treasury security
for which a yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from
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the weekly average yields of the two closest United States Treasury securities
for which such yields are given, except that if the Remaining Life is less than
one year, the average yield on actively traded United States Treasury securities
adjusted to a constant maturity of one year shall be used. The Treasury Rate
shall be computed to the fifth decimal place (one-thousandth of a percentage
point) and then rounded to the fourth decimal place (one-hundredth of a
percentage point).
"Voting Stock", when used with reference to any Person, shall mean shares
------------
(however designated) of such Person having ordinary voting power for the
election of a majority of the members of the board of directors (or other
governing body) of such Person, other than shares having such power only by
reason of the happening of a contingency.
"Warrant Shares" shall have the meaning specified in the Warrants.
--------------
"Warrants" shall have the meaning specified in section 1.
--------
"Weighted Average Life to Maturity" of any Indebtedness or obligation
---------------------------------
shall mean, at any date, the number of years obtained by dividing the then
Remaining Dollar-years of such Indebtedness or obligation by the then
outstanding principal amount of such Indebtedness or obligation. For purposes of
this definition, the "Remaining Dollar-years" of any Indebtedness or obligation
----------------------
shall mean, at any date, the total of the products obtained by multiplying (a)
-
the amount of each then remaining installment, sinking fund, serial maturity or
other required payment, including payment at final maturity, in respect thereof,
by (b) the number of years (calculated to the nearest one-twelfth) which will
-
elapse between such date and the making of such payment.
"Westgate" shall mean Michael S. Mathews d/b/a Westgate Capital Co.
--------
"Wholly-Owned Subsidiary" shall mean any Subsidiary all of the outstanding
-----------------------
shares of which, other than directors' qualifying shares, shall at the time be
owned by the Holding Company and/or by one or more other Wholly-Owned
Subsidiaries and the accounts of which are consolidated with those of the
Holding Company in accordance with GAAP.
"Withdrawal Liability" shall have the meaning given such term under Part I
--------------------
of Subtitle B of Title IV of ERISA.
15.2. Other Definitions. The terms defined in this section 15.2, whenever
-----------------
used in this Agreement, shall, unless the context otherwise requires, have the
respective meanings hereinafter specified.
"this Agreement" (and similar references to any of the other Operative
--------------
Documents) shall mean, and the words "herein" (and "therein"), "hereof" (and
------ ------- ------
"thereof"), "hereunder"
------- ---------
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(and "thereunder") and words of similar import shall refer to, such instruments
----------
as they may from time to time be amended, modified or supplemented.
a "class" of Securities shall refer to the Senior Term Notes, the Senior
-----
Revolving Credit Notes, the Senior Bridge Notes, the Subordinated Notes, the
Purchased A Shares, Purchased B Shares, the Purchased G Shares, as the case may
be, each of which is a separate class.
"corporation" shall include an association, joint stock company, business
-----------
trust or other similar organization.
"premium" when used in conjunction with references to principal of and
-------
interest on the Notes, shall mean any amount due upon any payment or prepayment
of any of the Notes, other than principal and interest and, in the case of the
Subordinated Notes, shall include the Make Whole Amount.
"qualification" or "compliance" shall mean the qualification or compliance
------------- ----------
of all Registrable Shares included in any registration pursuant to section 11
under all applicable blue sky or other state securities laws.
"register", "registered" and "registration" as used in section 11 refer to
-------- ---------- ------------
a registration effected by filing a registration statement in compliance with
the Securities Act to permit the sale and disposition of the Registrable Shares
and any amendment filed or required to be filed to permit any such disposition.
"shares" of any Person shall include any and all shares of capital stock
------
of such Person of any class or other shares, interests, participations or other
equivalents (however designated) in the capital of such Person.
15.3. Accounting Terms and Principles: Laws.
-------------------------------------
(a) All accounting terms used herein which are not expressly defined
in this Agreement shall have the respective meanings given to them in
accordance with GAAP; all computations made pursuant to this Agreement
shall be made in accordance with GAAP and all financial statements shall
be prepared in accordance with GAAP.
(b) All references herein to laws, statutes, rules, regulations
and/or to other governmental restrictions, standards and/or requirements
shall, unless the context clearly requires otherwise, be deemed to refer
to those promulgated, issued and/or enforced by any domestic or foreign
federal, state or local government, governmental agency, authority, court,
instrumentality or regulatory body, including,
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without limitation, those of the United States of America or any state
thereof or the District of Columbia.
16. Remedies.
--------
16.1. Events of Default Defined; Acceleration of Maturity. If any one or
---------------------------------------------------
more of the following events ("Events of Default") shall occur (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body), that is to say:
(a) if default shall be made in the due and punctual payment of all
or any part of the principal of, or premium (if any) on, any Note when and
as the same shall become due and payable, whether at the stated maturity
thereof, by notice of or demand for prepayment, or otherwise;
(b) if default shall be made in the due and punctual payment of any
interest on any Note when and as such interest shall become due and
payable and such default shall have continued for a period of five days;
(c) if default shall be made in the performance or observance of any
covenant, agreement or condition contained in (i) sections 7(g), 8,9.7,
-
13, 14.2(b), 14.2(e) or 14.5 to 14.19, inclusive, or (ii) sections 3(a),
--
3(b), 3(c) or 3(d) of the Security Agreements, or, in the case of clause
(ii), the analogous provisions of any other Security Document;
(d) if default shall be made in the performance or observance of any
other of the covenants, agreements or conditions contained in this
Agreement or any of the other Operative Documents and such default shall
have continued for a period of 30 days after the earlier to occur of (i)
-
any executive officer of any Obligor obtaining actual knowledge of such
default or (ii) any Company's receipt of written notice of such default;
--
(e) if any Company shall make a general assignment for the benefit
of creditors, or shall not pay its debts as they become due, or shall
admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall be adjudicated
bankrupt or insolvent, or shall file any petition or answer seeking for
itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
statute, law or regulation, or shall file any answer admitting or not
contesting the material allegations of a petition filed against it in any
such proceeding, or shall seek or consent to or acquiesce in the
appointment of any trustee, custodian, receiver, liquidator or fiscal
agent for it or for all or any substantial part of its properties, or
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<PAGE>
shall (or its directors or majority stockholders shall) take any action in
contemplation of the foregoing;
(f) if, within 30 days after the commencement of an action against
any Company seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present
or future statute, law or regulation, such action shall not have been
dismissed or all orders or proceedings thereunder affecting the operations
or the business of any Company stayed, or if the stay of any such order or
proceeding shall thereafter be set aside, or if, within 30 days after the
appointment without the consent or acquiescence of any Company or any
trustee, custodian, receiver, liquidator or fiscal agent for any Company
or for all or any substantial part of its properties, such appointment
shall not have been vacated;
(g) if, under the provisions of any law for the relief or aid of
debtors, any court or governmental agency of competent jurisdiction shall
assume custody or control of any Company or of all or any substantial part
of its properties and such custody or control shall not be terminated or
stayed within 30 days from the date of assumption of such custody or
control;
(h) if any Company shall fail to (i) make any payment due on any
-
Indebtedness (other than the Notes) or other obligation (including any in
respect of any lease or any shares of capital stock upon the exercise by
any Person of any put or call option or other similar right of redemption
or repurchase with regard to such capital stock), if the aggregate
outstanding amount thereof (and of any other Indebtedness or other
obligation as to which any Company is in default) exceeds $750,000 (or the
equivalent thereof, as of any date of determination, in any other
currency), or (ii) perform, observe or discharge any covenant, condition
--
or obligation in any agreement, document or instrument evidencing,
securing or relating to such Indebtedness or other obligation, if the
effect of any such failure of the character described in this clause (h)
is to cause, or permit any other Person to cause, any payment in respect
thereof in an aggregate amount of $750,000 (or the equivalent thereof, as
of any date of determination, in any other currency) or more to become due
and payable, or if any such Indebtedness or other obligation in an
aggregate amount of $750,000 shall become due and payable by its terms and
shall not be paid or extended;
(i) if a final judgment or judgments for the payment of money which,
together with all other outstanding final judgments for the payment of
money against any Company, exceeds an aggregate of $200,000 (or the
equivalent thereof, as of any date of determination, in any other
currency) shall be rendered against any Company, which judgments are not,
within 30 days after entry thereof, discharged or stayed pending appeal,
or are not discharged within 30 days after the expiration of such stay;
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<PAGE>
(j) if any representation or warranty made by or on behalf of any
Company in this Agreement or in any of the other Operative Documents or in
any agreement, document or instrument delivered under or pursuant to any
provision hereof or thereof shall prove to have been false or incorrect in
any material adverse respect on the date as of which made;
(k) if, at any time, this Agreement or any of the other Operative
Documents shall for any reason (other than the scheduled termination
thereof in accordance with its terms), or any Liens created pursuant to
any of the Operative Documents shall for any reason, expire, fail to be in
full force and effect or be disaffirmed, repudiated, cancelled, terminated
or declared to be unenforceable, null and void; or
(l) if (i) any Plan shall fail to satisfy the minimum funding
-
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code, (ii) a notice of intent to
--
terminate any Plan shall have been or is reasonably expected to be filed
with the PBGC or the PBGC shall have instituted proceedings under section
4042 of ERISA to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified any Company or any ERISA Affiliate that a
Plan may become a subject of any such proceedings, (iii) the aggregate
---
"amount of unfunded benefit liabilities" (within the meaning of section
4001(a)(18) of ERISA) under all Plans, determined in accordance with Title
IV of ERISA, shall exceed $200,000 (or the equivalent thereof, as of any
date of determination, in any other currency), (iv) any Company or any
--
ERISA Affiliate shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (v) any Company
-
or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) any
--
Company establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase
the liability of any Company thereunder; and any such event or events
described in clauses (i) through (vi) above, either individually or
together with any other such event or events, has resulted in, or could
reasonably be expected to result in a Material Adverse Change;
then, in the case of any Event of Default (other than one of the character
described in subdivisions (e), (f) or (g) of this section 16.1) and at the
option of the holder or holders of 50% or more in aggregate principal amount of
the Notes of any class at the time outstanding (excluding any Notes at the time
owned by the Companies or any Affiliate of the Companies), exercised by written
notice to the Note Issuers, the principal of all Notes of such class shall
forthwith become due and payable, together with interest accrued thereon,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, and the Note Issuers shall forthwith upon any such
acceleration pay to the
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<PAGE>
holder or holders of all the Notes of such class then outstanding (i) the entire
principal of and interest accrued on the Notes of such class and (ii) in
addition, in the case of the acceleration of the Subordinated Notes, to the
extent permitted by applicable law, an amount equal to the Make Whole Amount, as
liquidated damages and not as a penalty; provided that, in the case of an Event
--------
of Default of the character described in subdivisions (a) or (b) of this section
16.1 and irrespective of whether all of the Notes of any class have been
declared due and payable by the holder or holders of 50% or more in aggregate
principal amount of the Notes of such class at the time outstanding, any holder
of Notes who or which has not consented to any waiver with respect to such Event
of Default may, at the option of such holder, by written notice to the Note
Issuers, declare all Notes then held by such holder to be, and such Notes shall
thereupon become, forthwith due and payable, together with interest accrued
thereon, without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived, and the Note Issuers shall forthwith upon
any such acceleration pay to such holder (i) the entire principal of and
-
interest accrued on such Notes, and (ii) in addition, in the case of the
--
acceleration of any Subordinated Notes, to the extent permitted by applicable
law, an amount equal to the Make Whole Amount, as liquidated damages and not as
a penalty; provided, further, that, in the case of an Event of Default of the
-------- -------
character described in subdivisions (e), (f) or (g) of this section 16.1, the
principal of all Notes shall forthwith become due and payable, together with
interest accrued thereon (including any interest accruing after the commencement
of any action or proceeding under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable domestic or foreign federal or
state bankruptcy, insolvency or other similar law, and any other interest that
would have accrued but for the commencement of such proceeding, whether or not
any such interest is allowed as an enforceable claim in such proceeding),
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, and the Note Issuers shall forthwith upon any such
acceleration pay to the holder or holders of all the Notes then outstanding (i)
-
the entire principal of and interest accrued on the Notes, and (ii) in addition,
--
in the case of the acceleration of the Subordinated Notes, to the extent
permitted by applicable law, an amount equal to the Make Whole Amount, as
liquidated damages and not as a penalty.
Notwithstanding the foregoing provisions, at any time after the occurrence
of any Event of Default and of notice thereof, if any, by any holder or holders
of Notes of any class and before any judgment, decree or order for payment of
the money due has been obtained by or on behalf of any holder or holders of the
Notes of such class, the Required Holders of the Notes of such class by written
notice to the Note Issuers, may rescind and annul such Event of Default and/or
notice of such Event of Default and the consequences thereof with respect to all
of the Notes of such class (including any Notes of such class which were
accelerated pursuant to the first proviso in the preceding paragraph by any
holder or holders on account of an Event of Default of the character described
in subdivision (a) or (b) of this section 16.1) if:
(1) the Note Issuers have paid a sum sufficient to pay
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<PAGE>
(A) all overdue interest on all Notes of such class at the
rate specified in such Notes;
(B) the principal of (and premium, if any, on) any Notes of
such class which have become due otherwise than by such Event of
Default or notice thereof and interest thereon at the rate specified
in such Notes; and
(C) interest on such overdue principal (and premium, if any)
and, to the extent that payment of such interest is lawful, interest
upon overdue interest, all at the rate for overdue amounts specified
in such Notes; and
(2) all Defaults and Events of Default, other than the non-payment
of the principal of Notes of such class which have become due solely by
such acceleration, have been cured or waived as provided in section 19.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
16.2. Suits for Enforcement. etc. In case any one or more of the Events of
--------------------------
Default specified in section 16.1 shall have occurred, and irrespective of
whether any Notes have become or have been declared immediately due and payable
under section 16.1, the holder of any Security may proceed to protect and
enforce its rights either by suit in equity or by action at law, or both,
provided that the exercise of any rights arising on account of any Default or
- --------
Event of Default and involving the Collateral (or any part thereof) shall
require the consent of the Required Holders of each class of the Notes. The
Companies stipulate that the remedies at law of the holder or holders of the
Securities in the event of any default or threatened default by the Companies in
the performance of or compliance with any covenant or agreement in this
Agreement or any of the other Operative Documents are not and will not be
adequate and that, to the fullest extent permitted by law, such terms may be
specifically enforced by a decree for the specific performance thereof, whether
by an injunction against a violation thereof or otherwise.
16.3. No Election of Remedies. No remedy conferred in this Agreement or in
-----------------------
any of the other Operative Documents upon the holder of any Security is intended
to be exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or
thereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
16.4. Remedies Not Waived. No course of dealing between the Companies, on
-------------------
the one hand, and any holder of any Security, on the other hand, and no delay by
any such holder in exercising any rights hereunder or under any of the other
Operative Documents shall operate as a waiver of any rights of any such holder.
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16.5. Application of Payments. In case any one or more of the Events of
-----------------------
Default specified in section 16.1 shall have occurred, all amounts to be applied
to the prepayment or payment of any Notes of any class, shall be applied, after
the payment of all related costs and expenses incurred by the holders of the
Notes (including, without limitation, compensation to any and all trustees,
liquidators, receivers or similar officials and reasonable fees, expenses and
disbursements of counsel) in such order of priority as is determined by the
Required Holders of each class of Notes entitled to such amounts.
17. Registration, Transfer and Exchange of Securities.
-------------------------------------------------
(a) Securities issued hereunder shall be issued in registered form.
The Holding Company shall keep at its principal executive office (which at
Closing shall be located at the address set forth at the beginning of this
Agreement) registers in which the Issuer(s) of the Securities shall
provide for the registration and transfer of the Securities. The name and
address of each holder of the Securities shall be registered in such
registers. The Issuer(s) shall give to any institutional holder of any
Security promptly (but in any event within 10 days) following request
therefor, a complete and correct copy of the names and addresses of all
registered holders of the Securities and the amount and kind of Securities
held by each. Whenever any Security or Securities shall be surrendered for
transfer or exchange, the Issuer(s) of the Securities at its (or their)
expense will execute and deliver in exchange therefor a new Security or
Securities (in such denominations and registered in such name or names as
may be requested by the holder of the surrendered Security or Securities),
in the same aggregate unpaid principal amount (in the case of the Notes)
or the same aggregate number of shares (in the case of the Purchased
Shares), as applicable, as that of the Security or Securities so
surrendered and, in the case of the Notes, dated so as not to result in
any loss of interest. The Issuer(s) may treat the Person in whose name any
Security is registered as the owner of such Security for all purposes.
(b) Each holder of any Securities agrees by its acceptance thereof
not to transfer any Securities (i) to any Person other than an
-
institutional investor or financial institution and to promptly notify the
Issuer(s) in writing of any such transfer or (ii) if, after giving effect
--
to such transfer, there are more than 15 unaffiliated holders of the
Securities. Concurrently with any transfer of any Securities, the
transferee shall acknowledge to the Companies its obligation to maintain
the confidentiality of Confidential Information as provided in section
8(b).
(c) Prior to effecting any sale in a privately negotiated
transaction or series of transactions (other than any sale to any Other
Purchaser, to any of your Affiliates, to any Affiliate of any Other
Purchaser, or to any Person for which you or any other Purchaser acts as
investment adviser or investment manager) of Purchased Shares which in the
aggregate represent more than 25% in interest of the Purchased Shares
purchased by you pursuant to this Agreement, you agree to send a notice to
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the Holding Company (a "Notice of Sale") which notice shall specify in
reasonable detail all of the material terms applicable to such sale. The
Holding Company shall then have the right to purchase all (but not less
than all) of the Purchased Shares referred to in such Notice of Sale (the
"Subject Securities") on the terms specified in the Notice of Sale, it
being agreed that the Holding Company can effectuate such purchase on
behalf of others. If the Holding Company elects to purchase the Subject
Securities it must notify you to such effect not later than 20 Business
Days following its receipt of such Notice of Sale and the Holding Company
must purchase the Subject Securities within 10 Business Days thereafter.
If the Holding Company shall notify you of its election not to purchase
the Subject Securities or shall fail to give you any notice within the
period of 20 Business Days specified above or shall fail to purchase all
of the Subject Securities within the period of 10 Business Days specified
above, you may sell the Subject Securities on the terms specified in the
Notice of Sale free from the restrictions imposed by this section 17(c).
18. Replacement of Securities. Upon receipt by the Issuer(s) of such Security
-------------------------
of reasonably satisfactory evidence of the loss, theft, destruction or
mutilation of any Security and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnity, and (in the case of mutilation) upon
surrender of such Security, the Issuer(s) of such Security, at its (or their)
expense will execute and deliver in lieu of such Security a new Security of like
tenor and, in the case of any new Note, dated so as not to result in any loss of
interest. Your unsecured agreement to indemnify and/or affidavit and that of any
other institutional holder shall constitute satisfactory indemnity and/or
satisfactory evidence of loss, theft or destruction for the purpose of this
section 18.
19. Amendment and Waiver.
--------------------
(a) Any term of this Agreement and, unless explicitly provided
otherwise therein, of any of the other Operative Documents may, with the
consent of the Issuers, be amended, or compliance therewith may be waived,
in writing only, by the Required Holders of each class of Securities
entitled to the benefits of such term, provided that (i) without the
-------- -
consent of the holders of all of the Notes at the time outstanding, no
such amendment or waiver shall (A) change the amount of the principal of
-
or any rate of interest on or premium payable with respect to any of the
Notes or change the payment terms of any of the Notes, or, except as
provided in section 12 in the case of the Subordinated Notes, subordinate
the obligation of the Note Issuers to pay any amount due on the Notes to
any other obligation, or (B) change the percentage of holders of Notes
-
required to approve any such amendment, effectuate any such waiver or
accelerate payment of the Notes; (ii) without the consent of the holders
--
of all of the Purchased G Shares at the time outstanding, no such
amendment or waiver shall modify any of the provisions of section 11;
(iii) without the consent of the holders of all of the Purchased Shares at
---
the time outstanding, no such amendment or waiver shall change the
percentage of holders of
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<PAGE>
the Purchased Shares, Warrants and Warrant Shares required to approve
any such amendment or effect any such waiver; and (iv) no such
--
amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
Executed or true and correct copies of any amendment, waiver or
consent effected pursuant to this section 19 shall be delivered by
the Companies to each holder of Securities forthwith (but in any
event not later than five days) following the effective date thereof.
(b) The Companies will not, directly or indirectly, request or
negotiate for, or offer or pay any remuneration or grant any security
as an inducement for, any proposed amendment or waiver of any of the
provisions of this Agreement or any of the other Operative Documents
unless each holder of the Securities (irrespective of the kind and
amount of Securities then owned by it) shall be informed thereof by
the Companies and, if such holder is entitled to the benefit of any
such provision proposed to be amended or waived, shall be afforded
the opportunity of considering the same, shall be supplied by the
Companies with sufficient information to enable it to make an
informed decision with respect thereto and shall be offered and paid
such remuneration and granted such security on the same terms.
(c) In determining whether the requisite holders of Securities
have given any authorization, consent or waiver under this section
19, any Securities owned by the Companies or any of their Affiliates
shall be disregarded and deemed not to be outstanding.
20. Method of Payment of Securities. Irrespective of any provision hereof
-------------------------------
or of the other Operative Documents to the contrary, so long as you (or
your nominee) or any other institutional holder shall hold any Security,
the Companies will make all payments thereon to you or such other
institutional holder by the method and at the address for such purpose
specified in Schedule I attached hereto or by such other method or at such
----------
other address as you or such institutional holder may designate in writing,
without requiring any presentation or surrender of such Security, except
that if any Security shall be paid, prepaid and/or repurchased in full,
such Security shall be surrendered to the Issuer(s) thereof promptly
following such payment, prepayment or repurchase and cancelled.
21. Expenses; Indemnity. Whether or not the transactions contemplated by
-------------------
any of the Operative Documents shall be consummated, the Companies will pay
or cause to be paid (or reimbursed, as the case may be) and will defend,
indemnify and hold you (and each other holder of any of the Securities) and
each of your (and such other holder's) directors, officers, employees,
agents, advisors and Affiliates (each, an "Indemnitee") harmless in respect
of all costs, losses, expenses (including, without limitation, the
reasonable fees, costs, expenses and disbursements of counsel) and damages
(collectively, "Indemnified Costs") incurred by or asserted against any
Indemnitee in connection with the negotiation, execution, delivery,
performance and/or enforcement of this Agreement or any of the other
Operative Documents
-85-
<PAGE>
(including, without limitation, so-called work-outs and/or restructurings and
all amendments, waivers and consents hereunder and thereunder, whether or not
effected) and/or the consummation of the transactions contemplated hereby and
thereby or which may otherwise be related in any way to this Agreement or any
other Operative Documents or such transactions or such Indemnitee's relationship
to the Companies or any of their Affiliates or any of their respective
properties and assets, including, without limitation, any and all Indemnified
Costs related in any way to the requirements of any Environmental Laws (as the
same may be amended, modified or supplemented from time to time) or to any
environmental investigation, assessment, site monitoring, containment, clean up,
remediation, removal, restoration, reporting and sampling, whether or not
consented to, or requested or approved by, any Indemnitee, and whether or not
such Indemnified Cost is attributable to an event or condition originating from
any properties or assets of the Companies or any of their respective
Subsidiaries or any other properties previously or hereafter owned, leased,
occupied or operated by the Companies or any of their respective Subsidiaries.
Notwithstanding the foregoing, the Companies shall not have any obligation to an
Indemnitee under this section 21 with respect to any Indemnified Cost which is
finally determined by a court of competent jurisdiction to have arisen solely
and directly as a result of the willful misconduct or bad faith of such
Indemnitee.
22. Taxes. The Companies will pay all taxes and fees (including interest and
-----
penalties), including, without limitation, all recording and filing fees,
issuance and documentary stamp and similar taxes, which may be payable in
respect of the execution and delivery of this Agreement and each of the other
Operative Documents.
23. Communications. All communications provided for herein and, unless
--------------
explicitly provided otherwise therein, in any of the other Operative Documents
shall be in writing and sent (a) by telecopy if the sender on the same day sends
-
a confirming copy of such communication by a recognized overnight delivery
service (charges prepaid), (b) by a recognized overnight delivery service
-
(charges prepaid), or (c) by messenger. Any such communication must be sent (i)
- -
if to the Companies (or any of them), to the Companies (or such Company) at:
c/o Joel N. Levy/Peter M. Schulte L.L.C.
135 East 57th Street, 27th floor
New York, New York 10022
Attention: Peter M. Schulte
Telecopy:(212) 980-2630
and
-86-
<PAGE>
c/o Averstar, Inc.
23 Fourth Avenue
Burlington, Massachusetts 01803
Attention: Chairman
Telecopy No.: (781) 221-6991
with a copy (which shall not constitute notice) to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Attention: Gerald Adler, Esq.
Telecopy No.: (212) 758-9526
or at such other address (or telecopy number) as may be furnished in writing by
the Companies to each holder of any Security and (ii) if to you, at your address
--
for such purpose set forth in Schedule I attached hereto, with a copy (which
----------
shall not constitute notice) to:
Choate, Hall & Stewart
Exchange Place
53 State Street,
Boston, Massachusetts 02109
Attention: Frank B. Porter, Jr., Esq.
Telecopy No.: (617) 248-4000
and if to any other holder of any Security, at the address of such holder as it
appears on the applicable register maintained pursuant to section 17, or at such
other address as may be furnished in writing by you or by any other holder to
the Companies. Communications under this section 23 shall be deemed given only
when actually received.
24. Survival of Agreements, Representations and Warranties, etc. All
-----------------------------------------------------------
agreements, representations and warranties contained herein and in the
other Operative Documents shall be deemed to have been relied upon by you
and shall survive the execution and delivery of this Agreement and each of
the other Operative Documents, the issue, sale and delivery of the
Securities and payment therefor and any disposition of the Securities by
you, whether or not any investigation at any time is made by you or on your
behalf. All indemnification provisions, including, without limitation,
those contained in sections 11.5, 21 and 22, shall survive the date upon
which none of the Securities shall be outstanding and the termination of
this Agreement and each of the other Operative Documents.
25. Successors and Assigns; Rights of Other Holders. This Agreement and, unless
-----------------------------------------------
explicitly provided otherwise therein, each of the other Operative Documents
shall bind and inure to the benefit of and be enforceable by the Companies party
thereto and you,
-87-
<PAGE>
successors to the Companies party thereto and your successors and assigns, and,
in addition, shall inure to the benefit of and be enforceable by each holder
from time to time of any Securities who, upon acceptance thereof, shall, without
further action, be entitled to enforce the applicable provisions and enjoy the
applicable benefits hereof and thereof. No Company may assign any of its rights
or obligations under any of the Operative Documents to which it is a party
without the written consent of all of the holders of the Securities then
outstanding.
26. Purchase for Investment; ERISA.
------------------------------
(a) You represent and warrant (i) that you have been furnished with
-
all information that you have requested for the purpose of evaluating your
proposed acquisition of the Securities to be issued to you pursuant
hereto, (ii) that you will acquire such Securities for your own account
--
for investment and not for distribution in any manner that would violate
applicable securities laws, but without prejudice to your rights to
dispose of such Securities or a portion thereof to a transferee or
transferees, in accordance with such laws and the Stockholders Agreement,
if applicable, if at some future time you deem it advisable to do so and
(iii) that you are an "accredited investor", as defined in Regulation D of
---
the Commission under the Securities Act. The acquisition of such
Securities by you at the Closing shall constitute your confirmation of the
foregoing representations and warranties. You understand that such
Securities are being sold to you in a transaction which is exempt from the
registration requirements of the Securities Act, and that, in making the
representations and warranties contained in section 5.16, the Companies
are relying, to the extent applicable, upon your representations and
warranties contained herein.
(b) You represent that at least one of the following statements is
an accurate representation as to each source of funds (a "Source") to be
used by you to pay the purchase price of the Securities to be purchased by
you hereunder:
(i) the Source is an "insurance company general account" as
defined in Section V(e) of Prohibited Transaction Exemption ("PTE")
95-60 (issued July 12, 1995) and, except as you have disclosed to the
Companies in writing pursuant to this section (i), the amount of
reserves and liabilities for the general account contract(s) held by
or on behalf of any employee benefit plan or group of plans maintained
by the same employer or employee organization do not exceed 10% of the
total reserves and liabilities of the general account (exclusive of
separate account liabilities) plus surplus as set forth in the NAIC
Annual Statement filed with the state of domicile of the insurer; or
(ii) the Source is a separate account of an insurance company
maintained by you in which an employee benefit plan (or its related
trust) has an interest, which separate account is maintained solely in
connection with your fixed contractual obligations under which the
amounts payable, or
-88-
<PAGE>
credited, to such plan and to any participant or beneficiary of such
plan (including any annuitant) are not affected in any manner by the
investment performance of the separate account; or
(iii) the Source is either (A) an insurance company pooled
-
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (B) a bank collective investment fund, within the meaning
-
of the PTE 91-38 (issued July 12, 1991) and, except as you have
disclosed to the Companies in writing pursuant to this section
(iii), no employee benefit plan or group of plans maintained by the
same employer or employee organization beneficially owns more than
10% of all assets allocated to such pooled separate account or
collective investment fund; or
(iv) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets
that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained
by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of
the total client assets managed by such QPAM, the conditions of Part
1(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM
nor a person controlling or controlled by the QPAM (applying the
definition of "control" in Section V(e) of the QPAM Exemption) owns
a 5% or more interest in the Companies and (A) the identity of such
-
QPAM and (B) the names of all employee benefit plans whose assets
-
are included in such investment fund have been disclosed to the
Companies in writing pursuant to this section (iv); or
(v) the Source is a governmental plan; or
(vi) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Companies in
writing pursuant to this section (vi); or
(vii) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this section 26(b), the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall have
the respective meanings
-89-
<PAGE>
assigned to such terms in Section 3 of ERISA, and the term "QPAM Exemption"
means PTE 84-14 (issued March 13, 1984).
27. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement and,
-------------------------------------------------
unless explicitly provided otherwise therein, each of the other Operative
Documents, including the validity hereof and thereof and the rights and
obligations of the parties hereunder and thereunder, and all amendments and
supplements hereof and thereof and all waivers and consents hereunder and
thereunder, shall be construed in accordance with and governed by the domestic
substantive laws of The Commonwealth of Massachusetts without giving effect to
any choice of law or conflicts of law provision or rule that would cause the
application of the domestic substantive laws of any other jurisdiction. Each of
the Companies, to the extent that it may lawfully do so, hereby consents to
service of process, and to be sued, in The Commonwealth of Massachusetts and
consents to the jurisdiction of the courts of The Commonwealth of Massachusetts
and the United States District Court for the District of Massachusetts, as well
as to the jurisdiction of all courts to which an appeal may be taken from such
courts, for the purpose of any suit, action or other proceeding arising out of
any of its obligations hereunder or thereunder or with respect to the
transactions contemplated hereby or thereby, and expressly waives any and all
objections it may have as to venue in any such courts. Each of the Companies
further agrees that a summons and complaint commencing an action or proceeding
in any of such courts shall be properly served and shall confer personal
jurisdiction if sewed personally or by certified mail to it at its address
referred to in section 23 or as otherwise provided under the laws of The
Commonwealth of Massachusetts. Notwithstanding the foregoing, each of the
Companies agrees that nothing contained in this section 27 shall preclude the
institution of any such suit, action or other proceeding in any jurisdiction
other than The Commonwealth of Massachusetts. EACH OF THE COMPANIES IRREVOCABLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR OTHER PROCEEDING
INSTITUTED BY OR AGAINST IT IN RESPECT OF ITS OBLIGATIONS HEREUNDER OR
THEREUNDER OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
28. Rule 144A. The Companies will take, or will cause to be taken, such action
---------
as any holder of Securities may reasonably request from time to time to
facilitate any sale or disposition by any such holder of any Securities without
registration under the Securities Act and/or any applicable securities laws
within the limitation of the exemptions provided by any rule or regulation
thereunder, including, without limitation, Rule 144A under the Securities Act.
29. Miscellaneous. The headings in this Agreement and in each of the other
-------------
Operative Documents are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof or thereof. This Agreement (together with
the other Operative Documents) embodies the entire agreement and understanding
between you and the Companies and supersedes all prior agreements and
understandings relating to the subject matter hereof. Each covenant contained
herein and in each of the other Operative Documents shall be
-90-
<PAGE>
construed (absent an express provision to the contrary) as being independent of
each other covenant contained herein and therein, so that compliance with any
one covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. If any provision in this Agreement or
in any of the other Operative Documents refers to any action taken or to be
taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable, whether such action is taken directly or
indirectly by such Person. In case any provision in this Agreement or any of the
other Operative Documents shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby. This Agreement and, unless explicitly
provided otherwise therein, each of the other Operative Documents, may be
executed in any number of counterparts and by the parties hereto or thereto, as
the case may be, on separate counterparts but all such counterparts shall
together constitute but one and the same instrument.
[The remainder of this page is intentionally left blank.]
-91-
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this Agreement, whereupon it shall
become a binding agreement under seal between you and the Companies. Please then
return one of such counterparts to the Companies.
Very truly yours,
AVERSTAR, INC.
By_____________________________________
(Title)
APOLLO HOLDING, INC.
By_____________________________________
(Title)
INTERMETRICS, INC.
By_____________________________________
(Title)
PACER INFOTEC, INC.
By_____________________________________
(Title)
-92-
<PAGE>
The foregoing Agreement is hereby
agreed to as of the date thereof
[THE FOLLOWING ARE THE SIGNATURE
BLOCKS FOR EACH OF THE PURCHASERS
WHICH WILL APPEAR IN THE APPLICABLE
SECURITIES PURCHASE AGREEMENT
BETWEEN THE COMPANIES AND EACH SUCH
PURCHASER.]
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By__________________________________
(Title)
MASSMUTUAL CORPORATE INVESTORS
By__________________________________
(Title)
The foregoing is executed on behalf of
MassMutual Corporate Investors,
organized under a Declaration of Trust,
dated September 13, 1985, as amended
from time to time. The obligations of
such Trust are not personally binding
upon, nor shall resort be had to the
property of, any of the Trustees,
shareholders, officers, employees or
agents of such Trust, but the Trust's
property only shall be bound.
MASSMUTUAL PARTICIPATION INVESTORS
By__________________________________
(Title)
The foregoing is executed on behalf of
MassMutual Participation Investors,
organized under a Declaration
-93-
<PAGE>
of Trust, dated April 7, 1988, as amended from time
-94-
<PAGE>
to time. The obligations of such Trust
are not personally binding upon, nor
shall resort be had to the property of,
any of the Trustees, shareholders,
officers, employees or agents of such
Trust, but the Trust's property only
shall be bound.
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By Massachusetts Mutual Life Insurance
Company, as Investment Advisor
By ____________________________
(Title)
-95-
<PAGE>
AVERSTAR, INC.
APOLLO HOLDING, INC.
INTERMETRICS, INC.
PACER INFOTEC, INC.
23 Fourth Avenue
Burlington, Massachusetts 01803
February 27, 1998
MASSMUTUAL CORPORATE INVESTORS
1295 State Street
Springfield, Massachusetts 01111
Ladies and Gentlemen:
AVERSTAR, INC., a Delaware corporation formerly named IP Technologies,
Inc. (the "Holding Company"), APOLLO HOLDING, INC., a Delaware corporation
("Apollo"), INTERMETRICS, INC., a Delaware corporation ("Intermetrics") and
PACER INFOTEC, INC., a Massachusetts corporation ("Pacer"), jointly and
severally agree with you as follows. Certain terms used herein are defined in
section 15.
1. Background: Authorization of Securities: Other Purchasers: etc.
---------------------------------------------------------------
(a) Pursuant to those certain Securities Purchase Agreements
dated August 31, 1995, as amended by Amendment and Waiver of
Securities Purchase Agreement dated "February , 1996" and Amendment
and Waiver No. 2 of Securities Purchase Agreement dated "May , 1996"
(the "Existing Securities Purchase Agreements"), among Apollo,
Intermetrics (the successor by merger to IMT Acquisition Corp.), and
each of the institutional investors named therein, (i) Apollo issued
-
and sold: (A) 18,400 shares of its Non-Voting Class A Common Stock,
-
$.00l par value (the "Apollo A Shares"), (B) 50,880 shares of its Non-
-
Voting Class B Common Stock, $.001 par value (the "Apollo B Shares"),
and (C) its common stock purchase warrants (the "Apollo Warrants")
-
evidencing rights to purchase in the aggregate 132,347 shares of its
Voting or Non-Voting Class D Common Stock, $.001 par value; and (ii)
--
Intermetrics issued and sold: (A) its Senior Term Notes due August
-
31, 2002 in the aggregate principal amount of $8,333,000 (the
"Intermetrics Senior Term Notes"), (B) its Senior Revolving Credit
-
Notes due August 31, 2001 in the aggregate principal amount of
$5,000,000 (the "Intermetrics
<PAGE>
Senior Revolving Credit Notes") and (C) its 13% Senior Subordinated Notes due
-
August 31, 2002 in the aggregate principal amount
<PAGE>
AVERSTAR, INC.
APOLLO HOLDING, INC.
INTERMETRICS, INC.
PACER INFOTEC, INC.
23 Fourth Avenue
Burlington, Massachusetts 01803
February 27, 1998
MASSMUTUAL PARTICIPATION INVESTORS
1295 State Street
Springfield, Massachusetts 01111
Ladies and Gentlemen:
AVERSTAR, INC., a Delaware corporation formerly named IP Technologies,
Inc. (the "Holding Company"), APOLLO HOLDING, INC., a Delaware corporation
("Apollo"), INTERMETRICS, INC., a Delaware corporation ("Intermetrics") and
PACER INFOTEC, INC., a Massachusetts corporation ("Pacer"), jointly and
severally agree with you as follows. Certain terms used herein are defined in
section 15.
1. Background; Authorization of Securities; Other Purchasers; etc.
---------------------------------------------------------------
(a) Pursuant to those certain Securities Purchase Agreements
dated August 31, 1995, as amended by Amendment and Waiver of
Securities Purchase Agreement dated "February __, 1996" and Amendment
and Waiver No. 2 of Securities Purchase Agreement dated "May __,
1996" (the "Existing Securities Purchase Agreements"), among Apollo,
Intermetrics (the successor by merger to IMT Acquisition Corp.), and
each of the institutional investors named therein, (i) Apollo issued
-
and sold: (A) 18,400 shares of its Non-Voting Class A Common Stock,
-
$.001 par value (the "Apollo A Shares"), (B) 50,880 shares of its Non-
-
Voting Class B Common Stock, $.001 par value (the "Apollo B Shares"),
and (C) its common stock purchase warrants (the "Apollo Warrants")
-
evidencing rights to purchase in the aggregate 132,347 shares of its
Voting or Non-Voting Class D Common Stock, $.001 par value; and (A)
-
Intermetrics issued and sold: (A) its Senior Term Notes due August
-
31, 2002 in the aggregate principal amount of $8,333,000 (the
"Intermetrics Senior Term Notes"), (ii) its Senior Revolving Credit
--
Notes due August 31, 2001 in the aggregate principal amount of
$5,000,000 (the "Intermetrics
<PAGE>
Senior Revolving Credit Notes") and (C) its 13% Senior Subordinated Notes
-
due August 31, 2002 in the aggregate principal amount
<PAGE>
AVERSTAR, INC.
APOLLO HOLDING, INC.
INTERMETRICS, INC.
PACER INFOTEC, INC.
23 Fourth Avenue
Burlington, Massachusetts 01803
February 27, 1998
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
1295 State Street
Springfield, Massachusetts 01111
Ladies and Gentlemen:
AVERSTAR, INC., a Delaware corporation formerly named IP Technologies,
Inc. (the "Holding Company"), APOLLO HOLDING, INC., a Delaware corporation
("Apollo"), INTERMETRICS, INC., a Delaware corporation ("Intermetrics") and
PACER INFOTEC, INC., a Massachusetts corporation ("Pacer"), jointly and
severally agree with you as follows. Certain terms used herein are defined in
section 15.
1. Background; Authorization of Securities; Other Purchasers; etc.
---------------------------------------------------------------
(a) Pursuant to those certain Securities Purchase Agreements
dated August 31, 1995, as amended by Amendment and Waiver of
Securities Purchase Agreement dated "February __, 1996" and Amendment
and Waiver No. 2 of Securities Purchase Agreement dated "May __,
1996" (the "Existing Securities Purchase Agreements"), among Apollo,
Intermetrics (the successor by merger to IMT Acquisition Corp.), and
each of the institutional investors named therein, (i) Apollo issued
-
and sold: (A) 18,400 shares of its Non-Voting Class A Common Stock,
-
$.001 par value (the "Apollo A Shares"), (B) 50,880 shares of its Non-
-
Voting Class B Common Stock, $.001 par value (the "Apollo B Shares"),
and (C) its common stock purchase warrants (the "Apollo Warrants")
-
evidencing rights to purchase in the aggregate 132,347 shares of its
Voting or Non-Voting Class D Common Stock, $.001 par value; and (ii)
--
Intermetrics issued and sold: (A) its Senior Term Notes due August
-
31, 2002 in the aggregate principal amount of $8,333,000 (the
"Intermetrics Senior Term Notes"), (B) its Senior Revolving Credit
-
Notes due August 31, 2001 in the aggregate principal amount of
$5,000,000 (the "Intermetrics
<PAGE>
Senior Revolving Credit Notes") and (C) its 13% Senior Subordinated Notes due
-
August 31, 2002 in the aggregate principal amount
<PAGE>
Exhibit 10.2 (b)
Averstar, Inc.
Apollo Holding, Inc.
Intermetrics, Inc.
Pacer Infotec, Inc.
23 Fourth Avenue
Burlington, Massachusetts 01803
March 18, 1999
To each of the holders of the Securities
issued pursuant to (and as defined in) the
Securities Purchase Agreements referred
to below
Ladies and Gentlemen:
1. General. Reference is hereby made to those certain Amended and
-------
Restated Securities Purchase Agreements dated February 27, 1998 among Averstar,
Inc., Apollo Holding, Inc., Intermetrics, Inc., Pacer Infotec, Inc. and the
institutional investors named therein (as amended, modified and supplemented
from time to time, the "Securities Purchase Agreements"). Prior to the date
hereof, each of Apollo Holding, Inc., Intermetrics, Inc. and Pacer Infotec, Inc.
was merged with and into Averstar, Inc. Capitalized terms used herein without
definition have the meanings ascribed to them in the Securities Purchase
Agreements.
2. Contemporaneous Transactions.
----------------------------
(a) The Holding Company has informed you of the acquisition by the
Holding Company of all of the issued and outstanding capital stock of
Computer Based Systems, Inc. ("CBSI") pursuant to the terms of that certain
Agreement and Plan of Merger dated as of January 31, 1999 (the "CBSI
Acquisition Agreement") by and among the Holding Company, Averstar
Acquisition, Inc., a Virginia corporation ("AAI"), CBSI and the
stockholders party thereto, pursuant to which AAI will be merged with and
into CBSI (the "CBSI Merger"), with CBSI being the surviving corporation
and thereby becoming a Wholly-Owned Subsidiary of the Holding Company. The
Holding Company has provided you with true, correct and complete copies of
the CBSI Acquisition Agreement and all related agreements, documents and
instruments (the "CBSI Acquisition Documents").
<PAGE>
(b) The Holding Company has informed you of the execution and delivery
of that certain Business Loan and Security Agreement dated as of March 18,
1999 (the "First Union Loan Agreement") by and among First Union Commercial
Corporation, individually and as agent, State Street Bank & Trust Company,
N.A., Crestar Bank, Massachusetts Mutual Life Insurance Company, the
Holding Company, CBSI, Computing Applications Software Technologies, Inc.
("CAST"), Intermetrics Securities, Inc. ("ISI") and Intermetrics
International, Inc. ("III"), pursuant to which the Holding Company has
established a $75,000,000 credit facility (the "Senior Loan Facility")
consisting of (i) a $30,000,000 five year senior secured revolving credit
-
facility, including a $5,000,000 letter of credit sub-facility thereunder,
(ii) a $2,000,000 senior secured swing line facility, (iii) a $15,000,000
-- ---
five year senior secured term loan facility and (iv) a $30,000,000 six year
--
senior secured term loan facility. The Holding Company has provided you
with true, correct and complete copies of the First Union Loan Agreements
and all related agreements, documents and instruments (the "First Union
Loan Documents").
(c) On this day, (i) the CBSI Merger has become effective, (ii) the
- --
Closing (as defined in the First Union Loan Agreement) has occurred, (iii)
---
the proceeds of the loans made under the First Union Loan Agreement have
been used to, among other things, prepay in full the outstanding principal
amount of, and all accrued interest on, the Senior Term Notes, Senior
Revolving Credit Notes and Senior Bridge Notes and (iv) the Total Revolving
--
Commitment has been terminated.
3. Extension of Maturity. The Holding Company hereby requests and, by
---------------------
their signatures hereto, each of the holders of the Subordinated Notes hereby
agree to, an extension of the scheduled maturity date of the Subordinated Notes
from August 31, 2002 to June 17, 2005. In order to further evidence the
foregoing, the Holding Company and each of such holders agree that each of the
Subordinated Notes shall have affixed to it an allonge in the form of Exhibit 3
---------
attached hereto.
4. Amendments to Securities Purchase Agreements.
--------------------------------------------
(a) The definition of the term "Superior Indebtedness" appearing in
section 10.1 of the Securities Purchase Agreements is hereby amended to
read in its entirety as follows:
"(d) "Superior Indebtedness" shall mean the principal amount of
-------- ------------
the Indebtedness evidenced by the Senior Bank Documents (or of any
Indebtedness incurred in compliance with section 14.5 to refinance the
Senior Bank Documents), together with any interest (including any
interest accruing after the commencement of any action or proceeding
under the federal bankruptcy laws, as now or hereafter constituted, or
any
-2-
<PAGE>
other applicable domestic or foreign federal or state bankruptcy,
insolvency or other similar law, and any other interest that would
have accrued but for the commencement of such proceeding, whether or
not any such interest is allowed as an enforceable claim in such
proceeding), premium and any other amount (including any fee or
expense) due thereon or payable with respect thereto, including any
such amounts payable by any guarantor of the Indebtedness under the
Senior Bank Documents (or of any Indebtedness incurred in compliance
with section 14.5 to refinance such Indebtedness), provided that (a)
-------- -
Superior Indebtedness must arise under the Senior Bank Agreement (or
under any agreement executed in connection with any extension,
refinancing, refunding or renewal thereof effected in compliance with
the Securities Purchase Agreements) and (b) the aggregate outstanding
-
principal amount of Superior Indebtedness, including, without
limitation, all amounts due (contingently or otherwise) in respect of
reimbursement obligations under letters of credit or similar
instruments (and all related reimbursement agreements) does not exceed
$87,000,000 minus the sum (without duplication of amounts) of (i) the
----- -
aggregate amount of all scheduled principal payments made thereon from
time to time (other than any principal payment made under the
revolving credit facility established under the Senior Bank Agreement
(or under any agreement executed in connection with any extension,
refinancing, refunding or renewal thereof) which may be reborrowed
under such facility) and (ii) the aggregate amount of any reductions
--
in the principal amount of the commitments under such revolving credit
facility."
(b) Section 10.2(b) of the Securities Purchase Agreements is hereby
amended to read in its entirety as follows:
"(b) For so long as any Superior Indebtedness shall be
outstanding under the Senior Bank Documents or any commitment to
lend thereunder remains in effect, neither this section 10 nor
any of the terms of the Subordinated Indebtedness relating to the
timing or amount of any payment (or prepayment) of the principal
of or premium, if any, or interest on the Subordinated
Indebtedness, or any other amount (including any fee or expense)
due thereon, shall be amended without the prior written consent
of the Required Lenders (as such term is defined in the Senior
Bank Agreement)."
(c) Section 10.4(a)(ii)(D) of the Securities Purchase Agreements is
hereby amended to delete the phrase "120 days" appearing therein and insert
the phrase "180 days" in place thereof.
-3-
<PAGE>
(d) Section 10.13(c)(ii) of the Securities Purchase Agreements is
hereby amended to delete the phrase "60 days" appearing therein and insert
the phrase "90 days" in place thereof.
(e) Section 15.1 of the Securities Purchase Agreements is hereby
amended to insert the following definitions in appropriate alphabetical
order:
"Senior Bank Agreement" shall mean that certain Business Loan and
------ ---- ---------
Security Agreement dated as of March __, 1999 by and among First Union
Commercial Corporation, individually and as agent, State Street Bank &
Trust Company, N.A., Crestar Bank, Massachusetts Mutual Life Insurance
Company, the Holding Company, Computer Based Systems, Inc., Computing
Applications Software Technologies, Inc, Intermetrics Securities, Inc.
and Intermetrics International, Inc., as the same may be amended from
time to time.
"Senior Bank Documents" shall mean the Senior Bank Agreement and
------ ---- ---------
all related agreements, documents and instruments.
5. Security Documents; Further Assurances. After giving effect to the
--------------------------------------
CBSI Merger and the closing under the First Union Loan Agreement, the only
Subsidiaries of the Holding Company shall be CBSI, CAST, ISI and III. Not later
than April 30, 1999 the Holding Company will execute and deliver, or will cause
to be executed and delivered, such Security Documents and will take all such
other actions as any holder of any of the Subordinated Notes may reasonably
request for the purpose of implementing or effectuating the provisions of the
Operative Documents, including, without limitation, the execution and delivery
of Note Guarantees and Security Agreements (in substantially the forms attached
to the Securities Purchase Agreements) by CBSI and the filing of related
financing statements.
6. Ratification; No Defaults, etc.
-------------------------------
(a) The Holding Company represents and warrants that the
representations and warranties contained in the Securities Purchase
Agreements and the other Operative Documents are in all material respects
correct on and as of the date hereof as if made on such date (except to the
extent affected by the consummation of transactions permitted by the
Securities Purchase Agreements) and that, after giving effect to the
provisions of this letter agreement, no Default or Event of Default exists.
(b) The Holding Company ratifies and confirms the Securities Purchase
Agreements (as amended hereby) and each of the other Operative Documents
(as amended hereby) to which it is a party (including as a successor to
Apollo, Intermetrics and Pacer) and agrees that each such agreement,
document and instrument is in full force
-4-
<PAGE>
and effect, that its obligations thereunder and under this letter agreement
are its legal, valid and binding obligations enforceable against it in
accordance with the terms thereof and hereof and that it has no defense,
whether legal or equitable, setoff or counterclaim to the payment and
performance of such obligations.
(c) The Holding Company agrees that (i) if any default shall be made
-
in the performance or observation of any covenant, agreement or condition
contained herein or (ii) if any representation or warranty made by it
--
herein shall prove to have been false or incorrect on the date as of which
made, the same shall constitute an Event of Default under the Securities
Purchase Agreements and the other Operative Documents and, in such event,
you and each other holder of any of the Securities shall have all rights
and remedies provided by law and/or provided or referred to in the
Securities Purchase Agreements and the other Operative Documents. The
Holding Company further agrees that this letter agreement is an Operative
Document and all references thereto in the Securities Purchase Agreements
and in any other of the Operative Documents shall include this letter
agreement.
7. Reimbursement of Expenses. Without limiting the generality of any
-------------------------
other provision of the Operative Documents, the Holding Company shall pay all
fees, expenses and disbursements incurred by you at or prior to the execution
hereof in connection with the transactions contemplated hereby, including,
without limitation, the reasonable fees, expenses and disbursements of your
special counsel.
8. Successors and Assigns. This letter agreement shall be binding on and
----------------------
shall inure to the benefit of each of the parties hereto and their respective
successors and assigns.
9. Miscellaneous. The headings in this letter agreement are for purposes
-------------
of reference only and shall not limit or otherwise affect the meaning hereof.
This letter agreement embodies the entire agreement and understanding among the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof. In case any provision in this letter agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This letter agreement may be executed in any number of
counterparts and by the parties hereto on separate counterparts but all such
counterparts shall together constitute but one and the same instrument.
[The remainder of this page is intentionally left blank.]
-5-
<PAGE>
If you are in agreement with the foregoing, please sign in the space
indicated below.
Very truly yours,
AVERSTAR, INC.
By _____________________________________
(Title)
Acknowledged and agreed as of the date
first above written.
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By ____________________________________
(Title)
MASSMUTUAL CORPORATE INVESTORS
By ______________________________________
(Title)
The foregoing is executed on behalf of MassMutual
Corporate Investors, organized under a Declaration
of Trust, dated September 13, 1985, as amended from time
to time. The obligations of such Trust are not
personally binding upon, nor shall resort be had to the
property of, any of the Trustees, shareholders, officers,
employees or agents of such Trust, but the Trust's
property only shall be bound.
-6-
<PAGE>
MASSMUTUAL PARTICIPATION INVESTORS
By ______________________________________
(Title)
The foregoing is executed on behalf of MassMutual
Participation Investors, organized under a Declaration
of Trust, dated April 7, 1988, as amended from time
to time. The obligations of such Trust are not
personally binding upon, nor shall resort be had to the
property of, any of the Trustees, shareholders, officers,
employees or agents of such Trust, but the Trust's
property only shall be bound.
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By Massachusetts Mutual Life Insurance
Company, as Investment Manager
By ____________________________________________
(Title)
-7-
<PAGE>
Exhibit 3
---------
ALLONGE
-------
As of March 18, 1999
Allonge forming a part of each of those certain 13.00% Senior Subordinated
Notes dated February 27, 1998 (the "Notes"), made by Averstar, Inc., Apollo
Holding, Inc., Intermetrics, Inc., and Pacer Infotec, Inc. in the original
aggregate principal amount of $5,000,000. Prior to the date hereof, each of
Apollo Holding, Inc., Intermetrics, Inc. and Pacer Infotec, Inc. was merged with
and into Averstar, Inc.
Reference is hereby made to that certain Letter Agreement dated March 18,
1999 (the "Letter Agreement") among the issuers and holders of the Note to which
this Allonge is affixed by which, among other things, the scheduled maturity
date of such Note was extended to June 17, 2005 and certain changes were made to
the terms of subordination applicable such Note. Payments on the Notes and the
rights of the holders thereof (including the right to take any enforcement
action in respect thereof) are subordinate to the extent specified in the
Securities Purchase Agreements pursuant to which the Notes were issued to
Superior Indebtedness (as defined in such Securities Purchase Agreements) and to
the rights of the holders of such Superior Indebtedness.
AVERSTAR, INC.
By _______________________________________
(Title)
-8-
<PAGE>
EXHIBIT 10.3
NORTHWEST PARK
L E A S E
ARTICLE 1
Reference Data
---------------
1.1 Subject Referred To.
---------------------
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this
Section 1.1
Date of this Lease: July 31,1996
Building: The single level building containing
approximately 38,801 square feet of
floor area located on the Property.
Property: The parcel of land at 23 Fourth Avenue,
Burlington, Massachusetts as shown on
Exhibit A hereto as Lots D, 61 and 70,
together with the Building located
thereon.
Premises: The entire Property.
Landlord: Rodger P. Nordblom, Peter C. Nordblom,
June Robinson and Russel J.Fogelin as
Trustees of Maryland Buildings Trust
under Declaration of Trust dated June
22, 1954 filed for registration with the
Middlesex South Registry District of the
Landlord Court as Document No. 552724
noted on Certificate of Title No. 150413
in Registration Book 882, Page 63, as
amended.
Original Notice
Address of Landlord: c/o Nordblom Management Company Inc.
31 Third Avenue
Burlington, Massachusetts 01803
Tenant: INTERMETRICS, INC.
Original Notice
Address of Tenant: 23 Fourth Avenue
Burlington, Massachusetts 01803
with a copy to
Posternak, Blankstein & Lund,L.L.P.
100 Charles River Plaza
Boston, Massachusetts 02114
Attention: Richard K. Blankstein, P.C
Landlord's Construction
Representative: Steve Logan
Tenant's Construction
Representative: Charles D'Ambrosio
Term: Seven (7) years
Delivery Date: December 1,1996
Annual Fixed Rent Rate: $350,000.00 during the first four years
of the original term; and $400,000.00
thereafter.
Monthly Fixed Rent Rate: $29,166.67 during the first four years
of the original term, and $33,333.33
thereafter.
Security and
Restoration Deposit: $400,000 in the form of an irrevocable
letter of credit in accordance with
Section 4.4 below.
Initial Estimate of
Taxes for the Tax Year: $54,528
Initial Estimate of
Operating Costs for the
Calendar Year: $54,324
Permitted Uses: General business offices, light
assembly and storage.
Public Liability Insurance Limits:
Comprehensive General Liability: $3,000,000 per occurrence
1
<PAGE>
$5,000,000 general aggregate
1.2 Exhibits.
--------
The Exhibits listed below in this section are incorporated in this Lease
by reference and are to be construed as a part of this Lease.
EXHIBIT A Plan of Property
EXHIBIT B Commencement Date Agreement
EXHIBIT C Work Letter
EXHIBIT D Work Change Order
1.3 Table of Articles and Sections.
------------------------------
ARTICLE I -- Reference Data
---------------------------
1.1 Subjects Referred To ......................................
1.2 Exhibits ..................................................
1.3 Table of Articles and Sections ............................
ARTICLE II -- Premises and Term
-------------------------------
2.1 Premises ..................................................
2.2 Term ......................................................
2.3 Extension Option ..........................................
ARTICLE III -- Improvements
---------------------------
3.1 Performance of Work and Approval
of Landlord's Work ........................................
3.2 Acceptance of the Premises ................................
3.3 Construction Representatives ..............................
ARTICLE IV -- Rent
------------------
4.1 The Fixed Rent .............................................
4.2 Additional Rent ............................................
4.2.1 Real Estate Taxes .................................
4.2.2 Betterment Assessments ............................
4.2.3 Tax Fund Payments .................................
4.2.4 Operating Costs ...................................
4.2.5 Insurance .........................................
4.2.6 Utilities .........................................
4.3 Late Payment of Rent .......................................
4.4 Security and Restoration Deposit ...........................
ARTICLE V -- Landlord's Covenants
---------------------------------
5.1 Affirmative Covenants .....................................
5.1.1 Repairs ...........................................
5.1.2 Landscaping .......................................
5.1.3 Insurance .........................................
5.1.4 Payment of Tenant's Cost of Enforcement ...........
5.1.5 Estoppel Certificate ..............................
5.1.6 Pre-existing Hazardous Materials ..................
ARTICLE VI -- Tenant's Additional Covenants
-------------------------------------------
6.1 Affirmative Covenants .....................................
6.1.1 Perform Obligations ...............................
6.1.2 Use ...............................................
6.1.3 Repair and Maintenance ............................
6.1.4 Compliance with Law ...............................
6.1.5 Indemnification ...................................
6.1.6 Landlord's Right to Enter .........................
6.1.7 Personal Property at Tenant's Risk ................
6.1.8 Payment of Landlord's Cost of Enforcement .........
6.1.9 Yield Up ..........................................
6.1.10 Estoppel Certificate ..............................
6.1.11 Landlord's Expenses Re: Consents ..................
6.2 Negative Covenants ........................................
6.2.1 Assignment and Subletting .........................
6.2.2 Overloading and Nuisance ..........................
6.2.3 Hazardous Wastes and Materials ....................
6.2.4 Installation, Alterations or Additions ............
6.2.5 Signs .............................................
6.2.6 Parking and Storage ...............................
ARTICLE VII -- Casualty or Taking
---------------------------------
2
<PAGE>
7.1 Termination ....................................
7.2 Restoration ....................................
7.3 Award ..........................................
ARTICLE VII - Defaults
----------------------
8.1 Events of Default ..............................
8.2 Remedies........................................
8.3 Remedies Cumulative ............................
8.4 Landlord's Right to Cure Defaults ..............
8.5 Effect of Waivers of Default ...................
8.6 No Waiver, etc. ................................
8.7 No Accord and Satisfaction .....................
ARTICLE IX - Rights of Holders
------------------------------
9.1 Rights of Holders ..............................
9.2 Lease Superior or Subordinate to Mortgages .....
ARTICLE X - Miscellaneous Provisions
------------------------------------
10.1 Notices From One Party to the Other ............
10.2 Quiet Enjoyment ................................
10.3 Lease Not to be Recorded .......................
10.4 Limitation of Landlord's Liability .............
10.5 Acts of God ....................................
10.6 Landlord's Default .............................
10.7 Brokerage ......................................
10.8 Applicable Law and Construction ................
10.9 Expansion ......................................
ARTICLE 2
---------
PREMISES AND TERM
-----------------
2.1 Premises. Landlord hereby leases to Tenant and Tenant hereby leases from
--------
Landlord, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the Premises.
Tenant shall have, as appurtenant to the Premises, rights for Tenant and
its agents, employees, contractors and visitors to use in common, with
others entitled thereto, subject to reasonable rules and regulations from
time to time made by Landlord of which Tenant is given notice, the common
roadways, sidewalks and walkways necessary for access to the Property from
public roads, common parking areas, walkways and grounds, including,
without limitation, the 25' wide rights of way abutting the Premises (as
shown on Exhibit A). Approximately 157 parking spaces are located on the
Premises. In the event that less than 157 parking spaces are available for
use by Tenant on the Premises for any reason other than the fault or
neglect of Tenant or any of Tenant's agents, employees, contractors or
invitees, then, upon Tenant's request, Landlord shall make available to
Tenant sufficient additional parking spaces within a reasonable distance
from the Property so that a total of 157 parking spaces shall be available
to Tenant between such additional spaces and those which remain available
on the Premises.
2.2 Term. (A) TO HAVE AND TO HOLD for a term (the "original term") beginning on
----
the Commencement Date, which shall be the earlier of (a) the later of (i)
the date on which the work to be performed by Landlord pursuant to Exhibit
C has been substantially completed, and (ii) the date of issuance of a
temporary or permanent certificate of occupancy, provided that the
conditions in any such temporary certificate of occupancy can be satisfied
after Tenant occupies the Premises without material interference with
Tenant, or (b) the opening by Tenant of its business in the Premises (which
shall not include merely moving furniture, equipment or supplies into the
Premises or the installation of wiring or performing other work to prepare
the Premises for the operation of Tenant's business), and continuing for
the Term, unless sooner terminated as hereinafter provided. The term
"substantially completed" as used herein shall mean that the work to be
performed by Landlord pursuant to Exhibit C has been completed with the
exception of minor items which can be fully completed without material
interference with Tenant and other items which because of the season or
weather or the nature of the item are not practicable to do at the time,
provided that none of said items is necessary to make the Premises
tenantable for the Permitted Uses. Landlord shall apply for and take all
necessary action to obtain such certificate of occupancy, and if a
temporary certificate of occupancy is issued, Landlord shall be
responsible for obtaining a permanent certificate of occupancy as soon as
reasonably possible. Upon Tenant's request, from time to time, Landlord
will advise Tenant of Landlord's estimate of when Landlord's Work will be
substantially completed to facilitate Tenant's efforts to schedule its move
into the Premises to coincide as nearly as practicable therewith. When the
dates of the beginning and end of the term have been determined, such dates
shall be evidenced by a document, in the form attached hereto as Exhibit B,
executed by Landlord and Tenant and delivered each to the other.
(B) The parties acknowledge that the Premises are currently occupied an
existing tenant (the "Existing Tenant") who has held over in the Premises
after the expiration of its lease which has delayed Landlord's ability to
commence Landlord's Work in order to meet Tenant's time requirements.
Accordingly, within 5 business days after the execution and delivery of
this Lease by Landlord and Tenant, Landlord shall cause to be paid to
Tenant a one-time payment of $50,000 which is to compensate Tenant for
delay in the schedule for delivery of the Premises to Tenant caused by the
Existing Tenant's continued occupancy of the Premises. Promptly after the
Existing Tenant vacates and yields up the Premises to Landlord, Landlord
shall commence and diligently prosecute Landlord's Work under Section 3.1
hereof, subject to delays caused by Tenant or its agents, employees or
contractors or other causes beyond Landlord's reasonable control. If the
Commencement Date has not occurred on or before December 31, 1996, then
Landlord shall pay Tenant a one-time payment of $20,000. The payments to be
made by Landlord to Tenant under this Section 2.2(B) shall be Tenant's sole
and exclusive rights and remedies under this Lease, at Law and in equity on
account of any delay in the performance of Landlord's Work and/or the
delivery of the Premises to Tenant.
2.3 Extension Option. Tenant shall have the right to extend the term of this
----------------
Lease for one additional period of five (5) years, to begin immediately
upon the expiration of the original term of this Lease (the "extended
term"). All of the terms, covenants and provisions of this Lease shall
apply to such extended term except that the Annual Fixed Rent Rate for such
extended term shall be the market rate at time of Tenant's exercise notice
hereunder timely given during the months specified below, as designated by
Landlord. If Tenant shall elect to exercise the aforesaid option, it shall
do so by giving Landlord notice in writing of its intention to do so either
during the fifty-first (51st) month or the seventy-fifth (75th) month of
the original term of this Lease. If Tenant timely gives such notice, the
extension of this Lease shall be automatically affected without the
execution of any additional documents. The original term and the extended
term are hereinafter collectively called the "term."
3
<PAGE>
If the Tenant disagrees with Landlord's designation of the market rate, and
the parties cannot agree upon the market rate, then the market rate shall
be submitted to arbitration as follows: market rate shall be determined by
impartial arbitrators who shall be real estate professionals with
experience in leasing similar properties, one to be chosen by the Landlord,
one to be chosen by Tenant, and a third to be selected, if necessary, as
below provided. The unanimous written decision of the two first chosen,
without selection and participation of a third arbitrator, or otherwise,
the written decision of a majority of three arbitrators chosen and selected
as aforesaid, shall be conclusive and binding upon Landlord and Tenant.
Landlord and Tenant shall each notify the other of its chosen arbitrator
within ten (10) days following the call for arbitration and, unless such
two arbitrators shall have reached a unanimous decision within thirty (30)
days after their designation, they shall so notify the then President of
the Boston Bar Association and request him to select an impartial third
arbitrator, who shall be a real estate professional with experience in
leasing like types of properties, to determine market rate as herein
defined. Such third arbitrator and the first two chosen shall hear the
parties and their evidence and render their decision within thirty (30)
days following the conclusion of such hearing and notify Landlord and
Tenant thereof. Landlord and Tenant shall share equally the expense of the
third arbitrator (if any). If the dispute between the parties as to a
market rate has not been resolved before the commencement of Tenant's
obligation to pay Fixed Rent based upon such market rate, then Tenant shall
pay Fixed Rent under the Lease based upon the market rate designated in
good faith by Landlord until either the agreement of the parties as to the
market rate, or the decision of the arbitrators, as the case may be, at
which time Tenant shall pay any underpayment of Fixed Rent to Landlord, or
any overpayment shall be credited against the Fixed Rent next payable by
Tenant hereunder.
In no event, however, shall the Annual Fixed Rent Rate for the Extended
Term be less than $400,000.
ARTICLE 3
---------
IMPROVEMENTS
------------
3.1 Performance of Work and Approval of Landlord's Work. Landlord shall cause
----------------------------------------------------
to be performed the work ("Landlord's Work") required by Exhibit C, the
Work Letter. The final plans and specifications for the work set forth in
Part B of Exhibit C (the "Part B Work") which have not been completed as of
the date of this Lease shall be subject to approval by Landlord, which
approval shall not be unreasonably withheld so long as they emanate from
and are consistent with Part B of Exhibit C. All such work shall be done in
a good and workmanlike manner employing new, first quality materials and so
as to conform to all applicable laws. Tenant agrees that Landlord may make
any changes in such work which may become reasonably necessary or advisable
with the written approval of Tenant, which shall not be unreasonably
withheld or delayed provided that such changes are not inconsistent with
Part B of Exhibit C. Landlord shall use reasonable diligence to cause
Landlord's Work to be substantially completed by the Delivery Date, subject
to the provisions of Section 10.5 hereof. Landlord agrees that Tenant may
make changes in such work with the approval of Landlord, which approval
shall not be unreasonably withheld so long as Tenant agrees to be
responsible for any cost increases and/or delays associated therewith, and
the execution by Landlord and Tenant of a Work Change Order, in the form
attached hereto as Exhibit D. Promptly after Landlord's approval of any
changes requested by Tenant hereunder, Landlord and Tenant shall execute a
Work Change Order reflecting the same. Tenant shall pay Landlord, as
additional rent, the amount (if any) by which the Part B Price (as defined
below) exceeds $400,000, payment to be made against Landlord's invoice
therefor on the Commencement Date. For the purposes hereof the "Part B
Price" shall mean the aggregate of all costs and expenses reasonably
incurred by Landlord in performing the Part B Work, being the cost of the
contract with Landlord's contractor (which shall be based upon the cost of
the Part B Work plus a contractor's fee not to exceed 6% thereof), plus
architectural and engineering fees incurred by Landlord in connection with
the Part B Work, plus a development fee to Landlord equal to 3% of the
aggregate of the foregoing. Landlord agrees that the Building shall be as
weathertight as other comparable buildings in comparable office parks in
the Burlington Bedford areas.
3.2 Acceptance of the Premises. Tenant or its representatives may, at
--------------------------
reasonable times, enter upon the Premises during the progress of the work
to inspect the progress thereof and to determine if the work is being
performed in accordance with the requirements of Section 3.1 and the Work
Letter. Tenant shall promptly give to Landlord notices of any alleged
failure by Landlord to comply with those requirements. Landlord's Work
shall be deemed approved by Tenant when Tenant occupies the Premises for
the conduct of its business, expect for items of Landlord's Work which are
uncompleted or do not conform to Exhibit C which are, in either case,
included on a punch list submitted by Tenant to Landlord on the date of
such occupancy, or (b) latent defects or failures to complete or conform to
Exhibit C not then discoverable by a reasonable, visual examination and as
to which Tenant shall have given Landlord written notice within one (1)
year after such occupancy. Landlord shall complete such punch list items,
and shall cure such failures to complete or conform, with reasonable
diligence after such occupancy, and shall promptly cure any such latent
defects.
3.3 Construction Representatives. Each party authorizes the other to rely in
-----------------------------
connection with plans and construction upon written approval and other
actions on the party's behalf by any Construction Representative of the
party named in Section 1.1 or any person hereafter designated in
substitution or addition by notice to the party relying.
ARTICLE 4
---------
RENT
----
4.1 The Fixed Rent. Tenant covenants and agrees to pay rent to Landlord at the
--------------
Original Address of Landlord or at such other place or to such other person
or entity as Landlord may by notice in writing to Tenant from time to time
direct, at the Annal Fixed Rent Rate, in equal installments at the Monthly
Fixed Rent Rate (which is 1/12th of the Annual Fixed Rent Rate), in
advance, on the first day of each calendar month included in the term; and
for any portion of a calendar month at the beginning or end of the term, at
that rate payable in advance for such portion. Notwithstanding the
occurence of the Commencement Date on or after the Delivery Date pursuant
to clause (b) of the first sentence of Section 2.2, Fixed Rent shall not
accrue or be payable until the Landlord's Work has been substantially
completed (as that term is defined in Section 2.2).
If Landlord shall give notice to Tenant that all rent and other payments
due hereunder are to be made to Landlord by electronic funds transfers, so
called, or by similar means, Tenant shall make all such payments as shall
be due more than ten (10) days after receipt of said notice by means of
said electronic funds transfers (or such similar means as designated by
Landlord).
4.2 Additional Rent. In order that the Fixed Rent shall be absolutely net to
---------------
Landlord (except to the extent otherwise expressly provided herein), Tenant
covenants and agrees to pay, as Additional Rent, taxes, betterment
assessments, operating costs, insurance costs, and utility charges with
respect to the Premises as provided in this Section 4.2 as follows:
4.2.1 Real Estate Taxes. Tenant shall pay to Landlord all taxes levied or
------------------
assessed by, or becoming payable to the municipality or any
governmental authority having jurisdiction of the Property, for or in
respect of the Property or which may become a lien on the Property,
for each tax period partially or wholly included in the term, such
payments to be made to Landlord in the manner provided in Subsection
4.2.3 of this section 4.2. For any fraction of a tax period included
in the term at the beginning or end thereof, Tenant shall pay to
Landlord the fraction of taxes so levied or assessed or becoming
payable which is allocable to such included period. Tenant may
prosecute
4
<PAGE>
appropriate proceedings for abatement or reduction of any tax with
respect to which Tenant is required to make payments as hereinbefore
provided, such proceedings to be conducted jointly with any other
parties, including Landlord, who have contributed to the payment of
such taxes, and Tenant agrees to save Landlord harmless from all costs
and expenses incurred on account of Tenant's participation in such
proceedings. Landlord, without obligating itself to incur any costs or
expenses in connection with such proceedings, shall cooperate with
Tenant with respect to such proceedings so far as reasonably
necessary. Any abatement or reduction effected by such proceedings
shall accrue to the benefit of Tenant and Landlord and such other
parties as their interests may appear according to their respective
contributions to the taxes involved in any such proceedings. Nothing
contained in this Lease shall however, require Tenant to pay any
franchise, corporate, estate, inheritance, succession, capital levy or
transfer tax of Landlord, or any income, profits or revenue tax or
charge upon the rent payable by Tenant under this Lease, provided,
however, that if, at any time during the term hereof, the present
system of ad valorem taxation of real property shall be changed so
that in lieu of, or in addition to, the whole or any part thereof
there shall be assessed on Landlord a capital levy or other tax on the
Fixed Rent, Additional Rentals or other charges payable by Tenant
hereunder, or if there shall be assessed on Landlord a federal, state,
county, municipal, or other local income, franchise, excise or similar
tax, assessment, levy or charge measured by or based, in whole or in
part, upon the Fixed Rentals, Additional Rents or other charges
payable by Tenant hereunder, then any and all of such taxes,
assessments, levies or charges, to the extent that the same would be
payable if the Property were the only property of Landlord subject to
same, and if the income from the Property were the only taxable income
of Landlord during the year in question, shall be deemed to be
included in the taxes to be paid by Tenant pursuant to this subsection
4.2.1.
4.2.2 Betterment Assessments. Tenant shall pay to Landlord each installment
-----------------------
of all public, special or betterment assessments first levied or
assessed by or becoming payable to any municipality or other
governmental authority having jurisdiction of the Property after the
Commencement Date, for or in respect of the Property for each
installment period partially or wholly included in the term, such
payments to be made to Landlord in the manner provided in Subsection
4.2.3 of this Section 4.2. For any fraction of an installment period
included in the term at the beginning or end thereof, Tenant shall pay
to Landlord the fraction of such installment allocable to such
included period. Tenant may prosecute appropriate proceedings to
contest the validity or amount of any assessment with respect to which
Tenant is required to make payments as hereinbefore provided, such
proceedings to be conducted jointly with any other parties, including
Landlord, who have contributed to the payment of such assessments, and
Tenant agrees to save Landlord harmless from all costs and expenses
incurred on account of Tenant's participation in such proceedings.
Landlord, without obligating itself to incur any costs or expenses in
connection with such proceedings, shall cooperate with Tenant with
respect to such proceedings so far as reasonably necessary. Landlord
shall promptly furnish to Tenant a copy of any notice of public,
special or betterment assessment received by Landlord concerning the
Property.
4.2.3 Tax Fund Payments. Tenant shall, as Addition Rent, on the first day of
------------------
each month of the term, make tax fund payments to Landlord. "Tax fund
payments" refer to such payments as Landlord shall reasonably
determine to be sufficient to provide in the aggregate a fund adequate
to pay all taxes and assessments referred to in Subsection 4.2.1 and
4.2.2 of this Section 4.2 when they become due and payable and all
such payments shall, to the extent thereof, relieve Tenant of its
obligations under said subsections. The initial calculation of the
monthly estimated payments shall be based upon the Initial Estimate of
Taxes of the Tax Year and upon quarterly payments being due to the
governmental authority on August 1, November 1, February 1 and May 1,
and shall be made when the Commencement Date has been determined. If
the aggregate of said tax fund payments is not adequate to pay all
said taxes and assessments, Tenant shall pay to Landlord the amount by
which such aggregate is less than the amount equal to all said taxes
and assessments, such payment to be made within ten (10) days after
receipt by Tenant of notice from Landlord of such amount. If Tenant
shall have made the aforesaid payments, Landlord shall on or before
the last day on which the same may be paid without interest or
penalty, pay to the proper authority charged with the collection
thereof all taxes and assessments referred to in said subsections
4.2.1 and 4.2.2 and furnish Tenant, upon request, reasonable evidence
of such payment. Any balance remaining after such payment by Landlord
shall be credited against the next accruing payments to be made by
Tenant pursuant to this subsection 4.2.3, or refunded to Tenant if the
term of this Lease has expired or terminated and Tenant has no further
obligation to Landlord, as the case may be. Landlord shall deliver
to Tenant a copy of all bills for taxes and assessments referred to in
Section 4.2.1 and 4.2.2 hereof promptly after Landlord's receipt
thereof.
4.2.4 Operating Costs. Tenant shall pay to Landlord, Operating Costs (as
----------------
hereinafter defined) incurred by Landlord in any calendar year. Tenant
shall remit to Landlord, on the first day of each calendar month,
estimated payments on account of Operating Costs, such monthly
amounts to be sufficient to provide Landlord, by the end of the
calendar year, a sum equal to the Operating Costs, as reasonably
estimated by Landlord from time to time. The initial monthly estimated
payments shall be in an amount equal to 1/12th of the Initial Estimate
of Operating Costs for the Calendar Year. If, at the expiration of the
year in respect of which monthly installments of Operating Costs shall
have been made as aforesaid, the total of such monthly remittances is
greater than the actual Operating Costs for such year, Landlord shall
promptly pay to Tenant, or credit against the next accruing payments
to be made by Tenant pursuant to this subsection 4.2.4, the
difference; if the total of such remittances is less than the
Operating Costs for such year, Tenant shall pay the difference to
Landlord within twenty (20) days from the date Landlord shall furnish
to Tenant an itemized statement of such Operating Costs, prepared and
computed in accordance with generally accepted accounting principles.
Any reimbursement for Operating Costs due and payable by Tenant with
respect to periods of less than twelve (12) months shall be equitably
prorated.
The term "Operating Costs" shall mean:
(a) all reasonable costs incurred by Landlord in performing
maintenance and making repairs and replacements pursuant to
subsection 5.1.1;
(b) all reasonable costs incurred by Landlord in performing its
obligations under subsection 5.1.2;
(c) all reasonable costs of any insurance carried by Landlord
pursuant to subsection 5.1.3;
(d) all reasonable costs incurred by Landlord in connection with
maintenance and operation of common areas and facilities of the
Property and Tenant's exclusive parking areas;
(e) reasonable payments under all service contracts relating to
matters referred to in Items (a) through (d) hereof; and
(f) a reasonable and competitive management fee that does not exceed
the rate charged by managers of comparable buildings for similar
services in comparable office parks in the Burlington Bedford
area;.
If, during the term of this Lease, Landlord shall replace any capital
items or make any capital expenditures in connection with repair or
replacement of the roof or the exterior walls or in connection with
its obligations under
5
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subsection 6.1.4(collectively called "capital expenditures") and
such capital expenditures are not occasioned by any act or
negligence of Tenant, its employees, customers, suppliers,
contractors, and the like, the total amount of such capital
expenditures shall not be included in Operating Costs for the
calendar year in which they are made, but there shall
nevertheless be included in Operating Costs for each calendar
year in which and after such capital expenditure is made the
annual charge-off of such capital expenditure. (Annual charge-off
shall be determined by (i) dividing the original cost of the
capital expenditure by the number of years of useful life thereof
[The useful life shall be reasonably determined by Landlord in
accordance with generally accepted accounting principles and
practices in effect at the time of acquisition of the capital
item.]; and (ii) adding to such quotient an interest factor
computed on the unamortized balance of such capital expenditure
based upon an interest rate reasonably determined by Landlord as
being the interest rate then being charged for long-term
mortgages by institutional lenders on like properties within the
locality in which the Building is located).
There shall not be including in Operating Costs:
(1) The costs of repairs incurred by Landlord in the event
of a fire or other casualty or in the event of a taking
by eminent domain or resulting from acts or omissions
of Landlord or its employees, agents or contractors; or
(2) Costs of performing Landlord's Work; or
(3) Costs of correcting defects in Landlord's Work during
the first year of Tenant's occupancy of the Premises or
failures to complete or conform of which Tenant gives
timely notice under Section 3.2, and Costs of
correcting defects in Landlord's Work thereafter to the
extent (if any) Landlord has received reimbursement
pursuant to any contractor's warranty relating thereto
[Landlord hereby agreeing to use reasonable efforts to
obtain reimbursements to which it is entitled
thereunder]; to
(4) Costs of correcting any violations of law existing in
the Premises as of the Commencement Date.
4.2.5 Insurance. Tenant shall, at its expense, as Additional Rent,
---------
take out and maintain throughout the term the following insurance
protecting Landlord:
4.2.5.1 Comprehensive liability insurance naming Landlord,
Tenant, and Landlord's managing agent and any mortgagee
of which Tenant has been given notice as insureds or
additional insureds and indemnifying the parties so
named against all claims and demands for death or any
injury to person or damage to property which may be
claimed to have occurred on the Property or on any
property, streets or ways adjoining the Property, in
amounts which shall, at the beginning of the term, be
at least equal to the limits set forth in Section 1.1,
and, which, from time to time during the term, shall be
for such higher limits, if any, as are customarily
carried in the area in which the Premises are located
on property similar to the Property and used for
similar purposes; and workmen's compensation insurance
with statutory limits covering all of Tenant's
employees working on the Premises.
4.2.5.2. Fire insurance with the usual extended coverage
endorsements covering all Tenant's furniture,
furnishings, fixtures and equipment and any other
contents or improvements not covered by the insurance
to be maintained under subsection 5.1.3.1.
4.2.5.3 All such policies shall be obtained from responsible
companies not legally prohibited from doing business in
Massachusetts, which companies and the amount of
insurance allocated thereto shall be subject to
Landlord's reasonable approval, consistent with
practices in the vicinity of the Building. Tenant
agrees to furnish Landlord with certificates evidencing
all such insurance prior to the beginning of the term
hereof and evidencing renewal thereof at least thirty
(30) days prior to the expiration of any such policy.
Each such certificate shall require the insurance
company to endeavor to give Landlord at least ten (10)
days' prior written notice of any cancellation thereof.
In the event provision for any such insurance is to be
by a blanket insurance policy, the policy shall
allocate a specific and sufficient amount of coverage
to the Property.
4.2.5.4 All insurance which is carried by either party with
respect to the Building, Premises or to furniture,
furnishings, fixtures, or equipment therein or
alterations or improvements thereto, whether or not
required, shall include provisions which either
designate the other party as one of the insured or deny
to the insurer acquisition by subrogation of rights of
recovery against the other party, provided that such
provisions may be effective without making it
impossible to obtain insurance coverage from
responsible companies qualified to do business in the
state in which the Premises are located (even though
extra premium may result therefrom). In the event that
extra premium is payable by either party as a result of
this provision, the other party shall reimburse the
party paying such premium the amount of such extra
premium. If at the request of one party, this non-
subrogation provision for the benefit of that party is
waived, then the obligation of reimbursement shall
cease for such period of time as such waiver shall be
effective, but nothing contained in this subsection
shall derogate from or otherwise affect releases
elsewhere herein contained of either party for claims.
Each party shall be entitled to have certificates of
any policies containing such provisions. Each party
hereby waives all rights of recovery against the other
for loss or injury against which the waiving party is
protected by insurance containing said provisions.
Tenant shall not acquire as insured under any insurance
carried by Landlord on the Property any right to
participate in the adjustment of loss or to receive
insurance proceeds and agrees upon request promptly to
endorse and deliver to Landlord any checks or other
instruments in payment under such policies of loss in
which Tenant is named as payee.
4.2.6 Utilities. Tenant shall pay directly to the proper authorities
---------
charged with the collection thereof all charges for water, sewer,
gas, oil, electricity, telephone and other utilities or services
used or consumed on the Property during the term of this Lease,
whether designated as a charge, tax, assessment, fee or
otherwise, including, without limitation, water and sewer use
charges and taxes, if any, all such charges to be paid as the
same from time to time become due. The utilities presently
available to the Premises are each separately metered. Except as
otherwise provided in Exhibit C, it is understood and agreed that
Tenant shall make its own arrangements for the installation or
provision of all such utilities and that Landlord shall be under
no obligation to furnish any utilities to the Premises and shall
not be liable for any interruption or failure in the supply of
any such utilities to the Property. Landlord shall pay any
charges for any utilities furnished to the Premises prior to the
Commencement Date to the extent additional requirements (such as
a security deposit) would be imposed upon Tenant if such charges
remain unpaid.
4.3 Late Payment of Rent. If any installment of rent is paid after the date the
--------------------
same was due, and if on a prior occasion in the twelve (12) month period
prior to the date such installment was due an installment of rent was paid
after the same was due, then Tenant shall pay Landlord a late payment fee
equal to five (5%) percent of the overdue payment.
6
<PAGE>
4.4 Security and Restoration Deposit. Upon the execution of this Lease, Tenant
--------------------------------
shall deliver to Landlord an irrevocable letter of credit for the amount
of the Security and Restoration Deposit, from a banking institution
reasonably satisfactory to both Landlord and Tenant, to expire no earlier
than one year from the date the letter of credit is delivered to Landlord.
Landlord shall have the right to present the letter of credit, and draw
the full amount thereof by a sight draft, accompanied by Landlord's
certification that:
(a) Tenant is in default in the performance of any of its
obligations to pay the Fixed Rent or Additional Rent and such default
has continued for ten (10) days after Landlord has not given written
notice of such default;
(b) Tenant is in default in the performance of any other
covenant or condition of this Lease on the part of Tenant to be
performed or observed and within thirty days after Landlord has given
written notice of such default and Tenant has not commenced diligently
to correct the default or defaults or has thereafter diligently
pursued correction to completion; or
(c) an event of the character described in clauses (b)
through (f) of Section 8.1 of this Lease has occurred and is
continuing at the time Landlord is permitted to give notice of
termination described in Section 8.1; or
(d) Landlord has not received within thirty days prior to
the expiration of the letter of credit an irrevocable extension
thereof for at least one year beyond the current expiration date, or a
replacement thereof issued by a banking institution reasonably
acceptable to Landlord with an expiration date at least one year
following the expiration date of the letter of credit being replaced
and otherwise satisfying the requirements hereof.
Upon receipt of the proceeds of the letter of credit, Landlord shall hold
the same as a security deposit for the faithful performance by Tenant of
all the terms of this Lease by Tenant to be observed and performed. The
security deposit shall not be mortgaged, assigned, transferred or
encumbered by Tenant without the written consent of Landlord and any such
act on the part of Tenant shall be without force and effect and shall not
be binding upon Landlord. If the Fixed Rent or Additional Rent payable
hereunder shall be overdue and unpaid or should Landlord make payments on
behalf of the Tenant, or Tenant shall fail to perform any of the terms of
this Lease, then Landlord may, at its option and without prejudice to any
other remedy which Landlord may have on account thereof, appropriate and
apply said entire deposit or so much thereof as may-be necessary to
compensate Landlord toward the payment of Fixed Rent, Additional Rent or
other sums or loss or damage sustained by Landlord due to such breach on
the part of Tenant; and Tenant shall forthwith upon demand restore said
security to the original sum deposited. Should Tenant comply with all of
said terms and promptly pay all of the rentals as they fall due and all
other sums payable by Tenant to Landlord, said deposit and any interest
earned thereon shall be returned in full to Tenant at the end of the term.
In the event of bankruptcy or other creditor-debtor proceedings against
Tenant, all securities shall be deemed to be applied first to the payment
of rent and other charges due Landlord for all periods prior to the filing
of such proceedings.
Provided that Tenant is not then in default hereunder (after notice and
expiration of any grace period), and Tenant continues to be profitable,
the Security and Restoration Deposit shall be reduced by $60,000 on each
of the first through sixth anniversaries of the Commencement Date, and
shall remain at $40,000 thereafter. Prior to each anniversary date, Tenant
shall provide proof reasonably satisfactory to Landlord of Tenant's
profitability in order for such reduction to be permitted.
If the letter of credit shall be in effect at the end of the Term,
Landlord shall surrender the same for cancellation within one month after
Tenant shall have vacated and delivered the Premises to Landlord in the
condition required under this Lease, provided the Tenant is not then
otherwise in default under this Lease.
ARTICLE 5
---------
LANDLORD'S COVENANTS
--------------------
5.1 Affirmative Covenants. Landlord covenants with Tenant:
---------------------
5.1.1 Repairs. To correct defects or omissions in Landlord's Work of which
-------
Tenant shall have given Landlord written notice within one (1) year
after Tenant's occupancy of the Premises and to make such repairs
and replacements to items of Landlord's Work, the roof, exterior
walls, foundations and structural elements of, and utility lines and
connections to, the Building (other than doors, windows and glass)
and the parking areas, driveways and walkways on the Property, as
may be necessary, and to maintain, and make such replacements and
repairs to, the heating, ventilating and air conditioning systems of
the Building, as may be necessary in order to maintain the same in a
condition substantially equivalent to the condition of comparable
buildings in comparable office parks in the Burlington Bedford area,
it being agreed that said heating, ventilation and air conditioning
system shall be sufficient to maintain the Premises at comfortable
temperatures so long as Tenant's use does not produce demands in
excess of normal office use or involve additional equipment not
shown on the plans for Landlord's Work;
5.1.2 Landscaping, Etc. To provide landscaping and grounds maintenance for
----------------
the landscaped areas of the Property, and snow, ice and debris
removal and service for the aforementioned right of way abutting the
Premises and the parking area located on Lot 70 substantially
equivalent to that provided in comparable office parks in the
Burlington Bedford area;
5.1.3 Insurance. To take out and maintain throughout the term the
---------
following insurance:
5.1.3.1 All risk casualty insurance, with endorsement for
difference in conditions coverage, debris removal and
demolition, in an amount at least equal to the replacement
cost of the Building and other improvements on the
Premises, as such replacement cost may from time to time be
determined by Landlord. All such policies shall be obtained
from responsible companies not legally prohibited from
doing business in Massachusetts. Landlord agrees to furnish
Tenant promptly upon request with certificates evidencing
all such insurance under which the insurance company will
endeavor to give Tenant (10) days' prior written notice of
any cancellation thereof. In the event provision for any
such insurance is to be by a blanket insurance policy, the
policy shall allocate a specific and sufficient amount of
coverage to the Property.
5.1.3.2 Insurance protecting Landlord against abatement or loss of
rent in an amount equal to at least all the Fixed Rent and
Additional Rent payable for one year under Article 4.
5.1.4 Payment of Tenant's Cost of Enforcement. To pay on demand Tenant's
---------------------------------------
expenses, including reasonable attorneys' fees, incurred in enforcing any
obligation of Landlord under this Lease, but only after a final judgement
has been entered in favor of Tenant in an action seeking such enforcement
which has become final beyond appeal.
7
<PAGE>
5.1.5 Estoppel Certificate. Upon not less than fifteen (15) days' prior
--------------------
written request by Tenant, to execute, acknowledge and deliver to
Tenant a statement in writing certifying that this Lease is unmodified
and in full force and effect and that to the best of Landlord's
knowledge Tenant is not in default under the Lease beyond the
expiration of any applicable grace periods (or, if there have been a
modifications, that the Lease is in full force and effect as modified
and stating the modifications and, if there are any such default known
to the Landlord, setting them forth in reasonable detail), and the
dates to which the Fixed Rent and Additional Rent and other charges
have been paid. Any such statement delivered pursuant to this
subsection 5.1.5 may be relied upon by any prospective purchaser,
lender or investor of Tenant or a prospective subtenant or assignee.
5.1.6 Pre-existing Hazardous Materials. Landlord shall indemnify and save
--------------------------------
Tenant harmless from all claims, liability, loss or damage which may
at any time be incurred by Tenant arising on account of a release or
threatened release at, on or under the Property of hazardous wastes,
hazardous materials or oil present at, on, under the Property as of
the date of this Lease, including, without limitation, liability under
any federal, state or local laws, requirements and regulations;
provided, however, this indemnity shall not apply in the event Tenant
uses or disposes at, on or under the Property the hazardous wastes,
hazardous materials or oil which are the subject of such claim,
liability, loss or damage except for any used in copy machines,
printers or other commonly used office products, equipment or
supplies.
ARTICLE 6
---------
TENANT'S ADDITIONAL COVENANTS
-----------------------------
6.1 Affirmative Covenants. Tenant covenants at all times during the term
---------------------
and for such further time (prior or subsequent thereto) as Tenant
occupies the Premises or any part thereof:
6.1.1 Perform Obligations. To perform promptly all of the
-------------------
obligations of Tenant set forth in this Lease; and to pay
when due the Fixed Rent and Additional Rent and all charges,
rates and other sums which by the terms of this Lease are to
be paid by Tenant.
6.1.2 Use. To use the Premises only for the Permitted Uses, and
---
from time to time to procure all licenses and permits
necessary therefor, at Tenant's sole expense. Failure to use
and/or occupy the Premises continuously shall not in and of
itself constitute a default hereunder so long as all of
Tenant's covenants and obligations under this Lease are being
performed and observed. With respect to any licenses or
permits for which Tenant may apply, pursuant to this
subsection 6.1.2 or any other provision hereof, Tenant shall
furnish Landlord copies of applications therefor on or before
their submission to the governmental authority.
6.1.3 Repair and Maintenance. Except as otherwise provided in
----------------------
subsection 5.1.1, 5.1.2 and Article 7, to keep the Premises
(including, without limitation, the exterior of the Building,
all improvements thereon and all plumbing, electrical,
mechanical and other fixtures and equipment now or hereafter
on the Premises) in good order, condition and repair and at
least as good order, condition and repair as they are in on
the Commencement Date or may be put in during the term,
reasonable use and wear and damage by casualty or eminent
domain only excepted; to keep in good repair and clean and
neat and free of snow and ice all surfaced roadways, walks,
and parking and loading areas; and to make all repairs and
replacements and to do all other work necessary for the
foregoing purposes whether the same may be ordinary or
extraordinary, foreseen or unforseen. It is further agreed
that the exception of reasonable use and wear shall not apply
so as to permit Tenant to keep the Premises in anything less
than suitable, tenant like, and efficient and usable
condition, or in less than good and tenantlike repair.
6.1.4 Compliance with Law. To make all repairs, alterations,
-------------------
additions or replacements to the Premises required by any law
or ordinance or any order or regulation of any public
authority; to keep the Premises equipped with all safety
appliances so required; and to comply with the orders and
regulations of all governmental authorities with respect to
zoning, building, fire, health and other codes, regulations,
ordinances or laws applicable to the Premises, except that
Tenant may defer compliance so long as the validity of any
such law, ordinance, order or regulations shall be contested
by Tenant in good faith and by appropriate legal proceedings,
if Tenant first gives Landlord appropriate assurance or
security against any loss, cost or expense on account
thereof. Notwithstanding the foregoing, it is understood and
agreed that Tenant shall not be required to do any of the
foregoing in order to correct any violation of law existing
in the Premises as of the Commencement Date or in order to
cause the Premises to comply with any law which is applicable
to office buildings generally, which shall be Landlord's
obligation to comply with (as opposed to any which applies to
Tenant's particular use or manner or method of use, which
shall be Tenant's obligation to comply with).
6.1.5 Indemnification. To save Landlord harmless, and to exonerate
---------------
and indemnify Landlord from and against any and all claims,
liabilities or penalties asserted by or on behalf of any
person, firm, corporation or public authority on account of
injury, death, damage or loss to person or property in or
upon the Premises or the Property (a) prior to the
Commencement Date, arising out of the negligence or willful
misconduct of Tenant or any of its agent, employees or
contractors, and (b) thereafter arising out of the use or
occupancy of the Premises by Tenant or by any person claiming
by, through or under Tenant (including, without limitation,
all patrons, employees and customers of Tenant), or
arising out of any delivery to or service supplied to the
Premises or the Property, or on account of or based upon
anything whatsoever done on the Premises or the Property,
except if the same was caused by the willful negligence,
fault or misconduct of Landlord, its agents, servants,
employees or contractors. In respect of all of the foregoing,
Tenant shall indemnify Landlord from and against all
reasonable costs, expenses (including reasonable attorneys'
fees), and liabilities incurred in or in connection with any
such claim, action or proceeding brought thereon; and, in
case of any action or proceeding brought against Landlord by
reason of any such claim, Tenant, upon reasonable advance
notice from Landlord and at Tenant's expense, shall resist
or defend such action or proceeding and employ counsel
therefor reasonably satisfactory to Landlord.
6.1.6 Landlord's Right to Enter. To permit Landlord and its agents
-------------------------
to enter into and examine the Premises at reasonable times
and to show the Premises, and to make repairs to the
Premises, and, during the last six (6) months prior to the
expiration of this Lease, to keep affixed in suitable places
notices of availability of the Premises, provided that
Landlord shall use reasonable efforts to minimize
interference with Tenant's business operations. Landlord
acknowledges that portions of the Premises may be subject to
secrecy restrictions and security requirements imposed by the
Federal government and other customers of Tenant. Tenant may,
from time to time, notify Landlord of any area(s) of the
Premises that are subject to such restrictions and
requirements and the period of time for which they will be in
effect. Landlord agrees that (except in emergency situations)
if Landlord desires access to any area for which it has
received a notice hereunder during the time period specified
therein, Landlord shall give Tenant at least seven (7)
business days advance written notice thereof, and Tenant
shall make whatever arrangements may be necessary to permit
such access in compliance with the applicable security
requirements within such period, provided that if such
arrangements cannot reasonably be made within such seven
8
<PAGE>
(7) day period, Tenant shall so notify Landlord and such period
shall be extended by such additional time as may be reasonably
necessary to do so, but in no event longer than an additional
fourteen (14) business days.
6.1.7 Personal Property at Tenant's Risk. All of the furnishings,
----------------------------------
fixtures, equipment, effects and property of every kind, nature
and description of Tenant and of all persons claiming by, through
or under Tenant which, during the continuance of this Lease or
any occupancy of the Premises by Tenant or anyone claiming under
Tenant, may be on the Premises, shall be at the sole risk and
hazard of Tenant and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by the
leakage or bursting of water pipes, steam pipes, or other pipes,
by theft or from any other cause no part of said loss or damage
is to be charged to or to be borne by Landlord, except that
Landlord shall in no event be indemnified or held harmless or
exonerated from any liability to Tenant or to any other person,
for any injury, loss, damage or liability to the extent
prohibited by law.
6.1.8 Payment of Landlord's Cost of Enforcement. To pay on demand
-----------------------------------------
Landlord's expenses, including reasonable attorneys' fees,
incurred in enforcing any obligation of Tenant under this Lease
or in curing any default by Tenant under this Lease as provided
in Section 8.4, but only after a final judgment has been entered
in favor of Landlord in an action seeking such enforcement or
concerning such default which has become final beyond appeal.
6.1.9 Yield Up. At the expiration of the term or earlier termination of
--------
this Lease: to surrender all keys to the Premises; to remove all
of its trade fixtures and personal property in the Premises; to
remove such installations made by it as Landlord may designate at
the time of Landlord's approval of the installations in question
(including computer and telecommunications wiring and cabling)
and all Tenant's signs wherever located; to repair all damage
caused by such removal and to yield up the Premises (including
all installations and improvements made by Tenant except for
trade fixtures and such of said installations or improvements as
Landlord shall request Tenant to remove), broom-clean and in the
same good order and repair in which Tenant is obliged to keep and
maintain the Premises by the provisions of this Lease. Any
property not so removed shall be deemed abandoned and, if
Landlord so elects, deemed to be Landlord's property, and may be
retained or removed and disposed of by Landlord in such manner as
Landlord shall determine and Tenant shall pay Landlord the entire
cost and expense incurred by it in effecting such removal and
disposition and in making any incidental repairs and replacements
to the Premises and for use and occupancy during the period after
the expiration of the term and prior to its performance of its
obligations under this subsection 6.1.9. Tenant shall further
indemnify Landlord against all loss, cost and damage resulting
from Tenant's failure and delay in surrendering the Premises as
above provided.
The parties acknowledge and agree that Landlord has approved the
installation of the kitchen, lunchroom and shower facilities (the
"Non-Standard Improvements") included in the Part B Work on the
condition that at the expiration or earlier termination of the
term hereof, Tenant shall pay $7,500 (the "Restoration Fund") to
Landlord which may be used by Landlord to remove the Non-Standard
Improvements, in whole or in part, and restore the demolished
area to the condition of general office space within 9 months
thereafter. All or any portion of the Restoration Fund which has
not been expended for reasonable costs and expenses for such
demolition and restoration at the end of such 9 month period
shall be promptly paid to Tenant. Upon Tenant's request, Landlord
shall provide Tenant with reasonable documentation supporting the
expenditure of the Restoration Fund.
If the Tenant remains in the Premises beyond the expiration or
earlier termination of this Lease, such holding over shall be
without right and shall not be deemed to create any tenancy, but
the Tenant shall be a tenant at sufferance only at a daily rate
of rent equal to two (2) times the rent and other charges in
effect under this Lease as of the day prior to the date of
expiration of this Lease.
6.1.10 Estoppel Certificate. Upon not less than fifteen (15) days' prior
--------------------
written request by Landlord, to execute, acknowledge and deliver
to Landlord a statement in writing certifying that this Lease is
unmodified and in full force and effect and that to the best of
its knowledge Tenant has no defenses, offsets or counterclaims
against its obligations to pay the Fixed Rent and Additional Rent
and any other charges and to perform its other covenants under
this Lease (or, if there have been any modifications, that the
Lease is in full force and effect as modified and stating the
modifications and, if there are any defenses, offsets or
counterclaims known to Tenant, setting them forth in reasonable
detail), and the dates to which the Fixed Rent and Additional
Rent and other charges have been paid. Any such statement
delivered pursuant to this subsection 6.1.10 may be relied upon
by any prospective purchaser or mortgagee of the Premises, or any
prospective assignee of such mortgage. Tenant shall also deliver
to Landlord such publicly available financial information as to
Tenant as may be reasonably required by Landlord to be provided
to any mortgagee or prospective purchaser of the Premises.
6.2 Negative Covenants. Tenant covenants at all times during the term and such
------------------
further time (prior or subsequent thereto) as Tenant occupies the Premises
or any part thereof:
6.2.1 Assignment and Subletting. Not to assign, transfer, mortgage or
-------------------------
pledge this Lease or to sublease (which term shall be deemed to
include the granting of concessions and licenses and the like)
all or any part of the Premises or suffer or permit this Lease or
the leasehold estate hereby created or any other rights arising
under this Lease to be assigned, transferred or encumbered, in
whole or in part, whether voluntarily, involuntarily or by
operation of law, or permit the occupancy of the Premises by
anyone other than Tenant without the prior written consent of
Landlord. In the event Tenant desires to assign this Lease or
sublet any portion or all of the Premises, Tenant shall notify
Landlord in writing of Tenant's intent to so assign this Lease or
sublet the Premises and the proposed effective date of such
subletting or assignment, and shall request in such notification
that Landlord consent thereto. Landlord may terminate this Lease
in the case of a proposed assignment, or suspend this Lease pro
tanto for the period and with respect to the space involved in
the case of a proposed subletting, by giving written notice of
termination or suspension to Tenant, with such termination or
suspension to be effective as of the effective date of such
assignment or subletting. If Landlord does not so terminate or
suspend Landlord's consent shall not be unreasonably withheld to
an assignment during the original term of this Lease or to a
subletting during the term of this Lease, provided that the
assignee or subtenant shall use the Premises only for the
Permitted Uses. Tenant shall, as Additional Rent, reimburse
Landlord promptly for Landlord's reasonable legal expenses
incurred in connection with any request by Tenant for such
consent. If Landlord consents thereto, no such subletting of
assignment shall in any way impair the continuing primary
liability of Tenant hereunder, and no consent to any subletting
or assignment in a particular instance shall be deemed to be a
waiver of the obligation to obtain the Landlord's written
approval in the case of any other subletting or assignment. With
respect to any assignment or sublease during the original term of
this Lease, such assignment shall not include the right granted
to Tenant under Section 2.3 above to extend the term and such
sublease shall be for a term expiring no later than the
expiration of the original term of this Lease.
The provisions of the preceding paragraph shall not apply to
transactions with an entity into which or with which Tenant is
merged or consolidated or to which substantially all of Tenant's
assets are transferred or to any entity which controls or is
controlled by or under common control with Tenant, provided that
in any of such events (i) the successor to Tenant
9
<PAGE>
has a net worth computed in accordance with generally accepted
accounting principles at least equal to the net worth of Tenant
immediately prior to such merger, consolidation or transfer, (ii)
proof reasonably satisfactory to Landlord of such net worth shall
have been delivered to Landlord at least ten (10) days prior to
the effective date of any such transaction, and (iii) the
assignee agrees directly with Landlord, by written instrument in
form reasonably acceptable to Landlord, to perform all of the
obligations of Tenant.
If for any assignment or sublease consented to by Landlord
hereunder Tenant receives rent or other consideration, either
initially or over the term of the assignment or sublease, in
excess of the rent called for hereunder, or in case of sublease
of all or part, in excess of such rent fairly allocable thereto,
after appropriate adjustments to assure that all other payments
called for hereunder are appropriately taken into account and
after deduction for reasonable expenses of Tenant in connection
with the assignment or sublease, to pay to Landlord as additional
rent fifty (50%) percent of the excess of each such payment of
rent or other consideration received by Tenant promptly after its
receipt.
Whenever Tenant lists with a broker or brokers or otherwise
advertises, holds out or markets the Premises or any part thereof
for sublease or assignment, Tenant shall give Nordblom Company,
as brokers, a non-exclusive listing with respect to such
sublease or assignment.
If, at any time during the term of this Lease, there is a
transfer of a controlling interest in the stock or general
partnership interests of Tenant, and the transferee's intention
is to liquidate or dissolve Tenant, Landlord may terminate this
Lease by notice to Tenant within ninety (90) days thereafter, and
Landlord shall thereupon be entitled to the remedies set forth in
Section 8.2. The foregoing shall not apply, however, if the
transferee's intention is to liquidate or dissolve Tenant into a
parent of Tenant which shall be permitted upon compliance by the
parent with the second paragraph of this Section 6.2.1.
6.2.2 Overloading and Nuisance. Not to injure, overload the capacity of
------------------------
the five inch (5") slab-on-grade floor of the Building, deface or
otherwise harm the Premises; nor commit any nuisance; nor permit
the emission of any objectionable noise or odor, nor make, allow
or suffer any waste; nor make any use of the Premises which is
improper, offensive or contrary to any law or ordinance or which
will violate customary insurance requirements for office use; nor
conduct any auction, fire, "going out of business" or bankruptcy
sales. Landlord represents and warrants that the Premises shall
be in compliance with all laws applicable to use of the Building
for office use as of the Commencement Date.
6.2.3 Hazardous Wastes and Materials. Not to dispose of any hazardous
------------------------------
wastes, hazardous materials or oil on the Premises or the
Property, or into any of the plumbing, sewage, or drainage
systems thereon, except to the extent contained in normal office
products which are used and disposed of in compliance with law,
and to indemnify and save Landlord harmless from all claims,
liability, loss or damage arising on account of the use or
disposal of hazardous wastes, hazardous materials or oil at the
Premises, including, without limitation, liability under any
federal, state or local laws, requirements and regulations, or
damage to any of the aforesaid systems. Subject to subsection
5.1.6, Tenant shall comply with all governmental reporting
requirements with respect to hazardous wastes, hazardous
materials and oil, and shall deliver to Landlord copies of all
reports filed with governmental authorities.
6.2.4 Installation, Alterations or Additions. Not to make any
--------------------------------------
installations, alterations or additions in, to or on the Premises
nor to permit the making of any holes (other than by small nails
and screws for hanging pictures and the like) in the walls,
partitions, ceilings or floors without on each occasion obtaining
the prior written consent of Landlord, and then only pursuant to
plans and specifications approved by Landlord in advance in each
instance. Notwithstanding the foregoing, Tenant may, without the
prior consent of Landlord, make nonstructural, interior
installations or alterations not exceeding $5,000 in cost
individually or $10,000 in the aggregate during any twelve (12)
month period, provided that (a) the same do not impair the
structural integrity of the Building, reduce its value, or
involve modifications to the Building heating, ventilation or air
conditioning systems or penetrations of the roof or exterior
walls and (b) in each instance Tenant shall furnish Landlord with
"as built" plans upon completion of such work. Tenant shall pay
promptly when due the entire cost of any work to the premises
undertaken by Tenant so that the Premises shall at all times be
free of liens for labor and materials, and at Landlord's request
Tenant shall furnish to Landlord a bond or other security
acceptable to Landlord assuring that any work commenced by Tenant
will be completed in accordance with the plans and specifications
theretofore approved by Landlord and assuring that the Premises
will remain free of any mechanics' lien or other encumbrance
arising out of such work. In any event, Tenant shall forthwith
bond against or discharge any mechanics' liens or other
encumbrances that may arise out of such work. Tenant shall
procure all necessary licenses and permits at Tenant's sole
expense before undertaking such work. All such work shall be done
in a good and workmanlike manner employing materials of good
quality and so as to conform with all applicable zoning,
building, fire, health and other codes, regulations, ordinances
and laws. Tenant shall save Landlord harmless and indemnified
from all injury, loss, claims or damage to any person or property
occasioned by or growing out of such work.
Not to grant a security interest in, or to lease, any personal
property being installed in the Premises (including, without
limitation, demountable partitions) without first obtaining an
agreement, for the benefit of Landlord, from the secured party or
lessor that such property will be removed within ten (10)
business days after notice from Landlord of the expiration or
earlier termination of this Lease and that a failure to so remove
will subject such property to the provisions of subsection 6.1.9
of the Lease.
6.2.5 Signs. Not to place any signs on the Building or elsewhere on the
-----
Premises except for an identifying sign on the Building which may
be installed subject to compliance with the Northwest Park sign
policy and Landlord's prior written approval, which shall not be
unreasonably withheld. Such sign shall be maintained in good
repair by Tenant and shall conform to applicable requirements of
public authorities. In any event, Tenant shall not place any
signs on the Building or elsewhere on the Premises regarding
availability of the Premises. Landlord agrees that no other signs
will be placed on the Building or Premises except for directional
signs in parking areas.
6.2.6 Parking and Storage. Not to permit any storage of materials
-------------------
outside of the Building; to use reasonable diligence to prevent
Tenant's employees and customers and other persons visiting the
Premises from using any street abutting the Premises for parking;
and, not to permit the use of the Premises for either temporary
or permanent storage of trucks, or for any use for which heavy
trucking to or from the site would be customary.
ARTICLE 7
---------
CASUALTY OR TAKING
------------------
7.1 Termination. In the event that the Premises or the Building, or any
-----------
material part thereof, shall be taken by any public authority or for any
public use, or shall be destroyed or damaged by fire or casualty, or by the
action of any public authority, then this Lease may be terminated at the
election of Landlord. Such election, which may be made notwithstanding the
fact that Landlord's entire interest may have been divested, shall be made
by the giving of notice by Landlord to Tenant within sixty (60) days after
the date of the
10
<PAGE>
taking or casualty. In the event that the Premises or any
material part thereof shall be destroyed or damaged by fire or
casualty, or by the action of public authority, and cannot
reasonably be expected to be repaired or restored within one
hundred eighty (180) days (or ninety (90) days, if the damage
occurs during the last year of the term) from the time that
repair or restoration work would be commenced, then this Lease
may be terminated at the election of Landlord or Tenant, which
election shall be made by giving of notice to the other party
within thirty (30) days after the date of damage or destruction.
In the event (a) the remainder of the Premises after a partial
taking is not reasonably sufficient for the operation of Tenant's
business or (b) a taking results in a permanent loss of adequate
parking available for use by Tenant (and Landlord does not elect
to furnish substitute parking in a convenient location on or in
close proximity to the Property), or a permanent deprivation of
convenient access to the Premises, then Tenant may terminate this
Lease by giving Landlord written notice of its election to do so
within thirty (30) days after the date of such taking.
7.2 Restoration. If no termination right is exercised by any party
-----------
having one under to Section 7.1 above, then this Lease shall
continue in force and a just proportion of the rent reserved,
according to the nature and extent of the damages sustained by
the Premises, shall be suspended or abated until the Premises, or
what may remain thereof, shall be put by Landlord in proper
condition for use, which Landlord covenants to do with reasonable
diligence to the extent permitted by the net proceeds of
insurance recovered under the insurance carried by Landlord in
accordance with Section 5.1.3.1 (or which could have been
recovered if Landlord had carried such insurance, if not in fact
carried by Landlord) plus the amount of any deductible thereunder
which shall be funded by Landlord or damages awarded for such
taking, destruction or damage and subject to zoning and building
laws or ordinances then in existence. "Net proceeds of insurance
recovered or damages awarded" refers to the gross amount of such
insurance or damages less the reasonable expenses of Landlord
incurred in connection with the collection of the same, including
without limitation, fees and expenses for legal and appraisal
services. From and after any restoration resulting from a
permanent taking of part of the Premises, a just proportion of
the rent reserved, according to the nature and extent of the
damages sustained by the Premises shall be permanently abated.
7.3 Award. Irrespective of the form in which recovery may be had by
-----
law, all rights to damages or compensation shall belong to
Landlord in all cases. Except for any award made to Tenant for
the personal property of Tenant and relocation expenses of
Tenant, Tenant hereby grants to Landlord all of Tenant's rights
to such damages and covenants to deliver such further assignments
thereof as Landlord may from time to time request. Tenant hereby
grants to Landlord all of Tenant's rights to such damages and
covenants to deliver such further assignments thereof as Landlord
may from time to time request.
ARTICLE 8
---------
DEFAULTS
--------
8.1 Events of Default. (a) If Tenant shall default in the performance
-----------------
of any of its obligations to pay the Fixed Rent or Additional
Rent hereunder and if such default shall continue for ten (10)
days after written notice from Landlord designating such default
or if within thirty (30) days after written notice from Landlord
to Tenant specifying any other default or defaults Tenant has not
commenced diligently to correct the default or defaults so
specified or has not thereafter diligently pursued such
correction to completion, or (b) if any assignment shall be made
by Tenant or any guarantor of Tenant for the benefit of
creditors, or (c)) if Tenant's leasehold interest shall be taken
on execution, or (d) if a lien or other involuntary encumbrance
is filed against Tenant's leasehold interest or a material
portion of Tenant's other property, including said leasehold
interest, and is not discharged within twenty (20) days
thereafter, or (e) if a petition is filed by Tenant or any
guarantor of Tenant for liquidation, or for reorganization or an
arrangement under any provisions of any bankruptcy law or code as
then in force and effect, or (f) if an involuntary petition under
any of the provisions of any bankruptcy law or code is filed
against Tenant or any guarantor of Tenant and such involuntary
petition is not dismissed within thirty (30) days thereafter,
then, and in any of such cases, Landlord and the agents and
servants of Landlord lawfully may, in addition to and not in
derogation of any remedies for any preceding breach of covenant,
immediately or at any time thereafter without demand or notice
and with or without process of law (forcibly, if necessary) enter
into and upon the Premises or any part thereof in the name of the
whole or mail a notice of termination addressed to Tenant, and
repossess the same as of landlord's former estate and expel
Tenant and those claiming through or under Tenant and remove its
and their effects (forcibly, if necessary) without being deemed
guilty of any manner of trespass and without prejudice to any
remedies which might otherwise be used for arrears of rent or
prior breach of covenants, and upon such entry or mailing as
aforesaid this Lease shall terminate, Tenant hereby waiving all
statutory rights to the Premises (including without limitation
rights of redemption, if any, to the extent such rights may be
lawfully waived) and Landlord, without notice to Tenant, may
store Tenant's effects, and those of any person claiming through
or under Tenant, at the expense and risk of Tenant, and, if
Landlord so elects, may sell such effects at public auction or
private sale and apply the net proceeds to the payment of all
sums due to Landlord from Tenant, if any, and pay over the
balance, if any, to Tenant.
8.2 Remedies. In the event that this Lease is terminated under any of
--------
the provisions contained in Section 8.1 or the last paragraph of
subsection 6.2.1. Tenant covenants to pay forthwith to Landlord,
as compensation, the excess of the total rent reserved for the
residue of the term over the rental value of the Premises for
said residue of the term. In calculating the rent reserved there
shall be included in addition to the Fixed Rent and Additional
Rent, the value of all other considerations agreed to be paid or
performed by Tenant for said residue. Tenant further covenants as
additional and cumulative obligations after any such termination,
to pay punctually to Landlord all the sums and to perform all the
obligations which Tenant covenants in this Lease to pay and to
perform in the same manner and to the same extent and at the same
time as if this Lease had not been terminated. In calculating the
amounts to be paid by Tenant pursuant to the next preceding
sentence Tenant shall be credited with any amount paid to
Landlord as compensation as in this Section 8.2 provided and also
with the net proceeds of any rent obtained by Landlord by
reletting the Premises, after deducting all Landlord's expense in
connection with such reletting, including, without limitation,
all reasonable repossession costs, brokerage commissions, fees
for legal services and expenses of preparing the Premises for
such reletting, it being agreed by Tenant that Landlord may (i)
relet the Premises or any part or parts thereof, for a term or
terms which may at Landlord's option be equal to or less than or
exceed the period which would otherwise have constituted the
balance of the term and may grant such concessions and free rent
as Landlord in its sole judgment considers advisable or necessary
to relet the same and (ii) make such alterations, repairs and
decorations in the Premises as Landlord in its sole judgment
considers advisable or necessary to relet the same, and no action
of Landlord in accordance with the foregoing or failure to
relet or to collect rent under reletting shall operate or be
construed to release or reduce Tenant's liability as aforesaid.
In lieu of any other damages or indemnity and in lieu of full
recovery by Landlord of all sums payable under all the foregoing
provisions of this Section 8.2., Landlord may by written notice
to Tenant, at any time after this Lease is terminated under any
of the provisions contained in Section 8.1 or is otherwise
terminated for breach of any obligation of Tenant and before such
full recovery, elect to recover, and Tenant shall thereupon pay,
as liquidated damages, an amount equal to the aggregate of the
Fixed Rent and Additional Rent accrued in the twelve (12) months
ended next prior to such termination plus the amount of rent of
any kind accrued and unpaid at the time of termination and less
the amount of any recovery by Landlord under the foregoing
provisions of this Section 8.2 up to the time of payment of such
liquidated damages. Nothing contained in this Lease shall,
however, limit or prejudice the right of Landlord to prove for
and obtain in proceedings for bankruptcy or insolvency by reason
of the termination of this Lease, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in
11
<PAGE>
which, the damages are to be proved, whether or not the amount be greater
than, equal to, or less than the amount of the loss or damages referred to
above.
8.3 Remedies Cumulative. Any and all rights and remedies which Landlord may
-------------------
have under this Lease, and at law and equity, shall be cumulative and shall
not be deemed inconsistent with each other, and any two or more of all such
rights and remedies may be exercised at the same time insofar as permitted
by law.
8.4 Landlord's Right to Cure Defaults. Landlord may, but shall not be obligated
---------------------------------
to, cure, at any time, any default by Tenant under this Lease without
notice in emergency situations, or otherwise if such default continues
uncured for ten (10) days after notice to Tenant (or such longer period of
time as may be reasonably required to cure such default, provided that
Tenant commences to cure such default within such ten (10) day period and
diligently prosecutes such cure to completion); and whenever Landlord so
elects, all reasonable costs and expenses incurred by Landlord, including
reasonable attorneys' fees, in curing a default shall be paid, as
Additional Rent, by Tenant to Landlord on demand, together with lawful
interest thereon from the date of payment by Landlord to the date of
payment by Tenant.
8.5 Effect of Waivers of Default. Any consent or permission by either party to
----------------------------
any act or omission which otherwise would be a breach of any covenant or
condition herein by the other party, shall not in any way be held or
construed (unless expressly so declared) to operate so as to impair the
continuing obligation of any covenant or condition herein, or otherwise,
except as to the specific instance, operate to permit similar acts or
omissions.
8.6 No Waiver, etc. The failure of either party to seek redress for violation
--------------
of, or to insist upon the strict performance of, any covenant or condition
of this Lease shall not be deemed a waiver of such violation nor prevent a
subsequent act, which would have originally constituted a violation, from
having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this Lease
shall not be deemed to have been a waiver of such breach by Landlord. No
consent or waiver, express or implied, by either party to or for any breach
of any agreement or duty shall be construed as a waiver or consent to or of
any other breach of the same or any other agreement or duty.
8.7 No Accord and Satisfaction. No acceptance by Landlord of a lesser sum than
--------------------------
the Fixed Rent, Additional Rent or any other charge then due shall be
deemed to be other than on account of the earliest installment of such rent
or charge due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent or other charge be deemed
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of each
installment or pursue any other remedy in this Lease provided. No
acceptance by Tenant of a lesser sum than any amount due from Landlord
under this Lease shall be deemed to be other than on account of the total
amount due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment be deemed an accord and
satisfaction, and Tenant may accept such check or payment (or make a larger
payment, claimed by Landlord but contested by Tenant) without prejudice to
Tenant's right to recover the balance of such amount or pursue any other
remedy in this Lease provided.
ARTICLE 9
---------
RIGHTS OF MORTGAGE HOLDERS
--------------------------
9.1 Rights of Mortgage Holders. The word "mortgage" as used herein includes
--------------------------
mortgages, deeds of trust or other similar instruments evidencing other
voluntary liens or encumbrances, and modifications, consolidations,
extensions, renewals, replacements and substitutes thereof. The word
"holder" shall mean a mortgagee, and any subsequent holder or holders of a
mortgage. Until the holder of a mortgage shall enter and take possession of
the Property for the purpose of foreclosure, such holder shall have only
such rights of Landlord as are necessary to preserve the integrity of this
Lease as security. Upon entry and taking possession of the Property for the
purpose of foreclosure, such holder shall have all the rights of Landlord.
No such holder of a mortgage shall be liable either as mortgagee or as
assignee, to perform, or be liable in damages for failure to perform, any
of the obligations of Landlord unless and until such holder shall enter and
take possession of the Property. Upon taking possession of the Property,
such holder shall be liable to perform all of the obligations of Landlord,
subject to and with the benefit of the provisions of Section 10.4, provided
that a discontinuance of any foreclosure proceeding shall be deemed a
conveyance under said provisions to the owner of the equity of the
Premises.
The covenants and agreements contained in this Lease with respect to the
rights, powers and benefits of a holder of a mortgage (particularly,
without limitation thereby, the covenants and agreements contained in this
Section 9.1) constitute a continuing offer to any person, corporation or
other entity, which by accepting a mortgage subject to this Lease, assumes
the obligations herein set forth with respect to such holder; such holder
is hereby constituted a party of this Lease as an obligee hereunder to the
same extent as though its name were written hereon as such; and such holder
shall be entitled to enforce such provisions in its own name. Tenant agrees
on request of Landlord to execute and deliver from time to time any
agreement which may be reasonably necessary to implement the provisions of
this Section 9.1.
9.2 Lease Superior or Subordinate to Mortgages. It is agreed that the rights
------------------------------------------
and interest of Tenant under this Lease shall be (i) subject or subordinate
to any present or future mortgage or mortgages and to any and all advances
to be made thereunder, and to the interest of the holder thereof in the
Premises or any property of which the Premises are a part if Landlord shall
elect by notice to Tenant to subject or subordinate the rights and interest
of Tenant under this Lease to such mortgage or (ii) prior to any present or
future mortgage or mortgages, if Landlord shall elect, by notice to Tenant,
to give the rights and interest of Tenant under this Lease priority to such
mortgage; in the event of either of such elections and upon notification by
Landlord to that effect, the rights and interest of Tenant under this Lease
should be deemed to be subordinate to, or have priority over, as the case
may be, said mortgage or mortgages, irrespective of the time of execution
or time of recording of any such mortgage or mortgages (provided that, in
the case of subordination of this Lease to any future mortgages, the holder
thereof agrees not to disturb the possession and to recognize the rights of
Tenant hereunder so long as Tenant is not in default hereunder). Tenant
agrees it will, upon request of Landlord, execute, acknowledge and deliver
any and all instruments reasonably deemed by Landlord necessary or
desirable to give effect to or notice of such subordination or priority,
provided such instruments are in form and on terms customarily agreed to by
tenants in Massachusetts under similar circumstances. Tenant also agrees
that if it shall fail at any time to execute, acknowledge and deliver any
such instrument requested by Landlord within seven (7) business days after
Landlord's request therefor, Tenant shall in terminable default under
this Lease without any further notice or opportunity to cure under Section
8.1 or otherwise. Any Mortgage to which this Lease shall be subordinated
may contain such terms, provisions and conditions as the holder deems usual
or customary. Landlord agrees to obtain from each holder of a present
mortgage, if any, an agreement that the possession of Tenant will not be
disturbed and Tenant's rights hereunder will be recognized so long as
Tenant is not in default hereunder.
12
<PAGE>
ARTICLE 10
----------
Miscellaneous Provisions
------------------------
10.1 Notices from One Party to the Other. All notices required or permitted
-----------------------------------
hereunder shall be in writing and addressed, if to the Tenant, at the
Original Notice Address of Tenant or such other address (which may
include one additional address to receive a copy) as Tenant shall have
last designated by notice in writing to Landlord and, if to Landlord,
at the Original Notice Address of Landlord or such other address
(which may include one additional address to receive a copy) as
Landlord shall have last designated by notice in writing to Tenant.
Any notice shall be deemed duly given when mailed to such address
postage prepaid, by registered or certified mail, return receipt
requested, or when delivered to such address by hand.
10.2 Quiet Enjoyment. Landlord agrees that upon Tenant's paying the rent
---------------
and performing and observing the agreements, conditions and other
provisions on its part to be performed and observed, Tenant shall and
may peaceably and quietly have, hold and enjoy the Premises during the
term hereof without any manner of hindrance or molestation from
Landlord or anyone claiming under Landlord, subject, however, to the
terms of this Lease; provided, however, Landlord reserves the right,
without the same constituting a breach of Landlord's covenant of quiet
enjoyment, to make such changes, alterations, additions, improvements,
repairs or replacements in or to the Premises as Landlord may deem
necessary or desirable, provided further, however, that there be no
unreasonable interference with Tenant's use of the Premises or the
parking therefor or access thereto or unreasonable impact on the
appearance or operation of the Building.
10.3 Lease not to be Recorded. Tenant agrees that it will not record this
------------------------
Lease. Both parties shall, upon the request of either, execute and
deliver a notice or short form of this Lease in such form, if any, as
may be permitted by applicable statute.
10.4 Limitation of Landlord's Liability. The term "Landlord" as used in
----------------------------------
this Lease, so far as covenants or obligations to be performed by
Landlord are concerned, shall be limited to mean and include only the
owner or owners at the time in question of the Property, and in the
event of any transfer or transfers of title to said property, the
Landlord (and in case of any subsequent transfers or conveyances, the
then grantor) shall be concurrently freed and relieved from and after
the date of such transfer or conveyance, without any further
instrument or agreement of all liability as respects the performance
of any covenants or obligations on the part of the Landlord contained
in this Lease thereafter to be performed, it being intended hereby
that the covenants and obligations contained in this Lease on the part
of Landlord, shall, subject as aforesaid, be binding on the Landlord,
its successors and assigns, only during and in respect of their
respective successive periods of ownership of said leasehold interest
or fee, as the case may be. Tenant, its successors and assigns, shall
not assert nor seek to enforce any claim for breach of this Lease
against any of Landlord's assets other than Landlord's interest in the
Property and in the rents, issues and profits thereof, and Tenant
agrees to look solely to such interest for the satisfaction of any
liability or claim against Landlord under this Lease, it being
specifically agreed that in no event whatsoever shall Landlord (which
term shall include, without limitation, any general or limited
partner, trustees, beneficiaries, officers, directors, or stockholders
of Landlord) ever be personally liable for any such liability.
10.5 Acts of God. In any case where either party hereto is required to do
-----------
any act, delays caused by or resulting from Acts of God, war, civil
commotion, fire, flood or other casualty, labor difficulties,
shortages of labor, materials or equipment, government regulations,
unusually severe weather, or other causes beyond such party's
reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a
fixed date, a fixed time or a "reasonable time," and such time shall
be deemed to be extended by the period of such delay.
10.6 Landlord's Default. Landlord shall not be deemed to be in default in
------------------
the performance of any of its obligations hereunder unless it shall
fail to perform such obligations and such failure shall continue for a
period of thirty (30) days or such additional time as is reasonably
required to correct any such default after written notice has been
given by Tenant to Landlord specifying the nature of Landlord's
alleged default. Landlord shall not be liable in any event for
incidental or consequential damages to Tenant by reason of Landlord's
default, whether or not notice is given.
Tenant may, but shall not be obligated to, cure, after reasonable
notice, any default by Landlord under this Lease that is detrimental
to Tenant's business not to have cured and a court has ordered
Landlord to cure, and whenever Tenant so elects, all costs and
expenses incurred by Tenant in curing a default shall be paid by
Landlord to Tenant on demand, together with lawful interest thereon
from the date of payment by Tenant to the date of payment by Landlord;
provided, however, that Tenant shall indemnify Landlord against
damage to the Premises resulting from Tenant's effecting such cure.
10.7 Brokerage. Tenant warrants and represents that it has dealt with no
---------
broker in connection with the consummation of this Lease, other than
Nordblom Company and Spaulding & Slye, and in the event of any
brokerage claims, other than by Nordblom Company or Spaulding & Slye,
against Landlord predicated upon prior dealings with Tenant, Tenant
agrees to defend the same and indemnify and hold Landlord harmless
against any such claim.
10.8 Applicable Law and Construction. This Lease shall be governed by and
-------------------------------
construed in accordance with the laws of the Commonwealth of
Massachusetts and, if any provisions of this Lease shall to any extent
be invalid, the remainder of this Lease shall not be affected thereby.
There are no oral or written agreements between Landlord and Tenant
affecting this Lease. This Lease may be amended, and the provisions
hereof may be waived or modified, only by instruments in writing
executed by Landlord and Tenant. The titles of the several Articles
and Sections contained herein are for convenience only and shall not
be considered in construing this Lease. Unless repugnant to the
context, the words "Landlord" and "Tenant" appearing in this Lease
shall be construed to mean those named above and their respective
heirs, executors, administrators, successors and assigns, and those
claiming through or under them respectively. If there be more than one
tenant, the obligations imposed by this Lease upon Tenant shall be
joint and several.
10.9 Expansion. At any time after the first year of the term, Tenant may
---------
notify Landlord that Tenant desires to expand into 5,000 square feet
or more of additional office space. Landlord will respond reasonably
promptly to any such notice received from Tenant with what space (if
any) is or is likely to become available in Northwest Park within the
time frame required by Tenant and shall engage in discussions with
Tenant in order to attempt to achieve agreement on mutually acceptable
terms for any space so identified in which Tenant may be interested;
provided that neither party shall have any responsibility or
liability to the other party in the event that mutually acceptable
terms cannot be agreed upon within a reasonable time.
13
<PAGE>
WITNESS the execution hereof under seal on the day and year first above written:
Landlord:
/s/ [SIGNATURE ILLEGIBLE]
----------------------------------------
As Trustee, but not individually
/s/ June N. Robinson
----------------------------------------
As Trustee, but not individually
/s/ [SIGNATURE ILLEGIBLE]
----------------------------------------
As Trustee, but not individually
Tenant:
INTERMETRICS, INC.
By: /s/ Michael B. Alexander
-------------------------------------
Its: Chief Executive Officer & Chairman
-------------------------------------
14
<PAGE>
EXHIBIT A
PLAN OF PROPERTY
[PLAN APPEARS HERE]
<PAGE>
EXHIBIT B
---------
COMMENCEMENT DATE AGREEMENT
---------------------------
______________________ ("Landlord") and _____________________ ("Tenant") are
parties to a lease ("Lease") dated _______________ of premises in a building
known as _____________, Massachusetts. Landlord and Tenant hereby acknowledge
and agree that the term of the Lease commenced on __________________ and will
end on ___________________.
Executed under seal this ___________ day of _____________, 19__.
Landlord:
____________________________________________
As Trustee, but not individually
Tenant:
By _________________________________________
<PAGE>
EXHIBIT C
LANDLORD'S WORK
23 Fourth Avenue
Burlington, MA
PART A
- ------
The Landlord, at its expense, will provide the following improvements in
conformance with the plans and specifications by Maugel Architects, Inc. revised
to July 3, 1996:
DEMOLITION: All interior partitions, ceilings, finishes and mechanical
and electrical equipment will be removed. The raised
computer room flooring will be disassembled and stored on
site for reuse. The existing glass and frames at the
exterior walls will be removed, and the slab, exterior walls
and roof steel will be demolished at the location of the new
entrance. The tank and chemical storage building will be
removed from the rear parking lot, and the parking area
restored.
ENTRANCE: A new fully handicapped accessible, aluminum curtainwall and
glass entrance will be constructed at the northwest corner
of the building.
WINDOWS: New aluminum frames and thermopane, Low-E, tinted glass
windows will be installed in locations as indicated on the
plan.
ROOF: The existing roof will be removed and a new single-ply, EPDM
membrane system with 2 1/2" of insulation providing an R16
with a 10 year manufacturer's warrantee will be installed.
SKYLIGHTS: A grouping of four 3' x 3' skylights will be installed in
one location as indicated on the plan.
PARTITIONS: The inside of the exterior walls will receive steel studs
16" on center with hat insulation and 1/2" gypsum wall board
to 12 feet above finished floor. Interior drywall partitions
for the bathroom core and electrical and sprinkler rooms
will be steel studs, 16" on center with 1/2" gypsum wall
board to the underside of the steel deck.
DOORS &: The interior doors will be 3'-0" x 7'-0" solid-core cherry
FRAMES in hollow metal frames with standard lever hardware.
PAINTING: Two coats of latex paint to be provided on all new drywall
and door frames. Doors and window sills will be stained
and/or clear sealed. Paint colors will coordinate with the
paint used for the Part B work and will be subject to the
tenant's approval.
HVAC: A new, variable-air-volume system, consisting of three
state-of-the-art 30-ton Trane rooftop units with electric
cooling and gas fired early warm up heating and 32 VAV boxes
containing two-stage electric heat will be provided. The
system is designed to provide adequate capacity for standard
office use and will be installed and distributed throughout
the building. Separate HVAC for the computer room is not
included in the Part A work.
CEILINGS: A new 2' x 4' Armstrong "Second Look" suspended ceiling will
be installed throughout.
Page 1 of 2
<PAGE>
LANDLORD'S WORK
PAGE 2
TILE: Porcelain tile will be provided in the bathrooms and shower rooms
on the floors and the walls and on the floor of the new lobby.
VCT will be provided as required by the Tenant's floor plan.
CARPET: New carpeting (allowance of $14.00 per installed yard) will be
installed via the glued down method as indicated on the Tenant's
floor plan. Carpet selection to be made by Tenant.
ELECTRICAL: The existing main service (1600 amp main switch board at 120/208
volt, 3 phase, 4 wire) will remain and be reused. New
distribution panels and feeders will be installed for the HVAC
system, lighting and utility power. New 18 cell parabolic
fluorescent lighting will be installed throughout. At least one
general duty duplex outlet will be installed on the exterior wall
in each perimeter office.
PLUMBING: New fixtures and related plumbing will be installed at the
restroom core, including one handicapped accessible, fiberglass
shower stall in each of the men's and woman's rooms.
SPRINKLER: The sprinkler system will be put in good repair and re-
distributed to meet the new floor plan and all code requirements.
FIRE ALARM: A new fire alarm system will be installed in conformance with
current State and Town of Burlington code requirements.
PARKING: The cracks in the parking lot will be filled, the lots sealed and
the parking spaces re-lined.
LANDSCAPING: The landscape plantings around the building will be replaced and
general landscape improvements made to the site. A lawn
irrigation system will be installed.
PART B
- ------
The Landlord will build out the rest of the premises that is not defined as
Part A work in conformance with the plans and specifications revised to July 3,
1996 by Maugel Architects, Inc.
Telephone and data wiring is not included in the Landlord's work.
Page 2 of 2
<PAGE>
EXHIBIT 10.4
LEASE AGREEMENT
between
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
and
INTERMETRICS, INC.
Table of Contents
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. DEFINITIONS.................................................. - 1 -
-----------
2. LEASE TERM................................................... - 3 -
----------
3. BASIC RENTAL................................................. - 4 -
------------
4. BASIC RENTAL ESCALATION...................................... - 4 -
-----------------------
5. SECURITY DEPOSIT............................................. - 4 -
----------------
6. LANDLORD'S OBLIGATIONS....................................... - 5 -
----------------------
7. IMPROVEMENT OF THE PREMISES.................................. - 6 -
---------------------------
8. OPERATING EXPENSES........................................... - 8 -
------------------
9. USE.......................................................... - 9 -
---
10. TENANT'S REPAIRS AND ALTERATIONS............................. - 10 -
--------------------------------
11. ASSIGNMENT AND SUBLETTING.................................... - 10 -
-------------------------
12. INDEMNITY.................................................... - 13 -
---------
13. SUBORDINATION................................................ - 13 -
-------------
14. RULES AND REGULATIONS........................................ - 14 -
---------------------
15. INSPECTION................................................... - 14 -
----------
16. CONDEMNATION................................................. - 14 -
------------
17. FIRE OR OTHER CASUALTY...................................... - 15 -
-----------------------
18. HOLDING OVER................................................. - 15 -
------------
19. TAXES........................................................ - 16 -
-----
20. EVENTS OF DEFAULT............................................ - 17 -
-----------------
21. REMEDIES..................................................... - 17 -
--------
22. SURRENDER OF PREMISES........................................ - 19 -
---------------------
23. ATTORNEYS' FEES.............................................. - 19 -
---------------
24. INTENTIONALLY OMITTED........................................ - 19 -
---------------------
25. MECHANICS' LIENS............................................. - 19 -
----------------
26. WAIVER OF SUBROGATION, INSURANCE............................. - 20 -
--------------------------------
27. INTENTIONALLY OMITTED........................................ - 20 -
---------------------
28. BROKERAGE.................................................... - 20 -
---------
</TABLE>
-i-
<PAGE>
LEASE AGREEMENT
BETWEEN
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
AND
INTERMETRICS, INC.
Table of Contents
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
29. ESTOPPEL CERTIFICATES........................................ - 20 -
---------------------
30. NOTICES...................................................... - 21 -
-------
31. FORCE MAJEURE................................................ - 21 -
-------------
32. SEVERABILITY................................................. - 22 -
------------
33. AMENDMENTS; WAIVER; BINDING EFFECT........................... - 22 -
----------------------------------
34. QUIET ENJOYMENT.............................................. - 22 -
---------------
35. LIABILITY OF TENANT.......................................... - 22 -
-------------------
36. LANDLORD LIABILITY........................................... - 22 -
------------------
37. CERTAIN RIGHTS RESERVED BY LANDLORD.......................... - 22 -
-----------------------------------
38. FINANCIAL STATEMENTS......................................... - 23 -
--------------------
39. NOTICE TO LENDER............................................. - 23 -
----------------
40. MISCELLANEOUS................................................ - 23 -
-------------
41. ADDITIONAL RENT.............................................. - 24 -
---------------
42. ENTIRE AGREEMENT............................................. - 24 -
----------------
43. LEGAL PROCEEDINGS............................................ - 24 -
-----------------
44. LAWS AND REGULATIONS......................................... - 24 -
--------------------
45. AMERICANS WITH DISABILITIES ACT ("ADA")...................... - 24 -
---------------------------------------
46. ENVIRONMENTAL PROTECTIONS.................................... - 25 -
-------------------------
47. PARKING...................................................... - 26 -
-------
48. OPTION TO RENEW.............................................. - 26 -
---------------
49. RIGHT OF FIRST OFFER......................................... - 26 -
--------------------
50. TENANT ACCESS................................................ - 27 -
-------------
51. EXHIBITS..................................................... - 27 -
--------
</TABLE>
- ii -
<PAGE>
LEASE AGREEMENT
between
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
and
INTERMETRICS, INC.
DATA SHEET
This Data Sheet is an integral part of this Lease and all of the terms hereof
are incorporated into this Lease in all respects. In addition to the other
provisions which are elsewhere in this Lease, the following, whenever used in
this Lease, shall have the meanings set forth in this Data Sheet.
(a) Premises Suite No. 600 in the Building, generally outlined on the
-------- floor plan attached hereto as Exhibit A (Section 1(1)).
(b) Area of Premises Approximately 26,084 rentable square feet on the sixth
---------------- (6th) floor of the Building (Exhibit A and Section
1(1)).
(c) Building The Concourse, located at 1593-1595 Spring Hill Road,
-------- Vienna, Virginia (Section 1(e)).
(d) Basic Rental $23.75 per rentable square foot per year payable in
------------ equal monthly installments of $51,624.58, subject to
adjustment as herein provided (Sections 1(b) and 3).
(e) Annual Basic $619,495.00 (Section 3).
------------
Rental
------
(f) Annual Basic Three percent (3%) of the escalated Basic Rental
------------
Rental Escalation then in effect (Section 4).
-----------------
(g) Additional Rent See Section 41.
---------------
(h) Lease Term Five years and zero months, commencing on the
---------- Commencement Date (Sections 1(j) and 2).
(i) Commencement Date See Section 1(f).
-----------------
(j) Building Monday through Friday, 8:00 a.m. to 6:00 p.m. and
--------
Operation Hours Saturday, 8:00 a.m. to 1:00 p.m.
---------------
(k) Permitted Use Any general business office purposes and for no other
------------- purpose (Sections 1(k) and 9).
(l) Tenant's 7.58% (See Sections 1(p) and 1(q)).
--------
Proportionate
-------------
Share of Building
-----------------
Space
-----
(m) Tenant's 3.5 per 1000 rentable square feet (Section 47).
--------
Proportionate
-------------
Share of Parking
----------------
Spaces
------
(n) Brokers Involved Compass Management and Leasing, Inc. and Spaulding and
---------------- Slye Services Limited Partnership
(o) Security Deposit See Section 1(n) and 5.
----------------
(p) Notices If to Landlord:
-------
The Equitable Life Assurance Society of the United
States
1875 Eye Street, N.W., Suite 900
Washington, D.C. 20006
-iii-
<PAGE>
if to Tenant:
23 Fourth Avenue
Burlington, MA 01803-3303
with a copy to:
The Premises
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into as of the 23rd day of May 1997,
between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (hereinafter
called "Landlord"), whose address for purposes hereof is 1875 Eye Street, N.W.,
Suite 900, Washington, D.C. 20006 and INTERMETRICS, INC, a Delaware corporation
(hereinafter called "Tenant"), whose address for purposes hereof is 23 Fourth
Avenue, Burlington, MA 01803-3303.
1. DEFINITIONS.
-----------
(a) "Basic Cost": The actual costs incurred by the Landlord in operating
and maintaining the Building and the Land during each calendar year of the Lease
Term for which Landlord has not been reimbursed by insurance proceeds,
condemnation awards or otherwise.
Such costs shall include, by way of example rather than of limitation,
(i) charges or fees for, and taxes on, the furnishing of electricity, water,
sewer service, gas, fuel, or other utility services to the Building and the
Land; (ii) costs of providing elevator, janitorial and trash removal service,
restriping, resurfacing, maintaining and repairing all walkways, roadways and
parking areas on the Land, security costs, and cost of maintaining grounds,
common areas and mechanical systems of the Building and the Land; (iii) all
other costs of maintaining and repairing any or all of the Building or Land;
(iv) all operating and maintenance costs reasonably allocated by Landlord to the
common areas of the Building and the Land in a multi-building development; (v)
charges or fees for any necessary governmental permits and licenses; (vi)
management fees (limited to those which are reasonable and do not materially
exceed those which are customary for buildings of similar age and size in the
Tysons Corner, Virginia submarket), overhead and expenses reasonably related to
management of the Building (including salaries for personnel directly
responsible for management of the Building); (vii) premiums for hazard,
liability, workmen's compensation, or similar insurance upon any or all of the
Building and the Land; (viii) costs arising under service contracts with
independent contractors; and (ix) the cost of any other items which, under
generally accepted accounting principles consistently applied from year to year
with respect to the Building or the Land, constitute operating or maintenance
costs attributable to any or all of the Building or the Land.
Such costs shall not include (i) the expense of principal and interest
payments made by the Landlord pursuant to the provisions of any mortgage or deed
of trust covering the Building or the Land; (ii) any deduction for depreciation
of the Building taken on the landlord's income tax returns; (iii) the cost of
capital improvements made to the Building, other than capital improvements,
modifications or equipment required by federal, state or local ordinance, rule,
regulation or law or determined by Landlord in good faith to result in savings
or reductions in Basic Cost generally, in which case the cost thereof shall be
included in Basic Cost for the calendar year in which the cost shall have been
incurred and in subsequent calendar years, on a straight line basis, such items
will be amortized over an appropriate period and with an appropriate interest
factor selected in good faith by Landlord; (iv) costs of electricity outside
normal business hours sold to tenants of the Building by Landlord or any other
special service to the tenants or service in excess of that furnished to Tenant
whether or not Landlord receives reimbursement from such tenants as an
additional charge; (v) wages, salaries or other compensation or benefits for
employees applicable to the time spent working at or with respect to other
Buildings, other than the Building manager (provided that with respect to each
employee that services the Building and other Buildings, an equitable portion of
such employee's salary shall be included in Basic Cost, as applicable); (vi)
interest or penalties arising by reason of Landlord's failure to timely pay any
Basic Cost; or (vii) costs attributable to compliance with applicable laws or
regulations affecting the Building or the Land, which compliance was required
before the Commencement Date. If Landlord shall have leased any such items of
capital equipment designed to result in savings or reductions in Basic Cost,
then the rental and other costs paid pursuant to such leasing shall be included
in Basic Cost for each calendar year in which they shall have been incurred.
In determining Basic Cost, where less than 95% of the Building's
rentable square footage is occupied during all or any part of a year, those
items of the Basic Cost which vary according to occupancy, such as electricity
and
- 5 -
<PAGE>
janitorial services, shall be increased to that amount which would have been
incurred had the Building been 95% occupied during the entire year.
(b) "Basic Rental": $23.75 per rentable square foot per year payable in
equal monthly installments of $51,624.58, subject to adjustment as herein
provided.
(c) "Base Real Estate Taxes": The Real Estate Taxes payable in the
calendar year 1997.
(d) "Base Year Stop": The Basic Cost incurred during the calendar year
1997 divided by the number of rentable square feet in the Building.
(e) "Building": The office building which has been constructed on land
located at 1593-1595 Spring Hill Road, Vienna, Virginia, and known as The
Concourse.
(f) "Commencement Date": The earlier of: (i) the date of Substantial
Completion or (ii) the date the Tenant or any one claiming under or through the
Tenant first occupies the Premises or any portion thereof for the Permitted Use
(except as otherwise provided in Section 2(c) below). The anticipated
Commencement Date is September 1, 1997; provided, however, that Landlord agrees
to use reasonable efforts to deliver the Premises in advance of the anticipated
Commencement Date.
(g) "Event of Default": As defined in Section 20 of this
Lease.
(h) "Excess": As defined in Section 8 of this Lease.
(i) "Land": The entire tract of land on which the Building is located,
and subject from time to time, to (i) increase through the acquisition of
adjoining properties, and (ii) reduction through the sale or transfer by
Landlord or the reservations of any such property from the development of which
the Building is a part; provided, however, that neither of the foregoing changes
may materially and adversely affect Tenant's ability to use the Premises for the
Permitted Use.
The term Land shall also include any property that must be maintained by
Landlord due to the existence of any public or private easement.
(j) "Lease Term": The period commencing on the Commencement Date and
continuing for five (5) years and zero (0) months thereafter; provided, however,
if the term of this Lease commences on a date other than the first day of a
calendar month, the Lease Term shall consist of, in addition to the number of
years and months provided above, the remainder of the calendar month during
which this Lease is deemed to have commenced.
(k) "Permitted Use": Any general business office purposes and for no
other purpose.
(l) "Premises": Suite No. 600 in the Building, generally outlined on the
floor plan attached hereto as Exhibit A and consisting of approximately 26,084
rentable square feet. The Premises shall be measured in accordance with the
Modified BOMA Standard Method of Measurement for Office Buildings (1980), and
may be confirmed by Tenant's architect, at Tenant's expense.
(m) "Rules and Regulations": The Landlord's rules and regulations sent
to Tenant in writing from time to time, as amended or substituted for from time
to time, the current form of which is attached hereto as Exhibit C.
(n) "Security Deposit": $154,873.74, subject to reduction as provided in
Section 5.
(0) "Substantial Completion": The date when the work to be performed by
Landlord in the Premises in accordance with this Lease shall have been
substantially completed notwithstanding that certain details of construction,
mechanical adjustment or decoration remain to be performed, the noncompletion of
which would not materially interfere with the Tenant's use of the Premises;
provided, however, that Tenant may legally occupy the Premises in accordance
with all applicable local and state laws.
- 6 -
<PAGE>
For purposes of determining the date of Substantial Completion, there
shall not be considered the duration of any delay which is caused by: (i)
changes in the work to be completed by Landlord in readying the Premises for
Tenant's occupancy, which changes have been requested by Tenant after the
approval by Landlord and Tenant of the Tenant Plans; (ii) delays, not caused by
Landlord, in furnishing materials or procuring labor required by Tenant for
installations or work in the Premises which are not encompassed within Standard
Tenant Work; (iii) any failure by Tenant, to furnish any required plan,
information, approval or consent (including, without limitation, the Tenant
Plans) within the required period of time, or any failure to fully and
completely cooperate with Landlord in the preparation of the Tenant Plans; or
(iv) the performance of any work or activity in the Premises by Tenant or any of
its employees, agents or contractors. The decision of Landlord's and Tenant's
architect shall be finally determinative of the date of Substantial Completion.
(p) "Tenant's Proportionate Share for Basic Cost": 7.58%. Such
percentage is equal to a fraction, the numerator of which equals the number of
rentable square feet within the Premises and the denominator of which equals the
total number of rentable square feet in the Building.
(q) "Tenant's Proportionate Share for Real Estate Taxes": 7.58%. Such
percentage is equal to a fraction, the numerator of which equals the number of
rentable square feet within the Premises and the denominator of which equals the
total number of rentable square feet in the Building.
2. LEASE TERM.
----------
(a) Landlord, in consideration of the rent to be paid and the other
covenants and agreements to be performed by Tenant and upon the terms
hereinafter stated, does hereby lease, demise and let unto Tenant the Premises,
as defined herein and generally outlined on the floor plan attached hereto as
Exhibit A, and Tenant shall have access and use of all common areas and
amenities serving the Building, commencing on the Commencement Date and ending,
without the necessity of notice from either party to the other, such notice
being expressly waived, on the last day of the Lease Term, unless sooner
terminated as herein provided.
(b) If the Landlord shall be unable to tender possession of the Premises
on the anticipated Commencement Date, the Landlord shall not be liable for any
damage caused thereby, nor shall this Lease be void or voidable by Tenant; but
in such event, unless the delay results (i) from failure of Tenant to provide
plans or otherwise perform in accordance with the requirements of the Lease or
(ii) from any delay in Landlord's ability to tender possession of the Premises
caused by Tenant, no rental shall be payable by Tenant prior to actual tender to
Tenant of possession of the Premises and the date of Substantial Completion.
Notwithstanding the foregoing, and provided that any delay in substantially
completing the Premises is not attributable to (i) any Tenant delay detailed in
Section 7, (ii) the requirements of any Special Tenant Work as defined in
Section 7(d), or (iii) the contingencies in the force majeure provisions of
-------------
Section 31, then, if the Premises are not Substantially Complete within one
hundred eighty days (180) of the anticipated Commencement Date, Tenant shall
have the right to terminate this Lease, by delivering written notice to Landlord
not later than one hundred ninety (190) days after the anticipated Commencement
Date.
(c) By accepting possession of the Premises as of the Commencement Date,
Tenant shall be deemed to have accepted the same as suitable for the purpose
herein intended and to have acknowledged that the Premises comply fully with
Landlord's obligations, with the exception of any "punch list" type items in the
Tenant Plans which may not have been completed (or completed properly). Tenant
agrees that its failure to deliver to Landlord such a written "punch list"
within three (3) business days after the Commencement Date shall be conclusive
proof that no such items exist, except items not reasonably apparent upon a
visual inspection of the Premises. Notwithstanding the foregoing, Tenant shall
be permitted to enter the Premises not more than two (2) weeks prior to the
anticipated Commencement Date to install telephone lines, equipment, computer
lines and to move in furniture; provided, however, that (i) Landlord shall
designate the day or days on which Tenant may so enter the Premises, (ii) Tenant
shall not interfere with the buildout of the Premises, (iii) all waiver and
indemnity provisions of this Lease (including, but not limited to, those
contained in Section 12) shall apply to such early entry, and (iv) all property
placed in the Premises by Tenant shall remain there at Tenant's sole risk.
Within three (3) business days after the Commencement Date, Tenant agrees to
- 7 -
<PAGE>
execute and return to Landlord a letter prepared by Landlord confirming such
date, a copy of which is attached hereto as Exhibit B.
3. BASIC RENTAL.
-------------
(a) Tenant promises and agrees to pay Landlord the Basic Rental (subject
to adjustment as hereinafter provided) without demand, notice, deduction,
counterclaim, recoupment or set-off, for each month of the entire Lease Term.
The first monthly installment shall be due and payable upon execution of this
Lease. The Basic Rental for each subsequent month shall be paid in advance
beginning on the first day of the calendar month following the expiration of the
first calendar month of the Lease Term and continuing thereafter on or before
the first day of each succeeding calendar month during the term hereof;
provided, however, that Basic Rental for the second calendar month shall be
prorated based on one-three hundred sixtieth (1/360th) of the current annual
Basic Rental for each day of the first partial month, if any, this Lease is in
effect and shall be due and payable as aforesaid.
(b) In the event any installment of the Basic Rental, or any other sums
which became owing by Tenant to Landlord under the provisions hereof, are not
received within five business (5) days after the due date thereof (without in
any way implying Landlord's consent to such late payment), Tenant shall pay, in
addition to such installment of the Basic Rental or such other sums owed, and
not as a penalty, additional rent in the form of a late payment charge equal to
ten percent (10%) of such monthly installment of the Basic Rental or such other
sums owed for each month or part thereof such payment is overdue.
Notwithstanding the foregoing, the foregoing late charges shall not apply to any
sums which may have been advanced by Landlord to or for the benefit of Tenant
pursuant to the provisions of this Lease, it being understood that such sums
shall bear interest from the date of the advance until paid in full, which
Tenant hereby agrees to pay to Landlord, at the rate of fourteen percent (14%)
per annum or the highest rate permitted by law, whichever is less.
Notwithstanding the foregoing, Tenant shall not be required to pay a late fee or
interest for the first late payment or failure to timely reimburse Landlord for
an advance during each Lease year, as long as Landlord receives such payment
within 15 days of the date when due.
4. BASIC RENTAL ESCALATION.
-----------------------
The Basic Rental shall be increased annually, effective on each
anniversary of the first (1st) day of the first full month after the
Commencement Date during the term hereof if the Commencement Date is on a day
other than the first (1st) day of the month, or on the anniversary of the
Commencement Date if the Commencement Date is on the first (1st) day of the
month, by an amount equal to three percent (3%) of the escalated Basic Rental
then in effect, payable as follows:
Year Annualized Rent Monthly Rent
---- --------------- ------------
2 $638,079.85 $53,173.32
3 $657,222.25 $54,768.52
4 $676,938.91 $56,411.58
5 $697,247.08 $58,103.92
5. SECURITY DEPOSIT.
----------------
(a) The Security Deposit, which shall be paid on the earlier to occur of
(i) sixty (60) days after Tenant's final execution of this Lease, or (ii) the
commencement of construction of the improvements as noted in Section 7, shall be
held by Landlord without liability for interest and not in trust or in a
separate account, as security for the performance by Tenant of Tenant's
covenants and obligations under this Lease. The Security Deposit shall not be
considered an advance payment of rental or a measure of Landlord's damages in
case of default by Tenant. Upon the occurrence of any Event of Default by
Tenant, beyond any applicable cure period, Landlord may, from time to time in
its sole discretion, without prejudice to any other remedy, use and apply the
Security Deposit to the extent necessary to make good any arrearages of rent and
any other damage, injury, expense or liability suffered by Landlord by such
Event of Default. Following any such application of the Security Deposit, Tenant
shall pay to Landlord on demand as additional rent the amount so applied in
order to restore the Security Deposit to its original amount. If Tenant is not
then in default hereunder, any remaining balance of the Security Deposit shall
be returned by Landlord to Tenant within sixty (60) days after the termination
of
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this Lease and (X) Tenant shall have surrendered the entire Premises to
Landlord, (Y) Landlord shall have inspected the Premises after such vacation,
and (Z) Tenant shall have complied with all of the terms, conditions and
covenants in the Lease. Notwithstanding the foregoing, Landlord shall refund any
remaining balance of the Security Deposit, once all such Events of Default have
been cured. If Landlord transfers its interest in the Premises during the Lease
Term, Landlord shall assign the Security Deposit to the transferee and
thereafter shall have no further liability for the return of such Security
Deposit.
(b) In lieu of posting a cash Security Deposit, Tenant shall have the
option to deliver to Landlord securities traded on a national market or a
Certificate of Deposit issued by a commercial bank (collectively, a "C.D.") in
an amount equal to the Security Deposit plus any penalties that may be assessed
if the C.D. were prematurely cashed on the first day of the Lease, together with
an Irrevocable Assignment of the C.D., the form for which is subject to
Landlord's reasonable approval, unconditionally signed by the Tenant and any
third-party issuing the C.D. or having possession of the securities. The C.D.
shall extend until sixty (60) days after the expiration of the Lease or, if
requested by Tenant and approved by Landlord, at Landlord's sole option, may be
issued for a shorter term. If the C.D. is issued for a shorter duration, Tenant
shall replace the C.D. not later than thirty (30) days prior to its maturity. If
Tenant fails to replace such C.D. within such thirty-day period, the Landlord
may draw under the C.D. even if no Event of Default has occurred. Provided no
Event of Default occurs under the Lease, all interest accruing on the C.D. shall
be paid directly to Tenant. In the event the C.D. is issued by a commercial
bank, the bank must have a credit rating with respect to certificates of
deposit, short term deposits or commercial paper rated at least P-2 (or
equivalent) by Moody's Investor Services, Inc., or rated at least A-2 (or
equivalent) by Standard & Poor's Corporation, and shall be otherwise acceptable
to Landlord in its sole and absolute discretion. If the issuer's credit rating
is reduced below P-2 (or equivalent) by Moody's Investors Services, Inc. or
below A-2 (or equivalent) by Standard & Poor's Corporation, or if the financial
condition of such issuer changes in any other materially adverse way, then
Landlord shall have the right to require that Tenant obtain from a different
issuer a substitute C.D. that complies in all respects with the requirements of
this Section, and Tenant's failure to obtain such substitute C.D. within ten
(10) days following Landlord's written demand therefor (with no other notice or
cure or grace period being applicable thereto, notwithstanding anything in this
Lease to the contrary) shall entitle Landlord to immediately draw upon the then
existing C.D. in whole or in part, without notice to Tenant. In the event the
issuer of any C.D. held by Landlord is placed into receivership or
conservatorship by the Federal Deposit Insurance Corporation, or any successor
or similar entity, then, effective as of the date such receivership or
conservatorship occurs, said C.D. shall be deemed to not meet the requirements
of this Section, and, within ten (10) days thereof, Tenant shall replace such
C.D. with other collateral acceptable to Landlord in its sole and absolute
discretion, and Tenant's failure to do so shall, notwithstanding anything in
this Lease to the contrary, constitute an Event of Default for which there shall
be no notice or grace or cure periods being applicable thereto other than the
aforesaid ten (10) day period. Any failure or refusal of the issuer to honor the
C.D. shall be at Tenant's sole risk and shall not relieve Tenant of its
obligations hereunder with respect to the Security Deposit.
(c) Notwithstanding anything to the contrary contained herein, Tenant
shall be entitled to reduce the amount of the Security Deposit to (i)
$106,346.64 after the eighteenth (18th) month of the Lease Term, provided Tenant
has not been late in the payment of any Basic Rental or additional rent for
which Tenant is obligated under this Lease, beyond any applicable grace or cure
period, nor has otherwise been in default under the Lease during the first
eighteen (18) months of the Lease Term, beyond any applicable grace or cure
period; and (ii) $51,624.58 at anytime thereafter during the remainder of the
Lease Term, provided Tenant satisfies all conditions of (c) (i) herein, and
further delivers to Landlord two (2) successive annual, audited financial
statements, showing that Tenant's net worth has exceeded $20,000,000.00 for the
two (2) annual periods covered by such statements.
6. LANDLORD'S OBLIGATIONS.
----------------------
(a) Subject to the limitations hereinafter set forth, Landlord agrees
to furnish to Tenant: (i) facilities to provide water at those points of supply
both within the Premises and those provided for general use of tenants of the
building; (ii) facilities to provide a supply of electrical current reasonably
necessary for general business office use and occupancy of the
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Premises and electric lighting and a supply of electrical current to the common
areas of the Building; (iii) heating and refrigerated air conditioning in
season; and (iv) elevator and janitorial service to the Premises, all such
services to be provided in scope, quality and frequency at least equal to those
services being customarily provided by landlords in office buildings of
comparable age and quality in the surrounding area. Heating, ventilation and air
conditioning requirements and standards under this Lease shall be subject,
however, to such regulations as the Department of Energy or other local, state
or federal governmental agency, Board or commission shall adopt from time to
time. In addition, Landlord agrees to maintain the structural portions of the
Building, the roof, foundations, floors and exterior walls and windows of the
Building, the electrical, plumbing, life safety, heating, ventilation and air
conditioning systems of the Building and the Common Areas of the Building, such
as lobbies, elevators, stairs, corridors and restrooms, in reasonably good order
and condition; provided, however, that Tenant shall reimburse Landlord, upon
demand, for all repairs and additional maintenance resulting from damages to
such public or common areas caused by Tenant, or its employees, agents or
invitees, subject to the recovery of any insurance proceeds as provided under
Section 26(a). Landlord reserves the right, exercisable without notice and
without liability to Tenant for damage or injury to property, persons or
business and without effecting an eviction, constructive or actual, or
disturbance of Tenant's use or possession of the Premises, or giving rise to any
claim by Tenant for setoff or abatement of rent, to decorate and to make
repairs, alterations, additions, modifications, changes or improvements, whether
structural or otherwise, in and about the Building, or any part thereof, and for
such purposes to enter upon the Premises (on reasonable advance notice to
Tenant, except in cases of emergency) and, during the continuance of any such
work, to temporarily close doors, entryways, public space and corridors in the
Building and to interrupt or temporarily suspend Building services and
facilities; provided, however, that Landlord shall use commercially reasonable
efforts to avoid disrupting Tenant's use of the Premises.
(b) If Landlord, to any extent, fails to make available any of the
services to be provided by Landlord expressly set forth above or if any
slowdown, stoppage or interruption of, or any change in the quantity, character
or availability of, the services to be provided by Landlord expressly set forth
above occurs, such failure or occurrence shall not render Landlord liable in any
respect for damages to either person, property or business, nor be construed as
an eviction of Tenant or work an abatement of rent, nor relieve Tenant from
fulfillment of any covenant or agreement hereof. Should any equipment or
machinery furnished by Landlord break down or for any cause beyond Landlord's
reasonable control cease to function, properly, Landlord shall use reasonable
diligence to repair same promptly, but Tenant shall have no claim for abatement
of rent or damages on account of any interruptions in service occasioned thereby
or resulting therefrom; provided, however, that if (i) any such services are not
furnished to the Premises for five (5) or more consecutive days after Landlord
receives notice from Tenant, (ii) the Premises are thereby rendered
untenantable, and (iii) the Landlord is not diligently pursuing a cure of such
interruption, then commencing with the sixth (6th) day after Landlord receives
such notice, the Basic Rental shall be abated until the Premises are again
tenantable.
7. IMPROVEMENT OF THE PREMISES.
---------------------------
(a) Landlord and Tenant agree to comply with the following schedule in
buildout of the Premises:
(i) On or before May 16, 1997, Tenant shall prepare and deliver to
Landlord a Space Plan for the Premises. If Landlord, in good faith, reasonably
objects to any aspect of the Space Plan submitted by Tenant, Landlord shall
specify in detail any objection to such Space Plan as submitted to Landlord in a
written notice to Tenant within 5 business days after receipt. Tenant shall
modify such Space Plan to address Landlord's written objections, and submit a
new Space Plan to Landlord for approval, which approval shall not be
unreasonably withheld. Any modifications to the Space Plan made after final
approval by Landlord shall be made at Tenant's expense and, if delay in
occupancy occurs as a result of such modifications, Tenant shall be liable to
Landlord for Basic Rental attributable to each day beyond the date that the
Premises would otherwise have been Substantially Complete, absent such delay.
(ii) Tenant shall prepare and deliver to Landlord detailed floor plan
layouts, together with working drawings and written instructions sufficiently
detailed to enable Landlord to let firm contracts (herein called
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"Tenant Plans") with respect to and reflecting the partitions and improvements
in the Premises. Landlord shall cooperate with Tenant in the preparation of the
Tenant Plans, shall promptly respond to Tenant's requests for information and
approvals within five (5) business days after inquiry, and shall use
commercially reasonable efforts to assist Tenant to complete the Tenant Plans as
soon as possible. Tenant agrees to deliver to Landlord, within twenty-eight
(28) days after final approval of the Space Plan by Landlord, an original
executed copy of the Tenant Plans proposed by Tenant; provided, however, if
Landlord, in good faith, reasonably objects to any aspect of the Tenant Plans
submitted by Tenant, Landlord shall specify in detail any objection to such
Tenant Plans as submitted to Landlord in a written notice to Tenant within such
5 business day period, Tenant shall modify such Tenant Plans to address
Landlord's written objections, and submit new Tenant Plans to Landlord for
approval, which approval shall not be unreasonably withheld. If Tenant fails to
timely deliver the Tenant Plans as required herein or makes modifications to the
Tenant Plans after the deadlines provided in this subsection, Tenant shall (1)
pay to Landlord all reasonable expenses incurred by Landlord due to Tenant's
modifications and/or delay in delivering the Tenant Plans; and (2) pay to
Landlord as additional rent a per diem Basic Rental charge for each day beyond
the initially projected Commencement Date that occupancy is delayed due to
Tenant's failure to timely comply with the requirements in this Section.
(iii) Tenant shall provide the services of an architect selected by Tenant
for the preparation of all space planning and construction documents with
respect to the renovation of the Premises. Tenant's architect, who must be fully
licensed in the jurisdiction in which the Building is located and insured in
accordance with industry and Landlord standards, shall be approved by Landlord,
such approval not to be unreasonably withheld. The cost associated with the
preparation of such documents, including any services of an engineering
consultant approved by Landlord, which approval shall not be unreasonably
withheld or delayed, shall be paid by Tenant and reimbursed by Landlord, to the
extent available, from the Tenant Allowance (as defined in subsection (f)
below).
(iv) Tenant understands that Landlord shall engage Technical Property
Services, Inc., the expense for which will be paid by Landlord, to review all
plans, change orders, to perform inspections of the construction of the
Premises, as required in Landlord's reasonable discretion, and to perform any
other service consistent with the supervision and management of the build-out of
the Premises.
(v) Time is of the essence as to all dates provided in this
subsection.
(b) Any changes to any approved Tenant Plans desired by Tenant shall be
submitted in writing and in detail to Landlord and shall be subject to
Landlord's consent, which consent shall not be unreasonably withheld.
(c) Landlord agrees to accept bids from several contractors (one of which
may be provided by Tenant) for the performance of the buildout as the
construction manager or general contractor ("Landlord's Contractor") hereunder.
Landlord shall select Landlord's Contractor, after consultation with Tenant,
although Landlord shall not be obligated to select the lowest bidder from
amongst all of the bidders, if Landlord has reasonable cause to determine the
selection of the lowest bidder would not result in timely and workmanlike
construction of the improvements. Landlord shall, in a good and workmanlike
manner, cause the Premises to be improved and completed in accordance with all
applicable laws and the Tenant Plans by Landlord's Contractor. In the completion
and preparation of the Premises in accordance with the Tenant Plans, Landlord
agrees to perform at its own expense up to the amount of the Tenant Allowance
those items of work set forth on the Space Plan (all work therein collectively
referred to as "Standard Tenant Work"), to the extent required by Tenant Plans.
Landlord reserves the right however, (i) to make substitutions of material of
equivalent grade and quality when and if any specified material shall not be
readily and reasonably available, and (ii) to make changes necessitated by
conditions met in the course of construction, provided that Tenant's approval of
any substantial change shall first be obtained (which approval shall not be
unreasonably withheld or delayed so long as there shall be general conformity
with Tenant Plans).
(d) All work to be performed by Landlord in addition to or in substitution
for Standard Tenant Work is hereinafter referred to as "Special Tenant Work."
All Special Tenant Work shall be furnished, installed and performed by
Landlord's Contractor for and on behalf of Tenant and at Tenant's
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sole expense, based on Landlord's out-of-pocket contract or purchase price for
materials, labor and service, including, without limit, any reasonable
contractor's fee for the contractor's overhead and profit and charges for
cutting, patching, cleaning up and removal of waste and debris, plus architects,
and engineers' fees, plus the product obtained by multiplying all of the
foregoing (as reduced by appropriate credits for substituted Standard Tenant
Work) by fifteen percent (15%) for Landlord's expenses and profit in handling
the substitution.
(e) Tenant shall pay Landlord as additional rent for all Special Tenant
Work and work in excess of the Tenant Allowance from time to time during the
progress of the work, within five (5) days after Landlord shall have given
Tenant an invoice or invoices therefor, in amounts representing Landlord's cost
of such work performed (including, for this purpose, material for Special Tenant
Work purchased and delivered to the Building to the date of the invoice), less
the amounts paid by Tenant on account. Any failure by Tenant to pay for all such
work shall constitute failure to pay rent when due and an Event of Default by
Tenant hereunder, giving rise to all remedies available to Landlord under this
Lease and at law or equity for non-payment of rent.
(f) Landlord shall contribute up to $260,840.00 (the "Tenant
Allowance"), calculated at a rate of $10.00 per rentable square foot, towards
the completion of the buildout of the Premises, which Tenant Allowance shall
also be applied against the cost of preparation and review of the Tenant Plans
and the Space Plan, and any costs incurred by Landlord for Building standard
suite signage and directory signage. Any costs in excess of the Tenant Allowance
shall be paid solely by Tenant and shall be considered additional rent under the
terms of the Lease. Of the foregoing Tenant Allowance, Tenant may use up to
$39,126.00, calculated at a rate of $1.50 per rentable square foot, for costs
associated with relocating to the Building, including computer and telephone
cabling costs, furniture purchase, and the direct cost of moving Tenant's office
to the Premises.
(g) Notwithstanding anything herein to the contrary, Landlord shall,
apart from the Tenant Allowance in each instance: (i) at its sole cost and
expense correct any deficiencies in the HVAC systems and electrical service for
the Premises, thereby providing such services at a level substantially
consistent with Class A office buildings of comparable quality and age in the
Tysons Corner, Virginia submarket; provided, however, that all modifications
made to the HVAC or electrical system due to Tenant's alterations to or use of
the Premises shall be the sole responsibility of Tenant; (ii) provide an
additional allowance of $10,000.00 to be used by Tenant to upgrade the elevator
lobby on its floor, such alterations to be subject to Landlord's approval, not
to be unreasonably withheld; (iii) renovate the bathrooms on Tenant's floor,
using Building standard materials, at its sole cost and expense; (iv) at its
sole cost and expense, repair and replace, if necessary, all blinds in the
Premises; and (v) at no cost to Tenant, provide a reasonable degree of visual
privacy to those offices in the Premises facing the atrium, by obstructing the
view of windows facing the atrium on the seventh (7th) floor of the Building.
8. OPERATING EXPENSES.
------------------
(a) During the term of this Lease, Tenant shall pay as additional rent
an amount (per each square foot within the Premises) equal to the excess
("Excess") from time to time by which the per square foot Basic Cost (which
shall be calculated by dividing the Basic Cost by the total rentable square feet
in the Building) exceeds the Base Year Stop. Landlord, at its option, may
collect such additional rent for each calendar year in a lump sum, to be due and
payable within thirty (30) days after Landlord furnishes to Tenant a statement
of actual Basic Cost for the previous year, or, beginning with the first day of
the thirteenth month following the Commencement Date, and on each January 1,
thereafter, Landlord shall also have the option to make a good faith estimate of
the Excess for each upcoming calendar year and may require the monthly payment
of such additional rent equal to one-twelfth (1/12) of such estimate.
(b) By May 1 of each calendar year during Tenant's occupancy and the
calendar year following termination of this Lease, or as soon thereafter as
practical, Landlord shall furnish to Tenant a statement of Landlord's actual
Basic Cost for the previous year. If for any calendar year additional rent
collected for the prior year as a result of Landlord's estimate of Basic Cost is
(i) in excess of the additional rent actually due during such prior year, then
Landlord shall either credit such overpayment towards Tenant's estimated share
of
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operating expenses for the next year or refund to Tenant any overpayment, or
(ii) less than the additional rent actually due during such prior year, then
Tenant shall pay to Landlord, on demand, any underpayment with respect to the
prior year.
(c) Each statement furnished by Landlord to Tenant shall be conclusive
and binding upon Tenant unless, within one hundred eighty (180) days after
receipt of such statement (unless the same continues to be contested by Tenant),
Tenant delivers to Landlord a written notice specifying the particular details
for which such statement is claimed to be incorrect Pending the determination
of such dispute, Tenant shall pay without delay the full amount of the
additional rent payable by Tenant in accordance with each such statement that
Tenant is disputing. Without limiting the preceding sentence, Tenant, or a
certified public accountant acting as Tenant's agent, shall have the right,
during Landlord's normal business hours and after reasonable notice, to inspect
the books and records of Landlord applicable to the determination of the
statement of additional rent payable by Tenant for the purpose of verifying in
good faith the information contained in such statement for a period of up to one
year after the receipt of such statement by Tenant. Landlord agrees to maintain
such records at an office located within the Washington, D.C. Metropolitan area.
In the event that Tenant's inspection discloses that Landlord's billings to
Tenant for increased Operating Expenses exceeded the actual operating expenses
attributable to Tenant, then Landlord shall refund the difference and, in the
event Landlord's billings exceeded by five percent (5%) the actual operating
expenses attributable to Tenant, Landlord will pay Tenant for the reasonable
expense incurred for an independent third-party in performing such inspection,
but in any event not more than $1,500.00.
(d) Should Tenant require any additional work or service, including but
not limited to heating, ventilation and air conditioning ("HVAC") furnished
outside Landlord's normal operating hours of 8:00 a.m. to 6:00 p.m., Monday
through Friday, 8:00 a.m. to 1:00 p.m., Saturday, excluding holidays, Landlord
may, upon reasonable advance notice by Tenant, furnish such additional services
at a charge of $50.00 per hour, per floor, subject to upward adjustment due to
increases in utilities and wage expenses, it being agreed that the cost to the
Landlord of such additional services shall not be considered or treated as Basic
Cost. Landlord agrees to provide Tenant with written notice of any change to
such hourly charge.
(e) Landlord may, at any time in its sole discretion, require separate
metering for gas, electric power or for any other utility service required by
Tenant if such service is deemed by Landlord to be in excess of Building
standard usage or for any other reason, in which case the cost of such metering
shall be at Tenant's sole cost and expense, due and payable upon demand by
Landlord, and in which event Tenant shall pay for all such utility service in
excess of its normal and customary usage, as metered. For any utility services
that are separately metered as prescribed herein, the amount of said services
which had been included in the calculation of the Base Year Stop or the
calculation of Basic Cost shall be excluded therefrom.
(f) Notwithstanding any expiration or termination of this Lease prior
to the end of the Lease Term, Tenant's obligations to pay any and all additional
rent pursuant to this Lease shall continue and shall cover all periods up to the
expiration or termination date of this Lease.
9. USE.
---
Tenant shall use the Premises only for the Permitted Use. Tenant will
not occupy or use the Premises, or permit any portion of the Premises to be
occupied or used, for any business or purpose other than the Permitted Use or
for any use or purpose which is unlawful, in part or in whole, disreputable in
any manner, or extra hazardous, nor will Tenant permit anything to be done which
shall in any way cause substantial noise, vibrations or fumes, or increase the
rate of insurance on the Building or contents or cause any cancellation of any
insurance policy covering the Building or any portion of its contents. In the
event that, by reason of acts or omissions of Tenant, there shall be any
increase in the rate of insurance on the Building or contents created by
Tenant's acts, omissions or conduct of business, Tenant hereby agrees to pay to
Landlord the amount of such increase within fifteen (15) days after Landlord's
written notice to Tenant of such increase. Tenant will conduct its business and
control its agents, employees and invitees in such a manner as not to create any
nuisance, nor interfere with or disturb the possession of other tenants or
Landlord in the
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management of the Building. Tenant shall not install any signs, window or door
lettering or advertising media of any type on or about the Premises or any part
thereof, unless the same have been previously approved in writing by Landlord
and are consistent with, Landlord's Rules and Regulations for the Building.
10. TENANT'S REPAIRS AND ALTERATIONS
--------------------------------
(a) Tenant shall not in any manner deface or injure or make unapproved
modifications of the Premises or the Building and will pay the cost of repairing
any damage or injury done to the Premises or the Building or any part thereof by
Tenant or Tenant's agents, employees or invitees; provided, however, that Tenant
need not obtain Landlord's consent to minor, cosmetic alterations which do not
affect the underlying Building operating systems. Tenant shall throughout the
Lease Term take good care of the Premises and keep them free from waste and
nuisance of any kind. Tenant agrees, at Tenant's sole cost and expense, to keep
the Premises, including, without limitation, all fixtures installed by Tenant
and special store fronts, in good condition and make all necessary non-
structural repairs and replacements except those caused by fire, casualty or
acts of God covered by Landlord's fire insurance policy covering the Building.
Such repairs and replacements shall be in quality equal to the original work and
installation. if Tenant fails to make such repairs within fifteen (15) days
after the occurrence of the damage or injury, Landlord may, at its sole option,
make such repair, and Tenant shall, upon demand therefor, pay Landlord for
Landlord's cost thereof plus fifteen percent (15%) for overhead costs.
(b) Notwithstanding anything in the Lease to the contrary, Tenant will
not make or allow to be made any alterations or physical additions in or to the
Premises, including changes in locks on doors, plumbing, lighting, wiring or
partitions, without the prior written consent of Landlord, such consent not to
be unreasonably withheld or delayed, as long as the alterations or additions do
not affect underlying life safety systems; common Building operating systems or
structural components of the Building. All maintenance, repairs, alterations,
additions or Improvements shall be conducted only by contractors or
subcontractors approved in advance in writing by Landlord, it being understood
that Tenant shall procure and maintain, and shall cause such contractors and
subcontractors engaged by or on behalf of Tenant to procure and maintain,
insurance coverage against such risks, in such amounts and with such companies
as Landlord may require in connection with any such maintenance, repair,
alteration, addition or improvement.
(c) At the end or other termination of this Lease, Tenant shall deliver
up the Premises with all improvements located therein in good repair and
condition, reasonable wear and tear, damage by fire, casualty or taking
excepted, and shall deliver to Landlord all keys to the Premises. All
alterations, additions or improvements (whether temporary or permanent in
character) made in or upon the Premises by Landlord or Tenant shall be
Landlord's property upon termination of this Lease and shall remain on the
Premises without compensation to Tenant (except for Tenant's removable trade
fixtures and personal property, which shall remain the property of Tenant);
provided, however, that if Landlord so elects on or prior to the termination or
upon earlier vacation of the Premises, Tenant shall remove all alterations,
additions, improvements and partitions erected by Landlord or Tenant (i) after
the Commencement Date and (ii) prior to the Commencement Date, if such
alterations, additions or improvements are so designated for removal by Landlord
on the Space Plan, and shall restore the Premises to its original condition by
the date of termination of this Lease or upon earlier vacating of the Premises,
except as provided herein. If Tenant fails to restore the Premises upon
Landlord's request, Landlord shall have the right to perform such restoration
and Tenant shall be liable for all costs and expenses incurred by Landlord
therefor.
11. ASSIGNMENT AND SUBLETTING.
-------------------------
(a) Landlord's Prior Consent Reguired. Neither Tenant nor Tenant's
---------------------------------
representatives, successors and assigns nor any subtenant or assignee will
assign, transfer, mortgage or otherwise encumber this Lease or sublet or rent
(or permit the occupancy or use of) the Premises, or any part thereof, without
obtaining the prior written consent of Landlord. Landlord's consent to assign
this Lease or sublet the Premises will not be unreasonably withheld, provided
Tenant satisfies all applicable provisions of subsection (b) below, nor shall
any assignment or transfer of this Lease or the right of occupancy hereunder be
effectuated by operation of law or otherwise without the prior written consent
of
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Landlord. Any reasonable expenses incurred by Landlord with respect to the
review and consent or denial of consent of the foregoing (not to exceed $1,000
per request) shall be paid by Tenant to Landlord as additional rent, and shall
be due and payable with the monthly installment of rent when billed.
(b) Qualification of Assignee or Subtenant. Subject to the provisions of
--------------------------------------
Section 11(c) hereof, Landlord shall not unreasonably withhold its consent
hereunder to any assignment or sublease by Tenant, provided that (x) in the
event of a sublease Tenant shall satisfy each of the following conditions prior
to any such sublease becoming effective; and (y) in the event of an assignment,
Tenant shall satisfy the conditions of subsections (i), (ii), (iv), (v) and (vi)
prior to any such assignment becoming effective:
(i) Tenant must first notify Landlord, in writing, of any proposed
assignment or sublease, at least twenty (20) days prior to the effective date of
such proposed assignment or sublease. The notice to Landlord must include a copy
of the proposed assignment or sublease, a copy of the proposed assignee's or
subtenant's financial statement for its most recent fiscal year, certified by a
public accountant or an executive officer of the proposed assignee or subtenant,
and such other related financial information as Landlord may require in its
reasonable discretion.
(ii) The assignee or subtenant must either have a credit rating
satisfactory to Landlord (in Landlord's reasonable judgment) or be able to
demonstrate to Landlord's reasonable satisfaction that it is capable of
servicing all of Tenant's financial obligations under this Lease for which such
assignee or subtenant becomes liable.
(iii) The sublease must (A) be expressly subject and subordinate to this
Lease, (B) require that any subtenant comply with and abide by all of the terms
of the Lease, and (C) provide that any termination of this Lease shall
extinguish the sublease as well.
(iv) The assignee or subtenant may not propose to change the use of the
premises to, a purpose other than as stated in Section 9 hereof, may not be a
place of public accommodation as defined under the Americans with Disabilities
Act, nor conduct its business in a manner which, in Landlord's reasonable
judgment, is not appropriate for comparable office buildings in the metropolitan
Washington, D.C. area.
(v) The assignee or subtenant may not be a tenant, subtenant, or other
occupant of any part of the Building, unless Landlord is unable to offer such
occupant comparable space elsewhere in the Building.
(vi) The Tenant may not be in default under this Lease.
(vii) The sublease shall contain the following clause:
"Underlying Lease Agreement. This Sublease and Subtenant's rights under
------------------------------
this Sublease shall at all times be subject and subordinate to the
underlying Lease identified in Paragraph hereof, and Subtenant shall
---
perform all non-monetary obligations of Tenant under said Lease, with
respect to the Sublease Premises. Subtenant acknowledges that any
termination of the underlying Lease shall extinguish this Sublease.
Landlord's consent to this Sublease shall not make Landlord a party to this
Sublease, shall not create any privity of contract between Landlord and
Subtenant or other contractual 1iability or duty on the part of the
Landlord to the Subtenant, shall not constitute its consent or waiver of
consent to any subsequent sublease or sub-sublease, and shall not in any
manner increase, decrease or otherwise affect the rights and obligations of
Landlord and Tenant under the underlying Lease, in respect of the Sublease
Premises. Subtenant shall have no right to assign this Sublease or further
sublet the Premises without the prior written consent of Landlord. Any term
of this Sublease that in any way conflicts with or alters the provisions of
the underlying Lease shall be of no effect as to Landlord and Landlord
shall not assume any obligations as landlord under the Sublease and Tenant
shall not acquire any rights under the Sublease directly assertable against
Landlord under the underlying Lease. Tenant hereby collaterally, assigns to
Landlord this Sublease and any and all payments due to Tenant from
Subtenant as additional security for Tenant's performance
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<PAGE>
of all of its covenants and obligations under the underlying Lease, and
authorizes Landlord, upon an Event of Default by Tenant, to collect the
same directly from Subtenant and otherwise administer the provisions of
this Sublease, at the option of Landlord. Subtenant hereby consents to such
collateral assignment of this Sublease to Landlord and agrees to observe
its obligations created hereby."
(C) Landlord's Right of First Refusal. Landlord shall have
----------------------------------
the right, within twenty (20) days after receipt of the notice from Tenant,
required under Section 11(b)(i) above, to elect: (i) if Tenant proposes to
assign the Lease or sublease all or substantially all of the Premises, to
terminate this Lease in its entirety, in which event the Lease shall terminate
upon the effective date of the proposed assignment or sublease, and Tenant shall
vacate the Premises as of such effective date in accordance with the applicable
provisions of this Lease; (ii) if Tenant intends to sublet a portion of the
Premises, to terminate this Lease only with respect to such portion of the
Premises, in which case Tenant shall vacate such portion as provided in
subsection (i) above; or (iii) to require Tenant to pay Landlord, within ten
(10) days of receipt, one-half (1/2) of the amount of rent payable under such
assignment or sublease in excess of the amount of rent payable by Tenant
hereunder with respect to the Premises or, in the event of a sublease, that
portion of the Premises sublet, offset by any direct expenses incurred by Tenant
actually incurred in assigning the Lease or subleasing such portion of the
Premises, and, additionally, offset by the cost of any service which Tenant
provides subtenant or assignee that Tenant does not receive from Landlord, costs
Tenant incurs under the Lease (such as payments due under Section 8 above) which
are not passed through to subtenant or assignee, and the value of the sale or
rental of assets which are not provided by Landlord (such as Tenant's furniture)
to subtenant or assignee (all amortized in equal monthly payments over the
remaining term of the Lease, if assigned, or, if applicable, over the initial
term of such sublease). Upon exercise by Landlord of either of the options set
forth in subsection (i) or (ii) above, Tenant shall surrender the Premises or
such portion of the Premises, as the case may be, to Landlord, and thereafter
the rent to be paid by Tenant pursuant to Section 3 above shall be that portion
of the total rent which the amount of square foot area remaining in the
possession of Tenant bears to the total square foot area of the Premises. In the
event that Landlord does not exercise its right to terminate this Lease, or any
applicable portion thereof, within said twenty (20) day period, Tenant shall
have the right, subject to the provisions of subsection (iii) above, to assign
the Lease or sublet the Premises or a portion thereof after first obtaining the
written consent of Landlord as provided in Section 11(a) above. Upon exercise by
Landlord of the option set forth in subsection (iii) above, Tenant covenants and
agrees to provide Landlord with semi-annual statements, prepared and verified by
a certified public accountant or executive officer of Tenant, stating the amount
of rent or other consideration received by Tenant from its assignee or
subtenant(s) during such semi-annual period. If such statement shows Tenant
failed to make the full payment to Landlord required by subsection (iii) above,
a late charge equal to ten percent (10%) of the amount due shall be paid by
Tenant to Landlord as additional rent, and shall be due and payable by the
assignee or Tenant with the monthly installment of rent next becoming due.
Notwithstanding anything to the contrary contained herein, Landlord shall not
have the right to recapture 6,000 to 8,000 rentable square feet of the Premises
which Tenant intends to sublease immediately upon commencement of this Lease,
all other conditions of this Section to be satisfied prior to any such sublease
becoming effective.
(d) No Waiver or Release. 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 covenant or obligation under this Lease, nor shall the collection
or acceptance of rent from any such assignee, subtenant or occupant constitute a
waiver or release of Tenant of 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. 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, at Landlord's option, in the event of any default by
Tenant under the terms of this Lease, which continues beyond any applicable
grace or cure period.
(e) Subsidiary or Affiliate. Provided Tenant delivers notice to
--------------------------
Landlord not less than fifteen (15) days prior to any such assignment or
sublease, and provided any such assignee or subtenant satisfies the conditions
of
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<PAGE>
subsections 11(b)(iii) and 11(b)(iv) above, Tenant may assign this Lease, or
sublease all or part of the Premises, without the consent of Landlord, to:
(i) any bona fide entity that controls, is controlled
by, or is under common control with, Tenant; or
(ii) any bona fide entity in which or with which Tenant, its
successors or assigns, is merged or consolidated, so long as (A) the liabilities
of the entities participating in such merger or consolidation are assumed by the
entity surviving such merger or created by such consolidation and (B) the
successor can demonstrate to Landlord's reasonable satisfaction by balance
sheets and other financial documentation submitted to Landlord that it is no
less capable than Tenant of servicing all of Tenant's financial obligations
under this Lease.
12. INDEMNITY.
---------
(a) Landlord shall not be liable for, and Tenant shall indemnify and
save harmless Landlord, ground lessor, if any, and Landlord's managing agent, if
any, from and against and from all fines, damages, suits, claims, demands,
losses and actions (including reasonable attorneys' fees) for any injury to
person (including death) or damage to or loss of property on or about the
Premises caused by Tenant, its employees, contractors, subtenants, invitees or
by any other person entering the Premises or the Building under the express or
implied invitation of Tenant, or arising out of Tenant's use of the Premises.
Landlord shall not be liable or responsible for any loss or damage to any
property or death or injury to any person occasioned by theft, fire, act of God,
public enemy, criminal conduct of third parties, injunction, riot, strike,
insurrection, war, court order, requisition or other governmental body or
authority, by other tenants of the Building or any other matter beyond the
reasonable control of Landlord, or for any injury or damage or inconvenience
which may arise through repair or alteration of any part of the Building, or
failure to make repairs, or from any cause whatever except Landlord's negligence
or willful misconduct.
(b) Landlord hereby agrees to make no claim against Tenant, and will
indemnify and save Tenant, its agents, employees and invitees harmless from any
claim which shall be made against Tenant by any agent, employee, licensee or
invitee of Landlord or by others claiming the right to be on or about the common
areas for any injury, loss or damage to person or property occurring upon the
common areas, unless due to Tenant's negligence or willful misconduct.
13. SUBORDINATION.
--------------
This Lease and all rights of Tenant hereunder shall be and
are subject and subordinate at all times to any deeds of trust, mortgages,
installment sale agreements and other instruments or encumbrances, as well as to
any ground leases or primary leases, that now or hereafter cover all or any part
of the Building, the Land or an interest of Landlord therein, and to any and all
advances made on the security thereof, and to any and all increases, renewals,
modifications, consolidations, replacements and extensions of any of such deeds
of trust, mortgages, installment sale agreements, instruments, encumbrances or
leases, as well as any substitutions therefor, all automatically and without the
necessity of any further action on the part of Tenant to effectuate such
subordination. Tenant shall, however, upon demand at any time or times execute,
acknowledge and deliver to Landlord any and all instruments and certificates
that in the reasonable judgment of Landlord may be necessary or proper to
confirm or evidence such subordination. Notwithstanding the foregoing, if any
mortgagee, trust beneficiary or ground lessor shall elect to have this Lease
treated as if it became effective and Tenant had taken possession prior to the
lien of its mortgage or deed of trust or prior to its ground lease, and shall
give notice thereof to Tenant, this Lease shall be deemed to have become
effective and Tenant's right to possession shall be considered prior to such
mortgage, deed of trust, or prior to its ground lease whether this Lease is
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof. In the event any mortgage or deed of
trust to which this Lease is subordinate is foreclosed or a deed in lieu of
foreclosure is given to the mortgagee or beneficiary, Tenant shall attorn to the
purchaser at the foreclosure sale or to the grantee under the deed in lieu of
foreclosure; in the event any ground lease to which this Lease is subordinate is
terminated, Tenant shall attorn to the ground lessor. Tenant shall at any time
execute, acknowledge and deliver to Landlord's mortgagee (including the
beneficiary under any deed of
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<PAGE>
trust) or other holder any and all instruments and certificates that in the
judgment of Landlord's mortgagee may be necessary or proper to confirm or
evidence such attornment, within ten (10) days after such instruments and
certificates have been delivered to Tenant. Notwithstanding the foregoing,
Landlord shall make reasonable efforts to obtain a non-disturbance agreement
from all mortgagees and beneficiaries of any deeds of trust now or hereafter
placed on the Building, provided that the same can be obtained at no cost,
expense, or liability to Landlord (other than Landlord's reasonable legal fees).
Landlord shall, however, have no liability to Tenant as a result of its failure
to obtain any non-disturbance agreement, provided that Landlord endeavored in
good faith to obtain such an agreement.
14. RULES AND REGULATIONS.
---------------------
Tenant and Tenant's agents, contractors, employees and invitees will
comply fully with all requirements of the Rules and Regulations of the Building
and related facilities, as specified in the Rules and Regulations now or
hereafter sent by Landlord to Tenant. Landlord shall at all times have the right
to change such rules and regulations to promulgate other Rules and Regulations
in such manner as Landlord may deem advisable, in its reasonable discretion, for
safety, care or cleanliness of the Building and related facilities or the
Premises, and for preservation of good order therein, all of which Rules and
Regulations, changes and amendments will be forwarded to Tenant in writing and
shall be carried out and observed by Tenant. Tenant shall be responsible for
compliance therewith by the agents, contractors, employees and invitees of
Tenant. Landlord shall use reasonable efforts to enforce all such Rules and
Regulations, including any exceptions thereto, uniformly and in a manner which
does not discriminate against Tenant, although it is understood that Landlord
may grant exceptions to such Rules and Regulations in circumstances in which it
reasonably determines such exceptions are warranted.
15. INSPECTION.
----------
Landlord or its officers, agents and representatives, and
any ground lessor or mortgagee thereof, shall have the right to enter into and
upon any and all parts of the Premises at all reasonable hours upon reasonable
advance notice (or, in any emergency or for the purpose of performing routine
maintenance, at any hour and without advance notice) to (a) inspect the Premises
at any time (including the right to perform periodic environmental studies,
audits and reports), (b) clean or make repairs or alterations or additions as
Landlord may deem necessary (but without any obligation to do so, except as
expressly provided for herein, and, in such event, Landlord shall use
commercially reasonable efforts to avoid disrupting Tenant's use of the
Premises), or (c) show the Premises to prospective tenants, purchasers or
lenders; and Tenant shall not be entitled to any abatement or reduction of rent
by reason thereof, nor shall such be deemed to be an actual or constructive
eviction.
16. CONDEMNATION.
------------
If the whole or, as determined by Landlord in its sole
discretion, any substantial part of the Land or the Building should be taken for
any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof and the taking would prevent or materially interfere with the use of the
Premises for the purpose for which they are being used, as determined by
Landlord, this Lease shall terminate and the rent shall be abated during the
unexpired portion of this Lease, effective when the physical taking of said Land
or the Building shall occur. If part of the Land or Building shall be taken for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and this Lease is not terminated as provided in the sentence above,
this Lease shall not terminate but the rent payable hereunder during the
unexpired portion of this Lease shall be reduced on a pro-rata basis based on
the square footage remaining in the Premises, or on another equitable basis if
the taking affects only the Land or portions of the Building other than the
Premises. In the event of any such taking or private purchase in lieu thereof,
Landlord and Tenant shall each be entitled to all remedies provided by law;
provided, however, that any award paid to Tenant shall not detract from any
award which Landlord is entitled to receive; and if Landlord's award is reduced
to any extent as a result of any award to Tenant, then Tenant shall assign and
pay over to Landlord the amount by which Landlord's award was so reduced.
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<PAGE>
17. FIRE OR OTHER CASUALTY.
-----------------------
In the event of damage to or destruction of the Premises or
the Building, or the entrances and other common facilities necessary to provide
normal access to the Premises, caused by fire or other casualty, Tenant shall
provide notice thereof to Landlord as soon as reasonably possible, and Landlord
shall make repairs and restorations as hereafter expressly provided, unless this
Lease shall be terminated by Landlord or unless any mortgagee which is entitled
to receive casualty insurance proceeds fails to make available to Landlord a
sufficient amount of such proceeds to cover the cost of such repairs and
restoration.
If (i) the damage is of such nature or extent, in the
judgment of Landlord's architect, that more than two hundred ten (210)
consecutive days, after commencement of the work, would be required (with normal
work crews and hours) to repair and restore the part of the Premises or Building
which has been damaged, (ii) a substantial portion of the Premises or the
Building is so damaged that, in Landlord's sole judgment, it is uneconomic to
restore or repair the Premises or the Building, as the case may be, or (iii) any
mortgagee which is entitled to receive casualty insurance proceeds fails to make
available to Landlord a sufficient amount of such proceeds to cover the cost of
such repairs and restoration, Landlord shall so advise Tenant promptly; and
Landlord or Tenant, for a period of ten (10) days thereafter, shall have the
right to terminate this Lease by written notice to the other, as of the date
specified in such notice, which termination date shall be no later than thirty
(30) days after the date of such notice. In the event of such fire or other
casualty, if this Lease is not terminated pursuant to the terms of this Section
17, and if (y) sufficient casualty insurance proceeds are available for use for
such restoration or repair, and (z) this Lease is then in full force and effect,
Landlord shall proceed promptly and diligently to restore the Building, Land and
Premises to its substantially similar condition prior to the occurrence of the
damage, provided that Landlord shall not be obligated to repair or restore any
alterations, additions or fixtures which Tenant or any other tenant may have
installed unless Tenant, in a manner satisfactory to Landlord, assures payment
in full of all costs which may be incurred by Landlord in connection therewith.
Landlord shall not insure any improvements or alterations to the Premises in
excess of Standard Tenant Work, or any fixtures, equipment or other property of
Tenant. Tenant shall, at its sole expense, insure the value of its leasehold
improvements, fixtures, equipment or other property located in the Premises, for
the purpose of providing funds to Landlord to repair and restore the Premises
to its substantially similar condition prior to occurrence of the damage. If
there be any such alteration, fixtures or additions and Tenant does not assure
or agree to assure payment of the cost or restoration or repair as aforesaid,
Landlord shall have the right to determine the manner in which the Premises
shall be restored so as to be substantially the same as the Premises existed
prior to the damage occurring, as if such alterations, additions or fixtures had
not been made or installed. The validity and effect of this Lease shall not be
impaired in any way by, and Landlord shall have no liability as a result of, the
failure of Landlord to complete repairs and restoration of the Premises or of
the Building within two hundred ten (210) consecutive days after commencement of
work, even if Landlord had in good faith notified Tenant that it estimated that
the repair and restoration would be completed within such period, provided that
Landlord proceeds diligently with such repair and restoration.
In the case of damage to the Premises not caused by the willful
misconduct of the Tenant or any of its agents, employees or invitees, and which
is of a nature or extent that Tenant's continued occupancy is substantially
impaired, the rent otherwise payable by Tenant hereunder shall be equitably
abated or adjusted for the duration of such impairment as determined by
Landlord. In no event, however, shall any damages be payable by Landlord to
Tenant in respect of business interruption resulting from any fire or other
casualty on the Premises or Building. Tenant shall be responsible to insure
and/or repair all of Tenant's leasehold improvements and all equipment, fixtures
and personal property located in the Premises.
18. HOLDING OVER.
-------------
Tenant shall, at the termination of this Lease by lapse of time or
otherwise, yield up immediate possession to Landlord. If Tenant holds over after
the expiration or termination of this Lease, all of the other terms and
provisions of this Lease shall be applicable during such period, except that
Tenant shall pay Landlord from time to time upon demand, as partial damages for
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<PAGE>
the period of any holdover, an amount equal to two hundred percent (200%) of
the Basic Rental in effect on the termination date, computed on a daily basis
for each day of the holdover period. No holding over by Tenant shall operate to
extend this Lease except as otherwise expressly provided in this Lease. The
foregoing notwithstanding, Landlord, in addition to accepting the daily damages
during the period of such holding over, shall be entitled to pursue all remedies
at law or equity, including, without limitation, rights to ejectment and
damages. Notwithstanding the foregoing, provided that Tenant has delivered to
Landlord written notice of its intent to holdover at least six (6) months prior
to the end of the Lease Term, the foregoing damages shall be one hundred fifty
percent (150%) of the Basic Rental in effect on the termination date for the
first two (2) months of such holdover, and two hundred percent (200%)
thereafter.
19. TAXES.
-----
(a) During each calendar year or portion thereof included in the
Lease Term, and any renewal thereof, Tenant shall pay to Landlord as additional
rent, Tenant's Proportionate Share of Real Estate Taxes which exceed the Base
Real Estate Taxes. Real Estate Taxes shall mean (i) all real estate taxes,
including general and special assessments, if any, which are imposed upon
Landlord or assessed against the Building and/or the Land during any calendar
year, and (ii) any other present or future taxes or governmental charges that
are imposed upon Landlord or assessed against the Building and/or the Land
during any calendar year which are in the nature of, in addition to or in
substitution for real estate taxes, including, without limitation, any license
fees, tax measured by or imposed upon rents, or other tax or charge upon
Landlord's business of leasing the Building, but shall not include any federal,
state or local income tax. Real Estate Taxes shall also include all reasonable
expenses incurred by Landlord in obtaining or attempting to obtain a reduction
of Real Estate Taxes, including but not limited to, legal fees. In the event
that Landlord obtains a reduction in a prior year's Real Estate Taxes, and
provided that Tenant has paid its Proportionate Share of Real Estate Taxes for
such year, Tenant shall be entitled to a credit for its pro rata share of any
such reduction.
(b) Commencing with the 1998 calendar year, and in each calendar
year thereafter during the Lease Term, Landlord may deliver to Tenant a
statement of Landlord's reasonable estimate of any increase in the annual Real
Estate Taxes for the then current calendar year over the Base Real Estate Taxes
and Tenant's percentage thereof, such statement to be delivered on or before
April 1st of said calendar year, or as soon thereafter as possible. Within
thirty (30) days after delivery of such statement (including any statement
delivered after the expiration or termination of this Lease), Tenant shall pay
to Landlord, as additional rent, Tenant's aforesaid percentage share of such
estimated increase in the annual Real Estate Taxes, except that Tenant's first
payment shall include the (1/12th) monthly shares for the months from January
1st through the month in which Landlord submitted the estimate of the increase
in the annual Real Estate Taxes for the then current calendar year.
(c) Commencing with the 1999 calendar year, Landlord shall deliver
to Tenant a statement showing the determination of the increase in the annual
Real Estate Taxes for the preceding calendar year and Tenant's total percentage
thereof, such statement to be delivered on or before April 1st of the then
current calendar year, or as soon thereafter as reasonably practicable. If such
statement shows that Tenant's payments, if any, of the estimated monthly
increase in the annual Real Estate Taxes for said preceding calendar year
exceeded Tenant's actual increases for said year, then Tenant may deduct such
overpayment from its next payment or payments of monthly rent. If such statement
shows that Tenant's percentage share of Landlord's actual increase in the annual
Real Estate Taxes exceeded Tenant's payments, if any, of the estimated monthly
increase in the annual Real Estate Taxes for said preceding calendar year, then
Tenant shall pay the total amount due to Landlord, which amount shall constitute
additional rent hereunder due and payable with the first monthly installment of
rent due after delivery of said statement.
(d) In the event that the expiration date or other date of
termination of this Lease is not December 31st, the increase to be paid by
Tenant for the calendar year in which the expiration date occurs shall be
determined by multiplying the amount of Tenant's share thereof for the full
calendar year by a fraction, with the number of days during such calendar year
prior to the expiration date as the numerator, and with 365 as the denominator.
The termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to this Section to be performed after such termination.
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<PAGE>
(e) Tenant shall be liable for all taxes levied or assessed against
personal property, furniture or fixtures placed by Tenant in the Premises, and
if any such taxes for which Tenant is liable are in any way levied or assessed
against Landlord, Tenant shall pay the Landlord upon demand that part of such
taxes for which Tenant is primarily liable hereunder.
20. EVENTS OF DEFAULT.
----------------
The occurrence of any of the following events shall be deemed to be
an event of default ("Event of Default") by Tenant under this Lease:
(a) Tenant shall fail to pay when due any rental or other sums
payable by Tenant hereunder (or under any other lease now or hereafter executed
by Tenant in connection with space in the Building), and same is not cured
within five (5) days after Landlord's written notice thereof to Tenant.
(b) Tenant shall fail to comply with or observe Section 46 of this
Lease (or a comparable section of any other lease now or hereafter executed by
Tenant in connection with space in the Building). Notwithstanding the foregoing,
if (i) the default is of such a nature that it does not present a risk to the
health or safety of other tenants and/or invitees of the Building and/or the
Premises; (ii) Tenant has commenced curing the default within five (5) days
after notice thereof from Landlord; and (iii) Tenant is continuing to diligently
pursue the cure of said default, then Tenant shall have an additional ten (10)
days in which to complete the cure of the default.
(c) Tenant shall fail to comply with or observe any other provision
of this Lease (or any other lease now or hereafter executed by Tenant in
connection with space in the Building), and same is not cured within fifteen
(15) days after Landlord's written notice thereof to Tenant. Notwithstanding the
foregoing, if (i) the default is of such a nature that fifteen (15) days is an
unreasonably short period of time in which to cure the default; (ii) Tenant has
commenced curing the default within the fifteen (15) day period; and (iii)
Tenant is continuing to diligently pursue a cure of such default, then Tenant
shall have an additional fifteen (15) days in which to complete the cure of said
default.
(d) Tenant abandons the Premises and fails to pay any rental or
other sums for which Tenant is obligated hereunder.
(e) Tenant or any partner or guarantor of Tenant, as the case may
be, shall apply for or consent to the appointment of a receiver, trustee or
liquidator of itself or himself or any of its or his property, admit in writing
its or his inability to pay its or his debts as they mature, make a general
assignment for the benefit of creditors, be adjudicated a bankrupt, insolvent or
file a voluntary petition in bankruptcy or a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations of a
petition filed against it or him in any proceeding under any such law, or if
action shall be taken by Tenant or any partner or guarantor of Tenant for the
purposes of effecting any of the foregoing.
(f) Any court of competent jurisdiction shall enter an order,
judgment or decree approving a petition seeking reorganization of Tenant or all
or a substantial part of the assets of Tenant or any partner or guarantor of
Tenant, or appointing a receiver, sequestrator, trustee or liquidator of Tenant
or any partner or guarantor of Tenant or any of its or his property, and such
order, judgment or decree shall continue unstayed and in effect for any period
of at least thirty (30) days.
21. REMEDIES.
---------
Upon the occurrence of any Event of Default specified in this Lease,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever:
(a) Collect or bring an action for such rent as may be in arrears,
and request entry of judgment therefor as provided for in case of rent in
arrears, or file a proof of claim in any bankruptcy or insolvency proceeding for
such rent, or institute any other proceedings, whether similar or dissimilar to
the foregoing, to enforce payment thereof.
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<PAGE>
(b) Declare due and payable and sue for and recover, all unpaid
rent for the unexpired period of the Lease Term (and also all additional rent as
the amounts thereof can be determined or reasonably estimated) as if by the
terms of this Lease the same were payable in advance, together with all legal
fees and other expenses incurred by Landlord in connection with the enforcement
of any of Landlord's rights and remedies hereunder.
(c) Terminate this Lease, in which event Tenant shall immediately
Surrender the Premises to Landlord; and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, without being liable for trespass or any claim for damages therefor,
and Tenant agrees to pay to Landlord on demand the amount of all loss and damage
which Landlord may suffer by reason of such termination, whether through
inability to relet the Premises on satisfactory terms or otherwise, including
the loss of rental for the remainder of the Lease Term.
(d) Without termination of the Lease, enter upon and take
possession of the Premises and expel or remove Tenant and any other person who
may be occupying the Premises or any part thereof, without being liable for
trespass or any claim or damages therefor; and if Landlord so elects, relet the
Premises on behalf of the Tenant on such terms as Landlord shall deem advisable
and receive the rent therefor, and Tenant agrees to pay to Landlord on demand
any deficiency that may arise by reason of such reletting for the remainder of
the Lease Term.
(e) Without termination of the Lease, enter upon the Premises, by
force if necessary, without being liable for trespass or any claim for damages
therefor, and do whatever Tenant is obligated to do under the terms of this
Lease; and Tenant agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in thus effecting compliance with Tenant's obligations under
this Lease, and Tenant further agrees that Landlord shall not be liable for any
damages resulting to the Tenant from such action.
(f) If Tenant fails to perform any covenant or observe any
condition to be performed or observed by Tenant hereunder or acts in violation
of any covenant or condition hereof, Landlord may, but shall not be required to
on behalf of Tenant, perform such covenant and/or take such steps, including
entering upon the Premises, as may be necessary or appropriate, if Landlord
shall have given Tenant at least three (3) days prior written notice of
Landlord's intention to do so, unless an emergency situation exists, in which
case Landlord shall have the right to proceed immediately and all costs and
expenses incurred by Landlord in so doing, including reasonable legal fees,
shall be paid by Tenant to Landlord upon demand, plus interest at the overdue
interest rate set forth herein from the date of expenditure(s) by Landlord, as
additional rent. Landlord's proceeding under the rights reserved to Landlord
under this Section shall not in any way prejudice or waive any rights Landlord
might otherwise have against Tenant by reason of Tenant's default.
(g) Exercise any other rights and remedies available to Landlord at
law or in equity. No reentry or taking possession of the Premises by Landlord
shall be construed as an election on its part to terminate this Lease, unless a
written notice of such intention be given to Tenant. Neither pursuit of any of
the foregoing remedies provided nor any other remedies provided herein or by law
shall constitute a forfeiture or waiver of any rent due to Landlord hereunder or
of any damages accruing to Landlord by reason of the violation of any of the
terms, provisions and covenants herein contained. Landlord's acceptance of rent
following an Event of Default hereunder shall not be construed as Landlord's
waiver of such Event of Default. No waiver by Landlord of any violation or
breach of any of the terms, provisions and covenants herein contained shall be
deemed or construed to constitute a waiver of any other violation or Event of
Default. The loss or damage that Landlord may suffer by reason of termination of
this Lease or the deficiency from any reletting as provided for above shall
include the expense of repossession and any repairs or remodeling undertaken by
Landlord following possession. Should Landlord at any time terminate this Lease
for any default, Tenant shall not be relieved of its liabilities and obligations
hereunder and, in addition to any other remedy Landlord may have, Landlord may
recover from Tenant all damages Landlord may incur by reason of such default,
including the cost of recovering the Premises and the loss of rental for the
remainder of the Lease Term. Tenant's obligations and liabilities under this
Lease shall also survive repossession and reletting of the Premises by Landlord
- 22 -
<PAGE>
pursuant to the foregoing provisions of this Section 21. Notwithstanding
anything to the contrary contained in this Section, in computing the amount due
Landlord as a result of any Event of Default by Tenant, Tenant shall not be
entitled to receive any credit, upon reletting by Landlord after Tenant's
default, for any rent or other sums received by Landlord in excess of those for
which Tenant is otherwise obligated herein.
(h) The abatement of Basic Rental, if any, and other concessions of
the Landlord (which may include among other items: (i) brokerage fees; (ii)
moving allowances; (iii) Tenant improvements; (iv) Lease assumptions; (v)
unamortized portions of the buildout; and (vi) any other cash allowances or
payments) are subject to the condition that, throughout the Lease Term, Tenant
will perform and comply with all of the terms, covenants and conditions of this
Lease to be performed or complied with by Tenant. If, after the occurrence of an
Event of Default, Landlord terminates this Lease or reenters and takes
possession of the Premises without such a termination, the abatement of Basic
Rental and other Landlord concessions shall cease to apply and Tenant shall be
obligated, within 10 days after demand, to pay to Landlord the Basic Rental
abated and the value of all Landlord's concessions. Landlord's right to recover
the Basic Rental abated and the value of all Landlord's concessions shall be in
addition to any other remedies available to Landlord as a result of such
termination or reentry.
(i) All rights and remedies of Landlord and Tenant herein
enumerated shall be cumulative, and none shall exclude any other right or remedy
allowed by law.
(j) in addition to any other rights and remedies provided
in this Lease, and with or without terminating this Lease, Landlord may with
force of law, re-enter, terminate Tenant's right of possession and take
possession of the Premises, the provision of this Section 21 operating as a
notice to quit, any other notice to quit or of Landlord's intention to re-enter
the Premises being hereby expressly waived.
(k) Notwithstanding anything to the contrary contained in
this Section, Landlord agrees to make reasonable efforts to mitigate its
damages, provided that (a) Landlord shall have no obligation to lease the
Premises in priority over any other space which may then be available or
thereafter become available in the Building; (b) Tenant shall also have an
obligation to make reasonable efforts to reduce any damages caused by its breach
of this Lease or other Event of Default hereunder; and (c) it shall be Tenant's
burden to prove that Landlord failed to comply with any standard imposed upon
Landlord in this subsection.
22. SURRENDER OF PREMISES.
----------------------
No act done and no failure to act by Landlord or its agents
during the term hereby granted shall be deemed an acceptance of a surrender of
the Premises, and no agreement to accept a surrender of the Premises shall be
valid unless the same be made in writing and signed by Landlord.
23. ATTORNEYS' FEES.
-----------------
In case it should be necessary or proper for Landlord or Tenant to
bring any action under this Lease or to consult or place this Lease, or any
amount payable by Landlord or Tenant hereunder, with an attorney concerning a
default of Landlord or Tenant hereunder, irrespective of whether such default is
later cured, then the non-prevailing party shall pay any and all reasonable
attorney's fees, court costs and expenses of the prevailing party incurred in
connection with such enforcement.
24. INTENTIONALLY OMITTED.
----------------------
25. MECHANICS' LIENS.
-----------------
Tenant shall not permit any mechanics' lien or other liens
to be placed upon the Premises or the Building or improvements thereon during
the Lease Term, caused by or resulting from any work performed, materials
furnished or obligation incurred by or at the request of Tenant (excluding,
however, the Landlord's performance of its obligations under this Lease). In the
case of the filing of any such lien Tenant will promptly, and in any event
within thirty (30) days after the filing thereof, satisfy or release such lien
by means of payment
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<PAGE>
thereof, bonding Landlord against any loss occasioned thereby (in which case
Tenant shall have the right in due diligence to contest and dispute such lien so
long as such bond remains in place), or take such other action as may be
otherwise acceptable to Landlord.
26. WAIVER OF SUBROGATION; INSURANCE.
--------------------------------
(a) Landlord and Tenant hereby release the other from any and all
liability or responsibility to the other or anyone claiming through or under
them by way of subrogation or otherwise for any loss or damage to property, even
if such fire or other casualty shall have been caused by the fault or negligence
of the other party, or anyone for whom such party may be responsible.
(b) Tenant shall maintain throughout the Lease Term, at Tenant's
sole cost and expense, insurance against loss or liability in connection with
bodily injury, death, property damage and destruction, in or upon the Premises
or the remainder of the Land, and arising out of the use of all or any portion
of the same by Tenant or its agents, employees, officers, invitees, visitors and
guests, under policies of comprehensive general public liability insurance
having such limits as to each as may be reasonably required by Landlord from
time to time, but in any event of not less than Two Million Dollars ($2,000,000)
per occurrence for death or injury and Two Million Dollars ($2,000,000) per
occurrence for property damage or destruction and personal injury. Such policies
shall name Landlord and Tenant, (and, at Landlord's or such mortgagee's or
paramount lessor's or installment seller's request) any mortgagee of all or any
portion of the Buildings and any landlord of, or installment seller to, Landlord
as the insured parties, shall provide that they shall not be adversely modified
or canceled without the insurer agreeing to give at least thirty (30) days
prior written notice to Landlord and any other party designated as aforesaid and
shall be issued by insurers of recognized responsibility licensed to do business
in the jurisdiction in which the Building is located and acceptable to Landlord.
Copies of all such policies certified by the insurers to be true and complete
shall be supplied to Landlord and such mortgagees, paramount lessors and
installment sellers at all times.
27. INTENTIONALLY OMITTED.
---------------------
28. BROKERAGE.
---------
Tenant warrants that it has had no dealings with any broker or agent
other than Compass Management and Leasing, Inc. and Spaulding and Slye Services
-------------------------------------------------------------------
Limited Partnership in connection with the negotiation or execution of this
- --------------------
Lease, and Tenant agrees to indemnify Landlord against all costs, expenses,
attorneys' fees or other liability for commissions or other compensation or
charges claimed by any other broker or agent claiming the same by, through or
under Tenant.
29. ESTOPPEL CERTIFICATES.
---------------------
Tenant shall from time to time, within ten (10) business days after
Landlord shall have requested the same of Tenant, execute, acknowledge and
deliver to Landlord a written instrument in recordable form and otherwise in
such form as required by Landlord (i) certifying that this Lease is in full
force and effect and has not been modified, supplemented or amended in any way
(or, if there have been modifications, supplements or amendments thereto, that
it is in full force and effect as modified, supplemented or amended and stating
such modifications, supplements and amendments); and (ii) stating any other fact
or certifying any other condition reasonably requested by Landlord or reasonably
requested by any mortgagee or prospective mortgagee or purchaser of the Property
or of any Interest therein. Such certifications and representations shall not
act as an amendment to this Lease and shall not vary the terms of this Lease or
the rights of the Tenant hereunder. In the event that Tenant shall fail to
return a fully executed copy of such certificate to Landlord within the
foregoing ten (10) business day period, then Tenant shall be deemed to have
approved and confirmed all of the terms, certifications and representations
contained in such certificate, and Tenant irrevocably authorizes and appoints
Landlord as its attorney-in-fact to execute such certificate on behalf of
Tenant.
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<PAGE>
30. NOTICES.
-------
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to the sending,
mailing or delivery of any notice or the making of any payment by Landlord to
Tenant or with reference to the sending, mailing or delivery or the making of
any payment by Tenant to Landlord shall be deemed to be complied with when and
if the following steps are taken:
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address for Landlord set
forth below or at such other address as Landlord may specify from time to time
by written notice delivered in accordance herewith. Tenant's obligation to pay
rent and any other amounts to Landlord under the terms of this Lease shall not
be deemed satisfied until such rent or other amounts have been actually received
by Landlord.
(b) All payments required to be made by Landlord to Tenant hereunder
shall be payable to Tenant at the address set forth below, or at such other
address within the continental United States as Tenant may specify from time to
time by written notice delivered in accordance herewith.
(c) With the exception of subsection (a) above, any notice or
document required or permitted to be delivered hereunder shall be deemed to be
delivered (i) when delivered personally or (ii) whether actually received or
not, two (2) business days after deposit in the United States Mail, postage
prepaid, registered or certified mail, return receipt requested; addressed to
the parties hereto at the respective addresses set out below, or at such other
address as they have previously specified by written notice delivered in
accordance herewith.
If to Landlord, at:
1875 Eye Street, N.W., Suite 900
Washington, D.C. 20006
If to Tenant, at:
23 Fourth Avenue
Burlington, MA 01803-3303
with a copy to:
The Premises
If and when included within the term "Landlord", as used in this instrument,
there are more than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of such notice specifying some
individual at the specific address for the receipt of notices and payments to
Landlord; if and when included within the term Tenant, as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such notice
specifying some individual at some specific address within the continental
United States for the receipt of notices and payment to Tenant. All parties
included within the terms "Landlord" and "Tenant", respectively, shall be bound
by notices given in accordance with the provisions of this paragraph to the same
effect as if each had received such notice.
31. FORCE MAJEURE.
-------------
Except as otherwise provided in this Lease, whenever a period of time
is herein prescribed for action to be taken by Landlord or Tenant or whenever
Landlord or Tenant is otherwise obligated to perform hereunder, neither Landlord
nor Tenant shall be liable or responsible for, and there shall be excluded from
the computation for any such period of time, any delays or failures to perform
due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions or any other causes of any kind
whatsoever which are beyond the reasonable control of that party; provided,
however, that the failure to pay any rent or additional rent hereunder, for any
reason, shall not be considered to be beyond the reasonable control of Tenant.
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<PAGE>
32. SEVERABILITY
------------
If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the Lease Term,
then and in that event, the remainder of this Lease shall not be affected
thereby.
33. AMENDMENTS; WAIVER; BINDING EFFECT.
----------------------------------
The provisions of this Lease may not be waived, altered, changed or
amended, except by instrument in writing signed by both parties hereto, and such
instrument may be subject to the approval of any mortgagees, and ground lessors
of record. The acceptance of Basic Rental, additional rent or other payments by
Landlord, or the endorsement or statement on any check, any letter accompanying
any check or other tender of Basic Rental, additional rent or other payment
shall not be deemed an accord and satisfaction or a waiver of any obligation of
Tenant, regardless of whether Landlord had knowledge of any breach of such
obligation. The terms and conditions contained in this Lease shall apply to,
inure to the benefit of, and be binding upon the parties hereto, and upon their
respective successors in interest and legal representatives, except as otherwise
herein expressly provided.
34. QUIET ENJOYMENT.
---------------
Provided Tenant has performed all of the terms and conditions of this
Lease, including the payment of rent, to be performed by Tenant, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Lease Term, without
hindrance from Landlord or others claiming through Landlord, subject to the
terms and conditions of this Lease and to all mortgages, ground leases and other
encumbrances to which this Lease is subject and subordinate.
35. LIABILITY OF TENANT.
-------------------
If there is more than one Tenant, the obligations hereunder imposed
upon Tenant shall be joint and several. If there is a guarantor of Tenant's
obligations hereunder, the obligations hereunder imposed upon Tenant shall be
the joint and several obligations of Tenant and such guarantor, and Landlord
need not first proceed against Tenant before proceeding against such guarantor
nor shall any such guarantor be released from its guaranty for any reason
whatsoever, including without limitation any extensions or renewals hereof, any
amendments hereto, any waivers hereof or failure to give such guarantor any
notices hereunder.
36. LANDLORD LIABILITY.
------------------
The liability of Landlord and all officers, employees, shareholders,
venturers or partners (general or limited) of Landlord to Tenant for any default
by Landlord under the terms of this Lease shall be non-recourse and limited to
the interest of Landlord in the Building, and Landlord or any officer, employee,
shareholder, venturer or partner (general or limited) of Landlord shall have the
right to sell or transfer all or any portion of the Land or the Building to any
third party, and upon any such sale or other transfer of all of the Building or
the Land, and the corresponding assignment of this Lease (and the Security
Deposit), the previous Landlord shall have no further liability or obligation to
Tenant hereunder or otherwise.
37. CERTAIN RIGHTS RESERVED BY LANDLORD.
-----------------------------------
Landlord shall have the following rights, exercisable without notice,
except as provided herein, and without liability to Tenant for damage or injury
to property, persons or business and without effecting an eviction, constructive
or actual, or disturbance of Tenant's use or possession or giving rise to any
claim or setoff or abatement of rent or affecting any of Tenant's obligations
hereunder:
(a) To change the name by which the Building is designated upon
four (4) months written notice to Tenant.
(b) To decorate and to make repairs, alterations, additions,
changes or improvements, whether structural or otherwise, in and about the
Building, or any part thereof, and for such purposes to enter upon the Premises
and, during the continuance of any such work, to temporarily close doors, entry
ways, public space and corridors in the Building, to interrupt or temporarily
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<PAGE>
suspend Building services and facilities and to change the arrangement and
location of entrances or passageways, doors and doorways, corridors, elevators,
stairs, toilets, or other public parts of the Building, so long as the Premises
are reasonably accessible. Landlord shall use reasonable efforts not to
interfere with the operation of Tenant's business when exercising its rights
under the provisions of this subsection (b).
(c) To grant to anyone the exclusive right to conduct any business
or render any service in or to the Building, provided such exclusive right shall
not operate to exclude Tenant from the use expressly permitted herein.
(d) To take all such reasonable measures as Landlord may deem
advisable for the security of the Building and its occupants, including without
limitation, the search of all persons entering or leaving the Building, the
evacuation of the Building for cause, suspected cause, or for drill purposes,
the temporary denial of access to the Building, and the closing of the Building
after normal business hours and on Saturdays, Sundays and holidays; subject,
however, to Tenant's right to admittance when the Building is closed after
normal business hours or on Saturdays, Sundays and holidays, under such
reasonable regulations as Landlord may prescribe from time to time which may
include, by way of example but not of limitation, that person entering or
leaving the Building, whether or not during normal business hours, identify
themselves to a security officer by registration or otherwise and that such
persons establish their right to enter or leave the Building.
38. FINANCIAL STATEMENTS.
---------------------
Tenant agrees to provide to Landlord within 14 days of request by
Landlord but no more than once per year, the most recent audited annual
financial statements of Tenant, including balance sheets, income statements, and
financial notes ("Statements"). Tenant consents that Landlord may release the
Statements to Landlord's subsidiaries, affiliates, lenders, advisors, joint
venture partners, or potential purchasers of the property for the purposes of
evaluating Tenant's financial condition with respect to performance under the
Lease. Landlord agrees to keep the Statements confidential, to take commercially
reasonable efforts to maintain the confidentiality of the Statements by those to
whom it releases the Statements, to not release the Statements to third parties
except as set forth herein, and not to use the same except for the purposes
outlined herein.
39. NOTICE TO LENDER.
-----------------
If the Premises or the Building or any part thereof are at any time
subject to a mortgage or a deed of trust or other similar instrument and the
Lease or the rentals are assigned to such mortgagee, trustee or beneficiary and
the Tenant is given written notice thereof, including the post office address of
such assignee, then Tenant shall not terminate this Lease or abate rentals for
any default on the part of Landlord without first giving written notice by
certified or registered mail, return receipt requested, to such mortgagee,
trustee, beneficiary and assignee, specifying the default in reasonable detail,
and affording such mortgagee, trustee, beneficiary and assignee a reasonable
opportunity to make performance, at its election, for and on behalf of the
Landlord.
40. MISCELLANEOUS.
--------------
(a) Any approval by Landlord and Landlord's architects and/or
engineers of any of Tenant's drawings, plans and specifications which are
prepared in connection with any construction of improvements in the Premises
shall not in any way be construed or operate to bind Landlord or to constitute a
representation or warranty of Landlord as to the adequacy or sufficiency of such
drawings, plans and specifications, or the improvements to which they relate, or
any use, purpose, or condition, but such approval shall merely be the consent of
Landlord as may be required hereunder in connection with Tenant's construction
of improvements in the Premises in accordance with such drawings, plans and
specifications.
(b) Each and every covenant and agreement contained in this Lease
is, and shall be construed to be, a separate and independent covenant and
agreement.
- 27 -
<PAGE>
(c) Neither Landlord nor Landlord's agents or brokers have
made any representations or promises with respect to the Premises, the Building
or the Land except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this Lease.
(d) The submission of this Lease to Tenant shall not be construed
as an offer, nor shall Tenant have any rights with respect thereto unless and
until Landlord shall, or shall cause its managing agent to, execute a copy of
this Lease and deliver the same to Tenant.
(e) Notwithstanding anything to the contrary contained in this
Lease, if the Lease Term has not commenced within twenty-one (21) years after
the date of this Lease, this Lease shall automatically terminate on the twenty-
first (21st) anniversary of such date. The sole purpose of this provision is to
avoid any interpretation of this Lease as a violation of the Rule Against
Perpetuities, or any other rule of law or equity concerning restraints on
alienation.
(f) The terms of this Lease shall be construed in accordance with
the laws of the jurisdiction in which the Building is located.
41. ADDITIONAL RENT.
---------------
The Tenant shall pay as additional rent any money required
to be paid pursuant to the provisions of this Lease whether or not the same be
designated "additional rent". If such amounts or charges are not paid at the
time provided in this Lease, they shall nevertheless, if not paid when due, be
collectable as additional rent with the next installment of rent thereafter
falling due hereunder, but nothing herein contained shall be deemed to suspend
or delay the payment of any amount of money or charge at the time the same
becomes due and payable hereunder, or limit any other remedy of the Landlord.
42. ENTIRE AGREEMENT.
----------------
The Lease contains all covenants and agreements between
Landlord and Tenant relating in any manner to the rent, use and occupancy of
Premises and Tenant's use of the Building and other matters set forth in this
Lease. No prior agreement or understanding pertaining to the same shall be valid
or of any force or effect and the covenants and agreements of this Lease shall
not be altered, modified or added to except in writing signed by Landlord and
Tenant.
43. LEGAL PROCEEDINGS.
-----------------
Landlord and Tenant hereby waive the right to a jury trial in any
action, proceeding or counterclaim between Tenant and Landlord or their
successors arising out of this Lease or Tenant's occupancy of the Premises or
Tenant's right to occupy the same.
44. LAWS AND REGULATIONS.
--------------------
Tenant agrees at Tenant's expense to comply with all
applicable laws, ordinances, rules, and regulations, whether now in effect or
hereafter enacted or promulgated, of any governmental entity or agency having
jurisdiction of the Premises.
45. AMERICANS WITH DISABILITIES ACT ("ADA").
---------------------------------------
(a) Tenant hereby represents that it is not a public
accommodation, as defined in the ADA.
(b) The Landlord shall take whatever steps are necessary to cause the
common areas of the building to meet the requirements of Title III of the ADA.
(c) Except for the matters relating to initial buildout of
the Premises outlined in Section 7, for which Landlord shall be solely
responsible, the Tenant at its sole cost and expense shall be solely responsible
for taking any and all measures which are required to comply with the
requirements of Title I and/or Title III of the ADA within the Premises and, if
the measures required outside of the Premises are attributable to Tenant's
subsequent alterations to the Premises, outside of the Premises as well. Any
Alterations to the Premises made by Tenant for the purpose of complying with the
ADA or which otherwise
- 28 -
<PAGE>
require compliance with the ADA shall be done in accordance with this Lease;
provided, however, that Landlord's consent to such Alterations shall not
constitute either Landlord's assumption, in whole or in part, of Tenant's
representation or confirmation by Landlord that such Alterations comply with the
provisions of the ADA.
(d) Tenant shall indemnify the Landlord for all claims, damages,
judgments, penalties, fines, administrative proceedings, costs, expenses and
liability arising from Tenant's failure to comply with any of the requirements
of Title I and/or Title III of the ADA within the Premises.
(e) Landlord shall indemnify the Tenant for all claims, damages,
judgments, penalties, fines, administrative proceedings, cost, expenses and
liability arising from Landlord's failure to comply with Title III of the ADA
within the common areas.
(f) Notwithstanding the provisions of subsection (b) herein, if (i)
Landlord causes Alterations or improvements to be made to the common areas of
the Building to comply with the ADA, and (ii) such Alterations or improvements
solely benefit the Premises, Tenant shall reimburse Landlord for all costs and
expenses incurred by Landlord in connection with the performance of such
Alterations or improvements.
46. ENVIRONMENTAL PROTECTIONS.
-------------------------
(a) Notwithstanding the generality of Section 9 above, Tenant shall
conduct all activity in compliance with all federal, state, and local laws,
statutes, ordinances, rules, regulations, orders and requirements of common law
concerning protection of the environment or human health ("Environmental Laws").
Tenant shall also cause its subtenants (if subtenants are permitted by this
Lease or are hereafter approved by Landlord), licensees, invitees, agents,
contractors, subcontractors and employees to comply with all Environmental Laws.
Tenant and its permitted subtenants, licensees, invitees, agents, contractors,
and subcontractors shall obtain, maintain, and comply with all necessary
environmental permits, approvals, registrations and licenses.
In addition to and not in limitation of the foregoing, Tenant, its
permitted subtenants, licensees, invitees, agents, contractors, subcontractors
and employees shall not generate, refine, produce, transfer, process or
transport Hazardous Material on, above, beneath or near the Premises, the
Building or the Land. As used herein, the term "Hazardous Materials" shall
include, without limitation, all of the following: (1) hazardous substances, as
such term is defined in the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 (14), as amended by the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499, 100
Stat. 1613 (Oct. 17, 1986) ("SARA"); (2) regulated substances, within the
meaning of Title I of the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6991-6991(i), as amended by SARA; (3) any element, compound or material
which can pose a threat to the public health or the environment when released
into the environment; (4) hazardous waste as defined in the Virginia Waste
Management Act, Title 10.1, Chapter 14 of the Code of Virginia; (5) petroleum
and petroleum byproducts; (6) an object or material which is contaminated with
any of the foregoing; (7) any other substance designated by any of the
Environmental Laws or a federal, state or local agency as detrimental to public
health, safety and the environment. Notwithstanding the foregoing, Tenant may
use within the Premises those Hazardous Materials as are commonly and legally
used or stored as a consequence of using the Premises for administrative or
professional offices, but only so long as the quantities thereof do not pose a
threat to public health, the environment, or would necessitate a "response
action" as that term is defined in CERCLA, and so long as Tenant strictly
complies or causes compliance with all applicable governmental rules and
regulations concerning the use of such Hazardous Materials.
(b) Tenant shall protect, indemnify and save Landlord harmless from
and against any and all liability, loss, damage, cost or expense (including
reasonable attorneys' fees) that Landlord may suffer or incur as a result of any
claims, demands, damages, losses, liabilities, costs, charges, suits, orders,
judgments or adjudications asserted, assessed, filed, or entered against
Landlord or any of the Building or the Land, by any third party, including,
without limitation, any governmental authority, arising from Tenant's breach of
Environmental Laws or otherwise arising from the alleged generation, refining,
production, storage, handling, use, transfer, processing, transportation,
- 29 -
<PAGE>
release, spillage, pumping, pouring, emission, emptying, dumping, discharge or
escape of Hazardous Materials on, from or affecting the Premises, the Building
or the Land, including, without limitation, liability for costs and expenses of
abatement, correction, clean-up or other remedy, fines, damages, response
(including death) and property damage.
(c) Tenant, its permitted subtenants, licensees, invitees, agents,
contractors, subcontractors and employees shall not release, spill, pump, pour,
emit, empty, dump or otherwise discharge or allow to escape Hazardous Materials
onto the Land or Building, and Tenant shall take all action necessary to remedy
the results of any such release, spillage, pumping, pouring, emission, emptying,
dumping, discharge, or escape.
(d) Tenant shall within 48 hours of receipt deliver to Landlord
copies of any written communication relating to the Building or the Land between
Tenant and any governmental agency or instrumentality concerning or relating to
Environmental Laws.
(e) Tenant's obligations under this Section shall survive
the termination or other expiration of this Lease.
47. PARKING.
-------
Tenant, its permitted subtenants, licensees, invitees, agents,
contractors, subcontractors and employees shall not use parking spaces on the
Land or Building in excess of that number set out on the attached Data Sheet
which has been reasonably determined by Landlord to be Tenant's proportionate
share of the total parking spaces available on the Building and Land.
Notwithstanding anything contained herein, if any governmental regulation or
ordinance is enacted or amended after the effective date of this Lease so as to
allow or require a modification in Tenant's number of parking spaces, Landlord
reserves the right to make such modification without modifying in any way the
rent due hereunder or any other obligations of Tenant.
48. OPTION TO RENEW.
----------------
Tenant shall have the right to extend the term of this
Lease for one (1) additional three (3) year lease term (the "Renewal Term"),
upon the following conditions:
(a) Tenant is not in default under this Lease beyond any
applicable grace or cure period, either at the time any notice hereunder is
given, or at the time the Renewal Term is to commence;
(b) Landlord has made a good faith determination that
Tenant remains creditworthy;
(c) Tenant has not previously assigned the Lease or sublet more than
thirty percent (30%) of the Premises (except to an affiliated party as
described in section 11(e));
(d) Tenant has delivered to Landlord written notice of its intention
to exercise this option, not less than 300 days prior to the end of the Lease
Term;
(e) All lease terms for the Renewal Term shall be the same
as in this Lease, except that the Basic Rental and Landlord concessions, if any,
for the Renewal Term shall be negotiated in good faith between the parties; and
(f) If Landlord and Tenant fail to agree as to all terms
and sign an Addendum to the Lease extending the Lease term as provided in this
Section at least 240 days prior to the end of the lease term, all time periods
for Tenant herein being of the essence, then Tenant's right to extend the term
of this Lease shall lapse and Tenant's renewal option shall be of no force and
effect. The renewal option is personal to Tenant and is non-transferrable.
49. RIGHT OF FIRST OFFER.
--------------------
Beginning on the Commencement Date, Tenant shall have a one-time
first right of offer to lease the space on the fifth (5th) floor (the
"Additional Space") in the Building, provided:
- 30 -
<PAGE>
(a) This right of first offer is subordinate to the rights of (i) the
current tenant in the Additional Space to renew, extend or otherwise negotiate a
new lease for the Additional Space; (ii) all future tenants in such space, to
renew or extend their leases; and (iii) existing tenants to the Additional Space
as of the date of execution of this Lease;
(b) Tenant is not in default under this Lease beyond any applicable
grace or cure period, either at the time the Additional Space becomes available
or at the time Tenant is to take occupancy of the Additional Space;
(c) Tenant has not previously assigned the Lease or sublet more than
thirty percent (30%) of the Premises (except to an affiliated party as described
in Section 11(e));
(d) Landlord has made a good faith determination that Tenant remains
creditworthy;
(e) Tenant must lease all of the Additional Space offered;
(f) Tenant exercises its option as provided in this Section by
delivering to Landlord written notice of its intention within five (5) business
days after Landlord has notified Tenant that the Additional Space is available,
which notice may be given by Landlord to Tenant up to six (6) months prior to
the anticipated availability date of the Additional Space;
(g) All terms of the lease of the Additional Space shall
be upon those terms and conditions as are negotiated in good faith between the
parties;
(h) Tenant executes an addendum or a new lease for the
Additional Space within fifteen (15) business days after Landlord's receipt of
Tenant's notice to lease the Additional Space; and
If Tenant fails to comply with each of the above conditions within
the time specified, all time periods herein for Tenant being of the essence,
then this right of first offer will lapse and be of no further force and effect,
and Landlord shall have the right to lease all or any part of the Additional
Space to a third party under the same or any other terms and conditions, whether
or not such terms and conditions are more or less favorable than those offered
to Tenant. This right of first offer to lease the Additional Space is personal
to Tenant and is non-transferrable.
50. TENANT ACCESS.
-------------
Subject to Landlord's reasonable regulations, Tenant shall have
access to the Premises 24 hours per day, 365 days per year, except in the case
of an emergency or when the Building may be closed by governmental authorities.
Landlord shall provide Tenant with a restricted entry access system for after-
hours access to the Building.
51. EXHIBITS.
--------
(i) Exhibit A - Outline of Premises
(ii) Exhibit B - Commencement Date Designation
(iii) Exhibit C - Rules and Regulations
IN WITNESS WHEREOF, the parties hereto have executed this
Lease and affixed their seals as of the date first above written.
Tenant:
WITNESS/ATTEST: INTERMETRICS, INC.
/s/ Nicholas A. Pettinella By:/s/ Michael B. Alexander (SEAL]
-------------------------- ---------------------------
Nicholas A. Pettinella Name: Michael B. Alexander
Secretary, Sr. VP, CFO Title: Chairman
- 31 -
<PAGE>
Landlord:
THE EQUITABLE LIFE ASSURANCE
WITNESS/ATTEST: SOCIETY OF THE UNITED STATES
/s/ By:/s/ MARGARET S. CLEARY
- ------------------------------ ---------------------------- [SEAL]
Name: MARGARET S. CLEARY
Title: INVESTMENT OFFICER
- 32 -
<PAGE>
Plans Prepared By:
[LOGO] CROSS DUNNING & ASSOCIATES
3959 Pender Drive, Suite 115
Fairfax, Virginia
(703) 385-7500
Fax (703) 385-7599
SIXTH FLOOR PLAN
12/19/96
SUITE 600
26,084 s.f.
THE CONCOURSE COMPASS
1595 SPRINGHILL ROAD, VIENNA, VIRGINIA MANAGEMENT AND LEASING, INC.
A SUBSIDIARY OF EQUITABLE REAL
ESTATE INVESTMENT MANAGEMENT,
INCORPORATED
EXHIBIT A
N
5' 20'
0' 10' 40'
- 33 -
<PAGE>
The Equitable Life Assurance Society of the United States
c/o Equitable Real Estate Investment
Management, Inc.
1875 Eye Street, N.W.
Suite 900
Washington, D.C. 20006
The undersigned, by the execution of this letter, hereby confirms that the
Commencement Date of the Lease Term of that certain lease agreement (the "Lease
Agreement") by and between The Equitable Life Assurance Society of the United
States (the "Landlord") and the undersigned (the "Tenant") is__________, 1997,
and that the expiration date of the Lease Agreement is__________. All
capitalized terms not defined herein shall have the meanings assigned to them in
the Lease Agreement.
ACCEPTED AND AGREED to this ______day of _____________199_.
TENANT:
Intermetrics, Inc.
By:_____________________
Title:_____________________
EXHIBIT B
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
---------------------
1. Sidewalks, doorways, vestibules, halls, stairways, and similar areas
shall not be obstructed nor shall refuse, furniture, boxes or other items be
placed therein by Tenant or its officers, agents, contractors and employees, or
used for any purpose other than ingress and egress to and from the leased
premises, or for going from one part of the Building to another part of the
Building. Canvassing, soliciting and peddling in the Building or on the Land are
prohibited.
2. Plumbing fixtures and appliances shall be used only for the purposes
for which constructed, and no unsuitable material shall be placed therein.
3. No signs, directories, posters, advertisements, or notices shall be
painted or affixed on or to any of the windows or doors, or in corridors or
other parts of the Building, except, as shall be first approved in writing by
Landlord in its discretion. One building standard plaque will be prepared by
Landlord at Landlord's expense. No additional signs shall be posted without
Landlord's prior written consent as to location and form, and the cost of
preparing and posting such signs shall be borne solely by Tenant. Landlord shall
have the right to remove all unapproved signs without notice to Tenant, at the
expense of Tenant.
4. Tenant shall not do, or permit anything to be done in or about the
Building, or bring or keep anything therein, that will in any way increase the
rate of fire or other insurance on the Building, or on property kept therein or
otherwise increase the possibility of fire or other casualty.
5. Landlord shall have the power to prescribe the weight and position of
heavy equipment or objects which may overstress any portion of the floor. All
damage done to the Building by the improper placing of such heavy items will be
repaid at the sole expense of the responsible Tenant.
6. A Tenant shall notify the Building manager when safes or other heavy
equipment are to be taken in or out of the Building, and the moving shall be
done after written permission is obtained from Landlord on such conditions as
Landlord shall require. Any moving in or out of Tenant's equipment, furniture,
files, and/or fixtures shall be done only with prior written notice to Landlord,
and Landlord shall be entitled to prescribe the hours of such activity, the
elevators which shall be available for such activity and shall, in addition, be
entitled to place such other conditions upon Tenant's moving activities as
Landlord deems appropriate. Tenant shall bear all risk of loss relating to
damage incurred with respect to Tenant's property in the process of such a move,
and in addition, shall indemnify and hold Landlord harmless as to all losses,
damages, claims, causes of action, costs and/or expenses relating to personal
injury or property damage sustained by Landlord or any third party on account of
Tenant's moving activities.
7. Corridor doors, when not in use, shall be kept closed.
8. All deliveries must be made via the service entrance and elevators,
designated by Landlord for service, if any, during Landlord's normal operating
hours. Landlord's written approval must be obtained for any delivery after
normal working hours.
9. Each Tenant shall cooperate with Landlord's employees in keeping the
leased Premises neat and clean.
10. Tenant shall not cause or permit any improper noises in the
Building, or allow any unpleasant odors to emanate from the leased Premises, or
otherwise interfere, injure or annoy in any way other tenants, or persons having
business with them.
11. No animals shall be brought into or kept in or about the Building.
<PAGE>
EXHIBIT C
12. No boxes, crates or other such materials shall be stored in hallways
or other common areas. When Tenant must dispose of crates, boxes, etc., it will
be the responsibility of Tenant to dispose of same prior to, or after the hours
of 7:30 a.m. and 6:30 p.m., respectively, so as to avoid having such debris
visible in the common areas during normal business hours.
13. No machinery of any kind, other than ordinary office machines such
as copiers, typewriters and PC's shall be operated on the leased Premises
without the prior written consent of Landlord, nor shall Tenant use or keep in
the Building any inflammable or explosive fluid or substance (including
Christmas trees or ornaments), or any illuminating materials, except candles. No
space heaters or fans shall be operated in the Building.
14. No bicycles, motorcycles or similar vehicles will be allowed in the
Building.
15. Any wall damage deemed by Building management to be excessive from
nails, screws, hooks, etc. shall be repaired by Tenant when requested by
Landlord. Nothing shall be affixed to, or made to hang from the ceiling of the
Premises without Landlord's prior written consent.
16. Landlord has the right to evacuate the Building in the event of fire
alarms, emergency or catastrophe.
17. No food and/or beverages shall be distributed from Tenant's office
without the prior written approval of the management of the Building.
18. No additional locks shall be placed upon any doors without the prior
written consent of Landlord. All necessary keys shall be furnished by Landlord,
and the same shall be surrendered upon termination of this Lease, and Tenant
shall then give Landlord or his agent an explanation of the combination of any
locks on the doors or vaults. Tenant shall initially be given two (2) keys to
the Premises by Landlord. No duplicates of such keys shall be made by Tenant.
Additional keys shall be obtained only from Landlord, at a fee to be determined
by Landlord.
19. Tenant will not locate furnishings or cabinets adjacent to
mechanical or electrical access panels so as to prevent operating personnel from
servicing such units as routine or emergency access may require. Cost of moving
such furnishings for Landlord's access will be for Tenant's account. The
lighting and air conditioning equipment of the Building will remain the
exclusive charge of the Building designated personnel.
20. Tenant shall comply with parking rules and regulations as may be
posted and distributed from time to time.
21. No portion of the Building shall be used for the purposes of lodging
rooms.
22. Vending machines or dispensing machines of any kind will not be
placed in the leased Premises by Tenant without prior written consent of
Landlord.
23. Prior written approval, which shall be at Landlord's sole
discretion, must be obtained for installation of window shades, blinds, drapes,
or any other window treatment of any kind whatsoever, other than building
standard mini blinds. Tenant shall not affix anything to the inside of the
exterior windows of the Building, nor damage or remove any window film or
reflective material affixed to such windows. Landlord will control all internal
lighting that may be visible from the exterior of the Building and shall have
the right to change any unapproved lighting, without notice to Tenant, at
Tenant's expense.
24. No Tenant shall make any changes or alterations to any portion of
the Building without Landlord's prior written approval, which may be given on
such conditions as Landlord may elect. All such work shall be done by
- 2 -
<PAGE>
EXHIBIT C
Landlord or by contractors and/or workmen approved by Landlord, working under
Landlord's supervision.
25. Tenant shall cooperate fully with all recycling programs of Landlord
and with any and all regulations, laws, etc. imposed on the Building by any
governmental body or Landlord's insurance carriers.
26. Landlord reserves the right to rescind any of these rules and make
such other and further rules and regulations as in its judgment shall from time
to time be needful for the operation of the Building, which rules shall be
binding upon each Tenant upon delivery to such Tenant of notice thereof in
writing.
- 3 -
<PAGE>
Exhibit 10.5
LEASE AMENDMENT
This Lease Amendment (the "Amendment") is made this 31/st/ day of
October, 1997, between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
("Landlord") and INTERMETRICS, INC. ("Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated 23
May, 1997 (the "Lease"), under which Tenant leased from Landlord approximately
26,084 rentable square feet of space on the sixth (6th) floor (the "Premises")
in the office building located at 1593-1595 Spring Hill Road, Vienna, Virginia
22182 and known as The Concourse (the "Building").
WHEREAS, the Lease is scheduled to expire on 19 September, 2002; and
WHEREAS, Landlord and Tenant wish, among other matters, to amend the
Lease to provide that Tenant deliver to Landlord a letter of credit, in lieu of
a cash security deposit, all on the terms hereinafter contained.
NOW THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
the parties, Landlord and Tenant agree as follows:
1. Security Deposit.
Section 5(b) of the Lease is hereby deleted and the following
inserted in lieu thereof:
(b) Tenant shall have the right to deliver to Landlord an
unconditional, irrevocable letter of credit in substitution for the cash
security deposit, subject to the following terms and conditions. Such letter of
credits shall be (i) in form and substance satisfactory to Landlord in its sole
discretion; (ii) at all times in the stated face amount of not less than the
Security Deposit (as defined in Sections 1(n) and 5 of the Lease), and shall on
its face state that multiple or partial draws are permitted and that, within ten
(10) days after any such partial draw, Tenant will cause the amount of the
letter of credit to be restored to its full amount and that Tenant's failure to
do so shall constitute an Event of Default under the Lease (it being understood
that the total security deposit on hand, whether in cash or by letter of credit,
shall at all times be not less than the total Security Deposit as so defined);
(iii) issued by a commercial bank acceptable to Landlord from time to time and
payable in the Washington, D.C. metropolitan area for the account of Tenant, and
its permitted successors and assigns under this Lease; (iv) made payable to, and
expressly transferable and assignable at no charge by, the owner from time to
time of the Building (which transfer/assignment shall be conditioned only upon
the execution of
<PAGE>
a reasonable and customary written document in connection therewith), whether or
not the original account party of the letter of credit continues to be the
tenant under this Lease by virtue of a change in name or structure, merger,
assignment, transfer or otherwise; (v) payable at sight upon presentment to a
local branch or correspondent of the issuer of a sight draft or certificate
stating only that Tenant is in default under this Lease and the amount that
Landlord is owned in connection therewith; (vi) of a term not less than one
year, not to exceed the Extended Period (as defined below), and shall on its
face state that the same shall be renewed automatically, without the need for
any further written notice or amendment, for successive minimum one-year
periods, unless the bank notifies Landlord in writing that such bank has elected
not to renew the letter of credit at least sixty (60) days prior to the
expiration date thereof (which will entitle Landlord to draw on the letter of
credit); and (vii) at least thirty (30) days prior to the then-current
expiration date of such letter of credit, either (1) renewed (or automatically
and unconditionally extended) from time to time through the ninetieth (90/th/)
day after the expiation of the Lease Term (the "Extended Period"), or (2)
replaced with cash in the amount of the Security Deposit. Notwithstanding
anything in this Lease to the contrary, any cure or grace periods set forth in
Section 20 shall not apply to any of the foregoing requirements of the letter of
credit, and, specifically, if any of the aforesaid requirements are not complied
with timely, then Landlord shall have the right to immediately draw upon the
letter of credit without notice to Tenant and apply the proceeds to the security
deposit. Notwithstanding anything to the contrary contained in this Section,
Tenant shall have the right to replace a letter of credit substituting for a
cash security deposit with another letter of credit otherwise complying with the
terms of this Section. Each letter of credit shall be issued by a commercial
bank that has a credit rating with respect to certificates of deposit, short
term deposits or commercial paper rated at least P-2 (or equivalent) by Moody'
Investor Services, Inc., or rated at least A-2 (or equivalent) by Standard &
Poor's Corporation, and shall be otherwise acceptable to Landlord in its sole
and absolute discretion. If the issuer's credit rating is reduced below P-2 (or
equivalent) by Moody's Investors Services, Inc. or below A-2 (or equivalent) by
Standard & Poor's Corporation, or if the financial condition of such issuer
changes in any other materially adverse way, then Landlord shall have the right
to require that Tenant obtain from a different issuer a substitute letter of
credit that complies in all respects with the requirements of this Section, and
Tenant's failure to obtain such substitute letter of credit within ten (10) days
following Landlords' written demand therefor (with no other notice or cure or
grace period being applicable thereto, notwithstanding anything in this Lease to
the contrary) shall entitle Landlord to immediately draw upon the then existing
letter of credit in whole or in part, without notice to Tenant. In the event the
issuer of any letter of credit held by Landlord is placed into receivership or
conservatorship by the Federal Deposit Insurance Corporation, or any successor
or similar entity, then, effective as of the date such receivership or
conservatorship occurs, said letter of credit shall be deemed to not meet the
requirements of this Section, and, within ten (10) days thereof, Tenant shall
replace such letter of credit with other collateral acceptable to Landlord in
its sole and absolute discretion, and Tenant's failure to do so shall,
notwithstanding anything in this Lease to the contrary, constitute an Event of
Default for which there shall be no notice or grace or cure periods being
applicable thereto other than the aforesaid ten (10) day period. Any failure or
refusal of the issuer to honor the letter of credit
<PAGE>
shall be at Tenant's sole risk and shall not relieve Tenant of its obligations
hereunder with respect to the Security Deposit.
2. Defined Terms. Except as otherwise expressly provided herein,
all capitalized defined terms shall have the same meanings as provided in the
Lease.
3. Headings. Headings contained in this Amendment are for
convenience only and are not substantive to the provisions of this Amendment.
4. Lease Terms Ratified. Except as otherwise expressly provided
herein, and unless inconsistent with the terms hereof, all other terms,
conditions and covenants of the Lease are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Amendment by
affixing their hands and seals as of the date noted above.
Landlord:
WITNESS/ATTEST: THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
/s/ By:/s/ Margaret S. Cleary [SEAL]
- ----------------------------- -----------------------------------
Name: Margaret S. Cleary
Title: Investment Officer
Tenant:
WITNESS/ATTEST: INTERMETRICS, INC.
/s/ By:/s/ Nicholas A. Pettinella [SEAL]
- ----------------------------- -----------------------------------
Name: Nicholas A. Pettinella
Title: Senior Vice President & CFO
<PAGE>
SECOND LEASE AMENDMENT
----------------------
This Second Lease Amendment (the Second Amendment) is made this 16th
----
day of March, 1999, between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED
STATES ("Landlord") and AVERSTAR, INC., formerly known as Intermetrics, Inc.
("Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated May
23, 1997 (the Initial Lease), under which Tenant leased from Landlord
approximately 26,084 rentable square feet of space on the sixth (6th) floor (the
"Sixth Floor Premises") of the west tower of the office building located at
1593-1595 Spring Hill Road, Vienna, Virginia 22182 and known as The Concourse
(the Building"); and
WHEREAS, the Lease Agreement was amended by an Amendment to Lease
Agreement dated October 31, 1997, under which the Security Deposit Section
(Section 5) of the Lease Agreement was modified (the Lease Agreement and the
Amendment to Lease Agreement are collectively referred to herein as the Lease);
and
WHEREAS, the Lease is scheduled to expire on September 30, 2002; and
WHEREAS, Landlord and Tenant wish, among other matters, to amend the
Lease to expand the premises occupied by Tenant in the Building, and to extend
the Lease Term, all on the terms and provisions hereinafter contained.
NOW THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
the parties, Landlord and Tenant agree as follows:
1. Expansion Premises.
-------------------
a. Landlord hereby demises and leases to Tenant and Tenant
hereby leases and accepts from Landlord, for a term and upon the conditions
hereinafter provided, Seventy-eight Thousand Two Hundred Fifty-two (78,252)
rentable square feet of space in the east tower of the Building, known as 1593
Spring Hill Road, outlined on the floor plans attached hereto and incorporated
herein by reference as Exhibits A-1, A-2 and A-3 (the "Expansion Premises"),
consisting of the entire second (2nd) floor (the Second Floor Premises), the
entire third (3rd) floor (the Third Floor Premises) and the entire seventh (7th)
floor (the Seventh Floor Premises). All provisions of the Lease which apply to
the Premises shall apply to the Expansion Premises; provided, however, that
Tenant's obligations with respect to each floor of the Expansion Premises
(except as otherwise specifically provided herein) shall not commence until such
floor has been delivered to Tenant Substantially Completed (or the earlier date
on which rental hereunder commences as to such floor).
<PAGE>
b. Tenant shall take possession of the Expansion Premises as
follows:
(i) Upon Substantial Completion (as defined in the Lease)
of the Third Floor Premises, which is anticipated to occur on or about June 1,
1999;
(ii) Upon Substantial completion of the Second Floor Premises,
but not earlier than September 1, 1999; and
(iii) Upon Substantial Completion of the Seventh Floor
Premises, which is anticipated to occur on or about March 1, 2000.
2. Extended Term.
--------------
a. The Term of the Lease for the Expansion Premises will commence
upon the earlier to occur of (a) Substantial Completion of the improvements to
be performed in the Third Floor Premises, or (b) the date Tenant or any one
claiming under or through the Tenant first occupies the Third Floor Premises or
any portion thereof for the Permitted Use (the "Expansion Premises Commencement
Date"), and will expire ten (10) years and zero (0) months thereafter. The
anticipated Expansion Premises Commencement Date is June 1, 1999.
Notwithstanding the foregoing, and in addition to the provisions in Section 2(c)
of the Lease which will permit Tenant to enter the Expansion Premises up to two
(2) weeks prior to the Expansion Premises Commencement Date, Tenant agrees that
none of Tenant's vendors will have access to the Expansion Premises without
Landlord's prior approval, which approval will not be unreasonably withheld,
conditioned or delayed. To the extent that tenants which occupy any part of the
Expansion Premises fail to vacate such premises upon the expiration or earlier
termination of their leases, Landlord agrees to exercise commercially reasonable
efforts to recover possession of such premises.
b. Notwithstanding anything to the contrary contained in
subsection a. above, and provided that any delay in substantially completing the
Expansion Premises is not attributable to (i) any Tenant delay detailed in
Section 7 of the Lease, (ii) the requirements of any Special Tenant Work as
defined in Section 7(d) of the Lease, or (iii) the contingencies (other than
failure or delay of tenants of any part of the Expansion Premises to vacate the
same) in the force majeure provisions of Section 31 of the Lease, then, if any
----- -------
floor of the Expansion Premises is not Substantially Complete within one hundred
eighty days (180) of its anticipated date for Substantial Completion, as recited
above, Tenant shall have the right to terminate its obligation to lease the
floor so delayed, by delivering written notice to Landlord not later than one
hundred ninety (190) days after the date Tenant was anticipated to have taken
possession of such floor.
<PAGE>
3. Basic Rental for Expansion Premises.
------------------------------------
a. Effective as of the Expansion Premises Commencement Date,
Tenant shall pay Landlord as Basic Rental for the Second Floor Premises and the
Third Floor Premises (collectively, the "Initial Expansion Premises"), in legal
tender, at Landlord's office, the initial annual sum of One Million Four Hundred
Eighty-six Thousand Seven Hundred Eighty-eight and 00/100 dollars
($1,486,788.00), payable in equal monthly sums of One Hundred Twenty-three
Thousand Eight Hundred Ninety-nine and 00/100 dollars ($123,899.00), in advance,
promptly on the first day of each calendar month of the Extended Term; provided,
however, that for the period from the Expansion Premises Commencement Date until
Substantial Completion of the Second Floor Premises, Tenant shall only be
obligated to pay Basic Rental in the monthly amount of Sixty-one Thousand Nine
Hundred Forty-nine and 50/100 dollars ($61,949.50), being the Basic Rental for
the Third Floor Premises. The prepayment of the first month's installment of
Basic Rental for the Third Floor Premises, in the amount of Sixty-one Thousand
Nine Hundred Forty-nine and 50/100 dollars ($61,949.50), shall be due and
payable upon execution of this Second Amendment, and Sixty-one Thousand Nine
Hundred Forty-nine and 50/100 dollars ($61,949.50), which is the prepayment of
the first month's installment of Basic Rental for the Second Floor Premises,
shall be due and payable on the earlier to occur of (i) June 1, 1999, or (ii)
Landlord's execution of a construction contract pursuant to the terms of this
Second Amendment with Landlord's Contractor for improvements to be made to the
Second Floor Premises (but, in any event, no earlier than March 1, 1999). The
Expansion Premises Basic Rental shall be paid by Tenant to Landlord without
notice or demand, the same being hereby waived, and without any setoff,
deduction, or recoupment whatsoever. The Basic Rental for the Initial Expansion
Premises as provided in this paragraph shall be in addition to any other rent
due to the Landlord under the Lease with respect to the Sixth Floor Premises or
the Temporary Space.
b. In lieu of the payment of Basic Rental for the Sixth
Floor Premises, upon Substantial Completion of the Seventh Floor Premises Tenant
shall pay Basic Rental for the Seventh (7th) Floor Premises through September
30, 2002, at the same rate, and pursuant to the same escalations, as outlined in
the Initial Lease for the Sixth Floor Premises.
c. Effective as of October 1, 2002, and thereafter for each month
during the remainder of the Extended Term, Tenant will pay Landlord Basic Rental
for the Seventh Floor Premises at the same escalated rate per rentable square
foot as is then being paid by Tenant pursuant to this Second Amendment for the
Initial Expansion Premises.
4. Escalation in Basic Rental for Expansion Premises. The Basic
-------------------------------------------------
Rental for the Initial Expansion Premises shall be increased annually,
commencing on the first (1st) anniversary of the Expansion Premises Commencement
Date, and on each anniversary of such
-3-
<PAGE>
Expansion Premises Commencement Date thereafter during the Extended Term, by an
amount equal to three percent (3%) of the escalated Basic Rental then in effect;
provided, however, that Tenant shall continue to pay the Basic Rental, and all
escalations applicable thereto, for the Seventh Floor Premises as outlined in
the Initial Lease, until September 30, 2002, on which date the Basic Rental for
the Seventh Floor Premises shall escalate to the same rate, and shall thereafter
escalate on the same dates, as that for the Initial Expansion Premises.
5. Security Deposit.
----------------
a. As of the execution date of this Second Amendment, Landlord is
holding a Security Deposit in the form of an Irrevocable Transferrable Standby
Letter of Credit in the amount of $154,873.74. Said Security Deposit shall be
increased to $526,570.74, by depositing with Landlord an additional $371,697.00,
either in the form of cash or in the form of an additional Letter of Credit, in
accordance with the following schedule: (i) upon execution of this Second
Amendment, an additional $185,848.50, and (ii) on the earlier of June 1, 1999,
or Landlord's execution of a construction contract with Landlord's Contractor
for improvements to be made to the Second Floor Premises (but, in any event, no
earlier than March 1, 1999), an additional $185,848.50.
b. Section 5(c) of the Lease is hereby deleted in its entirety,
and the following inserted in lieu thereof:
(c) Notwithstanding anything to the contrary contained herein,
Tenant shall be entitled to reduce the amount of the Security
Deposit to (i) $382,913.12 after the eighteenth (18th) month of
the Extended Term, provided Tenant has not been late in the
payment of any Basic Rental or additional rent for which Tenant
is obligated under this Lease, beyond any applicable grace or
cure period, nor has otherwise been in default under the Lease
during the first eighteen (18) months of the Extended Term,
beyond any applicable grace or cure period; and (ii)
$191,457.00 at anytime thereafter during the remainder of the
Extended Term, provided Tenant satisfies all conditions of
(c)(i) herein, and further delivers to Landlord two (2)
successive annual, audited financial statements, showing that
Tenant's net worth has exceeded $20,000,000.00 for the two (2)
annual periods covered by such statements.
6. Expansion Premises Operating Expenses and Real Estate Taxes.
------------------------------------------------------------
a. Commencing on the first (1st) anniversary of the Expansion
Premises Commencement Date, and continuing during each calendar year or portion
thereof
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thereafter included in the Extended Term, Tenant shall pay as additional rent an
amount (per each square foot within the Expansion Premises) equal to the excess
("Excess") from time to time by which the per square foot Basic Cost for the
Expansion Premises exceeds the Base Year Stop for the Expansion Premises, all as
more fully provided in Section 8 of the Lease; provided, however, that, until
September 30, 2002, (i) Tenant shall pay such Excess only for the Initial
Expansion Premises, and (ii) Tenant shall continue to pay Operating Expense
increases for the Seventh Floor Premises, to the extent such Operating Expenses
exceed the Base Year Stop, as more fully outlined in the Initial Lease for the
Sixth Floor Premises. The Base Year Stop for the Expansion Premises shall be the
1999 calendar year. Tenant's pro rata share of any such costs or expenses for
each floor of the Expansion Premises shall be 7.58 and for the entire Expansion
Premises shall be 22.74%.
b. Commencing on the first (1st) anniversary of the Expansion
Premises Commencement Date, and continuing during each calendar year or portion
thereof included in the Extended Term, Tenant shall pay as additional rent an
amount (per each square foot within the Expansion Premises) equal to the amount
from time to time by which the per square foot Real Estate Taxes exceed the Base
Real Estate Taxes for the Expansion Premises, all as more fully provided in
Section 19 of the Lease; provided, however, that, until September 30, 2002, (i)
Tenant shall pay such increased Real Estate Taxes only for the Initial Expansion
Premises, and (ii) Tenant shall continue to pay Real Estate Taxes for the
Seventh Floor Premises, to the extent such Real Estate Taxes exceed the Base
Real Estate Taxes, as more fully outlined in the Initial Lease for the Seventh
Floor Premises. The Base Real Estate Taxes for the Expansion Premises shall be
the 1999 calendar year. Tenant's pro rata share of any such Real Estate Taxes
for each floor of the Expansion Premises shall be 7.58%, and for the entire
Expansion Premises shall be 22.74%.
7. Improvements for Expansion Premises.
-----------------------------------
a. Section 7(a)(i) shall apply to the construction of the
improvements to the Expansion Premises, except that Tenant shall deliver the
Space Plan for (i) the Third Floor Premises to Landlord on or before February 1,
1999, (ii) the Second Floor Premises to Landlord on or before March 1, 1999, and
(iii) the Seventh Floor Premises to Landlord on or before September 1, 1999.
b. Sections 7(a)(ii) and 7(a) (iii) shall apply to the
construction of the improvements to the Expansion Premises.
c. Section 7(a)(iv) shall apply to the construction of the
improvements to the Expansion Premises, except that LaSalle Partners Management
Services will act as Landlord's construction manager.
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<PAGE>
d. Section 7(a)(v) shall apply to the construction of the
improvements to the Expansion Premises.
e. Section 7(b) shall apply to the construction of the
improvements to the Expansion Premises.
f. Section 7(c) shall apply to the construction of the
improvements to the Expansion Premises, except that Tenant shall have the right
to select Landlord's Contractor and its subcontractors, subject to Landlord's
approval, which approval will not be unreasonably withheld, conditioned or
delayed.
g. Sections 7(d) and (e) shall apply to the construction of
the improvements to the Expansion Premises.
h. Section 7(f) shall not apply to the construction of the
improvements to the Expansion Premises, and the following shall be inserted in
lieu thereof:
Landlord shall contribute up to $1,095,528.00 (the "Tenant
Allowance"), calculated at a rate of $15.00 per rentable square
foot for the Initial Expansion Premises, and $12.00 per rentable
square foot for the Seventh Floor Premises, towards the completion
of the buildout of the Expansion Premises, which Tenant Allowance
shall also be applied against the cost of all architectural,
engineering and construction drawings and fees related thereto, as
well as the cost of exterior Building signage. Any costs in excess
of the Tenant Allowance shall be paid solely by Tenant and shall be
considered additional rent under the terms of the Lease. Up to
$2.00 per rentable square foot of any unused portion of the Tenant
Allowance may be applied against costs related to networking,
telecommunications, furniture acquisition and installation, and
Tenants relocation to the Expansion Premises. Landlord agrees that
it will not charge Tenant a construction management fee. In
addition to the Tenant Allowance, Landlord shall:
(i) Provide $20,000.00 (at $10,000.00 per floor), to upgrade
the elevator lobbies on the second (2nd) and third (3rd)
floors, such alterations to be of a quality equal or
better than that which exists on the sixth (6th) floor in
the west tower of the Building, and subject to Landlord's
written approval, which approval will not be unreasonably
withheld.
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<PAGE>
(ii) Provide an amount up to $10,000.00 for (A) removal of
existing telecommunications and computer network cabling
and wiring in the Expansion Premises, (B) removal of all
specialty improvements and other items that Tenant deems
to be non-residual, and (C) the installation of any
required additional electrical capacity. To the extent
that Tenant requires such additional electrical capacity,
Landlord agrees that Tenant shall have the right to
connect to, and add to, transformers and other electrical
distribution equipment or facilities in the Building,
subject to (Y) Tenant executing a reasonably acceptable
indemnification to Landlord, indemnifying Landlord from
any claims or damages due to the addition of such
electrical capacity (exclusive of those covered by
insurance and any applicable waiver of subrogation), and
(Z) obtaining the approval of Landlord therefor, which
will not be unreasonably withheld, conditioned or
delayed. Notwithstanding the foregoing, any surplus from
the said $10,000.00 which is not used for the foregoing
work shall be retained by Landlord.
(iii) Ensure that all mechanical (including HVAC, electrical
and plumbing equipment serving the Expansion Premises is
in good working condition and performing at its original
specifications. Landlord warrants that the bathrooms in
the Expansion Premises are (Y) in material compliance
with the ADA as such compliance is required as of the
execution date of this Second Amendment, and (Z) of
similar quality to those in the Sixth Floor Premises.
i. Section 7(g) shall not be applicable to the construction of
improvements to the Expansion Premises.
8. Right of First Offer. Effective as of the execution date of this
--------------------
Second Amendment, Section 49 of the Lease shall be deleted in its entirety, and
the following inserted in lieu thereof:
Tenant shall have a first right of offer the first (1st) two (2)
times during the Extended Term (but not during any Renewal Tenn) that additional
space becomes available to lease on the fourth (4th) and sixth (6th) floors of
the east tower of the Building, 1593 Spring Hill Road (the "Additional Space"),
provided:
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<PAGE>
a. This right of first offer is subordinate to the rights of
(i) the current tenant in the Additional Space to renew, extend or otherwise
negotiate a new lease for the Additional Space; (ii) all future tenants in such
space, to renew or extend their leases; and (iii) existing tenants to the
Additional Space as of the date of execution of this Lease;
b. Tenant is not in default under this Lease beyond any
applicable grace or cure period, either at the time the Additional Space becomes
available or at the time Tenant is to take occupancy of the Additional Space;
c. Tenant has not previously assigned the Lease or sublet more
than thirty-four percent (34%) of the Initial Premises or the Expansion Premises
(except to an affiliated party as described in Section 11(e) of the Lease);
d. Landlord has not made a good faith determination that Tenant
does not remain creditworthy;
e. Tenant must lease all of the Additional Space offered;
f. Tenant exercises its option as provided in this Section by
delivering to Landlord written notice of its intention within seven (7) business
days after Tenant has received (or refused) notice from Landlord that the
Additional Space is available, which notice may be given by Landlord to Tenant
up to six (6) months prior to the anticipated availability date of the
Additional Space;
g. All terms of the lease of the Additional Space shall be based
upon Market Rent as hereinafter defined, and shall be negotiated in good faith
between the parties. For purposes of this Section, "good faith" shall mean
compliance with standards of decency and honesty; and
h. Tenant executes an addendum or a new lease for the Additional
Space within fifteen (15) business days after Landlord's receipt of Tenant's
notice to lease the Additional Space.
i. "Market Rent" for purposes of this Section means the annual
fair market rental, concessions and allowances charged to comparable tenants
leasing comparable office premises in comparable buildings for a comparable term
that would be agreed upon by a landlord and a tenant located in the Tysons
submarket of Fairfax County, Virginia, taking into consideration the following:
(i) landlord and tenant are well informed and well advised and each is acting in
what is considered its own best interests; (ii) the rental shall be defined to
include base rental (including any escalations), operating expenses and real
estate taxes, and any market concessions, including without limitation rental
abatement, tenant improvement allowance and additional tenant concessions, if
any, being negotiated at comparable buildings and (iii) the creditworthiness and
quality of tenant.
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<PAGE>
Notwithstanding the foregoing, in the event Landlord and Tenant
cannot reach an agreement on Market Rent within the above-referenced fifteen
(15) day period, Landlord, for a period of ninety (90) days thereafter, shall
not enter into a lease for the Additional Space with any other tenant at a more
favorable Market Rent without first offering such space to Tenant at such Market
Rent. Tenant shall have three (3) business days from receipt of Landlord's
notice of its intention to lease the Additional Space to another tenant to
accept or reject Landlord's revised offer. In the event that Tenant rejects
Landlord's revised offer, Tenant shall have no further rights to the Additional
Space that was so offered, and Landlord shall be free to lease the Additional
Space to any tenant on such terms as it sees fit, in its sole discretion.
If Tenant fails to comply with each of the above conditions
within the time specified, all time periods herein for Tenant being of the
essence, then this right of first offer will lapse and be of no further force
and effect, and Landlord shall have the right to lease all or any part of the
Additional Space to a third party under the same or any other terms and
conditions, whether or not such terms and conditions are more or less favorable
than those offered to Tenant. This right of first offer to lease the Additional
Space is personal to Tenant and is non-transferrable (except to an affiliated
party as described in Section 11(e) of the Lease).
9. Option to Renew. Effective as of the execution date of this
---------------
Second Amendment, Section 48 of the Lease shall be deleted in its entirety, and
the following inserted in lieu thereof:
Tenant shall have the right to extend the term of this Lease for
not more than two (2) additional five (5) year lease terms (each of which is a
"Renewal Term"), upon the following conditions:
a. Tenant is not in default under this Lease beyond any applicable
grace or cure period, either at the time any notice hereunder is given, or at
the time the Renewal Term is to commence;
b. Landlord has not made a good faith determination that Tenant
does not remain creditworthy;
c. Tenant has not previously assigned the Lease or sublet more
than thirty-four percent (34%) of the Expansion Premises (except to an
affiliated party as described in Section 11(e));
d. Tenant has delivered to Landlord written notice of its
intention to exercise this option, not less than 300 days prior to the end of
the Lease Term;
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<PAGE>
e. All lease terms for the Renewal Term shall be the same as in
this Lease, except that the Basic Rental and Landlord concessions, if any, for
the Renewal Tenn shall be negotiated in good faith between the parties; and
f. If Landlord and Tenant fail to agree as to all terms and
sign an Addendum to the Lease extending the Lease term as provided in this
Section at least 240 days prior to the end of the lease term, all time periods
for Tenant herein being of the essence, then Tenant's right to extend the term
of this Lease shall lapse and Tenant's renewal option shall be of no force and
effect. The renewal option is personal to Tenant and is non-transferrable
(except to an affiliated party as described in Section 11(e)).
10. Temporary Occupancy. Pursuant to a Sublease with EER Systems
-------------------
Corporation which expires on March 31, 1999, Tenant is currently occupying
approximately 15,095 rentable square feet on the second (2nd) floor in the east
tower of the Building (the "EER Systems Space"). Upon expiration of the EER
Systems Corporation Sublease, Landlord agrees that Tenant may, pursuant to the
provisions of this Section, continue to occupy the EER Systems Space, as well as
such other additional space on the second (2nd) floor in the east tower of the
Building as Landlord in its sole discretion may agree to make available to
Tenant and which Tenant may elect to occupy (the EER Systems Space and such
additional space, if any, is collectively referred to herein as the "Temporary
Space"). Occupancy of the Temporary Premises as provided in this paragraph shall
not be deemed occupancy for purposes of the commencement of any other
obligations under this Second Amendment. Landlord shall provide customary
Building services to Tenant while Tenant is occupying the Temporary Space.
Tenant agrees to accept the Temporary Space in its as is condition as of the
date hereof, and pay Landlord, as rent for the Temporary Space during such
Temporary Occupancy, at an annual rate of $22.50 per rentable square foot (the
"Temporary Rent") for the Temporary Space, commencing on April 1, 1999, and
terminating upon substantial completion of the Third Floor Premises. Tenant
shall otherwise comply with all terms and conditions of this Lease while
occupying the Temporary Space. Any overpayment of Temporary Rent for the final
month Tenant occupies the Temporary Space shall be credited towards Tenant's
Basic Rental for the Expansion Premises.
11. Signage.
-------
a. Landlord shall, at its sole cost and expense, install one (1)
suite entry sign per floor, and two (2) directory listings on the Building lobby
directory.
b. Upon final execution of this Second Amendment, and after
obtaining Landlord's written approval, Tenant shall have the right to install,
at its sole cost and expense, illuminated Building signage in accordance with
the specifications for the AT&T sign which was previously on the Building,
copies of which are attached to this Amendment as Exhibit B. The sign shall be
placed in the same location as the AT&T sign, on the top of the
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<PAGE>
exterior of 1593 Spring Hill Road facing Spring Hill Road. Tenant shall have the
exclusive right to signage in the area noted on 1593 Spring Hill Road, as
reflected on Exhibit C attached to this Amendment. Provided Tenant's signage
satisfies the foregoing criteria, Landlord shall not unreasonably withhold its
consent to such signage. Tenant shall be responsible for obtaining all county
and municipal permits and approvals. Tenant shall maintain such signage during
the Lease Term, and shall remove such signage and repair all damage to the
Building exterior, at its sole cost and expense, upon the termination of the
Lease.
12. Parking.
-------
a. Tenant shall be entitled to park in the Building parking
lots, at a parking ratio of not more than 3.5 vehicles per 1,000 rentable square
feet. Such parking shall be made available to Tenant at no cost or expense
through September 30, 2002. Commencing on October 1, 2002, Tenant shall pay to
Landlord as additional rent the Market Cost, if any, for parking at the
Building. Market Cost shall be determined as follows:
Landlord shall provide Tenant with notice of the proposed Market
Cost for parking effective October 1, 2002, by delivering written notice to
Tenant no earlier than July 1, 2002 or later than October 15, 2002. Landlord's
determination of Market Cost shall be based on separately stated parking costs
charged to tenants under: (1) leases of at least one (1) full floor for office
space in the Building signed between October 1, 2001 and September 30, 2002; and
(2) leases of at least one (1) full floor signed between October 1, 2001 and
September 30, 2002, at the following buildings (hereinafter the Competitive
Buildings):
1. American Center (8300 and 8330 Boone Boulevard)
2. Tysons Dulles Plaza (1410-1430 Spring Hill Road)
3. Tysons International Plaza (1919 & 1921 Gallows Road)
4. 8133 Leesburg Pike
5. 8500 Leesburg Pike
In determining Market Cost: (1) Landlord shall take into account
different rates for surface and garage parking if the lease(s) signed in the
Building or the Competitive Buildings contain different rates; and, (2) the
parking costs and lease(s) used to establish Market Cost shall be offered to
- -----------------
third party tenants as a component of rentals that incorporate separately stated
then current market rents and concessions.
b. If Tenant does not agree with Landlord's proposed Market Cost
for parking, Tenant shall notify Landlord within ten (10) days of receipt of
Landlord's notice of the proposed Market Cost, and then the Market Cost shall be
determined as follows:
(1) Within ten (10) days of Tenant's notice to Landlord of
its intent to utilize this provision, Landlord and Tenant shall mutually select
an experienced real
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<PAGE>
estate broker, who must have at least ten (10) years leasing experience in the
Tysons Corner, Virginia submarket;
(2) Within ten (10) days after appointment, the designated
broker shall determine the new parking space rental to be used; provided,
however, that if such broker requires additional time within which to determine
such new parking space rental, the designated broker shall have up to thirty
(30) days after appointment to make the determination.
(3) Both parties shall divide equally the expense of the
designated broker.
c. If Landlord decides to charge Tenant for parking as permitted
hereunder, Landlord agrees that the cost or expense of any parking attendant for
the parking lot will not be assessed as an Operating Expense or Basic Cost under
the Lease.
d. Should Landlord decide not to charge Tenant for parking
pursuant to this Section, Landlord shall thereafter forfeit its rights to charge
for parking for the balance of the Extended Term.
13. Sixth Floor Premises. Tenant is currently occupying the Sixth
----------------------
Floor Premises pursuant to the Initial Lease, and will continue to occupy the
Sixth Floor Premises and be bound by all obligations under the Lease with
respect to said premises until substantial completion of the Seventh Floor
Premises, which is anticipated to occur on or about March 1, 2000. Upon
substantial completion of the Seventh Floor Premises, Tenant will vacate the
Sixth Floor Premises as if the term of its lease for said premises had
terminated, and all obligations under the Initial Lease with respect to the
Sixth Floor Premises will continue to apply to the Seventh Floor Premises
through September 30, 2002. As of October 1, 2002, all terms of the Lease, as
modified by this Second Amendment, shall apply to the entire Expansion Premises,
including the Seventh Floor Premises.
14. Additional Space Notice. Landlord agrees to provide written
-------------------------
notice to Tenant of any vacancy or pending vacancy within 1593 Spring Hill Road.
15. Lease Provisions Modified. Effective as of the Expansion
---------------------------
Premises Commencement Date, the following Lease provisions are hereby modified:
a. The third paragraph of Section l(a) of the Lease is deleted
in its entirety, and the following inserted in lieu
thereof:
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Basic Costs shall not include:
A. cost of expenses associated with leasing space in the Building
or the sale of any interest in the Building, including,
without limitation, advertising and marketing, commissions or
any amounts paid for or on behalf of tenants such as space
planning, moving costs, rental and other tenant concessions;
B. amounts paid to any partners, shareholder, officer or
director of Landlord, for salary or other compensation;
C. cost of electricity outside normal business hours sold to
tenants (or requested by tenants) of the Building by Landlord
or any other special service to the tenants or service in
excess of that furnished to Tenant whether or not Landlord
receives reimbursement from such tenants as an additional
charge;
D. expenses for repairs, replacements or improvements arising
from the initial construction of the Building to the extent
such expenses are either (i) reimbursed to Landlord by virtue
of warranties from contractors or suppliers or (ii) result by
reason of deficiencies in design or workmanship;
E. any amounts paid to any person, firm or corporation related or
otherwise affiliated with Landlord or any general partner,
officer or director of Landlord or any of its general
partners, to the extent the same materially exceed arms-length
competitive prices paid for the services or goods provided;
F. costs of repairs incurred by reason of fire or other casualty
or condemnation (except for commercially reasonable
deductibles under applicable insurance coverage);
G. costs of renovating or otherwise improving space for tenants
or in renovating space vacated by any tenant;
H. costs relating to maintaining Landlord's existence, either as
a corporation, partnership, or other entity, such as
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<PAGE>
trustee's fees, annual fees, partnership organization or
administration expenses, deed recordation expenses, legal and
accounting fees (other than with respect to Building
operation), and legal fees and expenses which arise in
disputes with tenants;
I. interest or penalties arising by reason of Landlord's failure
to timely pay any Operating Expense;
J. costs incurred to remove or control any hazardous or toxic
wastes, materials or substances from either the Building or
land;
K. depreciation of the Building or any equipment, machinery,
fixtures or improvements therein;
L. Landlord's general corporate overhead;
M. ground rents;
N. costs incurred to remedy, repair or otherwise correct any
defects or violations of the Building, or by reason of any
changes in governmental laws, rules or regulations occurring
during the lease term;
0. the cost of capital improvements made to the Building, other
than capital improvements, modifications or equipment required
by federal, state or local ordinance, rule, regulation or law
(except those required to correct a violation existing as of
the date hereof or which is hereafter created by Landlord) or
determined by Landlord in good faith to result in savings or
reductions in Basic Cost generally, in which case the cost
thereof shall be included in Basic Cost for the calendar year
in which the cost shall have been incurred and in subsequent
calendar years, on a straight line basis, such items will be
amortized over an appropriate period and with an appropriate
interest factor selected in good faith by Landlord;
P. principal and interest on mortgage or other debt payments;
and
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Q. wages, salaries or other compensation or benefits for
employees applicable to the time spent working at or with
respect to other buildings, other than the Building manager
(provided that with respect to each employee that services the
Building and other buildings, an equitable portion of such
employee's salary shall be included in Basic Cost, as
applicable).
b. The first sentence of Section 11 (c) of the Lease is hereby deleted
in its entirety, and the following sentence is inserted in lieu
thereof:
Landlord's Right of First Refusal. Landlord shall have
---------------------------------
the right, within twenty (20) days after receipt of the notice
from Tenant, required under Section 11 (b)(i) above, to elect:
(i) if Tenant proposes to assign the Lease or sublease more than
thirty four percent (34%) of the Premises (at any one time,
either with one [1] or more than one [1] subleases), to terminate
this Lease in its entirety, in which event the Lease shall
terminate upon the effective date of the proposed assignment or
sublease, and Tenant shall vacate the Premises as of such
effective date in accordance with the applicable provisions of
this Lease; (ii) if Tenant intends to sublet more than thirty-
four percent (34%) of the Premises (at any one time, either with
one [1] or more than one [1] subleases), to terminate this Lease
only with respect to such portion of the Premises, in which case
Tenant shall vacate such portion as provided in subsection (i)
above; or (iii) to require Tenant to pay Landlord, within ten
(10) days of receipt, one-half (1/2) of the amount of rent
payable under such assignment or sublease in excess of the amount
of rent payable by Tenant hereunder with respect to the Premises
or, in the event of a sublease, that portion of the Premises
sublet, offset by any direct expenses incurred by Tenant actually
incurred in assigning the Lease or subleasing such portion of the
Premises, and, additionally, offset by the cost of any service
which Tenant provides subtenant or assignee that Tenant does not
receive from Landlord, costs Tenant incurs under the Lease (such
as payments due under Section 8 above) which are not passed
through to subtenant or assignee, and the value of the sale or
rental of assets which are not provided by Landlord (such as
Tenant's furniture) to subtenant or assignee (all amortized in
equal monthly payments over the remaining term of the Lease, if
assigned, or, if applicable, over the initial term of such
sublease).
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<PAGE>
c. The following is added to the end of Section 11(c) of the Lease:
Notwithstanding anything to the contrary contained in this
subsection, Landlord may not exercise any rights to recapture under
subsection (i) or (ii) herein, if Tenant assigns the Lease or
subleases all or a part of the Premises to a Subsidiary or
Affiliate pursuant to the provisions of Section 11(e) below.
d. Subsection 11(e)(ii) shall be redesignated 11(e)(iii), and the
following 11(e)(ii) inserted in the Lease:
(ii) any bona fide entity to which Tenant assigns for value all, or
substantially all, of its assets, so long as (A) the entity
receiving such assets assumes this Lease, and all obligations
hereunder, and (B) the entity receiving such assets can demonstrate
to Landlord's reasonable satisfaction by balance sheets and other
financial documentation submitted to Landlord that it is no less
capable than Tenant of servicing all of Tenant's financial
obligations under this Lease; and
e. The Last sentence of Section 13 of the Lease is deleted in its
entirety, and the following inserted in lieu thereof:
Landlord warrants that, as of the execution date of the Second
Amendment, neither the Land nor the Building is encumbered by a
ground lease, mortgage or deed of trust. In consideration for
Tenant's agreement to attorn to any lender or ground lessor, and as
a condition of such subordination and attornment, Landlord agrees
to obtain a non-disturbance agreement, in a form reasonably
acceptable to such mortgagee or ground lessor, from any future
mortgagee(s) or ground lessor(s). Such non-disturbance agreement
shall provide that Tenant's tenancy hereunder shall not be
disturbed in the event of a mortgage foreclosure, ground lease
termination or other similar event, so long as Tenant continues to
comply with its obligations under this Lease.
f. The following shall be added to the end of Section 17 of the
Lease:
Notwithstanding the foregoing, if neither Landlord nor Tenant has
terminated this Lease and the repairs are not substantially
completed within thirty (30) days following the date upon which
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<PAGE>
Landlord estimated that such work would be completed, Tenant shall
have the right to terminate this Lease following the end of such
period by delivering written notice to Landlord (the "Damage
Termination Notice"), effective as of a date set forth in the
Damage Termination Notice (the "Damage Termination Date"), which
Damage Termination Date shall not be earlier than thirty (30) days
after the delivery of the Damage Termination Notice.
Notwithstanding the foregoing, if Tenant delivers a Damage
Termination Notice to Landlord, then Landlord shall have the right
to suspend the occurrence of the Damage Termination Date for a
period ending thirty (30) days after the Damage Termination Date
set forth in the Damage Termination Notice by delivering to Tenant,
within ten (10) business days of Landlord's receipt of the Damage
Termination Notice, a written notice certifying in good faith that
the repairs shall be substantially completed within thirty (30)
days after the Damage Termination Date. If repairs shall be
substantially completed prior to the expiration of such additional
thirty (30) day period, then the Damage Termination Notice shall be
of no force or effect, but if the repair shall not be substantially
completed within such additional thirty (30) day period, then, this
Lease shall terminate upon the expiration of such additional thirty
(30) day period.
g. Section 20(c) is deleted in its entirety, and the following
inserted in lieu thereof:
(c) Tenant shall fail to comply with or observe any other provision
of this Lease (or any other lease now or hereafter executed by
Tenant in connection with space in the Building), and same is not
cured within fifteen (15) days after Landlord's written notice
thereof to Tenant. Notwithstanding the foregoing, if (i) the
default is of such a nature that fifteen (15) days is an
unreasonably short period of time in which to cure the default;
(ii) Tenant has commenced curing the default within the fifteen
(15) day period; (iii) the default is of such a nature that it
poses no health or safety threat to Tenant or other occupants of
the Building; and (iv) Tenant is continuing to diligently pursue a
cure of such default, then Tenant shall have an additional sixty
(60) days in which to complete the cure of said default.
h. The second sentence of Section 25 is deleted, and the following
inserted in lieu thereof:
-17-
<PAGE>
In the case of the filing of any such lien Tenant will promptly,
and in any event within thirty (30) days after receipt of notice of
the filing thereof, satisfy or release such lien by means of
payment thereof, bonding Landlord against any loss occasioned
thereby (in which case Tenant shall have the right in due diligence
to contest and dispute such lien so long as such bond remains in
place), or take such other action as may be otherwise acceptable to
Landlord.
i. The word "reasonably" shall be inserted in the fourth line, between
the words "as required," in the first clause of Section 29 of the
Lease.
j. A second paragraph shall be added to Section 29 as follows:
Landlord shall from time to time, within ten (10) business days
after Tenant shall have requested the same of Landlord, execute,
acknowledge and deliver to Tenant a written instrument in
recordable form and otherwise in such form as reasonably required
by Tenant (i) certifying that this Lease is in full force and
effect and has not been modified, supplemented or amended in any
way (or, if there have been modifications, supplements or
amendments thereto, that it is in full force and effect as
modified, supplemented or amended and stating such modifications,
supplements and amendments); and (ii) stating any other fact or
certifying any other condition reasonably requested by Tenant. Such
certifications and representations shall not act as an amendment to
this Lease and shall not vary the terms of this Lease or the rights
of the Landlord or Tenant hereunder.
k. Section 36 shall be deleted in its entirety, and the following
inserted in lieu thereof:
36. LANDLORD LIABILITY.
------------------
Notwithstanding anything to the contrary in the Lease or in any
document delivered by Landlord in connection with the consummation
of the transaction contemplated hereby, it is expressly understood
and agreed that Landlord is acting solely on behalf and for the
benefit of Separate Account No. 8 and Landlord's liability shall be
limited to, and payable and collectible only out of the interest of
Landlord in the Building,
-18-
<PAGE>
and no other property or asset of Landlord or of any of Landlord's
directors, officers, employees, shareholders, contractholders or
policyholders, shall be subject to any lien, levy, execution,
setoff or other enforcement procedure for satisfaction of any right
or remedy of Tenant in connection with the transaction contemplated
hereby.
1. The following shall be added to the end of Section 38:
Notwithstanding the foregoing, in the event Tenant's stock is
hereafter traded on a nationally recognized stock exchange, and in
lieu of the foregoing Statements, Tenant agrees to provide to
Landlord within 14 days of request by Landlord but no more than
once per year, Tenant's most recent distributed annual report
15. Brokerage. Landlord and Tenant each represents and warrants to
---------
the other that, except for LaSalle Partners Management Services, Inc. and
Spaulding & Slye, neither of them has employed or dealt with any broker or
finder who is entitled to a commission or other payment in connection with this
Second Amendment. Landlord and Tenant shall each indemnify and hold harmless the
other from and against any claim or claims for a commission or other payment
arising from or out of any breach of the foregoing representation and warranty.
Landlord has agreed to pay such commission pursuant to a separate agreement or
agreements.
16. Defined Terms. Except as otherwise expressly provided herein,
---------------
all capitalized defined terms shall have the same meanings as provided in the
Lease.
17. Headings. Headings contained in this Second Amendment are for
--------
convenience only and are not substantive to the provisions of this Second
Amendment.
18. Lease Terms Ratified. Except as otherwise expressly provided
--------------------
herein, and unless inconsistent with the terms hereof, all other terms,
conditions and covenants of the Lease are hereby ratified and confirmed, and
shall be applicable to the Expansion Premises.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment by affixing
their hands and seals as of the date noted above.
Landlord:
WITNESS/ATTEST: THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
/s/ Constance ??????? By: /s/ Brenda E. McKinney [SEAL]
- ----------------------- --------------------------
Name: BRENDA E. McKINNEY
Title: INVESTMENT OFFICER
Tenant:
WITNESS/ATTEST: AVERSTAR, INC.
/s/ By: /s/ Joseph A. Saponaro [SEAL]
- ------------------------ --------------------------
Name: JOSEPH A. SAPONARO
Title: PRESIDENT
-20-
<PAGE>
Exhibit A-1
[GRAPHIC]
SECOND FLOOR PLAN
-----------------
<PAGE>
Exhibit A-2
[GRAPHIC]
FLOOR PLAN - 3RD FLOOR
----------------------
<PAGE>
Exhibit A-3
[GRAPHIC]
<PAGE>
Exhibit B-1
[GRAPHIC]
INSTALLATION U.L. APPROVED
SECTION CONSTRUCTION
============ -------------
AT&T
<PAGE>
EXHIBIT B-2
[LOGO OF AT&T]
REPRESENTS
LIGHT ELEMENTS ON
DARK BKG'D.
INTERNALLY ILLUMINATED GLOBE AND LETTERS:
U.L. GLOBE REQ'D.
SELF CONTAINED TRANSFORMERS.
GLOBE IS 8'.0" DIAMETER/HORIZONTAL LOGO ELEMENTS ARE TO BE ROUTED FROM FACE OF
GLOBE AND BACKED WITH WHITE TRANSLUCENT ACRYLIC WHITE TO CONTINUE ONTO RETAINER
FACE (PAINTED).
BKG'D. OF ELEMENTS AND CABINET RETURN ALUMINUM FINISHED TO MATCH PMS 481
c(BLDG. COLOR) AGGREGATE LETTERS TO HAVE WHITE TRANSLUCENT ACRYLIC FACES WITH
ALUMINUM CHANNELS FINISHED 481 c(BLDG. COLOR). RETAINERS 481c
FACE OF GLOBE AND LETTERS TO OCCUPY THE SAME PLANE. 1/4" SPACE REQUIRED BETWEEN
WALL AND (GLOBE/LTRS). FOR DRAINAGE.
SPECIFICATION SHEET 6 AT&T GUIDELINES
- --------------------------------------
REV/ 4/26 '89
<PAGE>
Exhibit B-3
[LOGO OF AT&T]
[GRAPHIC]
BLDG. ELEVATION AT SIGN LOCATION
================================
S C A L E: 3/32" = 1' - 0"
<PAGE>
EXHIBIT C
AVERSTAR EXCLUSIVE SIGNAGE AREA
[GRAPHIC]
<PAGE>
Exhibit 10.7
<PAGE>
CONSULTING AGREEMENT
CONSULTING AGREEMENT, dated August 31, 1995 (the "Agreement"), between Joel
N. Levy/Peter M. Schulte, L.L.C., a Delaware Limited Liability Company ("L&S")
and Intermetrics, Inc., a Delaware corporation (the "Company").
WHEREAS, Apollo Holding, Inc. ("Apollo") acquired as of the date hereof all
of the outstanding capital stock of the Company pursuant to the terms and
provisions of the Agreement and Plan of Merger dated as of April 6, 1995 (the
"Merger Agreement");
WHEREAS, the Company desires to obtain financial, acquisition, strategic
and business planning and consulting services from L&S;
WHEREAS, L&S is in the business of providing such consulting services and
is willing to provide such services to the Company in accordance with the terms
and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth and the mutual benefits to be derived
herefrom, L&S and the Company hereby agree as follows:
1. Engagement. Upon the terms and subject to the conditions set forth in
this Agreement, the Company hereby agrees to retain L&S as a consultant to
provide financial, strategic and business planning and consulting services,
including analysis and advice with respect to programs relating to value for the
common stock of Apollo's stockholders (the "Services").
2. L&S's Duties and Obligations. L&S hereby agrees, during the term of this
Agreement, to provide the Services in a professional manner to the Company and
to provide other consulting services as may be reasonably requested from time to
time by the
<PAGE>
Board of Directors of the Company or the Chief Executive Officer thereof in
accordance with this Agreement.
3. Compensation; Expenses.
(a) In consideration of providing the Services to the Company hereunder,
the Company agrees to pay to L&S, during the term of this Agreement, the
following fees:
(i) An annual fixed consulting fee in the amount of $100,000 per
annum; and
(ii) An annual variable fee equal to two and two-tenths percent
(2.2%) of the Company's consolidated EBITDA for each of the Company's
fiscal years or portions thereof during the term of this Agreement;
provided, however (A) during the period from Closing (as defined in the
Merger Agreement) to the end of the first fiscal year following Closing,
the fee payable under this Section 3(a)(ii) shall not be less than
$100,000 on an annualized basis, (B) during the first and second full
fiscal years following Closing, the fee payable under this Section 3(a)
(ii) shall not be less than $100,000, and (C) during the third, fourth and
fifth full fiscal years following the Closing, the fee payable under this
Section 3(a)(ii) shall not be less than $150,000.
(b) The fees payable hereunder shall be reduced by the amounts the Company
pays to Westgate Capital Co. ("Westgate Fee") pursuant to Section 3(a) (i) and
(ii) of the Consulting Agreement dated the date hereof between Westgate Capital
Co. and the Company as in effect on the date hereof without giving effect to any
increases in the amount of the Westgate Fee which may occur after the date
hereof.
-2-
<PAGE>
(c) "EBITDA" is defined on the attached Exhibit 1.
(d) The fees payable under Section 3(a)(i) and (ii) hereunder shall be paid
quarterly in arrears on the last day of the fiscal quarter. The first payment on
account of such fees shall be prorated from the Closing until the end of the
first fiscal quarter following Closing. For such purpose, the annual fee under
subparagraph (a) (i) above shall be payable at the rate of $25,000 per quarter
and the variable fee under subparagraph (a) (ii) above shall be payable at the
rate of $25,000 per quarter for an aggregate of $50,000 per quarter, with
adjustments to be made after the end of the year on the basis of actual EBITDA
calculated from the Company's audited financial statements.
(e) The Company shall reimburse L&S for all reasonable documented
out-of-pocket expenses incurred by L&S, its managers and agents in connection
with providing the Services hereunder; provided, however, the consulting fees
which L&S shall pay to Fulcrum Management, Inc. ("Fulcrum") shall not be
considered a reimbursable expense although the expenses of Fulcrum shall be
reimbursable by the Company.
4. Term. The initial term of L&S's engagement under this Agreement shall
commence on the date hereof and shall continue through and until the seventh
anniversary of the Closing (the "Initial Term"), and the engagement shall
thereafter be cancelable on a year-to-year basis by the Company, with the
approval of a majority of the Board of Directors of the Company, upon six (6)
months prior written notice prior to the end of the Initial Term or any
subsequent one-year extension.
-3-
<PAGE>
5. Indemnification. (a) The Company agrees to indemnify and hold harmless
L&S and its managers, members, agents and affiliates against and from any and
all claims, liabilities, losses, costs, damages, expenses, judgments, fines and
amounts paid in settlement (including attorneys' fees), arising from any source,
including, without limitation, from any threatened, pending or completed actions
or lawsuits whether civil, criminal, administrative or investigative, or by or
in the right of the Company to procure a judgment in its favor, arising from
L&S's performance of its duties hereunder, except insofar as such may arise
solely from L&S's gross negligence or intentional wrongdoing. The Company shall
be entitled to direct the defense of any claim for which it is obligated to
provide indemnification, at the Company's expense, but such defense shall be
conducted by legal counsel agreed to by both the Company and L&S. If the Company
and L&S can not agree on legal counsel within a reasonable period of time, legal
counsel shall be selected by Windels, Marx, Davies & Ives. The Company agrees to
keep L&S informed on a timely basis of the status of all legal proceedings
relating to this indemnification and shall provide copies of all documents
relating to the legal proceedings to L&S or at L&S's request, its legal counsel.
(b) Expenses incurred in defending any threatened or pending civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding, upon receipt of an undertaking by or on behalf of L&S to repay such
amount if it is
-4-
<PAGE>
ultimately determined, in a final non-appealable judgment of a court of
competent jurisdiction, that L&S is not entitled to be indemnified against such
expenses. This undertaking by L&S shall be an unqualified general undertaking,
but no security for such undertaking will required.
(c) All of L&S's rights under this Section 5 will continue even after this
Agreement has been terminated for any reason.
6. Nature of L&S's Undertaking: No Joint Venture or Partnership. L&S and
the Company hereby agree that neither L&S's entering into this Agreement nor
L&S's providing of Services to the Company shall be construed to have created
either a joint venture or a partnership for the purpose of providing such
Services.
7. Confidentiality; Noncompetition. L&S and its affiliates shall not
disclose or use (other than as may be authorized by the Company) any secret,
private or confidential information or other proprietary knowledge concerning
the Company which is received in the course of providing the Services hereunder,
including (without limitation) all industrial property rights and lists of sales
of products, employees, agents, customers and suppliers; provided, however, that
such obligation of confidentiality shall not apply to information which (i) is
in the public domain, (ii) is known to L&S prior to disclosure by the Company,
(iii) is received from a third party having a right to make disclosure thereof,
(iv) is disclosed by L&S in connection with the performance of its duties
hereunder, (v) is required by law or court order to be disclosed or (vi) is
disclosed by L&S to the shareholders of the Company.
-5-
<PAGE>
Except as specifically stated above, L&S shall not be limited in any way in the
conduct of its business. This provision shall survive the termination of this
Agreement. L&S also agrees to comply with the noncompetition provisions set
forth in Exhibit 2 hereto.
8. Notices. Any notice, report or payment required or permitted to be given
or made under this Agreement by one party to the other shall be deemed to have
been sufficiently given or made for all purposes hereof if mailed, by registered
mail, postage prepaid, addressed to such party at its address indicated below or
to such other address as the addressee shall have theretofore furnished in
writing to the other party:
Joel N. Levy/Peter M. Schulte, L.L.C.
135 East 57th street
New York, New York 10022
Attention: Peter M. Schulte
Fax No.: (212) 980-2630
With a copy to:
Windels, Marx, Davies & Ives
156 West 56th street
New York, New York 10019
Attention: James P. Conroy
Fax No.: (212) 262-1215
If to the Company:
Intermetrics, Inc.
733 Concord Avenue
Cambridge, Massachusetts 02138
Attention: Chief Executive Officer
Fax No.: (617) 547-3879
9. Agreement. This Agreement (a) contains the complete and entire
understanding and agreement of L&S and the Company respecting the matter subject
hereof; (b) supersedes and cancels all other understandings or agreements, oral
or written, respecting
-6-
<PAGE>
the subject matter hereof; and (c) may not be modified except by an instrument
in writing executed by L&S and the Company.
10. Waiver of Breach. The waiver by either party of a breach or any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach of that provision or any other provision
hereof.
11. Assignment. L&S and the Company may not assign their respective rights
or obligations under this Agreement without the express written consent of the
parties hereto, except that L&S may assign a portion of its duties and benefits
herein to Fulcrum Management, Inc.
12. Section Headings. All section headings herein have been inserted for
convenience of reference only and shall in no way modify or restrict any of the
terms or provisions hereof.
13. Governing Law. This Agreement shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be governed
by, construed, interpreted and enforced according to the laws of the State of
New York.
-7-
<PAGE>
IN WITNESS WHEREOF, L&S and the Company have caused this Agreement to be
duly executed and delivered on the date and year first above written.
JOEL N. LEVY/PETER M. SCHULTE, L.L.C.
By: /s/ PETER M. SCHULTE
-----------------------------------
Name: Peter M. Schulte
Title: Manager
INTERMETRICS, INC.
By: /s/ MICHAEL B. ALEXANDER
-----------------------------------
Name: Michael B. Alexander
Title: Chairman and Chief
Executive Officer
AGREEMENT TO COMPLY
WITH THE PROVISIONS
OF EXHIBIT 2:
/s/ JOEL N. LEVY
- --------------------------
Joel N. Levy
/s/ PETER M. SCHULTE
- --------------------------
Peter M. Schulte
-8-
<PAGE>
Exhibit 1
EBITDA DEFINITION
This definition of EBITDA is intended to clearly define earnings derived
solely from the normal operations of Apollo and the Company.
EBITDA, with respect to any fiscal period, shall be obtained from the
Company's consolidated annual audited income statement and shall be defined as
follows:
(i) Operating income (minus interest income and plus interest expense
to the extent they are reflected above the operating income
line);
(ii) plus depreciation, amortization and other similar non-cash
charges, software development and design and research and
development expenses in the aggregate in excess of $100,000 not
reimbursed by a third party at the time of the expense;
(iii) plus consulting fees described in Sections 3(a)(i) and (ii) of
this Agreement and the Consulting Agreement between the Company
and the Westgate Capital Co.;
(iv) plus any charges to income related to the grant, issuance or
exercise of stock options to management of, or lenders to,
Apollo, the Company or their subsidiaries;
(v) less extraordinary and nonoperating gains and plus extraordinary
and nonoperating losses, including, without limitation, any
prepayment penalties resulting from the retirement of debt before
its scheduled repayment date;
(vi) plus any expenses incurred or minus reimbursement received, both
net of reserves, in settlement of any claims or other items
related to the assets and liabilities of Apollo or the Company
for events occurring prior to the closing of the Merger
Agreement;
(vii) plus the special bonuses to be paid to Michael B. Alexander by
the Company on September 15, 1996 and September 15, 1997;
(viii) plus travel, lodging and entertainment expense for Directors of
Apollo and the Company;
(ix) minus gains or plus losses from the sale of assets other than
write-offs in the ordinary course of business;
-9-
<PAGE>
(x) plus charges amortized or expensed relating to future
acquisitions of Apollo or the Company;
(xi) plus extraordinary litigation expenses and extraordinary legal
and accounting expenses;
(xii) plus amortization or expenses relating to asset writeups in
connection with the acquisition of the Company; and
(xiii) plus in the first twelve months only, expenses for special
consultants, not in the ordinary course, but this adjustment
shall be limited to a maximum of $100,000.
In the event of a loss from a catastrophe or other casualty loss, an act of
God (including, but not limited to, fire, flood, wind damage, lightning or other
event), industrial sabotage, labor strikes, disputes or work stoppages or any
other unforeseen event (whether at the Company or at any of its vendors), which
such event or events shall cause a disruption or cessation of all or a portion
of the normal business operations of the Company for a period of forty-eight
hours or longer, then for purposes of the determination of operating earnings,
to the extent that the Company is not reimbursed by its business interruption
insurance policy, the final amount will be credited with an amount equal to the
product of the daily average operating earnings for the period of the Company's
normal business operation for the two most recent fiscal years (as adjusted by
an aggregate annual amount [including depreciation and amortization as set forth
in Intermetrics' financial statements) of plus $1,915,000 for 1994 and by plus
$3,257,000 for 1995, respectively), whichever is larger, and the number of days
that the normal business operations were disrupted or ceased.
-10-
<PAGE>
Exhibit 2 L&S
Noncompetition
(a) L&S hereby acknowledges and recognizes its possession of confidential
or proprietary information and the competitive nature of the business of Apollo,
the Company and any of their direct or indirect subsidiaries (referred to in
this Exhibit 2, as the "Company") and accordingly agrees that, in consideration
of the premises contained herein, it will not, during the term of this Agreement
and for a period of eighteen (18) months following the termination of this
Agreement for any reason whatsoever, (i) directly or indirectly engage in any
Competitive Business (as hereinafter defined), whether such engagement shall be
as an employer, officer, director, owner, employee, partner, consultant, advisor
or other participant in any of the (A) states of the United States or (B) other
geographic areas outside the United States in which the Company currently, or at
any time during this Agreement or the eighteen month period after termination of
this Agreement, is doing business, or (ii) assist others in the foregoing clause
(i). L&S's purchase after the date hereof of not more than the lesser of
$500,000 of value or one-quarter of one percent (.25%) of the outstanding
capital stock of any public corporation shall not (in itself) be deemed to be
engaging in any Competitive Business for purposes of this Exhibit 2. Any shares
of capital stock of any public corporation owned by L&S prior to the date hereof
shall be excluded from the restrictions contained herein. As used in this
Exhibit 2, the term "Competitive Business" means and includes (i) any business,
whether serving government, commercial, private or other customers, in which the
Company is engaged in, or proposes to engage in pursuant to actual proposals or
bona fide plans to propose, and (ii) any business that has or will provide the
services outlined below to any customer of the Company, in either case during
the period this Agreement is in effect or the eighteen months prior to the
closing of the Merger, including, without limitation
(i) systems engineering, software design services and software
coding including (x) analysis and design, (y) coding development,
test and integration and (z) operational support and maintenance;
(ii) multimedia programming services, development software, computer
multimedia systems;
(iii) tools for embedded systems development; and
(iv) software for operation and testing of manufacturing plants and
products.
<PAGE>
The Board of Directors of the Company may waive or alter the provisions of
paragraph (a) of this Exhibit 2, upon request by L&S to the Board of Directors
to engage in specified activities, which requests shall not be unreasonably
denied upon a finding by the Board of Directors that the proposed activities by
L&S will not harm the Company. Any such requests by L&S and the responses by the
Board of Directors shall be read into the minutes of the meetings of the Board
of Directors.
(b) L&S agrees that during the term of this Agreement and for a period of
eighteen months thereafter, without the prior written consent of the Company,
L&S shall not (i) solicit, employ or otherwise engage, or assist in the
solicitation, employment or engagement as an employee, independent consultant or
otherwise, any person who is an employee of the Company or was an employee of
the Company during the eighteen months prior to the termination of this
Agreement, or in any manner induce or attempt to induce any employee of the
Company to terminate his or her employment with the Company; or (ii) induce any
employee of the Company to engage in any Competitive Business in any of the (A)
states of the United States or (B) other geographic areas outside the United
States in which the Company currently, or at any time during the term of this
Agreement or the eighteen month period after termination of this Agreement, is
doing business, or (iii) tortiously interfere with the relationship of the
Company with any person, including any person who at any time during the term of
this Agreement was an employee, a customer, a vendor, a supplier or a consultant
of, or to, the Company.
(c) For purposes of this Exhibit 2, L&S shall include Joel N. Levy and
Peter M. Schulte, the principals of L&S.
<PAGE>
Exhibit 10.8
ASSIGNMENT AGREEMENT AND AMENDMENT
TO CONSULTING AGREEMENT
THIS ASSIGNMENT AGREEMENT AND AMENDMENT TO CONSULTING AGREEMENT (this
"Agreement") is dated as of February 27, 1998 by and among Joel N. Levy/Peter M.
Schulte, LLC ("L&S"), Intermetrics, Inc. (the "Assignor") and IP Technologies,
Inc. (the "Assignee").
WHEREAS, L&S and the Assignor have entered into a Consulting
Agreement, dated as of August 31, 1995 (the "L&S Agreement");
WHEREAS, Pacer Infotec, Inc., a Massachusetts corporation ("Pacer"),
and Apollo Holding, Inc., a Delaware corporation ("Apollo"), have entered into
that certain Agreement and Plan of Merger, dated as of January 22, 1998 (the
"Merger Agreement"), whereby, among other things, the Assignee was formed for
the purpose of combining the businesses of Pacer and the Assignor through the
mergers of (i) Apollo Acquisition Corp. with and into Apollo (the "Apollo
Merger") and (ii) PI Acquisition Corp. with and into Pacer (the "Pacer Merger");
and
WHEREAS, the parties hereto desire to execute this Agreement to: (i)
evidence the assignment and transfer to the Assignee of all of the Assignor's
right, title and interest in and to the L&S Agreement and the assumption by the
Assignee of all of the Assignor's obligations, duties and liabilities under the
L&S Agreement and (ii) amend the L&S Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, each of the parties
hereto agrees as follows:
1. Transfer of Rights. Effective as of the date hereof, the
------------------
Assignor by these presents does hereby assign and transfer to the Assignee, and
the Assignee hereby accepts and receives from the Assignor, all of the
Assignor's right, title and interest in and to the L&S Agreement.
2. Assumption of Obligations. Effective as of the date hereof, the
-------------------------
Assignee by these presents does hereby assume and agree to pay, perform and
discharge when due all of Assignor's obligations, duties and liabilities under
the L&S Agreement arising and accruing from and after the date hereof.
3. Amendment of the L&S Agreement. The parties hereto hereby
------------------------------
covenant and agree that, effective as of the date hereof, the L&S Agreement is
hereby amended as follows:
(i) the term "Company" as defined therein shall refer to the Assignee and
its subsidiaries on a consolidated basis;
<PAGE>
(ii) the aggregate amounts payable pursuant to the L&S Agreement and the
Consulting Agreement, dated as of August 31, 1995, by and between the
Assignor and Westgate Capital Co. (the "Westgate Agreement") shall not
exceed $300,000 per annum (which shall be reduced by the amount
payable pursuant to the Westgate Agreement when such agreement
terminates) ; and
(iii) Section 4 of the L&S Agreement is amended and restated in its
entirety to read as follows:
"4. Term.
----
The term of L&S's engagement under this Agreement shall commence on
the date hereof and shall continue through and until the first
anniversary of a Public Offering of the Company. "Public Offering"
shall be defined as a public offering of the Company which results in
aggregate gross cash proceeds of sale to the Company of at least
$18,750,000 and the Company's outstanding common stock having an
aggregate market valuation of at least $75,000,000 calculated on the
public offering price."
4. Miscellaneous.
-------------
(a) Except as modified herein, all of the terms and conditions of the
L&S Agreement, as heretofore in effect, shall remain in full force and effect
and, as modified hereby, the L&S Agreement is hereby ratified and confirmed in
all respects.
(b) This Agreement and the legal relations between the parties hereto
shall be governed by, and construed in accordance with, the laws of the State of
New York, applicable to contracts made and performed therein.
(c) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
INTERMETRICS, INC.
By: /s/ Michael B. Alexander
----------------------------------------
Name: Michael B. Alexander
Title: Chairman and Chief Executive Officer
IP TECHNOLOGIES, INC.
By: /s/ Michael B. Alexander
-----------------------------------------
Name: Michael B. Alexander
Title: Chairman and Chief Executive Officer
JOEL N. LEVY/PETER M. SCHULTE, LLC.
By: /s/ Peter M. Schulte
----------------------------------------------
Name: Peter M. Schulte
Title: Manager
<PAGE>
Exhibit 10.9(a)
AVERSTAR, INC.
1998 LONG TERM INCENTIVE PLAN
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SECTION 1. Purpose.
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The purpose of Averstar, Inc.'s 1998 Long Term Incentive Plan (the "Plan")
is to promote the interests of Averstar, Inc. (the "Company") and its
Subsidiaries, Affiliates and shareholders by enabling the Company to attract,
retain and reward employees, officers and directors of the Company and its
Subsidiaries and Affiliates, and strengthening the mutuality of interests
between such employees, officers and directors and the Company's shareholders,
by permitting such employees, officers and directors to participate in the
ownership of the Company. To accomplish such purposes, the Plan provides that
the Company may grant Incentive Stock Options, Non-Qualified Stock Options,
Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Purchase
Rights or Other Stock-Based Awards (all as defined herein).
Certain terms used herein are defined in Section 16 of the Plan.
SECTION 2. Stock Subject to the Plan.
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The maximum aggregate number of shares of Stock reserved and available for
distribution under the Plan shall be 3,349,447 shares of Stock, reduced by the
number of shares of Stock subject to being issued from time to time upon
exercise of outstanding awards granted under the Plan. Such shares may consist,
in whole or in part, of authorized and unissued shares, treasury shares or
shares reserved for issuance under the Plan.
The shares of Stock reserved for issuance under the Plan include shares to
be issued pursuant to the exercise of the outstanding stock options (the "Apollo
Options") of Apollo Holding, Inc. ("Apollo") and the outstanding stock options
(the "Pacer Options") of Pacer Infotec, Inc. ("Pacer").
The holders of outstanding Pacer Options may elect to: (i) exercise such
Pacer Options and purchase shares of the Company at an exchange ratio of
0.48906292 shares of the Company per Pacer share (the "Pacer Exchange Ratio") in
which case the terms of such options shall be governed by the Pacer Infotec,
Inc. Stock Option Plan, as amended through __________, 19__, a copy of which is
attached hereto; or (ii) surrender such Pacer Options to the Company and receive
Stock Options issued hereunder at the Pacer Exchange Ratio.
The holders of outstanding Apollo Options may elect to: (i) exercise such
Apollo Options and purchase shares of the Company at an exchange ratio of
4.57347507 shares of the Company per Apollo share (the "Apollo Exchange Ratio")
and shares of IES Holding, Inc. in which case the terms of such options shall be
governed by the Apollo Holding, Inc. 1996 Long Term Incentive Plan, as
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amended through December 30, 1997, a copy of which is attached hereto; or (ii)
surrender such Apollo Options to the Company in exchange for Stock Options
issued hereunder at the Apollo Exchange Ratio and stock options issued under the
IES Holding, Inc. 1998 Long Term Incentive Plan.
Subject to Section 6(b)(iv) below, if any shares of Stock that have been
optioned under the Plan cease to be subject to a Stock Option, or if any such
shares of Stock that are subject to any Restricted Stock or Deferred Stock
award, Stock Purchase Right or Other Stock-Based award granted hereunder are
forfeited or any such award otherwise terminates, without a payment being made
to the participant in the form of Stock, such shares shall be available for
distribution in connection with future awards under the Plan. Notwithstanding
any other provision of the Plan, shares issued under the Plan and later
repurchased by the Company shall not become available for future distribution
under the Plan.
In the event of any recapitalization, dividend of stock or property other
than cash ("stock dividend"), Stock split, reclassification or other change in
corporate structure affecting the Stock, a corresponding substitution or
adjustment shall be made in the aggregate number of shares reserved for issuance
under the Plan, in the number and option price of shares subject to outstanding
Options granted under the Plan, in the number and purchase price of shares
subject to outstanding Stock Purchase Rights under the Plan, and in the number
of shares subject to other outstanding awards granted under the Plan as may be
determined to be appropriate by the Board, in its sole discretion, provided that
the number of shares subject to any award shall always be a whole number. Such
adjusted option price shall also be used to determine the amount payable by the
Company upon the exercise of any Stock Appreciation Right associated with any
Stock Option.
If all or any portion of an outstanding option issued hereunder is
exercised subsequent to any stock dividend, split-up, recapitalization,
combination or exchange of shares, merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, as a result of
which shares of any class of the Company or any other company shall be issued in
respect of outstanding shares of common stock of the Company or shares of common
stock of the Company shall be changed into the same or a different number of
shares of the same or another class or classes, the person or persons exercising
such an option shall receive, for the aggregate price payable upon such exercise
of the option, the aggregate number and class of shares which, if shares of the
class of common stock of the Company for which the option was originally
exercisable (as authorized at the date of the granting of such option) had been
purchased at the date of granting of the option for the same aggregate price (on
the basis of the price per share provided in the option) and had not been
disposed of, such person or persons would have received as a result of such
purchase and any such stock dividend, split-up, recapitalization, combination or
exchange of shares, merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation; provided, however, that no fractional
share shall be issued upon any such exercise, and the aggregate price paid shall
be appropriately reduced on account of any fractional share not issued. In the
event of any such change in the outstanding common stock of the Company, the
aggregate number and class of shares remaining available under the Plan shall be
that number and class which a person, to whom an option
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had been granted for all of the available shares under the Plan on the date
preceding such change, would be entitled to receive as provided in the first
sentence of this paragraph.
SECTION 3. Eligibility.
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Employees, officers and directors of the Company and its Subsidiaries and
Affiliates who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company and/or its Subsidiaries and
Affiliates are eligible to be granted awards under the Plan; provided, however,
that only Employees of the Company and its Subsidiaries are eligible to be
granted Incentive Stock Options under the Plan.
SECTION 4. Administration.
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Subject to the following paragraph, the Board may appoint a Committee
consisting of not less than two members of the Board to administer the Plan on
behalf of the Board, subject to such terms and conditions as the Board may
prescribe. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board. Members of the Board who are either eligible
or have been granted awards may vote on any matters affecting the administration
of the Plan or the grant of any awards pursuant to the Plan, except that no such
member shall act upon the granting of an award to himself, but any such member
may be counted in determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the granting of award to him.
Notwithstanding the foregoing paragraph, if and in any event the Company
registers any class of any equity security pursuant to Section 12 of the
Exchange Act, from the effective date of such registration (the "Effective
Date") until six months after the termination of such registration (the
"Termination Date"), any grants of awards to officers or directors shall only be
made by the Board; provided, however, that if a majority of the Board is
eligible to participate in this Plan or any other stock option or other stock
plan of the Company or its Subsidiaries or any of its Affiliates, or has been
eligible at any time within the preceding year, any grants of awards to
directors must be made by, or only in accordance with the recommendation of, a
Committee consisting of three or more persons, who may but need not be directors
or employees of the Company, appointed by the Board and having full authority to
act in the matter, none of whom is eligible to participate in this Plan or any
other stock option or other stock plan of the Company or its Subsidiaries or any
of its Affiliates, or has been eligible at any time within the preceding year.
Any Committee administering the Plan with respect to grants to officers who are
not also directors shall conform to the requirements of the preceding sentence.
Once appointed, the Committee shall continue to serve until otherwise directed
by the Board of Directors.
Subject to the foregoing paragraphs, from time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
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The Committee shall have full authority to grant, pursuant to the terms of
the Plan, to Employees eligible under Section 3: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Purchase Rights and/or (vi) Other Stock-Based Awards.
In particular, the Committee shall have the authority:
(i) to select the Employees of the Company and its Subsidiaries and
Affiliates to whom Stock Options, Stock Appreciation Rights, Restricted
Stock, Deferred Stock, Stock Purchase Rights and/or Other Stock-Based
Awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Stock Purchase Rights and/or Other Stock-Based Awards, or
any combination thereof, are to be granted hereunder to one or more
eligible Employees;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any
vesting, acceleration or waiver of forfeiture restrictions regarding any
Stock Option or other award and/or Deferred Stock under Sections 5(k) or
(1), as applicable, instead of Stock);
(v) to determine whether and under what circumstances a Stock Option
may be settled in Stock, Restricted Stock and/or Deferred Stock under
Sections 5(k) or (1), as applicable, instead of cash;
(vi) to determine whether, to what extent and under what circumstances
grants and/or other awards under the Plan and/or other cash awards made by
the Company are to be made, and operate, on a tandem basis vis-a-vis other
awards under the Plan and/or cash awards made outside of the Plan, or on an
additive basis;
(vii) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under this Plan
shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount (if any) of
any deemed earnings on any deferred amount during any deferral period); and
(viii) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Stock purchased by exercising such Rights.
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The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Company and Plan participants.
SECTION 5. Stock Options.
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Stock Options may be granted alone, in addition to or in tandem with other
awards granted under the Plan and/or cash awards made outside of the Plan. Each
Stock Option granted under the Plan shall be in such form as the Committee may
from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options, and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant to any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in
each case with or without Stock Appreciation Rights).
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
a. Option Price. The option price per share of Stock purchasable under a
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Stock Option shall be determined by the Committee at the time of grant and may
be equal to, greater than or less than one hundred percent (100%) of the Fair
Market Value of the Stock at the date of grant; provided, however, that the
option price per share of Stock purchasable under an Incentive Stock Option
shall not be less than one hundred percent (100%) of the Fair Market Value of
the Stock at the date of grant; and provided further however, that in the case
of an Incentive Stock Option granted to an Employee who, at the time of grant,
owns Stock possessing more than ten percent (10%) of the total combined voting
power of all classes of Stock of the Company, its Subsidiaries or Affiliates,
the option price per share of Stock shall not be less than one hundred ten
percent (110%) of the Fair Market Value of the Stock at the date of grant.
b. Option Term. The term of each Stock Option shall be fixed by the
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Committee, but no Stock Option shall be exercisable more than ten (10) years
after the date the Option is granted.
c. Exercisability. Stock Options shall be exercisable at such time or
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times and subject to such terms and conditions as shall be determined by the
Committee at or after grant; provided, however, that, except as provided in
Sections 2, 5(f) and 5(g), unless and otherwise determined by
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the Committee at or after grant, no Stock Option shall be exercisable prior to
the first anniversary of the granting of the Option. If the Committee provides,
in its sole discretion, that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time at or after grant in whole or in part, based on such factors as the
Committee shall determine in its sole discretion.
d. Method of Exercise. Subject to whatever installment exercise
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provisions apply under Section 5(c), Stock Options may be exercised in whole or
in part at any time during the option period, by giving written notice of
exercise to the Company specifying the number of shares to be purchased.
Such notice shall be accompanied by payment in full of the purchase price,
which shall be paid in cash or by the surrender at Fair Market Value of the
Stock, or by any combination of cash and shares of the Stock, including, without
limitation, cash, Stock, other Options, or other property (including notes or
other contractual obligations of an optionee to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent permitted
by applicable law), or by such other instrument as the Committee may accept;
provided, however, that in the event that an optionee surrenders Stock in
payment of the purchase price and the optionee has not owned such Stock for a
period of at least six (6) months prior to the date on which it is surrendered
by the optionee, the optionee shall bear any additional cost of such payment.
As determined by the Committee, in its sole discretion, at or after grant,
payment in full or in part may also be made in the form of unrestricted Stock
already owned by the optionee or, in the case of the exercise of a Non-Qualified
Stock Option, payment in full or in part may be made in the form of Restricted
Stock or Deferred Stock subject to an award hereunder (based, in each case, on
the Fair Market Value of the Stock on the date the option is exercised, as
determined by the Committee).
If payment of the option exercise price of a Non-Qualified Stock Option is
made in whole or in part in the form of Restricted Stock or Deferred Stock, such
Restricted Stock or Deferred Stock (and any replacement shares relating thereto)
shall remain (or be) restricted or deferred, as the case may be, in accordance
with the original terms of the Restricted Stock award or Deferred Stock award in
question, and any additional Stock received upon the exercise shall be subject
to the same forfeiture restrictions or deferral limitations, unless otherwise
determined by the Committee, in its sole discretion, at or after grant.
No shares of Stock shall be issued until full payment therefor has been
made. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Stock, and compliance with the applicable
requirements, if any, of Section 13(a), no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to such Stock Option.
e. Non-Transferability of Options. No Stock Option shall be transferable
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by the optionee otherwise than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee.
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f. Termination by Death. Subject to Section 5(j), if an optionee's
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employment by the Company and any Subsidiary or Affiliate terminates by reason
of death, any Stock Option held by such optionee may thereafter be exercised, to
the extent such option was exercisable at the time of death or on such
accelerated basis as the Board may determine at or after grant (or as may be
determined in accordance with procedures established by the Committee), by the
legal representative of the estate or by the legatee of the optionees under the
will of the optionee, for a period of one year (or such other period as the
Committee may specify at grant) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
g. Termination by Reason of Disability. Subject to Section 5(j), if an
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optionee's employment by the Company and any Subsidiary or Affiliate terminates
by reason of Disability, any Stock Option held by such optionee may thereafter
be exercised by the optionee or his legal representative, to the extent it was
exercisable at the time of termination or on such accelerated basis as the Board
may determine at or after grant (or as may be determined in accordance with
procedures established by the Committee), for a period of ninety (90) days (or
such other period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of such
Stock Option, whichever period is the shorter; provided, however, that, if the
optionee dies within such ninety (90) day period (or such other period as the
Committee shall specify at grant), any unexercised Stock Option held by such
optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve (12) months, from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of termination of
employment by reason of Disability, if an Incentive Stock Option is exercisable
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
h. Termination by Reason of Retirement. Subject to Section 5(j), if an
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optionee's employment by the Company and any Subsidiary or Affiliate terminates
by reason of Normal or Early Retirement, any Stock Option held by such optionee
may thereafter be exercised by the optionee, to the extent it was exercisable at
the time of such Retirement or on such accelerated basis as the Committee may
determine at or after grant (or as may be determined in accordance with
procedures established by the Committee), for a period of ninety (90) days (or
such other period as the Committee may specify at grant) from the date of such
termination of employment or the expiration of the stated term of such Stock
Option, whichever period is the shorter; provided, however, that, if the
optionee dies within such ninety (90) day period (or such other period as the
Committee may specify at grant), any unexercised Stock Option held by such
optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of twelve (12) months from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of termination of
employment by reason of Retirement, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
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i. Other Termination. Unless otherwise determined by the Committee (or
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pursuant to procedures established by the Committee) at or after grant, if an
optionee's employment by the Company and any Subsidiary or Affiliate terminates
pursuant to the terms of an employment agreement between the optionee and the
Company or any Subsidiary, or for any reason other than death, Disability or
Normal or Early Retirement, the Stock Option shall thereupon terminate, except
that such Stock Option may be exercised, to the extent otherwise then
exercisable, for the lesser of three (3) months or the balance of such Stock
Option's term if the optionee is involuntarily terminated without Cause by the
Company and any Subsidiary or Affiliate. For purposes of the Plan, "Cause"
means a felony conviction of a participant or the failure of a participant to
contest prosecution for a felony, or a participant's willful misconduct or
dishonesty, any of which is directly and materially harmful to the business or
reputation of the Company or any Subsidiary or Affiliate.
j. Incentive Stock Options. Anything in the Plan to the contrary
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notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code, or, without the consent of the optionee(s) affected, to
disqualify any Incentive Stock Option under such Section 422.
Incentive Stock Options shall not be treated as "incentive stock options"
to the extent that the aggregate Fair Market Value (determined at the time an
Incentive Stock Option is granted) of Stock with respect to which Incentive
Stock Options meeting the requirements of Section 422(b) of the Code are
exercisable for the first time by any participant during any calendar year
(under all plans of the Company and its Subsidiaries) exceeds $100,000, and such
excess shall be treated as a Non-Qualified Stock Option.
To the extent permitted under Section 422 of the Code or the applicable
regulations thereunder or any applicable Internal Revenue Service pronouncement:
(i) if (x) a participant's employment is terminated by reason of
death, Disability or Normal or Early Retirement, and (y) the portion of any
Incentive Stock Option exercisable during the post-termination period
specified under Sections 5(f), (g) or (h) that is greater than the portion
of such option that is exercisable as an "incentive stock option" during
such post-termination period under Section 422, shall be treated as a Non-
Qualified Stock Option; and
(ii) if the exercise of an Incentive Stock Option is accelerated by
reason of a merger or consolidation of the Company with another company
whereby the Company is not the surviving corporation, any portion of such
option that is not exercisable as an Incentive Stock Option by reason of
the $100,000 limitation contained in Section 422(d) of the Code shall be
treated as a Non-Qualified Stock Option.
k. Buyout Provisions. The Committee may at any time offer to purchase an
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Option previously granted for a payment in cash, Stock, Deferred Stock or
Restricted Stock, based on such
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terms and conditions as the Committee shall establish and communicate to the
optionee at the time that such offer is made.
l. Settlement Provisions. If the option agreement so provides at grant
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or is amended after grant and prior to exercise to so provide (with the
optionee's consent), the Committee may require that all or part of the shares to
be issued with respect to an exercised Option take the form of Deferred or
Restricted Stock, which shall be valued on the date of exercise on the basis of
the Fair Market Value (as determined by the Committee) of such Deferred or
Restricted Stock determined without regard to the deferral limitations and/or
forfeiture restrictions involved.
SECTION 6. Stock Appreciation Rights.
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a. Grant and Exercise. Stock Appreciation Rights may be granted in
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conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Stock Option. In the case of an Incentive
Stock Option, such rights may be granted only at the time of the grant of such
Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, subject to such
provisions as the Committee may specify at grant where a Stock Appreciation
Right is granted with respect to less than the full number of shares covered by
a related Stock Option.
A Stock Appreciation Right may be exercised by an optionee, subject to
Section 6(b), in accordance with the procedures established by the Committee for
such purpose. Upon such exercise, the optionee shall be entitled to receive an
amount determined in the manner prescribed in Section 6(b). Stock Options
relating to exercised Stock Appreciation Rights shall no longer be exercisable
to the extent that the related Stock Appreciation Rights have been exercised.
b. Terms and Conditions. Stock Appreciation Rights shall be subject to
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such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 and this Section
6 of the Plan; provided, however, that any Stock Appreciation Right granted
to an optionee subject to Section 16(b) of the Exchange Act subsequent to
the grant of the related Stock Option shall not be exercisable during the
first six (6) months of its term, except that this special limitation shall
not apply in the event of death or Disability of the optionee prior to the
expiration of the six-month period. The exercise of Stock Appreciation
Rights held by optionees who are subject to Section 16(b) of
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the Exchange Act shall comply with Rule 16b-3 promulgated thereunder, to
the extent applicable.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash and/or shares of Stock equal
in value to the excess of the Fair Market Value of one share of Stock over
the option price per share specified in the related Stock Option multiplied
by the number of shares in respect of which the Stock Appreciation Right
shall have been exercised, with the Committee having the right to determine
the form of payment. When payment is to be made in shares of Stock, the
number of shares to be paid shall be calculated on the basis of the average
of the last reported closing bid and asked prices on the New York Stock
Exchange, or, if the Stock is not listed or admitted to trading on such
exchange, the last reported sales price, or in case no such reported sales
price is quoted on such day, the average of the last reported closing bid
and asked prices on the principal national securities exchange (including,
for purposes hereof, the National Association of Securities Dealers, Inc.
National Market System) on which the Stock is listed or admitted to
trading, or, if it is not listed or admitted to trading on any national
securities exchange, the average of the last high closing bid price and the
low closing asked price as reported on an inter-dealer quotation system
during the applicable period referred to in Rule 16b-3 (e) promulgated
under the Exchange Act. In the absence of any available public quotations
for the Stock, the Board shall determine in good faith the fair value of
the Stock during the applicable period referred to in Rule 16b-3 (e)
promulgated under the Exchange Act, which determination shall be set forth
in a certificate by the Secretary of the Company.
(iii) Stock Appreciation Rights shall be transferable only when and to
the extent that the underlying Stock Option would be transferable under
Section 5(e) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth
in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan, but only to the extent of the number of shares issued under
the Stock Appreciation Right at the time of exercise based on the value of
the Stock Appreciation Right at such time.
SECTION 7. Restricted Stock.
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a. Administration. Shares of Restricted Stock may be issued either
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alone, in addition to or in tandem with other awards granted under the Plan
and/or cash awards made outside the Plan. The Committee shall determine the
eligible persons to whom, and the time or times at which, grants of Restricted
Stock will be made, the number of shares to be awarded, the price (if any) to be
paid by the recipient of Restricted Stock (subject to Section 7(b)), the time or
times within which such awards may be subject to forfeiture, and all other terms
and conditions of the awards.
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The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors as the Committee
may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same with respect
to each recipient.
b. Awards and Certificates. The prospective recipient of a Restricted
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Stock award shall not have any rights with respect to such award, unless and
until such recipient has executed an agreement evidencing the award and has
delivered a fully executed copy thereof to the Company, and has otherwise
complied with the applicable terms and conditions of such award.
(i) The purchase price for shares of Restricted Stock shall be equal
to, less than or greater than their par value and may be zero.
(ii) Awards of Restricted Stock must be accepted within a period of
sixty (60) days (or such shorter period as the Committee may specify at
grant) after the award date, by executing a Restricted Stock award
agreement and paying whatever price (if any) is required under Section
7(b)(i).
(iii) Each participant receiving a Restricted Stock award shall be
issued a stock certificate in respect of such shares of Restricted Stock.
Such certificate shall be registered in the name of such participant, and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award.
(iv) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such award.
c. Restrictions and Conditions. The shares of Restricted Stock awarded
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pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of the Plan and the award agreement,
during a period set by the Committee commencing with the date of such award
(the "Restricted Period"), the participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded under the
Plan. Within these limits, the Committee, in its sole discretion, may
provide for the lapse of such restrictions in installments and may
accelerate or waive such restriction in whole or in part, based on service,
performance and/or such other factors or criteria as the Committee may
determine, in its sole discretion.
(ii) Except as provided in this paragraph (ii) and Section 7(c)(i),
the participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a shareholder of the Company, including the right to
vote the shares, and the right to receive any cash
11
<PAGE>
dividends. The Committee, in its sole discretion, as determined at the time
of award, may permit or require the payment of cash dividends to be
deferred and, if the Committee so determines, reinvested, subject to
Section 13(e), in additional Restricted Stock to the extent shares are
available under Section 3, or otherwise reinvested. Pursuant to Section 3
above, Stock dividends issued with respect to Restricted Stock shall be
treated as additional shares of Restricted Stock that are subject to the
same restrictions and other terms and conditions that apply to the shares
with respect to which such dividends are issued.
(iii) Subject to the applicable provisions of the award agreement and
this Section 7, upon termination of a participant's employment with the
Company and any Subsidiary or Affiliate for any reason during the
Restriction Period, all shares still subject to restriction will vest, or
be forfeited, in accordance with the terms and conditions established by
the Committee at or after grant.
(iv) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
certificates for an appropriate number of unrestricted shares shall be
delivered to the participant promptly.
d. Minimum Value Provision. In order to better ensure that award
-----------------------
payments actually reflect the performance of the Company and service of the
participant, the Committee may provide, in its sole discretion, for a tandem
performance-based or other award designed to guarantee a minimum value, payable
in cash or Stock to the recipient of a Restricted Stock award, subject to such
performance, future service deferral and other terms and conditions as may be
specified by the Committee.
SECTION 8. Deferred Stock.
--------------
a. Administration. Deferred Stock may be awarded either alone, in
--------------
addition to or in tandem with other awards granted under the Plan and/or cash
awards made outside the Plan. The Committee shall determine the eligible
persons to whom and the time or times at which Deferred Stock shall be awarded,
the number of shares of Deferred Stock to be awarded to any person, the duration
of the period (the "Deferral Period") during which, and the conditions under
which, receipt of the Stock will be deferred, and the other terms and conditions
of the award in addition to those set forth in Section 8(b).
The Committee may condition the grant of Deferred Stock upon the attainment
of specified performance goals or such other factors or criteria as the
Committee shall determine, in its sole discretion.
The provisions of Deferred Stock awards need not be the same with respect
to each recipient.
b. Terms and Conditions. The shares of Deferred Stock awarded pursuant
--------------------
to this Section 8 shall be subject to the following terms and conditions:
12
<PAGE>
(i) Subject to the provisions of the Plan and the award agreement
referred to in Section 8(b)(vi) below, Deferred Stock awards may not be
sold, assigned, transferred, pledged or otherwise encumbered during the
Deferral Period. At the expiration of the Deferral Period (or the Elective
Deferral Period referred to in Section 8(b)(v), where applicable), share
certificates shall be delivered to the participant, or his legal
representative, in a number equal to the shares covered by the Deferred
Stock award.
(ii) Unless otherwise determined by the Committee at grant, amounts
equal to any dividends declared during the Deferral Period with respect to
the number of shares covered by a Deferred Stock award will be paid to the
participant currently, or deferred and deemed to be reinvested in
additional Deferred Stock, or otherwise reinvested, all as determined at or
after the time of the award by the Committee, in its sole discretion.
(iii) Subject to the provision of the award agreement and this Section
8, upon termination of a participant's employment with the Company and any
Subsidiary or Affiliate for any reason during the Deferral Period for a
given award, the Deferred Stock in question will vest, or be forfeited, in
accordance with the terms and conditions established by the Committee at or
after grant.
(iv) Based on service, performance and/or such other factors or
criteria as the Committee may determine, the Committee may, at or after
grant, accelerate the vesting of all or any part of any Deferred Stock
award and/or waive the deferral limitations for all or any part of such
award.
(v) A participant may elect to further defer receipt of an award (or
an installment of an award) for a specified period or until a specified
event (the "Elective Deferral Period"), subject in each case to the
Committee's approval and to such terms as are determined by the Committee,
all in its sole discretion. Subject to any exceptions adopted by the
Committee, such election must generally be made at least twelve (12) months
prior to completion of the Deferral Period for such Deferred Stock award
(or such installment).
(vi) Each award shall be confirmed by, and subject to the terms of, a
Deferred Stock agreement executed by the Company and the participant.
c. Minimum Value Provisions. In order to better ensure that award
------------------------
payments actually reflect the performance of the Company and service of the
participant, the Committee may provide, in its sole discretion, for a tandem
performance-based or other award designed to guarantee a minimum value, payable
in cash or Stock to the recipient of a Deferred Stock award, subject to such
performance, future service, deferral and other terms and conditions as may be
specified by the Committee.
SECTION 9. Stock Purchase Rights.
---------------------
13
<PAGE>
a. Awards and Administration. Subject to Section 3 above, the Committee
-------------------------
may grant eligible participants Stock Purchase Rights which shall enable such
participants to purchase Stock (including Deferred Stock and Restricted Stock):
(i) at its Fair Market Value on the date of grant;
(ii) at fifty percent (50%) of such Fair Market Value on such date;
(iii) at an amount equal to Book Value on such date; or
(iv) at an amount equal to the par value of such Stock on such date.
The Committee shall also impose such deferral, forfeiture and/or other
terms and conditions as it shall determine, in its sole discretion, on such
Stock Purchase Rights or the exercise thereof.
The terms of Stock Purchase Rights awards need not be the same with respect
to each participant.
Each Stock Purchase Right award shall be confirmed by, and be subject to
the terms of, a Stock Purchase Rights Agreement.
b. Exercisability. Stock Purchase Rights shall generally be exercisable
--------------
for such period after grant as is determined by the Committee not to exceed
thirty (30) days. However, the Committee may provide, in its sole discretion,
that the stock which may be purchased pursuant to Stock Purchase Rights of
persons potentially subject to Section 16(b) of the Exchange Act shall not be
sold until six (6) months and one (1) day after the grant date.
SECTION 10. Other Stock-Based Awards.
------------------------
a. Administration. Other awards of Stock and other awards that are
--------------
valued in whole or in part by reference to, or are otherwise based on, Stock
("Other Stock-Based Awards"), including, without limitation, performance shares,
convertible preferred stock, convertible debentures, exchangeable securities and
Stock awards or options valued by reference to Book Value or Subsidiary
performance, may be granted alone, in addition to or in tandem with Stock
Options, Stock Appreciation Rights, Restricted Stock, Deferred Stock or Stock
Purchase Rights granted under the Plan and/or cash awards made outside of the
Plan.
Subject to the provisions of the Plan, the Committee shall have authority
to determine the persons to whom and the time or times at which such awards
shall be made, the number of shares of Stock to be awarded pursuant to such
awards, and all other conditions of the awards. The Committee shall also
provide for the grant of Stock upon the completion of a specified performance
period.
14
<PAGE>
The provisions of Other Stock-Based Awards need not be the same with
respect to each recipient.
b. Terms and Conditions. Other Stock-Based Awards made pursuant to this
--------------------
Section 10 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award agreement
referred to in Section 10(b)(v) below, shares subject to awards made under
this Section 10 may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date on which the shares are issued, or,
if later, the date on which any applicable restriction, performance or
deferral period lapses. The Committee may further provide, in its sole
discretion, that shares subject to awards under this Section 10 made to
persons potentially subject to Section 16(b) of the Exchange Act may not be
sold until six (6) months and one (1) day after the grant date.
(ii) Subject to the provisions of the Plan and the award agreement and
unless otherwise determined by the Committee at grant, the recipient of an
award under this Section 10 shall be entitled to receive, currently or on a
deferred basis, interest or dividends or interest or dividend equivalents
with respect to the number of shares covered by award, as determined at the
time of the award by the Committee, in its sole discretion, and the
Committee may provide that such amounts (if any) shall be deemed to have
been reinvested in additional Stock or otherwise reinvested.
(iii) Any award under Section 10 and any Stock covered by any such
award shall vest or be forfeited to the extent so provided in the award
agreements, as determined by the Committee, in its sole discretion.
(iv) In the event of the participant's Retirement, Disability or
death, or in cases of special circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all of the remaining
limitations imposed hereunder (if any) with respect to any or all of an
award under this Section 10.
(v) Each award under this Section 10 shall be confirmed by, and
subject to the terms of, an agreement or other instrument by the Company
and by the participant.
(vi) Stock (including securities convertible into Stock) issued on a
bonus basis under this Section 10 may be issued for no cash consideration.
Stock (including securities convertible into Stock) purchased pursuant to a
purchase right awarded under this Section 10 shall be priced at least fifty
percent (50%) of the Fair Market Value of the Stock on the date of grant.
15
<PAGE>
SECTION 11. Amendment and Termination.
-------------------------
The Committee may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of an
optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted or Deferred Stock award, Stock Purchase Right or Other Stock-Based
Award theretofore granted, without the optionee's or participant's consent, or
which, without the approval of the Company's shareholders, would:
a. except as generally provided in this Plan, increase the total number
of shares reserved for the purpose of the Plan;
b. change the pricing terms of Section 9(a);
c. change the Employees eligible to participate in the Plan; or
d. extend the maximum option period under Section 5(d) of the Plan.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options (on a one for one or other basis), including
previously granted Stock Options having higher option exercise prices.
Subject to the above provisions, the Committee shall have broad authority
to amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
SECTION 12. Unfunded Status of Plan.
-----------------------
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize
the creation of trusts or other arrangements to meet the obligations created
under the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that, unless the Committee determines otherwise
with the consent of the affected participant, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of the Plan.
SECTION 13. General Provisions.
------------------
a. The Committee may require each person purchasing shares of Stock
pursuant to a Stock Option or other award under the Plan to represent to and
agree with the Company in writing that the optionee or participant is acquiring
the shares without a view to distribution thereof. The
16
<PAGE>
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock or other securities delivered under
the Plan shall be subject to compliance with such stock-transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
law, and shall further be subject to the approval of counsel for the Company
with respect to such compliance. The Committee may cause a legend or legends to
be put on any such certificates to make appropriate reference to such
restrictions.
b. Nothing contained in this Plan shall prevent the Committee from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
c. The adoption of the Plan shall not confer upon any employee of the
Company or any Subsidiary or Affiliate any right to continue employment with the
Company or a Subsidiary or Affiliate, as the case may be, nor shall it interfere
in any way with the right of the Company or a Subsidiary or Affiliate to
terminate the employment of any of its employees at any time.
d. No later than the date as of which an amount first becomes includible
in the gross income of the participant for Federal income tax purposes with
respect to any award under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Stock, including Stock that is part
of the award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements
and the Company and its Subsidiaries or Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the participant.
e. The actual or deemed reinvestment of dividends or dividend equivalents
in additional Restricted Stock (or in Deferred Stock or other types of Plan
awards) at the time of any dividend payment shall only be permissible if
sufficient shares of Stock are available under Section 3 for such reinvestment
(taking into account then outstanding Stock Options, Stock Purchase Rights and
other Plan awards).
f. The Plan and all awards made and actions taken thereunder shall be
governed by, and construed in accordance with, the laws of the State of
Delaware.
SECTION 14. Shareholder Approval.
--------------------
17
<PAGE>
a. Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted by the Board. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
written consent of the holders of a majority of the outstanding shares of the
Company; provided, however, that approval at a meeting or by written consent may
be obtained by a lesser degree of shareholder approval if the Board determines,
in its discretion after consultation with the Company's legal counsel, that such
a lesser degree of shareholder approval will comply with all applicable laws and
will not adversely affect the qualification of the Plan under Section 422 of the
Code.
b. If and in the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
c. If any required approval by the shareholders of the Plan itself or of
any amendment thereto is solicited at any time otherwise than in the manner
described in Section 14(b) hereof, then the Company shall, at or prior to the
first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an award hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the Plan
substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment
were then being solicited) by the rules and regulations in effect under
Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the Securities and Exchange
Commission four copies of the written information referred to in subsection
(i) hereof not later than the date on which such information is first sent
or given to shareholders.
SECTION 15. Term of Plan.
------------
No Stock Option, Stock Appreciation Right, Restricted Stock award, Deferred
Stock award, Stock Purchase Right or Other Stock-Based Award shall be granted
pursuant to the Plan on or after the tenth anniversary of the date of
shareholder approval or Committee approval, whichever is earlier, but awards
granted prior to such tenth anniversary may extend beyond that date.
SECTION 16. Definitions.
-----------
For purposes of the Plan, the following terms shall be defined as set forth
below:
18
<PAGE>
a. "Affiliate" means any entity other than the Company and its
---------
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Company directly or indirectly owns at least twenty
percent (20%) of the combined voting power of all classes of stock of such
entity or at least twenty percent (20%) of the ownership interests in such
entity.
b. "Board" means the Board of Directors of the Company.
-----
c. "Book Value" means, as of any given date, on a per share basis, (i)
----------
the shareholders' equity in the Company as of the end of the immediately
preceding fiscal year as reflected in the Company's consolidated balance sheet,
subject to such adjustments as the Board shall specify at or after grant,
divided by (ii) the number of then outstanding shares of Stock as of such year-
end date (as adjusted by the Board for subsequent events).
d. "Cause" shall have the meaning set forth in Section 5(i) above.
-----
e. "Code" means the Internal Revenue Code of 1986, as amended.
----
f. "Commission" means the Securities and Exchange Commission.
----------
g. "Committee" means the Committee referred to in Section 4 of the Plan.
---------
h. "Company" means Averstar, Inc., a Delaware corporation.
-------
i. "Deferral Period" shall have the meaning set forth in Section 8(a)
---------------
above.
j. "Deferred Stock" means an award made pursuant to Section 8 above of
--------------
the right to receive Stock at the end of a specified deferral period.
k. "Director" shall mean any director of the Company whether compensated
--------
for such services or not; provided that if and in the event the Company
registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the term
Director shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
l. "Disability" means disability as determined under procedures
----------
established by the Board for purposes of the Plan.
m. "Disinterested Person" shall have the meaning set forth in Rule 16b-3
--------------------
(d)(3) as promulgated by the Commission under the Exchange Act, or any successor
definition adopted by the Commission.
n. "Elective Deferral Period" shall have the meaning set forth in Section
------------------------
8(b)(v) above.
19
<PAGE>
o. "Employee" means any person, including officers and directors,
--------
employed by the Company or any Affiliate or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
p. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
q. "Early Retirement" means retirement, with the express consent of the
----------------
Company at or before the time of such retirement, from active employment with
the Company and any Subsidiary or Affiliate pursuant to the early retirement
provisions of the applicable qualified retirement plan of such entity.
r. "Fair Market Value" means the fair market value as determined by the
-----------------
Committee in good faith in its discretion; provided, however, that where there
is a public market for the Stock, the fair market value per share shall be the
mean of the bid and asked prices (or the closing price per share if the Stock is
listed on the National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System) of the Stock for the date of grant, as
reported in The Wall Street Journal (or, if not so reported, as otherwise
------------------------
reported by the NASDAQ System) or, in the event the Stock is listed on a stock
exchange, the fair market value per share shall be the closing price on such
exchange on the date of the grant of the option, as reported in The Wall Street
---------------
Journal.
- -------
s. "Incentive Stock Option" means any Stock Option intended to qualify as
----------------------
an "Incentive Stock Option" within the meaning of Section 422 of the Code.
t. "Non-Qualified Stock Option" means any Stock Option that is not an
--------------------------
Incentive Stock Option.
u. "Normal Retirement" means retirement from active employment with the
-----------------
Company and any Subsidiary or Affiliate on or after age 65.
v. "Other Stock-Based Award" means an award under Section 10 above that
-----------------------
is valued in whole or in part by reference to, or is otherwise based on, Stock.
w. "Plan" means this Averstar, Inc. 1998 Long Term Incentive Plan, as
----
amended from time to time.
x. "Restricted Period" shall have the meaning set forth in Section
-----------------
7(c)(i) above.
y. "Restricted Stock" means an award of shares of Stock that is subject
----------------
to restrictions under Section 7 above.
z. "Retirement" means Normal or Early Retirement.
----------
aa. "Stock" means the Class D Common Stock, $.001 par value, of the
-----
Company.
20
<PAGE>
bb. "Stock Appreciation Right" means the right pursuant to an award
------------------------
granted under Section 6 above to surrender to the Company all (or a portion) of
a Stock Option in exchange for an amount equal to the difference between (i) the
Fair Market Value, as of the date such Stock Option (or portion thereof) is
surrendered, of the shares of Stock covered by such Stock Option (or such
portion thereof), subject, where applicable, to the pricing provisions in
Section 6(b)(ii), and (ii) the aggregate exercise price of such Stock Option (or
such portion thereof).
cc. "Stock Option" or "Option" means any option to purchase shares of
------------ ------
Stock (including Restricted Stock and Deferred Stock, if the Committee so
determines) granted pursuant to Section 5 above.
dd. "Stock Purchase Right" means the right to purchase Stock pursuant to
--------------------
Section 9.
ee. "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
21
<PAGE>
EXHIBIT 10.9(b)
AVERSTAR INC.
FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT
--------------------------------------------
Averstar, Inc., a Delaware corporation (the "Company") hereby grants as of
this __ day of _____, 199__ to __________ (the "Option Holder") an option to
purchase a maximum of _______ of its Class D Common Stock, $.001 par value per
share (the " Stock"), at a price of $____ per share, on the following terms and
conditions:
1. Grant Under 1998 Long Term Incentive Plan. This option is granted
-----------------------------------------
pursuant to and subject to all of the terms and conditions of the Company's 1998
Long Term Incentive Plan (the "Plan") and, unless the context otherwise
requires, terms used herein shall have the same meaning as in the Plan.
Determinations made in connection with this option shall be governed by the Plan
as it exists on this date and, in the event of any inconsistency or conflict
between this Agreement and the Plan, the terms of the Plan shall govern. In
particular, without affecting the generality of the foregoing, it is understood
that for the purposes of Sections 2 and 4 hereof, employment by the Company
includes employment by a Subsidiary as defined in the Plan.
The shares of Stock reserved for issuance under the Plan include shares to
be issued pursuant to the exercise of the outstanding stock options (the "Apollo
Options") of Apollo Holding, Inc. ("Apollo") and the outstanding stock options
(the "Pacer Options") of Pacer Infotec, Inc. ("Pacer").
The holders of outstanding Pacer Options may elect to: (i) exercise such
Pacer Options and purchase shares of the Company at an exchange ratio of
0.48906292 shares of the Company per Pacer share (the "Pacer Exchange Ratio") in
which case the terms of such options shall be governed by the Pacer Infotec,
Inc. Stock Option Plan, as amended through ________, 19__; or (ii) surrender
such Pacer Options to the Company and receive Stock Options issued hereunder at
the Pacer Exchange Ratio.
The holders of outstanding Apollo Options may elect to: (i) exercise such
Apollo Options and purchase shares of the Company at an exchange ratio of
4.57347507 shares of the Company per Apollo share (the "Apollo Exchange Ratio")
and shares of IES Holding, Inc. in which case the terms of such options shall be
governed by the Apollo Holding, Inc. 1996 Long Term Incentive Plan, as amended
through December 30, 1997; or (ii) surrender such Apollo Options to the Company
in exchange for Stock Options issued hereunder at the Apollo Exchange Ratio and
stock options issued under the IES Holding, Inc. 1998 Long Term Incentive Plan.
2. Limitations on Exercise of Option if Relationship Continues. If the
-----------------------------------------------------------
Option Holder has been in continuous association, without interruption, with the
Company or its successor companies, as an employee, consultant, officer or
director from date hereof through the date of exercise, he may exercise this
option to purchase up to the number of shares of Stock set forth below opposite
the applicable period and at the price provided for herein:
<PAGE>
____ option shares on or after __________ __, 199__
____ option shares on or after __________ __, 199__
____ option shares on or after __________ __, 200__
____ option shares on or after __________ __, 200__
____ option shares on or after __________ __, 200__
The foregoing rights are cumulative and may be exercised up to and
including the date which is ten (10) years after the date hereof (the
"Termination Date"). Such rights are subject to Sections 3 and 4 (as
appropriate) if the Option Holder dies or ceases to be an employee, consultant,
officer or director of the Company, Section 12 if the Company merges or
consolidates with another corporation, and Section 14 if the Option Holder
exercises this option.
2
<PAGE>
3. Termination by Death, Disability or Retirement.
----------------------------------------------
3.1 Death. If the Option Holder dies before the Termination Date, this
-----
option may be exercised by his personal representative, but only to the extent
it was exercisable by the Option Holder on the date of his death and only during
the period ending on the earlier to occur of one year after such death and the
Termination Date. At the end of such period, this option shall expire and the
estate, personal representative or beneficiary of the Option Holder shall have
no rights other than those of a stockholder resulting from the exercise of this
option before such expiration.
3.2 Disability. If the Option Holder's employment by the Company
----------
terminates by reason of Disability, this option may thereafter be exercised by
the Option Holder or his personal representative, but only to the extent it was
exercisable by the Option Holder at the time of such termination, during the
period ending on the earlier to occur of ninety (90) days from the date of such
termination of employment and the Termination Date; provided, however, that, if
the Option Holder dies within such ninety (90) day period, any unexercised
portion of this option shall thereafter be exercisable in accordance with
Section 3.1.
3.3 Retirement. If the Option Holder's employment by the Company
----------
terminates by reason of Normal or Early Retirement, this option may thereafter
be exercised by the Option Holder, but only to the extent it was exercisable at
the time of such Retirement, during the period ending on the earlier to occur of
ninety (90) days from the date of such termination of employment and the
Termination Date; provided, however, that, if the Option Holder dies within such
ninety (90) day period, any unexercised option shall thereafter be exercisable
in accordance with Section 3.1.
4. Termination of Relationship. If the Option Holder ceases to be
---------------------------
associated with the Company as an employee, consultant, officer or director
other than by reason of Death, Disability or Retirement, this option shall
terminate, except that this option may be exercised by the Option Holder, only
to the extent otherwise then exercisable, during the period ending on the
earlier to occur of three (3) months from the date of such termination and the
Termination Date if the Option Holder is involuntarily terminated without Cause
by the Company or its successor companies. Whether authorized leave of absence
or absence for military service may constitute service as an employee,
consultant, officer or director for the purposes of this Agreement shall be
conclusively determined by the Board of Directors of the Company. Nothing in
this Agreement shall be deemed to give the Option Holder the right to be
retained by the Company for any period of time as an employee, consultant,
officer or director.
5. Partial Exercise. Exercise of this option may be made in part at any
----------------
time and from time to time, provided such exercise is for a whole number of
shares of Stock. However, this option may not be exercised to purchase more than
the number of shares indicated in Section 2, as such number may be adjusted
pursuant to Section 12.
6. Payment of Purchase Price; Withholding Taxes. The option purchase
--------------------------------------------
price, together with any state or federal withholding taxes due as a result of
the exercise of this option, is payable
3
<PAGE>
upon exercise of this option either (i) in United States dollars in cash or by
check, or (ii) at the discretion of the Board of Directors of the Company
through delivery of shares of Stock of the Company having a fair market value
equal to the option purchase price as of the date of exercise, or (iii) at the
discretion of the Board of Directors of the Company by a combination of (i) and
(ii) above.
7. Method of Exercising Option. Subject to the terms and conditions of
---------------------------
this Agreement, this option shall be exercised by written notice to the Company,
at the office of the Company, 23 Fourth Avenue, Burlington, MA 01803-3303 or to
such transfer agent or other address as the Company shall designate. Such notice
of exercise shall state that this option is being exercised and the number of
shares of Stock for which it is being exercised, and shall be signed by the
person or persons so exercising this option. Such notice shall also be
accompanied by payment of the full purchase price of such shares of Stock
(whether such payment is made in cash or shares of Stock or a combination of
both, as provided in Section 6 hereof) together with any state and federal
withholding taxes due as a result of the exercise of this option. The Company
shall deliver a certificate or certificates representing such shares of Stock
after such notice and payment are received. The certificate or certificates for
the shares of Stock for which the option shall have been so exercised shall be
registered in the name of the person or persons so exercising the option (or, if
the option shall be exercised by the Option Holder and if the Option Holder
shall so request in the notice pertaining to the exercise of the option, shall
be registered in the name of the Option Holder and another person jointly, with
right of survivorship) and shall be delivered as provided above to or upon the
written order of the person or persons exercising the option. In the event the
option shall be exercised pursuant to Section 3 hereof, by any person or persons
other than the Option Holder, such notice shall be accompanied by appropriate
proof of the right of such person or persons to exercise the option. All shares
of Stock that shall be purchased upon the exercise of the option as provided
herein shall be fully paid and nonassessable.
8. Option Not Transferable. This option is not transferable or assignable
-----------------------
except by will or by the laws of descent and distribution. During the Option
Holder's lifetime, only the Option Holder may exercise this option.
9. No Obligation to Exercise Option. The grant and acceptance of this
--------------------------------
option impose no obligation on the Option Holder to exercise it.
10. No Rights as Stockholder Until Exercise. The Option Holder shall have
---------------------------------------
no rights as a stockholder with respect to any shares of Stock issuable upon
exercise of this option until a stock certificate therefor has been issued to
him and is fully paid for. Except as expressly provided below with respect to
stock dividends, no adjustment shall be made for dividends or other rights for
which the record date precedes the date such stock certificate is issued.
11. Tax Consequences. The Option Holder recognizes that this option is
----------------
being granted as a result of his performance of services for the Company and
that, under present federal income tax laws, the Option Holder shall include in
his gross income, for any year in which he exercises this
4
<PAGE>
option, the excess of the fair market value of the Stock acquired over the
amount paid for said Stock. The Option Holder agrees to obtain his own tax
advice.
12. Capital Changes and Business Successions. It is the purpose of this
----------------------------------------
option to encourage the Option Holder to work for the best interests of the
Company and its stockholders. In order to avoid any conflict between the Option
Holder's interests and the Company's interests that might arise upon the
issuance of a stock dividend or a merger with another corporation (other than a
wholly-owned subsidiary of the Company), the Plan contains various provisions
for the adjustment of the number of shares of Stock subject to this option and
related provisions with respect to successors to the business of the Company and
with respect to the assumption and substitution of options. Such provisions of
the Plan, including, without limitation those respecting the discretion of the
Company's Board of Directors, are hereby made applicable hereunder and are
incorporated herein by reference in their entirety.
13. Agreement to Purchase for Investment. By his acceptance of this option
------------------------------------
the Option Holder agrees that if he purchases shares of Stock under this option
he will purchase them for investment and not with a view to their distribution,
as that term is used in the Securities Act of 1933, as amended (the "Securities
Act"), unless in the opinion of counsel to the Company, such distribution is in
compliance with or exempt from the registration and prospectus delivery
requirement of the Securities Act. The Option Holder agrees to sign a
certificate to that effect at such time or times he exercises this option. The
Company shall have no obligation to register the shares of Stock issuable upon
exercise of this option under the Securities Act or the securities laws of any
state. Furthermore, the Company may place a legend on any stock certificate
delivered upon exercise of this option to the effect that the shares represented
by such certificate were acquired pursuant to an investment representation and
without registration under the Securities Act or the securities laws of any
state.
14. Accession to Stockholders Agreement. The Option Holder hereby
-----------------------------------
acknowledges the receipt of a copy of the Stockholders Agreement, dated as of
February 27, 1998, by and among the Company and the Stockholders named therein
(the "Stockholders Agreement"). Each of the Company and the Option Holder hereby
acknowledge and agree that the Option Holder shall be bound by all of the terms
and conditions, as well as be entitled to all of the rights, pursuant to
Sections 1.02, 1.04, 1.08, 2.02, 2.03, 2.04, 2.07, 3.02, 3.03, 3.07 and 3.09, as
applicable, of the Stockholders Agreement. For purposes of this Section, the
Option Holder shall be treated as if he were a "Stockholder" as such term is
used in the Stockholders Agreement and the term "Common Stock" shall refer to
Class D Common Stock, $.001 par value per share.
5
<PAGE>
15. Governing Law. This Agreement shall be governed by, and interpreted
-------------
in accordance with, the laws of the State of Delaware.
AVERSTAR, INC.
By :
---------------------------------------
Michael B. Alexander, Chairman and
Chief Executive Officer
6
<PAGE>
SCHEDULE 1
Annual Earnings and Cumulative Earnings
---------------------------------------
Annual earnings, with respect to any fiscal period, shall be obtained from
the Company's consolidated annual audited income statement and shall be defined
as follows:
(i) Operating income plus interest income and less interest expense;
(ii) plus depreciation, amortization and other similar non-cash charges,
software development and design and research and development
expenses in the aggregate in excess of $100,000 not reimbursed by a
third party at the time of the expense;
(iii) plus consulting fees described in Sections 3(a)(i) and (ii) of the
Consulting Agreement among, the Company, Intermetrics and Joel N.
Levy/Peter M. Schulte, L.L.C. and the Consulting Agreement among
the Company, Intermetrics and the Westgate Capital Co. and amounts
paid to Fernando Niebla;
(iv) plus amounts paid to retire debt of the Company;
(v) plus any charges to income related to the grant, issuance or
exercise of stock options to management of, or lenders to the
Company or its subsidiaries or charges relating to the repurchase
of the Company's stock pursuant to the provisions of this
Stockholders Agreement;
(vi) minus extraordinary and non-operating gains and plus extraordinary
and non-operating losses, including, without limitation, any
prepayment penalties resulting from the retirement of debt before
its scheduled repayment date;
(vii) plus any expenses incurred or minus reimbursement received, both
net of reserves, in settlement of any claims or other items related
to the assets and liabilities of the Company for events occurring
prior to the closing of the Merger Agreement;
(viii) plus the special bonuses to be paid to Michael B. Alexander by
Intermetrics on September 15, 1996 and September 15, 1997;
(ix) plus travel, lodging and entertainment expense for Directors of
the Company;
(x) minus gains or plus losses from the sale of assets other than
write-offs in the ordinary course of business;
(xi) plus charges amortized or expensed relating to future
acquisitions of the Company and any of its subsidiaries;
<PAGE>
(xii) plus extraordinary litigation expenses and extraordinary legal and
accounting expenses;
(xiii) plus amortization or expenses relating to asset write-ups in
connection with the acquisition or establishment of Intermetrics or
Pacer; and
(xiv) plus in the first twelve (12) months only from the closing of the
Merger Agreement, expenses for special consultants, not in the
ordinary course, but this adjustment shall be limited to a maximum
of $100,000.
<PAGE>
SCHEDULE 1 (Continued)
SPECIFIC ANNUAL AND CUMULATIVE EARNINGS TARGETS/1/
--------------------------------------------------
($ in thousands)
- --------------------------------------------------------------------------------
ANNUAL EARNINGS LESS INTEREST EXPENSE INTEREST
------------------------------------- --------
----------------------------------------------- EXPENSE
FISCAL -------
------ CUMULATIVE ASSUMED IN
YEAR ANNUAL TARGET TARGET ----------
---- ------------- ------ ANNUAL TARGET
-------------
- --------------------------------------------------------------------------------
1998/2/
- --------------------------------------------------------------------------------
1999/3/
- --------------------------------------------------------------------------------
2000
- --------------------------------------------------------------------------------
2001
- --------------------------------------------------------------------------------
- -----------------
/1/ Targets are stated after interest expense. Interest expense is
assumed to be 10% for purposes of the target figures and interest
expense is based on the scheduled amortization of the senior and
subordinated notes; however, the target figures will be increased
or decreased by the difference between the 10% interest rate and
the actual interest rate.
/2/ This achievement will be measured from the date of closing through
the end of the fiscal year and pro-rated against a full year
achievement target Annual Earnings less Interest Expense of $_____.
/3/ The stub year (1998) will be added with the first full fiscal year
(1999) to determine both the annual and cumulative target for the
first of the five fiscal years.
<PAGE>
EMPLOYMENT AGREEMENT
Exhibit 10.10
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 21st day of August, 1995
("Agreement"), by and among IMT ACQUISITION CORP., a Delaware corporation (the
"Company"), APOLLO HOLDING, INC., a Delaware corporation ("Apollo") and MICHAEL
B. ALEXANDER, an individual (the "Executive").
WITNESSETH:
WHEREAS, Apollo and the Company have entered into the Agreement and Plan of
Merger dated as of April 6, 1995 (the "Merger Agreement") with Intermetrics,
Inc., a Delaware corporation ("Intermetrics"), pursuant to which, among other
things, the Company will merge (the "Merger") with and into Intermetrics and the
holders of the then outstanding shares of the common stock of Intermetrics will
receive a price of $6.80 per share.
WHEREAS, Apollo and the Company (references hereinafter to Company include
the Surviving Corporation as defined in the Merger Agreement) wish to retain the
services of the Executive as Chairman and Chief Executive Officer of Apollo and
the Company and the Executive is willing, upon the terms and conditions herein
set forth, to serve as Chairman and Chief Executive Officer of Apollo and the
Company.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained in this Agreement, the Company and the Executive, intending
to be legally bound hereby, agree as follows:
1. Employment; Purchase of Apollo Common Stock.
(a) Subject to the terms and conditions hereinafter set forth, Apollo and
the Company hereby each employ the Executive as Chairman (subject to being
reelected each year by the Board of Directors of the Company) and Chief
Executive Officer of Apollo and the Company, and the Executive hereby accepts
such employment.
(b) As a condition to his employment under this Agreement, at or prior to
the Closing Date under the Merger Agreement, Executive agrees to (or to cause
AFH Partners, L.P. ("AFH") to):
(i) purchase 1 share of Common Stock of Apollo ("Common Stock") for $100
which will be exchanged at Closing for Class A Common Stock;
(ii) purchase 42,400 shares of Class A Common Stock for $265,000 (based on
a price per share of $6.25); and
(iii) contribute cash plus all of the outstanding shares of Intermetrics
owned by AFH to the capital of Apollo in an aggregate amount of $735,000
in exchange for 117,600 shares of Class A Common Stock of Apollo to be
owned by AFH (based on a price per share of $6.25).
Executive's contribution to capital will in the aggregate have a value of (A)
$735,OOO equal to 13.87% of the outstanding shares of
<PAGE>
Common Stock of Apollo on the Closing Date, and (B) $265,000 equal to 5% of the
outstanding shares of Apollo on the Closing Date. The Executive agrees to
execute or cause AFH to execute the (i) Subscription and Stockholders Agreement
dated as of August 21, 1995, among Apollo and its stockholders (the
"Stockholders Agreement"), and (ii) Escrow Agreement dated as of June 9, 1995
among Apollo, AFH and Shereff, Friedman, Hoffman & Goodman, L.L.C.
2. Term. The term of employment of the Executive by the Company pursuant to
this Agreement (the "Employment Term") shall commence with the Closing Date (as
defined in the Merger Agreement) ("Commencement Date"), and shall terminate
upon the earlier of (a) the fifth anniversary of the Commencement Date or (b)
the date on which the employment of the Executive hereunder is terminated
pursuant to Section 7 hereof.
3. Duties and Authority. During the Employment Term, the Executive shall
render his services to the Company and Apollo as Chairman and Chief Executive
Officer of the Company and Apollo. In addition to the foregoing, the Executive
shall hold, without additional compensation therefor, a seat on Apollo's and the
Company's Board of Directors, and such other offices, directorships or
memberships on committees of Apollo and/or any direct or indirect subsidiary of
Apollo to which, from time to time during the Employment Term, the Executive may
be elected or appointed. During the Employment Term, the Executive shall devote
his full business time, efforts, energy and skill solely to the business of the
Company in accordance with the reasonable directions and policies of the Board
of Directors of Apollo and in accordance with Executive's talent, skill and
experience in a prudent manner and will use his best efforts to promote the
interests thereof. The Executive may continue to serve as an outside director
for those companies and organizations listed on Schedule 5. The Executive shall
have the authority to cause and direct the business of the Company to be carried
out within the business and financial objectives of the Company's strategic,
capital and annual business plans as approved by the Board of Directors of
Apollo and the Company. Apollo and the Company shall not demote the Executive
from his position as Chief Executive Officer of the Company and Apollo.
4. Compensation.
(a) Base Salary. In consideration of the services to be rendered by
the Executive pursuant to this Agreement, including, without limitation,
any services which may be rendered by the Executive as an officer,
director or member of any committee of Apollo or any direct or indirect
subsidiary of Apollo, the Company shall pay or cause to be paid to the
Executive during the Employment Term, and the Executive shall accept,
compensation at the rate of three hundred thousand dollars ($300,000.00)
per annum (the "Base Salary"). The Base Salary shall increase by at least
five percent each anniversary date of this Agreement, plus by such
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<PAGE>
additional amounts as may be approved from time to time by the Board of
Directors of Apollo, in its sole discretion. In addition, commencing April
1, 1997 and each April 1 thereafter during the Employment Term, the
Executive shall be paid a tax anticipation payment ("TAP") of fifty
thousand dollars ($50,000) by the Company (provided that if Executive's
employment is terminated because the Employment Term has ended, the final
payment shall be paid to Executive on the termination date). The Company's
obligation to pay Base Salary and TAP shall begin to accrue on the
Commencement Date and shall be payable in accordance with the standard
payroll practices of the Company which are in effect from time to time
during the Employment Term. The Executive's Base Salary and TAP shall be
subject to all applicable withholding and other taxes.
(b) Performance Options. Apollo hereby issues Executive options
("Performance Options") to purchase up to an aggregate maximum of 50,880
shares (the "Maximum Option Shares"), which is equal to 6% of the Common
Stock outstanding at the time of the Merger, of Class D Common Stock at
the Option price of $6.25 per share ("Option Price") which are exercisable
if the terms and conditions set forth below in this subsection (b) are
satisfied. The Performance Options shall be granted for a ten-year period
commencing on the Commencement Date, and shall become exercisable if,
subject to Section 4(e), the Executive is employed by the Company on the
date the Performance Options become exercisable (unless Executive is not
employed because of the expiration of the five-year term of this
Agreement), after the Company's receipt of its audited financial
statements for a relevant fiscal year and if:
(i) (A) For each fiscal year during the five-year fiscal
period commencing with the end of Apollo's 1997 fiscal year
((2/28/97) and ending at the end of Apollo's 2001 fiscal year
(2/28/01) (although Executive shall have a period of 90 days
thereafter to exercise the Performance Options), Executive shall be
entitled to exercise Performance Options to purchase 10,176 shares,
which is equal to 1.2% of the Common Stock outstanding at the time
of the Merger, of Class D Common Stock at the Option Price per share
if Apollo achieves the annual earnings ("Annual Earnings") and
cumulative earnings ("Cumulative Earnings") targets set forth on
Schedule 1 of this Agreement; or
(B) For each fiscal year during the five-year period
commencing with the end of Apollo's 1997 fiscal year (2/28/97) and
ending 90 days after the end of Apollo's 2001 fiscal year (2/28/01)
in which Performance Options do not become exercisable by the
Executive pursuant to the preceding subparagraph (A), the Board of
Directors of Apollo shall have the full and complete discretion to
permit exercises by the Executive of Performance Options to purchase
2,544 shares, which is equal to .3% of the Common Stock outstanding
at the
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<PAGE>
time of the Merger, of the Class D Common Stock at the Option Price per share.
(ii) Subject to Section 4(e) (which is applicable if Executive's employment
has been terminated, other than due to the expiration of the term of this
Agreement, prior to an Exit Event), upon the occurrence of an Exit Event (as
defined below), irrespective of when such event occurs, if (x) the Cumulative
Earnings targets set forth on Schedule 1 to this Agreement up to the date when
the Exit Event occurs have been achieved, or (y) the Exit Event conditions set
forth in Section 4(c)(ii)(x) and (y) are met, the Executive shall be entitled to
exercise Performance Options to purchase the Maximum Option Shares (after
deducting the number of Performance Options previously exercised pursuant to
subsection 4(b), such adjusted number being referred to herein as the "Adjusted
Maximum Option Shares") at the Option Price per share.
(iii) Within 90 days after termination of Apollo's 2001 fiscal year, if the
Cumulative Earnings target set forth on Schedule 1 to this Agreement has been
achieved, the Executive shall be entitled to exercise Performance Options to
purchase the Adjusted Maximum Option Shares at the Option Price per share,
provided, however, that the foregoing shall not apply if the Executive's
employment has been terminated for cause or if the Executive voluntarily
terminates employment prior to the end of the Employment Term. This provision
shall apply if the Executive's employment is terminated pursuant to Sections
7(a), 7(b) or 7(c).
(iv) For purposes of this Agreement, the term "Exit Event" shall mean (A)
(I) the sale, in a single transaction or series of related transactions, of
50.01% or more of the consolidated assets of Apollo generating 50.01% of the
consolidated revenues (including Intermetrics, as successor by merger) or (II)
after September 30, 1995, a change of 50.01% or more in the beneficial ownership
of the outstanding Common Stock of Apollo or the Company on September 30, 1995
(other than changes in beneficial ownership because of transfers of Common Stock
of Apollo to Permitted Transferees as defined in the Stockholders Agreement or
pursuant to Section 5.11 of the Stockholders Agreement), (B) the merger or
consolidation of Apollo or the Company into another company where Apollo or the
Company is not the surviving entity or where the stockholders of Apollo or the
Company prior to the merger or consolidation do not own such number of the
shares of the surviving entity as is sufficient to control the surviving entity,
or (C) a public offering is completed which results in aggregate gross proceeds
of sale of at least $18,750,000, and the Company's or Apollo's outstanding
Common Stock having an aggregate market valuation of at least $75,000,000; or
the Company or Apollo has a class of common
-4-
<PAGE>
stock registered under the Securities Exchange Act of 1934 and the conditions
set forth in Section 4(c)(ii)(x) and (y) have been met.
(v) For purposes of this Section 4(b), Annual Earnings and Cumulative
Earnings shall be computed based upon the guidelines set forth in Schedule 1 to
this Agreement.
(c) Sale Bonus Options.
(i) Subject to Section 4(e) (which is applicable if Executive's employment
has been terminated prior to an Exit Event), in addition to the Maximum Option
Shares granted pursuant to Section 4(b) of this Agreement, Apollo hereby issues
Executive options for a ten year period commencing on the Commencement Date (the
"Sale Bonus Options") to purchase an additional 33,920 shares, which is equal to
4% of the Common Stock Outstanding at the time of the Merger, of Class D Common
Stock at the Option Price which are exercisable only if the conditions set forth
in Section 4(c)(ii)(x), (y) and (z) are satisfied. If the conditions are
satisfied the Sale Bonus Options shall be exercisable for one day only, such day
being the date of the closing of the Exit Event.
(ii) At the time of an Exit Event, the following conditions must be met:
(x) the internal rate of return to the holders of Apollo's Common Stock
who purchased at the Closing (the "Original Holders") exceeds 40% in the
aggregate, after dilution for exercise of warrants and options issued by
Apollo, based on the Common Stock issued to all Original Holders at the
Closing;
(y) the value of the Original Holders' Common Stock is at least $26.5
million in cash or in value of other consideration, after dilution for
exercise of warrants and options issued by Apollo, net of all expenses of
sale (or if some of the shares of the Original Holders' Common Stock have
been redeemed or repurchased by Apollo prior to the Exit Event and retired
and/or canceled or held as treasury stock, such lower cash or value number
equal to five times the Original Holders' investment in the shares issued
pursuant to the Stockholders Agreement and not previously redeemed,
repurchased or held by Apollo as treasury stock at the time of the Exit
Event; and
(z) after giving effect to the exercise of the Sale Bonus Options
(including the dilution resulting therefrom), the return received by the
Original Holders of the Company must be equal to or more than a 40%
internal rate of return and must be equal to or more than five times their
investment in the Securities ("Stockholder's Dilution");
-5-
<PAGE>
provided, however, that the Executive may exercise that portion of Sale
Bonus Options as do not cause a Stockholder's Dilution.
(d) Bonuses. The Executive shall be entitled to receive two cash
bonuses ("Cash Bonus"), each in the amount of $132,500, to be paid to the
Executive by the Company on September 15, 1996, and on September 15, 1997,
provided that on such dates the Executive is employed by the Company
pursuant to this Employment Agreement; and such Cash Bonus shall be applied
by the Executive to repay the Equity Investment Loan (as described in
Section 5 (b)). If Executive is terminated for Cause pursuant to Section
7(a) hereof, or voluntarily terminates employment, Executive shall receive
that portion of the Cash Bonus determined by multiplying the number of
months that Executive has been employed hereunder (excluding partial
months) divided by 24 and multiplied by $265,000 less any Cash Bonus which
Executive has already received; provided that such Cash Bonus is used to
pay the Equity Investment Loan.
(e) Adjustment on Termination. In the event that Executive is
terminated pursuant to Section 7(b), (c) or (d) of this Agreement prior to
an Exit Event:
(i) the following shall apply to the Sale Bonus Options
(Section 4(c) of this Agreement): at the time of the Exit Event, the
Executive shall be entitled to exercise 5% of the total Sale Bonus
Options (to the extent each would have been earned) for each
calendar quarter or portion thereof the Executive was employed by
the Company during the period from the Commencement Date to the
Termination Date up to the maximum number of Sale Bonus Options
which may be issued to Executive; and
(ii) The following shall apply to the Performance Options
(Section 4(b)(i) and (ii) of this Agreement): the Executive shall be
entitled to exercise a pro rata percentage of the Performance
Options under Section 4(b)(i) and (ii) of this Agreement (to the
extent that such Options would have been earned) for the full fiscal
year in which the Termination Date occurs determined by multiplying
10,176 by a fraction, the numerator of which is the number of fiscal
quarters or portion thereof in the fiscal year up to the Termination
Date and the denominator of which is 4.
With respect to options issued pursuant to Section 4(e)(ii), any exercise
by Executive of his put rights under Section 5.05 or 5.06 or any exercise by
Apollo of its call rights under Section 5.05 or 5.06 of the Stockholders
Agreement, shall also apply to the same percentage of Performance Options issued
under Section 4(e)(ii), except that the issuance date of such Securities shall
be deemed to be the date of exercise of such Performance Options for purposes of
calculating the Redemption Price (as defined in the Stockholders Agreement).
-6-
<PAGE>
All Performance Options which become exercisable shall remain vested
whether or not the Executive remains employed by the Company.
(f) Preemptive Rights. The number of Performance Options and Sales Bonus
Options shall be subject to the same anti-dilution protections, if any, that
all Stockholders of Apollo may have with respect to shares of common stock of
Apollo, as a group, on a pro rata basis with all other Stockholders including,
without limitation pursuant to Section 5.09 of the Stockholders Agreement. If
the number of Performance Options and Sales Bonus Options are adjusted pursuant
to this provision, the exercise price of said options shall be adjusted if
appropriate to maintain the relative rights of Executive and the other
Stockholders, as determined in good faith by the Board of Directors of Apollo.
(g) In the event of a stock split, stock dividend, reverse stock split or
similar change in the Company's capital structure, appropriate adjustment in the
number of option shares and the exercise price thereof shall be made by the
Board of Directors of the Company in their absolute discretion in order to
maintain the relative interests of the Company and the Executive.
5. Employment Benefits and Loans. (a) Benefits. During the Employment Term,
the Executive shall be entitled to the following employment benefits
(collectively, the "Benefits"):
(i) four weeks paid vacation in each year of the Employment Term and
sick leave in accordance with the Company's policies from time to time in
effect for executive officers of the Company;
(ii) participation, subject to qualification requirements and
provided Executive meets eligibility requirements, in medical or
hospitalization plans, life insurance policies, dental plans and long-term
and short-term disability policies which are presently in effect or
hereinafter instituted by the Company and applicable to its executive
officers generally ("Company-sponsored benefits") the Company agrees to
pay in full for Executive's coverage under such policies;
(iii) participation, subject to continued maintenance thereof by the
Company and provided Executive meets eligibility and classification
requirements, in other employee benefit plans which are from time to time
applicable to the Company's executive officers generally;
(iv) in addition to the Company's life insurance policies provided
to executive officers, the Company will pay Executive the actual cost of
life insurance premiums for life insurance obtained by the Company on the
life of Executive in the amount of $1,000,000 payable to beneficiaries
designated by Executive;
-7-
<PAGE>
(v) the Company shall reimburse Executive for reasonable documented
moving expenses plus any amount Executive is required to pay for income
tax as a result of receipt of such moving expenses, up to an aggregate
maximum amount of $15,000; and
(vi) the Company shall provide Executive a car in accordance with
the Company's policies with respect to cars.
Executive agrees to submit to an annual physical examination, which examination
shall take place in the metropolitan Boston or New York City area (the "Area"),
at the Company's expense prior to the execution of this Agreement with respect
to life and disability insurance to be maintained on Executive by the Company.
Each year during which this Agreement is in effect the Company agrees to pay for
one physical examination in the Area, and the Executive agrees to have such
annual physical examination. The Executive agrees to deliver to the Company
pursuant to this Agreement, copies of any physical examination reports received
from the doctor conducting the examination. The Executive's coverage under the
life and disability insurance policies referenced throughout this Agreement
shall be in force with the insurance company selected by the Company no later
than forty-five (45) days after the Commencement Date or such later date as the
Company can obtain such policies using its best efforts.
(b) Loans. On the Closing Date under the Merger Agreement, Apollo
shall cause the Company to make a loan to the Executive in the aggregate
amount of $265,000 (the "Equity Investment Loan"), which Equity
Investment Loan shall be a full recourse loan to the Executive, of which
the Executive shall use the Equity Investment Loan solely to purchase
42,400 shares of Class A Common Stock of Apollo (based on a price per
share of $6.25). A form of the secured promissory note evidencing the
Equity Investment Loan is attached hereto as Schedule 2 to this Agreement
(the "Note") and a Pledge Agreement securing payment of the Note is
attached hereto as Schedule 3. Upon termination of employment, Executive
shall apply any Cash Bonus received at termination to the Equity
Investment Loan and to the extent the Equity Investment Loan is not paid
in full, the Executive shall have forty-five days from the date of
termination to pay off the Note. If the Note is not paid within such time
period, the balance of the Note shall be canceled and Executive shall
endorse over to the Company that number of shares purchased by the Note
and not paid for upon cancellation of the Note in accordance with the
Pledge Agreement. Commencing on December 1, 1995 and on December 1 of each
year thereafter during the Employment Term, the Executive shall be paid an
amount equal to the pre-tax amount of the interest charged to the
Executive for the $265,000 Equity Investment Loan made to the Executive
("Interest Component"). The Interest Component shall be subject to all
applicable withholding and other taxes.
-8-
<PAGE>
6. Expenses. During the Employment Term, the Company will reimburse the
Executive, upon presentation of proper vouchers, for all reasonable travel,
entertainment and other out-of-pocket expenses reasonably and appropriately
incurred by the Executive in the performance of his duties hereunder.
7. Termination.
(a) Cause. The Company may, at any time, and in its sole discretion,
terminate the employment of the Executive hereunder for Cause, effective
as of the date (the "Termination Date") of written notice (the
"Termination Notice") to the Executive specifying the nature of such
Cause. For purposes of this Agreement, "Cause" shall mean if the Executive
(i) fails or refuses to act in any material respect in accordance with the
reasonable directions of the Board of Directors or Chief Executive Officer
of Apollo or the Company in a manner that would constitute an act of
insubordination or is in continuing willful material breach of this
Agreement; provided, however, that in such case the Company shall give
Executive a Termination Notice specifying the directions the Executive
failed to follow or the material breach of this Agreement, and the
Executive shall have a reasonable period of time after the date of the
notice to cure such action; (ii) has been convicted of a felony; or (iii)
has committed any act of fraud, misappropriation of funds or embezzlement
in connection with his employment. During the cure period referred to in
subsection (i) the Board of Directors of Apollo may cause the Company to
suspend the employment of the Executive hereunder if the conduct of the
Executive constituting Cause is deemed to have a potential negative effect
on the Company in the Board of Director's sole determination. If the
Executive has not cured such action within the specified cure period, the
employment of the Executive shall be terminated by the Company for Cause.
If the employment of the Executive hereunder is terminated pursuant to
this Section 7(a), the Company and Apollo shall have no further
obligations to the Executive hereunder after the Termination Date other
than the payment of Base Salary accrued and unpaid under Section 4 hereof
through the Termination Date, or except as otherwise provided by law.
(b) Termination by the Company for actions other than Cause. After
two years from the date of closing of the Merger, for actions other than
Cause, the Company may, at any time, and in its sole discretion, terminate
the employment of the Executive hereunder for any or no reason by delivery
to him of a Termination Notice; provided, however, the Company may not
terminate Executive for any reason other than for Cause if the Annual and
Cumulative Targets set forth on Schedule 1 are being met. Such termination
shall be effective on the date of the Termination Notice; provided,
however, that (i) the Company shall continue to pay the Executive, for a
period ("Payment Period") of the lesser of (i) thirty-six (36) months
following the Termination Date, or (ii) the remaining term of this
Agreement, the Executive's Base Salary (not to exceed
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<PAGE>
an aggregate amount of $900,000 or $25,000 per month) plus TAP in
accordance with the provisions of Section 4(a) hereof and medical benefits
as in effect during the year of such termination and disability benefits
set forth in Section 7(c) (payment by the Company for Base Salary shall be
mitigated to the extent that during the 24 to 36 month period following
the termination hereunder (to the extent any of such period is part of the
Payment Period), Executive becomes employed by a third party and payment
by the Company for TAP, medical and disability insurance coverage for the
Executive shall be terminated at the earlier of the end of the Payment
Period or when Executive becomes employed by a third party); and (ii) the
benefits in Section 4(e) of this Agreement shall apply. The Executive
shall also be entitled to exercise the applicable "put" provision under
the Stockholders Agreement with respect to shares of Apollo Common Stock
owned by the Executive set forth in the Stockholders Agreement. If the
employment of the Executive hereunder is terminated pursuant to this
Section 7 (b) the Company and Apollo shall have no further obligations
hereunder except as expressly provided herein, or as otherwise provided by
1aw.
(c) Disability.
(i) Temporary Disability. In the event that any time during the
Employment Term, the Executive, due to physical or mental injury, illness,
disability or incapacity, shall fail to render satisfactorily the services
to be performed by the Executive under this Agreement either for a
consecutive period of three (3) months or for a non-consecutive period of
six (6) months within any twelve month period, the Board of Directors of
the Company may, at its option, determine that such disability is long
term or place the Executive on temporary disability leave during the
subsequent pendency of such injury, illness, disability or incapacity for
a period of up to three (3) months or until subparagraph (c)(ii) becomes
applicable if the Executive is disabled for more than three months, during
which period the Company shall continue to pay (to the extent not paid
pursuant to disability insurance provided by the Company) to the Executive
the Base Salary as provided in Section 4(a) and the Company-Sponsored
Benefits, but only to the extent permitted by such policies or plans.
(ii) Long-Term Disability. If such injury, illness, disability or
incapacity persists and is long-term (any such disability shall be deemed
to be long-term in nature if the Executive's physician advises the Board
of Directors of Apollo that such disability can be expected to last for a
period of at least six consecutive months or for a period of 6 months in
any 12 month period) and Executive meets the definition of disability
under the Company's disability policies, the Company shall have the option
at any time after the Executive is on disability leave to terminate the
employment of the Executive hereunder upon not less than thirty (30) days'
written notice to the Executive. In addition to the Company's rights set
forth in the preceding sentence, if at any
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<PAGE>
time the Company receives the written opinion of two doctors (one doctor
to be selected by each of the Company and the Executive, and if such
doctors disagree as to whether the Executive is suffering from a long-term
disability, a third doctor will be selected mutually by the Executive and
the Company, whose determination will be final) that the Executive cannot
render satisfactorily the services to be performed by him under this
Agreement because of a long-term disability, the Board of Directors of the
Company may terminate the Executive's employment hereunder within thirty
(30) days of receipt of such doctors' reports. The Company can require
Executive to have the physical examinations described in the preceding
sentence at any time for the purpose of determining whether or not
Executive has a long-term disability, and Executive agrees to submit to
such examinations upon request of the Company. If the employment of the
Executive hereunder is terminated pursuant to this Section 7(c) because of
a long-term disability, the Executive shall receive the following from the
Company (i) benefits under the Company's long-term disability policy and
medical benefits for a period commencing on the Termination Date and
ending on Executive's sixty-fifth birthday, (ii) for the first 12 months
following disability, $25,000 per month, TAP, Interest Component and Bonus
(less amounts received under subparagraph (i) above), and thereafter
$10,000 per month (less amounts received under subparagraph (i) above) or
such greater amount as the Company's regular disability insurance policy
permits, (iii) the rights set forth in Section 4(e) of this Agreement, and
(iv) at no greater out-of-pocket cost to the Executive than incurred prior
to termination, the Company-sponsored Benefits, but only to the extent
permitted by such policies or plans. The Executive shall also be entitled
to exercise the applicable "put" provision contained in the Stockholders
Agreement with respect to shares of Apollo Common Stock owned by the
Executive subject to the limitations set forth in the Stockholders
Agreement. If the employment of the Executive hereunder is terminated
pursuant to this Section 7(c), the Company and Apollo shall have no
further obligations hereunder except as expressly provided under this
Section 7(c), or as otherwise provided by law.
(iii) Executive's Health. Executive hereby represents to Apollo and
the Company that as of the date of execution of this Agreement, and that
to the best of his knowledge, he is in good health and is not aware of any
health condition that could lead to a temporary or long-term disability.
(d) Death. If the Executive dies during the Employment Term, the
employment of the Executive hereunder shall terminate immediately upon the
death of the Executive. If the employment of the Executive hereunder is
terminated pursuant to this Section 7(d), the Company and Apollo shall
have no further obligations hereunder after the Termination Date other
than the payment to the Executive's estate, legal representatives, heirs,
successors, assigns or other beneficiaries of (i) accrued Base Salary (as
in effect during the year of such death) up to the date of the
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<PAGE>
Executive's death, (ii) the rights set forth in Section 4(e) of this
Agreement, and (iii) at no greater out-of-pocket cost to the Executive
than incurred prior to termination, the Company-sponsored Benefits, but
only to the extent permitted by such policies or plans. The Executive's
estate, legal representatives, heirs, successors, assigns or other
beneficiaries shall be entitled to the benefit of the exercise of the
applicable "put" provision under the Stockholders Agreement with respect
to Apollo's Common Stock owned by the Executive at his death subject to
the limitations set forth in the Stockholders Agreement. If the employment
of the Executive hereunder is terminated pursuant to this Section 7(d)
the Company shall have no further obligations hereunder except as
expressly provided under this Section 7(d), or as otherwise provided by
law.
(e) Change of Control. In the event that there is a change of
control of the Company, including an Exit Event (as defined in Section
4(b)(iv) hereof) other than a public offering of 20% or more of the common
stock of Apollo or the Company (a "Change of Control"), which Change of
Control event is being negotiated or takes place at any time during which
Executive's full time employment is continuing hereunder, and this
Agreement is expressly assumed by the party effecting such Change of
Control, the Executive shall subject to the terms hereof continue to
render his services to the Company pursuant to Section 3 above, for a
period of 18 months from the date of the consummation or closing of the
event constituting the Change of Control, even if it is beyond the term of
this Agreement, after which period the Executive may elect to discontinue
his services to the Company. Notwithstanding any such discontinuance by
the Executive, the Company shall continue to pay the Executive his Base
Salary plus TAP, in accordance with Section 4 hereof, and shall continue
to provide Benefits (as defined in Section 5 hereof) to the Executive, in
each case for the remainder of the Employment Term.
(f) Notice of Termination. Any termination of the Executive's
employment by the Company pursuant to Section 7(a), (b), (c) or (d) shall
be communicated by a written Termination Notice to the Executive in
accordance with Section 11 hereof. For purposes of this Agreement, a
"Termination Notice" shall mean only a notice which is based upon, and
shall indicate, the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
(g) Voluntary Termination. If the Executive voluntarily terminates
his employment hereunder, the Company and Apollo shall have no further
obligations to the Executive hereunder after the date of voluntary
termination other than the payment of Base Salary and TAP accrued and
unpaid under Section 4 hereof through the date of voluntary termination,
or except as otherwise provided by the
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<PAGE>
Stockholders Agreement or by law, except that Performance Options that
have vested shall remain vested.
8. Disclosure of Information. The Executive shall not, during or after the
Employment Term, disclose any confidential or proprietary information of the
Company to any person, firm, corporation, association, limited liability
company, or other entity (other than the Company, its affiliates or subsidiaries
or officers thereof or other than as necessary in the performance of his duties
as Executive) for any reason or purpose whatsoever, nor shall the Executive make
use of any such confidential or proprietary information for his own purpose or
for the benefit of any person, firm, limited liability company, corporation or
other entity, except the Company. As used in this Section 8, the term
"confidential or proprietary information" means all information which is known
to the Company or the Executive or to employees, former employees, consultants
or others in a confidential relationship with the Company, is specific to the
Company or is developed by the Company regarding the industry and relates to
matters such as trade secrets, research and development activities, computer or
multimedia related software or software concepts in development, books and
records, customer lists, vendor lists, suppliers, distribution channels, pricing
information and private processes as they may exist from time to time which the
Executive acquired or obtained by virtue of work heretofore performed for the
Company; provided, that the term "confidential or proprietary information" shall
not include (i) information that is or becomes generally available to the public
(other than as a result of an unauthorized disclosure by the Executive), (ii)
information which must be disclosed by law but only to the extent necessary to
comply with such law, and (iii) information which must be disclosed in order for
him to carry out his duties under this Agreement but only to the extent
necessary to carry out said duties.
9. Noncompetition. The Executive agrees to the noncompetition provisions
set forth in Schedule 4 hereto. The parties mutually agree to the importance of
the provisions of Schedule 4 to this Agreement and to Apollo's decision to
purchase Intermetrics.
10. Conflicting Agreements. The Executive hereby represents and warrants to
the Company that (a) neither the execution of this Agreement by the Executive
nor the performance by the Executive of any of his obligations or duties
hereunder will conflict with or violate or constitute a breach of the terms of
any employment or other agreement to which the Executive is a party or by which
the Executive is bound, and (b) the Executive is not required to obtain the
consent of any person, firm, corporation, limited liability company or other
entity in order to enter into this Agreement or to perform any of his
obligations or duties hereunder.
11. Notices. Any notice, request, information or other document to be given
under this Agreement to any party by any other
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<PAGE>
party shall be in writing and delivered personally, sent by registered or
certified mail, postage prepaid, delivered by a nationally recognized overnight
courier service or transmitted by facsimile machine addressed as follows:
If to the Company or Apollo:
Apollo Holding, Inc.
c/o Joel N. Levy/Peter M. Schulte, L.L.C.
135 East 57th Street
New York, New York 10022
Attention: Peter M. Schulte
Facsimile No.: (212) 980-2630
with a copy to:
Windels, Marx, Davies & Ives
156 West 56th Street
New York, New York 10019
Attention: James P. Conroy, Esq.
Facsimile No. (212) 262-1215
-and-
Intermetrics, Inc.
733 Concord Avenue
Cambridge, Massachusetts 02138
Attention: Chief Executive Officer
Facsimile No. (617) 661-4374
If to the Executive:
Michael B. Alexander
32 North Church Road
Saddle River, New Jersey 07458
Facsimile No. (201) 818-9626
or at his then current address included in the employment
records of the Company
with a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Attention: Gerald Adler, Esq.
Facsimile No. (212) 758-9526
or to such other address as a party hereto may hereafter designate in writing to
the other party, provided that any notice of a change of address shall become
effective only upon receipt thereof.
12. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the Company and the
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<PAGE>
Executive and their respective heirs, legal representatives, successors and
permitted assigns.
13. Entire Agreement. This Agreement and the Stockholders Agreement contain
the entire understanding between the Company, Apollo and the Executive with
respect to the employment of the Executive and supersedes all prior negotiations
and understandings between the Company, Apollo and the Executive with respect to
the employment of the Executive by the Company. This Agreement may not be
amended or modified except by a written instrument signed by the Company, Apollo
and the Executive.
14. Severability. In the event any one or more provisions of this Agreement
is held to be invalid or unenforceable, such illegality or unenforceability
shall not affect the validity or enforceability of the other provisions hereof
and such other provisions shall remain in full force and effect, unaffected by
such invalidity or unenforceability.
15. Applicable Law; Submission to Arbitration. This Agreement and the
rights, obligations and relations of the parties hereto shall be governed by
and construed and enforced in accordance with the laws of the State of New York
without giving effect to the principles of conflicts of law thereof. If there is
a conflict between the laws of New York and any other state with respect to this
Agreement, the provisions of New York law shall govern, except that with respect
to corporate matters concerning Apollo or the Company, Delaware law shall
govern.
Any disputes hereunder which cannot be resolved by negotiation between the
parties hereto shall be submitted to, and determined by, arbitration in
accordance with the Arbitration Rules of the American Arbitration Association,
and the parties hereto agree to be bound by the final award of the arbitration
panel (which shall be comprised of three members, one to be selected by each of
Apollo and the Executive, and the third to be mutually selected by Apollo and
the Executive) in any such proceeding. The arbitration panel shall apply the law
of the State of New York. Arbitration may be held in the State of New York, the
Borough of Manhattan, or such other place as the parties hereto may mutually
agree. Judgment upon the award by the arbitration panel may be entered and
enforced in any court having jurisdiction thereof. The arbitration panel may
order injunctive relief against any party.
16. Headings. The headings of sections and subsections of this Agreement
are for convenience of reference only and are not to be considered in construing
this Agreement.
17. Execution in Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which, when taken together, shall constitute one and the same instrument.
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<PAGE>
18. Indemnification.
(a) The Company and Apollo shall indemnify and hold harmless Executive to
the fullest extent permitted by law as it presently exists or may be hereafter
amended, if Executive is a party or is threatened to be made party to any action
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that Executive is or was a director or officer of the Company
or Apollo, or is or was serving at the request of the Company or Apollo any
other enterprise as a director, officer, employee or agent; provided, however,
the Company and Apollo shall not indemnify Executive for any proceeding
initiated by him unless the proceeding was authorized by the Board of
Directors. Executive shall not be liable to the Company, Apollo or their
stockholders for monetary damages for breach of fiduciary duty as a director,
except of liability (i) for any breach of the director's duty of loyalty to
Apollo or the Company or their respective stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the Executive derived an
improper personal benefit. The Company and/or Apollo shall be entitled to direct
the defense of any claim for which it is providing indemnification, at the
Company's expense. The Company and/or Apollo shall keep Executive informed on a
timely basis of the status of all legal proceedings relating to this
indemnification and shall provide copies of all documents relating the legal
proceedings to Executive or at his request, Executive's legal counsel.
(b) The Company and Apollo shall also indemnify Executive for advance
expenses incurred in connection with any proceeding described above to the
fullest extent permitted by Section 145(e) of the General Corporation Law as in
effect on the date hereof or as it may be hereafter amended. Expenses incurred
in defending any threatened or pending civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by Apollo and the Company
in advance of the final disposition of such action, suit or proceeding, to the
extent permitted by law, upon receipt of an undertaking by or on behalf of the
Executive to repay such amount if it is ultimately determined, in a final
non-appealable judgment of a court of competent jurisdiction, that Executive is
not entitled to be indemnified against such expenses. This undertaking by
Executive shall be an unqualified general undertaking, but no security for such
undertaking will required.
(c) Executive's right hereunder will be in addition to any indemnification
provided to Executive by any law, agreement, Board resolution, provision of the
Articles of Incorporation (or Certificate of Incorporation) or By-laws of the
Company or Apollo, or otherwise. All of Executive's rights hereunder will
continue even after Executive has ceased to be a director, officer, employee or
agent of the Company and/or Apollo for any reason, will inure to
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<PAGE>
the benefit of the heirs, executors and administrators of Executive, and will
survive termination of this Agreement. Apollo and the Company shall be jointly
and severally liable to Executive with respect to any amounts which become due
to be paid to or for the benefit of Executive hereunder.
19. Securities Purchase Agreements. The Executive agrees and he shall cause
AFH Partners, L.P. to agree not sell any Securities (as defined in the
Stockholders Agreement) if such sale would cause a default under Section
9.7(b)(II) of the Securities Purchase Agreements dated August 31, 1995 between
the Company, Apollo and each of Massachusetts Mutual Life Insurance Company,
MassMutual Corporate Investors, MassMutual Participation Investors, MassMutual
Corporate Value Partners Limited.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
IMT ACQUISITION CORP.
By: /s/ Peter M. Schulte
--------------------------------
Name: Peter M. Schulte
Title: Treasurer
APOLLO HOLDING, INC.
By: /s/ Peter M. Schulte
--------------------------------
Name: Peter M. Schulte
Title: Treasurer
/s/ Michael B. Alexander
--------------------------------
MICHAEL B. ALEXANDER
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<PAGE>
SCHEDULE 1
EBITDA DEFINITION
This definition of EBITDA is intended to clearly define earnings derived
solely from the normal operations of the Company on a consolidated basis (for
the President and the Chief Executive Officer, excluding the earnings which
result from the acquisition of any business after the closing ("Closing") of the
Merger Agreement).
EBITDA, with respect to any fiscal period, shall be obtained from the
Company's consolidated annual audited income statement and shall be defined as
follows:
(i) Operating income plus interest income and less interest expense;
(ii) plus depreciation, amortization and other similar non-cash charges,
software development and design and research and development
expenses in the aggregate in excess of $100,000 not reimbursed by a
third party at the time of the expense;
(iii) plus consulting fees described in Sections 3(a)(i) and (ii) of the
Consulting Agreement between the Company and Joel N. Levy/Peter N.
Schulte, L.L.C. and the Consulting Agreement between the Company and
the Westgate Capital Co.;
(iv) plus any charges to income related to the grant, issuance or
exercise of stock options to management of, or lenders to, Apollo,
the Company or their subsidiaries;
(v) less extraordinary and nonoperating gains and plus extraordinary and
nonoperating losses, including, without limitation, any prepayment
penalties resulting from the retirement of debt before its scheduled
repayment date;
(vi) plus any expenses incurred or minus reimbursement received, both net
of reserves, in settlement of any claims or other items related to
the assets and liabilities of Apollo or the Company for events
occurring prior to the closing of the Merger Agreement;
(vii) plus the special bonuses to be paid to Michael B. Alexander by the
Company on September 15, 1996 and September 15, 1997;
(viii) plus travel, lodging and entertainment expense for Directors of
Apollo and the Company;
<PAGE>
(ix) minus gains or plus losses from the sale of assets other than
write-offs in the ordinary course of business;
(x) plus charges amortized or expensed relating to future acquisitions
of Apollo or the Company;
(xi) plus extraordinary litigation expenses and extraordinary legal and
accounting expenses;
(xii) plus amortization or expenses relating to asset write-ups in
connection with the acquisition of the Company; and
(xiii) plus in the first twelve months only, expenses for special
consultants, not in the ordinary course, but this adjustment shall
be limited to a maximum of $100,000.
In the event of a loss from a catastrophe or other casualty loss, an act of
God (including, but not limited to, fire, flood, wind damage, lightning or other
event), industrial sabotage, labor strikes, disputes or work stoppages or any
other unforeseen event (whether at the Company or at any of its vendors), which
such event or events shall cause a disruption or cessation of all or a portion
of the normal business operations of the Company for a period of forty-eight
hours or longer, then for purposes of the determination of operating earnings,
to the extent that the Company is not reimbursed by its business interruption
insurance policy, the final amount will be credited with an amount equal to the
product of the daily average operating earnings for the period of the Company's
normal business operation for the two most recent fiscal years (as adjusted by
an aggregate annual amount [including depreciation and amortization as set forth
in Intermetrics' financial statements] of plus $1,915,000 for 1994 and by plus
$3,257,000 for 1995, respectively), whichever is larger, and the number of days
that the normal business operations were disrupted or ceased.
<PAGE>
<TABLE>
<CAPTION>
SPECIFIC ANNUAL AND CUMULATIVE TARGETS(1)
($ In Thousands)
EBITDA LESS INTEREST EXPENSE INTEREST
EXPENSE
FISCAL CUMULATIVE ASSUMED IN
YEAR ANNUAL TARGET TARGET ANNUAL TARGET
------ --------------- ------------- ---------------
<S> <C> <C> <C>
1996(2) (STUB) $ 1,906 $ 1,906 $ 667
l997(3) 5,002 6,908 1,333
1998 7,247 14,155 1,321
1999 7,379 21,534 1,290
2000 8,330 29,864 1,246
2001 9,159 39,023 1,183
</TABLE>
- ----------------------
(1) Targets are stated after interest expense. Interest expense is assumed to
be 10% for purposes of the target figures and interest expense is based on
the scheduled amortization of the senior and subordinated notes; however,
the target figures will be increased or decreased by the difference between
the 10% interest rate and the actual interest rate.
(2) This achievement will be measured from the date of closing through the end
of the fiscal year and pro-rated against a full year achievement target
EBITDA less Interest Expense of $3,812.
(3) The stub year (1996) will be added with the first full fiscal year (1997)
to determine both the annual and cumulative target for the first of the
five fiscal years for which Performance Options may be earned pursuant to
Section 4(b) of the Employment Agreement.
<PAGE>
SCHEDULE 2 and SCHEDULE 3
See Tab 25
<PAGE>
Schedule 4
Non-Competition
The Executive hereby acknowledges and recognizes his possession of
confidential or proprietary information and the competitive nature of the
business of Apollo, the Company and any of their direct or indirect subsidiaries
(referred to in this Schedule 4, as the "Company") and accordingly agrees that,
in consideration of the premises contained herein, he will not, from and after
the Employment Term and for a period of three (3) years following the
termination of employment for any reason whatsoever under this Agreement, (i)
directly or indirectly engage in any Competitive Business (as hereinafter
defined), whether such engagement shall be as an employer, officer, director,
owner, employee, partner or other participant in any of the (A) states of the
United States or (B) other geographic areas outside the United States in which
the Company currently, or at any time during Employment Term or the three year
period after Executive's termination, is doing business, (ii) assist others in
the foregoing clause (i), or (iii) induce employees of the Company to terminate
their employment with the Company or engage in any Competitive Business in any
of the (A) states of the United States or (B) other geographic areas outside the
United States in which the Company currently, or at any time during Employment
Term or the three year period after Executive's termination, is doing business.
The Executive's ownership of not more than the lesser of $500,000 of value or
one quarter of one percent (.25%) of the outstanding capital stock of any public
corporation shall not (in itself) be deemed to be engaging in any Competitive
Business for purposes of this Section. As used in this Section, the term
"Competitive Business" means and includes any business, whether serving
government, commercial, private or other customers, in which the Company is
engaged in, or proposes to engage in pursuant to actual proposals or bona fide
plans to propose, during the period Executive is employed by the Company or the
two years prior to the closing of the Merger, including, without limitation
(i) systems engineering, software design services and software coding
including (x) analysis and design, (y) coding development, test and
integration and (z) operational support and maintenance;
(ii) multimedia programming services, development software, computer
multimedia systems;
(iii) tools for embedded systems development; and
(iv) software for operation and testing of manufacturing plants and
products.
Executive agrees that during the term of this Agreement, without the prior
written consent of the Company, the Executive shall not (i) solicit, employ or
otherwise engage, or assist in the
<PAGE>
solicitation, employment or engagement as an employee, independent consultant or
otherwise, any person who is an employee of the Company or was an employee of
the Company during the 18 months prior to Executive's termination, or in any
manner induce or attempt to induce any employee of the Company to terminate his
or her employment with the Company; or (ii) tortiously interfere with the
relationship of the Company with any person, including any person who at any
time during Executive's employment with the Company was an employee, a
customer, a vendor, a supplier or a consultant of, or to, the Company.
The parties mutually agree to the importance of the provisions of this
Schedule 4 to the Employment Agreement with respect to Apollo's acquisition of
the Company pursuant to the Merger Agreement.
<PAGE>
SCHEDULE 5
Non-Profit Organizations
on which Executive serves as a Director
1. National Urban League
2. Bloomfield College
3. A+ For Kids Teachers Foundation
4. Foundation for Minority Interests
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<PAGE>
Exhibit 10.11
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Agreement"), is dated as
of February 27, 1998, among Apollo Holding Inc., a Delaware corporation
("Apollo"), Averstar, Inc., a Delaware corporation ("Averstar") and Michael B.
Alexander (the "Executive").
WHEREAS, Apollo, Intermetrics, Inc. (f/k/a IMT Acquisition Corp.), a
Delaware corporation and a wholly-owned subsidiary of Apollo ("Intermetrics")
and the Executive have entered into an Employment Agreement, dated August 21,
1995 (the "Alexander Employment Agreement");
WHEREAS, Pacer Infotec, Inc., a Massachusetts corporation ("Pacer"),
and Apollo have entered into that certain Agreement and Plan of Merger, dated as
of January 22, 1998 (the "Merger Agreement"), whereby, among other things,
Averstar was formed for the purpose of combining the businesses of Pacer and
Intermetrics;
WHEREAS, the closing of the transactions contemplated by the Merger
Agreement has been completed and the businesses of Pacer and Intermetrics have
been combined;
WHEREAS, Averstar, Intermetrics and Apollo have entered an Assignment
Agreement, dated as of February 27, 1998, whereby Intermetrics assigned and
transferred to Averstar all of Intermetrics' right, title and interest in and to
the Alexander Employment Agreement and Averstar assumed all of Intermetrics'
obligations, duties and liabilities under the Alexander Employment Agreement;
WHEREAS, each of the Company and IES Holding, Inc. ("IES") are
simultaneously issuing stock options to the Executive in exchange for the
surrender and cancellation of the outstanding stock options held by the
Executive; and
WHEREAS, the parties hereto desire to execute this Agreement to amend
the Alexander Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Amendment of the Alexander Employment Agreement. The parties
-----------------------------------------------
hereto hereby covenant and agree that, effective as of the date hereof, the
Alexander Employment Agreement is hereby amended by deleting Subsections 4(b),
4(c), 4(e), 4(f) and 4(g) in their entirety. In addition, the reference to
"Performance Options" contained in Subsection 7(g) of the Alexander
<PAGE>
Employment Agreement shall be deemed to refer to the Non-Qualified Stock Option
Agreement, dated as of March __, 1998 between the Company and the Executive, a
copy of which is attached hereto.
2. Miscellaneous.
-------------
(a) Except as modified herein, all of the terms and conditions of the
Alexander Employment Agreement, as heretofore in effect, shall remain in full
force and effect and, as modified hereby, the Alexander Employment Agreement is
hereby ratified and confirmed in all respects.
(b) This Agreement and the legal relations between the parties hereto
shall be governed by, and construed in accordance with, the laws of the State of
New York, applicable to contracts made and performed therein.
(c) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
AVERSTAR, INC.
By:/s/ Michael B. Alexander
------------------------
Name: Michael B. Alexander
Title: Chairman and Chief Executive Officer
APOLLO HOLDING, INC.
By:/s/ Michael B. Alexander
------------------------
Name: Michael B. Alexander
Title: Chairman and Chief Executive Officer
/s/ Michael B. Alexander
------------------------
Michael B. Alexander
<PAGE>
Exhibit 10.13
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 21st day of August, 1995
("Agreement"), by and among IMT ACQUISITION CORP., a Delaware corporation (the
"Company"), APOLLO HOLDING, INC., a Delaware corporation ("Apollo") and JOSEPH
A. SAPONARO, an individual (the "Executive").
WITNESSETH:
WHEREAS, Apollo and the Company have entered into the Agreement and Plan of
Merger dated as of April 6, 1995 (the "Merger Agreement") with Intermetrics,
Inc., a Delaware corporation ("Intermetrics"), pursuant to which, among other
things, the Company will merge (the "Merger") with and into Intermetrics and the
holders of the then outstanding shares of the common stock of Intermetrics will
receive a price of $6.80 per share.
WHEREAS, Apollo and the Company (references hereinafter to Company include
the Surviving Corporation as defined in the Merger Agreement) wish to retain the
services of the Executive as President of the Company and the Executive is
willing, upon the terms and conditions herein set forth, to serve as President
of the Company.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained in this Agreement, the Company and the Executive, intending
to be legally bound hereby, agree as follows:
1. Employment; Purchase of Apollo Common Stock.
(a) Subject to the terms and conditions hereinafter set forth, Apollo
and the Company hereby each employ the Executive as President of Apollo and
the Company, and the Executive hereby accepts such employment.
(b) Executive shall have the right to acquire up to 36,000 shares of
Class A Common Stock ("Common Stock") at a price of $6.25 per share or a
total of $225,000, either through cash purchases or an exchange of shares
of common stock of Intermetrics for shares of Class A Common Stock of
Apollo in connection with the capitalization of Apollo immediately prior to
the effectiveness of the Merger. The Executive agrees to execute the
Subscription and Stockholders Agreement dated as of August 21, 1995, among
Apollo and its stockholders (the "Stockholders Agreement").
2. Term. The term of employment of the Executive by the Company pursuant to
this Agreement (the "Employment Term") shall commence with the Closing Date (as
defined in the Merger Agreement) ("Commencement Date"), and shall terminate upon
the
<PAGE>
earlier of (a) the second anniversary of the Commencement Date or (b) the date
on which the employment of the Executive hereunder is terminated pursuant to
Section 7 hereof. The Employment Term shall be automatically renewed for
successive one-year periods unless terminated by either Executive or the
Company upon at least 90 days written notice prior to the end of the initial
term or any successive one-year term.
3. Duties and Authority. During the Employment Term, the Executive shall
render his services to the Company as President of the Company. In addition to
the foregoing, the Executive shall hold, without additional compensation
therefor, a seat on Apollo's and the Company's Board of Directors, and such
other offices, directorships or memberships on committees of Apollo and/or any
direct or indirect subsidiary of Apollo to which, from time to time during the
Employment Term, the Executive may be elected or appointed. During the
Employment Term, the Executive shall devote his full business time, efforts,
energy and skill solely to the business of the Company in accordance with the
reasonable directions and policies of the Board of Directors of Apollo and the
Company in accordance with Executive's talent, skill and experience in a prudent
manner and will use his best efforts to promote the interests thereof.
4. Compensation.
(a) Base Salary. In consideration of the services to be rendered by
the Executive pursuant to this Agreement, including, without limitation,
any services which may be rendered by the Executive as an officer, director
or member of any committee of Apollo or any direct or indirect subsidiary
of Apollo, the Company shall pay or cause to be paid to the Executive
during the Employment Term, and the Executive shall accept, compensation at
the rate of two hundred and thirty hundred thousand dollars ($230,000.00)
per annum (the "Base Salary") or such greater amount as may be approved
from time to time by the Board of Directors of the Company, in its sole
discretion. The Company's obligation to pay Base Salary shall begin to
accrue on the Commencement Date and shall be payable in accordance with the
standard payroll practices of the Company which are in effect from time to
time during the Employment Term. The Executive's Base Salary shall be
subject to all applicable withholding and other taxes.
(b) Performance Options. Apollo hereby issues Executive options
-------------------
("Performance Options") to purchase up to an aggregate maximum of 25,440
shares of Class D Common Stock (the "Maximum Option Shares"), which is
equal to 3% of the Common Stock outstanding at the time of the Merger, at
the Option price of $6.25 per share ("Option Price") which are exercisable
if the terms and conditions set forth below in this subsection (b) are
satisfied. The Performance Options shall be granted for a
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ten-year period commencing on the Commencement Date, and shall become
exercisable if, subject to Section 4(d), the Executive is employed by the
Company on the date of the Performance Options become exercisable, after the
Company's receipt of its audited financial statements for a relevant fiscal year
date and if:
(1) (A) For each fiscal period from the Closing commencing with
the period from Closing to the end of Apollo's 1997 fiscal year
(2/28/97), and ending at the end of Apollo's 2001 fiscal year
(2/28/01), (although Executive shall have a period of 90 days thereafter
to exercise the Performance Options) Executive shall be entitled to
exercise Performance Options to purchase 5,088 shares, which is equal
to .6% of the Common Stock outstanding at the time of the Merger, of
Common Stock at the Option Price per share if Apollo achieves the annual
earnings ("Annual Earnings") and cumulative earnings ("Cumulative
Earnings") targets set forth on Schedule 1 of this Agreement; or
----------
(B) For each fiscal year from the Closing commencing with
the end of Apollo's 1997 fiscal year (2/28/97), and ending 90 days after
the end of Apollo's 2001 fiscal year (2/28/01), in which Performance
Options do not become exercisable by the Executive pursuant to the
preceding subparagraph (A), the Board of Directors of Apollo shall have
the full and complete discretion to permit exercises by the Executive of
Performance Options to purchase 1,272 shares, which is equal to .15% of
the Common Stock outstanding at the time of the Merger, of the Common
Stock at the Option Price per share.
(ii) Subject to Section 4(d) (which is applicable if Executive's
employment is terminated, other than due to the expiration of the term
of this Agreement, prior to an Exit Event), upon the occurrence of an
Exit Event (as defined below), irrespective of when such event occurs,
if (x) the Cumulative Earnings targets set forth on Schedule 1 to this
----------
Agreement up to the date when the Exit Event occurs have been achieved,
or (y) the Exit Event conditions set forth in Section 4(b) (vi) (x) and
(y) are met, the Executive shall be entitled to exercise Performance
Options to purchase the Maximum Option Shares (after deducting the
number of Performance Options previously exercised pursuant to
subsection 4(b), such adjusted number being referred to herein as the
"Adjusted Maximum Option Shares") at the Option Price per share.
(iii) Within 90 days after termination of Apollo's 2001 fiscal
year, if the Cumulative Earnings target set forth on Schedule 1 to this
----------
Agreement has been achieved, the Executive shall be entitled to exercise
Performance Options to purchase the Adjusted Maximum Option Shares at
the Option Price per share, provided, however, that the foregoing shall
not apply if the Executive's employment has been terminated for Cause or
if Executive voluntarily terminates employment prior to the fifth
anniversary of the Commencement Date. This provision shall apply if the
Executive's employment is terminated pursuant to Sections 7(a), 7(b) or
7(c).
(iv) For purposes of this Agreement, "Exit Event" shall mean (A)
(I) the sale, in a single transaction or series of related transactions,
of 50.01% or more of the consolidated assets of the Company generating
50.01% of the consolidated revenues (including Intermetrics, as
successor by merger) or (II) after September 30, 1995, a change of
50.01% or more in the beneficial ownership of the outstanding Common
Stock of Apollo or in the Company on September 30, 1995 (other than
changes in beneficial ownership because of transfers of Common Stock of
Apollo to Permitted Transferees as defined in the Stockholders
Agreement or pursuant to Section 5.11 of the Stockholders Agreement),
(B) the merger or consolidation of Apollo or the Company with another
company where Apollo or the Company is not the surviving entity or where
the shareholders of Apollo or the Company prior to the merger or
consolidation do not own such number of shares of the surviving entity
as is sufficient to control the surviving entity, or (C) a public
offering is completed which results in aggregate gross proceeds of sale
of at least $18,750,000, and the Company's or Apollo's outstanding
Common Stock having an aggregate market valuation of at least
$75,000,000 or the Company or Apollo has a class of common stock
registered under the Securities Exchange Act of 1934 and the conditions
set forth in Section 4(b) (vi) (x) and (y) have been met ("Public
Offering").
(v) For purposes of this Section 4(b), Annual Earnings and
Cumulative Earnings shall be computed based upon the guidelines set
forth in Schedule 1 to this Agreement.
----------
(vi) At the time of an Exit Event, the following conditions must
be met for the purposes of Section 4(b) (ii) (y):
(x) the internal rate of return to the holders of Apollo's
Common Stock who purchased at the Closing (the "Original
Holders") exceeds 40% in the aggregate, after dilution for
exercise of warrants and vested options issued by Apollo, based
on the Common Stock issued to all Original Holders at the
Closing; and
(y) the value of the Original Holders' Common Stock is at least
$26.5 million in cash or in value of other consideration, after
dilution for exercise of warrants and vested options issued by
Apollo, net of all expenses of sale (or if some of the shares of
the Original Holders' Common Stock have been redeemed or
repurchased by Apollo prior to the Exit Event and retired and/or
canceled or held as treasury stock, such lower cash or value
number equal to five times the Original Holders' investment in
the shares issued pursuant to the Stockholders Agreement and not
previously redeemed, repurchased or held by Apollo as treasury
stock at the time of the Exit Event).
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<PAGE>
(c) Bonuses. The Executive shall be entitled to receive annual cash
bonuses, each in the amount of $30,000, to be paid to the Executive by the
Company on April 1st of each year beginning in 1996, subject to the provisions
of Section 7. In addition, the Executive shall receive additional cash bonuses
payable at the sole discretion of the Board of Directors of the Company and/or
Apollo. Any and all cash bonuses payable hereunder shall be subject to all
applicable withholding and other taxes.
4
<PAGE>
(d) Adjustment on Termination. In the event that executive is
terminated pursuant to Section 7(b), (c) or (d) of this Agreement prior to an
Exit Event or the term of this Agreement has expired and the Agreement has not
been renewed:
The following shall apply to the Performance Options (Section 4 (b) (i)
and (ii) of this Agreement): the Executive shall be entitled to exercise a pro
rata percentage of the Performance Options under Section 4 (b) (i) and (ii) of
this Agreement (to the extent that such Options would have been earned) for the
full fiscal year in which the Termination Date occurs determined by multiplying
the Adjusted Maximum Option Shares by a fraction, the numerator of which is the
number of fiscal quarters from the Closing to the Termination Date and the
denominator of which is the number of fiscal quarters from Closing to the end of
Apollo's 2001 fiscal year.
With respect to options issued pursuant to Section 4(d), any exercise by
Executive of his put rights under section 5.04, 5.05 or 5.06 of the Stockholders
Agreement, or any exercise by Apollo of its call rights under Section 5.04, 5.05
or 5.06 of the Stockholders Agreement, shall also apply to the same percentage
of Performance Options issued under Section 4(d), except that the issuance date
of such Securities shall be deemed to be the date of exercise of such
Performance Options for purposes of calculating the Redemption Price (as defined
in the Stockholders Agreement).
All Performance Options which become exercisable shall remain vested
whether or not the Executive remains employed by the Company.
(e) Preemptive Rights. The number of Performance Options shall be
subject to the same anti-dilution protections, if any, that all Stockholders of
Apollo may have with respect to shares of common stock of Apollo, as a group, on
a pro rata basis with all Stockholders including, without limitation, pursuant
to Section 5.09 of the Stockholders Agreement. If the number of Performance
Options are adjusted pursuant to this provision, the exercise price of said
options may be adjusted if appropriate to maintain the relative rights of
Executive and the other Stockholders, as determined in good faith by the Board
of Directors of Apollo.
5
<PAGE>
5. Employment Benefits and Loans. (a) Benefits. During the Employment Term,
the Executive shall be entitled to the following employment benefits
(collectively, the "Benefits"):
(i) five weeks paid vacation in each year of the Employment Term and
sick leave in accordance with the Company's policies from time to time in
effect for executive officers of the Company;
(ii) participation, subject to qualification requirements and provided
Executive meets eligibility requirements, in medical or hospitalization
plans, life insurance policies, dental plans and long-term and short-term
disability policies which are presently in effect or hereinafter instituted
by the Company and applicable to its executive officers generally
("Company-sponsored benefits"); the Company agrees to pay in full for
Executive's coverage under such policies;
(iii) participation, subject to continued maintenance thereof by the
Company and provided Executive meets eligibility and classification
requirements, in other employee benefit plans which are from time to time
applicable to the Company's executive officers generally;
(iv) in addition to the Company's life insurance policies provided to
executive officers, the Company will pay Executive the actual cost of life
insurance premiums up to a maximum of $7,500 per annum for life insurance
obtained by the Company on the life of Executive in the amount of $500,000
payable to beneficiaries designated by Executive; and
(v) the Company shall provide Executive a car in accordance with the
Company's policies with respect to cars.
6
<PAGE>
Executive agrees to submit to an annual physical examination with a doctor of
his choice, which examination shall take place in the metropolitan Boston or New
York City area (the "Area"), at the Company's expense prior to the execution of
this Agreement with respect to life and disability insurance to be maintained
on Executive by the Company. Each year during which this Agreement is in effect
the Company agrees to pay for one physical examination in the Area with a doctor
of his choice, and the Executive agrees to have such annual physical
examination. The Executive agrees to deliver to the Company pursuant to this
Agreement, copies of any physical examination reports received from the doctor
conducting the examination. The Executive's coverage under the life and
disability insurance policies referenced throughout this Agreement shall be in
force with the insurance company selected by the Company no later than forty-
five (45) days after the Commencement Date or such later date as the Company can
obtain such policies using its best efforts.
6. Expenses. During the Employment Term, the Company will reimburse the
Executive, upon presentation of proper vouchers, for all reasonable travel,
entertainment and other out-of-pocket expenses reasonably and appropriately
incurred by the Executive in the performance of his duties hereunder.
7. Termination.
(a) Cause. The Company may, at any time, and in its sole discretion,
terminate the employment of the Executive hereunder for Cause, effective as
of the date (the "Termination Date") of written notice (the "Termination
Notice") to the Executive specifying the nature of such Cause. For purposes
of this Agreement, "Cause" shall mean if the Executive (i) fails or refuses
to act in any material respect in accordance with the reasonable directions
of the Board of Directors or Chief Executive Officer of Apollo or the
Company in a manner that would constitute an act of insubordination or is
in continuing willful material breach of this Agreement; provided, however,
that in such case the Company shall give Executive a Termination Notice
specifying the directions the Executive failed to follow or the material
breach of this Agreement, and the Executive shall have a reasonable period
of time after the date of the notice to cure such action; (ii) has been
convicted of a felony; or (iii) has committed any act of fraud,
misappropriation of funds or embezzlement in connection with his
employment. During the cure period referred to in subsection (i), the Board
of Directors of Apollo may cause the Company to suspend the employment of
the Executive hereunder if the conduct of the Executive constituting Cause
is deemed to have a potential negative affect on the Company as determined
in good faith by the Board of Directors of Apollo in its sole
determination. If the Executive has not cured such action within the
specified cure period, the employment of
7
<PAGE>
the Executive shall be terminated by the Company for Cause. If the
employment of the Executive hereunder is terminated pursuant to this
Section 7(a), the Company and Apollo shall have no further obligations to
the Executive hereunder after the Termination Date other than the payment
of Base Salary accrued and unpaid under Section 4 hereof through the
Termination Date, or except as otherwise provided by law.
(b) Termination by the Company for actions other than Cause. For
actions other than Cause, the Company may, at any time, and in its sole
discretion, terminate the employment of the Executive hereunder for any or
no reason by delivery to him of a Termination Notice. Such termination
shall be effective on the date of the Termination Notice; provided,
however, that (i) in addition to the benefits set forth in subparagraph
(ii) below, if the Executive is terminated prior to the end of the first
full year of the Employment Term, the Company shall continue to pay the
Executive, through the end of such first full year of his Employment Term,
on a monthly basis, the Executive's Base Salary (not to exceed an aggregate
amount of $19,167 per month), plus prorated Bonus, in accordance with the
provisions of Section 4(a) hereof and medical benefits as in effect during
the year of such termination; (ii) in addition to the benefits, if any, set
forth in subparagraph (i) above, if the Executive is terminated for reasons
other than Cause at any time, or the Company gives written notice to
Executive to terminate this Agreement pursuant to Section 2 or if an
employment agreement is not renewed on mutually agreeable terms (provided
that Sections 4(b) and (d) shall be included in such agreement), the
Company shall pay one-half of Executive's Base Salary, on a monthly basis,
and one-half of his Bonus, on an annual basis, for a period of four years
following the later of the one-year period referred to subparagraph (i)
above or the Termination Date; plus, the Company shall continue medical
benefits and the disability benefits set forth in Section 7(c) for the
greater of the remaining Employment Term or 18 months after the Termination
Date, and (iii) the benefits in Section 4(d) of this Agreement shall apply.
The severance payments referred to in subparagraphs (i) and (ii) above
shall be in lieu of, and shall otherwise replace, any and all payments
which the Company may owe to Executive upon termination of employment under
the Non-Competition Agreement dated August 21, 1995 between Intermetrics,
Inc. and the Executive ("Non-Competition Agreement"). The Executive shall
also be entitled to exercise the applicable "put" provision under the
Stockholders Agreement with respect to shares of Apollo Common Stock owned
by the Executive set forth in the Stockholders Agreement. If the employment
of the Executive hereunder is terminated pursuant to this Section 7(b), the
Company and Apollo shall have no further obligations hereunder except as
expressly provided herein, or as otherwise provided by law.
8
<PAGE>
(c) Disability.
(i) Temporary Disability. In the event that any time during the
Employment Term, the Executive, due to physical or mental injury, illness,
disability or incapacity, shall fail to render satisfactorily the services
to be performed by the Executive under this Agreement either for a
consecutive period of three (3) months or for a non-consecutive period of
six (6) months within any twelve month period, the Board of Directors of
the Company may, at its option, determine that such disability is long term
or place the Executive on temporary disability leave during the subsequent
pendency of such injury, illness, disability or incapacity for a period of
up to three (3) months or until subparagraph (c) (ii) becomes applicable if
Executive is disabled for more than three months, during which period the
Company shall continue to pay (to the extent not paid pursuant to
disability insurance provided by the Company) to the Executive the Base
Salary as provided in Section 4(a) and the Company-Sponsored Benefits, but
only to the extent permitted by such policies or plans.
(ii) Long-Term Disability. If such injury, illness, disability or
incapacity persists and is long--term (any such disability shall be deemed
to be long-term in nature if the Executive's physician advises the Board of
Directors of Apollo that such disability can be expected to last for a
period of at least six consecutive months or for a period of 6 months in
any 12 month period), Executive meets the definition of disability under
the Company's disability policies and the Executive cannot fulfill his
duties as determined in good faith by the Board of Directors, the Company
shall have the option at any time after the Executive is on disability
leave to terminate the employment of the Executive hereunder upon not less
than thirty (30) days' written notice to the Executive. In addition to the
Company's rights set forth in the preceding sentence, if at any time the
Company receives the written opinion of two doctors (one doctor to be
selected by each of the Company and the Executive, and if such doctors
disagree as to whether the Executive is suffering from a long-term
disability, a third doctor will be selected mutually by the Executive and
the Company, whose determination will be final) that the Executive cannot
render satisfactorily the services to be performed by him under this
Agreement because of a long-term disability, the Board of Directors of the
Company may terminate the Executive's employment hereunder within thirty
(30) days of receipt of such doctors' reports. The Company can require
Executive to have the physical examinations described in the preceding
sentence at any time for the purpose of determining whether or not
Executive has a long-term disability, and Executive agrees to submit to
such examinations upon request of the Company. If the employment of the
Executive hereunder is terminated pursuant to this Section 7(c) because of
a long-term disability, the Executive shall receive the following from the
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<PAGE>
Company (i) benefits under the Company's long-term disability policy and
medical benefits for a period commencing on the Termination Date and ending
on Executive's sixty-fifth birthday, (ii) for the first 12 months following
disability, his Base Salary plus Bonus (less amounts received under
subparagraph (i) above), and thereafter $9,000 per month (less amounts
received under subparagraph (i) above) or such greater amount as the
Company's regular disability insurance policy permits, (iii) the rights set
forth in section 4(d) of this Agreement, and (iv) at no greater
out-of-pocket cost to the Executive than incurred prior to termination, the
Company-sponsored Benefits, but only to the extent permitted by such
policies or plans. The Executive shall also be entitled to exercise the
applicable "put" provision contained in the Stockholders Agreement with
respect to shares of Apollo Common Stock owned by the Executive subject to
the limitations set forth in the Stockholders Agreement. If the employment
of the Executive hereunder is terminated pursuant to this Section 7(c), the
Company and Apollo shall have no further obligations hereunder except as
expressly provided under this Section 7(c), or as otherwise provided by
law.
(iii) Executive's Health. Executive hereby represents to Apollo and
the Company that as of the date of execution of this Agreement, and that to
the best of his knowledge, he is in good health and is not aware of any
health condition that could lead to a temporary or long-term disability.
(d) Death. If the Executive dies during the Employment Term, the
employment of the Executive hereunder shall terminate immediately upon the
death of the Executive. If the employment of the Executive hereunder is
terminated pursuant to this Section 7(d), the Company and Apollo shall have
no further obligations hereunder after the Termination Date other than the
payment to the Executive's estate, legal representatives, heirs,
successors, assigns or other beneficiaries of (i) accrued Base Salary (as
in effect during the year of such death) up to the date of the Executive's
death, (ii) the rights set forth in Section 4(d) of this Agreement, and
(iii) at no greater out-of-pocket cost to the Executive than incurred prior
to termination, the Company-sponsored Benefits, but only to the extent
permitted by such policies or plans. The Executive's estate, legal
representatives, heirs, successors, assigns or other beneficiaries shall be
entitled to the benefit of the exercise of the applicable "put" provision
under the Stockholders Agreement with respect to Apollo's Common Stock
owned by the Executive at his death subject to the limitations set forth in
the Stockholders Agreement. If the employment of the Executive hereunder is
terminated pursuant to this Section 7(d), the Company shall have no further
obligations hereunder except as expressly provided under this Section 7(d),
or as otherwise provided by law.
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(e) Change of Control. In the event that there is a change of control
of the Company, including an Exit Event (as defined in Section 4(b)(iv)
hereof) other than a Public Offering (a "Change of Control"), which Change
of Control event is being negotiated or takes place at any time during
which Executive's full time employment is continuing hereunder, and this
Agreement is expressly assumed by the party effecting such Change of
Control, the Executive shall subject to the terms hereof continue to render
his services to the Company pursuant to Section 3 above, for a period of 18
months from the date of the consummation or closing of the event
constituting the Change of Control, even if it is beyond the term of this
Agreement, after which period the Executive may elect to discontinue his
services to the Company. Notwithstanding any such discontinuance by the
Executive, the Company shall continue to pay the Executive his Base Salary,
in accordance with Section 4 hereof, and shall continue to provide the
Benefits (as defined in Section 5 hereof) to the Executive for the
remainder of the Employment Term, and the provisions of Section 7 to the
extent they survive the termination of Employment by Executive shall
continue to be applicable.
(f) Notice of Termination. Any termination of the Executive's
employment by the Company pursuant to Section 7 (a), (b), (c) or (d) shall
be communicated by a written Termination Notice to the Executive in
accordance with Section 11 hereof. For purposes of this Agreement, a
"Termination Notice" shall mean only a notice which is based upon, and
shall indicate, the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated.
(g) Voluntary Termination. If the Executive voluntarily terminates his
employment hereunder, the Company and Apollo shall have no further
obligations to the Executive hereunder after the date of voluntary
termination other than the payment of Base Salary and bonus accrued and
unpaid under Section 4 hereof through the date of voluntary termination, or
except as otherwise provided by the Stockholders Agreement or by law.
8. Disclosure of Information. The Executive shall not, during or after the
Employment Term, disclose any confidential or proprietary information of the
Company to any person, firm, corporation, association, limited liability
company, or other entity (other than the Company, its affiliates or subsidiaries
or officers thereof or other than as necessary in the performance of his duties
as Executive) for any reason or purpose whatsoever, nor shall the Executive make
use of any such confidential or proprietary information for his own purpose or
for the benefit of any person, firm, limited liability company, corporation or
other entity, except the Company. As used in this Section 8, the term
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"confidential or proprietary information" means all information which is known
to the Company or the Executive or to employees, former employees, consultants
or others in a confidential relationship with the Company, is specific to the
Company or is developed by the Company regarding the industry and relates to
matters such as trade secrets, research and development activities, computer or
multimedia related software or software concepts in development, books and
records, customer lists, vendor lists, suppliers, distribution channels, pricing
information and private processes as they may exist from time to time which the
Executive acquired or obtained by virtue of work heretofore performed for the
Company; provided, that the term "confidential or proprietary information" shall
not include (i) information that is or becomes generally available to the public
(other than as a result of an unauthorized disclosure by the Executive), (ii)
information which must be disclosed by law but only to the extent necessary to
comply with such law, and (iii) information which must be disclosed in order for
him to carry out his duties under this Agreement but only to the extent
necessary to carry out said duties.
9. Non-Competition. The parties mutually agree to the importance of the
provisions of the Non-Competition Agreement to this Employment Agreement and the
provisions of the Non-Competition Agreement are incorporated herein by
reference.
10. Conflicting Agreements. The Executive hereby represents and warrants to
the Company that (a) neither the execution of this Agreement by the Executive
nor the performance by the Executive of any of his obligations or duties
hereunder will conflict with or violate or constitute a breach of the terms of
any employment or other agreement to which the Executive is a party or by which
the Executive is bound, and (b) the Executive is not required to obtain the
consent of any person, firm, corporation, limited liability company or other
entity in order to enter into this Agreement or to perform any of his
obligations or duties hereunder.
11. Notices. Any notice, request, information or other document to be given
under this Agreement to any party by any other party shall be in writing and
delivered personally, sent by registered or certified mail, postage prepaid,
delivered by a nationally recognized overnight courier service or transmitted by
facsimile machine addressed as follows:
If to the Company or Apollo:
Apollo Holding, Inc.
c/o Joel N. Levy/Peter M. Schulte, L.L.C.
135 East 57th Street
New York, New York 10022
Attention: Peter M. Schulte
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Facsimile No.: (212) 980--2630
with a copy to:
Windels, Marx, Davies & Ives
156 West 56th Street
New York, New York 10019
Attention: James P. Conroy, Esq.
Facsimile No. (212) 262--1215
-and-
Intermetrics, Inc.
733 Concord Avenue
Cambridge, Massachusetts 02138
Attention: Chief Executive Officer
Facsimile No. (617) 661-4374
If to the Executive:
Joseph Saponaro
33 Edward Drive
Winchester, MA 01890
or at his then current address
included in the employment records
of the Company
with a copy to:
Goodwin, Procter & Hoar
Exchange Place
Boston, Massachusetts 02109-2881
Attention: Joseph L. Johnson, III
Facsimile No. 617-523-1231
or to such other address as a party hereto may hereafter designate in writing to
the other party, provided that any notice of a change of address shall become
effective only upon receipt thereof.
12. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the Company and the Executive and their respective
heirs, legal representatives, successors and permitted assigns.
13. Entire Agreement. This Agreement, the Non-Competition Agreement and the
Stockholders Agreement contain the entire understanding between the Company,
Apollo and the Executive with respect to the employment of the Executive and
supersedes all prior negotiations and understandings between the Company, Apollo
and the Executive with respect to the employment of the Executive
13
<PAGE>
by the Company. This Agreement may not be amended or modified except by a
written instrument signed by the Company, Apollo and the Executive.
14. Severability. In the event any one or more provisions of this Agreement
is held to be invalid or unenforceable, such illegality or unenforceability
shall not affect the validity or enforceability of the other provisions hereof
and such other provisions shall remain in full force and effect, unaffected by
such invalidity or unenforceability.
15. Applicable Law; Submission to Arbitration. This Agreement and the
rights, obligations and relations of the parties hereto shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the principles of conflicts of law thereof. If there is
a conflict between the laws of New York and any other state with respect to this
Agreement, the provisions of New York law shall govern, except that with respect
to corporate matters concerning Apollo or the Company, Delaware law shall
govern.
Any disputes hereunder which cannot be resolved by negotiation between the
parties hereto shall be submitted to, and determined by, arbitration in
accordance with the Arbitration Rules of the American Arbitration Association,
and the parties hereto agree to be bound by the final award of the arbitration
panel (which shall be comprised of three members, one to be selected by each of
Apollo and the Executive, and the third to be mutually selected by Apollo and
the Executive) in any such proceeding. The arbitration panel shall apply the law
of the State of New York. Arbitration may be held in the State of New York, the
Borough of Manhattan, or such other place as the parties hereto may mutually
agree. Judgment upon the award by the arbitration panel may be entered and
enforced in any court having jurisdiction thereof. The arbitration panel may
order injunctive relief against any party.
16. Headings. The headings of sections and subsections of this Agreement
are for convenience of reference only and are not to be considered in construing
this Agreement.
17. Execution in Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which, when taken together, shall constitute one and the same instrument.
18. Indemnification.
(a) Unless otherwise prohibited by law, the Company and Apollo shall
indemnify Executive, if Executive is a party or is threatened to be made party
to any threatened, pending or completed action, suit or proceeding whether
civil, criminal,
14
<PAGE>
administrative or investigative, or by or in the right of the Company or Apollo
to procure a judgment in its favor, by reason of the fact that Executive is or
was a director, officer, employee or agent of the Company or Apollo, or is or
was serving at the request of the Company or Apollo as a director, officer,
employee, manager or agent of another corporation, partnership, limited
liability company, joint venture, trust or other enterprise, against expenses
(including attorneys' reasonable fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by Executive in connection with such
action, suit or proceeding if Executive acted in good faith and in a manner
Executive reasonably believed to be in or not opposed to the best interests of
the Company and/or Apollo, as applicable. The determination of whether Executive
is entitled to indemnification hereunder shall be made by a court of competent
jurisdiction in a final non-appealable judgment. The Company and Apollo shall be
entitled to direct the defense of any claim for which either of them is
providing indemnification.
(b) Expenses incurred in defending any threatened or pending civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by Apollo and the Company in advance of the final disposition of such
action, suit or proceeding, to the extent permitted by law, upon receipt of an
undertaking by or on behalf of the Executive to repay such amount if it is
ultimately determined, in a final non-appealable judgment, that Executive is not
entitled to be indemnified against such expenses. This undertaking by Executive
shall be an unqualified general undertaking, but no security for such
undertaking will required.
(c) Executive's right hereunder will be in addition to any indemnification
provided to Executive by any law, agreement, Board resolution, provision of the
Articles of Incorporation (or Certificate of Incorporation) or By-laws of the
Company or Apollo, or otherwise. All of Executive's rights hereunder will
continue even after Executive has ceased to be a director, officer, employee or
agent of the Company and/or Apollo for any reason, will inure to the benefit of
the heirs, executors and administrators of Executive, and will survive
termination of this Agreement. Apollo and the Company shall be jointly and
severally liable to Executive with respect to any amounts which become due to be
paid to or for the benefit of Executive hereunder.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
IMT ACQUISITION CORP.
By: /s/ Michael B. Alexander
---------------------------------
Name: Michael B. Alexander
Title: Chief Executive Officer
APOLLO HOLDING, INC.
By: /s/ Michael B. Alexander
---------------------------------
Name: Michael B. Alexander
Title: Chief Executive Officer
/s/ Joesph A. Saponaro
---------------------------------
JOESPH A. SAPONARO
16
<PAGE>
SCHEDULE 1
EBITDA DEFINITION
This definition of EBITDA is intended to clearly define earnings derived
solely from the normal operations of the Company on a consolidated basis (for
the President and the Chief Executive Officer, excluding the earnings which
result from the acquisition of any business after the closing ("Closing") of the
Merger Agreement).
EBITDA, with respect to any fiscal period, shall be obtained from the
Company's consolidated annual audited income statement and shall be defined as
follows:
(i) Operating income plus interest income and less interest expense;
(ii) plus depreciation, amortization and other similar non-cash charges,
software development and design and research and development
expenses in the aggregate in excess of $100,000 not reimbursed by a
third party at the time of the expense;
(iii) plus consulting fees described in Sections 3(a)(i) and (ii) of the
Consulting Agreement between the Company and Joel N. Levy/Peter M.
Schulte, L.L.C. and the Consulting Agreement between the Company and
the Westgate Capital Co.;
(iv) plus any charges to income related to the grant, issuance or
exercise of stock options to management of, or lenders to, Apollo,
the Company or their subsidiaries;
(v) less extraordinary and nonoperating gains and plus extraordinary and
nonoperating losses, including, without limitation, any prepayment
penalties resulting from the retirement of debt before its scheduled
repayment date;
(vi) plus any expenses incurred or minus reimbursement received, both net
of reserves, in settlement of any claims or other items related to
the assets and liabilities of Apollo or the Company for events
occurring prior to the closing of the Merger Agreement;
(vii) plus the special bonuses to be paid to Michael B. Alexander by the
Company on September 15, 1996 and September 15, 1997;
(viii) plus travel, lodging and entertainment expense for Directors of
Apollo and the Company;
<PAGE>
(ix) minus gains or plus losses from the sale of assets other than
write-offs in the ordinary course of business;
(x) plus charges amortized or expensed relating to future acquisitions
of Apollo or the Company;
(xi) plus extraordinary litigation expenses and extraordinary legal and
accounting expenses;
(xii) plus amortization or expenses relating to asset write-ups in
connection with the acquisition of the Company; and
(xiii) plus in the first twelve months only, expenses for special
consultants, not in the ordinary course, but this adjustment shall
be limited to a maximum of $100,000.
In the event of a loss from a catastrophe or other casualty loss, an act of
God (including, but not limited to, fire, flood, wind damage, lightning or other
event), industrial sabotage, labor strikes, disputes or work stoppages or any
other unforeseen event (whether at the Company or at any of its vendors), which
such event or events shall cause a disruption or cessation of all or a portion
of the normal business operations of the Company for a period of forty-eight
hours or longer, then for purposes of the determination of operating earnings,
to the extent that the Company is not reimbursed by its business interruption
insurance policy, the final amount will be credited with an amount equal to the
product of the daily average operating earnings for the period of the Company's
normal business operation for the two most recent fiscal years (as adjusted by
an aggregate annual amount [including depreciation and amortization as set forth
in Intermetric's financial statements) of plus $1,915,000 for 1994 and by plus
$3,257,000 for 1995, respectively), whichever is larger, and the number of days
that the normal business operations were disrupted or ceased.
<PAGE>
Exhibit 10.14
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Agreement"), is dated as
of February 27, 1998, among Apollo Holding, Inc., a Delaware corporation
("Apollo"), Averstar, Inc., a Delaware corporation ("Averstar") and Joseph A.
Saponaro (the "Executive").
WHEREAS, Apollo, Intermetrics, Inc. (f/k/a IMT Acquisition Corp.), a
Delaware corporation and a wholly-owned subsidiary of Apollo ("Intermetrics")
and the Executive have entered into an Employment Agreement, dated August 21,
1995 (the "Saponaro Employment Agreement");
WHEREAS, Pacer Infotec, Inc., a Massachusetts corporation ("Pacer"),
and Apollo have entered into that certain Agreement and Plan of Merger, dated as
of January 22, 1998 (the "Merger Agreement"), whereby, among other things,
Averstar was formed for the purpose of combining the businesses of Pacer and
Intermetrics;
WHEREAS, the closing of the transactions contemplated by the Merger
Agreement has been completed and the businesses of Pacer and Intermetrics have
been combined;
WHEREAS, Averstar, Intermetrics and Apollo have entered an Assignment
Agreement, dated as of February 27, 1998, whereby Intermetrics assigned and
transferred to Averstar all of Intermetrics' right, title and interest in and to
the Saponaro Employment Agreement and Averstar assumed all of Intermetrics'
obligations, duties and liabilities under the Saponaro Employment Agreement;
WHEREAS, each of the Company and IES Holding, Inc. ("IES") are
simultaneously issuing stock options to the Executive in exchange for the
surrender and cancellation of the outstanding stock options of Apollo held by
the Executive; and
WHEREAS, the parties hereto desire to execute this Agreement to amend
the Saponaro Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Amendment of the Saponaro Employment Agreement. The parties
----------------------------------------------
hereto hereby covenant and agree that, effective as of the date hereof, the
Saponaro Employment Agreement is hereby amended by deleting Subsections 4(b),
4(d) and 4(e) in their entirety.
<PAGE>
2. Miscellaneous.
-------------
(a) Except as modified herein, all of the terms and conditions of the
Saponaro Employment Agreement, as heretofore in effect, shall remain in full
force and effect and, as modified hereby, the Saponaro Employment Agreement is
hereby ratified and confirmed in all respects.
(b) This Agreement and the legal relations between the parties hereto
shall be governed by, and construed in accordance with, the laws of the State of
New York, applicable to contracts made and performed therein.
(c) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
AVERSTAR, INC.
By:/s/ Michael B. Alexander
------------------------
Name: Michael B. Alexander
Title: Chairman and Chief Executive Officer
APOLLO HOLDING, INC.
By:/s/ Michael B. Alexander
------------------------
Name: Michael B. Alexander
Title: Chairman and Chief Executive Officer
/s/ Joseph A. Saponaro
----------------------
Joseph A. Saponaro
3
<PAGE>
Exhibit 10.16
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), is dated
as of February 27, 1998, among Apollo Holding Inc., a Delaware corporation
("Assignor"), Intermetrics, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Assignor ("Intermetrics") and IP Technologies, Inc., a
Delaware corporation (the "Assignee").
WHEREAS, the Assignor, Intermetrics and the individuals set forth on
Schedule 1 hereto have entered into the employment agreements set forth on such
schedule (the "Transferred Agreements");
WHEREAS, Pacer Infotec, Inc., a Massachusetts corporation ("Pacer"),
and Apollo have entered into that certain Agreement and Plan of Merger, dated as
of January 22, 1998 (the "Merger Agreement"), whereby, among other things, the
Assignee was formed for the purpose of combining the businesses of Pacer and
Intermetrics through the mergers of (i) Apollo Acquisition Corp. with and into
Apollo (the "Apollo Merger") and (ii) PI Acquisition Corp. with and into Pacer
(the "Pacer Merger"); and
WHEREAS, the parties hereto desire to execute this Agreement to
evidence (i) the assignment and transfer to the Assignee of all of the
Assignor's right, title and interest in and to the Transferred Agreements and
(ii) the assumption by the Assignee of all of the Assignor's obligations, duties
and liabilities under the Transferred Agreements.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Transfer of Rights. Effective as of the date hereof, the
------------------
Assignor by these presents does hereby assign and transfer to the Assignee, and
the Assignee hereby accepts and receives from the Assignor, all of the
Assignor's right, title and interest in and to the Transferred Agreements.
2. Assumption of Obligations. Effective as of the date hereof, the
-------------------------
Assignee by these presents does hereby assume and agree to pay, perform and
discharge when due all of Assignor's obligations, duties and liabilities under
the Transferred Agreements arising and accruing from and after the date hereof.
3. Governing Law. This Agreement and the legal relations between
-------------
the parties hereto shall be governed by, and construed in accordance with, the
laws of the State of New York, applicable to contracts made and performed
therein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
APOLLO HOLDING, INC.
By:/s/ Michael B. Alexander
------------------------
Name: Michael B. Alexander
Title: Chairman and Chief Executive Officer
INTERMETRICS, INC.
By:/s/ Michael B. Alexander
------------------------
Name: Michael B. Alexander
Title: Chairman and Chief Executive Officer
IP TECHNOLOGIES, INC.
By:/s/ Michael B. Alexander
--------------------
Name: Michael B. Alexander
Title: Chairman and Chief Executive Officer
<PAGE>
SCHEDULE 1
1. Employment Agreement, dated as of August 21, 1995, by and among
Intermetrics, Inc., Apollo Holding Inc. and Michael B. Alexander
2. Employment Agreement, dated as of August 21, 1995, by and among
Intermetrics, Inc., Apollo Holding, Inc. and Joseph A. Saponaro
<PAGE>
Exhibit 10.17
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 27th day of February, 1998
("Agreements), by and among Pacer Infotec, Inc., a Massachusetts corporation
("Pacer"), IP Holding Co., a Delaware corporation ("Company") and John C.
Rennie, an individual (the "Executive").
WITNESSETH:
WHEREAS, Pacer and Apollo Holding, Inc., a Delaware corporation ("Apollo")
have entered into the Agreement and Plan of Merger dated as of January __,1998
(the "Merger Agreement"), pursuant to which, among other things, the business of
Pacer will be combined with the business of Intermetrics, Inc., a Delaware
corporation and wholly-owned subsidiary of Apollo, and the holders of the then
outstanding shares of the common stock of Pacer will receive stock of the
Company or cash consideration.
WHEREAS, Pacer and the Company wish to retain the services of the Executive
as Vice Chairman of the Board of the Company and the Executive is willing, upon
the terms and conditions herein set forth, to serve as Vice Chairman of the
Board of the Company.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained in this Agreement, the Company, Pacer and the Executive,
intending to be legally bound hereby, agree as follows:
1. Employment. Subject to the terms and conditions hereinafter set forth,
the Company hereby employs the Executive as Vice Chairman of the Board of the
Company, and the Executive hereby accepts such employment.
2. Term.
(a) Original Term. The term of employment of the Executive by the Company
pursuant to this Agreement (the "Employment Term") shall commence with the
Closing Date (as defined in the Merger Agreement) ("Commencement Date"), and
shall terminate upon the earlier of(a) the third anniversary of the Commencement
Date or (b) the date on which the employment of the Executive hereunder is
terminated pursuant to Section 7 hereof.
(b) Option to Extend. The Employment Term may be extended for not more than
two (2) successive one-year periods by the Company upon at least 90 days written
notice prior to the end of the initial term or the successive one-year term, as
the case may be. The Executive acknowledges that the right to extend is solely
in the discretion of the Company, and there is no obligation on the Company to
exercise such right.
3. Duties and Authority. During the Employment Term, the Executive shall
render his services to the Company as Vice Chairman of the Board of the Company.
In addition to the foregoing, the Executive shall hold, without additional
compensation therefor, a seat on the Company's Board of Directors, and such
other offices, directorships or memberships on committees of the Company and/or
any direct or indirect subsidiary of the Company to which, from time to time
during the Employment Term, the Executive may be elected or appointed. During
the Employment Term, the Executive shall devote his full business time,
efforts, energy and skill solely to the business of the Company in accordance
with the reasonable directions and policies of the
<PAGE>
Board of Directors of the Company and in accordance with Executive's talent,
skill and experience in a prudent manner and will use his best efforts to
promote the interests thereof.
4. Compensation
(a) Base Salary. In consideration of the services to be rendered by the
Executive pursuant to this Agreement, including, without limitation, any
services which may be rendered by the Executive as an officer, director or
member of any committee of the Company or any direct or indirect subsidiary of
the Company, the Company shall pay or cause to be paid to the Executive during
the Employment Term, and the Executive shall accept, compensation at the rate of
Two Hundred Seventy-Five Thousand Dollars ($275,000.00) per annum (Three Hundred
Thousand Dollars ($300,000) per annum during any extension) (the "Base Salary")
or such greater amount as may be approved from time to time by the Board of
Directors of the Company, in its sole discretion. The Company's obligation to
pay Base Salary shall begin to accrue on the Commencement Date and shall be
payable in accordance with the standard payroll practices of the Company which
are in effect from time to time during the Employment Term. The Executive's Base
Salary shall be subject to all applicable withholding and other taxes.
(b) Bonuses. The Executive shall be entitled to receive such cash bonuses,
if any, as may be payable at the sole discretion of the Board of Directors of
the Company. Any and all cash bonuses payable hereunder shall be subject to all
applicable withholding and other taxes. Within ten (10) business days after the
Commencement Date, the Company or Pacer shall pay to the Executive a bonus
sufficient (after deduction of all normal payroll deductions) to repay $69,000
owed by the Executive to Pacer under an outstanding promissory note. The Company
or Pacer may pay such bonus by direct cancellation of said $69,000 debt or by
check to the Executive which he immediately endorses to the Company to repay
such debt. In addition, the Company or Pacer shall pay to the Executive on or
before April 1, 1998 a bonus of $70,000 with respect to the Executive's
performance in fiscal year 1997. Nothing herein shall be deemed to imply that
said $70,000 bonus reflects a standard, minimum or guarantee for any future
bonuses, which shall be solely in the discretion of the Board of Directors of
the Company.
5. Employment Benefits and Loans. (a) Benefits. During the Employment
Term, the Executive shall be entitled to the following employment benefits
(collectively, the "Benefits"):
(i) four (4) weeks paid vacation in each year of the Employment Term
and sick leave in accordance with the Company's policies from time to time
in effect for executive officers of the Company;
(ii) participation, subject to qualification requirements and provided
Executive meets eligibility requirements, in medical or hospitalization
plans, life insurance policies, including the Executive Life Insurance
policy, dental plans and long-term and short-term disability policies which
are presently in effect or hereinafter instituted by the Company and
applicable to its executive officers generally ("Company-Sponsored
Benefits"); the Company agrees to pay in full for Executive's coverage
under such policies;
(iii) participation, subject to continued maintenance thereof by the
Company and provided Executive meets eligibility and classification
requirements, in other employee benefit plans which are from time to time
applicable to the Company's executive officers generally; and
(iv) the Company or Pacer shall provide Executive a car in accordance
with the Company's policies with respect to cars.
-2-
<PAGE>
(v) Nothing herein shall be deemed to affect the Executive's rights
under Pacer's existing Special Executive Supplemental Income Plan.
6. Expenses. During the Employment Term, the Company will reimburse the
Executive, upon presentation of proper vouchers, for all reasonable travel,
entertainment and other out-of-pocket expenses reasonably and appropriately
incurred by the Executive in the performance of his duties hereunder.
7. Termination.
(a) Cause. The Company or Pacer may, at any time, and in its sole
discretion, terminate the employment of the Executive hereunder for Cause,
effective as of the date (the "Termination Date") of written notice (the
"Termination Notice") to the Executive specifying the nature of such Cause (or,
if the termination is pursuant to Section 7(a)(i), the Termination Date shall be
the last day of the applicable cure period if Executive has not cured the action
or actions set forth in the Termination Notice). For purposes of this Agreement,
"Cause" shall mean if the Executive (i) fails or refuses to act in any material
respect in accordance with the reasonable directions of the Board of Directors
or Chief Executive Officer of Pacer or the Company in a manner that would
constitute an act of insubordination or is in continuing, willful, material
breach of this Agreement; provided, however, that in such case the Company or
Pacer shall give Executive a Termination Notice specifying the directions the
Executive failed to follow or the material breach of this Agreement, and the
Executive shall have a reasonable period of time after the date of the notice to
cure such action; (ii) has been convicted of a felony; or (iii) has committed
any act of fraud, misappropriation of funds or embezzlement in connection with
his employment. During the cure period referred to in subsection (i), the Board
of Directors of Pacer or the Company may cause the Company and Pacer to suspend
the employment of the Executive hereunder if the Executive's continued presence
at the Company or Pacer is deemed to have a potential negative affect on the
Company or Pacer as determined in good faith by the Board of Directors of Pacer
or the Company in its sole determination. If the Executive has not cured such
action within the specified cure period, the employment of the Executive shall
be terminated by the Company for Cause. If the employment of the Executive
hereunder is terminated pursuant to this Section 7(a), the Company and Pacer
shall have no further obligations to the Executive hereunder after the
Termination Date other than the payment of accrued Base Salary, vacation and
bonuses granted but unpaid under Sections 4 and 5(a)(i) hereof through the
Termination Date, or except as otherwise provided by law.
(b) Termination by the Company for actions other than Cause. For actions
other than Cause, the Company may, at any time, and in its sole discretion,
terminate the employment of the Executive hereunder for any or no reason by
delivery to him of a Termination Notice. Such termination shall be effective on
the date of the Termination Notice; provided, however, that (i) in addition to
the benefits set forth in subparagraph (ii) below, the Company shall (x) pay to
Executive any accrued vacation and bonuses granted and unpaid under Sections 4
and 5(a)(i) hereof through the Termination Date and (y) continue to pay the
Executive the Executive's Base Salary (as in effect at the time of such
termination), in accordance with the provisions of Section 4(a) hereof, on a
monthly basis and provide the Executive with a car in accordance with the
provisions of Section 5(a)(iv) hereof, both through the end of the full three
years of the Employment Term and through any extensions thereof binding on the
Company and (ii) in addition to the benefits set forth in subparagraph (i)
above, if the Executive is terminated by the Company for reasons other than
Cause at any time, for a period of two (2) years after the expiration of the
Employment Term, the Company shall pay one-half(l/2) of the Executive's Base
Salary, on a monthly basis (or, if the Company so elects, by lump sum payment
thereof or of the remaining portion thereof); the
-3-
<PAGE>
Company shall continue medical benefits and the disability benefits set forth in
Section 7(c) for the greater of the remaining Employment Term or 18 months after
the Termination Date. The severance payments referred to in subparagraphs (i)
and (ii) above shall be in lieu of, and shall otherwise replace, any and all
payments which the Company may owe to Executive upon termination of employment
under the Non-Competition Agreement of even date herewith between the Company
and the Executive ("Non-Competition Agreement") and any other termination or
severance benefits otherwise provided by Pacer or the Company. The Executive
shall also be entitled to exercise any applicable "put" provision under the
Stockholders Agreement with respect to shares of the Company Common Stock owned
by the Executive set forth in the Stockholders Agreement of even date herewith
(the "Company Stockholders Agreement" or the "Stockholders Agreement"). If the
employment of the Executive hereunder is terminated pursuant to this Section
7(b), the Company and Pacer shall have no further obligations hereunder except
as expressly provided herein, or as otherwise provided by law.
(c) Disability.
(i) Temporary Disability. In the event that at any time during the
Employment Term, the Executive, due to physical or mental injury, illness,
disability or incapacity, shall fail to render satisfactorily the services
to be performed by the Executive under this Agreement either for a
consecutive period of three (3) months or for a non-consecutive period of
six (6) months within any twelve month period, the Board of Directors of
the Company may, at its option, determine that such disability is long term
or place the Executive on temporary disability leave during the subsequent
pendency of such injury, illness, disability or incapacity for a period of
up to three (3) months or until subparagraph (c)(ii) becomes applicable if
Executive is disabled for more than three months, during which period the
Company shall continue to pay (to the extent not paid pursuant to
disability insurance provided by the Company) to the Executive the Base
Salary as provided in Section 4(a) and the Company-Sponsored Benefits, but
only to the extent permitted by such policies or plans.
(ii) Long-Term Disability. If such injury, illness, disability or
incapacity persists and is long-term (any such disability shall be deemed
to be long-term in nature if the Executive's physician advises the Board of
Directors of the Company that such disability can be expected to last for a
period of at least six consecutive months or for a period of 6 months in
any 12 month period), Executive meets the definition of disability under
the Company's disability policies and the Executive cannot fulfill his
duties as determined in good faith by the Board of Directors, the Company
shall have the option at any time after the Executive is on disability
leave to terminate the employment of the Executive hereunder upon not less
than thirty (30) days' written notice to the Executive. In addition to the
Company's rights set forth in the preceding sentence, if at any time the
Company receives the written opinion of two doctors (one doctor to be
selected by each of the Company and the Executive, and if such doctors
disagree as to whether the Executive is suffering from a long-term
disability, a third doctor will be selected mutually by the Executive and
the Company, whose determination will be final) that the Executive cannot
render satisfactorily the services to be performed by him under this
Agreement because of a long-term disability, the Board of Directors of the
Company may terminate the Executive's employment hereunder within thirty
(30) days of receipt of such doctors' reports. The Company can require
Executive to have the physical examinations described in the preceding
sentence at any time for the purpose of determining whether or not
Executive has a long-term disability, and Executive agrees to submit to
such examinations upon request of the Company. If the employment of the
Executive hereunder is terminated pursuant to this Section 7(c) because of
a long-term disability, the Executive shall receive the following from the
Company for a period commencing on the Termination Date and ending on the
date specified by the Company's or Pacer's long-term disability policy or
on the Executive's sixty-fifth (65th) birthday, whichever is later, or if
earlier, death: (i) benefits under the
-4-
<PAGE>
Company's long term disability policy and medical benefits, (ii) for the
first 12 months following disability, his Base Salary, less amounts
received under subparagraph (i) above, and thereafter $10,000 per month
(less amounts received under subparagraph (i) above), (iii) at no greater
out-of-pocket cost to the Executive than incurred prior to termination, the
Company-Sponsored Benefits, but only to the extent permitted by such
policies or plans, (iv) continued use of a car as provided in Section
5(a)(iv) and (v) payment of any accrued vacation and bonuses granted and
unpaid, under Sections 4 and 5(a)(i) hereof, through the Termination Date.
The Executive shall also be entitled to exercise any applicable "put"
provision contained in the Stockholders Agreement with respect to shares of
the Company Common Stock owned by the Executive, subject to the limitations
set forth in the Stockholders Agreement. If the employment of the Executive
hereunder is terminated pursuant to this Section 7(c), the Company shall
have no further obligations hereunder except as expressly provided under
this Section 7(c), or as otherwise provided by law.
(iii) Executive's Health. Executive hereby represents to the Company
that as of the date of execution of this Agreement, and that to the best of
his knowledge, he is in good health and is not aware of any health
condition that could lead to a temporary or long-term disability, and the
Executive specifically discloses, and the Company specifically acknowledges
receiving disclosure of, the matters set forth on Schedule 7(c)(iii)
hereof.
(d) Death. If the Executive dies during the Employment Term, the employment
of the Executive hereunder shall terminate immediately upon the death of the
Executive. If the employment of the Executive hereunder is terminated pursuant
to this Section 7(d), the Company and Pacer shall have no further obligations
hereunder after the Termination Date other than the payment to the Executive's
estate, legal representatives, heirs, successors, assigns or other beneficiaries
of accrued Base Salary and vacation and bonuses granted but unpaid (as in effect
during the year of such death) up to the date of the Executive's death. The
Executive's estate, legal representatives, heirs, successors, assigns or other
beneficiaries shall be entitled to the benefit of the exercise of any applicable
"put" provision under the Stockholders Agreement with respect to the Company's
Common Stock owned by the Executive at his death subject to the limitations set
forth in the Stockholders Agreement. If the employment of the Executive
hereunder is terminated pursuant to this Section 7(d), the Company shall have no
further obligations hereunder except as expressly provided under this Section
7(d), or as otherwise provided by law.
(e) Good Reason. Executive shall be entitled to terminate his employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean any of
the following undertaken without Executive's express written consent and not
corrected by the Company within ten (10) business days after receipt of written
notice from the Executive:
(i) the assignment to the Executive of any material duties which are
(A) inconsistent with his status as a senior executive officer of the
Company or (B) a substantial adverse alteration in the nature or status of
his responsibilities from those in effect immediately prior to the
assignment;
(ii) a reduction by the Company in his annual base salary as in effect
at the time, or the failure to grant him salary increases and bonuses
consistent with the Company's general practices for senior executives,
except for (A) non-performance of his duties as duly documented and
substantiated or (B) general reduction in salary to senior executives.
(iii) the knowing failure of the Company and Pacer to pay to Executive
any portion of his current compensation or to pay any portion of an
installment of deferred
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<PAGE>
compensation under any deferred compensation program the Company or Pacer,
within seven (7) days of the day any such compensation is due;
(iv) the relocation of Executive's principal office to a location
outside a 35 mile radius from its location on the Commencement Date, or the
Company's requiring him to be based anywhere outside such 35 mile radius
except for required travel on the Company's or Pacer's business to an
extent substantially consistent with his present business travel patterns;
(v) (A) the failure by the Company, other than because of a change in
enabling legislation prohibiting the Executive from participating in such a
plan, to continue him as a participant in all compensation, benefit and
insurance plans maintained from time to time by the Company for its senior
executives; (B) except as may be consistent with the treatment of other
senior executives of the Company, the taking of any action by the Company
which would directly or indirectly materially reduce any of such benefits
or deprive him of any material fringe benefit enjoyed by him at the time;
or (C) the failure by the Company to provide him with the number of paid
vacation days to which he is entitled at the time; or
(vi) the failure of the Company to perform, in any material manner,
its obligations to the Executive under this Agreement.
The Executive, upon proper termination of his employment hereunder for Good
Reason, shall be entitled to the termination benefits described in Section 7(b).
(f) Notice of Termination. Any termination of the Executive's employment by
the Company pursuant to Section 7(a), (b), (c) or (d) or by the Executive
pursuant to Section 7(e), shall be communicated by a written Termination Notice
to the other in accordance with Section 11 hereof. For purposes of this
Agreement, a "Termination Notice" shall mean only a notice which is based upon,
and shall indicate, the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(g) Voluntary Termination. If the Executive voluntarily terminates his
employment hereunder, the Company and Pacer shall have no further obligations to
the Executive hereunder after the date of voluntary termination or retirement
other than the payment of accrued Base Salary and vacation, and bonus granted
and unpaid, under Sections 4 and 5(a)(i) hereof through the date of voluntary
termination or retirement, or except as otherwise provided by the Stockholders
Agreement or by law.
8. Disclosure of Information. The Executive shall not, during or after the
Employment Term, disclose any confidential or proprietary information of the
Company, or its affiliates, to any person, firm, corporation, association,
limited liability company, or other entity (other than the Company, its
affiliates or subsidiaries or officers thereof or other than as necessary in the
performance of his duties as Executive) for any reason or purpose whatsoever,
nor shall the Executive make use of any such confidential or proprietary
information for his own purpose or for the benefit of any person, firm, limited
liability company, corporation or other entity, except the Company. As used in
this Section 8, the term "confidential or proprietary information" means all
information which is known to the Company, or its affiliates, or the Executive
or to employees, former employees, consultants or others in a confidential
relationship with the Company, or its affiliates, is specific to the Company, or
its affiliates, or is developed by the Company, or its affiliates, regarding the
industry and relates to matters such as trade secrets, research and development
activities, computer or multimedia-related software or software concepts in
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<PAGE>
development, books and records, customer lists, vendor lists, suppliers,
distribution channels, pricing information and private processes as they may
exist from time to time which the Executive acquired or obtained by virtue of
work heretofore performed for the Company or Pacer, or their affiliates;
provided, that the term "confidential or proprietary information" shall not
include (i) information that is or becomes generally available to the public
(other than as a result of an unauthorized disclosure by the Executive), (ii)
information which must be disclosed by law but only to the extent necessary to
comply with such law, and (iii) information which must be disclosed in order for
him to carry out his duties under this Agreement but only to the extent
necessary to carry out said duties, and (iv) information which is disclosed to
the Executive by a person (but not an employee of the Company) not under a duty
of confidentiality to the Company.
9. Non-Competition. The parties mutually agree to the importance of the
provisions of the Non-Competition Agreement to this Employment Agreement and the
provisions of the Non-Competition Agreement are incorporated herein by
reference.
10. Conflicting Agreements. The Executive hereby represents and warrants to
the Company and Pacer that (a) neither the execution of this Agreement by the
Executive nor the performance by the Executive of any of his obligations or
duties hereunder will conflict with or violate or constitute a breach of the
terms of any employment or other agreement to which the Executive is a party or
by which the Executive is bound, and (b) the Executive is not required to obtain
the consent of any person, firm, corporation, limited liability company or other
entity in order to enter into this Agreement or to perform any of his
obligations or duties hereunder.
11. Notices. Any notice, request, information or other document to be given
under this Agreement to any party by any other party shall be in writing and
delivered personally, sent by registered or certified mail, postage prepaid,
delivered by a nationally recognized overnight courier service or transmitted by
facsimile machine addressed as follows:
If to the Company or Pacer:
IP Holding Co.
c/o Intermetrics, Inc.
23 Fourth Avenue
Burlington, MA 01803-3303
Facsimile No.: 781-221-6991
with a copy to:
Posternak, Blankstein & Lund, L.L.P.
100 Charles River Plaza
Boston, MA 02114
Attn: Richard K. Blankstein, P.C.
Facsimile No.: 617-367-2315
If to the Executive:
John C. Rennie
c/o IP Holdings Co.
23 Fourth Avenue
Burlington, MA 01803
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<PAGE>
or at his then current address included in
the employment records of the Company
with a copy to:
_________________________
_________________________
_________________________
_________________________
or to such other address as a party hereto may hereafter designate in writing to
the other party, provided that any notice of a change of address shall become
effective only upon receipt thereof.
12. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the Company, the Company and the Executive and their
respective heirs, legal representatives, successors and permitted assigns. If
the business or assets of the Company are sold, either (a) the buyer will assume
the Company's obligations under this Agreement or (b) the Company will pay to
the Executive in a lump sum at the closing date of the sale the then remaining
amounts of accrued Base Salary and vacation and bonuses granted but unpaid under
Sections 4 and 5(a)(i) hereof through the closing date of the sale plus the
total of all Base Salary remaining to be paid to Executive during the Employment
Term, including any extensions thereof binding on the Company.
13. Entire Agreement. This Agreement, the Non-competition Agreement and the
Stockholders Agreement contain the entire understanding between the Company and
the Executive with respect to the employment of the Executive and supersedes all
prior negotiations and understandings between the Company and the Executive with
respect to the employment of the Executive by the Company. This Agreement may
not be amended or modified except by a written instrument signed by the Company
and the Executive.
14. Severability. In the event any one or more provisions of this Agreement
is held to be invalid or unenforceable, such illegality or unenforceability
shall not affect the validity or enforceability of the other provisions hereof
and such other provisions shall remain in full force and effect, unaffected by
such invalidity or unenforceability.
15. Applicable Law; Submission to Arbitration.
(a) This Agreement and the rights, obligations and relations of the parties
hereto shall be governed by and construed and enforced in accordance with the
laws of the Commonwealth of Massachusetts without giving effect to the
principles of conflicts of law thereof. If there is a conflict between the laws
of Massachusetts and any other state with respect to this Agreement, the
provisions of Massachusetts law shall govern, except that with respect to
corporate matters concerning the Company, Delaware law shall govern.
(b) Executive hereby acknowledges that in the event of any breach or
threatened breach by Executive of any of the provisions of this Agreement, the
Company would have no adequate remedy at law and could, suffer substantial and
irreparable damage. Accordingly, Executive hereby agrees that, in such event,
the Company shall be entitled, without the necessity of proving damages or
posting-bond and, in addition, notwithstanding any election by the Company to
claim damages, to obtain a temporary and/or permanent injunction to restrain any
such breach or threatened breach
-8-
<PAGE>
or to obtain specific performance of any such provisions, all without prejudice
to any and all other remedies which the Company may have at law or in equity.
(c) Except as set forth in (b) above, any disputes hereunder which cannot
be resolved by negotiation between the parties hereto shall be submitted to, and
determined by, arbitration in accordance with the Arbitration Rules of the
American Arbitration Association, and the parties hereto agree to be bound by
the final award of the arbitration panel (which shall be comprised of three
members, one to be selected by each of the Company and the Executive, and the
third to be mutually selected the Company and the Executive) in any such
proceeding. The arbitration panel shall apply the law of the Commonwealth of
Massachusetts. Arbitration may be held in Boston, Massachusetts, or such other
place as the parties hereto may mutually agree. Judgment upon the award by the
arbitration panel may be entered and enforced in any court having jurisdiction
thereof. The arbitration panel may order injunctive relief against any party.
16. Headings. The headings of sections and subsections of this Agreement
are for convenience of reference only and are not to be considered in construing
this Agreement.
17. Execution in Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which, when taken together, shall constitute one and the same instrument.
18. Indemnification.
(a) Unless otherwise prohibited by law, the Company shall indemnify
Executive, if Executive is a party or is threatened to be made party to any
threatened, pending or completed-action' suit or proceeding whether civil,
criminal, administrative or investigative, or by or in the right of the Company
to procure a judgment in its favor, by reason of the fact that Executive is or
was a director, officer, employee or agent of the Company or Pacer, or is or was
serving at the request of the Company as/a director, officer, employee, manager
or agent of another corporation, partnership, limited liability company,joint
venture, trust: or other enterprise, against expenses (including attorneys'
reasonable fees),judgments, fines and amounts paid in settlement actually and
reasonably incurred by Executive in connection with such action, suit or
proceeding if Executive acted in good faith and in a manner Executive reasonably
believed to be in or not opposed to the best interests of the Company and/or the
Company, as applicable. The determination of whether Executive is entitled to
indemnification hereunder shall be made by a court of competentjurisdiction in a
final non-appealable judgment. The Company shall be entitled to direct the
defense of any claim for which either of them is providing indemnification.
(b) Expenses incurred in defending any threatened or pending civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding, to the extent permitted by law, upon receipt of an undertaking by or
on behalf of the Executive to repay such amount if it is ultimately determined,
in a final non-appealable judgment, that Executive is not entitled to be
indemnified against such expenses. This undertaking by Executive shall be an
unqualified general undertaking, but no security for such undertaking will
required.
(c) Executive's right hereunder will be in addition to any indemnification
provided to Executive by any law, agreement, Board resolution, provision of the
Articles of Incorporation (or Certificate of Incorporation) or By-laws of the
Company or Pacer, or otherwise. All of Executive's rights hereunder will
continue even after Executive has ceased to be a director, officer, employee or
agent of the Company and/or Pacer for any reason, will inure to the benefit of
the heirs, executors
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<PAGE>
and administrators of Executive, and will survive termination of this Agreement.
The Company and Pacer shall be jointly and severally liable to Executive with
respect to any amounts which become due to be paid to or for the benefit of
Executive hereunder.
19. Legal Fees. In the event of any disputes between the Company, on the
one hand, and the Executive, on the other hand, arising under this Agreement and
resolved by arbitration pursuant to Section 15 hereof, the prevailing party
shall be entitled to receive from the other party its reasonable attorneys' fees
and expenses incurred in connection with such dispute.
20. No Duty to Mitigate Damages. The Executive's benefits under Section
7(b) shall be considered severance pay in consideration of his past service and
his continued service from the date of this Agreement, and his entitlement
thereto shall neither be governed by any duty to mitigate his damages by seeking
further employment nor offset by any compensation which he may receive from
future employment.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PACER INFOTEC, INC.
By: /s/ Sigmund H. Goldblum
---------------------------------
Name: Sigmund H. Goldblum
Title: President
IP HOLDING CO.
By /s/ Michael B. Alexander
---------------------------------
Name: Michael B. Alexander
Title: Chief Executive Officer
/s/ John C. Rennie
---------------------------------
JOHN C. RENNIE
<PAGE>
Exhibit 10.18
<PAGE>
EXHIBIT 10.18
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered into
as of this 27th day of February, 1998, by and between IP Holding Co., a Delaware
corporation (together with its subsidiaries and divisions, (the "Company") and
John C. Rennie ("Employee").
WITNESSETH:
WHEREAS, in the course of Employee's employment with the Company or its
affiliates Employee has gained and will continue to gain an intimate knowledge
of the business and affairs of the Company and its affiliates, their policies,
methods of operation, personnel, customers, representatives and suppliers;
WHEREAS, Pacer Infotec, Inc. ("Pacer") and Apollo Holding, Inc. ("Apollo")
have entered into an Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which, among other things, the business of Pacer will be combined
with the business of Intermetrics, Inc., a wholly-owned subsidiary of Apollo,
and certain holders of Pacer common stock will receive Company stock;
WHEREAS, it is a condition of the Company's obligations to consummate the
transactions contemplated by the Merger Agreement that Employee enter into this
Agreement;
WHEREAS, the Employee believes it is in the best interest of Pacer and its
stockholders to induce the Company to consummate the transactions contemplated
by the Merger Agreement;
NOW, THEREFORE in consideration of the premises and mutual covenants
contained herein, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties agree as follows:
1. Non-Competition
1.1 The Employee agrees that so long as he shall be employed by the Company
or any of its subsidiaries or affiliates and for a period of two (2) years
thereafter (the "Term"), without the prior written consent of the Company, the
Employee shall not directly or indirectly compete with the Company or any of its
subsidiaries or affiliates, either as principal, manager, agent, consultant,
officer, director, partner, greater than one-half of one percent (.5%) investor
or holder of any class or series of equity securities, lender, employee or in
any other capacity with respect to:
(a) any Products, contracts, projects in effect, or recompetitions of
contracts or projects in effect at the time of Employee's termination for
which Employee had a direct or indirect management responsibility or had
knowledge thereof; or
<PAGE>
(b) any proposals made or expected to be made within six (6) months after
termination, in each case for which the Employee had a direct or indirect
management responsibility or had detailed knowledge thereof.
For purposes of this Section 1.1, a person shall be deemed to have indirect
management responsibility with respect to a contract or project if such project
or contract was the primary responsibility of the division of the Company or a
subsidiary or affiliate by which he was employed. A President or Chief Executive
Officer shall be deemed to have indirect responsibility with respect to all
projects and contracts.
1.2 Subject to Section 1.5, as additional consideration for the Employee's
agreements contained herein, in the event that the Employee is terminated for
any reason, the Company shall pay the Employee Twenty-Five Thousand Dollars
($25,000) within thirty (30) days after the date of termination.
1.3 Subject to Section 1.5, as additional consideration for the Employee's
agreements contained herein, upon the termination of the Employee's employment
by the Company without Cause (as hereinafter defined) or by the Employee for
Good Reason (as hereinafter defined), and in any such case the Employee remains
unemployed, the Company shall make payments to the Employee, beginning on the
first day of the seventh month following termination, equal to the Employee's
monthly salary, on the date of termination of Employee's employment for each
month, or pro rata for periods less than a month for the remainder of the Term.
Subject to Section 1.5, in the event Employee retires (as hereinafter defined),
and remains unemployed, the Company shall make payments to the Employee,
beginning on the first day of the seventh month following termination equal to
one-half( 1/2) of the Employee's monthly salary on the date of termination of
Employee's employment for each month, or pro rata for periods of less than a
month for the remainder of the Term.
For purposes of this Agreement:
(a) the Company shall be deemed to have terminated Employee's employment
for "Cause" if Employee: (i) fails or refuses to act in any material
respect in accordance with the reasonable directions of the Board of
Directors or Chief Executive Officer of the Company in a manner that would
constitute an act of insubordination or is in continuing, willful, material
breach of this Agreement; provided, however, that in such case the Company
--------
shall give Executive a Termination Notice specifying the directions the
Executive failed to follow or the material breach of this Agreement, and
the Executive shall have a reasonable period of time after the date of the
notice to cure such action; (ii) has been convicted of a felony; or (iii)
has committed any act of fraud, misappropriation of funds or embezzlement
in connection with his employment. During the cure period referred to in
subsection (i), the Board of Directors of the Company may cause the Company
to suspend the employment of the Executive hereunder if the Executive's
continued presence at the Company is deemed to have a potential negative
effect on the Company as determined in good faith by the Board of Directors
of the Company in its sole determination. If the Executive has not cured
such action within the specified cure period, the employment of
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<PAGE>
the Executive shall be terminated by the Company for Cause;
(b) an Employee shall be deemed to "retire" when an Employee voluntarily
terminates employment with the Company and its subsidiaries and affiliates
after reaching age 65; and
(c) "Good Reason" shall mean any of the following undertaken without
Employee's express written consent and not corrected by the Company within
ten (10) business days after receipt of written notice from the Employee:
(i) the assignment to the Executive of any material duties which are
(A) inconsistent with his status as a senior executive officer of the
Company or (B) a substantial adverse alteration in the nature or status of
his responsibilities from those in effect immediately prior to the
assignment;
(ii) a reduction by the Company in his annual base salary as in effect
at the time, or the failure to grant him salary increases and bonuses
consistent with the Company's general practices for senior executives,
except for (A) non-performance of his duties as duly documented and
substantiated or (B) general reduction in salary to senior executives.
(iii) the knowing failure of the Company and Pacer to pay to Executive
any portion of his current compensation or to pay any portion of an
installment of deferred compensation under any deferred compensation
program the Company or Pacer, within seven (7) days of the day any such
compensation is due;
(iv) the relocation of Executive's principal office, after the Closing
Date pursuant to the Merger Agreement, to a location outside a 35 mile
radius from its location on such Closing Date, or the Company's requiring
him to be based anywhere outside such 35 mile radius except for required
travel on the Company's or Pacer's business to an extent substantially
consistent with his present business travel patterns;
(v) (A) the failure by the Company, other than because of a change in
enabling legislation prohibiting the Employee from participating in such a
plan, to continue him as a participant in all compensation, benefit and
insurance plans maintained from time to time by the Company for its senior
executives; (B) except as may be consistent with the treatment of other
senior executives of the Company, the taking of any action by the Company
which would directly or indirectly materially reduce any of such benefits
or deprive him of any material fringe benefit enjoyed by him at the time;
or (C) the failure by the Company to provide him with the number of paid
vacation days to which he is entitled at the time; or
(vi) the failure of the Company to perform, in any material manner,
its obligations to the Executive under his Employment Agreement with the
Company and Pacer of even date herewith.
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<PAGE>
1.4. The term "Products" means products sold under standard purchase orders
or license agreements by the Company or a subsidiary or affiliate.
1.5 The Company shall have the right, in its sole and absolute discretion,
to waive the non-competition provisions contained in this Section 1 and, if the
Company exercises such right, it shall have no responsibility to make the
payments described in Sections 1.2 and 1.3 hereof
2. Non-Solicitation. Employee agrees that during the Term, without the
prior written consent of the Company, the Employee shall not: (i) solicit,
employ or otherwise engage, or assist in the solicitation, employment or
engagement as an employee, independent consultant or otherwise, any person who
is an Employee of the Company or any subsidiary or affiliate of the Company or
was an employee of the Company or any subsidiary or affiliate of the Company
during the 18 months prior to Employee's termination, or in any manner induce or
attempt to induce any employee of the Company or any subsidiary or affiliate of
the Company to terminate his or her employment with the Company or its
subsidiary or affiliate; or (ii) tortiously interfere with the relationship of
the Company or any affiliate of the Company with any person, including any
person, who at any time during Employee's employment with the Company or any
subsidiary or affiliate of the Company was an employee, a customer, a vendor, a
supplier or a consultant, of, or to, the Company or any subsidiary or affiliate
of the Company.
3. Remedy For Breach. Employee hereby acknowledges that in the event of any
breach or threatened breach by Employee of any of the provisions of this
Agreement, the Company would have no adequate remedy at law and could, suffer
substantial and irreparable damage. Accordingly, Employee hereby agrees that, in
such event, the Company shall be entitled, without the necessity of proving
damages or posting bond and, in addition, notwithstanding any election by the
Company to claim damages, to obtain a temporary or permanent injunction to
restrain any such breach or threatened breach or to obtain specific performance
of any such provisions, all without prejudice to any and all other remedies
which the Company may have at law or in equity.
4. Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
construed in such a way as to make such term or provision valid and enforceable
to the maximum extent possible, without affecting the remaining terms and
provisions of this Agreement or the validity or enforceability of any of the
terms and provisions of this Agreement in any other jurisdiction.
5. General Provisions. This Agreement contains the entire agreement between
the parties hereto with respect to matters contemplated herein and supersedes
all prior agreements or understandings among the parties related to such
matters. This Agreement shall be binding upon and inure to the benefit of the
Company and its successors and assigns and upon Employee. No provision of this
Agreement may be amended or waived unless executed in writing by the Company and
Employee. This Agreement shall be construed and governed in accordance with the
internal laws of the state of Delaware, without regard to its conflicts of law
rules.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first set forth above.
IP HOLDING CO.
By: /s/ MICHAEL B. ALEXANDER
------------------------------------
Name:
Title:
/s/ JOHN C. RENNIE
----------------------------------------
JOHN C. RENNIE
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<PAGE>
Exhibit 10.19
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 27th day of February, 1998
("Agreements), by and among Pacer Infotec, Inc., a Massachusetts corporation
("Pacer"), IP Holding Co., a Delaware corporation (the "Company") and Sigmund H.
Goldblum, an individual (the "Executive").
WITNESSETH:
WHEREAS, Pacer and Apollo Holding, Inc., a Delaware corporation ("Apollo")
have entered into the Agreement and Plan of Merger dated as of January ___, l998
(the "Merger Agreements), pursuant to which, among other things, the business of
Pacer will be combined with the business of Intermetrics, Inc., a Delaware
corporation and wholly owned subsidiary of Apollo and the holders of the then
outstanding shares of the common stock of Pacer will receive stock of the
Company or cash consideration.
WHEREAS, Pacer and the Company wish to retain the services of the Executive
as President of Pacer and a Vice President of the Company, and the Executive is
willing, upon the terms and conditions herein set forth, to serve as President
of Pacer and as a Vice President of the Company.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained in this Agreement, the Company, Pacer and the Executive,
intending to be legally bound hereby, agree as follows:
1. Employment. Subject to the terms and conditions hereinafter set forth,
Pacer and the Company hereby each employ the Executive as President of Pacer and
Vice President of the Company, and tne Executive hereby accepts such employment.
2. Term.
(a) Original Term. The term of employment of the Executive by Pacer and the
Company pursuant to this Agreement (the "Employment Term") shall commence with
the Closing Date (as defined in the Merger Agreement) ("Commencement Date"), and
shall terminate upon the earlier of (a) the third anniversary of the
Commencement Date or (b) the date on which the employment of the Executive
hereunder is terminated pursuant to Section 7 hereof.
(b) Option to Extend. The Employment Term may be extended for not more than
two (2) successive one-year periods by the Company upon at least 90 days written
notice prior to the end of the initial term or the successive one-year term, as
the case may be. The Executive acknowledges that the right to extend is solely
in the discretion of Pacer and the Company, and there is no obligation on Pacer
or the Company to exercise such right.
3. Duties and Authority. During the Employment Term, the Executive shall
render his services to Pacer as President of Pacer, and to the Company as a Vice
President of the Company. In addition to the foregoing, the Executive shall
hold, without additional compensation therefor, a seat on Pacer's and the
Company's Board of Directors, and such other offices, directorships or
memberships on committees of the Company and/or any direct or indirect
subsidiary of the Company to which, from time to time during the Employment
Term, the Executive may be elected or appointed. During the Employment Term, the
Executive shall devote his full business time, efforts, energy and skill solely
to the business of Pacer and the Company in accordance with the
<PAGE>
reasonable directions and policies of the Boards of Directors of Pacer and the
Company in accordance with Executive's talent, skill and experience in a prudent
manner and will use his best efforts to promote the interests thereof.
4. Compensation.
(a) Base Salary. In consideration of the services to be rendered by the
Executive pursuant to this Agreement, including, without limitation, any
services which may be rendered by the Executive as an officer, director or
member of any committee of the Company or any direct or indirect subsidiary of
the Company, Pacer and/or the Company shall pay or cause to be paid to the
Executive during the Employment Term, and the Executive shall accept,
compensation at the rate of Two Hundred Twenty-Five Thousand Dollars
($225,000.00) per annum (Two Hundred Fifty Thousand Dollars ($250,000) per annum
during any extension) (the "Base Salary") or such greater amount as may be
approved from time to time by the Boards of Directors of Pacer and the Company,
in their sole discretion. The Company's and Pacer's obligation to pay Base
Salary shall begin to accrue on the Commencement Date and shall be payable in
accordance with the standard payroll practices of the Company which are in
effect from time to time during the Employment Term. The Executive's Base Salary
shall be subject to all applicable withholding and other taxes.
(b) Bonuses. The Executive shall be entitled to receive such cash bonuses,
if any, as may be payable at the sole discretion of the Board of Directors of
the Company and/or Pacer. Any and all cash bonuses payable hereunder shall be
subject to all applicable withholding and other taxes. Within ten (10) business
days after the Commencement Date, the Company shall pay to the Executive a bonus
sufficient (after deduction of all normal payroll deductions) to repay $9,500
owed by the Executive to Pacer under an outstanding promissory note. The Company
may pay such bonus by direct cancellation of said $9,500 debt or by check to the
Executive which he immediately endorses to the Company to repay such debt. In
addition, the Company shall pay to the Executive on or before April 1, 1998 a
bonus of $50,000 with respect to the Executive's performance in fiscal year
1997. Nothing herein shall be deemed to imply that said $50,000 bonus reflects a
standard, minimum or guarantee for any future bonuses, which shall be solely in
the discretion of the Boards of Directors of Pacer and the Company.
5. Employment Benefits. (a) Benefits. During the Employment Term, the
Executive shall be entitled to the following employment benefits (collectively,
the "Benefits"):
(i) four (4) weeks paid vacation in each year of the Employment Term
and sick leave in accordance with the Company's policies from time to time
in effect for executive officers of the Company;
(ii) participation, subject to qualification requirements and provided
Executive meets eligibility requirements, in medical or hospitalization
plans, life insurance policies including the Executive Life Insurance
policy, dental plans and long-term and short-term disability policies which
are presently in effect or hereinafter instituted by the Company and
applicable to its executive officers generally ("Company-sponsored
benefits");
(iii) participation, subject to continued maintenance thereof by the
Company and provided Executive meets eligibility and classification
requirements, in other employee benefit plans which are from time to time
applicable to the Company's executive officers generally; and
(iv) the Company shall provide Executive a car in accordance with the
Company's policies with respect to cars.
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(v) Nothing herein shall be deemed to affect the Executive's rights under
Pacer's existing Special Executive Supplemental Income Plan.
6. Expenses. During the Employment Term, the Company and Pacer will
reimburse the Executive, upon presentation of proper vouchers, for all
reasonable travel, entertainment and other out-of pocket expenses reasonably and
appropriately incurred by the Executive in the performance of his duties
hereunder.
7. Termination.
(a) Cause. The Company or Pacer may, at any time, and in its sole
discretion, terminate the employment of the Executive hereunder for Cause,
effective as of the date (the "Termination Date") of written notice (the
"Termination Notice") to the Executive specifying the nature of such Cause (or,
if the termination is pursuant to Section 7(a)(i), the Termination Date shall be
the last day of the applicable cure period if Executive has not cured the action
or actions set forth in the Termination Notice). For purposes of this Agreement,
"Cause" shall mean if the Executive (i) fails or refuses to act in any material
respect in accordance with the reasonable directions of the Board of Directors
or Chief Executive Officer of Pacer or the Company in a manner that would
constitute an act of insubordination or is in continuing, willful, material
breach of this Agreement; provided, however, that in such case the Company or
Pacer shall give Executive a Termination Notice specifying the directions the
Executive failed to follow or the material breach of this Agreement, and the
Executive shall have a reasonable period of time after the date of the notice to
cure such action; (ii) has been convicted of a felony; or (iii) has committed
any act of fraud, misappropriation of funds or embezzlement in connection with
his employment. During the cure period referred to in subsection (i), the Board
of Directors of Pacer or the Company may cause the Company and Pacer to suspend
the employment of the Executive hereunder if the Executive's continued presence
at the Company or Pacer is deemed to have a potential negative affect on the
Company or Pacer as determined in good faith by the Board of Directors of Pacer
or the Company in its sole determination. If the Executive has not cured such
action within the specified cure period, the employment of the Executive shall
be terminated by the Company for Cause. If the employment of the Executive
hereunder is terminated pursuant to this Section 7(a), the Company and Pacer
shall have no further obligations to the Executive hereunder after the
Termination Date other than the payment of accrued Base Salary, vacation and
bonuses granted but unpaid under Sections 4 and 5(a)(i) hereof through the
Termination Date, or except as otherwise provided by law.
(b) Termination by the Company for actions other than Cause. For actions
other than Cause, the Company may, at any time, and in its sole discretion,
terminate the employment of the Executive hereunder for any or no reason by
delivery to him of a Termination Notice. Such termination shall be effective on
the date of the Termination Notice; provided, however, that (i) in addition to
the benefits set forth in subparagraph (ii) below, the Company shall (x) pay to
Executive any accrued vacation and bonuses granted and unpaid under Sections 4
and 5(a)(i) hereof through the Termination Date and (y) continue to pay the
Executive the Executive's Base Salary (as in effect at the time of such
termination), in accordance with the provisions of Section 4(a) hereof, on a
monthly basis and provide the Executive with a car in accordance with the
provisions of Section 5(a)(iv) hereof, both through the end of the full three
years of the Employment Term and through any extensions thereof binding on the
Company and (ii) in addition to the benefits set forth in subparagraph (i)
above, if the Executive is terminated by the Company for reasons other than
Cause at any time, for a period of two (2) years after the expiration of the
Employment Term, the Company shall pay one-half (1/2) of the Executive's Base
Salary, on a monthly basis (or, if the Company so elects, by lump sum payment
thereof or of the remaining portion thereof); the Company shall continue medical
benefits and the disability benefits set forth in Section 7(c) for the greater
of the remaining Employment Term or 18 months after the Termination Date. The
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severance payments referred to in subparagraphs (i) and (ii) above shall be in
lieu of, and shall otherwise replace, any and all payments which the Company may
owe to Executive upon termination of employment under the Non-Competition
Agreement of even date herewith between the Company and the Executive
("Non-Competition Agreement") and any other termination or severance benefits
otherwise provided by Pacer or the Company. The Executive shall also be entitled
to exercise any applicable "put" provision under the Stockholders Agreement
with respect to shares of the Company Common Stock owned by the Executive set
forth in the Stockholders Agreement of even date herewith (the "Company
Stockholders Agreement" or the "Stockholders Agreement"). If the employment of
the Executive hereunder is terminated pursuant to this Section 7(b), the Company
and Pacer shall have no further obligations hereunder except as expressly
provided herein, or as otherwise provided by law.
(c) Disability.
(i) Temporary Disability. In the event that at any time during the
Employment Term, the Executive, due to physical or mental injury, illness,
disability or incapacity, shall fail to render satisfactorily the services
to be performed by the Executive under this Agreement either for a
consecutive period of three (3) months or for a non-consecutive period of
six (6) months within any twelve month period, the Boards of Directors of
the Company and Pacer may, at their option, determine that such disability
is long term or place the Executive on temporary disability leave during
the subsequent pendency of such injury, illness, disability or incapacity
for a period of up to three (3) months or until subparagraph (c)(ii)
becomes applicable if Executive is disabled for more than three months,
during which period the Company and/or Pacer shall continue to pay (to the
extent not paid pursuant to disability insurance provided by the Company or
Pacer) to the Executive the Base Salary as provided in Section 4(a) and the
Company-Sponsored Benefits, but only to the extent permitted by such
policies or plans.
(ii) Long-Term Disability. If such injury, illness, disability or
incapacity persists and is long-term (any such disability shall be deemed
to be long-term in nature if the Executive's physician advises the Board of
Directors of the Company that such disability can be expected to last for a
period of at least six consecutive months or for a period of 6 months in
any 12 month period), Executive meets the definition of disability under
the Company's disability policies and the Executive cannot fulfill his
duties as determined in good faith by the Boards of Directors, the Company
and Pacer shall have the option at any time after the Executive is on
disability leave to terminate the employment of the Executive hereunder
upon not less than thirty (30) days' written notice to the Executive. In
addition to the Company's and Pacer's rights set forth in the preceding
sentence, if at any time the Company or Pacer receives the written opinion
of two doctors (one doctor to be selected by each of the Company and Pacer,
and by the Executive, and if such doctors disagree as to whether the
Executive is suffering from a long-term disability, a third doctor will be
selected mutually by the Executive and the Company and Pacer, whose
determination will be final) that the Executive cannot render
satisfactorily the services to be performed by him under this Agreement
because of a long-term disability, the Boards of Directors of the Company
and Pacer may terminate the Executive's employment hereunder within thirty
(30) days of receipt of such doctors' reports. The Company or Pacer can
require Executive to have the physical examinations described in the
preceding sentence at any time for the purpose of determining whether or
not Executive has a long-term disability, and Executive agrees to submit to
such examinations upon request of the Company. If the employment of the
Executive hereunder is terminated pursuant to this Section 7(c) because of
a long-term disability, the Executive shall receive the following from the
Company and/or Pacer for a period commencing on the Termination Date and
ending on the date specified by the Company's long-term disability policy
or on the Executive's sixty-fifth (65th) birthday, whichever is later, or
death if earlier: (i) benefits under the Company's long term disability
policy and medical benefits, (ii) for the first 12 months following
disability, his Base
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Salary, less amounts received under subparagraph (i) above, and thereafter
$10,000 per month (less amounts received under subparagraph (i) above),
(iii) at no greater out-of pocket cost to the Executive than incurred prior
to termination, the Company-Sponsored Benefits, but only to the extent
permitted by such policies or plans, and (iv) continued use of a car as
provided in Section 5(a)(iv). The Executive shall also be entitled to
exercise any applicable "put" provision contained in the Stockholders
Agreement with respect to shares of Company Common Stock owned by the
Executive, subject to the limitations set forth in the Stockholders
Agreement. If the employment of the Executive hereunder is terminated
pursuant to this Section 7(c), the Company and Pacer shall have no further
obligations hereunder except as expressly provided under this Section 7(c),
or as otherwise provided by law.
(iii) Executive's Health. Executive hereby represents to Pacer and the
Company that as of the date of execution of this Agreement, and that to the
best of his knowledge, he is in good health and is not aware of any health
condition that could lead to a temporary or long-term disability.
(d) Death. If the Executive dies during the Employment Term, the employment
of the Executive hereunder shall terminate immediately upon the death of the
Executive. If the employment of the Executive hereunder is terminated pursuant
to this Section 7(d), the Company and Pacer shall have no further obligations
hereunder after the Termination Date other than the payment to the Executive's
estate, legal representatives, heirs, successors, assigns or other beneficiaries
of accrued Base Salary and vacation and bonuses granted but unpaid (as in effect
during the year of such death) up to the date of the Executive's death. The
Executive's estate, legal representatives, heirs, successors, assigns or other
beneficiaries shall be entitled to the benefit of the exercise of any applicable
"put" provision under the Stockholders Agreement with respect to the Company's
Common Stock owned by the Executive at his death subject to the limitations set
forth in the Stockholders Agreement. If the employment of the Executive
hereunder is terminated pursuant to this Section 7(d), the Company and Pacer
shall have no further obligations hereunder except as expressly provided under
this Section 7(d), or as otherwise provided by law.
(e) Good Reason. Executive shall be entitled to terminate his employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean any of
the following undertaken without Executive's express written consent and not
corrected by the Company and Newco within ten (10) business days after receipt
of written notice from the Executive:
(i) the assignment to the Executive of any material duties which are
(A) inconsistent with his status as a senior executive officer of the
Company and Pacer or (B) a substantial adverse alteration in the nature or
status of his responsibilities from those in effect immediately prior to
the assignment;
(ii) a reduction by the Company in his annual base salary as in effect
at the time, or the failure to grant him salary increases and bonuses
consistent with the Company's general practices for senior executives,
except for (A) non-performance of his duties as duly documented and
substantiated or (B) general reduction in salary to senior executives.
(iii) the knowing failure of the Company to pay to Executive any
portion of his current compensation or to pay any portion of an installment
of deferred compensation under any deferred compensation program of the
Company or Pacer, within seven (7) days of the day any such compensation is
due;
(iv) the relocation of Executive's principal office to a location
outside a 35 mile radius from its location on the Commencement Date, or the
Company's or Pacer's requiring him to
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be based anywhere outside such 35 mile radius except for required travel on
the Company's or Pacer's business to an extent substantially consistent
with his present business travel patterns;
(v) (A) the failure by the Company and Pacer, other than because of a
change in enabling legislation prohibiting the Executive from participating
in such a plan, to continue him as a participant in all compensation,
benefit and insurance plans maintained from time to time by the Company or
Pacer for its senior executives; (B) except as may be consistent with the
treatment of other senior executives of the Company, the taking of any
action by the Company or Pacer which would directly or indirectly
materially reduce any of such benefits or deprive him of any material
fringe benefit enjoyed by him at the time; or (C) the failure by the
Company and Pacer to provide him with the number of paid vacation days to
which he is entitled at the time; or
(vi) the failure of the Company or Pacer to perform, in any material
manner, its obligations to the Executive under this Agreement.
The Executive, upon proper termination of his employment hereunder for Good
Reason, shall be entitled to the termination benefits described in Section 7(b).
(f) Notice of Termination. Any termination of the Executive's employment by
the Company and Pacer pursuant to Section 7(a), (b), (c) or (d) or by the
Executive pursuant to Section 7(e), shall be communicated by a written
Termination Notice to the other in accordance with Section 11 hereof For
purposes of this Agreement, a "Termination Notice" shall mean only a notice
which is based upon, and shall indicate, the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(g) Voluntary Termination. If the Executive voluntarily terminates his
employment hereunder, or upon retirement by the Executive, the Company and Newco
shall have no further obligations to the Executive hereunder after the date of
voluntary termination or retirement other than the payment of accrued Base
Salary and vacation, and bonus granted and unpaid, under Sections 4 and 5(a)(i)
hereof through the date of voluntary termination or retirement, or except as
otherwise provided by the Stockholders Agreement or by law.
8. Disclosure of Information. The Executive shall not, during or after the
Employment Term, disclose any confidential or proprietary information of the
Company or Pacer, or their affiliates, to any person, firm, corporation,
association, limited liability company, or other entity (other than the Company,
its affiliates or subsidiaries or officers thereof or other than as necessary in
the performance of his duties as Executive) for any reason or purpose
whatsoever, nor shall the Executive make use of any such confidential or
proprietary information for his own purpose or for the benefit of any person,
firm, limited liability company, corporation or other entity, except the Company
and Pacer. As used in this Section 8, the term "confidential or proprietary
information" means all information which is known to the Company or Pacer, or
their affiliates, or the Executive or to employees, former employees,
consultants or others in a confidential relationship with the Company or Newco,
or their affiliates, is specific to the Company or Pacer, or their affiliates,
or is developed by the Company or Pacer, or their affiliates, regarding the
industry and relates to matters such as trade secrets, research and development
activities, computer or multimedia-related software or software concepts in
development, books and records, customer lists, vendor lists, suppliers,
distribution channels, pricing information and private processes as they may
exist from time to time which the Executive acquired or obtained by virtue of
work heretofore performed for the Company or Pacer, or their affiliates;
provided, that the term "confidential or proprietary information" shall not
include (i) information that is or becomes generally available to the public
(other than as a result of an unauthorized disclosure by the Executive), (ii)
information which must be disclosed by law
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but only to the extent necessary to comply with such law, and (iii) information
which must be disclosed in order for him to carry out his duties under this
Agreement but only to the extent necessary to carry out said duties, and (iv)
information which is disclosed to the Executive by a person (but not an employee
of the Company) not under a duty of confidentiality to the Company.
9. Non-Competition. The parties mutually agree to the importance of the
provisions of the Non-Competition Agreement to this Employment Agreement and the
provisions of the Non-Competition Agreement are incorporated herein by
reference.
10. Conflicting Agreements. The Executive hereby represents and warrants to
the Company and Pacer that (a) neither the execution of this Agreement by the
Executive nor the performance by the Executive of any of his obligations or
duties hereunder will conflict with or violate or constitute a breach of the
terms of any employment or other agreement to which the Executive is a party or
by which the Executive is bound, and (b) the Executive is not required to obtain
the consent of any person, firm, corporation, limited liability company or other
entity in order to enter into this Agreement or to perform any of his
obligations or duties hereunder.
11. Notices. Any notice, request, information or other document to be given
under this Agreement to any party by any other party shall be in writing and
delivered personally, sent by registered or certified mail, postage prepaid,
delivered by a nationally recognized overnight courier service or transmitted by
facsimile machine addressed as follows:
If to the Company or Pacer:
IP Holding, Inc.
c/o Intermetrics, Inc.
23 Fourth Avenue
Burlington, MA 01803-3303
Facsimile No.: 781-221-6991
with a copy to:
Posternak, Blankstein & Lund
100 Charles River Plaza
Boston,MA 02114
Ann: Richard K. Blankstein, P.C.
Facsimile No.: 617-367-2315
If to the Executive:
Sigmund H. Goldblum
c/o IP Holding, Inc.
23 Fourth Avenue
Burlington, MA 01803
or at his then current address included in
the employment records of the Company
or Newco
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with a copy to:
________________________________
________________________________
________________________________
________________________________
or to such other address as a party hereto may hereafter designate in writing to
the other party, provided that any notice of a change of address shall become
effective only upon receipt thereof.
12. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the Company, the Company and the Executive and their
respective heirs, legal representatives, successors and permitted assigns. If
the business or assets of the Company are sold, either (a) the buyer will assume
the Company's obligations under this Agreement or (b) the Company will pay to
the Executive in a lump sum at the closing date of the sale the then remaining
amounts of accrued Base Salary and vacation and bonuses granted but unpaid under
Sections 4 and 5(a)(i) hereof through the closing date of the sale plus the
total of all Base Salary remaining to be paid to Executive during the Employment
Term, including any extensions thereof binding on the Company.
13. Entire Agreement. This Agreement, the Non-competition Agreement and the
Stockholders Agreement contain the entire understanding between the Company,
Newco and the Executive with respect to the employment of the Executive and
supersedes all prior negotiations and understandings between the Company, Pacer
and the Executive with respect to the employment of the Executive by the Company
and/or Pacer. This Agreement may not be amended or modified except by a written
instrument signed by the Company, Pacer and the Executive.
14. Severability. In the event any one or more provisions of this Agreement
is held to be invalid or unenforceable, such illegality or unenforceability
shall not affect the validity or enforceability of the other provisions hereof
and such other provisions shall remain in full force and effect, unaffected by
such invalidity or unenforceability.
15. Applicable Law; Submission to Arbitration.
(a) This Agreement and the rights, obligations and relations of the parties
hereto shall be governed by and construed and enforced in accordance with the
laws of the Commonwealth of Massachusetts without giving effect to the
principles of conflicts of law thereof. If there is a conflict between the laws
of Massachusetts and any other state with respect to this Agreement, the
provisions of Massachusetts law shall govern, except that with respect to
corporate matters concerning the Company, Delaware law shall govern.
(b) Executive hereby acknowledges that in the event of any breach or
threatened breach by Executive of any of the provisions of this Agreement, the
Company would have no adequate remedy at law and could, suffer substantial and
irreparable damage. Accordingly, Executive hereby agrees that, in such event,
the Company shall be entitled, without the necessity of proving damages or
posting bond and, in addition, notwithstanding any election by the Company to
claim damages, to obtain a temporary and/or permanent injunction to restrain any
such breach or threatened breach or to obtain specific performance of any such
provisions, all without prejudice to any and all other remedies which the
Company may have at law or in equity.
(c) Except as set forth in (b) above, any disputes hereunder which cannot
be resolved by negotiation between the parties hereto shall be submitted to, and
determined by, arbitration in
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accordance with the Arbitration Rules of the American Arbitration Association,
and the parties hereto agree to be bound by the final award of the arbitration
panel (which shall be comprised of three members, one to be selected by each of
the Company and the Executive, and the third to be mutually selected the Company
and the Executive) in any such proceeding. The arbitration panel shall apply the
law of the Commonwealth of Massachusetts. Arbitration may be held in Boston,
Massachusetts, or such other place as the parties hereto may mutually agree.
Judgment upon the award by the arbitration panel may be entered and enforced in
any court having jurisdiction thereof. The arbitration panel may order
injunctive relief against any party.
16. Headings. The headings of sections and subsections of this Agreement
are for convenience of reference only and are not to be considered in construing
this Agreement.
17. Execution in Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which, when taken together, shall constitute one and the same instrument.
18. Indemnification.
(a) Unless otherwise prohibited by law, the Company and Pacer shall
indemnify Executive, if Executive is a party or is threatened to be made party
to any threatened, pending or completed action, suit or proceeding whether
civil, criminal, administrative or investigative, or by or in the right of the
Company or Pacer to procure a judgment in its favor, by reason of the fact that
Executive is or was a director, officer, employee or agent of the Company or
Pacer, or is or was serving at the request of the Company or Pacer as/a
director, officer, employee, manager or agent of another corporation,
partnership, limited liability company, joint venture, trust: or other
enterprise, against expenses (including attorneys' reasonable fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
Executive in connection with such action, suit or proceeding if Executive acted
in good faith and in a manner Executive reasonably believed to be in or not
opposed to the best interests of the Company and/or Pacer, as applicable. The
determination of whether Executive is entitled to indemnification hereunder
shall be made by a court of competent jurisdiction in a final
non-appealable judgment. The Company and Pacer shall be entitled to direct the
defense of any claim for which either of them is providing indemnification.
(b) Expenses incurred in defending any threatened or pending civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by Pacer and the Company in advance of the final disposition of such
action, suit or proceeding, to the extent permitted by law, upon receipt of an
undertaking by or on behalf of the Executive to repay such amount if it is
ultimately determined, in a final non-appealable judgment, that Executive is not
entitled to be indemnified against such expenses. This undertaking by Executive
shall be an unqualified general undertaking, but no security for such
undertaking will required.
(c) Executive's right hereunder will be in addition to any indemnification
provided to any law, agreement, Board resolution, provision of the Articles of
Incorporation (or Certificate of Incorporation) or By-laws of the Company or
Pacer, or otherwise. All of Executive's rights hereunder will continue even
after Executive has ceased to be a director, officer, employee or agent of the
Company and/or Pacer for any reason, will inure to the benefit of the heirs,
executors and administrators of Executive, and will survive termination of this
Agreement. Pacer and the Company shall be jointly and severally liable to
Executive with respect to any amounts which become due to be paid to or for the
benefit of Executive hereunder.
19. Legal Fees. In the event of any disputes between Pacer or the Company,
on the one hand, and the Executive, on the other hand, arising under this
Agreement and resolved by
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arbitration pursuant to Section 15 hereof, the prevailing party shall be
entitled to receive from the other party its reasonable attorneys' fees and
expenses incurred in connection with such dispute.
20. No Duty to Mitigate Damages. The Executive's benefits under Section
7(b) shall be considered severance pay in consideration of his past service and
his continued service from the date of this Agreement, and his entitlement
thereto shall neither be governed by any duty to mitigate his damages by seeking
further employment nor offset by any compensation which he may receive from
future employment.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PACER INFOTEC, INC.
By: /s/ John C. Rennie
-------------------------------
Name: John C. Rennie
Title: Chief Executive Officer
IP HOLDING CO.
By: /s/ Michael B. Alexander
-------------------------------
Name: Michael B. Alexander
Title: Chief Executive Officer
/s/ Sigmund H. Goldblum
-------------------------------
SIGMUND H. GOLDBLUM
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Exhibit 10.20
<PAGE>
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered into
as of this 27th day of February, 1998 by and between IP Holding Co., a Delaware
corporation (together with its subsidiaries and divisions, (the "Company") and
Sigmund Goldblum ("Employee").
WITNESSETH:
WHEREAS, in the course of Employee's employment with the Company or its
affiliates Employee has gained and will continue to gain an intimate knowledge
of the business and affairs of the Company and its affiliates, their policies,
methods of operation, personnel, customers, representatives and suppliers;
WHEREAS, Pacer Infotec, Inc. ("Pacer") and Apollo Holding, Inc. ("Apollo")
have entered into an Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which, among other things, the business of Pacer will be combined
with the business of Intermetrics, Inc., a wholly-owned subsidiary of Apollo,
and certain holders of Pacer common stock will receive Company stock;
WHEREAS, it is a condition of the Company's obligations to consummate the
transactions contemplated by the Merger Agreement that Employee enter into this
Agreement;
WHEREAS, the Employee believes it is in the best interest of Pacer and its
stockholders to induce the Company to consummate the transactions contemplated
by the Merger Agreement;
NOW, THEREFORE in consideration of the premises and mutual covenants
contained herein, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties agree as follows:
1. Non-Competition
---------------
1.1 The Employee agrees that so long as he shall be employed by the Company
or any of its subsidiaries or affiliates and for a period of two (2) years
thereafter (the "Term"), without the prior written consent of the Company, the
Employee shall not directly or indirectly compete with the Company or any of its
subsidiaries or affiliates, either as principal, manager, agent, consultant,
officer, director, partner, greater than one-half of one percent (.5%) investor
or holder of any class or series of equity securities, lender, employee or in
any other capacity with respect to:
(a) any Products, contracts, projects in effect, or recompetitions of
contracts or projects in effect at the time of Employee's termination for
which Employee had a direct or indirect management responsibility or had
knowledge thereof; or
<PAGE>
(b) any proposals made or expected to be made within six (6) months after
termination, in each case for which the Employee had a direct or indirect
management responsibility or had detailed knowledge thereof.
For purposes of this Section 1.1, a person shall be deemed to have indirect
management responsibility with respect to a contract or project if such project
or contract was the primary responsibility of the division of the Company or a
subsidiary or affiliate by which he was employed. A President or Chief Executive
Officer shall be deemed to have indirect responsibility with respect to all
projects and contracts.
1.2 Subject to Section 1.5, as additional consideration for the Employee's
agreements contained herein, in the event that the Employee is terminated for
any reason, the Company shall pay the Employee Twenty-Five Thousand Dollars
($25,000) within thirty (30) days after the date of termination.
1.3 Subject to Section 1.5, as additional consideration for the Employee's
agreements contained herein, upon the termination of the Employee's employment
by the Company without Cause (as hereinafter defined) or by the Employee for
Good Reason (as hereinafter defined), and in any such case the Employee remains
unemployed, the Company shall make payments to the Employee, beginning on the
first day of the seventh month following termination, equal to the Employee's
monthly salary, on the date of termination of Employee's employment for each
month, or pro rata for periods less than a month for the remainder of the Term.
Subject to Section 1.5, in the event Employee retires (as hereinafter defined),
and remains unemployed, the Company shall make payments to the Employee,
beginning on the first day of the seventh month following, termination equal to
one-half (1/2) of the Employee's monthly salary on the date of termination of
Employee's employment for each month, or pro rata for periods of less than a
month for the remainder of the Term.
For purposes of this Agreement:
(a) the Company shall be deemed to have terminated Employee's employment
for "Cause" if Employee: (i) fails or refuses to act in any material
respect in accordance with the reasonable directions of the Board of
Directors or Chief Executive Officer of the Company in a manner that would
constitute an act of insubordination or is in continuing, willful, material
breach of this Agreement; provided however, that in such case the Company
--------
shall give Executive a Termination Notice specifying the directions the
Executive failed to follow or the material breach of this Agreement, and
the Executive shall have a reasonable period of time after the date of the
notice to cure such action; (ii) has been convicted of a felony; or (iii)
has committed any act of fraud, misappropriation of funds or embezzlement
in connection with his employment. During the cure period referred to in
subsection (i), the Board of Directors of the Company may cause the Company
to suspend the employment of the Executive hereunder if the Executive's
continued presence at the Company is deemed to have a potential negative
effect on the Company as determined in good faith by the Board of Directors
of the Company in its sole determination. If the
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Executive has not cured such action within the specified cure period, the
employment of the Executive shall be terminated by the Company for Cause;
(b) an Employee shall be deemed to "retire" when an Employee voluntarily
terminates employment with the Company and its subsidiaries and affiliates
after reaching age 65; and
(c) "Good Reason" shall mean any of the foilowing undertaken without
Employee's express written consent and not corrected by the Company within
ten (10) business days after receipt of written notice from the Employee:
(i) the assignment to the Executive of any material duties which are
(A) inconsistent with his status as a senior executive officer of the
Company or (B) a substantial adverse alteration in the nature or
status of his responsibilities from those in effect immediately prior
to the assignment;
(ii) a reduction by the Company in his annual base salary as in effect
at the time, or the failure to grant him salary increases and bonuses
consistent with the Company's general practices for senior executives,
except for (A) non-performance of his duties as duly documented and
substantiated or (B) general reduction in salary to senior executives.
(iii) the knowing failure of the Company and Pacer to pay to Executive
any portion of his current compensation or to pay any portion of an
installment of deferred compensation under any deferred compensation
program the Company or Pacer, within seven (7) days of the day any
such compensation is due;
(iv) the relocation of Executive's principal office, after the Closing
Date pursuant to the Merger Agreement, to a location outside a 35 mile
radius from its location on such Closing Date, or the Company's
requiring him to be based anywhere outside such 35 mile radius except
for required travel on the Company's or Pacer's business to an extent
substantially consistent with his present business travel patterns;
(v) (A) the failure by the Company, other than because of a change in
enabling legislation prohibiting the Employee from participating in
such a plan, to continue him as a participant in all compensation,
benefit and insurance plans maintained from time to time by the
Company for its senior executives; (B) except as may be consistent
with the treatment of other senior executives of the Company, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive him of any material
fringe benefit enjoyed by him at the time; or (C) the failure by the
Company to provide him with the number of paid vacation days to which
he is entitled at the time; or
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(vi) the failure of the Company to perform, in any material manner,
its obligations to the Executive under his Employment Agreement with
the Company and Pacer of even date herewith.
1.4. The term "Products" means products sold under standard purchase orders
or license agreements by the Company or a subsidiary or affiliate.
1.5 The Company shall have the right, in its sole and absolute discretion,
to waive the non-competition provisions contained in this Section 1 and, if the
Company exercises such right, it shall have no responsibility to make the
payments described in Sections 1.2 and 1.3 hereof.
2. Non-Solicitation. Employee agrees that during the Term, without the
prior written consent of the Company, the Employee shall not: (i) solicit,
employ or otherwise engage, or assist in the solicitation, employment or
engagement as an employee, independent consultant or otherwise, any person who
is an Employee of the Company or any subsidiary or affiliate of the Company or
was an employee of the Company or any subsidiary or affiliate of the Company
during the 18 months prior to Employee's termination, or in any manner induce or
attempt to induce any employee of the Company or any subsidiary or affiliate of
the Company to terminate his or her employment with the Company or its
subsidiary or affiliate; or (ii) tortiously interfere with the relationship of
the Company or any affiliate of the Company with any person, including any
person, who at any time during Employee's employment with the Company or any
subsidiary or affiliate of the Company was an employee, a customer, a vendor, a
supplier or a consultant, of, or to, the Company or any subsidiary or affiliate
of the Company.
3. Remedy For Breach. Employee hereby acknowledges that in the event of any
breach or threatened breach by Employee of any of the provisions of this
Agreement, the Company would have no adequate remedy at law and could, suffer
substantial and irreparable damage. Accordingly, Employee hereby agrees that, in
such event, the Company shall be entitled, without the necessity of proving
damages or posting bond and, in addition, notwithstanding any election by the
Company to claim damages, to obtain a temporary or permanent injunction to
restrain any such breach or threatened breach or to obtain specific performance
of any such provisions, all without prejudice to any and all other remedies
which the Company may have at law or in equity.
4. Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
construed in such a way as to make such term or provision valid and enforceable
to the maximum extent possible, without affecting the remaining terms and
provisions of this Agreement or the validity or enforceability of any of the
terms and provisions of this Agreement in any otherjurisdiction.
5. General Provisions. This Agreement contains the entire agreement between
the parties hereto with respect to matters contemplated herein and supersedes
all prior agreements or understandings among the parties related to such
matters. This Agreement shall be binding upon and inure to the benefit of the
Company and its successors and assigns and upon Employee. No provision of this
Agreement may be amended or waived unless executed in writing by the
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Company and Employee. This Agreement shall be construed and governed in
accordance with the internal laws of the state of Delaware, without regard to
its conflicts of law rules.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first set forth above.
IP HOLDING CO.
By: /s/ Michael B. Alexander
------------------------------
Name:
Title:
/s/ Sigmund Goldblum
---------------------------------
SIGMUND GOLDBLUM
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Exhibit 10.21
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 22 day of April, 1999 ("Agreement"),
between AverStar, Inc., a Delaware corporation (the "Company") and Barbara
Landes, an individual (the "Executive").
WITNESSETH:
WHEREAS, the Company wishes to retain the services of the Executive as an
Executive Vice President and Chief Financial Officer of the Company and the
Executive is willing, upon the terms and conditions herein set forth, to serve
as such.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained in this Agreement, the Company and the Executive, intending
to be legally bound hereby, agree as follows:
1. Employment, Subject to the terms and conditions hereinafter set forth,
the Company hereby employs the Executive as an Executive Vice President and
Chief Financial Officer of the Company, and the Executive hereby accepts such
employment.
2. Term.
(a) Original Term. The term of employment of the Executive by the Company
pursuant to this Agreement (the "Employment Term") shall commence May 10, 1999
("Commencement Date"), and shall tenninate upon the earlier of (a) the third
anniversary of the Commencement Date or (b) the date on which the employment of
the Executive hereunder is terminated pursuant to Section 7 or Section 13
hereof.
(b) Option to Extend. The Employment Term may be extended for not more than
one (1) three-year period by the Company upon at least 180 days written notice
prior to the end of the initial term. The Executive acknowledges that the right
to extend is solely in the discretion of the Company, and there is no obligation
on the Company to exercise such right.
3. Duties and Authority. During the Employment Term, the Executive shall
render her services to the Company as an Executive Vice President and Chief
Financial Officer of the Company. In addition to the foregoing, the Executive
shall (with her consent, not to be unreasonably withheld) hold, without
additional compensation therefor, such other offices, directorships or
memberships on committees of the Company and/or any direct or indirect
subsidiary of the Company to which, from time to time during the Employment
Term, the Executive may be elected or appointed. During the Employment Term, the
Executive shall devote her full business time, efforts, energy and skill solely
to the business of the Company in accordance with the reasonable directions and
policies of the Board of Directors of the Company and the Chief Executive
Officer of the Company and in accordance with Executive's talent, skill and
experience in a prudent manner and will use her best efforts in the interests of
the Company. The foregoing requirement to devote full business time, efforts,
energy and skill to the business of the Company
<PAGE>
shall not be deemed to bar the Executive from occasionally assisting her husband
in the operation of his business, provided (i) such business is not competitive
with that of the Company or its subsidiaries and (ii) such assistance does not
impinge on the Executive's performance of her full-time responsibilities as
Executive Vice President and Chief Financial Officer of the Company, except as
the Company's Chief Executive Officer may otherwise consent in writing. The
Executive shall also be entitled to accept a fee from Thayer Capital in
connection with the introduction of Watson Wyatt and Company (the Executive's
prior employer) to Thayer Capital.
4. Compensation.
(a) Base Salary. In consideration of the services to be rendered by the
Executive pursuant to this Agreement, including, without limitation, any
services which may be rendered by the Executive as an officer, director or
member of any committee of the Company or any direct or indirect subsidiary of
the Company, the Company shall pay or cause to be paid to the Executive during
the Employment Term, and the Executive shall accept, compensation at the rate
of, Two Hundred Fifty Thousand Dollars ($250,000.00) per annum (Three Hundred
Thousand Dollars ($300,000) per annum during any extension) or such greater
amount as may be approved from time to time by the Board of Directors of the
Company, in its sole discretion (the "Base Salary"). The Company's obligation to
pay Base Salary shall begin to accrue on the Commencement Date and shall be
payable in accordance with the standard payroll practices of the Company which
are in effect from time to time during the Employment Term. The Executive's Base
Salary shall be subject to all applicable withholding and other taxes.
(b) Bonuses. The Executive shall be entitled to receive such cash bonuses,
if any, as may be payable at the sole discretion of the Board of Directors of
the Company, and the Executive shall participate in such bonus plans, if any, as
the Company has in effect from time to time for its senior managers as a group
Any and all cash bonuses payable hereunder shall be subject to all applicable
withholding and other taxes.
5. Employment Benefits (a) Benefits. During the Employment Term, the
Executive shall be entitled to the following employment benefits (collectively
the "Benefits"):
(i) four (4) weeks paid vacation in each year of the Employment Term
and sick leave and personal days in accordance with the Company's policies
from time to time in effect for executive officers of the Company;
(ii) participation, subject to qualification requirements and provided
Executive meets eligibility requirements, in medical or hospitalization
plans, life insurance policies, including any executive life insurance
policy, dental plans and long-term and short-term disability policies which
are in effect from time to time and applicable to the Company's executive
officers generally ("Company-Sponsored Benefits");
(iii) participation, subject to continued maintenance thereof by the
Company and provided Executive meets eigibility and classification
requiremnents, in other employee benefit plans which are from time to time
applicable to the Company's executive officers generally;
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(iv) the Company shall grant stock options to the Executive pursuant
to the Company's existing Long-Term Incentive Plan, which options shall
vest 20% per year over five (5) years and have a term often (10) years.
Subject to adjustment to reflect changes in the Company's capitalization,
the options shall be for seventy-five thousand (75,000) shares, in the
aggregate,with options to be granted on fifty thousand (50,000) shares on
the Commencement Date, twelve thousand five hundred (12,500) shares twelve
(12) months after the Commencement Date and an additional twelve thousand
five hundred (12,500) shares twenty-four (24) months after the Commencement
Date. The exercise price for the shares under the first such grant shall be
equal to the fair market value of the optional shares as determined (after
giving effect to the CBSI acquisition) by the independent valuation of the
Company's stock being prepared as of December 31, 1998 (or such greater
price as is necessary so as not to require an expense adjustment to the
Company's income statement in order for the Securities and Exchange
Commission to accept the Company's Registration Statement on Form S-1 (or
any successor thereto) and cause the same to become effective). The
exercise price for subsequent grants shall be fair market value of the
shares at the date of grant. In the event of the termination of the
Executive's employment hereunder, options theretofore granted to the
Executive which (if such employment had not terminated) would vest during
the period (if any) for which the Company is obligated under this Agreement
to continue to pay the Executive's Base Salary (notwithstanding such
termination of employment) shall vest as of the termination of the
Executive's employment, but the Company shall not be obligated to grant any
additional options after the effective date of the termination of the
Executive's employment hereunder. If and to the extent required by law or
the terms of the "Stockholders Agreement" (hereinafter defined) with
respect to shares of Company common stock, all shares and options granted
or issued to the Executive pursuant hereto shall be governed by the
Company's Stockholders Agreement as in effect from time to time, and the
Executive shall execute such document(s) as may be reasonably required from
time to time by the Company to evidence the same; and
(v) moving expenses in accordance with the Company's standard
Relocation Agreement, which does not include a gross-up for taxes; provided
that if the Executive's employment hereunder is terminated by the Company
without Cause, or is terminated by the Executive for Good Reason after a
Change of Control, the Executive shall not be required to reimburse the
Company for such moving expenses notwithstanding Company policies to the
contrary.
6. Expenses. During the Employment Term, the Company will reimburse the
Executive, upon presentation of proper vouchers, for all reasonable travel,
entertainment and other out-of-pocket expenses reasonably and appropriately
incurred by the Executive in the performance of her duties hereunder, including
travel costs to the Company's headquarters in Burlington, Massachusetts (or
elsewhere if relocated) while the Executive is based in Vienna, Virginia (or
elsewhere, other than at the Company's principal headquarters). All such
reimbursement shall be subject to and consistent with the requirements of
federal rules and regulations applicable thereto and to the Company's business
with the federal government.
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The Company shall make a payment of Twenty Thousand Dollars ($20,000.00)
for the Executive's legal expenses in connection with this Employment Agreement,
to the Executive's attorneys, Pollack & Kaminsky on the Commencement Date,
provided that the Company has received said attorneys' bill for such services.
7. Termination.
(a) Cause. The Company may, at any time, and in its sole discretion,
terminate the employment of the Executive hereunder for Cause, effective as of
the date (the "Termination Date") of written notice (the "Termination Notice")
to the Executive specifying the nature of such Cause (or, if the termination is
pursuant to Section 7(a)(i), the Termination Date shall be the last day of the
applicable cure period if Executive has not cured the action or actions set
forth in the Termination Notice). For purposes of this Agreement, "Cause" shall
mean if the Executive (i) fails or refuses to act in any material respect in
accordance with the reasonable and lawful directions of the Board of Directors
or Chief Executive Officer of the Company in a manner that would constitute an
act of insubordination, provided, however, (A) that in such case the Company
shall give Executive a Termination Notice specifying the directions the
Executive failed to follow or the material breach of this Agreement, (B) the
Executive shall have a reasonable period of time after the date of the notice to
cure such action, and (C) the Executive shall not be deemed to be in violation
of this subpart (i) if she has come to the reasonable, professional opinion that
the directions she has received and refused to follow are erroneous or
inappropriate; (ii) is in continuing, willful, material breach of this
Agreement; (iii) has been convicted of a felony; or (iv) has committed any act
of fraud, misappropriation of funds or embezzlement in connection with her
employment by the Company or any prior employment. During the cure period
referred to in subsection (i), the Board of Directors of the Company may cause
the Company to suspend the employment of the Executive hereunder if the
Executive's continued presence at the Company is deemed to have a potential
negative affect on the Company as determined in good faith by the Board of
Directors of the Company in its sole determination. If the Executive has not
cured such action within the specified cure period, the employment of the
Executive shall be terminated by the Company for Cause. If the employment of the
Executive hereunder is terminated pursuant to this Section 7(a), the Company
shall have no further obligations to the Executive hereunder after the
Termination Date other than the payment of accrued Base Salary, vacation and
bonuses granted but unpaid under Sections 4 and 5(a)(i) hereof through the
Termination Date, or except as otherwise provided by law.
(b) Termination by the Company for actions other than Cause. For actions
other than Cause, the Company may, at any time, and in its sole discretion,
terminate the employment of the Executive hereunder for any or no reason by
delivery to her of a Termination Notice. Such termination shall be effective on
the date of the Termination Notice; provided, however, that (i) the Company
shall pay to Executive any accrued vacation and bonuses granted and unpaid under
Sections 4 and 5(a)(i) hereof through the Termination Date, (ii) the Company
shall continue to pay the Executive the Executive's Base Salary in accordance
with the provisions of Section 4(a) hereof, for the greater of eighteen (18)
months or the remaining Employment Term (without regard to an extension not yet
exercised by the Company, the "Severance Payment Term") and (iii) all options
granted prior to the Termination Date under Section 5(iv) which would have
vested had the Executive remained employed by the Company through the end of the
Severance Payment Term
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shall immediately vest. The severance payments referred to above shall be in
lieu of, and shall otherwise replace, any other termination or severance
benefits otherwise provided by the Company. The Executive shall also be entitled
to exercise any applicable "put" provision under the Stockholders Agreement with
respect to shares of the Company Common Stock owned by the Executive set forth
in the Stockholders Agreement (the "Company Stockholders Agreement" or the
"Stockholders Agreement") in effect from time to time. If the employment of the
Executive hereunder is terminated pursuant to this Section 7(b), the Company
shall have no further obligations hereunder except as expressly provided herein,
or as otherwise provided by law. For so long as tbe Executive remains entitled
to receive payments of Base Salary under this Section 7(b), but not beyond the
date on which Executive becomes eligible for employee benefits in connection
with other employment, the Executive shall remain entitled to those benefits
described in Section 5{a)(ii).
(c) Failure to Extend and Continued Employment after Term of Agreement. If
the Company shall not exercise its right to extend the Employment Term, and the
Executive is terminated for reasons other than Cause, the eighteen (18) month
period referred to in Section 7(b)(ii) shall be twelve (12) months instead, and
the Executive's right with respect to any bonus shall be a right to a pro rata
share of any bonus which would have been earned for the fiscal year during which
termination of the Executive's employment hereunder occurs (based on such
portion of the fiscal year for which the Executive remained in the employ of the
Company), but such non-extension shall not be deemed a termination hereof for
purposes of providing termination benefits to the Executive under this
Agreement. If the Executive's Employment Term is not extended, or the Employment
Term is extended and expires, and in either case the Company continues to employ
the Executive thereafter, except as otherwise provided in any written agreement
between the Executive and the Company (executed hereafter) (i) the termination
provisions of this Section 7 shall continue to apply, and (ii) Section 13 shall
continue to apply with respect to any Change of Control occurring after
expiration of the Employment Term.
(d) Disability.
(i) Temporary Disability. In the event that at any time during the
Employment Term, the Executive, due to physical or mental injury, illness,
disability or incapacity; shall fail to render satisfactorily the services
to be performed by the Executive under this Agreement either for a
consecutive period of three (3) months or for a non-consecutive period of
six (6) months within any twelve month period, the Board of Directors of
the Company may, at its option, determine that such disability is long term
or place the Executive on temporary disability leave during the subsequent
pendency of such injury, illness, disability or incapacity for a period of
up to three (3) months or until subparagraph (c)(ii) becomes applicable if
Executive is disabled for more than three months, during which period the
Company shall continue to pay (to the extent not paid pursuant to
disability insurance provided by the Company) to the Executive the Base
Salary as provided in Section 4(a) and the Company-Sponsored Benefits, but
only to the extent permitted by such policies or plans.
(ii) Long-Term Disability. If such injury, illness, disability or
incapacity persists and is long-term (any such disability shall be deemed
to be long-term in nature if the Executive's physician advises the Board of
Directors of the Company that such disability can be expected to last
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for a period of at least six consecutive months or for a period of 6 months
in any 12 month period), Executive meets the definition of disability under
the Company's disability policies and the Executive cannot fulfill her
duties as determined in good faith by the Board of Directors, the Company
shall have the option at any time after the Executive is on disability
leave to terminate the employment of the Executive hereunder upon not less
than thirty (30) days' written notice to the Executive. In addition to the
Company's rights set forth in the preceding sentence, if at any time the
Company receives the written opinion of two doctors (one doctor to be
selected by each of the Company and the Executive, and if such doctors
disagree as to whether the Executive is suffering from a long-term
disability, a third doctor will be selected mutually by the Executive and
the Company, whose determination will be final) that the Executive cannot
render satisfactorily the services to be performed by her under this
Agreement because of a long-term disability, the Board of Directors of the
Company may terminate the Executive's employment hereunder within thirty
(30) days of receipt of such doctors' reports. The Company can require
Executive to have the physical examinations described in the preceding
sentence at any time for the purpose of determining whether or not
Executive has a long-term disability, and Executive agrees to submit to
such examinations upon request of the Company. If the employment of the
Executive hereunder is terminated pursuant to this Section 7(d) because of
a long-term disability, the Executive shall receive the following from the
Company for a period commencing on the date of termination and ending on
the date specified by the Company's long-term disability policy or on the
Executive's sixty-fifth (65th) birthday, whichever is later, or if earlier,
death: (i) benefits under the Company's long-term disability policy and
medical benefits, (ii) for the first 12 months following disability, her
Base Salary, less amounts received under subparagraph (i) above, and
thereafter $l0,000 per month (less amounts received under subparagraph(i)
above), (iii) at no greater out-of-pocket cost to the Executive than
incurred prior to termination,the Company-Sponsored Benefits, but only to
the extent permitted by such policies or plans, and (iv) payment of any
accrued vacation and bonuses granted and unpaid, under Sections 4 and
5(a)(i) hereof, through the date of termination. The Executive shall also
be entitled to exercise any applicable "put" provision contained in the
Stockholders Agreement with respect to shares of the Company Common Stock
owned Executive, subject to the limitations set forth in the Stockholders
Agreement. If the employment of the Executive hereunder is terminated
pursuant to this Section 7(d), the Company shall have no further
obligations hereunder except as expressly provided under this Section 7(d),
or as otherwise provided by law.
(e) Death. If the Executive dies during the Employment Term, the employment
of the Executive hereunder shall terminate immediately upon the death of the
Executive. If the employment of the Executive hereunder is ternminated pursuant
to this Section 7(e), the Company shall have no further obligations hereunder
after the date of termination other than the payment to the Executive's estate,
legal representatives, heirs, successors, assigns or other beneficiaries of
accrued Base Salary and vacation and bonuses granted but unpaid (as in effect
during the year of such death) up to the date of the Executive's death. The
Executive's estate, legal representatives, heirs, successors, assigns or other
beneficiaries shall be entitled to the benefit of the exercise of any applicable
"put" provision under the Stockholders Agreement with respect to the Company's
Common Stock owned by the Executive at her death subject to the limitations set
forth in the Stockholders Agreement. If the employment of the Executive
hereunder is terminated pursuant to
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this Section 7(e), the Company shall have no further obligations hereunder
except as expressly provided under this Section 7(e), or as otherwise provided
by law.
(f) Executive's Termination for Company's Default. If the Company fails to
perform, in any material manner, its obligations to the Executive under this
Agreement (which failure is not corrected within ten (10) days after written
notice thereof by the Executive to the Company), or if the Company knowingly
fails to pay to the Executive any amount payable to her under this Agreement
within seven (7) days after such amount is due, the Executive may terminate this
Agreement and thereupon shall be entitled to the same payments and benefits as
if her employment had been terminated by the Company for actions other than
Cause.
(g) Notice of Termination. Any termination of the Executive's employment by
the Company pursuant to Section 7(a), (b), (d) or (e) or by the Executive
pursuant to Section 7(f) or Section 13, shall be communicated by a written
Termination Notice to the other in accordance with Section 14 hereof. For
purposes of this Agreement, a "Termination Notice" shall mean only a notice
which is based upon, and shall indicate, the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
(h) Voluntary Termination. If the Executive voluntarily terminates her
employment hereunder, the Company shall have no further obligations to the
Executive hereunder after the date of voluntary termination other than the
payment of accrued Base Salary and vacation, and bonus granted and unpaid, under
Sections 4 and 5(a)(i) hereof through the date of voluntary termination or
except as otherwise provided by the Stockholders Agreement or by law.
8. Disclosure of Information. The Executive shall not,during or after the
Employment Term, disclose any confidential or proprietary information of the
Company, or its affiliates, to any person, firm, corporation, association,
limited liability company, or other entity (other than the Company, its
affiliates or subsidiaries or officers thereof or other than as necessary in the
performance of her duties as Executive) for any reason or purpose whatsoever,
nor shall the Executive make use of any such confidential or proprietary
information for her own purpose or for the benefit of any person, firm, limited
liability company, corporation or other entity, exept the Company. As used in
this Section 8, the term "confidential or proprietary information" means all
information which is known to the Company, or its affiliates, or the Executive
or to employees, former employees, consultants or others in a confidential
relationship with the Company, or its affiliates, is specific to the Company, or
its affiliates, or is developed by the Company, or its affiliates, regarding the
industry and relates to matters such as trade secrets, research and development
activities, computer or multimedia-related software or software concepts in
development, books and records, customer lists, vendor lists, suppliers,
distribution channels, pricing information and private processes as they may
exist from time to time which the Executive acquired or obtained by virtue of
work heretofore performed for the Company, or its affiliates; provided, that the
term "confidential or proprietary information" shall not include (i) information
that is or becomes generally available to the public (other than as a result of
an unauthorized disclosure by the Executive), (ii) information which must be
disclosed by law but only to te extent necessary to comply with such law, and
(iii) information which must be disclosed in order for her to
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carry out her duties under this Agreement but only to the extent necessary to
carry out said duties, and (iv) information which is disclosed to the Executive
by a person (but not an employee of the Company) not under a duty
of confidentiality to the Company.
9. Non-Competition. The Executive agrees that so long as she shall be
employed by the Company or any of its subsidiaries or affiliates and for a
period of one (1) year thereafter, without the prior written consent of the
Company, the Executive shall not directly or indirectly compete the Company or
any of its subsidiaries or affiliates, either as principal, manager, agent,
consultant, officer, director, partner, greater than one-half of one percent
(.5%) investor or holder of any class or series of equity securities, lender,
employee or in any other capacity with respect to:
(a) any products, contracts, projects in effect, or recompetitions of
contracts or projects in effect at the time of the Executive's termination for
which Executive had a direct or indirect management responsibility or had
knowledge thereof; or
(b) any proposals made or expected to be made within six (6) months after
termination, in each case for which the Executive had a direct or indirect
management responsibility or had detailed knowledge thereof.
For purposes of this Section 9, a person shall be deemed to have indirect
management responsibility with respect to a contract or project if such project
or contract was the primary responsibility of the division of the Company or a
subsidiary or affiliate by which she was employed. A President or Chief
Executive Officer or Chief Financial Officer shall be deemed to have indirect
responsibility with respect to all projects and contracts. The Executive shall
not be deemed to be in violation of this Section 9 by reason of employment by,
or any other affiliation with, a corporation or other business entity which
competes with the Company or any of its subsidiaries or affiliates so long as
the Executive does not have any active role relative to such competition as is
described in subparts (a) and (b) of this Section 9.
10. Non-Solicitation. The Executive agrees that during the Employment Term
and for two (2) years thereafter, without the prior written consent of the
Company, the Executive shall not directly or indirectly: (i) solicit, employ or
otherwise engage, or assist in the solicitation, employment or engagement as an
employee, independent consultant or otherwise, any person who is an employee of
the Company or any subsidiary or affiliate of the Company or was an employee of
the Company or any subsidiary or affiliate of the Company during the 18 months
prior to the Executive's employment with the Company terminating, or in any
manner induce or attempt to induce any employee of the Company or any subsidiary
or affiliate of the Company to terminate his or her employment with the Company
or its subsidiary or affiliate; or (ii) interfere with the relationship of the
Company or any affiliate of the Company with any person, including any person,
who at any time during Executive's employment with the Company or any subsidiary
or affiliate of the Company was an employee, a customer, a vendor, a supplier or
a consultant of, or to, the Company or any subsidiary or affiliate of the
Company.
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11. Location and Relocation. At the Commencement Date, Executive shall be
based at the Company's office in Vienna, Virginia. The Company may change the
location to which Executive is assigned, after August, 2000, to the Company's
headquarters in Burlington, Massachusetts (or a location within 50 miles
thereof). Except for the relocation discussed in the preceding sentence, the
Company shall not require the Executive to relocate to a site more than 50 miles
away from the site where the Executive is then located.
12. Conflicting Agreements. The Executive hereby represents and warrants to
the Company that (a) neither the execution of this Agreement by the Executive
nor the performance by the Executive of any of her obligations or duties
hereunder will conflict with or violate or constitute a breach of the terms of
any employment or other agreement to which the Executive is a party or by which
the Executive is bound, and (b) the Executive is not required to obtain the
consent of any person, firm, corporation, limited liability company or other
entity in order to enter into this Agreement or to perform any of her
obligations or duties hereunder.
13. Change of Control.
(a) A "Change of Control" shall be deemed to have occurred if:
(x) any "person" (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"),
and as used in Sections 13(d) and 14(d) thereof), but excluding the
Company, any of its "Affiliates" (as defined in Rule 144(a)(l) promulgated
under the Securities Act of 1933, as amended from time to time), any
employee benefit plan sponsored or maintained by the Company or any of its
Affiliates and the current shareholders of the Company, but including a
"group" (as defined in Section 13(d)(3) of the Exchange Act), is or
becomes the "beneficial owner" (as defined in Rule 13(d)(3) of Exchange
Act), directly or indirectly, of securities of the Company representing the
greater of fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities;
(y) the Company shall complete a transaction which is the merger or
other business combination of the Company with or into another corporation,
other than a transaction involving only the Company and one or more of its
Affiliates, if (A) a majority of the directors of the surviving corporation
were not directors of the Company immediately prior to the effective date
of such merger and (B) the stockholders of the Company immediately prior to
the effective date of such merger own less than 50% of the combined voting
power in the then outstanding securities in such surviving corporation, or
the Company shall complete a transaction which is the sale or other
disposition of all or substantially all of the assets of the Company; or
(z) the members of the Board of Directors of the Company (the "Board")
at the beginning of any consecutive twelve (12) calendar month period (the
"Incumbent Directors") cease for any reason other than due to death to
constitute at least a majority of the members of the board, provided that
any director whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the members
of the Board then still in office who were members of the Board at the
beginning of such twelve (12) calendar month period, shall be deemed an
Incumbent Director.
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<PAGE>
(b) Notwithstanding the foregoing, (i) no Change of Control shall be deemed
to have occurred for purposes of this Agreement by reason of any actions or
events in which Executive participates in a capacity other than in her capacity
as an Executive (or as a director of the Company or an Affiliate, where
applicable), and (ii) the sale of securities in a public offering registered
with the Securities and Exchange Commission shall not constitute a Change of
Control.
(c) In the event of a Change of Control during the Employment Term, any
stock options described in Section 5(a)(iv) or Company contributions to the
Executive's 401(k) plan account which have not yet vested shall vest upon such
Change of Control and the Employment Term shall be deemed to have recommenced
such that the date of such Change of Control shall be deemed to be a new
Commencement Date hereunder, solely for the purposes of measuring the Employment
Term and not for purposes of granting additional options or any other purpose.
If such new Commencement Date results in the aggregate period of the Executive's
employment under this Agreement exceeding six (6) years, then her Base Salary
for the seventh (7th) year shall be not less than 105% of the higher of the Base
Salary recited hereunder for the sixth (6th) year ($300,000) or the actual Base
Salary for the sixth (6th) year; and for each year thereafter such Base Salary
shall increase by not less than five percent (5%).
(d) Upon a Change of Control, the Executive shall be entitled to terminate
her employment for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean any of the following undertaken without the Executive's express
written consent and not corrected by the Company within ten (10) business days
after receipt of written notice from the Executive:
(i) the assignment to the Executive of any material duties which are
(A) inconsistent with her status as a senior executive officer of the
Company or (B) a substantial adverse alteration in the nature or status of
her responsibilities from those in effect immediately prior to the
assignment, or termination of the Executive's designation as Executive Vice
President and Chief Financial Officer of the Company;
(ii) a reduction by the Company in her annual base salary as in effect
at the time or the failure to grant her salary increases and bonuses
consistent with the Company's general practices for senior executives,
except for non-performance of her duties as duly documented and
substantiated.
(iii) the knowing failure of the Company to pay to Executive any
portion of her current compensation or to pay any portion of an installment
of deferred compensation under any deferred compensation program of the
Company, within seven (7) days of the day any such compensation is due;
(iv) the relocation of the Executive's principal office to a location
outside a 50 mile radius from its location at the time of the Change of
Control;
(v) (A) the failure by the Company, other than because of a change in
enabling legislation prohibiting the Executive from participating in such a
plan, and other than because the
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Executive fails to meet plan eligibility requirements, to continue her as a
participant in all compensation, benefit and insurance plans maintained
from time to time by the Company for its senior executives; (B) except as
may be consistent with the treatment of other senior executives of the
Company, the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive her of any
material fringe benefit enjoyed by her at the time; or (C) the failure by
the Company to provide her with the number of paid vacation days to which
she is entitled at the time; or
(vi) the failure of the Company to perform, in any material manner,
its obligations to the Executive under this Agreement.
(e) The Executive, upon proper termination of her employment hereunder for
Good Reason, shall be entitled to the termination benefits described in Section
7(b), except that Base Salary payable thereunder shall be the highest amount
theretofore paid to the Executive for any year as Base Salary and bonus.
(f) After a Change of Control, if the Executive has previously been
relocated by the Company to the Burlington, Massachusetts area, and if the
Executive's employment is terminated without Cause, or if the Executive
terminates her employment for Good Reason, the Company shall pay the reasonable
moving costs for the Executive relocating to the New York City or Washington,
D.C. vicinity. Any such relocation shall commence no later than the end of the
Severance Payment Term.
14. Notices. Any notice, request, information or other document to be given
under this Agreement to any party by any other party shall be in writing and
delivered personally, sent by registered or certified mail, postage prepaid,
delivered by a nationally recognized overnight courier service or transmitted by
facsimile machine addressed as follows:
If to the Company:
AverStar, Inc.
23 Fourth Avenue
Burlington,MA 01803-3303
Attn: Chief Executive Officer
Facsimile No.: 781-221-6991
with a copy to:
Posternak, Blankstein & Lund, L.L.P.
100 Charles River Plaza
Boston, MA 02114
Attn: Richard K. Blankstein, P.C.
Facsimile No.: 617-367-2315
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<PAGE>
If to the Executive:
Barbara Landes
9200 Falls Bridge Lane
Potomac, MD 20854
or at her then current address included in
the employment records of the Company
with a copy to:
Daniel A. Pollack, Esq.
Pollack & Kaminsky
114 West 47th Street, l9th Floor
New York, NY 10036
or to such other address as a party hereto may hereafter designate in writing to
the other party, provided that any notice of a change of address shall become
effective only upon receipt thereof.
15. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the Company and the Executive and their respective
heirs, legal representatives, successors and permitted assigns.
16. Entire Agreement. This Agreement and the Stockholders Agreement contain
the entire understanding between the Company and the Executive with respect to
the employment of the Executive and supersedes all prior negotiations and
understandings between the Company and the Executive with respect to the
employment of the Executive by the Company. This Agreement may not be amended or
modified except by a written instrument signed by the Company and the Executive.
17. Severability. In the event any one or more provisions of this Agreement
is held to be invalid or unenforceable, such illegality or unenforceability
shall not affect the validity or enforceability of the other provisions
hereof and such other provisions shall remain in full force and effect,
unaffected by such invalidity or unenforceability.
18. Applicable Law; Submission to Arbitration.
(a) This Agreement and the rights, obligations and relations of the parties
hereto shall be governed by and construed and enforced in accordance with the
laws of the Commonwealth of Massachusetts without giving effect to the
principles of conflicts of law thereof. If there is a conflict between the laws
of Massachusetts and any other state with respect to this Agreement, the
provisions of Massachusetts law shall govern, except that with respect to
corporate matters concerning the Company, Delaware law shall govern.
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<PAGE>
(b) Except as recited in Section 21, any disputes hereunder which cannot be
resolved by negotiation between the parties hereto shall be submitted to, and
determined by, arbitration in accordance with the Arbitration Rules of the
American Arbitration Association, and the parties hereto agree to be bound by
the final award of the arbitration panel (which shall be comprised of three
members, one to be selected by each of the Company and the Executive, and the
third to be mutually selected by the Company and the Executive) in any such
proceeding. The arbitration panel shall apply the law of the Commonwealth of
Massachusetts. Arbitration may be held in Boston, Massachusetts, New York City
or such other place as the parties hereto may mutually agree. Judgment upon the
award by the arbitration panel may be entered and enforced in any court having
jurisdiction thereof, and any injunctive order of the arbitration panel may be
enforced immediately by a court of competent jurisdiction. The arbitration panel
may order interim, preliminary and/or final injunctive relief against any party.
19. Headines. The headings of sections and subsections of this Agreement
--------
are for convenience of reference only and are not to be considered in construing
this Agreement.
20. Execution in Counterparts. This Agreement may be executed in any number
--------------------------
of counterparts, each of which shall be deemed to be an original, but all of
which, when taken together, shall constitute one and the same instrument.
21. Indemnification.
---------------
(a) The Company shall indemnify the Executive, if the Executive is a party
or is threatened to be made party to any threatened, pending or
completed-action, suit or proceeding whether civil, criminal, administrative or
investigative, or by or in the right of the Company to procure a judgment in
its favor, by reason of the fact that the Executive is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee, manager or agent of another
corporation, partnership, limited liability company, joint venture, trust, or
other enterprise, against expenses (including attorneys' reasonable fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the Executive in connection with such action, suit or proceeding if Executive
acted in good faith and in a manner the Executive reasonably believed to be in
or not opposed to the best interests of the Company and/or the Company, as
applicable. The determination of whether the Executive is entitled to
indemnification hereunder shall be made by arbitration in accordance with
Section 18, except as any applicable statute or Company By-Laws or incorporation
document may require such determination be made by a court of competent
jurisdiction in a final non-appealable judgment (in which case such
determination shall be made in the latter manner). The Company shall be entitled
to direct the defense of any claim for which it is providing indemnification.
(b) Expenses incurred in defending any threatened or pending civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding, to the extent permitted by law, upon receipt of an undertaking by or
on behalf of the Executive to repay such amount if it is ultimately determined,
in an arbitration that it is in accordance with Section 18 or, if so required by
applicable law or Company By-Laws or incorporation document, by a final non-
appealable judgment, that Executive
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is not entitled to be indemnified against such expenses. This undertaking by
Executive shall be an unqualified general undertaking, but no security for such
undertaking will required.
(c) The Executive's right hereunder will be in addition to any
indemnification provided to the Executive by any law, agreement, Board
resolution, provision of the Articles of Incorporation (or Certificate of
Incorporation) or By-Laws of the Company, or otherwise. All of the Executive's
rights hereunder will continue even after the Executive has ceased to be a
director, officer, employee or agent of the Company for any reason, will inure
to the benefit of the heirs, executors and administrators of the Executive, and
will survive termination of this Agreement.
22. Legal Fees. In the event of any disputes between the Company, on the
one hand, and the Executive, on the other hand, arising under this Agreement and
resolved by arbitration pursuant to Section 18 hereof, the prevailing party
shall be entitled to receive from the other party its reasonable attorney's fees
and expenses incurred in connection with such dispute.
23. No Duty to Mitigate Damages. The Executive's benefits under Section
7(b) shall be considered severance pay in consideration of her service from the
date of this Agreement, and her entitlement thereto shall neither be governed by
any duty to mitigate her damages by seeking further employment nor offset by any
compensation which she may receive from future employment.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year above written.
AVERSTAR, INC.
By: /s/ Michael B. Alexander
------------------------
Name: Michael B. Alexander
Title: Chief Executive Officer
/s/ Barbara L. Landes
---------------------
BARBARA LANDES
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Exhibit 10.22
<PAGE>
TERMINATION BENEFIT AGREEMENT
THIS AGREEMENT, dated as of February 27, 1998, is among Pacer Infotec,
Inc., a Massachusetts corporation ("Pacer'), IP Holding Co., a Delaware
corporation (the "Company"), and Rudolph R. Koczera (the "Executive").
WHEREAS, the Executive is a key executive of the Company, currently serving
as Senior Vice President and Chief Financial Officer, and an integral part of
its management. As one of the executives that report directly to a senior
executive of the Company, the Executive is a member of a limited class of
employees who are essential to the Company's success and whose departure or
distraction would be a detriment to the Company and its shareholders.
WHEREAS, Pacer is a party to a certain Merger Agreement (the "Merger
Agreement") with Apollo Holding, Inc.
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to provide the Executive
with an employment termination benefit in keeping with like benefits provided by
other, similar businesses, and to assure that the Company will have the
continued dedication of the Executive.
In consideration of the Executive's continued employment with the Company,
and other good and valuable consideration, the parties hereby agree as follows:
1. Definitions. The following terms as used in this Agreement shall have
the following meanings:
"Cause" shall have the meaning set forth in Section 3.03.
"Commencement Date" shall mean the Closing Date as defined in the Merger
Agreement.
"Common Stock" shall mean the then outstanding common stock of the Company
plus, for purposes of determining the stock ownership of any Person, the number
of unissued shares of Common Stock which such Person has the right to acquire
(whether such right is exercisable immediately or after a defined passage of
time) upon the exercise of conversion rights, exchange rights, warrants or
options or otherwise.
"Good Reason" shall have the meaning set forth in Section 3.04.
"Person" shall have the meaning used in Section 13(d) of the Exchange Act,
as in effect on the date hereof.
"Total Salary" shall mean, with respect to any fiscal year, the Executive's
annual base salary for that fiscal year as provided in Section 3.01(b) hereof.
2. Bonus and Benefit.
2.01 Special Bonus - Loan. The Executive will be paid a bonus, within ten
(10) days of the Commencement Date, of an amount sufficient, after deduction of
all normal payroll deductions, to pay to the Executive $6,500. Said bonus may be
paid by cancellation of $6,500 owed by the
<PAGE>
Executive to the Company on a promissory note, or the Executive will immediately
endorse the net bonus check to the Company to be applied against the unpaid
balance of such note.
2.02 Special Executive Supplemental Income Plan. Nothing herein shall be
deemed to affect the Executive's rights under the Pacer existing Special
Executive Supplemental Income Plan.
2.03 Bonus. Executive will be paid a bonus of $35,000.00 by April 1, 1998,
which bonus is in recognition of his performance in Pacer in 1997. Any
subsequent bonuses may be paid from time to time in the sole discretion of the
Company's Board of Directors.
2.04 Executive Insurance. The Company will continue in force the
Executive's special Executive Insurance policy, in accordance with the Pacer
policy, and extend the same options for personal assumption of the policy by the
Executive after termination or retirement.
2.05 Stock Options. Executive shall be eligible to participate in any stock
option plans made available to Company executives, subject to the discretion of
the Company's Board of Directors in granting any options thereunder and to the
terms of any such option plan.
2.06 Car. The Company shall provide Executive a car in accordance with the
Company's policies with respect to cars.
3. Benefits Upon Termination of Employment.
3.01 Severance Benefits.
(a) Upon the termination of the Executive's employment either (i) by
the Company without Cause (except termination pursuant to a mandatory
retirement policy applied by the Company to substantially all of its senior
executives), or (ii) by the Executive for Good Reason, the Company shall
within thirty (30) days following the date on which the Executive's
employment is terminated, pay to the Executive in a lump sum an amount
equal to one hundred fifty percent (150%) of the Executive's Total Salary
for the then current fiscal year, plus accrued vacation and a pro rata
payment of any bonus granted and unpaid, reduced by any amount required to
be withheld pursuant to Section 6 hereof. The Executive may elect, by
notice to the Company within such thirty (30) days, to be paid not in a
lump sum but in the same periodic manner as base salary has been paid, and
in the same periodic amount, until the aggregate of such payments is equal
to the lump sum to which the Executive would otherwise be entitled. If the
Executive elects to receive such periodic payments, the Company shall
continue the Executive's participation right in the Company's life,
long-term disability, dental and health insurance plans while such periodic
payments are being made (but not beyond the date the Executive acquires
new, full-time employment).
(b) For purposes of the Agreement, Executive's Total Salary shall be
$165,000 for calendar year 1998, $180,000 for calendar years 1999 and 2000,
or such greater amounts as may be approved from time to time by the Board
of Directors of the Company in its sole discretion.
3.02 Death or Disability. Anything herein to the contrary notwithstanding,
the Company shall not be obligated to pay to the Executive the severance
benefits provided for under Section 3.01 hereof if the Executive's employment is
terminated by his death or disability, other than the benefits provided under
Section 3.01(a).
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3.03 Cause. For purposes of this Agreement, "Cause" shall mean if the
Executive (i) fails or refuses to act in any material respect in accordance with
the reasonable directions of the Board of Directors or Chief Executive Officer
of the Company in a manner that would constitute an act of insubordination or is
in continuing, willful, material breach of this Agreement; provided, however,
that in such case the Company shall give Executive a Termination Notice
specifying the directions the Executive failed to follow or the material breach
of this Agreement, and the Executive shall have a reasonable period of time
after the date of the notice to cure such action; (ii) has been convicted of a
felony; or (iii) has committed any act of fraud, misappropriation of funds or
embezzlement in connection with his employment. During the cure period referred
to in subsection (i), the Board of Directors of the Company may cause the
Company to suspend the employment of the Executive hereunder if the Executive's
continued presence at the Company is deemed to have a potential negative effect
on the Company as determined in good faith by the Board of Directors of the
Company in its sole determination. If the Executive has not cured such action
within the specified cure period, the employment of the Executive shall be
terminated by the Company for Cause.
If the Executive has not cured such action within any applicable cure
period, the employment of the Executive shall be terminated by the Company for
Cause.
3.04 Good Reason. For purposes of this Agreement, "Good Reason" shall mean
any of the following undertaken without Executive's express written consent and
not corrected by the Company within ten (10) business days after receipt of
written notice from the Executive:
(i) the assignment to the Executive of any material duties which are (A)
inconsistent with his status as a senior executive officer of the Company
and Pacer or (B) a substantial adverse alteration in the nature or status
of his responsibilities from those in effect immediately prior to the
assignment, provided that a change in Executive's title alone shall not
constitute Good Reason hereunder;
(ii) a reduction by the Company in his annual base salary as in effect at
the time, or the failure to grant him salary increases and bonuses
consistent with the Company's general practices for senior executives,
except for (A) non-performance of his duties as duly documented and
substantiated or (B) general reduction in salary to senior executives.
(iii) the knowing failure of the Company to pay to Executive any portion of
his current compensation or to pay any portion of an installment of
deferred compensation under any deferred compensation program of the
Company, within seven (7) days of the day any such compensation is due;
(iv) the relocation of Executive's principal office, after the Commencement
Date, to a location outside a 35 mile radius from its location on the
Commencement Date, or the Company's requiring him to be based anywhere
outside such 35 mile radius except for required travel on the Company's
business to an extent substantially consistent with his present business
travel patterns;
(v) (A) the failure by the Company, other than because of a change in
enabling legislation prohibiting the Executive from participating in such a
plan, to continue him as a participant in all compensation, benefit and
insurance plans maintained from time to time by the Company for its senior
executives; (B) except as may be
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consistent with the treatment of other senior executives of the Company,
the taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive him of any material
fringe benefit enjoyed by him at the time; or (C) the failure by the
Company to provide him with the number of paid vacation days to which he is
entitled at the time; or
(vi) the failure of the Company to perform, in any material manner, its
obligations to the Executive under this Agreement.
3.05 Subsidiary Exception. Anything to the contrary notwithstanding, in no
event shall a change in the Executive's title and/or position be considered a
basis for termination for Good Reason for purposes of this Agreement if the
change is made in connection with, and as a result of, the transfer of one or
more lines of business into (or to the Company, out of) one or more subsidiaries
or affiliates of the Company and the Executive's duties after the change are not
substantially different from those that he performed prior to such change.
3.06. Outplacement Assistance. Except when Executive is terminated for
Cause, the Company will provide outplacement assistance, if requested by the
Executive, using an outplacement firm of the Company's choosing, for nine months
or until the outplacement firm's fees total $10,000, whichever occurs first. The
nine-month period shall begin on the date the Executive requests outplacement
assistance, but in any event not later than 30 days after the termination date.
3.07 Personal Computer. Except when Executive is terminated for Cause, the
Executive will retain his for his own use the Personal Computer assigned to him
prior to termination, and this computer will be granted to him as a severance
benefit.
3.08 Voluntary Termination. If the Executive voluntarily terminates his
employment with the Company, the Executive and the Company shall, in good faith,
negotiate a termination package that recognizes the Executive's longevity,
dedication and performance with Pacer and the Company. The Company will
designate John C. Rennie, or in his absence or incapacity Sigmund H. Goldblum,
as the Company representative to conduct these negotiations.
4. No Duty to Mitigate Damages. The Executive's benefits under Sections 2
and 3 shall be considered severance pay in consideration of his past service and
his continued service from the date of this Agreement, and his entitlement
thereto shall neither be governed by any duty to mitigate his damages by seeking
further employment nor offset by any compensation which he may receive from
future employment.
5. Other Severance Payments. The Executive's benefits under Sections 2 and
3 shall be in lieu of, and not in addition to, any other severance payments
payable to the Executive upon the termination of his employment with the Company
pursuant to any Company policies set forth now or at the time of the Executive's
termination in the Company's Personnel Manual or other policy materials.
6. Withholding. Anything to the contrary notwithstanding, all payments
required to be made hereunder to the Executive by the Company shall be subject
to the withholding of such amounts, if any, at the time of payment thereof,
relating to tax and other payroll deductions as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation.
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7. Term of Agreement. The term of this Agreement shall commence on the date
hereof and continue until the close of business on the last business day of the
36th calendar month following the effective date of the Company's merger
pursuant to the Merger Agreement; provided, however, that the Executive's
obligations under Sections 11.01, 11.02, 11.03 and 11.04 shall continue
indefinitely, or for the lesser period recited in any such Sections.
8. Continued Employment. This Agreement shall not give the Executive any
right of continued employment or any right to compensation or benefits from the
Company or any subsidiary except the right specifically stated herein to certain
severance and other benefits, and shall not limit the Company's right to change
the terms of or to terminate the Executive's employment, with or without Cause,
at any time, except as may be otherwise provided in a written employment
agreement, if any, between the Company and the Executive.
9. Notices. All notices shall be in writing and shall be deemed given five
days after mailing in the continental United States by registered or certified
mail, or upon personal receipt after delivery, telex, telecopy or telegram, to
the party entitled thereto at the address stated below or to such changed
address as the addressee may have given by a similar notice:
To the Company: Pacer Infotec, Inc.
do IP Holding Co.
23 Fourth Avenue
Burlington,MA 01803
Attn.: President
To the Executive: At his home address,
as last shown on the
records of the Company
10. Severability. In the event that any provision of this Agreement shall
be determined to be invalid or unenforceable, such provision shall be
enforceable in any other jurisdiction in which valid and enforceable and in any
event the remaining provisions shall remain in full force and effect to the
fullest extent permitted by law.
11. Confidentiality, Non-Competition/Non-Solicitation.
11.01 Additional Information. The Executive will, upon reasonable notice
during or after this employment by the Company, furnish information as may be in
his possession and cooperate with the Company as may be requested in connection
with any claims or legal actions in which the Company is or may become a party.
11.02 Confidentiality. The Executive recognizes and acknowledges that all
information pertaining to the affairs, business, clients, customers or other
relationships of the Company and its affiliates is confidential and is a unique
and valuable asset of the Company. Access to and knowledge of this information
are essential to the performance of the Executive's duties. The Executive will
not during his employment by the Company or thereafter, except to the extent
reasonably necessary in performance of his duties as an employee of the Company,
give to any person, firm, association or corporation any information concerning
the affairs, business, clients, customers or other relationships of the Company
or its affiliates except as required by law. The Executive will not make use of
this type of information for his own purposes or for the benefit of any person
or organization other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by others. All records,
memoranda, documents and
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information, whether stored or maintained electronically or on paper, relating
to the business of the Company or its affiliates, whether made by the Executive
or otherwise coming into his possession, are confidential and will remain the
property of the Company.
11.03 Non-Competition
(a) In consideration of this Agreement and any termination benefits which
may be payable hereunder, the Executive agrees that so long as he shall be
employed by the Company and for a period of two (2) years thereafter (the
"Term"), without the prior written consent of the Company or its
affiliates, the Executive shall not directly or indirectly, compete with
the Company, either as principal, manager, agent, consultant, officer,
director, partner, greater than one-half of one percent (.5%) investor or
holder of any class or series of equity securities, lender or employee or
in any other capacity with respect to:
(i) any Products, contracts, projects in effect, or recompetitions of
contracts or projects in effect at the time of Executive's termination
for which Executive had a direct or indirect management responsibility
or had knowledge thereof;
(ii) any proposals made or expected to be made within six (6) months
after termination, in each case for which, the Executive had a direct
or indirect management responsibility or had detailed knowledge
thereof.
For purposes of this Section 11.03(a), a person shall be deemed to have
indirect management responsibility with respect to a contract or project if
such project or contract was the primary responsibility of the division of
the Company by which he was employed. A President or Chief Executive
Officer shall be deemed to have indirect responsibility with respect to all
projects and contracts.
(b) The term "Products" means products sold under standard purchase orders
or license agreements by the Company or its affiliates.
11.04. Non-Solicitation. In consideration of this Agreement and any
termination benefits which may be payable hereunder, the Executive agrees that
during the Term, and for one (1) year thereafter, without the prior written
consent of the Company, the Executive shall not: (i) solicit, employ or
otherwise engage, or assist in the solicitation, employment or engagement as an
employee, independent consultant or otherwise, any person who is an employee of
the Company or any Company affiliate while the Executive continues to be
employed by the Company or was an employee of the Company or any Company
affiliate during the 18 months prior to Executive's termination, or in any
manner induce or attempt to induce any employee of the Company or Company
affiliate to terminate his or her employment with the Company or Company
affiliate; or (ii) tortiously interfere with the relationship of the Company or
Company affiliate with any person, including any person, who at any time during
Executive's employment with the Company or any Company affiliate was an
employee, a customer, a vendor, a supplier or a consultant of, or to, the
Company.
11.05 Remedy For Breach. Executive hereby acknowledges that in the event of
any breach or threatened breach by Executive of any of the provisions of this
Agreement, the Company would have no adequate remedy at law and could, suffer
substantial and irreparable damage. Accordingly, Executive hereby agrees that,
in such event, the Company shall be entitled, without the necessity of proving
damages or posting-bond and, in addition, notwithstanding any election by the
Company to claim damages, to obtain a temporary and/or permanent injunction to
restrain any
-6-
<PAGE>
such beach or threatened breach or to obtain specific performance of any such
provisions, all without prejudice to any and all other remedies which the
Company may have at law or in equity.
12. General Provisions.
12.01 Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties and be enforceable by the Executive's personal or
legal representatives or successors. If the Executive dies while any amounts
would still be payable to him hereunder, benefits would still be provided to his
family hereunder or rights would still be exercisable by him hereunder if he had
continued to live, such amounts shall be paid to the Executive's estate, such
benefits shall be provided to the Executive's family and such rights shall
remain exercisable by the Executive's estate in accordance with the terms of
this Agreement. This Agreement shall not otherwise be assignable by the
Executive.
12.02 Subsidiaries, Successors and Assigns. This Agreement shall inure to
and be binding upon the Company's subsidiaries, successors and assigns. The
Company will require any of its subsidiaries (whether now in existence or formed
in the future) to consent to the terms of this Agreement and agree to be bound
hereunder if the Executive's employment is transferred to such subsidiary. The
Company will require any successor or assign to all or substantially all of the
business and/or assets of the Company by sale, merger (where the Company is not
the surviving corporation), lease or otherwise to consent to the terms hereof
and agree to be bound hereunder. If the Company shall not obtain such consent
prior to the effective date of any such succession or assignment, the Executive
shall have all rights resulting from termination by the Executive for Good
Reason under this Agreement. This Agreement shall not otherwise be assignable by
the Company.
12.03 Amendment or Modification; Waiver. This Agreement may not be amended
unless agreed to in writing by the Executive and the Company. No waiver by
either party of any breach of this Agreement shall be deemed a waiver of a
subsequent breach.
12.04 Titles. No provision of this Agreement is to be construed by
reference to the title of any section.
12.05 Arbitration. Except as set forth in Section 11.05 above, any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, shall be settled exclusively by arbitration in Boston, Massachusetts in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
12.06 Governing Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
12.07 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
construed in such a way as to make such term or provision valid and enforceable
to the maximum extent possible, without affecting the remaining terms and
provisions of this Agreement or the validity or enforceability of any of the
terms and provisions of this Agreement in any other jurisdiction.
-7-
<PAGE>
12.08. Legal Fees. In the event of any disputes between Pacer or the
Company, on the one hand, and the Executive, on the other hand, arising under
this Agreement and resolved by arbitration pursuant to Section 12.05 hereof, the
prevailing party shall be entitled to receive from the other party its
reasonable attorneys' fees and expenses incurred in connection with such
dispute.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PACER INFOTEC, INC.
By: /s/ Sigmund H. Goldblum
----------------------------
President
IP HOLDING CO.
By: /s/ Michael B. Alexander
----------------------------
President
/s/ Rudolph R. Koczera
-------------------------------
Rudolph R. Koczera
<PAGE>
EXHIBIT 21
AverStar, Inc. has the following four subsidiaries:
1. Computer Based Systems, Inc.;
2. Computer Applications Systems Technology, Inc.;
3. Intermetrics International, Inc.; and
4. Intermetrics Securities, Inc.
<PAGE>
EXHIBIT 23.2(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 30, 1999, relating to AverStar, Inc., in the
Registration Statement (Form S-1 No. 33-00000) and related Prospectus of
AverStar, Inc. for the registration of 000,000 shares of its common stock.
Ernst & Young LLP
Boston, Massachusetts
May 14, 1999
We have audited the consolidated financial statements of AverStar, Inc. as of
December 31, 1997 and 1998, and for the year ended February 28, 1997, the ten
month period ended December 31, 1997 and the year ended December 31, 1998, and
have issued our report thereon dated March 30, 1999 included elsewhere in this
Registration Statement. Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Boston, Massachusetts
March 30, 1999
<PAGE>
EXHIBIT 23.2(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated April 17, 1998, relating to Pacer Infotec, Inc. and
Subsidiaries, in the Registration Statement (Form S-1 No. 33-00000) and related
Prospectus of AverStar, Inc. for the registration of 000,000 shares of its
common stock.
Ernst & Young LLP
Boston, Massachusetts
May 14, 1999
<PAGE>
EXHIBIT 23.3
Consent of Independent Certified Public Accountants
We have issued our report dated April 18, 1997, accompanying the financial
statements of Computer Based Systems, Inc. contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
/s/ Grant Thorton LLP
Vienna, Virginia
May 14, 1999
<PAGE>
Exhibit 23.4
Consent of Aronson & Fetridge & Weigle,
_______________________________________
A Professional Corporation
__________________________
We consent to the inclusion of our report dated March 12, 1999 on our audits of
the financial statements of Computer Based Systems, Inc. as of and for each of
the two years ended December 31, 1998 and 1997 included in the Registration
Statement on Form S-1 (No. 333- ) of AverStar, Inc. We also consent to the
inclusion in the Registration Statement on Form S-1 (No. 333- ) of AverStar,
Inc. of the reference to Aronson, Fetridge & Weigle, a Professional Corporation,
as experts in accounting and auditing.
Aronson, Fetridge & Weigle
(a professional corporation)
/s/ Aronson, Fetridge & Weigle
Rockville, Maryland
May 14, 1999
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